NEW YORK, Dec. 20, 2018 /PRNewswire/ -- Newmark Group,
Inc. (NASDAQ: NMRK) ("Newmark", or the "Company"), which, through
subsidiaries, operates a leading full-service commercial real
estate services business, today updated its outlook with respect to
its financial results for the year ending December 31, 2018.
Updated Outlook
Newmark expects its results for the
full-year 2018 to be around the high-end of its previously stated
outlook for revenues, Adjusted Earnings per share, and Adjusted
EBITDA.
This outlook was contained in Newmark's financial results press
release issued on October 25, 2018,
which can be found at http://ir.ngkf.com. The Company's full year
outlook for 2018 compared with 2017 was as follows:
- Newmark expected to produce 2018 revenues of between
approximately $1,975 million and
$2,025 million, which would represent
an increase of between 24 percent and 27 percent compared with
$1,596.5 million in 2017.
- Newmark expected 2018 post-tax Adjusted Earnings per share
to be in the range of approximately $1.45 and $1.53, or
an increase of between 26 percent and 33 percent versus
$1.15 in 2017.
- The Company anticipated Adjusted EBITDA to be between
$518 million and $538 million, or an increase of 39 to 44 percent
compared with approximately $374
million in 2017.
- Newmark anticipated its 2018 tax rate for Adjusted Earnings
to be in the range of approximately 12 percent and 14 percent,
compared with 18 percent in 2017.
About Newmark Group, Inc.
Newmark Group, Inc.
("Newmark Group") is a publicly traded company that, through
subsidiaries, operates as a full-service commercial real estate
services business with a complete suite of services and products
for both owners and occupiers across the entire commercial real
estate industry. Under the Newmark Knight Frank name, the
investor/owner services and products of Newmark Group's
subsidiaries include capital markets (including investment sales),
agency leasing, property management, valuation and advisory,
diligence and underwriting. Newmark Group's subsidiaries also offer
government sponsored enterprise lending, loan servicing, debt and
structured finance, and loan sales. Newmark Group's occupier
services and products include tenant representation, global
corporate services, real estate management technology systems,
workplace and occupancy strategy, consulting, project management,
lease administration and facilities management. Newmark Group
enhances these services and products through innovative real estate
technology solutions and data analytics designed to enable its
clients to increase their efficiency and profits by optimizing
their real estate portfolio.
Newmark Group has relationships with many of the world's largest
commercial property owners, real estate developers and investors,
as well as Fortune 500 and Forbes Global 2000 companies. Newmark
Group's Class A common stock trades on the NASDAQ Global Select
Market under the ticker symbol "NMRK". Newmark is a
trademark/service mark and/or registered trademark/service mark of
Newmark Group and/or its affiliates. Knight Frank is a service mark
of Knight Frank (Nominees) Limited. Find out more about Newmark at
http://www.ngkf.com/, https://twitter.com/newmarkkf,
https://www.linkedin.com/company/newmark-knight-frank/, and/or
http://ir.ngkf.com/investors/investors-home/default.aspx.
Adjusted Earnings Defined
Newmark uses non-GAAP
financial measures including, but not limited to, "pre-tax Adjusted
Earnings" and "post-tax Adjusted Earnings," which are supplemental
measures of operating results that are used by management to
evaluate the financial performance of the Company and its
consolidated subsidiaries. Newmark believes that Adjusted Earnings
best reflect the operating earnings generated by the Company on a
consolidated basis and are the earnings which management considers
available for, among other things, dividends and/or distributions
to Newmark's common stockholders and holders of Newmark Holdings
partnership units during any period.
As compared with items such as "Income (loss) before income
taxes and noncontrolling interests" and "Net income (loss) for
fully diluted shares" all prepared in accordance with GAAP,
Adjusted Earnings calculations primarily exclude certain non-cash
compensation and other expenses that generally do not involve the
receipt or outlay of cash by the Company and/or which do not dilute
existing stockholders, as described below. In addition, Adjusted
Earnings calculations exclude certain gains and charges that
management believes do not best reflect the ordinary operating
results of Newmark.
Adjustments Made to Calculate Pre-Tax Adjusted
Earnings
Newmark defines pre-tax Adjusted Earnings as GAAP
income (loss) from operations before income taxes and
noncontrolling interest in subsidiaries, excluding certain items
such as:
- The impact of any unrealized non-cash mark-to-market gains or
losses on "other income (loss)" related to the variable share
forward agreements with respect to Newmark's expected receipt of
the Nasdaq payments in 2019, 2020, 2021, and 2022 (the "Nasdaq
Forwards");
- Non-cash asset impairment charges, if any;
- Allocations of net income to limited partnership units;
- Non-cash charges related to the amortization of intangibles
with respect to acquisitions; and
- Non-cash charges relating to grants of exchangeability to
limited partnership units.
Virtually all of the Company's key executives and producers have
partnership or equity stakes in the Company and receive deferred
equity or limited partnership units as part of their compensation.
A significant percentage of Newmark's fully diluted shares are
owned by the Company's executives, partners and employees. The
Company issues limited partnership units and grants exchangeability
to unit holders to provide liquidity to Newmark's employees, to
align the interests of the Company's employees and management with
those of common stockholders, to help motivate and retain key
employees, and to encourage a collaborative culture that drives
cross-selling and revenue growth.
When the Company issues limited partnership units, the shares of
common stock into which the units can be ultimately exchanged are
included in Newmark's fully diluted share count for Adjusted
Earnings at the beginning of the subsequent quarter after the date
of grant. Newmark includes such shares in the Company's fully
diluted share count when the unit is granted because the unit
holder is expected to be paid a pro-rata distribution based on
Newmark's calculation of Adjusted Earnings per fully diluted share
and because the holder could be granted the ability to exchange
their units into shares of common stock in the future. Non-cash
charges with respect to grants of exchangeability reflect the value
of the shares of common stock into which the unit is exchangeable
when the unit holder is granted exchangeability not previously
expensed in accordance with GAAP. The amount of non-cash charges
relating to grants of exchangeability the Company uses to calculate
pre-tax Adjusted Earnings on a quarterly basis is based upon the
Company's estimate of expected grants of exchangeability to limited
partnership units during the annual period, as described further
below under "Adjustments Made to Calculate Post-Tax Adjusted
Earnings".
Adjusted Earnings also excludes non-cash GAAP gains attributable
to originated mortgage servicing rights (which Newmark refer to as
"OMSRs") and non-cash GAAP amortization of mortgage servicing
rights (which the Company refers to as "MSRs"). Under GAAP, the
Company recognizes OMSRs gains equal to the fair value of servicing
rights retained on mortgage loans originated and sold. Subsequent
to the initial recognition at fair value, MSRs are carried at the
lower of amortized cost or fair value and amortized in proportion
to the net servicing revenue expected to be earned. However, it is
expected that any cash received with respect to these servicing
rights, net of associated expenses, will increase Adjusted Earnings
(and Adjusted EBITDA) in future periods.
Additionally, Adjusted Earnings calculations exclude certain
unusual, one-time or non-recurring items, if any. These items are
excluded from Adjusted Earnings because the Company views excluding
such items as a better reflection of the ongoing, ordinary
operations of Newmark. Newmark's definition of Adjusted Earnings
also excludes certain gains and charges with respect to
acquisitions, dispositions, or resolutions of litigation.
Management believes that excluding such gains and charges also best
reflects the ongoing operating performance of Newmark.
Adjustments Made to Calculate Post-Tax Adjusted
Earnings
Because Adjusted Earnings are calculated on a
pre-tax basis, Newmark also intends to report post-tax Adjusted
Earnings to fully diluted stockholders. Newmark defines post-tax
Adjusted Earnings to fully diluted stockholders as pre-tax Adjusted
Earnings reduced by the non-GAAP tax provision described below.
The Company calculates its tax provision for post-tax Adjusted
Earnings using an annual estimate similar to how it accounts for
its income tax provision under GAAP. To calculate the quarterly tax
provision under GAAP, Newmark estimates its full fiscal year GAAP
income (loss) from operations before income taxes and
noncontrolling interests in subsidiaries and the expected
inclusions and deductions for income tax purposes, including
expected grants of exchangeability to limited partnership units
during the annual period. The resulting annualized tax rate is
applied to Newmark's quarterly GAAP income (loss) from operations
before income taxes and noncontrolling interests in subsidiaries.
At the end of the annual period, the Company updates its estimate
to reflect the actual tax amounts owed for the period.
To determine the non-GAAP tax provision, Newmark first adjusts
pre-tax Adjusted Earnings by recognizing any, and only, amounts for
which a tax deduction applies under applicable law. The amounts
include non-cash charges with respect to grants of exchangeability,
certain charges related to employee loan forgiveness, certain net
operating loss carryforwards when taken for statutory purposes, and
certain charges related to tax goodwill amortization. These
adjustments may also reflect timing and measurement differences,
including treatment of employee loans, changes in the value of
units between the dates of grants of exchangeability and the date
of actual unit exchange, variations in the value of certain
deferred tax assets and liabilities and the different timing of
permitted deductions for tax under GAAP and statutory tax
requirements.
After application of these previously described adjustments, the
result is the Company's taxable income for Newmark's pre-tax
Adjusted Earnings, to which the Company then applies the statutory
tax rates. This amount is the Company's non-GAAP tax provision.
Newmark views the effective tax rate on pre-tax Adjusted Earnings
as equal to the amount of Newmark's non-GAAP tax provision divided
by the amount of pre-tax Adjusted Earnings.
Generally, the most significant factor affecting this non-GAAP
tax provision is the amount of non-cash charges relating to the
grants of exchangeability to limited partnership units. Because the
non-cash charges relating to the grants of exchangeability are
deductible in accordance with applicable tax laws, increases in
exchangeability have the effect of lowering the Company's non-GAAP
effective tax rate and thereby increasing Newmark's post-tax
Adjusted Earnings.
Management uses post-tax Adjusted Earnings in part to help it
evaluate, among other things, the overall performance of the
business, to make decisions with respect to the Company's
operations, and to determine the amount of dividends payable to
common stockholders and distributions payable to holders of limited
partnership units.
Newmark incurs income tax expenses based on the location, legal
structure and jurisdictional taxing authorities of each of its
subsidiaries. Certain of the Company's entities are taxed as U.S.
partnerships and are subject to the Unincorporated Business Tax
("UBT") in New York City. Any U.S.
federal and state income tax liability or benefit related to the
partnership income or loss, with the exception of UBT, rests with
the unit holders rather than with the partnership entity. The
Company's financial statements include U.S. federal, state and
local income taxes on the Company's allocable share of the U.S.
results of operations. Outside of the U.S., Newmark is expected to
operate principally through subsidiary corporations subject to
local income taxes. For these reasons, taxes for Adjusted Earnings
are expected to be presented to show the tax provision the Company
would expect to pay if 100 percent of earnings were taxed at global
corporate rates.
Calculations of Pre-Tax and Post-Tax Adjusted Earnings per
Share
Newmark's Adjusted Earnings per share calculations
assume either that:
- The fully diluted share count includes the shares related to
any dilutive instruments, but excludes the associated interest
expense, net of tax, when the impact would be dilutive; or
- The fully diluted share count excludes the shares related to
these instruments, but includes the associated interest expense,
net of tax.
The share count for Adjusted Earnings excludes certain shares
expected to be issued in future periods but not yet eligible to
receive dividends and/or distributions. Each quarter, the dividend
payable to Newmark's common stockholders, if any, is expected to be
determined by the Company's Board of Directors with reference to a
number of factors, including post-tax Adjusted Earnings per fully
diluted share. Newmark may also pay a pro-rata distribution of net
income to limited partnership units, as well as to Cantor for its
noncontrolling interest. The amount of this net income, and
therefore of these payments per unit, would be determined using the
above definition of pre-tax Adjusted Earnings using the fully
diluted share count. The declaration, payment, timing and amount of
any future dividends payable by the Company will be at the
discretion of its board of directors using the fully diluted share
count.
In addition, the non-cash preferred dividends are excluded from
Adjusted Earnings per share as Newmark expects to redeem the
related EPUs with Nasdaq shares.
Other Matters with Respect to Adjusted Earnings
The
term "Adjusted Earnings" should not be considered in isolation or
as an alternative to GAAP net income (loss). The Company views
Adjusted Earnings as a metric that is not indicative of liquidity
or the cash available to fund its operations, but rather as a
performance measure. Pre- and post-tax Adjusted Earnings are not
intended to replace the Company's presentation of its GAAP
financial results. However, management believes that these measures
help provide investors with a clearer understanding of Newmark's
financial performance and offer useful information to both
management and investors regarding certain financial and business
trends related to the Company's financial condition and results of
operations. Management believes that Adjusted Earnings measures and
the GAAP measures of financial performance should be considered
together.
Newmark anticipates providing forward-looking guidance for GAAP
revenues and for certain Adjusted Earnings measures from time to
time. However, the Company does not anticipate providing an outlook
for GAAP results other than revenue. This is because certain GAAP
items, which are excluded from Adjusted Earnings, are difficult to
forecast with precision before the end of each period. The Company
therefore believes that it is not possible to forecast GAAP results
or to quantitatively reconcile GAAP results to non-GAAP results
with sufficient precision unless Newmark makes unreasonable
efforts. The items that are difficult to predict on a quarterly
basis with precision and which can have a material impact on the
Company's GAAP results include, but are not limited, to the
following:
- Allocations of net income and grants of exchangeability to
limited partnership units, which are determined at the discretion
of management throughout and up to the period-end;
- The impact of certain marketable securities, as well as any
gains or losses related to associated mark-to- market movements
and/or hedging including with respect to the Nasdaq Forwards. These
items are calculated using period-end closing prices;
- Non-cash asset impairment charges, which are calculated and
analyzed based on the period-end values of the underlying assets.
These amounts may not be known until after period-end; and
- Acquisitions, dispositions and/or resolutions of litigation,
which are fluid and unpredictable in nature.
Adjusted EBITDA
Newmark provides a non-GAAP financial
performance measure, "Adjusted EBITDA," which the Company defines
as "Net income (loss) for fully diluted shares" derived in
accordance with GAAP and adjusted for the addition of the following
items:
- Provision (benefit) for income taxes;
- Net income (loss) attributable to noncontrolling interest;
- Employee loan amortization and reserves on employee loans;
- Interest expense;
- Fixed asset depreciation and intangible asset
amortization;
- Non-cash charges relating to grants of exchangeability to
limited partnership units;
- Other non-cash charges related to equity-based
compensation;
- Other non-cash income (loss); and
- Net non-cash GAAP gains related to OMSRs and MSRs
amortization.
The Company also excludes GAAP charges with respect to
allocations of net income to limited partnership units. Such
allocations represent the pro-rata portion of pre-tax earnings
available to such unit holders. These units are included in the
fully-diluted share count, and are exchangeable on a one-to-one
basis, subject to certain adjustments, into shares of Newmark's
Class A common stock. As these units are exchanged into shares
of the Company's Class A common stock, unit holders will
become entitled to cash dividends paid on the shares of the
Class A common stock rather than cash distributions in respect
of the units. The Company views such allocations as economically
equivalent to dividends on common shares. Because dividends paid to
common shares are not an expense under GAAP, management believes
similar allocations of income to unit holders should also be
excluded by investors when analyzing Newmark's results on a
fully-diluted basis with respect to Adjusted EBITDA.
The Company's management believes that Adjusted EBITDA is useful
in evaluating Newmark's operating performance, because the
calculations of this measure generally eliminate the effects of
financing and income taxes and the accounting effects of capital
spending and acquisitions, which would include impairment charges
of goodwill and intangibles created from acquisitions. Such items
may vary for different companies for reasons unrelated to overall
operating performance. As a result, the Company's management uses
Adjusted EBITDA to evaluate operating performance and for other
discretionary purposes. Newmark believes that Adjusted EBITDA is
useful to investors to assist them in achieving a more complete
picture of the Company's financial condition and results of
operations.
Because Adjusted EBITDA is not a recognized measurement under
GAAP, investors should use this measure in addition to "Net income
(loss) for fully diluted shares" when analyzing Newmark's operating
performance. Because not all companies use identical Adjusted
EBITDA calculations, the Company's presentation of Adjusted EBITDA
may not be comparable to similarly-titled measures of other
companies. Furthermore, Adjusted EBITDA is not intended to be a
measure of free cash flow or GAAP cash flow from operations,
because Adjusted EBITDA does not consider certain cash
requirements, such as tax and debt service payments.
See the reconciliation table "Reconciliation of GAAP Income
(Loss) to Adjusted EBITDA" in Newmark's most recent financial
results press release and/or elsewhere in this document for
additional information on this topic.
Discussion of Forward-Looking Statements about
Newmark
Statements in this document regarding Newmark that
are not historical facts are "forward-looking statements" that
involve risks and uncertainties, which could cause actual results
to differ from those contained in the forward-looking statements.
Except as required by law, Newmark undertakes no obligation to
update any forward-looking statements. For a discussion of
additional risks and uncertainties, which could cause actual
results to differ from those contained in the forward-looking
statements, see Newmark's Securities and Exchange Commission
filings, including, but not limited to, the risk factors set forth
in these filings and any updates to such risk factors contained in
subsequent Forms 10-K, Forms 10-Q or Forms 8-K.
Media Contact:
Karen
Laureano-Rikardsen
+1 212-829-4975
Investor Contacts:
Kelly
Collar or Jason McGruder
+1 212-610-2426
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