Business Context and Reporting Period
Company: Newmark Group, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: February 12, 2019
Reporting Period: Twelve months and quarter ended December 31, 2018.
Context: This filing announces the Company's financial results for the period ended December 31, 2018, incorporating a press release (Exhibit 99.1) by reference. The filing primarily details the Company's methodology for calculating non-GAAP financial measures, including "Adjusted Earnings" and "Adjusted EBITDA," and outlines upcoming changes to these definitions effective in 2019.
Key Financial Metrics
Revenue, Profit, Cash Flow, Margins, Debt, Liquidity: The filing text does not provide specific numerical values for revenue, net income, cash flow, margins, debt, or liquidity for the reported period. These figures are contained in the attached press release (Exhibit 99.1) which is incorporated by reference but not included in the provided text.
Non-GAAP Measures Defined:
- Pre-tax Adjusted Earnings: Defined as GAAP income from operations before taxes and noncontrolling interests, excluding non-cash items (e.g., OMSR/MSR gains/losses, mark-to-market adjustments, asset impairments, amortization of intangibles) and unusual one-time items.
- Post-tax Adjusted Earnings: Pre-tax Adjusted Earnings reduced by a non-GAAP tax provision and net income attributable to noncontrolling interests.
- Adjusted EBITDA: Defined as GAAP net income available to common stockholders, adjusted to add back interest, depreciation, amortization, impairments, taxes, noncontrolling interests, and various non-cash equity and investment charges.
- Liquidity: Defined as cash and cash equivalents plus unfinanced marketable securities, reverse repurchase agreements, and securities owned, less securities loaned and repurchase agreements.
Material Changes and Methodology Updates
The filing details significant changes to the Company's non-GAAP reporting methodology effective for the first quarter of 2019:
- Equity-Based Compensation: Beginning in 2019, the Company will add back all charges relating to equity-based compensation to Adjusted Earnings and Adjusted EBITDA, rather than only grants of exchangeability. This aligns the non-GAAP add-back with the GAAP line item "Equity-based compensation and allocations of net income to limited partnership units."
- Employee Loans: The Company will no longer exclude GAAP charges related to employee loan amortization and reserves when calculating Adjusted EBITDA. Historically, these charges totaled approximately $28 million in 2018 and $34 million in 2017. The 2019 outlook for Adjusted EBITDA excludes a similar amount to the 2018 figure under the old definition, but future recasts will include these charges.
- Historical Recasting: The Company has recast its historical non-GAAP financial presentation for 2017 and 2018 to reflect these new definitions on its investor relations website.
Guidance, Outlook, and Risks
Guidance and Outlook:
- The Company anticipates providing forward-looking guidance for GAAP revenues and certain non-GAAP measures from time to time.
- The Company does not anticipate providing an outlook for other GAAP results due to the difficulty in forecasting items excluded from Adjusted Earnings (e.g., allocations of net income to partnership units, mark-to-market movements on securities, asset impairments, and litigation resolutions).
- Dividends payable to stockholders are determined by the Board of Directors with reference to post-tax Adjusted Earnings per share.
Risks and Contingencies:
- Forward-Looking Statements: The filing includes standard disclaimers that forward-looking statements involve risks and uncertainties that could cause actual results to differ materially.
- Tax Complexity: The Company's tax provision is complex due to its structure involving U.S. partnerships subject to Unincorporated Business Tax (UBT) in New York City and subsidiary corporations subject to local taxes outside the U.S.
- Non-GAAP Limitations: Management explicitly states that Adjusted Earnings and Adjusted EBITDA are not indicative of liquidity or cash available to fund operations and should not be considered in isolation or as alternatives to GAAP measures.
Investor Verification Checklist
- Verify Specific Financial Results: Review Exhibit 99.1 (the press release) for actual revenue, profit, and cash flow numbers, as they are not present in this 8-K text.
- Review Recasted Historical Data: Check the Company's investor relations website for the recast 2017 and 2018 non-GAAP figures to ensure comparability with future reporting.
- Understand Equity Compensation Impact: Analyze how the change in adding back all equity-based compensation charges (rather than just exchangeability grants) affects the trend in Adjusted Earnings and EBITDA.
- Assess Employee Loan Charges: Note the inclusion of employee loan amortization and reserves in future Adjusted EBITDA calculations and their historical impact ($28M in 2018).
- Confirm Dividend Policy: Monitor Board decisions regarding dividends, which are tied to post-tax Adjusted Earnings per share.