Business Context and Reporting Period
Company: Newmark Group, Inc. (NMRK)
Filing Type: Form 8-K (Current Report)
Date of Report: May 9, 2019
Reporting Period: Quarter ended March 31, 2019
Business Overview: Newmark Group is a commercial real estate services firm. This filing announces financial results for the first quarter of 2019 and details significant changes to the presentation of equity-based compensation and the definitions of non-GAAP financial measures.
Key Financial Metrics
Revenue, Profit, Cash Flow, Margins, Debt, and Liquidity:
The filing text provided does not contain specific numerical values for revenue, net income, cash flow, margins, debt, or liquidity for the quarter ended March 31, 2019. These figures are referenced as being contained in the attached press release (Exhibit 99.1), which is incorporated by reference but not included in the source text.
Non-GAAP Measures Defined:
The filing defines the following non-GAAP metrics used by management:
- Adjusted Earnings: Pre-tax and post-tax measures excluding equity-based compensation, non-cash gains/losses on mortgage servicing rights (OMSRs/MSRs), mark-to-market adjustments, and unusual items.
- Adjusted EBITDA: Net income adjusted for interest, taxes, depreciation, amortization, impairments, noncontrolling interests, equity-based compensation, and specific non-cash gains/losses.
- 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 Versus Prior Period
GAAP Presentation Change:
Newmark has reclassified the GAAP line item formerly known as "Allocations of net income and grant of exchangeability to limited partnership units and FPUs and issuance of common stock" to "Equity-based compensation and allocations of net income to limited partnership units and FPUs".
- This change reclassifies amortization charges related to equity-based awards (REUs, RSUs) from "Compensation and employee benefits" to the new line item.
- The change had no impact on GAAP "Total compensation and employee benefits" or "Total expenses."
- Prior period amounts have been reclassified to conform to this new presentation.
Non-GAAP Calculation Update:
Adjusted Earnings and Adjusted EBITDA now explicitly exclude all GAAP charges included in the new "Equity-based compensation" line item.
Guidance, Outlook, and Management Commentary
Guidance Policy:
Newmark anticipates providing forward-looking guidance for GAAP revenues and certain non-GAAP measures. However, the Company does not anticipate providing an outlook for other GAAP results (such as net income) because certain excluded items are difficult to forecast with precision.
Unpredictable GAAP Items:
Management cites the following items as difficult to predict, preventing precise GAAP forecasting:
- Discretionary equity-based compensation charges.
- Unusual, one-time, or non-recurring items.
- Gains/losses on marketable securities and mark-to-market movements (including Nasdaq Forwards).
- Non-cash asset impairment charges.
- Acquisitions, dispositions, and litigation resolutions.
Management Use of Metrics:
Management uses Adjusted Earnings to evaluate performance, make operational decisions, and determine dividends and distributions to limited partnership units. Adjusted EBITDA is used to evaluate operating performance by eliminating the effects of financing, taxes, and capital spending accounting.
Investor Verification Checklist
- Review Exhibit 99.1: Verify specific Q1 2019 revenue, earnings, and cash flow numbers in the attached press release, as they are not present in the 8-K text.
- Reconciliation Tables: Examine the reconciliation of GAAP Net Income to Adjusted Earnings and Adjusted EBITDA in the press release to understand the magnitude of excluded equity-based compensation and non-cash items.
- Equity Compensation Impact: Assess the impact of the reclassification of equity-based compensation charges on the reported GAAP expense lines.
- Liquidity Position: Verify the specific "Liquidity" figure (cash + marketable securities - loaned securities) in the press release to assess short-term solvency.
- Dividend Policy: Confirm the dividend declaration for the quarter, as it is determined based on post-tax Adjusted Earnings per share.