Q4 2019 Earnings Call
Keypad, if he would like to withdraw your question press the pound keep it is now my pleasure to introduce lighten texter head of Investor Relations and global controller Cushman and Wakefield Mr. Tech Sir you May begin your conference.
Youre welcome to Cushman, and Wakefield fourth quarter and for your 2019 earnings Conference call.
Earlier today, we issued a press release announcing our financial results for the period.
This release can be found on our Investor Relations website, along with today's presentation pages that you can use to follow along.
Materials can be found on IR dot Cushman Wakefield Dot com.
Please turn to the page labeled forward looking statements. Today's presentation contains forward looking statements based on our current forecasts and estimates for future events.
These statements should be considered estimates only an actual results may differ materially.
During today's call, we refer to non-GAAP financial measures as outlined by FCC guidelines.
Reconciliations of GAAP to non-GAAP financial measures and definitions of non-GAAP financial measures are found within the tables of our earnings release, an appendix of today's presentation.
Also please note that throughout the presentation comparison, a growth rate or to the comparable periods of 2018 and or local currency.
For those of you following along with our presentation.
Then on page five.
And with that I like to turn the call over to our executive Chairman and CEO Brett White.
Thank you win and thank you all for joining us today.
Today, we reported strong fee revenue growth in all three of our geographic segments for the full year.
And the fourth quarter.
Full year 2018, we reported fee revenue was $6.4 billion increase of 9% for both the full year and fourth quarter led by RPM FM in capital markets service lines.
For your adjusted EBITDA of $724 million was up $65 million were 11% from 2018 and was towards the upper end of our guidance range.
Fourth quarter, adjusted EBIT up $293 million was at $58 million or 25% from the same period in 2018.
We also made progress on our stated goal to expand margin.
Full year adjusted EBITDA margin of 11.3% was up 25 basis points for the year.
In addition to our strong performance in 2019, we also passed a five year milestones or the original strategic plan that led to the consolidation of organizations.
To become the modern Cushman Wakefield.
With that milestone firmly behind US we spent time in 2019 refreshing our strategy to a one our business to what the most important clients in our industry need from service providers today and more importantly, how they will prefer to buy services going forward.
Our strategy focuses on these four priorities.
Delivering services through a seamless exceptional client experience.
A continued discipline focus on operational excellence.
Developing to maintaining high performance culture.
And leveraging data and analytics to create value for our clients in our business.
We'll provide more details around these priorities during our Investor day on March 10th in New York, Well also talk more about our plans to winter business model to these priorities.
Focusing on how we serve clients through a more efficient and nimble business model.
Improvement in operating efficiency is expected to provide a strong benefit to adjusted EBITDA and drive strong margin accretion in 2020, which Duncan will cover later in our guidance, which we will be discussing in more detail how the investor day on March 10th.
Now let me provide further highlights and details on are strong year end and fourth quarter results.
Our leading global brand continue to earn third party recognition throughout the year.
Including being named to the number one commercial real estate advisor in the world by your own money.
And then number two global commercial real estate brand, but let's see company.
We received top honors for real estate outsourcing by I O V and Forbes named Cushman, and Wakefield Twitch lift of America's best large employers.
Best employers for diversity.
Furthermore, we continue to expand our global platform through infill M&A and strategic recruiting.
Throughout the year.
We completed five acquisitions in 2019, strengthening our service offerings and recurring revenue mix globally.
Additionally, in the fourth quarter.
We formed a joint venture with Banki service.
The Chinese facilities and property management leader to provide facilities management and property management services to local regional and multinational organizations in greater China.
New asset services company allows us to deliver better value for our clients.
Currently has more than 1000 commercial property and facility magic projects under management.
Over 80 cities across greater China.
With more than 20000 employees.
The market leading scale.
Innovation.
Industry specific solutions.
Enhanced reach across greater China.
In best in class team.
While the company to continue to be a premier provider.
National property and facility management.
That's very important market.
In the fourth quarter, we continue to win new business due to our leading position scale and ability to service clients around the world.
Mobile occupier services business continue to win new mandates and expand service offerings with existing clients as large corporate occupiers chose cushman and Wakefield.
Real estate outsourcing.
For example.
We were signed a new contract with carrier.
We provide transaction management.
Correct and development services.
Portfolio administration.
Portfolio strategy.
Space and occupancy planning.
More than 1200 sites totaling more than 35 million square feet.
Roster global portfolio.
He fortune 500 manufacturing client expanded their services with us to include integrated facilities management.
And they expanded their north American portfolio from 2 million square feet.
To 11 million square feet with Cushman and Wakefield.
Similar examples of new outsourcing assignments in our facility services business include.
The contract to provide facility services across 1.9 billion square feet in Texas.
And 1.5 million square feet in Arkansas.
The U.S.G. I say.
Well on track with the Port authority of Seattle to provide facility services.
Plus 456000 square feet, a sea Tac International Airport.
In addition.
The large assignments in our leasing in capital markets businesses in the fourth quarter included.
Representations Facebook I'm, sorry, Facebook for significant office leases, a 1.5 million square feet across three buildings at Hudson yards in New York City.
Representing Goldman Sachs asset management, and Lincoln Harris, and there were $436 million sale of the 843000 square foot Bank of America Tower in Charlotte North Carolina.
We represent a developer T M Gi partners in leasing Ocwens 875000 square foot telegraphed tower.
We represented on ticket data in the $780 million sale of the post building in the UK.
Advise the client in a 300000 square foot acquisition and retail development.
We conducted IPO valuations of four properties totaling more than 3.1 million square feet owned by yes, our came in Japan.
Which later listed on the Hong Kong stock exchange.
And we brokered the sale of freehold land site living mall for $1.24 billion.
The help of core Pacific City Company limited in greater China, which totaled almost 200000 square feet.
Now turning to page six.
You'll see our dashboard on a global real estate market.
Conditions, largely remain favorable for commercial real estate services.
According to the IMF global GDP growth expected to be 3.3% and 3.4% for 2020 and 2021, respectively. After decelerating into an estimated 2.9% in 2019.
According to IMF risks to global activity or less tilted to the downside compared to last fall.
The odds of recession remain generally low for the next 12 months.
That said, we continue to monitor downside risks with recent emphasis on the Corona virus, which is still being priced in.
Developments remain fluid right now and this is something that we will monitor very carefully.
Interest rates globally have generally remained low since her last earnings call and there is continued strong investment appetite for commercial real estate.
Fund raising remains near all time record highs, indicating tremendous liquidity and demand for commercial real estate assets.
Leasing fundamentals remain stable against a weaker macroeconomic backdrop to.
Demand for space is still healthy, albeit slower.
And occupancy levels, a holding firm.
You asked commercial real estate remains very attractive at as asset class.
We see continued rent growth as supply demand demand metrics are broadly balance.
Leading indicators that correlate with commercial real estate could you need to point to growth for example, legal labor markets are still creating jobs.
The U.S. consumer confidence levels are still higher today than it most points in the current in previous cycles.
So in summary in 2019, we demonstrated continued solid growth in fee revenue adjusted EBITDA and EBITDA margin.
As we look to the year ahead, we continued.
With continued strong real estate fundamentals.
Combined with the strength of our global plant branded platform. We believe 2020 will be a strong year for cushman and Wakefield.
I'm confident that as we begin the next chapter for firm.
We're aligning our business around the industry's most important clients.
And there are evolving needs.
I'm also confident they will continue to refine our operations to take advantage of modern deficiencies.
Technologies and business models.
That allow us remain nimble and agile.
While creating more capacity for investment into our service delivery platform.
One thing you can count on from Cushman and Wakefield.
Is it we will continue to drive our business with a focus on what's coming next instead of simply being comfortable with the way things have always been done in our industry.
We look forward to sharing more with you at our Investor day in two weeks.
With that I'll turn the call over to Duncan to discuss our financial results in detail along with our guidance for 2020 Duncan.
Thanks, Brett I good afternoon, everyone.
So that's kind of on page eight.
Which summarizes key financial data for the full year and full quota.
That said, we continue to another strong operating results.
We reported 2019 full year revenue of $6.4 billion, an increase of 9%, though before you haven't full quota.
We generated solid growth.
Each of all three segments led buyout yep.
In capital markets and the slides.
Yeah, adjusted EBIT doll.
$24 million was up $65 million or nothing beside from 2018.
Towards the talk about guidance range.
<unk> adjusted EBITDA $293 million was up $58 million whole, 25% and the same period in 2018 driven by results in Americas.
[music].
Oh, Yeah, adjusted EBITDA margin of 11.3% was up 25 basis points, but yeah, I 195 basis points into full quarter.
Fourth quarter improvement was driven by revenue growth, especially in the Americas.
Within the Americas broker investments being made in the second half from 2018.
As expected to profitable in the pool to more than offset mobile shifted next 12 PM FM said this one.
<unk> adjusted earnings per share was $1.64 cents <unk> guns Michelle.
<unk>.
Moving on to pages, nine and 10 baby show fee revenue growth rates by segment by satisfied.
All three segments grew and the fuel costs out of Americas up 11%.
Me about 7% I talked up 6%, bringing that full year growth rates, a 9% for the Americans Colombia.
12% a pack.
In 2019 was particularly strong yen and service line, which was up 14%, including double digit growth in all three segments.
That's great, including the acquisition of suicide go the modest revenue shift to PFM, India.
You have substantially completed the integration of QSR.
Then PFM consulting services represents a significant portion of this service lines fee revenue.
It's in the consensus we typically so cool or something in fact, a variety of seven cents swell major operations in both the Americas mandate.
[laughter] generate solid cash flow on a stable revenue stream.
On annualized basis, typically has low single digit growth.
In 2019 fee revenue. So if he said the since was in the mid to high single digits, Yeah, I'm the fourth quarter.
Less about Pms, having said this line, which comprises occupier outsourcing property management and project management operations grew at a double digit rate in all three segments, but of course that idea today.
With that stuff.
Tells you about segments, starting with the Americas on page 11.
The revenue performance in the Americas was strong at 9%, yeah, and 11% in the fourth quarter.
This is driven by CMS that because up 15% for the yet.
17% for the quarter.
Relation another because it doesn't affect both yeah on the quarter.
Well back of Cnf and service line hospitality services operations represent.
About the revenue.
So it doesn't seem to be revenue was up double digits couple of course, I mean, yeah, driven by growth existing clients, a new business wins.
The rest of the PFM satisfied bulletin double digit right.
Oh leasing business was up 2% for the year almost flat.
And capital markets was up 6% for the yet.
20% quota.
And then brokerage was consistent with our expectations.
America's full year, adjusted EBITDA of 500 million.
Jonathan Poole to adjusted EBITDA of 182 million was up 34%.
Adjusted EBITDA margin in the Americans, but yeah. It was 11.4% I didn't present, a 30 basis points, that's a 2018.
In a prudent investments made in the back off of 2018 wrapped up I'd expect it during the fourth quarter.
Expect big investments to continue to be accreted in Twentytwenty.
Moving onto the media on page 12 full year fee revenue was up 9%.
The fee revenue increased 7% driven by solid growth in up Yeah, My friend and capital markets said this lives.
Oh, yes, I'm satisfied in EMEA represents less about overall segment spend and the other two regions.
23% for the year and 13% to the quota.
Capital markets was up 9% idea and 10% for the quarter.
These trends were partially offset by leasing activity, which was down 1% for the yeah I'm the quota.
These trends, what consistent with expectations I'm, principally driven by weakness in the UK.
Fourth quarter, adjusted EBITDA of $65 million declined $2 million says it before 2018 <unk> full year adjusted EBITDA of 100 million goals without $8 million lessons and same period in 2018.
Our performance in EMEA reflects the impact of weaker performance in the UK business leasing activity in particular was weak.
We also experienced and mix shift during the year driven by growth could piano.
Now for Asia Pacific segment on page 13.
Good continues to be strong.
Yeah, and pool to fee revenue up 12% and 6% respectively.
Capital markets was up 22% and yeah, I was going 20% quota.
Grew 7% for the yet.
Uh huh.
Jason that grew 21% to 2019 and 29% for the full quota.
Finally in PFM grew 10%.
And 2% for the quarter.
Not that represents more than half of the feedback and look at the segment.
Adjusted EBITDA grew 26%, yes, 45% for the full quarter driven by strong revenue growth.
Turning to page 14 in summary, we are pleased with the comments about businesses and 29 thing.
Overall global economy continues to be supported both across our businesses.
Oh, that's an install and we expect to continue to grow profitably and twentytwenty.
We expect Twentytwenty adjusted EBITDA to be in a range of 810.
$60 million.
Dissipate margin improvement.
More than 75 basis points out the midpoint of the range driven by operating efficiency initiatives consistent with the strategic realignment that's correct.
Yeah.
I will discuss these initiatives in more detail at our Investor Day in New York on March 10.
Our adjusted effective tax rate was 24% in 29 team and we would expect it to be at all around the strike and Twentytwenty.
Cash tax rate with 12% contributing positively to our free cash flow conversion.
Since the law school, you have expanded on evolving credit facilities.
And to $1.2 billion, and we have successfully repriced I'll first lien debt to improve the interest rate by 50 basis points.
As a result in Twentytwenty Oh interest rates on gross debt, it's expected to be around 5.5% down from 6% to 29 pig.
We ended the year, but the net leverage ratio of 2.5 times down 2.7 times last year.
Now to position on the couldn't see our strong $1.8 billion available liquidity.
Well I haven't pulled back to but I'd like to make an announcement.
I mean, Wakefield [laughter] public company, but I've been CFO not for many years.
Earning school logical outsold innovations I've made the decision to retire to spend more time with my family more time consuming personal interests.
When I joined the company 20 people paying my objective is to support the lead all fitness paid a rapid growth and transformation.
Very proud of all that we've accomplished particularly taking the company public and 2018.
Today kind of like getting hold to the bus conoco position amongst may decide to know industry poised for continued sustainable growth and success.
Like we're gonna partnerships I've enjoyed good, but my cushman and Wakefield colleagues on life and I'm, saying.
Many of you listening to this cool.
I will continue to partner with but I will remain a CFO throughout the such process until my successor is on board.
With that I'll hand, the call back to you guys.
Thank you Duncan and on that Sad note, let me provide some good news.
We've been able to convince stuck into stick around for a few more earnings calls so I'm going to differ.
<unk> linked your comments around Duncan tenure to later call, but I would like to say.
At the very first person.
We hired when we bought DTZ.
Now five years ago was Duncan.
And by far the most important higher we made it as an executive team was hiring duck and he's been a terrific partner to me is added massive valued cushman and Wakefield to you.
Investors, but again, we'll talk a bit more about that Dunkin' on later call and with that I'll hand, the call back to the operator for today.
Your last question. Please press star one on your telephone keypad. The first question comes from Anthony Paolone JP Morgan. Please go ahead. Your line is open.
Okay. Thank you my first question relates to the EBITDA guidance and drivers behind it it's a pretty strong number and wondering if you can talk about how much of that is coming from acquisitions organically and also how much.
Might come from some of these initiatives that you alluded to.
Okay.
Thanks, Tony well yeah, yeah. Thank you for that fits for the question I think if you break it down.
I think it's reasonable to assume that you know, we we can see sort of similar trends and in a revenue growth that we saw in 2019 sort of similar sort of level economy. Similarly supported.
Maybe 2019 had a in a bit of help from the fact that we did an unusually large amount of I mean, so with Qs I'd be right at the beginning of the year, but otherwise on on underlying base setting to 20, probably looks you know 2020 look so similar so the organic growth is it producing good contribution to that and then as we talked about.
Wow, we've told us be operating efficiency improvement coming from the strategic alignment, which we expect to be a significant which would drive most of the rest of the one with a couple of other operating efficiency projects. So you know we're very focused on operating efficiency no margin and I think you're seeing that you saw a lot of that in 2018 resource growth.
Imagine 2019, we continue to be very focused on it probably 20, twentys a big a year for it and 2019 was.
And so that that will be a big contributor to our ability to grow margin and EBITDA in 2020.
Okay, and then if I if I take your EBITDA guidance it'll be up nicely you have some free cash flow if I just think through adjusted EPS and worked down.
And yet your leverage looks like it's gonna stay about the same so would suggest that that you'll you'll still be using a bunch of cash how much of that.
It is likely to be used for acquisitions versus some of these strategic initiatives like this or is there bunker costs that comes with that but you have to put up front. So a couple a couple of things in that so you know I think from leverage point of view I think when the mid twos and I think we're saying we're going to be in the mid to late minimum fighting spirit. So specifically on my NAV never just gonna be.
You know so a a wouldn't be saying was saying is gonna be exactly flat or anything like that in the mid twos. So I think that sort of Oh, Matt in terms of how we spend capital I think a a couple allocation philosophy has not changed it continues to be that we tend to be cash by that we generate which as you see you as you as you correctly. So it will be will be.
Healthy typically given the growth can be seen EBITDA on that will be used to oppose to make it investments and operating efficiency.
We did put out.
I think an 8-K that we expect the gap restructuring charge to be.
$40 million to $60 million almost a main he spent this year.
Which will obviously be enabling some of those operating efficiencies. We just talked about so it'll be a use I know that for us typically is a very good use of of investment comes back I pretty well on them. We would continue to see opportunities for us to invest in the business and we've said over time that we expect to do in sale recruitment to probably you know is normally.
You know after two or three quarters about free cash flow that would typically driving the typical yet about aside about fee revenue growth I don't think 2022 would be up particularly you know different you know theory on that although I don't see that it depends on natural nature of the of the pipeline that but that's kind of how we think about it.
Okay, Thanks, I'll get back into queue for fall.
[noise] again to ask a question. Please press star one on your telephone keypad. The next question comes from Stephen Sheldon of William Blair. Please go ahead. Your line is open.
Thanks, This is actually Josh Amazon for Stephen and Thanks for your time over the years Duncan.
It's an exciting announcement.
Wanted actually asked first about the pinnacle acquisition it seems to phone under the radar a little bit but to me. It stands out as a sort of an acquisition in a move into a territory that's sort of a non traditional space in which you would provide you know kind of P.M. FM services. So if you could talk a bit about the strategy.
There why the move into that asset type and I guess, what's the outlook.
Sure Hi, this is Brent I'll take that question so.
As you know I am I think all the course no we've been in the business with managing properties since the first days.
From a it's a business we know exceptionally well.
The multifamily space is an area that we've had a rise on for quite some time.
We didn't do this earlier frankly, because we've been quite busy on other initiatives and other projects with the integration and other areas that we were pressing for growth, but with pinnacle a we finally found an asset.
We felt was the best in class.
Manager in this vertical one that could be scaled I was an excellent management team.
Terrific client base, we felt it was right entry into what is the vast marketplace.
Really relatively untapped by folks in our particular services vertical. So we're very excited about the opportunity we're very excited about.
That particular space for us and it's a you know it's a jason's here I think is probably fairly obvious and one that we probably that late getting to the classic out there.
<unk>.
Okay.
And then you know really strong.
Investment sales growth globally in the quarter and I know you called out some larger deals globally and it also seems that you're seeing some earlier benefits from the producer hiring in late 2018.
But I guess, what you know could you talk about where your outlook is in sales for 2020, and I guess, if the underlying the guidance assumes continued strong growth in sales you know how do we think about that in the context of the margin or I should say the you know the adjusted EBITDA Guide.
How should we expect stronger growth or sort of way on margins Sir.
Just how do we think about them.
Yeah sure. So the capital markets business is a very high margin business, so get where to grow up more quickly that would be very accretive to margin, but in fact, I think the outlook for 2020.
Which we sat is fairly modest its Duncan said 2020 feels what's at the moment lot like 2019, and our overall growth for instance, the Americas capital markets was mid upper single digits I think it feels about right, whereas for the year now there are some enablers out there that are interesting to us certainly unless there.
Front, a virus to the side for the moment that seems to be a issue at the moment. It certainly isn't an issue forever, but we do have a more certainty in Europe in the UK around Brexit, which is a good thing we have exception low interest rates.
At the moment, which for an enabler for.
These types of transactions so at the moment as we look at 2020, I think we feel pretty good about the capital markets business, but I wouldn't say that you should expect higher growth rates are materially lower growth rates and 20 than you saw in 18.
<unk>.
Okay. Thanks for your time.
Sure.
Your next question comes from Michael Funk of Bank of America. Please go ahead. Your line is open.
Hey, good evening guys. Thank you for taking the questions I appreciate it [laughter] <unk>, maybe some more more common share in the capital market activity expectation for for 2020, you you discussed notice last color you saw a lot larger deals in 2019, especially exiting the year. So in in your expectation is it that the larger deals will still be done.
I'm going into our you're expecting just more smaller deals.
Maybe just kind of thoughts on that you've done a geographic mix of the transactions in 2020.
And it's specifically for investment property sales capital markets.
Correct place sure so capital markets.
In 2019, if you look at the her.
Let's talk about America, which is where I think your your question is most is most focused.
What's relevant yeah, Yeah, we had pretty good performance in capital markets in 2019, the markets or that showed strength was broad based and I was going through actually before this call is going through all of our U.S. markets look into growth rates for capital markets and but for a New York City almost every major up every major Maher.
Look at U.S. was up double solid double digit New York City. That's a marketplace was down we retained our number one position and New York City, which I think as evidenced that we follow the market weren't as many large deals Oh, there's many deals done in New York City 19 is 18, but as we look forward into 2020 as I mentioned, a moment ago, we don't.
See anything, particularly different about 2020 than we saw on 2019, those large deals a you know the billion plus transactions those are lumpy.
Hard to say when they will come in and frankly, how they fall year to year, it's very very hard to predict so at the moment I was just stick with what I said, a moment ago, we don't see anything materially different in 2020 that we saw in 2019.
And I, just sleep with that I get that that growth in 2019 was broad based across every major market U.S., but for New York City.
Sure and it isn't an opportunity if you kind of comment on the broader economic activity you concerns about kroner virus, you know and you can your experience you know I guess what is the.
Sensitivity in leasing.
You know to economic shocks like it could be experiencing right now I mean, how quickly do you see C level executives pull back on leasing activity and you know are you hearing concern when you speak any of your on large clients.
Well first of all I would say, it's it's early days and hopefully well hopefully it's late days and this will all be behind us very soon but if it is early days, but if you look back to Sars he looked back to other.
Issues of this type of the marketplace would you tend to see is there's a lot of there's a lot of noise in the market during that that moment in time and you can see in areas that are particularly affected so let's look at Hong Kong.
At the moment or transaction activity in Hong Kong was down.
In the fourth quarter, a that doesn't surprise us both with the protests and with.
The issue with krona virus, but what you always see in these situations and we would expect to see here is a strong snap back when the issue goes away and so unlike some other economic drivers that are I think more structural we would expect that what you lose if you lose a activity during it.
The issue that activity comes back.
Incremental to normal activity into subsequent quarters. So it's a moment I wouldn't say were sanguine, we're not there. There's a lot of work we're doing right now to make sure our employees are safe and well taking care of our clients are well taking care of.
But we're not seeing a other down in Hong Kong, I think thats, though because I mentioned the protest in front of ours, we're not seeing.
Any impact on activity right now I would also say that.
Our business is one where transactions are worked on for a very long time, both in the leasing and in the capital market space people don't tend to stop those transactions over issues [laughter]. They would people will slow down transactions in it in a real economic decline. So we watch for is really the.
Impact on GDP and that is unknown at the moment. If this has in front of virus hasn't material sustained impact on GDP, we're going to see a slowdown in transaction activity at the moment that is that it's not what's being forecast a into the marketplace.
That was great color. Thank you very much welcome.
[noise] there no further questions at this time I would now like to turn the call over to Brett twice for closing remarks [noise].
Thank you operator, thanks worn for dialing in and done we'll talk to you in a core.
This concludes today's conference call. Thank you for your participation.
[music].