Q2 2021 Colliers International Group Inc Earnings Call
Okay.
Yeah.
Hello, and welcome to Colliers International second quarter 2021 investors conference call.
Today's call is being recorded.
Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward looking statements that involve known and unknown risks and uncertainties actual results may be materially different from any future results performance or achievements contemplated and deploy looking statements.
Additional information concerning factors that could cause actual results to materially different for those in the forward looking statements is contained in the company's annual information form.
<unk> filed with Canadian Securities administrators, and the company's annual report.
Form 40 F as filed with the U S Securities and Exchange Commission.
As a reminder, today's call is being recorded today August 4th 2021.
And at this time for opening remarks, and introductions I would like to turn the call over to the global Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead Sir.
Thank you operator, good morning, and thanks for joining us for this second quarter conference call.
I'm, Jay Hennick, Chairman and Chief Executive Officer of the company and with me today is Christian Mayer Chief Financial Officer.
As always this call is being webcast is available in the Investor Relations section of our website.
Presentation slide deck is also available there to accompany today's call.
As you know earlier today Colliers reported robust second quarter results with strong momentum across all service lines.
During the quarter, both capital markets and leasing were up materially versus the prior year.
And when comparing the results to the same period in 2019 pre pandemic.
Revenues from capital markets were also up materially while leasing mostly recovered all those slightly still below the 2019 levels.
Our outsourcing and advisory and investment management service lines posted strong high teens internal growth versus the prior year.
Investment management had another record breaking funds' fundraising quarter, raising more than $2 billion, and bringing total assets under management to more than $44 billion.
And both Colliers engineering and design and Colliers mortgage delivered excellent year over year performance as we continue to accelerate the growth of these business lines for the future.
Yeah.
Ladies and gentlemen, please standby your conference momentarily please standby.
Yeah.
You May proceed.
Sure.
I apologize for the cutoff.
Participants, but earlier today is as I've already mentioned Colliers reported robust second quarter results with strong momentum across all service lines.
During the quarter, both capital markets and leasing were up materially versus the prior year and when we compare those results to the same period in 2019, which was the pre pandemic revenues from capital markets were also up materially this year, while leasing mostly recovered although still slightly.
Below 2019 levels.
Our outsourcing and advisory and investment management service lines posted strong high teens internal growth versus the prior year investment management had another record breaking fund raising warner raising more than $2 billion and bringing our total assets under management to more than 44.
Billion.
And both Colliers engineering and design and Colliers mortgage delivered excellent year over year performance as we continue to accelerate growth in these service lines for the future.
Based on our strong results today, we are again, raising our full year financial results.
I was glad to see capital markets and leasing where copper so nicely. Although they were obviously affected by the pandemic as well as was the case for so many others. We should remember that these services are really essential services needed by our clients everywhere, we do business. So ulta.
Currently we would have expected them to recover as we are seeing now, let's hope there recoveries leasing, especially continues.
Finally, after quarter and as Youll hear from Christian Colliers announced a private placement of a new series of senior notes.
Providing us with additional low cost long term debt capital, bringing our overall liquidity to more than $1 billion.
The bottom line is colliers is a highly respected global companies with excellent growth prospects and we keep getting stronger.
We are highly diversified by revenue by client by asset class and by geography, and we are more resilient than most with above 50% of our revenues and 54 per cent of our EBITDA coming from stable recurring and long duration service contracts.
These fundamentals are very hard to beat.
With our proven track record of more than 27 years balance and diversified business model unique enterprising culture and of course significant inside ownership colliers is well positioned to continue to create exceptional value for shareholders for many years to come.
Now, let me turn things over to Christian for some comments and then we'll open up things for questions Christian.
Jay as announced earlier colors reported robust second quarter financial results My comments, how flow the slides posted on the Investor Relations section of Colliers Dot com to accompany this call.
Please note that the non-GAAP measures referenced on this call are as defined in the press release issued today.
All references to revenue growth are expressed in local currency.
Second quarter, 2021 revenues were $946 million up 64% relative to the prior year cash.
Capital markets and leasing were up materially compared to the prior years pandemic impacted levels and drove a 47% internal revenue growth rate for the quarter.
The remainder of the growth came from the positive contribution of acquisition completed in the past year.
Compared to 2019 pre pandemic peak levels capital markets were up 34% internally well leasing recovered to a 10, 9% of 2019 levels.
Q2, consolidated adjusted EBITDA was $137 million more than double the 60 million reported 1 year ago with margins at 14, 4% versus 10, 9% in the prior year quarter.
Our margin benefited from the rebound in capital markets from leasing revenues as mentioned active operating cost management in light of the pandemic and the favorable impact of acquisitions.
Second quarter Americas region revenues were 583 million up 84% over the prior year period.
Capital markets revenues were up 141% driven by strong debt origination revenues as well as significant increases in industrial and multifamily sales transaction activity.
Leasing revenues were up 72% largely due to stronger industrial leasing activity across the region versus the prior year period.
Office leasing activity has also started to pick up but remains well below pre pandemic levels.
Outsourcing <unk> advisory revenues were up 64% driven by recent acquisitions and internal growth.
Adjusted EBITDA was $79 million more than triple the 24 million reported last year with operating leverage from higher revenues.
The impact of higher margin acquisitions.
And reduced operating costs from Mexico implemented during the pandemic.
EMEA second quarter revenues were $159 million.
45% from 1 year ago with strong revenue increases in each service line, most notably in capital markets.
Adjusted EBITDA for the region was 21 million relative to $6 million last year on higher revenues and cost savings from our measures implemented due to the pandemic.
Second quarter Asia Pacific revenues were $154 million.
38% relative to the prior year period with all service lines reported robust growth, particularly in Australia, and New Zealand.
Adjusted EBITDA was $21 million compared to 12 million last year with the increase attributable to operating leverage and active cost management during the pandemic.
Certain parts of Asia Pacific are experiencing a surge in COVID-19 variant cases, which led to further lockdowns during the quarter. We are mindful of the impact this could have on activity for the second half of 2021.
Investment management.
Management revenues were $51 million up 21% versus the prior year period and reflected only recurring management fees as there were no carried interest reported in either period.
Assets under management were 45 billion acquire and.
25% from 1 year ago and reflected another record quarter of fundraising following on the record results achieved in the first quarter adjust.
Adjusted EBITDA for the quarter was 21 million up from $17 million generated in the prior year period.
Operating cash flow for the first 6 months of 2021 with $19 million.
But adjusted for the non recurring cash component of the long term incentive arrangement and settlement was $115 million relative to cash usage of $93 million from the first half of 2020.
Cash flow was positively impacted by higher earnings and a reduction in working capital usage per.
Merrily related to accrued compensation.
Capital expenditures for the first half of the year were 33 million a significant increase from the prior year and reflected investments in facilities in several markets.
Moving certain markets, where we deferred relocations and expansions during the pandemic.
For the full year 2021, we expect capex to be in the range of $65 million to $75 million and about a third of this capex will be landlord funded leasehold improvements.
Turning to our debt capital structure, our net debt to pro forma adjusted EBITDA was 0.9 times at June 30th.
A decrease appoint 1 times relative to year end.
At quarter end and pro forma for our recently announced senior note issuance, we had over $1 billion of liquidity available to fund future acquisitions and ongoing operations.
Our balance sheet is in a very strong position with low leverage low borrowing rates ample liquidity and latter debt maturities extending to 2031.
We are extremely well positioned to make incremental investments in our business and continuing creating shareholder value for many years to come.
As mentioned by Jay we are again, updating and increasing our financial outlook for the year 'twenty, 1 'twenty 'twenty 1.
A number of factors contributed to the increase bringing the strong results for our second quarter.
Going forward, we expect operating cost to increase during the second half of the year as support staffing levels return to normal and restrictions on travel and social gatherings ease around the world.
Our updated outlook for revenue is an increase of 20% to 30% relative to 2020.
And for adjusted EBITDA, We now expect an increase of 25% to 35%.
We will reassess and update our outlook again after the third quarter.
This outlook is subject to the risks and uncertainties are outlined in the accompanying slides. It is also important to note that we have now passed the full year anniversaries of the significant acquisitions completed last year and as a result, the <unk>.
Growth embedded in the outlook going forward will largely be internal.
Further operating performance from the second half of last year improved relative to the early stages of the pandemic and as such we expect variances for the remainder of the year to be more modest.
That concludes my prepared remarks, and I would now like to turn the call back to the operator for questions.
Thank you, ladies and gentlemen, as a reminder to ask a question.
Press Star then 1 on your telephone.
Joanne Your question press the pound key.
Net star 1 to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Frederic Bastien with Raymond James Your line is open.
Good morning, gentlemen, great results.
Thanks, Brett.
Jay can you. Please discuss the factors that drove the drove the strong internal growth on the outsourcing and advisory side and just wondering if the strength was broadly consistent across regions.
Yes.
Yeah.
You know there was a little bit of M&A transactions in the growth in.
And outsourcing and advisory and this quarter, so there's a little bit of that.
But otherwise it just continues to grow and be strong and there's nothing really to point to other than we ourselves were surprised at the extent of the growth in that in that particular business segment this quarter.
Are you seeing the benefits of maybe cross selling.
The services across your platform.
Ah well cross selling for sure is that is an element I think there was a lot of pent up demand and a lot of services. We're seeing we're seeing a lot of advisory services around return to work.
Re re re looking at existing infrastructure and offices and what changes we could be making to help.
Just for the new norm.
So cross selling but I think.
More pent up demand and an alteration or potential alteration to the construct.
And office is is really driving some of that as well.
1 other thing I'd add to that net.
In Q2 of 'twenty, we had a few delays on some of our project management assignments.
Various parts of the world. So that's obviously all back to normal and those contracts are proceeding.
So that's part of that variance as well.
That's helpful.
While we got you a Christian can you used to quantify the contribution of your tuck in acquisitions to overall growth are you able to share the impact of M&A on both capital markets and the outsourcing and advisory practice.
No I mean, we are we got a.
Internal growth rates for that on a consolidated basis, but.
We're not going to get into the details around the growth rates by by service line.
Alright fair enough.
The last question that the market for labor and professional seems to be getting tighter and tighter but by the day as this slowed your ability of their crude to recruit and retain talent.
Yeah. It has for sure it has impacted us differently in different areas I would say in our in property management not as much in brokerage.
I think our transaction services across the board were up versus last year nicely. I think part of that is is our strong recruiting progress our programs, which are which are firmly in place and continuing to gain momentum.
But I think in the in the new areas and engineering and design.
Talent is critical.
It's an ongoing battle.
There we have been successful, but it is it's all out it's all out.
Warfare, there and investment management also is another area, where it's an attractive area to work, but picking the right people is as critical so.
But interestingly through the through the past sort of 18 months.
Retention rates have been very high for us at Colliers, and I think that bodes well for our are our unique culture that we talk about and a variety of other things we just.
It's not to your question, but its current for US we just completed our annual engagement survey across the board in our numbers were better than ever and you know that's a that's a that's a metric that we use and abuse deeply for many years to gauge that.
Strength of our culture and.
It just seems to get stronger.
Each year, so we're gratified by that.
Thank you for your comments.
Thank you.
Our next question comes from the line of Stephen Macleod with BMO capital markets. Your line is open.
Thank you good morning, guys.
Good morning.
I just wanted to just circle around the Americans, who have very strong very strong growth there on the top line and I'm. Just curious if you could give a little bit of color around.
Any sort of geographic.
Regional strength you saw in the Americas and sort of how things are shaping up.
Into Q3.
Yes.
Yeah.
Steve you're right I mean, the Americas were a very.
Yeah.
Very strong in the.
In the quarter I think it was broad based across the region of Canada U S. Even latam.
<unk> had strong.
Our performance year over year there.
Certainly we're benefiting from.
The mortgage business.
And the.
Engineering business that was acquired the 2 businesses that were acquired last.
Early last summer.
So those are the numbers in the current year quarter, but not in the comparative quarter period.
And mortgage.
Itself.
Had a great quarter and another.
Other.
Strong.
Quarter for originations in the multifamily space.
Also refinancing activity in the multifamily space continues to be strong.
So that was a nice contribution to the overall result.
I don't want on my from my prepared remarks.
Capital markets and leasing well.
Both.
Very strong.
During the quarter.
Capital markets.
And are more than double our leasing up nicely, especially in the industrial.
Side of things and obviously still some work to do and in some some rebound to occur.
In office leasing.
As we look ahead to future quarters.
That's great.
Then you mentioned also in your prepared remarks some.
So I guess.
I don't know if you call it weakness around office.
Or I guess sort of office leasing picking up can you just talk a little about how that trend has evolved over the last couple of quarters with with more.
More and more gyrations around return to work and things like that.
Okay.
So.
Office leasing.
It has.
Ben significantly impacted obviously.
Each quarter.
For the past.
Year.
Our leasing revenues have rebounded as indicated in my prepared remarks.
Office leasing is a smaller component of our overall leasing revenues now than it was in an office leasing is still around 29% below 2019 levels.
At the current.
Stage.
And.
We've increased our in fact, our industrial leasing activity over 2019 levels.
Resulting in overall office leasing.
Being sorry, overall leasing being down 9% relative to 2019 levels.
So things are.
Improving.
And I think.
As we look ahead.
Spect that improvement to continue.
The 1 thing I would add to that Steve is that office leasing is anything but clear right now.
And I think that that applies virtually around the world Youre seeing leases and offices. Some some firms are being very bold, but most are taking still short term approach, they're taking their time to understand how their offices should be reconfigured they haven't.
Finalized plans on return to work and what that means are they coming back in September and some markets are they insisting on an backs a neat vaccinations.
For everybody that comes back in the market. So.
The office component is really still uncertain.
And as you probably remember the day.
The revenues that we generate from office leasing compared to other leasing Forbes is generally higher but as Kristian said, we've always had a very strong industrial.
Leasing practice and so that's why our numbers are doing so well in terms of.
Leasing numbers are doing so well in terms of rebounding, but until the office market starts to come back with.
With some clarity and certainty.
It's still going to lag the capital markets piece of it.
Okay, that's great color. Thank you.
And then maybe just finally turning to the outlook.
It looks like it looks like really the numbers.
So your outlook increased on the back of a strong Q2 and I'm. Just curious if you could talk a little bit about sort of whether this momentum that you saw in Q2 is continuing into Q3 Q4, maybe what your outlook is relative to kind of back half of last year, where where organic revenues were rebounding, but still down year over year.
So Steve it's a great question.
The back half of last year.
A significant improvement over the over Q2 of last year, So things improved.
Breath away.
Through 2020.
And that's certainly something where we're cognizant of as we think about.
Our 2021 back half.
And those comparisons are going to become closer.
And also we have all we've now lapped the anniversaries of our larger 2020 acquisitions.
So as I mentioned that the earlier the growth in the second half will be.
Organic.
Primarily and.
We also.
Last year had the mortgage.
Cars mortgage acquisition, which.
Which we completed in June and as you May remember cars and mortgage had record activity in the third and particularly the fourth quarter last year.
With multifamily origination and also refinancing.
So it's a local make that will make for some tougher comparisons in the second half of 'twenty 1 as we look ahead.
Okay. Thanks, Okay. Thank you guys appreciate it.
Thank you.
Our next question comes from the line of Scott Thompson.
Your line is open.
Thank you and good morning, gentlemen, so you mentioned discussion.
Re imagining of office.
Just recognizing the high degree of Kurt.
Sorry, we can't hear you can you say that again.
Sure we can't hear you.
Can you hear me.
No.
Okay.
Hang on.
Okay.
Could we have the next question until the Reengagement.
Our next question comes from the line of Stephen Sheldon with William Blair. Your line is open.
Hey, guys. Thanks.
1 for me.
On the commentary for operating cost to increase in the second half of the year.
Are you are you more or less assuming that youre going back to kind of a normalized operating environment, I guess, meaning that the temporary cost savings in 2020 and areas like travel and entertainment are moving back to what you typically expect in cell B. Some normalization second half of this year and into the first half of 2021 would that be the right way to think about it.
Well, Stephen we've been operating with a very.
Disciplined approach.
Last year, and a half or around the pandemic and we've taken the support cost out of the out of the business to support staffing.
And also obviously the travel and meetings and.
Events and stuff like that.
Some of that activity.
It is going to return in the back half of the year and Thats.
Included in our outlook.
But certainly we don't expect the full.
Mount of cost that we had prior to the pandemic to return.
As you May recall, we took about 145 might've cost out during 2020.
And our expectation is that about 80% of those costs will return and the balance.
We will not and will result in operating.
Leverage and margin improvement in.
In the future. So that's the way we're thinking about it.
Through the first half of this year, we continued to our 2 operating in a very disciplined and lean way and we.
We think that the way things are opening up now that that some of those costs will return in the second half.
Makes sense. Thank you.
Thank you.
Our next question comes from the line of George.
Your line is open.
Yes, good morning, guys, congrats on a really strong quarter.
Just maybe talk a little bit about the guidance.
It seems that the midpoint suggests flat year over year growth on EBITDA.
I'm just wondering what expense does your guidance kind of assume that.
The office lease levels I think they were down 29% versus 2019, how much of that is how much of that guidance assumes that kind of normalizes in the back half where EBIT modest if any of that.
So George just to clarify our year over year growth in EBITDA as it is in the 25 to 35 per cent range.
You may have been referring to something else there, while I was talking about the second half price.
But in terms of second half given the strong really strong first half number kind of imply I think in the second half.
Yeah I mean.
We had as I mentioned.
Result from improving for us in the second half of 2020.
So the comparisons are going to become closer.
In terms of our.
Back half of this year.
We also have had the benefit of the acquisitions that were completed.
Completed during 2021.
Caused.
The significant growth in the first half of this year.
Sales of that acquisition have now lapped there'll be in both the prior year period in the current year period. So that when you consider the back half this year versus the back half of last year.
Also as I mentioned in the mortgage business had a very strong finish last year with record.
Activity levels.
In the in the back half of 2020.
We also expect operating costs to return.
Yes.
Net.
The previous questioner was just asking about.
So there is.
There are a number of factors at play in terms of the.
The way, we think about the outlook on it and we certainly hope that we.
We can achieve the upper end of that range.
But.
We want to maintain.
A range of outcomes here given the uncertainty that we still see in the market and as we mentioned there is some COVID-19.
Impact still lingering.
Our Asia Pac business.
There are some markets that are in lockdown, and it's uncertain, what's going to happen and what that will mean in terms of the.
The transactional revenues that will occur in the back half of the year.
Okay understood and Christian on that no wonder if you're willing to share kind of.
The embedded assumption in there for for office lease in the back half of the year, maybe relative to 19 or relative to last year at all.
Yeah.
We've got a.
A range of.
Of assumptions, there, obviously, the revenue and EBITDA guidance.
Ultimately wide band and not the higher end, we would be coming I think close to 2019 levels for for leasing as a whole.
And.
Yeah.
Okay, great. Thanks for that.
And maybe maybe a question that Jay given the recent strength and resiliency of the industrial segment I'm, just wondering to what extent you.
You'd want to be there may be in a much bigger way to New York today.
I'm, sorry, I didn't hear the last part of your question there.
Yes, sorry, I'm, just wondering to what extent, we would like to be in a much bigger have much bigger presence in the industrial segment than we do today.
In the industrial segment, yes, that's true.
Okay.
Industrial leasing okay.
Look I think we have been picking up share market for market in all transaction services. So.
It's a difficult question to answer because market for market, we look at our gaps we try and strengthen our areas of <unk>.
Of opportunity and so you know leasing of all segments as a as a key part of our strategy I would say as I alluded to earlier Colliers has always been known for its strength in the industrial.
Side of the world So leasing for us has been less effective.
And so the opportunity was always expand our office leasing.
<unk> mean CBD office Triple.
Triple high quality.
Central business District office leasing was a big opportunity for US obviously, it's impacted others I think a little bit more so than it has us.
Although we have during COVID-19 been very successful net recruiting some strong a CBD office leasing strength in a variety of major markets around the world. So we will see as we come out of this how how we respond.
But.
Just to step back where I thought you were going is that the diversification of our business is quite unique amongst our peers. We have now with our 2 additional.
Additional platforms.
Including.
And plus investment management, a much wider and diverse business in so many ways. So.
The transaction side of our business, although critically important and highly profitable and has made a name for colliers globally around the world.
As a as a portion of our business that will continue to grow nicely, but I think youre going to see greater growth from those other areas over the next year or 2 or longer.
Okay. That's helpful. Thanks, and then just 1 last 1 if I may.
Very good growth.
And fundraising activity in investment management AUM can you talk a little bit about the momentum that you expect there is going to be kind of go into the second half and into next year or maybe share with us from some fund raising activity that's what's the latest.
Excellent.
Harrison Street Harrison Street, let's start with results Harrison Street over a long period of time has delivered phenomenal results.
And every metric 135 years since inception, they've always been able to deliver in the top.
I would say core tile the decile.
In certain categories. They are focused on assets that are differentiated you might call a little bit more complex.
And they manage them well and as a result, they have delivered great returns for investors and what's happening is as people are looking to allocate their capital. This is a very interesting area for us.
For capital allocation and I'm cautiously optimistic that the third quarter and the fourth quarter will be record fund raising quarters again for Harrison Street, we never know I'm touching wood as I say this you never know.
But there's lots of activity both in fund raising and also in in.
In allocating those that capital too to appropriate transactions, whether it's in North America or in Europe, where they are both there.
There is strong very strong in North America, they are establishing a new fund in Canada.
Which which hopefully will become live in the next 45 days our per.
First for Harrison Street their European funds continue to grow.
And so we're very excited about about the prospects for Harrison Street, It's a dynamic management team that have been around a long time owned a significant equity stake in the business and are driven to.
<unk> significantly improved the business in the coming years, and they've done that with things like infrastructure social infrastructure open ended funds among other things so yes.
Yes, we're very excited about Harrison Street.
Alright, thanks for your answers.
Thank you.
Our next question comes from the line of Daryl Young with TD Securities. Your line is open.
Good morning, guys.
First question Jay.
The margins in the Americas.
Christian you mentioned that there would be a return.
A lot of costs.
Cut during the pandemic, but I think even pre pandemic, you're on a path to sort of.
Integrating that platform and taking costs out. So just wondering if you'd want to share some of the opportunities there or.
The run rate or today's margins or a run rate.
Yeah.
Yes.
Relative to historical.
Historical.
The numbers you know our margins.
Q2.
This year are meaningfully higher absent the pandemic and meaningfully higher as well.
And that is because of the service mix. We now have with the 2 acquisitions that were completed last.
Last year.
Colliers mortgage and card engineering.
Which are both.
Accretive to the Americas margin.
But in terms of the <unk>.
<unk> it has been.
Then in the U S, where we have focused over the last number of years.
2.2.
Enhanced the efficiency.
Of that.
Of that operation.
Integrated.
Businesses that.
We've acquired and we've been very active acquirers in the U S.
FERC for many many years and every year, we acquired 2.3 or 4.
<unk> sized businesses, there within our transactional business and property management businesses and those businesses are then integrated over time.
And we are able to.
I become more efficient and reduce cost.
Through that process, we also.
Over the last couple of years.
In particular.
<unk> taken steps to become more productive in terms of our.
Flow through from transactional revenue.
And.
Those steps are starting to bear fruit.
Here and evidently so in the second quarter and in the year to date results for 2021.
I think we're on a good path.
Our U S business.
The transactional.
<unk> in particular is on a path to.
Continue that margin enhancement.
Over the next.
2 or 3 years, and we hope to get that business up to a 12% margin relative to what we've seen historically in the 8.
8% range, so it's a pretty meaningful lift on a pretty large part of our business, which will impact our consolidated margin positively over time.
Okay great.
Then on the.
On the sales transaction side, just curious what your views are on on how much of the activity is a pull forward of a few.
Future deals just in the low rate environment, and maybe what youre kind of macro or longer term outlook is for transaction activity levels.
Yeah, I mean in terms of.
Pull forward of transactions and timing I mean, I guess there is.
A sense out there that there is some pent up demand.
For activity.
I think markets.
Or generally.
They're strong.
There is confidence out there.
Borrowing costs are are our low credits available.
And I.
I think.
Businesses and investors have.
The desire to transact. So so I don't think it's as much an issue of pull forward or pent up demand that's just.
You know activity is.
Strong from the factors that I mentioned.
Okay, Great and then just 1 last 1.
We've seen some.
Big announcements, obviously in the funding environment in the U S for infrastructure spending and just curious what the pipeline of work is looking like for your engineering services business, particularly in the U S.
The pipelines, our pipelines for engineering and project management.
Are good.
I would say.
Of course, better than last year, but they have not yet translated into the boom of infrastructure spend that we were hoping for I think theres a lot of talk in Congress now about approving a plan we're excited about them doing that because.
That will translate but.
But we've got 1 of the great things about that business is it's got long duration contracts and so we've got full pipelines.
And as I mentioned earlier, 1 of the constraining factors as people and so.
We are.
I think we're in a great spot.
But.
The we're going to need great people to execute and.
So, we'll wait and see how we do but I think the trends the tailwind is positive.
And we hope to capitalize well as soon as it starts to rule out.
Okay, Great. That's all from me great quarter guys. Thanks.
Thanks Darryl.
Our next question comes from the line of Matt Logan with RBC capital markets. Your line is open.
Thank you and good morning.
Hey, Matt.
Jay in your press release, your comments touched on developing Colliers engineering and colliers mortgage as growth engines for the future can.
Can you talk about what's changed since you acquired these businesses.
Perhaps some thoughts on your competitors falling you into the engineering space as well.
Yeah, No. It's a great question first of all you know a lot has changed 1 on 1 of the big things is we've rebranded as Colliers engineering and design as an example.
And we started with what we thought was a great platform.
We started with the platform.
Great professionals that did not want to be acquired by a firm and be owned 100% by a firm. They wanted to be partners in the operating business, which is sort of the book.
Philosophy of Colliers and since that time they've added.
In acquisitions, they probably added.
30, or 40% of their revenue they've got an active pipeline of acquisitions. There philosophy is different than the others in the sense that they want to be partners and they want a perpetual partnership between colliers and the people that make it happen every day something that.
We're quite used to and so.
You know I think.
I think we are feeling bullish margins have gone up considerably.
In that business.
And part of that has been some of the disciplines that we brought to the table from a colliers standpoint so.
The ultimate work.
Is not dissimilar to the work done by the Union the other engineering firms we do.
Don't need to be the biggest.
As colliers, we need to be very good at what we do and we need to leverage the relationships that we have around our clients, which is something that I think we bring to the table that some of the others don't.
So those are a couple of those are a couple of the differentiators.
But I think at the end of the day in a professional services business. It's all about having shared ownership between a strong capital partner that understands how to grow and exceptional professionals that understand how to execute and manage their businesses effectively.
And I'm very.
Very.
Happy to see how Colliers engineering and design operates its business both before we acquired it and its margins would indicate that it's doing EBIT better after.
Great color and maybe continuing on with your comments on the acquisitions.
Colliers is incredibly well positioned with debt to EBITDA to 1 turn in more than a $1 billion of liquidity if.
If we take a medium to longer term view, how should we be thinking about leverage would it be fair to say the business can be managed with sustainably higher leverage perhaps somewhere in the 2 to 3 turn range instead of the 1 to 2 turn range that we've seen historically given the evolution to a more diversified.
Business.
Yeah, that's a great question Matt.
At the present time.
I think we are comfortable in the 1 to 2 times leverage range.
We would be also be comfortable to take leverage to a higher.
Level temporarily.
As we think about a potentially larger acquisitions down down the line.
And having a path then post acquisition to Delever.
Back into that 1 to 2 times.
Range.
So that's the way we're thinking about it right now in terms of your your question.
There is no question that as we execute on our plan and as we increase our recurring revenue base and EBITDA base.
Into something like around the 2 thirds of our EBITDA being recurring.
Staying a higher leverage.
A higher level of leverage.
At that time.
You know what that type of a business mix and that's certainly something that we're thinking about.
For the future.
In terms of that will be the only thing.
Yeah.
Go ahead, Jay the only thing.
Yeah, the only thing I would add to that Matt is and Youll understand this theres a management, there's a management piece of this and a differentiation piece of this that's important.
You know in private equity.
I don't know how people do this it's a different life, but they're happy to take leverage up to 5 and 6 times and and worry about leverage every single day. When you do that you can't invest in the future you can't invest in technology It can't invest in people.
And all everybody talks about every single day as cash flow that we get the cash flow did we pay the bank down to whatever levels.
That's never been our way our way is built has been to build long term shareholder value.
And when you have a partnership structure and a couple of our platforms. As we do that has been the way of our partners and our partners are all about creating long term value long term sustainable value and as we move leverage ratios.
And Christians right the more recurring revenue and I believe we have a lot of recurring revenue and I believe in a private equity environment somebody could easily leverage our business to 6 or 7 times leverage and be just fine.
I wouldn't be managing our business at that level personally, but I think you could do it. It's just not been our way and I think our way has been successful over many years and it wouldn't be a shock.
I think to our leadership teams, if we started to bring our leverage up to private equity type levels.
And it.
It may create some near term growth, but would also create.
You know not long term sustainable growth, which is what we're trying to accomplish.
And maybe just a couple of housekeeping questions here before I turn the call back.
In terms of your guidance for the second half of the year.
I know Q2 was incredibly strong but with your outlook for Q3, and Q4 have changed at all vis vis Q1.
Hi.
Not meaningfully Matt.
Pretty.
Pretty similar.
And then that's it that's really embodied in the and the way we can be updated the outlook.
And in terms of your margin your guidance would imply a level of around 13, 5% for 2021.
Do you see this as sustainable or perhaps even growing as we head into 2022.
Yeah, No I think it's a it's absolutely sustainable.
We'll see where we go to in 2022, but.
Our goal would be to standard or increase it overtime.
I appreciate the color gentlemen, I will turn the call back. Thank you.
Thank you.
I'm not showing any further questions in the queue I would now like to turn the call back over to management for closing remarks.
Okay. Thank you very much operator, and thank you everybody for participating in this second quarter conference call and we look forward to.
Our third quarter conference call.
You know with <unk>.
Fingers crossed hopefully we will have positive results there as well.
Have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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Sure.
Sure.
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