Q2 2021 Colliers International Group Inc Earnings Call
[music].
Hello.
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 in the forward 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 as 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 is 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 Juan.
Good morning, and thanks for joining us for the 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 press.
The 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 of those slightly still below the 2019 levels.
Our outsourcing and advisory and the investment management service lines posted strong high teens internal growth versus the prior year.
Investment management had another record breaking funds fund raising 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.
Ladies and gentlemen.
Please standby your conference will resume momentarily please standby.
Okay.
Yeah.
Yeah.
You May proceed.
Okay.
I apologize for the cut off.
The 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 for the same period.
In 2019, which was the pre pandemic revenues from capital markets were also up materially this year, while leasing mostly recovered out low still slightly below 2019 levels, our outsourcing and advisory and investment management service lines posted strong.
<unk> high teens internal growth versus the prior year investment management had another record breaking fund raising quarter, raising more than $2 billion and bringing our total assets under management to more than 44 billion.
And both Colliers engineering and design of Colliers mortgage delivered excellent year over year performance as we continue to accelerate growth of the 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 in the leasing recover so nicely, although they were obviously affected by the pandemic.
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 ultimately we would have expected them to recover as we are seeing now let's hope of the recovery of leasing especially continues.
Finally after quarter end as Youll hear from Christian Colliers announced the private placement of the 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 company with excellent growth prospects and we keep getting stronger we.
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% of our EBITDA coming from stable recurring and long duration and service contracts.
These fundamentals are very hard to beat.
With our proven track record of more than 27 years balanced 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.
As announced earlier colors reported robust second quarter financial results my comments for below 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 of our consists of revenue growth of our expressed in local currency.
Second quarter of 2021 revenues were $946 million up 64% relative to the prior year capital markets on leasing of RF 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 acquisitions completed in the past year.
Compared to 2019 pre pandemic peak levels capital markets were up 34% internally, while leasing recovered to a 10, 9% of 2019 levels.
Q2, consolidated adjusted EBITDA of $137 million more than double of $60 million reported 1 year ago with margins of 14, 4% versus 10, 9% in the prior year quarter.
Our margin benefited from the rebound of capital markets and 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 of 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 the pickup but remains well below pre pandemic levels.
Outsourcing and advisory revenues were up 64% driven by recent acquisitions and internal growth.
Adjusted EBITDA was $79 million more than triple of the $24 million reported last year with operating leverage from higher revenues the impact of higher margin acquisitions.
And reduced operating costs for measures implemented during the pandemic.
EMEA second quarter revenues were 159 million.
Up 45% from 1 year ago with strong revenue increases in each service line, most notably in capital markets.
Just the EBITDA for the region was 21 million relative to $6 million last year on higher revenues and cost savings from of measures implemented due to the pandemic.
Second quarter Asia Pacific revenues were $154 million.
Up 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 revenue for $51 million up 21% versus the prior year period and reflected only recurring management fees as there were no carried interest of reported in either period.
And assets under management were $45 billion acquirer and.
25% from 1 year ago and reflected another record quarter of fundraising following on the record results achieved in the first quarter adjusted.
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 of settlement was $115 million relative to cash usage of $93 million in the first half of 2020.
Cash flow was positively impacted by higher earnings and a reduction of working capital usage per.
<unk> 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, including 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 the capex will be landlord funded leasehold improvements.
Turning to our debt capital structure, our net debt to pro forma adjusted EBITDA was <unk> 9 times at June 30.
The decrease of <unk>, 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 the 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 of 'twenty 1.2021.
A number of factors contributed to the increase including 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'll reassess and update our outlook again after the third quarter.
This outlook is subject to the risks and uncertainties 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 growth embedded in the outlook going forward it will largely be internal.
Further operating performance in 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 at the reminder to ask the question.
Press Star then 1 on your telephone.
So with your question.
Thank you.
Again, Thats star 1 to ask the 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 the drove the strong internal growth on the outsourcing and advisory side and just wondering if the strength was broadly consistent across regions.
There was a little bit of M&A transactions in the growth in it.
And the 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 is nothing really the point to other than we ourselves were surprised at the the extent of the growth in that in that particular business segment this quarter.
Are you seeing the benefits of <unk>.
Many cross selling.
The services across your platform.
Cross selling for sure 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 the return to work.
Re re looking at existing infrastructure and offices and what changes we could be making to help.
Adjusted for the new norm.
So cross selling but I think.
More pent up demand and an alteration of our potential alteration to the construct of.
Of an office is is really driving some of that is well first of all of that.
I would add to that debt in Q2 of 'twenty. We had few delays on some of our project management assignments in various parts of the world. So that's obviously all back to normal and those contracts are proceeding.
So for that part of the variance as well.
Okay. That's helpful.
While we've got you Christian you used to quantify the contribution of the your tuck in acquisition 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 got the.
Internal growth rates for the consolidated basis, but.
We're not going to get into the details around the.
Growth rates by by service line.
Alright fair enough.
My last question the market for labor and professional seems to be getting tighter and tighter but by the day. This slowed your ability of the crude to recruit and retain talent.
Yes. It has for sure it has impact the best differently in different areas I would say in property management not as much of brokerage.
I think our transaction services across the board were up versus last year of nicely I think part of that is as our strong recruiting.
Programs, which are which are firmly in place and continuing to gain momentum.
But I think in the in the new areas of engineering and design.
The talent is critical.
It's an ongoing battle.
There we have been successful, but it is all out.
All of.
Warfare, there and investment management also is another area, where it's an attractive area to work, but picking the right people is 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 our unique culture that we talk about and the 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.
That's a that's a metric that we use and abuse deeply for many years to gauge the 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.
Okay.
Thank you good morning, guys.
Good morning.
Good morning.
I just wanted to just circling around the Americas had a 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 reach.
Our regional strength you saw in the Americas and sort of how things are shaping up.
Into Q3.
Yes.
Steve Youre right I mean, the Americas were very.
Very strong in the.
In the quarter I think it was broad based across the region of Canada U S. Even the Tam.
Strong.
Our performance year over year there.
Certainly we are benefiting from.
The mortgage business.
And the.
Engineering business of acquired.
The 2 businesses the required lost.
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.
Sure.
Strong.
The 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.
Outlined on my on my prepared remarks.
Capital markets and leasing.
We're both.
Very strong.
During the quarter.
Capital markets.
And of more than double leasing up nicely, especially in the industrial.
I'd of things and obviously still some work to do in some some rebound to occur.
In office leasing.
As we look ahead to future quarters.
That's great.
And then you mentioned also in the prepared remarks some.
So I guess I don't.
No if you call the weakness around the office.
Or I guess, the sort of office leasing picking up can you just talk of about how that trend has evolved over the last couple of quarters with with more.
The more more gyrations around return to work and things like that.
Okay.
So.
Office leasing has.
Then significantly impact of obviously.
Each quarter.
For the past.
The year.
Our leasing revenues have rebounded as indicated in my prepared remarks.
Office leasing is a smaller component.
Component of our overall leasing revenue now than it was in office leasing is still around 29% below 2019 levels.
At the current.
The stage.
And.
We've increased in fact.
Our industrial leasing activity over 2019 levels.
Resulting in overall office leasing.
<unk> being sort of overall leasing being down 9% relative to 2019 levels. So things are.
Improvement.
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.
Offices some of 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 the insisting on.
Backs of need vaccinations.
For everybody that comes back in the market. So.
The office component is really still uncertain.
And as you probably remember the the.
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.
Your outlook increased on the back of the strong Q2 and I'm. Just wondering just curious if you can talk a little bit about sort of whether this momentum that you saw in Q2 is continuing into Q3 Q for 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 at the Great question.
For the back half of last year was a significant improvement over the over Q2 of last year, So things improved.
The rest of late.
Through 2020.
And that's certainly something where we're cognizant of as we think about.
Our 2021 back half.
And those comparisons are to kind of.
Come closer.
And also we have 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 of mortgage acquisition, which.
Which we completed in June and as you may remember.
Cars of mortgage had record activity in the third and in particular, the fourth quarter last year.
Multifamily origination and also refinancing.
So it's the 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, some of them. So you mentioned discussion.
Reimagining of off the site.
Just recognizing the high degree of Kurt.
Sorry, we can't hear you could you say that again.
Sure when kind of area.
Can you hear me.
No.
Okay.
Moving on.
Okay.
Operator could we of the next question until the Reengage the.
Our next question comes from the line of Stephen Sheldon with William Blair. Your line is open.
Hey, guys. Thanks, just 1 for me.
On the commentary for operating costs the increase in the second half of the year.
Are you are you more or less of assuming that youre going back to kind of of normalized operating environment, I guess, meaning that the temporary cost savings of 2020 and areas like travel and entertainment are moving back to what you typically expect and so some normalization of 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 the very.
Disciplined approach for.
Last year and a half around the pandemic and we've taken the support cost out of the.
The out of the business to support staffing.
And also obviously the travel and meetings and.
About some stuff like that.
Some of that activity.
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 of endemic to return.
As you May recall, we took about 145 million of 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 the future. So that's the way we're thinking about it.
But through the first half of this year, we continued to operate in a very disciplined and lean way and.
We think that the way things are opening up now that debt some of those costs low return in the second half.
Makes sense. Thank you.
Sure.
Thank you.
Our next question comes from the line of George do Matt.
For the Bank your line is open.
Good morning, guys, congrats on a really strong quarter.
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 to what extent does your guidance kind of assume of the office lease level of the things were down 29% versus 2019, how much of that is how much of that guidance assumed for that kind of normalizes.
The back half weighted with minus the money of that.
So George just to clarify our year over year growth in EBITDA as it is in the 25 of 35% range.
You may have been referring to something else there, while I was talking about the second half.
In terms of the second half given the strong for really strong first half of it kind of imply I think of the cloud.
Scott.
Yes.
We had as I mentioned.
The results for improving for us in the second half of 2020.
So the comparisons are going to become closer.
In terms of of our.
Back half of this year.
We also have had the benefit of.
The acquisitions.
They were completed during 2020 which of of.
The cost.
The significant.
Growth in the first half of this year because of the acquisition now lapped there'll be in both of the prior year period in the current year period for that when you consider the back half of this year versus the back half of last year.
Also as I mentioned, the the mortgage business had a very strong finish last year with record active.
The activity levels.
And in the back half of 2020.
We also expect operating costs to return.
The previous questioner was just asking about.
So there is.
There are a number of factors of play in terms of the.
The way, we think about the the outlook on and we certainly hope that we.
We can achieve the upper end of that range.
But.
We want to maintain.
Sure.
A range of outcomes here given the uncertainty that we still see in the market and as we mentioned there is some COVID-19.
<unk> still lingering.
Our Asia Pac business.
There are some markets that are in lockdown.
And it's uncertain, what's going to happen.
What that will mean in terms of the the.
Of the transactional revenue that will occur in the back half of the year.
Okay understood Christian on the military and to be willing to share kind of the embedded assumption in there for for office lease in the back half of the year, maybe relative to the 19 or relative to last year low.
Yes.
But we've got a.
A range of.
Of assumptions, there obviously, the revenue and the EBITDA guidance is relatively wide band and not the higher end.
We would be coming I think close to 2019 levels for the FERC for leasing the hole.
And.
Yes.
Okay, great. Thanks for that.
And maybe maybe a question of Jay given the recent strength in the resiliency of the industrial segment I'm, just wondering to what extent.
You'd want to be there maybe in a much bigger weight of marketing.
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 the much bigger much bigger presence of the industrial segment than we do today.
In the industrial segment industrial leasing momentum.
Okay.
The 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 leasing of all segments as a.
As a key part of our strategy I would say is <unk>.
The 2 earlier.
<unk> has always been known for its strength of the industrial.
The side of the world So leasing for us has been less effective.
And so the opportunity was always expand our office leasing office mean CBD office Triple.
The triple high quality.
The 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 and very successful at recruiting some strong 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.
The additional platforms.
Including.
Ed 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 the 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 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 as we kind of go into the second half and into next year.
Can you maybe share with us some some fund raising activity slated for the year.
Thanks.
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 quartile of the decile.
Certain categories. They are focused on assets that are differentiated it might call of 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 for capital allocation.
And I am 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 is lots of activity both in fund raising and also in.
Allocating those debt capital to to appropriate transactions, whether it's in North America or in Europe, where they are both.
There is strong very strong in North America, they are establishing a new fund in Canada.
Which of which hopefully will become the live in the next 45 days for.
First for Harrison Street, there are European funds continue to grow.
And so we're very excited about the prospects for Harrison Street.
Dynamic management team that have been around the long time, 1 of significant equity stake in the business and are driven to significantly.
<unk> significantly improved the business of 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.
The first question.
The margin in the Americas.
Christian you mentioned that there would be a return of.
A lot of costs.
Touching the pandemic, but I think even pre pandemic, you're on a path of sort of.
Integrating that platform and taking costs out. So just wondering if you'd want to kind of share some of the opportunities there or.
The run rate of today's margins of our run rate.
Yes.
The.
Relative to historical.
Historical.
The numbers are margins.
The Q2.
This year are meaningfully higher absent of 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 of engineering.
Which are both.
Accretive to the Americas margin.
But in terms of the of.
<unk> it has been in the U S, where we have focused over the last number of years.
2.2.
Enhanced the efficiency of.
Of that of that operation.
We have integrated.
Businesses.
Of acquired and we've been very active acquirers in the U S.
For for many many years.
And every year, we acquired 2.3 or 4.
Meaningfully sized businesses, there within our transactional business and property management.
Businesses and those businesses are then integrated over time.
And we are able to.
<unk> become more efficient and reduce cost.
3 of that process, we also.
Over the last couple of years.
In particular.
<unk> taken steps to become more productive in terms of our.
The flow through from transactional revenue.
And.
Those steps are starting to bear fruit.
Here and evidently so in the second quarter and then the year to date results for 2021.
I think for on a on a good path.
Our U S business.
The debt the transactional.
And in particular is on the path too.
Continue that margin enhancement.
Over the next.
2 or 3 years, and then we hope to get that business up to 12.
12% margin relative to what we've seen historically in the 8% range. So it's a pretty meaningful lift on a pretty large part of our business, which will impact our consolidated margin.
Assembly overtime.
Okay great.
And then on the.
On the sales transaction side, just curious what your views are on on how much of the activity is the pull forward of.
Future deals just in the low rate environment, and maybe what youre kind of macro for longer term outlook is for transaction activity levels.
Yes, I mean in terms of.
Pull forward of transactions and timing I mean, I guess there is.
Our sense of there or there is some pent up demand.
For activity.
But I think the markets.
Or generally.
They are strong.
That there is confidence out there.
Going.
Costs are.
Low credits available.
And.
I think.
The businesses and investors have.
The desire to transact. So so I don't think it's as much of an issue of pull forward of pent up demand that's just.
Activity.
The strong for 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 for infrastructure spending and just curious what the 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 the 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 the.
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.
The we're going to need great people to execute.
So, we'll wait and see how we do but I think the trends the tailwind is positive.
<unk>.
We hope to capitalize well as soon as it starts to rule out.
Okay, Great. That's all for 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 you talk about what's changed since you acquired these businesses.
Perhaps some thoughts on your competitors' hole you into the engineering space as well.
It is of Great question first of all of a lot of changed 1 of 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 of <unk>.
Great professionals that did not want to be acquired.
By a firm and be owned 100% by of firm. They wanted to be partners in the operating business, which is sort of the <unk>.
Loss of the of Colliers and since that time they've added.
And the acquisitions, they've probably added.
The 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.
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 <unk>. The other engineering firms, we don't need to be the biggest.
As colliers, we need to be very good of 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 and of professional services business, It's all about having.
Share of ownership between a strong capital partner that understands how to grow and exceptional professionals that understand that the execute and manage their businesses effectively and I am very.
Barry.
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 even better after.
Great color and maybe continuing on with your comments on the acquisitions.
<unk> is incredibly well positioned with debt to EBITDA of 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 the sustainably higher leverage perhaps somewhere in the 2 to 3 <unk> range instead of the 1 to 2 turn range that we've seen historically given the evolution to a more diversified.
Business.
Yes, great question Matt.
At the present time.
I think we are comfortable in the 1% to 2 times leverage.
<unk>.
We would be also be comfortable to take leverage to a higher.
Level temporarily.
As we think.
Think about a potentially larger acquisitions down down the line.
And having a path then post acquisition to Delever.
And of 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.
Stain of higher leverage.
The higher level of leverage.
At that.
With that type of a business mix certainly something that we're thinking about.
For the future.
In terms of debt will be only thing.
Yeah.
Go ahead, Jack the only thing.
The only thing I would add to that Matt is.
And Youll understand this there is a management, there's a management piece of this and of differentiation piece of this that's important.
In private equity.
I don't know how people do this.
The different life, but they're happy to take leverage up to 5 and 6 times and worry.
Worry about leverage every single day when you do that you can't invest in the future you can't invest in technology of can't invest in people and all everybody talks about every single day as cash flow. If we get the cash flow debt, we paid it back down to the whatever levels.
That's never been our way our way is built has been to build long term shareholder value.
And when you have of partnership structure and a couple of our platforms. As we do that has been the way of our partners and our partners are all of creating long term value long term sustainable value.
And as we move leverage ratios up in Christian's right. The more recurring revenue and I believe we have a lot of recurring revenue and I believe in of private equity environment somebody could easily leverage our business, the 6 or 7 times leverage and be just fine.
I wouldn't be managing of business at that level of 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 would be a shock.
I think to our leadership teams, if we started to bring our leverage up to private equity type levels.
And.
It may create some near term growth.
But would also create.
Not long term sustainable growth, which is what we're trying to accomplish.
Okay.
And maybe just a couple of housekeeping questions here before I turn the call back.
In terms of of your guidance for the second half of the year I know Q2 was incredibly strong but with your outlook for Q3 and Q4 of changed at all vis vis Q1.
Not meaningfully Matt.
Pretty.
Pretty similar.
And Thats and Thats really embodied in the and the way we've 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.
Yes, no I think it's a it's absolutely sustainable.
We'll see where we go to in 2022, but.
Our goal would be the standard or increase the overtime.
I appreciate the color gentlemen, I'll turn the call back thank you.
Thank you.
Yeah.
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 the second quarter conference call and we look forward to.
Our third quarter conference call.
Ed.
With the 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.
[music].
Okay.
[music].
Yes.
[music].
Okay.
[music].
[music].
[music].