Q3 2023 Cushman & Wakefield PLC Earnings Call

Welcome to the Cushman and Wakefield third quarter 'twenty twenty-three earnings conference call. All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

To ask a question you May press Star then one on your telephone keypad.

To withdraw your question. Please press Star then two.

Please note this event is being recorded.

It is now my pleasure to introduce Megan Mcgrath head of Investor Relations for Cushman and Wakefield Ms. Mcgrath you may begin the conference.

Thank you and welcome to Cushman and Wakefield third quarter 2023 earnings Conference call.

Earlier today, we issued a press release announcing our financial results for the period.

This release, along with today's presentation can be found on our Investor Relations website at IR Cushman Wakefield dotcom.

Please turn to the page in our presentation labeled cautionary note on forward looking statements. Today's presentation contains forward looking statements based on our current forecasts and estimates of future events. These.

These statements should be considered estimates only and actual results may differ materially.

During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines.

Conciliations of GAAP to non-GAAP financial measures definitions of non-GAAP financial measures and other related information are found within the financial tables of our earnings release and the appendix of today's presentation.

Also please note that throughout the presentation comparisons and growth rates are to the comparable periods of 2022, and then local currency unless otherwise stated and with that I'd like to turn the call over to our CEO Michelle Mackay.

Thank you Megan and thank you everyone for joining us. This afternoon I'm excited to kick off my second earnings call as CEO before we get into the numbers I've often been asked what differentiates me as the leader and the answer is simple I have a bias to action.

And you can see that in what we've accomplished during the third quarter.

We made significant progress transforming our capital stack as we refinanced $1 4 billion of our 2025 term loan.

This initial move has pushed out our maturities and will reduce the company's leverage by approximately $200 million in 2025.

There was strong interest in the offering it was well oversubscribed with more than 100 lenders in our term loan and more than 125 lenders in our bonds.

Additionally, we are ahead of schedule on our $130 million cost out target for this year.

Strong execution contributed to the sequential increase in our Q3 adjusted EBITDA margin of nine 4%.

Our Q3, adjusted EBITDA performance of 150 million outpaced our Q2 performance despite softening market condition as we continue to make choices that are in the company's long term interests when garden list of the macro environment.

It is true uncertainties remain and we saw the transaction markets take another pause in mid August when rates moved higher.

But even as transactional markets were idled during the quarter, we were not.

We stayed focus taking the deliberate actions I just discussed to improve our balance sheet and reduce our cost structure.

What's really clear is that we have the right people processes and capabilities to deliver for our clients employees and investors.

We've done the things that we need to do to stabilize the business.

Which puts us in the seat to make prudent and disciplined investments to ensure that we can capitalize on opportunities as they arise for the future.

Now, let me share some more detail on where we are in our strategic review and more importantly, our go forward strategy.

As I previewed on our last earnings call over the past several months, we've completed a very thorough assessment of our business segments, including detailed financial and capital allocation reviews rigorous scenario planning and long term secular and industry analysis.

These activities are part of our strategic roadmap, we've created and I'll share a bit more of that roadmap with you today.

The debt financing cost out efforts and strategic reviews that we executed on during the third quarter comprised of the first phase of our strategic roadmap strengthening our core.

I feel very good about what we've accomplished in a very short period of time, enabling us to move to the next stage, creating flexibility and optionality.

This means putting our company in the best possible position, both operationally and from a balance sheet perspective to make investments at the right time in the cycle.

She was just then we are focused on reducing our absolute level of leverage as I noted earlier, we announced our intention to pay down the remaining balance of the term loan of $193 million.

And we are developing a plan for further incremental debt reduction over the next several years.

At the same time, we will also invest in compelling organic growth opportunities in both services and brokerage.

As part of this plan, we remain committed to hiring and retaining the ability to flex our spending as appropriate.

This will help ensure we're properly staffed both now and as the markets recover so that we capitalize on future growth opportunities.

We expect to achieve these balance sheet and invest my goals by improving our internally generated free cash flow, which Neil will expand on in a moment and by identifying and monetizing small noncore assets.

We believe that this sharpened focus on the optimal balance between reducing debt and accelerating growth will be a long term driver for shareholder value.

Yeah.

The final stage and our road map is all about sustainable long term growth.

We intend to achieve this by continuing to diversify our revenue and drive market share gains through a differentiated agile and client centric strategy.

This means further and partnering with our clients to help drive their business forward.

We're not just hiring brokers, but arming these brokers with proprietary data analytics and insights.

One example of how we recently leveraged the power of the Cushman platform isn't mandates that we've won with a large global EV company by creating a cross functional team from advisory services technology and business development.

We brought the client a bespoke solution informed by our unique expertise and perspective and the knowledge of a full spectrum of professionals.

When we do that I'll bet on arguing against anyone else's.

We are also using our analytical capabilities to develop a view on where this company on our clients should be positioned 510, even 20 years down the road.

We are looking closely at Megatrends in the built world.

Factors, such as technology urbanization, geopolitics climate change and demographics and layering these mega trends into distinct real estate sub sectors across the stages of a typical real estate cycle.

This helps us to understand where in each cycle each sector Sis and identify segments that we believe will be disproportionately benefiting in terms of both growth and resiliency.

This valuable proprietary analysis led by our independent research team is only one example of how we are positioning the company to be opportunistic while continuing to provide independent data driven and highly tailored advice and solutions for our clients.

It's clear to me the company to win in today's complex built world are those that can provide owners and occupiers expert data driven advice and solutions as well as flawless execution.

Our best in class analytics, and the strength of our newly integrated team positions us not only to uniquely meet that need but also to gain share in a highly fragmented market.

As you can see over the past several months, we have made significant strides in fine tuning and beginning to execute on our plan.

We are pushing hard to create a more agile resilient and efficient cushman and Wakefield.

The pace of market trends and captures first mover advantage, where and when it really matters.

We will share more details each quarter as we pursue these goals.

I view. This process is an ongoing evolution of the company as we solidify our position as the Premier Global adviser and built world.

And as I finish I'd like to thank all of our employees for their continued hard work as we navigate through this uncertain operational environment.

Impressed me every day with your drive and dedication to go the extra mile for our clients.

Yeah.

And now I'd like to hand, the call over to Neal for a review of our third quarter financial results.

Thank you Michelle and good afternoon, everyone.

For the third quarter, we reported a sequential increase in both adjusted EBITDA and adjusted EBITDA margin. Despite a sequential decline in revenue.

This demonstrates our commitment to enhancing profitability through a continued focus on driving cost efficiencies in our business.

During the quarter. We also made significant progress on improving the strength and flexibility of our balance sheet and show improvement in free cash flow with enhanced working capital efficiency.

Moving onto the details of the quarter.

On the topline while transactional markets remain challenged we saw an improvement in year over year brokerage trends.

We began to lap the difficult market conditions, which began in late 2022.

Third quarter fee revenue of $1 6 billion Thomas.

Slide 11%, that's right yeah, when the capital markets revenue down, 33% leasing revenue down, 16% and PMA from revenue down 1%.

We mentioned on our first quarter earnings call that due to a change in the gross contract Reimbursable is one of our facilities.

Trucks are P. M. S N P revenue would be reduced by roughly $90 million.

Ms basis with no impact on total revenue or adjusted EBITDA.

Excluding the impact of this change PMA from revenue was up roughly 2% in the quarter.

Although it declined 18% in the third quarter as a slowdown in transactions continues to result in lower valuation activity.

Adjusted EBIT for the third quarter of $150 million was down 27% versus prior year.

First quarter adjusted EBITDA margin was nine 4%.

During the quarter, we continued to benefit from our previously announced cost savings programs.

Have realized $98 million of gross savings year to date and expect to end the year slightly ahead of our previously communicated $130 million Tavis.

I believe we've taken the appropriate level of cost cutting actions to rightsize the business for the current environment and the near term recovery period.

I am pleased with our team's execution on these actions and we will continually seek ways to operate more efficiently and profitably regardless of the operating landscape.

Adjusted earnings per share for the quarter was 21.

A decrease of 22 cents versus prior year.

Turning to our segments for the quarter in the Americas, we saw a 26% year over year decline in brokerage revenues and a 1% decline in P. M. S. N excuse me contract change <unk> revenues in the Americas grew two 5%.

The declines in brokerage grow across most asset types, principally due to the higher interest rate environment and macroeconomic headwinds.

EMEA experienced a 14% year over year decline in brokerage revenues leasing revenue was down 5%, but year over year trends improved sequentially as our teams were able to successfully execute several large deals during the quarter.

Capital markets revenue remained under pressure down, 32% and EMEA PMA Fem revenue was up 4%.

Oh, APAC region reported a solid quarter with brokerage revenue up 15% year over year as we experienced growth in several countries, including Australia, India and Japan.

Business in APAC was down 2%, primarily due to lower project management activity.

Adjusted EBITDA as defined in the Americas, and EMEA, principally driven by the lower brokerage activity, while EBITDA in APAC grew 44% driven by the improvements in capital markets.

As previously mentioned, we saw significant improvement in free cash flow free cash flow for the third quarter was $174 million.

8 million in the third quarter of 2022 on.

On a trailing 12 month basis, we generated $152 million of free cash flow compared with $40 million a year ago.

During the third quarter, we refinanced the majority of the remaining $1 $6 billion of our term loan B June 2025, with a combination of $1 billion of new term loan B due 'twenty study and $400 million unsecured notes due 'twenty, one we expect to repay the approximately $200 million remaining.

B G 2025 with cash on hand.

This news on Euro significant funded debt maturities through 2020 gauge the.

The refinancing does not meaningfully increase our borrowing cost and our debt remains approximately 93% fixed.

Overall, our financial position remains strong with $1 7 billion of liquidity consisting of cash on hand of $588 million and availability on our revolving credit facility of $1 $1 billion.

We had no outstanding borrowings on our revolver and net leverage was four five times at the end of the third quarter.

Finally, moving onto our outlook.

For the full year 2023, we anticipate our pms and revenues to grow in the low single digits.

We expect brokerage revenues for the full year 2023, each be down 20% to 25%.

Our previous guidance of down 20%.

Judy just reduced expectations for brokerage revenues, we now expect to be near the low end of our previous adjusted EBITDA margin guidance range of 92% for the full year 'twenty choice right.

Looking ahead into next year, given the recent move in interest rates and continued uncertainty around fed actions, we expect that our market recovery and brokerage may be delayed until the second half of 'twenty 'twenty four.

Despite current market conditions, we believe the work we've done throughout 2023 on driving free cash flow achieving cost efficiencies and strengthening our balance sheet positions us extremely well financially navigate the upcoming yeah.

That concludes the financial review and now I'll turn the call back to Michelle.

Thanks, Neil I'm proud of what we've accomplished during the third quarter and the work we are doing to position the company for the future we will.

We'll continue to control whats within our reach with a focus on creating flexibility and optionality. In this next stage I am confident that our go forward strategy will position the company for long term sustainable growth and I look forward to sharing our progress with you each quarter.

Operator: Welcome to the Cushman & Wakefield, 3rd quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded.

And now I'll turn the call over to the operator to take your questions operator.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you were using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

Please limit your questions to one and a single follow up if you have additional questions you may rejoin the queue.

Megan Mcgrath: It is now my pleasure to introduce Megan McGrath Head of investor relations for Cushman & Wakefield. Ms. McGrath, you may begin the conference. Thank you and welcome to Cushman & Wakefield, 3rd quarter 2023 earnings conference call. Earlier today, we issued a press release announcing our financial results for the period. This release, along with today's presentation, can be found on our investor relations website at ir.cushmanwakefield.com.

Our first question today is from Anthony pay alone with J P. Morgan. Please go ahead.

Great. Thank you I guess my first question relates to the plan you outlined to find incremental cash to reduce debt over the next few years I'm wondering if you could expand on that a bit and.

Just maybe put some brackets around order of magnitude and what sort of assets do you see you know Gee WK, having right now that can be monetized like are these businesses are there investments on the balance sheet that could be sold I'm. Just wondering if you can give a little more detail on all of that.

Megan Mcgrath: Please turn to the page in our presentation labeled cautionary note on forwarded statement. Today's presentation contains forward-looking statements based on our current forecast and estimates of future events. These statements should be considered estimates only, and actual results may differ materially. During today's call, we will refer to non-gap financial measures as outlined by SEC guidelines. Reconciliation of gap to non-gap financial measures, definitions of non-gap financial measures, and other related information are found within the financial tables of our earnings release and the appendix of today's presentation. Also, please note that throughout the presentation, comparisons and growth rates are to the composable periods of 2022 and then local currency unless otherwise stated.

Sure I think the best way to think about our long term target for leverage is between the 2% to 3% range and we plan to get there through a combination of debt pay down and EBITDA growth.

Our goal is to demonstrate a balanced between the two and the way that we're allocating capital. So we want to both be reducing debt.

And investing in growth right. This is not an either or conversation and I think what's important for everybody to understand is that we're committed to reducing our debt level over time as we grow the business. Because we believe this is the optimal path to generating strong shareholder returns in terms of monetization I think before I talk.

Michelle McKay: And with that, I'd like to turn the call over to our CEO, Michelle McKay. Thank you, Megan, and thank you, everyone, for joining us this afternoon. I'm excited to keep off my second earnings call at CEO. Before we get into the numbers, I've often been asked what differentiates me as a leader. And the answer is simple. I have a bias to action. And you can see that in what we've accomplished during the third quarter.

Not that I, just want to speak to the fact that monetization can take place in a variety of forms it's not always an all out sale of a business or an entity and what I can say about that is because of the way. The company was built through a series of mergers and acquisitions. There are components that were brought into the entity that are not.

Michelle McKay: We made significant progress transforming our capital stack as we refinanced 1.4 billion of our 2025 term loan. This initial move has pushed out our maturity and will reduce the company's leverage by approximately 200 million in 2025. There was strong interest in the offering. It was well over subscribed with more than 100 lenders in our term loan and more than 125 lenders in our bonds. Additionally, we are ahead of schedule on our $130 million cost-out target for this year.

Fairly strategic or core and we're not going to outline or speak what they are or to them directly today, but I can tell you that they are small in size and they wouldn't necessarily meet the long term growth profile of the company.

Okay. Thanks for that and then just my second question.

No I think you mentioned coming in at or a little bit above $130 million cost saving target for 'twenty three.

Michelle McKay: The strong execution contributed to the sequential increase in our Q3-adjusted EBITDA margin of 9.4%. Our Q3-adjusted EBITDA performance of 150 million outpaced our Q2 performance despite softening market condition as we continue to make choices that are in the company's long-term interest regardless of the macro environment. It's true. Uncertainties remain. And we saw the transaction markets take another pause in mid-August when rates move higher. They even have transactional markets where idle during the quarter, we were not.

And you felt like that was kind of where where you'd end up and felt good about that but just wondering if the business stays challenged into 'twenty four or maybe goes longer before we see much recovery do you have other levers you can pull there or are there other cost saves that that could be contemplated.

Tony at this point, we feel like the $130 million would be targeting.

It would be appropriate.

Only.

Our margins in this year 2023 but also through 2020 full in terms of what we are forecasting.

Michelle McKay: We stayed focused, taking the deliberate actions I just discussed to improve our balance sheet and reduce our cost structure. What's really clear is that we have the right people, processes and capabilities to deliver for our clients, employees and investors. We've done the things that we need to do to stabilize the business, which puts us in the seat to make prudent and disciplined investments to ensure that we can capitalize on opportunities as they arise for the future.

That contemplates a mild recession.

We are always focused on efficiencies so.

There are always additional levers that we can pull we always are improving the operating ability of the business I think the easiest way to think about it is in that $130 million of savings about 20% are temporary costs. She took out of the business in 2023 things like travel.

Michelle McKay: Now let me share some more detail on where we are in our strategic review and more importantly our go-forward strategy. As I previewed on our last earnings call, over the past several months we've completed a very thorough assessment of our business segments, including detailed financial and capital allocation reviews, rigorous scenario planning, and long-term secular and industry analysis. These activities were part of a strategic roadmap we have created and I'll share a bit more of that roadmap with you today.

Marketing those types of costs, if we did see that.

<unk> continue to run the same sort of levels all the way through next year, and obviously, we would hold back on allowing any of those costs to come back as the business and then you know that.

Cost savings on a current basis increased from about a husband study to about $160 million for the year.

The next question is from Alex Kramm with UBS. Please go ahead.

Michelle McKay: The debt financing cost out efforts and strategic reviews that we executed on during the third quarter comprise of the first phase of our strategic roadmap, strengthening our core. I feel very good about what we've accomplished in a very short period of time, enabling us to move to the next stage, creating flexibility and optionality. This means putting our company in the best possible position both operationally and from a balance sheet perspective to make investments at the right time in the cycle.

Yes, Hey, good evening, everyone, maybe starting first on the P. M. S N business, maybe there's a little nitty gritty here, but.

I know you're at the the contract change, but if I look at your updated outlook. Neil I don't think you mentioned it but I think the low single digit expectation is a downgrade to your prior expectation for them I think low to mid so just curious what else has changed in that business is there it's true in increasing at the same.

Pi Pla sales cycles, just longer so maybe just talk about that business because it seems like you load expectations down slightly.

Michelle McKay: To defend, we are focused on reducing our absolute level of leverage. As I noted earlier, we announced our intention to pay down the remaining balance of the turn loan of $193 million and we are developing a plan for further incremental debt reduction over the next several years. At the same time, we will also invest in compelling organic growth opportunities in both services and brokerage. As part of this plan, we remain committed to hiring and retaining the ability to flex our spending as appropriate.

Yeah I know this is Michele I'm Gonna, let Neill talk you through some of the numbers and then I'll address our services strategy.

Sure, Yeah, Hey, Alex.

I think the best way to think about our services business is really considering three different things as you say the first one is the fact that we had that contract change that takes the gross from negative one to a positive two which is in line with our low to mid but arguably at low end.

Michelle McKay: This will help ensure we're properly staffed both now and as the markets recover so that we capitalize on future growth opportunities. We expect to achieve these balance sheet and investment goals by improving our internally generated free cash flow which Neil will expand on in a moment and by identifying and monetizing small non-core assets. We believe that this sharpened focus on the optimal balance between reducing that and accelerating growth will be a long-term driver for shareholder value.

The second thing is I'm in the prior yeah, we saw very strong services growth in fact.

That growth was double digit all the way through the first three quarters of the year. So as we came into this year. We knew we would have slightly tougher comps.

Are you seeing that in the numbers.

That we showed in the third quarter and then finally in Asia Pacific It really was a project management business.

Which was slightly lower than than expected that business does tend to be fairly lumpy.

We did see very strong activity a year ago.

Michelle McKay: The final stage in our roadmap is all about sustainable long-term growth. We intend to achieve this by continuing to diversify our revenue and driving market share gains through a differentiated agile and client-centric strategy. This means further partnering with our clients to help drive our business forward. We're not just hiring brokers but armoring brokers with proprietary data, analytics and insights. One example of how we've recently levered the power of the Christian platform is a mandate that we've won for the large global EV company by creating a cross-functional team from advisory services, technology, and business development.

And so if one looks on a year to date basis APAC services was actually up around 6% and so that's sort of smooth some of the Lumpiness mhm.

And and I want to make clear that while there's a few unique items this quarter impacting the results, we arent satisfied with the low level of organic growth that we reported in our services business and this business is a big priority for us.

And a key area to invest then there's a lot of opportunity for us to grow our services businesses organically and we will be focusing on driving accelerated growth in this business specifically.

Alright fair enough. Thank you and then maybe secondarily I mean I don't know if this is a follow up to earlier question on 'twenty 'twenty four but obviously you are looking for second half recovery next year, but if we stay in this environment here and I'm not so much focus on expenses, but more for the growth outlook.

Michelle McKay: We brought the client a bespoke solution informed by our unique expertise and perspective and the knowledge of a full spectrum of professionals. When we do that, I'll bet on our team against anyone else's. We are also using our analytical capabilities to develop a view on where this company and our clients should be positioned 510 and even 20 years down the road. We are looking closely at mega trends in the built world.

Do you still think there is this growth in the business from from from these kind of levels. I mean again you have to you have a large portion of our kinetic recurring businesses and then I think again on the sales side a couple of market size, we're pretty pretty soft already.

Michelle McKay: Factors such as technology, urbanization, geopolitics, climate change and demographics and layering these mega trends into distinct real estate sub sectors across the stages of a typical real estate cycle. This helps us to understand where in each cycle its sector sits and identify segments that we believe will be disproportionately benefit in terms of both growth and resilience. This valuable proprietary analysis led by our independent research team is only one example of how we are positioning the company to the opportunistic while continuing to provide independent data driven and highly tailored advice and solutions for our clients.

Hard to see that go a lot lower than on the leasing side I think renewals are actually supposed to be down next year, but maybe you're still getting market share. So maybe maybe a little bit of an early question about 'twenty 'twenty four but in an unchanged environment can you do you actually think you can grow from here or or or would that still be a some headwinds here.

Okay. So there's a couple of things to unpack. So let me, let's just start with leasing them and we'll give you our experience here. So this year. We've got a couple of large leases this quarter for occupiers, but we're also seeing them holding off on decision, making how you can translate that is they're going to have to make a decision eventually so archie.

Buyers have taken a defensive posture this year because of higher cost of capital right and they've been very careful with expenditures, which obviously impacts their decision making but.

Michelle McKay: It's clear to me the companies who will win in today's complex built world are those that can provide owners and occupiers expert data driven advice and solutions as well as flawless execution. Our best in class analytics and the strength of our newly integrated team positions us not only to uniquely meet that need but also to gain share in a highly fragmented market. As you can see over the past several months we have made significant strides in fine tuning and beginning to execute on our plan.

But it's really unusual for leasing to jump ahead of a downturn typically leasing moves in line with GDP and job growth, that's what you're getting at but what we think is happening is perhaps some of the weakness that would've been in 'twenty 'twenty four is actually getting pulled forward. This year. So we expect leasing volume to hold through next year and.

Really improve overtime, but as you've said is that we're not to be the case, we're well prepared as Neil has spoken to and both our cost structure and the fact that we have the services business. When you talk about capital markets I'm predicting the timing of cat Mark the rebound really difficult, but we know it's going to come and if you look behind that.

Michelle McKay: We are pushing hard to create a more agile resilience and efficient pushman and wakefield that anticipates market trends and captures first mover advantage where and when it really matters. We will share more details each quarter as we pursue these goals.

Surface the preconditions that will lead to the recovery are starting to form in here inflation is coming in right and we've got the fed. This week, we think that theres going to be a pause in their we're starting to see some of the shoots around stressed and distressed asset trading valuations and.

Michelle McKay: I view this process as an ongoing evolution of the company as we solidify our position as a premier global advisor in built world and as I finished I would like to thank all of our employees for their continued hard work as we navigate through this uncertain operational environment. You impress me every day with your drive and dedication to go the extra mile for our clients.

Our indicators in that sector.

The next question is from Michael Griffin with Citi. Please go ahead.

Neil Johnston: And now I would like to hand the call over to Neil for a review of our third quarter financial results. Thank you Michelle and good afternoon everyone. For the third quarter we reported a substantial increase in both adjusted EBITDA and adjusted EBITDA margin despite the sequential decline in revenue. This demonstrates our commitment to enhancing profitability through our continued focus and providing cost efficiencies in our business. During the quarter we also made significant progress on improving the strength and flexibility of our balance sheet and some improvement in free cash flow with enhanced working capital efficiency.

Great. Thanks, maybe just piggybacking off of your previous response there Michele.

But that doesn't that you talked about you know organic growth initiatives. You can undertake is there any chance you can quantify some of those initiatives for us and any color around that would be helpful.

Yeah, I mean, I'm not going to quantify it for you today, but I will tell you that you're always going to see a toggle between deleveraging and investing for growth right. We're not just pushing on one panel we're going to push on both pedals at the same time services. The duration the nature of that particular business for us is really valuable and relate.

And chip to our other business and when you think of it in pockets think about G. O S think about asset and think about Cdw's services and those are going to be key areas that we target for investment.

Neil Johnston: Moving on to the details of the quarter. On the top line while transactional markets remained challenged we saw an improvement in the early year brokerage trends as we began to lap the difficult market conditions which began in late summer 2022. Third quarter fee revenue of $1.6 billion for tried in 11% for the prior year with capital markets revenue down 33% reaching revenue down 16% and PMF and revenue down 1%. We mentioned on our first quarter earnings call that due to a change in the gross contract reimbursables of one of our facility service contracts, our PMFM speed revenue would be reduced by roughly $90 million on annualized basis with no impact on total revenues or adjusted EBITDA.

Gotcha. That's helpful. And then maybe just on the capital markets business for the deals that are trading I mean can you give us a sense of what's out there you know what buyers are expecting if anything where buyers and sellers are and anything that would be helpful.

Yeah, I mean, I think there's a lot of friction in the surface still with regards to clearing levels in trading and you clearly have movement of cash flow flight to quality in the assets as well, 60% to 65% of the deals we actually see getting done or still in industrial and multifamily.

And those are the two sectors the buyers sellers and lenders have the most confidence then there's strong buildup in capital for opportunistic right. There's a lot of dry powder out there and investors are also getting anxious to deploy it. So we don't think it's a matter of is it going to happen right, it's going to happen, but we probably have a couple.

Neil Johnston: Excluding the impact of this change, PMFM revenue was up roughly 2% in the quarter. Evaluation of other declined 18% in the third quarter as the snow downing transactions continues to result in low evaluation activity. Adjusted EBITDA for the third quarter of $150 million with down 27% versus prior, and our third quarter adjusted EBITDA margin with 9.4%. During the quarter, we continue to benefit from our previously announced cost savings programs. We have realized $98 million of gross savings year-to-date and expected in the years slightly ahead of our previously communicated $130 million target.

More months before we really start to see volume in terms of clearing in the stressed and distressed markets.

The next question is from Ronald Camden with Morgan Stanley. Please go ahead.

Yeah, just two quick ones just don't want all the capital market's recovery.

You know I think you know I think a lot of the peers have talked about sort of a second half 'twenty four.

Neil Johnston: We believe we've taken the appropriate level of cost cutting actions to write science business for the current environment and in the term recovery period. I'm pleased with our team's execution on these actions and we will continue to pursue ways to operate more efficiently and profitably, regardless of the operating landscape. Adjusted EBITDA for the quarter was 21 cents, a decrease of 22 cents versus prior year.

But you know obviously, it's probably a year later than we all expected.

How is that being determined is it just sort of hey, the macro is going to be better. So therefore people have to transact or is there something more of that that we should be looking for.

Those deals done and why I'm, just I'm just trying to figure out like how are we planning how are we planning down the days for a recovery or is it just.

Neil Johnston: 20 child segments for the quarter. In the Americas, we saw a 26% year-of-year decline in brokerage revenues and a 1% decline in the MFM. Excluding contract change, PMFM revenues in the Americas grew 2.5%. The decline in brokerage were across most asset types, principally due to the higher interest rate environment and macro economic headwinds. In the year, we experienced a 14% year-of-year decline in brokerage revenues. Leasing revenue was found 5, but year-of-year trends improved sequentially as our teams were able to successfully execute several large deals during the quarter.

Based on the macro.

Yeah, I mean, I think rate stabilization is the key right that leads to cap rate stabilization that leads to stronger transaction activities. So I think when we're all taking a point of view that leans toward the second half of next year a lot of it has to do with what the curve looks like right you want to have a normalized curve the real estate markets have functioned for.

50 years right when the tenure was above 5% and function well. So we're waiting for the timing to happen. So that we have a normalized curve and people can start to transact around that versus waiting for one is if I'm gonna come out next.

Neil Johnston: Capital markets revenue remained under pressure, down 32%, and a near PMFM revenue was up 4%. Our APEC region reported a solid quarter, with brokerage revenue at 15% year-of-year as we experienced growth in several countries, including Australia, India, and Japan. Our PMFM business at APEC was down 2% priority due to lower project management activity. Adjusted EBITDA's Clyde in the Americas and a near principally driven by the lower brokerage activity, while EBITDA and APEC grew 44% driven by the improvements in capital markets.

Got it and then my next question was just on just going back to the cash flow statement. It looks like there was a.

A lot of cash that flowed through this quarter, just any any sort of one timer and as we're thinking about the back half of the year or any other sort of you know one off that we should think about as we're as we're translating EBITDA to cash flow.

Yeah.

No Ron.

Generally what we see is with the lower earnings.

Seeing below earnings being offset by the release of working capital our teams in the field has done a phenomenal job and really focus on working capital and so we are seeing the benefits of that we're also seeing lower cash taxes.

Neil Johnston: As previously mentioned, we saw a significant improvement in free cash flow. Free cash flow for the third quarter was $174 million, versus $38 million in the third quarter of 2022. On a training 12-month basis, we generated $152 million of free cash flow, compared with $40 million a year ago. During a third quarter, we refinered the majority of the remaining $1.6 billion of our term-run bid due to 2025, for the combination of $1 million of new term-run bid to 2030, and $400 million of secured notes due to 2030-1.

As a result of the lower earnings.

So those are sort of the items that are driving the free cash flow, but nothing specific.

At one time, we do think cash flow. This year is going to be very strong.

Again, if you have a question. Please press Star then one.

The next question is from Stephen Sheldon with William Blair. Please go ahead.

Hi, Neil and Michelle you've got Pat Mcinally on from William Blair. My first question is with U S office vacancies near 20% now how much do occupancy trends in that space impacted demand you see for outsourcing services in your P. M outside business and and has that been or would you expect.

Neil Johnston: We expect to repay the approximately $200 million of remaining term-run bid to 2025 with cash on the head. This moves on numerous significant funded debt maturity to 2028. The refinery did not meaning for the increase our overall borrowing cost and our debt remains approximately 93% fixed. Overall, our financial position remains strong, with 1.7 billion of liquidity consisting of cash on hand of 588 million dollars and availability on our evolving credit facility of 1.1 billion dollars. We have no outstanding borrowings on our evolve and net leverage was 4.5 times at the end of the third quarter.

That to begin a weighing more on growth in the business at all.

I mean, let me just come back to you with that question. So do you mean that the vacancy in office buildings impacting our services business.

Correct, yes demand for no guessing Sara yeah.

Yeah, I think the way that we're thinking about it now is that we think we're nearing the end of the remote work impacts that we've seen a lot of it happened already right and something to keep in mind is that the average leased in the U S is about six or seven years long and most businesses have already made their decisions on space.

Neil Johnston: Finally, moving on to our outlook. For the 4 year 2023, we anticipated our PMFM revenues to grow in those single digits. We expect brokerage revenues for the 4 year 2023 to be down 20 to 25 percent compared to our previous guidance of down 20 percent. Due to these reduced expectations for brokerage revenues, we now expect to be near the low end of our previous adjusted even of March and guidance range of 9 to 10 percent for the 4 year 2023.

So either they signed a new lease likely for less space or they're still in their existing space or they've lifted their space to sublease.

So a lot of this has already played through the system. We did have some impact over the course of 'twenty 'twenty great in the office portfolios that we manage but I wouldn't anticipate a material change not over 'twenty 'twenty four.

Neil Johnston: Looking ahead into next year, given the recent new plan and interest rates have continued uncertainty around bid actions, we expect that a market recovery brokerage may be delayed until the second half of 2024. Despite current market conditions, we believe the work we've done is up 233 on driving 3 cash flow, achieving cost efficiencies, and strengthening our balance sheet, positions that's extremely well financially navigate the upcoming year.

Understood. Thanks, and then just as a follow up a little bit further on the cost saving initiatives. So.

We've heard peers said that they are looking a bit more producer head count given the longer expected downturn and I'm just curious if it's for how your strategy has changed on that front in terms of maintaining.

Maintaining recovery capacity for recovery versus supporting margins until we do see that recovery.

No I think we've always been very focused on.

Michelle McKay: That concludes the financial review and the outlook clinical back to the show. Thanks, Neil. I'm proud of what we've accomplished during the third quarter and the work we are doing to position the company for the future. We will continue to control what's within our reach for the focus on creating flexibility and optionality in this next stage. I am confident that our GoFord strategy will position the company for long-term sustainable growth.

The return of any investment, we're making in producers and so I think we've been very prudent with our capital allocation.

Michelle McKay: And I look forward to sharing our progress with you each quarter.

We feel good about the investments, we're making in growing up.

And in our recruiting and our retention.

And you know I don't see that changing as we move forward either.

In either direction, so feel very good about.

Production capacity and how that sets us up for what any potential recovery in 2024, yeah, and just to give you a little bit of our philosophy around it.

Operator: And now, I'll turn the call over to the operator to take your questions. Operator? We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you were using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit your question to one and a single follow-up. If you have additional questions, you may rejoin the queue.

We look at talent much like we look at our portfolio of businesses right and like in any business. We question is that team or individuals focus on what we consider a core strategy.

The area that we're really focused on did the economics of that makes sense right. What do we want new talent that we're bringing in and so we're always pairing and pruning our talent. So that we have advisors in the shop that really drive the future of the company. So I think that when you think about it movement.

Anthony Paolone: Our first question today is from Anthony Payalone with JP Morgan. Please go ahead. Great. Thank you. I guess my first question relates to the plan you outlined to finding incremental cash to reduce debt over the next years. I wonder if you could expand on that a bit and just maybe put some brackets around order of magnitude. And what sort of assets do you see, you know, CWK having right now that could be monetized? Like are these businesses? Are there investments on the balance sheet that could be sold? I just wonder if you can give a little more detail on all that.

For us, meaning people, leaving and people coming in is gonna be a normal course of business that cushman.

The next question is from Patrick O'shaughnessy with Raymond James. Please go ahead.

Hey, good evening, so what would the implications of a potential we worked bankruptcy would be on your strategic relationship with we work are there any tangible risks to any revenue streams.

There are large the investment as a whole.

Well you know we've already taken the mark to market there and then in terms of our relationship with them.

Michelle McKay: Sure. I think the best way to think about our long-term target for leverage is between the two to three percent range. And we plan to get those through a combination of debt paydown and EBITDA growth. Our goal is to demonstrate a balance between the two and the way they were allocating capital. So we want to both be reducing debt and investing in growth. Right? This is not in either or conversation. And I think what's important for everybody to understand is that we're committed to reducing our debt level over time as we grow the business. Because we believe this is the optimal path to generating strong shareholder returns.

We do do work for them, but.

It's not material to the overall company.

So I would anticipate that if there was a bankruptcy many of those spaces still need you get so there's still going to get managed though it's still going to get changed.

It's an essential service so we don't see it as a material impact to the company.

Great. Thank you and then can we get your updated thoughts on Greystone and in particular do you consider greystone to be a core asset in a core part of your strategy or would they maybe fit into the noncore bucket.

Michelle McKay: In terms of monetization, I think before I talk about that, I just want to speak to the fact that monetization can take place in a variety of forms. It's not always an all-out sale of a business or an entity. And what I can say about that is because of the way the company was built through a series of mergers and acquisitions, and there are components that were brought into the entity that are not necessarily strategic or core.

So we view our investment greystone for the long term we remain very.

Constructive on the multifamily platform and we believe the underlying long term fundamentals in that business are strong.

While we did see a decline in greystone, primarily due to a reduction in lending volumes.

We were actually quite pleased in the quarter and are on a relative basis in terms of our performance.

Michelle McKay: And we're not going to outline or speak what they are or to them directly today. But I can tell you that they are small in size. And that they wouldn't necessarily meet the long-term growth profile of the company.

We took share in all three of the agencies, we remain the number one FHA.

Partner, Orlando, we and number two with Fannie number five was ready.

And so we continue to take share and view that as very.

Anthony Paolone: Okay, thanks for that.

Very strategic as we move forward.

Neil Johnston: And then just my second question, Neil, I think you mentioned coming in at a little bit above a $130 million cost saving target for $23, and you felt like that was kind of where you'd end up and felt good about that. But just wondering if the business stays challenged into $24 or maybe goes longer before we see much recovery, do you have other levers you could pull there, or there are other cross-fades that could be contemplated?

This concludes our question and answer session and the conference is also now concluded. Thank you for participating in today's presentation. You may now disconnect.

Okay.

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Neil Johnston: Anthony, at this point, we feel like the $130 million that we're targeting is the appropriate level to not only insure our margins in this year, 2023, but also through 2024 in terms of what we are forecasting and that contemplates the month recession. We are always focused on efficiencies. So, you know, there are always additional levels that we can pull. We always are improving the operating ability of the business. I think the easiest way to think about it is in that $130 million savings, about 20% are temporary costs, which you took out of the business in 2023, things like travel, marketing, those types of costs.

Neil Johnston: If we did see the market continue to run at the same sort of levels all the way through next year, then obviously we would hold back on allowing any of those costs to come back into the business. And then, you know, that cost savings on a permanent basis would increase from about $130 to about $160 million for the year.

Okay.

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Okay.

Yeah.

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Alex Kramm: The next question is from Alex Kram with UBS. Please go ahead. Yes, hey, good evening, everyone. Maybe starting first on the PMFM business. Maybe there's a little nitty gritty here, but I know you're at the contract change, but if I look at your updated outlook, Neil, I don't think you mentioned it, but I think the lowest single digit expectation is a downgrade to your prior expectation from, I think, low to mid.

Yeah.

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Alex Kramm: So, just curious what else has changed in that business? Is there is true increasing or the sales pipe or sales cycles just longer? So maybe just talk about that business because it seems like your lower expectations there slightly. Yeah, I know this isn't a shell.

Yeah.

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Neil Johnston: I'm going to let Neil talk you through some of the numbers, and then I'll address our services strategy. Sure, yeah, Alex. You know, I think the best way to think about our services business is really considering three different things. As you say, the first one is the fact that we had that contract change, that takes the growth from negative one to a positive two, which is in line with our mode to mid, but arguably at the moment.

Mhm.

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Neil Johnston: The second thing is in the prior year, we saw very strong services growth. In fact, that growth with double digit all the way through the first three quarters of the year. So, as we came into this year, we really would have slightly tougher comps. And that you're seeing that in the numbers that we showed in the third quarter. And then finally, in Asia Pacific, it really was our project management business, which was slightly lower than expected.

Neil Johnston: That business does tend to be fairly lumpy. We did see very strong activity a year ago. And so if one looks on a year-to-date basis, AIPAC services was actually up around 6%. And so that's sort of snooze some of the lumpiness. And I want to make clear that while there's a few unique items this quarter impacting the results, we aren't satisfied with the low level of organic growth that we reported in our services business.

Neil Johnston: And this business is a big priority for us and a key area to invest in. So there's a lot of opportunity for us to grow our services businesses organically. And we will be focusing on driving accelerated growth in this business specifically.

Michelle McKay: Alright, fair enough. Thank you. And then maybe secondarily, I don't know if this is a follow-up to earlier question on 2024, but obviously you are looking for second half recovery next year. But if we stay in this environment here and are not so much focused on expenses but more for the growth outlook, you know, do you still think there's this growth in the business from from these kind of levels? I mean, again, you have the you have a large portion of our kind of recurring businesses.

Michelle McKay: And then I think, again, on the on the sales side, capital market sides were pretty, pretty soft already, hard to see it go a lot lower. And then on the leasing side, I think renewals are actually supposed to be down next year, but maybe you're still getting market share. So maybe maybe a little bit of an early question about 2024, but in an unchanged environment, can you do you actually think you can grow from here or or would that still be a some had to win here?

Michelle McKay: Okay, so there's a couple of things to unpack. So let me let's just start with leasing. And we'll give you our experience here. So this year we cut a couple of large leases this quarter for occupiers, but we're also seeing them holding off on decision making. How you can translate that is they're going to have to make a decision eventually. So occupiers have taken a defensive posture this year because of higher cost of capital, right?

Michelle McKay: And they've been very careful with expenditures, which obviously impacts their decision making. But it's really unusual for leasing to step ahead of a downturn typically leasing moves in line with GDP and job growth. That's what you're getting at. But what we think is happening is perhaps some of the weakness that would have been in 2024 is actually getting pulled forward this year. So we expect leasing volume to hold through next year and hopefully improve over time.

Michelle McKay: But as you said, if that were not to be the case, we're well prepared as Neil has spoken to in both our cost structure and the fact that we have a services business. When you talk about capital markets predicting the timing of cat mark the rebound really difficult, but we know it's going to come. And if you look behind the surface, the preconditions that will lead to the recovery are starting to form in here.

Michelle McKay: Inflations coming in, right, we've got the Fed this week. We think that there's going to be a pause in there. We're starting to see some of the shoots around stress and the stress asset trading valuations and other indicators in that sector.

Michael Griffin: The next question is from Michael Griffin with city. Please go ahead. Great. Thanks. Maybe just piggybacking off of your previous response there, Michelle, on the CMS of business. You talked about, you know, organic growth initiative. You can undertake any chance you can quantify some of those initiatives for us and any color around that would be helpful. Yeah, I mean, I'm not going to quantify it for you today, but I will tell you that you're always going to see a toggle between us, leveraging and investing for growth.

Michael Griffin: Right. We're not just pushing on one pedal. We're going to push on both pedals at the same time. Services, the duration, the nature of that particular business for us is really valuable in relationship to our other business. And when you think of it in pockets, think about GOS, think about asset and think about CW services. And those are going to be key areas that we target for investment.

Michelle McKay: Gotcha, that's helpful. Maybe there's a lot of capital markets for the deals that are trading. Can you give us a sense of what's out there, what buyers are expecting if anything or buyers and sellers are and anything there would be helpful? I think there's a lot of friction in the surface still with regards to clearing levels and trading and you clearly have movement of cash flow flight to quality in the assets as well.

Michelle McKay: 60 to 65% of the deals we actually see getting done are still in industrial and multi-family and those are the two sectors that buyers, sellers and lenders have the most confidence in. There's strong build up in capital for opportunistic, right? There's a lot of dry powder out there and investors are also getting anxious to deploy it. So we don't think it's a matter of is it going to happen, right? It's going to happen. But we probably have a couple more months before we really start to see the volume in terms of clearing and the stress and the stress markets.

Ronald Kamdem: The next question is from Ronald Kamdem with Morgan Stanley. Please go ahead. Yeah, just two quick ones. So one of the capital markets recovery, I think a lot of the peers have talked about sort of a second half, 24. Which obviously it's probably a year later than we all expected. How is that being determined? Is it just sort of, hey, the macro is going to be better? So therefore people have to transact?

Ronald Kamdem: Or is there something more that we should be looking for for those deals to unwind? I'm just trying to figure out how are we pending down the days for a recovery or is it just based on the macro?

Michelle McKay: Thanks. Okay, yeah, I mean, I think rates stabilization is the key, right? That leads to cap rates stabilization that leads to stronger transaction activity. So I think when we're all taking the point of view that leads toward the second half of next year, a lot of it has to do with what the curve looks like, right? You want to have a normalized curve. The real estate markets have functioned for 50 years, right?

Michelle McKay: When the 10 year was above 5% and functioned well. So we're waiting for the timing to happen so that we have a normalized curve and people can start to transact around that versus waiting for when is it going to come out next?

Ronald Kamdem: Got it.

Neil Johnston: And then my next question was just gone back to the cash flow statement. Looks like there was a lot of cash that flowed through this quarter. Just any sort of one timer and as we're thinking about the back half of the year, any other sort of, you know, one off that we should think about as we're as we're translating EBITDA to cash flow? No, Ron, you know, generally what we're seeing is with the lower earnings, we're seeing the lower earnings being offset by the release of working capital.

Neil Johnston: Our teams in the field have done a phenomenal job really focus on working capital. And so we are seeing the benefit for that. We're also seeing lower cash taxes as it was also the lower earnings. So those are sort of the items that are driving the free cash flow, but that means specific. And one time we do think cash flow this year is going to be very strong.

Operator: Again, if you have a question, please press star then one.

Stephen Sheldon: The next question is from Stephen Sheldon with William Blair. Please go ahead. Hi, Neil and Michelle, you've got Pat McIlwee on from William Blair.

Michelle McKay: My first question is, with US office vacancies near 20% now, how much do occupancy trends in that space impact the demand you see for outsourcing services and your PMF on business and has that banner would you expect that to begin weighing more on growth in the business at all? Let me just come back to you with that question. So do you mean that the vacancy and office buildings impacting our services business?

Michelle McKay: Correct. Yes, demand for the outsourcing service. Yeah, I think the way that we're thinking about it now is that we think we're nearing the end of the remote work impact, so we've seen a lot of it happen already. Right, and something to keep in mind is that the average at least in the US is about six or seven years long. And most businesses have already made their decisions on space. So either they signed a new lease likely for less space, or they're still in their existing space, or they listed their space to sublease. So a lot of this has already played through the system. We did have some impact over the course of 2020. Great.

Michelle McKay: In the office portfolio is that we managed, but I wouldn't anticipate a material change in that over 2024. Understood, thanks. And then just as a follow up a little bit further on the cost saving initiatives. So we've heard peers say that they're looking a bit more producer had count given the longer expected downturn. And I'm just curious if if or how your strategy has changed on that front in terms of maintaining recovery capacity for recovery versus supporting margins until we do see that recovery.

Michelle McKay: Now, I think we've always been very focused on the return of any investment we're making in producers. And so, you know, I think we've been very potent about capital allocation. We feel good about the investment we're making in growing up with you in our recruiting and our retention. And, you know, I don't see that changing as we move forward either, you know, in either directions. So it's very good about our production capacity and how that sets us up for any potential recovery in 2024.

Michelle McKay: Yeah, and just to give you a little bit of our philosophy around it, we look at talent much like we look at our portfolio businesses, right? And like in any business we question, is that team or individual focus on what we consider a course strategy? An area that we're really focused on. To the economics of that makes sense, right? What do we want new talent that we're bringing in? And so we're always pairing and pruning our talent so that we have advisors in the shop that really drive the future of the company. So I think that when you think about it, movement for us, meeting people, leaving and people coming in is going to be a normal course of business at Cushman.

Patrick O'Shaughnessy: The next question is from Patrick O'Shaughnessy with Raymond James. Please go ahead. Hey, good evening.

Michelle McKay: So what were the implications of a potential we work bankrupt to be on your strategic relationship with we work? Are there any tangible risks to any revenue stream? There are not, you know, the investment as a whole has, you know, we've already taken the market market there. And then in terms of our relationship with them, we do do a lot of work for them, but it's not material to the overall company. So I would anticipate that if there was a bankruptcy, many of those spaces still need to get service, still need to get service, so we don't see it as an actual impact to the company.

Michelle McKay: Great, thank you.

Michelle McKay: And then can we get your update of thoughts on Greystone? And in particular, do you consider Greystone to be a core asset and a core party of strategy, or would they maybe fit into the non-core bucket? So we view our investment of Greystone for the long term. We remain very constructive on the multi-family platform, and we believe the underlying long term fundamentals and evidence are strong. You know, while we did see at a client in Greystone primarily due to a reduction in lending volumes, we were actually quite pleased in the corner on a relative basis in terms of our performance.

Michelle McKay: We took share in all three of the agencies. We remain in the number one FHA partner, or Linda. We're number two of Spani, number five was ready, and so we continue to take share and view that as very strategic as we look forward.

Operator: This concludes our question and answer session, and the conference has also now concluded. Thank you for participating in today's presentation. You may now disconnect. Anthony Paolone, Johnston, Patrick McIlwee, Alexander Kramm, Johnston, Patrick McIlwee, Alexander Kramm Anthony Paolone, Johnston, Patrick McIlwee, Alexander Kramm, Johnston, Patrick McIlwee