Q4 2023 Cushman & Wakefield PLC Earnings Call

Welcome to the Cushman and Wakefield fourth quarter 2023 earnings conference call.

Operator: Welcome to the Cushman & Wakefield fourth quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you may press star, then 1 on your telephone keypad, and to withdraw from the question queue, please press star, then 2.

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 from the question queue. Please press Star then two.

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's fourth 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

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

Megan Mcgrath: Thank you and welcome to Cushman and Wakefield fourth quarter 2023 earnings Conference call.

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

Megan Mcgrath: It's really along with today's presentation can be found on our Investor Relations website at IR deck Cushman Wakefield dotcom.

Megan Mcgrath: Please turn to the page in our presentation labeled Cautionary Notes on Forward-Looking Statements. 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.

Megan Mcgrath: Please turn to the page in our presentation label cautionary note on forward looking statements.

Megan Mcgrath: Today's presentation contains forward looking statements based on our current forecasts and estimates of future events.

Megan Mcgrath: Statements should be considered estimates only and actual results may differ materially.

Megan Mcgrath: During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines. Reconciliations 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 in 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 in local currency unless otherwise stated. Thank you, Megan.

Megan Mcgrath: During today's call, we will refer to non-GAAP financial measures as outlined by FCC guidelines reconciliations 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.

Megan Mcgrath: Also please note that throughout the presentation comparison and growth rates are to the comparable periods of 2022 and in local currency unless otherwise stated.

Megan Mcgrath: And with that I'd like to turn the call over to our CEO Michelle Mackay.

Michelle Mackay: Thank you Meghan it's hard to believe this is just my third earnings call as CEO of Cushman and Wakefield given the pace of change since I became the CEO in July of last year.

Michelle McKay: It's hard to believe this is just my third earnings call as CEO of Cushman & Wakefield given the pace of change since I became CEO in July of last year. Since then, we've looked at every aspect of our business. We have updated and mapped out long-term strategic plans for the first time since the IPO in 2018. And we're using data to make tough decisions around spending and capital allocation, which will set us all up for future growth. We took actions toward deleveraging with our two refinancing transactions last year, and we plan to begin the process of reducing our leverage later this quarter.

Michelle Mackay: Since then we've looked at every aspect of our business, we have updated and mapped out long term strategic plans for the first time the IPO in 2018, and we're using data to make tough decisions around spending and capital allocation, which will set us all up for future growth.

Michelle Mackay: And we took actions towards deleveraging with our two refinancing transactions last year, we plan to begin the process of reducing our leverage later this quarter.

Michelle Mackay: You can see the impact of the changes that we've made in our 2023 result.

Michelle McKay: You can see the impact of the changes that we've made in our 2023 results. We generated $570 million in adjusted EBITDA and $100 million in free cash flow, up from essentially a break-even number in 2022. And we're not done.

Michelle Mackay: We generated 570 million in adjusted EBITDA, and 100 million of free cash flow up from essentially a breakeven number in 2022.

Speaker Change: And we're not done we.

Michelle McKay: We made extraordinary strides last year in a short period of time, operating with rigor, executing with speed and urgency, and never settling, continuing to drive the business forward. And we haven't come this far to stop now.

Speaker Change: We made extraordinary strides last year in a short period of time operating with rigor executing with speed and urgency and never settling.

Speaker Change: To drive the business forward.

Speaker Change: And we Havent come thus far to stop now.

Speaker Change: Every day, we are working to improve our financial position and flexibility and to create momentum both internally and with our clients.

Michelle McKay: Every day, we are working to improve our financial position and flexibility and to create momentum both internally and with our clients, so that we are poised to capitalize when the market inevitably recovers. We've already started to see some green shoots. In the fourth quarter, leasing revenue grew year over year in all three of our reported regions due to growth in large office and industrial deals in the U.S. and strength in Europe and APAC. Our services businesses remained resilient, growing revenues at 3% in 2023, on top of double-digit growth in 2022. But, as I've mentioned before, we are not satisfied with this level of growth, but thanks to the detailed strategy work we completed last year, we're entering 2024 with a better understanding of each of our services businesses and a clear focus on strengthening both long-term growth and profitability. Now, people have been asking about our view on 2024. Let me start with capital markets. As a long-time real estate investor, I know it's not only the absolute level of interest rates that matter, although it's important.

Speaker Change: We are poised to capitalize when the market inevitably rebound.

Speaker Change: We've already started to see some green shoots in the fourth quarter leasing revenue grew year over year in all three of our reported regions due to growth in large office and industrial deals in the U S and strength in Europe and APAC.

Speaker Change: Our services businesses remained resilient growing revenues at 3% in 2023 on top of double digit growth in 2022.

Speaker Change: But as I have mentioned before we are not satisfied with this level of growth, but thanks for the detailed strategy work. We completed last year, we're entering 'twenty 'twenty four with a better understanding of each of our services businesses and a clear focus on strengthening both long term growth and profitability.

Speaker Change: Now people have been asking about our view on 'twenty 'twenty four let me start with capital markets.

Speaker Change: As a longtime real estate investor I know, it's not only the absolute level of interest rates that matter, although it's important.

Michelle McKay: But what also matters is the shape of the yield curve. With the inverted curve that we have today, people are hesitant to borrow and lend long. Once the Fed begins to cut rates, which seems likely to happen later this year, we expect the yield curve to begin a process of normalizing.

Speaker Change: But what also matters is the shape of the yield curve.

Speaker Change: With the inverted curve that we have today people are hesitant to borrow and lend law.

Speaker Change: Once the fed begins to cut rates, which seems likely to happen. Later this year, we expect the yield curve to begin a process of normalizing.

Michelle McKay: This should help people get more comfortable about taking 5, 10, and 15-year risks, providing a pathway to a more active market. While we anticipate a moderate initial reduction in interest rates later this year, we do feel closer to the restarting of capital markets activity than we have in some time. So, even before the Fed cuts, there is a creative, profitable opportunity for us to pursue. Every week, we hear about more funds being raised for real estate investment.

Speaker Change: This should help people get more comfortable about checking 510, and 15 year risk, providing a pathway to a more active market.

Speaker Change: And while we anticipate a moderate initial reduction in interest rates. Later this year would you feel closer to the restarting of capital markets activity than we have in some time.

Speaker Change: So even before the fed cuts there is accretive profitable opportunities for us to pursue.

Speaker Change: Every week, we hear about more funds being raised for real estate investment.

Michelle McKay: There is roughly $400 billion of dry powder in the market waiting to be deployed. And even in distress, there's opportunity for Cushman & Wakefield. Our new Real Estate Optimization Team helps our clients evaluate, monitor, and address potentially stressed or distressed assets. Now, moving on to leasing. We expect stable to modest growth in this segment in 2024, supported by a solid level of lease expiration. And even with many companies still permitting hybrid work, there is 10.5 billion square feet of occupied office space globally.

Speaker Change: It was roughly 400 billion of dry powder in the market waiting to deploy.

Speaker Change: And even in distress, there's opportunity for Cushman and Wakefield.

Speaker Change: Our new real estate optimization team helps our clients evaluate monitor and address potentially stressed or distressed asset.

Speaker Change: Now moving on to leasing we expect stable to modest growth in this segment in 'twenty 'twenty four is supported by a solid level of lease exploration.

Speaker Change: Even with many companies supplementing hybrid work, there's 10 and a half a billion square feet of occupied office space globally.

Speaker Change: And finally, we see significant opportunity to organically expand our services businesses, thanks to our global scale and client centric strategy.

Michelle McKay: And finally, we see significant opportunities to organically expand our services businesses thanks to our global scale and client-centric strategy. We remain disciplined and focused on creative growth. For example, we recently won a long-term contract with a large global financial services company. They weren't looking for the biggest services provider but for a thoughtful partner to help create and execute innovative solutions designed specifically for them, which is why they chose Cushman. And in another recent win, the deal never went to RFP.

We remain disciplined and focused on accretive go up.

Speaker Change: For example, we recently won a long term contract with a large global financial services company.

Speaker Change: They weren't looking for the biggest services provider, but for a thoughtful partner to help create and execute innovative solutions designed specifically for them.

Speaker Change: Which is why they chose cushman.

Speaker Change: Another recent win the deal never went to RFP, we want on our reputation our relationships and our ability to handle complicated situation.

Michelle McKay: We won on our reputation, our relationships, and our ability to handle complicated situations. Through our commitment to streamlining our cost structure, enhancing our balance sheet and cash flow, and strengthening our client-facing initiatives, we are poised to create meaningful value as the market returns to growth. We will never settle; we are often seen as the scrappy challenger in this market, outthinking others, and brave in our decision-making and advice. The people of Cushman & Wakefield proudly lean into today's market challenges because we don't run away from our clients' biggest challenges; we run to them. And with that, I'll hand the call over to Neal. Thank you, Michelle. And good afternoon, everyone.

Speaker Change: So our commitment to streamlining our cost structure, enhancing our balance sheet and cash flow and strengthening our client facing initiatives, we are poised to create meaningful value as the market returns to growth.

We will never subtle.

Speaker Change: We're often seen as the scrappy challenger in this market.

Speaker Change: Thinking others rave in our decision, making and advice.

Speaker Change: People of Cushman, and Wakefield proudly lean into today's market challenges.

Speaker Change: We don't run away from our clients' biggest challenges we run to them.

Speaker Change: And with that I'll hand, the call over to Neil.

Neil: Thank you Michelle and good afternoon, everyone.

Neal: While the macro environment in 2023 was persistently challenging, we proactively enhanced our balance sheet strength and flexibility, prudently cut costs, and improved our free cash flow conversion through better working capital efficiency, all of which position us well for a market recovery. For the fourth quarter, P revenue was $1.8 billion, a 3% decrease from the prior year. PMFM revenue was up 1%, or up 3.4%, excluding the contract change we discussed last quarter. This change will continue to impact the first half of the year, resulting in a roughly $50 million headwind to P revenue, but no impact to EBITDA. Leasing revenues grew 5% this previous year, the first positive result we have reported in this segment since Q3 2022, as we saw improved results in each of our reported regions.

Neil: While the macro environment through 2020 story with persistently challenging.

Neil: Actively enhanced our balance sheet strength and flexibility to cut costs.

Neil: Free cash flow conversion through better working capital efficiency, all of which position us well for a market recovery.

Neil: Fourth quarter fee revenue was $1 8 billion.

Neil: <unk> decreased from the prior year.

Neil: Revenue was up 1%.

Neil: Three 4%, excluding the contract change we discussed last quarter.

Neil: <unk> will continue to impact the first half of the year, resulting in a roughly $50 million headwind to fee revenue, but no impact to EBITDA.

Neil: Leasing revenues grew 5% with right Yeah. The first positive result, we have recorded in this segment since third quarter 2022 additional improved results in each of our reported regions.

Neal: Capital markets revenue declined 32% in the fourth quarter, as transactional markets continue to be impacted by interest rate volatility and uncertainty; valuation, in other words, down 4% a sequential improvement in the year-over-year trend. Adjusted EBITDA for the fourth quarter was $213 million, down $7 million from the prior year. Despite the decline in revenue, our adjusted EBITDA margin of 11.8% was essentially flat year-over-year, reflecting our commitment to cost discipline. Adjusted earnings per share for the quarter was $0.45, down $0.01 from the prior year.

Neil: Capital markets revenue declined 32% in the fourth quarter, that's transactional markets continued to be impacted by interest rate volatility and uncertainty.

Neil: Valuation and other was down 4% a sequential improvement in.

Neil: Brent.

Neil: Adjusted EBITDA for the fourth quarter was $213 million down 7 million from the prior year.

Neil: Despite the decline in revenue and adjusted EBIT margin of 11, 8% was essentially flat year over year, reflecting our commitment to cost discipline.

Neil: Adjusted earnings per share for the quarter was 45 cents.

Neil: One from the prior year.

Neal: Turning to our segment results for the quarter, in the Americas, we saw a 10% year-over-year decline in brokerage revenues, with capital markets revenue down 36% and leasing revenue up 2%. We are encouraged by the fourth quarter performance in leasing, as we successfully executed an increased number of large office and industrial deals. America's PMFM revenue increased 1%, or 4.6%, excluding the impact of the contract change.

Neil: Turning to our segment results for the quarter in the Americas, we saw a 10% year over year decline in brokerage revenues with capital markets revenue down 36% at least see revenue up 2%.

Neil: Courage by the fourth quarter performance and leasing as we successfully executed an increased number of large office and industrial deals.

Neil: Americas <unk> revenue increased 1%.

Neil: 6%, excluding the impact of the contract change.

Neal: America's adjusted EBITDA of $139 million declined 16% for $24 million versus the prior year, with $14 million of the decline attributable to our Greystone joint venture, as FHA volumes remained under significant pressure in the quarter. We continue to believe that long-term fundamentals in the multifamily market are compelling, and we expect results in this business to stabilize in 2024. Amir Brokerage revenue declined 1% in the quarter, with capital markets down 26% and leasing up 13%, a particular strength in the UK.

Neil: Americas, adjusted EBITDA of $139 million declined, 16% or $24 million best price was $14 million decline attributable to our greystone joint venture.

Neil: They trade volumes remain under significant pressure in the quarter.

Neil: You need to believe that long term fundamentals in the multifamily market al Kelly.

Neil: We expect results in this business to stabilize in 2024.

Neil: EMEA brokerage revenue declined 1% in the quarter with capital markets down, 26% and leasing up 13%.

Neil: Chicken is strength in the U K.

Neal: PMF and revenue are down 11%, primarily reflecting lower project management activity due to reduced capex budgets, as well as our focus on driving profitable growth. Adjusted EBITDA is down 28%, with adjusted EBITDA margins up 670 basis points, driven by the change in mix to higher-margin leasing revenue as well as the tied cost discipline. Our APEC region reported another solid quarter, with leasing revenue up 14% and capital markets up 5%, driven by strong growth in Southeast Asia and India, valuation otherwise down 4%, and PMF up 7%, as property facilities and project management all performed well in the quarter. Now turning to our full year results. For the full year 2023, we generated a fee revenue of $6.5 billion, a 10% decrease over the prior year. Capital markets declined 41%, leasing was down 12%, and valuation and other was down 11%.

Neil: Revenue was down 11%, primarily reflecting lower project management activity due to reduced capex budget as well as our focus on driving profitable growth.

Neil: <unk> EBITDA in EMEA grew 48%.

Neil: Adjusted EBITDA margins up 670 basis points, driven by the change in mix to higher margin recurring revenue.

Neil: Hi, Scott.

Scott: Oh APAC region reported another solid quarter with initial revenue up 14% capital markets at 5% driven by strong growth in southeast Asia, and India valuation, although it was down 4% and TNF and grew 7% as property facilities and project management, all performed well in the quarter.

Now turning to California results.

Scott: Full year 2023, we generated revenue of $6 $5 billion, a 10% decrease over the prior year.

Scott: If the market's declined 41% leasing was down 12% and valuation and other was down 11% partially offsetting these declines in.

Neal: Partially offsetting these declines, NFM revenue grew 3% for the full year, supported by strong growth in facilities management and property management. We achieved adjusted EBITDA of $570 million, a 37% decrease from 2022, with adjusted EBITDA margins of 8.7%. Adjusted earnings per share for the year was $0.84.

Scott: Revenue grew 3% for the full year.

Scott: Supported by strong growth, so, let's just management and property management.

Scott: Achieved adjusted EBITDA of $517 million or 37% decrease from 2022.

Scott: Adjusted EBIT margins of eight seven.

Scott: Adjusted earnings per share for the year was 84 says.

Neal: Turning to cash flow, we generated $101 million of free cash flow for the full year, compared with a $2 million use of cash in 2022. I am very proud of our team's work to improve free cash flow generation. It took a global effort and significant cross-functional cooperation to increase our working capital efficiency and deliver these strong results. We remain committed to deleveraging and expect to begin debt repayments later this quarter. Our balance sheet is secure. Following our QB financings in 2023, we had no significant funded maturity until 2028, outside of the $193 million term loan due in 2025, which we expect to repay with cash on hand. At the end of the quarter, we had $1.9 billion of liquidity, consisting of $800 million of cash on hand and $1.1 billion available on our revolving credit facility. We had no outstanding borrowings on our revolving credit facility.

Scott: Turning to cash flow, we generated $101 million of free cash flow for the full year compared with a 2 million use of cash in 2022, I am very proud of our teams worked to improve free cash flow generation. It took a global effort and significant cross ocean operation to increase our working capital efficiency and deliver these strong results.

Scott: We remain committed to deleveraging and expect to begin debt repayments this quarter.

Scott: She's a secure following two refinancings in 2023, we have no significant funded maturity until 2028 outside of the $193 million Timna July 2025, which we expect to repay with cash on hand.

Scott: At the end of the quarter, we had $1 $9 billion of liquidity.

Scott: You have $800 million of cash on hand, and $1. One you innovate on our revolving credit facility, we had no outstanding borrowings on our revolver.

Scott: Everybody just four three times and taking into account our interest rate hedges, 92% centered on debt, which covers the fixed rate.

Neal: Our net leverage is 4.3 times, and taking into account our interest rate hedges, 93% of our debt is currently fixed rate. Finally, moving on to our outlook. For the first quarter, we expect revenue to be relatively flat year-over-year, with a slight improvement in sequential brokerage trends and modest services revenue growth as we focus on driving profitable growth in that business. We expect to achieve a slight year-over-year improvement in EBITDA as last year's cost actions are expected to more than offset first quarter cost increases. We are not providing full-year guidance today, but I'd like to give you some color on how we are currently thinking about the headwinds and tailwinds for the year. We do expect trends in capital markets to improve throughout 2024. However, sustained growth is unlikely to occur before the second half of this year, when we anticipate a more productive interest rate environment.

Scott: Finally, moving on to our outlook for the first quarter, we expect revenue to be relatively flat year over year, a slight improvement sequential brokerage trends in March.

Scott: Modest service revenue growth as we focus on driving profitable growth.

Scott: Yes.

Scott: We expect to achieve a flat year over year improvements in EBITDA as last year's cost actions are expected to more than offset first quarter cost increases.

Scott: We're not providing full year guidance today, but I'd like to give you some color on how you're currently thinking about the headwinds and tailwind for the year.

Scott: Would you expect trends in capital markets to improve throughout 2024.

Scott: Sustained growth is unlikely to occur before the second half of this year, but are you anticipating that could use of interest rate environment.

Scott: We expect the leasing market.

Scott: To be stable for the year and for our services business to grow at a similar rate to 2023.

Scott: On the cost side, we anticipate some cost pressure in 2024, driven by normal inflation, that's where the higher incentive comp as we focus on positioning the company for a market for us.

Neal: We expect the leasing market to be relatively stable for the year and for our services business to grow at a similar rate to 2023. On the cost side, we anticipate some cost pressure in 2024, driven by normal inflation, as well as high incentive compensation as we focus on positioning the company for market growth. We expect these cost headwinds will be mostly offset by our cost efficiency initiatives.

Scott: Expect these cost headwinds, mostly offset our cost efficiency initiatives.

Scott: In conclusion, a 2023 we solidified the balance sheet and significantly improved free cash flow ending the year with positive momentum we are financially well positioned for gross margin improvements and further capital structure enhancements once consistent market growth returns.

Neal: In conclusion, in 2023, we solidified the balance sheet and significantly improved free cash flow, ending the year with positive momentum. We are financially well-positioned for growth, margin improvements, and further capital structure enhancements once consistent market growth returns. And with that, I'll turn the call back over to Michelle. Thanks, Neal!

Scott: With that I'll turn the call back over to Michelle.

Thanks Neil.

Michelle Mackay: 2023 was the year that we strengthened our foundation.

Michelle Mackay: Cushman 100, plus years of history to begin writing the story of our next century.

Michelle Mackay: 'twenty 'twenty four will be another transformational year for us as we see future growth opportunities continued to execute for the long term.

Michelle McKay: 2023 was the year that we strengthened our foundation, building on Cushman's 100 plus years of history to begin writing the story of our next century. 2024 will be another transformational year for us as we see future growth opportunities, continue to execute for the long term, drive discipline in our capital allocation, and maintain our focus on unlocking meaningful value in the company. Now I'll turn the call over to the operator to take your questions. Operator?

Michelle Mackay: Discipline in our capital allocation and maintain our focus on unlocking meaningful value in the company.

Speaker Change: Now I'll turn the call over to the operator to take your questions.

Speaker Change: Operator.

Speaker Change: Thank you we.

Speaker Change: We will now begin the question and answer session.

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

Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys to withdraw. Your question you May Press Star then two.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

Speaker Change: In the interest of time, please limit yourself to one question and one follow up.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Anthony Paolone: To withdraw your question, you may press star then 2. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Anthony Paolone with J.P. Morgan. Please go ahead.

Okay.

Speaker Change: Today's first question comes from Anthony of Hallowed with J P. Morgan. Please go ahead.

Anthony: Thank you I guess my first one just wanted to clarify Neal like when you talk about services fee revenue what would always included in that bucket, because I guess, what I'm trying to understand is.

Anthony:

Anthony: Just kind of where the 24 revenue picture rolls up to you know just given the three bullets here and your your artwork.

Neal: Thank you. I guess my first one is, Neil, when you talk about services, fees, and revenue, what all is included in that bucket? Because I guess what I'm trying to understand is, You know, just kind of where the 24 revenue picture rolls up to, you know, just given the three bullets here and your outlook. Sure, Tony.

Neal: Sure Tony So essentially three areas like property management facilities management, which I think facilities management to see WNS business, which is the the janitorial.

Neal: And then.

Neal: So essentially, three areas: property management, facilities management, which includes our CWS business, which is more of a janitorial business, and then property management. And then, finally, project management. If we think about 23, it was really project management where we saw the decline, especially in the fourth quarter. Facilities management and property management were strong, but certainly, as CapEx budgets got constrained during the year, it was the more ad-hoc property management which declined. As we look to 2024, particularly in the first quarter, we are hyper-focused on accretive long-term growth. And so if we look at our service contracts, which are historically long-term and recurring, what we really are focused on is how we improve profitability over the long run. So services remains a key focus area for us. We are focused on delivering high-quality, differentiated services.

Neal: The appropriate management.

And then finally project management.

Neal: If we think about 'twenty three it was really project management, where we saw the decline, especially in the fourth quarter facilities management and property management was strong.

Neal: But certainly as Capex budgets got constrained during the year.

Neal: The more AD hoc property management.

Neal: Which declined as we look to 2020 for chicken in the first quarter. We are hyper focused on accretive long term growth and so as we look at our service contracts, which are historically long term and recurring.

Neal: What we really are focused on is how we improve the profitability over the long. So services remains a key focus area for us.

Neal: We are focused on delivering high quality differentiated service and so what that May do is pressured the margin certainly early in the year.

Neal: And so what that may do is pressure the margin, certainly early in the year, but ultimately lead to strong accretive growth as we move to the back half of the year and into 2024. But if I just, you know, try to..., you know, take what you've put out here in noting sort of the cost, headwinds, some of that you'll offset. I mean, should we take the outlook to be if, you know, if you're running a fairly flattish top line, that margins will be flat, you know, maybe even down a little bit, just trying to get to, you know, the sensitivity on margins? Sure.

Neal: Timothy E. Two strong accretive growth so as you go through the back half.

Neal: 2025.

Neal: Okay.

I if I just.

Neal: Try to you know.

Neal: Take what you've put out here and noting sort of the cost headwinds some of that you'll you're upset I mean should we take the outlook to be if.

Neal: You know if you're running a fairly flattish top line that margins will be flat, maybe even down a little bit just trying to get to you know the sensitivity on margins.

Speaker Change: Sure. So if we look at margins I think we've got a breakthrough here into two halves, obviously a lot of the margin will depend on how we see brokerage coming back as well.

When you see brokerage come back that's when we really will see margin accretion if we think specifically about the first quarter.

Neal: So if we look at margins, I think we've got to break the year into two halves. Obviously, a lot of the margin will depend on how we see brokerage coming back. As we know, when we see brokerage come back, that's when we really will see the margin accretion. If we think specifically about the first quarter, we do expect to be able to drive approximately 100 basis points of margin improvement in the first quarter as we see a net benefit of our 23 cost savings. And then if we look to the full year, we expect that net benefit to reverse as we lap some of that 23 cost action. You know, taking a longer-term view, the work we did on the cost side in 23 has set us up well for margin accretion when brokerage comes back. But that'll depend on the speed of recovery.

Speaker Change: What we do expect to be able to drive approximately 100 basis points of margin improvement in the first quarter.

As we see a net benefit of 23 cost savings.

And then if we look to the full year, we expect this benefit to reverse as we.

Speaker Change: Lap some of that 23 cost action.

Speaker Change:

Speaker Change: Look at a longer term view the work we did on the cost side in twenty-three has set us up well for margin accretion when brokerage comes back.

Speaker Change: But that will depend on the speed of the recovery.

Speaker Change: Thank you. The next question comes from Ronald Camden with Morgan Stanley. Please go ahead.

Ronald Camden: Thank you. The next question comes from Ronald Camden with Morgan Stanley. Please go ahead.

Ronald Camden: Great. So I guess my my first question was just on the thinking about sort of the cash flow conversion, maybe could you just provide some context of how 2023 closed out in your view and how youre thinking about cash flow conversion.

Neal: Great, so I guess my first question was just on the thinking about sort of the cash flow conversion. Maybe you could just provide some context of how 2023 closed out and how you're thinking about cash, as we go. Even if it's the first half, the second half, break down.

Ronald Camden: As we're going into 2024, even if it's a first half second half breakdown just curious how you guys are thinking about that.

Neal: That's how you guys are thinking about that. Sure, absolutely, Ron. So, you know, as I said on the call, we were exceptionally pleased with the work that our teams did to drive free cash flow in 2023. And that certainly has positioned us well as we go into 2024 to be able to use that capital in the most equitable manner. Several factors drove the positive outcome, but it was primarily working capital. And if we look at what the contributors were in working capital, about half of it was from the natural release of working capital as the business slowed.

Ronald Camden: Sure.

Speaker Change: You know as I said on the call. We were exceptionally pleased with the work our teams did to drive free cash flow in 2023, and that certainly has positioned us well as we go into 'twenty, four which will use that capital in the most accretive manner.

Speaker Change: Several factors drove the positive outcome, but it was primarily working capital and.

Speaker Change: And if we look at what the contributors and working capital of about half of that was from the natural release of working capital as the business slowed.

Speaker Change: The other half was really driven by our internal focus and initiatives. So as we look into 2020. So it's it's those initiatives which were already.

Neal: The other half was really driven by our internal focus and initiatives. So, as we look into 2024, it's those initiatives that really put us in a good place through 24. I did not expect to see the same level of natural release that we saw in 23 as the business strengthened.

Speaker Change: Put us in a good place through 'twenty four I do not expect to see the same level with natural lease that we sold in 23 years the business strengthens.

Speaker Change: As we will continue to focus on cash become free cash flow conversion. It is a very high priority, but you can expect us to use our balance sheet to drive growth, especially as we start seeing those green shoots in the back half yeah.

Neal: And in fact, as we will continue to focus on free cash flow conversion, it is a very high priority. But you can expect us to use outbound financing to drive growth, especially as we start seeing those green shoots in the back half of the year. Great. And then just going back to the OneCue Outlook, which is super helpful.

Speaker Change: Great.

Speaker Change: And then just going back to the <unk> outlook, which is super helpful.

Speaker Change: <unk> talked about sort of a slight increase in adjusted EBITDA I think you mentioned sort of a 100 basis points.

Neal: I talked about sort of a slight increase in adjusted EBITDA and basically... last year. I guess if we roll that forward a little bit, thinking about the back half of the year, how should we be thinking about sort of the... cop stuff, right? Because...

Speaker Change: And basically margin gains versus last year, I guess, if we roll that forward a little bit thinking about the back half of the year, how should we be thinking about sort of the year over year comp on an on EBITDA right because.

Neal: Presumably, there is some sort of recovery coming in the back half of the year, but it sounds like... depending on the margin out. EBITDA could be flat, or it could be slightly up. As we roll forward, what should we be keeping in mind for the EBITDA trajectory? Uh... compared. Yeah, I think the question you're really asking is on the cost side, how we're thinking about the costs. We'll make assumptions on the revenue side, and I'll leave that to you. We're not providing full guidance.

Presumably there is some sort of recovery coming in the back half of the year, but it sounds like.

Speaker Change: Depending on the margin outlook.

Speaker Change: EBITDA could be flat could be could be slightly up.

Speaker Change: As we roll forward, how what should we be keeping in mind for the EBITDA trajectory.

Speaker Change: Compared to 23.

Speaker Change: Yeah, I think you know.

Speaker Change: I think the question you're really asking is on the cost side. How are we thinking about the costs will make assumptions on the revenue side and I'll leave that to you, we're not providing full guidance, but as we think about the costs.

Michael Griffin: But as we think about the costs for the full year, we are balancing some headwinds and some tailwinds. As with most companies, we are facing some inflation, particularly in the first half of the year. And in addition, we will see some of our incentives come back, certainly as performance improves. So what that means is we certainly will offset all of our cost increases in the first half of the year. But as we look to the back half of the year, we will mostly offset our increases, but not completely. And so inflation in the back half will really be driven by that recovery in brokerage, depending on the timing and extent of that. Thank you. The next question is from Michael Griffin with Citi. Please go ahead.

Speaker Change: We are balancing some headwinds with some tailwind.

Speaker Change: As with most companies we are facing some inflation, particularly in the first half yeah.

Speaker Change: In addition, we will see some of our incentive comp come back safety performance.

Speaker Change: Performance improves.

Speaker Change: So what that means is we certainly will offset all of our cost increases in the first half of the year.

Speaker Change: We looked at back half of the year after year.

Speaker Change: Yeah.

Speaker Change: Mostly offset.

Speaker Change: Not completely and so margin accretion in the back half, we're going to be driven by that recovery in brokerage, depending on the timing and extent of that.

Speaker Change: Thank you. The next question is from Michael Griffin with Citi. Please go ahead.

Michael Griffin: Great. Thanks, Neil maybe just a question on the balance sheet and leverage I know its still above kind of that historical range that youre looking to get it done.

Neal: Great, thanks. Neil, maybe just a question on the balance sheet and leverage. I know it's still above kind of the historical range that you're looking to get it in. But if the expectation, and maybe I read this wrong, is for EBITDA to be, you know, flat on a year-over-year basis, I guess, what's it going to take to get that leverage metric down to a more comfortable level? Michael, look, if we think about 23, we had a very strong pre-cash for a year, so that's given us a lot of flexibility and optionality as we look at 24. Leverage is clearly a key priority, and as I said on the call, we will begin repaying debt at the end of the quarter. Our intent is to pay down the 193 that is out on the 25-term loan by August 25, but the exact timing will depend on how we see that recovery.

But if the expectation and maybe I read this wrong is for EBITDA to be flat on a year over year basis, I guess, what's it going to take to get that leverage metric down to a more comfortable level.

Michael Griffin: Michael look if we think about 'twenty three we had a very strong free cash flow. Yeah. So that's given us a lot of flexibility and optionality as we look at 'twenty four leverages its surely a key priority and as I said on the call. We will begin repaying debt at the end of the quarter.

Michael Griffin: Our intent is to pay down the 193 that is out on the 25 10.

Michael Griffin: 25, but the exact timing will depend on how we see that recovery, we are fairly optimistic about the year.

Neal: We are fairly optimistic about the year, and so, you know, we will see leverage come down naturally as EBITDA improves. We ended the year at 4.3 times, which was right in line with what we guided to, and our long-run target remains intact. We would like to operate in that range 2-3 times, but naturally, leverage is driven by two things, debt and EBITDA, and so as we see that recovery in EBITDA, that's when we'll really see that decline in leverage. Great, that's going to help.

Michael Griffin: And so you know.

Michael Griffin: We will see leverage come down naturally as EBITDA improves.

Michael Griffin: <unk>.

Michael Griffin: We ended the year at four three times, which was right in line with what we guided to low end target remains intact, we would like to operate in that two to three times.

Michael Griffin: But naturally leverage distributed by two things debt and EBITDA and so as we see that recovery of EBITDA, that's all of it.

Michael Griffin: That decline in leverage.

Michael Griffin: Great.

Michelle McKay: Yeah, I'll just add we are all very comfortable at these levels. We feel like we're in a good place. Gotcha. I appreciate the color on that.

All right.

Speaker Change: Yeah, I'll just add we are comfortable at these levels.

Speaker Change: We feel like we're in good place.

Speaker Change: Okay.

Speaker Change: Got you I appreciate the color on that and then maybe just a broader question about the leasing market. It seems like results in the fourth quarter were better than what expectations were going into it I mean are you seeing a more concerted effort for these occupiers of particularly office real estate too.

Michelle McKay: And then maybe just a broader question about the leasing market. It seems like the results in the fourth quarter were better than what expectations were going into it. I mean, are you seeing a more concerted effort by these occupiers of, particularly, office real estate to make decisions around leasing? I mean, we've heard, I guess, more on the REIT side, that large occupiers are still kind of delayed in making these big decisions. So has anything changed there? Or has the time from, you know, first interacting with the broker to sign the lease, and that's still pretty long relative to historical levels?

Speaker Change: To make decisions around leasing I mean, we've heard I guess more on the on the REIT side that large occupiers are still kind of delayed and in making these big decisions. So has anything changed there or is the time from you know.

Speaker Change: First interacting with a broker to sign the leases, that's still pretty long relative to historical levels.

Speaker Change: Michael This is Michelle let me, let me unpack that for you.

Michelle McKay: Michael, this is Michelle. Let me unpack that for you. Net-net leasing is looking really solid for us, and it's a global strength at Cushman & Wakefield. It has been driven by the performance that we've seen, and it has been driven by larger office and industrial deals. And if you look at 2023, the average deal size for us did increase in office, in particular, so we are seeing a lot of those larger, more concentrated transactions. And in the U.S., in particular, we saw strength in the Northeast market, the Tri-State, and the Midwest. And in Europe, I would call out the UK.

Leasing is looking really solid for us and it's a global strength at Cushman and Wakefield. It has been driven by the performance that we've seen has been driven by larger office, an industrial deal and if you look at 2020 three the average deal size for US did increase and office in particular, we are seeing a lot of those large.

Speaker Change: There are more concentrated in transactions and in the U S. In particular, we saw strength in the northeast markets.

Speaker Change: The Tri state are the Midwest.

Speaker Change: And in Europe are I would call out in the U K and in APAC I would call out India. So we're feeling pretty optimistic about leasing going forward in 2024, and your question about occupiers, making decisions I think me.

Stephen Hardy Sheldon: And in APAC, I would call out India. So we're feeling pretty optimistic about leasing going forward in 2024. To your question about occupiers making decisions, I think the type of occupier that we are dealing with and the class A product that we tend to work in has really driven that kind of performance because those occupiers are making decisions. Thank you. As a reminder, to ask a question, you may press star then 1. The next question comes from Steve Sheldon with William Blair. Please go ahead. Hi, you've got that Mac away on today.

Speaker Change: Of occupier that we are dealing with and the class a product that we tend to work in has really driven that kind of performance because those the occupiers are making decisions.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question you May Press Star then one.

Speaker Change: Next question comes from Steve Sheldon with William Blair. Please go ahead.

Stephen Hardy Sheldon: Hi, you've got that back or we own today. So my first question.

Neal: So my first question, it sounds like you're essentially at your targeted run rate for the cost saving initiatives at this point. I just wanted to ask you if you'd be able to quantify the impact of those initiatives in the quarter. And, you know, if you feel that you're still at an appropriate run rate heading into 2024, or if there are any areas you're still looking at for additional, Yeah, so we are very comfortable where we are from a cost efficiency standpoint. You know, 23 was the year when we really reset our cost base. Our target was to take out $130 million in costs.

Stephen Hardy Sheldon: It sounds like you're essentially at your targeted run rate for the cost saving initiatives at this point I just wanted to ask you if you'd be able to quantify the impact of those initiatives in the quarter and if.

Stephen Hardy Sheldon: If you feel that you're still at inappropriate run rate heading into 2024 or if.

Stephen Hardy Sheldon: If there are any areas you're still looking at for additional efficiency.

Speaker Change: Yeah. So we are.

Speaker Change: Very comfortable where we are from a cost efficiency standpoint, 23 was the when they really reset our cost base. Our target was to take out $130 million of cost. We achieved 140 <unk>. So we feel good about what we achieved in just eat.

Neal: We achieved $140 million. So we really feel good about what we achieved and just, you know, very proud of what the teams did throughout the world in achieving those cost savings. We are now in a pretty good place. So now we're sort of turning our attention to how we start seeding growth in the company as we look forward, obviously depending on what we see happening in the brokerage markets. That $140 million will have a carryover impact of about $30 million, which we'll see primarily in the first half of the year.

Speaker Change: Very proud of what the teams did throughout the world in achieving those cost savings.

Speaker Change: We are now at a at a pretty in a pretty good place and so now we sort of turning our attention on on how we start seeing growth.

Speaker Change: In the company as we look forward, obviously, depending on what we see happening in the brokerage market that 140 million will have a carryover impact of about $30 million, which will see primarily in the first half of the year. We will continue to be very prudent on cost with cost management is clearly a focus on a disciplined.

Neal: We'll continue to be very prudent on cost. Cost management is clearly a focus and a discipline that we're very good at at the moment and will continue. At this point, we are not planning any specific cost initiatives like we did in 2023. But at the same time, you know, they're always levels that we can pull, but we are turning our attention more to seeding growth.

Speaker Change: Very good idea of a time, we will continue at this point, we are not planning any specific cost initiatives like we did in 2023.

Speaker Change: The same time, you know they always 11th of coal.

But we are turning our attention more to see the growth.

Speaker Change: Great. Thanks, Neil and then just.

Neal: Great, thanks, Neil. And then just quickly, can you provide any additional color on some of the underlying trends within PMFM or services, and you know specifically what exactly is driving some of that weakness you saw? I think you said it accelerated a bit in the fourth quarter, just what's going on there, broadly. Yeah, you know, if we look at services, services performed right in line with our expectations and our guidance for the full year. The one adjustment you have to make is for a single large contract, which will change the way in which we are accounting for that contract. That's about $50 million in 2023 and about $50 million in 2024.

Speaker Change: Just quickly can you provide any additional color on the some of the underlying trends within.

Speaker Change: P M F M or services and specifically what.

Speaker Change: Exactly is driving some of that weakness you saw I think you said it accelerated a bit in a in.

Speaker Change: In the fourth quarter, just just what's going on there broadly.

Speaker Change: Yeah, you know if we look at services I said this has performed right in line with our expectation and our guidance.

Speaker Change: One adjustment you have to make as full of a single large contract, where we changed the way in which we are accounting for that contract that's about $50 million in 'twenty, three and about $50 billion. In 24. So if you exclude that contract, which really just changes the way.

Neal: So if you exclude that contract, which really just changes the way gross net revenue is reflected but does not change EBITDA or the profitability of the contract, we grew our services business at 4% for the year, which was right in line with our guidance. We expect similar performance in 2024. If we look at where we saw it, you know, essentially it was in project management, where we saw a slight slowdown, but property management and facilities management were very strong. We saw particularly strong growth in Asia Pacific, where we have large services businesses, and those businesses performed well. On the project management side, and certainly as we look at making the business more efficient, that was really what drove the decline in services in EMEA.

Speaker Change: Gross and net revenue is reflected but does not change the the EBITDA or the profitability of the contract.

Speaker Change: Peru, our services business at 4% for the year, which was right in line without without guidance, we expect similar performance in 'twenty four.

Speaker Change: If we look at where we saw what essentially it.

Speaker Change: It was in the project management, where we saw a slight slowdown, but property management and facilities management with very strong where we saw particularly strong growth in Asia Pacific, where we have large services businesses and those businesses or well on the project management side and certainly as we look at making the best with more efficiency more efficient.

Speaker Change: That was really what drove the decline in services in EMEA.

Neal: You know, a very, very healthy look at the business and really a long-term focus, as I say, to drive long-term accretion. So, you know, as we look at the first and second quarters, we'll continue to focus on profitability and expect, you know, to achieve the same level of growth in 2024 as we achieved in 2023. Thank you. At this time, we are showing no further questions. This concludes our question and answer session, and I'd like to turn the call back to Michelle McKay for any closing remarks. Thank you, Operator, and thank you, everyone, for dialing in today. We look forward to speaking with you again on our first quarter earnings call. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.

Speaker Change: It's very very healthy I'll look at the business and really a long term focus as I say to drive.

Speaker Change: Long term accretion. So you know as we look in the first and second quarter will continue to focus on profitability and expect.

Speaker Change: To achieve.

Speaker Change: At the same level of growth in 2000 and for US we achieved in 'twenty three.

Speaker Change: Thank you at this time, we're showing no further questions. This concludes our question and answer session and I'd like to turn the call back to Michelle Mackay for any closing remarks.

Michelle Mackay: Thank you operator, and thank you everyone for dialing in today, we look forward to speaking with you again on our first quarter earnings call.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Speaker Change: [music].