Q1 2024 Jones Lang LaSalle Inc Earnings Call
[music].
Welcome to the Q1, 'twenty 'twenty four G L L earnings Conference call.
The name is Benjamin and I'll be your operator for today's call.
Speaker Change: This time, all participants are in a listen only mode.
Speaker Change: We will conduct a question and answer session.
During the question and answer session. If you have a question. Please press star one on your Touchstone fellas.
A reminder, the conference is being recorded.
I'll now turn the call over to Scott I'd been good.
Speaker Change: Head of Investor Relations, Scott you may begin.
Thank you and good morning, welcome to the first quarter 2024 earnings Conference call for Jones Lang Lasalle incorporated.
Earlier. This morning, we issued our earnings release, along with a slide presentation, an excel file intended to supplement our prepared remarks.
These materials are available on the Investor Relations section of our website. Please visit IR Dot J L. L Dot com.
During the call and in our slide presentation company, an excel file we reference certain non-GAAP financial measures, which.
Which we believe provide useful information for investors.
We include reconciliations of non-GAAP financial measures to GAAP.
This release and slide presentation.
As a reminder, today's call is being webcast live and recorded.
Script and recording of this conference call will be posted to our website.
Speaker Change: Any statements made about future results and performance plans expectations and objectives are forward looking statements.
Actual results and performance may differ from those forward looking statements as a result of factors discussed in our annual report on Form 10-K for the fiscal year at December 31, 2023, and in other reports filed with the SEC.
The company disclaims any undertaking to publicly update or revise any forward looking statements.
I will now turn the call over to Christian Ulbrich, our President and Chief Executive Officer for opening remarks.
Thank you Scott.
Hello, and welcome to our first quarter 2024 earnings call.
I'm very pleased with our first quarter results.
We were able to grow both resilient and transactional revenue and turn that into meaningful profit close.
The year started with some positive momentum highlighted by an increase in bid and the closing of several large deals in North America.
These green shoots encapsulate investors' willingness to deploy capital when market conditions warrant.
However, once inflation data came in higher than expected and the hope for several interest rate cuts later this year diminished.
Real estate capital markets became much quieter Ken.
In the first quarter global commercial real estate investments totaled $135 billion, a year over year decline of 4% According to J lease ups.
The pace of decline moderated in the quarter across the Americas and EMEA.
While Asia Pacific experienced its second consecutive quarter of growth.
That market conditions improved in early 2024.
Speaker Change: Both in terms of pricing and liquidity.
However, commercial real estate markets have taken a pause over the last several weeks as lenders and investors adapt to a shift in the interest rate outlook.
Linda confidence remains.
And its strongest for industrial living in data centers, especially for high quality assets up smaller deal sizes.
Turning to office leasing.
To be improved in the quarter or by compact with subdued 2023 level.
Globally office leasing volumes increased 7% year over year, According to javelin research.
Both the U S and Asia Pacific saw increases in demand as occupiers continue to upgrade to premium quality sustainable space.
The employee experience.
In Europe limited available space continues to dampen transaction activity.
A number of large lease transactions improved in the quarter, but it's still well below pre pandemic levels.
The global office vacancy rate ticked up 30 basis points to 16, 5% in the first quarter, driven mainly by North America, where the market continues to process leases that require 10% to 15% less space.
On the industrial side first quarter leasing activity declined globally as decision, making slowed amid geopolitical and economic uncertainty.
In the U S occupiers continue to manage through the record amount of space that was leased following the pandemic across much of Europe, and Asia Pacific a limited supply of modern energy efficient space is constraining activity.
By growth in average rental rates moderated across all three regions.
Long term fundamentals in the industrial sector remains strong supported by near shoring requirements and demand for high quality sustainable space that allows for technology integration automation.
Finally in the retail sector consumer spending in international tourism remains resilient supporting demand for space in prime locations.
Jill: Turning to Jill.
Our first quarter results were driven by both revenue growth and the cost management actions we have taken.
Collectively our resilient revenue base grew 12% in the quarter as clients leverage the full suite of services, we provide across our workplace and property management platform.
Our leasing and capital markets business performed well given the broader industry and economic environment.
As we noted in the past.
As the number one U S debt origination platform as well as the leading equity placement platform. According to the mortgage focus Association.
We are uniquely positioned to manage the upcoming wave of debt maturities and capitalize on an eventual increase in commercial real estate transaction.
With that I will now turn the call over to Karen will provide more detail on our results for the quarter.
Thank you Christian.
Before I comment on our performance there are a few items to note regarding changes to our reporting presentation effective in January that we previewed during our fourth quarter call in late February.
First JV, all technologies and Lasalle equity earnings have been excluded from adjusted EBITDA and adjusted net income calculation.
While we exclude these investment related items equity earnings from our operating ventures across the other segments continue to be included.
Jill: Second our definition of Lasalle assets under management now includes uncalled committed capital and cash conforming with the industry standard.
This definition change has no impact on the CDC.
Erin.
Third.
At the conclusion of a comment letter from the FCC in February.
No longer report on the non-GAAP measure of CEVA.
Jill: As such our discussion of revenue and associated growth rates are inclusive of growth contract costs and net noncash MSR.
This primarily impacts the work dynamic segment and our property management business line within the markets Advisory segment.
Given the absence of fee revenue in our reported financials, we no longer specifically report adjusted EBITDA margin.
Importantly, these presentation changes have no impact on how we manage our business.
On a profitability or cash flow.
Nearly all of the information. We previously provided is included in our can be derived from our new presentation.
Comparable historical information is available at IR dot shallow dot com.
Separately and consistent with prior practice variances discussed are against the prior year period in local currency unless otherwise noted.
Now onto the discussion of our performance.
Revenue increased 9% to $5 1 billion and continued strength in our resilient revenues and a return to growth in our transactional revenue.
The revenue growth along with the benefits of our cost reduction were the primary drivers of the 70% increase in adjusted EBITDA.
Two and $187 million.
And that 168% increase in adjusted diluted EPS to $1 78.
The first quarter reflects the strength and diversity of our platform as well as our continued focus on improving operating efficiency.
The 12% increase in our resilient revenues was consistent with the pace in the fourth quarter and it was led by growth in workplace management and property management.
A notable increase in investment sales activity, albeit on a soft 2023 comparison.
You have a 1% increase in transactional revenue.
First year over year increase since the second quarter of 2022.
The 1% decline in platform operating expenses are a testament to our cost management actions as well as our ongoing initiatives to enhance efficiency.
The increase in profitability led to a 6% year over year improvement in free cash flow and a reduction in leverage, but we continue to invest in our business and return capital to shareholders.
We remain focused on positioning our business to best capitalize on near and long term opportunities to drive growth profitability and cash flow.
Moving to a detailed review of our operating performance by segment.
Beginning with markets advisory.
5% growth in revenue in the quarter with mainly driven by property management.
Portfolio expansions in the Americas, and the U K and incremental pass through expenses drove 8% property management revenue growth.
After five down quarters leasing revenue returned to growth increasing 2% go on a soft prior year quarter.
The growth was led by mid single digit growth in the U S. As most other geographies were down.
Increased deal size and transaction volumes in the office sector drove the growth in the U S, which more than offset declines in the industrial sector globally.
We continue to see more sustained leasing demand for high quality assets and so I'll pick up in large deal.
Both of which are favorable for our business next still occupiers continue to delay leasing decisions and large deals remain materially below the long term average.
Our global growth leasing pipeline continues to hold up supported in part by the contractual nature of leasing.
The improvement in the OECD business confidence index from late 2023 through March which generally leads leasing activity by two to three quarters.
Jill: Along with limited New office and industrial building starts.
And stabilization in sublease space provides optimism for pickup in activity in the latter part of 2024 and over the longer term.
We will be closely watching whether the recent escalation in geopolitical tensions impacted business confidence metrics.
The revenue growth and cost management actions drove a 33% increase and markets advisory adjusted EBITDA.
Shifting to our capital market segment.
Revenue increased 6% in the quarter. So often you did the prior year quarter.
Even as economic geopolitical and interest rate outlook uncertainty prolongs investor decision, making.
Our global investment sales revenue, which accounted for nearly 40% of segment revenue in the quarter grew 20% and compared favorably with the 4% decline in our global sales volume Christian referenced.
Revenue increased across most geographies led by Japan and Germany.
Nearly all major asset classes that will be office and health care.
Investment sales revenue in each region performed notably better than their respective market activity led by Asia Pacific According to javelin research.
Jill: Our U S investment sales debt and equity advisory, which accounts for approximately a third of the segment revenue grew low single digits.
The capital markets adjusted EBITDA improvement was predominately driven by revenue growth as well as cost management actions, which more than offset an increase in our multifamily loan loss reserve.
The investments we've made in our capital markets talent and platform over the past several years position us to capitalize on a rebound in transaction volume.
Looking ahead, the global capital markets investment sales and debt and equity advisory pipeline is up modestly compared with this time last year and client engagement momentum has picked up.
We continue to anticipate higher growth rates in the second half of 2024, However, as Christian described the volatility and outlook for interest rates along with elevated geopolitical tensions continue to weigh on investor sentiment and are impacting deal timing and closing rates, particularly in the near term.
Moving next to work dynamics.
11% revenue growth was led by a 15% increase in workplace management revenue at the 2023 global client wins and mandate expansion further ramped up.
Within project management lower pass through costs drove the 3% decline in revenue as management fees were flat.
In addition, the softer leasing activity in 2023 has moderated new project contracts.
The increase in work dynamics adjusted EBITDA was primarily attributable to the revenue growth absence of Tetris contract losses, We noted last year and ongoing cost management.
Jill: Overall, the vast market opportunity demand for our services and Theyre well positioned global platform gives us confidence and the sustainability of the segment's revenue and profit growth trajectory over the coming years.
Workplace management continues to see solid new sales trends alongside strong contract renewal and expansion rates.
<unk> 2023 wins will continue to support solid momentum through the first half of 2024.
Though likely at a more moderate pace in the past few quarters.
We remain focused on securing additional project management mandates.
However, the slower economic backdrop and soft late 2023 leasing environment may dampen near term growth rate.
Turning to <unk> technologies.
Lower bookings in the second half of 2023 as well as delays in client decisions were the primary drivers of the 12% decline in revenue.
We continue to see strong retention rates and <unk> technology software revenue. However, the combination of the change in our go to market approach, which primarily consisted of reducing our sales and marketing expenses in the latter part of 2023.
And delays in client decision is likely to continue to pressure growth in the near term.
The reduction in certain expenses associated with cost management actions and incremental operating efficiency gains drove an improvement in jail technologies adjusted EBITDA.
Jill: Which more than offset the lower revenue.
While the path is unlikely to be linear we aim to strike an appropriate balance between investing to drive growth and progressing into sustained profitability within this segment.
The combination of the revenue pressures and timing of expenses, including carried interest accruals may adversely impact Zillow technologies' profitability in the near term.
Now to Lasalle.
Revenue from advisory fees declined 7% in the quarter, primarily on the impact of ongoing valuation declines within our assets under management over the past year as well as lower fees in Europe from structural changes in our business mix.
We anticipate valuation declines to pressure our assets under management over the next few quarters.
Jill: Absent foreign currency exchange movements assets under management were 3% lower than a year earlier entirely attributable to valuation reduction.
Capital raising and deployment activity continued to be subdued in the evolving market environment, which also shows in the muted transaction and incentive fees in the quarter.
The decline in Lasalle adjusted EBITDA in the quarter was largely attributable to the lower revenue.
<unk> offset by benefits from cost management actions and lower compensation accruals.
Turning to free cash flow growth and earnings more than offset some modest growth related working capital headwinds and drove a 6% improvement in free cash flow, which was a net outflow of $721 million in the quarter.
As a reminder, the first quarter outflow, primarily stems from annual incentive compensation payments, coinciding with a typically seasonally slower business performance.
Cash flow conversion as a high priority and we're very focused on our working capital efficiency.
Jill: Shifting to our balance sheet and capital allocation.
Jill: Liquidity totaled $2 $3 billion at the end of the first quarter, including $1 9 billion of Undrawn credit facility capacity.
As of March 31 reported net leverage was one nine times down from 2.0 times a year earlier due to a reduction in net debt, partially offset by lower cash earnings over the trailing 12 months.
The first quarter typically marks the seasonal high point for leverage just given the nature of our cash flows.
Over the medium term, we intend to manage the business towards the middle of our zero to two times leverage range.
During the quarter, we selectively deploy capital towards growth initiatives and repurchased $20 million of shares during the quarter.
Organic reinvestment in our business remains a top priority for capital allocation augmented with targeted M&A.
Considering seasonality of cash flow.
Leverage in the broader macro and geopolitical volatility we anticipate near term share repurchases to continue at a pace that will at least offset expected full year stock compensation dilution.
Looking further out the amount of share repurchases will be dependent on the performance of our business, particularly cash generation and the macroeconomic outlook while all.
Jill: Also weighed against our broader investment opportunities.
Regarding our 2020 for full year financial outlook.
Growth trends and a more resilient business lines collectively remained solid.
The timing of a sustained recovery and a transactional business lines continues to be difficult to confidently predict considering the volatility in the interest rate outlook elevated geopolitical risks and mixed economic indicators.
Given our pipeline activity, we are cautiously optimistic for a pickup in transaction activity in the latter part of the year.
We continue to scale, our platform and invest to both capture future growth opportunities and drive operating leverage.
While we previously provided our full year 2024 target margin range.
For them with our new presentation format, we have shifted to an adjusted EBITDA dollar target range.
For full year 2024, we are targeting an adjusted EBITDA range of $950 million to $1, one 5 billion.
Which is consistent with our previously communicated range.
Our mid term targets again, aligning with our new presentation format.
Now consist of revenue and growth contract cost ranges, which are $25 billion to $30 billion and 15% to $19 billion respectively as.
As well as an adjusted EBITDA range of one six to $2 1 billion.
Importantly, these ranges are consistent with our previously communicated mid term targets.
The timeframe to achieve these targets will depend in part on the timing and pace of recovery in the transactional markets.
The many strategic initiatives, we have undertaken to drive growth and efficiency give us confidence in our long term resiliency and the value creation prospects of our business Kristian back to you.
Thank you Karen.
Let me look out to later this year.
The market will adapt to a higher for longer interest rate environment.
Pricing for the very best assets is beginning to stabilize in the U S UK and Australia.
License has declined 15% to 35% from peak levels.
According to jail else proprietary global bit intensity index.
It's been a growing number of readouts across most sectors in early 2024, which dynamics strongest for the industrial and living sectors.
Real estate as an asset class remains attractive based on its unique investment characteristics and retails and <unk>.
Leasing we expect the strong demand for high quality sustainable space to continue and due to the shortage of this type of space to drive an increase in rental rates.
In today's changing world, we have proven our ability to deliver superior client outcomes, while effectively managing profitability.
One JV model brings together the unique capabilities of our platform across the commercial real estate space, allowing us to sell more services and products to the same clients.
Technology and data tools provide our clients with leading insights into market trends and differentiate our offering while also helping to increase productivity.
We remain focused on growing our business as well as also expanding our margins.
Jill: Firstly in our resilient business loss.
Strengthening our service and product offerings, we will selectively add people and capabilities, both organically and through very targeted M&A.
Despite an ongoing challenging operating environment.
Aspects of gel a bright and we are.
Optimistic for 2025 and beyond.
Before I close I would like to thank our colleagues for the foremost commitment to always serving our clients.
Operator, please explain the Q&A process.
Speaker Change: Thank you we will now begin the question and answer session.
If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
I would like to withdraw your question simply press Star one again.
If you are called upon to ask your question and are listening very loud speaker in your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Again press star one to join the queue.
And your first question comes from the line of Stephen Sheldon with William Blair.
Please go ahead.
Hey, good morning, Thanks for taking my questions.
First one here I just wanted to ask it seems like there are eastern signs of life in capital markets.
So how are you thinking about your capacity there if things potentially improve later this year Karen I think you had some positive commentary there on talent levels et cetera. So can you give some more detail there how much your capacity producer level. So may be changed at a very high level and are you are you still investing there are you planning to continue investing.
Speaker Change: There as we think about the rest of this year, maybe ahead of a broader pickup in activity.
Speaker Change: Good morning, Stephen It's Christian.
Listen, we havent used our producer capacity any kind of multiple number.
Christian: And so we have.
More than enough capacity.
To drive higher revenues ROA books, if the market is returning in the second.
Part of this year.
We are using the current market environment to add.
Yes, there are few brokers, where we believe there's room for more capacity within our teams.
So that is on a relative.
Yes.
Yeah.
And then just didn't work dynamics nice step up in profit this quarter.
Can you maybe help parse out.
Some of the moving pieces there I think you had a drag from the Tetris contract.
And maybe just kind of how that cost containment efforts and maybe you can help support a higher profit level. There just any detail on the step up in its work dynamics profit.
Yeah, we were just calling out that last year, we had a drag in the Texas contracts of a year over year.
Didn't go up in the <unk>.
This year.
So it brings us back to People's attention overall as we noted in previous earnings calls we had significant wins.
Last year, which then obviously, we're taking life and we are benefiting from that.
This year.
And on top of that we are constantly trying to increase our productivity within all our service lines, but also within work dynamics and the combination of that.
Topline grows more business coming in.
The efforts around productivity has.
And this Boston expansion this quarter.
Got it Thats helpful.
Congrats on the nice results.
Thank you.
Christian: Your next question comes from the line of Peter Abramowitz with Jefferies. Please go ahead.
Yes. Thank you. So I know you with a reporting change you're now switching to the adjusted EBITDA number you gave for the full year I'm. Just wondering if you have any sort of outlook or to put brackets around I guess, what do you expect from a margin perspective.
We think of it on a total revenue basis.
The new reporting.
Yes, Hi, Peter this is Karen good morning.
Going to be talking about our targets whether it's in in your target or a then mid term targets on adjusted EBITDA dollars basis, now set of margin basis, but I will say that the adjusted EBITDA dollar targets that we communicated our equivalent to what we previously communicated.
Karen: For our targets on a margin basis. So if you recall previously our 2024 targets were in a 12 and a half at 14, 5%. Adjusted EBITDA margin has now been converted to $950 million to 1.15 billion for 2024 and then the same goes for our mid term targets approach.
Okay got it.
And then I wanted to ask about some of the strength in the U S office leasing that you called out.
In your presentation.
Karen: Is that kind of mainly you mentioned kind of looking to kind of trade up and get the best possible space I guess could you talk about is it almost strictly kind of in the class a trophy segment.
Have there been any signs of life sort of further down market.
Just wondering if you could kind of provide more context around that.
Sure. So we're continuing to see incremental signs of improvement in office broadly and Thats generally being led by the highest quality best space available.
We're seeing rents continuing to increase in that space.
One other thing we closely monitor is the activity around large lease deals, which we categorize as those deals over 100000 square feet in the U S and those are returning to the market as well, but thats still depressed compared to the pre pandemic averages right now, it's still almost 50% below that level.
So that has is still ticking up but not yet all the way back on a couple of other comments on leasing around this topic, we're seeing an increase in new tenant requirements. As we did last quarter and those are within approximately 30% of pre pandemic levels and then importantly, the sublease vacancy rate is continuing to fall and so we're seeing both.
And new additions decreasing and then notable backfill activity incurring, particularly in the Bay area in the U S and also in New York.
Alright Thats helpful. Thanks, Karen.
Yeah.
Your next question comes from the line of Michael Griffin with Citigroup. Please go ahead.
Great. Thanks, I wanted to go back to your sort of those mid term financial targets that you highlighted Karen.
Obviously, if the base case is more rent cuts to come in the back half of the year consistent with transaction activity really picking up should we interpret that as being able to hit those mid term targets by 2026.
Karen: Conversely, if the recovery is pushed out further into 2025 would that mean that you would reach those adjusted EBITDA dollar amounts in the call it 2027 or so timeframe.
Yeah at this stage, we're still categorizing those as midterm targets, we really want to look at how the remainder of the year transpires in terms of the recovery of the transactional markets.
Before committing a specific calendar year to achieve those are one of the things we are saying as it relates for our mid term targets is certainly we're very focused on having accelerated.
Growth in the adjusted EBITDA relative to the revenue trends and so that's something we're very focused on regardless of the shape of the recovery in the topline.
Great. Thanks, and then I just wanted to ask on free cash flow.
Obviously, it improved this quarter relative to this time last year, but how should we think about the cadence going forward and do you have a maybe percentage amount in mind for our free cash flow conversion for the year.
Yeah. So first let me just talk a little bit about remind are the major drivers of free cash flow in the quarter and then I'll talk to the outlook for the year. So we were an outflow of $721 million, which was slightly better to the $676 million outflow last year that was primarily due to cash from improvement in <unk>.
Karen: Earnings.
Karen: And that and that was partially offset by some working capital headwinds as the business grow, particularly in our workplace management business along with the timing of some payables. How do we think about the rest of the year. The key drivers on a full year basis will certainly be reflective of our overall earnings level, but importantly, the business mix for those earnings will.
The impact of working capital outcomes, so you'll have business lines like workplace management growth and.
Being a headwind and then you'll have some tailwind from capital market in the U S. Six cent that is growing strongly.
A lot of things to call out as we think about our free cash flow the ability to ensure we're continuing to timely collect our receivables remains very important. So we're very continue to be focused on that and I also would want to call out for this year that we will expect some lumpiness associated with the timing of cash tax payments on an individual quarter.
Basis compared to last year, it's easy to see that materialize as the year progresses.
Okay.
Great. That's it for me thanks for the time.
Your next question comes from the line of Anthony alone with Jpmorgan.
Please go ahead.
Yes. Thank you.
Just on work dynamics.
The change in presentation, you talked about some of the project management drags and then also some of the wins.
Can you maybe just put that all together and give us a sense as to kind of where organic revenue growth is likely to be for that business. As we look ahead. The next few years I mean, maybe just back to the old way of thinking about it in terms of more fee revenue.
Well first of all all the.
Gross you have seen is organic we haven't done any M&A recently.
And.
To set the workplace management business has had some significant wins last year and it's continued to win.
Nice pace.
And so we expect that business to continue to show good growth, but that growth may not be as.
This has been in the last quarter of double digit that may hold back to what we have.
Calls out for the long run we are aspiring something in the high single digits overall.
Karen: Our project management business.
Slower quarter.
And you know that correlates very much with the activity on the leasing front and so.
Leasing picks up with the delay of two to three quarters, we would expect that business to show stronger growth rates again.
And so overall as we have stated in previous calls.
Karen: Very optimistic about our work dynamics business over the next couple of years.
Beside the project management ebb and flow the ideas that work dynamics overall are you still see as a high single digit grower is that fair.
Yes.
Every quarter so.
<unk> little differences as you saw this quarter. We had this very strong growth from our workplace management business, but overall in the longer term you should see on the average of high single digits.
Oh aspiration here.
Okay.
Then in terms of just the EBITDA guidance further full year can you talk a bit about just where you see the pressure points are either on the upside or downside or in sort of that guidance and also.
Should we anticipate.
<unk> to show a progression from <unk>, because <unk> came in pretty strong at Timberlake.
Yes.
Hi, Marni I kick it off and then Ken will at Oh listen.
Karen: The main uncertainty is coming from the transactional side, we are pretty comfortable with forecasting our annuity type businesses, especially from all work dynamics business as well as the property management business, but the transactional business is much harder to forecast, we see an unusual call.
Leasing between daily.
Daily interest rate movements, and the capital markets transactional business.
<unk>.
Until that is not kind of getting back to some normality that people look to those interest rate developments and just focus on the underlying assets and whether thats a good deal a bad deal.
It is so hard to predict the volume.
So if the market is coming.
Back on the transactional side, especially within capital markets. Later this year that will help the performance this year.
To get us to the upper end of the range and if the market continues to be muted as it was in the first quarter and notwithstanding our own performance. The overall market was very muted than it is a more ambitious to get to the upper end.
Tim do you want to add anything.
Yeah. The only thing I would add is that at this stage.
We have the seasonality over the course of individual quarters in at this stage, we don't anticipate any material deviation from that seasonality and as the year progresses and expect to see similar trends.
From where we have had.
Okay. Thank you.
Okay.
Your next question comes from the line of Alex Kramm with UBS financial. Please go ahead.
Alex Kramm: Yes, Hello, everyone, maybe just to dial into the previous question a little bit more Christian you made this comment that the marketplace is slowly adjusting to a higher interest rate environment. So.
Coming back to the guidance for this year did you think that does it imply any rate cuts do you seeing rate cuts are needed or do you think you can you can perform like you've outlined even if markets will stabilize and rates stay where they are currently.
Yes, we didn't anticipate that interest rates were coming down so quickly as the Florida market. So we were more on the cautious side and so our own planning doesn't need any rate cuts.
Yes.
<unk>.
The question was more towards what drives us to the upper end of our range and for the upper end of our range. Some support from the transactional side would be helpful. If there is no support then we will deliver as we planned for.
Hi, good thanks for clarifying and then maybe just on the leasing side I don't think you've mentioned this but obviously, 2% growth for the year I think last quarter, you mentioned that.
That leasing should be similar picture than what you expected and what you had in 2023. So just curious do you think are the environment has gotten better or do you think this is low single digit range is of goods.
Outlook for the full year or are you seeing kind of flat with last year is there a better way to think about it which obviously would imply a little bit of a slowdown it didn't sound like it.
Yeah, you know we're early in the year and so I think the number you quoted is growing from a first quarter perspective, and so we continue to expect modest growth over the course of the year and we're seeing you know.
Continue to pick up an office in some more softness in industrial but we expect that will also returned to growth and stabilized towards the end of the year. So.
Alex Kramm: It is the pace of acceleration is really what will determine the alternate growth rate one of the things we keep pointing to over the last couple of quarters is really the level of business confidence and sell all we've been referencing the OECD business confidence index, because theres a high correlation, but if you look at that globally or for the U S.
On a two to three quarter lag of an uptick in business confidence index and kind of the overall market volumes recovering so that the uptick again in March and we're looking to see what happens in April considering a lot of the negative macro headlines came out during April.
Good thanks, guys.
Your next question comes from the line of Jade Rahmani with <unk>. Please go ahead.
Thank you very much do you see a big opportunity in private credit driven by the pullback in the banks and if so how do you expect that to.
Manifest in the business would you look to acquire any companies or <unk>.
<unk> target brokers on certain key relationships, just if you could comment on the opportunity in private credit.
Yeah.
Well.
It is correct that traditional lenders are not as active as they have been in the past and I think it is very likely that this will continue to be the case for the foreseeable future, which obviously also a lot of opportunity for non traditional lenders to come in.
We are.
Alex Kramm: We are actually pretty agnostic to the question, where the money is coming from we have an excellent overview on all the players in the market end up trying to arrange the best.
Yeah.
That opportunities for our clients, which are available in the market. So this is for US normal course of business and it doesn't need any kind of M&A on our side to tap into that market.
Yeah.
In terms of the GSE multifamily business, that's another area, where banks certain banks are pulling back do.
Alex Kramm: Do you see that is presenting opportunity to gain market share.
Yeah.
We have a very strong market share in that business already and we still believe that there is room for us to continue to grow I would be much more optimistic about the lending environment in the multifamily business because all the demographics.
Yeah.
Most geographies quite helpful here in the past.
Alex Kramm: Demonstrated in the past to be very very resistant.
Resilient business asset class.
So I think going back to your previous question the lending.
The changes we see in the lending environment are much more visible in the commercial space and in the multifamily space.
Yes.
Thanks, very much and finally, just on Jello technologies that the slowdown in sales was somewhat surprising.
Alex Kramm: The profitability still requires additional scale, but.
Was that different from your prior outlook or was that anticipated and when do you expect that trend could reverse itself.
Yeah.
I mentioned it in our.
Third quarter earnings call that we took actions on the sales and marketing expense and that that will have an impact going forward. So what you have seen in the first quarter.
Part of that impact.
Alex Kramm: That was also then kind of complementary unfortunately complemented by some delayed decisions by.
Alex Kramm: Several large of our technology solutions clients.
To kind of scale back on on the speed of <unk>.
New implementations.
What is important to note is that the SaaS business with NGL old technologies performed reasonably well and so are.
We would expect this shortage.
Going on Paul maybe one or two more quarters before we see pick up again, but more importantly, as we pointed out already last year, we have decided in the current uncertain environment that we are putting profitability above topline grows and so we are very very focused on the bottom line.
And once we have that business.
Back to Steve.
Kind of at least breakeven point.
Then we will look up the overall market environment and if the overall market environment has been in the situation, which would encourage us to.
Alex Kramm: Kind of go stronger on sales and marketing expenses, we will do so and that will then tries.
Longer topline grows again.
Thanks very much.
Yeah.
Again, if you would like to ask a question. Please press star one on your telephone keypad and your next question comes from the line of Patrick O'shaughnessy with Raymond James. Please go ahead.
Good morning, what have you guys seen right now in terms of average lease duration, our companies more willing to sign longer leases at this point in the cycle.
Hi, Patrick Good morning, I'll give some stats around the U S.
Office market, that's easiest to get the data on that.
So for the first quarter, we didn't see much movement from the from what we had last year. The weighted average lease term overall was seven eight years, which was the same as it was for all of 2023. If you go back it's still below pre pandemic levels on a total basis. If you go back to 2019, the weighted average lease term was.
Eight six years.
Alex Kramm: I will say that due to the increased sub lease activity that I mentioned earlier. So people leasing that's taking sublease is instead of the direct leases that is actually pulling down the overall weighted average lease term in.
And we expect that will continue while the market works through some of that that space overall.
Alex Kramm: If I look at the direct to give you. An example, if I look at the direct.
Weighted average lease term, that's 8.3 and the sublease weighted average lease term is for three years, so quite a big difference.
Got it that's helpful. Thank you.
And then have your changes in financial reporting methodology due to your communications with the SEC has those changes impacted how you're managing the business in any way do you guys still think about margins internally.
Yeah. So it hasn't changed how we manage the business internally or how we think about things so along with a host of other kpis, we still use both or at the fee revenue and adjusted EBITDA margin metrics internally and our management team is still compensated in part on the adjusted EBITDA margin calculated and we disclosed that in our proxy.
Alex Kramm: And that.
So we will continue to do that and then just to highlight that the information needed to calculate both of these is still available in all of our earnings release information.
Alex Kramm: That we provide.
Speaker Change: Terrific. Thank you.
Your next question comes from the line of Anthony per loan.
With JP Morgan. Please go ahead.
Anthony Perlo: Okay. Thanks, I just had a follow up on <unk> I know, it's not a big revenue line, but when I look at that I always think of like building engines, and such where when the client adopted it's likely a pretty recurring.
Business, but it was down a bunch and so I don't know maybe help me out with that just to understand what was happening there and how to think about it on a go forward basis.
Yeah.
Anthony.
Speaker Change: As I just stated there.
Gel LTE revenue bucket is mostly built up by our source revenue products. One of them is building engines Corrigo is another one and then all of our technology solutions business, where we help.
Help clients by implementing third party software.
So there's that and that third party software business that declined this.
This quarter quite significantly for the two reasons I stated, we reduced our sales and marketing.
Teams as stated in the third quarter call last year, and we had some.
Delays in decision, making from clients for pool, you assignments on the SaaS business.
That has been relatively steady this quarter.
You mentioned building engines building engines.
Very often connected to <unk>.
Transactions.
The owner also building is changing and the new owner.
Speaker Change: Implementing building engines, and so with the transactional markets relatively muted that has an impact on building engines, but on the other hand, we are.
We brought that product now into Asia, a very successful implementation in Australia, and so medium to longer term, we are very bullish that the gross numbers.
Come back to the levels, where we expect them to be.
Okay. Thanks for the color.
Yeah.
Yes.
That concludes our Q&A session I will now turn the conference back over to Christian Oberbeck for closing remarks.
Thank you with no further questions, we will close today's call on behalf of the entire <unk> team. We thank you all for participating on the call today, Kevin and I look forward to speaking with you again following the second quarter.
Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
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