Q1 2025 Cushman & Wakefield PLC Earnings Call
Speaker Change: [music].
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Operator: Good day and welcome to Cushman & Wakefield's first quarter 2025 earnings conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Good day, and welcome to Cushman and Wakefield as first quarter 'twenty 25 earnings conference call.
All participants will be in listen only mode. If you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.
Speaker Change: Please note. This event is being recorded I would now like to turn the conference over to Megan Mcgrath head.
Megan Mcgrath: I would now like to turn the conference over to Megan McGrath, Head of Investor Relations. Please go ahead. Thank you and welcome to Cushman & Wakefield's first quarter 2025 earnings conference call. Earlier today, we issued a press release announcing our financial results for the period. This release, along with today's presentation, can be found on our investor relations website at ir.cushmanwakefield.com.
Megan Mcgrath: Head of Investor Relations. Please go ahead.
Speaker Change: Thank you and welcome to Cushman and Wakefield first quarter 'twenty 25 earnings conference call.
Speaker Change: Earlier today, we issued a press release announcing our financial results for the period. This release along with today's presentation can be found on our Investor Relations website at IR, Doug Cushman Wakefield dotcom.
Megan Mcgrath: Please turn to the page in our presentation labeled Cautionary Note on Forward-Looking Statements. Today's presentation contains forward-looking statements based on our current forecast and estimates of future events. These statements should be considered estimates only, and actual results may differ materially.
Speaker Change: Please turn to the page in our presentation label cautionary note on forward looking statements.
Speaker Change: This presentation contains forward looking statements based on our current forecasts and estimates of future events.
Speaker Change: These 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 and the appendix of today's presentation. Also, please note that throughout the presentation, comparisons and growth rates are to the comparable periods of 2024 and in local currency unless otherwise stated.
During today's call, we will refer to non-GAAP financial measures as outlined by FCC guidelines.
Speaker Change: 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.
Speaker Change: Please note that throughout the presentation comparisons and growth rates are to the comparable periods of 2024 and in local currency unless otherwise stated.
Michelle Mackay: And with that, I'd like to turn the call over to our CEO, Michelle MacKay. Thank you, Megan. Good morning, everyone, and thank you for joining us today. This quarter marks true momentum in our growth strategy in numbers, mindset and operations. For the past 18 months, we focused on building the strength to fuel long-term growth, and today, we're seeing that strategy come to life. In the first quarter, we increased revenue in each of our service lines, achieving mid-single-digit organic growth in our services business, two quarters ahead of target. We drove 100 basis points of year-over-year adjusted EBITDA margin improvement and further reduced leverage by paying down an additional $25 million in debt.
Speaker Change: And with that I'd like to turn the call over to our CEO Michelle Mackay.
Michelle Mackay: Thank you Meghan good morning, everyone and thank you for joining US today this quarter marks true momentum in our growth strategy numbers mindset and operation for.
Michelle Mackay: For the past 18 months, we focused on building the strength to fuel long term growth and today, we're seeing that strategy come to life.
Michelle Mackay: In the first quarter, we increased revenue in each of our service lines, achieving mid single digit organic growth in our services business two quarters ahead of target.
Michelle Mackay: We drove a 100 basis points of year over year, adjusted EBITDA margin improvement and further reduce leverage by paying down an additional 25 million in debt.
Speaker Change: Since I took over as CEO, we have repaid $230 million of debt and have successfully refinanced and repriced our debt five times, reducing our annual cash interest burden.
Michelle Mackay: Since I took over as CEO, we have repaid $230 million in debt and have successfully refinanced and repriced our debt five times, reducing our annual cash interest burden. And in the same way that we have attacked our leverage over the past year, we are now attacking growth. And we are delivering results ahead of schedule, entering new phases of expansion and building momentum, positioning ourselves to win through the cycle. Our disciplined investments have not only stabilized the business, but have unlocked new areas of organic growth. We've taken bold steps to remove complexity, better aligning teens to opportunities, and create the clarity and agility that sustainable growth requires.
Speaker Change: And then the same way that we have attacked our leverage over the past year. We are now attacking broke.
Speaker Change: And we are delivering results ahead of schedule.
Speaker Change: Three new phases of expansion and building momentum positioning ourselves to win through the cycle.
Speaker Change: Our disciplined investments have not only stabilize the business, but have unlocked new areas of organic growth.
Speaker Change: We've taken bold steps to remove complexity better aligning teams to opportunities and create the clarity and agility that sustainable growth requires.
Speaker Change: We believe these changes will allow us to scale faster.
Michelle Mackay: We believe these changes will allow us to scale faster, move with purpose, and seize growth opportunities as they emerge. They are also enabling us to respond more quickly to market shifts and uncertainties as we are operating much more nimbly than in the past. Our key differentiator continues to lie in our ability to meet clients where they are and guide them on their desired journey. Our flat organizational culture allows us to swiftly adapt the client's buying patterns. We deliver customized, bespoke solutions tailored to each client's needs instead of relying on predefined approaches. Our teams not only work harder than our competitors, but they also work smarter.
Speaker Change: Purpose and seize growth opportunities as they emerge.
Speaker Change: They are also enabling us to respond more quickly to market shifts and uncertainties as we are operating much more nimbly than in the past.
Speaker Change: Our key differentiator continues to lie in our ability to meet clients, where they are and guide them on their desired journey.
Speaker Change: Our flat organizational culture allows us to swiftly adapt to clients buying patterns we.
Speaker Change: We deliver customized bespoke solutions tailored to each client's needs instead of relying on predefined approaches.
Speaker Change: Our teams not only work harder than our competitors, but they also work smarter.
Michelle Mackay: By fostering a culture of solutioning, problem solving, and trust, we let our people shine. We recently held a call with our global think tank on current market conditions, where we had upward of 4,000 clients join to hear what our teams are thinking. Talent is a critical component of our growth strategy, and we continue to attract strong teams to our platform. Year-to-date in the Americas, we have recruited leasing and capital markets brokers with more average annual revenue than we recruited in all of 2024. All of this work is culminating in momentum across our business. For example, in the Americas, our pipeline of large capital markets deals is two times the size it was one year ago.
Speaker Change: By fostering a culture of solution they problem solving and trust, we let our people shine.
Speaker Change: We recently held a call with our global think tank on current market conditions, where we had upwards of 4000 clients joined to hear what our teams are thinking.
Speaker Change: Talent is a critical component of our growth strategy and we continue to attract strong teams to our platform.
Speaker Change: Year to date in the Americas, we have recruited leasing and capital markets brokers with more average annual revenue than we recruited in all of 2024.
Speaker Change: All of this work is culminating in momentum across our business.
Speaker Change: For example in the Americas, our pipeline of large capital markets deals is two times the size it was one year ago.
Speaker Change: And Americans leasing and our Multimarket Occupier group, which represents roughly one third of our tenant rep business, our rfps are up by 35% versus last year.
Michelle Mackay: In America's leasing and our multi-market occupier group, which represents roughly one-third of our tenant rep business, our RFPs are up by 35% versus last year. In our valuation business, bid volume was up 30% in Q1, with March setting a two-year record for volume of bids. In services, in the past two years, our global occupier services team has won all or a material part of the largest outsourcing deals in the market. Our APAC Services business continues to demonstrate both resiliency and momentum with strong retention rates on existing contracts and five new sizable contracts coming online in the first half of this year.
Speaker Change: And our valuation business bid volume was up 30% in Q1 with March setting a two year record for volume of bids.
Speaker Change: In services in the past two years, our global Occupier services team has won all or a material part of the largest outsourcing deals in the market.
Speaker Change: Our APAC services business continues to demonstrate both resiliency and momentum with strong retention rates on existing contracts and five new sizable contracts coming online in the first half of this year.
Michelle Mackay: And our CW Services business, once referred to as our janitorial business, is now 70% mechanical and engineering, following a major contract win, making it more technical and a more strategic fit for us. We've built a strong growth engine which is now powering us forward across every part of the business. We're leaning in with clear purpose. Excellent market positioning and a stronger foundation.
Speaker Change: And our CW services business once referred to as our janitorial business is now 70% mechanical and engineering following a major contract win making it more technical and a more strategic fit for us.
Speaker Change: We've built a strong growth engine, which is now powering us forward across every part of the business.
Speaker Change: We're leaning in with clear purpose.
Speaker Change: Excellent market positioning and a stronger foundation.
Neil: Now I'll turn the call over to Neil.
Neil Johnston: Now, I'll turn the call over to Neil. Thank you, Michelle, and good morning, everyone. As a quick reminder, all prior comparisons will be in local currency and any reference to organic growth excludes the impact of last year's non-core services divestiture. We achieved strong first quarter results that exceeded expectations. Our brokerage business, consisting of leasing and capital markets, carried over its momentum from the fourth quarter to achieve double-digit growth. And our services business, on an organic basis, reached mid-single-digit growth ahead of schedule, as our teams captured incremental revenue opportunities throughout the quarter. Fee revenue reached $1.5 billion, an increase of 4%, with organic fee revenue growing 6%.
Neil: Thank you Michelle and good morning, everyone.
Neil: A quick reminder, all prior year comparisons will be in local currency and any reference to organic growth excludes the impact of last year's noncore services divestiture.
Neil: We achieved strong first quarter results that exceeded expectations, our brokerage business consisting of leasing and capital markets.
Neil: Oh, that's momentum from the fourth quarter to achieve double digit growth.
Neil: And our services business on an organic basis reached mid single digit growth ahead of schedule.
Neil: <unk> captured incremental revenue opportunities throughout the quarter.
Neil: Fee revenue reached 1.5 billion, an increase of 4% with organic fee revenue growing 6%.
Neil Johnston: Adjusted EBITDA rose 24% to $96 million. Adjusted EBITDA margin expanded 100 basis points first prior year, beating our first quarter guidance to flat year-over-year margins due primarily to greater-than-expected leasing and services revenue, as well as some expense timing benefits. Adjusted EPS increased to $0.09 from break-even a year ago. Importantly, we are achieving these results from a position of financial strength, with net leverage at 3.9 times EBITDA and free cash flow performing in line with our full-year target.
Neil: Adjusted EBITDA rose, 24% to $96 million.
Neil: Adjusted EBITDA margin expanded 100 basis points versus prior year.
Neil: Teaching our first quarter guidance of flat year over year margins due primarily to greater than expected leasing and service revenue.
Neil: Well as some expense timing benefits.
Neil: Adjusted EPS increased to nine cents from breakeven a year ago.
Neil: Importantly, we are achieving these yourself from a position of financial strength.
Neil: With net leverage of three nine times, EBITDA and free cash flow performing in line with our full year targets.
Neil: Now turning to our service line performance.
Neil Johnston: Now, turning to our service line performance. Our leasing business continued to show robust expansion in the quarter, up 9%, even against solid compares from the prior year. Demonstrating the sustainable trends propelling global leasing growth, including return to office mandates and the demand for quality space in all asset classes. America's leasing remained a standout, growing by 14% in Q1, our third consecutive quarter of double-digit growth. We experienced solid demand across the industrial and office sectors during the quarter and our leasing pipeline has remained relatively stable. APEC leasing grew 16% as the Australian market continued its momentum from the second half of last year, and China experienced a return to growth in the quarter.
Neil: Our leasing business continued to show robust expansion in the quarter up 9% even against solid compares from the prior year.
Neil: Demonstrating the sustainable trends propelling global leasing growth, including return to office mandates and the demand for quality space in all asset classes.
Neil: Americas leasing remains a standout growing by 14% in Q1.
Neil: A third consecutive quarter of double digit growth.
Neil: We experienced solid demand across the industrial and office sectors during the quarter and our leasing pipeline has remained relatively stable.
Neil: APAC anything grew 16% that's the Australian market continued its momentum from the second half of last year and.
Neil: And China experienced a return to growth in the quarter.
Neil Johnston: EMEA leasing contracted 26% primarily due to a difficult comparison against last year when we closed several large leasing deals. Capital markets continue this expansionary trend, growing 11% globally. In the Americas, strong industrial performance was partially offset by a slowdown in office transactions, resulting in 4% growth. APEC's 59% growth was primarily driven by strength in Japan, while EMEA's 17% growth was driven by strength in the UK and the Netherlands.
Neil: EMEA leasing contracted 26%, primarily due to a difficult comparison against last year. When we closed several large leasing deals.
Neil: Capital markets continued its expansion with trend growing 11% globally in the Americas strong industrial performance was partially offset by a slowdown in office transactions, resulting in 4% growth.
Neil: Apex, 59% growth was primarily driven by strength in Japan.
EMEA, 17% growth was driven by strength in the U K and the Netherlands.
Neil: Moving on to services.
Neil Johnston: Moving on to services. Our initiatives to improve top-line growth in that business are already yielding results, with services revenue, on an organic basis, up 4% in the quarter. We have reached our near-term target of returning to mid-single-digit growth earlier than targeted and anticipate services revenue growth to remain in this healthy mid-single-digit range for the remainder of 2025. In the Americas, organic services fee revenue grew by 6%, driven by strength in facilities management and facilities services. EMEA services continue to experience a reduction in project management work while APEC services grew 3% with particular strength in India.
Neil: Our initiatives to improve top line growth in that business already yielding results with services revenue on an organic basis up 4% in the quarter.
Neil: We have reached our near term target of returning to mid single digit growth earlier than targeted.
Neil: And anticipate services revenue growth to remain in this healthy mid single digit range for the remainder of 2025.
Neil: In the Americas organic services fee revenue grew by 6%.
Neil: Driven by strength in facilities management and facility services.
Neil: <unk> services continued to experience a reduction in project management work well APAC services grew 3% with particular strength in India.
Speaker Change: Looking at our balance sheet and cash flow this quarter.
Neil Johnston: Looking at our balance sheet and cash flow this quarter, pre-cash flow was a use of $167 million. A first quarter use of cash is in line with historical working capital trends, including annual payment of U.S. bonuses, and reflects typical seasonal patterns in our business. Our training 12-month free cash flow was approximately 60% of adjusted net income, and we expect to achieve our 4-year target of 60-80% free cash flow conversion. During the quarter, we completed another repricing of $1 billion of terminal debt, lowering the applicable interest rate by 25 basis points. We also paid off a further $25 million in debt due in 2030.
Speaker Change: Free cash flow was a use of $167 million a first quarter use of cash is in line with historical working capital trends, including annual payment of U S bonuses and reflects typical seasonal patterns in our business.
Speaker Change: Our trailing 12 month free cash flow was approximately 60% of adjusted net income and we expect to achieve our full year target of 60% to 80% free cash flow conversion.
Speaker Change: During the quarter, we completed another repricing of $1 billion of terminal that lowering the applicable interest rate by 25 basis points.
Speaker Change: We also paid off a further $25 million of debt due in 2030.
Neil Johnston: We close the quarter with $1.7 billion in liquidity and have no funded debt maturities until 2028. Reducing our leverage and interest expense through well-timed repayments and repricings will continue to be a key component of our capital allocation strategy this year.
Speaker Change: We closed the quarter with $1 7 billion liquidity.
Speaker Change: And have no funded debt maturities until 2028.
Speaker Change: Reducing our leverage and interest expense through well timed repayments repricing will continue to be a key component of our capital allocation strategy. This year.
Speaker Change: Now moving to our guidance.
Neil Johnston: Now, moving to our guidance. The guidance we presented on our last earnings call in February remains essentially unchanged. While we are clearly operating in a dynamic and rapidly evolving macro landscape, we remain focused on driving continued improved execution and managing towards long-term growth. Given our strong first quarter performance, we continue to expect that the full year revenue targets we provided last quarter are achievable.
Speaker Change: The guidance, we presented on our last earnings call in February remains essentially unchanged.
Speaker Change: We are clearly operating in a dynamic and rapidly evolving macro landscape. We remain focused on driving continued improved execution and managing towards long term growth.
Speaker Change: Given our strong first quarter performance, we continue to expect full year revenue targets, we provided last quarter are achievable.
Neil Johnston: However, given that the range of possible outcomes for the economy has widened, we will remain flexible and watchful of the operating environment and make any necessary adjustments, just as we've done successfully over the past several years. Specifically, for the full year, we expect leasing growth in the mid-single digits. We expect capital markets growth to exceed 2024's mid-single-digit growth rate. We expect services to achieve mid-single-digit top-line growth for the full year.
Speaker Change: However, given that the range of possible outcomes for the economy has widened we will remain flexible and watchful of the operating environment.
Speaker Change: And then any necessary adjustments just as we've done successfully over the past several years.
Speaker Change: Specifically for the full year, we expect leasing growth in the mid single digits.
Speaker Change: We expect capital markets growth should exceed 2024 was mid single digit growth rate.
Speaker Change: We expect services to achieve mid single digit top line growth for the full year.
Neil Johnston: This is an improvement compared to our previous guidance of achieving a mid-single-digit run rate by mid-year.
Speaker Change: This is an improvement compared to our previous guidance of achieving a mid single digit run rate by midyear.
Neil Johnston: On the cost side, our plans to accelerate investments in the business this year are unchanged and will continue to balance increased investment spend with a focus on long-term returns and managing the business through this cycle. In conclusion, we're very pleased with our performance this quarter and remain confident in our path ahead. We continue to expect EPS growth in 2025 to exceed the growth we reported in 2024 and to further accelerate in 2026.
Speaker Change: On the cost side, our plans to accelerate investments in the business. This year unchanged and we will continue to balance increased investment spend with a focus on long term returns and managing the business through this cycle.
Speaker Change: In conclusion, we're very pleased with our performance this quarter and remain confidential how path ahead.
Speaker Change: We continue to expect EPS growth in 'twenty to 'twenty five exceed the growth we reported in 2024 and to further accelerate in 2026.
Michelle Mackay: With that, I'll turn the call back over to Michelle. Thanks Neil. We continue to believe that we are at the beginning of a multi-year recovery in commercial real estate. We have a management team that excels at navigating uncertainty across market cycles and a global workforce that is proving time and time again that they will exceed expectations while continuing to raise the bar.
Michelle Mackay: With that I'll turn the call back over to Michelle.
Michelle Mackay: Thanks, Neil we continue to believe that we are at the beginning of a multiyear recovery in commercial real estate.
Michelle Mackay: We have a management team that excels at navigating uncertainty across market cycles, and our global workforce that is proving time and time again that they will exceed expectations, while continuing to raise the bar.
Michelle Mackay: Given our improved balance sheet, enhanced execution, and large market opportunity, we believe our shares represent a compelling value opportunity for investors. I want to thank our teams, partners, clients, and shareholders. Your belief in our vision fuels us every day.
Michelle Mackay: Given our improved balance sheet enhanced execution and large market opportunity, we believe our shares represent a compelling value opportunity for investors.
Michelle Mackay: I want to thank our teams partners.
Michelle Mackay: And shareholders your belief in our vision fuels us every day.
Michelle Mackay: We are proud of how far we've come and we're even more excited about where we are going.
Michelle Mackay: We are proud of how far we've come and we're even more excited about where we're going.
Speaker Change: Let me now hand, the call back to the operator for questions.
Operator: Let me now hand the call back to the operator for questions. 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. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And please limit yourselves to one question and one follow-up.
Speaker Change: We will now begin the question and answer session.
Speaker Change: You ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two and.
Speaker Change: And please limit yourselves to one question and one follow up.
Operator: At this time, we will pause momentarily to assemble our roster.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Ronald Kamden: The first question is from Ronald Kamden with Morgan Stanley. Please go ahead. Hey, congrats on a great quarter. Can we start with sort of the margin improvement, you know, 100 bases point to you over a year. You know, I think that that number was expected to be flat three months ago. So maybe can you talk about what the outperformance, what drove that, would be helpful.
Speaker Change: The first question is from Ronald Camden with Morgan Stanley.
Speaker Change: Please go ahead.
Ronald Camden: Hey, congrats on a great quarter I'm, just can we start with sort of the margin improvement.
Speaker Change: You know 100 basis points year over year.
Speaker Change: I think that that number was expected to be flat three months ago. So maybe can you talk about what the outperformance what what drove that would be helpful.
Speaker Change: Sure Ron.
Neil Johnston: Sure, Ron. We're very pleased with the first quarter. Our Q1 margin versus expectations was driven primarily by top line strength. We saw stronger than expected leasing and services. There was some expense timing benefit, which accounted for approximately 30% of the beat. Then as we look to the rest of the year, some of that benefit from the expense timing will reverse primarily in the second quarter, and the remainder of any potential upside to margin will depend on the performance we see in our service lines, especially in leasing and capital markets as the year progresses. Great.
Speaker Change: We're very pleased with the first quarter. Our Q1 margin expectations is driven primarily by top line strength, we saw stronger than expected leasing and services.
Speaker Change: Some expense timing benefit which.
Speaker Change: Which accounted for approximately 30% of the beach.
Speaker Change: As we look to the rest of the year.
Speaker Change: Some of the benefit from the expense timing.
Speaker Change: Primarily in the second quarter.
Speaker Change: And the remainder of any potential upside to margin will ultimately depend on the performance, we see in all service lines, especially in leasing and capital markets as year progresses.
Speaker Change: Great and then my follow up would be you know I think the comment on you know, whether it's the capital markets or the leasing or the pipeline.
Ronald Kamden: And then my follow-up would be, you know, I think the comments on, you know, whether it's the capital markets or the leasing or the pipeline sounded pretty encouraging. It sounds like since April 2nd, there hasn't really been that much impact from tariffs and you're still in wait-and-see mode. So I guess my question is just, you know, how would you characterize the environment in April specifically? And how are you guys thinking about the impact of tariffs on the leasing and capital markets businesses?
Speaker Change: Sounded pretty encouraging it sounds like since April socket, there hasnt really been not much impact from tariffs and you're still in wait and see mode. So I guess my question is just you know how would you characterize the environment in April specifically and how are you guys thinking about the impact of tariffs on the leasing and capital markets businesses.
Speaker Change: Thanks.
Neil Johnston: Thanks for the question, Ron. The tariff uncertainty has not materially impacted our sector. We're continuing to see improving trends in office and strong demand for high quality products. And say, in the industrial sector, we also continue to see absorption of space is performing in line with our expectations for the year.
Ron: Thanks for the question Ron.
Ron: The tap of uncertainty not materially impacted our sector, we're continuing to see improving trends in office and strong demand for high quality products.
Ron: And say in the industrial sector. We also continued to see absorption.
Ron: It's performing in line with our expectations for the year.
Neil Johnston: I would say that when you consider our business and today's market conditions, and you think about client behavior, which is really what you're talking about, our data is showing that their decision-making is really falling into two buckets. Group 1 are clients that are going forward with the decisions on the existing timeline they have, and this is, I would say, about 90 to 95% of what we've seen out of our clients through mid-April. These are clients that are confident, they're making choices, they're moving through the noise in the market. And then there's group two. And I would say this is 5% or less of what we're seeing today.
Ron: I would say that when you consider our business in today's market conditions, and you think about client behavior, which is really what you're talking about.
Ron: Our data is showing that their decision, making is really falling into two buckets groupon.
Ron: We want our clients that are going forward with it.
Ron: Vision on the existing timeline they have and this is I would say about 90% to 95% of what we've seen out of our clients through mid April.
Ron: These are clients that are confident they're making choices, they're moving through the noise in the market.
Ron: And then Theres group too I would say this is 5% or less of what we're seeing today are clients, who are opting to delay their decision today, but we'll make that decision.
Ronald Kamden: Our clients who are opting to delay their decisions today, but will make that decision later in 2025. So what we're not witnessing is a freeze in decision-making. And that's in large part why we see our Q2 numbers and frankly, our 2025 performance staying intact. Great, that's it for me.
Ron: Later in 2025, so what we're not witness thing is a freeze in decision, making and that in large part why we see our Q2 numbers and frankly, our 2025 performance staying intact.
Ron: Great. That's it for me thank you.
Operator: Thank you.
Ron: Okay.
Anthony Paolone: The next question is from Anthony Paolone with J.P. Morgan. Please go ahead. Thanks, good morning.
Speaker Change: The next question is from Anthony <unk> with J P. Morgan. Please go ahead.
Anthony: Hi, Thanks, Good morning, maybe continuing on the macro you know do you have a view as to what might happen to the office leasing business. If if we do go in to a recession and maybe.
Anthony Paolone: Maybe continuing on the macro, do you have a view as to what might happen to the office leasing business if we do go into a recession and maybe does that follow the normal historical pattern of weakening significantly or do you think the fact that it's coming off maybe the lows, that that mitigates it? Just wondering what your thoughts are there. Yeah, I mean, again, based on the data that we're seeing, demand for office leasing remains really strong through the quarter. And we haven't seen the uncertainty in the economy impact occupiers' confidence to move forward with their workplace strategies.
Anthony: Does that followed the normal historical pattern of weakening significantly or do you think the fact that it's coming off maybe boroughs.
Anthony: That mitigates it just wondering what your thoughts are there.
Speaker Change: Yeah, I mean again based on the data that we're seeing demand for office leasing remains really strong through the quarter and we haven't seen the uncertainty in the economy impact occupiers confidence to move forward with their workplace strategy signing long term leases lease terms are getting longer.
Michelle Mackay: They're signing long-term leases, lease terms are getting longer. They're up to about 77 months on average in Q1. And so I think when we're projecting our forward models, we do some sensitivity around softening, Tony, but nothing that significant.
Speaker Change: Sure about 77 months on average in Q1.
Speaker Change: And so I think when where we're projecting our forward model, we do some sensitivity around softening, Tony but nothing that significant.
Speaker Change: Okay. Thanks, and then.
Anthony Paolone: Okay, thanks.
Michelle Mackay: And then, Michelle, I think you alluded to some of the recruiting efforts there. Can you maybe just talk a bit more about recruiting and retention and just kind of how you think about where the system sits today versus maybe, you know, six months, a year ago and just all things being equal, like, you know, just magnitude of kind of what you've done on the people front? Yeah, sure. And I want to talk a little bit about the philosophy of our approach in this market, because we plan to invest consistently, regardless of market conditions and talent.
Speaker Change: Michelle I think you alluded to some of the recruiting efforts there can.
Speaker Change: Can you, maybe just talk a bit more about recruiting and retention and just kind of how you think about where the system sits today versus maybe.
Speaker Change: Six months, a year ago, and just all things being equal like it you know.
Speaker Change: Magnitude of kind of what you've done on the on the people front.
Speaker Change: Yeah, sure and I don't want to talk a little bit about the philosophy of our approach in this market because we plan to invest consistently regardless of market conditions.
Speaker Change: Talent and over the next 18 months.
Michelle Mackay: And over the next 18 months, you know, over the last 18 months, we've really strengthened ourselves. So we're going to focus on capital markets, talent, leasing, talent, investing organically in the business. I think I said on the last earnings call, we shared that we hired 10 capital markets teams in the Americas in late 2024. And now we've had an additional eight capital markets teams since our last call join us. And we also haven't taken our foot off of the gas in leasing either. We've hired another 20 leasing teams already in the U.S. We're full steam ahead.
Speaker Change: Now over the last 18 months, you really strengthen ourselves. So we're going to focus on capital markets kind of light leasing talent investing organically in the business.
Speaker Change: I think I said on the last earnings call. We shared that we hired 10 capital markets teams in the Americas in late 2024.
Speaker Change: And now we've had an additional eight capital markets team since our last call join us.
Speaker Change: And we also haven't taken our foot off of the gas and leasing either we've hired another 20 leasing team already in the U S. This year.
Speaker Change: Their work, where we're full steam ahead.
Speaker Change: Okay. Thank you.
Anthony Paolone: Okay, thank you.
Peter Abramowitz: The next question is from Peter Abramowitz with Jeffries. Please go ahead. Yes, thanks for taking the time and congrats on a strong quarter here. I have a question similar to Tony's but wanted to touch on the industrial leasing side of things. Just given everything going on with the potential trade war would seem to be kind of the most directly impacted sector.
Speaker Change: The next question is from Peter Abramowitz with Jefferies. Please go ahead.
Peter Abramowitz: Yes, thanks for taking the time and congrats on a strong quarter here.
Speaker Change: I have a question similar Tony's, but wanted to touch on the industrial leasing side of things just.
Speaker Change: And everything going on with the potential trade war would seem to be kind of the most directly impacted sector. So just curious how you're thinking about that maybe what youre seeing trends post liberation day in and how Youre thinking about the Russell 25 overall.
Michelle Mackay: So just curious how you're thinking about that, maybe what you're seeing trends, you know, post-liberation day and how you're thinking about the rest of 25 overall. Sure. Look, we believe we've been outperforming in industrial leasing for the past year, year and a half, and we're still seeing positive trends in industrial leasing revenues in the Americas in five of the last six quarters that we've had here, including Q1. But as we discussed last quarter, we didn't come into the year with unrealistic expectations around leasing growth and expected some normalization of demand. But what hasn't changed, even in the midst of the tariff discussions, is that businesses still need industrial space to get their products to their customers.
Speaker Change: Sure look we believe we've been outperforming in industrial leasing from past year year, and a half and we're still seeing positive trends in industrial leasing revenues in the Americas and five of the last six quarters that we've had here including Q1.
Speaker Change: As we discussed last quarter, we didn't come into the year with unrealistic expectations around leasing Ross and expecting some normalization of demand, but what hasnt changed even in the midst of the tariff discussions is that businesses still need industrial space to get their products to their customers and we're helping them figure that out and executing on them.
Michelle Mackay: And we're helping them figure that out and executing on their strategies, whether they're the old strategies or they're the modified strategies. Okay.
Speaker Change: <unk>, whether they're on the old strategies are in there and the modified strategy.
Speaker Change: Okay. Thanks, Michelle that's helpful. And then one other question I guess just on the rate outlook.
Peter Abramowitz: Thanks, Michelle. That's helpful.
Michelle Mackay: And then one other question. I guess just on the rate outlook, we've seen a lot of volatility. Is there sort of a frictional level, whether it be in the 10-year or whether it be in spreads, where you start to maybe question or get a little bit concerned about the capital markets business? I know one of your competitors mentioned a 5% 10-year is kind of that technical level. Just wondering how you think about that and how we should think about the sensitivities on the capital market side. Yeah, we don't hold exactly the same point of view.
Speaker Change: We've seen a lot of volatility.
Speaker Change: Therefore of a frictional level.
Speaker Change: Whether it be in the 10 year or whether it be in spreads.
Speaker Change: Where you start to maybe question or get a little bit concerned about the capital markets business I know one of your competitors mentioned, a 5% 10 years kind of that.
Speaker Change: Nickel level, just wondering how you think about that and how we should think about the sensitivities on the capital market side.
Yeah, we don't hold exactly the same point of view I think all in borrowing cost is really what youre looking at and so that also considers credit spread for that particular borrower and I understand that we caught often think about capital markets and.
Michelle Mackay: I think all in borrowing costs is really what you're looking at. And so that also considers credit spread for that particular borrower. And I understand that we quite often think about capital markets as an asset-specific level of borrowing, but many large investors have other ways of borrowing, even at the corporate level, to facilitate transactions. So when I'm looking at our capital markets pipeline now, in large measure, our clients are closing deals and financing if they like them. But if they're not so compelled by the financing market, a lot of these players still can cut a full cash check, and they're doing so.
Speaker Change: [laughter], Oklahoma on borrowing but many large investors have other ways of borrowing even at the corporate level.
Speaker Change: T transactions, so when I'm looking at our capital markets pipeline now in large measure our clients are closing deal and financings if they like them and if they're not so compelled by the financing market a lot of these players silicon kind of hold cash check and they're doing so.
Operator: All right, that's all for me. Thank you. Again, if you have a question, please press star then 1.
Speaker Change: Alright, Thats all for me. Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Stephen Sheldon: The next question is from Stephen Sheldon with William Blair. Please go ahead. Hi team, you have Pat McIlwee on this morning. My first question, I know you mentioned the weakness in EMEA leasing was driven by a tough comparison quarter, but It looks like services revenue came in a bit soft as well, so just wanted to ask if you could provide some more commentary on what you're seeing in that region in terms of both macro and. Yeah, sure. You know, as we look at EMEA, I think you've got to put it in context. EMEA as a whole is probably our weakest economy.
Stephen Sheldon: The next question is from Stephen Sheldon with William Blair.
Speaker Change: Please go ahead.
Speaker Change: Hi, Jim Yeah, Pat medically on this morning.
Speaker Change: My first question I know you mentioned the weakness in EMEA leasing was driven by a tough comparison quarter, but.
Speaker Change: It looks like services revenue came in a bit softer as well. So so just wanted to ask if you could provide some more commentary on what youre seeing in that region in terms of both macro and within your business.
Speaker Change: Yes sure.
Speaker Change: As we look at EMEA I think you've got to put it in context of EMEA as a whole is probably our weakest economy in terms of our three segments. So that that is sort of.
Michelle Mackay: that that is sort of weighing on the results in EMEA. But we are certainly seeing some green shoots. For example, in capital markets, we had a very nice growth in the UK. You've seen the ECB drop rates there, so I think that's conducive to capital markets. On the leasing side, we did have those large deals I spoke about, that accounted for about half of the weakness, but I think the economics they are playing through. And then on the services side, what we did see is we saw the final unwind of some of the project management work we've been doing around the business.
Speaker Change: Weighing on the results in EMEA, but we are certainly seeing some green shoots for example in capital markets.
Speaker Change: We had <unk>.
Speaker Change: Very nice growth in the UK.
Speaker Change: The ECB dropped rates.
Speaker Change: Usage of capital markets.
Speaker Change: On the leasing side, we did have those large deals I spoke about that accounted for about half of the weakness.
Speaker Change: The economic sale. Thank you and then on the services side, where we did see is we saw the final unwind.
Speaker Change: Some of the project management work, we've been doing around the business.
Michelle Mackay: But even there, there were some green shoots. About half of our business there is property management, and we actually saw that grow. So we feel like EMEA is at the bottom of the cycle. It'll be a slow recovery, given the general economic environment there. But I think that gives you a lot of color around what we're seeing in that market. Balance hasn't changed. Capital allocation strategy hasn't changed. It continues to be focused on growth and deleveraging, to your point, with the growth as an investment that's a higher percentage of our overall capital allocation. But obviously, we're going to continue to delever at the same time.
Speaker Change: But even there there were some green shoots about half of our business today is property management, we actually saw that grow and so we feel like EMEA is at the bottom of the cycle it'll be.
Speaker Change: A slow recovery given the general economic environment there.
Speaker Change: But I think that gives you a little color around what you're seeing in that market.
Speaker Change: Yeah, Thanks, Neal Thats helpful.
Speaker Change: And then you've spoken a little bit about this but you continue to invest in talent in the business as a whole.
Speaker Change: Growth, but you also continue to repay debt, which you did again this quarter. So I just wanted to ask how you plan to balance defense versus offense in this environment.
Speaker Change: Is it balanced changed at all since your last call in February.
Speaker Change: Yeah balance hasn't changed capital allocation strategy hasn't changed it continues to be focused on growth and deleveraging to your point with the growth and investment that's a higher percentage of our overall capital allocation and obviously, we're going to continue to delever at the same time.
Peter Abramowitz: Understood. Thanks, Michelle.
Michelle Mackay: Understood. Thanks, Michelle.
Speaker Change: Okay.
Speaker Change: This concludes the question and answer session.
Operator: This concludes the question and answer session.
Michelle Mackay: I would like to turn the conference back over to Michelle MacKay for any closing remarks. Thank you, everybody, and we look forward to speaking to you again after our second quarter earnings call.
Speaker Change: Like to turn the conference back over to Michelle Mackay for any closing remarks.
Michelle Mackay: Thank you everybody and we look forward to speaking to you again after our second quarter earnings call.
Operator: The conference is now concluded. Thank you for attending today's presentation.
Michelle Mackay: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: You may now disconnect.
Operator: Goodbye.
Michelle Mackay: Goodbye.