Yahoo Finance Cushman & Wakefield plc (NYSE:CWK) Q1 2024 Earnings Call Transcript
Cushman & Wakefield plc (NYSE:CWK) Q1 2024 Earnings Call Transcript April 29, 2024
Cushman & Wakefield plc misses on earnings expectations. Reported EPS is $ EPS, expectations were $-0.02. CWK isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Cushman & Wakefield First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Megan McGrath, Head of Investor Relations. Please go ahead.
Megan McGrath: Thank you, and welcome to Cushman & Wakefield's first quarter 2024 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. Please turn to the page in our presentation labeled Cautionary Note on Forward-Looking Statements. Today's presentation contains forward-looking statements based on our current forecasts and estimates of future events. These statements should be considered estimates only, and actual results may differ materially. During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines. 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 2023, and in local currency, unless otherwise stated. And with that, I'd like to turn the call over to our CEO, Michelle MacKay.
Michelle MacKay: Thank you, Megan. In 2023, we spoke with you frequently about positioning ourselves in a thoughtful way for the recovery. And as you can see from our performance, the actions that we took in support of these words created strong first quarter results. Since the last time that we spoke, our teams have seized market opportunities, and we continue to strengthen our balance sheet, including our first optional prepayment of debt, as well as successfully repricing our 2030 term loan, reducing our annual cash interest costs. We reported another quarter of global leasing growth, and some meaningful improvements in capital markets. We've had a couple of key wins in our services businesses in the last month alone as we continue to step away from less accretive services transactions.
And importantly, we achieved these results, while maintaining cost discipline, leading to an improvement of more than 100 basis points in adjusted EBITDA margin. Looking at the big picture, the year is generally progressing in line with expectations. On our last earnings call, I said that we are expecting a moderate initial reduction in rate sometime late in the year. Our view from the onset has been that the Fed was lightly turning cautious this year, and our strategy and budgeting decisions were made in accordance with that view. Our outlook and optimism for the recovery are strong, and we continue to position our business in a thoughtful way for this next stage in the cycle. Given the recent increase in rate volatility, I would like to take a couple of minutes to share our thoughts on how we view the relationship between the Fed rate cuts in our business, because overall we view the Fed rate cuts as an accelerator of certain parts of the business, but not the only avenue for transactional improvements.
Our first quarter results provide some insights into these dynamics, illustrating what occurs when there's rate stability, economic optimism, a solid pipeline of deals, and strong teams armed with a clearly defined strategy. We expect that leasing, which is a particular strength of ours, will continue to benefit from global economic resiliency as we move through the cycle, and our diverse platform allows us to capture pockets of strength across regions and asset classes, as we have positioned ourselves to do for the past several quarters. During the quarter, we saw continued solid growth in leasing across our global platform, with revenues up 5% for the second quarter in a row. And on the capital market side of the business, activity in Q1 reflected transactions closing in the early part of the quarter when there was more optimism over our potential first rate cut from the Fed.
Although the recent uptick in rate volatility will mostly likely cause a pause in transaction volumes in Q2, the improvement that we experienced in Q1 gives us more confidence that global investment sales pipelines are solid, and investors are ready to engage when the time is ripe. I'm pleased with our first quarter performance and the way in which our teams continue to execute and find opportunities across our segments and geographies. The clarity that the reset strategy has given management is already paying dividends in a more cohesive and connected approach to the way that we are operating the company in interacting with our clients. With that, I'll turn the call over to Neil.
Neil Johnston: Thank you, Michelle, and good afternoon, everyone. We are pleased with our first quarter results which exceeded our expectations and guidance, with fee revenue of $1.5 billion, flat with the prior year, and adjusted EBITDA of $78 million, up 29% versus prior year. Our adjusted EBITDA margin, of 5.2%, grew 117 basis points as we benefited from higher leasing revenue, as well as the cost-savings actions taken during 2023. Adjusted earnings per share for the quarter was breakeven, an improvement from the $0.04 loss a year ago. By segment, free revenue declined 3% in the Americas, [33%] (ph) in EMEA, and through 8% in APAC. We saw margin expansion in both the Americas and EMEA due to strong leasing growth, and our 2023 cost actions, while margins in APAC contracted slightly due primarily to mix.
Taking a look at our service lines, effective January 1, we have renamed the property, facilities, and project management service line to services. This change is in name only, and had no impact on the composition of our services lines or our historical results. Beginning with brokerage, our leasing business continued to experience stabilizing trends we reported in the fourth quarter with 5% revenue growth. The growth in Q1 was again global in nature, with Americas leasing up 1%, EMEA leasing up 30%, and APAC leasing up 10%. In the Americas, we saw particular strength in mid-sized office and industrial leasing, which grew in each of our sub-regions for the first time since the first quarter of 2022. In EMEA, we transacted on a large deal in Germany, which accounted for roughly a third of the leasing growth in that region.
The remaining growth came from strength in all of our major asset classes, with office, industrial, and retail, each up over 10% in the quarter. In APAC, India continues to see healthy growth supported by durable mega-trends in global outsourcing and datacenters. Our capital markets revenue declined 1%, a meaningful sequential improvement over the 32% year-over-year decline reported in the fourth quarter of last year. Americas cap markets revenue was down 7%, while EMEA and APAC revenues were up 12% and 52%, respectively. In the Americas, we experienced a pick up in pipeline conversion early in the quarter, particularly in office transactions as interest rates were relatively stable and [bid] (ph) as spreads narrowed. In EMEA, high-end seller expectations on pricing and values are realigning, particularly in prime assets in better locations.
And in APAC, office and industrial sales were strong, most notably in Australia, where we've made some recent growth investments. We're encouraged by these results, but acknowledge that the recent increase in interest rate volatility is likely to cause a short-term reverse of trends over in the second quarter as the market adjusts. Ultimately, however, our first quarter results provide us increased confidence that transactions will return to the market in greater volume when rate stability is achieved. Turning to services, revenue was down 3% or flat with prior year adjusting for the previously discussed contract change. In the Americas, services revenue declined 5% or 1% excluding contract change. And in EMEA, services revenue declined 9% as we continue to reposition our service portfolio for profitable growth.
In APAC, our services business was strong, up 7% driven by solid growth in project management and facilities management. Overall, we are pleased with the momentum we are seeing in services. We have recently had some notable new business wins and our new business pipeline is strong. As we've previously discussed, while our focus on margin and accretive growth is resulting in some near-term revenue headwinds, we expect to see a re-acceleration of growth in the second-half of this year and a return to at least a mid single-digit growth rate in 2025. Turning to cash flow, free cash flow for the quarter was a use of $136 million. This compared favorably to the first quarter of 2023, where free cash flow was a use of $231 million. A first quarter use of cash is in line with historical working capital trends, including the annual payment of U.S. bonuses and reflects typical seasonal patterns in our business.
We continued our progress on strengthening the balance sheet. During the quarter, we repaid $50 million of Term Loan B due in 2025, reducing the outstanding balance to $143 million. In addition, subsequent to quarter end, we repriced $1 billion of Term Loan B due 2030, reducing the applicable interest rate by 25 basis points from one month SOFR plus 400 to one month term SOFR plus 375. The net impact of these actions is expected to reduce annual cash interest expense by roughly $6 million. Finally, moving to our outlook, we continue to expect the sustained growth in capital markets is most likely to begin sometime in the second-half of this year, contingent upon a more conducive interest rate environment. 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 continue to expect cost increases driven by normal inflation and high incentive comp as we focus on positioning the company for market growth. However, we do expect our cost efficiency initiatives to mostly offset these cost headwinds within the year. With that, I'll turn the call back over to Michelle.
Michelle MacKay: Thanks, Neil. Over the past quarter, we've witnessed an incredible commitment and loyalty to us from our clients, lenders, investors, and our people. We promise to all of our constituencies that we will continue to push ourselves to evolve at a rapid fire pace, never content and never settling. Now, I'll turn the call over to the operator for your questions. Operator?
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