CHICAGO (BUSINESS WIRE), September 5, 2018 – Cushman & Wakefield (NYSE: CWK) today reported financial results for the second quarter ended June 30, 2018i.
- Revenue for the second quarter was $2.0 billion, up 16% (15% local currencyii). Fee revenue was $1.4 billion, up 11% (10% local currency).
- Net loss decreased $15.1 million to $(32.2) million, while net loss per share decreased $0.11 to $(0.22) per share. Adjusted EPS was $0.46, an increase of $0.17 or 59%.
- Adjusted EBITDA was $169.8 million, up 30% (28% local currency). Adjusted EBITDA margin of 11.8% was up 180 bps versus second quarter 2017 driven by Fee revenue mix and operating leverage.
- Initial Public Offering and Private Placement were completed on August 6 and 7, 2018, resulting in net proceeds of approximately $1.0 billion.
- Subsequent to quarter close, we entered into a new Credit Agreement, repaid the First Lien debt and expanded our revolving credit facility.
“We are pleased to report strong results for the second quarter,” said Brett White, Executive Chairman & CEO of Cushman & Wakefield. “It’s an exciting time to be at Cushman & Wakefield. We’ve completed a successful IPO, our business performed very well at the top and bottom line through the first half of the year, and market conditions for commercial real estate remain robust.”
Second Quarter Results (unaudited)
Revenue was $2.0 billion, an increase of $273.7 million or 16%. Gross contract costs, primarily in the Property, facilities and project management service line, increased $130.8 million driven by the $84.0 million impact of the adoption of Topic 606. Foreign currency had a $17.9 million favorable impact on Revenue, driving approximately 1% growth.
Fee revenue was $1.4 billion, an increase of $127.1 million or 10% on a local currency basis, reflecting increases primarily in Leasing and Property, facilities and project management. Leasing fee revenue increased $74.2 million or 18% on a local currency basis, driven by an Americas increase of $68.2 million or 22% on a local currency basis, with the remainder primarily in APAC. Property, facilities and project management fee revenue increased $34.7 million or 6.0% on a local currency basis, driven by an Americas increase of $21.0 million or 5% on a local currency basis, with the remainder of the Fee revenue growth primarily in EMEA.
Operating expenses were $1.9 billion, an increase of $205.1 million or 12%. The increase in operating expenses reflected increased cost associated with revenue growth and the $84.0 million increase to gross contract costs resulting from the adoption of Topic 606 discussed above.
Fee-based operating expenses, excluding Depreciation and amortization, integration and other costs related to acquisitions and stock-based compensation, were $1.3 billion, an 8% increase on a local currency basis. The growth in Fee-based operating expenses reflected higher cost of services associated with Fee revenue growth.
Interest expense, net of interest income increased by $8.0 million, driven by higher average annual borrowings during the period.
The provision for income taxes totaled $15.1 million, a change of $47.6 million. The change was driven by the effect of a lower loss before income taxes, as well as additional estimated unfavorable impact of certain sections of the H.R. 1, the Tax Cuts and Jobs Act (the "Tax Act") and a change in the mix of geographical earnings from the prior period.
Net loss and Adjusted EBITDA
Net loss was $32.2 million, a decrease of $15.1 million, primarily driven by the increase in Fee revenue exceeding the increase in Fee-based operating expenses, partially offset by the higher provision for income taxes.
Adjusted EBITDA was $169.8 million, an increase of $37.5 million or 28%, on a local currency basis, driven by the increase in Fee revenue exceeding the increase in Fee-based operating expenses and the $6.4 million local currency impact of the adoption of Topic 606. Adjusted EBITDA margin, calculated on a Fee revenue basis, was 11.8%, compared to 10.0% in the prior year, driven by Fee revenue mix and operating leverage.
Year-to-Date Results (unaudited)
Revenue was $3.7 billion, an increase of $580.1 million or 18%. Gross contract costs, primarily in the Property, facilities and project management service line, increased $284.8 million driven by the $203.5 million impact of the adoption of Topic 606. Foreign currency had a $56.5 million favorable impact on Revenue, driving approximately 2% growth.
Fee revenue was $2.7 billion, an increase of $238.9 million or 10% on a local currency basis, reflecting increases in Leasing, Capital markets and Property, facilities and project management. Leasing Fee revenue increased by $107.3 million or 16% on a local currency basis driven primarily by the Americas. Capital markets fee revenue increased by $91.9 million or 28%, on a local currency basis, driven by an Americas increase of $72.3 million or 30% on a local currency basis, and an APAC increase of $20.2 million or 89%, on a local currency basis. Property, facilities and project management increased by $47.5 million or 4%, on a local currency basis, driven primarily by an Americas increase of $34.4 million or 4% with the remainder of Fee revenue growth primarily in EMEA.
Operating expenses were $3.8 billion, an increase of $472.0 million or 14%. The increase in operating expenses reflected increased costs associated with revenue growth and the $203.5 million increase to gross contract costs resulting from the adoption of Topic 606 discussed above.
Fee-based operating expenses, excluding Depreciation and amortization, integration and other costs related to acquisitions and stock-based compensation, were $2.4 billion, a 7% increase on a local currency basis. The growth in Fee-based operating expenses reflected higher cost of services associated with Fee revenue growth.
Interest expense, net of interest income was $96.4 million, an increase of $10.7 million, driven by higher average annual borrowings and a one-time charge of $3.4 million as a result of the March 2018 debt modification.
Benefit from income taxes
The benefit from income taxes was $16.6 million, a decrease of $57.6 million. The decrease was driven by a lower net loss before taxes, as well as a lower effective tax rate as a result of the Tax Act which was partially offset by discrete tax benefits recorded in the first quarter of 2018.
Net loss and Adjusted EBITDA
Net loss was $124.2 million, a decrease of $42.8 million, primarily driven by the increase in Fee revenue exceeding the increase in Fee-based operating expenses, partially offset by the lower benefit from income taxes.
Adjusted EBITDA increased by $83.2 million or 51%, on a local currency basis, driven by the increase in Fee revenue exceeding the increase in Fee-based operating expenses and the $10.7 million local currency impact of the adoption of Topic 606. Adjusted EBITDA margin, calculated on a Fee revenue basis, was 9.1%, compared to 6.6% in the prior year.
Balance Sheet (unaudited)
- The Company's outstanding First Lien and Second Lien debt, net of deferred financing fees, was $3.0 billion as of June 30, 2018, which net of cash and cash equivalents, provided for a net debt position of approximately $2.6 billion. The Company's net debt increased $34 million from last quarter, primarily driven by lower cash due to the seasonality of our business.
- Total ending liquidity for the second quarter was $868 million with the majority of the balance being made up of a $486 million undrawn revolving credit facility, and $382 million of cash and cash equivalents.
- In August 2018, the $450 million Second Lien Loan was repaid with IPO proceeds, a new Credit Agreement was raised to increase liquidity and extend maturity, and the revolving credit facility was expanded from $486 million to $810 million. The expanded revolving credit facility, along with cash to balance sheet of $403 million from IPO proceeds, increased liquidity, on a pro-forma basis, to $1.6 billion.
- In August 2018, Standard & Poor’s raised the company’s rating to BB-.
The Company’s Second Quarter 2018 Earnings Conference Call will be held today, September 5, at 5:00 p.m. Eastern Time. A webcast, along with an associated slide presentation, will be accessible through the Investor Relations section of the Company’s website at http://ir.cushmanwakefield.com.
The direct dial-in number for the conference call is 877-683-2081 for U.S. callers and 647-689-5424 for international callers. The Conference ID is 7185729. A replay of the call will be available approximately two hours after the conference call by accessing http://ir.cushmanwakefield.com. A transcript of the call will be available on the Company’s Investor Relations website at http://ir.cushmanwakefield.com.
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries. In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.
Cautionary Note on Forward-Looking Statements
All statements in this release other than historical facts are forward-looking statements, which rely on a number of estimates, projections and assumptions concerning future events. Such statements are also subject to a number of uncertainties and factors outside Cushman & Wakefield’s control. Such factors include, but are not limited to, uncertainty regarding and changes in global economic or market conditions and changes in government policies, laws, regulations and practices. Should any Cushman & Wakefield estimates, projections and assumptions or these other uncertainties and factors materialize in ways that Cushman & Wakefield did not expect, there is no guarantee of future performance and the actual results could differ materially from the forward-looking statements in this presentation, including the possibility that recipients may lose a material portion of the amounts invested. While Cushman & Wakefield believes the assumptions underlying these forward-looking statements are reasonable under current circumstances, recipients should bear in mind that such assumptions are inherently uncertain and subjective and that past or projected performance is not necessarily indicative of future results. No representation or warranty, express or implied, is made as to the accuracy or completeness of the information contained in this presentation, and nothing shall be relied upon as a promise or representation as to the performance of any investment. You are cautioned not to place undue reliance on such forward-looking statements or other information in this presentation and should rely on your own assessment of an investment or a transaction. Any estimates or projections as to events that may occur in the future are based upon the best and current judgment of Cushman & Wakefield as actual results may vary from the projections and such variations may be material. Opinions expressed are current opinions as of the date of this release.
The following tables summarize our results of operations for our operating segments for the three and six months ended June 30, 2018 and 2017.
Cushman & Wakefield plc
Financial Statement Notes
The following measures are considered "non-GAAP financial measures" under SEC guidelines:
i. Fee revenue and Fee-based operating expenses;
ii. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") and Adjusted EBITDA margin;
iii. Adjusted net income and Adjusted earnings per share; and
iv. Local currency.
Our management principally uses these non-GAAP financial measures to evaluate operating performance, develop budgets and forecasts, improve comparability of results and assist our investors in analyzing the underlying performance of our business. These measures are not recognized measurements under GAAP. When analyzing our operating results, investors should use them in addition to, but not as an alternative for, the most directly comparable financial results calculated and presented in accordance with GAAP. Because the Company’s calculation of these non-GAAP financial measures may differ from other companies, our presentation of these measures may not be comparable to similarly titled measures of other companies.
The Company believes that these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance. The measures eliminate the impact of certain items that may obscure trends in the underlying performance of our business. The Company believes that they are useful to investors, for the additional purposes described below.
Fee revenue: The Company believes that investors may find this measure useful to analyze the financial performance of our Property, facilities and project management service line and our business generally. Fee revenue is GAAP revenue excluding costs reimbursable by clients which have substantially no margin, and as such provides greater visibility into the underlying performance of our business.
Additionally, pursuant to business combination accounting rules, certain fees that may have been deferred by the acquiree may be recorded as a receivable on the acquisition date by the Company. Such fees are included in Fee revenue as acquisition accounting adjustments based on when the acquiree would have recognized revenue in the absence of being acquired by the Company.
Fee-based operating expenses: Consistent with GAAP, reimbursed costs for certain customer contracts are presented on a gross basis ("gross contract costs") in both revenue and operating expenses. As described above, gross contract costs are excluded from revenue in determining “Fee revenue.” Gross contract costs are similarly excluded from operating expenses in determining “Fee-based operating expenses.” Excluding gross contract costs from Fee-based operating expenses more accurately reflects how we manage our expense base and operating margins and, accordingly, is useful to investors and other external stakeholders for evaluating performance.
Adjusted EBITDA and Adjusted EBITDA margin: We have determined Adjusted EBITDA to be our primary measure of segment profitability. We believe that investors find this measure useful in comparing our operating performance to that of other companies in our industry because these calculations generally eliminate integration and other costs related to acquisitions, stock-based compensation, the deferred payment obligation related to the acquisition of Cassidy Turley and other items. Adjusted EBITDA also excludes the effects of financings, income tax and the non-cash accounting effects of depreciation and intangible asset amortization. Adjusted EBITDA margin, a non-GAAP measure of profitability as a percent of revenue, is calculated by dividing Adjusted EBITDA by Fee revenue.
Adjusted net income/loss (“Adjusted net income”) and Adjusted earnings per share (“Adjusted EPS”): Management also assesses the profitability of the business using Adjusted net income. We believe that investors find this measure useful in comparing our profitability to that of other companies in our industry because this calculation generally eliminates integration and other costs related to acquisitions, stock-based compensation, the deferred payment obligation related to the acquisition of CT and other items. Similarly, depreciation and amortization related to merger and acquisition activity and one-time financing related to debt extinguishment and modification are excluded from this measure. Income tax, as adjusted, reflects management’s expectation about our long-term effective rate as a public company. The Company also uses Adjusted EPS as a significant component when measuring operating performance. Management defines Adjusted EPS as Adjusted net income, divided by total basic and diluted weighted-average outstanding shares.
Local currency: In discussing our results, we refer to percentage changes in local currency. These metrics are calculated by holding foreign currency exchange rates constant in year-over-year comparisons. Management believes that this methodology provides investors with greater visibility into the performance of our business excluding the effect of foreign currency rate fluctuations.
The interim financial information for the three and six months ended June 30, 2018 and 2017 is unaudited. All adjustments, consisting of normal recurring adjustments, except as otherwise noted, considered necessary for a fair presentation of the unaudited interim condensed consolidated financial information for these periods have been included. Users of all of the aforementioned unaudited interim financial information should refer to the audited Consolidated Financial Statements of the Company and notes thereto for the year ended December 31, 2017.
Please see the following tables for reconciliations of our non-GAAP financial measures to the most comparable GAAP measures.
iThe Company adopted Topic 606 effective January 1, 2018 using the modified retrospective transition approach. Comparative information continues to be reported under the accounting standards in effect for periods prior to 2018. The impact to GAAP revenue for the three and six months ended June 30, 2018 was an increase of $99.2 million and $228.4 million, respectively. This included increases of $84.0 million and $203.5 million related to reimbursed expenses due to implementation of the updated principal versus agent considerations in Topic 606, which had no impact on Fee revenue, Operating loss, Adjusted EBITDA or Net loss, and the acceleration in the timing of revenue recognition related to variable consideration primarily for leasing services of $15.2 million and $24.9 million, which impacted both Revenue and Fee Revenue. The adoption of Topic 606 resulted in a benefit to Net loss of $5.2 million and $8.5 million and Adjusted EBITDA of $6.2 million and $10.7 million for the three and six months ended June 30, 2018, respectively.
iiIn order to assist our investors and improve comparability of results, we present the year-over-year changes in certain of our financial measures, such as Fee revenue and Adjusted EBITDA, in "local" currency. The local currency change represents the year-over-year change assuming no movement in foreign exchange rates from the prior year. We believe that this provides our management and investors with a better view of comparability and trends in the underlying operating business.
Source: Cushman & Wakefield