Colliers International Reports Second Quarter Results
Momentum continues with solid internal revenue growth and overall operating performance
Three months ended Six months ended June 30 June 30 (in millions of US$, except EPS) 2019 2018 2019 2018 Revenues $ 745.5 $ 667.4 $ 1,380.6 $ 1,219.8 Adjusted EBITDA (note 1) 87.3 69.4 130.9 105.6 Adjusted EPS (note 2) 1.10 0.95 1.61 1.39 GAAP operating earnings 57.2 45.6 70.6 61.3 GAAP EPS 0.60 0.60 0.63 0.72
Colliers International Group Inc. (NASDAQ:CIGI) (TSX:CIGI.TO) today reported operating and financial results for its second quarter ended June 30, 2019. All amounts are in US dollars.
Revenues for the second quarter were $745.5 million, a 12% increase (15% in local currency) relative to the same quarter in the prior year, adjusted EBITDA (note 1) was $87.3 million, up 26% (30% in local currency) and adjusted EPS (note 2) was $1.10, a 16% increase versus the prior year quarter. Second quarter adjusted EPS would have been approximately $0.04 higher excluding foreign exchange impacts. GAAP operating earnings were $57.2 million, relative to $45.6 million in the prior year period. GAAP diluted net earnings per common share was $0.60 in the quarter, flat versus $0.60 per share for the same quarter a year ago. Second quarter GAAP EPS would have been approximately $0.04 higher excluding changes in foreign exchange rates.
For the six months ended June 30, 2019, revenues were $1.38 billion, a 13% increase (17% in local currency) relative to the comparable prior year period, adjusted EBITDA was $130.9 million, up 24% (27% in local currency) and adjusted EPS was $1.61, a 16% increase versus the prior year period. Year-to-date adjusted EPS would have been approximately $0.05 higher excluding foreign exchange impacts. GAAP operating earnings were $70.6 million, relative to $61.3 million in the prior year period. GAAP diluted net earnings per common share for the six month period was $0.63, compared to $0.72 per share in the prior year period. Year-to-date GAAP EPS would have been approximately $0.05 higher excluding changes in foreign exchange rates.
"Colliers delivered solid internal revenue growth and overall operating performance during the second quarter. Based on our results to date, current business pipelines and acquisitions during the year, we remain optimistic about our growth prospects for the balance of the year," said Jay S. Hennick, Chairman and CEO of Colliers International. "During the second quarter, we completed two more acquisitions of former Colliers affiliates in Charlotte, North Carolina and Sweden. With our investment-grade balance sheet, disciplined growth strategy and more diversification than ever, we are well positioned to continue creating value for shareholders in the future," he concluded.
About Colliers International Group Inc.
Colliers International (NASDAQ, TSX: CIGI) is a leading global real estate services and investment management company. With operations in 68 countries, our 14,000 enterprising people work collaboratively to provide expert advice and services to maximize the value of property for real estate occupiers, owners and investors. For more than 20 years, our experienced leadership team, owning approximately 40% of our equity, have delivered industry-leading investment returns for shareholders. In 2018, corporate revenues were $2.8 billion ($3.3 billion including affiliates), with more than $26 billion of assets under management.
Learn more about how we accelerate success at corporate.colliers.com, Twitter @Colliers or LinkedIn.
Consolidated Revenues by Line of Service
Three months ended Six months ended (in thousands of US$) June 30 Growth Growth June 30 Growth Growth (LC = local currency) 2019 2018 in US$ % in LC % 2019 2018 in US$ % in LC % Outsourcing & Advisory $ 281,638 $ 257,438 9% 13% $ 540,022 $ 497,208 9% 13% Lease Brokerage 253,374 221,706 14% 17% 435,158 389,398 12% 14% Sales Brokerage 163,603 185,671 -12% -9% 315,468 327,948 -4% -1% Investment Management 46,902 2,535 NM NM 89,992 5,269 NM NM Total revenues $ 745,517 $ 667,350 12% 15% $ 1,380,640 $ 1,219,823 13% 17%
Consolidated revenues for the second quarter grew 15% on a local currency basis, with a significant contribution from Harrison Street Real Estate Capital, LLC ("Harrison Street") (acquired in July 2018) in Investment Management. Consolidated internal revenue growth in local currencies was 5% (note 3) led by Lease Brokerage and Outsourcing & Advisory, offset by declines in Sales Brokerage, in all three geographic regions.
For the six months ended June 30, 2019, consolidated revenues grew 17% on a local currency basis, with a significant contribution from Harrison Street. Year-to-date consolidated internal revenue growth in local currencies was 5% led by Outsourcing & Advisory and Lease Brokerage in all three geographic regions.
Segmented Second Quarter Results
The Americas region's revenues totalled $421.4 million for the second quarter compared to $388.6 million in the prior year quarter, up 8% (up 9% on a local currency basis). Local currency revenue growth was comprised of 5% growth from acquisitions and 4% internal growth. Internal growth for the quarter was driven by Lease Brokerage, particularly in the US Northeast and Southwest regions, offset by a reduction in higher margin Sales Brokerage, especially in Canada. Outsourcing & Advisory revenues were up 7% on a local currency internal growth basis across the region. Adjusted EBITDA was $36.2 million, flat versus $36.2 million in the prior year quarter, and was impacted by the change in service mix noted above, as well as ongoing incremental investments in talent acquisition relative to the prior year. GAAP operating earnings were $25.6 million, versus $26.8 million in the prior year period.
EMEA region revenues totalled $151.6 million for the second quarter compared to $147.0 million in the prior year quarter, up 3% (up 9% on a local currency basis). Local currency revenue growth was comprised of 7% internal growth and 2% growth from acquisitions. Internal revenue growth was attributable to an increase in Outsourcing & Advisory services across the entire region, particularly workplace solutions and project management. Adjusted EBITDA was $19.0 million, versus $22.2 million in the prior year quarter, impacted by planned investments in talent acquisition in corporate solutions and capital markets practice areas and a change in revenue mix with workplace solutions and project management carrying lower margins than other services. GAAP operating earnings were $10.8 million, versus $14.7 million in the prior year quarter.
Asia Pacific region revenues totalled $125.1 million for the second quarter compared to $128.8 million in the prior year quarter, down 3% (up 3% on a local currency basis). Local currency revenue growth was comprised of 2% internal growth and 1% growth from recent acquisitions. Internal revenue growth was led by Outsourcing & Advisory but was offset by a decline in higher margin Sales Brokerage. Adjusted EBITDA was $14.2 million, relative to $15.4 million in the prior year quarter, and was impacted by revenue mix. GAAP operating earnings were $12.5 million, versus $13.5 million in the prior year period.
Investment Management revenues for the second quarter were $46.9 million, of which $4.3 million represented pass-through revenue from historical carried interest. Revenues reflected significant incremental management fees from new capital commitments completed during the quarter. The carried interest recognized was payable to former owners of Harrison Street and certain long-serving employees, affecting reported margin but having no impact on earnings. Adjusted EBITDA was $19.2 million. Operating earnings, which are impacted by acquisition-related intangible asset amortization, were $12.2 million in the quarter. Assets under management stood at $30.3 billion as of June 30, 2019.
Global corporate costs as reported in adjusted EBITDA were $1.3 million in the second quarter, relative to $3.6 million in the prior year period. The corporate GAAP operating loss for the second quarter was $4.1 million, relative to $8.7 million in the prior period.
Adoption of New Lease Accounting Standard
On January 1, 2019, the Company adopted FASB Accounting Standard Codification Topic 842, Leases ("ASC 842"). ASC 842 requires the recognition of operating lease right-of-use assets and lease liabilities for virtually all premise and equipment leases on the consolidated balance sheet, with no impact on earnings. The Company adopted ASC 842 effective January 1, 2019 without adjusting comparative periods and recorded a $274.9 million right-of-use asset and corresponding $309.6 million lease liability as of June 30, 2019.
Structured Accounts Receivable Facility
In April 2019, the Company established a structured accounts receivable facility (the "AR Facility") with committed availability of $125 million and an initial term of 364 days and includes continuous sales of selected US and Canadian trade accounts receivable (the "Receivables"). Under the AR Facility, the Company receives a cash payment and a deferred purchase price for sold Receivables.
Cash proceeds from the AR Facility in the amount of $119.4 million were used to repay outstanding indebtedness under Colliers' multi-currency senior unsecured revolving credit facility. The AR Facility is recorded as a sale of accounts receivable, resulting in reductions in accounts receivable and long-term debt.
Colliers will be holding a conference call on Tuesday, July 30, 2019 at 11:00 a.m. Eastern Time to discuss the quarter's results. The call, as well as a supplemental slide presentation, will be simultaneously web cast and can be accessed live or after the call at corporate.colliers.com in the Events section.
This press release includes or may include forward-looking statements. Forward-looking statements include the Company's financial performance outlook and statements regarding goals, beliefs, strategies, objectives, plans or current expectations. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Such factors include: economic conditions, especially as they relate to commercial and consumer credit conditions and business spending; commercial real estate property values, vacancy rates and general conditions of financial liquidity for real estate transactions; the effects of changes in foreign exchange rates in relation to the US dollar on Canadian dollar, Euro, Australian dollar and UK pound sterling denominated revenues and expenses; competition in markets served by the Company; labor shortages or increases in commission, wage and benefit costs; disruptions or security failures in information technology systems; and political conditions or events, including elections, referenda, changes to international trade and immigration policies, and any outbreak or escalation of terrorism or hostilities.
Additional factors and explanatory information are identified in the Company's Annual Information Form for the year ended December 31, 2018 under the heading "Risk Factors" (which factors are adopted herein and a copy of which can be obtained at www.sedar.com) and other periodic filings with Canadian and US securities regulators. Forward looking statements contained in this press release are made as of the date hereof and are subject to change. All forward-looking statements in this press release are qualified by these cautionary statements. Except as required by applicable law, Colliers undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Summary financial information is provided in this press release. This press release should be read in conjunction with the Company's quarterly financial statements and MD&A to be made available on SEDAR at www.sedar.com.
1. Reconciliation of net earnings to adjusted EBITDA:
Adjusted EBITDA is defined as net earnings, adjusted to exclude: (i) income tax; (ii) other expense (income); (iii) interest expense; (iv) depreciation and amortization; (v) acquisition-related items; (vi) restructuring costs and (vii) stock-based compensation expense. We use adjusted EBITDA to evaluate our own operating performance and our ability to service debt, as well as an integral part of our planning and reporting systems. Additionally, we use this measure in conjunction with discounted cash flow models to determine the Company's overall enterprise valuation and to evaluate acquisition targets. We present adjusted EBITDA as a supplemental measure because we believe such measure is useful to investors as a reasonable indicator of operating performance because of the low capital intensity of the Company's service operations. We believe this measure is a financial metric used by many investors to compare companies, especially in the services industry. This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings, net earnings or cash flow from operating activities, as determined in accordance with GAAP. Our method of calculating adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to adjusted EBITDA appears below.
Three months ended Six months ended (in thousands of US$) June 30 June 30 2019 2018 2019 2018 Net earnings $ 35,575 $ 28,804 $ 41,039 $ 37,343 Income tax 13,187 12,859 14,402 17,575 Other income, net 179 (33 ) (322 ) (460 ) Interest expense, net 8,257 3,939 15,476 6,856 Operating earnings 57,198 45,569 70,595 61,314 Depreciation and amortization 23,778 16,283 46,447 32,141 Acquisition-related items 5,263 5,741 9,898 7,995 Restructuring costs 275 347 314 416 Stock-based compensation expense 809 1,487 3,640 3,701 Adjusted EBITDA $ 87,323 $ 69,427 $ 130,894 $ 105,567
2. Reconciliation of net earnings and diluted net earnings per common share to adjusted net earnings and adjusted earnings per share:
Adjusted earnings per share is defined as diluted net earnings per common share, adjusted for the effect, after income tax, of: (i) the non-controlling interest redemption increment; (ii) amortization expense related to intangible assets recognized in connection with acquisitions; (iii) acquisition-related items; (iv) restructuring costs and (v) stock-based compensation expense. We believe this measure is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company and enhances the comparability of operating results from period to period. Adjusted earnings per share is not a recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted net earnings per share, as determined in accordance with GAAP. Our method of calculating this non-GAAP measure may differ from other issuers and, accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to adjusted net earnings and of diluted net earnings per share to adjusted earnings per share appears below.
Three months ended Six months ended (in thousands of US$) June 30 June 30 2019 2018 2019 2018 Net earnings $ 35,575 $ 28,804 $ 41,039 $ 37,343 Non-controlling interest share of earnings (6,586 ) (3,547 ) (7,831 ) (4,216 ) Amortization of intangible assets 15,238 8,779 29,958 17,368 Acquisition-related items 5,263 5,741 9,898 7,995 Restructuring costs 275 347 314 416 Stock-based compensation expense 809 1,487 3,640 3,701 Income tax on adjustments (4,212 ) (2,550 ) (8,216 ) (4,973 ) Non-controlling interest on adjustments (2,346 ) (1,206 ) (4,592 ) (2,050 ) Adjusted net earnings $ 44,016 $ 37,855 $ 64,210 $ 55,584 Three months ended Six months ended (in US$) June 30 June 30 2019 2018 2019 2018 Diluted net earnings per common share $ 0.60 $ 0.60 $ 0.63 $ 0.72 Non-controlling interest redemption increment 0.13 0.03 0.20 0.11 Amortization of intangible assets, net of tax 0.23 0.14 0.46 0.28 Acquisition-related items 0.12 0.13 0.22 0.18 Restructuring costs, net of tax - 0.01 0.01 0.01 Stock-based compensation expense, net of tax 0.02 0.04 0.09 0.09 Adjusted earnings per share $ 1.10 $ 0.95 $ 1.61 $ 1.39
3. Local currency revenue growth rate and internal revenue growth
Percentage revenue variances presented on a local currency basis are calculated by translating the current period results of our non-US dollar denominated operations to US dollars using the foreign currency exchange rates from the periods against which the current period results are being compared. Percentage revenue variances presented on an internal growth basis are calculated assuming no impact from acquired entities in the current and prior periods. Revenue from acquired entities, including any foreign exchange impacts, are treated as acquisition growth until the respective anniversaries of the acquisitions. We believe that these revenue growth rate methodologies provide a framework for assessing the Company's performance and operations excluding the effects of foreign currency exchange rate fluctuations and acquisitions. Since these revenue growth rate measures are not calculated under GAAP, they may not be comparable to similar measures used by other issuers.
4. Assets under management
We use the term assets under management ("AUM") as a measure of the scale of our Investment Management operations. AUM is defined as the gross market value of operating assets and the projected gross cost of development properties of the funds, partnerships and accounts to which we provide management and advisory services, including capital that such funds, partnerships and accounts have the right to call from investors pursuant to capital commitments. Our definition of AUM may differ from those used by other issuers and as such may not be directly comparable to similar measures used by other issuers.
COLLIERS INTERNATIONAL GROUP INC. Condensed Consolidated Statements of Earnings (in thousands of US dollars, except per share amounts) Three months Six months ended June 30 ended June 30 (unaudited) 2019 2018 2019 2018 Revenues $ 745,517 $ 667,350 $ 1,380,640 $ 1,219,823 Cost of revenues 484,220 430,725 905,570 793,025 Selling, general and administrative expenses 175,058 169,032 348,130 325,348 Depreciation 8,540 7,504 16,489 14,773 Amortization of intangible assets 15,238 8,779 29,958 17,368 Acquisition-related items (1) 5,263 5,741 9,898 7,995 Operating earnings 57,198 45,569 70,595 61,314 Interest expense, net 8,257 3,939 15,476 6,856 Other income 179 (33 ) (322 ) (460 ) Earnings before income tax 48,762 41,663 55,441 54,918 Income tax expense 13,187 12,859 14,402 17,575 Net earnings 35,575 28,804 41,039 37,343 Non-controlling interest share of earnings 6,586 3,547 7,831 4,216 Non-controlling interest redemption increment 5,205 1,410 7,962 4,314 Net earnings attributable to Company $ 23,784 $ 23,847 $ 25,246 $ 28,813 Net earnings per common share Basic $ 0.60 $ 0.61 $ 0.64 $ 0.74 Diluted $ 0.60 $ 0.60 $ 0.63 $ 0.72 Adjusted earnings per share (2) $ 1.10 $ 0.95 $ 1.61 $ 1.39 Weighted average common shares (thousands) Basic 39,532 39,168 39,416 39,108 Diluted 39,954 39,842 39,887 39,752
Notes to Condensed Consolidated Statements of Earnings
(1) Acquisition-related items include transaction costs, contingent acquisition consideration fair value adjustments, and contingent acquisition consideration-related compensation expense.
(2) See definition and reconciliation above.
Condensed Consolidated Balance Sheets (in thousands of US dollars) (unaudited) June 30, 2019 December 31, 2018 June 30, 2018 Assets Cash and cash equivalents $ 102,092 $ 127,032 $ 104,246 Accounts receivable and contract assets 359,850 554,700 446,515 Prepaids and other assets 141,948 78,581 81,520 Current assets 603,890 760,313 632,281 Other non-current assets 88,504 83,765 83,624 Fixed assets 102,264 93,483 83,899 Operating lease right-of-use assets 274,857 - - Deferred income tax 38,954 34,195 41,251 Goodwill and intangible assets 1,383,778 1,385,824 738,251 Total assets $ 2,492,247 $ 2,357,580 $ 1,579,306 Liabilities and shareholders' equity Accounts payable and accrued liabilities $ 548,022 $ 720,938 $ 507,168 Other current liabilities 65,890 75,929 60,935 Long-term debt - current 2,356 1,834 1,614 Operating lease liabilities - current 70,953 - - Current liabilities 687,221 798,701 569,717 Long-term debt - non-current 690,048 670,289 418,223 Operating lease liabilities - non-current 238,602 - - Other liabilities 85,608 125,706 80,554 Deferred income tax 23,525 27,550 23,988 Redeemable non-controlling interests 338,405 343,361 156,602 Shareholders' equity 428,838 391,973 330,222 Total liabilities and equity $ 2,492,247 $ 2,357,580 $ 1,579,306 Supplemental balance sheet information Total debt $ 692,404 $ 672,123 $ 419,837 Total debt, net of cash 590,312 545,091 315,591 Net debt / pro forma adjusted EBITDA ratio 1.7 1.6 1.2
Consolidated Statements of Cash Flows (in thousands of US dollars) Three months ended Six months ended June 30 June 30 (unaudited) 2019 2018 2019 2018 Cash provided by (used in) Operating activities Net earnings $ 35,575 $ 28,804 $ 41,039 $ 37,343 Items not affecting cash: Depreciation and amortization 23,778 16,283 46,447 32,141 Deferred income tax (3,025 ) 1,792 (7,044 ) 1,399 Other 15,714 8,717 30,641 16,543 72,042 55,596 111,083 87,426 Net change from assets/liabilities Accounts receivable (26,039 ) (12,612 ) 17,297 38,655 Prepaids and other assets (2,416 ) (483 ) (5,604 ) 4,373 Payables and accruals (14,033 ) 7,949 (203,751 ) (157,884 ) Other (883 ) (89 ) 3,564 457 Contingent acquisition consideration paid (5,101 ) - (5,213 ) (2,856 ) Sale proceeds from AR facility, net of repurchases 119,425 - 119,425 - Net cash provided by (used in) operating activities 142,995 50,361 36,801 (29,829 ) Investing activities Acquisition of businesses, net of cash acquired (10,433 ) (18,848 ) (23,677 ) (98,580 ) Purchases of fixed assets (13,685 ) (7,781 ) (24,064 ) (13,990 ) Cash collections on AR facility deferred purchase price 7,337 - 7,337 - Other investing activities (6,403 ) (13,498 ) (15,602 ) (17,960 ) Net cash used in investing activities (23,184 ) (40,127 ) (56,006 ) (130,530 ) Financing activities Increase in long-term debt, net (113,470 ) (14,472 ) 21,424 172,361 Purchases of non-controlling interests, net (4,061 ) - (6,765 ) (73 ) Dividends paid to common shareholders - - (1,961 ) (1,947 ) Distributions paid to non-controlling interests (13,363 ) (7,399 ) (19,557 ) (12,603 ) Other financing activities (2,545 ) (169 ) 2,399 (2,688 ) Net cash provided by (used in) financing activities (133,439 ) (22,040 ) (4,460 ) 155,050 Effect of exchange rate changes on cash (1,627 ) 4,403 (1,275 ) 1,032 Increase (decrease) in cash and cash equivalents (15,255 ) (7,403 ) (24,940 ) (4,277 ) Cash and cash equivalents, beginning of period 117,347 111,649 127,032 108,523 Cash and cash equivalents, end of period $ 102,092 $ 104,246 $ 102,092 $ 104,246
Segmented Results (in thousands of US dollars) Asia Investment (unaudited) Americas EMEA Pacific Management Corporate Consolidated Three months ended June 30 2019 Revenues $ 421,385 $ 151,595 $ 125,099 $ 46,902 $ 536 $ 745,517 Adjusted EBITDA 36,155 19,042 14,200 19,234 (1,308 ) 87,323 Operating earnings 25,619 10,842 12,539 12,249 (4,051 ) 57,198 2018 Revenues $ 388,607 $ 147,029 $ 128,796 $ 2,535 $ 383 $ 667,350 Adjusted EBITDA 36,176 22,226 15,366 (768 ) (3,573 ) 69,427 Operating earnings 26,800 14,727 13,471 (777 ) (8,652 ) 45,569 Asia Investment Americas EMEA Pacific Management Corporate Consolidated Six months ended June 30 2019 Revenues $ 780,211 $ 272,059 $ 237,416 $ 89,992 $ 962 $ 1,380,640 Adjusted EBITDA 62,388 16,534 25,108 29,480 (2,616 ) 130,894 Operating earnings 41,787 696 21,755 15,886 (9,529 ) 70,595 2018 Revenues $ 717,108 $ 260,013 $ 236,631 $ 5,269 $ 802 $ 1,219,823 Adjusted EBITDA 62,631 22,208 26,583 (1,181 ) (4,674 ) 105,567 Operating earnings 46,806 5,581 22,845 (1,202 ) (12,716 ) 61,314
Jay S. Hennick
Chairman & CEO
John B. Friedrichsen