Colliers International Group Inc. (CIGI) on Q4 2021 Results - Earnings Call Transcript
Operator: Welcome to the Colliers International Fourth Quarter and Year-End Investor Conference Call. Today’s call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company’s annual information form as filed with the Canadian Securities Administrators and in the company’s annual report on Form 40-F as filed with the U.S. Securities and Exchange Commission. As a reminder, today’s call is being recorded. Today is February 10, 2022. And at this time, for opening remarks and introductions, I would like to turn the call over to the Global Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.
Jay Hennick: Thank you, operator. Good morning, and thanks for joining us for this fourth quarter conference call. I’m Jay Hennick, Chairman and Chief Executive Officer of the Company, and with me today is Christian Mayer, Chief Financial Officer. As always, this call is being webcast and is available in the Investor Relations section of our website. A presentation deck is also available there to accompany today’s call. As announced this morning, Colliers delivered very strong fourth quarter financial results with full year revenues exceeding the $4 billion milestone. Capital Markets, Leasing and Outsourcing & Advisory were all up significantly across all service lines and across all geographies, while Investment Management delivered record results raising more than $6 billion in capital and finishing the year with more than $50 billion in assets under management. With a globally balanced and highly diversified business model, significant recurring earnings and a sharp focus on global growth opportunities, Colliers is stronger and more resilient than ever. As you know, last month, we announced that we were investing in Basalt Infrastructure of leading transatlantic Investment Management firm with more than $8 billion in assets under management, adding another highly differentiated investment business that specializes in the important utility, transportation, energy and renewables and communication sectors. Together with the previously announced Milan-based Antirion, which we’re acquiring to augment our existing operations in Europe, we expect to add more than $12 billion in assets under management to this segment of our business once both of these transactions are completed. As you know, last year, we announced our new Enterprise 2025 growth strategy. The goal is to double our profitability and generate more than 65% of our EBITDA from recurring revenue streams over the upcoming 5 years. We finished year 1 well ahead of our internal targets, and we continue to make excellent progress. If we’re able to achieve our current 5-year plan, it will be very good news indeed for our shareholders. With our strong growth plan, strong global brand and growth platform, well balanced and highly diversified business model, unique enterprising culture and significant inside ownership, Colliers is better positioned today than at any time in our history to continue to create value and to generate superior returns for shareholders. However, despite all of these characteristics and unique attributes, our company remains significantly undervalued when compared to others in my view. I have been investing in businesses and building companies for many years now, and I say this with a very strong conviction. Few companies have our growth prospects, few have the experienced and financially committed leadership team we do, and fewer still have our long-term record of performance, a track record of greater than 20% annualized returns over more than 27 years. With that said, let me now turn things over to Christian for comments, and then we’ll open things up to questions. Christian?
Christian Mayer: Thank you, Jay. As announced this morning, Colliers reported very strong fourth quarter financial results. My comments follow the flow of the slides posted on the Investor Relations section of colliers.com to accompany this call. Please note that the non-GAAP measures referenced on this call are as defined in this morning’s press release. All references to revenue growth are expressed in local currency. Our revenues for Q4 were $1.3 billion, up 48% relative to the prior year period, with revenues up strongly across all service lines and geographies. Growth for the quarter was predominantly internally generated. Compared to 2019 pre-pandemic peak levels, Capital Markets revenues were up 60% and Leasing was up 12% with office leasing recovering to within 5% of 2019 levels. Fourth quarter consolidated adjusted EBITDA was $192 million, up 25% from $155 million reported 1 year ago with margins at 14.3% versus 17% in the prior year quarter. Our margin was impacted by increased performance-based incentive compensation and the reinstatement of variable costs, mainly attributable to the strong growth in transaction activity. The Americas region fourth quarter revenues were $814 million, up 54% over the prior period. Revenue growth was exceptionally strong with Leasing activity up 77%, led by industrial. Capital Markets activity was up 66% and was led by industrial, land and multifamily asset classes. Office leasing activity showed steady improvement in Q4, although remained below pre-pandemic levels. Outsourcing & Advisory revenues were up 29%, driven by engineering and design valuation and loan servicing as well as recent acquisitions. Adjusted EBITDA was $94 million, up 34% from last year with some margin impacted by significant incremental performance-based incentive compensation from strong year-over-year growth in operating results, the restatement of variable costs and higher supported staffing costs. EMEA revenues for Q4 were $233 million, up 32% from 1 year ago, with robust growth across all service lines led by Outsourcing & Advisory and Capital Markets. Adjusted EBITDA was $42 million, up 19% from last year on higher revenues although margin was impacted by revenue mix from higher project management activity. In the Asia Pacific region, third quarter -- fourth quarter revenues were $219 million, up 36%, driven by strong Capital Markets activity across the region, but especially in Australia and New Zealand. Adjusted EBITDA was $38 million, up 7% relative to the prior year quarter and was affected by higher performance-based incentive compensation. Investment Management revenues were $80 million, up 83% versus the prior year period. After eliminating the impact of pass-through carried interest, revenues were up 45% driven by management fee growth. Assets under management were $51 billion at quarter end, up 29% from 1 year ago and capped off a record year of fundraising with $6.1 billion of new capital commitments from investors. Adjusted EBITDA for the quarter was $28 million, up from $18 million in the comparative quarter on solid flow-through from incremental management fee revenue. Our consolidated operating cash flow for the full year was $289 million. However, adjusting for the nonrecurring cash component of the LTIA settlement in April 2021, cash flow was $381 million, more than double the $166 million generated in 2020. Cash flow was positively impacted by a combination of higher earnings and a reduction in working capital usage, which was elevated during the earlier stages of the pandemic last year. Our financial leverage ratio as defined as net debt to pro forma adjusted EBITDA was 0.3x as of December 31, 2021. During the fourth quarter, we issued $300 million in U.S. and euro-denominated senior notes due 2031 and paid down our revolving credit facility in full. As of December 31, we had $397 million of cash on hand, the majority of which is available for investment. As a result, we now have well over $1.2 billion in liquidity available to fund future acquisitions and ongoing operations, including the recently announced Basalt transaction, which is expected to close later this year. Our debt capital structure includes $530 million of attractively priced long-term fixed-rate debt, which positions us well for any inflationary uncertainty ahead. Given our low leverage and significant financial capacity, we continue to be extremely well capitalized for future growth. We are introducing our outlook for 2022, which provides our broad expectations for the year ahead and represents a return to the format we issued historically during more normal lines. We expect high-single-digit revenue growth consisting of mid-single-digit internal growth and the balance from previously completed and recently announced acquisitions, including Antirion, Colliers Italy and Basalt. We expect our adjusted EBITDA margin to improve 40 to 60 basis points relative to 2021 from a combination of internal operating leverage and higher margin acquisitions. Our income tax rate and noncontrolling interest share of earnings are expected to be 26% to 28% and 18% to 20%, respectively, consistent with historical ranges. Finally, our adjusted earnings per share are expected to grow at mid-teens percentage rate for 2022. This new outlook is subject to risks and uncertainties as outlined in our accompanying slides. That concludes my prepared remarks. I would now like to open the call for questions. Operator, can you please open the line?
Operator: Our first question comes from the line of George Doumet with Deutsche Bank (sic) .
George Doumet: Congrats on a really strong quarter. Jay, I’ve got a 2-part question for you. First...
Jay Hennick: Just before you begin -- George, just before you begin, you’re not at Deutsche Bank. Are you?
George Doumet: No, I’m still with Scotia. So yes, I wanted to ask you about Basalt. So maybe what attracted you to that asset? And once you integrate it, are there any other alternative asset classes that you’d be interested to offer that we don’t offer yet?
Jay Hennick: Okay. So it’s hard to hear you. You’re asking about the Basalt and what attracted us to the Basalt?
George Doumet: Correct.
Jay Hennick: So Basalt, like Harrison Street is an extremely high-quality Investment Management firm that has highly differentiated assets. So they focus on areas that require an extra level of expertise. They’ve been around a long time. Their results have been stellar as compared to others. It’s a partnership approach in the same way as Harrison Street. There’s lots of synergies between Harrison Street and Basalt and there’s also lots of synergies between Basalt and the rest of the Colliers global platform. So it’s strike zone for us in terms of an additional move for us in our Investment Management and it really is a model for other similar platforms that we look to add over the coming years.
George Doumet: Okay. That’s helpful. And maybe for Christian, the 50% EBITDA margin at Basalt, they’re pretty elevated there. Can you maybe walk us through how do you get that number maybe from a free structure or -- and maybe overhead cost? And would you expect maybe to make some more investments in that business that can maybe lower those margins over the next 12 months? .
Christian Mayer: Yes. I mean, George, our Investment Management business that we have currently operates in the mid-40% EBITDA margin range and Basalt is similar to that. These businesses generate very strong recurring quarterly management fee revenue streams, and they have relatively low cost. They have, obviously, management professionals and some fixed costs. And the EBITDA margins in these businesses are in that 40% to 55% range.
George Doumet: Okay. Just one last one, if I may. On your mid-single-digit internal revenue growth guidance that you guys put out for ‘22, what do you have baked in for Capital Markets revenue growth?
Christian Mayer: Well, George, I don’t want to get into any specifics on that. But I think across the business, a mid-single-digit growth rate is something we’re very comfortable with.
Operator: And our next question comes from the line of Scott Fromson with CIBC.
Scott Fromson: Just a couple questions on results. So the results came in much better than the analyst estimates. Were revenues at right at year-end higher than you would have expected? And could there have been some revenues that were brought forward from the current quarter?
Jay Hennick: Scott, in the transactional business and the up frontier is really in the transactional business a little bit but also in the other business. But the recurring revenues are more steady by their nature and more predictable. Yes, I mean, there are transactions that flow into December that might have occurred in the first quarter. And similar to the transactions that we were expecting in December that may be deferred into a future quarter. So that type of movement of the fee recognition on these commissions is something that happens regularly in the business, but nothing unusual to know here. I think we just had a stronger finish really across all of our regions really in both Capital Markets and Leasing across the board.
Scott Fromson: So it sounds just like a reflection of the strong market.
Jay Hennick: Yes, yes, stronger than we expected, certainly when we met last time a quarter ago here on the call.
Scott Fromson: That’s good news. Just turning to your leverage, your balance sheet. Your leverage ratio is pretty low. What range are you comfortable with? And would you consider increasing the cash back to shareholders by either raising the dividend or through share buybacks? Or do you want to keep dry powder?
Christian Mayer: Well, Scott, we obviously are very active in the acquisition side of our business, and that’s where we prefer to deploy our capital. We have a target leverage range of 1x to 2x. Certainly, we’re well below that at year-end. And we assess our optimal capital structure all the time. And we’re -- as I said, we’re focused on acquisitions. But if other ways to properly lever our business and return appreciation to shareholders that are to be considered, we’ll look at that as well.
Jay Hennick: I’d like to add a little something to that as well. One of the things that’s becoming glaringly obvious or should be coming glaringly obvious is that this company generates significant free cash flow, and we’ll continue to do that. And our CapEx is modest compared to the size of our company. So despite having aggressive growth already on the books not yet closed, and if you roll those things forward, our leverage ratio isn’t going to change much. It will go up a little bit, but it isn’t going to change much. So I think one of the things we are looking at is the amount of cash flow we generate in this business. And as I said in my comments, the relatively modest valuation that a company of our quality is trading at. And I think we do our shareholders a service by looking at all ways to enhance shareholder value.
Scott Fromson: Sounds good. That’s helpful. Just one final question on Investment Management. How is the fundraising outlook? And how is the competitive environment for fundraising? Obviously, alternatives are pretty hot space.
Jay Hennick: Well, I mean, we had a record fundraising last year, $6.1 billion through our Investment Management arm. I think this year, we think we’re going to have another record year again. As you said, our asset classes that we focused on are invoke. Obviously, infrastructure is very hot. So we’ll see how Basalt does. They’ve just substantially completed their most recent fund. And now that the transaction is announced and out there, we’ll be out raising I believe, is the biggest fund ever beginning in the next 45, 60 days. So we’re hoping for a very strong fundraising year in ‘22.
Operator: Our next question comes from the line of Stephen MacLeod with BMO Capital Markets.
Stephen MacLeod: I just wanted to follow up on Basalt, which looks like a very complementary Investment Management acquisition. And Jay, you mentioned in your comments certainly some opportunities to be synergistic with Harrison Street as well as the rest of Colliers global platform. I was just wondering if you can elaborate a little bit on what some of those synergies look like? And how we can think about that in terms of magnitude between Basalt and the existing business?
Jay Hennick: Well, there’s the obvious which is Colliers as a global platform with global relationships, we’re marketing transactions all around the world and having Basalt as part of the family gives them a, I wouldn’t say a first look, but at a sure look at any opportunities that we may be marketing as well as special relationships. Our job in our markets and traditional business is to know capital sources and flows of capital. And so introducing flows of capital to Harrison Street or Basalt and our -- and Colliers global investors, has borne nice fruit in terms of fundraising. But also, the types of investors in all of our funds are those investors that value the governance, value the track record of our platform companies within Investment Management and are always asking us what additional asset classes should we be considering. And so there’s a growing need, I would say, on our side to get better at leveraging existing LP relationships between our different platforms to create additional fundraising sources. So there’s just a few -- there’s just a few opportunities there, but it’s -- there are countless others that will help leverage existing platforms and enhance the returns for our LPs. And that’s happening really across the board.
Stephen MacLeod: Okay. That’s great color. And then I didn’t want to get too granular here, but I’m just curious about what you’re seeing in terms of the office either Capital Markets or Leasing backdrop across your geographies? I know you mentioned, Christian, in your prepared remarks that office is within 5% of 2019 levels. Just curious what you’re seeing between geographic regions.
Christian Mayer: We’re seeing more office activity in all regions. I would say probably we’re in the Americas and coming back and probably something we’re expecting to see more to come back more in EMEA and Asia Pac in the coming quarters. But certainly, things are progressing well, and activity is rebounding.
Stephen MacLeod: Okay. That makes sense. And then maybe similar to that, are you seeing -- do you expect to see any asset classes sort of begin to weaken as we get back to normal if we do end up getting back to normal in 2022 from a pandemic perspective?
Christian Mayer: Well, I’m not sure I would characterize it as weakening. But I think a moderation of activity in the industrial, we felt them have been coming back. But industrial has been so strong for a long time and that, I think, will moderate over time.
Operator: And our next question comes from the line of Daryl Young with TD Securities.
Daryl Young: Just wanted to follow up a little bit further on the Investment Management business. It sounds like more asset classes could be in the works in the future. Is there a chance that Investment Management ends up at 50% of EBITDA in the future? I mean you’re already at, on a pro forma basis, around 25%, which I think is sort of the goalpost you used to speak to. But just given fundraising and then the potential for more asset classes, it seems like it could be a very big part of the mix here going forward.
Jay Hennick: That’s a pretty ambitious target that you’re outlining. The interesting thing is that as we grow Investment Management, so too is our services business growing by leaps and bounds. I mean internal growth there has been staggering. I would say, anecdotally that a lot of that growth or some of that growth is coming from the enhanced stature we gained by being in the Investment Management business and the opportunities that, that’s creating for us and we’ve just really scratched the surface. So I don’t think anybody here was thinking in terms of 25% of our -- or 50% of our EBITDA coming from Investment Management. But it is growing and our long strategy, the Colliers partnership philosophy is something that is really resonating with the right targets. And we’re very gratified to have the opportunities we have today. And we believe that there will be other like targets that want a permanent long-term capital partner, somebody who can add value and leverage everything we have to offer. Let’s remember Colliers is global with a globally balanced business with strong leadership teams in every geographic region, meaning we can acquire and grow virtually anywhere in the world. I sort of mentioned that in my comments but how many companies have that opportunity a few that best and that comes back to our one step at a time approach, the strength of our management teams, the tenure of our management teams, they’ve been around a long we operate. So we’re very bullish about this company and proud of what we have accomplished over many years. And I think that the future is our oyster in many ways as long as we continue to apply the same principles that we’ve used for many years to create shareholder value.
Daryl Young: Okay. Terrific. And then one other quick one, just on the Engineering side. Maybe just a quick update there. You’ve been acquisitive in the last 12 months and very quickly building a platform, but what the organic pipeline maybe looks like now that you’ve had a chance to piece all those businesses together under 1 umbrella?
Jay Hennick: So I know, Chris, you may have some additional thoughts here. But again, I’m going to emphasize that our current initiatives around engineering, which have been very positive. We have an incredible leadership team there that has integrated several acquisitions. They have a pipeline of others. Let’s just remember, this is only U.S. There is no reason why we can’t advance and grow these businesses in other geographic regions, which we fully intend to do, which opens up a massive growth engine outside of our core business, but very much related using a globally institutionally recognized brand. And it comes back to my comments, again, around an exceptional company substantially undervalued or underappreciated for the many opportunities we have to double and triple the size of our business in the coming years. So I think Engineering is just another great opportunity for us, structured the right way with multiple consolidation and growth opportunities, which we’ll execute in our usual Colliers away.
Operator: And our next question comes with Frederic Bastien with Raymond James.
Frederic Bastien: Your Outsourcing & Advisory segment had a very strong year, up some 20% organically across regions. Wondering if you could break that down between what is coming from improving end market demand like share gains and perhaps some new offerings -- service offerings that you implemented?
Christian Mayer: Yes. Frederic, the Americas Outsourcing & Advisory group includes engineering. And of course, we’ve been active there on the acquisition front with a number of acquisitions, most recently, Bergmann in November of 2021. And -- so that’s the story in the Americas. Of course, in the Americas, the project management business and the valuation business as well as the property management business have all had great years, contributing to organic growth. I’d say the same in EMEA and Asia Pac, valuation practice, engineering practices -- I’m sorry, not the engineering -- valuation practices, project management and property management have all grown nicely and have contributed to the organic growth in those 2 regions.
Frederic Bastien: Okay. I get that. But you were coming off the press levels in 2021. So just wondering if there was also some -- did you notice any market share gains that you were able to accomplish?
Christian Mayer: Yes. I mean I don’t have any specific information in front of me, but I do think we are growing our market share and our growth in those businesses have been very strong.
Jay Hennick: Just looking at our numbers, Fred, like Outsourcing & Advisory being so recurring is generally sub-10% kind of grower, it grew 30% this year overall. So I would say we’re taking significant gains. The acquisition of Bergmann was in December or November. So it was...
Christian Mayer: Also the annualization of the laser acquisition.
Jay Hennick: Okay. But still not enough to reflect the growth. So I would say we’re taking nice shares, not to the same degree, perhaps as in some of the areas, but very formidable to say the least.
Operator: Now, I’m showing no further questions. I’ll now turn the call over to Global Chairman and CEO, Mr. Jay Hennick for any closing remarks.
Jay Hennick: Thank you, operator, and thanks, everyone, for participating in this quarter’s conference call. We look forward to the first quarter to report again. And in the interim period, I believe we’ll have our annual meeting. And so that will be webcast for those that want to participate. So, thanks for joining us. And we look forward to speaking to you again soon. Thank you.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating, and have a nice day.
