Jones Lang LaSalle Incorporated — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited results compared with Q1 2015. JLL provides real estate services through Americas, EMEA and Asia Pacific, and investment management through LaSalle. Management notes that results are seasonal: revenue and profits have historically increased as the year progresses, so Q1 is not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $1,336.8 million | $1,203.5 million |
| Fee revenue, excluding gross contract costs | $1,117.5 million | $1,029.1 million |
| Operating income | $29.4 million | $52.7 million |
| Net income attributable to JLL | $25.7 million | $41.9 million |
| Diluted earnings per share | $0.56 | $0.92 |
| Adjusted EBITDA (non-GAAP) | $84.5 million | $89.8 million |
| Adjusted EBITDA margin on fee revenue | 7.2% | 8.7% |
| Net cash used in operating activities | $336.9 million | $335.8 million |
| Net cash used in investing activities | $184.3 million | $21.0 million |
| Net cash provided by financing activities | $540.3 million | $313.4 million |
Revenue increased 11% in U.S. dollars and 14% in local currency. Fee revenue grew 9% in U.S. dollars and 11% in local currency. Operating income declined 44% in U.S. dollars (50% in local currency); diluted EPS fell 39%. Adjusted EBITDA declined 6% in U.S. dollars (9% in local currency). Higher expenses, including compensation, technology investment, depreciation and acquisition-related charges, outpaced fee revenue growth.
Cash and cash equivalents were $240.4 million at quarter-end, up from $216.6 million at December 31, 2015. Operating cash outflow primarily reflected payment of annual incentive compensation accrued at year-end. Investing outflows included $67.7 million of net capital additions, $76.5 million of acquisition payments and $60.3 million of contributions to real estate ventures.
Segments and material changes
- Americas: Fee revenue rose 12% in local currency to $555.0 million, while operating income fell 14% to $30.3 million; adjusted EBITDA increased 2% to $52.5 million. Growth in leasing, property and facility management, and project and development services was partly offset by higher expenses.
- EMEA: Fee revenue rose 5% in local currency to $256.4 million, but the operating loss widened to $12.0 million from $2.9 million. Project and development services grew, while leasing and capital markets were weaker; management cited U.K. market uncertainty ahead of the EU membership vote.
- Asia Pacific: Fee revenue rose 14% in local currency to $205.9 million, but the segment recorded a $2.1 million operating loss versus $4.4 million of income a year earlier. Adjusted EBITDA fell to $2.0 million from $8.0 million.
- LaSalle: Segment revenue rose 17% in local currency to $113.2 million and operating income increased 19% to $33.8 million. Transaction fees benefited from the listing of LaSalle Logiport REIT in Japan; incentive fees declined 25% due mainly to transaction timing. Assets under management reached $58.3 billion, up $1.9 billion from year-end.
JLL completed 10 acquisitions during the quarter. Initial consideration included $76.5 million paid at closing, $23.5 million of guaranteed deferred consideration and $32.3 million of contingent earn-outs. Goodwill increased to $2.264 billion from $2.142 billion, largely reflecting acquisitions. Restructuring and acquisition charges increased to $7.6 million from $0.8 million.
Debt, liquidity and other key items
- Borrowings under the $2.0 billion unsecured revolving credit facility were $800.0 million at March 31, 2016, up from $255.0 million at year-end; outstanding letters of credit were $18.2 million. The facility matures February 25, 2020, and its quarter-end pricing was LIBOR plus 1.00%.
- Long-term senior notes had $275.0 million principal outstanding, bear 4.4% interest and mature in November 2022. Short-term borrowings were $23.6 million, down from $49.2 million.
- JLL reported compliance with facility covenants. Its credit ratings were BBB+ (stable) from S&P and Baa2 (positive) from Moody’s.
- Real estate venture investments totaled $360.2 million. Maximum unfunded co-investment commitments were $164.4 million. Maximum potential acquisition earn-out payments were $292.6 million, subject to performance conditions; $158.8 million was accrued at fair value.
- The effective tax rate was 24.8%. The filing reports foreign exchange exposure, including substantial revenue outside the U.S.; forward contracts are used to manage certain currency risks. No interest-rate swaps were outstanding.
Outlook, risks and contingencies
The filing provides no specific revenue, earnings or margin guidance. Management describes continued investment in technology, people and growth initiatives, and expects to continue considering acquisitions and co-investment opportunities. It also notes that transaction activity, incentive fees, geographic income mix, foreign exchange and real estate and credit-market conditions can cause substantial period-to-period variability.
Management cited slower global capital markets, weaker EMEA leasing and capital markets activity amid U.K. uncertainty, and increased costs as factors affecting results. Litigation arises in the ordinary course; management believes its resolution will not materially adversely affect financial position, results or liquidity, while noting claims may exceed insurance or be subject to significant deductibles. Risk factors were unchanged from the 2015 Form 10-K. The Board declared a $0.31-per-share semi-annual dividend on April 27, payable June 15, 2016 to holders of record May 13.
Important facts for investors to verify
- Whether fee revenue growth converts into improved operating income and margins, especially in EMEA and Asia Pacific.
- Working-capital seasonality and the timing of incentive-compensation payments, given the substantial Q1 operating cash outflow.
- Use of the revolving facility and capacity to fund acquisitions, co-investments, dividends and other needs while maintaining covenant compliance.
- Acquisition integration, purchase-price allocation and potential earn-out payments, including the $292.6 million maximum contingent exposure.
- Performance of capital-markets and incentive-fee businesses, foreign-exchange effects, and the extent to which reported results reflect local operating trends.