Cushman & Wakefield plc — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Amounts are in U.S. dollars unless stated otherwise. The filing describes a global commercial real estate services firm operating across the Americas, EMEA and APAC.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $2,406.0m | $2,612.6m | $4,655.3m | $4,943.6m |
| Service line fee revenue | $1,632.9m | $1,916.4m | $3,136.9m | $3,621.2m |
| Operating income | $56.3m | $176.6m | $38.0m | $311.9m |
| Net income (loss) | $5.1m | $97.2m | $(71.3)m | $142.7m |
| Diluted EPS | $0.02 | $0.43 | $(0.31) | $0.62 |
| Adjusted EBITDA | $146.1m | $262.8m | $207.0m | $477.1m |
| Adjusted EBITDA margin on fee revenue | 8.9% | 13.7% | 6.6% | 13.2% |
- Q2 revenue fell 8% and fee revenue fell 15% year over year; first-half revenue declined 6% and fee revenue 13%. Growth in property, facilities and project management was outweighed by weaker transaction-oriented services.
- Q2 net income fell 95%; first-half results shifted to a net loss. Operating income dropped 68% in Q2 and 88% for the first half.
- First-half costs of services were 83% of revenue versus 80% a year earlier; operating, administrative and other expenses were 14% of revenue versus 12%.
Cash flow, debt and liquidity
- First-half operating cash flow was a use of $238.3m, compared with a $246.3m use in 2022. Investing activities provided $145.4m, including a net $170m draw under the receivables securitization investment limit; financing activities used $55.0m.
- Cash and cash equivalents were $502.3m at June 30, down from $644.5m at year-end 2022. Cash, cash equivalents and restricted cash totaled $572.8m for cash-flow reporting purposes.
- Management reported $1.6bn of liquidity: $0.5bn cash and $1.1bn available under the undrawn revolving credit facility. The company also had $170m drawn under the securitization program’s $200m credit investment limit.
- Long-term debt, net, was $3.226bn, with $36.7m of short-term borrowings and current debt. The revolving credit facility was undrawn. First-lien loan effective rates were 8.23% on the 2025 tranche and 8.75% on the 2030 tranche; the 2020 secured notes carry a fixed 6.75% coupon. The company said it was in compliance with debt covenants.
- Capital expenditures were $20.6m in the first half. Management expects cash, operating cash flow and revolver availability to meet anticipated requirements for at least the next 12 months, absent a major acquisition or extraordinary event.
Material changes and management commentary
- Capital markets revenue declined 48% in Q2 and 49% in the first half; leasing declined 20% in both periods. Property, facilities and project management revenue grew 2% in Q2 and 4% in the first half. First-half valuation and other revenue declined 14%.
- The Americas and EMEA weakened: first-half revenue declined 6% and 13%, respectively. APAC revenue rose 3% reported, or 7% in local currency, but APAC Adjusted EBITDA fell 51%.
- Management cited elevated inflation and interest rates, tighter lending, banking-sector stress and cautious occupier decisions as factors reducing transaction volumes and delaying deals. It expects the near-term outlook to remain challenging, while noting clients may deploy capital when conditions stabilize.
- Cost-saving actions include targeted headcount reductions and property lease rationalizations, expected to be substantially complete by year-end. The company expects $20m–$30m of 2023 restructuring charges.
- In January 2023, the company extended $1.0bn of first-lien debt maturity to 2030; the remaining approximately $1.6bn tranche matures in August 2025. First-half interest expense rose 51%, reflecting higher variable rates and refinancing-related costs, including a $16.9m debt-extinguishment loss and $4.7m of transaction costs expensed.
- The receivables securitization was amended in June, extended to June 2026 and transferred to a new provider. An $11.3m servicing-liability fee was recorded. The filing reports a $235.2m deferred purchase price receivable at June 30.
- Other notable items include $18.9m of first-half unrealized losses on investments, primarily WeWork; WeWork’s reported fair value was $3.8m versus the original $150m investment. Former CEO John Forrester stepped down effective June 30 and became a strategic advisor, with planned retirement on December 31; related CEO-transition costs were $2.3m.
Risks, contingencies and other items
- Key risks include further deterioration in commercial real estate markets, financing conditions and transaction activity; interest-rate and foreign-exchange movements; employee retention; technology, cybersecurity and privacy; regulation and tax changes; and substantial indebtedness and debt-service capacity.
- Recorded contingent liabilities for errors-and-omissions, litigation, workers’ compensation and medical claims totaled $146.0m at June 30. Management said resolution of claims and litigation is not expected to materially adversely affect financial position, results or liquidity. Guarantees had maximum potential payments of approximately $45.3m; management considered payment remote.
- The company is evaluating potential effects of proposed global minimum-tax rules. It reported no material subsequent events through July 31, 2023, and no material changes to previously disclosed risk factors or legal proceedings.
- Results are seasonal and interim performance is not necessarily indicative of full-year results. Disclosure controls were concluded effective as of June 30, 2023.
Important facts for investors to verify
- Whether leasing and capital-markets activity recovers, and how continued market weakness affects fee revenue and Adjusted EBITDA.
- Cash conversion and seasonal working-capital needs, including the role and availability of the receivables securitization and revolver.
- Debt costs, floating-rate exposure, maturity/refinancing plans and covenant headroom, particularly for the 2025 first-lien tranche.
- Progress, realized savings and total costs of the $20m–$30m restructuring program, alongside the impact of higher employment and technology costs.
- Investment valuation and downside exposure, including WeWork, and any changes in claims, guarantees or tax-rule exposure.