Cushman & Wakefield plc — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021. The company provides commercial real estate services across the Americas, EMEA and APAC. Results are unaudited and subject to seasonal variation.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $2,331.0 million | $1,923.8 million |
| Service line fee revenue | $1,704.8 million | $1,337.6 million |
| Operating income (loss) | $135.3 million | $(7.2) million |
| Net income (loss) | $45.5 million; $0.20 diluted EPS | $(17.2) million; $(0.08) diluted EPS |
| Adjusted EBITDA and margin | $214.4 million; 12.6% | $99.7 million; 7.5% |
| Cash from operating activities | $(158.2) million | $(16.4) million |
Revenue grew 21% reported (23% in local currency); service line fee revenue grew 27%. Leasing rose 56% and Capital markets 74%, while Property, facilities and project management increased 9% and Valuation and other 8%. Revenue increased across all segments: Americas 25%, EMEA 6% and APAC 12% in U.S. dollars. Brokerage activity led growth, supported by industrial leasing and improving return-to-office activity; management also cited favorable commercial real estate investment fundamentals.
Costs of services rose 17%, slower than revenue growth, and operating, administrative and other expenses rose 4%. The company attributed improved profitability to revenue growth, cost discipline and efficiency savings. Adjusted EBITDA is a non-GAAP measure; its 12.6% margin is calculated against service line fee revenue, not total revenue. GAAP operating margin was approximately 5.8%, versus a loss in the prior-year quarter.
Balance sheet, cash flow and debt
- Cash and cash equivalents were $611.9 million at quarter-end, down from $770.7 million at December 31, 2021. Including restricted cash, cash-flow-statement cash was $728.2 million.
- Operating cash use increased to $158.2 million, primarily due to a $286.6 million working-capital use, including higher bonus and commission payments and increased contract assets. Management noted Q1 is typically the seasonally weakest cash-flow quarter.
- Investing activities provided $36.3 million, including an $80.0 million draw under the receivables securitization, partially offset by $18.9 million of capital expenditures. Financing activities used $35.9 million. Cash, cash equivalents and restricted cash decreased by $162.1 million, including foreign-exchange effects.
- Total debt was approximately $3.3 billion. The $1.0 billion revolving facility was undrawn at March 31; reported liquidity was approximately $1.6 billion, consisting of $0.6 billion cash and $1.0 billion revolver availability. The company reported covenant compliance.
- The first-lien loan had a 3.50% effective interest rate and matures in August 2025; the $650 million senior secured notes bear 6.75% interest and mature in May 2028. The receivables securitization had $80.0 million drawn against a $125 million limit and was scheduled to terminate August 20, 2022.
Material changes, unusual items and outlook
- Other expense, net was $32.9 million, compared with $2.0 million of other income in Q1 2021. It included $21.5 million of net unrealized investment losses, primarily related to WeWork, and a $13.8 million loss on transferring the company’s Russian operations to a local operator. Russia represented less than 0.5% of 2021 revenue; the company said the disposal was not material to its financial statements or future operations.
- Management said COVID-19 had not caused significant operational disruption and that brokerage revenue exceeded 2019 pre-pandemic levels. It cautioned that pandemic effects remain uncertain. The Russia-Ukraine conflict, inflation, supply-chain disruption, economic conditions, interest rates, foreign exchange and real estate markets may affect performance.
- The filing gives no quantified revenue or earnings guidance. Management said it expects available cash, operating cash flow and revolver capacity to meet anticipated requirements for the foreseeable future and at least the next 12 months, subject to uncertainties and extraordinary events.
- After quarter-end, on April 28, the revolving facility was amended to increase availability to $1.1 billion, extend maturity to 2027 and add sustainability-linked incentives.
- Recorded contingent liabilities were $145.1 million at March 31, including claims and workers’ compensation liabilities. The company cautioned settlements could materially exceed recorded amounts. Maximum potential payments under guarantees were approximately $52.9 million; management considered payment or performance risk remote.
Important facts for investors to verify
- Whether strong leasing and capital-markets growth persists, given real estate market, economic and seasonal risks.
- Cash conversion and working-capital needs as bonus and commission payments and contract assets fluctuate through the year.
- Availability and renewal status of the receivables securitization, which was due to terminate in August 2022, and the terms of the amended revolver.
- Valuation volatility in the WeWork investment and the effect of investment marks on reported earnings.
- Potential outcomes of claims and contingencies, and the company’s ability to service debt amid interest-rate and foreign-exchange movements.