Cushman & Wakefield plc — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. The registrant is Cushman & Wakefield plc, despite the request metadata naming the company “Ltd.” The company provides global commercial real estate services across the Americas, EMEA and APAC. Results are unaudited and subject to seasonality; Q1 results are not necessarily indicative of the full year.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $1,923.8 million | $1,895.4 million | Up 1% in USD; total service-line fee revenue was up 1% in USD but down 1% in local currency. |
| Operating loss | $7.2 million | $85.5 million | Improved by $78.3 million. |
| Net loss | $17.2 million | $55.1 million | Loss per share was $0.08 versus $0.25. |
| Adjusted EBITDA | $99.7 million | $70.3 million | Up 42% in USD and 38% in local currency. |
| Adjusted EBITDA margin | 7.5% | 5.3% | Expanded 215 basis points; calculated on service-line fee revenue. |
| Net cash used in operating activities | $16.4 million | $249.9 million | Improved by $233.5 million, principally reflecting lower prior-year working-capital outflows. |
The company recorded a $28.0 million income-tax benefit on a $45.2 million pretax loss, compared with a $26.5 million benefit on an $81.6 million pretax loss. Net interest expense rose $5.9 million to $42.4 million, mainly following the 2020 senior secured notes issuance. Other income fell to $2.0 million from $39.1 million; the prior-year amount included a $36.9 million gain related to formation of the Cushman & Wakefield Vanke Service joint venture.
Business and segment trends
- Property, facilities and project management revenue increased 5% in USD; Leasing declined 3% and Capital markets declined 9%. Valuation and other increased 7%.
- Americas revenue rose 2% to $1,424.9 million and Adjusted EBITDA rose 21% to $77.8 million. Growth in property and facilities management more than offset weaker brokerage activity.
- EMEA revenue rose 7% in USD to $223.9 million, but declined 1% in local currency; Adjusted EBITDA was $2.4 million versus a $3.4 million loss.
- APAC revenue declined 5% in USD to $275.0 million and 13% in local currency; Adjusted EBITDA increased to $19.5 million from $9.6 million, supported by cost savings and growth in Leasing and Valuation and other.
- Management attributed lower Leasing and Capital markets activity primarily to COVID-19. Demand for property/facilities services, including return-to-work planning, cleaning and building safety, supported results.
Cash, debt and liquidity
- Cash and cash equivalents were $1,015.6 million at March 31, 2021, down from $1,074.8 million at year-end. The cash-flow statement reports $1,101.8 million of cash, cash equivalents and restricted cash at quarter-end, including $86.2 million of restricted cash.
- Management reported approximately $2.0 billion of liquidity: about $1.0 billion cash and a $1.0 billion undrawn revolving facility. The revolver matures in August 2023.
- Long-term debt was $3,230.5 million, plus $40.0 million of short-term borrowings and current debt. The company reported approximately $2.2 billion of net debt. The first-lien loan matures in August 2025; the $650 million senior secured notes bear 6.75% interest and mature in May 2028.
- The company was in compliance with credit-agreement covenants. A springing leverage covenant applies if revolver borrowings exceed a specified threshold; when triggered, the maximum First Lien Net Leverage Ratio is 5.80 to 1.00.
- Investing cash outflow was $28.8 million, versus $131.4 million, mainly due to lower acquisition spending. Financing cash outflow was $13.6 million, versus $23.9 million.
Outlook, risks and unusual items
- No quantified revenue, earnings or cash-flow guidance is provided. Management said it could not reliably estimate the future effect of COVID-19 on results, financial position or liquidity. It described liquidity as sufficient for ongoing operations under uncertain conditions.
- Management expects $25 million to $35 million of incremental 2021 charges related to expanded operating-efficiency initiatives; $8.5 million was recorded in Q1. Restructuring, impairment and related charges totaled $17.6 million.
- COVID-19 restrictions, resurgences and economic deterioration could continue to affect client activity and operations. Other stated risks include macroeconomic and commercial real estate conditions, competition, foreign exchange and interest-rate volatility, substantial indebtedness, and litigation.
- Interest-rate swaps hedge floating-rate exposure; the company estimated $40.4 million of pretax hedge losses would be reclassified to interest expense over the next 12 months. It also had foreign-exchange forwards with $617.3 million notional value.
- Recorded claims and contingent liabilities totaled $124.0 million at quarter-end. The filing cautions that ultimate settlements may materially exceed recorded amounts. Client-service guarantees had maximum potential future payments of $51.6 million, with payment considered remote by management.
Investor verification priorities
- Verify the sustainability of Adjusted EBITDA and margin improvement, including the effect of cost reductions and the non-GAAP add-backs.
- Track recovery in Leasing and Capital markets and distinguish underlying local-currency trends from foreign-exchange effects.
- Assess cash conversion and working-capital movements, and reconcile cash-flow figures that include restricted cash with balance-sheet cash.
- Review debt servicing costs, floating-rate exposure, hedge-loss reclassifications, and covenant headroom if revolver use increases.
- Monitor COVID-19-related demand, planned efficiency charges, and potential changes in claims and litigation liabilities.