Cushman & Wakefield plc — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. The filing describes a global commercial real estate services company operating through Americas, EMEA and APAC. Results are seasonally weighted toward the fourth quarter, so Q1 is not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $1,895.4 million | $1,903.0 million | Flat in USD; +1% local currency |
| Service-line fee revenue | $1,320.4 million | $1,372.0 million | -4% in USD; -2% local currency |
| Operating loss | $(85.5) million | $(26.0) million | Loss widened |
| Net loss | $(55.1) million | $(20.9) million | Loss widened |
| Loss per share | $(0.25) | $(0.10) | — |
| Adjusted EBITDA (non-GAAP) | $70.3 million | $88.4 million | -20% in USD; -19% local currency |
| Adjusted EBITDA margin | 5.3% | 6.4% | Down 1.1 percentage points |
| Net cash used in operating activities | $(249.9) million | $(214.9) million | Cash use increased |
Revenue composition shifted toward recurring property, facilities and project management and gross contract reimbursables, while transaction-related brokerage weakened. Leasing revenue fell 19% in USD (18% local currency), and Capital markets fell 5% (4% local currency). Gross contract reimbursables carry substantially no margin. No gross margin figure is clearly provided.
Segments and balance sheet
- Americas: Revenue $1,394.8 million, up 4%; Adjusted EBITDA $64.1 million, down 9% in USD (8% local currency).
- EMEA: Revenue $210.0 million, up 4%; Adjusted EBITDA loss of $3.4 million versus a $0.2 million loss.
- APAC: Revenue $290.6 million, down 18% in USD (13% local currency); Adjusted EBITDA $9.6 million, down 48% (44% local currency).
- Cash and liquidity: Cash and cash equivalents were $379.5 million at March 31, versus $813.2 million at year-end. The company reported approximately $1.4 billion of liquidity, including $1.0 billion of undrawn revolving credit capacity.
- Debt: Long-term debt was $2,611.1 million, plus $38.8 million of short-term borrowings/current debt. Management cited approximately $2.7 billion of First Lien debt and approximately $2.2 billion net debt. The $1.0 billion revolver was undrawn.
- Equity and assets: Total assets were $6,619.4 million and total equity was $1,084.4 million, down from $7,163.4 million and $1,301.3 million, respectively, at December 31, 2019.
Investing cash use was $131.4 million, including $102.5 million for acquisitions; financing cash use was $23.9 million. Cash, cash equivalents and restricted cash together declined by $421.7 million to $450.6 million, including a $16.5 million adverse foreign-exchange effect. Operating cash use increased, primarily reflecting working-capital requirements, bonus and commission payments, and the larger net loss.
Material changes, unusual items and management commentary
- Management said COVID-19 had a relatively minor impact in January and February, but transaction demand declined in March: Leasing fee activity was down 28% and Capital markets down 13% year over year. Property, facilities and project management grew 4% and Valuation and other grew 5% in March.
- The company stated that it could not reasonably estimate the pandemic’s future effect on results, financial position or liquidity. It reported no operational or client-service disruption to date and said it had approximately $1.4 billion of liquidity.
- Other income included a $36.9 million gain on formation of a China property-services joint venture with Vanke Service. Cushman & Wakefield retained a 35% interest and accounts for it under the equity method; the contribution also reduced reported APAC revenue.
- Restructuring, impairment and related charges were $26.1 million, including $23.3 million of severance and other separation costs related to efficiency initiatives and headcount reductions.
- On January 20, 2020, the company refinanced its $2.7 billion term loan on substantially similar terms, lowering the LIBOR margin to 2.75% from 3.25%. The effective rate was 4.0% at quarter-end; maturity is August 2025. The company was in compliance with debt covenants.
- Interest-rate swap liabilities rose to $183.3 million from $97.7 million at year-end; $33.0 million of pre-tax hedge losses were expected to be reclassified to interest expense over the next 12 months.
- Recorded contingent liabilities included $93.8 million current and $22.8 million non-current. The company warned that ultimate settlements could materially exceed recorded amounts. Guarantees had maximum potential future payments of $48.1 million; management considered related future payment or performance remote.
- No numerical full-year guidance was provided. The filing emphasizes uncertainty around COVID-19, economic activity, client demand and clients’ ability to pay.
Key investor verification points
- Track the pandemic’s effect on Leasing and Capital markets activity, client demand, collections and the company’s ability to maintain service delivery.
- Reconcile the sharp decline in cash with working-capital seasonality, bonus payments, acquisitions and ongoing liquidity needs; distinguish cash from restricted cash.
- Monitor leverage, variable-rate debt exposure, interest-rate hedges, covenant headroom and access to the undrawn revolver.
- Assess whether the China joint venture gain and revenue contribution materially affect comparisons, and whether recurring-service growth offsets brokerage weakness.
- Verify the costs and expected benefits of restructuring and efficiency initiatives, and the development of contingent claims and litigation.
- Interpret Adjusted EBITDA and its margin as non-GAAP measures; review the filing’s reconciliations and exclusions alongside GAAP losses and cash flows.