Jones Lang LaSalle Incorporated — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; interim financial statements are unaudited. Jones Lang LaSalle provides real estate services through Americas, EMEA and Asia Pacific segments, and global investment management. The company notes that revenue and profit are typically higher in the third and fourth quarters, so Q1 results are not necessarily indicative of full-year performance.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue | $687.9 million | $580.7 million |
| Operating income | $12.1 million | $18.0 million |
| Operating margin | 1.8% | 3.1% |
| Net income attributable to the company | $1.5 million | $0.2 million |
| Diluted earnings per share | $0.03 | $0.01 |
| Net cash used in operating activities | $197.2 million | $146.3 million |
- Revenue rose 18% in U.S. dollars and 16% in local currency. All RES regions grew; Leasing and Project & Development Services were notable contributors.
- Operating expenses increased 20% to $675.8 million, outpacing revenue growth. Compensation and benefits rose to $461.4 million from $387.4 million; operating, administrative and other expenses increased to $196.1 million from $156.5 million.
- Cash and cash equivalents were $101.0 million at quarter-end, down from $251.9 million at December 31, 2010. Current assets were $1.135 billion and current liabilities $1.165 billion.
- At March 31, total debt included $278.0 million outstanding under the credit facility and $42.5 million of short-term borrowings. The facility had stated capacity of approximately $1.1 billion, matures in September 2015, and carried a 2.3% effective debt rate in Q1. The company reported compliance with all debt covenants.
- Investing activities used $31.6 million; financing activities provided $77.8 million. Capital expenditures were $17.2 million, versus $4.5 million a year earlier.
Material changes and segment results
- Americas segment revenue increased 26% to $288.1 million, while operating income declined 5% to $8.6 million.
- EMEA revenue increased 11% to $168.1 million, but its operating loss widened to $13.1 million from $9.6 million.
- Asia Pacific revenue increased 22% to $165.5 million and operating income increased to $5.5 million from $5.3 million.
- Investment Management segment revenue, including equity losses, rose 9% to $64.2 million; operating income increased to $9.0 million. Assets under management were $43.0 billion, up from $41.3 billion at year-end 2010.
- Equity losses from real estate ventures improved to $2.0 million from $6.1 million, but included $1.8 million of impairment charges, compared with $6.5 million in Q1 2010. Interest expense fell to $8.0 million from $11.3 million.
Outlook, commentary and risks
- Management cited revenue growth but said unusual expenses totaling more than $9 million—including acquisition-related accelerated compensation, third-party claim reserves and a Japanese disaster-relief contribution—further pressured Q1 operating income and margins.
- The company expects 2011 net co-investment funding of $40 million to $50 million. It estimated a full-year effective tax rate of approximately 25%; it provided no specific revenue or earnings guidance in the supplied filing text.
- Potential earn-out payments on 13 acquisitions totaled a maximum $164.1 million, subject to performance conditions over the next four years. Deferred acquisition obligations were $292 million.
- Maximum potential unfunded commitments to LIC II were $314.4 million; the company’s share of LIC II’s unfunded underlying-fund commitments was $116.7 million. The filing also describes possible further real estate venture impairments if property values decline.
- Key sensitivities include real estate and credit-market conditions, transaction timing, foreign exchange, interest rates, seasonality, and litigation. The company reported ordinary-course litigation, but did not expect its resolution to materially harm financial position, results or liquidity. A semiannual dividend of $0.15 per share was declared after quarter-end, payable June 15, 2011.
Important facts for investors to verify
- Whether revenue growth can translate into improved operating margins after the unusual Q1 costs and higher operating expenses.
- Cash conversion and working-capital movements, particularly the Q1 operating cash outflow and decline in cash balances.
- Real estate venture valuations, impairment exposure and the funding pace of co-investment commitments.
- Potential acquisition earn-outs and deferred obligations, and compliance with credit-facility covenants as borrowing needs change.
- Whether segment trends, seasonal patterns and foreign-exchange movements support management’s stated co-investment and tax expectations.