Cushman & Wakefield plc — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement figures are in millions unless otherwise noted. The filing is for Cushman & Wakefield plc.
Business context and reporting period
The company provides global commercial real estate services through its Americas, EMEA and APAC segments, including property, facilities and project management, leasing, capital markets, and valuation services. Management attributed the period’s recovery to improving economic activity and stronger brokerage activity, particularly in the Americas. Results are seasonal; the company says activity and operating income are generally highest in the fourth quarter.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2,332.9 | $1,931.6 | $6,505.0 | $5,570.6 |
| Operating income (loss) | $130.3 | $(0.3) | $247.6 | $(148.6) |
| Net income (loss) | $68.7 | $(37.3) | $104.2 | $(193.2) |
| Diluted EPS | $0.30 | $(0.17) | $0.46 | $(0.88) |
| Adjusted EBITDA | $219.1 | $117.1 | $538.7 | $306.2 |
| Adjusted EBITDA margin* | 12.9% | 8.8% | 11.5% | 8.0% |
*Adjusted EBITDA margin is a non-GAAP measure calculated against service-line fee revenue, not total revenue.
- Revenue growth: 21% in Q3 and 17% for the first nine months. Service-line fee revenue increased 28% and 22%, respectively; leasing and capital markets were the strongest growth areas.
- Cash flow: Operating activities generated $250.3 million in the first nine months, versus $222.5 million used in the prior-year period. Investing activities used $57.8 million; financing activities used $37.1 million.
- Liquidity and debt: Cash and cash equivalents were $1,188.5 million; the $1.0 billion revolving facility was undrawn. Management reported liquidity of approximately $2.2 billion and net debt of approximately $2.1 billion. Long-term debt was $3,223.0 million, plus $41.3 million of short-term borrowings and current debt. The company reported compliance with debt covenants.
- Balance sheet: Total assets were $7,476.3 million and total equity was $1,236.6 million at September 30, 2021.
Material changes versus the prior comparable period
- Q3 revenue rose 21%; net income improved to $68.7 million from a $37.3 million loss. Nine-month net income was $104.2 million versus a $193.2 million loss.
- Q3 Adjusted EBITDA increased 87% in U.S. dollars; for nine months it increased 76%. Management cited service-line growth and operating-efficiency savings. Fee-based operating expenses grew more slowly than fee revenue in several segments.
- Americas led the recovery: Q3 revenue increased 23% and nine-month revenue 20%. EMEA revenue increased 20% and 19%, respectively. APAC revenue increased 9% in Q3 but only 3% for nine months in U.S. dollars; nine-month APAC revenue declined 4% in local currency, reflecting lower gross contract reimbursables.
- Interest expense increased to $132.0 million for nine months from $120.2 million, primarily reflecting interest on the senior secured notes issued in 2020. Depreciation and amortization declined substantially as merger-related customer relationships became fully amortized.
- Operating cash flow improved by $472.8 million year over year, reflecting higher earnings and lower working-capital use, including lower bonus and commission payments than in the prior-year period.
Outlook, risks, contingencies and unusual items
- The filing provides no specific numerical revenue or earnings guidance. Management described the economic recovery as encouraging, but cautioned that COVID-19 developments, inflationary pressures, supply-chain constraints and labor shortages could affect activity and results.
- Other key exposures include real estate and credit-market conditions, interest rates, foreign exchange, competition, substantial indebtedness, and litigation. The company uses interest-rate swaps and currency forwards to manage certain risks; the first-lien loan is floating-rate and matures in 2025, while $640.4 million of senior secured notes mature in 2028.
- Recorded contingent liabilities were $130.7 million at September 30, 2021, including errors-and-omissions, workers’ compensation and other claims. Management warned that ultimate settlements could exceed recorded amounts. Client-service guarantees had maximum potential payments of $42.6 million; management considered future payment or performance unlikely.
- Restructuring, impairment and related charges were $39.5 million for the first nine months. The company expected $25–$35 million of incremental 2021 charges from expanded efficiency initiatives; $20.4 million had been recognized through September 30.
- Subsequent investments: After quarter-end, the company completed a $150 million purchase of 15 million WeWork shares. It also agreed to invest $500 million for a 40% stake in Greystone’s Agency, FHA and Servicing businesses; closing was anticipated in Q4 2021, subject to customary conditions.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It said there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the sharp leasing and capital-markets recovery continues, and how much growth reflects ongoing demand versus comparison with pandemic-affected 2020 results.
- Whether operating cash flow remains strong as bonus, commission and other working-capital payments fluctuate; compare cash generation with reported earnings.
- Debt service, floating-rate exposure, hedge costs and the company’s ability to maintain liquidity and covenant compliance.
- The cash-flow and valuation effects of the completed $150 million WeWork investment and the proposed $500 million Greystone investment.
- Potential changes in COVID-19 conditions, inflation, labor availability, foreign exchange and commercial real estate markets, as well as the ultimate cost of claims and restructuring actions.
- Adjusted EBITDA and margin are non-GAAP measures; review the filing’s reconciliations and exclusions when comparing them with GAAP results or other companies.