Cushman & Wakefield plc — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports unaudited fourth-quarter results. The registrant is Cushman & Wakefield plc, listed on the NYSE as CWK. It is a global commercial real estate services firm operating in more than 60 countries, with approximately 50,000 employees and over 400 offices.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $7.844 billion | $8.751 billion |
| Service line fee revenue | $5.466 billion | $6.400 billion |
| Operating income (loss) | $(53.1) million | $187.3 million |
| Net income (loss) | $(220.5) million | $0.2 million |
| Diluted loss per share | $(1.00) | $0.00 |
| Adjusted EBITDA (non-GAAP) | $504.3 million | $724.4 million |
| Adjusted EBITDA margin | 9.2% | 11.3% |
| Operating cash flow | $(38.2) million | $269.3 million |
- Total revenue fell 10%; fee revenue declined 15% in U.S. dollars (14% in local currency). Operating results shifted to a loss, while Adjusted EBITDA decreased 30% in U.S. dollars (31% in local currency). Adjusted EBITDA and its margin are non-GAAP measures.
- Cash and cash equivalents were $1.075 billion at year-end, versus $813.2 million a year earlier. The company reported approximately $2.1 billion of liquidity, including $1.0 billion available on its undrawn revolver.
- Total debt was approximately $3.3 billion, compared with $2.660 billion at year-end 2019; net debt was approximately $2.2 billion. The company reported compliance with credit agreement covenants.
- Investing cash outflow was $257.8 million, including $108.7 million for acquisitions and $41.0 million of capital expenditures. Financing provided $571.9 million, principally from the 2020 notes issuance. Management attributed negative operating cash flow in part to the net loss and a $250.3 million working-capital use of cash.
Material changes and operating trends
- COVID-19-related economic disruption sharply reduced brokerage activity: Leasing revenue declined 34% and Capital markets revenue declined 25% in U.S. dollars (26% in local currency). Property, facilities and project management revenue increased 1%, providing relative stability.
- By region, revenue decreased 8% in the Americas, 7% in EMEA and 24% in APAC. The APAC decline also reflected the contribution of the China property and facilities management business to a joint venture.
- The company recorded $57.1 million of restructuring, impairment and related charges, including $52.7 million of severance and separation costs tied to efficiency initiatives. It expects a further $25 million–$35 million of related charges in 2021.
- Interest expense rose 9% to $163.8 million, principally reflecting the 2020 notes issuance, partly offset by a lower term-loan margin following refinancing. The May 2020 issuance was $650 million of 6.75% senior secured notes due 2028.
Outlook, unusual items and risks
- No specific financial forecast or quantitative company guidance is provided. Management said available cash, operating cash flow and revolver capacity should meet anticipated needs for at least the next 12 months, absent a large strategic acquisition or other extraordinary event; it cautioned that COVID-19’s future effects could not be estimated reliably.
- The company received $37.0 million in government grants and subsidies related to pandemic relief. It also recognized a $36.9 million gain on formation of its 35%-owned Cushman & Wakefield Vanke Service joint venture in China.
- Income tax expense was $43.9 million despite a pretax loss of $176.6 million. The company increased valuation allowances by $67.4 million overall, citing losses and uncertainty about realization of deferred tax assets. The auditor identified realizability of U.S. operating loss and disallowed-interest carryforwards as a critical audit matter.
- Key risks include the duration and economic effects of COVID-19, dependence of transaction businesses on real estate and credit-market activity, substantial debt and floating-rate exposure, seasonality and working-capital swings, foreign exchange, retention of revenue producers, cybersecurity, litigation and regulatory compliance. The filing also notes LIBOR transition uncertainty.
- The company has never paid a cash dividend and does not expect to do so for the foreseeable future. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; Pinnacle, acquired in 2020, was excluded from the internal-control assessment.
Important facts for investors to verify
- Whether brokerage activity and fee revenue recover, and whether recurring property and facilities management revenue continues to offset transaction weakness.
- Cash generation, working-capital trends, and the ability to service or refinance approximately $3.3 billion of debt; monitor floating-rate exposure and LIBOR replacement arrangements.
- Progress and realized savings from efficiency initiatives relative to the $25 million–$35 million of expected 2021 charges.
- Assumptions supporting deferred tax asset valuation allowances and the resolution of tax examinations and uncertain tax positions.
- Integration and performance of acquisitions, the China joint venture, and Pinnacle’s controls after its exclusion from the 2020 ICFR audit scope.