Cushman & Wakefield Ltd. quarterly report, Q1 FY2020

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

MetricQ1 2020Q1 2019Change
Revenue$1,895.4 million$1,903.0 millionFlat 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$(26.0) millionLoss widened
Net loss$(55.1) million$(20.9) millionLoss widened
Loss per share$(0.25)$(0.10)—
Adjusted EBITDA (non-GAAP)$70.3 million$88.4 million-20% in USD; -19% local currency
Adjusted EBITDA margin5.3%6.4%Down 1.1 percentage points
Net cash used in operating activities$(249.9) million$(214.9) millionCash 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.