Business context and reporting period
Jones Lang LaSalle Incorporated (JLL) filed this unaudited Form 10-Q for the three months ended March 31, 2015. The company provides real estate services through the Americas, EMEA and Asia Pacific regions, and global investment management through LaSalle. JLL cautions that first-quarter results are not indicative of full-year results: revenue and profits are typically seasonally weighted toward later quarters, and transactional fees and incentive compensation can vary substantially.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $1,203.5 million | $1,037.4 million |
| Operating income (loss) | $52.7 million | $(15.3) million |
| Net income attributable to JLL | $41.9 million | $15.9 million |
| Diluted EPS | $0.92 | $0.35 |
| Adjusted EBITDA (non-GAAP) | $89.7 million | $52.0 million |
| Cash flow from operations | $(335.8) million | $(263.2) million |
Revenue grew 16% in U.S. dollars and 24% in local currency. Fee revenue grew 25% in local currency to $1,029.1 million. Adjusted operating income, excluding restructuring and acquisition charges, was $53.5 million versus $20.7 million; its fee-revenue margin was 5.2%, up from 2.4%. Adjusted EBITDA margin on fee revenue was 8.7%, compared with 5.9%.
Growth was broad-based. Americas fee revenue rose 25% in local currency and operating income was $35.4 million versus $17.0 million. EMEA fee revenue rose 25% in local currency, while the segment reported a $2.9 million operating loss, improved from a $4.9 million loss. Asia Pacific fee revenue rose 16% in local currency and operating income increased to $4.4 million from $1.1 million. LaSalle segment revenue rose 43% in local currency to $97.2 million; operating income increased to $27.9 million from $16.4 million, supported in part by $18.9 million of incentive fees and $11.5 million of equity earnings.
Net income increased despite the prior-year operating loss. In Q1 2014, a $29.1 million income-tax benefit included a previously unrecognized benefit that offset a $34.5 million write-off of an acquisition-related indemnification asset; the write-off and related tax benefit had no net-income impact. Q1 2015’s effective tax rate was 25.4%, also management’s estimated full-year rate. Foreign currency translation produced a $109.1 million loss in other comprehensive income in Q1 2015, versus a $13.8 million gain in Q1 2014.
Cash, debt and liquidity
Cash and cash equivalents were $198.5 million at March 31, 2015, down from $250.4 million at year-end. Operating cash outflow increased year over year, primarily due to payment of prior-year accrued incentive compensation and working capital needs associated with revenue growth. Investing activities used $21.1 million; financing activities provided $313.4 million, mainly reflecting net borrowings under the credit facility.
JLL amended and expanded its revolving credit facility in February: capacity rose from $1.2 billion to $2.0 billion and maturity moved to February 25, 2020. At quarter-end, borrowings were $335.0 million, letters of credit were $23.0 million, and reported additional borrowing capacity was $1.6 billion. JLL reported compliance with facility covenants. Other reported borrowings included $275.0 million of senior notes due 2022, bearing 4.4% interest, and $21.2 million of short-term borrowings. The filing reports no material change in risk factors from the 2014 Form 10-K.
Outlook, risks, contingencies and notable items
The filing provides no specific revenue or earnings guidance. Management describes growth opportunities and continued acquisition and co-investment activity, but emphasizes exposure to macroeconomic and geopolitical conditions, real estate and credit markets, transaction timing, foreign exchange rates, competition and regulation. Foreign operations generated 55% of revenue; the British pound and euro were significant currency exposures. Currency weakness against the U.S. dollar reduced reported growth in some regions.
JLL had maximum potential unfunded co-investment commitments of $179.1 million, including commitments through LIC II, and potential earn-out payments of up to $43.6 million across 15 acquisitions (with $26.8 million accrued). Litigation claims may be substantial and could exceed insurance limits, though management did not expect their ultimate resolution to materially affect financial position, results or liquidity. The Board declared a semi-annual dividend of $0.27 per share, payable June 15, 2015, subject to the stated record date.
Unusual and other items include $3.6 million of impairment charges recognized within equity earnings from real estate ventures, versus $0.8 million in the prior-year quarter; two acquisitions completed during the quarter; and a $5.4 million increase in the estimated redemption obligation for minority shares in an Indian acquisition. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether local-currency revenue growth and improving segment profitability continued beyond a seasonally smaller first quarter, particularly given the contribution from transactional activity and LaSalle incentive fees.
- How working-capital needs and annual incentive-compensation payments affect operating cash flow and liquidity through the year.
- Facility borrowings, covenant headroom and remaining capacity following the February amendment, alongside the company’s co-investment and acquisition commitments.
- The sensitivity of reported results and equity to foreign exchange movements, and the valuation assumptions supporting real estate venture investments.
- The full-year tax rate, dividend decisions and any developments in litigation, earn-out obligations or other contingencies.