Cushman & Wakefield plc — Q2 2021 Form 10-Q
Business context and reporting period
Global commercial real estate services firm reporting the quarter and six months ended June 30, 2021, compared with the same 2020 periods. Services include property, facilities and project management, leasing, capital markets, and valuation and other. Results are unaudited and subject to seasonality; the company cautions that interim results are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2,248.3 million | $1,743.6 million | $4,172.1 million | $3,639.0 million |
| Operating income (loss) | $124.5 million | $(62.8) million | $117.3 million | $(148.3) million |
| Net income (loss) | $52.7 million | $(100.8) million | $35.5 million | $(155.9) million |
| Diluted EPS | $0.23 | $(0.46) | $0.16 | $(0.71) |
| Adjusted EBITDA | $219.9 million | $118.8 million | $319.6 million | $189.1 million |
| Adjusted EBITDA margin on fee revenue | 13.5% | 10.2% | 10.8% | 7.6% |
Q2 GAAP operating and net margins were approximately 5.5% and 2.3%, respectively; first-half margins were approximately 2.8% and 0.9%. Service-line fee revenue, which excludes gross contract reimbursables that carry substantially no margin, rose 39% in Q2 and 19% in the first half in reported dollars. Leasing and capital markets led the recovery.
Six-month operating cash flow was $86.9 million, versus cash used of $299.9 million in 2020. Investing activities used $41.5 million and financing activities used $27.6 million. Cash and cash equivalents were $1,073.2 million at June 30, 2021; including restricted cash, cash-flow-statement cash was $1,179.7 million. Liquidity was approximately $2.1 billion, including an undrawn $1.0 billion revolving facility.
Total debt was approximately $3.3 billion, including $2.6 billion of first-lien term loan debt and $640.1 million of senior secured notes; management reported net debt of approximately $2.2 billion. The term loan bears floating interest at one-month LIBOR plus 2.75% (effective rate 3.2%) and matures in 2025. The notes bear 6.75% and mature in 2028. The company reported compliance with debt covenants.
Material changes versus prior year
- Q2 revenue increased 29% and first-half revenue increased 15% year over year. Recovery in brokerage activity drove strong leasing and capital markets growth, particularly in the Americas.
- Q2 net income turned positive from a loss; first-half net income also improved substantially from a prior-year loss. Adjusted EBITDA rose 85% in Q2 and 69% in the first half in reported dollars.
- Americas revenue rose 35% in Q2 and 17% in the first half. EMEA revenue rose 29% and 18%, respectively. APAC revenue rose 5% in Q2 but was nearly flat for the half in reported dollars; on a local-currency basis it declined 5% and 9%, respectively.
- Operating cash flow improved by $386.8 million in the first half, reflecting higher earnings and lower working-capital outflow. Prior-year investing and financing cash flows were affected by acquisitions, securitization-related activity and issuance of the 2020 notes.
- Interest expense increased year over year, primarily reflecting the 2020 senior notes. Depreciation and amortization declined substantially, mainly because certain merger-related customer relationships had been fully amortized in 2020.
Outlook, management commentary, risks and unusual items
Management described an encouraging economic recovery, particularly in the United States, and attributed improved results to rising service-line activity and cost savings. It said liquidity was sufficient for operations amid uncertainty. The filing provides no quantified revenue, earnings or margin guidance.
- COVID-19 remains a risk: restrictions, resurgences, and the pace of vaccination and economic recovery could affect client activity and operations.
- Results are exposed to economic and commercial real estate cycles, interest rates, credit conditions, foreign exchange, competition, and seasonality; leasing and capital markets activity is generally concentrated toward year-end.
- Q2 income tax expense was $43.2 million on pretax income of $95.9 million; the effective tax burden reflected the jurisdictional mix of earnings. First-half 2020 benefited from a valuation-allowance release associated with the U.S. CARES Act.
- Restructuring, impairment and related charges were $14.7 million in Q2 and $32.3 million in the first half. The company expects $25–$35 million of incremental 2021 charges related to expanded efficiency initiatives.
- Potential guarantee payments were up to $49.3 million in aggregate and management considered future performance or payment remote. Recorded contingent liabilities totaled $127.7 million at June 30, 2021; the filing warns ultimate settlements may materially exceed recorded amounts.
- Interest-rate swaps hedge floating-rate exposure; $41.1 million of pretax hedge losses were expected to be reclassified to interest expense over the next 12 months. The company also uses foreign-exchange forwards.
Important facts for investors to verify
- Whether brokerage recovery and strong Q2 leasing and capital-markets growth continue, particularly in the Americas, and whether APAC’s local-currency weakness persists.
- How much of adjusted EBITDA improvement reflects sustainable operations versus excluded costs, and how restructuring and efficiency initiatives affect future expenses.
- Debt-service capacity and sensitivity to floating interest rates, including the LIBOR-linked term loan, hedge coverage, and scheduled maturities.
- Cash conversion and working-capital trends, including the distinction between cash and cash equivalents and restricted cash.
- COVID-19 developments, contingent-claim outcomes, and the company’s ability to meet its stated liquidity and operating needs without additional financing.