Cushman & Wakefield plc — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The company provides global commercial real estate services across property, facilities and project management, leasing, capital markets, and valuation. Figures are in U.S. dollars; unaudited.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2,515.1 million | $2,332.9 million | $7,458.7 million | $6,505.0 million |
| Service-line fee revenue | $1,776.9 million | $1,704.2 million | $5,398.1 million | $4,671.5 million |
| Operating income | $112.1 million | $130.3 million | $424.0 million | $247.6 million |
| Net income | $23.9 million | $68.7 million | $166.6 million | $104.2 million |
| Diluted EPS | $0.11 | $0.30 | $0.73 | $0.46 |
| Adjusted EBITDA | $201.9 million | $219.1 million | $679.0 million | $538.7 million |
| Adjusted EBITDA margin | 11.4% | 12.9% | 12.6% | 11.5% |
| Cash from operating activities | Not presented separately for the quarter | $(194.6) million | $250.3 million |
Liquidity, debt and cash flow
- At September 30, cash and cash equivalents were $380.8 million; reported liquidity was approximately $1.5 billion, including $1.1 billion available under an undrawn revolving credit facility.
- Long-term debt, net, was $3,211.6 million, with $46.3 million of short-term borrowings and current debt reported on the balance sheet. The first-lien term loan’s effective rate was 6.20%; the $650 million senior secured notes bear a 6.75% fixed rate.
- Nine-month operating cash use was $194.6 million, versus $250.3 million provided in 2021. Management attributed the change principally to a $600 million working-capital use, including higher receivables and contract assets and bonus, commission and brokerage investment payments.
- Nine-month investing cash use was $107.7 million, including $44.4 million of capital expenditures and $31.6 million for acquisitions. Financing cash use was $61.0 million. Cash, cash equivalents and restricted cash ended the period at $489.8 million, down from $890.3 million at year-end 2021.
Material changes and operating trends
- Q3 revenue rose 8% and fee revenue rose 4%; reported growth was affected by $67.2 million of unfavorable foreign-currency movements. Nine-month revenue and fee revenue increased 15% and 16%, respectively, despite $143.7 million of currency headwind to revenue.
- Q3 Leasing revenue increased 13% and Property, facilities and project management increased 10%, while Capital markets declined 20%. For the first nine months, those service lines grew 27%, 11% and 18%, respectively.
- Q3 net income fell 65% and Adjusted EBITDA fell 8%. Management cited investment losses, higher commissions and currency movements; the declines were partly offset by brokerage and property-services performance and Greystone equity-method earnings. Nine-month net income increased 60% and Adjusted EBITDA increased 26%.
- Regional results were mixed in Q3: Americas revenue grew 12% and Adjusted EBITDA 3%; EMEA revenue fell 14% in U.S. dollars but grew 2% in local currency; APAC revenue grew 2% in U.S. dollars while Adjusted EBITDA fell 62%, with management citing China COVID-related lockdowns and the comparison with government subsidies received in APAC in 2021.
- Q3 Adjusted EBITDA margin contracted to 11.4% from 12.9%; nine-month margin expanded to 12.6% from 11.5%. These are non-GAAP measures and margin is calculated on fee revenue.
Outlook, risks and unusual items
- The filing provides no specific quantitative earnings or revenue guidance. Management said it believed liquidity and expected cash resources would meet anticipated requirements for at least the next 12 months, absent a large strategic acquisition or other extraordinary event. Results are seasonal, and the nine-month period is not necessarily indicative of full-year results.
- Management highlighted interest-rate volatility, inflation, supply-chain disruption, the Russia-Ukraine conflict, foreign-exchange movements, and continuing COVID-19 uncertainty, particularly potential effects of lockdowns in China. Adverse economic and real estate market trends could affect transaction volumes and results.
- Q3 included $35.6 million of unrealized loss related to the WeWork investment, principally contributing to $31.6 million of other expense. Nine-month other expense was $89.5 million, including $89.6 million of net unrealized investment losses, principally WeWork, and a $13.8 million loss on disposal of Russian operations.
- The company approved a discretionary share repurchase program of up to $300 million; it had no obligation to repurchase shares. The filing notes uncertainty about whether future repurchases could be subject to the Inflation Reduction Act excise tax.
- Recorded contingent liabilities included $148.0 million for claims at quarter-end. The company cautioned that ultimate settlements could materially exceed recorded amounts. Guarantees had maximum potential future payments of approximately $50.6 million; management considered payment or performance under them remote.
- The $200 million receivables securitization facility was undrawn at quarter-end and is scheduled to terminate June 20, 2023 unless extended or terminated earlier. The company reported $397.3 million of receivables sold outstanding principal under the program.
Important facts for investors to verify
- Whether Q3 weakness in Capital markets and APAC profitability persists, and how macroeconomic conditions affect brokerage activity.
- Working-capital trends, collections and the drivers of negative year-to-date operating cash flow; compare cash conversion with reported earnings.
- Debt-service exposure to variable rates, the impact of rising rates, and the terms and capacity of the revolver and receivables securitization.
- Further changes in the fair value of the WeWork investment and other investments, which materially affected reported earnings.
- The scale and timing of any share repurchases, their effect on liquidity, and any tax treatment under subsequent regulatory guidance.
- Developments in litigation and claims, foreign-currency exposure, and COVID-related operating disruption. The filing reported no material subsequent events through November 3, 2022.