Cushman & Wakefield plc — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The company provides commercial real estate services across property, facilities and project management, leasing, capital markets, and valuation. Figures are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2,286.0 | $2,515.1 | $6,941.3 | $7,458.7 |
| Service line fee revenue | $1,588.1 | $1,776.9 | $4,725.0 | $5,398.1 |
| Operating income | $57.6 | $112.1 | $95.6 | $424.0 |
| Net income (loss) | $(33.9) | $23.9 | $(105.2) | $166.6 |
| Diluted earnings (loss) per share | $(0.15) | $0.11 | $(0.46) | $0.73 |
| Adjusted EBITDA (non-GAAP) | $150.0 | $201.9 | $357.0 | $679.0 |
| Adjusted EBITDA margin on fee revenue | 9.4% | 11.4% | 7.6% | 12.6% |
- Revenue declined 9% in Q3 and 7% year to date; service line fee revenue fell 11% and 12%, respectively. Adjusted EBITDA fell 26% in Q3 and 47% year to date.
- Property, facilities and project management was comparatively resilient: flat in Q3 and up 3% year to date. Year-to-date leasing, capital markets, and valuation and other revenue declined 19%, 44%, and 15%, respectively.
- Q3 operating margin was approximately 2.5% versus 4.5% a year earlier; nine-month operating margin was approximately 1.4% versus 5.7%. These percentages are calculated from reported operating income and revenue.
Cash flow, debt and liquidity
- Nine-month operating cash flow was a use of $50.2, improved from a use of $194.6 in 2022. Investing activities provided $80.2, including a net $120.0 draw on the receivables securitization credit investment limit; financing activities used $107.1.
- Cash and cash equivalents were $588.2 at September 30, 2023, down from $644.5 at December 31, 2022. The cash-flow statement’s ending balance, which includes restricted cash, was $635.3.
- Management reported total liquidity of approximately $1.7 billion: $0.6 billion cash and $1.1 billion available under the undrawn revolving facility. The company also had $120.0 drawn against the securitization program’s $200.0 credit investment limit.
- Total debt carrying value was approximately $3.24 billion, comprising $118.9 of short-term borrowings/current maturities and $3,125.2 of long-term debt, net. The revolver was undrawn; the company reported compliance with debt covenants.
- In 2023, the company extended $1.0 billion of term-loan principal to 2030 in January and another $1.0 billion in August. In August it also issued $400.0 of secured notes due 2031 at a 8.88% coupon. Variable-rate term-loan effective rates were 8.20%–9.75% at quarter-end; the existing 2020 notes carry a 6.75% fixed rate.
Drivers, outlook and notable items
- Management attributed weaker transaction-based activity to elevated interest rates, tight credit conditions, macroeconomic uncertainty, and delayed client decisions. It expected these challenges to persist through the remainder of 2023; the filing gives no specific revenue or earnings guidance.
- Management stated that cash, operating cash flow and available revolver capacity should meet anticipated requirements for at least the next 12 months, while noting operating cash flow is seasonal and typically strongest in Q4.
- The company expects $20–$30 million of 2023 restructuring charges from cost-saving actions, including selected headcount reductions and lease rationalizations; $18.9 million had been recorded in the first nine months.
- Interest expense rose 78% in Q3 and 60% year to date, reflecting higher variable rates and debt refinancing costs. Debt-extinguishment losses were $25.0 million in Q3 and $41.9 million year to date; additional transaction costs were expensed.
- A $14.1 million estimated loss for certain legal matters became probable and estimable in Q3. Separately, a foreign payroll-tax dispute could result in an additional potentially material liability, although the company said the possible loss for certain years was not currently estimable.
- The company’s WeWork investment fair value fell to $1.1 million from $21.5 million at year-end 2022; nine-month unrealized losses on that investment were $20.4 million. No goodwill impairment was recorded, but management noted future deterioration in conditions or prospects could change that assessment.
- The company increased a valuation allowance on some deferred tax assets, contributing to a tax provision despite pre-tax losses. It is assessing possible future effects of the UK’s Pillar Two minimum-tax legislation.
- Management reported disclosure controls were effective as of September 30, 2023 and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether transaction volumes and fee revenue in leasing, capital markets and valuation recover, and whether recurring property and facilities management growth continues.
- Cash conversion, seasonal working-capital needs, and continued access to revolver and receivables-securitization funding.
- Debt-service costs and refinancing terms, particularly variable-rate exposure and the 8.88% notes; review maturities, covenants and interest-rate hedges.
- Whether restructuring charges remain within the stated $20–$30 million range and produce the intended cost savings.
- Developments in the payroll-tax dispute, legal matters, deferred-tax valuation allowance and potential Pillar Two exposure.
- How non-GAAP Adjusted EBITDA reconciles to GAAP results; its definition excludes multiple costs, including restructuring initiatives, legal matters and financing effects.