Jones Lang LaSalle Incorporated — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Figures are unaudited; amounts are in U.S. dollars unless stated otherwise. JLL provides commercial real estate services through Markets Advisory, Capital Markets, Work Dynamics, JLL Technologies and LaSalle.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $4,715.5 million | $4,801.4 million |
| Fee revenue (non-GAAP) | $1,584.0 million | $1,900.5 million |
| Operating income | $17.8 million | $175.7 million |
| Net income (loss) attributable to common shareholders | $(9.2) million | $145.6 million |
| Diluted earnings (loss) per share | $(0.19) | $2.86 |
| Adjusted EBITDA (non-GAAP) | $109.0 million | $273.6 million |
| Adjusted EBITDA margin on fee revenue | 6.9% USD; 6.6% local currency | 14.4% |
| Net cash used in operating activities | $716.3 million | $716.4 million |
Reported revenue declined 2% in U.S. dollars but increased 1% in local currency. Fee revenue declined 17% in U.S. dollars and 15% in local currency. Lower higher-margin transaction activity and reduced equity earnings weighed on profitability. Operating expenses rose 2%, while fee-based operating expenses declined 9%.
Segments and material changes
- Markets Advisory: Revenue decreased 9% in U.S. dollars; fee revenue fell 14% in local currency and Adjusted EBITDA declined 36%. Weaker leasing activity was partly offset by property management growth.
- Capital Markets: Revenue and fee revenue declined 41% in U.S. dollars and 39% in local currency; Adjusted EBITDA fell 91%. Investment sales and debt/equity advisory were notably weaker amid interest-rate uncertainty and slower transactions.
- Work Dynamics: Revenue increased 8% in U.S. dollars and fee revenue grew 11% in local currency, led by project management. Adjusted EBITDA decreased 27%, including the impact of $9.0 million in losses on certain Tetris contracts in Europe and investment spending.
- JLL Technologies: Fee revenue grew 29% in local currency. Adjusted EBITDA was a loss of $13.3 million; equity earnings fell to $4.9 million from $18.8 million, largely reflecting lower investment valuation gains.
- LaSalle: Advisory fees grew, but lower transaction fees and co-investment valuation losses reduced Adjusted EBITDA to $14.3 million from $21.3 million. AUM was $78.5 billion, down 1% in U.S. dollars from year-end 2022.
Restructuring and acquisition charges increased to $35.7 million from $19.5 million, driven mainly by severance and employment-related charges of $25.7 million. Interest expense, net, increased to $26.3 million from $10.2 million as borrowing levels and rates rose. The income tax benefit was $2.3 million.
Cash, debt and liquidity
- Cash and cash equivalents were $485.4 million at March 31, down from $519.3 million at December 31, 2022. Cash, cash equivalents and restricted cash totaled $735.5 million at quarter-end.
- Operating activities used $716.3 million of cash; investing activities used $74.0 million; financing activities provided $775.3 million. The quarter-end cash-flow total includes restricted cash.
- Total debt in the debt table was $2,573.2 million, up from $1,750.8 million at year-end. Credit-facility borrowings were $2,089.7 million. Separately, warehouse facilities were $813.6 million, primarily funding related warehouse receivables.
- The unsecured revolving facility has $3.35 billion of capacity and matures April 14, 2026; JLL reported compliance with its financial covenants. Average facility borrowings in Q1 were $1,719.9 million at a 5.4% effective rate, versus $683.2 million at 1.0% in Q1 2022.
- No common stock was repurchased in Q1 2023; the program had been suspended in late 2022. JLL reported $1,155.6 million remaining authorized for repurchases.
Outlook, risks and other matters
The filing gives no specific earnings or revenue guidance. Management said economic headwinds and interest-rate uncertainty continued to pressure transaction-based businesses, while annuity-based services showed resilience. Management cautioned that Q1 results are not fully indicative of full-year results because of seasonality, timing of transactions and incentive compensation accruals. JLL expects continued investment in JLL Technologies and client co-investments.
- Results remain exposed to macroeconomic conditions, real estate and credit markets, transaction timing, interest rates, foreign exchange, and changes in investment valuations and incentive fees.
- A 50-basis-point increase in short-term rates on variable-rate debt would have increased Q1 net interest expense by an estimated $2.2 million.
- JLL is involved in ordinary-course litigation, including matters with substantial claimed damages. Management believes resolution will not materially adversely affect financial position, results or liquidity, while noting claims may exceed insurance and be subject to large deductibles.
- Potential maximum earn-out payments on prior acquisitions were $113.2 million, subject to performance criteria. The filing reports no strategic acquisitions in Q1.
- Controls and procedures were reported effective at quarter-end; the filing states there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether transaction activity and fee revenue recover, particularly in leasing and Capital Markets, and how this affects margins.
- Whether Work Dynamics contract losses and restructuring costs persist or abate.
- Facility borrowing levels, variable interest costs, covenant headroom and warehouse-facility utilization.
- Valuation changes in JLL Technologies and LaSalle investments, including their effects on equity earnings and AUM.
- Progress on cost actions, the status of the suspended repurchase program, and the timing or amount of acquisition earn-outs and contingent exposures.