Jones Lang LaSalle Incorporated — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Jones Lang LaSalle provides real estate services across the Americas, EMEA and Asia Pacific, and global investment management. Management notes that revenue and profits are typically weighted toward later quarters, so Q1 results are not indicative of the full year.
Financial results
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $856.0 million | $813.3 million | +5% reported; +6% local currency |
| Fee revenue | $780.5 million | $744.9 million | +5% reported |
| Operating income | $20.1 million | $14.6 million | +38% |
| Net income attributable to the Company | $13.2 million | $14.0 million | Down $0.9 million |
| Diluted EPS | $0.29 | $0.31 | Down $0.02 |
| Net cash used in operating activities | $301.5 million | $196.1 million | Outflow increased $105.3 million |
Operating margin was approximately 2.3% of revenue, versus 1.8% a year earlier. Higher compensation and operating costs partly offset revenue growth; reduced restructuring and acquisition charges helped operating income. Equity earnings from real estate ventures fell to $5.5 million from $11.8 million, contributing to lower net income.
Segments and material changes
- Americas: Fee revenue rose 5% to $342.4 million; operating income increased 24% to $14.7 million. Capital Markets & Hotels revenue grew 39%.
- EMEA: Fee revenue rose 11% to $210.7 million; operating loss narrowed to $1.6 million from $10.6 million. Capital Markets & Hotels revenue grew 50% in local currency.
- Asia Pacific: Fee revenue rose 4% to $168.0 million, but operating income declined to $2.4 million from $7.0 million as expenses rose faster than revenue and transaction-based revenue weakened.
- Investment Management: Segment revenue fell 18% to $64.9 million and operating income fell 51% to $13.2 million, primarily reflecting prior-year incentive fees and fund-sale gains. Assets under management increased to $47.7 billion from $47.0 billion at year-end.
Management attributed overall growth chiefly to Capital Markets & Hotels, while Investment Management comparisons were affected by significant Q1 2012 transactions, including $8 million of non-recurring incentive fees and gains from a Japan fund sale.
Cash, debt and liquidity
- Cash and cash equivalents were $133.5 million at March 31, down from $152.2 million at December 31, 2012. Approximately $106 million was held by foreign subsidiaries.
- Operating activities used $301.5 million; investing activities used $20.8 million; financing activities provided $303.5 million. Management cited first-quarter incentive-compensation payments, termination of the Stock Ownership Plan, and comparatively lower receivable collections as drivers of operating cash use.
- Credit-facility borrowings were $470.0 million, up from $169.0 million at year-end; $608.4 million of additional capacity remained under the $1.1 billion revolving facility, which matures in June 2016. Short-term borrowings were $37.8 million; senior notes totaled $275.0 million and bear 4.4% interest, due 2022.
- The company reported compliance with debt covenants. The credit facility has leverage and minimum interest-coverage requirements and bears variable interest; the reported effective debt rate was 1.4% for Q1.
- Investments in real estate ventures totaled $272.2 million. Unfunded capital commitments were a maximum $197.2 million. Management expected 2013 net co-investment funding of $40–$50 million.
Outlook, risks and unusual items
- No specific consolidated revenue or earnings guidance is provided. Management cautions that seasonality, transaction timing, incentive-fee recognition and incentive-compensation accruals make quarterly results variable and Q1 results non-representative of the full year.
- Key exposures include global economic and real estate-market conditions, transaction volumes, foreign exchange and variable interest rates. Non-U.S. operations generated 55% of revenue; the company uses foreign-exchange forwards and operational hedges, and reported no significant net earnings impact from its forward-contract revaluations.
- Foreign-currency translation adjustments were a loss of $48.6 million, resulting in a comprehensive loss attributable to the Company of $35.5 million despite positive net income.
- Potential earn-out payments on nine prior acquisitions had a maximum amount of $26.3 million; recorded deferred acquisition obligations were $220.1 million. The company also reported ordinary-course litigation, for which management did not expect a material adverse effect based on information available.
- The Board declared a semi-annual dividend of $0.22 per share after quarter-end, payable June 14, 2013, to holders of record May 15. Future dividends remain subject to Board approval.
- Disclosure controls and procedures were assessed as effective at quarter-end; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether operating cash outflows and higher revolver use reverse as seasonal incentive payments and receivables normalize.
- Whether Asia Pacific profitability recovers and EMEA sustains its improvement.
- How Investment Management incentive fees, fund realizations and co-investment valuations affect results in subsequent quarters.
- The funding pace and liquidity impact of the $197.2 million maximum unfunded commitments, planned 2013 co-investment funding, and acquisition obligations.
- Ongoing covenant headroom, variable-rate exposure, foreign-currency effects and the sustainability of dividend payments.