Cushman & Wakefield plc — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. The filing is for Cushman & Wakefield plc, a global commercial real estate services firm. Results are unaudited and subject to seasonal variation; Q1 is typically the company’s lowest-revenue quarter.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $2,249.3 million | $2,331.0 million | Down 4% reported; down 2% in local currency |
| Service line fee revenue | $1,504.0 million | $1,704.8 million | Down 12% reported; down 10% in local currency |
| Operating income (loss) | $(18.3) million | $135.3 million | Turned to an operating loss |
| Net income (loss) | $(76.4) million | $45.5 million | Basic and diluted EPS: $(0.34), versus $0.20 |
| Adjusted EBITDA | $60.9 million | $214.4 million | Down 72%; margin on fee revenue was 4.0%, versus 12.6% |
| Net cash used in operating activities | $(221.5) million | $(158.2) million | Greater cash use, reflecting the loss and working-capital outflows |
Costs and expenses rose 3% to $2,267.6 million. Interest expense, net, increased 78% to $76.8 million, driven by higher variable rates and the January refinancing. Cash and cash equivalents were $459.6 million at quarter-end, down from $644.5 million at year-end; the company reported total liquidity of approximately $1.6 billion, including $1.1 billion available on its undrawn revolving facility. Total debt, including current maturities and finance leases, was approximately $3.26 billion. Capital expenditures were $10.0 million.
Business performance and material changes
- Service lines: Property, facilities and project management revenue increased 7% to $896.8 million. Leasing fell 20% to $362.5 million, Capital markets fell 51% to $142.8 million, and Valuation and other fell 15% to $101.9 million.
- Regions: Americas revenue declined 4% to $1,720.0 million and Adjusted EBITDA fell 68% to $56.7 million. EMEA revenue declined 14% to $205.2 million and Adjusted EBITDA was a loss of $2.1 million. APAC revenue rose 5% to $324.1 million, while Adjusted EBITDA fell 71% to $6.3 million.
- Management attributed the weaker brokerage and valuation results primarily to lower transaction volumes and client decisions delayed by economic uncertainty, interest rates and tighter credit conditions. Foreign exchange also reduced reported revenue.
- Operating, administrative and other expenses increased 8%, principally due to higher employment costs. The company recorded $7.2 million of restructuring, impairment and related charges, largely associated with workforce-reduction initiatives.
- Equity-method investment earnings declined to $11.9 million from $16.9 million, mainly because of lower lending volumes at Greystone. Other expense improved to $6.0 million from $32.9 million, primarily because unrealized investment losses were lower; Q1 2022 also included a $13.8 million loss on disposal of Russia operations.
Debt, outlook, risks and unusual items
- In January 2023, the company extended $1.0 billion of its first-lien term loan to a January 2030 maturity; the remaining approximately $1.6 billion tranche matures in August 2025. The refinancing generated a $16.9 million debt-extinguishment loss and $4.7 million of new transaction costs expensed in Q1. First-lien effective rates at March 31 were 7.85% and 8.45% for the 2025 and 2030 tranches, respectively. The $650 million senior secured notes carry a fixed 6.75% coupon and mature in 2028.
- The $1.1 billion revolver was undrawn at quarter-end. The company stated it was in compliance with debt covenants. It believes cash, operating cash flow and revolver availability will meet anticipated requirements for at least the next 12 months, while noting macroeconomic uncertainty.
- The accounts-receivable securitization program had $90 million drawn against its $200 million credit investment limit and was due to mature June 20, 2023, unless extended. Management said it intended to extend the program. The program’s outstanding sold receivables were $424.6 million.
- No specific revenue or earnings guidance was provided in the supplied filing text. Management highlighted inflation, rising interest rates, constrained credit, banking-sector pressure and uncertainty in commercial real estate markets as factors that may further depress transaction volumes. It also noted seasonal cash-flow variability and currency exposure.
- Investment marks included a $9.8 million unrealized loss on WeWork and $0.9 million of unrealized losses on other real estate investments. The filing reported no material subsequent events through May 4, 2023. Management believed pending claims and litigation would not materially affect financial position, results or liquidity; recorded contingent liabilities included $82.3 million current and $43.7 million non-current.
Important facts for investors to verify
- Whether leasing and capital-markets transaction activity recovers, and how quickly recurring property-management growth can offset brokerage weakness.
- Whether Adjusted EBITDA and margins stabilize after the sharp year-over-year decline; review the company’s non-GAAP definition and reconciliations.
- Interest-rate exposure, debt-service capacity and refinancing requirements, particularly the 2025 term-loan maturity and the effect of variable rates.
- Extension and ongoing availability of the accounts-receivable securitization program ahead of its June 2023 maturity.
- Cash conversion and working-capital trends, given $221.5 million of operating cash use in Q1 and the business’s seasonal cash-flow profile.
- Potential further valuation losses or impairment risk in investments and goodwill, and developments in contingencies, tax rules and macroeconomic conditions.