Cushman & Wakefield plc — FY2022 Form 10-K
Business context and reporting period. The filing is the company’s annual report for the year ended December 31, 2022, not a standalone fourth-quarter report. Cushman & Wakefield is a global commercial real estate services firm with approximately 52,000 employees, more than 400 offices in about 60 countries, and more than 5.1 billion square feet under management. Its services span property, facilities and project management; leasing; capital markets; and valuation and other services. The company reports in U.S. dollars and has three segments: Americas, EMEA, and APAC.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $10.106 billion | $9.389 billion | +8% |
| Service line fee revenue | $7.248 billion | $6.891 billion | +5% |
| Operating income | $535.1 million | $497.0 million | +8% |
| Net income | $196.4 million | $250.0 million | -21% |
| Diluted EPS | $0.86 | $1.10 | Lower |
| Adjusted EBITDA (non-GAAP) | $898.8 million | $886.4 million | +1% |
| Adjusted EBITDA margin (non-GAAP) | 12.4% | 12.9% | -46 basis points |
| Net cash from operating activities | $49.1 million | $549.5 million | Down $500.4 million |
- Reported revenue includes gross contract reimbursables, which carry substantially no margin. Those reimbursements increased 14% to $2.858 billion; service line fee revenue is a more informative measure of fee-generating activity.
- Service line fee revenue rose in property, facilities and project management (+9%) and leasing (+13%), while capital markets fell 12% and valuation and other fell 3%. Foreign exchange reduced reported revenue by $218.9 million versus 2021; fee revenue grew 8% in local currency.
- Net income declined despite higher revenue, reflecting weaker capital markets, higher commissions and other costs, unfavorable currency movements, higher interest expense and a larger tax provision. Other expense included $84.2 million of net unrealized investment losses, primarily related to WeWork.
- Operating cash flow fell sharply, principally because operations used $538.8 million of net working capital, driven by receivables growth, higher income tax payments, and bonus, commission and brokerage investment payments. Capital expenditures were $50.7 million.
Liquidity, debt and balance sheet
- At year-end, cash and cash equivalents were $644.5 million and the $1.1 billion revolving facility was undrawn, giving reported liquidity of approximately $1.7 billion.
- Total debt, including finance lease liabilities, was approximately $3.3 billion. The 2018 First Lien Loan had $2.6 billion of principal outstanding and the 2020 senior secured notes had $650 million of principal outstanding; the notes carry a 6.75% fixed rate and mature in 2028. The first-lien loan was variable-rate, with a reported effective rate of 7.44% at year-end. The company reported compliance with debt covenants.
- In January 2023, the company extended the maturity of $1.0 billion of the first-lien loan to January 2030; the remaining $1.6 billion retained its August 2025 maturity. The revolver maturity had been extended to April 2027 in 2022.
- Operating lease obligations totaled $442.2 million on the balance sheet, with $124.4 million of operating lease payments due in 2023. The filing separately reports total undiscounted operating lease payments of $496.7 million.
- The company authorized a share repurchase program of up to $300 million in September 2022. Repurchases are discretionary, and the company did not provide a commitment to repurchase shares or pay dividends; it said it did not expect cash dividends for the foreseeable future.
Material changes and segment results
- Americas: Revenue increased 10% to $7.751 billion and Adjusted EBITDA increased 11% to $715.5 million. Leasing growth was strong (+20%); capital markets declined 11%.
- EMEA: Revenue declined 7% in U.S. dollars to $1.030 billion, but grew 4% in local currency. Adjusted EBITDA fell 10% in U.S. dollars to $106.0 million, while increasing 3% in local currency.
- APAC: Revenue increased 5% in U.S. dollars to $1.325 billion and 12% in local currency. Adjusted EBITDA fell 36% to $77.3 million, with COVID-19 restrictions in China and higher variable costs among the cited factors.
- In March 2022, the company transferred its Russian operations to a local operator, recording a $13.8 million disposal loss. Russia had represented less than 0.5% of 2021 revenue; management said the disposal was not material to the financial statements or future operations.
- Adjusted EBITDA is a non-GAAP measure. The company’s reconciliation adds back items including $93.8 million of acquisition-related costs and efficiency initiatives and $84.2 million of unrealized investment losses; investors should assess the adjustments alongside GAAP results.
Outlook, risks and unusual items
- The company gave no numerical 2023 revenue or earnings guidance. Management cited macroeconomic uncertainty, inflation, rising interest rates, currency volatility, geopolitical risks and constrained credit markets. Higher rates and lower transaction volumes had already weakened capital markets activity in the second half of 2022.
- Management said it planned further efficiency measures in 2023, including headcount reductions in selected roles, to prepare for potential weaker growth and revenue in certain service lines. The company recorded approximately $3.5 million of severance and employment-related costs for its late-2022 workforce actions.
- Management stated it believed liquidity, operating cash flow and available credit would meet anticipated funding needs for at least the next 12 months. This outlook is subject to seasonal cash needs and the risk of weaker operating cash generation.
- Key risks include commercial real estate market and transaction downturns, further interest-rate increases on floating-rate debt, inflation and cost recovery, foreign exchange movements, employee retention, cybersecurity and data privacy, regulatory and litigation exposure, and climate-related risks.
- Goodwill totaled $2.066 billion. No impairment was recorded, but the APAC reporting unit’s estimated fair value exceeded carrying value by only 9.4%; the auditor identified the APAC goodwill test as a critical audit matter because of judgment in forecasts and discount-rate assumptions.
- Management and the auditor reported effective internal control over financial reporting, and the auditor gave an unqualified opinion on the financial statements. Management said pending and threatened lawsuits were not expected to have a material effect, while noting litigation outcomes remain uncertain.
Important facts for investors to verify
- Whether the steep decline in operating cash flow reflects temporary working-capital timing or persists; review receivables, collections and cash conversion in subsequent filings.
- How transaction volumes, interest rates and credit availability affect capital markets revenue, margins and the company’s ability to recover higher operating costs.
- Debt-service sensitivity, covenant headroom and refinancing plans, especially for the $1.6 billion first-lien loan due in 2025 and the variable-rate debt exposure.
- Whether the APAC reporting unit’s narrow goodwill valuation cushion remains supportable under updated forecasts and market assumptions.
- The performance and valuation of investments, particularly the WeWork-related investment losses, and the returns and cash distributions from the Greystone joint venture.
- Actual 2023 restructuring costs, savings and workforce impacts, and whether any share repurchases occur under the authorized program.