Jones Lang LaSalle Incorporated — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unless noted otherwise, dollar amounts are in millions. Interim results are unaudited. JLL notes that revenue and profits typically increase as the year progresses, so first-half results are not necessarily indicative of full-year performance.
Financial results
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Total revenue | $4,266.5 | $3,903.7 | $8,087.1 | $7,458.9 |
| Revenue before reimbursements | $2,348.2 | $2,163.3 | $4,309.8 | $4,054.4 |
| Fee revenue (non-GAAP) | $1,630.0 | $1,493.5 | $2,949.1 | $2,775.0 |
| Operating income | $150.1 | $149.8 | $175.5 | $203.6 |
| Net income attributable to common shareholders | $110.5 | $107.8 | $131.8 | $148.1 |
| Diluted EPS | $2.40 | $2.35 | $2.86 | $3.23 |
| Adjusted EBITDA (non-GAAP) | $226.7 | $193.6 | $322.1 | $301.3 |
- Q2 revenue and fee revenue each rose 12% in local currency; first-half growth was 11% and 9%, respectively. Reported revenue growth was 9% in Q2 and 8% year to date, reflecting currency effects.
- Q2 adjusted EBITDA margin on fee revenue was 13.8% in local currency, versus 13.0% a year earlier. First-half margin was 10.7%, versus 10.9%. Q2 net income margin on revenue before reimbursements was 4.7%, versus 5.0%.
- First-half operating cash flow was negative $483.1, compared with negative $267.9 in 2018. Investing activities used $141.7; financing activities provided $547.5. Ending cash, cash equivalents and restricted cash was $558.8, including $147.6 of restricted cash; balance-sheet cash and cash equivalents were $411.2.
- At June 30, cash was $411.2. Debt reported on the balance sheet totaled $1,274.2, including $118.7 of short-term borrowings, $485.9 net carrying value of credit-facility borrowings and $669.6 of long-term debt. Warehouse facilities of $384.0 are presented separately. Gross facility borrowings were $500.0; the $2.75 billion revolving facility matures in May 2023. JLL reported compliance with debt covenants and investment-grade ratings.
- Current assets were $5,030.1 and current liabilities $4,170.5. The company had $375.5 invested in real estate ventures and maximum unfunded co-investment commitments of $263.0.
Material changes and business performance
- Q2 growth was led by LaSalle and Americas Real Estate Services. LaSalle revenue increased 44% in local currency, reflecting higher incentive and advisory fees. Americas fee revenue increased 13% in local currency, with strong Leasing and continued growth in Property & Facility Management.
- EMEA remained comparatively weak: first-half fee revenue was flat in local currency, while the segment reported an operating loss of $30.7, versus a $21.4 loss in 2018. Capital Markets and Leasing declines offset growth in annuity services.
- First-half operating income fell 14% and common-shareholder net income fell about 11%. Restructuring and acquisition charges were $44.3, versus credits of $10.4 a year earlier; the 2019 charges included a $20.0 net increase in prior-acquisition earn-out liabilities. Equity earnings from real estate ventures decreased to $15.2 from $23.8.
- Operating cash use increased year over year, primarily due to higher annual incentive compensation payments, payment timing and the first payment related to the U.S. tax-law transition tax.
- JLL adopted the new lease accounting standard on January 1, 2019. It recorded operating lease right-of-use assets of $601.1 and operating lease liabilities totaling $686.0. Prior-year periods were not restated.
Outlook, commentary and risks
- The filing provides no specific quantitative full-year revenue or earnings guidance. Management highlights seasonality, volatile transaction-based fees, LaSalle incentive-fee timing and variable compensation as sources of quarterly fluctuation.
- Management cited continued RES margin progress and strong Q2 LaSalle contribution. It also described investments in technology and business platforms, including in the Americas and Asia Pacific.
- On July 1, 2019, after quarter-end, JLL completed its acquisition of HFF for total stated value of $1.8 billion, funded with cash and facility borrowings, and issued 5.7 million JLL shares. Purchase accounting valuations were not complete at filing. Integration, execution, added debt and possible goodwill or intangible impairment are identified risks.
- Other key exposures include macroeconomic and geopolitical conditions, real estate and capital-market activity, interest rates, foreign exchange, litigation and regulatory change. JLL stated that ordinary-course litigation was not expected to materially adversely affect its financial position, results or liquidity, while noting claims may exceed insurance coverage.
- Potential earn-out payments across 50 acquisitions had a maximum undiscounted amount of $369.3, subject to performance conditions. Professional indemnity accruals were $39.2; loan-loss accruals under Fannie Mae risk-sharing arrangements were $18.3.
Important facts for investors to verify
- HFF’s final purchase-price allocation, integration costs, financing impact and contribution to results after the July 1 closing.
- Whether working-capital cash outflows and incentive compensation payments normalize, and the company’s cash generation in the second half.
- Progress in EMEA profitability and the sustainability of Americas and LaSalle growth, including sensitivity to transaction volumes and incentive fees.
- Facility borrowing levels, variable-rate interest exposure and available revolver capacity following the HFF acquisition.
- Earn-out liabilities, litigation and insurance coverage, and the $263.0 of unfunded co-investment commitments.