Colliers International Group Inc (CIGI) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter investors conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance, or achievements contemplated in the forward-looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company's Annual Information Form as filed with the Canadian Securities Administrators, and in the Company's Annual Report on Form 40-F as filed with the US Securities and Exchange Commission.

As a reminder, today's call is being recorded. Today is Tuesday, October 27, 2015.

At this time for opening remarks and introductions, I'd like to turn the call over to Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

Thank you, officer -- operator. That was a good one. Good morning, everyone, and thanks for joining us today for the third-quarter conference call.

As the operator said, I'm Jay Hennick, Chairman and Chief Executive Officer. And with me today is John Friedrichsen, our Chief Financial Officer. The conference call is being webcast and is available on the Investor Relations section of our website, and a presentation slide deck is also available to accompany today's call.

Earlier today, Colliers International reported very strong financial results for the third quarter, continuing the momentum from the first-half of the year. Revenues for the quarter were $420 million, up 13% on a reported currency basis, but up 25% in local currency, while adjusted EBITDA was up 39% and 55% in local currency. Adjusted EPS came in at $0.52, up 49% versus the prior year.

We continue to see strong internal revenue growth and margin expansion, especially in our Americas and EMEA regions. We remain confident in our pipelines for the balance of the year, although we are mindful of the impact that foreign currency changes could have on year-end results.

In the case of Colliers, the differences between reported results in US dollars and actual results in local currencies is more pronounced than that of our competitors. For us, only 38% of our revenues are generated in the US. In other words, 62% are generated outside the US, making us much more globally diversified than the rest, which we see as an advantage despite the short-term impact on our reported results.

At the same time, we continue to diversify our revenue streams by service line. During the quarter, outsourcing and advisory grew by 43% in local currency, and recurring revenues now represent 38% of our total revenues, with the balance coming from sales and lease brokerage. Diversifying our business geographically and by service line has long been a part -- an important part of our growth strategy. It strengthens our platform and provides better predictability for the future.

Operationally, we continue to recruit high-impact professionals, especially now with the additional opportunities created by the changing landscape in our industry. We have also been very active with acquisitions, completing several during the quarter. We expanded our presence in the US, in Miami and St. Louis, but we also grew in Belgium with the acquisition of a leading asset and property manager, and in North Africa with the addition of a leading investment and corporate advisory firm headquartered in Morocco.

We see tremendous opportunities across the board right now and we continue to capitalize. Colliers International is an industry leader with operations in more than 60 countries. We are one of a very few companies with a global brand, and that gives us a distinct advantage with our clients and with our people.

What sets us apart is not only what we do but how we do it. Our enterprising and entrepreneurial culture has been part of our DNA for years. It encourages our people to think differently, share great ideas, and collaborate to create effective solutions for our clients. With a disciplined growth strategy, more than 20-year track record of success, and a very strong balance sheet, we are in a better position now than at any time in our history to continue to create value for our shareholders.

And now let me turn things over to John for an overview of our financial results, and then we'll open things up to questions. John?

Thank you, Jay. As announced in our press release earlier this morning and highlighted by Jay in his opening remarks, Colliers International Group reported strong financial results in our third quarter, with most of our operations meeting or exceeding our internal expectations. I will address our overall consolidated financial results for the quarter, our operating results by reporting region, as well as our capital usage and financial position, all of which relate to continuing operations.

For our third quarter of fiscal 2015, consolidated revenues increased to $420 million, up 25% in local currencies, from $373 million in the second and third quarter of 2014, with 16% of our growth generated internally and the balance from acquisitions. Total revenue growth for the quarter in our US dollar reporting currency was 13%.

Adjusted EBITDA for the quarter totaled $43 million, up from $31 million reported in Q3 last year, an increase of 55% in local currencies and 39% in our US dollar reporting currency, while our margins grew at 10.2% compared to 8.3% last year. And adjusted earnings-per-share came in at $0.52 compared to $0.35 per share reported for the third quarter last year, an increase of 49% in US dollars.

Our adjustments to GAAP EPS and arriving at adjusted earnings-per-share are outlined in our press release issued this morning, and are composed primarily of non-cash charges that we view as largely unrelated to our operating results, and are consistent with those outlined historically.

Turning to our operating results, our $420 million in revenues for the quarter was comprised of $266 million in sales and lease brokerage, and the balance of $154 million from outsourcing advisory services, with growth in the latter category of services increasing 43% over the prior-year in local currencies, benefiting significantly from acquisitions completed in EMEA and in the US within the last year, and also strong internal growth from existing operations of 16% year-over-year. Growth in our sales and lease brokerage services was also strong, up 17%, with leasing-related revenues leading the way. The more recurring revenues generated by our outsourcing advisory services segment represented 37% of our total revenues compared to 33% in Q3 of 2014.

Geographically, both revenues and adjusted EBITDA remain well-balanced, with just over half of each being generated in the Americas, with the largest change seen in our EMEA region. While such diversification is very desirable, an outcome from efforts to build out our global platform, it continues to negatively impact the reported results when translated into our US dollar reporting currency.

Turning to the regions, in the Americas, revenues were $224 million, up 18% in global currencies, with 12% internal growth and 6% from acquisitions. Brokerage revenues were up 15% in local currency versus last year, with our US brokerage revenues up 25% and our Canadian brokerage revenues flat with last year, with the latter impacted by a strong Q3 comparative last year in Canada, along with the impact of the downturn in energy and commodity markets.

Outsourcing advisory revenues were up 22% in local currency, led by strong growth in project management in both the US and Canada, and in consulting and appraisal in the US. Adjusted EBITDA came in at $22.8 million versus $14.8 million last year, and a margin of 10.2% versus 7.3% last year, boosted from operating leverage and acquisitions.

Moving on to EMEA, revenues of $108 million in the quarter increased 67% in local currencies, with 30% internal growth and 37% from acquisitions completed during the last year. Internal growth was attributable to strong lease and brokerage activity, up 38% over last year, particularly in Germany and the UK, as well as solid internal growth in all of our outsourcing advisory services.

Acquisition-related growth was primarily due to our workplace solutions business acquired in Q4 of last year. Adjusted EBITDA was $13.2 million, up 73% over the $7.6 million generated in Q3 of last year, with our margin increasing to 12.3% versus 10.5% last year.

And finally, in our Asia-Pacific region, revenues came in at $89 million, up 8% in local currencies but down 10% in US dollar terms. Revenue growth in local currencies was all generated internally and primarily attributable to strong leasing and sales brokerage growth in our Australia and New Zealand operations, up 15% in local currencies, with slight declines in brokerage revenues and the rest of Asia.

Outsourcing advisory revenues were up 7% in local currencies, led by property and project management revenue gains across most of our Asia-Pacific markets. Adjusted EBITDA was $8.7 million, down from $12.4 million last year, with our margin at 9.8% versus 12.6%.

Turning to our capital deployment and balance sheet, in our third quarter, capital expenditures totaled $4.5 million, up from $3.1 million last year, and bringing our year-to-date CapEx to $16 million. Our estimated CapEx spend for 2015 is now in the $23 million to $25 million range. We invested $16.3 million in acquisition activities during our third quarter compared to $6.5 million last year, and bringing our year-to-date investment in acquisitions to $39.6 million versus $82.4 million last year.

Our net debt position stood at $222 million at the end of the quarter, and our leverage ratio expressed as net debt to adjusted EBITDA stood at just under 1.3 times compared to 1.6 at the end of the second quarter, and 1 time at the seasonal low point at year-end 2014. Subject to any additional investment in acquisitions of significance, we expect leverage to trend down over the balance of the year to at or near 1 time.

In terms of our financial capacity, with cash on-hand and committed availability under our revolver, we had over $275 million of liquidity at quarter-end, a level ample to fund operations and other capital investments, including acquisitions, needed to execute our growth strategy.

Looking across our global operations, our pipelines in most markets in which we operate continue to reflect solid commercial real estate activity. which we expect to continue into Q4, with some challenges in LatAm and in certain parts of Asia. We expect significant FX headwinds to persist in Q4. And with a tough Q4 comparative from last year, of the challenge to exceeding the strong performance we reported in Q4 of 2014.

That concludes our prepared remarks. And I would now like to ask our operator to open up the call to questions.

(Operator Instructions) Anthony Jin, RBC Capital Markets.

Just want to get a sense of your sales and leasing brokerage revenue growth. Just how much of it was organic growth was related to productivity gains versus, say, recruiting?

I don't have a display, Anthony, on productivity versus recruiting. I mean at the end of the day, all I can say is that our recruiting efforts over the last three years are certainly coming to fruition in terms of productivity. I would say across the board, our brokers that we've recruited are contributing, and part of the success in building our overall revenue activities and results versus the prior year -- but I don't have it split out discreetly.

Okay. Just on the last quarter, Jay, you mentioned you are seeing some promising performance on the multi-market deals. Can you talk about how that's flowing? And is this still largely about valuations? Or are you seeing some leverage to either sales and leasing, at least inside of the business?

Okay, I didn't hear the entire question there, Anthony, but we continue to see lots of multi-market activity generally across the board. I think our corporate services area is up materially, although we don't break it out separately.

The recruiting efforts over the past couple of years in bringing in more higher-end brokers -- and what I mean by that is brokers that tend to handle transactions of larger size -- so seem to deal with clients that operate in multi-markets. So, there's a lot more flow of business going intermarket and that's not just within the US. But it's globally as well.

It's a major push for the management team right now, and will continue to be a major push as we move forward, particularly as we continue to build our platform. Because we can now, in a seamless way, service business in virtually any market around the world.

So, the second part of your question I didn't quite hear. It was a bit jumbled on our end, so do you want to try that again for me?

Yes. You more or less answered it. It was just in regards to seeing leverage of that multi-market relationship onto the brokerage side, like sales and leasing. But you more or less covered that off.

I just wanted to touch on the margins, especially in the Americas. Margins were a bit higher than what they've been trending for the last little while. Now was that more related to end market activity levels being higher? Or are there some specific measures you are undertaking to improve the margins that you could talk about?

It's the culmination of a bunch of efforts around building a US business. And as we've talked about before, we've been a bit challenged with the scale in our US business. You know we are achieving some of the benefits of that now. That, combined with good transaction revenues, which tend to be profitable, combined to result in the elevated margins that we saw in the Americas and mainly in the US in the quarter.

Okay. Just lastly, the year-to-date margin performance is tracking fairly well relative to last year. I know you're talking about a 10% EBITDA margin in the 2016 target, but is there anything that might prevent that this year?

From hitting 10% in 2016 or 2015?

This year, 2015.

The only thing that we have to deal with, I think -- I mean, assuming business continues to be in line with our expectations, and our pipeline to support that would be our FX headwinds, which are going to be prevalent in the end of the year Q4. As we have indicated before, our higher-margin businesses tend to be outside of the US in foreign currencies. So translating back into the US, we're going to have some challenges there. That would be the major impediment.

Just to further expand on what John already said, we are cautiously optimistic we can achieve our goal in 2015, which would be a great achievement from our perspective, given that we set the goal five years ago now. But as John said, currencies are fluctuating. It does impact us in a bigger way than in most. But we still remain cautiously optimistic that this will be the year we ring the bell.

Thank you. And great quarter.

Thank you.

David Gold, Sidoti & Company.

So just a couple of points of follow-up. First is, as we look at the organic strength in EMEA, can you give some since there -- any particularly big wins or assignments there that impacted the quarter?

There's, you know, David, there is always big wins. We have historically not announced them. We've just won them in the ordinary course of our business, because we see that as ordinary course. We are excited by several wins.

As I said earlier, corporate services is something we don't break out, but it's up materially. And we expect 2016 and beyond to be up that much more. So, nothing that I would say that had a material impact on our numbers, but it's all back to the momentum that we are gaining in the marketplace in both -- in all three of our different service lines. And it's great to see.

Okay, perfect. And then, Jay, sorry, post the spinoff, any update you want to give on thinking as far as expansion plans, both via hiring and/or acquisition?

Nothing more than we've already said, which is that we couldn't have picked a better time I think in retrospect to split. It was a perfect time for Colliers as an organization, because its initial footprint was established.

And subsequent to the split-off, there has been lots of transition and changes in the industry with mergers and consolidations, and adjustments at various different organizations, all of which have helped us, both in recruiting key people, strengthening individual operations, but also in the area of acquisitions, which we continue to be very aggressive in, and acquisitions not just in the Americas but also on a global basis.

So, we really see this as an opportunity over the next 12 to 18 months to continue to strengthen our service business. And as I said, having such a strong global brand puts us in a fortunate position of being able to be a safe home for some of the great real estate service professionals out there, whether in North America or globally.

Perfect. And just one last, if I can, as a follow-up there. Seeing the success that you are getting from the project management business and the outsourcing advisory piece, is there opportunity there for further acquisitions and maybe further rollup of that space?

Yes. Big opportunities. As you know, we are the leading player already in Canada. We are the leading player in Western Europe through the acquisition we made -- I guess it's almost two years ago now, or a year and a half ago, with AOS. And we have started to expand our capabilities in the US earlier in the year, as you know.

So it's an area that we see as a high-end addition to what we already do for our clients, being in the C-suite, and helping them make important decisions not just about where they should locate themselves, but also in important investments in enhancements to the real estate that they already own, makes us the ultimate advisor, which is the track that Colliers is focusing on growing rather than in different areas that some of our competitors seem to be following.

Sounds perfect. Thank you.

Brandon Dobell, William Blair.

I'm not sure if Jay or John want to pitch in on this, but your M&A pipeline, what's been, I guess, the proportion of that pipeline that's been generated by you guys, or probably more appropriately, guys in the field out there seeing local competitors or things like that, versus let's call it inbound calls either from brokers or companies that see you guys as a good potential partner? Or if there is a way to think about how the -- I don't know, deal flow looks? And has that changed over the past -- I don't know, let's call it a year or two?

Well, that's a great question. We have been, as you know, Brandon, you followed us for a lot of years.

A lot of years.

We are -- we're -- how many years?

A lot of years. Feels like decades, but it's only been about a decade. (laughter)

So we are in the market market-by-market-by-market. And our business leaders, as part of what they do, are encouraged to meet with key opportunities that might be great additions for us over the long-term. But most targets are ready when they are ready. And so, having a relationship with the targets are very important.

So I would say that 80% of the business that -- of the acquisition targets that we pursue are acquisition targets that we have either called upon historically or subsequently call when the time is right. And right now, it's -- there is a bigger push among smaller firms to be part of a global platform. Clients are getting bigger. And the moment a local firm or even a regional firm starts to win business with larger clients, and clients are asking for fulfillment globally, those firms become -- are focused on joining a global platform where they can have fulfillment on a global basis.

So, we are benefiting by a lot of that right now. I'd say 20%; the balance comes from agents or brokers or just us gathering information in the marketplace that a particular target might be available.

Okay. That's helpful. Looking at the consulting and valuation appraisal suite of services, should we think of that as an outgrowth of your success on the capital market side, or maybe as a predictor of future market share success on the capital markets side? Or is there just not as tight of a correlation as I may think?

You know, it's an interesting question. We believe that the more work we do with high-profile sophisticated clients around their real estate needs, translates into Capital Markets transactions. It translates into leasing transactions. It translates into financing transactions. But it's something that happens episodically as you are moving forward with a particular client.

So it's hard to really answer the question, but I do know that having Colliers working closely with clients over an 18 to 24-month period, which is the traditional period of time in some of these services, gives us a real opportunity to demonstrate our competitive advantage.

All right. And then final one for me. As you transition August/September into October, are there particular spots either in the Asia-PAC business or particular property types in the US where you saw people take a step back around, I guess, just kind of China growth noise or the flow of funds that could come out of the China growth noise? Or was it just kind of a ship passing in the night, and it was people didn't change their trajectory around other leasing or capital markets transactions?

Brandon, I think it's more of the latter. I think it was chatter in the market. And for a period of time, perhaps, people kind of paused to see what was happening. But it really seemed to be a blip. And it certainly has not resulted in a diminished pipeline of activity. No deals have been sort of postponed or gone off the rails at this point. I think as long as markets continue to operate much like they are currently, we expect our pipelines to firm up and result in transaction revenues by the end of the year.

Okay, great. Thanks a lot.

You're welcome.

Frederic Bastien, Raymond James.

Another analyst been covering you for a decade.

Yes, that's for sure. Thank you, Fred.

I'd like to get a bit more granularity on the growth that you've been experiencing in the US. Is the momentum driven by the big cities? Or are you seeing a strength in the Tier 2 and Tier 3 cities as well?

I think we're seeing -- absolutely. I mean, our focus is on major markets and we've had success there, but we absolutely have been seeing great success in some of the secondary cities. We talked about that at a recent acquisition in St. Louis, which I think will prove to be very, very good for us.

And we, several years ago, completed a transaction in Kansas City that's been a tremendous operation for us for the last three years. And a real key example of what's happened in the US, certainly not taking anything away from them -- our team there, which is very strong -- but Kansas City itself is in the Heartland of the US, probably the top 25 metropolitan areas, and benefiting from increased commercial real estate activity.

So I would say it's really indicative of strength in the US market. And our focus on expanding not only in the major markets, but in the important secondary markets as well.

Because you would say -- would you say that most of that strength then is happening domestically, basically driven by US companies? Or are you also seeing increase in investment from -- on a global perspective?

Yes, definitely. Capital inflows are still happening. And it is interesting that we are seeing, even the Asian and other investors entering into not only the major markets in the US but also into some of the important secondary markets. And I think it's indicative of their confidence in the US economy.

Okay. And I know the question on the margin was asked already, but it does sound like 2015 is looking pretty good for a 10% margin. Jay, if I was to ask you where are you going to be in five years, what would be your answer?

Well, seeing as you are -- you've followed us for more than a decade, you'll know that we have historically created -- and haven't done so yet, really, in the case of newly standalone Colliers -- but we have a very defined strategy about growing our business over the next five years.

On the basis of assuming internal growth in the sort of mid to high single digits, and acquisition growth in the same area five years from now, we'll be double the size we are today. EBITDA should be more than double the size that we are today, and that is with modest leverage because we generate very strong cash flows in this business.

So I think the returns, if you run those numbers out, for any shareholders will be comparable to the returns that we've delivered to shareholders over a 20-year period. But more excitingly, I think, there -- that's really just the consolation prize. There's so many opportunities with Colliers to leverage this global brand into other services or service lines, geographic regions and so forth, that we frankly didn't have as readily before when we were part of First Service.

So we are all very excited from the standpoint of this management team. And having boots on the ground in so many markets around the world, and having a -- our senior leaders so focused on not only exceeding market-by-market internal growth, but also looking for new growth opportunities to expand their business, gives us a lot of ways to grow beyond the -- our five-year forecast that I just described. So, that's where I see us in five years -- $4 billion and a little bit more than 10% EBITDA margins, and hopefully, something more.

All right. Great. Thanks, guys.

You're welcome.

Our current last question is coming from Mitch Germain of JMP Securities. Please go ahead, Mitch.

Jay, I know you've talked about hiring and benefiting from some of the consolidation in the industry. Curious -- is your hiring up year-over-year? Or are you down in terms of the addition of net producers?

I don't have the exact number. Maybe John does, but I think we are double -- we are 100% increased in net producers year-over-year. Is that the number, John?

I don't have that number. I just had a quarterly number, Mitch, and we were up about [130] net [B earners] in the quarter versus last year, which is pretty significant. On an annualized basis, that would be around close to 10%.

And that -- just to make sure, that just includes hiring, not anyone who comes aboard via an acquisition, correct?

Right. Yes, that's right, yes.

Okay, great. And then, Jay, any change in the pricing environment with regards to acquisitions?

I think, generally speaking, larger transactions, which aren't the ones that we typically target, are seeing a tick-up in pricing. But in our general space, give or take, it's the same. These are people businesses.

It's very important in any acquisition that the new group that joins wants to join for all the right reasons, and therefore, any transactions that we've ventured into are done in a way where there is a long-term tail on the senior professionals to stay with the business. And that also helps us indoctrinate them into our what we consider to be a unique enterprising culture at Colliers.

Great. Thanks so much, guys. Congrats on the quarter.

Thanks.

Thank you, Mitch.

Varun Choyah, CIBC.

Congrats on the solid results. Just two questions for me. And just going back to the margin questions, I know you guys talked about it in Q&A, but in EMEA, how should we look at margins? They came in pretty solid. And I just want to look at the outlook for the EMEA regions and the margin assumption there.

Well, I think the margin in the quarter was very, very, very strong. You know, it was over 12%. Certainly benefiting from operating leverage and strong transaction revenues in the UK and Germany. We have talked previously about the workplace solutions operating on somewhat lower margins. So that's going to be a little bit of a headwind in terms of margin itself.

Obviously, EBITDA additive, in terms of in absolute terms, which is the most important thing to be focusing on. But you know, not to say that there isn't continuing upside in the European business. There's no particular limit on that. But again, as we strive to balance transaction revenue with more outsourcing advisory fees, which typically carry somewhat lower margins, there's going to be a balance there that will play into the overall margin expectation in EMEA going forward.

Okay. And in the AS-PAC region, it seems as though there was like some one-time impact to margins. So should we expect a lift in the AS-PAC region?

Sorry. I didn't catch the last piece of that.

Oh, yes, and the Asia-Pacific region..

Oh, Asia-Pacific,

Yes. One-time.

Yes. I mean, we have some one-time costs that hit Asia ex-Australia and New Zealand, which performed very strongly. And we expect to work through that this quarter, and we should see a modest increase in margin activity, assuming that revenues continue to be decent in that market going into next year.

Yes, I mean the only thing I would add to that is that Asia, ex-Australia and New Zealand, is tough right now. And so, I don't think we are expecting a very strong finish to the year given current market conditions. I hope I'm wrong, but that's our view right now.

Okay. Thanks for the color. And just one more for me on the, I guess, your overarching strategic plan for next five years. I mean, if we were to, I guess -- if you look in the service lines out there and what you can expand into, what's your pecking order? What's really desirable for you to expand into from a service line perspective?

I'm not sure I want to go down that road in any specific way, but I would say that we view ourselves -- Colliers views ourselves as a pure play, high-end real estate advisor. Our key people are real estate service professionals. So, we would like to remain at the white-collar aspect of the commercial real estate space, advising clients in the C-suite as much as possible. So, any incremental or additional service lines we consider are those that augment that kind of a philosophy.

There's many ways to generate revenue and there's many ways to generate profitable revenue, but we believe that our key people should be valued at the highest levels, and we want to maintain that philosophy as we go forward.

Okay, thanks for answering my questions.

And so there are no other questions at this time.

Okay, well, thank you, everyone, for joining our third-quarter conference call. We look forward to the next one, which will be our year-end numbers. And we appreciate you taking the time to join us on this call. Thank you very much.

Ladies and gentlemen, this concludes the third-quarter investors conference call. Thank you for your participation and have a great day.