Welcome to Colleges International Second 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 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 in the company's annual report on Form 40 F as filed with the US Securities Exchange Commission. As a reminder, today's call is being recorded.
Today is August 6 2020. And at this time, for opening remarks and introductions, I would like to turn the call over to the Global Chairman and Chief Executive Officer, Mr. Jay Hennick, Please go ahead,
conference call. As the operator mentioned, I'm Jay Hennick, Chief Executive Officer of the company. With me is John Fredericks, and Chief Operating Officer and Christian Mayer, Chief Financial Officer. This call is being webcast and is available on the Investor Relations section of our Web site. A presentation slide deck is also available to accompany today's call.
This morning, Colliers reported better than expected second quarter results across all segments and regions of our company, despite the impact of COVID 19, primarily in our transactional percent. Adjusted EBITDA, $60,000,000, down 30% and adjusted earnings per share came in at down 36% relative to the prior year. On a year to date basis, revenue were $1,100,000,000, 25, down 22% versus the prior year. Based on our results to date, stronger than expected first half and acquisitions already completed, we are increasing our balance of the year. In a few minutes, Christian will talk more about our financial results, liquidity and balance sheet, as well as our updated assumptions.
Joan will then offer some operational thoughts after which we'll open things up to questions. Since March, most markets around the world have been under some form of lockdown or stay at home order impacting everyone. I'm proud of how Collier's leadership responded, taking aggressive action early to maintain costs and realign resources, while encouraging our professionals to provide important advice and insights to clients. Fortunately, our efforts to transform Colliers into a different kind of professional services company has paid off handsomely. Adding more recurring and contractual revenue streams like investment management, property and project management, mortgage servicing, and real property consulting and engineering has provided us with more resilience and service line diversification than ever before changing the dynamics of our global platform for the future.
Recurring services now represent the majority of our revenues and earnings, with the balance coming from our highly variable transaction business, leasing and capital markets. During the quarter, industry estimates indicate transaction volumes were down almost 70% in the U. S. Deal count down above 50% in Europe and transaction volumes down almost 40% in Asia Pac. Colliers, of course, delivered much better than the rest during the crisis.
Make no mistake. Revenues from transaction services are not going away. It's a great business. In fact, I suggest that leasing and capital markets are essential services to most owners and occupiers have real estate assets. Clients want and need our advice now more than ever to help them make better real estate decisions as they navigate confident they will rebound nicely as business $230,000,000 offering of the holder, but also at the option of Colliers, essentially their additional equity in our company.
We finished the quarter with leverage at one point five times, providing us with significant unused capacity fees going forward. On the transaction front, we continue to take important steps During the quarter, we completed the acquisition of Doherty Financial, now rebranded as Colliers' mortgage, giving us a well established real estate finance and loan servicing platform upon which to build. Then shortly after the quarter end, we added Mazor Consulting, a leading U. S. Engineering design and consulting firm focused on real estate and infrastructure assets.
Both of these additions provide further growth opportunities and resilient revenue streams and both bring strong leadership teams our new partners into the Colliers family. The senior leadership team at Colliers Mortgage led by David Jeran, and those of Maser Consulting led by Richard Maser, Kevin Haney, and Leo Fonzio. Now, I'd like to say a word about the valuation of our shares. As you know, our leadership team has a proven record of creating value for shareholders delivering more than 20 25 years. This record suggests we know a thing or 2 about businesses and how they are valued and how they're leveraged.
When I look at the trading value of Collier Shares, an institutionally recognized use and earnings coming from resilient revenue streams, I see huge value underappreciated. From an investment perspective, Colliers has historically as companies, despite having superior characteristics. Sooner or later, the market will wake up to this and begin to value our company in line with the value we're creating. That's why our leadership team owns so much of the equity in our company almost 40%. And that's why we continue to invest as we did during the quarter by purchasing almost 10% of our recent offering.
Certainty out there. And as a result, we continue to manage our business closely as enterprising owners would However, whatever may happen in the coming months, all of us at Colliers remain confident that are highly diversified business model, resilient core of recurring significant insider ownership will enable us to emerge from these unprecedented times stronger and better than ever. Let me now turn things over to Christian for his comments. Christian? As announced earlier today, Clari has reported better than anticipated financial results across all service lines and regions, for the second quarter.
My comments follow the flow of the slides posted on the Investor Relations section of Colliers dot com to accompany this call. Please note that non GAAP measures such as adjusted EBITDA and adjusted EPS referenced on this call are defined in the press release issued today. Charges that we view as largely unrelated to our operating results. All references to revenue growth are calculated based on local currency. 2nd quarter revenues were 5.50 percent due to the impact of the COVID-nineteen pandemic, primarily on our transactional leasing and capital markets operations throughout the quarter.
2nd quarter consolidated adjusted EBITDA was $60,000,000 compared to $87,000,000 last year. With margins at 10 point were impacted by reduced revenues or mitigated by aggressive measures to contain costs, including discretionary and administrative costs as well as compensation. I would like to take this opportunity to thank our teams around the world for their tireless efforts in managing their businesses closely during this unprecedented time. Q2 revenues in the Americas totaled $309,000,000, down 26%. America's outsourcing and advisory revenues were flat with each of project management property management, and valuations holding stable.
Leasing and capital markets revenues were down 45% 24 percent, respectively, with leasing more heavily impacted as occupiers of office space, particularly in urban markets deferred decisions on future lease commitments. Adjusted EBITDA was $24,000,000, down 33% versus last year. EMEA Q2 revenues were $100,000,000, down 32% for the region. Leasing was down 42%, Capital Markets down 40% and Outsourcing Advisory was down 23%, all impacted by the pandemic. Most of the reduction in outsourcing and advisory in the region came from our key project management business, which experienced delays in executing on-site work as several job sites were inaccessible.
Adjusted EBITDA for the region was year. Asia Pacific revenues were $100,000,000, down 16% as the pandemic spread to most markets in down 25%, partially offset by a small increase in outsourcing and advisory revenues which included revenues from the recent acquisition of Synergy never branded as Colliers in India. Adjusted EBITDA was $12,000,000 compared to $14,000,000 last year. Investment management revenues for Q2 were $41,000,000 $4,300,000 $700,000,000 at June 30, 2020, up 2% from $35,100,000,000 as of March 30 2020, with underlying asset value and funds under management remaining stable. This validate Harrison Street's demographic investment strategy, which focuses on lower volatility asset class like student and senior housing, medical office, storage and social infrastructure.
Adjusted EBITDA the quarter was $17,000,000 versus $19,000,000 in the comparative period, with the margin impacted by the timing of certain European and fees. Was impacted by tax payment deferral the pandemic. Colliers maintains a concerted financial profile with a net debt to adjusted EBITDA leverage ratio of one point five times as of June 30, 2020. During the quarter, we completed an offering of 5 year, 4% convertible notes for net proceeds of $224,000,000. The notes are convertible and disabordinate voting shares over the next 5 years.
Or if not converted may be settled at maturity into subordinate voting shares or cash at the option of callers. As such, the convertible notes are equity like in nature and they are considered equity for purposes of our financial leverage covenants. The full extent and duration of the pandemic remains uncertain. However, as Jay mentioned, we have updated our working quarter across all service lines and regions and 2, the recent acquisitions of Collier's Mortgage And Bazer Consulting. The updated revenue range 2019.
The updated adjusted EBITDA range is a 15% to 25% decline relative to 2019. Revenues, which both have highly variable cost structures to remain below 2019 levels, although the scale of decline should moderate in the 3rd And Fourth quarters. Investment Management and Outsourcing Advisory revenues are expected to remain relatively stable through the remainder of the year my prepared remarks. And I would now like to turn the call over to John.
Thank you, Christian. It was about saying that measures mandated by governments around the world to contain the COVID-nineteen pandemic have caused steep declines in most business activities across the global economy. As a global business and leading player in commercial real estate and investment management, Callers has put clients first finding ways to assist during these times of uncertainty. We are confident that the time, attention and value delivered today will be rewarded by our clients in the future when the current level of uncertainty significantly reduces and decision making with longer term time horizons resumes. Across our global business, and our business leaders, professionals and support staff did an exemplary job adjusting to the significant change in operating conditions.
Tough measures were taken to contain costs, while striving to ensure business continuity and providing services to clients under challenging circumstances. Prior investments in technology allowed us to transition from in person to remote working in a near seamless fashion, facilitating ongoing communication and collaboration with each other and our clients. Some of these changes, including a reduction in travel, are expected to be permanent in nature, while others such as working from home necessitated by the lockdown measures will be substantially reduced as offices are reopened and repopulated. As we transition back to business as usual, we will continue to closely monitor our costs and gear our variable expense levels to our revenue generating activity. In our last quarterly conference call, I referred to the countless silver linings to this crisis that callers would benefit from in the years to come, including the opportunity to reset certain elements of our cost structure, our capabilities, and strategically invest for the future.
One example of this was our $10,000,000 of broker relief program implemented in our U. S. Operations to financially assist many of our commission only brokerage professionals would have been negatively impacted by the sharp reduction in transaction activity caused by the Pandep To our knowledge, Collier is the only major firm in our industry to provide such a program. Something that was incredibly well received by our U. S.
Transaction professionals. And another way in which Colliers continues to be a culture in the value of its people first. In addition, Colliers continues to strategically invest and talent across our global platform and take advantage of opportunities to close gaps and build capabilities by attracting leaders and professionals caught up in bureaucratic organizations that have stifled their entrepreneurial spirit. All of those that have recently joined Colliers and those looking for a home where the entrepreneurial spirit is alive and well Welcome to Colliers. While cost management continues to be an operational priority across our business, Other areas of focus include the integration of Collier's mortgage into our U.
S. Brokerage operations and other relevant service lines so that we can begin the process of leveraging our relationships across multi family properties and drive value to our clients and brokerage professionals across our U. S. Platform. Looking beyond the current crisis and post pandemic economy, we expect the sharp decline we just experienced in leasing transactions across our global markets largely related to deferred decision making by occupiers to reverse, driving a recovery in activity, which From an operational That concludes our prepared remarks.
And I would now like to turn the call back to our operator to facilitate questions.
Thank
you.
Our first question comes from the line of Steven Sheldon with William Blair. Your line is open.
Thanks. Good morning. I really appreciate you continuing to give guidance here. It just seems like relative to some of your large peers, you have a slightly more optimistic outlook on transaction activity stabilizing over the near term. So anything to call out there in terms of what you're seeing on forward indicator side, just giving you some confidence about that stabilization, potential stabilization activity over the next few quarters?
And how much of that is due to maybe market dynamics versus some of the things you talked about like strategically hiring in this environment?
I would say, Stephen, what our view and our updated assumptions really are based on a ground up review of expected transaction activity in our pipelines. Obviously, when we're going through that exercise, we are risk adjusting these. I think risk impacting the completion of transactions that are in pipeline is remains elevated, but we've taken that into account. And I think it's a reflection really of our global business and the types of clients that we service. But we are optimistically to have a level of optimistic confidence for the balance of the year.
Really at this stage, I would, suggest that this is not due to the selective hiring that we've done. I think that that has, in the past, activity related to those steps is obviously deferred And there's usually a bit of a lag between the date of hiring somebody and their contribution to our operations, but we're confident that that will play out well given, who we've been successful in hiring more in 2021 2022. But, our outlook is certainly based on a very grassroots ground up level review of our pipelines.
Got it. Makes sense. And then just as a follow-up in EMEA for the outsourcing and advisory business, just some discrete project headwinds from, I guess, in person restrictions. What visibility do you have in those projects ramping up second half? And has there been any change in client retention so far this year in that business in EMEA?
Stephen, we would expect that those transactions, would get back on track and they are in some cases, back on track. These are transactions that were in process and, needed to be worked on to completion. So we feel that that revenue will be there in the back half of the year. Aside from any, second wave or any other kind of, major issue on the, from a health and safety perspective. But we do expect those revenues would be there and plan retention, has been sound in our Outsourcing And Advisory business, this year in EMEA and as well as globally.
Yes, those are active projects that we're currently working on. So it's a subject of, of getting back in the building to do the work some buildings have access in France. Some buildings don't have access. And so as they open up, our activities will resume. And as Christian said, we think the current projects will ramp up towards the balance of the
Thank you. Our next question comes from the line of George Doumette, Scotiabank. Your line is open.
Yes. Hi, guys. Congrats on the resilient quarter. I just wanted to ask you just a follow-up question on the Americas, obviously, think the deferred decisions on the leasing has quite a bit of an impact. I think we're down 50% on that in the revenue line year over year.
Just wondering how much of that needs to come back, for us to kind of attain the goalposts that we put out Can you maybe give us a sense of where that number is trending? How much needs needs to come back? I guess for us to be able to hit our guidance?
George, as I indicated, in my comments, leasing was down significantly in the Americas. And, we do expect in terms of our Q3 and Q4, that there will be a gradual improvement in, in leasing and in capital markets in Q3 and Q4. I think it'll be gradual it'll be, a little bit. There is, there is, still heightened uncertainty in the market. And, on an overall basis, we've set the goalposts fairly wide here, in terms of our working assumption.
And, but, but, I think some improvement is something that we expect, but the agree is unknown and uncertain at this point. But within that range that we set out.
Okay. I didn't really see anything prepared remarks, but can you guys maybe give us an update on the $150,000,000 in cost savings? I'm just wondering how much of that so far has been reinvested into the brokerage side of the business?
Yes. George, we've realized about $60,000,000 out of that $150,000,000 that we targeted, in Q2. And, that is, I think a testament to our teams and the ability to be nimble and make those tough decisions quickly. And we, we've experienced the benefit of those cost savings throughout the quarter, April through June, but being quick and nimble on the changes. And, I think we're well on track to achieving the $150,000,000 that we set out when we met last end of April on the Q1 conference call.
Okay. And just one last one, if I may, I guess, on general, on the senior housing asset class, just wondering your thoughts on anything structural in terms of maybe value of that asset class over the next couple of quarters as we navigate the pandemic. And just on the AUM side of the business. Is the view there that we expect to grow AUM in the mid single digits. I think that's why you guys kind of, that's the goalpost you guys gave last quarter.
Is that still the aim for the remainder of the year? Thanks.
So the seniors component of our investment management
platform, Harrison
Street, has, has obviously been impacted somewhat, but not materially so. I think, across the board, they've used the opportunity to enhance the value of the assets. There's a lot of, it's an essential service. There's a lot of, there'll be a delay in terms of having people move Street is very comfortable with its seniors portfolio. You know, their 1st class, they have 1st class operators.
So from that perspective, they're good. Interestingly, in an environment where fundraising has been paused, Harrison Street continues to raise capital as can see the AUM is up, during the month. And that's, so that was a positive sign and new, new fundings are still on a pause, although there's a lot of people looking at this alternate class because, their open ended fund just received top performance in, across board 135 and since inception, so best returns in the industry. So Harrison Street is, is, doing extremely well and relative to, to other asset classes, for sure, and, continues to perform. Okay.
Thanks for answering us. Good luck. Thank
you. Our next question comes from the line of Stephen MacLeod with BMO Capital. Your line is open.
Thanks. Good
morning.
I just wanted to circle around a little bit on the outsourcing and advisory business, which clearly was a bright spot for the quarter in terms of resiliency. Could you just give a little bit of color around, what trends you saw within the various segments within outsourcing and advisory, so from property management to project management to evaluation and advisory and anything else that stood out?
Yes. All of them, all of them performed, extremely well, considering what was going on out there, limitations of getting on-site in buildings, for example, you know, property management, as Christian said, was flat But there was a number of projects, that we managed, that we couldn't get access to, or we could get partial access to, or they wanted to reduce costs. So the support staff around the building were impacted and yet, revenues in that segment continued to, be flat with the prior year. So additional services being provided compensated project management pipelines have been, as strong as we've ever seen. And they continue to perform, revenue wise was pretty much flat EBITDA up.
I'm just giving you, just giving you thematically, sentiment Obviously, engineering is a new segment for us, operated very well. Again, record pipelines So, across the board, the only area in project management that was impacted more than the rest And our project management business now is approaching $450,000,000 globally is our, business in India. And there's been, in India, lockdowns in a number of cities, which has impacted their results. Pipelines are there. Projects are ongoing, but they can't get access to, similar to, project management in France, actually.
You can't get as to a building, you can do work remotely, but in many of these cases, you need to be on-site. So if there's restrictions there, it really delays the execution of the job. So really across the board in our, in in that segment of our business, we're very pleased with our results. And, they're, they're, resilient, as you but they're also geographically diversified, around the world, which, which gives us a great benefit. Project management in Australia was strong Project Management in Asia was strong.
So, those are some of the, some of the details.
Okay, that's helpful. Thank you. And then when you look at the Asia Pacific market, is there anything you can glean in terms of how that market performed, out of the initial shocks in COVID-nineteen, which preceded the rest of the world. Is there anything you can glean in terms of a model for potential recovery or improvement in volumes on the leasing and capital market side?
Well, you certainly can see based on our quarterly results that, the reductions we saw in this quarter were not as significant in the Asia Pacific region. Largely because they went into this thing first and then, have emerged quicker on Australia and New Zealand doing a particularly good job in terms of containment. And, yes, there's the high level like this return, but generally speaking business is much more further along in terms of resumption back to normal. So I think a good indicator right there in terms of our own results. The down or the reduction in the quarter being much more muted in, in that region.
Much like it was a little bit elevated in Europe, which obviously went into things a little bit sooner than North America here.
Okay. That's great. I think that's it for me. Thank you very much.
Our next question comes from the line of Matt Logan with RBC Capital Markets. Your line is open.
Jay, you talked a lot about some of the positive end market trends in the outsourcing and advisory segment. If we roll all those trends up, where could we see adjusted EBITDA growing on a normalized basis for recurring services in 2021 or 2022?
Well, I don't want to get to trouble on that. So I'm going to pass that to Christian. We do expect, our outsourcing businesses to remain stable and resilient through the balance of the year. And to return to growth in the future. So definitely an increase there.
We just recently closed on the 2 acquisitions. I'll start with Collier's mortgage. Half of that business is a recurring Outsourcing Advisory business in the loan servicing area. We expect to grow that loan servicing book significantly over time. It's $11,000,000,000 today.
And we have plans to grow that materially, over time as we integrate and grow our origination streams and our servicing book And then finally, the major transaction that just closed, in July, engineering and consulting services business, that is a very Greg in nature, long term contracts, that business generates close to $200,000,000 a year in revenue, and we expect will grow significantly, over time and add to our outsourcing advisory revenue streams. So, you know, I think, a pretty, optimistic and highly visible, a path to growing our risk and advisory business in the coming years. So as you look to 2021, you've got both the internal growth that Christian talked about, but also we have already completed 2 significant acquisitions, which will provide acquisition growth on top of 21 and beyond.
And I guess when we take a step back, I mean, call your shares are creating well below what we would see as a fair multiple for the sum of the parts from these businesses. Would you ever consider leveraging your balance sheet for a larger acquisition to solidify Colliers as a recurring business? Or conversely, would you consider monetizing select pieces of the recurring business to capitalize on high valuations in the private market?
Well, let's start with you know, everything's on the table. We own 40 percent of the equity. We're in the business of creating shareholder value. We always happen. And as I said in my prepared comments, I think where we're trading is, you know, extremely low relative to other property and professional service businesses out there.
We have a very strong balance sheet. We have tremendous capacity to continue to, to pursue growth opportunities. As you can see over the past, 2 years or more 3 years probably. Most of the activity has been around recurring revenue services. We like the mix of our business today.
But, we like, we like, you know, we're gonna have to take a prices of there for high quality businesses trade well in excess of where Collier a global platform trades. So we're going to have to look at all of these, factors. And I
guess maybe taking a step back and changing gears a little bit. You had mentioned there could be opportunities for further cost reductions within the business. Could you give us a little bit of color on what those might be and how they could impact margins over the next couple of years?
Yes, I mean, Matt, in the near term, there are opportunities to take more of support costs and compensation costs primarily, out of the business. That's something that we're looking at. Closely, and we continue to monitor closely. You know, there is a lot of uncertainty still in the market. And obviously for our Q3 and Q4, operations, we have, that lever available to us.
As John mentioned, there's some more structural things that are changing in our cost structure, like our approach toward travel our long term approach to the level of support costs and administrative costs in the business. And those are things that will evolve over time and will, allow us to, improve our margins, factional businesses, through those changes and approach to the way business is done. And that is really one of the silver lining of this crisis. And, we'll see where that, that margin enhancement takes us here over the over the coming quarters and years.
And last question for me, just a minor housekeeping item. Could you tell us the organic growth by region for the Americas EMEA and Asia Pacific?
Yes, we can get you that. Just give me one second to pull that out. Sorry, organic, revenue growth in the Americas for Q2 was minus 27%. Asia minus 19 and EMEA down 32%.
That's great. Appreciate the color. That's all from me. I'll turn it back.
Thank you. Thank
Our next question comes from the line of Frederick Baston with Raymond James. Your line is open.
Good morning, everyone. My first question is for John. When you stepped into the newly created role of COO, you indicated that you would spend a lot of time strengthening Color's occupier services. Do some work on the corporate solutions and capital markets businesses. Have you been able to get the ball rolling on these initiatives or were they put on hold in favor of other pressing matters?
Excellent question. Yes. I mean, more of the latter. My full time attention was going to be devoted to growth initiatives around global occupier services and a few other, important growth initiatives for us. But as a result of what's transpired here with the pandemic.
Some of
my priorities have changed a bit, but by no means have I abandoned, working closely with, Scott Nelson and the rest of the global occupier services team. I mean, we have the same opportunity that we had previously. It's just been delayed a little bit. And we had a pretty ambitious plan to gear up and hire, bring on additional talent within that business. So we've had to just pair that back a little bit.
We're still doing it. We have been very successful to date in hiring some very high former professionals. We're continuing to have those discussions. We're going to be selective, but we're not turning that off at all. We're continuing to look at better ways to use technology within that business.
I think we already have a market leading Colliers 360. Tool that many of our clients and others, use and are very, very interested. It's a differentiator within our industry. And the light at the end of the title, we're starting to see a little bit in that business. That's going to help dictate our pace of investment And we're now seeing a number of global mandates that were scheduled to be brought to market in terms of perspective opportunities for our business now servicing.
So we're hopeful that we'll be successful in some of those, going into the third quarter here. And that I think will be also be an indicator as to whether or not we're able to accelerate our hiring processes around that business. So really excited about it, but certainly, what's the operating conditions we're under right now cause it to re gear a little bit. And, but notwithstanding that, our long term perspective is this is an important area for callers to grow. We have the capabilities to do it.
There's a few gaps that we need to close and we're going to do that.
Awesome. That's great color. Next question is for Jay. Can you share with us perhaps the single largest lesson that you're basically taking away from this pandemic?
Well, that's a good question. The single largest, less is that culture, counts. And, the, the fact that we you know, I believe we are extremely well managed. There's a lot of people in this organization that have have been with us for many, many years. They understand the Colliers way of operating.
They're very enterprising and entrepreneurial And that mattered big time when we had to restructure our operations, take costs out of the business, have detailed with people all around the world, why all of these necessary steps needed to be taken in order to take our business cohesion of a management team really makes a difference, and I think is going to pay huge dividends for us going forward. I mean, it's not easy to replicate a great culture. And, I mean, at the end of the day, and the people serve is business, it's all about the culture. That's
great. Thanks. Thanks, Jade. My last question, Christian, I saw I missed the dollar amount of savings you're able to achieve out of your 150,000,000 dollar targets.
Yes, we've achieved $60,000,000 in Q2, and the full year target remains $150,000,000.
60 or 50?
60.
Thank you. I'm showing no further questions. I would now like to turn the call back over to Jay Hennick for closing remarks.
Thank you very much, operator, and thanks everyone for joining us today. And, we look forward to the, to the next quarter conference call to see how our transactional services do. But as Christian says, we're cautiously optimistic. They'll have some gradual improvement. The rest of our business, we're very comfortable with where they're going to be.
Thank you for joining us and, we'll speak soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.