Welcome to the Colliers International First Quarter Investor Conference Call. Today's call is being recorded. Legal counsel requires us to advise that the discussions 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 40F as filed with the U.
S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is May 4, 2021. And at this time, for opening remarks and introductions, I would like to turn the call over to Global Chairman and Chief Executive Mr.
Jay Hennick, please go ahead, sir.
Thank you, operator. Good morning and thanks Thank you for joining us for this Q1 conference call. As the operator mentioned, I'm Jay Hennick, Chairman and Chief Executive Officer and with me today is As you know, we recently announced that John Frederiksen, one of my closest allies, Has decided to retire after 23 years of service. For most of those years, John has been right here by my side during these Today will be different. I want to take this opportunity to thank John once again for his tireless efforts, His dedication and his support in helping us build the company and its predecessor company FirstService And to the operations they are today, true market leaders in their respective industries.
John played a Now let's get on to business. As always, this conference call is being webcast live and is available in the Investor Relations Let Let me begin today by saying how pleased we are with the Q1 results and the encouraging signs of momentum for the balance of the year. Strength in recurring services, stabilizing transaction revenue and our highly diversified business model continue Although pandemic uncertainty remains, we are increasing our outlook for the balance First, as you know, we recently published our Global Impact Report, highlighting our commitment to embedding From our website. As leaders in our industry, building a better future for our stakeholders has never been more important. In the coming months, we will complete a materiality assessment to better understand our greatest opportunities.
Then we will publish a responsible ESG 2nd, Harrison Street was the proud recipient of 4 Pierry Awards this year, including Alternatives Investor of the Year Global and North America, while capping off its largest Favorable demographic trends and low volatility. Assets under management in our Investment Management segment now $41,000,000,000 up a full 19% over the prior year. 3rd, Our newest service line, Colliers Design and Engineering, completed its first acquisition, a specialty Transportation and design firm that adds scale and growth opportunities in the U. S. Southeast.
Over the past 12 months, 51% of our revenues and 60% of our EBITDA came from recurring services, demonstrating the progress we have made in becoming a more resilient company. Our unique partnership The philosophy resonates with leadership teams who want to retain significant equity in the businesses they operate, while taking advantage of the many benefits a partnership with Colliers can deliver. Finally, during the quarter, Colliers survey of industry professionals. And for the 15th consecutive year, we earned our place as one of the top global outsourcing Providers from the International Association of Outsourcing Professionals. Both of these accolades demonstrate With our proven track record of more than 26 years, a balanced and diversified business model At an enterprising culture with significant inside ownership, Colliers is in a better position today than in any other time in its history And now let me turn things over to Christian.
Christian?
Thank you, Jay. As announced earlier today, Colliers reported strong financial results for the Q1. My comments Please note that the non GAAP measures Reference on this call are as defined in the press release issued today. All references to revenue growth are expressed in local currency. For our Q1 of 2021, revenues were $777,000,000 up 69 percent from $55,000,000 1 year ago with margins at 11.9% versus 8.6 percent in the prior year quarter.
Our margin benefited from the stabilization of transactional revenues and a continuation prudent operating cost management considering the ongoing pandemic. Margins were also favorably impacted by acquisitions. In the Americas region, 1st quarter revenues were $476,000,000 up 27% over the prior period. Outsourcing and advisory revenues were up 34%, driven by recent acquisitions. Capital Markets revenues Leasing revenues were up 4% in part due to recent acquisition and in part due to stronger industrial leasing activity across the region.
Adjusted And ongoing measures to manage costs. Our EMEA operations generated 1st quarter revenues of $126,000,000 down 3% from 1 year ago with activity returning to near prior year levels In each service line, adjusted EBITDA for the region was $4,500,000 relative to a loss of $3,600,000 last year, with the improvement attributable to cost savings from measures implemented due to the pandemic. Asia Pacific 4th quarter Asia Pacific revenues were $128,000,000 up 19% relative to the prior year period. Capital Markets revenues were up 70% with notable large sale transactions occurring throughout the region, Well, leasing, including office leasing, was up 20%. Transactions were driven by a rebound in activity relative to the $15,000,000 compared to $5,000,000 last year.
Investment Management revenues were $45,000,000 reflecting growth of 2%, excluding the impact of pass through carried interest. The prior year quarter included transaction fees in Europe, which positively impacted prior year results. Assets under management were $42,000,000,000 atquarterend, up 19% from 1 year ago and reflected the strongest quarter for fundraising in Harrison Street's history. Management fee revenues from the increased AUM will start being realized in the 2nd quarter. Adjusted EBITDA for the quarter was 18,000,000 similar to the $18,000,000 generated in the prior year period.
Turning to cash flow. Cash flow before working capital For the Q1 of 2021 was $74,000,000 almost double the prior year level, well exceeding the growth rate of adjusted EBITDA. After considering working capital, cash usage in the seasonally slow Q1 was $38,000,000 a significant improvement from the usage of $120,000,000 in the comparative period for 2 major reasons, higher earnings and incremental working capital flows from our recently acquired mortgage operations. Capital expenditures for the Q1 were $22,000,000 a significant increase from the prior year and reflect Investments in facilities in several markets, including certain markets where we deferred relocations and expansions given the events of 2020. For the full year 2021, including the amount deferred from last year, we expect CapEx to be in the range of $75,000,000 to $75,000,000 About 1 third of this CapEx will be landlord funded leasehold improvements.
Spending on acquisitions during the quarter was modest and included only 1 business acquisition and 2 contingent payments related to prior acquisitions that exceeded underwriting expectations. We target ongoing investments and acquisitions across our global service lines to complement internal growth. Acquisitions are by their nature opportunistic, and we continue to Net debt to pro form a adjusted EBITDA was 1.1 times as of March 31, 2021, a slight increase Relative to year end, at quarter end, we had $724,000,000 of unused credit on our $1,000,000,000 revolving credit We are updating and increasing our financial outlook for 2021. The updated outlook for both revenue and for adjusted EBITDA It's an increase of 15% to 30%, which reflects a 5% increase subject to risks and uncertainties as outlined in our accompanying slides. That concludes my prepared remarks, And I would now like to turn the call back to the operator for questions.
Operator?
Our first question comes from George Douma with Scotiabank.
Yes. Good morning, guys. Congrats on a really strong quarter.
Thanks, George.
We saw an exceptional 47% growth in the capital market side. I understand this might be a difficult question to answer, but how much of those volumes might have trickled in from the kind of the seasonally stronger last quarter? And are you seeing maybe a trend in deferrals materializing as you continue into Q2?
Yes. George, There is certainly an aspect of capital markets transactions that have been developing in our And certainly some from Q4 could have tripled into Q1. I think we feel very comfortable And confident in our certain aspects of capital markets. Industrial is an area where we are strong and we have Seeing strong activity in the 4th quarter and in the first quarter. And If trends continue, that may continue into future quarters.
George, it happens every year. There's always deals that didn't It closed by December 31 that leak into the following year. It's I don't think Christian, you Correct me if I'm wrong. There wasn't any unusual amount of that happening this year versus previous years. Agreed.
Okay. And it feels
like the larger part of
the revenue growth for this year is certainly the higher margin transactional business. But it seems like our guidance implies flat margins at the midpoint. So kind of just wondering what you guys are thinking?
Yes. Certainly, George. On a full year basis, the margin we expect to be around 13%. Last year, we had the benefit of very significant cost reductions in the business, about 100 and That weren't paid because of the performance. Some of those costs many of those costs are going to return in 2021, And that's part of our thinking as we look ahead and provide the SOAP.
Okay. And just one last one, if I may, maybe for Jay, kind of moving over to leasing. It seems like one of our competitors Said that they expect a 10% to 15% reduction in demand for office space because of the pandemic. I'm just wondering do you echo that? What are your thoughts there?
Well, I think we generally agree that The demand for office will be will fall off, let's call it, 10% to 15%, because I think that seems to be Sort of a common view, there's a lot of reasons for that. There was an abundance of office in the marketplace through operations like WeWork and many others. So there's a lot of activity or a lot But fortunately for Colliers, our office our leasing practice is spread amongst office and I would Say we're typically stronger in industrial and in other areas that have actually done very well over the Past 12 months, you'll see it for sure in the quarter. Offices is always the largest But we've enjoyed some very strong performance in industrial office And a variety of other non CBD or high end office in
Great. Thanks for your answers.
Our next question comes from Stephen MacLeod with BMO Capital.
Thank you. Good morning, guys.
Hey, Steve. Good morning.
Hi. Good morning. I just had a couple of questions about the outlook. You talked about the margin expectation for the full year and understanding that you have some costs coming back in 2021. Can you talk a little bit about sort of what you view the long term margin outlook to be?
I mean, you finished the year 2020 at a 13% margin, exceeding higher on a year over year basis. Can you talk a little bit about where that can get to over time?
Yes. I mean, over time, we would expect to have modest increases And our margins, we think that brokerage obviously, there's operating leverage opportunities There in future years, given the rebound we expect to occur in areas like office leasing that was just talked about. So certainly operating leverage in our leasing business and in Capital Markets business, our Investment Management operations have the opportunity for margin enhancement. We're investing heavily In people and in growth at the moment, and we'll continue to do that, but there is operating leverage
Great. Okay. Thank you. And I just wanted to talk a little bit about the outsourcing advisory, investment management, recurring revenue base versus the transaction revenues. And as you went through the pandemic, the recurring business was quite stable Certainly, you did a very good job of offsetting some of the weakness in transaction.
Do you expect as now you get into 2021, Will the outsourcing and advisory and investment management businesses sort of return to or begin to take on a growth bias Into 2021 2022?
Yes. I mean, the first thing is first that the as we So I think the tailwinds there are very interesting for us. But outsourcing and advisory and investment Has made a real difference in transforming our business to one that I think is frankly different than some of our peers. And I think that, that transformation is going to continue so that we have a different balance. We already have a different balance.
60% of our EBITDA seems to consistently now come from these areas. Over time, we're hoping that, that will continue to grow as we add activity in those other So yes, I think we're going to see growth there, both internally, as you could see this quarter, But also through acquisition opportunities. And there's a lot of leverage that we haven't even included in Our future thinking around the ability to sell and cross sell many of these services to the Same client base. So for example, Harrison Street can use Colliers Engineering and Design and all of the infrastructure work that they do for clients for Harrison Street Investments, because Colliers Engineering and Design has an expertise in hospitals and education and some of the other areas That work with Harrison Street clients. All of my comments really didn't take into consideration any assumptions relating to the leverage we can get between those areas.
And the same applies in Colliers Colliers Mortgage, as you know, is focused on multifamily, seniors, Student financing, that's the work we specialize in with agency lenders. Needless to say, Harrison Street is a leader And again, it creates another great opportunity for us to enhance the overall Colliers
Yes, that's very interesting. Is that something that you would expect Maybe like is that more of a medium term opportunity from where you sit today, those cross selling opportunities?
I think so, Stephen. I didn't even mention project management, which is another. As we have curated Our business we've done this for many years, curated a business of market leading professional Service companies that have leverage between them and project management is just another example. When a construction site, To manage the construction project, which may take 3 years or 5 years and it's a great opportunity for our project management people, we're Our people are actively working together. We have gone through the laborious task So we're excited about it and think over the next 12 months to 18 months, we're going to see more Those synergistic opportunities start to translate into greater revenue streams and higher margins.
That's great color. Thanks, Jay. And then maybe just one final one with respect It might be too soon to think about, but with respect to the dividend, is it possible to expect a return to growth on the dividend as you sort of exit
As you know that we would pay would be a modest dividend, but we've had the same dividend for the past 5 years. And should we consider increasing that dividend? It's something that I think our Board has already begun discussing and something We'll look at later in the year as we progress, but it is very much on our radar.
Okay. That's great. Thank you, Jay. Thank you, Christian.
Our next question comes from Frederic Bastian with Raymond James.
Good morning, guys. First question probably for Christian. I was wondering if you could Provide the organic growth that was achieved in the Americas for the quarter. You used to break down What was acquired and what was organic? So I was wondering if you could provide that amount of color.
In the Americas? Yes. Around 3%.
Okay. That's good. With respect to Colliers Mortgage, I think one of the opportunities you were targeting was increased share of Fannie Mae business down the road. Can you maybe discuss how that initiative is going?
Yes. I mean, Colliers Mortgage had a very strong 1st quarter, total volumes were up 40%, and that includes Fannie Mae volumes. Colliers, Mortgage and Historically, we've been a very small player in the Fannie Mae space. There's 26 Fannie Mae delegated underwriter servicer partners in the U. S.
And Clarksburg is one of the smaller ones. So a tremendous upside for us in terms of being able to leverage the scale of the Colliers platform, the multifamily sales professionals We have in Colliers to cross sell debt services, and we're working on that. We've been successful in a few cases already. So I think in terms of your original question, increasing our market share, certainly something we're focused on and I think we're moving the needle already, although it is early days. On that, I'd also add that we've been successful in having some cross sell with Harrison Street, and Harrison Street Sourced some debt financing through Colliers Mortgage.
So again, early days on that, but we are Pursuing that and excited about the possibilities for future growth through that channel as well.
Okay. And just for context, you mentioned 40 Thank you. Do you have stats for the industry as a whole? Or is this too broad of a sector to track?
I don't have stats at this time. Okay.
Last one for me. I mean, You bought a small engineering design business in the South. Based on my math and my knowledge of the sector, it feels like it's a $5,000,000 business annually. I mean, what sort of potential do you see for For Colliers E and D, on a go forward basis, are we going to see more of those little tuck ins? Or should we think about something larger down the road?
I think that there's going to be it's a mixed bag. There are some very large ones. There's some they're all over the map. We're interested in smaller ones that can really augment our operations or give us additional scale in a market. But Fred, I know you cover the industry.
Any good ideas that you have, You know my phone number. So we'd be active and we would look at it very closely.
All right. Noted. Thank you. And best of luck to John, hopefully, I mean, he's not on the call, but please pass on my best wishes.
Our next question comes from Stephen Sheldon with William Blair.
Hi, thanks. First wanted to pass along my appreciation to John for all his time over the years and well wishes on his retirement. I guess going back over the last 4 years for adjusted EBITDA and kind of the normal seasonality you see the Q1 I think is typically represented on average 13%
of the
full year number, you go back to last year, I think it was 15% of Q1 representing the full year 2020 adjusted EBITDA, even when activity fell drastically over the rest of the year. If I look even at the high end of your guidance, the 30% adjusted EBITDA growth, your first quarter adjusted EBITDA that you just reported would represent 20% of the full year estimate. So I guess, are there one time items that may have boosted profit in the quarter or return of some costs That will have a bigger impact over the remainder of the year? And just generally, I guess, how conservative have you been in the profit guidance?
Stephen, It's a great question. There isn't one item that there's no nonrecurring or unusual The only thing I would tell you is that we have 2 significant acquisitions, Klairs Engineering and Klairs Mortgage, That were not owned in Q1 of last year, so that is a significant effect. And those were acquired in June of last year and July of last year. So you guys Keep that in mind when you look at the seasonality of the business because those businesses are more recurring in nature. The engineering business has long term contracts.
The mortgage business Strong as well. So those are impacting the results.
Got it. So as those continue to scale, it might influence the normal seasonality that you've seen at least historically? Is that kind of
Yes, I think so. As we add businesses like that, the seasonality of this business overall, I think,
Makes sense. As you think about AUM and Investment Management hitting the 2nd quarter, you might have said something about this, I missed exactly what you said, but would a lot of the benefit from the record Fundraising in the Q1 spillover into the Q2. And I guess just ask another way, should we be expecting another strong sequential uptick An AUM in the second quarter?
Yes. I think The fundraising activity comes first, then the fee revenue comes second as that capital It's deployed into active and working investments. So we definitely expect a strong second quarter in terms of our And also our EBITDA in that segment based on our success Raising capital and an increase in AUM over
the past 12 months. But what I would add to that is that the momentum fundraising momentum has continued at Harrison Street post the end of the quarter.
Good to hear. Congrats on the results.
Thanks.
Our next question comes from Rick Skidmore with Goldman Sachs.
Thank you. Good morning. Just a follow-up on the leasing question around office. We've been hearing from office landlords that activity has ticked up Significantly, over the last couple of months, specifically in urban markets like New York City, are you hearing seeing the same thing? And is that showing up in your leasing pipeline as you go forward?
Thanks.
Well, I'm not sure we're seeing that. That's interesting data though, and I'd love to
hear it.
But There is a lot of uncertainty still. Now it's market for market. It's industry for industry. There's people in the market that are looking at opportunities to secure low renewals at current rates. There's other people are just sitting on their hands.
So it'll be interesting to see what happens to leasing for us in the second quarter. But as you can see in the Q1, it's still relatively flat or it's up, it's up, but it's not where it Should be and better, but not where it should be. So I think with leasing, I'm not sure I'm ready to make the prediction that you're hearing from some of the office landlords.
Got it. Thanks. That's helpful. One other question circling back on the Engineering and Design business. I believe that you talked about in a prior call That business could scale from $100,000,000 to something much more meaningful than that.
And under the Biden plan, Stimulus dollars, infrastructure spending, how are you seeing that business sort of the pipeline build in that business as you look forward? Thanks.
So that business today is circa $300,000,000 in revenue on a run rate basis. The pipeline is very strong and everybody's talking about the increased allocation To infrastructure around the buying plan, and what they're also talking about, and this is impacting acquisitions Everywhere is the capital gains rate changes and that's encouraging many Actually very busy in our M and A area and expect to be so for the balance of the year. And that's coming from virtually all segments of our business. This is a perfect time for us and for engineering and Project Management, the Biden plan is a great benefit And the capital gains rate changes are encouraging those people and others to really take another look at crystallizing a transaction earlier than normal.
Great. Thank you for those comments. And then one last question for Christian. You mentioned the 145,000,000 Of costs that were reduced in 2020, how much of that do you think could be permanently removed? Or does that entire $145,000,000 come back?
Thanks.
Yes. I mean, our expectation is that we're not going to return all those costs to the business. That is something that I think I mentioned before was a goal of ours. If we can be successful in returning 80% of those costs and not returning 20%, more importantly, not returning those 20%. That would be Our objective.
Thank you.
Our next question comes from Daryl Young with TD Securities.
Good morning, guys. Just two quick questions for me. The first would be, I'm not sure if you can answer this, but You've done a lot of people moves in the last year and some high quality hires. Just wondering, are you changing at all the strategy for how the various regions operate? Is there more decentralized going forward with more Levels of Management or maybe you can just provide a
little bit of color there?
Yes. So decentralization has been a core of ours forever. So the decentralization aspect of your question isn't going to change. We One of the silver linings of the pandemic has been the opportunity to top 30 year player with Collier is a guy by the name of John Kenny, and we're seeing tremendous And top grades of people in Asia Pacific. The same holds true in EMEA.
Market for market, we've used the opportunity to reevaluate our people and elevate And so I would say that top grading leadership is a current and ongoing Role and responsibility that we have, but COVID created An accelerated opportunity to top great people were really reevaluating their life. They were reevaluating their current employer. They wanted to come to an organization that was entrepreneurial and enterprising and less bureaucratic and probably most importantly, as you started with, Decentralized, so great leaders could make decisions on the front line every day, and that's been The core of the Colliers way in building our business. So we think that we're coming out of this pandemic Stronger than ever in terms of our leadership teams and excited about the next round of growth and getting back to
Excellent. And in the past, I think, on the broker side specifically, You've mentioned there can be a bit of a lag from the time that you bring over a top talent to when it Turns into transactions, would we expect sort of a similar in this environment? Or would that have changed or would it be maybe more rapid?
Typically, it's mostly a North America phenomena, a little bit in But typically, when you bring over a producer, it does there is a lag of Having them generate revenue streams, they would have come from an environment where there was a lag already Given the pandemic, we've taken that as an opportunity to restructure our recruiting deals to smooth it out over a longer period of time. But yes, I mean whenever you're bringing in proven performers, There is a drag, which is an expense to our current results, but an expense that we think warrants the high return we get on bringing in some of these great people.
Our next question comes from Matt Logan with RBC.
Christian, the midpoint of your 2021 guidance calls for revenue growth of about 23%. Can you talk a little bit about the split between the organic and the acquisition components?
Yes, Yes. I mean, I think in rough terms, 1 third to 1 quarter will be acquired and the balance Will be organic growth, when you look at it, that's the midpoint.
And if we bifurcate that a little bit Further, how should we think about the organic growth between recurring services and the brokerage businesses?
Yes. I mean, the brokerage Services, obviously, are going to have higher rates of growth as they recover from last year. And the recurring services I would expect low to mid single digits from those on a full year basis.
And when we kind of look at your When we look at your leading indicators such as confidentiality agreements, letters of intent, would you say those leading indicators are up relative to Q4 or holding more or less steady?
Are you talking about acquisition pipeline?
For brokerage?
Brokerage? I don't think we Track NDAs in our brokerage operations centrally, obviously, they're in place But I don't think we track we've ever tracked that.
No, not like that. I mean, certainly, Our pipelines, we have some visibility to in the short term, and that is factored So looking at the transactional pipeline, the less certainty there is and there's still a great degree of uncertainty out there in various parts of the world. So that's what leads to this relatively broad range of revenue expectation that we have in the outlook that we published this morning.
Understood. But suffice it to say, the pipeline that you have remains more or less unchanged since Q4?
It was at the end of Q4, which is natural given that we hope, especially In markets like the U. S. And some of the others that we are coming back to more of a business
Appreciate that. And maybe just changing gears, you talked about the growth in the run rate revenues For your engineering and design business, how would that compare for your mortgage business relative to when you acquired us?
The mortgage business has had significant growth since we acquired it. We have Benefited from, as I mentioned, cross selling to our Colliers multifamily Sales professionals to Harrison Street and in the funds where they need debt financing on So those things have helped. The economic environment has helped as well. In the last quarter of 2020, Colliers Mortgage had record activity levels because of the refinancing activity that was occurring because of low interest rates. So the run rate Revenue activity in mortgage has increased materially since we bought that business on June 1 of 2020.
Okay. Well, I appreciate the commentary. I'll turn it back. Thank you.
Thanks.
And I'm not showing any further questions at this time. I'd like to turn the call back over to Jay Hennick for any closing remarks.
Thank you, operator, and thanks, everyone, for participating in today's call. And we look forward to having
Ladies and gentlemen, this concludes the conference call. Thank you for your participation and have a nice day.