Welcome to the Colliers 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 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 U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is Tuesday, July 30, 2019. And at this time, for opening remarks and introductions, I would like to turn the call over to the Global Chief Executive Officer and Chairman, Mr. Jay Hennick. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thanks for joining us for our second quarter conference call. As the operator mentioned, I'm Jay Hennick, Chairman and Chief Executive Officer, and with me today is John Friedrichsen, Chief Financial Officer. This morning's conference call is being webcast and is available on the Investor Relations section of our website, as well as a presentation slide deck also available to accompany today's call. This morning, Colliers reported solid internal growth with excellent overall performance in the quarter. In local currency, revenues were up 15%, adjusted EBITDA up 30%, and adjusted earnings per share increased 16% over the prior year. Year-to-date, revenues were up 17%, adjusted EBITDA up 27%, and adjusted earnings per share increased 16% over the comparable period. Based on these results and our current business pipelines, we remain optimistic that we're on track to meet our outlook for the current year. In addition to our 5% internal growth, we completed two more acquisitions, both former Colliers affiliates, one in Charlotte, North Carolina and the other in Sweden, bringing the total number of acquisitions so far this year to five. Augmenting internal growth with acquisitions has always been a key part of our strategy. Strengthening operations in existing markets, expanding our geographic reach, and adding new service lines with growth potential, all help create value for shareholders. This quarter also marks the first anniversary of the establishment of our Investment Management business, a new engine for growth for our company. Through our investment in Harrison Street Real Estate Capital, Colliers is now one of the leading global investors in education, healthcare, storage, and social infrastructure, with more than $30 billion in assets under management, up from $26 billion at the end of last year. Having a strong focus on alternate real estate assets gives us a tremendous advantage and Harrison Street has seen significant incremental growth, both in North America and Europe, as part of Colliers. Overall, Colliers is more diversified than ever in terms of our services and in terms of the geographies we cover. Diversification combined with more recurring and repeat revenue streams gives us a better balanced and more resilient business model, positioning us well to continue to capitalize on opportunities in the massive and global commercial real estate services industry. Now, before we open things up for questions, I'd like to turn things over to John for his financial highlights. John?

Thank you, Jay. As announced earlier today and highlighted by Jay in his opening remarks, Colliers International Group reported solid second quarter consolidated financial results with continuing momentum across our operations globally and noteworthy outperformance by our investment management platform, led by Harrison Street. My comments will address our Q2 segmented results, capital deployment, as well as our financial capacity and outlook for 2019. And we'll follow the flow of the slides posted on our website that accompany this call. Please note that my comments may reference non-GAAP measures, such as adjusted EBITDA and adjusted EPS, both of which are outlined in our press release issued today as well as the accompanying slide deck, and are composed primarily of non-cash charges that we view as largely unrelated to our operating results for the quarter. References to revenue growth, including internal growth, are calculated based on local currency. Our second quarter revenues of $746 million were up 15% over the prior year and comprised of $282 million in outsourcing and advisory, up 13%, lease brokerage revenues of $253 million, up 17%, both of these service lines exhibiting strong year-over-year growth across all regions. Revenues from sales brokerage totaled $164 million, down 9% from elevated levels posted in 2018. However, despite greater market uncertainty, sales brokerage pipelines indicate healthy activity ahead for the balance of 2019. Finally, our investment management business established in Q3 of 2018 generated $47 million of fee revenue in the quarter. The more recurring revenues generated by our outsourcing and advisory services segment represented 38% of our overall revenues in the quarter, comparable to Q2 of last year. However, when combined with the recurring revenues generated by investment management, the recurring total was 44%. Consolidated adjusted EBITDA was $87.3 million compared to $69.4 million, with our margin at…

Thank you. Are there any questions?

[Operator Instructions]. And your first question comes from the line of George Doumet of Scotiabank. Please go ahead. Your line is open.

I might just focus a little bit on the Americas, the flat there year over year on the EBITDA line. I know we've been investing in revenue production but organic growth has been slowing. So, can you maybe -- Jay, can you maybe remind us, typically, how these investment cycles work and when you kind of expect to see some pick up there in the organic growth?

Well, I mean, in the Americas, still the organic growth was circa 5%. So, I consider that to be pretty good. I think the U.S. was 4%. But when I think about the U.S. or the Americas business in total, it all comes -- we had huge pick up in lease brokerage. Sales brokerage was down quarter over quarter almost $10 million. And so I think when you think about margin, especially during this particular quarter -- and there's some reasons for that -- but when you think about margin, you generate higher margin on capital markets transactions generally. So, we had a very strong capital markets result last year and so this particular quarter is down significantly, so obviously has a modest impact on margins.

Okay. And maybe shifting gears to Harrison Street. Some pretty good performance in the quarter there. Maybe focusing on the European platform, how do you think of growth there and how do you balance kind of organic growth versus M&A? I'm just wondering if we have appetite there to do something on a larger scale.

Well, we always have appetite to do things on a larger scale. The European operation of Harrison Street is rather new, although has grown significantly over the last 18 months. Harrison Street, in addition to putting a lot of money to work in that region, is at the same time dialing up its recruiting efforts with professionals there. It is looking at some unique opportunities to potentially add a tuck-under acquisition or two. We'll see if something comes of that. But it's a whole new area of growth for Harrison Street. They're very excited about it. And their way of investing in alternative assets really bodes well for Western Europe in particular, although there is some opportunity in Eastern Europe as well. So, we're quite optimistic about it but it will take time for them to continue to fill out their platform there. It's a new growth initiative for them.

Great. Thanks for the color. And then just one last one, if I may, on the sales brokerage activity in APAC down substantially. Can you maybe give us a little bit of color maybe on what happened there? I know you've kind of -- John, in his prepared remarks, called out some macro. And just maybe the expectations for the rest of the year on that part of the business, please.

Yes, I mean, it was down. And some of it is timing related. Maybe a little bit unknown about the impact of whether capital in China is maybe retrenched slightly. But no particularly caution noted. Pipelines are very strong, really, across the region and we expect to return to better activity in Q3 and Q4 there. So, nothing of note. But this was certainly down relative to last year. Very, very strong last year. You'll also recall that we continue to grow Japan, which is a very, very good market for us and with solid activity there that we expect to see for the balance of the year.

I'd add there's a little bit of unrest in Hong Kong right now. That's a big capital markets presence for us. And also in Australia and New Zealand, a lot of our capital markets initiatives around residential development -- and I think I'm looking at you, John -- that was down significantly in the quarter as well.

Yes. That was something we had expected and largely offset by, as we called out already, leasing activity, which in some respects is more attractive revenue, honestly, than some of the capital markets revenue we generate. But notwithstanding that, as you can see in the results, capital markets is an important part of our business.

Our next question comes from the line of Stephen Sheldon of William Blair. Please go ahead. Your line is open.

First, just in the sales brokerage business and the year-over-year decline in each region, I mean, you talked about this a little bit but can you provide some more detail about the pipeline you're seeing there in the different regions and maybe how it's trended year over year? And it just seems like, based on your commentary, it seems like you might view the slowdown this quarter as more of a temporary slowdown versus the start of something more persistent with the visibility you have at this point. So, is that fair? Just any detail there.

Yes. I think last year -- you think about last year in a number of those markets, up until the end of second quarter, the world was a pretty healthy place in terms of investing, with healthy markets and outlooks and so forth. And, obviously, things changed quite dramatically in September, October, through the balance of the year last year. So, I think what we're seeing is the impact, I think, of a lot of uncertainty which existed at the end of the year, really into the beginning of this year. And now I think with the biggest change being a change around the direction of interest rates in the U.S., going from a tightening to an easing bias, is all very, very conducive to additional commercial real estate activity. I mean, at the end of the day, investment in real estate on a risk-adjusted basis still represents a very attractive asset class relative to other places that institutions can invest. And as a result, we would expect the changes in overall macro conditions to be supportive. And I think that's what we're seeing around our pipelines that exist in those markets across the world, I think, maybe save and except for the UK, which has got an additional level of uncertainty. Jay mentioned Hong Kong currently but when I think about our activity level and our larger business in the UK, that's going to probably be an overhang there for the balance of the year until there's more clarity around what's going to happen with Brexit.

And then, clearly, great traction on the investment management AUM. Where are you seeing success in terms of fundraising? And then with the continued efforts in the third quarter, would you expect to see another step up in absolute AUM potentially?

I think you've got to go back to the fundamentals of Harrison Street and why people are investing in alternative assets. Harrison Street, unlike most, remains very, very focused on alternate asset classes, which gives them a clear differentiator in the market and it's attracting a lot of investment dollars. The second quarter was particularly good. I think that it's likely the third quarter will be more modest. You might see a pick-up again in the fourth quarter. But I think we're expecting a more modest fundraising activity in the third quarter, although a pick-up in actual investments in the third quarter. So, we've raised the capital, now we've got to put it to work.

Your next question comes from the line of Stephen MacLeod of BMO Capital Markets. Please go ahead. Your line is open.

I just wanted to follow up on the investment management business. I think previously you had sort of talked to a run rate of about $150 million. With the higher AUM, does that move higher in lockstep for the year?

I think we're pretty much on target. If anything, we might be slightly below target from our initial thoughts coming into the year for a whole variety of reasons. Great result but I think we're pretty much on track for what we expect from Harrison Street.

And then I just wanted to turn to some of the recruiting investments that you've incurred over the last two quarters. Can you just talk a little bit about, I guess maybe by region, when you expect to generate returns, if those expectations have changed at all from previous, and if you see any material geographic differences where recruiting class may or may not generate the returns that you would have expected on recruiting costs?

The recruiting costs that we're seeing now, a lot of that does relate to kind of current recruiting but also going back into the back half of last year. And most notably in Europe, where we made some significant investments, mainly in the UK but with broader implications in Europe and opportunities there. So, we would expect, based on timing, for those investments to start generating returns and productivity. Having said that, I did comment before on the UK and Brexit and so forth. So, if there's uncertainty there, that may temper some of the productivity we would expect later in the year. It's only timing. And we're very confident in the recruiting done in Europe. And then, of course, in the U.S., which is a little bit less in terms of impact. We feel good about that and we definitely will see productivity gains and revenues generated from those recruits later this year.

Stephen, in Europe, we had a great opportunity to incorporate a very significant debt origination platform, which we didn't anticipate going into the year, and we made a decision to bring the entire team over and it has been still early days but it was a service line that we had not offered in the UK and it was one that gave us an opportunity to expand not only our capital markets presence but give our debt origination people the opportunity to call on our clients and offer the ability to raise capital for them in the form of mortgages and other things. So, when you do these kinds of things, you make a bet. And this quarter, that bet cost us about $2.7 million in costs to bring these people on, support their salaries, support their junior people, and revenue will follow over time. But when you have these special opportunities -- and part of it, I think, came because of the uncertainty in the UK. This firm, which was a stand-alone firm, just merged right in with us and adopted the Colliers brand and came on our systems and so on. And the reason I raise it is it's just another example of having a global brand and when you have exceptional people that have built up exceptional operations, they'll know they'll do better as part of a global platform like Colliers. So, that was a particularly big investment for us in Europe and it impacted us by something like $2.5 million, $2.7 million for the quarter. But I think it's money well spent and at a good time in the cycle.

Would that $2.7 million just represent -- would that be the only recruiting costs that you've incurred or the most significant recruiting costs that you've incurred?

It's probably 80% of the recruiting costs in Europe, which was the lion's share. I mean, that directly impacts EBITDA in the current year. That's what good business people do. They make strong business decisions about those things and if it's going to impact your EBITDA, you're doing it for hopefully the right reasons. We believe that these people are the right people and a great addition to our business and we think that they're going to do double as well with us than they were doing on their own.

And then just finally, just with respect to the outlook, John, you mentioned kind of the interest rate expectation moving from a tightening to an easing bias. Incrementally, do you feel as though there were a little bit of puts and takes and you still feel as confident as you have in the past or do you feel as though that interest rate change has led to a potentially maybe even incrementally more positive outlook in terms of the backdrop for the rest of the year?

I'd say, net-net, it would a positive, for sure. I think in the context in which it's being made, I think it's really a realignment that the U.S. is making with the rest of the world instead of kind of going out on its own like it had been. And I think that that reversal in course is very conducive to additional activity. So, that would be positive relative to what underpinned our expected outlook at the beginning of the year.

Your next question comes from the line of Frederic Bastien of Raymond James. Please go ahead. Your line is open.

Can you discuss the management changes that you've had and how you've been adapting to Dylan Taylor's departure?

We've been adapting just fine. Thanks very much for asking, Fred. The whole situation is very disappointing to all of us here, I think, on the management team. But when things like this happen, you have to have a zero tolerance and we executed on that and we have succession and deep bench. We'd always like to have better deep bench, as always, but it's been business as usual and we haven't missed a blip in our operations.

Okay. Thanks for that. My second question. You commented on a healthy pipeline of CRE activity heading into the second half. How about M&A? Are you feeling good about the potential to complete a few tuck-in acquisitions by year end?

As you know, we have a strategy of growing true internal growth through acquisition equal to 10% of the prior year's EBITDA. And that's on average over five years. Last year, we blew it away by multiples, with Harrison Street among many, many other acquisitions. So, some around here have been saying that we should digest a little bit and I think that that's sort of a theme that we're having. But I see no reason why we won't have completed acquisitions that will still be in the plus-10% growth on acquisitions over the prior year's EBITDA this year as well.

Your next question comes from the line of Matt Logan of RBC Capital Markets. Please go ahead. Your line is open.

Just wondering if you guys could talk about the impact of mix shift on margins given the significant growth in both Harrison Street and the outsourcing and advisory division? Just looking out maybe in either 2019 or 2020, how we should think about this maybe on a normalized basis, assuming sales volumes are flat to down slightly.

Look, I think the mix shift we saw this quarter is maybe a slight aberration where we saw sales down more than we probably originally expected. But, again, I think I go back to the situation at the end of last year and a lot of that having an impact now on Q1 and Q2 with respect to sales. I think that's more of a normalization in the quarters ahead and into next year. Having said that, we continue to be very focused on building our recurring revenue streams, whether it's through investment management or outsourcing and advisory. And I'd say leasing as well. We're out to make investments to build those components of our business. And notwithstanding the fact that, with the exception of investment management, that may lead to a slightly more moderate easing of our overall margin. I think the recurring revenue, the characteristics of that, is largely worth that kind of a trade-off.

I certainly agree. And I guess part of it would be simply a function of timing on a quarterly basis as opposed to an annual basis if we compared this to 2018?

That's right.

And maybe just shifting gears to the Harrison Street business. Jay talked about the unique opportunities for a tuck-under acquisition. Just wondering if you could provide some context to what might be unique and maybe some more color on how it's trending slightly below target and your outlook for the business longer term.

Well, I'd rephrase your comment a little bit. Acquisitions in that business are a little different than acquisitions in our core business. We look for specific types of acquisitions if we were going to do one. Harrison Street was a big acquisition for us so, as is our practice, we always like to digest it. We're now through the full year. We have a wonderful relationship with our partners at Harrison Street. We have investigated two or three very interesting -- I would call them tuck-under acquisitions -- to Harrison Street, which are always out there and potential. So, we're moving those along but they would be largely along the lines of the alternate asset classes that they focus on. One or two of them would have added a different asset class, also an alternate asset class. So, we believe rather than being all things to all people in this business, we'd like to focus in areas where we can add synergistic value to our funds. So, being a dominant player in student or healthcare or seniors gives us the ability to leverage the platform to generate incremental returns for our clients. And that has been, I think, one of the keys for Harrison Street's success over the past many, many years. So, if we were to look at another acquisition in investment management, we would look for a profile similar to Harrison Street, where we could partner with the operating management team, where we could help them grow their business globally by leveraging everything Colliers brings to the table, including distribution, and operate them in a more entrepreneurial way than perhaps an insurance company might or somebody like that.

Your next question comes from the line of Mitch Germain of JMP Securities. Please go ahead. Your line is open.

I know you've mentioned deal pipelines are growing in capital markets. Is that broad based? I mean, I think you had specifically referenced that in the U.S. and Asia. Are you seeing that kind of throughout the globe?

I would say probably with the exception of certain parts of Europe. Not particularly strong at this point. I mean, they're fine but I think the UK will probably continue to be a bit of a challenge there until things are sorted with respect to the whole Brexit thing. We're kind of watching things in Asia with respect to this Hong Kong thing. We don't know where that's going to go. But, again, some of that can have a near-term or a more medium-term impact on activity level. But I'd say in most of the other markets, we're seeing good activity.

And you're saying it's interesting because you're seeing Asian investors coming into the UK right now because of the more depressed asset values and they're not significantly depressed. And that's to John's comments. It's so difficult to figure out how this is going to shake out, Brexit, so there's modest reductions in values. And we were just part of a very significant transaction this week in London and it was Asian investors and they haven't been there for quite some time. So, that's the kind of thing that happens in these aberrations geopolitically. So, we're going to watch that closely.

Great. And obviously we've had some disruption among some of your peers in U.S. capital markets with a merger. Is that potentially representing a chance for you to upgrade some of your talent and capability in U.S. capital markets?

Lots of recruiting potential on that merger, whether it's from the JLL side of the HFF side. And that's always what happens when you're merging two brands within an existing market. Capital markets can only be led by one contingent. And so we have a lot of potential recruits in the hopper which we hope to augment our team. And for us, it really will enhance our capital markets presence. And you look for these once-in-a-lifetime opportunities to really capitalize. So, yes, it's a great point, Mitch.

And there are no further questions at this time. I will turn the call back over to Mr. Jay Hennick for final remarks.

Thank you very much, operator, and thank you, everybody, for participating and we look forward to reporting solid or better than solid results in the third quarter. Thanks for joining us.

Ladies and gentlemen, this concludes the quarterly investors conference call. Thank you for your participation and have a nice day.