Welcome to Cushman & Wakefield's Fourth Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Len Texter, Head of Investor Relations and Global Controller for Cushman & Wakefield. Mr. Texter, you may begin your conference.

Thank you, and welcome to Cushman & Wakefield's Fourth Quarter and Full Year 2019 Earnings Conference Call. Earlier today, we issued a press release announcing our financial results for the period. This release can be found on our Investor Relations website, along with today's presentation pages that you can use to follow along. The materials can be found on ir.cushmanwakefield.com. Please turn to the page labeled Forward-Looking Statements. Today's presentation contains forward-looking statements based on our current forecast and estimates for future events. These statements should be considered estimates only, and actual results may differ materially. During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines. Reconciliations of GAAP to non-GAAP financial measures and definitions of non-GAAP financial measures are found within the tables of our earnings release and appendix of today's presentation. Also, please note that throughout the presentation, comparison and growth rates are due to comparable periods of 2018 and are in local currency. For those of you following along with our presentation, we will begin on Page 5. And with that, I'd like to turn the call over to our Executive Chairman and CEO, Brett White.

Thank you, Len, and thank you all for joining us today. Today, we reported strong fee revenue growth in all 3 of our geographic segments for the full year and the fourth quarter. For the full year 2019, we reported fee revenue of $6.4 billion, an increase of 9% for both the full year and fourth quarter, led by our PM/FM and capital market service lines. Full year adjusted EBITDA of $724 million was up $65 million or 11% from 2018 and was towards the upper end of our guidance range. Fourth quarter adjusted EBITDA of $293 million was up $58 million or 25% from the same period in 2018. We also made progress on our stated goal to expand margin. Full year adjusted EBITDA margin of 11.3% was up 25 basis points for the year. In addition to our strong performance in 2019, we also passed a 5-year milestone of the original strategic plan that led to the consolidation of organizations that would become the modern Cushman & Wakefield. With that milestone firmly behind us, we spent time in 2019 refreshing our strategy to align our business to what the most important clients in our industry need from service providers today and, more importantly, how they will prefer to buy services going forward. Our strategy focuses on these 4 priorities: delivering services through a seamless, exceptional client experience; a continued, disciplined focus on operational excellence; developing and maintaining a high-performance culture; and leveraging data and analytics to create value for our clients and our business. We will provide more details around these priorities during our Investor Day on March 10 in New York. We'll also talk more about our plans to align our business model to these priorities, focusing how we serve clients through a more efficient and nimble…

Thanks, Brett, and good afternoon, everyone. To start, let's turn on Page 8, which summarizes our key financial data for the full year and fourth quarter. As Brett said, we continue to deliver strong operating results. We reported 2019 full year fee revenue of $6.4 billion, an increase of 9% for both the full year and fourth quarter. We generated solid growth across each of our 3 segments, led by our PM/FM and capital markets service lines. Full year adjusted EBITDA of $724 million was up $65 million or 11% from 2018 and more towards the top of our guidance range. Fourth quarter adjusted EBITDA of $293 million was up $58 million or 25% from the same period in 2018, driven by results in Americas and APAC. Full year adjusted EBITDA margin of 11.3% was up 25 basis points for the year and 195 basis points in the fourth quarter. The fourth quarter improvement was driven by revenue growth, especially in the Americas. Within the Americas, the broker investments we made in the second half of 2018 were, as expected, profitable in the fourth quarter and more than offset the modest shift in mix to our PM/FM service line. Full year adjusted earnings per share was $1.64, and fourth quarter adjusted earnings per share was $0.78. Moving on to Pages 9 and 10, where we show fee revenue growth rates by segment and by service line. All 3 segments grew in the fourth quarter with Americas up 11%, EMEA up 7% and APAC up 6%, bringing that full year growth rate to 9% for the Americas and EMEA, and 12% for APAC. In 2019, growth was particularly strong in our PM/FM service line, which was up 14%, including double-digit growth in all 3 of our segments. This growth, including the…

Thank you, Duncan. And on that sad note, let me provide some good news. We've been able to convince Duncan to stick around for a few more earnings calls, so I'm going to defer a bit lengthier comments around Duncan's tenure to a later call. But I would like to say that the very first person that we hired when we bought DTZ now 5 years ago was Duncan and by far the most important hire we made as an executive team was hiring Duncan. He's been a terrific partner to me. He's added massive value to Cushman & Wakefield and to you, our investors. But again, we'll talk a bit more about that, Duncan, on a later call. And with that, I'll hand the call back to the operator for Q&A.

[Operator Instructions] The first question comes from Anthony Paolone of JPMorgan.

My first question relates to the EBITDA guidance and drivers behind it. It's a pretty strong number. And wondering if you can talk about how much of that is coming from acquisitions, organically, and also how much might come from some of these initiatives that you alluded to?

All right. Duncan?

Thanks, Tony. Well, yes. Yes, thank you for the question. I think if you break it down, I think it's reasonable to assume that we would continue to see sort of similar trends in revenue growth that we saw in 2019, sort of similar sort of level, the economy is similarly supportive. Maybe 2019 had a bit of help from the fact that we did an unusually large amount of infill with QSI being right at the beginning of the year. But otherwise, on an underlying basis, I think 220 probably looks -- 2020 looks sort of similar. So the organic growth is producing good contribution to that. And then as we talked about, we've got us the operating efficiency improvement coming from the strategic alignment which we expect to be quite significant, which would drive most of the rest, along with a couple of other operating efficiency projects. So we're very focused on operating efficiency and on margin, and I think you're seeing -- you saw a lot of that in 2018. You saw us grow margin in 2019. We continue to be very focused on it. Probably 2020 is a bigger year for it than 2019 was. And so that will be a big contributor to our ability to grow margin and EBITDA in 2020.

Okay. And then if I take your EBITDA guidance, it would be up nicely. You have some free cash flow if I just think through adjusted EPS and work down. And yet, your leverage looks like it's going to stay about the same. So it suggests that you'll still be using a bunch of cash. How much of that is likely to be used for acquisitions versus some of these strategic initiatives? Like, is there a bunch of costs that comes with that, that you have to put up upfront?

So a couple of things in that. So I think from a leverage point of view, I think we're in the mid-2s, and I think we're saying we're going to be in the mid-2s. We're not guiding so specifically on where net leverage is going to be. So I wouldn't be saying, we're saying it's going to be exactly flat or anything like that, but in the mid-2s. So I think that's sort of on that. In terms of how we spend capital, I think our capital allocation philosophy has not changed. It continues to be the -- we take the free cash flow that we generate, which is used to -- as you correctly infer, will be healthy, particularly given the growth that we see in EBITDA, and that will be used both to make investments and operating efficiency. We did put out, I think, an 8-K that we expect the GAAP restructuring charge to be $40 million to $60 million, almost mainly spent this year, which will obviously be enabling some of those operating efficiencies we just talked about. So that will be a use. And that, for us, typically, is a very good use of investment, pays back pretty well. And then we would continue to see opportunities for us to invest in the business, and we've said over time that we expect to do infill and recruitment that probably is normally 1/2 to 2/3, 3/4 of our free cash flow. And that would typically drive in a typical year about 1/3 of our fee revenue growth. And I don't think 2020 would be a particularly different year in our theory on that. Although, obviously, it depends on the actual nature of the pipeline there. But that's kind of how we think about it.

[Operator Instructions] The next question comes from Stephen Sheldon of William Blair.

This is actually Josh Lamers on for Stephen. And thanks for your time over the years, Duncan. It's an exciting announcement. I wanted to actually ask first about the Pinnacle acquisition. It seems to have flown under the radar a little bit. But to me, it stands out as sort of an acquisition and a move into a territory that's sort of a nontraditional space in which you would provide kind of PM/FM services. So if you could talk a bit about the strategy there, why the move into that asset type? And I guess, what's the outlook?

Sure. This is Brett. I'll take that question. So as you know, and I think all the callers know, we've been in the business of managing properties since the first days of the firm. It's a business we know exceptionally well. And the multifamily space is an area that we've had our eyes on for quite some time. We didn't do this earlier, frankly, because we've been quite busy on other initiatives and other projects with the integration and other areas that we were pressing for growth. But with Pinnacle, we finally found an asset that we felt was a best-in-class manager in this vertical, one that could be scaled with an excellent management team, a terrific client base, and we felt it was the right entry into what is a vast marketplace that is really relatively untapped by folks in our particular services vertical. So we're very excited about the opportunity. We're very excited about that particular space for us, and it's an adjacency that I think is probably fairly obvious and one that we're probably a bit late getting to, but glad we got there.

Okay. And then really strong investment sales growth globally in the quarter. And I know you called out some larger deals globally, and it also seems that you're seeing some earlier benefits from the producer hiring in late 2018. But I guess, could you talk about what your outlook is in sales for 2020? And I guess, if the underlying guidance assumes continued strong growth in sales, how do we think about that in the context of the margin -- or I should say the adjusted EBITDA guide? Should we expect stronger growth there to sort of weigh on margins? Or just how do we think about that?

Well, yes, sure. So the capital markets business is a very high-margin business. So if it were to grow more quickly, that would be a very accretive margin. But in fact, I think the outlook for 2020, which we've set, is fairly modest. As Duncan said, 2020 feels to us at the moment a lot like 2019, and our overall growth, for instance, the Americas capital markets was mid, upper single digits. I think it feels about right for the year. Now there are some enablers out there that are interesting to us certainly, and let's put coronavirus to the side for the moment. That seems to be an issue at the moment, but certainly isn't an issue forever. But we do have more certainty in Europe and the U.K. around Brexit, which is a good thing. We have exceptionally low interest rates at the moment, which are an enabler for these types of transactions. So at the moment, as we look at 2020, I think we feel pretty good about the capital markets business. But I wouldn't say that you should expect higher growth rates or materially lower growth rates in '20 than you saw in '19.

Your next question comes from Michael Funk of Bank of America.

So maybe some more commentary on the capital market activity expectation for 2020. You just noted to the last caller, you saw a lot of larger deals in 2019, especially exiting the year. So in your expectation, is it that the larger deals will still be dominant? Or are you expecting just more smaller deals? And then maybe be just kind of thoughts on the geographic mix of the transactions in 2020.

Okay. And this is specifically for investment property sales, capital markets?

Correct, please.

Sure. So capital markets in 2019, if you look at our business, let's talk about Americas, which is where I think your question is most focused, we had...

Probably most relevant, yes.

Yes, we had very good performance in capital markets, as you know, in 2019. The markets that showed strength were broad-based. And I was going through -- actually, before this call, I was going through all of our U.S. markets, looking at the growth rates for capital markets. And -- but for New York City, almost every major market in the U.S. was up double -- solid double-digit. New York City, as a marketplace, was down. We retained our #1 position in New York City, which I think is the evidence that we follow the market. There weren't as many large deals or as many deals done in New York City in '19 as '18. But as we look forward into 2020, as I mentioned a moment ago, we don't see anything particularly different about 2020 than we saw in 2019. Those large deals, the $1 billion-plus transactions, those are lumpy. Hard to say when they will come in. And frankly, how they fall year-to-year is very, very hard to predict. So at the moment, I would just stick with what I said a moment ago, we don't see anything materially different in 2020 than we saw in 2019. And I'd just leave it with that. Again, that growth in 2019 was broad-based across every major market in the U.S., but for New York City.

Sure. And in this opportunity, if you can kind of comment on the kind of the broader economic activity, concerns about coronavirus. In your experience, I guess, what is the sensitivity in leasing 2 economic shocks that we could be experiencing right now? I mean how quickly do you see C-level executives pull back on leasing activity? And are you hearing concern when you speak to any of your larger clients?

Yes. Well, first of all, I would say it's early days and hope -- well, hopefully, it's late days, and this will all be behind us very soon. But it is early days. But if you look back to SARS, if you look back to other issues of this type in the marketplace, what you tend to see is there's a lot of noise in the market during that moment in time and you can see in areas that are particularly affected. Let's look at Hong Kong, at the moment, our transaction activity in Hong Kong was down in the fourth quarter. That doesn't surprise us, both with the protest and then with the issue with the coronavirus. But what you always see in these situations that we would expect to see here is a strong snap back when the issue goes away. And so unlike some other economic drivers that are, I think, more structural, we would expect that what you lose, if you lose activity during the issue, that activity comes back, incremental to normal activity in the subsequent quarters. So at the moment, I wouldn't say we're sanguine, we're not. There's a lot of work we're doing right now to make sure our employees are safe and well taken care of and our clients are well taken care of. But we are not seeing, other than in Hong Kong, and I think that's both, as I mentioned, the protest and the coronavirus, we're not seeing any impact on activity right now. I would also say that our business is one where transactions are worked on for a very long time, both in the leasing and in the capital markets space. People don't tend to stop those transactions over issues like this. They would -- people will slow down transactions in a real economic decline. So what we watch for is really the impact on GDP, and that is unknown at the moment. If this has -- if coronavirus has a material, sustained impact on GDP, we're going to see a slowdown in transaction activity. At the moment, that is not what's being forecast into the marketplace.

There are no further questions at this time. I would now like to turn the call over to Brett White for closing remarks.

Thank you, operator. Thanks, everyone, for dialing in, and we'll talk to you in a quarter.

This concludes today's conference call. Thank you for your participation.