Welcome to Cushman & Wakefield's Second Quarter 2021 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 the conference.

Thank you, and welcome again to Cushman & Wakefield's second quarter 2021 earnings conference call. Earlier today, we issued a press release announcing our financial results for the period. This release, along with today's presentation, can be found on our Investor Relations website at ir.cushmanwakefield.com. Please turn to the page labeled forward-looking statements. Today's presentation contains forward-looking statements based on our current forecasts and estimates of 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, definitions of non-GAAP financial measures and other related information are found within the financial tables of our earnings release and appendix of today's presentation. Also, please note that throughout the presentation, comparison and growth rates are to comparable periods of 2020 and are in local currency. For those of you following along with the 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 to everyone joining us today. Before we speak to the quarter, I'd like to start by again thanking our team of incredibly talented Cushman & Wakefield professionals around the globe. Your hard work over the past year continues to pay off as we've seen more and more people return to the office. Our clients benefit every day from your expertise, and we are proud to see those results as we reported another very strong quarter for Cushman & Wakefield. We are very pleased with the continued momentum experienced in the second quarter as consolidated fee revenue of $1.6 billion improved 34% compared to prior year. While this quarter's year-over-year comparison is against the trough experienced a year ago, we are very encouraged to see our transactional brokerage business rebound so quickly in the first half of 2021. Our second quarter brokerage revenue, including our leasing and capital markets businesses, was up 89% compared to a year ago and returned to pre-COVID levels of 2019. I'll provide more detail on the drivers of this activity, but we believe the faster than expected recovery we have experienced through the first half of the year in capital markets and non office leasing is sustainable. Additionally, our property management, facility management and valuation segments continue to perform well, with fee revenue growing 7% and 16%, respectively, for the quarter. Our recurring revenues have continued to be a source of strength and resiliency throughout the pandemic as both investors and occupiers have continued to turn to us for our advice and services. For example, our asset services business in the Americas performed well throughout the pandemic, and it's growing double digits through the first half of 2021 as investors continue to rely on our leadership, insight and comprehensive offering…

Thank you, Brett, and good afternoon, everyone. We are pleased with our second quarter performance and encouraged by the very strong start to the first half of 2021. Fee revenue for the second quarter of $1.6 billion was up 34% and adjusted EBITDA of $220 million was up 76% as compared to 2020. Our adjusted EBITDA margin of 13.5% expanded by 335 basis points compared to a year ago. Our strong execution of efficiency initiatives, resulting in $30 million of gross permanent savings and disciplined cost management enabled us to capitalize on our operating leverage as brokerage revenue rebounded sharply in Q2 from trough levels experienced a year ago. Adjusted earnings per share was $0.50, up $0.31 over last year. Taking a look at our fee revenue by service line. Our PM/FM and valuation and other service lines were up 7% and 16%, respectively, for the quarter. As expected, these businesses have proven to be incredibly resilient during this recession and have continued to perform and grow strongly over the past year. Our facility services business in the Americas continues to experience high single-digit growth due to continued demand for deep cleaning services. Within PM/FM, facility services represents just under half of the fee revenue and generates solid cash flow on a stable revenue stream. Facility services was up 7% in the first and second quarters this year, reflecting continued demand for COVID related cleaning services, principally in the Americas. For the quarter, brokerage revenue increased 89%, with leasing and capital markets up 67% and 141%, respectively. We are encouraged to report that brokerage revenue returned to pre-COVID levels when compared to second quarter of 2019. Our non office leasing sectors continued positive momentum, most notably within the industrial sector. Within office leasing, we've seen some pent-up demand coming through…

Thanks, Neil. And before I hand the call back to the operator for Q&A, I'd like to provide a few comments on our planned CEO succession announcement, which you saw today. When I began my work here over seven years ago, I started on a journey with our team to build one of the world's leading commercial real estate services firms. And I am really proud to say that, that is exactly what we, as a team, have accomplished together. I joined the firm as Executive Chairman and given the firm's strong performance and bright future, now is exactly the right time for me to return to that role and announce a planned executive transition. I am really excited to share that John Forrester, who most of you know, Cushman & Wakefield's Global President, will become CEO effective January 1, 2022. As Executive Chairman, I will continue to participate in our quarterly earnings calls, I'll continue to lead strategy, M&A and succession planning alongside John. John has been the greatest of partners and an exceptional leader for us for many years. He's a much admired and respected leader, both inside our firm and across the industry. His high level of integrity, exceptional work ethic, deep client knowledge and many, many global relationships, makes him the obvious choice as our next CEO. I am so very grateful for the partnership I've had with my Cushman & Wakefield colleagues and with many of you listening to this call. I look forward to our continuing to work together, our continued growth and transformation of Cushman & Wakefield as a distinguished firm with the greatest integrity and the brightest, most innovative people, serving the world's most interesting and prestigious clients. Please join me in congratulating John on this well-deserved promotion. And with that, I'll turn the call back to the operator for Q&A. Operator?

[Operator Instructions] Your first question comes from Anthony Paolone from JPMorgan. Please go ahead.

Thank you and congratulations to John. My first question is looking at your guidance for revenue and EBITDA and the comments around kind of where that stands relative to 2019. If I just take the midpoint of your revenue, puts you just a few percentage points below 2019 levels. And similarly, a little bit below 2019 in EBITDA. But it seems like since then, you've done the $250 million in cost saves. So just wondering if you could help with a little bit of a bridge in terms of what some of the offsets may have been?

Sure. Neil?

As we look, we've – as you say, we've been incredibly pleased with the cost savings. We've been able to take out of $125 million this year and $125 million last year. So that really does help us. We've also seen some nice strong flow-through from brokerage, so that also has helped margins. As we look out, a couple of factors are basically playing against that. And number one, we've got the increase in our short-term incentive programs, our bonus programs. So those will be up this year as a result of the strong performance. So that creates some headwind. We also – in terms of capital markets, have some higher comps in the back half of the year. And so that will play into the back half. So as we look at the full year, we'll see more evenness between the EBITDA in the first half and the second half of the year. And then finally, as we look at the overall mix of the portfolio, we do have about half of our revenue comes from lower-margin recurring revenue. That's been very helpful, and we really do like that part of the portfolio because it grew very nicely throughout the pandemic. So over the last two years, we've seen solid mid single-digit growth. So as we get back to the same levels of revenue, the portfolio mix changes slightly with more of a lower margin revenue. And so that does cause the margin to be slightly lower as compared to 2019. The good news is we do – we are seeing brokerage come back, and we do expect that brokerage recovery to continue. And so as that brokerage recovery comes back, we're not there yet, but as it comes back, we'll see the margins increase to above where they were in 2019, but not in the next six months.

But when you look out then beyond 2021 and maybe a more normalized mix, I mean, should we start to think about just a bit of a step-up in margins compared to where you were back in 2019? Because in early 2020, when you laid out some of the operational changes that you're putting in place it seemed like there was going to be a real bump up in margins. And I can understand that being delayed. I just want to try to see if that's still on the table or if we're just back into this – low 11s range.

No, we do see margins stepping up as we look out. We are not providing any guidance at this point or any sort of indication on what 2022 looks like. But certainly, the permanent costs do help us. Offsetting those permanent cost outs, you do also have natural increases in the business. So that offsets that slightly. But we do expect margins to increase, certainly as we look out over the next few years as a result of those permanent cost savings.

And then just other item, just maybe for Brett. I know the office business has been muted. But if there is a backlog building of leasing, is there any way to frame kind of what that could mean if and when that starts to clear?

Sure. Tony, I think – let me characterize it this way. And again, there's a lot of unknown. So I can frame in the best I can, but we're looking at a very fluid situation, but here's what we know for sure. We know that the office lease and recovery is going to be more – is going to be quicker than what we thought it would have been even six months ago. That is now clear to us. And that's really a result of the fact of very strong GDP coming through, the stimulus in the economies and the job growth that we are beginning to see and will continue to see going forward. We believe that full recovery to the office market is in the relative near term. It's not out three years from now. It's not out four years from now. It's something much quicker than that. And we know that based on the activity we're seeing in the markets today, and you heard us talk about touring activity, which is a terrific leading indicator for leasing revenues, is up 80%. So people are active in the marketplace. Looking at space and doing what they do. Now office leasing revenues don't happen overnight. You all know that. And so a tour that's happening today may turn into revenues end of this year, early next year. But we're now much more confident that as Neil referenced, that's snow on the mountain, which is office leasing, which is our – one of our richest business lines and one of the biggest producers of profit for the firm, which has not been realized yet. And notwithstanding this great performance, is there for us. And so the question is, and what you're really asking is, when does that snow melt? When does that flow through the P&L? Again, I would say, likely sooner than we thought, six months ago. And I would expect to see office leasing begin to pick up back half of this year and next year. And I do think that, again, it's a big business line. And so as it does pick up and as it does begin coming through, it should come to a rich margin.

Great, thanks for all the color.

The next question comes from Vikram Malhotra from Morgan Stanley. Please go ahead.

Good evening. Thanks for taking the questions. I just want to go back to the EBITDA kind of cadence or trajectory from – in the second half. I know this is sort of an unusual year, you've seen a rapid snap back in 2Q. But typically, you see – correct me if I'm wrong, but 40%, 50% of the profits being made in mostly the fourth quarter, some in the third. And so I'm wondering just – and it's not atypical that you see higher bonuses, etc, also in the period historically. So I'm just wondering how much of this is conservatism, how much of it is a view that – I know you mentioned tougher comps. How much of it is that the pandemic just may slow leasing or capital markets? And then can you just clarify as you set into 2022, do you assume a normalized proportion of EBITDA in 2022?

Neil, let me hit it first, and then I'll hand it to you to give the details.

Sure.

I think, look, I think what you're dealing with – let me put this in context, which is just four months ago, this industry was looking at 2021 and 2022 very, very differently than we are today. And you've heard that now on every earnings call in the industry, we all now are, I think, being very clear that this recovery is happening much more quickly and much stronger than we expected, which means that the recovery of all of our P&Ls is going to happen much more quickly than we thought. So that's the good news. And that's obvious, it's clear, and we all see that. We've just been through a really interesting 15 months. And I think for all of us, it tempers our forecast, and it tempers our outlook. As Neil said, our outlook is tempered by three unknowns. Now if those unknowns don't occur, if the Delta variant goes away, if it depends on demand, it's in the numbers, it's less than we thought and more this is structural, we're going to do better. But we've, I think, tried to balance the fact that we really, really like what we're seeing. Things feel really good right now, but we've been through a period of unexpected surprises, which I think for all of us in the industry is tempering the way we are talking about and forecasting the coming quarters and in a couple of years. Neil, do you want to – why don't you jump into that and do a better job than I did.

Brett, I think you did a great job. Vikram, I think you also outlined it very well. We've been very pleased with what we've seen in the first half. As Brett said, the recovery has been much faster than we thought. We are just being cautious as we look to the back half. As we said, COVID is still very fluid. So that's something to consider. If it does not affect – if we've seen a continued recovery at the pace at which we've seen it, then I think we are very optimistic about the back half of the year. The only sort of numerical thing to consider is that we did begin seeing the capital markets recovery in the fourth quarter of last year. So as we come through the year, we will have those – we will have – we'll be up against that as we hit the fourth quarter. Other than that, I think we're just being – we're cautious because of the uncertainty. But feel very good about the business. And at this point, don't see any – there are no expected structural changes to what we're seeing in this recovery.

I guess maybe want you to clarify that a bit for us because I was under the impression 4Q is actually the easy comp, like you were still seeing declining cyclical businesses, cyclical revenue, overall transaction volume globally was still weak as well as leasing. So what – is it one specific business line you're saying makes it a tough comp?

Well, if you think about it, capital markets last year, second quarter was down 50%. Third quarter was down 35%. So fourth quarter, yes, was down, but it wasn't down anywhere near what we saw in the second or third quarter last year. So while, yes, it was down, it wasn't any – we don't have anything near the comp that we've had in the first half of this year. So that really is what I'm pointing to when I talk about the fourth quarter.

Got it, the relative trajectory. I get it.

Exactly.

But I guess, Brett, I wanted to – you mentioned you'd be involved in broad strategy. And you talked about continuing to fill white space. So I guess, can you just walk us through, as you look kind of 12, 18 months out, what are the areas that you're really focused on is filling white space?

Sure. Be happy to. And so we're – as you know, in all the colors, we're very active all the time in the infill M&A world. We've talked about, first, in terms of verticals, we've talked about four verticals that we're keenly interested right now, industrial logistics, healthcare, data centers and life sciences. And so looking at businesses that service those verticals, people that transact in those verticals are a high priority for us. And we have a number of specific global initiatives in place that all of our regional chief executives ventured in together to invest in specifically those verticals and people that service those verticals. In addition, we continue to look at the onboarding of key brokerage talent across the major markets. And I would say this is primarily focused in the larger markets in the U.S., EMEA and Asia Pacific. We don't put PR releases out on all the teams we're hiring, but I can tell you that for instance, in the last 1.5 years, we built from a standing start, I think, the leading now capital markets team in Australia and New Zealand, and they're working on some of the largest deals and have closed on the largest deals in those marketplaces over the last year. We are also very interested in verticals around project management, project development and other recurring revenue verticals across the company. So really active in that space. We're also, I would say, quite interested, quite active in looking at how we – maybe not through acquisition, but how we partner or perhaps joint venture with leading technology firms as it pertains to servicing our largest enterprise clients. And this is around workplace AI, workplace management. We spent a lot of time in this area. And I think you'll find that – and we'll be talking about this in later quarters – some of the investments we're making in that area, some of the work we're doing there is actually quite exciting and should be quite meaningful to our to our ability to capture share going forward. So an awful lot going on in that area. The last thing I'd mention is we've spoken before around our desire to be a major player, particularly in the U.S. in commercial mortgage debt advisory. We've got a lot going on there, and we're spending a lot of time looking at how we best enter that business. And I think that's stuff you can look forward to in the future as well.

I just want to quickly get your thoughts on one more just last question. In PM and – in FM/PM, we talk a lot about the office side in terms of outsourcing. I'm just wondering on the industrial side, as you have more and more automation, logistics changing the boxes itself and bringing them closer and closer to communities, is there an opportunity for Cushman in the PM/FM business, specifically in industrial?

Great question, and it's a nice softball, and thank you for that, and I'll explain why. Interestingly, in the combination of the three firms, DTZ, Cassidy Turley, Cushman & Wakefield, the Cassidy Turley property management business was heavily, heavily weighted to logistics. Back five years ago, six years ago, when we were putting these businesses together that was good. It was interesting, but we really saw building the office side out as a really key priority. As years have gone by, we've continued to be a leader, if not the leader in industrial property management. We also, by the way, do a huge amount of facility services in industrial. So it's a big vertical for us and something that we're already very active in and winning lots of share in that space. It's something we've been very, very good at for a long time. And this is the case, I think, of the market coming to us, and we're glad it did.

Great, thanks so much and congrats on your, on your own. And John, as well thanks.

The next question comes from Doug Harter from Credit Suisse. Please go ahead.

Okay. Thanks. Can you talk about the level of activity for new proposals to win clients on the property management side and how that's been progressing over the past couple of quarters?

Sure. So as always happens in a recession, so I'm going to take you back a year ago and then I'll answer the question about today. What happens during the recession is those really slow down because clients tend not to switch vendors when things are scary in the marketplace. And we saw – that's both good news and bad news. We saw last year very little switching in the PM/FM space. As things have begun to improve, the opportunity to pitch and win new business is picking up. And I would say that of all of our business lines right now, property management is one of the stellar performers for us in accreting share. And in particularly right now in the U.S., our property management business is doing better today than it's ever done. There's a lot of activity in that world. And there's a real – not surprisingly, there's a real continued consolidation in the property management world. Which by the way, historically has been a bit more fractured, a bit more fragmented than, say, the outsourced leasing world or FM world. Property management is kind of at that stage now, where we're really getting into serious consolidation down to a small number of very, very large vendors, which were – of which we're one. So the activity is good. In property management, the other thing I would say is that many times, property management contracts don't change unless the asset sells. And as we're now seeing more asset selling, we're beginning to see more asset contracts move. Now that, of course, plays right in the hands of big firms like Cushman & Wakefield because our capital markets brokers are doing those deals. And there's a real synergy there, opportunity there to pitch those clients in their due diligence phase, new property management contracts, which we're very good at. So yes, property management, a lot of activity in that space, really happy about what we're seeing. And for us, a real standout.

Thank you.

You bet.

[Operator Instructions] The next question comes from Andrew Rosivach from Wolfe Research. Please go ahead.

Hey, thanks for taking my question. And by the way, thanks for putting out an EBITDA guidance, I think the industry would do a lot better if they put out numbers like you did. So thank you. I did want to ask, though, if you look at the numbers, if you could see where our expectations are for the second half of the year. I'll give you a bear case that I think I and other analysts may face in the next 24 hours. If you do the bottom of your EBITDA range, it's actually – it's 50-50 first half versus second half. And if my math is right, it actually implies no EBITDA growth off of the second half of last year. So maybe if I could ask, what kind of conditions would have to exist for you to end up at the bottom end of your range?

Sure. Neil?

Yes, great question. And that's why I would encourage you to – the tone of our guidance is positive and optimistic. We have been cautious because of what we're seeing in the market. If COVID were to flare up, if offices were to close again, if we were to move back into lockdowns, we sort of – that's when you start seeing numbers at the low end of the range.

So that's what I was thinking to have, so those numbers at the bottom, you did another lockdown. That's what I wanted to check.

Exactly. And we do still expect the back half EBITDA to be greater than the first half. You mentioned it would be 50-50. We still expect the back half to be higher and – but just not at the same levels that we saw in 2019.

And then I had one more. Your GAAP earnings were pretty good for the quarter. The acquisition-related costs and efficiency initiatives came way down on a year-over-year basis. Is that in any way a forward indicator that, that adjustment may be reduced going forward?

Yes. Some of our GAAP adjustments relate to our merger, which happened three years ago. And so you're going to see that roll off over time. We also did do a lot of integration work two years ago, bringing three companies together, and those costs also will no longer continue. So you will see those adjustments drop over time.

Got it. So this is an anomaly. This is – you're going to see a gap in and adjust it become closer and closer to each other?

That's correct, yes.

Great, thanks for your help.

This concludes the question-and-answer session. I would like to turn the conference back over to Brett White for any closing remarks.

Terrific. Well, thanks, everybody. We're really excited about the trajectory and the year, excited about what the year is going to bring and look forward to talking to you at the end of the third quarter with further updates. Bye-bye

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.