Thank you for standing by. Welcome to the Cushman & Wakefield’s Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background. [Operator Instructions] It is now my pleasure to introduce, Megan McGrath, Head of Investor Relations for Cushman & Wakefield. Ms. McGrath, you may begin the conference.

Thank you, and welcome to Cushman & Wakefield’s second quarter 2023 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 on our presentation labeled cautionary note on 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 the appendix of today’s presentation. Also, please note that throughout the presentation, comparisons and growth rates are to the comparable periods of 2022, and in local currency unless otherwise stated. For those of you following along with our presentation, we will begin on Page 4. And with that, I’d like to turn the call over to our CEO, Michelle MacKay.

Thank you, Megan. And thank you everyone for joining us today. Before I begin, I'd like to thank our former CEO, John Forrester for his leadership and dedication to this company and his assistance in making this transition as seamless as possible. Neil will dive more deeply into the numbers shortly. But looking at our second quarter, the key takeaway is this. In challenging market conditions, we were able to quickly pivot and deliver strong financial results with sequential improvement in revenue, EBITDA and margin. And while I recently took the reins as CEO, I've been with the company for some time, and therefore I've been able to hit the ground running with the leadership team. I want to thank all of them for their focus and hard work since I started. And while we've got plenty of work ahead of us to help the company achieve its full potential. I'm very pleased with the start that we've made and I'm encouraged by what I'm seeing inside the business as we take a deeper dive into each of the business lines. We're already fully underway with a full review of our operations, how we lead the business and identifying our strategic direction, while preserving the integrity and strength of what we've already built. A highly diversified revenue mix, a resilient business model and a strong financial position. We've got great bones here, and a clear opportunity to excel. My goal simply is to significantly improve and build upon Cushman’s already solid core. As you can imagine, I'm going to leave no stone unturned in making sure that we move expeditiously and decisively to grow this company and build confidence both in ourselves and also with our partners and key stakeholders. My number one priority is ensuring that we are being…

Thanks, Michelle. And good afternoon, everyone. Second quarter results were in line with our expectations with solid sequential increases in adjusted EBITDA and adjusted EBITA margin. During the quarter, we maintained our strong focus on free cash flow, and we'll continue to prioritize our balance sheet as we move forward. Moving on to the details of the quarter. On the top line, revenue trends in the second quarter were similar to what we saw during the first quarter, second quarter fee revenue of $1.6 billion declined 14% versus the prior with capital markets revenue down 48% and leasing revenue down 20%. PM/FM revenue was up 3% with particular strength in our property management and Facilities Services businesses, valuation and other declines 13% in the second quarter, as the slowdown in transactions continue to result in lower valuation activity. Adjusted EBITDA for the second quarter of $146 million was down 44% versus prior year, and our second quarter adjusted EBITDA margin was 8.9%, a meaningful improvement from our first quarter margin of 4%. During the quarter, we successfully executed on our cost cutting programs, and were able to more than fully offset inflation and prior investments, realizing $49 million of savings in the first half of the year. In addition to our previously announced $90 million program, our teams have worked diligently to identify an additional $40 million in gross savings, bringing our expected 2023 in year cost savings total to $130 million. To put these cost savings in perspective, this savings target represents roughly 10% of our annual G&A expenses. While our cost out programs are in part a response to today's operating environment. More importantly, they are positioning us to be more efficient, and to achieve better long-term margins when transactional volumes recover. Adjusted earnings per share for the…

Thanks, Neil. In summary, our second quarter results were solid, demonstrating the focus of our team and the stability and resilience of our business. Cushman has a strong and stable foundation and a growing platform to build upon for the next leg of our growth strategy. As someone who has spent decades in the commercial real estate industry, I'm confident in our ability to drive sustainable improvements in our business model and truly believe in this company's long-term opportunities. I am energized by the challenge of taking the helm. And I look forward to working with all of our stakeholders to accelerate our results and capitalize on this opportunity. And with that, operator, let's open up the line for Q&A.

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

Great, thank you. It looks like a lot of your guidance brackets are pretty comparable to last quarter. But Michelle, you've mentioned free cash flow conversion as being one of your focal points. Can you maybe just talk about where you see that shaping up for the year at this point whether there was any change on that front?

Yes, I think that we are in a place where we can still move a couple of levers to better our free cash flow conversion, including days outstanding, tax and a couple of other levers that we have at our disposal. Our goal has always been to reach a range around 30% free cash flow conversion.

Okay, and then just in PM/FM, I think the APAC looked like it sequentially kind of dropped in the quarter was 2%. You kept your guidance for the full year for PM/FM, just wondering like how visible that is. And if there's anything just to note in that business, just as we look to the second half.

Yes, sure, Tony. The growth rate varies from quarter-to-quarter in our services business mainly due to the timing of contracts and certain ad hoc work that we perform. In the first quarter in Asia Pacific specifically, we did have significant project management work that was short term in nature. So it boosted that growth in the first quarter a little bit. Second quarter was right in line with our fully assumptions in that low to mid-single digit growth rate. So we still feel very confident in our guide for the full year on services and like the business and its resiliency.

Okay, and if I need to sneak one more in just as we start to think about the fourth quarter, which is tends to be the biggest quarter, anything you're seeing in terms of either green shoots, or on the flip side particular risks to kind of get to the numbers to get you into your guidance brackets.

We're feeling really good. We're encouraged by the building pipeline. I mean, it's still too early to call an inflection point. There's been a lot of focus on capital markets and recovery and capital markets in particular. So we believe it's a question of when not if, and we all know the capital markets performance is highly correlated to interest rates and markets in general, right, and there's probably one more rate move followed by a period of no change and then cuts. So we're directionally feeling particularly good at this moment.

The next question comes from Alex Kramm of UBS.

Yes. Hey, good evening, everyone. Maybe just starting on the incremental cost cuts. Can you dig a little bit deeper in terms of what you're really attacking here? And then how much of the $40 million incremental is permanent versus temporary? Or maybe remind us in general, way you see permanent versus temporary in the whole $130 million now?

Sure, Alex, I can take that question. So as we look at the 130, in total, about 20% of that is temporary. But obviously, as we go into next year, if we don't see conditions improved, we can always hold out and not let those temporary costs come back into the business, we'll see $130 million of in year savings, that's actually $160 million on a run rate basis. But then all of that 20% is temporary. In terms of where the savings are. They are primarily infrastructure and overhead costs. As we said, it's roughly 10% of general administrative costs, are G&A costs include severance into lease terminations, it includes external consulting costs, software costs, it's really a full year business, right sizing it for the environment, which we're seeing right now.

Great, and then maybe just coming back to the updated guidance, the 20% down and brokerage? I don't think you gave a number there in the first quarter. So just maybe talk a little bit more broadly, how that view has changed. I know someone just asked about the fourth quarter. And I know there's a lot of uncertainty there. But like, how your overall expectations for the year changed here on brokerage?

Yes, they haven't really changed. And we said on our first call, we did see a delay in brokerage from the first quarter to similar results in the second quarter, and it came in right in line with what we expected in the quarter. I want to be very specific about our guidance, it's really focused on the margin being in that 9% to 10% range. So we have said that -- we see that 9% to 10% range given brokerage at the 20% level, that is currently what we're seeing, obviously, that will change over time. And as I said, very focused on March and more than giving any form of revenue guidance for the full year.

All right, great. And may I'll sneak one more in there as well, a quick one here on the PM/FM margin. I know you don't give specific margins on that business. But we know it's obviously the lowest across the company. Can you, with some of the cost savings that you've announced here and also the scale, you're still gaining that business, are you actually expanding margins there? Any color, how that margins have trended in that business line in particular.

Our CWS services business in particular has expanded margins over the last five years. But part of the margins in some of the other businesses are connected to transaction volume. So they have a base level of margin that always delivers for us, but some of the upside in that margin is related to transactions.

The next question comes from Doug Harter of Credit Suisse.

Thanks. You talked, you mentioned that you're starting to see some of the pipeline building for transaction revenue. Can you just give a little more detail as to kind of what you're seeing and kind of what it will take to kind of actually get those transactions across the line?

Sure. It's really compelling. And I think that the buildup is from the fact that investors and lenders are trying to figure out the market. But as I said a little earlier when I was answering, Tony, because we probably have one more rate move in the pipeline here, we think that there's going to be a thawing of capital markets late this year, into early next year. And at that point, then it's just a discussion around how the dam breaks, if you will, if it breaks in small pieces or breaks all at once.

Great. And I guess, just with the cost cuts that you've undertaken kind of how do you think about your ability to benefit from that dam breaking?

Yes, look, it's always discretion, what you cost cut and what you keep in, we were very focused on ensuring that we would be able to take advantage of the recovery in the markets when we went through this process

The next question comes from Michael Griffin of Citi.

Great. Thanks, Michelle, you talked in your opening remarks about looking at your returns accordingly, across business lines. Are there any business lines particular that screen is more attractive to invest in now? And any color you can give around that would be helpful.

Okay, look, we've just started the process in earnest, and we're going to take our time to complete it well, so in order to really answer your question in depth, we need some time here, because we're going to do a deep dive and a heavy scrub down. But what I can tell you is there are some trends in general that stick out to me. And they play across many of the business lines in the organization, healthcare related trends, data center related trends, things along those lines.

Thanks. And then you note in the release, that the decline in leasing has been primarily attributed to lower office activity, is that office overall is the commodity office, how are you seeing trends and more of that Class A trophy product and anything you can spend on there will be helpful.

Sure. And we had a research piece that came out on Bloomberg last week speaking to the year-over-year net absorption rates in that Class A space which in many markets has been positive. What's interesting for us is that most of the conversation in commercial real estate today is around the office sector. And we have deep history in this space, as you probably know, so the clients are engaging with us as advisors, and not just deal doers. And that's the evolutionary path that we want to be on. But as a reminder, we don't traditionally work in the bottom 30% of any asset class. So you will find us mainly in Class A and Class B product.

The next question comes from Stephen Sheldon of William Blair.

Hey, Michelle and Neil. You have Matt Filek on for Stephen Sheldon, thank you for taking my questions. I wanted to circle back on the PM/FM segment. Can you walk us through what would drive you to hit either the high or low end of the guidance range? And then how are you thinking about potential growth looking out to 2024?

Sure. When we look at services, the great thing about services, the fact that it has long contracts, it's resilient. And there is a base level of activity, which is there year in and year out. What we do see in the services business is certain amount of ad hoc work that comes along with those service contracts. For example, during COVID, we had code trainings. In the northeast, we'll do snow removal, things like that. So to hit the high end of the services range, we'd expect to see a significant amount of ad hoc work. We don't plan for that. But certainly that is something that would drive us to the high end, right.

Yes. And then on the growth front, we've continued to make investments in our services businesses, so we would assume that we are going to have solid growth going into 2024 but as you can imagine, this will be part of the evaluation process that we're going through with the strategy refresh.

Got it. That's helpful color. Thank you for that. And then to clarify on brokerage, does the brokerage guidance assume any pickup into transaction volumes from an improving macro.

We don't see a meaningful recovery in the fourth quarter. We do see a sequential improvement as we move through Q3 into Q4, Q4 was naturally a very big quarter because of the annual nature of the business. But our guidance doesn't contemplate any fast recovery in the market.

Got it. Thank you. And then one more for me. What is broker retention look like given the persistently challenging market conditions? And do you feel well staff for a faster than expected market recovery, if that were to occur?

Yes, look, I think that we are in a particularly educated seat when it comes to broker retention. And I know there's some headlines out there, mostly negative, that have picked up a bit more traction than the actual fact, if we have an individual or group that's been working for us, we have somewhere between 5 to 10 years of financial history on that individual or team. And we know if they're enterprise positive or negative. So we have perfect information when we make a decision about who to offer retention to and who not to offer retention to. We also have a bit of a mix shift happening in the organization over the last five years. And so people with certain skill sets become more or less valuable over that period of time. We are very much focused on retaining those individuals that will be part of future growth of the organization.

The next question comes from Ronald Kamdem of Morgan Stanley.

Hey, two quick questions from me. Thank you for the guidance updates about the incremental were really helpful. The first one is just on the 9% to 10% EBITDA margin that you reiterated, you talked about the $130 million updated targets for cost cutting, and $160 million for the annualized. Is there a way to sort of break out how much that cost cut is contributing to the margin guidance? And the reason I ask is, is all else equal as those costs annualized, do they become a tailwind for margins in ‘24, to where I'm trying to get to?

Yes, Ron, the $130 million is already concentrated in our guidance, as we said, on our first quarter earnings call, we had already action $90 million and there were more actions in the pipeline, we really are just getting the numbers on this call the addition of $40 million to get to the $130 million. While the cost guidance doesn't drive anything above our range this year, it does make us more efficient. So depending on the timing of the brokerage recovery, and the extent of that recovery, as brokerage comes back, we will see high margin for this all before the efficiency moves.

Helpful. And then just following up on the cash conversion question on the EBITDA. And I'm looking at the cash flow statement. And still I think $238 million down in the first quarter, maybe, can you talk to so accrued compensation was negative, again, this quarter. Can you talk through what is one time or what seasonal? I'm just trying to get my arms around for the working capital in the first half of this year, trying to understand how that's going to trend for the rest?

Yes, so if we look at working capital in the first half of the year, it was driven primarily by the fact that we were paying out bonuses and commissions from last year at a higher level than we are accruing this year. So that causes a little bit of timing. I think what you're really trying to get to is what's the cash conversion for the full year and I would encourage you to look over a period of time, if you look at the trailing 12 -- on a trailing 12 month basis, our free cash flow basically was neutral during the down cycle. And then we'll see that grow as brokerage comes back at the high margins. So the extent of our free cash flow and cash flow conversion will depend on the timing and the significance of brokerage recovery as we move through the end of this year into 2024.

The next question comes from Patrick O’Shaughnessy of Raymond James. Patrick O’Shaughnessy: Hey, good afternoon. As you conduct your strategic review and you identify incremental growth opportunities, would you expect that capitalizing on those opportunities could require incremental company capital?

Yes, I would anticipate that there are scenarios where we need incremental capital. But given our cash position, I think we are in a particularly strong position to use our own cash. Patrick O’Shaughnessy: Got it, okay, thank you. And then the earnings release today mentioned an $11 million servicing liability fee in connection with amending and extending the account receivable securitization. Neil maybe you can just walk through kind of what is the value of that account receivable securitization program in Cushman & Wakefield? And what was the nature of the charge today?

Sure, that AR securitization facility basically renews itself every couple of years. So this was just a normal renewal of the program. It provides us a $200 million of a basically think of it like it revolves, whereby we use that AR securitization facility to manage working capital through the first half of the year, and then we repaid in the back half of the year, and then the following year, again, we just use it to manage seasonal nature of the business. As there are no more questions from the phones. This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.