Colliers International Group Inc.

Welcome to the fourth quarter year-end 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. Thank you for joining us. At this time, for opening remarks and introductions, I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

Thank you, Operator. Good morning, and thanks for joining us for the fourth quarter and year-end conference call. As the Operator mentioned, I'm Jay Hennick, Chairman and Chief Executive Officer of the company, and with me today is John Fredrickson, Senior Vice President and Chief Financial Officer. This conference call is being webcast and is available in the investor relations section of our website and a presentation slide deck is also available there to accompany today's call. Earlier today, Colliers reported more than double-digit revenue and profit growth for the fourth quarter and the full year, capping out an outstanding year for our company. For the quarter, revenues were $890 million, up 18% in local currency. Adjusted EBITDA was $133 million, up 39%. And adjusted earnings per share came in at $1.77, up 30% against a very strong fourth quarter last year. For the year, revenues were $2.8 billion, up 16%. Adjusted EBITDA was $311 million, up 28%, and adjusted earnings per share came in at $4.09 per share, up a strong 29% over the prior year. John will have much more to say about our quarter and year-end results in a few minutes. Without question, 2018 was a defining year for Colliers. Not only did we establish a new investment management platform with the acquisition of Harrison Street, a company that is a true pioneer in demographic based investing with a proven track record of best in class returns for investors. Together with our existing business, our new platform had more than $28 billion in assets under management at the end of 2018. We also completed a record 11 other acquisitions, including five in the Americas, four in the EMEA, and two in Asia Pacific. All of this maintained Collier's pace as the world's fastest growing global real estate and investment management firm. Most importantly, though, because our leadership team owns more than 40% of the equity in our company, Greater than any of our public competitors by a country mile, creating value for shareholders over the long term means much more to us. Colliers also made excellent progress increasing our recurring revenue streams, adding stable investment management fees to further diversify our revenue mix. Today, about 75% of our earnings comes from recurring or repeat revenue streams. and geographically, about 60% of our revenues comes from the Americas with the remainder split almost equally between Europe and Asia Pacific. All of this means we have more balance and opportunity in our operations than at any other time in our history. Finally, just after year end, we completed another significant acquisition the market leader in Virginia with more than 340 professionals. This acquisition strengthens our operations in the Mid-Atlantic region and brings another exceptional group of professionals onto the Collier's platform. In late 2015, as you know, we established an ambitious five-year growth plan to double the size of our company by the year 2020. I'm pleased to say that we're now finished the third year of our plan and we're well on track to achieving our growth target. Importantly, we continue to see excellent opportunities to continue our impressive long-term growth history over the long term. Over the past 24 years, this leadership team has delivered more than 20% compound annual returns for shareholders. That record of performance is unsurpassed in our industry, and it speaks volumes about our ability to maximize our growth potential and create value, significant value, for our shareholders over the long term. Looking to 2019, I'm optimistic we will continue another year of great success towards our five-year Enterprise 2020 plan. With that, let me turn things over to John, and once he's completed, we'll open things up for questions. John?

Thank you, Jay. As announced in our press release earlier this morning and highlighted by Jay in his opening remarks, Collier's International Group reported strong fourth quarter and annual results, capping off an exceptional year. Our finish to 2018 included substantial contributions from most of our major operations across our global platform. Since our consolidated quarterly and full-year results are already outlined in our press release and the conference call slides posted on our website to accompany our call, to streamline my conference call comments, I'll focus on our operating results by reporting region, focus on the fourth quarter, and then turn to our consolidated cash flow, capital deployment, and financial position. I will then conclude with our comments on our 2019 outlook. Please note that my comments may reference non-GAAP measures such as adjusted EBITDA and adjusted EPS, both of which include adjustments composed primarily of non-cash charges that we view as largely unrelated to our operating results for the period. References to revenue growth, including internal growth, are calculated based on local currency unless otherwise indicated. Our $890 million in fourth quarter revenues were up 18% comprised of $309 million from outsourcing and advisory services of 16% versus last year, $257 million in brokerage of 8%, and $285 million in lease brokerage of 17% versus 2017. Meanwhile, investment management revenues came in at $38 million compared to $4 million, entirely attributable to the Harrison Street acquisition completed in Q2. Overall, internal growth across our operating segments came in better than expected, up 7%, compared to a strong finish in 2017. Geographically, revenues remain well balanced, with 53% of our revenues generated in the Americas, 25% in Europe, 18% in Asia Pacific, and 4% from investment management. Adjusted EBITDA generated by our operations outside of the Americas continue to generate a higher proportion of our consolidated amount, at 55%, the Americas contributing 32%, and investment management feed-driven adjusted EBITDA at 13%. Our service line and geographical diversification continues to be an important component of our strategy, providing growth opportunities that reach new clients while increasing our capabilities to serve existing clients and adding greater stability to callers than ever before. Turning to the regions, in the Americas, revenues were $475 million, up 14%, comprised of strong internal growth of 9%, along with 5% contribution from acquisitions. Outsourcing and advisory revenues were up 12%, with strong growth in property management and consulting and appraisal services across the region, including particularly robust growth in our market-leading property management and project management services in Canada. Sales brokerage revenues were up 8% versus last year, led by strong low double-digit internal growth in Canada and relatively flat internal growth in the U.S., bolstered by mid-single-digit growth from acquisitions. Lease brokerage revenues were up 20% versus last year, with both our Canadian and U.S. operations generating strong mid-teens percentage growth internally and the balance from acquisitions. Adjusted EBITDA came in at $45.6 million versus $37.5 million last year, up 22%. and a margin of 9.6% versus 8.9% last year with the increase due to operating leverage from existing operations. Turning to EMEA, revenues of $217 million in the quarter increased 21% with revenues up 6% internally compared to Q4 last year and the balance from acquisitions completed earlier in the year in Finland, Spain, Denmark and Germany. Outsourcing and advisory revenues increased 20% with solid mid-single-digit internal growth led by a strong performance and turnaround from last year in France with the balance of growth from our acquisition in Finland completed earlier in the year. Sales brokerage revenue was up 33% led by strong internal growth in Germany and Netherlands offsetting a sharp decline in the UK compared to a very strong Q4 last year and strong contributions from our acquisitions in Denmark, Spain and multifamily business in Germany. Lease brokerage revenue was up 7% over last year, with a strong performance in Germany, France, and Netherlands, tempered by a decline in the UK. Meanwhile, adjusted EBITDA increased 38% to $48.9 million compared to $35.4 million in 2017, with a margin increase to 22.6% versus 19.5%, due primarily to improved performance in France and the impact of acquisitions. completed in 2018. And finally, in our Asia-Pacific region, revenues came in at $159 million, up 5%, with 3% generated internally and the balance from acquisitions. Outsourcing and advisory revenues increased 19%, with strong internal growth and property management across the region. Consulting and evaluation in Australia and project management in Australia and China, the latter both benefiting from recent acquisitions. These brokerage revenues were up 13%, with strong performances in New Zealand, China, Hong Kong, and India, offsetting a decline in Australia. Sales brokerage revenues declined 12%, with strength in New Zealand, Hong Kong, and Singapore falling short of offsetting declines in Australia and China, versus very strong Q4 performances in 2017. Adjusted EBITDA was $29 million up from $26.2 million last year. with our margin at 18.2% versus 16.5% and benefiting from higher revenues, better productivity in both New Zealand and Asia and operational improvements made over the last few years, particularly in our Asia business. Finally, revenues in our investment management operations came in at 39 million versus 4 million in Q4 2017 with substantially all the increase attributable to the Harrison Street acquisition completed last July. Adjusted EBITDA totaled $17.7 million compared to $1.8 million in the comparative quarter. We're expecting significant fundraising and investment activity in the first half of the year based on pipelines currently in place, which will translate into recurring management fee revenue and solid momentum continuing through 2019. Asset center management increased to $26.4 billion as of the end of 2018. Moving to our capital deployment and balance sheet, and our fourth quarter capital expenditures to hold $14 billion up from $10.6 million last year and bringing our year-to-date CapEx to $35.6 million compared to $39.5 million in 2017. In 2019, we have planned CapEx investment in the $40 to $45 million range, including workplace enhancements in several offices to support our growth and productivity, along with additional funding for technology investment to support our IT infrastructure and application tools. Turning to our acquisition spend, we invested $14.8 million during our fourth quarter compared to $12.5 million last year, bringing our year-to-date investment in acquisitions to $605 million versus $104 million last year, with about three-quarters of our 2018 acquisition investment attributable to Harrison Street. All of this was funded by strong cash flow from operations, which totaled $257 million for the year, up 21% versus 2017, and a combination of attractively priced debt under our revolver and senior notes issued in Q2 of 2018. Our net debt position stood at $545 million at the end of the quarter, and our leverage ratio, expressed as net debt to adjusted EBITDA, stood at 1.6 times compared to 0.6 times at the end of 2017, maintaining a strong balance sheet and financial position. With cash on hand and committed availability under our revolver, we had over $600 million of liquidity to start the year, a level more than ample to fund operations and other capital investments, including acquisitions needed to execute our growth strategy. Turning to our initial outlook for 2019 and looking across our global operations, our pipelines in most markets continue to reflect solid commercial real estate activity. However, macroeconomic and geopolitical forces were factors that generally deteriorated somewhat relative to a year ago, providing slightly elevated risk to growth, but tempered by a moderation of the pace of increases in interest rates. Credit and financing remains largely accessible and supportive of commercial real estate investments across our major markets, while the level of supply and demand for commercial property remains well balanced. Meanwhile, our investment management operations are well positioned to continue growing, leveraging their favorable track record of performance and overriding focus on defensive real assets in the alternative investment sector, both in the U.S. and Europe. These factors, combined with a more secular trend of greater institutional commercial real estate ownership directly and indirectly, are expected to drive solid activity in sales, leasing, and other commercial real estate services. With these factors in mind, we have the following comments regarding our preliminary outlook for 2019 at this early stage in the year. We estimate consolidated revenue to grow year over year at an annual rate in the high single digit percentage range with low single digit internal growth augmented by the impact of acquisitions completed in 2018 and to date in 2019. Adjusted EBITDA margin improvement of 100 to 120 basis points based on the impact of acquisitions completed in 2018 and to date in 2019 with additional operating leverage balanced against selective investing to strengthen our operations. Consolidated income tax rate of 29 to 30% based on our expected geographical mix of earnings being relatively consistent with 2018. Non-controlling interest share of earnings in the range of 18 to 20%. Low double digit percentage growth and adjusted EPS on a full year basis. The foregoing excludes the impact of any further acquisitions which may be completed in 2019 and which would be additive to our expected growth in revenues adjusted EBITDA and adjusted EPS. Entering year four of our five-year enterprise 2020 plan, we remain well on track to achieving our revenue adjusted EBITDA and adjusted EPS growth targets. That concludes our prepared remarks. I would now like to ask our operator to open up the call to questions.