Colliers International Group Inc.

Welcome to Collier's 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 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 40F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is August 6, 2020. and at this time, for opening remarks and introductions, I would like to turn the call over to the Global Chairman and Chief Executive Officer, 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, Chief Executive Officer of the company. With me is John Fredrickson, Chief Operating Officer and Christian Mayer, Chief Financial Officer. This call is being webcast and is available on the investor relations section of our website. A presentation slide deck is also available to accompany today's call. This morning, Colliers reported better than expected second quarter results across all segments and regions of our company, despite the impact of COVID-19 primarily in our transactional business. In local currency for the quarter, revenues were $550 million, down 25%. Adjusted EBITDA, $60 million, down 30%. And adjusted earnings per share came in at 70 cents, down 36% relative to the prior year. On a year-to-date basis, revenues were $1.1 billion, down 13%. EBITDA was $114 million, down 11%. and earnings per share was $1.25 down 22% versus the prior year. Based on our results to date, stronger than expected first half and acquisitions already completed, we are increasing our operating expectations for the balance of the year. In a few minutes, Christian will talk more about our financial results, liquidity and balance sheet as well as our updated assumptions. John will then offer some operational thoughts after which we'll open things up to questions. Since March, most markets around the world have been under some form of lockdown or stay-at-home order impacting everyone. I'm proud of how Collier's leadership responded, taking aggressive action early to contain costs and realign resources while encouraging our professionals to provide important advice and insights to our clients. Fortunately, our efforts to transform Colliers into a different kind of professional services company has paid off handsomely. Adding more recurring and contractual revenue streams like investment management, property and project management, mortgage servicing and real property consulting and engineering has provided us with more resilience, and more. Recurring services now represent the majority of our revenues and earnings, with the balance coming from our highly variable transaction business, leasing and capital markets. During the quarter, industry estimates indicate transaction volumes were down almost 70% in the U.S., deal count down about 50% in Europe, and transaction volumes down almost 40% in Asia-Pac. Collier's, of course, delivered much better than the rest during the quarter, showing great momentum and picking up market share in the same way as we did, frankly, during the great financial crisis. Make no mistake. Revenues from transaction services are not going away. It's a great business. In fact, I suggest that leasing in capital markets are essential services to most owners and occupiers of real estate assets. Clients want and need our advice now more than ever to help them make better real estate decisions as they navigate uncertain times. Although revenues in this area may be down temporarily, I'm confident they will rebound nicely as business begins to return to normal. During the quarter, we completed a $230 million offering of convertible notes to further fortify our balance sheet. These notes are convertible into shares at the option of the holder but also at the option of colliers. Essentially, they're additional equity in our company. We finished the quarter with leverage at 1.5 times, providing us with significant unused capacity to continue to take advantage of opportunities going forward. On the transaction front, we continue to take important steps. During the quarter, we completed the acquisition of Doherty Financial, now rebranded as Collier's Mortgage, giving us a well-established real estate debt finance and loan servicing platform upon which to build. Then, shortly after the quarter end, we added Mazer Consulting, a leading U.S. engineering design and consulting firm focused on real estate and infrastructure assets. Both of these additions provide further growth opportunities and resilient revenue streams and both bring strong leadership teams who will continue to drive their businesses under our unique partnership philosophy. I would like to welcome our new partners into the Colliers family. The senior leadership team at Colliers Mortgage, led by David Juran, and those of Mazer Consulting, led by Richard Mazer, Kevin Haney, and Leo Ponzio. Now, I'd like to say a word about the valuation of our shares. As you know, our leadership team has a proven record of creating value for shareholders delivering more than 20% compound annual growth in share value over the past 25 years. This record suggests we know a thing or two about businesses and how they are valued and how they're leveraged. When I look at the trading value of Collier Shares, an institutionally recognized global professional services company with significant growth opportunities, and the majority of its revenues and earnings coming from resilient revenue streams, I see huge value underappreciated. From an investment perspective, Colliers has historically traded significantly below property or professional services companies despite having superior characteristics. Sooner or later, the market will wake up to this and begin to value our company in line with the value we're creating. That's why our leadership team owns so much of the equity in our company, almost 40%. And that's why we continue to invest as we did during the quarter by purchasing almost 10% of our recent offering. No one has more skin in the game. Looking forward, there continues to be a lot of uncertainty out there. and as a result we continue to manage our business closely as enterprising owners would. However, whatever may happen in the coming months, all of us at Colliers remain confident that our highly diversified business model, resilient core of recurring revenues, strong balance sheet, entrepreneurial culture, significant insider ownership will enable us to emerge from these unprecedented times, stronger and better than ever. Let me now turn things over to Christian for his comments. Christian?

Thank you, Jay. As announced earlier today, Colliers reported better than anticipated financial results across all service lines and regions for the second quarter. My comments follow the flow of the slides posted on the investor relations section of colliers.com to accompany this call. Please note that non-GAAP measures such as adjusted EBITDA and adjusted EPS referenced on this call are defined in the press release issued today. These adjustments are composed primarily of non-cash charges that we view as largely unrelated to our operating results. All references to revenue growth are calculated based on local currency. Second quarter revenues were $550 million, down 25% relative to the prior year. Internal revenues were down 26% due to the impact of the COVID-19 pandemic, primarily on our transactional, leasing, and capital markets operations throughout the quarter. Second quarter consolidated adjusted EBITDA was $60 million compared to $87 million last year, with margins at 10.9% versus 11.7% in the prior year quarter. Margins in each region were impacted by reduced revenues but were mitigated by aggressive measures to contain costs, including discretionary support and administrative costs, as well as compensation. I would like to take this opportunity to thank our teams around the world for their tireless efforts in managing their businesses closely during this unprecedented time. Q2 revenues in the Americas totaled $309 million Down 26%. America's outsourcing and advisory revenues were flat, with each of project management, property management, and valuations holding stable. Leasing and capital markets revenues were down 45% and 24%, respectively, with leasing more heavily impacted as occupiers of office space, particularly in urban markets, deferred decisions on future lease commitments. Adjusted EBITDA was $24 million, down 33% versus last year. EMEA Q2 revenues were $100 million, down 32% for the region. Leasing was down 42%, capital markets down 40%, and outsourcing advisory was down 23%, all impacted by the pandemic. Most of the reduction in outsourcing and advisory in the region came from our turnkey project management business, which experienced delays in executing on-site work as several job sites were inaccessible. Adjusted EBITDA for the region was $6 million compared to $11 million last year. Asia Pacific revenues were $100 million, down 16%. as the pandemic spread to most markets in the region during the second quarter. Leasing was down 48%, while capital markets was down 25%, partially offset by a small increase in outsourcing and advisory revenues, which included revenues from the recent acquisition of Synergy, never branded as Colliers, in India. Adjusted EBITDA was $12 million compared to $14 million last year. Investment management revenues for Q2 were $41 million, down 12%. Pass-through carried interest revenue attributable to prior owners declined by $4.3 million and comprised the majority of the revenue declined. Assets under management were $35.7 billion at June 30, 2020, up 2% from $35.1 billion as of March 31, 2020, with underlying asset value in funds under management remaining stable. This validates Harrison Street's demographic investment strategy, which focuses on lower volatility asset classes like student and senior housing, medical office, storage, and social infrastructure. Adjusted EBITDA for the quarter was $17 million versus 19 million in the comparative period, with the margin impacted by the timing of certain European transaction fees. Our operating cash flow for the second quarter, excluding activity related to our accounts receivable facility, was 43 million, up from 31 million in the prior year quarter. Operating cash flow was favorably impacted by a reduction in working capital in the business, primarily accounts receivable but also from tax payment deferral programs in some geographic regions. Both of these factors were attributable to the pandemic. Colliers maintains a conservative financial profile with a net debt to adjusted EBITDA leverage ratio of 1.5 times as of June 30, 2020. During the quarter, we completed an offering of five-year 4% convertible notes for net proceeds of $224 million. The notes are convertible into subordinate voting shares over the next five years, or if not converted, may be settled at maturity in subordinate voting shares or cash at the option of call years. As such, the convertible notes are equity-like in nature and they are considered equity for purposes of our financial leverage covenants. The full extent and duration of the pandemic remains uncertain. However, as Jay mentioned, We have updated our working assumptions for the balance of the year to reflect, one, better than anticipated results for the second quarter across all service lines and regions, and two, the recent acquisitions of Colliers Mortgage and Mazer Consulting. The updated revenue range for 2020 full year is a 10% to 20% decline relative to 2019. The updated adjusted EBITDA range Looking forward, we expect transactional leasing and capital markets revenues, which both have highly variable cost structures, to remain below 2019 levels, although the scale of decline should moderate in the third and fourth quarters. Investment management and outsourcing advisory revenues are expected to remain relatively stable through the remainder of the year, with some local variability depending on local market conditions. That concludes my prepared remarks, and I would now like to turn the call over to John.