Colliers International Group Inc.

Welcome to the 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 the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially 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, August 3, 2022, 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, and thanks for joining us for the second quarter conference call. I'm Jay Hennick, the chairman and chief executive officer of the company, and with me today is Christian Mayer, our chief financial officer. As always, this conference call is being webcast live and is available in the investor relations section of our website. and a presentation deck is also available there to accompany today's call. Collier's reported strong second quarter results with solid revenue growth across all service lines. Despite a war and economic and other geopolitical turmoil in Europe and the seemingly endless lockdowns in Asia, Collier's continues to perform to expectation through all market cycles. The fact is we are more balanced, more resilient, and more diversified than ever. During the quarter, we continued to grow our investment management segment in both size and scale, furthering our goal of becoming a major player in the rapidly growing alternative private capital industry. We completed two acquisitions and a third after quarter end. Then in late June, we announced the addition of Versus Capital, a highly successful alternative real asset manager in the U.S. with strong private wealth distribution capabilities. Once completed, our IM business will have a total of more than $85 billion in assets under management and make up about 30% of our pro forma annualized EBITDA. This segment, on a standalone basis, already compares favorably to other public companies in the investment management industry. Our revenues are primarily recurring management fees. About 90% of our funds are perpetual or long-dated strategies, 10 years or more, and 70% of them are in rapidly growing sectors like alternatives and infrastructure. But perhaps most importantly, each of our platforms are led by strong investment professionals who hold significant equity stakes in their own operations and have a long history of delivering top-tier performance for investors. These characteristics, among others, truly differentiate our business from the rest in the marketplace. Over the past six years, Colliers has built a very valuable investment management business, one in which we see huge potential growth in the future. Separately during the quarter, we added a significant building consultancy and project management leader in the UK, enhancing our service capabilities in Europe. And just yesterday, we added one of the fastest growing engineering companies in Australia, providing us with another growth engine to our already strong operations down under. Based on acquisitions completed or announced so far this year, we expect 2022 to be a record year for capital deployment, with more than a billion dollars invested for the first time in our history. With our strong global brand and growth platform, proven track record of more than 27 years, balanced and diversified business model, unique enterprising culture, and significant inside ownership, Colliers expects to continue delivering exceptional returns for shareholders for many years to come. Now, let me turn things over to Christian.

Thank you, Jay. My comments follow the flow of the slides posted on the investor relations section of colliers.com to accompany this call. Please note that the non-GAAP measures referenced on this call are defined in this morning's press release. All references to revenue growth are expressed in local currency. Our Q2 revenues were $1.1 billion, up 23% relative to the prior year period, with revenues up strongly across all service lines, led by investment management and outsourcing and advisory. Internal growth was 15%, with the balance from acquisitions completed during the past 12 months. Second quarter adjusted EBITDA was $161 million, up 21% from one year ago, with margins at 14.3%, roughly flat versus the prior year quarter. America's revenues for the second quarter were $741 million, up 28% over the prior period. Growth was led by outsourcing advisory, up 34%, driven by engineering and design, including recent acquisitions. Capital markets activity was up 28%, led by industrial and land asset classes, partially offset by reduction in debt origination activity due to the current interest rate environment. Leasing activity was up 20%, with growth in both industrial and office asset classes. Adjusted EBITDA was $102 million, up 30% from last year, fueled by revenue growth as well as a gain on the termination of a lease, partly offset by higher variable costs and a mixed change with a reduction in higher margin debt origination. The Americas margin was up 20 basis points to 13.7%. Q2 EMEA revenues were $169 million, up 20% from one year ago, led by outsourcing and advisory. including the benefit of a recent acquisition. Adjusted EBITDA was $14 million relative to $21 million last year and was impacted by a reduction in higher margin capital markets revenues due to geopolitical uncertainty in the region, as well as higher variable costs. Asia-Pacific revenues were $143 million, down 1%, and were impacted by COVID-19 lockdowns in several Asian markets, which extended until late in the quarter. Adjusted EBITDA was $20 million, or else up to $21 million in the prior year quarter. Investment management revenues for the second quarter were $75 million, up 48% versus the prior year period. After eliminating the impact of pass-through carried interest, revenues were up 45% driven by management fee growth and acquisitions that closed during the quarter. Adjusted EBITDA for the quarter was $29 million, up 36% versus the comparative quarter. New capital commitments from investors for the first half of the year have been solid. We have several products presently in the market, including at each of our newly acquired operations, and including attractive long-term opportunities and alternatives and infrastructure asset classes. Given current market conditions, we are seeing investors take more time to make capital allocation decisions. However, our investor base is broader and more diversified than ever before. We are confident we will meet our fundraising objectives for the balance of the year. We ended the second quarter with 68.7 billion of AUM, including Rockwood, including Rockwood, which closed on July 6th, and Versys, which is expected to close in Q4, our AUM is now $87 billion. Our trailing 12-month investment management pro forma adjusted EBITDA is currently $220 million, which represents 30% of our consolidated total, as Jay mentioned earlier. Our reported adjusted EBITDA is equivalent to fee-related earnings, or FRE, that many pure-play IM firms report, since our IM earnings come predominantly from recurring management fees. In the coming quarters, we will enhance our IM segment reporting to give shareholders a better sense of these operations and their strong growth prospects. As of June 30th, our financial leverage ratio, defined as net debt to perform an adjusted EBITDA, was 1.4 times. Including acquisitions that have been announced but were not completed as of June 30th, our financial leverage is two times inside our comfort zone, and we expect to de-lever over time using operating cash flow to pay down acquisition debt. In May, we renewed our evolving credit facility increasing capacity to $1.5 billion from $1 million and extending the term to 2027. The new revolver is sustainability linked and includes three ESG metrics aligned with our Elevate the Built Environment strategy. We are updating our outlook for the full year 2022 to reflect recently announced acquisitions and our first half operating results. The outlook is subject to risks and uncertainties as outlined in the accompanying slides. We expect low double-digit revenue growth consisting of high single-digit internal growth and the balance from acquisitions, including Rockwood, Versys, and Peak Urban. We expect our adjusted EBITDA margin to improve 60 to 100 basis points relative to 2021 from a combination of higher margin acquisitions and internal operating leverage. Finally, our adjusted earnings per share are expected to grow at a low 20 percentage rate. That concludes my prepared remarks. I would now like to open the call for questions. Operator, can you please open the line?