Colliers International Group Inc.

Good day, and thank you for standing by. Welcome to the Collier's International Group's third quarter 2022 investor conference call. Today's call is being recorded. Legal counsel requires us to advise that discussion scheduled to take place today may contain forward-looking statements that involve known and unknown 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 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 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 November 1st. 2022, and at this time, for opening remarks and introductions, I would now like to turn the conference over to the global chairman and chief executive officer, Mr. Jay Hennig. Please go ahead, sir.

Thank you, operator. Good morning, and thanks for joining us for the third quarter conference call. As the operator mentioned, I'm Jay Hennig, chairman and chief executive officer of the company, and with me is Christian Mayer, chief financial officer. As always, this call is being webcast and is available in the investor relations section of our website. A presentation deck is also available there to accompany today's call. Earlier today, Collier's reported very solid third quarter results with outsourcing and advisory investment management and leasing all up strongly, more than offsetting any softness in capital markets. which obviously has been impacted by higher interest rates, availability of capital, and geopolitical uncertainties. As you can see, growing recurring revenues and earnings now at 55% of our pro forma EBITDA together with broader diversification across service lines, across geography, and across client types, is demonstrating that the Collier's diversified services model is more balanced and more resilient than ever. For the quarter, revenues were $1.1 billion, up 12% in local currency. Adjusted EBITDA was $145, up 21%. Adjusted EPS was $142, up 11% all versus the prior period. For nine months, revenues were $3.2 billion, up 21%. Adjusted EBITDA, $428 million year-to-date, up 24%. And adjusted EPS was $469, up 20% versus the prior year. Here are some of the highlights. With the recent acquisitions of Rockwood and Versus, our investment management business now represents above 30%. of our pro forma EBITDA and total assets under management has surpassed the $92 billion mark, firmly establishing Colliers as one of the top global players in the rapidly growing alternative private capital industry. We have strategically built our IAM business over the past six years, and we have done it the right way. Today, 85% of our assets under management are in perpetual or long-dated strategies, with 70% of that capital invested in highly defensive and sought-after asset classes like alternatives and infrastructure. In addition, each of our investment platforms has a long history of delivering top-tier investment returns for investors, and best-in-class leadership teams hold significant and direct equity in their own operations while benefiting from the collective resources of the whole. The Collier's perpetual partnership philosophy has been a real differentiator for us, creating a permanent capital source for our partners and perfect alignment for our investors and for our shareholders. We are very excited about the potential of this rapidly growing segment of our business. We also continued to aggressively grow our core service business. During the quarter, we acquired Peak Urban, adding significant engineering capabilities and a new growth engine to our market-leading service operations in Australia and Asia Pacific. We bolstered our presence in the Nordics with an agreement to acquire Pangea Property Partners, a leading real estate advisory firm in Norway and Sweden. Once the transaction is completed, Colliers will be the number one player in the Nordic region, together with our existing operations in Denmark and Finland, and the group will provide further strength and opportunity to the rest of our business in Europe and around the world. Finally, just after the quarter end, we added Arcadia Property Management to our rapidly growing and highly successful U.S. services business. This acquisition adds further scale and capability to our property management operations, principally in the U.S. Southwest. As you will hear from Christian in a few minutes, despite our very solid results for the quarter, we're adjusting our outlook slightly for the balance of the year. Let me conclude by reinforcing a few things. Colliers, as a highly respected global brand and operating platform, with a broadly diversified business model and multiple engines for growth. We have virtually unlimited growth opportunities and a clear history of being able to capitalize, especially in times of dislocation, as we are seeing now. Currently, 55% of our earnings come from recurring revenue streams, including our investment management segment, which now makes up about 30% of our business As I mentioned, Collier's is more balanced and more resilient than ever, and you can easily see this from the results we delivered. The Collier's strategy and way of business has stood the test of time. Our proven track record has delivered about 20% annual growth in share value over 27 years. That is a track record that is really second to none. As the chief architect of our company since its founding, I continue to believe that Colliers is not being valued properly and has not been valued properly over the past number of years, and that is regardless of current market conditions. I say this because we built an incredible company with a unique operating culture, diversified business mix, significant recurring revenues, and a demonstrated ability to create significant shareholder value year over year over a long period of time. It is truly difficult to find investment opportunities as well managed and as growth oriented as we are at Colliers. But perhaps most importantly, our leadership team owns the largest stake in our company by a country mile. We have more skin in this game than absolutely anyone. Now, let me turn things over to Christian for his comments. Christian?

Thank you, Jay. My comments follow the flow of the slides posted on the investor relations section of Colliers.com accompanying this call. Please note that the non-GAAP measures referenced in this call are as defined in this morning's press release. All references to revenue growth are expressed in local currency. Our third quarter revenues were $1.1 billion, up 12% relative to the prior year period, with revenues up strongly in our outsourcing advisory and investment management service lines. Our leasing operations also generated solid growth, benefiting from increased activity in office and industrial asset classes. Capital markets activity softened in the quarter, reflecting the impact of higher interest rates, reduced availability of capital, and geopolitical uncertainty. Internal growth was 4%, with the balance from acquisitions completed during the past 12 months. Adjusted EBITDA for Q3 was $145 million, up 17% from one year ago, with margins at 13.1%, up 100 basis points relative to the prior year quarter. Third quarter America's revenues were $695 million, up 13% over the prior period, Growth was led by outsourcing advisory up 27%, driven by engineering and design, including recent acquisitions. Leasing activity was up 21%, with growth in both office and industrial asset classes. Capital markets activity, including debt origination, was down 8% as clients paused to reassess the clearing prices for sales transactions, giving a rising rate environment as well as availability of debt capital. Adjusted EBITDA was $67 million, up 2% from last year. The margin in the Americas was 9.6% relative to 10.7% in the prior year period and was impacted by higher discretionary and variable costs and a reduction in high-margin capital market transactions. EMEA revenues for Q3 were $164 million, up 23% from one year ago, with growth across all service lines, particularly project management, although growth was unevenly distributed across countries. Revenue growth was particularly strong in the United Kingdom, more than offsetting the impact of higher interest rates and geopolitical uncertainty in other markets. Adjusted EBITDA was $13 million versus $15 million last year, with the margin primarily impacted by revenue mix, with a higher proportion of project management at modest margins. Asia Pacific revenues were $153 million, down 4%, and were impacted by higher interest rates and COVID-19 restrictions in several Asian markets, especially China. Adjusted EBITDA was $21 million, flat relative to the prior year quarter on lower costs resulting from reduced variable compensation. Third quarter investment management revenues were $96 million, up 23% from the prior year period. Excluding pass-through carried interest, revenues were up 62%, driven by acquisitions and management fee growth from increased assets under management. Adjusted EBITDA for the quarter was $37 million, up 33% versus the comparative quarter. As a reminder, 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. We have generated solid new capital commitments from investors across our fund portfolio during the first nine months of the year, albeit at a slower pace than during 2021. Similar to our last quarter, we are currently seeing investors take more time to make capital allocation decisions. We ended the quarter with $87 billion of AUM, including Versus, which closed just after quarter end. Our AUM now exceeds $92 billion. Our fee-paying AUM is now $51 billion. Given the private and defensive nature of the real estate and real assets in our portfolio, we expect our FPUM to remain stable despite this market turbulence. Our financial leverage ratio as of September 30th, 2022, defined as net debt to perform EBITDA was 1.5 times, including acquisitions that have been announced but were not completed as of September 30th, Our financial leverage is 2.0 times inside our stated comfort zone. We expect to deliver over time using our operating cash flow to pay down debt. We repurchased 373,000 shares during the past month for total consideration of $35 million under our normal course issuer bid. Year-to-date, we have repurchased 1.4 million shares for total consideration of $161 million Given our future growth prospects, strong financial capacity, and our current market valuation, we believe it is prudent to make modest share repurchases at this time. We are updating our outlook for the full year 2022 to reflect year-to-date operating results, contributions from acquisitions, the operating impact of rising global interest rates and geopolitical uncertainties, as well as adverse foreign exchange impacts on AEPS. The outlook is subject to risks and uncertainties as outlined in the accompanying slides. We now expect our adjusted EBITDA margin to improve 60 to 80 basis points relative to 2021 from a combination of higher margin acquisitions and internal operating leverage. We also expect our tax rate and NCI share of earnings to be slightly higher than anticipated, reflecting our expected mix of earnings for the full year. As a result, we now expect our adjusted earnings per share to grow this year at a mid-teens percentage rate relative to the low 20s rate previously anticipated. That concludes my prepared remarks. I would now like to open the call for questions. Operator, can you please open the line?