Colliers International Group Inc.

Welcome to the Colliers International First Quarter Investors Conference Call. Today's call is being recorded. Legal counsel requires us to advise that this discussion schedule 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 materially differ from those in the forward-looking statement, 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 40-F as filed with the U.S. Securities and Exchange Commission. As a reminder, this call is being recorded today, May 2, 2023. 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 this first quarter conference call. I'm Jay Hennick, Chairman and Chief Executive Officer of the company, and with me today is Christian Mayer, Chief Financial Officer. As always, this call is being webcast and is available in the investor relations section of our website. along with a presentation slide deck. During our seasonally slow first quarter, investment management and outsourcing and advisory delivered robust growth. Leasing was up slightly, and as expected, capital markets declined considerably in line with overall market conditions. Since our initial outlook 90 days ago, we've seen higher interest rates and challenging debt markets impact transaction volumes. Now, with the additional stress on the banking system and increasing limitations on debt availability, there is more uncertainty around property valuations. Until these factors become more predictable, we expect the level of transaction activity to remain low. Let's remember, Collier's has chosen to provide an outlook unlike most others. We do this to give our shareholders our best estimate at any given point in time, and we like to do this especially in challenging times like we're seeing now. If you step back, not much has really changed in our outlook for the full year as you'll hear from Christian. Putting aside capital markets, the momentum from the rest of our business is very strong. Revenues from investment management and outsourcing and advisory increased 40% and 13% respectively in our slowest quarter. And together, these segments now represent more than 60% of our overall adjusted EBITDA. Having such a large proportion of our earnings coming from these revenue streams, highlights the transformation of Colliers into a much more balanced, diversified, and resilient company. After quarter end, we continue to build our global business by completing acquisitions in Australia and New Zealand in our engineering and design and project management segments. In addition, we announced the early redemption effective June 1st of this year of our outstanding 4% convertible notes. Eliminating these notes reduces our interest costs and simplifies our balance sheet even further. Shareholders know that Colliers has seized its greatest opportunities during challenging times. Higher interest rates and tighter access to capital really gives us a tremendous advantage in completing acquisitions in recruiting key professionals and leaders, and in scaling our newer growth engines, all of which translates into additional value for our shareholders. With that said, I'll now turn things over to Christian for a financial overview. Christian?

Thank you, Jay, and good morning. Please note that all references to revenue growth are expressed in local currency and that the non-GAAP measures we will discuss today are as defined and the materials accompanying the call. Revenues for our seasonally slow first quarter were $966 million, down 1% relative to the prior year quarter, which, as a reminder, was an exceptional quarter for our transactional business. Our recurring investment management and outsourcing and advisory service lines generated strong growth, up 40% and 13%, respectively. Leasing revenues were up 2%, benefiting from continuing activity in industrial and alternative asset classes. As expected, capital markets declined sharply in line with overall market conditions, continuing the trend that started last fall. On an overall basis, internal revenues declined 9% entirely on lower transaction volumes. First quarter adjusted EBITDA was $105 million, relative to $121 million one year ago, with margins at 10.8% versus 12.1% in the prior year quarter. The margin reduction is attributable to the decline in capital markets volume, partially offset by growth in our higher margin investment management operations, as well as aggressive cost controls across the company. America's revenues were $582 million down 8% relative to the prior period. Outsourcing and advisory was up 9%, driven by engineering and design, including recent acquisitions. Leasing activity was up 1%. Capital markets, including debt origination, was down 41%. Adjusted EBITDA was $54 million, down 33% from last year. The margin in the Americas was 9.3%, down 330 basis points, due to the slowdown in capital markets. EMEA first quarter revenues were $143 million, down 2% versus the prior year period. Outsourcing and advisory revenues were up 27%, but were offset by reduced capital markets transaction volume. Our EMEA transactions business has greater fixed costs than transaction operations in other parts of the world. and in normal times also generates higher margins. However, the significant decline in volume for the seasonally slow first quarter drove an adjusted EBITDA loss of $11 million versus a profit of $5 million last year. In the Asia-Pacific region, revenues were $120 million, up 7%. Leasing revenues increased significantly in both industrial and office asset classes. However, capital markets was down 26% given market conditions. This region is showing promising signs of recovery year over year after the pandemic era restrictions that extended into last year. Adjusted EBITDA was $8 million relative to $10 million in the prior year quarter. First quarter investment management revenues were $121 million, up 96% excluding pass-through carried interest, driven by acquisitions and management fee growth from increased assets under management year over year. Adjusted EBITDA for the quarter was $55 million, more than double the prior year quarter. Assets under management at quarter end was $97.6 billion, down slightly relative to year end. Asset values in our portfolios of primarily alternative and infrastructure assets were down modestly and mostly offset by net capital inflows from investors during the quarter. Like overall market sentiment, the fundraising environment for most asset classes remained challenging during the first quarter. However, given the alternative and infrastructure focus of our investment strategies, we believe fundraising will accelerate in the second half of the year. We expect overall AUM growth of about 10% for the full year. Our financial leverage ratio at quarter end defined as net debt to perform an adjusted EBITDA was 2.2 times, which reflects acquisitions completed during 2022, as well as seasonal working capital usage. Absent any further acquisitions, we expect our leverage to decline to around 1.8 times by year end. Last week, we took the opportunity to increase credit availability under our revolving credit facility to $1.75 billion, giving us more than $800 million of total liquidity for opportunities to strengthen and expand our business. Back in early February, we provided our initial outlook for 2023. Since then, a significant banking crisis has occurred, availability of credit has tightened further, and the level of uncertainty around asset valuations has increased, causing us to revise our outlook for the year. We now expect lower volumes in our transactional business to persist for the remainder of the year. We expect capital markets to be down 30% to 40% for the second quarter, with year-over-year comparisons becoming more favorable in the third and fourth quarters. We expect robust revenue growth to continue in our recurring service lines, investment management, and outsourcing and advisory. We will also continue to be vigilant on cost control across our companies. Overall, adjusted EBITDA should be up between 6% and 14%, and adjusted earnings per share should be down slightly to up slightly versus prior year on higher interest costs as well as the impact of a larger proportion of earnings coming from non-whole-owned operations. That concludes my prepared remarks. I would now like to open the call for questions. Operator, can you please open the line?