Cushman & Wakefield plc

Welcome to Cushman and Wakefield's first quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. It is now my pleasure to introduce Len Texter, Head of Investor Relations and Global Controller for Cushman & Wakefield. Mr. Texter, you may begin the conference.

Thank you, and welcome to Cushman & Wakefield's first quarter 2020 earnings conference call. Earlier today, we issued a press release announcing our financial results for the period. This release can be found on our investor relations website, along with today's presentation that you can use to follow along. These materials can be found at ir.cushmanwakefield.com. Please turn to the page labeled forward-looking statements. Today's presentation contains forward-looking statements based on our current forecast and estimates of future events. These statements should be considered estimates only and actual results may differ materially. During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines. Reconciliations and definitions of GAAP to non-GAAP financial measures can be found within the financial tables of our earnings release and appendix of today's presentation. Also, please note that throughout the presentation, comparison and growth rates are to comparable periods of 2019 and are in local currency. For those of you following along with our presentation, we will begin on page five. And with that, I'd like to turn the call over to our Executive Chairman and CEO, Brent White.

Thank you, Len, and thanks to you all for joining us today. This call is going to be a bit different than most earning calls that we conduct. Some metrics and information we typically provide have little value at the moment, in particular prior quarter data as an indicator of future performance. Other metrics we don't usually discuss have significant importance at the moment. So we're going to cover those matters we think matter most, In our Q&A session, you are, of course, welcome to ask whatever you like, and we will answer what we can. I want to begin today by recognizing and thanking our many thousands of Cushman and Wakefield colleagues who have shown a level of bravery and courage, commitment to their jobs and our clients, which, frankly, is beyond anything any of us could have expected. While most of us spent the past almost two months in our homes with our families, these thousands of employees went to work each and every day, taking care of the 5 billion square feet of buildings we maintain on behalf of our many clients. Some of these facilities, such as New York Presbyterian Hospital, were in the very epicenters of the worst this pandemic has brought to bear on the world. To each and every one of you, on behalf of our clients, and every one of your 53,000 colleagues here at Cushman & Wakefield, thank you. You are an example for us all, and your bravery and commitment will never be forgotten. I can speak from experience that sound advice and an ability to solve problems in a challenging and uncertain time is a critical differentiator to our clients. I believe this crisis will ultimately drive an increasing volume of activity to the big three firms, CBRE, JLL, and Cushman & Wakefield, which each possess unique capabilities to serve clients in these unsettled times. In addition, we believe this pandemic will further accelerate the differentiation between these three large global firms and the rest. Perhaps most encouraging to us has been the differentiation we have achieved here at Cushman & Wakefield among the big three due to our generally acknowledged global leadership position on the complex topic of how the global workforce returns to the workplace. Two weeks ago we hosted a webcast to walk landlord and occupier clients through best practices from our almost 300 page manual on reopening the workplace. We expected a few hundred people on the call and instead we had over 12,000 callers representing over 8,000 companies. And of course, many of these companies and callers were likely current clients of our competitors who ended up turning to Cushman and Wakefield for advice and counsel. Despite the economic slowdown, there is still much work to be done. Businesses continue to run. Buildings are still operational and in need of maintenance, sanitation, and cleaning. And when the time comes, many places of work will reopen, resuming business in an environment that would feel like anything but normal. We have remained agile in our response to the pandemic and are uniquely positioned to lead recovery readiness efforts for our clients. We are applying our learnings and our experience in China, where we completed moving 10,000 companies and nearly 1 million people back into 800 million square feet of buildings we manage in China. And we are using those insights and best practices to provide our clients customizable, cost-effective solutions for returning to work. Additionally, we formed the Recovery Readiness Task Force of our top experts to lead the development of best practices, products, and partnerships to prepare clients for post-COVID-19 recovery and the eventual return to the workplace. From our earliest days of creating the new Cushman & Wakefield, we built this firm on the learnings from the past, and specifically, the learnings from the downturns of 2000 through 2002, and then the global financial crisis in 2008 through 2010. We focused on building a firm with a large amount of recurring revenues, strong liquidity, and a senior management team that have been battle-tested through the best and the worst our industry has faced. Because of this, we built ample liquidity, including cash on our balance sheet and a large revolver, which we have expanded over time. We did this so that when a Black Swan event occurs, as they will and do, we not only do not need to worry about liquidity issues, we have surplus liquidity, which we can deploy towards accretive and attractive investments. Finally, as we have clearly stated from our very first roadshow, we focus on operating margins and in turn expense management as a day-to-day practice. All of this put us in a somewhat unique position in late March when the scale of this pandemic became clear. We had also just completed most of the actions related to our November 2019 strategic realignment and efficiency program, where all the cost reductions are expected to be permanent. So, while other firms are only recently beginning their plans on austerity, we began our plans months before the market turned down. And as I mentioned above, because this team has led three of the largest firms in this industry, the playbook on additional temporary and permanent cost reductions is well known by us all and was implemented immediately. These reductions cover all the usual categories and span across the organization. These two large actions, the 2019 Strategic Realignment Program and the Additional Austerity Program are anticipated to have an annual impact of over $400 million. Although there will be some ramp up over time, We expect the impact of these actions to be significant in the second quarter. These benefits are in addition to the expected reduction in fee earner variable compensation expense and the reduced spend on materials, subcontractors, and direct client labor that follow from lower revenue. In addition, we immediately adjusted our models on company performance. At Cushman & Wakefield, we run three models annually for the firm. Our downside case has always been built on metrics that approximated a rough midpoint between the GFC and the downturn of 2000 and 2002. Our base case is always our annual operating plan. And while our upside case isn't much of a focus, in good years it does set a range of possibilities should markets perform better than expectation. We manage liquidity always against our downside case and our day-to-day expense and capital allocation against our base case. So when the downturn hit in March, we simply adjusted these models down. But we are not going to share the specific inputs to these models. We will say that the downside model sets a low point that we feel will not be hit. Think of it as a stress test of performance, cash flow, and liquidity. So our playbook is fairly simple. Test liquidity against a worst-case scenario that has a low chance of occurring. Manage the business against a lower base case. Hope for a more optimistic upside case to occur, but never, ever count on it. To put it clearly, we have a formula for financially managing our business that we feel is a distinct differentiator and competitive advantage for our company. Our approach is scientific, data-driven, and conservative. With that, let me speak again to our firm's liquidity. At the end of the first quarter, we had around $1.4 billion in liquidity on our balance sheet and recently expanded our revolver to $1 billion and repriced our term loan, saving over $13 million in annual interest expense. In summary, Cushman & Wakefield is a much stronger company than it or our two largest peers were in the global financial crisis, with more than ample liquidity and a diversified revenue base weighted towards recurring revenues. Now I'll give some color on overall business activity and client engagement over the past month. First, let me begin with our biggest business by revenue, which is our property facilities and project management business, or PMSM, which represents almost half of our overall revenues. As many of you know, the services that comprise most of this segment are in many cases essential and required as part of the operation of a commercial building. For example, cleaning, security, and building maintenance are all functions that are required of building owners at all times. Additionally, as you know, These services are executed on a contracted basis with highly visible revenue strains. To date, we have seen no negative material change on the renewal rates on contracts with our PMFM clients. And in fact, Cushman & Wakefield is working with many of our larger global occupier services clients on strategic space planning for a return to work for their employees as quarantine restrictions around the world begin to lift. Our next largest business is our leasing service line, which accounts for approximately 30% of our total fee revenue. As we have noted in the past, we believe approximately three-quarters of aggregate leasing volume is represented by renewals of current leases. We have cited this in the past, as have our competition, to note that a significant portion of our overall leasing volume is highly visible in nature. Across our leasing business, we have seen deals that were in process slow, but not stop. And some deals, large and small, continue to be completed. In periods of uncertainty, clients often prolong lease renewal decisions, which could delay but rarely cancel transactions. We can say with certainty that our leasing professionals remain in active dialogue with both real estate owners and occupiers on deals, both for renewal and for new long-term space planning requirements. Lastly, let me speak to our capital markets and our valuation service lines, which represent the smallest proportion of our total revenue at roughly 15% and 8% respectively. In the short term, we expect capital markets revenues to be more impacted than leasing. We expect the second quarter to have the most significant impact on our capital markets business in terms of year-over-year decline, with some sort of recovery in relative terms during the rest of 2020 and beyond. Now, to give you some context on how recent events have impacted our results, let me provide some color on trends in the first quarter. I'll begin by saying that our PMFM and valuation service lines all performed strongly over the first quarter. Leasing showed some weakness in March. but we were also covering a very strong first quarter 2019 for leasing both in the Americas and globally. Roughly half of the 2% decline in our first quarter revenues was driven by the deconsolidation of our PMFM revenues in China as a result of setting up the Banky joint venture. However, the joint venture was accreted to EBITDA in the quarter. Duncan will speak to this impact in more detail. Our brokerage businesses, after a solid start to the year, experienced sharp declines in March. Leasing revenue in March declined 28%, and capital markets was down about 13% for the month, certainly a precursor for steeper declines to come. PMFM, including the impact of the Banking Joint Venture, and valuation and other were up mid-single digits over last year in March. Finally, before I turn the call to Duncan to detail our financials, let me speak briefly to our 2020 outlook. As you saw from our earnings release, we are withdrawing our full-year guidance given the lack of visibility to revenues. What we can provide are the following expectations. First, not surprisingly, we expect the second quarter to experience the sharpest relative decline in revenues versus prior year, especially in our brokerage service lines. we would expect the impact of capital markets to be higher than leasing in the short term. And we expect PMFM to remain relatively stable during 2020. However, there is some room for optimism that the declines in future quarters will be less. Although at this time, we do not know how this will play out. We can't tell exactly what the depth of the decline in revenues will be or how revenue trends will impact our mix. But as a rule of thumb, and given our diversified business mix and decisive cost actions, we would expect the EBIT decline in 2020 as a percent of our fee revenue decline to be in the mid-20% range. We are confident in our company, our employees, and our ability to serve our clients no matter what the coming months may bring. Our actions have been fact-based and decisive, and our financial strength is not in doubt. Our senior executive team has extensive experience in managing through downturns, and Cushman & Wakefield will continue to play a strong leadership role in helping our clients and our industry manage through this period and into recovery. And with that, let me turn the call to Duncan to discuss our financial results in more detail. Duncan?