Colliers International Group Inc. (NASDAQ:CIGI) Q4 2023 Earnings Call Transcript February 8, 2024
Colliers International Group Inc. beats earnings expectations. Reported EPS is $2, expectations were $1.92. Colliers International Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Colliers International Fourth Quarter Year-End Investor 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 differ materially 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 in 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, today's call is being recorded. Today, it's February 8, 2024. 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.
Jay Hennick: Thank you, operator. Good morning, and welcome to the fourth quarter conference call. I'm Jay Hennick, Chairman and Chief Executive Officer of the company. Joining me today is Chris McLernon, Chief Executive Officer of our Real Estate Services business; and, of course, Christian Mayer, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of our website, where you can also find the presentation slide deck. In the fourth quarter, Colliers experienced robust revenue growth in its high-value recurring service lines. Over the past five years, Colliers has strategically transformed into a more diversified professional services company by adding significant recurring revenue platforms such as investment management and engineering and project management.
Today, more than 70% of our earnings comes from these recurring services, providing our company with more balanced, more resilience and more predictability than ever and similar in many ways to other highly diversified global professional service companies. Throughout the year, we observed industry-wide declines in one segment of our business, our transaction segment, our capital markets business. However, we expect a return to higher transaction velocity in the latter part of this year as interest rates and credit conditions hopefully stabilize. In the interim, pricing for most real estate assets continue to adjust as buyers and sellers try to find equilibrium that they need to transact business. With our nearly 30-year track record of creating substantial shareholder value, Colliers is poised for continued success.
Anticipating a rise in transaction revenue later this year and supported by a very strong pipeline for new growth prospects, we are more excited than ever about the future. And with that, let me turn things over to Chris McLernon to discuss some highlights on the services side. Following that, Christian will provide his financial report, and then we'll open things up for questions. Chris?
Chris McLernon: Thank you, Jay, and good morning. I'm proud of the results that Colliers Real Estate Services delivered in the fourth quarter and the full year. Despite industry-wide headwinds, we have become more resilient than ever, demonstrating the strengths of our highly diversified professional services platform by both service line and by geography. Our Outsourcing & Advisory business saw a 10% revenue growth in the fourth quarter and for the full year has grown 11%, led by engineering, project management and property management. Our engineering and project management pipelines are filled with a balanced mix of public and private sector clients that want to work with us because of our expertise and ability to provide integrated solutions.
An experienced property manager overseeing tenants in an apartment complex.
Additionally, the growth of our property management business has been driven by strong portfolio retention and expansion within our existing client base as well as the addition of new clients due to receiverships in key markets. We expect the growth rate for these high-value services to remain resilient over the long-term. As mentioned, transaction volumes remained subdued during the quarter because of interest rate volatility, tighter lending standards and pricing mismatch between real estate buyers and sellers. However, with expectations of interest rates stabilizing, we have greater confidence that transaction velocity will improve in the second half of this year. Importantly, during the slowdown, we have continued to invest in our business, filling gaps, taking market share and top grading leadership.
Having been with Colliers for 35 years, I'm especially proud of our enterprising professionals and our culture, the bedrock of our success. I'm pleased to share that we have been named among the world's top companies for women by Forbes, in addition to our inclusion on Forbes World's Best Employers list. I'll now turn over the call to Christian to provide more details on our financials.
Christian Mayer: Thank you, Chris, and good morning. I'll provide some additional commentary on our consolidated results, our financial outlook for 2024 and our balance sheet. Please note that all references to revenue growth made on this call are expressed in local currency, and that the non-GAAP measures discussed here today are as defined in the materials accompanying this call. In the fourth quarter, revenues were $1.2 billion, flat when compared to the same quarter of last year and in line with our expectations for the quarter. Our recurring Outsourcing and Advisory and Investment Management service lines each reported robust revenue growth, predominantly internally generated. Leasing revenue declined modestly across all asset classes.
Capital Markets revenue declined 16% in its seasonally strongest quarter, on top of a 43% decline reported in Q4 of last year, with transaction sentiment continuing to be impacted by interest rate volatility and availability of credit. On an overall basis, our internal revenues declined 2%. Consolidated adjusted EBITDA for the fourth quarter was $198 million, down 2% relative to the prior year with margins at 16.1% versus 16.6% in the prior year quarter. The margin reduction was attributable primarily to service mix with a decline in higher margin capital markets revenues not fully offset by our ongoing cost control efforts. We achieved cost savings of $28 million during the fourth quarter and $94 million for the full year. We have extended our cost control efforts into 2024 to match the duration of the expected transactional revenue downturn, but the beneficial year-over-year impact of this has been largely realized.
Our initial financial outlook for 2024 reflects our best information given the ongoing challenges in transaction market conditions. For the first half of the year, we expect capital markets and leasing transaction volumes to be roughly flat to 2023. In the second half, we anticipate year-over-year increase in activity, particularly in capital markets, coinciding with our expectations of stabilization and interest rates and an improvement in credit conditions. In our recurring service lines, we are expecting mid to high single-digit revenue growth. Investment management fundraising for 2023 totaled $3 billion, given the difficult market backdrop. We continue to see strong interest in our alternative investing strategies, which we expect will accelerate fundraising for 2024 to between $5 billion and $8 billion.
Our adjusted EBITDA growth is expected to outpace revenue growth as we gain operating leverage from the capital markets recovery as well as the benefit of additional assets under management in our higher-margin investment management operations. Adjusted earnings per share is expected to exceed EBITDA growth as interest expense starts to moderate from both debt paydown and lower floating rates as well as a reduction in the non-controlling interest share of earnings as our wholly-owned transactional operations rebound. Turning to our balance sheet. Our financial leverage ratio, defined as net debt to pro forma adjusted EBITDA, was 2.2x at the end of 2023. For 2024, we expect leverage to rise modestly in the first half due to seasonal working capital usage, then to decline to between 1.5x and 2x by the end of the year, assuming no significant acquisitions.
That concludes my prepared remarks. I would now like to open the call for questions. Operator, can you please open the line? Question-and-Answer Session
