Cushman & Wakefield plc beats earnings expectations. Reported EPS is $0.45, expectations were $0.39. CWK 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 Cushman & Wakefield Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Megan McGrath, Head of Investor Relations for Cushman & Wakefield. Ms. McGrath, you may begin the conference.
Megan McGrath: Thank you and welcome to Cushman & Wakefield's fourth quarter 2023 earnings conference call. Earlier today, we issued a press release announcing our financial results for the period. This release, along with today's presentation, can be found on our Investor Relations website at ir.cushmanwakefield.com. Please turn to the page in our presentation labeled cautionary note on forward-looking statements. Today's presentation contains forward-looking statements based on our current forecasts 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 of GAAP to non-GAAP financial measures, definitions of non-GAAP financial measures and other related information are found within the financial tables of our earnings release in the appendix of today's presentation.
Also, please note that throughout the presentation, comparisons and growth rates are to the comparable periods of 2022 and in local currency, unless otherwise stated. And with that, I'd like to turn the call over to our CEO, Michelle MacKay.
Michelle MacKay: Thank you, Megan. It's hard to believe this is just my third earnings call as CEO of Cushman & Wakefield given the pace of change since I became the CEO in July of last year. Since then, we've looked at every aspect of our business. We have updated and mapped out long-term strategic plans for the first time since the IPO in 2018 and we're using data to make tough decisions around spending and capital allocation which will set us all up for future growth. And we took actions toward deleveraging with our 2 refinancing transactions last year and we plan to begin the process of reducing our leverage later this quarter. You can see the impact of the changes that we've made in our 2023 results. We generated $570 million in adjusted EBITDA and $100 million of free cash flow, up from essentially a breakeven number in 2022.
And we're not done. We made extraordinary strides last year in a short period of time, operating with rigor, executing with speed and urgency and never settling, continuing to drive the business forward. And we haven't come this far to stop now. Every day, we are working to improve our financial position and flexibility and to create momentum both internally and with our clients so that we are poised to capitalize when the market inevitably rebounds. We've already started to see some green shoots. In the fourth quarter, leasing revenue grew year-over-year in all 3 of our reported regions due to growth in large office and industrial deals in the U.S. and strength in Europe and APAC. Our services businesses remained resilient, growing revenues at 3% in 2023 on top of double-digit growth in 2022.
But as I've mentioned before, we are not satisfied with this level of growth. But thanks to the detailed strategy work we completed last year, we're entering 2024 with a better understanding of each of our services businesses and a clear focus on strengthening both long-term growth and profitability. Now people have been asking about our view on 2024. Let me start with capital markets. As a long-time real estate investor, I know it's not only the absolute level of interest rates that matter, although it's important. But what also matters is the shape of the yield curve. With the inverted curve that we have today, people are hesitant to borrow and lend law. Once the Fed begins to cut rates which seems likely to happen later this year, we expect the yield curve to begin a process of normalizing.
This should help people get more comfortable about taking 5-year, 10-year and 15-year risk, providing a pathway to a more active market. And while we anticipate a moderate initial reduction in interest rates later this year, we do feel closer to the restarting of capital markets activity than we have in some time. So even before the Fed cuts, there is accretive, profitable opportunities for us to pursue. Every week, we hear about more funds being raised for real estate investments. There is roughly $400 billion of dry powder in the market waiting to deploy. And even in distress, there's opportunity for Cushman & Wakefield. Our new real estate optimization team helps our clients evaluate, monitor and address potentially stressed or distressed assets.
Now moving on to leasing. We expect stable to modest growth in this segment in 2024, supported by a solid level of lease expirations. And even with many companies still implementing hybrid work, there's 10.5 billion square feet of occupied office space globally. And finally, we see significant opportunities to organically expand our services businesses, thanks to our global scale and client-centric strategy. We remain disciplined and focused on accretive growth. For example, we recently won a long-term contract with a large global financial services company. They weren't looking for the biggest services provider but for a thoughtful partner to help create and execute innovative solutions designed specifically for them which is why they chose Cushman.
And in another recent win, the deal never went to RFP. We won on our reputation, our relationships and our ability to handle complicated situations. Through our commitment to streamlining our cost structure, enhancing our balance sheet and cash flow and strengthening our client-facing initiatives, we are poised to create meaningful value as the market returns to growth. We will never settle. We're often seen as the scrappy challenger in this market, outthinking others, brave in our decision-making and advice. The people of Cushman & Wakefield proudly lean into today's market challenges because we don't run away from our clients' biggest challenges, we run to them. And with that, I'll hand the call over to Neil.
An impressive commercial building showcasing the real estate services of the company.
Neil Johnston: Thank you, Michelle and good afternoon, everyone. While the macro environment in 2023 was persistently challenging, we proactively enhanced our balance sheet strength and flexibility, prudently cut costs and improved our free cash flow conversion through better working capital efficiency, all of which position us well for a market recovery. For the fourth quarter, fee revenue was $1.8 billion, a 3% decrease from the prior year. PM/FM revenue was up 1% or up 3.4%, excluding the contract change we discussed last quarter. This change will continue to impact the first half of the year, resulting in a roughly $50 million headwind to fee revenue but no impact to EBITDA. Leasing revenues grew 5% versus prior year, the first positive result we have reported in this segment since third quarter 2022 as we saw improved results in each of our reported regions.
Capital Markets revenue declined 32% in the fourth quarter as transactional markets continue to be impacted by interest rate volatility and uncertainty. Valuation and other was down 4%, a sequential improvement in the year-over-year trend. Adjusted EBITDA for the fourth quarter was $213 million, down $7 million from the prior year. Despite the decline in revenue, our adjusted EBITDA margin of 11.8% was essentially flat year-over-year, reflecting our commitment to cost discipline. Adjusted earnings per share for the quarter was $0.45, down $0.01 from the prior year. Turning to our segment results for the quarter. In the Americas, we saw a 10% year-over-year decline in brokerage revenues with capital markets revenue down 36% and leasing revenue up 2%.
We are encouraged by the fourth quarter performance in leasing as we successfully executed an increased number of large office and industrial deals. Americas PM/FM revenue increased 1% or 4.6%, excluding the impact of the contract change. Americas adjusted EBITDA of $139 million declined 16% or $24 million versus prior year, with $14 million of the decline attributable to our Greystone joint venture as FHA volumes remained under significant pressure in the quarter. We continue to believe that long-term fundamentals in the multifamily market are compelling and we expect results in this business to stabilize in 2024. EMEA brokerage revenue declined 1% in the quarter, with capital markets down 26% and leasing up 13% with particular strength in the U.K. PM/FM revenues was down 11%, primarily reflecting lower project management activity due to reduced CapEx budgets as well as our focus on driving profitable growth.
Adjusted EBITDA in EMEA grew 48% with adjusted EBITDA margins up 670 basis points, driven by the change in mix to higher-margin leasing revenue as well as tight cost discipline. Our APAC region reported another solid quarter with leasing revenue up 14% and capital markets up 5%, driven by strong growth in Southeast Asia and India. Valuation and other was down 4% and PM/FM grew 7% and as property, facilities and project management all performed well in the quarter. Now turning to our full year results. For the full year 2023, we generated fee revenue of $6.5 billion, a 10% decrease over the prior year. Capital markets declined 41%, leasing was down 12% and valuation and other was down 11%. Partially offsetting these declines, PM/FM revenue grew 3% for the full year, supported by strong growth in facilities management and property management.
We achieved adjusted EBITDA of $570 million, a 37% decrease from 2022 with adjusted EBITDA margins of 8.7%. Adjusted earnings per share for the year was $0.84. Turning to cash flow. We generated $101 million of free cash flow for the full year compared with a $2 million use of cash in 2022. I am very proud of our team's work to improve free cash flow generation. It took a global effort and significant cross functional cooperation to increase our working capital efficiency and deliver these strong results. We remain committed to deleveraging and expect to begin debt repayments later this quarter. Our balance sheet is secure. Following our 2 refinancings in 2023, we have no significant funded maturity until 2028 outside of the $193 million turn loan due in 2025 which we expect to repay with cash on hand.
At the end of the quarter, we had $1.9 billion of liquidity, consisting of $800 million of cash on hand and $1.1 billion available on our revolving credit facility. We had no outstanding borrowings on our revolver, our net leverage was 4.3x and taking into account our interest rate hedges, 93% of our debt is currently fixed rate. Finally, moving on to our outlook. For the first quarter, we expect revenue to be relatively flat year-over-year with a slight improvement in sequential brokerage trends and modest services revenue growth as we focus on driving profitable growth in that business. We expect to achieve a slight year-over-year improvement in EBITDA as last year's cost actions are expected to more than offset first quarter cost increases.
We are not providing full year guidance today but I'd like to give you some color on how we are currently thinking about the headwinds and tailwinds for the year. We do expect trends in capital markets to improve throughout 2024. However, sustained growth is unlikely to occur before the second half of this year when we anticipate a more conducive interest rate environment. We expect the leasing market to be relatively stable for the year and for our services business to grow at a similar rate to 2023. On the cost side, we anticipate some cost pressure in 2024, driven by normal inflation as well as higher incentive comp as we focus on positioning the company for market growth. We expect these cost headwinds will be mostly offset by our cost efficiency initiatives.
In conclusion, in 2023, we solidified the balance sheet and significantly improved free cash flow, ending the year with positive momentum. We are financially well positioned for growth, margin improvements and further capital structure enhancements once consistent market growth returns. And with that, I'll turn the call back over to Michelle.
Michelle MacKay: Thanks, Neil. 2023 was the year that we strengthened our foundation, building on Cushman's 100-plus years of history to begin writing the story of our next century. 2024 will be another transformational year for us as we see future growth opportunities, continue to execute for the long term, drive discipline in our capital allocation and maintain our focus on unlocking meaningful value in the company. Now, I'll turn the call over to the operator to take your questions. Operator?
