Cushman & Wakefield(CWK) - 2020 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the first quarter Financial Statements This section presents the unaudited Condensed Consolidated Financial Statements for Q1 2020 and 2019, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2020, shows a decrease in total assets to $6.62 billion and total equity to $1.08 billion from year-end 2019 Balance Sheet Comparison (in millions) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $2,218.5 | $2,860.8 | | Total Assets | $6,619.4 | $7,163.4 | | Total Current Liabilities | $1,983.9 | $2,322.6 | | Total Liabilities | $5,535.0 | $5,862.1 | | Total Equity | $1,084.4 | $1,301.3 | Condensed Consolidated Statements of Operations For Q1 2020, the company reported a net loss of $55.1 million, significantly wider than the $20.9 million loss in Q1 2019, driven by increased costs despite flat revenue Q1 2020 vs. Q1 2019 Statement of Operations (in millions, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Revenue | $1,895.4 | $1,903.0 | | Operating Loss | $(85.5) | $(26.0) | | Net Loss | $(55.1) | $(20.9) | | Diluted Loss Per Share | $(0.25) | $(0.10) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $249.9 million in Q1 2020, while net cash used in investing activities decreased to $131.4 million Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(249.9) | $(214.9) | | Net cash used in investing activities | $(131.4) | $(275.9) | | Net cash used in financing activities | $(23.9) | $(12.0) | Notes to the Condensed Consolidated Financial Statements The notes detail accounting policies, segment performance, debt, restructuring charges, and the $36.9 million gain from the China joint venture formation - The company adopted the new CECL accounting standard (Topic 326) on January 1, 2020, with an immaterial cumulative-effect adjustment to retained earnings[26] Q1 2020 Segment Performance (in millions) | Segment | Revenue | % Change (USD) | Adjusted EBITDA | % Change (USD) | | :--- | :--- | :--- | :--- | :--- | | Americas | $1,394.8 | 4% | $64.1 | (9)% | | EMEA | $210.0 | 4% | $(3.4) | (1,600)% | | APAC | $290.6 | (18)% | $9.6 | (48)% | - In February 2020, the company initiated operating efficiency measures, resulting in $23.3 million of restructuring charges in Q1, primarily for severance and employment-related costs[78] - On January 6, 2020, the company formed a joint venture with Vanke Service in China, recognizing a gain of $36.9 million upon its formation[85] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant negative impact of the COVID-19 pandemic on operations, particularly the decline in transaction-based services, leading to a wider net loss and a 20% drop in Adjusted EBITDA, while confirming $1.4 billion in liquidity Impact of COVID-19 The COVID-19 pandemic significantly impacted operations, particularly transaction-related brokerage services in March 2020, though the company maintains sufficient liquidity - In March 2020 compared to March 2019, Leasing fee activity declined by 28% and Capital markets by 13%; in contrast, Property, facilities and project management and Valuation and other services grew by 4% and 5%, respectively[119] - As of March 31, 2020, the company had approximately $1.4 billion in liquidity, comprising $379.5 million in cash and a $1.0 billion undrawn revolving credit facility[120] Results of Operations Q1 2020 saw flat total revenue but a 4% decline in service line fee revenue, leading to a net loss of $55.1 million and a 20% decrease in Adjusted EBITDA Q1 2020 vs. Q1 2019 Key Metrics (in millions) | Metric | Q1 2020 | Q1 2019 | % Change (USD) | | :--- | :--- | :--- | :--- | | Total Service Line Fee Revenue | $1,320.4 | $1,372.0 | (4)% | | Net Loss | $(55.1) | $(20.9) | (164)% | | Adjusted EBITDA | $70.3 | $88.4 | (20)% | - The decline in brokerage activity was concentrated in March due to COVID-19, with Leasing and Capital markets down 28% and 13% respectively for the month, compared to March 2019[152] - Other income increased by $38.5 million, primarily due to a $36.9 million gain from the formation of the Cushman & Wakefield Vanke Service joint venture in China[162] Segment Operations Americas revenue grew 4% but Adjusted EBITDA fell 9%, EMEA saw wider Adjusted EBITDA losses, and APAC was most impacted with revenue declining 18% and Adjusted EBITDA falling 48% Q1 2020 Segment Adjusted EBITDA (in millions) | Segment | Q1 2020 | Q1 2019 | % Change (USD) | | :--- | :--- | :--- | :--- | | Americas | $64.1 | $70.3 | (9)% | | EMEA | $(3.4) | $(0.2) | (1,600)% | | APAC | $9.6 | $18.3 | (48)% | Liquidity and Capital Resources The company maintains a strong liquidity position of $1.4 billion as of March 31, 2020, with net debt at $2.2 billion, and successfully refinanced its term loan to reduce interest costs - Total liquidity as of March 31, 2020 was $1.4 billion, consisting of $379.5 million cash on hand and an undrawn $1.0 billion revolving credit facility[191] - In January 2020, the company refinanced its term loan, reducing the applicable margin on LIBOR from 3.25% to 2.75%[202] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations on variable-rate debt and foreign exchange risk, managed through derivative instruments - The company is exposed to interest rate volatility on its 2018 First Lien Loan, which bears interest at an annual rate of 1-month LIBOR plus 2.75%[218][219] - The company uses derivative financial instruments, such as interest rate hedges and foreign currency contracts, strictly for risk management purposes, not for speculation[217] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q1 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[226] - No change in internal control over financial reporting occurred during the quarter ended March 31, 2020, that has materially affected, or is reasonably likely to materially affect, internal controls[227] PART II - OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, and other disclosures Legal Proceedings The company is involved in various pending or threatened lawsuits arising in the ordinary course of business, with further details in Note 11 - The company is party to a number of pending or threatened lawsuits arising from the ordinary course of its business, with more information available in Note 11[228] Risk Factors This section highlights the material adverse impact of the COVID-19 pandemic on business operations, particularly the decline in transaction-based services, with other risks consistent with the 2019 Annual Report - The global spread of the COVID-19 pandemic has created significant volatility and economic disruption, and the full extent of its impact on the business remains uncertain[230] - The pandemic has already had a significant negative effect, with Leasing fee activity declining 28% and Capital markets activity declining 13% in March 2020 compared to March 2019[230] Other Information The company disseminates material information to investors through various channels, including its website, press releases, and SEC filings - Cushman & Wakefield uses a variety of channels, including its website and social media, to announce material information to the public[233] Exhibits This section provides an index of exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - The report includes an exhibit index listing all documents filed, such as CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[235]