This is a summary of the second quarter fiscal 2008 earnings call as conducted by CB Richard Ellis Group, Inc on July 30, 2008
Management
- President and CEO: Brett White
- Sr. VP, IR: Nick Kormeluk
- Senior EVP and CFO: Kenneth Kay
- Global Chief Economist: Ray Torto
Key Investors Issues
- Revenue of $1.3 billion was $175.5 million or 12% lower than prior year quarter.
- Net Income of $33.2 million or 16 cents a share was $124.1 million or 79% lower than in 2007.
- The mergers and acquisition strategy has been successful with 13 firms having been acquired in the past 7 months.
Half Year Highlights:
Second Quarter Highlights
Revenue was $1.3 billion, down $175.5 million or 12% from the year ago due to lower results from the global investment management business due to the timing of recognition of carried interest revenue and incentive fees.
- Normalized EBITDA came in at $114.5 million.
- Net Income of $33.2 million or 16 cents a share was $124.1 million or 79% lower than in 2007 due to the 12% decline in the revenues and resulting margins driven predominantly by both lower sales on a global basis and leasing in the U.S. and the UK.
- These declines were offset by growth in outsourcing revenues albeit with lower EBITDA margins.
- The development services business also reflected low EBITDA as a result of gains from property dispositions that were deferred.
- The decline in margins and net profitability are magnified by the uniqueness of the economic downturn being experienced.
As a percentage of revenue, cost of services rose to 56.1% from 53.1% in the second quarter last year mainly due to the shift in the mix of revenues with outsourcing including reimbursable growth.
- Cost of services were also driven by additional higher professional salaries resulting from prior acquisitions mostly in the EMEA and Asia Pacific and organic growth at the services platform also added to the cost base.
- Operating expenses of $468.8 million were essentially flat versus the second quarter of last year.
- Declines in compensation cost from lower incentive compensation expense were offset by higher salaried personnel, mostly due to acquisitions, increased technology spending and higher occupancy cost coming from new offices in international growth markets.
The equity loss from unconsolidated subsidiaries was primarily attributable to the write-down resulting from the decline in value of an investment maintained by the Global Investment Management business.
- The second write-down of an investment maintained by the Global Investment Management business was reflected in other loss.
- The additional shortfall from the prior year''s second quarter equity income was attributable to lack of equity income from fund liquidation in the Global Investment Management business and from gains on disposition of assets by the Development Services business.
- After adjusting for one time items the resulting EBITDA for the quarter was $114.5 million, down 57% or $153.1 million from the prior year.
Leasing, at 33%, generated the most revenue as the percentage of total company revenue but declined 6% year-over-year.
- Property and Facilities Management continued to deliver strong performance and grew 29% year-over-year for the second quarter.
- Sales revenue on a combined basis was down 42% from the prior year quarter.
- The appraisal and valuation business declined by 9% in the quarter. New valuation assignments trended lower reflecting the difficult macro environment.
Global Investment Management revenue was down 50% year-over-year, and Development Services revenue was up 84% attributable, mainly to construction revenue.
- The commercial mortgage brokerage business was down 44% year-over-year as the credit crunch continued to exact a toll on loan volume.
- Loan originations fell 46% to $3.2 billion as compared with the second quarter of 2007.
- The decrease was less pronounced then the first quarter when year-over-year volume fell 60.
The contractual outsourcing business continues to be a significant growth engine for CB Richard Ellis.
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