Cushman & Wakefield Limited (CWK) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Cushman & Wakefield Second Quarter 2026 Earnings Conference Call. Please -- please also note today's event is being recorded. I would now like to turn the conference call over to Megan McGrath, Head of Investor Relations. Ma'am, please go ahead.

Thank you, and welcome to Cushman & Wakefield's Second Quarter 2026 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 and the appendix of today's presentation. Comparisons discussed on today's call are against the second quarter of the prior year in local currency, unless otherwise noted. And with that, I'd like to turn the call over to our CEO, Michelle MacKay.

Thank you, Megan, and thank you, everyone, for joining us today. Our results this year demonstrated that we have hit our stride and we've gotten there fast. We didn't just meet the bar this quarter, we moved it, setting several company records, including the highest second quarter total revenue in the history of the company, the highest second quarter leasing and services revenue in the history of the company and the lowest gross debt balance in the history of the company. Along with this, we achieved our sixth consecutive quarter of double-digit adjusted EPS growth. Back in December at our Investor Day, we laid out our current 3-year growth plan and provided annual EPS targets. Today, just 2 quarters later, we are raising our guidance for year 1. And here's what excites us most. This performance is organic, driven by a global platform with significant white space still ahead. We are a company of builders and our strength and foundation creates optionality for what we build next. We're expanding our footprint, scaling our service lines and our recent growth investments are just beginning to contribute. Let me give you some examples. Our project management business grew over 20% in the quarter with strong growth in the Americas, APAC and EMEA. We are scaling this business profitably using proprietary AI tools that create internal efficiencies for our teams and help our clients achieve meaningful project savings. Our leasing business is a consistent standout, the results of pairing global strategic advisory with precise local execution. We are gaining share globally as we advise on some of the largest and most complex leasing transactions in the world. And we continue to build our platform in high-growth asset classes. Our data center work is diversified and expanding with data center-related revenue up 83% year-to-date. And while we have strong transactional presence, integrated facilities management is actually the largest of our data center businesses and 25% of our pipeline in the broader IFM business is now data center related. What's exciting about all of these initiatives and many more in process is that we're just getting started. Year 1 of our current 3-year growth plan has confirmed we're building momentum, and we are more confident than ever in our ability to deliver strong value for our shareholders. Now I'll turn the call over to Neil to walk you through the numbers.

Thank you, Michelle, and good morning, everyone. As a reminder, all comparisons are against the second quarter of the prior year and in local currency. We delivered another strong quarter on both the top and bottom line. Second quarter revenue was $2.8 billion, up 11%. Brokerage revenue comprised of leasing and capital markets rose 19%, while services grew 7% and valuation and other grew 8%. Adjusted EBITDA of $184 million was up 13% as we continue to drive operating leverage across our platform. Adjusted EPS of $0.35 rose 17% and year-to-date adjusted EPS of $0.50 represents 28% growth versus the first half of 2025, reflecting the combined impact of operational improvements and interest expense reductions. Looking at our results by geographic segment, we drove double-digit revenue growth in the Americas, APAC and EMEA. Adjusted EBITDA in the Americas and APAC was up 23% and 17%, respectively, while adjusted EBITDA in EMEA declined primarily due to the nonrecurrence of FX gains in the prior year. Moving to revenue performance by service line. Leasing grew 27% globally with Americas leasing up 35%. Our leasing growth in the Americas continued to be very broad-based with double-digit growth across all deal sizes and strength in nearly every major market. Office leasing remains strong, reflecting continued demand from occupiers for high-quality space. We saw particular strength in the legal, accounting, insurance and tech sectors in key gateway markets. Industrial was also a standout performer, benefiting from robust activity across transaction sizes and continued momentum in the data center-related assignments. Chicago, New Jersey and the West Coast are some of our strongest performing regions in industrial. Outside the Americas, APAC leasing increased 6%, supported by solid performance in Greater China. In EMEA, leasing trends remain mixed, down 6% due primarily to quarterly deal timing variances and increased macroeconomic uncertainty in the region. Turning to Capital Markets. Revenues declined 1% globally following 6 consecutive quarters of strong growth. In the Americas, revenue was down 6%, driven primarily by industry softness in office and midsized multifamily transactions where our business is more highly concentrated. Importantly, we are seeing improved momentum early in the third quarter. APAC and EMEA capital markets grew 50% and 11%, respectively, with particular strength in Singapore, Greater China, Sweden and the Netherlands. Our services business expanded 7% globally with Americas up 5%, EMEA up 21% and APAC up 10%. We saw strong growth across all geographies in project management and facilities management, up 20% and 8%, respectively. Turning to our balance sheet and cash flow. We have continued to make meaningful progress on strengthening our balance sheet, ending the second quarter at 3x net leverage compared to 3.7x a year ago. Since April, we have paid down an additional $150 million of debt, including $50 million of our 2028 senior secured notes announced today. This brings our cumulative debt repayment to approximately $650 million since the start of 2024. During the quarter, we also amended and extended $850 million of our term loan to 2033, repricing at 50 basis points lower to SOFR plus 2.25%, the lowest pricing spread in our company's history. We also upsized the term loan by $350 million and concurrently redeemed an equal amount of our 2028 senior secured notes. We now have $150 million outstanding on the 2028 senior notes, which we intend to fully redeem by midyear 2027. Our trailing 12-month free cash flow was $249 million, up $123 million from the same period last year and representing a 79% conversion rate of adjusted net income, which is at the high end of our targeted 60% to 80% conversion rate. We closed the quarter with approximately $500 million in cash and cash equivalents and $1.5 billion in total liquidity. Moving to our 2026 outlook. We now expect revenue growth to be at the mid- to high end of our guidance range of 6% to 8%. We are also raising our 2026 annual adjusted EPS growth target from 15% to 20% to 18% to 23%. Now I'll turn the call back over to Michelle.

Thank you, Neil. Let me take a moment on the market backdrop because our performance is this quarter's story, but the market is the foundation under it, and that foundation is solid. This market has been tested by every disruption you can name, rate volatility, shifting occupier behavior, geopolitical uncertainty, new technology. Each time it did what healthy markets do, absorb the shock, reprice and move forward. Why? There is a deep structural demand from a diverse capital base seeking real assets. And here's what's important to understand. We're no longer talking about the traditional definition of commercial real estate, and we haven't been for quite some time. We're talking about the built world. Whether it's called commercial real estate, infrastructure or energy, our expertise extends across the entire real asset ecosystem, subway systems and stadiums, solar panels and EV charging stations, airports and hospital systems, housing and logistics centers and working for governments across the world. The breadth of the real asset ecosystem is enormous. And the real assets of any type for global companies in any industries are increasingly strategic, requiring thoughtful advice and careful management. We're convinced this market will keep growing through change. Our strategy is designed for it. And it starts with clients. The world's top companies partner with us on what's foundational to their business, and you don't just hand that to anyone. They hand it to a brand and a company that has earned trust for a century. And that trust compounds deeper, more durable relationships leading to expanding opportunities. But earning that trust and delivering on it doesn't happen in one office or one service line. It takes more than 50,000 of us at Cushman & Wakefield, moving as one across every market, connected by shared insights and a common exacting standard of execution. That's how we deliver for clients and shareholders. In 2023, we put an initial 3-year plan in front of our Board of Directors, and we executed on it in 2 years. Now we're already accelerating our next plan, and our raised outlook shows it. We are builders, and we will keep proving it to you every day, every quarter, every year. Thank you to all of our employees, clients, lenders and shareholders. And with that, I'll turn the call over to questions.

Our first question today comes from Julien Blin from Goldman Sachs.

I'd like to dig into those comments you made around the data center work that you're doing. It seems like you're seeing some very encouraging progress there. I guess I'd be interested in just how you're thinking about growing that business. Do you think that at this point, it would make sense to acquire additional capabilities and bring on an additional platform in that space or sort of more organically grow that business?

Julien, great question. Look, one of the most exciting things about the asset class is that we can participate in it across the life cycle of that asset. And say, while the transactional business is strong for us right now and has been growing, the sustainable long-term potential is on the services side, and we're growing there, too. As I mentioned, in IFM, we're seeing a very exciting opportunity in our business. We've invested organically in expanding our sales and delivery capabilities, brought on new leadership and expect it to be a larger driver of our growth going forward. But in terms of capital allocation, the idea of either buying or bringing in some expertise in an inorganic fashion is also on the table.

Got it. That's helpful. And then maybe digging into capital markets. I think we were surprised a little bit by the softness relative to what we've seen reported from your peers, acknowledging those comments around mid-market and multifamily. I guess that was just an area where I thought you guys have done quite a bit of hiring over the last 18 months. Does it feel like you're yet seeing the impact of that hiring? And then Neil, I think you mentioned sort of the momentum early in the third quarter. Is that specifically an improvement in multifamily? Is it broader than that?

Fair question, Julien. Look, for the last 12 weeks, the activity has been unusually concentrated in large institutional portfolio trades in major metros and the industry data confirms that concentration. We have strong athletes producing in a couple of those key metros today, but our footprint there is early. And we see that 12-week concentration as an anomaly, but the lesson holds either way. It's white space. Every dollar of that activity, we're not yet capturing in share is share we can go win. What we can see is where we have the right athletes in place in those markets, they're proving the model. Expanding that means finding more people proven in those asset profiles and those metros who can operate inside a large integrated global platform because the value here compounds through the cross-sell and global connectivity, not individual production. The last 1.5 years, we've brought in about 100 people. And if you were going to model that, I would say kind of model that evenly over 1.5 years. And it probably takes somewhere around 18 months from a hire to start to really see that ramp. Neil, do you want to add anything to that?

Sure, Julien. As we look at the beginning of Q3 and certainly July, we are encouraged by what we're seeing. The strength is fairly broad. It's early in the quarter, but very pleased with what we're seeing as we move through Q3.

It really does appear to be an air pocket, Julien.

Our next question comes from Anthony Paolone from JPMorgan.

I'll start with services. You've kind of run that now with high single-digit revenue growth for a bit here. And so I was wondering if you can comment on how you feel about the sustainability of that revenue growth on a go-forward basis? And then also just what profitability might be looking like? I know you don't break it out as a segment, but just any color into what's dropping to the bottom line there would be great.

Sure, Tony. As we look at services, what we love about it is the resiliency of the business. So we can see the pipeline as we look out over the next 12 months and like what we're seeing. So if we break it down into different pieces, our IFM business and our facilities management and property management businesses are performing very well globally in all markets. And then as you mentioned, project management, which tends to be slightly shorter cycle, has been exceptionally strong. In terms of margin, margins in services are exactly where we'd expect them to be. So we're seeing -- certainly, the work we did in EMEA around our design and build business has contributed to margin improvement in services in EMEA. And overall, margins are exactly where we'd like them to be.

Okay. And then just on capital allocation. It seems like the math points to $250 million or so of free cash flow this year. Can you talk about what you want to do with that? Because I know, Michelle, you alluded to maybe even complementing some of the data center capabilities with external growth.

Yes. Thank you for the question, Tony. We're entering a new phase of our capital allocation given the amount of substantial reduction in leverage and interest savings costs, along with continued operational rigor that's resulted and will continue to result in increased free cash flow conversion. So in terms of capital allocation going forward, yes, we can continue -- can continue to reduce leverage. As you know, we have a goal of reaching investment grade. We're already going to be in the mid-2s by the end of this year. Now what's opened up to us, I would say, more significantly is we can continue to invest in organic growth more fully, which has been very successful for us and/or we could pursue accretive M&A or even consider returning capital to shareholders. Those are all options on the table for us now.

Our next question comes from Stephen Sheldon from William Blair.

Nice work here. First, on the project management side, I think you noted 20% year-over-year growth this quarter. So I'm curious how much visibility you have into growth there over the rest of the year and into early 2027, given I think a lot of those projects can last 12 to 18 months. And is that activity concentrated in certain subsectors?

Great question, Stephen. Project management, as you said, has been very strong, up 20%. And we've seen that broadness both in the U.S. and internationally. So we really like what we're seeing there. It is slightly shorter duration, but you're right, some of the projects are full year projects. So they do reoccur, and they certainly are underpinning the strength of our services business. We've built significant capabilities in that area. And so that's an area we put in place new management 18 months ago, both in the U.S. and internationally. We've got a very strong operating team. And so it's an area that we're very excited about, and we see continued progress and continued growth in that market.

Yes. And I would just underscore that with the comments I was making around capital allocation and our increased free cash flow and how successful we've been organically investing in that business, and we will continue to do so.

Good to hear. And then as a follow-up, can you just remind us how you're thinking about incremental margins in both leasing and capital markets over the rest of this year and into next? Is there anything that would weigh on the profit flow-through relative to what you've seen and kind of discussed historically in terms of incremental margins?

No, I don't think so, Stephen. I think you've got it. We are very -- we remain very focused on driving margin expansion, and we're very confident in the target we put out at our Investor Day, which is the 150 basis points over the 3-year period. If we look specifically at this year, I think 2 things weigh into what we've seen so far this year. First of all, we're pleased with our progress this year. We have seen margin expansion and operating leverage. So that's good to see. At the same time, we are investing to drive growth. Our growth is driven by organic growth. We're very focused on balancing margin with investing in the business for future growth. And then secondly, early on in the year, as others have noted, commissions were slightly higher than normal just due to the size of leasing coming through early on in the year. That will moderate as we go through the year. But I think those are the 2 specific things that impacted margin. But overall, feeling very good about where we're going in the business.

Our next question comes from Ronald Kamdem from Morgan Stanley.

Just going back to sort of the commentary on the sort of the data center side. As you think about sort of that business, that growth line, have you thought about sort of breaking it out? Or does it still sort of makes sense to have it embedded in some of the different service lines and so forth?

Ron, we -- it's embedded across the business. And so we -- while we look at it, we don't break it out. I think it's helpful to understand from an operating standpoint, where the opportunities are. But at this point, I don't think breaking it out will add significantly to our disclosures.