Colliers International Group, Inc. Q3 FY2024 earnings call

• Jay Hennick introduced the call, mentioned realignment of segments, growth in each segment, acquisition of Englobe and others, recurring revenues over 70% of earnings.
• Chris McLaren discussed Real Estate Services highlights: Capital Markets up 17%, leasing growth, recurring outsourcing growth, accolades like being on world's best companies list.
• Christian Mayer talked about financials: Revenue growth, adjusted EBITDA, Investment Management fundraising, assets under management, balance sheet, revised outlook based on year-to-date results and fundraising expectations.

Colliers realigned its operating segments. Engineering grew by 21% driven by acquisitions. Real Estate Services: Capital Markets revenues rose 17%, leasing grew 6%, recurring outsourcing services up 5%, valuation and advisory driven by multifamily. Investment Management: Recurring management fee revenue modest increase, fundraising below expectations, assets under management grew by $2.4 billion to nearly $99 billion. Engineering's internal growth flat in Q3 due to prior year large project management contracts, but expected high single-digit organic growth going forward.

• Investment Management expects stronger fundraising in 2025.
• Adjusted earnings outlook due to Investment Management fundraising, with Q4 being seasonal peak for margin.
• Expect mid- to high single-digit growth going forward, further upside from improving capital markets, investment strategies, and acquisitions.

• Uncertainties in fundraising performance.
• Variability in real estate services performance, especially near year-end.
• Impact of technology investments leading to higher-than-planned depreciation expense.

Q: First, can you just walk through the moving pieces for the profit guide reduction how much of that is due to lower fundraising and expected profit in IM? And it also sounds like you're reinvesting in RES to support the growth outlook there. So maybe how much more are you reinvesting there maybe relative to what you included in the guidance last quarter? Just more detail on the moving pieces on the profit guidance?

A: Yes, Stephen. So I think as we noted in our comments and in the press release, the adjustment to the earnings outlook is entirely due to investment management fundraising and give you a bit more color on investment management, the capital commitments that are generated in a given year become accretive to revenues in a modest way into EBITDA and very significantly because of the high incremental margins on this in the range of 40% to 50% incremental EBITDA margin. So that is very impactful to our earnings and with our fundraising outlook and now we've got 3 quarters completed at our for Q4. We have adjusted that accordingly, and that's really what's driving the change in the outlook.

Q: Just on the fundraising within investment management. Some of your peers are talking about better asset monetization environment, which potentially lead to better fundraising, which it sounds like that's what you guys are saying. So just wondering to what extent are you seeing the same with the funds that are close to end of life? And then what does your 2025 fundraising pipeline look like?

A: Yes. Jimmy, we have been deploying capital this year, but we've also been -- and we noted it last quarter, we've also been harvesting gains in our portfolios. So we do have certain older vintage funds that are nearing the end of their lives, and those are funds where you take the opportunities to selectively sell assets and realize those gains and return that capital to investors. That's the capital cycle and it certainly facilitates future fundraising for us. And we did have some more of that activity in the third quarter. We expect that activity to continue, deploy new capital and then also harvest gains and realized gains on existing investments and recycle that capital to investors and that will lead to additional fundraising going forward because that is a very positive signal, obviously for our LPs. In terms of our 2025 fundraising outlook, we'll talk about that in February when we deal with our year-end results and our 2025 outlook.

Q: So just on the Engineering division. I mean, good to see this being reported as a separate segment with you scale here as well. So how should we think about the organic growth in the engineering in this business?

A: So Himanshu, the organic growth in our engineering practice on an ongoing basis should be in the high single digit, 5% to 7%, 8% range as we roll out across 2025 and on an ongoing basis thereafter. In the third quarter, I'll just point out again, I mentioned it in my call comments, we had a very tough comparative and very strong results in the third quarter of 2023, which were the result of a couple of large projects that were completed in that period and resulting in a lower organic growth rate for Q3 of 2024.

Q: Just dovetailing on that last question about recruiting professionals. Has your mix and exposure to secondary versus gateway markets changed significantly in the last few years and as part of the recruitment drive to bulk up in some of the gateway markets. I guess I just -- I get a lot of questions around whether as some of those markets improve and office side improves, will Colliers participate equally if it's mostly gateway focused in the recovery?

A: Yes. I would say that we're focused in a parallel approach to get into those gateway cities in a deeper way. Those are the larger transactions. There's more volume of deals. So there's certainly the aspiration is there. in our country and market leaders are focused on bringing in talent to beef up those gateway cities in addition to the secondary cities.

Q: There was good color on pretty much every business line, but I'm wondering on a geographical basis, how Europe and the U.K. are performing more broadly speaking?

A: Think EMEA had a good quarter. The U.K. has been a solid business for us and immune from a few of the capital markets issues that were most significant in the Nordics and Germany over the last couple of years. So we're pleased with our U.K. operations. And I would say that on the company's -- the firms on the continent, our German business, our Nordics business is starting to feel much more confident about the future trajectory, in particular in capital markets and leasing.