Colliers International Group Inc. (CIGI) Earnings Call Transcript & Summary

Welcome to the Colliers International Second Quarter Investors Conference Call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's annual information form as filed with the Canadian Securities Administrators and in the company's annual report on Form 40-F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is Thursday, July 30, 2026. And at this time, for opening remarks and introductions, I would like to turn the call over to the Global Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

Thank you, operator, and good morning. I'm Jay Hennick, Global Chairman and Chief Executive Officer of Colliers. Joining me today is Christian Mayer, our Chief Financial Officer and Chief Executive of Colliers Commercial Real Estate. Today's website and presentation materials are available on the Investor Relations section of our website. Colliers delivered another strong quarter with double-digit revenue growth across all 3 platforms, healthy internal growth and continued improvement in earnings quality. In commercial real estate, we are seeing a broader recovery across our markets. Capital Markets and Leasing revenues each increased by more than 20%, supported by improving transaction activity, better financing conditions and market share gains in most of our major markets. Engineering continues to be an important strategic differentiator for Colliers. Revenue increased 30%, driven by strong demand across critical infrastructure, transportation, water, property and buildings. The acquisition of Ayesa expanded our global capabilities and strengthened our position across Europe, Latin America, the Middle East and Australia. Engineering gives Colliers recurring revenue, stronger visibility and new ways to grow our enterprise. Harrison Street continued to add strength and differentiation as well with assets under management reaching $110 billion and revenues increasing by 17%. Having built 2 large global platforms at Colliers in commercial real estate and in engineering, we are now building our third. We are bringing our investment management capabilities together across real estate, credit, infrastructure and private wealth. We are creating more investment opportunities for our clients and greater long-term value for our shareholders. Together, the recovery in commercial real estate the growth of engineering and the expansion of our Harrison Street business are changing the quality and composition of our earnings. Today, approximately 70% of our earnings come from resilient recurring revenue streams, giving Colliers greater flexibility, greater stability, stronger cash flow and perhaps most importantly, more ways to grow our business. What further differentiates Colliers is how our platforms are working together. Commercial real estate gives our market -- gives us market intelligence and deep client relationships. Engineering adds technical expertise and execution capability. Harrison Street brings capital formation, investment discipline and ownership expertise. Together, they create a much more integrated Colliers, one that can engage clients earlier, serve more of the value chain and replicate that model across high-growth ecosystems. Data centers is just one example. We can help clients identify and acquire sites, provide engineering and technical services to design, build and operate these facilities and deploy capital through Harrison Street, which over the past 6 years has invested more than $6 billion in digital infrastructure and data centers already. And after the fact, we can deliver leasing, sales, facility management and other advisory services as those facilities come on stream. That same opportunity exists across many other ecosystems within our business. By combining client relationships with specialized platform capabilities, we can create additional avenues for growth beyond the stand-alone opportunities inherent in each of our businesses. So in summary, our second quarter results reinforce the confidence that we have in our future. Step by step, we are building Colliers into a stronger global company with broader capabilities, more resilience in our performance and better positioned to create lasting value for our clients, our professionals and our shareholders. Now let me turn things over to Christian to review our financial results in more detail. Christian?

Thank you, Jay, and good morning, everyone. Please note that the non-GAAP measures discussed in this call are defined in our press release and quarterly presentation. Unless otherwise noted, all revenue growth figures are presented in local currency. Our second quarter consolidated revenues were $1.6 billion, up 16% and net revenues also increased 16% to $1.4 billion. Adjusted EBITDA was $205 million, up 14%. Adjusted EPS increased 6% to $1.83 and was tempered by higher interest expense. These results met our expectations and our momentum gives us confidence as we enter the second half of the year. Commercial Real Estate segment net revenue for the quarter was up 12%. Capital Markets rose 23% with growth across all geographies, led by the Americas and Asia Pacific. Activity in industrial property sales was up notably in all geographies. Leasing revenues were also up 23%, led by U.S. industrial with all global regions contributing to growth. The segment net margin was 11.9%, up slightly over the prior year. Engineering second quarter net revenue was up 27% from a mix of recent acquisitions, including a partial quarter of Ayesa and solid 5% internal growth. Our net margin was 14.5%, up slightly over last year. Our engineering backlog stood at 12 months as of June 30, indicating strong momentum for the back half of the year. Investment Management net revenues increased 15%, driven by our recent acquisition and internal growth from new capital. The net margin was 36.5% as expected, given ongoing planned global platform building under the Harrison Street Asset Management brand. These costs will continue to impact margins for the second half of the year, and we expect margins to stabilize in the low 40% range for 2027. During the quarter, asset realizations generated strong gains and resulted in the return of $1.9 billion of capital to our limited partners and $3 billion year-to-date. Our demonstrated ability to monetize high-quality portfolios at attractive prices and make meaningful distributions to investors has always been a key differentiator for us. We raised $2.2 billion in new capital commitments in the second quarter and just under $3 billion for the 6-month period. Year-to-date fundraising is on plan, and we expect an acceleration in the second half. Our annual fundraising target for 2026 remains unchanged at $6 billion to $9 billion. Turning to our balance sheet. We completed the Ayesa acquisition late in the quarter and despite significant capital deployment for this strategic platform, we finished the second quarter with leverage of 2.8x. We expect to delever significantly in the second half of the year as the majority of our seasonal cash flows come in as we finished the year in the 2.3x range. Given this leverage profile and given the current undervaluation of our shares, we may choose to deploy capital on a stock buyback and as we progress through the second half of the year. We are reaffirming our 6 -- our full year 2026 outlook. The key forward-looking indicators across our business segments being transaction pipelines, engineering backlogs and fundraising pipelines are up nicely over the prior year. Geopolitical risk and macroeconomic volatility continue to be elevated as we all know. However, we believe that these risks should not materially impact our overall results. That concludes my prepared remarks. Operator, can you please open the line for questions.

[Operator Instructions] Your first question is from the line of Himanshu Gupta with Scotiabank.

So first on commercial real estate. It looks like industrial was strong for leasing. Industrial was strong for capital markets as well in Q2. So just wondering what led to the strength? And how do you see momentum in Q3?

Yes. Thanks, Himanshu. So industrial is one of our key historical strength areas, and it continues to be the case. And in the quarter, we saw strong demand in the Americas, in the U.S. in particular. And that was, I think, partially a reflection of some uncertainty that happened last year post Liberation Day, which was in the second quarter last year. So bit of an easier comp, led to some stronger growth in that area. As we look ahead, momentum is strong, but we do have some tougher comps ahead in the third quarter.

Okay. And overall, how do you see leasing revenue or capital markets in Q3?

Yes. We expect leasing revenues to be up in the mid-single-digit range in capital markets to be, again, strong, 15% or thereabouts year-over-year growth.

Got it. Okay. And then just moving to investment management, especially the margins. Is the -- I mean, the recovery pickup in margins getting pushed to the next year and not likely to be in Q4. So maybe anything on the margin side.

Yes. Himanshu, as Jay mentioned, we're building a global investment management platform with Harrison Street. And we have taken additional integration steps this year, including Round Shield rebranding and integrating with our Harrison Street Europe business, which announced just a few weeks ago. So taking our time to integrate this business and build it for the future. And that will impact the margins here. for the remainder of the year. And we expect the margin to a profile to increase in 2027, as I mentioned in my prepared remarks, to the low 40s range.

And maybe just a last question. I think over $2 billion was raised during the quarter. Has this capital been deployed? I'm just trying to see that when will this raise will lead to EBITDA pickup in numbers?

Yes. So we did raise $2.2 billion of new capital in the second quarter. That capital comes from in a mix of fund types. Some of the closed-end funds that capital becomes fee-bearing immediately. And in other fund types, it will take some time to deploy that capital and then that capital at that point, become fee-bearing. So this is a normal part of the fundraising process. Some capital, as I mentioned, becomes fee-bearing immediately. Some takes time to be deployed and then become fee-bearing but that's reflected in our expectations for the year.

Your next question comes from the line of Stephen Sheldon with William Blair.

I wanted to start on the engineering side. I'm just curious if you can talk a little bit more about how internal organic growth there has been trending in the first half of the year. And -- and then how you're thinking about it in the back half and potentially in the early next year. And then, also I really appreciate the color, Jay, on how engineering ties into the rest of Colliers businesses. And I think that's been an area of focus for the buy side, how much cross-selling opportunities there are between engineering and kind of the core CRE business. So just curious, yes, do you think it will take some time for some of the cross-selling opportunities to be realized? Or are you already starting to see some of those come in? So would you have just a lot more color on engineering.

Great. Good question. I'll take the margin question. Our year-to-date -- sorry, our internal growth question on engineering. Year-to-date internal growth in engineering is 5%, and we expect that to continue for the remainder of the year. Then I'll pass the question on the cross-sell opportunity in engineering to Jay.

Steve, it's frustrating for me because we have not been able to articulate the full power of the differentiation that we're trying to create Colliers. The engineering platform is not good. It's awesome. And if you think about it, and I tried to give you an example in my prepared remarks, if you think about it, all the work done in much of -- and it's not just data centers, it's in all ecosystems, whether you're building a building, you're building infrastructure, you're building -- you're building any asset, we're designing, we're building, we're project managing all through our engineering business. So the connectivity between the different platforms, which for almost since inception, I don't think people really understood because they saw commercial real estate as a stand-alone platform, engineering and Harrison Street all is 3 stand-alone platforms when they're actually working together more and more clients, the same clients are retaining us to do more and more along the whole value chain. And now with Ayesa and opening up markets where we didn't really -- we had huge presence in commercial real estate across Europe, the Middle East and Australia, but we didn't have -- truly have any engineering presence. Now with Ayesa, which already is doing business with our -- both our commercial real estate and our investment management business, they're pitching business together sort of a complete end-to-end solution. So we think that over the next couple of years, being able to handle the entire life cycle of assets will create a differentiator for Colliers that none of the other peers have. Some of them have bits and pieces of it. But we think that we have a truly strategic differentiated plan that is bearing fruit. And it's -- these are global -- these are global platforms. and their global platforms run by people who have a vested interest, equity stakes in our businesses through our partnership philosophy, and that creates huge glue and huge collaboration desire from each of the partners to work with the others. So it's a bit of a frustration for me because we have not been able to articulate the power of the 3 different platforms working together, and we're going to dial up our efforts to do that over the next number of quarters until that finally hits home.

That's great to hear. Very, very helpful commentary, Jay. And then just as a follow-up, I guess, 2 questions in Investment Management. One, it seems like management fees as a percentage of AUM sets up nicely this quarter. So just curious what drove that and whether that's something structural and maybe that can keep moving higher from here? And then two, am I right to think that it could get easier for fundraising activity. I know it's been a challenging couple of years, but capital market activity picks up and as institutional LPs start to see more capital distribution, does that make it easier to go back and raise more money?

Yes. I mean one of the key -- again, we are building a global platform with Harrison Street, that means bringing together all of our unique strategies that we had around the world, as you know, Steve, you've been following us for a long time. We built this platform 1 step at a time since 2018, and we built it through 4 acquisitions of very good operators that had a vested interest in their strategies. And now we're bringing together that we're bringing them all under the Harrison Street banner on a global basis. We're taking distribution that it was previously done across the different platforms. We're standardizing them. There's so many aspects that we're doing, and that's putting us in a different category in terms of fundraising. So all of our 45 people that are in capital distribution, are in front of clients, and the clients are making the decision on which strategies are more interesting to them. And so in the case of -- in the case of our proven funds, Harrison Street 10 is in the market right now, in the market right now. There's a variety of strategies that have stood the test of time over a long period of time, but there's also new strategies that have been introduced that our investors are saying, "Tell me more about that." And if you don't do that in a streamlined way, you're missing a great opportunity to leverage relationships that the Harrison Street core business would have with some LPs and now can leverage those strong relationships and introduce them to mid-market infrastructure deals that they're also interested in. So building a platform takes time. It takes expense, it takes bringing together teams, but we're very, very, very pleased with the results all of the partners, and again, I emphasize, as you know, our philosophy has always been around perpetual partnerships. All of our partners in each of the strategies had the choice of staying by themselves or rolling up into Harrison Street Asset Management and to a professional, they all rolled up. And together, they own circa 25% of the equity of this very valuable platform and doing what we're doing is only making it much more value.

Your next question comes from the line of Erin Kyle with CIBC Capital Markets.

Maybe going back to the engineering segment on the margins. So the prior 2 quarters had seen some margin contraction on lower utilization that you had called out in the past. And then we saw net margins expand year-over-year this quarter. So the question is, is utilization back up where you expect it to be? And are there any other productivity metrics or anything you can point to in the engineering segment?

Yes, Erin, the margin in our engineering business will vary on a quarterly basis because there is seasonality in our business. And as you're aware, we operate in Canada and the northern parts of the U.S. where winter is a significant factor driving revenue levels as well as utilization levels. In the past, few quarters, we have called out some utilization areas in certain end markets, and that's always going to be a factor in our business. And for that reason, we have a multidisciplined diversified business with multiple end markets and multiple client types, and also a diversity of clients between public and private sector. So nothing really major to call out this quarter. The Ayesa acquisition, as you know, has higher margins. So that is going to impact the margin profile a little bit in the back half of the year as we bring that business on stream. And the only thing I would add to that, Christian, is Ayesa also softens the creates more geographic diversification into different markets that have different climate issues. Yes, yes, right. The seasonality of Ayesa is almost nonexistent. It generates 24% to 26% of its revenues and EBITDA in any given quarter, given the markets that it operates in and without the weather-related seasonality.

Okay. So that's helpful. On a go-forward basis, maybe in 2027, we see a little bit less of that quarter-to-quarter variability there, maybe which gears to the commercial real estate segment, growth has been quite strong for the past 2 quarters in capital markets and leasing this quarter as well. And that's kind of in despite of an interest rate environment that hasn't necessarily been as constructive as everyone was expecting maybe heading into the year. So would you say that's mainly a function of like pent-up demand in the market? Or is Colliers winning share here as I know you've been recruiting for new team members across the CRE segment as well.

Erin, we certainly believe all that is the case. We have been winning share of market. And in particular, in terms of our recruiting efforts, I think we've been very disciplined, but yet aggressive on recruiting. And we've added more producers than others. I think relative to our publicly traded peers in the U.S., at least, we've added more producers on a percentage basis than they have, and I think that's starting to show in our numbers, and it has been a modest drag on our margins over the last few quarters as we ramp these folks up. So we're feeling very good about our business and in both the trajectory -- the rate environment, of course, is 1 that is top of mind for real estate investors. And I think it's in a range, activity levels will continue. And that -- those ranges are fairly wide. And as long as [indiscernible] events continue to be under a reasonable level, we should see strong activity through the balance of the year.

Your next question comes from the line of Jimmy Shan with RBC Capital Markets.

Mentioned share buyback. So I guess with the stock trading where it is, how are you prioritizing between share buyback versus the tuck-in M&A that you'd be doing, especially as leverage comes down? And then at what leverage level do you feel comfortable accelerating either?

SWell, obviously, stock buybacks has been presence of mind for us. As you know, some of the senior executives here have been buying significant amounts of stock in the company, but we did not believe that it would be prudent for us to be using our normal course issuer bid to be buying back stock in light of the significant Ayesa transaction, which is now completed. As Christian mentioned, the margin -- the leverage of we expected something around 3 at the time we contracted for that transaction. It's come in at 2.8, which is positive. And you can see our cash flow conversion is very significant. So as we approach the balance of the year, we expect our leverage to fall and that will open up. And let me finish the point, it will open up, and we'll be able to consider using our issuer bid to acquire additional shares, particularly where they're currently trading. The other thing is that acquisitions continue to be abundant for us. And there's lots of opportunity, not just with Ayesa, which opens up all kinds of new markets, all kinds of adjacencies different additional qualifications that help not only the Ayesa business but can be transferred to our other businesses. So we don't want to slow down our acquisition activity at the same time. So we always -- even if there's a difference, a current difference -- and where Colliers is trading versus buying an exceptional business that will pay dividends over a long period of time, we will always default to a great acquisition. It's something that we'll add to us as we've done for 30 years. So I hope that gives you a little bit more color around our thinking on the issuer bid.

Yes.And that's helpful. Maybe just as a follow-up. You've still been acquiring, obviously, the last few acquisitions have been on the engineering side. I guess with the uncertainty with respect to how AI can potentially impact the business, at least from a public market perspective, I wondered if there was -- if there's been any change in the multiples that you've observed that people are paying for engineering firms? Or how would you underwrite, if at all, any AI risk when you underwrite those businesses?

Well, I can give you my professional response or I can tell you the way it is based on my experience. And so I'm just going to do what I always do and tell you the way it is. Look, technology and AI are always -- they're always an important element, but everybody woke up last week and all of a sudden AI is a fancy word for years, we've been using technology to automate workflows and get productivity gains and take our specialized data and create special insights and unique insights for our clients. And one of the things that we've done in light of the -- in light of the additional focus on AI is we tasked our people to create a shopping list of ideas and opportunities that can improve our business further using AI, and there were several interesting ones, and we've increased our technology spend against the highest prime and unlock some embedded data sets that we might have. But really, at the end of the day, it's not about all of that. It's about professional judgment, specialized expertise and trusted relationships which don't change. So when I think about both commercial real estate and I think about engineering, I think that they are going to only get better, more efficient. And -- but the most important thing, which you alluded to in your first sentence is, yes, we are adjusting down the purchase prices, arguing that AI is going to have a major impact on some of these businesses, which it will not. And I say will not, it will not to the big players because we're in the game, and we're doing what we need to do. The small guys don't have the depth and capital to capitalize on these things. But the bigger guys do, and I think AI will only help us make our business better, but the smaller guys don't have those advantages. And as a result, we could be buying and are buying exceptional businesses, albeit smaller, at better valuations this year than last year, for example, for that reason.

[Operator Instructions] Your next question comes from the line of Daryl Young with Stifel. .