CB Richard Ellis Group, Inc. (CBG)

Q2 2010 Earnings Conference Call

July 28, 2010 10:30 am ET


Nick Kormeluk -IR

Brett White - CEO

Gil Borok - CFO


Anthony Paolone - JPMorgan

Sloan Bohlen - Goldman Sachs & Co.

Will Marks - JMP Securities

David Ridley Lane - Bank of America

Brandon Dobell - William Blair



Ladies and gentlemen, thank you for standing by and welcome to the CB Richard Ellis second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) And as a remainder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Nick Kormeluk. Please go ahead.

Nick Kormeluk

Thank you and welcome to CB Richard Ellis's second quarter 2010 earnings conference call. Last night, we issued a press release announcing our financial results. This release is available on our homepage of our website at www.cbre.com. This conference call is being webcast live and is available on the Investor Relations section of our website. Also available is a presentation slide there which you can use to follow along with our prepared remarks. An archive audio of the webcast, a transcript and a PDF version of the slide presentation will be posted on our website later today.

Please turn to the slide labeled forward-looking statements. This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 including statements regarding our future growth momentum, operations, financial performance and in particular, our business outlook. These statements should be considered as estimates only and actual results may ultimately differ from these estimates. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statement we make here today.

Please refer to our second quarter earnings report filed on Form 8-K last night and our current annual report on Form 10-K and current quarterly report on 10-Q in particular. Any discussion of risk factors or forward-looking statements which are filed with the SEC, are available at the SEC website, www.sec.gov for a full discussion of the risks and other factors that may impact estimates that you may hear today. We may make certain statements during the course of this presentation which include references to non-GAAP financial measures as defined by SEC regulations. As required by these regulations, we have provided reconciliations of these measures to what we believe are the most directly comparable GAAP measures which are attached hereto within the appendix.

Please turn to slide 3. Our management team members participating with me today are Brett White, our Chief Executive Officer; and Gil Borok, our Chief Financial Officer. I will now hand the call off to Brett.

Brett White

Thank you, Nick and good morning everyone. Please turn to slide 4. I would like to begin the call with some comments about our financial performance in the second quarter. We were pleased to report excellent results for the quarter with revenue, EBITDA and earnings all growing significantly over Q2 2009. All major service lines contributed to the strong results.

As compared to the second quarter of 2009, investment sales revenue increased more than 60%. Leasing revenue rose 29%, driven by longer term and larger square footage transactions. Outsourcing revenue grew 10% with strong activity in all geographies. Development services sold two high quality assets for a significant gain this quarter. Our 23% revenue growth coupled with strong expense management delivered total normalized EBITDA of $165.2 million in the quarter, 82% higher than the second quarter of 2009. This translated into a normalized EBIDTA margin at 14.1% in the second quarter of 2010 versus 9.5% in the second quarter of 2009.

The commercial real estate recovery continued to progress in the second quarter. The trajectory of this recovery however is difficult to determine as it is set against the backdrop of a muted and bumpy recovery of the broader economy, with wide geographic variability, from a very quick snap back in most of Asia Pacific to a moderate rebound in the US and to a rebound and stabilization in Europe.

Our notable quarterly transactions are listed here on slide 5. I will not spend time going through them. We have included them to illustrate some our key business wins in the quarter. I'll now turn the call over to Gil to go over our financial results. Gil.

Gil Borok

Thank you, Brett. Please advance to slide 6. Revenue was $1.2 billion for the second quarter of 2010, up 22.7% from last year, primarily as a result of improvement in sales, leasing and outsourcing activities. Reported EBIDTA more than doubled in the second quarter of 2010 to $161.6 million from $68.4 million in the second quarter of 2009. Normalized EBIDTA was up 81.7% to 165.2 million in the quarter from $90.9 million in the second quarter of 2009, significantly lifting normalized EBIDTA margins to 14.1%.

Our cost of services was down 140 basis points as a percentage of revenue to 57.9% in the second quarter of 2010 versus 59.3% in the second quarter last year. This resulted from the strong improvement in overall revenues and a higher mix of transaction revenue versus the prior quarter along with the benefit of cost reductions.

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