How much of CBRE's Q1 2004 revenue growth came from the Insignia acquisition versus organic growth?

Reported revenue rose about 67%, but much of that reflected the Insignia acquisition. Management said that on a combined basis, comparing Q1 2004 with the prior year Q1 results of both companies added together, revenue grew about 14%, and it characterized this as organic growth. Investors should note this figure is a management-prepared comparison and was not presented as a GAAP pro forma measure.

Why was EBITDA so small relative to revenue in Q1 2004?

EBITDA of $12.3 million was held down by $10 million of merger-related expenses and about $3.1 million of integration expenses tied to Insignia. Higher payroll, bonus accruals on improved transaction revenue, and increased U.K. occupancy costs also weighed on results. Management said these charges obscured the underlying improvement in the business.

Is CBRE in compliance with its debt covenants, and how is its debt position changing?

Management said it had completed its March 31, 2004 covenant calculations, was in compliance with its financial covenant ratios with sufficient cushion, and expected to remain in compliance through 2004 under its modeled scenarios. Total debt was $798.2 million. The company planned a Q2 2004 refinancing that would replace the existing $295 million term B loan at a 75 basis point lower spread and add $60 million of revolver capacity at a 125 basis point lower spread.

What costs should investors expect to continue after the Insignia integration?

Although management said the integration was effectively complete, some costs will continue. These include amortization of producer retention contracts over their multi-year lives and facility termination costs that are recognized only when vacated facilities are actually exited. For the rest of 2004, management estimated about $5 million in merger-related costs and $6 to $7 million in integration costs.

How seasonal is CBRE's first quarter, and what does Q1 2004 imply for the full year?

The CFO said Q1 has traditionally represented about 20% of annual revenue and about 10% of annual EBITDA. Because CBRE is weighted toward the fourth quarter, a strong Q1 does not by itself indicate full-year results. Management declined to forecast full-year performance on the call, saying only that it was pleased with the quarter.

CBRE 8-K SEC Disclosure

01—Abstract

Summary

Summary of the 8-K filed May 12, 2004. Cited figures are marked; the original filing is the authoritative source.

CB Richard Ellis Group, Inc. (CBRE) furnished an 8-K on May 12, 2004 containing the transcript of its first quarter 2004 earnings call, held May 6, 2004.

The quarter's headline numbers were revenue of $441 million^a, up about 67% year over year, and EBITDA of $12.3 million. Results were heavily affected by the Insignia Financial Group acquisition, which added revenue but also merger, integration, and amortization costs. Management said that on a combined, as-if-merged basis revenue rose roughly 14%, which it characterized as organic growth.

Investors should note that EBITDA was depressed by $10 million^b of merger-related expenses and $3.1 million of integration costs, and that interest expense rose to $20.7 million. Balance sheet and liquidity items were typical for a first quarter. Cash fell to $54.3 million as 2003 bonuses were paid, and revolver borrowings were $13.3 million.

Total debt excluding the warehouse line and non-recourse co-investment debt was $798.2 million^c, up $255.1 million year over year, largely from the Insignia financing. Management said it was in compliance with its financial covenants with sufficient cushion, and it planned a credit facility refinancing expected in Q2 2004 that would lower the interest rate spread by 75 basis points on a $295 million term B loan. Management also said the Insignia integration was effectively complete, with more cost savings and retained revenue than originally promised, though some costs will continue into the rest of 2004.

The filing is a Regulation FD and Item 12 disclosure furnishing the call transcript rather than a standalone financial statement filing. Management guided to roughly $5 million^d of additional merger-related costs and $6 to $7 million of remaining integration costs for the balance of 2004. On seasonality, management said Q1 typically represents about 20% of annual revenue and about 10% of annual EBITDA, which is useful context for judging how strong the quarter was.

02—Key points

Key Highlights

Q1 2004 revenue of $441 million, up $177.3 million (about 67%) year over year, including a $17.4 million favorable foreign currency effect and the Insignia acquisition.
Management cited roughly 14% pro forma combined revenue growth versus the prior year quarter, which it described as organic growth.
Q1 2004 EBITDA of $12.3 million, which included $10 million of merger-related expenses and about $3.1 million of integration costs.
Interest expense rose to $20.7 million, up $6.4 million, driven by the $200 million senior notes and $75 million term B loan issued in 2003 to finance Insignia.
Total debt (excluding the warehouse line and non-recourse co-investment debt) was $798.2 million, up $255.1 million year over year; management stated covenant compliance with sufficient cushion.
Planned Q2 2004 refinancing: a $295 million new term B loan with a 75 basis point lower spread and $60 million of added revolver capacity at a 125 basis point lower spread, expected to reduce interest expense.
Management said the Insignia integration is effectively complete, with guidance of about $5 million more in merger-related costs and $6 to $7 million more in integration costs for the rest of 2004.

03—Questions

Frequently Asked Questions

How much of CBRE's Q1 2004 revenue growth came from the Insignia acquisition versus organic growth?
Reported revenue rose about 67%, but much of that reflected the Insignia acquisition. Management said that on a combined basis, comparing Q1 2004 with the prior year Q1 results of both companies added together, revenue grew about 14%, and it characterized this as organic growth. Investors should note this figure is a management-prepared comparison and was not presented as a GAAP pro forma measure.
Why was EBITDA so small relative to revenue in Q1 2004?
EBITDA of $12.3 million was held down by $10 million of merger-related expenses and about $3.1 million of integration expenses tied to Insignia. Higher payroll, bonus accruals on improved transaction revenue, and increased U.K. occupancy costs also weighed on results. Management said these charges obscured the underlying improvement in the business.
Is CBRE in compliance with its debt covenants, and how is its debt position changing?
Management said it had completed its March 31, 2004 covenant calculations, was in compliance with its financial covenant ratios with sufficient cushion, and expected to remain in compliance through 2004 under its modeled scenarios. Total debt was $798.2 million. The company planned a Q2 2004 refinancing that would replace the existing $295 million term B loan at a 75 basis point lower spread and add $60 million of revolver capacity at a 125 basis point lower spread.
What costs should investors expect to continue after the Insignia integration?
Although management said the integration was effectively complete, some costs will continue. These include amortization of producer retention contracts over their multi-year lives and facility termination costs that are recognized only when vacated facilities are actually exited. For the rest of 2004, management estimated about $5 million in merger-related costs and $6 to $7 million in integration costs.
How seasonal is CBRE's first quarter, and what does Q1 2004 imply for the full year?
The CFO said Q1 has traditionally represented about 20% of annual revenue and about 10% of annual EBITDA. Because CBRE is weighted toward the fourth quarter, a strong Q1 does not by itself indicate full-year results. Management declined to forecast full-year performance on the call, saying only that it was pleased with the quarter.

04—Continue

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