01—Abstract
Summary
Summary of the 8-K filed November 4, 2004. Cited figures are marked; the original filing is the authoritative source.
CB Richard Ellis Group (NYSE: CBG) reported strong third-quarter 2004 results on November 3, 2004, with revenue rising 35.8% year-over-year to $575.0 milliona and GAAP net income of $11.9 million, or $0.16 per diluted share, versus a net loss of $28.4 million a year earlier.
Excluding one-time items, primarily Insignia merger and integration costs, Insignia backlog amortization, and debt extinguishment costs tied to the IPO proceeds, adjusted net income was $29.7 millionb, or $0.40 per diluted share. Organic revenue growth was approximately 24%, and management cited improving U.S. and European office markets, record U.S. investment activity, and market share gains in the Americas, EMEA, and Asia Pacific. Balance sheet deleveraging was a central theme.
Using remaining IPO proceeds, the company repurchased $70.0 millionc of its 9¾% senior notes and $38.3 million of its 16% senior notes in July 2004, incurring a $17.1 million loss on extinguishment in the quarter. Total debt fell to $643.5 million at September 30, 2004 from $798.4 million at year-end 2003, and management expects about $16.0 million in annual cash interest savings in 2005. Quarterly interest expense declined 29% year-over-year to $14.9 million.
For full-year 2004, management guided to revenue of approximately $2.2 billiond and GAAP diluted EPS of $0.76 to $0.81, with adjusted EPS of $1.50 to $1.55 excluding about $85 million of pre-tax one-time costs. Investors should note that the gap between GAAP and adjusted EPS is large, that much of the improvement reflects a rebound from the weak 2003 base and the Insignia acquisition, and that the company's fourth quarter is historically its strongest.
02—Key points
Key Highlights
- Q3 2004 revenue rose 35.8% to $575.0 million (organic growth about 24%), including a full quarter of Insignia contributions.
- GAAP net income of $11.9 million ($0.16 diluted EPS) versus a $28.4 million net loss in Q3 2003; adjusted net income of $29.7 million ($0.40 per diluted share).
- EBITDA of $61.8 million, up 198.6% year-over-year, aided by revenue growth and lower merger-related costs.
- Debt reduction continued: about $108 million of high-cost 9¾% and 16% senior notes were repaid in July 2004, with total debt falling to $643.5 million from $798.4 million at year-end 2003.
- Full-year 2004 guidance: revenue about $2.2 billion and GAAP diluted EPS of $0.76 to $0.81; adjusted EPS of $1.50 to $1.55.
- Americas operating income reached $35.8 million versus a loss of $11.9 million a year earlier; EMEA revenue rose 58.5% to $110.0 million.
- Management expects about $16.0 million of annual cash interest savings in 2005 from 2004 deleveraging.
03—Questions
Frequently Asked Questions
Why is there such a large gap between GAAP EPS ($0.16) and adjusted EPS ($0.40) for Q3 2004?
The gap reflects one-time items totaling $17.8 million after tax in the quarter: $11.0 million from debt extinguishment costs tied to IPO proceeds, $4.9 million of merger-related and integration charges, $1.7 million of amortization on Insignia net revenue backlog, and $0.2 million of IPO-related compensation. Investors should weigh whether these items are truly non-recurring, since merger and integration costs have recurred across 2003 and 2004.
How much debt did CB Richard Ellis repay and what does it save?
In July 2004 the company used remaining IPO net proceeds to repay $70.0 million of 9¾% senior notes due 2010 and $38.3 million of 16% senior notes due 2011, along with related premiums and write-offs. Total debt was $643.5 million at September 30, 2004, down from $798.4 million at December 31, 2003. Management expects about $16.0 million in annual cash interest savings in 2005.
What is driving the revenue growth?
Growth came from stronger U.S. sales, leasing and consulting activity, European recovery (particularly London and Paris), Asia Pacific market share gains, and contributions from the July 2003 Insignia acquisition. Organic growth was about 24% for the quarter and 18% for the first nine months, with U.S. sales revenue up 43% and investment transaction volume up 25% versus Q3 2003 (including Insignia on a pro forma basis).
What are the key risks and open items for full-year 2004?
The guidance implies significant one-time costs of about $85 million pre-tax for 2004, including Insignia backlog amortization, integration costs, IPO-related compensation and debt extinguishment costs. Risks cited in the release include commercial real estate vacancy levels, employment conditions, property values, rental rates, a potential economic recession, and the availability of financing for real estate transactions. Because the Q4 is historically the strongest quarter, achieving the guidance depends heavily on that period.
How did the segments perform?
The Americas generated $425.2 million of revenue (up 31%) and operating income of $35.8 million, compared with an operating loss of $11.9 million a year earlier. EMEA revenue rose 58.5% to $110.0 million with operating income of $4.6 million, and Asia Pacific revenue rose 35% to $39.8 million with operating income of $4.2 million. Asia Pacific reported no Insignia-related or IPO-related one-time costs.
04—Continue