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Edited Transcript of CIG.TO earnings conference call or presentation 2-May-17 3:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Colliers International Group Inc Earnings Call

TORONTO May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Colliers International Group Inc earnings conference call or presentation Tuesday, May 2, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jay Steward Hennick

Colliers International Group Inc. - Founder, Executive Chairman and CEO

* John B. Friedrichsen

Colliers International Group Inc. - CFO

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Conference Call Participants

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* Anthony Zicha

Scotiabank Global Banking and Markets, Research Division - Analyst

* Frederic Bastien

Raymond James Ltd., Research Division - SVP

* Marc Frye Riddick

Sidoti & Company, LLC - Research Analyst

* Mitchell Bradley Germain

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Stephen MacLeod

BMO Capital Markets Equity Research - Analyst

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Presentation

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Operator [1]

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Welcome to the first 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 containing 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 Tuesday, May 2, 2017.

At this time, for opening remarks and introductions, I would like to turn the call over to Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead.

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Jay Steward Hennick, Colliers International Group Inc. - Founder, Executive Chairman and CEO [2]

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Thank you, officer. Good morning, everyone, and thanks for joining us today for the first quarter conference call. As the operator said, I'm Jay Hennick, Chairman and Chief Executive Officer; and with me today is John Friedrichsen, our Chief Financial Officer.

This conference call is being webcast and is available in the Investor Relations section of our website. A presentation slide deck is also available to accompany today's call.

Earlier today, Colliers International reported strong operating results for the first quarter, with solid revenue growth internally and from acquisitions. Revenues were USD 423 million, up 12%. On a reported currency basis, EBITDA was $29 million, up 32%, and earnings per share came in at $0.33, up significantly over the prior year.

Our pipelines indicate sustained activity across all service lines, with generally stable market conditions in most major markets. John will have more to say about our financial results in just a few minutes.

Strengthened by our record results last year, the momentum so far this year and the opportunities we continue to see in the markets that we operate in, we have every reason to expect 2017 to be another successful year for Colliers. So far this year, we've completed the total of 5 acquisitions, 2 in Europe and 3 in the Americas. In Europe, we added the operations of Colliers Denmark with its 5 offices and 100 professionals opening up another growth engine for us in the important Nordic region. We also doubled the size of our hotel consultancy business in the U.K, strengthening this segment that further diversifying our revenues.

In the U.S., we added a total of 12 new offices with more than 600 professionals, with leadership positions in Las Vegas, San Jose, the highly lucrative Silicon Valley market, Holland Michigan, as well as in the Twin Cities of Minneapolis and St. Paul, a very successful quarter for us in the U.S.

As you know, our current plan is to double the size of our company by the year 2020. We're in the second of our 5-year plan and remain on track. If we prove successful as we have in the past, it will translate into significant incremental value for our shareholders. And because this management team owns such a large stake in our company, we're fully aligned with shareholders when it comes to creating shareholder value and, of course, capitalizing on opportunities.

Finally, before I turn things over to John, I'd like to mention that beginning next quarter, we intend to streamline our conference calls. Since the commentary is already contained in press releases and other public information, we will limit our initial comments in the future to a very few and then open things up for questions. It's more effective that way and we'll obviously cover way more ground.

Now let me turn things over to John for a review of our financial results, and then after he's completed, we'll take questions. John?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [3]

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Thank you, Jay. As announced in our press release earlier this morning and referenced by Jay in his opening remarks, Colliers International Group reported strong consolidated financial results for our first quarter and solid contributions from most of our operations across our global platform, highlighting the benefits of our diversification. I will address our overall consolidated financial results for the quarter, our operating results by reporting region, as well as our capital usage and financial position.

For our first quarter of fiscal 2017, consolidated revenues increased to $423 million, up 13% in local currencies, from $376 million in the first quarter of 2016. With 1% of our internal -- 1% of our growth generated internally and the balance from acquisitions. Total revenue growth for the quarter in our U.S. dollar reporting currency was 12%. Adjusted EBITDA for the quarter totaled $29.3 million, up from $22.2 million in Q1 of last year, an increase of 33% in local currencies, while our margins grew to 6.9% compared to 5.9% last year. Finally, adjusted earnings per share came in at $0.33 compared to $0.19 per share last year, up 74% in our U.S. dollar reporting currency. No impact of FX on adjusted earnings per share in the quarter.

Our adjustments to GAAP EPS and arriving in adjusted EPS are outlined in our press release issued this morning and are composed primarily of noncash charges that we view as largely unrelated to our operating results and are consistent with those presented historically.

Turning to our operating results, I will now provide a review by major service line and by region, with all percentage changes in revenues based in local currencies. Our $423 million in revenues for the quarter was comprised of $122 million in Sales Brokerage, up 18%, while Lease Brokerage came in at $137 million, up 22% over Q1 of 2016. Meanwhile, revenues from Outsourcing & Advisory services totaled $164 million, up 3%, with moderately lower revenues from our lower-margin turnkey revenues in project management services, offset by higher valuations, project management and property management revenues.

Revenues generated by our Outsourcing & Advisory services segment represented 39% of our overall revenues in the quarter, down from 43% in Q1 of 2016 due to the outpacing of growth in our transactional revenues in the quarter. Geographically, 61% of our revenues and 68% of our adjusted EBITDA was generated in the Americas in our first quarter, with strong contributions to adjusted EBITDA from our international operations this year incurred into Q1 of 2016, due largely to stronger operating profitability in Asia-Pacific and EMEA.

In our first quarter, revenues in the Americas totaled $257 million, up 21%, with 4% internal growth and the balance from acquisitions. Lease Brokerage revenues were up 23% versus last year. Sales Brokerage revenues were up 21%, and Outsourcing & Advisory revenues were up 19%, led by a strong growth in U.S. valuations as well as property management and project management in both Canada and the U.S.

Adjusted EBITDA came in at $21.2 million versus $21.6 million last year with a margin of 8.3% versus 10.3% last year, with our margin being negatively impacted by investment spending on people that boost service capabilities and mix, impacting cost of revenues. Though down, our margin remained well above the 7.3% reported in Q1 of 2015.

Turning to EMEA, revenues of $89 million in the quarter decreased 4%, with an internal decline of 11%, offset by a 7% growth from acquisitions, relative to a strong Q1 2016 comparison, especially in the lower-margin, turnkey project management revenues. Lease Brokerage revenues were up 20% over last year, led by a robust growth in the U.K., while Sales Brokerage was up 11% over a strong comparative performance in Q1 of last year. Meanwhile, revenues from Outsourcing & Advisory services decreased 60% opposite of strong Q1 2016, led by a decline in turnkey project management revenues, offset by strong increases in valuations in property management revenues in the U.K. and Central and Eastern Europe. Despite the decline of revenues, adjusted EBITDA increased to $3.6 million from a loss of $600,000 last year.

And finally, in our Asia-Pacific region, revenues came in at $76 million, up 12% in local currencies, 15% in U.S. dollar terms, all generated internally, with strong growth in Lease Brokerage and Sales Brokerage revenues primarily in Australia. Outsourcing & Advisory revenues were up 5% in local currencies, led by solid increases in valuations, property and management services across the region. Adjusted EBITDA was $6.2 million, up sharply from $3.3 million last year with a margin at 8.2% versus 4.9%.

Moving to our capital deployment and balance sheet. In our first quarter for 2017, capital expenditures totaled $6.7 million, up from $4.2 million last year, and at a level in line with our estimated range of CapEx spend for 2017 of between $40 million and $45 million. We invested $81.7 million in gross cash in continued consideration related to acquisition activities during the quarter, up from $50.4 million in Q1 of last year. Our seasonally weak first quarter cash usage from operations was $81.5 million, up from our cash usage of $43.1 million in Q1 of last year and was largely attributable to seasonal working capital usage by acquisitions completed early in the quarter. They are incremental to the seasonal working capital usage requirements of our operations overall.

Our net debt position stood at $307 million at the end of the quarter, compared to $149 million at year-end, which is typically the seasonal low point in terms of our debt level and compared to $241 million at the end of Q1 of 2016. Our leverage ratio, expressed in net debt to adjusted EBITDA stood at 1.4x, and below our expected level of 1.5x at the end of our seasonally weakest quarter, despite the robust activity around acquisitions to start the year.

In terms of our financial capacity, cash on hand and committed availability under our newly increased and extended $700 million 5-year revolver, we had over $350 million of liquidity at quarter end, a level ample to fund our business and execute our growth strategy.

Looking across our global operations, our pipelines in most markets continue to reflect steady commercial real estate activity, comparing favorably to levels at this time last year, with an overlay of geopolitical uncertainty in EMEA, primarily in the U.K. and in France. We continue to believe that low interest rates, accessible debt financing, general stability in the supply and demand for commercial real estate in most markets, supported a steady activity, sales, leasing and other commercial real estate services for the balance of 2017. Therefore, our outlook for the year remains largely unchanged.

That concludes our prepared remarks. And I would now like to ask our operator to open the call up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Anthony Zicha.

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Jay Steward Hennick, Colliers International Group Inc. - Founder, Executive Chairman and CEO [2]

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Anthony, speak up a little bit, we can hardly hear you. If you don't mind.

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Anthony Zicha, Scotiabank Global Banking and Markets, Research Division - Analyst [3]

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Okay. Jay, how do you see the pace of acquisitions, going forward? And what do you see in terms of pricing? And what are your expectations on the cycle, for it to continue?

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Jay Steward Hennick, Colliers International Group Inc. - Founder, Executive Chairman and CEO [4]

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So let me start with the cycle. As John has mentioned, I mentioned it as well, we continue to see very stable results, really, across the board. Real estate is a great category. There's a lots of allocation of dollars in real estate. Capital is generally readily available in most markets. And although we're not seeing enormous growth in some places, overall we're still achieving circa 5%, give or take, internal growth, and we're very happy with that and believe that at that level we're actually taking share from our competitors. So it's not -- so I would say stable but nice growth still in a market that continues to grow.

Acquisitions, look, we have been successful over the past couple of years with acquisitions. We had a great start to the year in this year. Our pipelines continue to be strong. They're strong not just in core brokerage operations but in important areas like project management, workplace solutions and a variety of other, I would call, a white color C-suite advisory services that we could provide to our clients, ancillary to the other services that we perform. So we continue to see this as a large category, and it's a category that's large virtually on a global basis. So we continue along one step at a time. And we are very disciplined, as you know better than most, in what we're prepared to pay and the returns we expect to get with acquisitions. So we'll continue to be prudent along the way.

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Anthony Zicha, Scotiabank Global Banking and Markets, Research Division - Analyst [5]

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Okay. And then in terms of multiples, can you make any comments on that? Still the same metrics as before?

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Jay Steward Hennick, Colliers International Group Inc. - Founder, Executive Chairman and CEO [6]

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I think with larger acquisitions, the multiple on an weighted average basis for us has ticked up a little bit. I think that's because we've done a couple of larger acquisitions. But generally speaking, for our strike zone size of acquisitions, I'd say the range is pretty much what it has been historically. And it's obviously natural when you wire a larger, more well-balanced business that might have geographic diversification, et cetera, you're going to pay slightly more as a valuation metric.

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Anthony Zicha, Scotiabank Global Banking and Markets, Research Division - Analyst [7]

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Okay. And then last question. Jay, how do you think of technology? What do you think about it? And is it a big plus delivering that information to your clients?

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Jay Steward Hennick, Colliers International Group Inc. - Founder, Executive Chairman and CEO [8]

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Well we've been spending a lot of money and time, probably as much time as money on technology. We talked about it at the Annual Meeting in some length. Just after year-end, we added something called Colliers Indsite, which gives us a unique competitive advantage in the market as it relates to anything done in industrial, logistics, a types of services we've had for many years, something called Colliers Office, which helps decision making of our clients who are making decisions on long-term leases, where they locate impact of changes on their people, is there any governmental assistance they might obtain? And then we have something called Colliers 360. Again, another exceptional piece of technology that we use around the world to help corporates make similar types of decisions, but also to manage their extensive capabilities throughout. We -- so when it comes to technology, we are spending most of our time, effort and energy on technology that will help our advisers do a better job in the field, differentiate us from our competition and add true and real value to the services that we perform. We're monitoring, as we always do, the new technology, whatever that is, is it going to disintermediate? We don't see it. We are not a commodity business. Every transaction is different in commercial real estate. It's not like buying houses. Same thing, different size, different square footage. In commercial real estate, there our every single transaction, almost without exception, is different. It's sizable. It requires market knowledge that we bring to the table, and it requires also, we think, an intermediary to help bring 2 parties together on a relatively large transaction. So we are very close to technology, and it's not just -- it's very deep in our organization. But again, the primary focus is to make our people better and to create a Colliers difference every single day.

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Operator [9]

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Our next question comes from Marc Riddick.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [10]

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I wanted to follow up on a couple of things. You've given a nice overview on the technology investing, and I wonder if you can give us sort of a similar read through on the commentary around the investments in service lines in the U.S. and the investments in people there. And if you could sort of provide a little more greater detail around the opportunity set that you see there?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [11]

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Mark, it's John. We continue to focus on our principal service areas and strengthening those. And, as Jay alluded to, I mean, we're very much in a people service business, despite the opportunity that technology represents to enhance our productivity and the way we deliver services to our clients. But at the end of the day, people and relationships is an important part of the business. You will note that we announced at the end of the last year, in addition to our New York operation, both in retail area, which is focused on core retail as opposed to suburban, but retail in that market internationally as well as a Capital Market's team. Those are just a few of the additions that we've made to our team. There's many, many others that are occurring in the U.S. and other markets around the world. But we're intent on identifying where we have gaps and what we're providing through the services to the market, what will actually enhance our global platform and allow us to continue to focus on multimarket transactions, and we're pursuing high-quality people to bring into our business as a result. So that's predominantly where we are focused with respect to our investment in people.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [12]

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Okay. And then I was wondering, switching over to the EMEA region, a couple of things. I guess, maybe one, if you could sort of provide a maybe a more broad overview around, sort of, general thoughts there as far as the market. But then more specifically, I guess you touched on the -- in the slide deck that the -- that there were some specific projects that had an impact on margins there. I was wondering if you can -- how much visibility you may have into those particular projects, and when the margin impact might end up abating over time.

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John B. Friedrichsen, Colliers International Group Inc. - CFO [13]

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Well, I think the big news around EMEA in the first quarter was the positive performance we have around margins. And that's very much about the mix of revenues, which in our first quarter had much less, what we call, turnkey revenues associated with our project management or workplace solutions business predominantly in France, and that's somewhat timing related. And as evidenced with our results, that revenue does not have a high-margin attached to it. So notwithstanding the fact that those margins declined in Q1, our EBITDA performance is very strong and benefited from not only the acquisitions we've made, including Colliers Denmark, which started very strongly, but also additional strong performance in our existing operations in the U.K., which we have been building for a number of years now. So when we look at Europe, we are, notwithstanding the noise around political uncertainty, we're very bullish on the opportunities that we see in Europe, not only the larger opportunity in the markets itself, but the opportunity for Colliers. And as you may know and others on the call who are familiar with us, I think, going back 5 years ago, we really did not have much of a Western European operation at all. It's become a sizable part of our business and with tremendous growth and opportunities we see for this year and beyond.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [14]

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Okay. And is there a way to sort of generally quantify maybe the impact that was specific to the large projects and the supply and installation of materials expenses that were...?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [15]

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It was about USD 17 million, would be the revenue associated with that. I think if you kind of work it through, had we sort of -- if you kind of remove that from the equation, the other revenues associated with the other services we provide in that market, we're actually up internally, year-over-year.

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Operator [16]

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Our next question comes from Frederic Bastien.

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Frederic Bastien, Raymond James Ltd., Research Division - SVP [17]

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You highlighted an increase in Lease Brokerage activity in the U.K., but I'd be curious to know how the other areas of activity, sales, Outsourcing, et cetera, are behaving in that particular area.

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John B. Friedrichsen, Colliers International Group Inc. - CFO [18]

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Well we're seeing -- we were seeing in Europe good gains around -- outside of our Outsourcing & Advisory, specifically the turnkey business. But absent that, and we do project management predominantly in the U.K., having completed a couple of acquisitions over the last 6, 7 months. So a good activity, internal growth plus contribution from acquisitions. On that side of that, we already spoke about the leasing activity in the market, sales were roughly flat in the EMEA quarter-over-quarter. [Sales of lease].

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Jay Steward Hennick, Colliers International Group Inc. - Founder, Executive Chairman and CEO [19]

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The only thing I would add to that is that the German business is very solid, and we're quite excited about some of the things that we're working on. We've got some initiatives there to further accelerate their growth and there are already 1 or 2 in the German marketplace with lots opportunities to grow. The French business is a good, solid business but also has great growth opportunities. You'll recall we bought that business several years ago, and it was primarily a workplace solutions project management business, and we merged in our agency business and set out on a plan to build the agency business, including not only leasing and brokerage but also property management and others. And we did an acquisition, a successful one there, in asset and property management. So that's performing well. So again, when we look at the market in Europe, we -- virtually across the board, we see lots of growth opportunities, lots of ways to add and fill gaps, service line gaps, market per market. There are certain cities that we either have small operations in, but see that they could support much larger operations. So we're fast at work trying to get our mix around what is in fact the global opportunity, major market by major market in Europe, and the numbers are compelling.

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Frederic Bastien, Raymond James Ltd., Research Division - SVP [20]

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Thanks for that color. Is Brexit a cause for concerns for the U.K. business? Or do you expect other markets to benefit as a result?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [21]

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I think the whole Brexit thing, people and I think the market is kind of digesting it. But I would expect that along the way, until there's a negotiated kind of formal exit, and kind of rebalancing of negotiations with the rest of Europe with respect to trade, which are going to happen, I think there may be some little bit of noise around that as events unfold. Based on our initial read right now, we don't -- there's a lot of talk about essential business that is currently done in the U.K. being done in other parts of Europe. But I think it's a lot of talk at this point. I think that's -- there's probably going to be less of it than people are speculating, that's our sense.

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Frederic Bastien, Raymond James Ltd., Research Division - SVP [22]

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Okay. And I just want to turn to Asia. The region performed stronger than we had expected, which I find quite encouraging for the rest of the year. Did you experience any unusual trophy sales? Or was it -- was there a region that showed particular strength? Or was it just broad-based momentum? And I appreciate it's a seasonally weak Q1, so anything might influence positively or negatively in the quarter, but would be interested in getting your color there.

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John B. Friedrichsen, Colliers International Group Inc. - CFO [23]

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Well, I think the -- I mean, it was a good, very good quarter for Asia-Pacific. And as we said in our comments, I mean, it was predominantly Australia and New Zealand that led the way. We had stable operations through the rest of Asia, and I think a good outcome for Q1 in that market. But if you look across the region, the -- certainly the performance year-over-year, attributable primarily to activity in Australia and New Zealand.

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Operator [24]

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Our next question comes from [Josh Lamers].

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Unidentified Analyst, [25]

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Maybe we'll just look at a couple of modeling questions here. I understand we're coming off maybe a tough comp in the Americas and then later in the acquisitions that occurred year-to-date. Just wondering for -- or just looking for some guidance on Americas' margin, over the balance of the year, and whether or not we could expect any expansion in EBITDA margin? Or whether that, that's going to be about flat to down on the year?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [26]

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We've made comments overall, we're -- Josh, we're not providing guidance per se. We certainly gave some commentary around general outlook, where we indicated that margins overall would be consistent in 2017 with 2016, and I would expect that to translate into the same thing in the Americas.

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Unidentified Analyst, [27]

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I guess, secondly, we'll just -- I'll look at the leverage ratio that you put out. Just kind of doing some quick math on that, it would imply any couple of things, either an upside to EBITDA expectation or maybe the difference is just in an increase in interest expense? Is it likely the latter of those 2?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [28]

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No. Maybe a slight increase in interest expense, but it would be slight. Not significant.

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Unidentified Analyst, [29]

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Okay. And then maybe one last kind of bigger-picture question. If you could comment on the difference between what you're seeing in kind of the primary tier 1 markets? And whether or not there's higher expectations for growth in secondary markets? Given some of the acquisitions that you just completed, it would seem to be the case.

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Jay Steward Hennick, Colliers International Group Inc. - Founder, Executive Chairman and CEO [30]

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Yes, I think that's fair, but that's been going on now for probably 18 months. Things are very expensive in the, let's call it, tier 1 markets. I think there's also a blurring at the lower end of the tier 1 markets and the tier 2 markets, because a lot of the tier 2 markets, including markets like we acquired this quarter or so, since the beginning of the year. You think of the Twin Cities, several major Fortune 100, Fortune 500 companies are there probably more than their share, which creates a great opportunity. Although, I think people would consider the Twin Cities to be a nonmajor market but a secondary market. The same thing is the case in the whole San Francisco Bay Area. San Francisco has been very strong for us, but now the involvement in the entire region with market leader position -- leadership positions around California and also into the Nevada, Las Vegas in particular. So I think because real estate is becoming much more strong as a category for investment, investors looking for yield are looking in multiple places, and there's nothing wrong with these secondary markets which have historically been way more stable and consistent over the years. So yes, I think your thoughts are right.

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Operator [31]

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Our next question comes from Stephen MacLeod.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [32]

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Just circling around on the Americas, you cited kind of a onetime impact from new hires in Q1. And I'm just wondering, is that sort of isolated to Q1? And then when would you expect these new hires to be revenue generators as you look out through the next sort of 12 to 18 months?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [33]

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Well, if history is any indicator, it would be later in the year. Whether that's Q3 or Q4, can't say precisely. And believe me, they have motivation to generate business as soon as possible. But the reality is, based on our own experience and expectations, we would see that occurring through Q3 or Q4.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [34]

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Okay. And then in terms of the long-term margin profile in the U.S. which you've talked about in the past, do you still see progression towards getting that gap closed between the U.S. and Europe and Asia-Pacific over the longer term?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [35]

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Yes. I think that there is no structural impediment to generating a higher margin in the U.S. For us, it's about scale and continuing to build business, which we've been doing for the last several years. So we're on track, more less where we expected to be. And certainly, our expectations are to generate a double-digit margin here in that U.S. market.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [36]

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Okay. And then on Europe, would you characterize Q1, sort of, as a more normalized quarter relative to last year in terms of the portion of sales between Outsourcing & Advisory sales and lease in the margin profile? Would Q1 '16 be the anomaly in that relationship?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [37]

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I would say so. The turnkey projects and the nature of those in our business can tend to move between quarters, just based on timing. So it's not to say that we couldn't see a repeat down the road when we have some large projects converging in a particular quarter. But Q1 this year, eliminated the impact of a significant turnkey project during that quarter. And -- but having said that, we had a very, very strong, as I said, growth in leasing in the U.K. in particular, which not necessarily at that level we repeated. But on balance, I would say that Q1 of this year represented something that's more normalized, I guess.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [38]

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Yes, okay. And then just one last one, in terms of the CapEx outlook. It looks like the spend expectation for 2017 was increased from where it was in Q4. Just curious if you can provide some color around where that incremental spend is going and how you're prioritizing your thoughts around CapEx for 2017? I mean, is it around technology for the most part, as per your previous comments?

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John B. Friedrichsen, Colliers International Group Inc. - CFO [39]

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Yes. I mean, it's -- some of it does relate. Obviously, we've been very active in terms of acquisitions, so they do come with some degree of CapEx investment. But our CapEx is really focused around 2 areas. First of all, on the technology side, which was either productivity-related technology and tools to assist our professionals in delivering service to our clients and also engaging our clients towards use of technology more directly. And we're going to do some things within our website that we achieve what the next evolution of that. But we are investing in, and we'll see that develop over the next year or 18 months. The other principal use of CapEx is around premises. And investing in our premises, again, around productivity and attracting talent. That's where we're focused. And this year, we expect to spend a little bit more, certainly, than we did last year. It'll -- it's a little bit elevated for 2017, but likely to recede somewhat in 2018. But it's higher than last year for sure.

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Operator [40]

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Our next question comes from Mitch Germain.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [41]

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Jay, a lot of your peers, in the property service sector have been investing heavily into outsourcing. And I recognized that it's 40% of your revenues today, but thinking out in terms of your 2020 plan and the execution of that, how much is investing in kind of these recurring revenues -- how important is that to you in terms of executing on the strategy?

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Jay Steward Hennick, Colliers International Group Inc. - Founder, Executive Chairman and CEO [42]

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I would say that we think our balance of Outsourcing & Advisory to transaction services is about right now. Like obviously, if we can find the right add-ons to move or skew the percentages to 45% instead of 40%, we -- that would be helpful. Those are generally lower-margin businesses. Although, we do have some ideas around adding to that segment that are, I would say, nontraditional in the commercial real estate space or not usual for some of our peers. We'll see what happens with that. But as our peers also point out, when you look and add leasing transactions to the Outsourcing & Advisory on the basis that leasing transactions are, although not recurring, they're very competitive in markets like Hong Kong. The average lease rates might be 3%, they're different in North America, et cetera, but they offer another form of recurring revenue. So if you add those 2 together, where give or take, 70% in recurring and recurring-light revenues, which is I think a good mix for us, and way better than we were, let's say 10 years ago, when we were essentially a transaction services organization.

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Operator [43]

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We have no more questions in the queue for now.

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Jay Steward Hennick, Colliers International Group Inc. - Founder, Executive Chairman and CEO [44]

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Okay. Ladies and gentlemen, thanks for joining us. And we look forward to the next conference call.

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Operator [45]

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Ladies and gentlemen, this concludes the quarterly investors' conference call. Thank you for your participation, and have a nice day.