JONES LANG LASALLE INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, for the three months ended March 31, 2023, and our audited Consolidated Financial Statements, including the notes thereto, for the fiscal year ended December 31, 2022, which are included in our 2022 Annual Report on Form 10-K, filed with the SEC and also available on our website ( www.jll.com ). You should also refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2022 Annual Report on Form 10-K. The following discussion and analysis contains certain forward-looking statements generally identified by the words anticipates, believes, estimates, expects, forecasts, plans, intends and other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause JLL's actual results, performance, achievements, plans and objectives to be materially different from any future results, performance, achievements, plans and objectives expressed or implied by such forward-looking statements. See the Cautionary Note Regarding Forward-Looking Statements included within this section for further information. We present our quarterly Management's Discussion and Analysis in the following sections: (1) A summary of our critical accounting policies and estimates; (2) Certain items affecting the comparability of results and certain market and other risks we face; (3) The results of our operations, first on a consolidated basis and then for each of our business segments; and (4) Liquidity and capital resources. SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES An understanding of our accounting policies is necessary for a complete analysis of our results, financial position, liquidity and trends. See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our 2022 Annual Report on Form 10-K for a complete summary of our significant accounting policies. The preparation of our financial statements requires management to make certain critical accounting estimates and judgments that impact (1) the stated amount of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amount of revenue and expenses during the reporting periods. These accounting estimates are based on management's judgment. We consider them to be critical because of their significance to the financial statements and the possibility that future events may differ from current judgments or that the use of different assumptions could result in materially different estimates. We review these estimates on a periodic basis to ensure reasonableness. Although actual amounts likely differ from such estimated amounts, we believe such differences are not likely to be material. A discussion of our critical accounting policies and estimates used in the preparation of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to these critical accounting policies and estimates during the three months ended March 31, 2023. ITEMS AFFECTING COMPARABILITY Macroeconomic Conditions Our results of operations and the variability of these results are significantly influenced by (1) macroeconomic trends, (2) the geopolitical environment, (3) the global and regional real estate markets, and (4) the financial and credit markets. These macroeconomic and other conditions have had, and we expect will continue to have, a significant impact on the variability of our results of operations. 23 Table of Contents Acquisitions and Dispositions The timing of acquisitions and dispositions may impact the comparability of our results on a year-over-year basis. Our results include incremental revenues and expenses following the completion date of an acquisition. Relating to dispositions, comparable results will include the revenues and expenses of recent dispositions and results may also include gains (losses) on the disposition. In addition, there is generally an initial adverse impact on net income from an acquisition as a result of pre-acquisition due diligence expenditures, transaction/deal costs and post-acquisition integration costs, such as fees from third-party advisors engaged to assist with onboarding and process alignment, retention and severance expense, early lease termination costs, and other integration expenses. For dispositions, we may also incur such incremental costs during the disposition process and these costs could have an adverse impact on net income. Equity Earnings and Incentive Fees Equity earnings may vary substantially from period to period for a variety of reasons, including as a result of (i) valuation increases (decreases) on investments reported at fair value, (ii) gains (losses) on asset dispositions and (iii) impairment charges. The timing of recognition of these items may impact comparability between quarters, in any one year, or compared to a prior year. LaSalle, our investment management business, is in part compensated through incentive fees where performance of underlying funds' investments exceeds agreed-to return hurdles. Depending upon performance, disposition activity and the contractual timing of measurement periods with clients, these fees can be significant and may vary substantially from period to period. The comparability of these items can be seen in Note 3, Business Segments, of the Notes to Condensed Consolidated Financial Statements and is discussed further in Segment Operating Results included herein. Foreign Currency We conduct business using a variety of currencies, but we report our results in U.S. dollars. As a result, the volatility of currencies against the U.S. dollar may positively or negatively impact our results. This volatility can make it more difficult to perform period-to-period comparisons of the reported U.S. dollar results of operations, because such results may indicate a growth or decline rate that might not have been consistent with the real underlying growth or decline rates in the local operations. Consequently, we provide information about the impact of foreign currencies in the period-to-period comparisons of the reported results of operations in our discussion and analysis of financial condition in the Results of Operations section below. Transaction-Based Revenue Transaction-based fees, which are impacted by the size and timing of our clients' transactions, from real estate investment banking, capital markets activities and other services within our segments, increase the variability of the revenue we earn. The timing and the magnitude of these fees can vary significantly from year to year and quarter to quarter, and from region to region. Seasonality Historically, our quarterly revenue and profits have tended to increase from quarter to quarter as the year progresses. This is a result of a general focus in the real estate industry on completing or documenting transactions by calendar year end and the fact that certain expenses are constant through the year. In addition, this seasonality excludes the recognition of investment-generated performance fees as well as realized and unrealized co-investment equity earnings and losses (the timing of each of these can fluctuate based on a variety of factors). Generally, we recognize incentive fees when assets are sold, the timing of which is geared toward the benefit of our clients. In addition, co-investment equity gains and losses are primarily dependent on valuations of underlying investments, the direction and magnitude of changes to such valuations fluctuate based on a variety of factors. Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis. A significant portion of our Compensation and benefits expense is from incentive compensation plans, which we generally accrue throughout the year based on progress toward annual performance targets. This quarterly estimation can result in significant fluctuations in quarterly Compensation and benefits expense from period to period. Consequently, the results for the periods ended March 31, 2023 and 2022 are not fully indicative of the results we expect to realize for the full fiscal year. 24 Table of Contents RESULTS OF OPERATIONS Definitions • Assets under management data for LaSalle is reported on a one-quarter lag. • MENA: Middle East & North Africa • n.m.: not meaningful, represented by a percentage change of greater than 1,000% favorable or unfavorable. Consolidated Operating Results Three Months Ended March 31, Change in % Change in Local Currency ($ in millions) 2023 2022 U.S. dollars Markets Advisory $ 906.4 999.5 (93.1) (9) % (7) % Capital Markets 357.1 600.6 (243.5) (41) (39) Work Dynamics 3,276.2 3,033.6 242.6 8 11 JLL Technologies 61.4 49.4 12.0 24 25 LaSalle 114.4 118.3 (3.9) (3) 1 Revenue $ 4,715.5 4,801.4 (85.9) (2) % 1 % Gross contract costs (3,133.3) (2,904.5) (228.8) 8 11 Net non-cash MSR and mortgage banking derivative activity 1.8 3.6 (1.8) 50 51 Fee revenue $ 1,584.0 1,900.5 (316.5) (17) % (15) % Markets Advisory 627.3 741.2 (113.9) (15) (14) Capital Markets 349.6 591.5 (241.9) (41) (39) Work Dynamics 442.0 410.5 31.5 8 11 JLL Technologies 57.8 45.3 12.5 28 29 LaSalle 107.3 112.0 (4.7) (4) — Compensation and benefits, excluding gross contract costs $ 1,180.1 1,377.8 (197.7) (14) % (12) % Operating, administrative and other expenses, excluding gross contract costs 291.1 269.5 21.6 8 12 Depreciation and amortization 57.5 54.4 3.1 6 8 Restructuring and acquisition charges 35.7 19.5 16.2 83 89 Total fee-based operating expenses 1,564.4 1,721.2 (156.8) (9) (6) Gross contract costs 3,133.3 2,904.5 228.8 8 11 Total operating expenses $ 4,697.7 4,625.7 72.0 2 % 4 % Operating income $ 17.8 175.7 (157.9) (90) % (93) % Equity (losses) earnings $ (2.6) 18.5 (21.1) (114) % (115) % Adjusted EBITDA $ 109.0 273.6 (164.6) (60) % (61) % Net (loss) income margin attributable to common shareholders (USD basis) (0.2) % 3.0 % (320) bps n/a Adjusted EBITDA margin (local currency basis) 6.6 % 14.4 % (750) bps (780) bps Adjusted EBITDA margin (USD basis) 6.9 % 25 Table of Contents Non-GAAP Financial Measures Management uses certain non-GAAP financial measures to develop budgets and forecasts, measure and reward performance against those budgets and forecasts, and enhance comparability to prior periods. These measures are believed to be useful to investors and other external stakeholders as supplemental measures of core operating performance and include the following: • Fee revenue and Fee-based operating expenses; • Adjusted EBITDA attributable to common shareholders ("Adjusted EBITDA") and Adjusted EBITDA margin (measured on fee revenue); and • Percentage changes against prior periods, presented on a local currency basis. However, non-GAAP financial measures should not be considered alternatives to measures determined in accordance with U.S. GAAP. Any measure that eliminates components of a company’s capital structure, cost of operations or investments, or other results has limitations as a performance measure. In light of these limitations, management also considers U.S. GAAP financial measures and does not rely solely on non-GAAP financial measures. Because our non-GAAP financial measures are not calculated in accordance with U.S. GAAP, they may not be comparable to similarly titled measures used by other companies. Adjustments to U.S. GAAP Financial Measures Used to Calculate non-GAAP Financial Measures Gross contract costs represent certain costs associated with client-dedicated employees and third-party vendors and subcontractors and are directly or indirectly reimbursed through the fees we receive. These costs are presented on a gross basis in Operating expenses with the equal amount of corresponding fees in Revenue. Excluding gross contract costs from both Fee revenue and Fee-based operating expenses more accurately reflects how we manage our expense base and operating margins and also enables a more consistent performance assessment across a portfolio of contracts with varying payment terms and structures. Net non-cash MSR and mortgage banking derivative activity consists of the balances presented within Revenue composed of (i) derivative gains/losses resulting from mortgage banking loan commitment and warehousing activity and (ii) gains recognized from the retention of MSR upon origination and sale of mortgage loans, offset by (iii) amortization of MSR intangible assets over the period that net servicing income is projected to be received. Non-cash derivative gains/losses resulting from mortgage banking loan commitment and warehousing activity are calculated as the estimated fair value of loan commitments and subsequent changes thereof, primarily represented by the estimated net cash flows associated with future servicing rights. MSR gains and corresponding MSR intangible assets are calculated as the present value of estimated net cash flows over the estimated mortgage servicing periods. The above activity is reported entirely within Revenue of the Capital Markets segment. Excluding net non-cash MSR and mortgage banking derivative activity reflects how we manage and evaluate performance because the excluded activity is non-cash in nature. Restructuring and acquisition charges primarily consist of (i) severance and employment-related charges, including those related to external service providers, incurred in conjunction with a structural business shift, which can be represented by a notable change in headcount, change in leadership or transformation of business processes; (ii) acquisition, transaction and integration-related charges, including fair value adjustments, which are generally non-cash in the periods such adjustments are made, to assets and liabilities recorded in purchase accounting such as earn-out liabilities and intangible assets; and (iii) other restructuring, including lease exit charges. Such activity is excluded as the amounts are generally either non-cash in nature or the anticipated benefits from the expenditures would not likely be fully realized until future periods. Restructuring and acquisition charges are excluded from segment operating results and therefore not a line item in the segments’ reconciliation to Adjusted EBITDA. Gain/loss on disposition reflects the gain or loss recognized on the sale or disposition of businesses. Given the low frequency of business disposals by the company historically, the gain or loss directly associated with such activity is excluded as it is not considered indicative of core operating performance. 26 Table of Contents Interest on Employee Loans, Net of Forgiveness reflects interest accrued on employee loans less the amount of accrued interest forgiven. Certain employees (predominantly in Leasing and Capital Markets) receive cash payments structured as loans, with interest. Employees earn forgiveness of the loan based on performance, generally calculated as a percentage of revenue production. Such forgiven amounts are reflected in Compensation and benefits expense. Given the interest accrued on these employee loans and subsequent forgiveness are non-cash and the amounts perfectly offset over the life of the loan, the activity is not indicative of core operating performance and is excluded from non-GAAP measures. Reconciliation of Non-GAAP Financial Measures Below are reconciliations of (i) Revenue to Fee revenue and (ii) Operating expenses to Fee-based operating expenses. Three Months Ended March 31, (in millions) 2023 2022 Revenue $ 4,715.5 4,801.4 Adjustments: Gross contract costs (3,133.3) (2,904.5) Net non-cash MSR and mortgage banking derivative activity 1.8 3.6 Fee revenue $ 1,584.0 1,900.5 Operating expenses $ 4,697.7 4,625.7 Less: Gross contract costs (3,133.3) (2,904.5) Fee-based operating expenses $ 1,564.4 1,721.2 Operating income $ 17.8 175.7 Below is a reconciliation of Net (loss) income attributable to common shareholders to EBITDA and Adjusted EBITDA. Three Months Ended March 31, (in millions) 2023 2022 Net (loss) income attributable to common shareholders $ (9.2) 145.6 Add: Interest expense, net of interest income 26.3 10.2 Income tax (benefit) provision (2.3) 40.3 Depreciation and amortization (1) 56.5 54.4 EBITDA $ 71.3 250.5 Adjustments: Restructuring and acquisition charges 35.7 19.5 Net non-cash MSR and mortgage banking derivative activity 1.8 3.6 Interest on employee loans, net of forgiveness 0.2 — Adjusted EBITDA $ 109.0 273.6 (1) This adjustment excludes the noncontrolling interest portion of amortization of acquisition-related intangibles which is not attributable to common shareholders. 27 Table of Contents In discussing our operating results, we report Adjusted EBITDA margins and refer to percentage changes in local currency, unless otherwise noted. Amounts presented on a local currency basis are calculated by translating the current period results of our foreign operations to U.S. dollars using the foreign currency exchange rates from the comparative period. We believe this methodology provides a framework for assessing performance and operations excluding the effect of foreign currency fluctuations. The following table reflects the reconciliation to local currency amounts for consolidated (i) Revenue, (ii) Fee revenue, (iii) Operating income, and (iv) Adjusted EBITDA. Three Months Ended March 31, ($ in millions) 2023 % Change Revenue: At current period exchange rates $ 4,715.5 (2) % Impact of change in exchange rates 120.6 n/a At comparative period exchange rates $ 4,836.1 1 % Fee revenue: At current period exchange rates $ 1,584.0 (17) % Impact of change in exchange rates 40.8 n/a At comparative period exchange rates $ 1,624.8 (15) % Operating income: At current period exchange rates $ 17.8 (90) % Impact of change in exchange rates (5.1) n/a At comparative period exchange rates $ 12.7 (93) % Adjusted EBITDA: At current period exchange rates $ 109.0 (60) % Impact of change in exchange rates (2.5) n/a At comparative period exchange rates $ 106.5 (61) % 28 Table of Contents Revenue For the first quarter, revenue was up 1% while fee revenue was down 15%, compared with the prior-year quarter. Economic headwinds and continued interest rate uncertainty continued to adversely impact most of our transaction-based businesses, notably Investment Sales and Debt/Equity Advisory within Capital Markets as well as Leasing within Markets Advisory. However, continued demand in Project Management, within Work Dynamics, drove its fee revenue growth of 24%. Our annuity-based businesses continued to demonstrate resilience while delivering fee revenue growth for the quarter, as JLL Technologies grew 29%; Property Management, within Markets Advisory, grew 12%; LaSalle advisory fees grew 9%; and Workplace Management, within Work Dynamics, grew 3%. The following highlights revenue and fee revenue by segment, for the current and prior-year quarters ($ in millions). Refer to segment operating results for further detail. Our consolidated fee revenue declined 17% in U.S. dollars (“USD”) and 15% in local currency for the first quarter of 2023, compared with 2022. The quarter-to-date spreads were driven by the weakening of the U.S. dollar against several major currencies, especially the British pound sterling, euro, Japanese yen, Australian dollar and Canadian dollar. Operating Expenses Consolidated operating expenses were $4.7 billion for the first quarter, up 4% from 2022, while consolidated fee-based operating expenses were $1.6 billion, down 6% from the prior-year quarter. The decrease in fee-based operating expenses were attributable to our Capital Markets and Markets Advisory segments, partially offset by revenue-related expense growth in Work Dynamics. For the first quarter, Restructuring and acquisition charges increased compared with the prior-year period, driven by incremental severance and other employment-related charges as a result of cost-out actions taken in the current quarter; refer to following table for further detail. 29 Table of Contents Three Months Ended March 31, (in millions) 2023 2022 Severance and other employment-related charges $ 25.7 3.3 Restructuring, pre-acquisition and post-acquisition charges 10.0 16.9 Fair value adjustments that resulted in a net decrease to earn-out liabilities from prior-period acquisition activity — (0.7) Total restructuring and acquisition charges $ 35.7 19.5 Interest Expense Interest expense, net of interest income, for three months ended March 31, 2023 was $26.3 million compared with $10.2 million in the prior-year quarter. The increase reflected an increase in the average outstanding borrowings as well as a higher effective interest rate on our Facility. Refer to the Liquidity and Capital Resources section for additional details on our Facility. Equity (Losses) Earnings The following details equity (losses) earnings by relevant segment. Refer to the segment discussions for additional details. Three Months Ended March 31, (in millions) 2023 2022 JLL Technologies $ 4.9 18.8 LaSalle (8.8) (1.9) Other 1.3 1.6 Total equity (losses) earnings $ (2.6) 18.5 Income Taxes The income tax benefit was $2.3 million for the three months ended March 31, 2023, representing an effective tax rate ("ETR") of 21.0%. For the three months ended March 31, 2022, the income tax provision was $40.3 million, representing an ETR of 21.9%. Net (Loss) Income and Adjusted EBITDA Net (loss) income attributable to common shareholders for the three months ended March 31, 2023 was a loss of $9.2 million, compared with income of $145.6 million in the respective prior-year period. Adjusted EBITDA was $109.0 million for the first quarter of 2023, compared to $273.6 million in the prior-year period. Net (loss) income margin attributable to common shareholders for the first quarter was (0.2)%, compared with 3.0% in the prior-year quarter. Adjusted EBITDA margin for the first quarter, calculated on a fee-revenue basis, was 6.9% in USD (6.6% in local currency), compared with 14.4% in 2022. The lower adjusted EBITDA margin compared with the prior-year quarter was largely driven by the decline in higher-margin transaction-based revenue, specifically Leasing, Investment Sales, and Debt/Equity Advisory, as well as the change in equity earnings. In addition, run-rate growth in fixed compensation expense over the past few quarters was partially offset by ongoing cost reduction actions. 30 Table of Contents Segment Operating Results We manage and report our operations as five business segments: Markets Advisory, Capital Markets, Work Dynamics, JLL Technologies, and LaSalle. Markets Advisory offers a wide range of real estate services, including agency leasing and tenant representation, property management, and advisory and consulting services. Our Capital Markets service offerings include investment sales, equity and debt advisory, loan servicing, and valuations. Our Work Dynamics business provides a broad suite of integrated services to occupiers of real estate, including facility and project management, as well as portfolio and other services. We consider "Property Management" to be services provided to non-occupying property investors and "Workplace Management" to be services provided to owner-occupiers. Our JLL Technologies segment offers software products, solutions and services, while LaSalle provides investment management services on a global basis to institutional investors and high-net-worth individuals. For segment reporting, (i) gross contract costs and (ii) net non-cash MSR and mortgage banking derivative activity are both excluded from revenue in determining Fee revenue. Gross contract costs are excluded from operating expenses in determining Fee-based operating expenses. In addition, our measure of segment results also excludes Restructuring and acquisition charges. 31 Table of Contents Markets Advisory 32 Table of Contents % Change Three Months Ended March 31, Change in in Local ($ in millions) 2023 2022 U.S. dollars Currency Revenue $ 906.4 999.5 (93.1) (9) % (7) % Gross contract costs (279.1) (258.3) (20.8) 8 12 Fee revenue $ 627.3 741.2 (113.9) (15) % (14) % Leasing 482.5 596.9 (114.4) (19) (18) Property Management 127.1 118.6 8.5 7 12 Advisory, Consulting and Other 17.7 25.7 (8.0) (31) (27) Compensation and benefits, excluding gross contract costs $ 461.0 540.8 (79.8) (15) % (13) % Operating, administrative and other expenses, excluding gross contract costs 93.6 91.9 1.7 2 5 Depreciation and amortization 17.1 17.1 — — 2 Segment fee-based operating expenses 571.7 649.8 (78.1) (12) (10) Gross contract costs 279.1 258.3 20.8 8 12 Segment operating expenses $ 850.8 908.1 (57.3) (6) % (4) % Equity earnings $ 0.3 0.5 (0.2) (40) % (57) % Adjusted EBITDA $ 71.6 111.2 (39.6) (36) % (36) % Adjusted EBITDA margin (local currency basis) 11.2 % 15.0 % (360) bps (380) bps Adjusted EBITDA margin (USD basis) 11.4 % The declines in Markets Advisory revenue and fee revenue were predominantly driven by Leasing, the result of lower transaction volume across asset types and a decrease in average deal size, particularly in the office sector, across most geographies. The lower Leasing fee revenue was in line with global market volumes as global gross absorption fell 19%, according to JLL Research. The increase in Property Management fee revenue was partially attributable to portfolio expansion in the Americas and also reflected incremental fees from interest-rate sensitive contract terms in the United Kingdom. The decrease in Advisory, Consulting and Other was primarily due to the absence of revenues associated with exiting a business in the fourth quarter of 2022. The net decreases in segment operating expenses and segment fee-based operating expenses for the quarter, compared with the prior-year quarter, were almost entirely due to lower commissions expense, correlated with the significant decline in revenue, as well as lower incentive compensation expense, reflecting segment performance. The adjusted EBITDA margin contraction was substantially due to the lower Leasing fee revenue described above. 33 Table of Contents Capital Markets 34 Table of Contents % Change Three Months Ended March 31, Change in in Local ($ in millions) 2023 2022 U.S. dollars Currency Revenue $ 357.1 600.6 (243.5) (41) % (39) % Gross contract costs (9.3) (12.7) 3.4 (27) (22) Net non-cash MSR and mortgage banking derivative activity 1.8 3.6 (1.8) 50 51 Fee revenue $ 349.6 591.5 (241.9) (41) % (39) % Investment Sales, Debt/Equity Advisory and Other 235.2 468.5 (233.3) (50) (48) Valuation Advisory 77.0 83.1 (6.1) (7) (3) Loan Servicing 37.4 39.9 (2.5) (6) (6) Compensation and benefits, excluding gross contract costs $ 283.9 418.2 (134.3) (32) % (30) % Operating, administrative and other expenses, excluding gross contract costs 56.1 55.9 0.2 — 3 Depreciation and amortization 15.9 15.6 0.3 2 4 Segment fee-based operating expenses 355.9 489.7 (133.8) (27) (25) Gross contract costs 9.3 12.7 (3.4) (27) (22) Segment operating expenses $ 365.2 502.4 (137.2) (27) % (25) % Equity earnings $ 0.6 0.8 (0.2) (25) % (25) % Adjusted EBITDA $ 10.7 118.2 (107.5) (91) % (91) % Adjusted EBITDA margin (local currency basis) 2.9 % 20.0 % (1690) bps (1710) bps Adjusted EBITDA margin (USD basis) 3.1 % The declines in Capital Markets revenue and fee revenue reflected uncertainty with interest rates and the macroeconomic outlook as transaction volumes fell and the deal-cycle time remained elongated. This was most visible in Investment Sales and Debt/Equity Advisory which had declines across asset classes and geographies compared to the prior-year quarter. This aligned with broader market performance as, Q1 global market volumes for investment sales were down 58% in USD (56% in local currency) according to JLL Research. Loan Servicing included continued growth in the portfolio originated under the Fannie Mae DUS program. This growth was overshadowed by a $4.5 million decline in prepayment fees compared to the prior-year quarter, as elevated interest rates continued to dampen refinancing activity. The net decreases in segment operating expenses and segment fee-based operating expenses for the quarter, compared with the prior-year quarter, were almost entirely due to lower commissions expense, correlated with the significant decline in revenue, as well as lower incentive compensation expense, reflecting segment performance. The adjusted EBITDA margin contraction was predominantly driven by the meaningful decline in fee revenue described above. 35 Table of Contents Work Dynamics 36 Table of Contents % Change Three Months Ended March 31, Change in in Local ($ in millions) 2023 2022 U.S. dollars Currency Revenue $ 3,276.2 3,033.6 242.6 8 % 11 % Gross contract costs (2,834.2) (2,623.1) (211.1) 8 11 Fee revenue $ 442.0 410.5 31.5 8 % 11 % Workplace Management 183.2 182.0 1.2 1 3 Project Management 210.9 175.7 35.2 20 24 Portfolio Services and Other 47.9 52.8 (4.9) (9) (7) Compensation and benefits, excluding gross contract costs $ 305.0 281.8 23.2 8 % 12 % Operating, administrative and other expenses, excluding gross contract costs 111.5 93.8 17.7 19 24 Depreciation and amortization 19.3 16.5 2.8 17 22 Segment fee-based operating expenses 435.8 392.1 43.7 11 15 Gross contract costs 2,834.2 2,623.1 211.1 8 11 Segment operating expenses $ 3,270.0 3,015.2 254.8 8 % 11 % Equity earnings $ 0.4 0.3 0.1 33 % 59 % Adjusted EBITDA $ 25.7 35.2 (9.5) (27) % (33) % Adjusted EBITDA margin (local currency basis) 5.1 % 8.6 % (280) bps (350) bps Adjusted EBITDA margin (USD basis) 5.8 % Work Dynamics revenue and fee revenue achieved double-digit growth compared with the prior-year quarter, propelled by the increase in Project Management and continued resilience within Workplace Management. Project Management's growth was attributable to continued project demand in several geographies, most notably the U.S., France and MENA. The increases in segment operating expenses and segment fee-based operating expenses for the quarter, compared with the prior-year quarter, were primarily due to (i) revenue-related expense growth over the trailing twelve months and (ii) $9.0 million of contract losses (included in Operating, administrative and other expenses) related to certain Tetris contracts in Europe. The margin contraction was primarily attributable to the aforementioned contract losses as well as incremental investments in sustainability and technology products. These margin dilutive impacts were partially offset by the higher revenue described above. 37 Table of Contents JLL Technologies 38 Table of Contents % Change Three Months Ended March 31, Change in in Local ($ in millions) 2023 2022 U.S. dollars Currency Revenue $ 61.4 49.4 12.0 24 % 25 % Gross contract costs (3.6) (4.1) 0.5 (12) (13) Fee revenue $ 57.8 45.3 12.5 28 % 29 % Compensation and benefits, excluding gross contract costs (1) $ 61.3 62.2 (0.9) (1) % — % Operating, administrative and other expenses, excluding gross contract costs 14.7 14.2 0.5 4 4 Depreciation and amortization 3.9 3.8 0.1 3 4 Segment fee-based operating expenses 79.9 80.2 (0.3) — 1 Gross contract costs 3.6 4.1 (0.5) (12) (13) Segment operating expenses $ 83.5 84.3 (0.8) (1) % — % Equity earnings $ 4.9 18.8 (13.9) (74) % (74) % Adjusted EBITDA $ (13.3) (12.3) (1.0) (8) % (12) % Adjusted EBITDA margin (local currency basis) (23.7) % (27.2) % 420 bps 350 bps Adjusted EBITDA margin (USD basis) (23.0) % (1) Included in Compensation and benefits expense for JLL Technologies is carried interest expense of $0.7 million and $6.2 million for the first quarter of 2023 and 2022, respectively, related to Equity earnings of the segment. The increases in JLL Technologies revenue and fee revenue over the prior-year quarter were primarily driven by growth from existing customers, led by solutions and services offerings, especially from large enterprise clients. Equity earnings in both periods were primarily attributable to net valuation increases of JLL Technologies' investments, largely reflecting subsequent financing rounds at increased per-share values. The net decreases in segment operating expenses and segment fee-based operating expenses for the quarter, compared with the prior-year quarter, were substantially attributable to lower carried interest expense, as a result of reduced equity earnings, largely offset by revenue-related expense growth. Fee revenue growth with greater operating efficiencies drove the margin improvement, which was tempered by lower equity earnings, net of carried interest. 39 Table of Contents LaSalle 40 Table of Contents % Change Three Months Ended March 31, Change in in Local ($ in millions) 2023 2022 U.S. dollars Currency Revenue $ 114.4 118.3 (3.9) (3) % 1 % Gross contract costs (7.1) (6.3) (0.8) 13 13 Fee revenue $ 107.3 112.0 (4.7) (4) % — % Advisory fees 94.7 90.7 4.0 4 9 Transaction fees and other 9.1 17.1 (8.0) (47) (44) Incentive fees 3.5 4.2 (0.7) (17) (2) Compensation and benefits, excluding gross contract costs $ 68.9 74.8 (5.9) (8) % (3) % Operating, administrative and other expenses, excluding gross contract costs 15.2 13.7 1.5 11 17 Depreciation and amortization 1.3 1.4 (0.1) (7) (6) Segment fee-based operating expenses 85.4 89.9 (4.5) (5) — Gross contract costs 7.1 6.3 0.8 13 13 Segment operating expenses $ 92.5 96.2 (3.7) (4) % 1 % Equity losses $ (8.8) (1.9) (6.9) (363) % (358) % Adjusted EBITDA $ 14.3 21.3 (7.0) (33) % (30) % Adjusted EBITDA margin (local currency basis) 13.3 % 19.0 % (570) bps (570) bps Adjusted EBITDA margin (USD basis) 13.3 % LaSalle advisory fee growth was concentrated in core open-end funds, primarily in North America and Asia Pacific. This growth was offset by lower transaction fees attributable to muted deal activity, consistent with global trends in transaction volumes. The current quarter's equity losses were primarily attributable to valuation declines in the co-investment portfolio. In addition, the co-investment in a LaSalle-managed publicly-traded REIT in Japan experienced a lower negative share price movement compared with the prior-year quarter. The net decreases in segment operating expenses and segment fee-based operating expenses for the quarter, on a local currency basis and compared with the prior-year quarter, were primarily driven by lower incentive compensation expense. The adjusted EBITDA margin contraction was largely attributable to higher equity losses, as additional advisory fee platform scale was offset by lower transaction fees. As of March 31, 2023, LaSalle had $78.5 billion of AUM, a decrease of 1% in USD (decreased 5% in local currency) from $79.1 billion as of December 31, 2022. The AUM change resulted from (i) $3.3 billion of dispositions and withdrawals and (ii) $1.6 billion of net valuation decreases, partially offset by (iii) $3.0 billion of foreign currency increases and (iv) $1.3 billion of acquisitions. 41 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We finance our operations, co-investment activity, share repurchases, capital expenditures and business acquisitions with internally generated funds, borrowings on our Facility, and through issuance of Long-term debt. Cash Flows from Operating Activities Operating activities used $716.3 million of cash in the first three months of 2023, compared with $716.4 million of cash used in operating activities during the same period in 2022. This relatively consistent cash flows used in operating activities was primarily due to lower incentive compensation and commission payments in 2023, compared with 2022, and incremental cash inflow associated with trade receivables, offset by (i) a decline in cash provided by earnings (largely driven by the Capital Markets and Markets Advisory change in business performance), (ii) an additional pay period in the current quarter, and (iii) incremental cash outflow associated with net reimbursables, due to continued growth in Workplace Management over the last four quarters. Cash Flows from Investing Activities We used $74.0 million of cash for investing activities during the first three months of 2023, as compared to $94.0 million used during the same period in 2022. The net decrease in cash used for investing activities was primarily due no investment activity in 2023 relating to less than wholly-owned subsidiaries. In the prior year, we funded $12.0 million net capital additions related to these consolidated VIEs. Cash Flows from Financing Activities Financing activities provided $775.3 million of cash during the first three months of 2023, as compared to $806.5 million provided during the same period in 2022. The net decrease of $31.2 million in cash inflows from financing activities is substantially driven by a decrease in borrowings on our Facility. This decrease in borrowings was a product of lower cash needed for incentive compensation payments in the first quarter of 2023, as discussed above, as well as no share repurchases in the first quarter of 2023. In the prior-year quarter, we paid $150.0 million for share repurchases. Debt Our $3.35 billion Facility matures on April 14, 2026 and bears a variable interest rate. As of March 31, 2023, we had outstanding borrowings under the Facility of $2,089.7 million versus $1,213.8 million as of December 31, 2022. The average outstanding borrowings under our credit facilities were $1,719.9 million and $683.2 million (with average effective interest rates of 5.4% and 1.0%) during the three months ended March 31, 2023 and 2022, respectively. We had Short-term borrowings (including financing lease obligations, overdrawn bank accounts and local overdraft facilities) of $104.3 million and $164.2 million as of March 31, 2023 and December 31, 2022, respectively. In addition to our Facility, we had the capacity to borrow up to $54.8 million under local overdraft facilities as of March 31, 2023. We will continue to use the Facility for working capital needs (including payment of accrued incentive compensation), co-investment activities, share repurchases, capital expenditures and acquisitions. Refer to Note 9, Debt, in the Notes to Condensed Consolidated Financial Statements for additional information on our debt. Investment Activity As of March 31, 2023, we had a carrying value of $896.0 million in investments, primarily related to investments by JLL Technologies in early to mid-stage proptech companies as well as proptech funds, and LaSalle co-investments. For the three months ended March 31, 2023 and 2022, funding of investments exceeded return of capital by $23.6 million and $30.9 million, respectively. We expect continued investments by JLL Technologies as well as strategic co-investment opportunities with our investment management clients globally as co-investment remains an important foundation to the continued growth of LaSalle's business. See Note 6, Investments, in the Notes to Condensed Consolidated Financial Statements for additional information on our investment activity. 42 Capital Expenditures Net capital additions for the three months ended March 31, 2023 and 2022 were $49.3 million and $46.6 million, respectively. Our capital expenditures in 2023 were primarily for purchased/developed software and leased office space improvements. Business Acquisitions During the three months ended March 31, 2023, we paid $13.8 million for deferred business acquisition and earn-out obligations related to acquisitions completed in prior years, which are primarily reflected in cash flows from financing activities. We completed no business acquisitions in the three months ended March 31, 2023. Terms for many of our past acquisitions have typically included cash paid at closing with provisions for additional deferred consideration and earn-out payments subject to certain contract requirements, including the passage of time and performance, respectively. Deferred business acquisition obligations totaled $12.9 million as of March 31, 2023. These obligations represent the current discounted values of payments due to sellers of businesses for which our acquisition had been completed as of the balance sheet date and for which the only remaining condition on those payments is the passage of time. As of March 31, 2023, we had the potential to make earn-out payments for a maximum of $113.2 million on 16 completed acquisitions subject to the achievement of certain performance conditions. Refer to Note 5, Business Combinations, Goodwill and Other Intangible Assets, in the Notes to the Condensed Consolidated Financial Statements for further information on Business Acquisitions. We will continue to consider acquisitions that we believe will strengthen our market position, increase our profitability, and supplement our organic growth. Share Repurchase and Dividend Programs In February 2022, our Board of Directors authorized an additional $1.5 billion for the repurchase of our common stock in the open market and privately negotiated transactions; as described above, this repurchase program was suspended in late 2022. The number of shares repurchased and cash paid for repurchases is noted in the following table. Three Months Ended March 31, ($ in millions) 2023 2022 Total number of shares repurchased (in 000's) — 615.3 Total paid for shares repurchased $ — 150.0 As of March 31, 2023, $1,155.6 million remained authorized for repurchases under our share repurchase program. Repatriation of Foreign Earnings Based on our historical experience and future business plans, we do not expect to repatriate our foreign-sourced earnings to the United States. We believe our policy of permanently investing earnings of foreign subsidiaries does not significantly impact our liquidity. As of March 31, 2023 and December 31, 2022, we had total cash and cash equivalents of $485.4 million and $519.3 million, respectively, of which approximately $387.9 million and $400.8 million, respectively, was held by foreign subsidiaries. Restricted Net Assets We face regulatory restrictions in certain countries that limit or prevent the transfer of funds to other countries or the exchange of the local currency to other currencies. However, we generally face no such restrictions with regard to the use or application of funds for ordinary course business activities within such countries. The assets of these countries aggregated to approximately 4% of our total assets as of both March 31, 2023 and December 31, 2022. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may also be included in our other public filings, press releases, our website, and oral and written presentations by management. Statements in the future tense, and all statements accompanied by terms such as “believe,” “will,” “may,” “could,” “project,” “expect,” “estimate,” “assume,” “intend,” “anticipate,” “target,” “plan” and variations thereof and similar terms, are intended to be forward-looking statements. Such statements do not relate strictly to historical or current facts as they relate to our intent, belief and current expectations about our strategic direction, prospects and future results, and give our current expectations or forecasts of future events. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made.