Item 2. Management’s Discussion and Analysis
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, 2024, and our audited Consolidated Financial Statements, including the notes thereto, for the fiscal year ended December 31, 2023, which are included in our 2023 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 2023 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 2023 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 (i) the stated amount of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the date of the financial statements and (iii) 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, 2023. There have been no material changes to these critical accounting policies and estimates during the three months ended March 31, 2024.
ITEMS AFFECTING COMPARABILITY
Macroeconomic Conditions
Our results of operations and the variability of these results are significantly influenced by (i) macroeconomic trends, (ii) the geopolitical environment, (iii) the global and regional real estate markets and (iv) 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.
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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.
Transaction-Based Revenues and Equity Earnings
Transaction-based revenues are impacted by the size and timing of our clients' transactions. Such revenues include investment sales and other capital markets activities, agency and tenant representation leasing transactions, incentive fees, and other services/offerings, increase the variability of the revenue we earn. Specifically for LaSalle, the magnitude and timing of recognition of incentive fees are driven by one or a combination of the following: changes in valuations of the underlying investments, dispositions of managed assets and the contractual measurement periods with clients. The timing and the magnitude of transaction-based revenues can vary significantly from year to year and quarter to quarter and also vary geographically.
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.
The comparability of these items can be seen in Note 4, 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.
Seasonality
Historically, we have reported a relatively smaller revenue and profit in the first quarter with both measures increasing each of the following three quarters. 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. Our seasonality excludes the recognition of investment-generated performance fees and realized and unrealized investment equity earnings and losses. Specifically, we recognize incentive fees when assets are sold or as a result of valuation increases in the portfolio, the timing of which may not be predictable or recurring. In addition, investment equity gains and losses are primarily dependent on valuations of underlying investments, and the direction and magnitude of changes to such valuations are not predictable. Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis. Other factors may affect seasonality. For example, we experienced disruption to our historical seasonality trends due to rising interest rates and widespread economic uncertainty in 2022 and 2023.
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, 2024 and 2023 are not fully indicative of the results we expect to realize for the full fiscal year.
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RESULTS OF OPERATIONS
Definitions
• Assets under management data for LaSalle is reported on a one-quarter lag.
• n.m.: not meaningful, represented by a percentage change of greater than 1,000%, favorable or unfavorable.
• We define "Resilient" revenue as (i) Property Management, within Markets Advisory, (ii) Value and Risk Advisory, and Loan Servicing, within Capital Markets, (iii) Workplace Management, within Work Dynamics, (iv) JLL Technologies and (v) Advisory Fees, within LaSalle. In addition, we define "Transactional" revenue as (i) Leasing and Advisory, Consulting and Other, within Markets Advisory, (ii) Investment Sales, Debt/Equity Advisory and Other, within Capital Markets, (iii) Project Management and Portfolio Services and Other, within Work Dynamics and (iv) Incentive fees and Transaction fees and other, within LaSalle.
• 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 corresponding fees in Revenue).
Consolidated Operating Results
Three Months Ended March 31, Change in % Change in Local Currency
($ in millions) 2024 2023 U.S. dollars
Markets Advisory $ 950.1 906.4 43.7 5 % 5 %
Capital Markets 377.6 357.1 20.5 6 6
Work Dynamics 3,639.5 3,276.2 363.3 11 11
JLL Technologies 53.9 61.4 (7.5) (12) (12)
LaSalle 103.4 114.4 (11.0) (10) (8)
Revenue $ 5,124.5 4,715.5 409.0 9 % 9 %
Platform compensation and benefits $ 1,178.5 1,180.1 (1.6) — % — %
Platform operating, administrative and other expenses 270.4 291.1 (20.7) (7) (8)
Depreciation and amortization 61.0 57.5 3.5 6 6
Total platform operating expenses $ 1,509.9 1,528.7 (18.8) (1) % (1) %
Gross contract costs 3,498.7 3,133.3 365.4 12 12
Restructuring and acquisition charges 1.7 35.7 (34.0) (95) (96)
Total operating expenses $ 5,010.3 4,697.7 312.6 7 % 7 %
Operating income $ 114.2 17.8 96.4 542 % 569 %
Equity losses $ (3.7) (2.6) (1.1) (42) % (34) %
Net non-cash MSR and mortgage banking derivative activity $ (9.0) (1.8) (7.2) (400) % (405) %
Adjusted EBITDA $ 187.1 112.9 74.2 66 % 70 %
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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:
• Adjusted EBITDA attributable to common shareholders ("Adjusted EBITDA") 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.
Effective January 1, 2024, we updated the definition of Adjusted EBITDA to exclude certain equity earnings/losses as further described below. Comparable periods have been recast to conform to the revised presentation.
Also effective with first-quarter 2024 reporting, we no longer report the non-GAAP measures "Fee revenue" and "Fee-based operating expenses" following the conclusion of a comment letter from the Securities and Exchange Commission Staff in February 2024.
Adjustments to U.S. GAAP Financial Measures Used to Calculate non-GAAP Financial Measures
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.
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.
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Equity earnings/losses (JLL Technologies and LaSalle) primarily reflects valuation changes on investments reported at fair value. Investments reported at fair value are increased or decreased each reporting period by the change in the fair value of the investment. Where the measurement alternative has been elected, our investment is increased or decreased upon observable price changes. Such activity is excluded as the amounts are generally non‑cash in nature and not indicative of core operating performance.
Reconciliation of Non-GAAP Financial Measures
Below is a reconciliation of Net income attributable to common shareholders to EBITDA and Adjusted EBITDA.
Three Months Ended March 31,
(in millions) 2024 2023
Net income (loss) attributable to common shareholders $ 66.1 (9.2)
Add:
Interest expense, net of interest income 30.5 26.3
Income tax provision (benefit) 15.9 (2.3)
Depreciation and amortization (1)
60.0 56.5
EBITDA $ 172.5 71.3
Adjustments:
Restructuring and acquisition charges 1.7 35.7
Net non-cash MSR and mortgage banking derivative activity 9.0 1.8
Interest on employee loans, net of forgiveness (1.0) 0.2
Equity losses - JLL Technologies and LaSalle 4.9 3.9
Adjusted EBITDA $ 187.1 112.9
(1) This adjustment excludes the noncontrolling interest portion of amortization of acquisition-related intangibles which is not attributable to common shareholders.
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In discussing our operating results, we report 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) Operating income and (iii) Adjusted EBITDA.
Three Months Ended March 31,
($ in millions) 2024 % Change
Revenue:
At current period exchange rates $ 5,124.5 9 %
Impact of change in exchange rates 5.6 n/a
At comparative period exchange rates $ 5,130.1 9 %
Operating income:
At current period exchange rates $ 114.2 542 %
Impact of change in exchange rates 5.3 n/a
At comparative period exchange rates $ 119.5 569 %
Adjusted EBITDA:
At current period exchange rates $ 187.1 66 %
Impact of change in exchange rates 5.3 n/a
At comparative period exchange rates $ 192.4 70 %
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Revenue
Revenue increased 9% compared with the prior-year quarter. Businesses with Resilient revenues continued to deliver strong revenue growth, collectively up 12%, highlighted by Workplace Management, within Work Dynamics, up 15%, and Property Management, within Markets Advisory, up 8%. Transactional revenue businesses were collectively up just over 1% as economic uncertainty and the current interest rate environment continued to weigh on client decision making. Transaction performance was led by Investment Sales, Debt/Equity Advisory and Other, within Capital Markets, which grew 8%.
The following highlights Revenue by segment, for the current and prior-year quarters ($ in millions). Refer to segment operating results for further detail.
Operating Expenses
Consolidated operating expenses were $5.0 billion for the first quarter, up 7% from the same period in 2023. Gross contract costs were $3.5 billion, up 12% from the prior-year quarter, attributable to growth from businesses with higher client pass-through expenses such as Workplace Management, within Work Dynamics, and Property Management, within Markets Advisory. Platform operating expenses were $1.5 billion for the first quarter, a 4% reduction from the prior-year quarter largely associated with the benefit of cost mitigation actions in the trailing twelve months, partially offset by higher variable incentive compensation expense attributable to improved year-over-year profitability.
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For the first quarter of 2024, Restructuring and acquisition charges decreased compared with the prior-year period, driven by (i) lower severance and other employment-related charges from cost-out actions and (ii) net decreases to the fair value of future acquisition-related payments; refer to following table for further detail.
Three Months Ended March 31,
(in millions) 2024 2023
Severance and other employment-related charges $ 4.5 25.7
Restructuring, pre-acquisition and post-acquisition charges 7.7 10.0
Fair value adjustments that resulted in a net increase (decrease) to earn-out liabilities from prior-period acquisition activity (10.5) —
Restructuring and acquisition charges $ 1.7 35.7
Interest Expense
Interest expense, net of interest income, for the three months ended March 31, 2024 was $30.5 million compared with $26.3 million in the prior-year period.
Equity (Losses) Earnings
The following details Equity losses by relevant segment. Refer to the segment discussions for additional details.
Three Months Ended March 31,
(in millions) 2024 2023
JLL Technologies $ (1.0) 4.9
LaSalle (3.9) (8.8)
Other 1.2 1.3
Equity losses $ (3.7) (2.6)
Income Taxes
The Income tax provision was $15.9 million for the three months ended March 31, 2024, representing an effective tax rate ("ETR") of 19.5%. For the three months ended March 31, 2023, the income tax benefit was $2.3 million, representing an ETR of 21.0%.
A number of countries in which we have a taxable presence have enacted legislation effective in 2024 inspired by the Organization for Economic Co-operation and Development (OECD) guidance for a global minimum tax rate of 15%, referred to as “Pillar Two” taxation. Such legislation enacted through March 31, 2024 did not have a material impact on our effective tax rate for the first quarter of 2024 and is not presently expected to have a material impact for the full year 2024.
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Net Income and Adjusted EBITDA
Net income attributable to common shareholders was $66.1 million for the three months ended March 31, 2024, compared with a loss of $9.2 million in the prior-year quarter. Adjusted EBITDA was $187.1 million for the first quarter of 2024, compared with $112.9 million in the prior-year period. Growth in profit was primarily attributable to (i) higher revenues, particularly Resilient revenues as well as certain Transactional revenue streams like investment sales within Capital Markets, and (ii) the benefit of cost reduction actions executed in the last twelve months coupled with continued cost discipline. In addition to these drivers, the increase in Net income attributable to common shareholders was partially due to lower Restructuring and acquisition charges as noted above.
The following chart reflects the aggregation of segment Adjusted EBITDA for the first quarter of 2024 and 2023.
Aggregation of Segment Adjusted EBITDA (in millions)
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, debt and equity advisory, value and risk advisory, and loan servicing. 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 facility 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.
Segment operating expenses comprise Gross contract costs and Segment platform operating expenses, which includes Platform compensation and benefits; Platform operating, administrative and other expenses; and Depreciation and amortization. Our measure of segment results excludes Restructuring and acquisition charges.
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Markets Advisory
% Change
Three Months Ended March 31, Change in in Local
($ in millions) 2024 2023 U.S. dollars Currency
Leasing $ 497.3 487.0 10.3 2 % 2 %
Property Management 429.7 400.2 29.5 7 8
Advisory, Consulting and Other 23.1 19.2 3.9 20 20
Revenue $ 950.1 906.4 43.7 5 % 5 %
Platform compensation and benefits $ 462.5 461.0 1.5 — % — %
Platform operating, administrative and other 86.9 93.6 (6.7) (7) (7)
Depreciation and amortization 17.4 17.1 0.3 2 3
Segment platform operating expenses 566.8 571.7 (4.9) (1) (1)
Gross contract costs 304.9 279.1 25.8 9 10
Segment operating expenses $ 871.7 850.8 20.9 2 % 3 %
Equity earnings $ 0.4 0.3 0.1 33 % 110 %
Adjusted EBITDA $ 95.3 71.6 23.7 33 % 33 %
Markets Advisory revenue growth was largely driven by Property Management and a mid-single digit increase in U.S. Leasing revenue. Higher Property Management revenue was primarily attributable to portfolio expansions in the U.S., UK and Canada, including incremental revenue associated with pass-through expenses. U.S. Leasing growth, which follows a softer prior-year quarter, was led by the office sector, which saw increased deal size and transaction volumes. The growth in U.S. office was partially offset by industrial, globally, where deal size decreased. Consistent with the trend from recent quarters, economic uncertainty has delayed commercial real estate decision making, particularly for large-scale leasing actions where JLL has a greater presence.
The net decreases in segment platform operating expenses for the quarter, compared with the prior-year quarter, were due to the continued impact of cost management actions taken in the last twelve months, notably in (i) lower fixed compensation and benefits attributable to reduced headcount, largely offset by higher variable revenue-related compensation expense, and (ii) lower T&E. Gross contract costs increased over the prior-year quarter consistent with revenue growth, predominantly associated with Property Management.
The Adjusted EBITDA increase was predominantly driven by revenue growth and the continued impact of cost management actions described above.
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Capital Markets
% Change
Three Months Ended March 31, Change in in Local
($ in millions) 2024 2023 U.S. dollars Currency
Investment Sales, Equity & Debt Advisory $ 258.7 240.6 18.1 8 % 8 %
Valuation Advisory & Other 80.2 79.1 1.1 1 2
CM Loan Servicing 38.7 37.4 1.3 3 3
Revenue $ 377.6 357.1 20.5 6 % 6 %
Platform compensation and benefits $ 287.6 283.9 3.7 1 % 1 %
Platform operating, administrative and other 60.8 56.1 4.7 8 8
Depreciation and amortization 16.4 15.9 0.5 3 3
Segment platform operating expenses 364.8 355.9 8.9 3 3
Gross contract costs 13.6 9.3 4.3 46 50
Segment operating expenses $ 378.4 365.2 13.2 4 % 4 %
Equity earnings $ 0.1 0.6 (0.5) (83) % (81) %
Net non-cash MSR and mortgage banking derivative activity $ (9.0) (1.8) (7.2) (400) % (405) %
Adjusted EBITDA $ 25.0 10.7 14.3 134 % 145 %
Capital Markets revenue increased across all business lines though market uncertainty persisted, especially around the future of interest rates. Investment Sales and Debt/Equity Advisory revenue increased compared to the prior-year quarter across most asset classes, with strength in Japan and Germany, most notably office. Investment Sales and Debt/Equity Advisory growth in the U.S. was low single digits but outperformed the broader market for investment sales, which declined 12% according to JLL Research.
The increase in segment platform operating expenses was largely driven by higher variable compensation expense compared with the prior-year quarter, as segment profit grew. The increase in variable compensation more than offset the impact of headcount reductions over the trailing twelve months. Operating and administrative costs generally decreased, also due to continued cost discipline, largely overcoming $5.7 million of headwind attributable to the year-over-year non-cash change in loan loss credit reserves, as the slight increase to the reserve this quarter followed a decrease to the reserve last year.
The Adjusted EBITDA improvement was attributable to revenue growth and the benefit associated with cost management actions taken over the trailing twelve months as described above.
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Work Dynamics
% Change
Three Months Ended March 31, Change in in Local
($ in millions) 2024 2023 U.S. dollars Currency
Workplace Management $ 2,871.7 2,497.2 374.5 15 % 15 %
Project Management 656.4 676.3 (19.9) (3) (3)
Portfolio Services and Other 111.4 102.7 8.7 8 8
Revenue $ 3,639.5 3,276.2 363.3 11 % 11 %
Platform compensation and benefits $ 319.8 305.0 14.8 5 % 5 %
Platform operating, administrative and other 99.3 111.5 (12.2) (11) (11)
Depreciation and amortization 20.7 19.3 1.4 7 7
Segment platform operating expenses 439.8 435.8 4.0 1 1
Gross contract costs 3,170.6 2,834.2 336.4 12 12
Segment operating expenses $ 3,610.4 3,270.0 340.4 10 % 10 %
Equity earnings $ 0.7 0.4 0.3 75 % 80 %
Adjusted EBITDA $ 50.9 25.7 25.2 98 % 102 %
Work Dynamics revenue growth was led by continued strong performance in Workplace Management, as 2023 contract wins and mandate expansions in the Americas further ramped up this quarter. This was partially offset by Project Management, where lower pass-through costs drove the decrease in revenue while management fees were flat. In addition, the quantum of new project contracts reflected softer leasing activity in 2023.
The net increase in segment platform operating expenses was primarily due to higher incentive compensation accruals, reflecting segment growth and operating results, largely offset by continued cost discipline and the absence of $9 million of Tetris contract losses recognized in 2023. Gross contract costs increased over the prior-year quarter consistent with the revenue growth in Workplace Management.
The increase in Adjusted EBITDA was primarily attributable to the top-line performance described above, most notably from Workplace Management, coupled with nearly flat platform operating costs.
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JLL Technologies
% Change
Three Months Ended March 31, Change in in Local
($ in millions) 2024 2023 U.S. dollars Currency
Revenue $ 53.9 61.4 (7.5) (12) % (12) %
Platform compensation and benefits (1)
$ 47.3 61.3 (14.0) (23) % (23) %
Platform operating, administrative and other 10.5 14.7 (4.2) (29) (28)
Depreciation and amortization 4.5 3.9 0.6 15 16
Segment platform operating expenses 62.3 79.9 (17.6) (22) (22)
Gross contract costs 1.2 3.6 (2.4) (67) (68)
Segment operating expenses $ 63.5 83.5 (20.0) (24) % (24) %
Adjusted EBITDA (2)
$ (5.1) (18.2) 13.1 72 % 73 %
Equity (losses) earnings $ (1.0) 4.9 (5.9) (120) % (121) %
(1) Included in Platform compensation and benefits expense is a reduction in carried interest expense of $0.1 million for the first quarter of 2024 and carried interest expense of $0.7 million for the first quarter of 2023 related to Equity (losses) earnings of the segment.
(2) Adjusted EBITDA excludes Equity (losses) earnings for JLL Technologies.
The decline in JLL Technologies revenue was partially due to 2023 cost-out activities in the business's go-to-market approach aimed at improving profitability and resulted in lower contract signings in the second half of 2023. In addition, the lower revenue reflected delayed decisions on technology spend from existing solutions clients, which included certain contract renewals.
The decrease in current-quarter segment operating expenses was driven by the reduction of certain expenses associated with cost management actions and improved operating efficiency over the trailing twelve months.
The year-over-year improvement in Adjusted EBITDA was driven by the reduction of operating expenses associated with cost management actions described above, which outpaced the impact of lower revenue.
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LaSalle
% Change
Three Months Ended March 31, Change in in Local
($ in millions) 2024 2023 U.S. dollars Currency
Advisory fees $ 92.3 100.5 (8.2) (8) % (7) %
Transaction fees and other 8.9 10.4 (1.5) (14) (10)
Incentive fees 2.2 3.5 (1.3) (37) (38)
Revenue $ 103.4 114.4 (11.0) (10) % (8) %
Platform compensation and benefits $ 61.3 68.9 (7.6) (11) % (11) %
Platform operating, administrative and other 12.9 15.2 (2.3) (15) (15)
Depreciation and amortization 2.0 1.3 0.7 54 50
Segment platform operating expenses 76.2 85.4 (9.2) (11) (11)
Gross contract costs 8.4 7.1 1.3 18 19
Segment operating expenses $ 84.6 92.5 (7.9) (9) % (9) %
Adjusted EBITDA (1)
$ 21.0 23.1 (2.1) (9) % (2) %
Equity losses $ (3.9) (8.8) 4.9 56 % 57 %
(1) Adjusted EBITDA excludes Equity losses for LaSalle.
LaSalle’s decrease in revenue was primarily due to lower advisory fees, attributable to (i) valuation declines in assets under management ("AUM"), particularly in North America and (ii) lower fees in Europe as a result of structural changes to a lower-margin business. Transaction fees and incentive fees reflected the on-going global trend of dampened investment sales transaction volumes.
The net decline in platform operating expenses was driven by the benefit of cost management actions over the last twelve months and lower variable compensation accruals.
The slight decline in Adjusted EBITDA reflected lower revenues, which were nearly offset by the impact of lower expenses as described above.
As of March 31, 2024, LaSalle had $89.7 billion of AUM. Compared with AUM of $93.5 billion as of March 31, 2023, the AUM as of March 31, 2024 decreased 4% in USD (3% in local currency). The net decrease in AUM over the trailing twelve months resulted from (i) $4.4 billion of dispositions and withdrawals, (ii) $3.4 billion of net valuation decreases, (iii) $0.7 billion of foreign currency decreases, partially offset by (iv) $4.2 billion of acquisitions and (v) $0.5 billion increase in uncalled committed capital and cash.
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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 $677.5 million of cash in the first three months of 2024, compared with $716.3 million of cash used in operating activities during the same period in 2023. The year-over-year improvement was primarily due to an increase in cash provided by earnings driven by improved business performance, partially offset by incremental cash outflows associated with trade payables and other liabilities.
Cash Flows from Investing Activities
We used $54.3 million of cash for investing activities during the first three months of 2024, compared with $74.0 million used during the same period in 2023. The decrease of $19.7 million was driven by lower net capital contributions to investments and lower net capital additions. We discuss these drivers, along with other investing activities, individually below in further detail.
Cash Flows from Financing Activities
Financing activities provided $703.4 million of cash during the first three months of 2024, compared with $775.3 million provided during the same period in 2023. The net decrease of $71.9 million in cash inflows from financing activities was substantially driven by a decrease in net borrowings on our Facility, in part due to less cash used from operating activities compared with the prior-year quarter.
Debt
Our $3.3 billion Facility matures on November 3, 2028 and bears a variable interest rate. Outstanding borrowings, including the balance of the Facility and Short-term borrowings (financing lease obligations, overdrawn bank accounts and local overdraft facilities) are presented below.
(in millions) March 31, 2024 December 31, 2023
Outstanding borrowings under the Facility $ 1,395.0 625.0
Short-term borrowings 124.6 147.9
In addition to our Facility, we had the capacity to borrow up to $54.2 million under local overdraft facilities as of March 31, 2024.
The following table provides additional information on our Facility and Uncommitted Facility, collectively.
Three Months Ended March 31,
($ in millions) 2024 2023
Average outstanding borrowings $ 1,056.7 1,719.9
Average effective interest rate 6.1 % 5.4 %
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, 2024, we had a carrying value of $816.2 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 first three months ended March 31, 2024 and 2023, funding of investments exceeded return of capital by $11.7 million and $23.6 million, respectively. We expect continued investment activity by both JLL Technologies and LaSalle.
See Note 6, Investments, in the Notes to Condensed Consolidated Financial Statements for additional information on our investment activity.
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Capital Expenditures
Net capital additions for the three months ended March 31, 2024 and 2023 were $43.2 million and $49.3 million, respectively. Our capital expenditures in 2024 were primarily for purchased/developed software and leasehold improvements.
Business Acquisitions
During the three months ended March 31, 2024, we paid $3.1 million for deferred business acquisition and earn-out obligations for acquisitions completed in prior years, which are primarily reflected in cash flows from financing activities.
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 $8.0 million as of March 31, 2024. 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, 2024, we had the potential to make earn-out payments for a maximum of $99.7 million on 12 completed acquisitions subject to the achievement of certain performance conditions. Refer to Note 5, Business Combinations, Goodwill and Other Intangible Assets, in the Notes to the Condensed Consolidated Financial Statements for further information on Business Acquisitions.
We will continue to consider acquisitions that we believe will strengthen our market position, increase our profitability and supplement our organic growth.
Share Repurchase and Dividend Programs
The number of shares repurchased and cash paid for repurchases is noted in the following table.
Three Months Ended March 31,
($ in millions) 2024 2023
Total number of shares repurchased (in 000's) 110.7 —
Total paid for shares repurchased $ 20.1 —
As of March 31, 2024, $1,073.5 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, 2024, and December 31, 2023, we had total Cash and cash equivalents of $396.7 million and $410.0 million, respectively, of which approximately $302.3 million and $310.1 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, 2024, and December 31, 2023.
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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.
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