Colliers International Group Inc

TSX:CIGI

Earnings Call Transcript 2017-Q4

[Operator]

Welcome to the fourth quarter year-end investors conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussions 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 concerning 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 Wednesday, February 14, 2018. And at this time, for opening remarks and introductions, I would now like to turn the call over to the Founder and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

[Jay Steward Hennick]

Thank you, operator. Good morning, and thanks for joining us for our Fourth Quarter and Year-end Conference Call. I'm Jay Hennick, Chairman and Chief Executive Officer of the company, and with me today, is John Friedrichsen, our Chief Financial Officer. This conference call is being webcast and is available on the Investors Relations section of our website. A presentation slide deck is available there as well to accompany today's call. Earlier today, Colliers International reported very strong fourth quarter and year-end results, with solid growth across all major markets and service lines. For the quarter, revenues were $734 million, up 27%, adjusted EBITDA was $101 million, up 12%, and adjusted earnings per share came in at $1.41, up 16% against a strong fourth quarter result last year. For the year, revenues were $2.3 billion, up 20%, adjusted EBITDA was $242 million, up 19%, and adjusted earnings per share was $3.11 per share, up 27% over the quarter. Client demands and skillful execution by our professionals drove revenues to record levels, while our experienced leadership team continued to increase shareholder value by further strengthening our important global platform. Colliers remains the fastest-growing global real estate services company in an industry with enormous growth potential. John will have more to say about the quarter and the year-end results in a few minutes. In 2015, we first became-- when we first became a stand-alone company, we established a 5-year growth plan to double the size of our company by the year 2020. 2017 was the second year of our journey, and I'm pleased to say that we're on track to achieving our ambitious growth targets. Over the first 2 years, revenues, adjusted EBITDA and adjusted earnings per share were up 32%, 34% and 36%, respectively. As importantly, we continue to see more opportunities today than at any other time in our history. All we have to do is to continue to execute. Over the past 23 years, this leadership team has delivered more than 20% compound annual return to shareholders. This record of performance is unique in our industry and speaks volumes about the size of the opportunity, and our ability to create value over the long term following our proven business model, the Colliers' way. Technology is an important part of the way we do business. Investments have been focused on solutions that either add value to clients or better enable our professionals to execute, rather than the country club investment strategies of others, to gain market attention. Colliers 360 for corporate users, Colliers Office Experts for occupiers and tenants, and Colliers Indsite for industrial users are just some of the examples of the investments that have paid off handsomely for our company. Based on our success, and with a view to gaining greater visibility into new technologies with the greatest potential, we recently launched a first-of-its-kind commercial real estate technology accelerator in partnership with one of the leading technology investors and an experienced accelerator host. The new Colliers PropTech Accelerator, powered by Techstars, will allow us to source, shape and invest in new technology solutions that meet our criteria across the entire real estate value chain. So with a strong balance sheet and ample capacity to fund our continued growth, a significant acquisition in Finland at the start of the year, and stable market conditions for the foreseeable future, we are optimistic 2018 will be another year of excellent performance for our company. Now let me turn things over to John, and once he's completed, we'll open things up for questions. John?

[John B. Friedrichsen, Chief Financial Officer]

Thank you, Jay. As announced in our press release earlier this morning and highlighted by Jay in his opening remarks, Colliers International reported strong fourth quarter and annual operating results for 2017, with substantial contributions from our major operations across our global platform. Since our consolidated quarterly and full year results are already outlined in our press release and the conference call slides posted on our website, I'll focus my time today on our operating results by service and region for the fourth quarter, and then turn to our consolidated cash flow capital deployment and financial position. I will then conclude with my comments on our preliminary outlook for 2018. Please note that my comments may reference non-GAAP measures such as adjusted EBITDA and adjusted EPS, both of which include adjustments composed primarily of noncash charges that we view as largely unrelated to our operating results for the period. References to revenue growth, including internal growth, are calculated based on local currencies unless noted to be in our USD reporting currency. Our $734 million in revenues for our fourth quarter were up 25%, comprised of $235 million from outsourcing and advisory services, up 15% versus last year; $243 million in Sales Brokerage, up 28%; and $257 million in Lease Brokerage, up 32% over 2016. Internal growth was 13%, up sharply from the 2% decline in Q4 of 2016. Geographically, revenues remained well balanced, with 55% of our revenues generated in the Americas, 25% in Europe and 20% in Asia Pacific. Adjusted EBITDA generated by our operations outside of the Americas continue to generate a higher proportion of our consolidated amount. As a reminder, our service line and geographical diversification is an outcome of our long-term growth strategy focused on building out our global platform to deliver our services across important markets, while providing stability and multimarket coverage that are critical to our success. Turning to the regions. In the Americans, revenues were $403 million, up 37%, with strong internal growth of 16% compared to a 3% internal decline in Q4 last year, and bolstered by a 21% contribution from acquisitions. Outsourcing and advisory revenues were up 18%, led by a robust growth in property management and consulting and appraisal services across the region, and in our project management services in Canada. Sales Brokerage revenues were up 42% versus last year, with an increase of 43% in the U.S., driven by growth from recent acquisitions and strong organic growth and very strong organic growth in Canada. Lease Brokerage revenues were up 47% versus last year, with our U.S. operations up 60%, led by acquisitions and strong internal growth. While leasing in Canada was up 10%, all generated organically. Adjusted EBITDA came in at $40 million versus $34.1 million last year, up 17%, and a margin of 9.9% versus 11.7% last year, with the decline due to the acquisition of lower-margin operations during the year, and ongoing investment in people to strengthen our operations, primarily in the U.S. Turning to EMEA. Revenues were $184 million in the quarter, increased 15%, with revenues up 11% internally, compared to a Brexit-induced internal decline of 4% in Q4 last year. Acquisitions contributed a further 4% growth. Outsourcing and Advisory revenues increased 13%, led by strong consulting and appraisal across the region, particularly in the U.K. Sales Brokerage revenue was up by 35%, led by strong internal growth in the U.K., recovering from a slight decline in Q4 volumes last year, and strong contributions from our recent acquisition in Denmark and new Sales Brokerage operation in Paris. Lease Brokerage revenues were flat in local currencies over the last year, with a strong performance in Germany tempered by a more modest growth in the U.K. and slight declines in other markets compared to Q4 of last year. Meanwhile, adjusted EBITDA increased 7% to $37.2 million compared to $34.9 million in 2016, with our margin declining to 20.3% versus 22.9%, due primarily to investment in people and an increase in performance-based compensation. And finally, on our Asia-Pacific regions, revenues came in at $147 million, up 9% and substantially all generated internally. Outsourcing and advisory revenues increased 15%, with strong internal growth in property management across the region, consulting and evaluation in China and project management in Australia. Lease Brokerage revenues were up 14%, with strong performances in Australia, New Zealand, China, Hong Kong and India. While Sales Brokerage revenues were up 4%, led by Australia and the mixed performance across the rest of the region. Adjusted EBITDA was $28.7 million, up from $24.5 million last year, with our margin at 19.5% versus 18.5%, and benefiting from higher revenues, better productivity and operational improvements made over the last couple of years. Moving to our capital deployment and balance sheet. In our fourth quarter, capital expenditures totaled $10.6 million, up from $8.8 million last year, bringing our year-to-date CapEx to $39.5 million and below our previous estimate range of CapEx spend for 2017 of $40 million to $45 million. In 2018, we have a planned CapEx investment in the $38 million to $42 million range, including workplace enhancements in several offices to support our growth and productivity, along with additional funding for technology investment to support our IT infrastructure and application tools. In terms of acquisitions, we invested $6.4 million during our fourth quarter, compared to $10.3 million last year, bringing our year-to-date investment in acquisitions to $104.3 million versus $98.2 million last year. All this was funded by strong cash flow from operations, which totaled $213 million for the year, up 37% versus 2016, another all-time high for Colliers. Our net debt position stood at $141 million at the end of the quarter, and our leverage ratio, expressed as net debt to adjusted EBITDA, stood at 0.6x compared to 0.7x at the end of 2016, making our balance sheet and financial position amongst the strongest in our industry. With cash on hand and committed availability under our revolver, we had over $500 million of liquidity to start the year, a level more than ample to fund operations and other capital investments, including acquisitions needed to execute our growth strategy. Before commenting on our outlook for 2018, and as noted in our press release, we recorded a nonrecurring, noncash income tax expense of $13.3 million because of U.S. tax reform. So the corporate income tax reduction measures will result in a reduction in our tax rate for 2018 and future years. These measures negatively impacted the value of our deferred tax asset on our balance sheet, which will require to be revaluated using a lower U.S. corporate tax rate. Looking across our global operations. Our pipelines in most markets continue to reflect solid commercial real estate activity, comparing favorably to levels at the beginning of 2017. Macroeconomic and geopolitical factors generally improved relative to a year ago, providing a stable backdrop to modestly improving growth and slowly rising interest rates, with some elevated geopolitical and economic uncertainty in the U.K., there's no negotiated exit from the EU and falls during 2018. Credit and financing remains accessible in support of the commercial real estate investment across our major markets, while the level of supply and demand remains well-balanced. These key factors, combined with the more secular trend of greater institutional commercial real estate ownership, are expected to drive solid activity in sales, leasing and other commercial real estate services. With these factors in mind, we have the following comments regarding our outlook for 2018. We estimate internal revenue to grow year-over-year, with an annual rate in the low to mid-single digit percentage range, adjusted EBITDA margin improvement of 20 to 30 basis points, based on additional operating leverage, balanced against selective investing to strengthen our operations. Consolidated income tax rate of 30% to 32%, based on our expected geographical mix of earnings being relatively consistent with 2017. High single-digit percentage growth in adjusted EPS. The foregoing excludes the impact of any further acquisitions we hope to complete in 2018. And entering year 3 of our enterprise 2020 plan, we remain well on track to achieving our growth and revenue, adjusted EBITDA and adjusted EPS targets. Finally, in 2018, we will be reporting the revenue under the new standard required under U.S. GAAP, requiring us to report certain recoverable costs as revenue and cost of sales, with the resulting impact of increasing revenues in cost of sales by approximately $150 million in 2018, with no impact on adjusted EBITDA or adjusted earnings per share. That concludes our prepared remarks, and I would now like to ask our operator to open up the call to questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Mitch Germain of JMP Securities.

[Mitchell Bradley Germain, Managing Director and Senior Research Analyst]

So many of your peers have been talking about some more rational pricing within the acquisition markets, M&A markets, is that consistent with what you're seeing?

[Jay Steward Hennick]

I think it's more strategic. There are some interesting opportunities in different geographic regions that if you want them you have to pay up for. But generally speaking, I think that they are flat -- pricing has been basically flat with last year.

[Mitchell Bradley Germain, Managing Director and Senior Research Analyst]

Have you seen any change in deal structuring in terms of possibly more capital upfront and less of an earn out, or has it been pretty consistent?

[Jay Steward Hennick]

I mean, I can only speak for our own experience. And so, for example, in -- where we are going to pay what we call strategic value, meaning a multiple, a little higher than we would otherwise be comfortable with, we tend to structure the transactions over the longer term, so that we make sure that we get what we paid for, instead of over 2 to 3 years, it might be 3 to 5 years, as an example. So there's a bit of an art involved. But it's our way of ensuring that we basically get what we paid for regardless of the price that we pay.

[Mitchell Bradley Germain, Managing Director and Senior Research Analyst]

Got you. From a redeployment of some of the tax savings, is that technology M&A, is there a kind of target list of where you expect to put that money?

[Jay Steward Hennick]

Well, I mean, the truth of it, Mitch, is that we are still under leverage the capital has never been a problem for us. So we have so much access to capital currently. We're just investing one step at a time as we've always done.

[Mitchell Bradley Germain, Managing Director and Senior Research Analyst]

Got you. Last question for me. You've got some EBITDA growth factored in a modest amount. Given the fact that in terms of how we should think about your forecast for revenues is that really imply that the brokerage businesses are expecting to grow at a little higher clip than the outsourcing lower-margin business?

[John B. Friedrichsen, Chief Financial Officer]

I wouldn't say that, necessarily, Mitch. John here. I think it's more attributable to regional expectations in terms of growth. I think our service line growth will be, at least at this point in the year based on our visibility we have now, pretty consistent across the different service lines. But we do have -- we have made investments in some regions, which I think we have not fully realized or benefit from. So certainly that, combined with some ongoing scale on operating efficiencies, expect to give us a bit of a boost in terms of our margins next year.

[Mitchell Bradley Germain, Managing Director and Senior Research Analyst]

Great. And last one for me. Jay, you talked about progress on the Enterprise 2020 plan. Just kind of sitting where you are today, are you tracking within range or are you tracking ahead of range? I mean, how do you think you are? And then kind of relative to how you think the playbook plays out for the next 3 years, considering that we're clearly getting to the latter part of the cycle here.

[Jay Steward Hennick]

Yes, maybe, Mitch. Maybe we're getting to the latter part of the cycle. Maybe, maybe. I mean, we're not seeing it. What we're seeing is tons of real estate activity. We're seeing lots of new capital coming into the marketplace. We're seeing lots of top rating of assets by REITs and companies. And -- but we're also not seeing lots of internal growth to the extent that we would otherwise see it. So when you're looking at year-over-year growth, you'd like to see a little bit more. But there's still tons of activity and there's tons of ways we think that we can grow our business. So John eluded to one area, I mean, we've invested heavily over the past couple of years in upgrading our professionals, focusing on specific sectors of our markets where we think that there's enhanced growth opportunities. And I think those are the things that are going to start, hopefully, coming through more and more in '18 and beyond. And that's going to help our internal growth. But I still think, with interest rates being low or -- I mean, they might jump up a little bit. But I don't think it's material. I think there's more allocation to real estate. I think it's a safe asset to own. I think that the market looks good for us, as we look out over the next 12 to 18 months. And our pipelines are showing that.

[Operator]

Your next question comes from the line of Stephen Sheldon of William Blair.

[Stephen Hardy Sheldon, Analyst]

So, I guess, just first here, you talked about a strong pipeline and you pointed to strong hiring in the Americans and EMEAs, one of the main reasons for the fourth quarter margin contraction. So I guess, does this hiring reflect your level of confidence in the broader environment? And how should we reconcile that with the revenue guidance for low to mid-single-digit organic growth this year? And I guess, is there a level of conservatism, kind of, built into that guidance?

[John B. Friedrichsen, Chief Financial Officer]

Well, look, I mean the additional investment is an ongoing part of our overall long-term strategy and the markets that you referenced where we've been, I think, most active, we have very good businesses, but really not at a scale level and market penetration where we would like it to be. So it's just going to be an ongoing part of our program, and as everybody knows, there's always a bit of a lag effect, and I think we're going to see some of the benefits in that, both in terms of some enhancement around revenue growth, and we spoke earlier about a bit of improvement around margin, which I think all of these initiatives coming together will help. So as to -- our outlook being conservative, I think, it's a balanced outlook. I think we're trying to be relatively neutral, not overly optimistic, not pessimistic but realistic, about where we see the market right now. It's early in the year but as we had indicated earlier, the elements -- the key elements that support activity are intact, and anybody can decide where they see the current cycle and the duration and we could have a whole discussion about that for the next hour. But I think we feel very, very good about where we are for 2018, and I think our outlook is meant to be balanced and realistic view of where we expect it to be.

[Stephen Hardy Sheldon, Analyst]

Okay. That's helpful. And then just based on M&A completed so far, how big of a boost would you expect from acquisitions to revenue growth in 2018?

[Jay Steward Hennick]

It's -- M&A is always a difficult thing because you don't know what deals you'll be able to complete, et cetera, et cetera. But I'm hopeful that we will do at M&A roughly the same as what we did this year. Hopefully, better, but roughly the same as what we did this year, which is ahead of our 5-year target on M&A. So I think that's probably the best guideline I could give you now. Later in the year we'll have a better feel for it.

[Stephen MacLeod, Analyst]

I guess, I was just trying to ask with the ones that have only already been completed, what those would be able to contribute for 2018? Not on [indiscernible]

[John B. Friedrichsen, Chief Financial Officer]

Yes, there's only -- the one that we cited earlier in the year, Stephen, the acquisition in Finland, which provides a modest contribution, certainly, it's good to have that one done. And that's strategically important region for us, Northern Europe, but...

[Jay Steward Hennick]

And that's because John is from there. So that had a bearing on the transaction, just so you know.

[John B. Friedrichsen, Chief Financial Officer]

In terms of the activity around year-over-year based on acquisitions completed last year, obviously, that's factored in. But our acquisition activity was more weighted towards the front part of last year. So we've captured a fair bit of that in the 2017 numbers. But again, we're very hopeful, and certainly in line with our 5-year plan, we would expect a healthy contribution from acquisitions. But again, they have to meet our criteria.

[Stephen Hardy Sheldon, Analyst]

Okay. That's helpful. And then, I guess, just last one. Can you maybe talk about how trends kind of progress through the quarter for the sales and leasing within the Americas? Did use see growth there kind of accelerate throughout the quarter and into the beginning of 2018 or was it kind of steadily strong throughout?

[John B. Friedrichsen, Chief Financial Officer]

I think we came off of Q3 in pretty good shape. And I think as we finished out the year, certainly, there was a good level of momentum. And we saw that really continue right through the year. So that's a good indicator, I think, of where we are expected to start the year. And again, I think, it seeds back into the factors that we've talked about before, Jay commented on, there is a lot of capital. I think, real estate is a important asset class, has become a more important asset class for institutional investors. And there's lots of talk about rising rates and inflation, and so forth, and I think historically, real estate, quite frankly, can be a good hedge against inflation. And again, capital markets and availability of financing being readily available. And I think in the right kind of quantity as well. I don't think that we see a lot of over leveraging of real state, which in the past has been a real warning sign around an impending into the cycle. We don't see that right now.

[Operator]

Your next question comes from the line of Stephen MacLeod of BMO Capital Markets.

[Stephen MacLeod, Analyst]

I just wanted to drill down a little bit on the margin expectation for 2018. I mean, when you look at the segmented results, I mean, the U.S. -- so the Americas margin has been down as the year progressed, just given some of the investments that you've made. So I'm just curious how you expect that margin to trend, both in the Americas and Europe and Asia Pacific, as you head into 2018, to meet your 20 to 30 basis point expansion goal?

[John B. Friedrichsen, Chief Financial Officer]

I think there's expectations around here that we will see improvement in margin. We kind of hit on some of the reasons around that the ongoing investment that we have made. In the Americas, we did have an acquisition, which had a large amount of revenue attached to it. So not as much EBITDA, just a lower-margin business, which impacted us last year. But that's given us a good base and along with some of the investment we have made. And I think as we continue to mature our business in the U.S, continue to consolidate some of the back office functions, which is an ongoing exercise, we're certainly not done there, that will contribute to an increase in expected EBITDA margins. Turning to Europe, we had -- we're generating very, very good margins there. But again, there's going to be ongoing investment in people in that sector. And we do think, notwithstanding that the U.K. may be a bit bumpy depending on how Brexit negotiations go, we think Europe still remains in a recovery state, and we think we're going to be able to get some additional scale benefits, which hopefully, will favorably impact EBITDA. Asia Pacific is the same story, and it's largely -- in terms of EBITDA, I’m sorry, it's largely centered around Asia-Pacific -- sorry, Asia, component of the Asia-Pacific market. In Asia, we've been talking about investment there, a change in leadership a couple of years ago, which is now bearing fruit. We spent a considerable amount out of time, I think, there were a lot of questions around Japan in the last conference call. And that's just a new opportunity for us still, and we've had good results, albeit small at this point, but we have big plans to try and grow that business and that would be very favorable in terms of its EBITDA margin impact on us, going forward.

[Stephen MacLeod, Analyst]

Okay. That's really helpful. And then, I know we've talked a little bit -- I know you've talked a little bit already about acquisitions, but can you just talk a little bit about what kind of pipeline you're seeing in terms of volumes?

[Jay Steward Hennick]

Well, I sort of alluded to it a little bit earlier with the previous caller. There's lots of volumes of deals, and as I've said a couple of times over the years, one of the great things about Colliers is it's a global platform and the opportunities are virtually global. So Finland is a great example. The acquisition, which we announced just after year-end, of course, we have been working on it for 6, 9 months before that. But it makes us the market leader in Finland and -- with a significant business of EUR 50 million, EUR 60 million in revenue. And a very little portion of that business is our traditional advisory services, it's almost entirely recurring revenue. So big opportunity for us is to continue to expand on the advisory piece of the business and that will drive the profitability up and also the margins up. But we're seeing a lot of those types of deals. We're also seeing transactions, where we already have a nice presence in the market, but by no means the dominant player in the market, and there's a significant independent that may be operating there, that finally realizes what we know, which is, if you -- as your clients mature, and if you want to be able to serve your clients on a global basis, you really do need access to a global brand and platform. There really are only 3, arguably 4, of these types of opportunities out there. And we have a tremendous track record of doing this. And so there are several of those types of transactions out there, all the while strengthening our service lines, adding valuation and tax and hotels and other specialty lines, healthcare, and a variety of other things, market for market for market. There's a real reason why this industry is $200 billion a year, and the top 5 guys only have 20% of the market. I mean, really? For a management team like Colliers, we have been doing this for a lot of years. This is very exciting for us.

[Operator]

Your next question comes from the line of Michael Smith of RBC Capital Markets.

[Michael Smith, Analyst]

Just wondering if there's any large chunky transactions that were in Q4 that maybe -- that will spill over into Q1?

[John B. Friedrichsen, Chief Financial Officer]

No. I mean, I don't really think of it that way, Michael. We did some significant transactions in the fourth quarter, the U.S. in particular. And I think that, that's evidence of some of the investments we've made there, honestly. And assuming that market conditions remain intact, we would expect that to continue. The only thing I'll say is we did -- we entered the year with a pretty good pipeline. And it certainly helps us confirm our outlook. But I wouldn't think there's really anything unusual there.

[Michael Smith, Analyst]

So nothing unusual?

[Jay Steward Hennick]

Mike, I would add to that a little bit in the sense that as we continue to get bigger, we're -- with the new revenue guidelines, we're $2.5 billion, $2.6 billion in revenue. And pick 5 enormous transactions anywhere in the world, it's not going to move the needle anymore. Maybe 5 years ago, 8 years ago, when we were smaller, it might move the needle in an office or in a region. But for the company globally, I don't really, John, I mean, am I wrong there?

[John B. Friedrichsen, Chief Financial Officer]

No, I think that's true. I think, certainly, on a one-off basis, there was a time when large transactions, because we didn't do a whole lot of them, could have an impact on a quarterly basis. But I think as we have grown as a company and the volume of transactions and the volume, quite frankly, of larger transactions has grown, and we expect that to continue for all the reasons we've talked about and for the all the investments we've made in that platform, the global capabilities and the people that we have on board, it will become less of a factor in terms of influencing a particular quarterly result.

[Michael Smith, Analyst]

Great, that makes sense. Jay, I wonder if you could just expand or give us a little color on the comment made in your prepared remarks, you were saying that in terms of technology, some of your competitors have these country club technology initiatives. I'm not sure what -- relative to yours, which I take it are a lot more results-oriented, I'm wondering if you could just expand on that?

[Jay Steward Hennick]

Well, you're going to get me into trouble. But I think if you look at the technology announcements made by several of our competitors, at least from our side, we chuckle, because we've seen most of those investments, the opportunities that they're looking at, and they are making investments on a, I call it the country club basis, I'm not sure that's the right description. It's -- I'm not sure with the strategy, it's "hey, this looks good". Six guys running around and say "Hey, there might be an opportunity with this one in 5 years, we got to get in on it early." That's never been our way in running our company. Our way is, okay, if we're going to invest in technology, what's our strategy? What do we hope to accomplish by doing that? And how do we -- if we do make that investment, how do we manage the process so that we know that it's working or it's not working and either increase or reduce our investments, accordingly. That's been, sort of, our way and you can get -- corporations can get very caught up in technology, and some of these are going to disintermediate you, and this is the latest and greatest. And so we decided very early on in life that we needed to -- if we were going to invest in technology, we needed the focus on technology that was going to create additional value data points, integrated external information that helps our clients better understand the decisions that they make. And if we can aggregate that and provide it to our clients in an orderly way, we will really differentiate, and we will really create a competitive advantage and hopefully win business. And technology that will also make our producers much more effective at what they do in preparing to meet a client and to provide the information I just talked about, it's time-consuming. There's a lot of research involved. There's multiple touch points. If we can find ways to streamline that through technology, it's really going to help us, again, really demonstrate the difference between Colliers and others. And I think, because we're entrepreneurial, because we're more closely managed, because the leadership team across the company owns something like 25% of the equity, we actually care. And when we get a tiger by the tail, there's not just 3 people in some fancy corporate office somewhere, there's a lot of people holding on to that tail and trying to find how we can maximize the value. So I don't know if that gives you some more color around technology, but that's surely the way we see it.

[Michael Smith, Analyst]

No, thank you, that was very helpful. Just lastly, your investment in people, I wonder if we could just a little bit more granular color on what exactly, like some examples and expected payoffs in terms of timing?

[John B. Friedrichsen, Chief Financial Officer]

Okay. Look, it's -- there's really no magic behind it, Michael, given the stage of, kind of, our evolution as a company. There's lots of things that we do really well and there's a few areas that we just don't have a significant presence. We've talked a little bit about it. I think a year ago or so, we had announced a capital markets team in New York and retail team in New York, which -- they're now starting to finally catch fire a little bit. We have great aspirations around what -- how they can help us impact that important market and companies who operate there and globally. So that's really, really important. I think there's also been discussion and publication of an expansion, say in London, in the city, where we have a great London business. But to date, we have not really gained traction in the city, we need competent people to do that. We've hired a team, and we're going to add to that team over time, and we have great hopes for what they can do can do. It's early days, they've just joined us in the fourth quarter. So that's another investment. At the end of the day, we don't expect them to be able to regenerate anything meaningful. And so, at the end of the year, at the earliest. But if they can do what we've been able to do in the west end of London, it's quite significant. And that's being played out in major markets around the world.

[Jay Steward Hennick]

I mean -- I would add, the last point that John made is the one that I think is most important. In every single office, in every single market, in every Colliers location around the world, we are weak in an area or two of our business, and I say weak. We have professionals, but based on the size of the market, whether it's landlord, tenant rep, whether it's investment, whether it's capital markets, whether it's private capital, there's areas where we are weaker than we should be relative to the share we should have. And so, we spend a lot of time taking a look at that and seeing what we need to do to augment our teams. And that's part of our people strategy and as you know, we recently recruited a rock star from Facebook by the name of Becky Finley, and Becky's role as Vice President Brand & People is to get her mitts around this portion of our business and do a better job at really setting the stage for Colliers in the years to come. And we think it'll bear some significant fruit. Although, it will take some time to execute on it. But people is a key part of what we do. And I'd also say that employee engagement, which is something we've invested in for almost 10 years now, is another key aspect. If people don't think Colliers is a great place to work, we will not keep our great people, and we will not to be able to recruit others to this platform. And we're very pleased this year to receive great accolades in that area in many parts of our business, and we've got more work to do. But we're listening to our people, we're adjusting our way of doing business to make it that much better for them as key professionals, and all of that is helping to bear fruit around people. So it's a much wider strategy and one that is -- it's a constant battle cry for our company.

[Operator]

Your next question comes from the line of Marc Riddick of Sidoti.

[Marc Frye Riddick, Research Analyst]

I wanted to touch -- Jay, going back to one of the things you had mentioned, and this is something that -- it's kind of more big picture, thinking about the fragmentation of the industry and the market share it currently had, it certainly seems as though the consolidators are gaining market share. But I wanted to get sort of a longer-term big picture of you and your part in -- this would probably go beyond 2020. But where do you think that market share could go? How you think about the industry or where maybe it should be? How should we think about where you think that the fragmentation of the industry should evolve over the coming years?

[Jay Steward Hennick]

Well, it's actually a very good question. And I would say the following: People ask about global platforms. I think we know now that there will be 4 -- 3 or 4 global platforms. There will not be 5. There are 4 maybe, maybe -- there is 3 for sure, there might be 4, there will not be 5. It's sort of following the pathway of the accounting firms as an example or the great consulting firms. But more attuned to the accounting firms. And within the market itself -- so a firm that has a platform, say in the United States, is going to be hard pressed to expand beyond the United States. And if they do, it will take them years and years and years to develop a brand and platform as some of the others have. But the category again, and I alluded to it earlier, is so big and, frankly, could be expanded further. Clients rely on Colliers and others for anything real estate related. That category is a very wide category and clients rely on us to be as good as we possibly can be around real estate related matters. And there is a number of things that we and our peers do not do that they might consider doing in the future. There are some things that we don't do that our peers are doing. And so, I think, as I look out beyond 2020, I think the world is open to a wider category of a real estate services professional firm or groups of firms, that can provide a variety of high-quality institutional-like services to owners and occupiers of real estate that need our services to manage what is a very large cost expense for them in running their own business. So outsourcing continues to grow by leaps and bounds and so on and so forth. So I think the market for our service is fast.

[Marc Frye Riddick, Research Analyst]

Okay. And it's very helpful. And it seems as though not only is it fast but the very definition of what that marketplace could be. It seems as though you see it evolving in a way that maybe is not quite fully appreciated today. Is that a fair assessment?

[John B. Friedrichsen, Chief Financial Officer]

Yes.

[Jay Steward Hennick]

Yes, very fair. Very fair.

[Operator]

Your next question comes from the line of Frederic Bastien of Raymond James.

[Jay Steward Hennick]

Great headline this morning, Fred.

[Frederic Bastien, Senior Vice President]

Oh, thank you. I like those. Guys, are you feeling better today about the year ahead than you did at the same time last year? The reason I ask is that your outlook for low to mid-single-digit internal revenue growth mirrors some of the guidance you've provided last year yet you actually delivered 7%. So I'm just wondering if you could provide more color on how you're feeling about the year ahead?

[John B. Friedrichsen, Chief Financial Officer]

Well, as I said in my remarks, I think the backdrop is more positive. Last year this time, we were coming -- the Brexit thing was still relatively fresh. Not that it's really resolved itself, but I think maybe now there's greater acceptance as to what might ultimately happen. No -- there is no certainty at this point. So that element is still there to an extent. But at the end of the day, I think in the aftermath of that and other things in Europe, I think Europe is progressing quite well. Some of the geopolitical stuff that was going on, elections and so forth in Europe have actually ended and favorably, I think, in terms of business, and impact would have on, say, commercial real estate market that's all good. The U.S. elections last year at this time were still relatively fresh. We've seen the impact, good or bad, of how that's turning out. And I think from business perspective, including the initiatives around the U.S. tax reform and other things, I think they're all conducive to growth, and I think that's favorable for commercial real estate. So I think we feel generally in a better spot than we were last year. At the end of the day, we did deliver 7% internal growth, which was a really good outcome. And whether or not we can get to that number this year remains to be seen. But I think our outlook in terms of expected internal growth has been well thought out and it is what it is.

[Frederic Bastien, Senior Vice President]

That's helpful. And when you look at your end markets and where they might be in the cycle, just wondering are they pretty much synchronized? Are you seeing some regions that might be at either earlier or later stages?

[John B. Friedrichsen, Chief Financial Officer]

Well, I would -- I think, it's -- I don't think they're necessarily all synchronized. Certain markets, when you look at, say, Canada or maybe in Australia, which are 2 big markets for us, they certainly did not have these severe downturn that other markets had in '08, '09, '10. So they've been a bit more stable. One could argue that may be they're more fully developed in terms of the cycle. But I think it's a little bit mixed around the world. But I -- the one thing I will say is that, at least based on the data that we have, we don't see any market where there is any visibility around an imminent and/or change in the cycle. No.

[Frederic Bastien, Senior Vice President]

Okay. And then, maybe, more specifically on some of the Nordic regions, they've been an area of focus for you. Where would these regions be in terms of -- are they like, kind of, early-stage? Or are we looking at regions that are similar to Canada or Australia?

[John B. Friedrichsen, Chief Financial Officer]

I'd say, well, we have really, I guess, visibility right now on Denmark, which has been very, very solid. Stable economy, continues to be relatively active. So we can comment on that. We have good prospects there again this year. Finland is new for us. And, at this point, a different type of business, and as much as it is focused really on our outsourcing, advisory and property management, which is by its nature, very stable. The opportunity there is to build out onto that, as Jay indicated, on the transaction side, and we think it's a healthy economy. I'd say that whole Nordic region is healthy. I think in balance with overall Europe, I think if you look at the European market, those markets in particular have been probably on the top quartile in terms of performance. And there's still, I think, the room to grow as Europe recovers generally.

[Frederic Bastien, Senior Vice President]

Okay. And last question, John, I missed the -- didn't quite get the last bit you mentioned on U.S. GAAP changes, would you mind going over that again?

[John B. Friedrichsen, Chief Financial Officer]

Yes. There's going to be, because of us being required under the new revenue recognition standards to grow some of the costs we would recover. We have, in some contracts, people costs. And it's about $150 million, mainly in property management that previously, we would just kind of record that it on a net basis. But under the new requirements under U.S. GAAP, you need to now fully report revenue associated, say, with those services or people and then the full cost is welling our cost of sales. So it's just a grossing up of cost of sales and revenue without any impact on EBITDA or earnings. So at the end of the day, if you look at, it will impact -- negatively impact on margin by a bit because you've got a $150 million of revenue we're adding without any additional EBITDA. So that's the expected number for 2018. But it's really -- just -- there's no fundamental impact obviously in our business just on reporting. Maybe a few basis points on margin.

[Frederic Bastien, Senior Vice President]

All right. So and then -- and that's included in the guidance you gave though, like the 20 to 30 basis point increase in spite of the dilution you might get from that?

[John B. Friedrichsen, Chief Financial Officer]

No. It would be on an apples-to-apples basis. Right? So we're looking to 20 to 30 on apples-to-apples basis. And you'll see in our first quarter, we will have 2017 comparatives, which will reflect that new revenue standard. So our revenue for 2017 the first quarter will also include a comparative that has the higher amount of revenue in that number. So that on a '18 to '17 basis you can compare apples-to-apples.

[Frederic Bastien, Senior Vice President]

Got it. Perfect. Any regions -- I would suspect given the sizable position you have in the EMEA that would come predominantly from that region.

[John B. Friedrichsen, Chief Financial Officer]

No. Not very specific to that. No, we've got -- North America's got a lot of property management, we've got some in Asia as well. And probably the regions where we'd see more of it.

[Operator]

There are no further questions at this time. I will turn the call back over to the presenters.

[Jay Steward Hennick]

Okay. Ladies and gentlemen, thanks for joining us, and we look forward to our next conference call, which will be the first quarter. Thanks again, and have a good day.

[Operator]

Ladies and gentlemen, this concludes the quarterly Investors Conference Call. Thank you for your participation, and have a nice day.