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Executives

Jay Hennick, Founder & CEO

D. Scott Patterson, President & COO

John Friedrichsen, SVP & CFO

Analysts

David Gold - Sidoti

Brandon Dobell - William Blair

Stephen MacLeod - BMO Capital Markets

Stephanie Price - CIBC

Brian Hikisch - Raymond James

Will Marks - JMP Securities

Tal Woolley - RBC

Anthony Zicha - Scotia Bank

FirstService Corporation (FSRV) Q1 2013 Earnings Conference Call April 26, 2013 11:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter Investors Conference. Today’s call is being recorded. Legal counsel requires as to advice 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 Friday, April 26, 2013. At this time for opening remarks and introductions, I would like to turn the call over to the Founder and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

Jay Hennick

Thank you, operator, and good morning everyone and thanks for joining us. With me today is Scott Patterson, President and Chief Operating Officer; and John Friedrichsen, Senior Vice President and Chief Financial Officer.

This morning FirstService reported better than anticipated results for the seasonally slow first quarter as revenues at Colliers International, FirstService Residential and FirstService Brands were all up strongly versus the prior year quarter.

Colliers International had particularly strong bottom-line performance reflecting market share gains and continued growth in multi-market assignments, corporate services, investment and capital market activities.

And as expected, results from Field Asset Services were down considerably from the prior year quarter due to sharp declines in foreclosure volumes associated with the recovery in the U.S. economy. Revenues from Field Assets during the quarter were down a full $41 million from last year making the quarter a very tough comparison indeed.

Many will recall few years ago during the financial crisis that field assets was generating exceptional cash flows for FirstService. Those earnings were very important at that time. They gave us the fire power, we needed to invest in our businesses at perfect time in the economic cycle and now those investments are paying off handsomely as you will hear.

Scott and John will have more to say about our operational and financial highlights in just a few minutes.

Looking forward, FirstService will continue to create value one step at a time through our three growth engines, Colliers International, one of the top global players in commercial real estate, FirstService Residential, North America’s largest residential property manager and Property Services is a leading provider of essential services delivered through company owned operations, franchise systems and contractor networks.

Just before the quarter end ended, we announced the acquisition of Colliers Germany adding market leading players in Munich, Stuttgart and Berlin and over side of the important relationships with affiliates in Düsseldorf and Frankfurt. Having a leadership position the anchor of the entire EU not only accelerates our growth in the region but also reinforces our ability to serve clients in Europe and around the world. Over the years the FirstService partnership model has been an important competitive advantage for us that had made all the difference in the world in the case of Colliers Germany.

Our new people – new partners are people who have a deep market knowledge and experience and they have built their businesses slowly and carefully over many years. But they also understand that the market is changing and now more than ever clients want service providers that are better capitalized and better able to deliver services seamlessly on a global basis.

Our new partners at Colliers Germany are not however all that new. You see they have been with Colliers and have been Colliers affiliates now for ages. We worked together with them on many engagements over the years. So coming together was just a natural step for both of us. I would like to formally welcome all of them into the FirstService family.

Before I turn things over to John, I would like to comment briefly on our plans to simplify our capital structure and institute a dividend on our common shares. The plan involves eliminating our outstanding 7% preferred shares by way of a partial redemption for cash followed by a conversion of the balance of the preferred shares into common shares.

Instituting the cash dividend on our common shares creates a new source of investment income for the holders of our common shares in addition to their capital appreciation. But it also introduces FirstService to a new universe of dividend oriented investors which should help with our liquidity.

In summary, we are pleased with results from our first quarter and confident we are on track to deliver strong year-over-year growth in revenue EBITDA and earnings per share for the balance of the year.

Now, let me ask John to take you through the financial details for the quarter. Scott will follow with his operational report and then we will open things up to questions. John?

John Friedrichsen

Thank you, Jay, and good morning.

As announced in our press release earlier this morning and covered by Jay in his opening remarks FirstService reported first quarter financial results that include a revenue and adjusted EBITDA that were better than our expectations. Consistent with our first quarter in each of the last three years Colliers International’s commercial real estate operation was the main contributor to our growth in revenues while our property services division reported another decline in its results.

The Field Asset Services down sharply more than offsetting growth from FirstService brands and the seasonally weak first quarter. Scott will have more to say about each of the segments in a few minutes after I address our overall consolidated financial results for the quarter. And then provide comments on our capital usage and balance sheet.

So for the first quarter fiscal 2013, consolidated revenues increased to $498 million up 2% and $490 million in the first quarter of 2012. This growth was attributable to acquisitions while internal growth was down 3% for the quarter.

Adjusted EBITDA came in at $10.6 million roughly flat with $10.8 million reported in the first quarter of last year and adjusted earnings per share came in at a loss of $0.20 per share compared to a loss of $0.10 reported in the first quarter last year. The decline in adjusted earnings per share was attributable primarily to higher depreciation and interest expense.

Adjustments to GAAP EPS and arriving at adjusted EPS are outlined in our press release issued this morning and our consistent with those outlined in the past quarters.

Turning to our cash flow and investing activities during the first quarter cash flow from operations before working capital changes increased to $1.5 million up from negative $4.5 million in their first quarter of last year inclusive of working capital changes cash flow from operations was negative $66.8 million compared to negative $54.3 million last year for a heavy cash usage – where cash usage is heavy as broker commissions and variable compensation related accruals from year-end are typically settled during the first three months of the year.

We invested $27.2 million in acquisition activities during the first quarter all of this related to our Colliers Germany acquisition compared to $12.7 million invested in the Colliers UK acquisition in the first quarter of last year. Meanwhile, our capital expenditures remained at $5.7 million compared to $6.9 million last year.

Turning to our balance sheet, our net debt position stood at about $419 million at the end of the quarter compared to $306 million at our December 31, year-end and $381 million at the end of the first quarter of last year. But the increase from year-end attributable mainly to the working capital usage in capital investment noted previously.

Our leverage ratio expressed to net debt to EBITDA stood at 2.5 times up from just under 2 times at year end and similar to our leverage at the end of our first quarter of last year. Net debt includes $77 million in convertible debentures due in 2014 and adjusted for the conversion of the debentures in the common shares our pro forma leverage was 2 times at the end of the first quarter.

Regarding our debt capital structure as previously announced with the release of our 2012 full year results in the early part of our first quarter, we successfully completed the private placement of $150 million in senior notes with two major U.S. lives course. These 12 year notes which bear an attractive fixed interest rate of 3.84% are amortized in five equal annual installments beginning in January of 2021. Proceeds of these financing were applied against our revolver and aligns our debt capital structure with a long-term nature of the investments we have in our operating businesses.

And finally, as Jay already outlined and announced after the end of our first quarter, we have decided to simplify our capital structure with a redemption in conversion of our 7% preferred shares. We expect to complete this transaction in early May and anticipate issuing approximately 2.9 million additional common shares as part of the conversion and a cash payment of $39.5 million to fund the portion of the shares being redeemed. Subsequent to elimination of our preferred shares, FirstService intend to commence paying quarterly dividend of $0.10 per share at $0.40 per share annually for the first six dividend expected to be declared for the current second quarter ending June 30.

In terms of our financial capacity with cash on hand and committed to availability under our revolver, we had over $200 million of liquidity at quarter end a level apple to fund our operations and other capital requirements required to execute our growth strategy and create value for our shareholders.

Now, over to Scott for the operating highlights. Scott?

D. Scott Patterson

Thank you, John, and good morning.

As you have heard, we had a very good quarter in commercial real estate, so let me start my divisional reviews there.

Revenues were up 16% over the prior year 6% organic growth and the balance from the acquisition of Colliers UK at the end of March 2012. Every region performed ahead of prior year and contributed to the organic growth. Additionally every region was inline or ahead of expectation.

By service line our growth globally was driven by approximate 10% increases in sales, commission and appraisal revenues tempered by flat year-over-year revenues from leasing and other service lines.

Colliers generated a positive EBITDA of $2.6 million during the seasonally weak first quarter compared to a slight loss from the prior year helping margin enhancement in the Americas and Australia more than offset the inclusion of the UK business which traditionally losses money in the first quarter.

Taking a closer look at our Americas region, revenues were up 5% the result of common trends in each of the U.S., Canada and Latin America, with leasing revenues up over the prior year by mid-single digit percentages supported by consulting and appraisal revenues which were up by 10% plus.

Americas’ growth was tempered by a flat year-over-year revenues from sales commissions and property and project management fees. We generated a mid-single digit margin in the Americas for the quarter up 200 basis points from the prior year, the result of operating leverage across the region. Notably we generated a profit in Latin America during the first quarter which is historically been a lost quarter due to seasonality. Our pipeline to quarter end across the Americas remain healthy and we expect to show continued but modest year-over-year revenue gains for the balance of the year.

In our Asia-Pac region, revenues were up close to 10% driven by very strong investment sales in Australia up over 20% from prior year levels and supported by 15% growth in consulting and appraisal revenues across the region. Leasing revenues were down slightly for property management revenues and investment sales outside of Australia were approximately flat with a year ago.

By country, we generated very strong results in Australia and New Zealand solid results across Asia with the exception of China and Hong Kong which were both down over 10%. The first quarter is generally challenging in China and Hong Kong and was especially so this year, primarily the result of two factors.

The Chinese New Year was two weeks later than in 2012 on February 10, which basically slowed activity from year-end through to mid-February. And sales activity in the market was down as both China and Hong Kong are implementing cooling measures in the past year to temper speculation.

For the quarter in Asia-Pac, we generated a high single digit margin up from mid-single digit in the prior year due to the strength and operating leverage achieved in Australia and New Zealand. The margin in Asia outside of (A&G) was up marginally over prior year levels.

Looking forward in Asia-Pac, we expect to show single-digit growth for the balance of the year driven by solid results out of Australia and supported by modest growth in most of our markets in Asia. We expect results from our China and Hong Kong operations to be flat down for the balance of the year.

In our Europe region, revenues were up by approximately $21 million due largely to the inclusion of the UK business in our results. The UK business performed well in the seasonally weak quarter above expectations and well above year ago revenue levels under prior ownership.

Excluding the UK, our revenues in Europe were up 5% with increases in Russia partially offset by modest declines in Central and Southeast Europe. We incurred negative EBITDA in the quarter of $6 million compared to negative EBITDA in the prior year of $2.2 million, increased result of the loss from the UK business for the quarter. Our compensation schemes across Europe tended to be largely fixed which historically is led to losses in the first quarter. The extent of the loss is in line with our expectation.

Looking forward for our Europe business, we expect continued positive momentum from our UK operations and solid results from our recently acquired operations in Germany, we continued to be cautious about the rest of Europe and Russia which we expect together will be flat with prior year. The second quarter will be our first reporting quarter consolidating the results of our German operations in Munich, Stuttgart and Berlin.

In 2012, this business generated approximately $50 million U.S. in revenues and generated a strong double-digit margin. We expect to report revenues of approximately $40 million for the remaining nine months of this year with an EBITDA margin about 10%.

In summary, for our commercial real estate division, we are pleased with the first quarter. It exceeded internal expectations and has provided greater comfort around achieving our year-end targets. We are optimistic that we will show continued organic growth and margin enhancement through the balance of 2013.

Moving on to residential property management, revenues were $206.6 million for the quarter in this division, up 8% over the prior year almost all organic, driven by new contract wins and increases in management fee revenue partially offset by declines in revenues from certain ancillary services particularly collection services and our swimming pool operations.

In our core management business, every office in every region across North America reported year-over-year gains. The growth was spread very evenly across the organization.

Our EBITDA margin in the quarter was 5.3% down a 100 basis points from the prior year. Margin from our core management business was up 30 basis points primarily due to operating leverage, this was more than offset by three primary factors. The first relates to rebranding as I mentioned on the year-end call and last week at our AGM, we are rebranding on June 27 of this year at the end of next quarter. Our 20 separate local brands across North America are coming together as FirstService residential. One North American brand was a common purpose in a single marketing message. The investment in the rebranding in our technology platform to support will approximate $6 million in this year.

During the first quarter, our investment was about $1.2 million or 60 basis points. Among other things, the rebrand will facilitate our ability to leverage our size, reduce our cost and streamline our growth assets. We are confident the investment this quarter and over the balance for the year will yield significant long-term benefit. The second factor impacting margin leads to collection and certain other ancillary services that together accounts or cyclical to the housing market and we’re off relative to the prior year. This accounted for about 30 basis points for the margin change. The housing market is showing slow and steady improvement and we expect these ancillary services to continue to be soft in the near-term.

And finally, lower margins at our swimming pool operations impacted the quarter by $800,000 or 40 basis points. The unusually warm weather last year drove pool construction and maintenance revenues and the unusually cold weather this year has deferred activity particularly in March. This is timing only construction pipelines are strong and we’re confident, we will make this up over the balance of the year.

Looking forward in residential property management, we expect to continue to generate solid organic growth driven through market share gains and from new development. We are winning business across North America and we are retaining it. We expect the EBITDA margin to continue to trend up through the year after adjusting for a significant branding and technology spend. Net-net including the investment, we expect our margin to be down slightly on the year.

Now, on to Property Services, which comprises Field Asset Services and FirstService Brands, our franchise group. Revenues were $44.3 million for the quarter down from $84.8 million in the prior year quarter as a result of steep decline to FAS. FirstService Brands enjoyed a strong first quarter up 13% year-over-year or Field Asset posed revenue of slightly less than $29 million, which was approximately 1/3rd of the prior year level.

Looking more closely at brands, most of our operations contributed to the quarterly growth, with California closets being the main driver. All key metrics including leads, average job size and bookings are up year-over-year and momentum continues. Home improvement market is expected grow by 10% from 2013, the highest levels since 2006. And we expect this would lead to continued double-digit growth for our franchise group.

The fall up at FAS is due to the significant decline in national foreclosure activity which is basically back to pre-housing crisis levels. FAS is repositioning itself to effectively compete in the new paradigm. We believe the company has developed a strong point of difference in the market and there are signs supporting this and there are several meaningful new clients have been added over the last six months.

In terms of margin, both FirstService Brands and FAS were approximately breakeven for the quarter. Brands was at a similar level to prior year for the seasonally weak quarter, while the FAS margin was down from the high single-digit level due to the steep decline in revenue and associated reduction in operating leverage.

Looking forward for Property Services, we will have another tough comparison in the second quarter but moving to more relevant year-over-year comparisons for FAS in the third and fourth quarter.

As I indicated in the year-end call, we expect FAS to continue at its current run rate level of around $80 million with a margin of breakeven or slightly better for the next few quarters. As the market continues to stabilize, however, we’re comfortable that Field Assets would be poised again to become a meaningful contributor to our growth and earnings at FirstService. That concludes our prepared comments.

I would now ask the operator to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). So, our first question is from David Gold of Sidoti. Please go ahead David.

David Gold - Sidoti

Hi, good morning.

Jay Hennick

Hi, good morning, David.

David Gold - Sidoti

Just a couple of points of follow up. First on the FAS side, are there other businesses or areas or things we can do, the kind of to – say if we can reach the growth there or is it really just a matter of and have a core competency and just business is slowing around sort of ancillary services that you could add in?

D. Scott Patterson

We have looked at diversifying the revenue and we continue to look, David, but they do have a core competency in there. They’re focusing on the market where they can make an impact and we are here focused on stabilizing this business and growing from there. So, we’re looking to – for this to be a solid contributor in the future but not a high grower.

David Gold - Sidoti

Got you. Okay. And then broadly on the commercial real estate side and I know it’s broad a question, thoughts for 2013, looked like the capital market on the sale side versus the leasing side, you expect any acceleration on the leasing side?

D. Scott Patterson

No. It’s – I mean tenants and occupiers both remain cautious and really across all three of our regions. We are expecting growth but it would be, it would be modest in each region. We really need I think particularly in North America are more robust improvement employment before we share any real growth in our leasing business.

David Gold - Sidoti

Got you. And on the sale side?

D. Scott Patterson

Sales in the market were up and in all three regions, we experienced (inaudible) principally in Australia. We had, if you remember in North America very, very strong fourth quarter in sales and I think its part timing, our activity is up and we were flat in North America up 10% globally. We expect our sales will be up over a year and would be our growth in this division would be weighted toward the sales and appraisal side.

David Gold - Sidoti

Got you. Perfect. And then just one last always love to ask the question, it’s good to hear from Jay, the update here on the acquisition front obviously, done a little bit this year, but what else are there other pockets or holes that you want to fill in both on the commercial real-estate side or any other businesses?

Jay Hennick

We have a full pipeline of acquisition activity, which is quite exciting. So far this year we’ve added quite bit and the pipeline continues to be there as we done in the past we’re focusing specifically in areas where we think we can generate the most value, but at the same time strategically strengthen our business.

So, Germany was a key component of that strategy. There is more to do we think in Europe to strengthen our platform there. The German business was a first class business, a great group of seasoned professionals there and so there – we believe there is more to do in terms of strengthening some of their business lines and augmenting the revenue streams with things like property management and other things that they do, but not in a way that is a significant contributor to a probably balanced business.

So, in a market that should be $200 million, $300 million, $400 million business over time that we see lots of growth with lots of growth there. We are also seeing some nice, there are small and not material, but small acquisitions in the residential property management space and in a couple of other areas, but all to augment our internal growth and to continue to strengthen our franchises.

David Gold - Sidoti

Perfect, thank you.

Operator

Okay. Our next question is from Brandon Dobell of William Blair. Please go ahead Brandon.

Brandon Dobell - William Blair

Thanks. Within Colliers now with the acquisition is completed, what’s the geographic mix look like with the net business now?

Jay Hennick

What do you mean, revenue split?

Brandon Dobell - William Blair

Yeah, so, EMEA, Americas and Asia-Pac, as is split out now with the most recent acquisitions being in the EMEA segment?

John Friedrichsen

Let’s see, let me just grab that – on a revenue basis, Europe is running about 14% that will be higher as a result of the German acquisition so that will be 20% going forward.

Brandon Dobell - William Blair

Okay. And then between Asia-Pac and the Americas, how is it split out?

John Friedrichsen

Australia, Asia-Pac on a combined basis would be at about 20%.

Brandon Dobell – William Blair

Okay.

John Friedrichsen

And the balance in the Americas.

Brandon Dobell - William Blair

Got it. Should we expect you guys to grow headcount in Colliers particularly in the U.S. through this year and into 2014?

Jay Hennick

Well, recruiting is an ongoing exercise in the first quarter, we added 13 producers, some high profile names in the U.S. So, I think you will see it incrementally in that way Brandon.

Brandon Dobell - William Blair

Okay, okay. And then if you go back may be 12 to 18 months or so. One of the big initiatives was kind of getting probably affiliates on the same system, same platform doing technology to trying drive some cost out of there. Are we most away through that is there any kind of tail to that that we are going to see from a cost structure margin point of view this year or knocking up back to standard operating procedures?

Jay Hennick

Standard operating procedures.

Brandon Dobell - William Blair

Okay.

Jay Hennick

We are through that.

Brandon Dobell - William Blair

Okay. And then within the property management business should we expect the guys to continue to make acquisitions, the second its going to be primary use of capital and the outlook for the ancillary services continues to be I think tougher than I would have thought, if the multifamily space slows down or if there is more churn in the tenants that change how those ancillary services to look for you guys or is it just more about the macro environment that needs a change to drive those service revenue up?

D. Scott Patterson

Let me deal with the ancillary services and then Jay can talk about the acquisitions.

Brandon Dobell - William Blair

Okay.

D. Scott Patterson

I think this quarter in particular, we experienced a year-over-year declined primarily in collections because we did have some strength last year in the first quarter but if you remember that it did tail off towards last year so the comparisons will improve over the balance of the year. And well, it will continue to dilute our growth and our margin it won’t be significant.

Brandon Dobell - William Blair

Okay.

Jay Hennick

Yes, Brandon in terms of acquisitions, we are enjoying some pretty good growth – internal growth as Scott outlined in that business, every single division – we have four divisions now that business is actively pursuing tuck under acquisitions most of which are not material but all of which helps to drive internal growth or sorry overall year-over-year growth up.

So but the key focus for us this year is rebranding it’s a huge initiative for us, we are all very excited about it, we have got all of our organizations, twenty different brands across the North America, all are going to revolve to the FirstService Residential, it’s a huge undertaking so that’s what we are really dedicating lots of our time and effort this year.

Brandon Dobell - William Blair

Okay.

Jay Hennick

We are also investigating the prospect of adding service lines that are complementary and may be geographic areas that may be complementary but that’s really just a strategic thinking at this point.

Brandon Dobell - William Blair

Okay. And I think kind of ducktail that a little bit given the strength in the multi-family or rental market in the U.S. the past year, you don’t have the churn has gone away down, right, vacancies are way down but churn is also way down, if (insurance) picks back up does that provide a tailwind for you guys or is that, we shouldn’t think of the revenue drivers that kind of gets correlate with that metric?

Jay Hennick

For us that’s been a very interesting area obviously we were primarily through FAS. We were at the front seat of all of that activity. I don’t think it settles. I don’t think there is any clarity in the marketplace. But what we do is, we provide third-party property management services for these aggregators home, it’s a very small part of our business Brandon and I mean, it’s not even where you know drawing your attention to it.

Brandon Dobell – William Blair

Got it. Okay, appreciate it. Thanks a lot.

Operator

Okay. Our next question is from Stephen MacLeod of BMO Capital Markets. Please go ahead Stephen.

Stephen MacLeod - BMO Capital Markets

Thank you. Good morning.

Jay Hennick

Hey, Steve.

John Friedrichsen

Good morning.

Stephen MacLeod - BMO Capital Markets

I just wanted to follow-up on the rebranding initiative that you have at the residential property management business. In terms of the investments in rebranding in IT, how do you expect the balance of $6 million to flow out over the next three quarters?

D. Scott Patterson

The bulk of it will be in the second quarter. The date is June 27 and so in terms of the signage collateral, the investment in the website and so on that’s all –certain some in the first quarter but heavily weighted to the second quarter.

Stephen MacLeod - BMO Capital Markets

Okay. And you may have some of that leak into the third quarter as well?

D. Scott Patterson

Minor.

Stephen MacLeod - BMO Capital Markets

Minor. Okay. And then, can you just talk – I mean, I know you have touched a little bit about on what benefits – having a consistent brand will bring. But can you just go into a little bit details to what is driving the decision to brand the 20 different businesses as one, I mean is it something that you think customers have been looking for?

D. Scott Patterson

Well, I mean practically it will streamline our business and our systems, enable our people to work more efficiently. Again, examples would include, collateral moving from 20 websites to one, facilitating procurement, facilitating our ability to come together with one, customer contact centre for example, it will accelerate our ability to consolidate our technology platform.

So there is all of the tactical stuff, but it’s really much more than that. We believe we are today 20 brands that comprise the largest residential property management company in North America by a factor of at least two. So we have a very significant leadership position and it’s a position that is on a saleable, it is not going to change. And with this leadership position comes a unique opportunity. And we believe to fully leverage it. We need to come together as one North American brand with a single message. And we believe that we can start to build brand equity, become recognized for our differentiators, become recognized for our services levels. And in time, FirstService Residential will stand for something unique, special in the residential property management market. We have the size capital and people to make that happen.

Stephen MacLeod - BMO Capital Markets

And will it change your acquisition strategy at all in terms of integrating new businesses that would have built up brand equity in the respective markets?

D. Scott Patterson

No. I mean, we can continue with our philosophy and our acquisition structures under the new brand, it won’t change significantly.

Stephen MacLeod - BMO Capital Markets

Okay, great. And then, just turning to the commercial real estate business, can you just provide an update, if you have one with respect to your sort of long-term 10% margin goal on that business?

D. Scott Patterson

Well, we are making progress this year, I mean, we finished 2012 closed to 7%, will be up this year perhaps closer to 8%, we keep marching our way there.

Stephen MacLeod - BMO Capital Markets

Yeah, okay, great. Thank you.

Operator

Our next question is from Stephanie Price of CIBC. Please go ahead Stephanie.

Stephanie Price - CIBC

Good morning, gentlemen.

Jay Hennick

Good morning, Stephanie.

Stephanie Price - CIBC

Assuming that the preferred shares are eliminated. Can you talk a bit about your thoughts in the dividend policy going forward?

D. Scott Patterson

We are starting with what we believe to be a modest dividend and one that if you do the calculation roughly acquaints to the amount that we’ve been spending currently on dividends and other type – similar type things that are – will be consistent today after we do this. So that from the standpoint of growing FirstService, we are really not taking any incremental cash flow away from our operations to pay dividend.

So, step one is let’s get a dividend in place, let’s make sure that we are relatively flat where – with where we’ve been historically and step two would be to continue to strengthen our business and hopefully over time may be move the dividend level up, but I think we have a good start here and we will take things one step at a time.

Stephanie Price - CIBC

Okay, so you don’t have any sort of percentage of cash flow or anything like that, that you are targeting for the dividend.

D. Scott Patterson

We always look at that, but really at the end of the day, we can reinvest especially with the activity we see in the next year or two, three. We can reinvest our available cash better in our home business and generate returns for shareholders, which is what we want to do.

Stephanie Price - CIBC

Okay. And in terms of Field Asset Services, can you talk a bit about how you see the margins rolling out in the next couple of quarters. When do you see the margins in this division stabilizing?

D. Scott Patterson

In my prepared comments, Stephanie, I indicated that would be breakeven to slightly better. We see that really for the balance of the year.

Stephanie Price - CIBC

Okay. So, you don’t see it sort of gradually getting there, you think Q2 you are going to start to see sort of the breakeven result?

D. Scott Patterson

We expect to be breakeven in Q2, we are better.

Stephanie Price - CIBC

Okay. And then in terms of the franchise services business as the market kind of improved here, can you talk about a bit your plans for the business. Is this an area that you are actively looking to grow or what your kind of plans for the franchise services side of the business?

D. Scott Patterson

Well, I mean organically the growth we expect is double-digit really over the next several years fueled by the improving home improvement market but also by the many initiatives and programs that are in place in this business that are driving franchise productivity. So the organic growth will be strong Jay, do you want to comment on acquisitions?

Jay Hennick

Well, I would actually add sort of base business first because we have a renewed life in that business from a variety of perspectives. It’s the market is coming back. We have strong market leading brands and each of one of the brands have a growth strategy which is quite existing actually and you are starting to see it in year-over-year growth.

So over the next couple of years, we are going to continue to drive our existing brands, we may look to add more company owned operations, strategically in a couple of different areas which is in effect built-in growth. When you have a franchise system of size with a strong brand, it’s a national brand, you are in a special situation, and you have the special opportunity to go through – to add company owned operations and do it in a way to generate, it’s a high return on invested capital.

In terms of acquisition growth, I would say that most of the acquisitions that we are looking at in this segment right now are internally – internal type acquisitions like acquiring the significant franchise in an existing region that we think we can double or triple. And so famous last words I don’t see us adding another franchise brand but I do add – I do see us becoming much more company owned oriented over the next two to three years.

Stephanie Price - CIBC

Great, thank you very much.

Operator

Our next question is from Brian Hikisch of Raymond James. Please go ahead Brian.

Brian Hikisch - Raymond James

Hi, guys, good morning. So, Frederic just passed it, he can be on the call at any time, send his regards and I will ask few questions in his place. My first question, just with the acquisition of Colliers Germany, are there are whether be in the Q2 results anytime one time cost related to the acquisition and if so what would you estimate the magnitude to be?

John Friedrichsen

No, significant one cost really so this is quite a different acquisition relative to say what we dealt with in the UK.

Brian Hikisch - Raymond James

Okay, it sounds great. And then I will just ask one more. Can you just give us an update on Colliers goal of corporate solutions and in particular have you brought in any more Fortune 500 companies as client?

John Friedrichsen

It continues to grow. Today it’s a global business we have dozens of clients that are contracts with their global encompass multi-region or regional in nature it’s profitable. There are no significant wins this quarter I would say that we publicized and we tend not to with this business.

Brian Hikisch - Raymond James

Okay, great. Thanks a lot.

Operator

Our next question is from Will Marks of JMP Securities. Please go ahead, Will.

Will Marks - JMP Securities

Thank you. Good morning, Jay, Scott and John.

Jay Hennick

Good morning.

Will Marks - JMP Securities

Couple of questions. Can you give maybe a broader review of Europe as it relates to Colliers and just leasing and sales businesses in general and I know Europe is, is a general turn because every country differs. But it seems like things are a little better than anyone would have thought this year maybe just easy comps?

Jay Hennick

Well, our legacy business Will is Central and Eastern Europe, Southeast Europe and Russia and those markets are not strong and they were not in the first quarter so our leasing business and was slightly down in those markets. But those markets were all weak last year also.

Our UK business was strong in the first quarter up over prior year but we did not own it. But it is, it does have momentum in the UK and then we just acquired Germany and businesses we saw in that were operational.

Will Marks - JMP Securities

Okay. Thank you. One other question, we hear a lot from CVG and JLL on property and facility management and their significant positions in those businesses and how it drives leasing and sales, can you just talk about your efforts to grow that business?

Jay Hennick

We watch the same thing and smile internally a little bit because we do that in resi property management business in a big way. We understand a property and facility management which is a fancy way of saying janitorial and security. And those are generally low margin businesses that can change on a dime, insurance rates go up, minimum wage goes up, risk associated with those, those levels – those types of contracts are very significant and Will you might remember we had a very significant security business which we sold several years ago.

So we do understand that space and we are not pursuing it to the same degree as they might be for those reasons.

Will Marks - JMP Securities

Okay. That’s very helpful thank you.

Operator

Our next question is from Tal Woolley of RBC. Please go ahead Tal.

Tal Woolley - RBC

Hi, good morning.

Jay Hennick

Good morning, Tal.

Tal Woolley - RBC

Sorry, Jay, just a back up, something you said earlier in the call, you said you believe that the acquisition in Germany could generate $300 million to $400 million in revenue or the size of the market in Germany?

Jay Hennick

The size of the market in Germany.

Tal Woolley - RBC

Okay, perfect. And then John, you indicated too that the acquisition closes card cost was $21 million all in?

John Friedrichsen

Sorry. What card you are referring to?

Tal Woolley - RBC

The cost for the acquisition in Germany?

John Friedrichsen

$27 million.

Tal Woolley - RBC

Okay. And did the payment go this quarter or that come out?

John Friedrichsen

No, that was the end of the quarter. We did it. It’s on our cash flow statement. So and that was obviously for a 60% interest most of the consideration was pay and closing, there would be some residual worn out as well.

Tal Woolley - RBC

And again just to switch back to Field Asset Services, you said earlier in the call, just want to make sure, I’m clear on this thing. You expect breakeven margins for Field Asset Services over the long-term?

D. Scott Patterson

That was not the long-term, this year.

Tal Woolley - RBC

Okay. When you look at the revenue decline that Field Asset Services right now, can you, are you able to sort of sense like how much of this is contract you exited and how much is cyclical right now?

D. Scott Patterson

It is running at the same level it has for the last couple of quarters. So while it’s a dramatic drop from the first quarter of last year, its not necessarily a new and it’s a result of both of the things you mentioned, the lost contract and decline in market.

But just to confirm this is, this business the current run rate is about $80 million and the margin is breakeven, which is slightly better for the balance of this year. As this market continues to stabilize we look to grow this business and enhance the margin one step at a time as we usually do.

Jay Hennick

I would like to add something to that. Let’s put this into perspective because there is a lot of questions about Field Assets and again I smile. Field Assets this quarter represented 3% of our overall revenues. On an annualized basis today the number Scott just talked about, it might be give or take 3% of our annualized revenues.

It was a business that generated huge, huge cash flows when the market was down. We used those cash flows to continue to grow our business. The constant questions around FAS are laughable because from my perspective its all about growing a business and adding value and its just – I think we are getting to distracted with FAS when you got so many other great things happening in all of our other businesses. Colliers, FirstService resi, FirstService Brands all are materially over the prior year.

Tal Woolley - RBC

Just from my perspective its not some, I appreciate that business are (inaudible) lot more previously, its just – we are just trying to assess that we have got our forecast in the right position, I think that’s that sort of where, if we are looking at and concerned about the business or the materiality of it.

Jay Hennick

I understand.

Tal Woolley - RBC

I think my last question too Jay is, you talk maybe potentially about taking over more ownership of the brands business and property services. You had in the past also looked at potentially divesting that business?

I’m just wondering given that prospectus, I think you sort of left that option on the table because of where you sort of we are in the cycle now that the cycle looks like it maybe starting to turn. Is that also something you would maybe look at again?

Jay Hennick

When we took it off the market, I think it was three years ago now. We made a commitment or two years ago, we made a commitment to the management team that we were going to continue to grow the business, its up materially from the forecast that we made at that time, the new management team is doing an incredible job of growing both revenues and EBITDA in that business and we see a lot of runaways room and a business that generates a very high return on invested capital this is a very low CapEx generative business.

So, for the foreseeable future, we’re going to continue the grow business and I think that we can continue to add value to our shareholders and there is a lot of crossover potential with our other residential management business for obvious reasons. So, yeah, it’s with us for the foreseeable future for sure.

Tal Woolley - RBC

Okay. When you look at that, you talked about double-digit growth prospect, is that purely activity levels going up that would provide that or do you find new franchisees as the market upswing to, I’m just trying to get a sense of where exact the growth comes from?

Jay Hennick

Almost, no new franchisees. This is a business of increasing productivity by franchise and, and so when we look across our franchise system, we’re finding individual franchisees generating much higher revenues making more money which allows them to investment spend in better technology and some other marketing initiatives that are going to help drive their sales even further. And it also, and also makes the more sophisticated franchisees when the average franchise in Paul Davis for example generates close to $3 million, $4 million a year. You’ve got a sophisticated group of managers driving that business and it helps you as a franchise owner because they are more open minded to investing for the future.

Tal Woolley - RBC

Okay, that’s great. Thanks very much gentlemen.

Operator

Okay. The next question is from Anthony Zicha of Scotia Bank. Please go ahead, Anthony.

Anthony Zicha - Scotia Bank

Hi, good morning, gentlemen.

Jay Hennick

Hi, good morning.

Anthony Zicha - Scotia Bank

You mentioned that market share gains in the CRE, could we get some more color from which segments or the drivers and which geographies and my other part of the question would be when we look at North America which geographies or cities hold the most promising potential for the company? Thanks.

John Friedrichsen

Market share gains, I’m not, I don't recall I was mentioning that. But I think that certainly over the last 12 months particularly in leasing, we, in North America we believe we are taking share particularly in 2012. Our business was up 16% across the Americas in leasing where the markets were down. So, we are taking share on the leasing side and generally believe we are just based largely on our successful recruiting over the last three years and the high profile producers that we brought in again, particularly in North America.

In terms of markets, our we are particularly focused, I mean it’s a broad based growth but we are focused on our major markets in North America those are New York, LA, Chicago, Boston and they are obvious around the world but our focus in our major markets and having a full service offering in driving that.

Unidentified Analyst

Okay. Well, thank you very much.

Jay Hennick

You are welcome.

Operator

Okay. There are no other questions at this time.

Jay Hennick

Okay. Ladies and gentlemen, thank you very much for joining us and we look forward to the second quarter conference call. Thanks again.

Operator

Ladies and gentlemen, this concludes the first quarter investors’ conference call. Thank you for your participation. And have a great day.

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