FirstService Corporation (FSRV)

Q2 2010 Earnings Call Transcript

July 28, 2010 11:00 am ET


Jay Hennick – Founder and CEO

John Friedrichsen – SVP and CFO

Scott Patterson – President and COO


Sara O'Brien – RBC Capital Markets

Stephanie Price – CIBC

David Gold – Sidoti

Frederic Bastien – Raymond James

Brandon Dobell – William Blair


O perator

Welcome to FirstService Corporation's second quarter earnings 2010 conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve risks and uncertainties. Actual results may be materially different from those contained in these forward-looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in the Form 10-K and in the company's other filings with the Canada and US securities commission. As a reminder, today's conference is being recorded. Today is Wednesday, July 28, 2010.

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, and good morning, everybody. As the operator said, I'm Jay Hennick, chief executive officer of the company. 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 solid second quarter results. Our revenues were up 18%, EBITDA was 8%, and adjusted earnings per share were up 4%. Year-to-date, revenues were up 15%, EBITDA up 21%, and adjusted earnings per share up 15%. John will provide full details in his financial review in just a few minutes.

Overall, we're pleased with the second quarter results, with commercial real estate rebounding sharply over the prior year, and both residential property management and property services delivering solid results despite challenging economic conditions. Scott will expand on all of these in his operational report.

Notwithstanding the very strong quarter at Colliers, the challenge going forward for us is the continued lack of visibility in this segment of our business. As we move into the second quarter, most indicators suggested that we were accelerating to economic recovery and our results to-date would surely echo that sentiment. However, as the quarter ended, most of these same indicators were suggesting that growth had slowed, especially in Europe. For this reason, we intend to continue to manage our business very closely this year on a region-by-region basis and see how things roll out.

Q2 was also busy with several key projects and new initiatives. In the US, positive momentum continued with significant new recruitment activity and sizeable new client wins and corporate solutions and in our asset and property management businesses. At the same time, we undertook a major re-branding effort as we moved all offices that were not already operating as Colliers International to the global standard. So far, about 75% of the offices have completed the re-branding to Colliers International, with the balance expected by year-end. Our recent acquisition of Colliers Chicago is integrated seamlessly into our global business. And their growing asset and property management operation has been a strong contributor.

We also entered into 17 new license agreements with market leaders in secondary markets that we do not already own. Each of these firms has re-branded as Colliers International and is fully integrated as well into our platform.

Through Colliers International, FirstService is the world's third largest player in commercial real estate, with more than 480 company-owned and licensed offices in 61 countries around the world. We still have lots of work to do to strengthen our platform. But there is no question that as the commercial real estate market rebounds, our results from this segment of our business will follow suit creating significant incremental value for FirstService shareholders.

Turning to residential property management, which as you know is a very resilient business with more than 80% of its revenues coming from recurring three-year contracts that have 95%-plus retention rate. It's also a business with multiple growth opportunities, both internally and through acquisition. FirstService Residential Management is the largest player in the industry, managing more than 1 million low, medium, and high-rise residential properties across North America.

Yesterday, we announced another small, but important acquisition in New York. Goodstein Management is one of New York's most respected providers of residential property management services, managing more than 9,000 condominiums and co-op units, including some very high profile properties in New York City. Together, we now manage more than 80,000 residential units in the New York region, making us the largest player in that market by a large margin. Over the next year, we hope to complete several smaller tuck-under acquisitions adding new units under new management in existing markets and continuing to grow our business in the new ones.

Over the past year, we've also been successful growing our national accounts business serving large government agencies, banks, and other real estate investors who have acquired residential property assets, either through foreclosure or purchase, and need to have them managed or leased. Few companies can operate these services on a national scale. And as the market leader with operations across North America, we are uniquely positioned to service them. We expect this part of our business to continue to grow rapidly for the foreseeable future as more governments and institutional investors strategically acquire residential real estate assets for investment purposes.

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