Colliers International Group Inc (CIGI) 2004 Q2 法說會逐字稿

Good day, everyone. Welcome to FirstService Corporation's second-quarter 2003 earnings release 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 forward-looking statements is contained in the Company's annual report on Form 10-K and in the Company's other filings with Canada and U.S. securities commissions.

At this time, for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer at FirstService Corporation, Mr. Jay Hennick.

Good afternoon, everyone. Thanks for joining us. As the operator mentioned, I'm Jay Hennick and I'm the President and Chief Executive Officer of the Company. With me is John Friedrichsen, our CFO.

The format for today's call will be the same as on previous calls. First, John will begin with the detailed financial results. Then I will follow with some detailed operational highlights. If you'd like more detail after the call, please feel free to ask whatever questions you have.

With that, let me turn it over to John. John?

In our second quarter ended September 30th, our results were favorable and continued to outperform our internal expectations. Furthermore, our net cash flow from operations continued to be strong and we continued to carefully and selectively deploy our capital, including the four tuck-under acquisitions announced earlier in the week.

Revenue grew 15 percent to 166.5 million from 145.2 million in the prior year. Consolidated internal growth was 12 percent with the balance due to a small tuck-under acquisition completed late in our fourth quarter last year. Approximately 4 percent of the internal growth in revenue was attributable to the increase in the Canadian dollar relative to the U.S. dollar.

As was the case in the first quarter, the Canadian dollar increased significantly relative to the U.S. dollar during our second quarter with the average Canadian/U.S. dollar exchange rate increasing from 64 cents in our second quarter last year to 72.5 cents in our second quarter this year, an increase of about 13 percent.

On a consolidated basis, our Canadian operations accounted for approximately 30 percent of our revenues in the second quarter, impacting our consolidated revenues positively by $5.8 million. However, the impact of that effect on our consolidated EBITDA was essentially neutral once again during the second quarter.

On a segmented basis, revenue from our Residential Property Management operation totaled 66.8 million, an increase of 12 percent over the prior year period revenues of 59.5 million. Internal growth was 9 percent with the balance attributable to a tuck-under acquisition completed in the fourth quarter of last year.

In our Consumer Services segment, second-quarter revenue totaled 34 million, up from 28.3 million, or 20 percent, reported in the same period last year. About 4 percent of this growth was attributable to two small Cal Closets tuck-under acquisitions completed in the third quarter last year.

Integrated Security Services revenue totaled 29.5 million in the second quarter, up 17 percent from the 25.2 million reported in the same period last year, none of which was attributable to any acquisition related growth, as we have not completed any recent acquisitions in this segment.

Finally, in Business Services, revenue increased by 13 percent to 36.1 million from 32 million in the second quarter of last year. This growth was largely attributable to the impact of the higher Canadian dollar compared to the same quarter last year. Excluding the impact of FX, revenues grew internally by 5 percent, primarily due to growth in our BDP operations.

Turning to operating earnings before depreciation and amortization, consolidated EBITDA for the second quarter totaled 21.4 million, up from 21.2 million in the prior year quarter, an increase of 1 percent. The consolidated EBITDA margin for the quarter was 12.8 percent, down from 14.6 percent in the prior year, primarily due to lower margins in Business Services.

EBITDA generated by our Residential Property Management division totaled 6 million in the second quarter, compared to 5.4 million in the same period a year ago. EBITDA margins were steady at 9 percent, the same as the second quarter of last year.

Consumer Services EBITDA increased to 9.6 million, compared to 9.2 million in the second quarter last year. EBITDA margins remained strong at 28.4 percent but declined from 32.6 percent in the prior year, due primarily to the impact of a change in mix, with lower margin Company-owned operations contributing a higher proportion of overall segment revenues compared to last year, due mainly to the two Cal Closets franchises completed in the third quarter of last year.

Second-quarter EBITDA in Integrated Security Services increased 2.2 million from 2 million last year, while EBITDA margins were 7.5 percent, compared to 7.9 percent in the prior year period, primarily due to lower sales of integrated security systems in our Canadian operations. Though down slightly, margins continue to compare favorably to the margins of 6.9 percent generated in the first quarter of the current year and for the whole of fiscal 2003.

For the quarter, in Business Services, EBITDA was 5.2 million compared to 5.8 million in the same quarter last year. EBITDA margins were 14.3 percent, compared to 18 percent last year. The lower margins, though better than our internal expectations, continued to be hampered by excess capacity at our fulfillment operations and were negatively impacted by lower margin revenues and up-front costs associated with new clients gained since the beginning of the year.

As I outlined in my comments in our first-quarter conference call, translation of our Canadian dollar-denominated results into U.S. dollars is positively impacted by a strengthening Canadian dollar. However, a portion of our results in our Business Services segment is negatively impacted, offsetting any gains to EBITDA. This portion relates to customer support services provided to U.S. customers and invoiced in U.S. dollars with the corresponding cost to deliver this service in Canadian dollars. Excluding the impact of FX, the EBITDA margin in Business Services would've been 15.5 percent, versus the 14.3 percent reported.

Net earnings for the quarter were 9.1 million, up 2 percent from 8.9 million reported in the second quarter of last year, resulting in diluted earnings per share of 63 cents, compared to 61 cents in the prior year period.

Net cash generated from operations in the first half of fiscal 2004 totaled $24 million, compared to 19.5 million in the first half of last year. Furthermore, we continue to deploy this cash carefully, incurring CapEx of 7.1 million compared to 5.8 million in the first half of last year, but below the 8 million spent in the first half of fiscal 2002.

For the full fiscal year, we expect to incur about 12 million in capital expenditures. As well, expenditures on acquisitions to the end of the second quarter were $2 million, well below the 5.2 million spent during the first half of last year. However, as previously announced, subsequent to the second quarter, we completed four tuck-under acquisitions, which Jay will comment on later during the call.

Immediately after the end of our second quarter and as previously announced, we completed the private placement of $50 million in senior Notes with a 12-year term and a fixed interest rate of 6.4 percent. This financing, the proceeds of which were applied against our revolving loan, provides FirstService with yet another layer of long-term financing on highly attractive terms and follows the successful placement of 10-year senior Notes in June, 2001. Concurrently with the most recent placement, our revolving loan was reduced to $90 million, substantially all of which remains available to fund future growth.

Finally, shortly after completion of our private placement, we elected to swap 50 million in new senior Notes to a floating, LIBOR-based rate, which presently carries an effective interest rate of about 3 percent.

Looking forward to the balance of fiscal 2004, we have revised the outlook presented our fourth-quarter fiscal 2003 conference call that estimated revenue at between 540 and 560 million, EBITDA of between 53 and 55 million -- (technical difficulty) -- diluted earnings per share at between $1.20 and $1.30. The revision includes the impact of the recently completed acquisitions and greater visibility on the year, having completed two quarters. We've also assumed an exchange rate of U.S. 75 cents to the Canadian dollar and interest rates to remain unchanged for the balance of our fiscal year.

We now estimate revenues for fiscal 2004 to be in a range of 590 to 600 million, EBITDA to be between 54.5 and 56 million, and diluted earnings per share between $1.27 and $1.32.

Now, I'd like to turn things back over to Jay for his comments. Jay?

Thank you, John. Overall, we are very pleased with the results again this quarter. As you can see, they came in much better than our own internal targets. Revenues and profits were up nicely in Residential Property Management, Integrated Security and Consumer Services, while Business Services also delivered a quarter well ahead of our expectations.

As John mentioned, our cash flow continued to be very strong at $24 million for the half, a full 23 percent higher than the prior year. The ability to generate strong and consistent cash flows has always been one of the great strengths of FirstService. Our strategy is to focus on service lines that do not require significant capital investment, so that we can use our cash flow to reinvest in our growth. That means we continue to add value to our shares every day without diluting our shareholders, and that will invariably translate into a much higher stock price over time.

Just after the quarter ended, we completed the private placement of $50 million in senior Notes, having a term of 12 years. This new, long-term capital reflects the investment-grade rating that we got on our previous notes issue and our continuing success as a company. More importantly, it further strengthens our balance sheet and provides us with the financing we need for the foreseeable future, all of which should be excellent news for our shareholders.

Operationally, the second quarter also had a number of other highlights. In Consumer Services, we continued to generate (indiscernible) impressive results. Internal growth was 16 percent over the prior year, continuing the strong trend that began in the first quarter. College Pro had another record season. Paul Davis Restoration was up 13 percent over the prior year, and California Closets was also up nicely. Our branchise operations continue to perform ahead of expectations, both in terms of revenue and in profits.

As I said in the conference call last quarter, we believe our management team in Consumer Services, under the leadership of Steve Rogers and his team, is second-to-none in the franchise area. Over the years, they have proven time and again that, with the right acquisition, they can add value both operationally, and they can also help the franchisees be more successful doing what they do. They got more of the right stuff with the acquisitions we announced yesterday. The largest was the Pillar to Post franchise system, one of North America's largest franchisors (ph) of property inspection services. With more than 300 franchisees in the U.S. and Canada and more than 30 million in systemwide sales, Pillar to Post was ranked number one for home inspections and number 92 overall in Entrepreneur Magazine's annual list of top 500 franchisors (ph).

The second acquisition was Floor Coverings International, which is a leading provider of mobile shop-at-home floor and window covering solutions. Floor Coverings itself offers -- operates a network of more than 100 franchises through the U.S., Canada and the United Kingdom and generates about 20 million in systemwide sales.

We also added two highly successful California Closets franchises to our growing group of franchise operations. With the addition of San Francisco and Toronto, we now operates a total of six branchises, generating about $25 million a year in revenue, including operations in Boston, Chicago, Seattle and Jacksonville. Together, these acquisitions will add about -- sorry, about $10 million in revenue and about 2 million of EBITDA, not to mention some tremendous growth opportunities we have planned.

In Security, revenues were also up significantly over the prior year, all of which came from internal growth. In the U.S., our operations continued to deliver very strong results, and sales backlog for the balance of the year is another positive sign. We are continuing to focus on high-profile security installations like the Rockefeller Center and the new Morgan Stanley head office and a number of the large DuPont plants and offices that we added earlier in the year because these installations offer extensive service revenue after the initial installation is completed.

In Canada, we also completed the implementation of all 14 hospitals from the Fraser Valley health Authority in British Columbia. We were successful winning significant new business with the Royal Bank of Canada to install and service state-of-the-art access control and CCTV systems at all of their cash operation centers across Canada.

In terms of acquisitions, the landscape in Security has also improved. Many of the larger independents that resisted being acquired in the past did so because these operators were simply not ready to exit the business. We offer and offered an excellent alternative. Not only can they benefit from the resources of a larger company, but we also encourage them to remain with us as our partner and participate in the growth and development of their business in the future. With this as a background, we hope to add at least one other tuck-under acquisition in this area of our business over the next few quarters.

Residential Property Management also had a strong quarter with revenues and profits up nicely over the prior year. We continue to add units under management and leverage our management relationships by adding a variety of services and products to our customers. Core management fee revenues were up nicely again this quarter, and the recent acquisition of Cooper Square Realty in New York City is now fully integrated into our operations.

During the quarter, we completed the introduction of a new program to fully automate our transfer and disclosure process on the Internet. Whenever a home is bought, sold or refinanced in our communities -- which happened about 40,000 times a year -- it's our job as property manager to process the transaction for a fee. Previously, this process was very time and labor-intensive and worse, the proper fees were not always charged. This new system not only reduces operating costs and fully captures our fees, it also provides our clients with a first-class disclosure package that compares very favorably with our competition addition who still process their transfers manually with varying degrees of quality.

I should also say that by leveraging our combined buying powers, the largest manager of community associations in America, we continue to enjoy a real advantage in selling new business. Our clients benefit from lower service fees and they earn higher interest on their cash deposits, and they save money on trash-removal services and insurance products just to name a few. When these benefits are offered to prospective clients, they go a long way to help win new management contract. Needless to say, we continue to be very bullish about the opportunities in Residential Property Management, and we're actively pursuing a number of additional ways to further grow and develop our business.

We are also feeling a lot better about Business Services. Internal growth, adjusted for currency differences, was about 5 percent for the first time in a year, and we expect this progress to continue as the year progresses. In the fulfillment, we continue to add new business across the board and although the lead-time and startup costs necessary to bring on new clients has impacted our revenues and profits in the short-term, we fully expect our results to continue to get better as the year progresses.

Our business process outsourcing and call center operations also had a solid quarter operationally. We were successful renewing or extending several important contracts during the quarter, including Best Buy, Reader's Digest and T.D. Waterhouse.

We were also successful winning new business, some from Exxon Mobile to administer their SpeedPass program across the United States. The Canadian Ministry of Finance outsourced their corporate tax return processing to us, and Best Western Worldwide outsourced their loyalty programs to us so that we would manage and administer them for them over a 5-year period. We are confident we're on the right track at Business Services, and we expect to be able to continue to deliver solid results throughout the balance of the year.

In summary, the quarter came in better than we expected. We added $50 million of long-term capital, and we completed four acquisitions in our Consumer Service segment.

Speaking of acquisitions, our pipeline continues to be good. This year, our goal is to add about $5 million of incremental EBITDA from operations, and I'm confident that we will do that. I must stress, however, that our type of acquisitions are not the type that most people find exciting; ours tend to be small in size and they must satisfy our strict criteria for price, structure and quality of management before we are interested.

We estimate that for every $1 million of EBITDA we add from our acquisition initiatives, we increase our earnings per share by about 2 cents. If we hit our target of 5 million this year, our EPS will be up by about 10 cents on a full-year basis. The way we see it, if we do nothing more over the next five years than balance our internal growth with about 5 million of EBITDA from acquisitions, our earnings per share should be at least $2.50 with very little in the way of debt and no incremental capital. For this management team, who owns about 30 percent of the equity, that would be a very successful result. It equates to an annualized return of more than 20 percent per year and over a five-year period, that's pretty good. That's what we're striving for.

With that, those are the highlights and we would be pleased to take any questions now, operator.

Thank you. The question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS). Eric Sledgister of First Boston.

Good afternoon. I have a few questions for John. John, I was wondering if you could breakdown the increase in EPS guidance in terms of what is due to core operations and what is due to acquisitions.

Okay, the guidance has been increased by about 5 cents from $1.20 to $1.25 based on our internal results and our visibility now for the entire year, given that we are two quarters in.

The acquisitions have added 2 cents, which -- with that increase, that $1.25 figure to $1.27 (sic). Our previous top end was at $1.30. We've now adjusted that 2 cents for the acquisitions.

Thanks. Assuming the exchange rate does stay at 75 cents to the U.S. dollar, can you quantify the revenue contribution from foreign exchange in '04?

The revenue contribution would be -- I don't have that figure handy. I'll have to get back to you on that. I've not looked at that.

Matt Litfin of William Blair.

Good afternoon, gentlemen. I wanted to touch on the point that Jay was making in terms of the 2008 earnings. How are you guys thinking about your long-term growth rate in earnings these days, say, over the next three to five years?

The numbers that we gave you, Matt, were based on, very simply, a conservative internal growth number of 5 percent and acquisitions of $5 million a year, which bring us into around blended 10 to 12 percent, John? (multiple speakers) -- 12 percent, Matt. That's just a very conservative sort of outlook over the next five years from our perspective. So, that is not the way we're looking at it; that's just, from my perspective anyway, that's just our downside.

Okay, fine. One other question, if I might? It maybe has more to do with, say, the next year of the next five-year period. It's a question on margins. Given the North American economic rebound that we're starting to see, do you expect a near-term bounce-back in your profit margins to levels from a couple years ago, or at we at some new lower level of profitability that we should consider to be structural in nature?

No, I think the biggest thing that's going to drive for us, outside of any impact acquisitions might have on the margin, would be really capacity utilization in our Business Services area. That is the key. You know, that capacity utilization will increase. We don't think it will be immediate but certainly, we will see progressive improvement over the next year and beyond that. You know, the sooner we get some help from the economy, we should be back close to where we were in the past. You know, we'd like to say that we're going to be right at the margins we were generating a year or two ago, but we're not going to count on that. But certainly, we will see some market improvement over the next 2 years.

Okay, thanks and congratulations.

(OPERATOR INSTRUCTIONS). Jeremy Willibur (ph) of National Bank Financial is up next.

Good afternoon, gentlemen, and congratulations on a good quarter. Most of my questions have been answered. I've just got one technical question for John, and that's with respect to the tax rate. I've noticed the tax rate in the last couple of quarters has been more in the 31 percent range. I was just wondering if that is sort of an ongoing trend down from the historical 33 percent range.

Yes. This is something we revised last quarter -- (technical difficulty) -- a detailed review of our tax provision by PriceWaterhouseCoopers, our auditors. We have been over-accruing on the tax rate, and 30.5 is where we are now -- expect to be for the foreseeable future.

Bill MacKenzie of T.D. Newcrest.

It's actually Dallas (indiscernible). I'm sitting in for Bill. A quick question about recent acquisitions you guys did -- what's been the track record of the four companies you recently acquired sort of in terms of growth in earnings or seasonality (indiscernible) cyclicality if there was any?

On the four acquisitions, there's not a whole lot of seasonality. The Pillar to Post business tends to be a little bit quieter in our third and fourth quarter, as you might imagine. Business does tend to pick up in the late part of our fourth quarter -- March. Outside of that, which is really slight, there is no significant seasonality in reality in these businesses.

In terms of growth rate, across the board, they've averaged about 15 percent growth, which we think is reasonable, and we think we can do better with them on a go-forward basis.

Is that in earnings, or 15 percent of revenue or both?

It would be both.

Okay. The other thing - -can you talk a little bit about where you stand with regard to increased costs such as insurance premiums in your Property Management business? I am just wondering if you guys have had any success in passing these costs through to your customers.

Well, for us, as we've talked about over the course of several conference calls I guess, insurance has been an issue. It seems to be settling nicely, and just as recently as a couple of weeks ago, we had a large renewal come through pretty much exactly where we expected it to. So, we're not seeing the craziness that we saw last year; we think that it's going to stabilize.

In terms of the margins, you are starting to see the margins in property management increase. I think you'll see a little bit more of that as the year progresses. So, you know, they are passing some of it along, but their margin is increasing for a variety of other reasons, some of which they're just being more efficient in their operations. I can't give you an exact amount of how much we've passed along, but it's nice to see the margin going in the right direction.

Okay, great. With regards to your security business, what was the FX impact on revenues in that business?

FX impact on that what about 7 percent, so it was 10 percent adjusted for the FX in terms of growth.

Okay, great. Within your Consumer Services division, which businesses or divisions specifically drove the increases? How do you foresee your utilization rates sort of progressing over the next -- your capacity utilization rates progressing over the next couple of quarters in that division, or in that business?

Sorry, Consumer Services? You have to repeat the question now because capacity utilization is really just -- (Multiple Speakers) -- our Business Services.

I apologize, sorry. In the Consumer Services business, which areas resulted in the growth?

It's pretty much across the board. We're enjoying varying degrees of success in year-over-year sales in our different systems. You're seeing some growth come from that; you're also seeing some growth coming from more Company-owned operations, which are also helping to move our revenues and EBITDA up, although our margins somewhat down -- because when you're Company-owned, the margins are not the same. I mean, we can give you if you want it -- John can walk through each one of our different franchise systems. I'm not sure it would be overly material to you.

Is there anything in particular that sort of stood out or anything unusual?

No. Consumers for us are buying and so -- Paul Davis, Cal Closets even Pillar to Post, the new one, is enjoying some nice year-over-year sales growth. I'm talking about 13 to 15 percent year-over-year sales growth. Those are good numbers.

Okay, great. (multiple speakers) -- in Business Services, can you just sort of talk about capacity utilization and sort of how you see that progressing over the next couple of quarters?

I think capacity utilization, over the next couple of quarters, is likely to stay where it is, maybe some slight improvement. We do have some new customers that are coming on that will actually implement over the next couple of quarters. We've got a strong pipeline of opportunities. I can tell you right now that the management team running that business is very, very focused on driving a new business. So we do expect some improvement. I can't quantify what it's going to be; I just don't know the timing on a lot of these new things that they are working on.

Again, you are starting to see the progress even this past quarter, as the costs we've been carrying -- and it's only progression up from here -- you know, over the course of the next couple of quarters.

How will startup costs affect -- for new customers, how that affect your margins in that business?

Well, at best, there would be a flattening of margins on a go-forward basis for a period of time if we incorporate startup costs. I mean, the client wins -- there have been numerous wins; they've been all relatively small, as Jay has outlined some of them, and they all have some degree of startup costs attached to them. So, I would say that on an early stage, there will not be a significant contribution. Once we get beyond the implementation stage, these are contracts which would be contributing on the contribution line 30 percent-ish, so they should positively impact and cover up some of these fixed costs that we have presently in our facilities.

Bill Chisholm of Dundee Securities.

Good afternoon. (indiscernible) on the recent acquisitions, particularly I guess the Pillar to Post; it sounds like a very interesting one -- but the numbers look like it's a very small business in terms of an individual franchise. 300 franchises doing 30 million in systemwide sales (inaudible) about 100,000 per franchisee. Is that a number that makes it a viable business, or is there room to go much higher than that by the individual franchisee?

Remember, Bill, these are sole practitioners. You've got an average of $100,000 per practitioner, but their costs are insignificant. It's an electronic process; they work out of their cars and their homes, and many of them to very, very well -- substantially better than the 100,000. This is a system that has enjoyed -- it's got a 12-year history, but it's enjoyed some pretty tremendous growth over the past five years, let's say, and so there's still some ramping up happening, but the franchisees themselves can make a good buck.

Where is this organization based?

It's based in Tampa and they have a branch in Mississauga as well.

Okay, good. Another question on the Business Services side -- you seem to be quite confident that you're going to get increased business, going forward -- (technical difficulty) -- the utilization rates. Are you seeing that from increased business from existing customers, or are you banking on getting new customers?

It's been a little bit of both, but a lot of it is coming from net new clients. You know, Bill, you've followed us for many years; what happened about 18 months ago, two years ago, customers just weren't buying. There was no net new business brought onboard. That changed probably 6, 9 months ago, so we are back to normal in terms of new business opportunities, clients prepared to make decisions. So, we're seeing a nice inflow of net new business into our operations. So, I would say that most of the growth is net new growth, but some of it is just getting a greater share from the existing clientele.

One final question -- with the California Closets, the test you're doing with Home Depot in the U.S. -- has that been curtailed, or are you still working on that?

It's still operating, and it's operating successfully. Home Depot wants to advance the relationship and introduce us into more of their facilities. Frankly, some of our franchisees aren't as excited about that because they obviously have to pay Home Depot a significant percentage of the sales. So, it's still really in the test phase. It is working out pretty well in terms of generating new leads, but what happens is a franchisee would rather sell direct to a customer rather than indirect through Home Depot because their margins are a lot higher, and that's causing a little bit of angst in the system. But generally, it's okay, and we're still getting on that one and we will see how that develops over the next five or six months.

Ron Schwartz of CIBC World Markets is up next.

Thank you. Two questions, Jay and John, and I might have missed this, but if I'm looking at the Residential Property Management business, sequentially revenues were up but your EBITDA margins were down about 170 basis points. Was there any particular or one-time item in there that would have caused that? They're both seasonally good, strong quarters.

No, I'd have to get back to you on that. That does not make sense to me.

Maybe (indiscernible) tracking numbers but I'll doublecheck as well.

Secondly, just, I guess, Jay, where is (indiscernible) Business Services in terms of repositioning the operation? Is it at a point where it kind of needs to be where it is, and now you guys just need to not wait for the volumes to come in; you can go and chase them, but all of the right-sizing changes, all of that infrastructure is now ready to go?

Actually, most of the right-sizing and changes were done two quarters ago. What Scott is focusing on now is to find a way to bring some of the opportunities together. You know, some of our Business Services businesses have opportunities with clients of other service lines, and so Scott's whole challenge is to streamline the sales process and try and maximize client relationships.

So, it's essentially the cross-sell right, (indiscernible) the call centers and all the rest?

It's exactly what it is; it's trying to generate more from the customer for services that we already can do but for whatever reason have not been able to get that extra piece of business from those clients.

But there hasn't been any further kind of shuffling around of resources within the Group?

No, not yet.

(OPERATOR INSTRUCTIONS). A follow-up from Matt Litfin.

Yes, a follow-up, if I might? Given all that's happened with Sarbanes-Oxley being passed, have you guys taken any opportunities to make some changes to your Board or your processes or whatever? I'll leave that one open-ended.

Matt, in fact, FirstService -- there's a rating system that applied to companies in Canada, and we were noted for being the biggest changer in terms of corporate governance over the past year. You wouldn't have seen that, of course, but that was something that we were recently advised about.

We made major changes to our Board. Any direct that was -- or not any, but we moved several directors off the Board that were not "independent". We changed our committee structure; we established a new committees (sic). We imposed changes to our requirements to be a director. They had to invest a significant amount in the Company and a variety of other changes that we made. A lot of those things are outlined in our management circular, but we've done a big job in terms of reformatting the way we operate from a corporate governance standpoint.

Having said that, I don't think we run the Company any different today than we did before because, for us, corporate governance was always an important element of the way we ran our business.

I'm sure those changes are good things. If I could with a follow-up -- have you been able to somehow quantify how much you've spent on making those changes from Sarbanes-Oxley? Do you see those now as ongoing expenses of your company, or do you consider it those more of one-time over the last year?

Matt, you are really hitting a chord there, because it has been substantial cost and it's getting worse, not better, because we've incurred already -- I don't know the number, but it's substantial cost -- and as we move toward, there is additional requirements (sic). John, what's -- (multiple speakers).

(Multiple Speakers) -- we're going to have to comply with the Section 404 requirement of the Sarbanes-Oxley Act, which you made be familiar and which is going to require us to document our internal controls and then have our auditors eventually provide an opinion on the adequacy of internal controls. So, there certainly will be an initial cost. We don't know exactly what that's going to be, but it won't be insignificant, probably $500,000 or there abouts in terms of implementing. Then it could be higher and there will be some ongoing compliance costs, just internal costs, as we maintain those and ensure that, on an annual basis, Price Waterhouse can come in and do their review, so it's not insignificant; it is a burden.

That's hopeful. Just rest assured, you're not alone on that.

(LAUGHTER).

Gentlemen, at this time, there are on further questions.

Okay, ladies and gentlemen, thank you for joining us and we hope to hear from you again on the next conference call.

That does conclude today's conference. We would like to thank you all for your participation, and have a great day.