Colliers International Group Inc (CIGI) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to the FirstService Corporation's fourth-quarter and year-end 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 the U.S. Securities Commission.

And now, at this time, for opening remarks and introductions, I would like to turn the conference over to the President and Chief Executive Officer at FirstService Corporation, Mr. Jay Hennick. Please go ahead, sir.

Good afternoon or good morning. Thanks for joining us. I'm Jay Hennick, President and Chief Executive Officer of the Company, and with me today is John Friedrichsen, our Chief Financial Officer.

The format for today's call will be similar to our previous calls. First, John will begin with the detailed financial results, and then I will follow with brief operational highlights for the quarter and for the year as a whole. If you'd like any more detail on any matter that we discuss, please feel free to ask whatever questions you want at the end of the call. John?

Thank you, Jay. In the fourth quarter, overall our businesses performed better than our expectations. I will comment on both our fourth-quarter and annual results on a consolidated basis and by operating segment. In accordance with U.S. GAAP, the quarter results exclude those of Greenspace Services, our company-owned lawn care operations, which were sold immediately after our year end on April 1st, and therefore are classified as discontinued operations.

For the fourth quarter, revenues on a consolidated basis grew 25 percent to $155.2 million. Internal growth was approximately 17 percent for the quarter, of which 6 percent was attributable to the stronger Canadian dollar compared to the same period last year. The balance of the growth of revenues of 8 percent was attributable to acquisitions. For the year, our revenues grew 17 percent, to 609.8 million. Internal growth for the year was 12 percent, which included 4 percent related to the stronger Canadian dollar during the year. The previously mentioned acquisitions accounted for 5 percent growth in revenues.

For fiscal 2004, approximately 29 percent of our revenues from continuing operations were generated in Canadian dollars, which is a decline from 31 percent, if the revenues of our discontinued Company-owned lawn care operations in Canada are included in total revenues.

Consolidated EBITDA in the fourth quarter totaled 9.7 million, compared to 6.5 million in the prior-year quarter, an increase of 49 percent. For the year, EBITDA totaled 54.3, up from 51 million or 7 percent. Excluding the net contribution of nonrecurring income totaling 1.2 million generated in our businesses services segment last year -- and which I will comment on later -- EBITDA for the year was up 9 percent. EBITDA margins were 8.9 percent, down from 9.7 percent, mainly due to lower margins in business services, some (ph) of which was attributable to the impact of foreign exchange.

Consolidated net income from continuing operations in the fourth quarter increased to 3.5 million, or 24 percent, compared to 2.8 million in the fourth quarter last year, resulting in diluted earnings per share of 24 cents, compared to 20 cents last year. Including our discontinued Company-owned lawn care operations, diluted earnings per share totaled 11 cents, up 57 percent from the 7 cents recorded in the fourth quarter last year. For the year, consolidated net income from continuing operations totaled 18.9, million compared to 18 million last year, an increase of 5 percent, while diluted earnings per share from continuing operations totaled $1.29 versus $1.24 last year. Once again, including our discontinued Company-owned lawn care operations, diluted earnings per share totaled $1.30 for the year, up about 2 percent from $1.27 reported last year. Adjusting last year's diluted earnings per share downward, for the net impact of nonrecurring insurance proceeds and integration costs incurred in our business services segment, diluted earnings per share increased 14 percent in fiscal 2004.

The increase in net income from continuing operations, combined with a decline in working capital usage, increased our net cash flow from operations on a consolidated basis to 34.9 million, compared to 29.7 million last year, an increase of 18 percent over the prior year.

Now, turning to our segments, in consumer services, the following amounts exclude the results of our discontinued Company-owned lawn care operations. Fourth-quarter revenues increased 29 percent, to 20.9 million compared to 16.2 million in the same quarter last year in consumer services. Acquisitions contributed 22 percent of the growth, and the ballots of 7 percent was internal. Acquisition-related growth was significant relative to internal growth, on account of the acquisition of nonseasonal businesses. Solid performances across the various systems, particularly at Paul Davis Restoration and California Closets, contributed to EBITDA of 1.5 million, an increase of 58 percent over last year.

For the year, revenues increased to 92.9 million, up 26 percent from 73.9 million last year, while EBITDA increased to 16.4 million from 14.1 million, up 17 percent over the prior year. EBITDA margins were 17.7 percent, compared to 19.1 percent in the same period a year ago, with the decline due primarily to the acquisition of businesses carrying lower margins in the segment as a whole.

Revenues in integrated security services for the quarter increased to 30.4 million from 26.8 million, up 14 percent compared to last year. Growth related to acquisitions contributed 5 percent of the revenue growth, with the balance generated internally, primarily due to the stronger Canadian dollar. EBITDA in the fourth quarter increased to 1.4 million from 1.2 million, despite a $200,000 loss on the sale of certain assets related to our security board (ph) operations in Chicago. This operation, with annual revenues of approximately $3 million, was sold to enable our U.S. operations to focus solely on security systems. EBITDA margins in the segment increased slightly to 4.4 percent in the quarter, compared to 4.3 percent in the same quarter a year ago.

For the year, revenues increased to 122.7 million, or 14 percent, from 107.5 million last year, with 13 percent of the growth generated internally, including 7 percent on account of the increase in the Canadian dollar. Annual EBITDA increased 12 percent, to 8.2 million from 7.3 million over the prior year. EBITDA margin was 6.7 percent, compared to 6.8 percent last year.

Currently, the residential property management revenue for the fourth quarter totaled 57.5 million, compared to 51.5 million last year, an increase of 12 percent. Internal growth was 5 percent, and the balance from acquisitions. Internal growth was delivered primarily as a result of an increase in core management services, with modest growth contributed by other property services.

For the year, revenues increased by 12 percent, to 241.3 million from 215 million. EBITDA totaled 17.6 million, compared to 14.6 million last year, an increase of 20 percent.

Revenues from business services were 46.2 million for the quarter, an increase of 57 percent from 29.4 million in the fourth quarter of last year. Internal growth, net of the impact of the stronger Canadian dollar, was 45 percent. Growth in the quarter was positively impacted by revenues generated in connection with the GM Hot Button OnStar promotion, in which we provided both customer contact and contest administration services. EBITDA in the segment was 5.8 million, versus 5.2 million reported in the fourth quarter last year, an increase of 12 percent.

The prior year's EBITDA included nonrecurring income from life insurance proceeds realized from the death of a retired executive, net of integration costs, totaling 1.2 million. Again, adjusting the prior year's EBITDA downward by 1.2 million to 4 million, EBITDA increased by 45 percent. Meanwhile, the EBITDA margin was 12.6 percent for the quarter, compared to 17.7 last year, or 13.6 percent if we adjust for the previously mentioned nonrecurring items.

For the year, revenues in business services totaled 152.4 million, compared to 126.4 million last year, an increase of 21 percent. Approximately half of this growth was due to the stronger Canadian dollar during fiscal 2004, compared to the prior year. EBITDA for the year totaled 18.7 million, down 6 percent versus 19.8 million last year, resulting in EBITDA margins of 12.2 percent, versus 15.6 percent last year. Once again, adjusting for the $1.2 million net impact of nonrecurring items last year, the prior-year adjusted EBITDA was 18.6 million, producing an adjusted EBITDA margin of 14.7 percent.

As I mentioned at the outset, our cash flow from operations for FirstService as a whole totaled 35.4 million. In fiscal 2004, we continued to deploy our cash flow carefully, investing 17.1 million in acquisitions, up slightly from 16.3 million last year, with substantially all of the investments in 2004 made during the last half of the year.

Meanwhile, capital expenditures increased to 13.1 million from 9.3 million last year, as we elected to invest in additional capital assets to support our future growth and improve efficiencies, including updated software and IT-related expenditures in business services and consumer services, and the expansion of certain branches in our residential property management operations. Our net debt deposition was reduced to 141 million at year end, compared to 153 million at the end of last year, resulting in our leverage ratio, expressed as net debt EBITDA of 2.5 times, at the bottom end of our operating range of 2.5 to 3 times, and compared to 2.8 times at the end of last year.

With a $50 million 10.5-year average life senior note issue completed in our third quarter, our $90 million revolver substantially undrawn, and recently renewed by our banking syndicate on favorable terms and our lower leverage, our balance sheet is in great shape. With long-term funding in place and the additional capacity to continue the increased pace of acquisitions that (indiscernible) during the last half of the year, we are well positioned to invest in our growth.

Looking forward to our current year, fiscal 2005, despite the sale of the our Company-owned lawn care operations, the decision to expense options, we are revising our outlook upwards. Our projected range of revenue remains unchanged, at between 650 and 675 million, as does our EBITDA range, at between 60.5 to 63 million.

Our projected diluted earnings per share range has been increased between $1.43 and $1.53 per share, from our previous range of $1.40 to $1.50, largely on account of the divestiture of our Company-owned lawn care operations, which carried higher depreciation expense and the impact of acquisitions completed during the last half of 2004 that carried lower depreciation expense. In addition, and as previously announced, the Company expects to record a one-time gain of approximately 18 cents per share in the first quarter of fiscal 2005, due to the sale of our Company-owned lawn care operations completed on April 1st.

This outlook is based on the current economic conditions in North America remaining unchanged for the balance of our fiscal year, an average exchange rate of 73 (ph) cents U.S. to Canadian, and a 50 basis point average increase in interest rates for the year. And, of course, no changes in generally accepted accounting principles, which would materially impact our results. These announcements do not include the impact of any acquisitions or divestitures that may be completed after today's date and during fiscal 2005. The above outlook is forward-looking, and actual results may differ materially. Please understand that the Company undertakes no obligation to update this information.

Now, back to Jay for the operational highlights. Jay?

Thank you, John. As you have heard, operationally, we finished the quarter and the year on a very strong note. For the full year, revenues, earnings and earnings per share were all at record levels, and all at the top end of our previously published outlook. And at 35 million, our cash flow from operations was also at an all-time high, up 19 percent over the prior year, itself our previous best.

As you know, our goal at FirstService is to be a well-managed, diversified service Company that delivers consistent growth of earnings and shareholder value, and our last year was no exception to this goal. In fact, our fiscal 2004 results marks the 11th consecutive year in which we grew our revenues, earnings and earnings per share over the prior year, a tremendous achievement by any standard.

We have also increased our guidance for the current year. This increase is particularly significant, when you consider that since we initially published it, we sold our Company-owned lawn care operations, a division that historically contributed about 3 cents a share, and we made the decision to begin expensing stock options, which will also impact our numbers by another 3 cents a share going forward. Even taking the midpoint of our future range into account, we expect earnings per share to be at least 14 percent higher than they were this year, and that is without the benefit of future acquisitions.

The bottom line is FirstService is in excellent shape going into fiscal 2005, and we are very confident that we can add to our current run rate of earnings and earnings per share as the year progresses. Overall, all segments of our business contributed to our solid financial performance for the quarter and for the year, so I don't propose to spend too much more time on the operational details. Suffice it to say consumer services delivered excellent results, with exceptional revenue and profit growth. Integrated security also contributed solid results, while residential property management finished the year very strongly, with both revenue and profits up significantly over the prior year, including margin gains of almost 100 basis points. Finally, business services came in much better than we expected, with contribution up nicely over the prior year, after adjusting for one-time key man life insurance proceeds that we received last year.

Fiscal 2004 also marked a very busy year, in terms of new corporate initiatives. John has already talked about our new $50 million issue of senior notes due in 2015. This new issue reflects the investment-grade rating of our previous $100 million issue and our continuing success as a Company. As you can imagine, having this long-term debt in place not only further strengthens our balance sheet, but it also provides us with the long-term capital we need to continue to grow and to add earnings and shareholder value.

In consumer services, we added two franchise systems during the year. The first was was Pillar to Post, North America's largest franchiser of property inspection services, with more than 400 franchises in the U.S. and Canada. The second was Floor Coverings International, a leading provider of mobile shop-at-home services for floor and window coverings. Floor Coverings operates a network of more than 100 franchises throughout the U.S., Canada and the UK.

We also added two highly successful franchises to our growing group of California Closets franchise operations. We now have a total of six company-owned operations, generating more than $25 million per year in annualized revenue, and growing.

In residential property management, we completed three acquisitions, two of which were core management companies, one in Vero Beach and the other in Wellington, Florida. The third, which we concluded just after year end, was another property services company based in south Florida. Together, these operations added about 18,000 residential units to our portfolio, and about 12 million in annual revenues.

And finally, in integrated security, we acquired Innovative Security Services, a well-managed security systems integrator based in West Palm Beach, Florida, with branches in Orlando and Houston. Innovative provides comprehensive access control and CCTV services to large corporations and government agencies in the U.S. Southeast, and further expands our reach of our U.S. operations.

At the beginning of the quarter, we completed the sale of Greenspace services, our company-owned lawn care business, to the ServiceMaster Company. Greenspace includes the Canadian lawn care brands, ChemLawn, Green Lawn Care and Sears Lawn Care. The proceeds from the sale will be reinvested in areas that we think will generate better returns for our shareholders. It's important to note that the sale did not include our highly successful, ecologically friendly Nutrilawn lawn care franchise operation, which has quickly grown to 33 franchises and about 15 million in systemwide sales, and remains a part of our consumer service division.

Greenspace has been a solid contributor to FirstService for many years. I would like to take this opportunity to recognize and thank our long-time business partners, Dr. Bill Black and Ray Sharits. Both will continue to have key senior management roles in the Canadian lawn care operations at the new owner. Our 14-year partnership with Bill and Ray has proven to be very successful for all of us, and on behalf of the shareholders of FirstService, I would like to thank them again for their many years of hard work and dedicated service.

Our rationale for selling our lawn care operations was really quite simple. Our business was mature in our existing markets, and we were simply not prepared to invest the capital necessary to expand into new ones. The sale will also reduce our seasonality. For the current year, operating results for the first and second quarter, which are the strong months for lawn care, will be negatively impacted, while the third and fourth quarters will be positively impacted. However, beginning next year, much of our seasonality as a Company will be eliminated, which should be good news to some of our shareholders.

We also announced that we merged four of our business units in our business services division into one new Company called Resolve Corporation. Resolve is co-led by our long-term partners and business leaders, Tom Aiton, the former CEO of DDS Distribution Services, and Lawrence Zimmering, former CEO of BDP Business Data Services, both great guys and both have done a great job for us for a long period of time.

After spending a full year studying the opportunities to further accelerate our growth in business services, we decided to bring the operating companies and their management teams together into one very significant player in the business process outsourcing and marketing services industry. Today, Resolve has more than 4,000 employees in 24 locations across North America, and generates about $150 million in annual revenues. By offering all of our business services under one single brand, Resolve, we expect to be able to add between $10 and $20 million in incremental revenues over the next 12 months, principally by selling more services to our existing customer base. We also expect to be able to establish deeper, more strategic relationships with our customer base, by selling them complete solutions, which, of course, will help to improve our retention rates on that side of our business.

Over the past year, we also took steps to streamline the management of our North American security operations, including Intercon Security in Canada and Security Services and Technologies, under the leadership of Frank Brewer and his team, based in Philadelphia. Bringing these operations together as the seventh-largest player in North America, with 13 significant branches and about 150 million in annual revenue, made a lot of sense to us on several levels. First, it allows us to leverage the power of our strong management teams across the entire continent. Second, it gives us the opportunity to market Intercon's proprietary access control product and central station monitoring services to a much larger customer base in the U.S. And finally, it allows us to expand our market in Canada, by taking advantage of SST's valuable vendor relationships and strong national account program to promote and sell third-party access control products to the large institutional and governmental marketplace.

As you know, our acquisition program has always been designed to complement the internal growth strategies of our established service lines. Each year, our management team gets together to review our acquisition initiatives, and to set targets for the year ahead. This year, our goal is to add as much as $10 million in annualized EBITDA to FirstService. I emphasize this is a goal or a target that we hope to achieve. There is absolutely no guarantees. In fact, we would be prepared to actually bite off more, if the opportunities presented themselves, but we won't hesitate to complete fewer if we can't find the right ones within our established criteria and framework.

But for every 1 million of annualized EBITDA we add through acquisitions, we add about 2 cents per share. That means that if we are able to achieve our target of 10 million for the year, we could add as much as 20 cents per share to our current run rate of growth. And the best part is that we can finance all of this growth internally, from the our own cash flow and existing long-term credit facilities. Put another way, FirstService can continue to grow, both internally and through acquisitions, adding earnings and earnings per share without having to go back to the capital markets. This means that we can continue to build our long-term shareholder value and ultimately our share price.

Let me put this into a numerical perspective for you. Assuming FirstService grows at an annual growth rate of 5 percent using our cash flow and long-term capital, as I mentioned, and we add 10 million of annualized EBITDA per year on transactions that meet our criteria. In just three years, our earnings per share will be about $2.40. Translating that into future stock prices, based on our current P/E multiple, points to very healthy returns for all of our shareholders, even though our current P/E multiple remains considerably lower than that of our peers. It's the kind of potential that keeps all of us at FirstService extremely motivated.

On that note, operator, I would like to open it up for any questions that anyone has.

(OPERATOR INSTRUCTIONS). Eric Slegister (ph), Credit Suisse First Boston.

You guys said in the call that you have acquired 17 million in revenue year to date. Can you summarize the amount of EBITDA that you have acquired so far?

17 million will be -- I mean, $17 million expense. I will have to get back to you on the details on that; I don't have it right in front of me, Eric.

And just to clarify, it sounds like option expense is negatively affecting EPS guidance by 3 cents and the sale of Greenspace by a penny, in 2005. Is that correct?

Well, we were expecting Greenspace to contribute anywhere from 2 to 3 cents in '05.

James DeVos, Raymond James.

I guess the first one -- residential property management. You alluded to the EBITDA tripling over the previous year. You said there was good growth in the core management services. I just wondered if you could explain a bit more. Is it the case that the growth came from core services, or was it more of an absence of the costs and the performance in paying Restoration last year that boosted the EBITDA this year?

I think it's a little bit of both. We have done a good job on some of our Restoration operations, which last year was a breakeven, and we turned that around nicely, hope we were able to do more. But we are also seeing margin enhancement in our core business and internal growth nicely in our core business. And it really started to come home in the fourth quarter, and we hope it will continue in the current year.

And so, depending on Restoration, those problems are largely ironed out now?

They are largely ironed out? We hope that they are ironed out, but it's a business that we run. And we are pretty comfortable with where we are sitting right now, but it's our business.

And then, on the business services segment, you mentioned some of that good growth came from the GM contract. Were there any other notable contracts that helped boost that?

GM was a great contributor. I would say that the general feel of business services is existing customers are strong. We have had a couple of our existing customers that, say, last year were reducing their expenditures on marketing support services, and even business process outsourcing are starting to come back, which are some good signs. So OnStar was a one-time real pickup for us. But we are seeing it in several of our large clients; volumes are increasing. And that is going to, hopefully, continue to produce good reserves for us.

And then just sticking with the businesses services segment, in the past I think you said that the appreciation of the Canadian dollar has negatively impacted -- had a negative impact on the margins, because of the Canadian costs and the U.S. revenue. With the dollar sort of reversing here -- now it's around $1.38, $1.39 -- how do you see the margins ending up towards the end of the year in business services?

I think our margins have the potential to increase somewhat. The cost currency has been an issue over the last year, and if it was to improve, we will get the margin expansion. Certainly a percentage is doable. Having said that, our outlook calls for a 73 cent exchange rate, which would be very similar to where we were on average through last year. But if it does move our way, if the U.S. dollar continues to strengthen, that would positively impact our business services area, on the margin.

David Newman, National Bank Financial.

Terrific quarter. In terms of -- obviously, we have had seasonality over the last few years, and we've all factored it into our models. On a very simplistic basis, what can we expect, in terms of revenue split going forward by quarter? Would we expect 25 percent per quarter of the annual revenues? And similarly, what would be sort of the margins that go with that? Would it be relatively flat with the -- obviously, with the improvement over time?

I'll get back to you on that, David, (inaudible) the details. Just on a high-level basis, clearly, Q1 and Q2 benefited from Greenspace, and we will not have that any more. Q3 and Q4 were a drag on our earnings. We have now alleviated (ph) ourselves of that, and that is essentially where we are at. But if you want some more color on specifically what kind of impact this is going to have, I'll have to get back to you on that, and we can talk about it later.

Just simplistically, though, you're expecting about 3 cents, let's say. I would assume that that would have been a seasonal uptick, that we can sort of back out 3 cents?

Yes.

Very good. And just in terms of the cap expend, I would assume that, given the fact that you are acquiring less D&A-intensive businesses, and that you got rid of Greenspace, what would be your cap expend for next year?

Cap expend will be, certainly, below 2 percent of our revenues. So we would expect it to be where we were the year before last, but below 2 percent.

And finally, you have put a few things on the block recently. Is there any other segments or niches that you feel that aren't performing up to the FirstService standard, that you might consider?

No, not at this time. As you know, David, we're not a seller of businesses, unless it makes sense for us to reacquire our cash flow or investments in those areas. But there is nothing else right now that we are looking at selling.

So you are pretty comfortable with your portfolio as it stands today?

Yes.

Is there another -- you have talked in the past about potentially adding another leg. Is that something you're considering, perhaps a platform? Or are you pretty content to maybe just do tuck-unders this year?

Well, David, we are turning up the heat on platforms, in fact. And in talking to you a little bit about this, and on previous conference calls about this, one of the byproducts of streamlining operations and merging Resolve, for example, into -- the four business units into one gives us the freedom now to continue to move to the next level. And we are out looking for the next platform. We do have four fantastic businesses, in industries and in markets that you can continue to grow through tuck-under acquisitions and through internal growth. So frankly, it's hard to find the next one that is going to have the same great qualities. We think we have got one or two good ideas. But they would be a larger acquisition, and they would be something that would provide us the same opportunities that we have in the existing ones. So you add the platform and then continue to grow both internally and through tuck-under acquisitions for the next 120 years. And so that's what we are looking for. We are keenly looking for something, and if any of the investment bankers on the conference call have any great ideas, we're happy to listen to them. But we had four great operations, and we're going to continue to do tucks until the right opportunity presents itself.

(OPERATOR INSTRUCTIONS). Bill MacKenzie, TD Newcrest.

I guess, first, just a housekeeping question for John on the tax rate. It looks low in the quarter, and I'm guessing you did some year-end tax adjustments and tax cleaning (ph). On a go-forward basis, could you give us a sense as to where you come out into next year on the tax rate?

About 29.5 percent.

29.5?

Yes, 29.5 is our tax rate projected for 2005.

And on the business services side, Jim, GM OnStar obviously was a great program in the quarter. With that being behind us now, I am just wondering what -- high-level, what the outlook is for business services on the topline, if there are any other big projects out there that could replace that, or if we should expect, on a sequential basis over the next couple of quarters, for the revenues to come down a little bit and then start ramping up as maybe fulfillment or other areas of that business start to increase?

I think that we expect, going forward, with one or two qualifications to be able to do better than this year coming, this current fiscal year, on a quarter-for-quarter basis, than we did last year. And one of the question marks is potentially the fourth quarter of this current fiscal year. Will we be able to replicate OnStar? We think, in fact, that there is some good stuff internally that could really let us track positively in the fourth quarter, as well. Going against us, we know that volumes in our textbook fulfillment operations in Texas are going to be low this year, and I think that -- John, correct me if I'm wrong -- I think that comes year out in the first or second quarter?

Mainly in the first quarter, but also drifting into the second.

So we do know in advance that volumes there are going to be down. And that, too, is a seasonal part of our business and business services. But volumes in our existing infrastructure, Bill -- and you will recall this -- we have excess capacity in our business services infrastructure. And we have been filling it up nicely, so we really have some margins potential growth here, by filling excess capacity with costs already covered. So we're hoping that this year will be a strong year for Resolve. And we are also counting on some very interesting additional revenue from existing customers. And that was one of the core reasons for bringing these operations together.

And just one last thing, on security. I know, historically, Q4 is sort of a weaker quarter from a margin perspective, but it was a little bit lower than I was expecting. I just wonder if there was anything in the quarter that would explain the margins, or if that is just traditional seasonal patterns.

Part of this, of course, was that we disposed of our Chicago operations on the manpower side, and we suffered a very small loss on that. That did impact the margins. But I think a good proxy will be the first quarter of security, that things are looking very solid there. But it is a bit seasonal, Bill; you are absolutely right, and the fourth quarter has traditionally been a little bit below, margin-wise. And that's because decisions don't typically get made in December for new business to be installed January/February. There's no lag effect because of the holiday season, vis-a-vis capital expenditures. It can take a long period of time to have them installed, so there is just a natural lull in the fourth quarter in that business, and it has been historically that way.

Bill Chisholm, Dundee Securities.

I guess, a couple of final questions. One, John, on the cash flow. You extracted over $3 million from working capital last year. Was that associated with Greenspace, or was it basically taken out of the business across the board?

On Greenspace is out (ph) -- that's just really better working capital management across the Company. They can't point to any particular spot, but we have just been focusing on it. But that's with Greenspace out.

And that's also with two more California Closets corporate chain locations, isn't it?

That's true, for part of the year, yes, the back half of the year.

I guess, one other question, going down to the property management business, where you had some pretty steady cost increases in the last couple of years, mainly things like employee costs, benefits and insurance rates. Has that cost structure sort of leveled off, or are you still facing increasing costs of that business?

I think in both cases, both workers comp, property and casualty insurance, let's call it insurance generally, it has stabilized. There might be some potential pickup, but it has stabilized. But in terms of insurance generally -- and I'm talking about property and casualty insurance, as opposed to Workers' Comp -- that is coming down a bit. So we hope to enjoy a little bit of positive traction there.

John Mallon, Unterberg Towbin.

Good morning, and congratulations. My question is how do you expect the expenditure of homeland security dollars to impact both your U.S. and Canadian securities services operations?

We are cautiously optimistic that we are going to enjoy some great benefits from that. It's starting to come through. There's lots of potential opportunities coming out of principally our Washington and New York operations. And nothing major yet is coming through, John. There's lots of bidding, there's lots of IFIs (ph); there's lots of RFPs (ph). We are well positioned in the marketplace. We had GSA contracts in place. So we're hoping that our security business will ramp up very nicely, and we are also hoping it's going to be near-term. We're seeing some great signs out of that, and as I said to one of the earlier callers, I think you are going to start to see it coming out of the first quarter.

Thank you and, again, congratulations.

And it appears we have no further questions at this time.

Okay. Ladies and gentlemen, thanks for joining us, and we will see you all or hear from you all on the first quarter of 2005 conference call. Thanks for joining us.

And that will conclude today's conference. Thank you for joining.