Colliers International Group Inc (CIGI) 2005 Q3 法說會逐字稿

Please stand by. Welcome to FirstService Corporation’s Third Quarter Financial Results Conference Call. Today’s call is being recorded. Legal counsel requires us to advise that the discussions scheduled to take place today may contain forward-looking statements that involve risks and uncertainties. Actual results may materially differ 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 Commission.

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. Please go ahead, Sir.

Thank you and good morning everyone. As the operator mentioned, I’m Jay Hennick, President and Chief Executive Officer of the Company, and with me today is John Friedrichsen, Senior Vice President and Chief Financial Officer.

This morning, FirstService reported very strong third quarter results with excellent performance across all business lines, including newly acquired CMN International. Earnings and earnings per share both tripled and revenues were up almost 50 percent over the same quarter last year.

More importantly, we expect this momentum to continue for the balance of the year and well into next. As a result, we have decided to increase our EPS outlook for the current year to between $0.83 and $0.88, almost 30 percent higher than we generated last year taken at the mid point of the range.

We also provided our preliminary outlook for fiscal 2006 beginning in April. Including the full impact -- full-year impact of CMN, we expect to exceed the billion-dollar revenue mark, which is a real milestone for us, and we expect our earnings per share to come in at between $0.97 and $1.05 at this time, and that’s without the benefit of any further acquisitions we might complete from here on in.

Put another way, based on our current run rate of revenue, we fully expect fiscal 2006 to be another year of plus-20 percent growth. John will provide full details on both outlooks in just a few minutes.

In addition to our strong operating performance, the third quarter was a very busy one in other ways. As mentioned, on November 30th we completed the purchase of CMN International. CMN is the largest member of the Colliers International Network, with more than 4,000 employees and operations spanning 80 offices in 20 countries including Canada, the U.S., Australia, and a number of other countries. All are operated under the Collier’s International brand name, which is one of the highest recognized brands in the global commercial real estate market.

Consistent with our partnership philosophy, we partnered with the senior managers and active brokers of CMN, who will continue to hold a very significant equities stake in the business going forward.

Having an experienced and financially-motivated management team is not only consistent with our philosophy, it will also translate into a real advantage in the marketplace. We expect to capitalize on this by using equity ownership as a means of recruiting and retaining the highest quality people available in this industry, as we have done so many other times in our other service lines.

In December, our Board declared a stock dividend to double the number of shares we have outstanding, effectively achieving a 2 for 1 stock split. The objective of the stock split was to make our shares more accessible to individual investors and both run our shareholder base and increase the liquidity of our shares. Based on trading volume subsequent to the stock split, it looks like our decision to split the stock was the correct one.

And, finally, on December 14th, we completed the acquisition of the leading residential property management company in Las Vegas, Nevada. In property management, where we’re the leading player in the industry, we continue to focus our efforts on expanding our business into areas with the strongest population growth, and Nevada has 3 of the fastest growing cities in the country.

But before I continue with the operational highlights, let me ask John to take you through the financial results for the quarter. And then after we’re both finished, we’ll take any questions at the end of the call. John?

Thank you, Jay. As Jay had already highlighted, we generated very strong results in our third quarter. A newly formed commercial real estate services business contributed to our results for the first time since the closing of the CMN acquisition on November 30th, and the results were impressive. Notwithstanding strong results, it is important to note our other 4 service lines continue to deliver year-over-year growth, as expected, further reinforcing the consistency of our results and the effectiveness of our business model.

Revenues increased 49 percent to $221.9 million from $148.7 million in the prior year. Internal growth was 11 percent, with acquisitions contributing the balance.

On a (indiscernible) basis, in our Commercial Real Estate Services segment, third quarter revenues generated by CMN were based on the period from date of acquisition on November 30th to the end of December, and totaled $49.6 million, well in excess of expectations.

Internal revenue growth of CMN was over 23 percent compared to December 2003. December has historically been the single largest contributor to CMN’s peak period of October through December, and this year is no different, with strong brokerage activity experienced in North America, Australia, and Eastern Europe in particular anchoring the strong internal growth. This activity included several sizeable transactions that accelerated the revenue increase beyond expectations.

Revenue from residential property management operations totaled $65.6 million compared to $54.9 million in the third quarter of last year, an increase of about 20 percent. Acquisitions contributed to half of the growth with the balance generated internally, both in core management and other ancillary service revenue.

In our Property Improvement Services segment, third quarter revenues totaled $27.8 million, up from $24.1 million, or 16 percent reported in the same period of last year, all of which was generated internally.

Continued strong system-wide sales growth of Paul Davis Restoration and California Closets, while several of our California Closets’ franchises contributed to the solid internal growth in the quarter.

Now, in the Integrated Security Services operations, third quarter revenues were up 14 percent, at $37.2 million compared to $32.6 million in the same period last year. About 9 percent of the growth was generated internally, including a 4 percent pickup on revenues generated by our Canadian operations due to the stronger Canadian dollar and the balance of the growth through the acquisitions completed after the third quarter of last year. On a sequential basis, revenues were up about 5 percent during the quarter over last quarter.

Business Services revenue increased in the third quarter by 11 percent to $41.3 million from $37 million last year. The higher Canadian dollar contributed approximately 4 percent of this growth, all of which was generated internally since no acquisitions have been completed in this segment during the past year.

Current earnings before interest, taxes, depreciation and amortization, consolidated EBITDA for the second quarter, over $24.4 million, nearly double the EBITDA of $9.9 million reported in the prior-year quarter. A consolidated EBITDA margin for the quarter was 11 percent, up significantly from the margin of 6.6 percent reported in the prior year.

EBITDA in Commercial Real Estate Services totaled $10.7 million for the quarter, which was mentioned previously, was generated from November 30th to the end of the third quarter.

This high level of profitability was generated during CMN’s historical peak period and was indicative of the robust market activity experienced in several markets in which CMN operates as calendar 2004 came to a close. CMN was able to leverage the contribution from this higher volume over its operating base to generate a stronger profitability and margins than expected.

Residential Property Management EBITDA for the quarter increased significantly to $4.1 million, or 6.2 percent of revenues, versus $2.2 million or 4 percent of revenues in the third quarter of last year. The increase in margins was attributable to higher levels of productivity and the favorable impact of recent acquisitions.

Property Improvement Services EBITDA totaled $2.9 million in the quarter, roughly the same amount that was generated in the third quarter of last year.

Regarding Integrated Security Services, this business generated EBITDA of $2.9 million in our third quarter compared to $2.6 million last year. Margins of 7.8 percent for the quarter were (indiscernible) last year and up slightly compared to our second quarter.

Finally, EBITDA in our Business Services division was $6.3 million, up significantly compared to the $3.9 million in EBITDA generated in the third quarter of last year. Margins were 15.2 percent versus 10.5 percent in the comparable quarter a year ago. The higher margin was attributable to higher capacity utilization in our Customer Contact Centers due to higher volumes, some of which are seasonal (indiscernible) , as well productivity gains in our business process outsourcing operation.

Due to the whole expected seasonal volumes and the absence this year of significant promotional-related projects, it was carried out by our operations last year, we expect that our fourth quarter results in Business Services will not be as strong as they were in the quarter just ended or as in the fourth quarter of last year.

Adjusted net earnings from continuing operations for the quarter overall were $8.3 million, a threefold increase compared to the $2.7 million reported in the third quarter of last year, resulting in adjusted diluted earnings per share from continuing operations, $0.27 per share compared to $0.09 per share in the prior-year period.

The adjustment relates to the amortization of short-lived intangible assets recognized upon CMN acquisition, and, specifically, the estimated third rally of the backlog of pending real estate brokerage transactions and listings that existed at the acquisition date. This amortization is recorded as the underlying brokerage transactions and listings are closed, and are heavily weighted to a short-term period; (indiscernible) the completion of the CMN transaction.

The after-tax impact of the amortization of approximately $3.2 million earnings are net earnings, and $0.10 per diluted share in the quarter. This amortization will impact our fourth quarter results as well and it will be material now. Our preliminary estimate is that they now will be in the same range reported in our third quarter and will be determined by the future pace of transaction closings relating to the backlog and those things that existed at the closing date of the CMN transaction.

To be clear, this amortization is short-term in nature. It has no cash impact on FirstService, and has no impact on the economics for future prospects of our investment format(ph).

Notwithstanding the draw down of our revolving credit facility, to fund our investments in that, our net debt stood at just under $175 million compared to $141 million at our last year-end. Our covenants with our bank and institutional lender community are well within the established guidelines.

Our leverage covenant, which is based on our net debt to EBITDA ratio, was just under 2.1 times at the end of the quarter and well below our target range of 2.5 to 3.0 times and the maximum permitted of 3.5 times.

During the quarter, we also unwound a $30 million floating interest rate swap for no cost, leading to a fixed rate of 6.4 percent on this amount of debt, termed for maturity in 2015. We plan to continue on introducing more fixed interest rate debt into our overall debt structure going forward, with a target of achieving a 50/50 splitter between fixed and floating rates over the next couple of quarters.

Looking forward to the balance of fiscal 2005, we have revised the outlook presented to you in our Third Quarter Conference Call that estimated revenue between $745 and $775 million, and EBITDA between $66 and $69 million. We now estimate revenues for fiscal 2005 to be between $775 and $800 million, EBITDA between $73 and $76 million, and adjusted diluted earnings per share of continuing operations reflecting our recent stock split of between $0.83 and $0.88 cents.

At this time, our preliminary outlook for fiscal 2006 calls for revenues between $1.05 and $1.1 billion, EBITDA between $90 and $95 million, and adjusted diluted earnings per share of between $0.97 and $1.05 per share.

We now included in our preliminary outlook assuming the averaging U.S. dollar to be the lower exchange rate of $0.82, an increase in floating interest rates of a (indiscernible) basis points, and limited acquisitions or investitures completed between today and March 31, 2006. We are currently in the midst of our annual budgeting process and expect to finalize our outlook in the coming months.

It should be noted that in our outlooks for the current and next year, we have adjusted diluted earnings per share to exclude the impact of the short-term amortization relating to the CMN acquisition and which was addressed earlier in my comments.

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

Thanks, John. As John mentioned, December was the first month in which CMN was part of FirstService, and so far, we are very pleased with their results. But more importantly, we continue to be impressed with the quality of their operations and the strength of their management team. These senior managers are entrepreneurial and the organization is performance driven, and there can be no doubts that their commercial brokers are among the leading players in their respective markets.

Best of all, as I said earlier, they all have a vested interest in the business. So increasing revenues and profits for CMN in the future will not only mean something to the shareholders of FirstService; it will mean something to them as well.

Speaking of the future, we believe this new platform will provide us with a number of opportunities to grow. CMN can grow internally by increasing its market share in its existing markets, and with operations in 20 countries, that’s a lot of potential internal growth. They can grow into new markets through the acquisition of other Colliers’ affiliates. With more than 28 affiliates in the U.S. and many more around the world, that translates into a number of potential stockowner(ph) opportunities. But they can also grow by adding complementary services, like commercial property management -- a business we know well -- and mortgage brokerage and asset management and a variety of other commercial real estate advisory services.

In terms of the business, it has many of the same characteristics as our other service lines. For example, it generates very strong cash flows. This is a business that requires limited in the way of capital reinvestment and is highly variable since brokers only earn commissions when they complete a transaction. The result is strong cash flows that can be used to reinvest in our growth wherever opportunities and returns are the highest.

And although brokerage revenue is not recurring in the same way its contractual revenue might be, it has a high percentage of what I would call “repeat revenue,” which is almost the same thing. In fact, approximately 65 percent of Colliers’ customers used their services year after year to sell or lease existing properties, providing them with a significant ongoing revenue stream. Regardless of the state of the real estate market, if brokers continue to maintain and build their relationships with their customers, they will continue to generate their share of the business.

The bottom line is we’re extremely pleased to be partners with the senior managers and key brokers of CMN and we’re confident that the real estate services industry will provide us with many additional opportunities to grow and develop our business in the future.

Property Improvement had another solid quarter with good results in franchise systems like California Closets, Paul Davis Restoration, as well as franchise systems Pillar to Post and College and CertaPro Painters. And the results from our Company-owned California Closets’ franchise operations, which are now approaching $40 million in annual revenues, also continues to exceed expectation.

We intend to continue to pursue our strategy of selectively repurchasing underperforming California Closets’ franchises and converting them into Company-owned operations where we see upside potential. The whole storage industry continues to be very strong, and we expect this strength to continue as we go forward. And as the industry leader with the most recognized brand in the business, we’re in a perfect position to capitalize. Our strategy is to continue to drive the growth and development of our key California Closets’ franchise system, to continue to purchase underperforming franchise units, and to look for other consolidation opportunities in this business, and there are many.

Third quarter results were also strong in our Commercial Integrated Security operations, with profits up 13 percent over the prior year. In Canada, Intercon Security continues to post excellent results on the back of small security system sales and excellent management of their security management -- sorry -- security manpower operations.

In the United States, our SST operations posted solid results as well, and the new sales pipeline is also strong, with our national sales group continuing to win significant new security installations for Fortune 100 clients across North America. We expect both Intercon and SST to finish the year well ahead of last year and to continue this momentum into next.

Residential Property Management had an excellent quarter, with profits up 85 percent over the prior year, and operating margins growing nicely as well. In Property Management, FirstService is the largest player in North America. We currently manage more than 3,000 properties, including more than 500,000 residential homes, which we do from 35 offices in 16 states, and we administer a total client budget of almost $2 billion annually.

Our strategy for this business has been the same since day one -- have units under management, both internally and through acquisition, and then leverage our management relationships to do more for our clients.

As I mentioned earlier, during the quarter we completed the acquisition of the leading residential property management company in Nevada. Although this acquisition only added about $6 million in annual fee revenue, it brings about 49,000 residential units with it and about $100 million in annual budget.

More importantly, it puts us in an excellent position to capitalize on the new high-rise development taking place in Las Vegas and surrounding markets. Several of our existing clients are in the process of developing high-rise properties in this market, and we have been helping them establish budgets and operating plans for these new communities.

Now that we have a significant presence in the market, we will be able to take on the full property management responsibilities once these communities are built out, giving us a tremendous backlog of future property management revenues to count on.

And speaking of the Southwest, Phoenix is another market that has experienced tremendous growth over the past few years. As you know, we have been the leader in the Phoenix market for many years and our strong management team has done an excellent job not only keeping up with the growth, but also expanding their services as we have done so well in other markets.

In addition to the strong growth of gated communities in this market, recently there has been a push for high-rise development here as well. As one of the only players in the Valley with experience managing high-rises, Ross Margrane (ph) has been very successful, winning more than their share of these new programs.

And our business remains strong in other parts of the country as well. As you can see from our strong internal growth again this quarter, we have been very successful winning new business from our competitors in virtually all markets, primarily because of our strong operating systems and value-added programs. We offer clients a variety of ancillary services like property transfers, financial services, (indiscernible) collection services, and a variety of others. Each of them add value to the clients and each of them create a competitive advantage for us, and this is a key part of our overall strategy.

Turning to Business Services, the revenues that resolved(ph) were up nicely over last year. The most encouraging part was that the EBITDA was up significantly and so was the margin. The margin increase reflects better productivity in our BPO segment and meaningful from that, capacity utilization improvements in our marketing support services.

We have more work to do, but so far the results are encouraging and we expect them to continue as we go forward. We continue to focus on new sales efforts and we have some very large opportunities in the hopper that we hope to bring forward over the next couple of quarters. But business is -- continues to be strong and gaining momentum, and we’re looking forward to a strong year in fiscal 2006.

Those were the highlights. And now, Operator, we’d be pleased to open it up for questions.

Thank you, sir. The question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS). We’ll go first to Matt Litfin with William Blair.

Congratulations on the quarter. Obviously, you’re not backing in any future acquisition activity into your guidance. But give us a sense of the amount of EBITDA you’re looking to acquire this year and whether the integration and digestion of Colliers could potentially distract you from that and if you’d favor acquisitions in that platform versus the others.

Well, our strategy has been to add about $10 million of EBITDA in acquisitions annually. And so we’re going to continue with that in fiscal 2006, so we’re hoping that we’ll be able to complete an additional $10 million on an annualized basis. In terms of the integration of those acquisitions, CMN is not slowing us down at all.

In fact, one of the great things about CMN is the quality of its business and the quality of the management team that operates this business. This is a group of operators who have been doing the same thing for many years. Acquisition has been part of what they have done for many years. We’ve spent a lot of time with them merging our ways use of doing acquisitions. They’ve gone about acquisition slightly differently than we have, but for the most part, they look for the same kinds of returns on invested capital that we have in the past. And so from that perspective, I don’t think they’re going to slow us down at all. In fact, they might help us better achieve the $10 million of new acquisitions each year.

Remember, for us, integrating the acquisitions in businesses that we are already in where we have the existing operating systems in place, are relatively easy because the -- our target (indiscernible) our computer system for the most part, will change their philosophy to a (indiscernible) service philosophy, although, many of them -- many of the ideal targets already have the same type of philosophy, performance driven, high delivery of service to customer, etc.

So, long story short, $10 million is our target for next year, annualized EBITDA through acquisition, and we think that CMN will help us achieve that goal.

Okay. Just a couple of questions on cash and then I’ll jump back in the queue. I know that throughout its history, Colliers’ cash from ops has been negative in the March quarter. Do you expect that again this year? And do you think that that effect will cause overall cash from operations for service to be negative in the March quarter here?

No, I don’t think so. We don’t -- I don’t think that that’s the case with CMN. I think it may be flat at worst, but it’s not going to be negative.

Okay. And just a related question on cash. I noticed you had over $40 million in cash at the end of the quarter. Have you put that money to work since quarter-end and do you still favor debt reduction as far as the use of cash?

We are absolutely using as much of that as we can to pay down debt. Some of that cash has gone out the door subsequent to January 1st to pay commissions that were due on -- from the sales that were generated -- that generated a cash paid (indiscernible). But for the time being, we’re going to apply that to a reduction on our revolver the best we can, and then obviously, look potentially to refinancing some of this debt on a long-term basis.

Great. Thank you very much.

Jon Devos with Raymond James has our next question.

Good morning, and congratulations on a really good quarter.

Thanks, Jon.

I just wanted to drill down a bit more on the CMN. You mentioned geographically where it was good. Is that mainly -- I know the bulk of the business right now is transaction related, but were there any particular business lines in different geographies that stood out?

No. It was a broad-based over-performance. Clearly, on the transaction side, that’s significant. That’s where most of the excess of our expectations ended up, and it was in a number of the markets they operate. And particularly North America and Australia had the bulk of it, and also some significant over-performance relative to the size of the business in Eastern Europe.

Great. Okay. And then looking at where you’ve gone with your guidance for EBITDA, previously you had around -- I guess it was $4.5 million EBITDA. Now you’re talking about a $7 million boost, I guess. The bulk of that is probably coming from better than expected CMN results. So that’s pretty healthy in terms of what we’re expecting for the rest of this year. Now going back to what you’re expecting when you made the CMN acquisition, I guess 3 months ago, 4 months ago, when you first announced it, you were saying $280 million revenue, $18 million EBITDA. What are you now baking into your new guidance for ’06? Is it-- Are those numbers now -- obviously, they have probably gone north, given the big boost you gave to this year’s EBITDA?

No, they haven’t, Jon.

No?

No, we are continuing to use a range of $18 to $19 million from the EBITDA and revenues around $300 million for our guidance. We think that that number is something we’re comfortable with. Remember, we have only owned this business for a couple of months. December was very, very strong. We would love that to happen again. But in terms of our outlook, we’re not at a level that we have to incorporate the results we just had in December. We’re on a level that we -- essentially, from an EBITDA, very close to what we bought the business at with a little bit of growth.

Right. The only thing I would reinforce and the only point I would add to that is what we are seeing is very solid results from the rest of our operations going into next year. But we’re cautiously optimistic that a few of them are really going to do much better than they did this year. Residential property management is one in particular that we’re quite excited about some of the things going on. And so we’re feeling right now that we’ve got lots of momentum. CMN is doing a great job. It is new, as John said, and we are trying to conservatively estimate where we’re going there, but I don’t want you to lose sight of the fact that the other 4 service lines are really doing nicely and should have good years next year based on the contracts that we see in place.

Right, okay. Thanks very much.

We’ll hear next from David Newman with National Bank Financial.

Good morning, gentlemen.

Good morning, Dave.

How are you doing?

Good.

Good. In terms of your revolver, what do you have left on it now? Around $40 million still would be a good number?

No, we’ve got presently about $30. We’ve got some LCs outstanding that evens out a little bit.

Okay. I was (indiscernible) if minority interest was a little bit higher this quarter? Was there something at work there that we should be aware of?

LC and managing(ph) now are about 30 percent of CMN is owned by our shareholder partners and their results were significant and as a result, our minority interest was a bit higher.

Okay. And on a blended average basis, what would you expect going forward I guess for the full year in ’06, about 21 percent or thereabout?

(Indiscernible) high.

And in CMN, in the $18 to $19 million EBITDA that you’re guiding to for next year, what would be the approximate fees will split? Now that you’ve got a month and a half under your belt, what will you expect in terms of contribution by quarter?

David, I don’t really want to get into -- do not want to get into quarterly guidance. We’ve never put out quarterly guidance. If you want to talk about it later, we can talk about it in very general terms, but I really want to just stay away from quarterly.

Okay. Overall, obviously, you’re becoming a sizeable organization. You’ve got a billion in revenues now. Do you feel you have enough to pass (indiscernible) at the management level to be able to handle the numerous lines that you do have or are you guys feeling a little stressed? Do you need to build some bench(ph) strength?

You know, I just want to reiterate that CMN is a -- we got a great package with CMN.

Yes.

And so adding that management team to FirstService has really augmented us from an operational standpoint. I would say that if there’s any areas that we are stretched, it’s not operational. It’s the additional regulation that we are now complying with, the SOX, and a variety of additional legislation and regulation that all public companies have to deal with.

Yes.

And as a result, we’re currently in the process of augmenting our management team in that area, and we’re cautiously optimistic that we’re really going to really make a great hire shortly in the whole regulatory internal audit side of our business. That is an area that we’re spending a lot of time and effort this year. And so, I would say that if you ask about where are we light in terms of management, it was there, and we’re filling that gap and quite excited about what that could mean for us.

I guess your decentralized model is really the power, the FirstService models that you can empower your employees to actually do the bulk of your sort of centralized work?

Yes, and they are partners in the business and significant partners in the business. So driving growth, profitability, EBITDA, paying down debt all mean a lot to every one of these partners across the board by service line. So it is a great business model. It has worked for us for many years. And having great operators that are leaders in their business, partners in the -- partners with us in the business is, as far as we’re concerned, the only way to go.

Okay. A last question for you, guys. You look across the U.S., one market that you’re active in today in residential property management would be California, obviously, a big opportunity. Is there something you’re looking at or something you would be keen on in the States?

We’re always looking in residential property management. This year we added two platforms and we hope to be able to add at least the same number next year again in sort of fiscal ’06 beginning in April. We’re not going to stretch. We’re not going to buy the wrong thing because we need to be in California. It is a huge market. There are huge opportunities. We know most of the major players there, and we have great relationships with most of them. We would love to bring them on stream, but it has to be right and we have to see upside in return for our investment. So, yes, we would love to be there and we hope to add a platform or two this year. If California is part of it, wonderful; if not, wonderful too, as long as we get a great return on our investment.

I guess in the market that you just entered recently, when you condense those markets anyway in terms of pool cleaning and lawn care. I mean, these are services that you’ve not really gone into those markets with yet?

Right.

Okay. Very good. Thanks, guys. Great quarter.

Bill McKenzie(ph) with GD Securities(ph) has our next question.

Hi, guys. Just on the CMN integration, John, where are things at in terms of systems integration? Are they on your systems? Is there anything you need to do to bring them on? I guess from a people perspective, it’s fairly seamless integration, but I just wondered from a systems’ perspective where everything stands.

Well, they have a standalone system, which they have recently made a pretty major investment in terms of upgrading. So, we’re very satisfied with the enterprise system that they have presently. We have a consolidation system here at FirstService, and they will plug right into that. So in terms of changes, there are not really any changes that need to happen there. We will be working with them to adjust the types of reports they generate that they, in turn, will provide to us. But other than that, there’s nothing to be done there.

On the people side,hey, we’re going to, on an ongoing basis, evaluate strengths and weaknesses and we will collectively,with our management partners, determine that they need to bolster certain areas, then we’ll do that and we’re kind of in that process right now.

Okay, great. And then just in terms of the balance of the backlog intangibles, can you tell me what the balance was at the end of the quarter from a balance sheet perspective and how long it will take to amortize the rest of it off? Will it all be done by the end of March or will there be a little bit of flow-through into next year?

Well, a little bit is going to flow through into next year, not much. The bulk of it will be done by the end of March and there will be around about $10 million that will have to get burned off (indiscernible).

As of-- $10 million as of the end of December?

Yes.

And then just in terms of the Property Improvement business -- just sort of -- that’s the only area that was a little bit below my expectations, at least with the margins there. And I was just wondering if sequentially, year-over-year what contributed to the margin decline in that particular segment?

Well, first of all, we’re looking at a quarter-by-quarter basis. The Property Improvement areas had a banner year, and I don’t have the year-to-date numbers in front of me. John does. But I can tell you that their margins were flat for this quarter. So what -- if you look at the year -- I’m just looking at it there now. Margins, I think, this year are up on a year-to-date basis, are up 20 -- almost a full basis point on a year-to-date basis over the prior year. And that’s including several additional Company-owned operation -- franchise operation acquisitions, which, as you know, Bill, hold down our margins as a Company. So we make higher margins in our franchise royalty business than we do in our Company-owned operations and yet, this division year-to-date has increased its margin by a point, which I think is great. Year-to-date basis are around almost 22 percent margin.

Okay. But in the quarter, there was nothing sort of unusual, maybe just a bit of mix changes quarter-to-quarter, nothing particularly that would explain the year-over-year quarterly decline?

No, no. Do you know of anything?

No, nothing unusual really.

And then just one last thing on the balance sheet and the leverage, which, even after completing the largest acquisition, and through you’re the Company, your balance sheet on a debt to EBITDA basis, as you pointed out John, you’re in pretty good shape and you guys will be generating cash flows. I’m just wondering what is the-- You still -- is 2.5 times still sort of the objective or the longer-term goal her,e and how do you sort of get the leverage back up to that type of a number? Is it going to be just primarily by (indiscernible) capital and buying more companies or are there any other ways of getting that EBITDA into the mid to higher 2 level?

Well, I think that our primary use of capital has been, and will continue to be, acquisitions, primary and secondary acquisitions, and then the odd one that may be a little bit bigger, and that’s our plan. You know, 2.5 times is still a number that I think feels great to us. And we likely -- once you move toward the year end, I think once you’ve taken into account that there was some cash in the balance sheet there at the end of the quarter, which will get spent by reducing some of the accrued liabilities in respect to commissions, a 2.3 times number is quite likely, and that’s not terribly off to 2.5. And, again, if there is any acquisition spend, it will probably be in that 2.5 times range. So I don’t think we’re quite as far away from that as you might think, based on where we were at the end of this quarter.

Okay. That’s helpful. Thanks a lot, guys.

We’ll move next to Sheila Broughton with Pacific International Securities.

Hi, John, a great quarter. I just wanted to clarify, on Business Services, I think at the end of last quarter, you were just around 70 percent cash utilization. I was just wondering if you can indicate where you are now and looking ahead.

Well, (indiscernible) cash utilization this last quarter when you look overall including our Customer Contact Centers, we’re probably more than 75 percent for sure. But I guess what you have to realize is that within our performance center, where we have our -- it’s our largest capacity utilization issued, we’re still operating about 70 percent. So really, the Customer Contact Center utilization, which is very high, which is well (indiscernible) 90 percent the quarter, which drove up the overall (indiscernible) utilization and that resulted in the increased margins.

Okay, because it certainly helped. Is there any space that you will be able to possibly get rid of in the near to medium term or is that not something you’re looking at right now?

Yes, it is something we’re looking at, and and now early next year, I think we’re going to be in the position to reduce certainly some capacity in the fulfillment area, and that’s going to have a nice impact in our bottom line.

Oh, definitely. And I guess just clarifying, if you have I think about $30 million available on your lines right now, and if you’re looking to acquire about $10 million of EBITDA, and you do that at your typical multiple, do you actually have enough room or just relying on cash flow from your existing businesses?

We have more than enough capacity. Our cash flow from our existing businesses, we do have the end run facilities. We also -- the way we buy businesses, in our average 4, 4.5 times multiple with 60 percent cash down, (indiscernible)less than 100 percent. We have a lot of capacity to continue the program; no problem at all.

Okay. That’s it for my questions. Thanks.

(OPERATOR INSTRUCTIONS). We’ll go next to Bill Chisholm with Dundee Securities.

Good morning. I guess most the questions have been asked now. The one thing I would question you on, Jay, you did point out that the sleeper as far as next year is concerned might be the Residential Property Management Group, which seems to have some momentum going right now. Is this opportunity that you see going forward mainly in the core business of the East Coast or is it more in the new platforms you moved into the last 18 months; i.e., Chicago, Phoenix, and Las Vegas?

We’re seeing great internal growth in all of our markets, Bill. I mean, the Northeast, Washington up through to New York; New Yorkers have a banner year. There are some issues going on in the marketplace and in property management in New York. There are some competitors losing lots of ground. We’ve been picking up some ground. The contract sizes are large. They are long-term contracts, so they take a little bit of time. But we’re seeing lots of net new business coming on stream, and we’re quite excited about it.

The West Coast is growing nicely internally and has seen a lot of new construction growth, and as I mentioned in my comments, high-rise development, residential development. For the first time in Las Vegas, there was one significant high-rise residential property, only 1 over the last 2 or 3 years that it has been open and operating. Over the next 3, 4 5 years, there is going to be many, many more coming on stream. And the same thing is happening in the Phoenix market. So the high-rise -- the reason that we’re excited about the high-rise side of the business is the contract sizes tend to be larger; the number of on-site responsibilities is more significant; and so, therefore, the potential for future business coming down the line in dollar terms is larger.

But this is an industry that we’re very fortunate to be in. We’re very fortunate to be the leader. It’s really growing internally beautifully. And, as you know, Bill, having influence over how clients will spend their money and being able to introduce high-quality service providers to our clients gives us an added advantage to decide how to cross-sell services and increase the overall percentage of budget that we manage. So, it’s an exciting area right now for us.

I think there’s one more question I’d bring up on that. The question of the depth of management in the overall firm was brought up earlier. In Residential Property Management, this is now a business that’s almost national in scope geographically and has got much -- far more complex than what it was 5 years ago. Have you been able to acquire enough depth of management in that group itself to keep this going ahead without any further additions?

The interesting thing about Residential Property management is we run that operation in the same way as we do FirstService. So in the 4 different geographic regions in which we operate, each of the senior management teams own a significant stake in the business; they’re all leaders in their geographic regions; and they all look forward to Gene Gomper(ph), Bushard Speiling(ph) and Chuck Sawns(ph), who themselves are very successful business leaders that know how to run our multi-branch operations.

So, I would say that in terms of structure, we’re in great shape. And, frankly, one of the reasons that there’s another question about acquisitions and platforms in California, the key way that we’ve found to grow is to grow by partnering with great management teams. It is one thing to acquire a business; it’s another thing to partner with a great group of people that aren’t interested in exiting; they’re interested in doubling or tripling the size of their opportunity in the different geographic regions.

So that’s been our philosophy in that business and, as you know, Bill, in many of our other service lines, we’re looking to partner with great operators in different geographic regions and trying to leverage the best practices and the opportunities that we have across the board. So, again, in a longwinded way, I think we’ve got a very solid infrastructure in place and a very sound management team. We’re always looking at our own weaknesses; do we need to augment? And we’ll do that as time goes on, but right now we feel like we’re in good shape.

Okay. Very good. That’s it.

(OPERATOR INSTRUCTIONS). It appears we have no further questions at this time. Mr. Hennick, I’ll turn the conference back to you for any additional and closing remarks.

Thank you everyone for joining us and we look forward to the next conference call and a strong finish to the year and a good start to next. Thanks for joining us.

That does conclude today’s conference call. Thank you for your participation, and have a great day.