Colliers International Group Inc (CIGI) 2007 Q4 法說會逐字稿

Welcome to the FirstService Corporation fourth quarter 2007 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 differ materially from those contained in these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those forward-looking statements is contained in the company's annual report on Form 10K and 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 conference over to Founder and Chief Executive Officer, Mr. Jay Hennick. Please go ahead.

Thank you, and good morning, everyone. As the operator said, I'm Jay Hennick, the Chief Executive Officer of the company. With me today is Scott Patterson, our President and Chief Operating Officer, and John Friedrichsen, Senior Vice President and Chief Financial Officer. This morning, FirstService reported record fourth quarter and year-end financial results. For the year we set new records in financial performance, as we exceeded $1.3 billion in revenues and completed our 14th consecutive year of year-over-year growth.

Over the past five years, we have grown our revenues, earnings and earnings per year to a compound annual rate of about 30%, an enviable track record, to say the least. And our shareholders have also done well. $1,000 invested in FirstService in 1995, when we first listed our shares on the NASDAQ would be worth about $19,000 today. That's a 28% compound annual return over a 12-year period. For our shareholders, their confidence in this management team and in the way we operate has paid off handsomely, and we have always appreciated your support and encouragement. FirstService hit another milestone and it happened just this morning. For the first time in our history, we exceeded $1 billion in market capitalization. This is an important milestone for our shareholders, for our management team, and probably most importantly for our employees around the world. It's not every day that a company grows from a start-up to one that has more than $1 billion in market value, and I would like to take this opportunity to share the moment with all of our stakeholders and to thank them for participating in this tremendous growth story called FirstService Corporation. Now, let's get back to business.

Turning back to our operating results for the year, our revenues were up 27%, while earnings per share were up 37%. Both the quarter and the year were highlighted by outstanding performances in all of our service platforms. As an organization, we have been able to continue to deliver strong and consistent operating results, because we remain focused on the fundamentals and because we look to leverage our scale and our competitive advantages and to drive our internal growth year after year. Scott will provide more color on our operating results in just a few minutes. With the divestiture of Resolve Corporation last year and strong performances of each of our service platforms, FirstService has more than $200 million available and excellent momentum to continue to grow and develop our business well into the future.

Just after year end, we substantially increased the size and breadth of our market-leading residential property management business with the acquisition of an 80% interest in The Merit Companies. Merit is California's largest provider of residential property management and consulting services. This addition to our business was a key strategic move and one that we waited a long time to complete. Based in Orange County, California, Merit manages more than 240 communities, representing over 130,000 homes through a network of 8 offices throughout the state. We have known the Founder and CEO, Melinda Masson for many years, and we've always been impressed with Merit's integrated approach to this business. By providing consulting services, the owners and developers of large master planned communities for many years in advance of the construction of these communities, Merit is in an excellent position to not only shape the way they are going to be built ultimately, but also and perhaps most importantly, secure the management contract once the communities are operational. Merit has mastered the property consulting business and we believe that this is another service offering that we will be able to leverage to our other owners and developers of similar properties in other parts of the country.

The acquisition of Merit takes the total number of properties we manage to more than 3,500. We now oversee the day-to-day operations of more than 750,000 homes and the living environments of more than 2.5 million Americans. As importantly, we oversee and administer operating budgets for these communities of more than $4 billion a year. These expenditures provide us with another important advantage, the opportunity to offer incremental services to our clients and to better differentiate our services from those of our competitors. Both provide excellent opportunities for us to continue to accelerate our growth in this important business segment for FirstService.

Building on the strong results from fiscal 2007 and the favorable operating environments in which we continue to operate, we are confident that FirstService will deliver another strong year of performance in fiscal 2008. Based on the current financial outlook, we expect earnings per share this year to come in at between $1.48 and $1.60, which would be up between 8% and 17% over fiscal 2007, and of course not counting any incremental acquisitions. The other key change that you should note is the change in the way we report EBITDA going forward. In an effort to provide more meaningful information to our shareholders about the cash-generating capacity of FirstService and to allow the market to more appropriately value our business, we will now report EBITDA prior to any noncash expense relating to stock-based compensation programs. As most of you know, management ownership and our partnership philosophy has always been a key component of our business model. As a company, we strive to provide our management teams with the long-term equity plans and incentives they need that align their interests with those of our shareholders. By expensing these long-term stock-based compensation plans against current currencies actually distorts the cash flow generating potential of our operations at FirstService and understates our true operating EBITDA. For those of you, however that, are interested in these expenses, we have also increased the disclosure of this issue much more fully by segmenting them in our consolidated results.

As I mentioned, we enter our new year with an enviable track record of growth, 14 consecutive years of growth and in fact, 12 of those 14 years, we grew our revenues, earnings and earnings per share by more than 20% over the prior year, including the last 5 years. As we move forward, our goal is to be a $3.5 billion company within 5 years and to have a stock price that's more than double where it is today. To accomplish this, we're going to have to continue to do all the right things and to be disciplined in our execution. We're going to have to grow internally by about 8% per year on average. We're going to have to balance that internal growth with a steady stream of acquisitions, and of course we're going to have to continue to make important decisions about our strategic focus, about the way we manage our business, and, as the stakes get larger, to continue to focus on doing the right thing. Our goal of doubling our size and doubling our share value is very ambitious, but I'm confident we have the right business model, operate in the right service areas, and have the right people in place to be successful. Now, let me ask John to take you through the financial details for the quarter. Scott will then provide his operational report, and then we will open things up to questions. John?

Thank you, Jay. FirstService delivered strong operating results once again in our fiscal year ended March 31, 2007, as we did in our fiscal 2006 year. We finished the year on a strong note. And my comments will address both our fourth quarter and annual results on a consolidated basis, as well as our capital allocation activities, balance sheet and outlook for fiscal 2008. Our comments in our operating -- reporting operating results for the quarter and for the year will center on continuing operations and exclude those that are discontinued operations, and which primarily relate to those of our former business services operation, which were sold just prior to the end of our fiscal 2006 fourth quarter last year.

For the fourth quarter consolidated revenues grew to $320.7 million, an increase of 29% from $247.9 million in the same period last year. Internal growth was approximately 13% for the quarter and the balance contributed to by acquisitions. EBITDA in the fourth quarter totaled $18.4 million, up 82% from the $10.1 million reported in the prior year quarter, with all four of our operating platforms contributing to the growth. Adjusted net earnings increased to $6.1 million compared to $1.9 million in the fourth quarter last year, resulting in adjusted diluted earnings per share of $0.18 versus $0.06 last year. For the full fiscal 2007 year, our revenues grew 27% to $1.36 billion compared to $1.068 billion in the prior year.

Internal growth for the year was 13% with acquisitions contributing to the balance. Meanwhile, EBITDA increased to $114.6 million, up from $88.8 million, or 29%, strong performance in all of our service lines. Adjusted net earnings for the full year increased to $43.8 million from $32.3 million last year, up 36%, while our adjusted diluted earnings per share totaled $1.37 compared to $1.01 last year, also up 36%. It should be noted that due to effective tax planning and structuring completed in our fourth quarter, we were able to lower our tax rate to just over 29% for the full year, slightly lower than the 30% rate last year, (inaudible) lower rate for the tax rate we had expected for fiscal 2007. Consistent with our reporting of prior periods, we referred to adjusted net income and diluted earnings per share for the fourth quarter and the year to exclude the accelerated noncash amortization of the brokerage backlog intangible asset related to acquisitions in our commercial real estate operations. Brokerage backlog amortization expense for the year was$8.2 million, or about $0.15 per share compared to $7.6 million, or $0.14 per share last year.

For our fiscal 2007 year, we have also excluded a noncash impairment loss on the mark to market adjustment of our remaining investment in our business services operation. You will -- you will recall when we sold this operation just prior to our year end March 31, 2006, receiving net cash proceeds of about $110 million and a 7% retained interest in publicly traded units of Resolve. The write-down of $3.1 million, or about 15% of book value and which represents net of tax about $0.08 per share, is a requirement under U.S. GAAP and notwithstanding in the gain that the original sale was recorded as discontinued operations, this noncash charge is not eligible for the same treatment. We reinvested substantially all of our cash proceeds received on the Resolve divestiture last year with 14 calendar acquisitions completed since the end of last year, including the acquisition of The Merit Companies, as Jay already outlined, our new residential property management operation in California. The aggregate annual EBITDA required as part of these acquisitions is about $27 million. Meanwhile, capital expenditures increased to $26.7 million from $18.8 million last year, as we stepped up our investment of fixed assets to support our growth and improved efficiencies across our operations. Despite the increase in CapEx, our investment remained well below our target of 2% of annualized run rate revenues, and totaled just over 20% of annualized run rate EBITDA. We expect to remain within these parameters again in fiscal 2008.

We were also repurchasers of our stock again during fiscal 2007, acquiring just under 700,000 shares, representing just over 2% of our outstanding shares prior to the repurchase, and at an average cost of $23.78 U.S. per share. Further, 121,000 shares were purchased just prior to our year end with the settlement of these purchases occurring at the beginning of our current fiscal year. We will continue to look at repurchasing our shares selectively when we believe circumstances warrant. Turning to our balance sheet, our net debt position stood at about $136 million at year end compared to $81 million at the end of fiscal 2006, reflecting our investment activity that I outlined previously. On a leverage ratio expressed in net debt EBITDA adjusted for the full year impact of acquisitions was just under 0.9 times, the same as at the end of last year and well below our historical operating range of 2.5 to 3 times. With our strong cash flow, significant financial capacity, which includes cash and our (inaudible) revolving credit line totaling $200 million, and our low loan leverage, our balance sheet and financial position is in great shape, with ample capacity to support our initiatives to generate more value per share going forward.

Turning to our outlook for fiscal 2008, as Jay already outlined we have changed our definition of earnings before interest taxes, depreciation and amortization to exclude the costs of stock-based compensation as we believe EBITDA before the expense related to long-term compensation plans is more indicative of current operational performance. We estimate this expense to be about $5 million in 2000 -- fiscal 2008 and of adjusted EBITDA included in our preliminary outlook provided in January upwards to factor this in as outlined in our press release this morning. Of note, this expense amount totaled approximately $6.8 million in fiscal 2007. Reflecting the completion of our internal budgeting process and the completion of the Merit Companies acquisition last month and our updated definition of EBITDA our outlook has increased as follows: we expect revenues to be in the range of $1.525 billion to $1.625 billion, EBITDA in a range of $137 million to $147 million, and adjusted earnings per share of $1.48 to $1.60. This update outlook -- this update to our outlook is based on current economic conditions in our markets remaining unchanged for the balance our fiscal year and no changes in generally accepted accounting principles that would materially impact our results. It's also important to note that the amounts included in our outlook don't include the impact of any acquisitions or divestitures that may be completed after today, and prior to the end of our fiscal 2008. I would also like to remind you that the above outlook is forward-looking and that actual results may differ materially and that FirstService undertakes no obligation to update this information. Now, over to Scott for the operational highlights. Scott?

Thank you, John. My comments are focused on our segmented operating performance for the fourth quarter, which as you have just heard is quite strong. For the quarter we generated total revenue growth of 29% and organic growth of 13%. These percentages approximate our revenue growth for the full year, 27% in total and 13% organic. From the beginning, we have followed strategic disciplined approach to our development, carefully balancing internal growth with growth from acquisitions. Our fourth quarter results in total fiscal 2007 results reflect this discipline with total growth driven approximately equally by internal momentum and strategic acquisitions. In the fourth quarter, all of our platforms achieved double-digit internal growth and contributed approximately equally for our consolidated internal growth number of 13%. The fourth quarter also represented the ninth consecutive quarter with double-digit or organic growth. Our commercial real estate platform generated revenues that were up an impressive 46% versus a year ago. 67% of this growth was due to the acquisition of Cohen Financial, PRD Nationwide, TGP Valuation, PKF Hospitality Consulting and most recently, at the beginning of the quarter, MHP Project Management.

The balance of the growth approximately 15% is driven internally by strong results in Australia and New Zealand, Asia and central Europe. These are regions where we have a market leadership position and a broad service offering and we have to take full advantage of the buoyant markets that these regions are currently enjoying. In North America, same-store revenues were approximately flat versus a year ago. A similar trend for our third quarter. The fourth quarter margin was 7.3%, 150 basis points higher than the prior year due primarily to the change in mix resulting from the nonbrokerage acquisitions acquired over the last 12 months that I referenced earlier. Looking forward, we expect continued positive trends from our international operations, balancing modest growth expectations from our North American business. The North American transaction pipeline at March 31 was approximately the same as a year ago.

Moving on to residential property management where revenues grew 23% over the prior year quarter, 12% organically, with the balance of the acquisition of Service America, plus four small tuck-under acquisitions. Our acquisition of the Merit Companies closed in mid April and did not impact our fourth quarter ending March 31. Internal growth in the quarter was driven primarily from new management contracts, which were up by 14%, offset in part by slight declines in total service revenue. Our property management revenue is growing in every market, but continues to be strongest in Florida, the northeast and Las Vegas. Importantly, we continue to achieve success in driving wins of existing buildings and communities, relative to new development. And in fact, in the fourth quarter, we were reversed trends from earlier in the year, with 67% of our unit growth coming from existing associations. Total service revenues were down slightly in the quarter from a particularly strong year ago quarter, which was driven by Hurricane Wilma clean up. Hurricane Wilma hit in the fall of '05 and generated a spike in our south Florida service revenues in the fourth quarter of last year. The EBITDA margin for the quarter was up 8%, up 100 basis points over the prior year, due primarily to operating leverage. The margin for the full year in this division was 9.5%, up from 9.1%. Looking forward, we expect to consistently generate internal growth in the low double digits by continuing to leverage our significant competitive advantage in this business.

Property improvement. Our revenues in our property improvement division grew 15% in the quarter, 67% organically and 33% in the year-over-year impact of the acquisitions of Handyman Connection and the Fresno and Sacramento franchises. The internal growth for the quarter of 10% matched that achieve for the full year in this division. The organic revenue growth was driven by strong system-wide sales gains in Paul Davis Restoration and CertaPro Painters, which drove royalty revenue, offset in part by declines in the revenue we realized from California Closets. System-wide sales and royalty revenue were up slightly at California Closets, but this was more than offset by a 20% decline in the sale of melamine board to our franchisees. As I mentioned in our last call, we are continuing to deemphasize the supply of melamine board to our franchisees. It is a low margin commodity product which they are increasingly buying direct and cutting themselves.

System wide sales of our smaller franchise systems, including Floor Coverings International, Handyman Connection, Pillar to Post, and College Pro were on a net basis approximately flat year-over-year. Revenue from our franchise systems grew organically at a mid single digit rate for the quarter. The division generated EBITDA of $2 million, or 6.5% for the seasonally slow fourth quarter, up from $400,000, or 1.4% due primarily to operating leverage at California Closets and Paul Davis Restoration, and also due to the change in mix and the sale of low margin melamine board continues to decline. For the year, the margin increased 110 basis points and 19.2 -- from 19.2% to 23.3%. Looking forward, we expect our growth in this division to moderate to the mid single-digit range, tempered by a cooling home renovation market and lower consumer confidence.

Moving on to integrated security, we continue to enjoy positive year-over-year trends in the fourth quarter, with internal growth of 11% in this division. Internal growth of the full year was approximately 18%. Growth in the quarter was driven equally by our Canadian and U.S. operations, as we continued to gain traction on both sides of the border, with a strategy focused on selling complex systems solutions within a few very large market verticals, where we have particular expertise and growing experience. We have adapted to better position ourselves to serve these markets and we are increasingly seeing results of this -- this investment. At year end our sales pipeline was approximately 15% higher than a year ago. EBITDA margin for the quarter was 4.8%, up from an unusually low margin the prior year of 2.4%. The margin for the full year was up 90 basis points to 6%. Looking forward, we expect continued positive trends from our security division, as we drive our strategic initiatives aimed at specialization and differentiating ourselves in certain markets. Operator, that completes our prepared comments. I would now like to pass the call back to you to accept questions.

Thank you. The question and answer session will be conducted electronically today. (OPERATOR INSTRUCTIONS) Our first question will come from David Newman with the National Bank Financial.

Good morning, gentlemen.

Hi, Dave.

Good morning.

I've heard it many, many times, but fabulous quarter and year once again. And your residential property management, how much revenue today is derived from your core management services versus your ancillary and other, and what sort of -- do you anticipate any sort of softening in the ancillary or other if the economy consumer housing soften up a bit?

Our revenues are split 50/50 between management and services rate now. Our management side of our business is growing more quickly. Where our services side is slowing a bit is around the landscape installation and startup work associated with new development. That part of the business is down in the last couple of quarters and we expect it to remain down.

So sounds like you guys are gaining continued traction in winning share in your key markets. If we do see obviously condos starting to ease up, do you think that will sustain it to a certain degree and what is it that -- why are you gaining so much traction in winning shares? Is it just your proposition is so much better?

The -- this market's going to continue to grow. It has historically grown in the 7% range and we expect long term that that's a good number. Clearly, new development has been higher than that the last couple of years. We -- we are riding the market growth, but we're enhancing that very clearly with market share gains and it is because we have leveraged our scale. We are the largest player in this market and we've leveraged our scale to invest in technology, which is unique and also to aggregate certain buying programs that have resulted in cost savings for our clients and we are -- we have a clear competitive advantage in this business and we're seeing the results of that. And as I said in my prepared comments, in the past quarter, 67% of our unit growth in the quarter came from established communities and buildings.

Excellent. Last one if I may, guys. Just on the commercial real estate, your shift towards value-added services, your ex-U.S. growth and your realigned agent compensation grid, do you think that will -- you've obviously done some sensitivity analysis. Do you think that will skate you through any commercial weaknesses -- weakness that might result in the same investment sales side should it arise, especially in North America?

David, I have to ask you to repeat the first part of that question.

I mean you've shifted your mix a certain degree towards more value-added services versus just investment sales and leasing. Your ex-U.S., you're seeing growth obviously in Australia and Europe, and you've realigned our agent compensation grid to tilt it towards the higher performers. Do you think that would be sufficient? And, obviously, I'm sure you have back tested and looked at the sensitivity of that. Would that skate you through any commercial weakness that you might see in the U.S.?

Will it be sufficient? I mean we are looking to broaden our service offering in all of our markets and to provide more recurring and predictable revenue, to better position us for downturns in any markets, and, similarly, the changes to the growth or comp model are -- we're trying to get to the same result. To provide us with more variability, to better withstand the downturn.

Excellent. Thanks, guys. And great quarter, and, obviously, it's finally being reflected in the share price.

Thanks.

Our next question will come from Sara O'Brien with RBC Capital Markets.

Hi, guys. Couple questions. First, property improvement, you mentioned that the margin expansion is somewhat related to product mix, selling less boards. How much of an impact would a decline in California Closets have going forward on your margin? Do you expect any margin improvement, or should we see a little bit of weakness coming on that front?

The -- the operating leverage that we're experiencing at California Closets from the increase in system-wide sales growth, which are lower, but still growing, are causing our margin to go up, and the change in mix is doing the same. We would expect to see our margins continue to decline in this business, but not dramatically. Does that answer your question?

Yes, I guess I'm a little confused. California Closets, overall, I thought the sales were down?

Sales were down in California Closets, because the sales of product are down.

Okay.

Our system-wide sales numbers, which are the sales of our franchisees aggregated were up for the quarter and up for the year, and our royalty revenue, the revenue we receive from our franchisees was also up.

Okay, so you're not seeing any pullback at all from the consumer spending in that channel. Do you see any going into the next quarter or the next year?

We -- it's slowing.

Okay.

The growth is slowing, and we expect this division in total to be a mid single-digit grower next year. California Closets will be -- we expect to be flat to up a bit.

Okay, great. And wondered if you can clarify on the tax recovery issue. What's a normalized tax rate to use for this quarter? What portion could we -- and maybe if we could peel out the minority interest impact as well, just what percent of -- all lumped into one?

Well, I think we had a straight line, 32% to 33% would be an expected tax rate. That's really embedded in our outlook, and, again, minority interest is somewhat less predictable. It depends on a lot of things, including where the earnings are being generated. Again, I would look at it on an overall year basis. I think right now we're running approximately 30%. If we were to look at next year mix of earnings from a different business as being relevantly comparable to this year, so I think those are good numbers to use. I think also this current quarter we had the noncash charge from the mark to market on Resolve, which reduces our earnings. That's that FirstService level. There's no minority impact there, so the minority interest earnings work better on a relevant basis, larger than they usually would.

Okay. So just to be clear, I can peel out -- I can apply a generalized tax rate of 32% to 33% and apply my minority interest on that?

Yes, you can do that.

Okay, great. And then maybe a follow on, on commercial real estate. Pipeline versus last year, looking a little sort of the same, so no growth in terms of North America. Can you just remind us what the split is, North America versus Asia and other markets?

North America is 65%. Canada, 25%. The balance, U.S.

Okay. Great. And just in terms of the pipeline being the same, that's this terms of brokerage. And what about a brokerage versus ancillary service mix right now with the recent acquisitions?

Brokerage on the run rate basis were about 65% of brokerage.

Okay. Perfect. Thank you very much.

Our next question will come from Frederic Bastien with Raymond James.

Good morning, guys.

Good morning. How are you?

Good, thanks. You increased the top end of your EPS guidance by $0.10. I'm just curious to know what's changed since you last reported. Is this -- is there a particular division that you now feel more bullish about, or is this a function of the lower than expected tax rate going forward?

The increase in the outlook is primarily driven on the Merit transaction, and then there's a small amount there that would be just a general increase based on our view of the businesses and their prospects for this year, having gone through our budget cycle and completed that now.

Okay. So in terms of organic growth for each of the four divisions, you're pretty much same kind of guidance that you provided last time?

Yes.

Okay. And then I was reading, according to "Big Builder" magazine, the Carolinas were home to 6 of the country's top 50 housing markets, and it looks like these markets have recently been cited by the public builders as areas of strength and likely targets for future community town growth. Are you guys seeing this similar kind of trend there?

In the Carolinas?

Yes.

I mean certainly there's activity in the Carolinas. We have some large active adult communities in the Carolinas. We don't have a specific branch in that area, and we frankly don't in the near term have anything targeted in that area.

Okay. So you'll mainly focus on the California market for now?

California and Texas are two very large markets that are more mature in terms of having established companies and established community associations, and those would be our two highest priorities.

How big of a presence would have you in Texas?

We have a very small presence in Texas.

Okay. Alright, thanks for the update and good quarter.

Thanks a lot. Thank you.

Our next question will come from Matt Litfin with William Blair & Company.

Hi, good morning. Are you expecting margin expansion in the commercial real estate segment in fiscal 2008? And, if you could, separate out any mix impact to the recent acquisitions in that segment versus core trends that you expect to effect profitability that business.

Well, Matt, it's John. As you know, we're not -- our outlook is not being provided on a specific segmented basis, so I don't want to get into specific margins on the different segments. But having said that, we would -- we expect a modest increase in our market in our commercial real estate business, principally, because of events of the acquisitions that have you cited, which tend to carry slightly higher margins than our overall operating margin in that business.

So there's nothing about -- there's nothing about a geographic mix shift or something that you've effected in terms of compensation structure or anything like that, that would give us a future benefit to margins above and beyond what you just reported for fiscal '07?

No, not specifically. I will say that in Asia, in particular, in the far east, that market continues to grow significantly, and we've made pretty significant investments there. Margins have lagged and we're now seeing the benefit, as those areas start to mature and grow. we're getting some good operating leverage from that original investment. So that would tend to benefit our margins going forward.

Okay. This is a separate question on the new guidance. The growth rate you projected for this coming fiscal year in earnings per share is a bit lower than the growth rate that you've projected for revenue. Is that an expectation for overall margin decline in the business, or is that solely having to do with the tax rate issue or maybe is there an interest effect?

It's primarily the tax rate. We came in with about 30% tax rate. We're projecting to have a slightly higher rate last -- next year, we'll be in about a 32% or 33% range, which I think we have a little bit of uncertainty in the Canadian tax area right now, and so we're projecting a slightly higher rate next year and that's the reason.

Okay, fine. Last question, if I could, and this has to do with operating cash flow. If I recall, it was flattish -- flattish this past year versus the prior year. What would be a good range of expectations to generally be thinking about if this new guidance that you've given were to materialize, if you were somewhere within the pretty wide range you provided on revenue and earnings, what would be a decent range to be thinking about in terms of cash from operations?

I don't-- I don't -- we have projected that out. I don't have that with me, but certainly I would expect the cash flow from operations would be growing in line with overall EBITDA growth.

Yes, I kind of thought you might say that. But in terms of the -- this past year being flattish versus fiscal '06, was there something in terms of working capital that will iron itself out here in the first month of the year, or should we really put kind of that mid-teens growth rate on top of a run rate established in the $50 million something I think it was for fiscal '07?

Let me get back to you on that. The only comment I'm going to make is that during the quarter in terms of working capital, there was a fairly significant component of our performance-driven compensation and commission-related payments get made in this quarter, and that was a pretty significant usage, which is somewhat -- somewhat seasonal, and we shouldn't see that going forward in the next couple of quarters.

And that's related to -- mostly to the commercial real estate division, I assume?

Commercial real estate and just year-end related compensation that gets paid out at the end of the year.

Okay. Yes, that was what I was looking for. Thank you very much.

You're welcome.

We'll now hear from David Gold with Sidoti.

Hi, good morning.

Good morning, Dave.

Just curious if you could speak a little bit more on -- with call it, I don't know, $170 million or so of cash and some borrowing availability these days, if you can talk just a little bit about the acquisition pipeline, what you're seeing, pricing, and what the current thinking is.

In terms of acquisitions, we're very busy, David. We had a great year this year and better than replacing the EBITDA that we sold when we spun out Resolve, and I think we could have, with a little bit of luck, we could have a similar this year -- similar year this year in terms of additive EBITDA over the course of the year. Pricing has gone up, but we have a bit of a differentiator out there in that the types of targets that we look for are acquisition prospects that want to be part of what we're about. It's typically a management team that has a certain profile. They see great opportunities in leveraging the channels that we have -- the sales channels that we have, Cohen Financial is a good one, but it's a good one to give you just a taste of it. PKF and others are in a similar boat, as is Merit. When have you 2,500 brokers operating around the world, a very well run mortgage origination business sees that origination channel as a tremendous advantage, and for Jack Cohen and his management team, who are not sellers of their business, they want to stay and build their business over the course of a long period of time, for them, that's a tremendous opportunity to accelerate their growth beyond what they would otherwise do.

And so what we try and do in our acquisition programs is to find those complimentary businesses that we can help accelerate their growth the day after closing, and we spend a lot of time on leveraging that channel, and Scott and the -- and his team and the business leaders in their respective service lines spend a lot of time talking about how do we leverage that channel. And so our pricing has been higher than we've done historically, but not out of line. Our return on invested capital has been consistent with prior years, and -- and as you would know, because you followed us for a while, we're focusing our efforts on businesses that require less capital to operate, so therefore our return on invested capital can be higher.

Okay. So, would it be safe, particularly from pricing perspective to assume that you're still targeting some of the smaller tuck-in type businesses?

I think -- I think it's -- I think you could you -- that is definitely bread and butter for us, but we're looking at bigger chunks of tuck-unders now, as we mature as an organization. So I think the average size of the deals are higher.

Okay. Fair. And then just one minor for you, John. In terms of G&A, as a percentage of revenue, it's the highest I guess we've seen in the last several quarters. Anything in there special to the quarter?

The compensation. Variable-based compensation that would be in that number. It's a little bit higher than I think originally planned versus last year. That would be all of it.

Got you, and presumably the variance could be pretty significant?

Yes, and then maybe we had mix from acquisitions that would be impacting that, I suppose.

Got you. Okay. Fair enough. Thank you both.

You're welcome.

Our next question will come from Bill MacKenzie with TD Newcrest.

Thanks. Good morning, guys.

Hi, Bill.

John, just first a couple housekeeping things. Do you have an update on what, I guess the contingent liability would be on the buyout of the interest if you were to full exercise the whole call options on all those businesses?

Yes, it would be approximately $150 million.

Okay. Great, thanks. And then, sorry, just going back to the tax rate issue, what's driving the tax rate to go back up again in '08 to that 32%, 33% range from 29%?

Well, the primary thing driving that will be -- there were a couple of things impacting it this year. We completed some tax planning, which benefited us for a good portion of this year. We trued up some tax balances as we normally do at the end of the year. And those adjustments book to (inaudible) adjustments resulted in a trueing up of the tax rate. But as we go forward and evaluate where we're going generate our earnings and the tax structures that are in place, like I said earlier, 32% to 33% would be a tax rate that we're using here going forward.

Okay, thanks. And then in terms of the rate -- the mark to market, I guess, of the Resolve investment, is that in any way sort of reflect what your intentions are in terms of how long you'll hold on to that investment, or is this just U.S. GAAP requirement regardless of your intention in terms of how long you're going to hold it for?

Yes, it's the latter. It's got nothing to do with our intentions. It's a statutory requirement under U.S. GAAP, given the time frame which we had held this investment in which the price has been below the issue price.

Okay, great. And then question either for Jay or Scott. Just in terms of commercial real estate, you guys have been very, very active in this part of your business the last couple of years and brought in a lot of different kind of noncore brokage business. And I'm just wondering when you look out into '08 and '09, if you could maybe just talk a little bit about what would be kind of the top two or three key strategic initiatives for that business, whether it's getting into asset management, or expanding the capital markets exposure, or whether it be different with geographic expansions or anything, but what would be -- when you guys sit around the board table and sort of talk about the outlook, what would be the top two or three strategic initiatives for the next year or two?

Well, in terms of commercial real estate, it's an interesting question, Bill, because our current focus is to fill out our global platform in our core services now. So I would say over the next two years I would be hoping to augment our platform in other geographic regions, and we want to spend a lot of time focused on the U.S., now more so than we have historically, because we have now for the most part filled out our round one of ancillary services, and we have the capability of driving much more brokerage activity in certain regions that we currently don't operate in from a brokerage standpoint in Colliers. So we're looking very closely at the U.S. right now and trying to decide what the right step for us is, and we've got some very interesting options. So over the next two years, it is basically back to core brokerage and ancillary brokerage activity, filling out our platforms globally, and working on augmenting our platform in the U.S.

Okay, and what's the feedback you're getting from the rest of the Colliers' network globally that you don't own? I mean it's been a little while since you've bought another kind of territory or areas. Are there anymore kind of discussions to continue to consolidate the global Colliers' business?

Yes, I think the -- the feedback is excellent. For the most part it's excellent globally, we're excited about -- excited about the opportunities there. Remember, we're part of the global affiliation and it's a special relationship that you have with people over a long period of time, and obviously when FirstService became involved in the Colliers' organization, that was a new -- that was a new person at the table, so to speak, but it's now been close to three years or better -- better part of three years and there are -- and of course the industry's gone through a lot of consolidation and changes, and so there's some real opportunity we think in this platform. But there's also opportunities in other -- in other divisions as well, in other commercial real estate operations to graft onto what we're already doing. We have, with Colliers, a global platform. With the exception of the United States, we are Colliers globally, and we have a great relationship with our global partners, and so that's going to create opportunities for us over the long term. It's going to create opportunities for us over the near term, and it's essential, frankly, for us to have a global business, because clients today want to be able to deal with one firm on a global basis. So we're focusing a lot of our efforts on that particular area, and you have asked me to sort of give you an outlook over the next two or three years. That's what it is.

Okay, that's great. Very helpful, thanks. And then one just thing, and I'll talk to you guys about this in the past, but despite an incredibly successful year from an acquisition perspective, the leverage ratio, it's the lowest I think I've ever seen it. And I'm just wondering if you have any more thoughts on dividend or other buybacks or anything like that.

Well, I'm going to answer it this time. I don't know who answered it last time. There's nobody that benefits more -- more at FirstService from a dividend than me. And so we focus on dividends probably daily in terms of should we, shouldn't we, what should we do, are there alternatives, and so on. We've got lots of momentum now. We keep focusing on that. It's something that's current for us right now, but we really don't have any -- we don't really have a clear road yet on that issue. In the meantime, we're going to keep our head down and keep doing what we're doing.

Okay, great. Thanks a lot.

(OPERATOR INSTRUCTIONS) Our next question will come from Bill Chisholm with (inaudible).

Hi, good morning.

Hi, Bill.

Nice to see you at the $1 billion mark.

Yes. Thanks. Nice to be there.

I remember when you were down to $100.

Yes, right.

Anyway, one question really to follow up on the acquisition side. Last year you spent $73 million I guess on acquisitions of 13 or 14 acquisitions, and if we take in the Merit, you probably spent about $80 million, which is quite a bit more than you spent any other year. Was last year sort of a one off year where a lot of things came together, or is there enough opportunities out there to keep spending at this level going forward?

Well, there's a lot of opportunity out there, and we obviously have the capacity to do a lot of acquisition. We would love to be able to have another year this year like we did last year, and although that's not part of our formal goal externally, that's what we're looking at trying to do internally. So to have another year like we had year would be very good.

Yes, it would. Okay. That's all. Thank you.

And we have no further questions.

Okay. Thank you for joining us today, and we look forward to the next conference call.

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