Colliers International Group Inc (CIGI) 2012 Q2 法說會逐字稿

Welcome to FirstService Corporation's quarterly earnings 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 known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in the 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 Information Form as filed with the Canadian Securities Administrators and in the Company's Annual Report on Form 40-F as filed with the U.S. Securities and Exchange Commission.

As a reminder, today's call is being recorded. Today is Wednesday, July 25, 2012. At this time, for opening remarks and introductions, I would like to turn the call over to the Founder and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. As the Operator mentioned, I'm Jay Hennick, Founder and Chief Executive Officer of the Company. With me today is Scott Patterson, President and Chief Operating Officer, and John Friedrichsen, Senior Vice President and Chief Financial Officer.

This morning FirstService reported very strong year-over-year performance at Colliers International and another quarter of solid growth at FirstService Residential. As expected, results in Property Services were down relative to the prior year as a result of continued weakness in foreclosure services. In a few minutes John will provide details on our financial results, and then Scott will provide his operational report. But before they do, I'd like to make a few comments about the quarter.

First, it's great to see Colliers International performing so well despite operating environments in North America and Europe that remain relatively difficult. Colliers delivered results that were substantially ahead of last year, with revenues and profits up strongly. I'm particularly proud of the accomplishments of Colliers USA, which posted revenue growth of an astounding 29% over the prior year. Not only did they achieve significant market share gains in industrial leasing and sales and retail and multifamily, but our core business and office leasing and industrial sales also continues to strengthen.

From recruiting to nonbusiness wins and continued growth in our Corporate Services practice we are seeing tremendous momentum at Colliers virtually across the board. During the quarter we added industry leader, Joe Harbert, as President of our Northeast Region, headquartered in New York, and we also strengthened our valuation and advisory practice with the addition of Ed Alegre.

In terms of notable transactions there were several during the quarter. In Asia our Investment Team completed the sale of 50 Connaught Road in Hong Kong, which was a landmark deal for this market this year. In Australia we have been working with our client, Lend Lease, for several years on the iconic Barangaroo development in Sydney's Central Business District. In June we announced that we had secured prelease commitments for more than 70% of tower one of a two-tower development, with tenant commitments from such tenants as Westpac, KPMG, among others.

And in North America several notable transactions were entered into during the quarter, including significant leasing transactions for Coca-Cola, Proctor & Gamble, and Scholastic. And we continued to make progress in Corporate Services. Microsoft selected Colliers as one of the three top global preferred management firms, a first for Colliers. Covidien, a large medical equipment company, selected Colliers to provide a variety of services for the company's operations in Asia, Europe, and Latin America, markets that we call the harder places. And in the U.S. insurance giant, Arthur Gallagher & Company awarded Colliers half of its transaction services business for North America for the first time in Colliers' history.

We were also pleased with the announcement last week that Colliers was ranked 21st among the world's top 100 outsourcing companies by the International Association of Outsourcing Professionals. While winning awards is always gratifying being recognized as one of the world's top outsourcing firms is a tremendous achievement and one that will help us win business in the future.

But what is most exciting for us is that our strategy for growing Colliers International into one of the world's leading players in commercial real estate is working, and the consolidation activity currently taking place in the industry, particularly in the United States is helping us achieve our goals faster than anticipated. Our competitors are either smaller players with limited financial strength or without a strong global platform or larger ones that impose limitations on the way business is to be done in those organizations, both of which are creating excellent opportunities for Colliers.

Over the past few years we have been successful at recruiting high quality real estate professionals who want to be a part of an organization that is enterprising. Professionals who understand the importance of having a large global platform with a strong financial backer, such as FirstService, and professionals who want to be part of the right culture, one that is based on service excellence and a shared sense of initiative with the goal of accelerating the success of our clients.

Our recent acquisition in the UK is operating according to plan, although market conditions in the UK and the rest of Europe remain challenging we're confident that the long-term outlook for the UK is positive, and owning 100% of this business will help us streamline our operations across Europe and better serve our clients on a global basis.

Finally, as all of you know, EBITDA margins at Colliers have been an important focus for us, that's why we set a goal of increasing them to 10% by 2015 and we're pleased with the progress so far. This year we expect to finish the year with margins of about 7%, another positive step forward. Based on the style and size and scale of Colliers taking our margins to 10% will create significant incremental value for FirstService shareholders as we move forward.

At FirstService Residential, the largest manager of multifamily residential properties in North America, our business remains stable and continues to grow. Revenues from core management services were up nicely, as were revenues from newer services, like rental management, but the revenues from ancillary and other discretionary services were down slightly as clients continue to watch their expenses closely. Scott will have more to say about this in his prepared remarks in just a few minutes.

And, finally, in Property Services, which is made-up of both FirstService franchise brands and Field Asset Services, revenues were down from the prior year, as I mentioned, entirely at Field Assets. Not only is the mortgage default industry, itself, down 30% over the prior year, but excess capacity in the market is causing a very competitive environment in securing new business.

As we announced last month, we made the very difficult decision to resign a large outsourcing contract when it became clear we could not continue to deliver these services profitably. We're currently in the process of transitioning out of this contract and expect to have this completed by mid-August.

In summary, and looking at FirstService as a whole, despite the slower start than expected we remain confident that we'll finish the year up over last year in revenue, EBITDA, and earnings per share, of course, provided economic conditions remain consistent with where they are now.

Now let me turn things over to John to take you through our financial results. Then Scott will provide his operational report, and following that we'll open the call up to questions. John?

Thank you, Jay. As announced in our press release earlier this morning and by Jay in his opening remarks, with the exception of the expected weak results from our property preservation and distressed asset management operations, FirstService reported strong results in the second quarter at Colliers International and solid results once again at FirstService Residential, all in the context of market conditions that are mixed at best.

The following is a summary of our consolidated results for our second quarter. Revenues increased 5% to $593.2 million from $565.5 million last year with overall internal growth flat, and our growth in the quarter attributable to acquisitions. EBITDA declined to $41.2 million from $46.8 million last year and an overall EBITDA margin of 6.9% compared to 8.3% last year. And adjusted earnings per share came in at $0.45 versus $0.54 per share reported in our second quarter last year.

As outlined in our press release and the summary of financial results released this morning, adjusted EPS includes certain adjustments to earnings per share as determined under GAAP. We believe adjusted EPS is a useful measure for investors because it provides a clear picture of the underlying operating performance of the business and enhances the comparability of operating results from period to period. This measure is outlined in detail in our release and consistent with our approach in disclosures in prior periods.

During the quarter despite the lower adjusted EBITDA and earnings we reported a modest 7% increase in operating cash flow before working capital changes of $27.3 million from $25.6 million last year. However, after working capital changes, mostly related to timing, operating cash flow was down versus Q2 of last year.

We continued to deploy our capital diligently during the quarter, with only a nominal amount of cash invested in acquisitions and a further $7 million in capital expenditures. We're on track to invest between $32 million and $35 million in CapEx this year, an amount that is well within our self-imposed historical limits relative to our annual revenue and EBITDA.

During the quarter we repaid a $20 million principal payment on our 5.44% notes issued in 2005, essentially funding this through our revolver at an interest rate of just over 2%, thereby favorably impacting our interest costs going forward.

Moving to our balance sheet, our net debt position at quarter end was $375 million compared to $381 million at the end of our first quarter, and our leverage expressed in terms of net debt to trailing EBITDA was 2.6 times. Excluding the $77 million in our five-year unsecured convertible debentures our net debt stood at $302 million and our leverage at 2.1 times.

In terms of our financial capacity with cash on hand and committed availability under our revolver we have about $140 million of liquidity, a level ample to fund operations and make investments that will deliver returns to our shareholders.

Now over to Scott for the operational highlights. Scott?

Thank you, John, and good morning. Let me start my Divisional review with Commercial Real Estate, where revenues for the quarter were $291.6 million, up 19% from the second quarter of 2011, comprising 10% organic growth in local currency and the balance relating to the acquisition of Colliers UK at the end of March. Continuing a trend from the first quarter, our organic growth was driven primarily by very strong year-over-year results from the Americas region and specifically our U.S. business. Revenues from our Asia-Pac region were up modestly, while the Europe region, excluding the UK, experienced revenue declines. By service line our growth was driven by a 15% increase in leasing revenues and supported by an average 8% increase in appraisal, property management, and project management revenues.

We reported EBITDA in this Division of $17.8 million or 6.1%, up from $11.1 million in the prior year. Healthy margin enhancement in the U.S. offset margin contraction in our Europe region.

Let's take a closer look at each of our three regions, starting with the Americas, where revenues were up 16%, driven by very strong 29% growth in the U.S., tempered by slight revenue declines in Canada and flat year-over-year results in Latin America.

In the U.S. growth was driven by our brokerage operations, both sales and leasing. We experienced solid gains across the country, especially from our major markets -- New York, Chicago, Boston and LA. We continued to generate share gains, particularly in market segments where we have relative strength -- industrial, retail, and multifamily. In addition, we continue to realize solid returns from our aggressive recruiting efforts over the last 24 months.

In Canada total revenues were down slightly as a decline in investment sale activity, primarily due to timing more than offset a 20% year-over-year increase in leasing revenues. And in Latin America total revenues were flat versus the prior year. Both Canada and LATAM had very tough 2011 comparatives. We generated a high single digit margin in the Americas for the quarter, up from low single digit in the prior year due to significant margin improvement in our U.S. business.

Looking forward in the Americas we expect to show continued solid year-over-year revenue gains for the balance of the year, led by our U.S. operations and supported by our Canadian business, where current pipelines are quite strong relative to the same time in the prior year.

In Asia-Pac revenues were up 5%, driven by very strong results in Hong Kong and from our India operations, tempered by flat year-over-year revenues in Australia and New Zealand, and offsetting an approximate 10% declines in China where the market has softened considerably this year due to reduced liquidity. Our EBITDA margin in Asia-Pac for the quarter was low double digit, right in line with the previous year.

Looking forward in Asia-Pac general market sentiment has softened across the region and markets in China will likely remain under pressure. We are expecting low single digit growth for the balance of the year with margins flat to slightly up as compared to 2011.

In our Europe region revenues more than doubled with the inclusion of Colliers UK, which generated revenues right in line with expectation at approximately $25 million. Excluding the UK business our revenues in Central and Eastern Europe, including Russia, declined by approximately 30%. The activity levels remained anemic across most countries in this region. Total commercial property investment volumes in the region are 60% lower in the first half of 2012 as compared to 2011. We incurred a small loss for the quarter in our Europe region as negative EBITDA in Central and Eastern Europe more than offset a positive result in our UK business.

Looking forward for our Europe business we expect the UK to remain on track with the estimate we set out in our last call, $75 million to $80 million in revenue for 2012 and a small EBITDA contribution. In Central and Eastern Europe, our legacy Europe business, we expect very difficult trading conditions to continue. Liquidity and business confidence is banished in much of the region and we don't see this changing for the balance of the year. Our expectation is for flat year-over-year comparisons in this portion of our business in the third and fourth quarter.

In summary, for our Commercial Real Estate Division we reported solid top line organic growth in the second quarter driven by the Americas, and based on the information we have today we expect similar comparatives for the balance of the year.

Moving on to Residential Property Management, revenues for the quarter were $214.1 million, up 9% over the prior year, half organic and half relating to acquisitions completed over the last 12 months. The organic growth in the quarter was driven by new contract wins and increases in management fee revenue, offset in part by a slight decline in ancillary fee revenue, the result of reduced collection services relative to the prior year. The new contract wins were spread evenly across North America. Our EBITDA margin in the quarter was 8.8%, down 40 basis points from the prior year quarter, primarily due to a reduction in higher margin ancillary fee revenue.

Looking forward in Residential Property Management we expect to continue to show solid year-over-year revenue gains through the year with margins that are comparable to prior year.

In our Property Services Division, which comprises Field Asset Services and our franchise brands, revenues were $87.5 million for the quarter, down 29.5% from the prior year as a result of steep volume and revenue declines at FAS. Revenues from our franchise systems comprised approximately 38% of Divisional revenues for the quarter and were down slightly from the prior year. Solid growth at California Closets and CertaPro Painters was offset by revenue slippage at Paul Davis Restoration, the result of a mild winter and generally lighter storm activity year-to-date. The Field Assets revenues were down 40% from the prior year.

The decline is the result of two factors that impacted us in the first quarter, also, and were discussed in our first quarter call. Number one, foreclosure servicing activity is down significantly relative to the prior year, which cuts across and impacts all of our client volumes. And, number two, these declines were compounded by a contract termination, which impacted us early this year. The margin in Property Services for the quarter was 9.8%, down from 17% in the prior year due entirely to margin contraction at Field Assets. The FAS EBITDA for the quarter was only slightly better than breakeven.

Last month we announced we have resigned from our largest client contract at FAS because it was not profitable. The agreement was reset effective April 1st and the increased scope and client interpretation of certain terms resulted in negative contributions from that contract for the second quarter. As Jay indicated, we will fully transition out of this contract by the first week in August.

Looking forward past this contract FAS will have a run rate of approximately $120 million annually based on existing clients and volumes. After rationalizing cost to max revenues we expect a single digit EBITDA margin that increases through the balance of the year to approach 10% on a run rate basis by the end of the year. As we set out in our June press release we expect to incur approximately $2 million of severance and reorganization costs.

I would now like to ask the Operator to open the call to questions.

(Operator Instructions) And, yes, we've got our first question from Stephanie Price of CIBC. Please go ahead, Stephanie.

Good morning, gentlemen.

Good morning.

Can you talk a bit in the REO to rental opportunity? So Fannie Mae's pilot program has been awarded, can you talk a bit more about this opportunity and sort of the timeframe you're seeing there?

Yes, Stephanie, I mean there really is nothing of note to report on our end. We're working with several investment groups who are attempting to buy blocks of single family homes. The Fannie announcement, we won't be participating in that, but there's a second Fannie block and there are others. It is taking time for these deals to close. We're expecting some pilot work before the balance of the year, and we expect it to be a real opportunity for us in the coming years, but it is taking time.

And I would also say that that several of the funds have made a decision to attempt to build the management capability internally. In other words, they will manage the homes themselves. We think this will be difficult to do successfully, but it has temporarily reduced the pool of prospective clients.

Okay, and can you talk about any other contracts that FAS is bidding on at the moment? I think you mentioned that there was some price competition on some that you were looking at, is there anything in the pipeline right now?

There is -- there are definitely prospective clients and RFPs in process. We have a healthy pipeline, but it is an intensely competitive environment, as Jay pointed out in his comments.

Okay, and in terms of residential property management, so with the improving housing market can you talk a bit about new business activity there? Is it starting to pick-up? And also in terms of margins, when do you think that you'll start to see some margin improvement just coming from improving housing starts and the overall residential market?

Well, let's -- let me talk about margins first. The -- you heard in my comments that our collection service business is down, which translates into lower delinquencies for our clients. They're down significantly in the tougher areas, Vegas, Phoenix and Florida, about 20% across North America, which means improved cash flow for our clients.

We believe that going into next year's budget season this will reduce the pressure on further cost reductions and slowly we will see the margin to recover as this market recovers. We are also seeing the emergence of project planning and construction activity with developers, and longer term slowly this will start to grow the market and the margin will recover with that, also. So there are signs of recovery in this business.

Okay, great. And just, lastly, in Colliers, can you talk a bit about the opportunities you're seeing in Europe in terms of additional potential acquisitions there?

The interesting thing and one of the great opportunities we have with Colliers is that in markets that we don't own we have effective franchisees that are on our systems and comply and work very closely with our key people. There are opportunities, we're trying to pick our spots. There's certain markets that we would like to pursue more aggressively. Other markets we'll capture with time.

But the real push in Europe and, frankly, in North America right now is around any global services that we can deliver, corporate services, property management, things like that, project management, things like that where we can sell centrally and distribute the business on a global basis. It helps with our scale, it helps with our margin enhancement initiatives, and we've been spending a lot of time doing that in day-to-day operations.

So acquisition opportunities are out there. We're looking both to strengthen operations and potentially adding important regions, but right now we're being very careful, particularly in Europe given what's going on there.

Great. Thank you very much.

Okay, and our next question is from Stephen MacLeod of BMO Capital Markets. Please go ahead, Stephen.

Thank you. Good morning, guys.

Morning.

Hi, Stephen.

Just wondering if you can talk a little bit about, you mentioned the 7% margin goal for Colliers in 2012, can you just talk about where that's coming from, is that just revenue based?

No, it's coming from two or three different areas. We're obviously streamlining operations. Scale is becoming more important than ever. Productivity on a per broker basis is going up in part because we're handling transactions that are of larger size I think on an average basis than we have historically. And all of these things are helping to translate into margin enhancement opportunities, which has been part of our plan over the last number of years and we're very gratified to see that the plan is executing as we had anticipated.

Okay, great. And can you just talk a little bit about the contribution from Colliers UK in the quarter versus the (inaudible) business?

Yes, Stephen it was modest EBITDA profitability, it was positive, and it was basically in line with where we had expected it to be.

Okay, and so you still expect it to be sort of a couple million dollars positive this year, is that right?

Yes.

Okay, okay, great. And in the Franchise Group, so it was flat revenues after five quarters of good growth. I know you mentioned some puts and takes on the different, the different segments. It sounds like maybe the weakness was at Paul Davis, was that largely just driven by weather or are you seeing a pullback in consumer demand, as well?

No, it's all weather, it's been, as you know, I think as we all know an unusually mild winter and a very quiet first half of the year in terms of storm activity and revenues are down. It appears like it may pick-up in the third and fourth quarter.

Okay, and then finally on FAS, do you have -- I know you have a number of contracts out there, but do you have any other large ones that are coming up for renewal where you could see some significant pricing pressure as you're -- as the mortgage providers have -- begin to look at their own costs?

I think all our contracts are under review at all times. They're not locked in and secure, they're cancellable under certain circumstances, so it is a tough environment in foreclosure services world right now, and I'll leave it at that.

Okay, okay, that's great. Thank you.

Okay, our next question is from Sami Abboud of Scotiabank. Please go ahead, Sami.

Good morning. Sami Abboud filling in for Anthony Zicha. My first question is pretty much revolving around acquisitions. If you could give us some color on what kind of acquisitions? How big, maybe we can expect them to be and the metrics that we can expect in this current environment?

Well, acquisitions, as you know, acquisitions are always strategic for us and we have a very defined way of pursuing acquisitions and completing them. We always have an interesting pipeline and today it's pretty much across the board for us, but I would say that most of the acquisitions are smaller acquisitions in nature, whether we are trying to enhance a position in a market or add a service to something that we're already doing. But typically they're smaller acquisitions and I think given the state of the marketplace we're able to complete them pretty much as we have price wise historically, you know, in the five times EBITDA kind of range.

Okay, so could we -- I mean could we expect any acquisition on the corporate services, on corporate Colliers, like property management services there?

I think you can expect acquisitions anywhere, you know, they're all over the place. But I would say also that our way has been to focus on, with one or two exceptions over the years, relatively nonmaterial acquisitions done the right way, none of which hurt us, but when you aggregate them on an annual basis our goal is to add something like 10% of EBITDA, 5% to 10% of EBITDA, prior-year EBITDA in acquisitions on an annualized basis. So that sort of is something that I think we've delivered on for a long period of time, and we expect to continue to do that. Some years will be a little better, some years will be a little lighter, but generally speaking that's where we'll be.

Okay. Thank you. And regarding RPM, it's been reported that homeowners insurance deductibles have increased and in certain cases, you know, they're insuring less than they used to in the past. Can we expect any kind of margin pressure from higher insurance costs going forward?

Well, homeowner insurance, I don't quite know what you're talking about, in terms of insuring the properties, themselves, there's a legal requirement to insure properties, and we have a very extensive business in helping to secure the best possible policy at the lowest possible price for our clients, and I don't see that changing much in the years to come. There is, if anything it might go up, which is -- which would be somewhat additive a little bit to us I think in some respects.

But homeowner insurance, the actual insurance required by a homeowner within one of our communities is an area that we don't currently pursue but one that we are looking at, and it is a market that's not clear for many insurers. We're trying through database enhancement capabilities to understand it better and convey that information to insurers so that they will be in a position to provide our clients with a more competitive homeowner insurance rate, but that really is early days for us and one of the new initiatives that we had been working on.

And any updates on FS energy and how far we've gone out of, I believe it was New York that you had a database set-up and you were going into Chicago, any updates there on --

Chicago, Florida, and early days in Toronto, and we're progressing well, and it's -- we're excited about leveraging it to help our retention in those markets and secure new business, also.

Okay, all right, gentlemen. Thank you very much for your time.

Thank you.

You're welcome.

Okay, our next question is from Frederic Bastien of Raymond James. Please go ahead, Frederic.

Hey, good morning.

Good morning.

Just want to circle back to one of the questions that was asked about EBITDA margins at Colliers, you've got a target to go with 7% for the year and that implies a much stronger second half than you delivered last year in terms of margins because right now you're probably in the same run rate. Are we going to see the strength coming in again like last year in the fourth quarter or should we be expecting a fairly good third quarter in terms of margins?

Frederic, we had a weak third quarter last year, so we're expecting to show strong comparatives in the third and fourth quarter, but particularly in the third. Our weakness last year in Europe and in the U.S. we were continuing to invest.

Okay, so you still think, though, that you can match like the 10% roughly that you achieved in the fourth quarter, as well?

Based on what we know today, yes.

Okay, cool. And, Scott, while I've got you, I missed one of your last comments towards the end you mentioned the 10% EBITDA margin run rate by the end of the year, was that for FAS or was that for Property Services?

FAS.

Okay, great. John, where do you think you can bring the debt to EBITDA ratio by the end of the year? And maybe if we look further out maybe I guess it's tough to call that one, but maybe 18 months out?

Well, some of this will depend on acquisition activity and what we're paying for acquisitions and so forth. If we were not to do any acquisitions for the balance of the year we would de-lever to about two to one on a net debt to EBITDA basis. We're likely to do some acquisitions so I don't think we'll be at two to one, but we'll be certainly heading in that direction.

Before the debentures.

Before, yes. Of course, that includes the debentures as debt.

Okay.

Excluding those it's lower.

All right, and more of just a general question, can I get your thoughts on potentially adding another service line? Is there something that's missing in there, in your offering right now?

We don't think so, actually. We think that we've got -- we're very close to the ideal model for us to grow. We've got a significant and strong business with Colliers and getting stronger. Colliers manages commercial property. Our Resi Group manages residential property. Together they're the largest manager in the world. I think if we just focus on those two businesses over the next five or 10 years we've got a solid platform and we've got all kinds of runaway room to continue to grow our business in multiple markets for many years to come. And, frankly, on the same type of acquisition terms as we've accomplished, as we've accomplished historically.

Great, thanks, and good luck with that.

Thanks.

Thanks.

Okay, our last question is from Tal Woolley of RBC Capital Markets. Please go ahead, Tal.

Hi, good morning.

Good morning.

Just wanted to talk quickly, again about Field Asset Services, so if you're thinking that this is a business that gets to $120 million in revenue at a 10% margin, that's still a company that's doing a fair bit more than when you first initially invested in the business. Given that maybe the circumstances around the competitive environment have changed and you've walked away from a fairly large contractor, are you a holder of this business over the long term or is this something that you would look at divesting because you'd still probably, you know, depending on what valuations looked like you'd still probably be realizing some sort of gain on it?

Well, for sure there would be a gain, but you raise a very good question. When we bought Field Assets many years ago what attracted us to the business and why we thought it fit beautifully within our property services business was that not only do we manage franchisees in our franchise operation, but what field assets essentially does is manage contractor networks around single family dwelling units all around the U.S.

So it's a business that always fit for us and one that enjoyed huge growth when the markets took off or went down, depending upon your perspective, and we enjoyed that run-up while we own the business. And it's now normalizing to a level where it's substantially ahead of where we bought it, and we're trying to right size the business now. We see some opportunities in the marketplace, and so it's business as usual for us in managing franchise and contractor networks.

Okay, so you still see some strategic value there in terms of it having be a feed for your contractor services over the long haul?

Yes.

Okay, and then just on the -- a couple corporate questions. What's the expected distribution that you might have to your non-controlling interest this year?

Expect the distribution to be kind of in the $10 million range.

Okay, and just going back on the uptick you expect in the Colliers' margins for the end of the year, so if I'm understanding it correctly that it's basically your average leasing transaction side, and your revenue growth it's largely like a leverage off your existing cost base. It's not so much a mix in revenue, like a change in the types of revenue you're earning or?

It's primarily scale.

Okay, all right, that's great. Thank you very much.

You're welcome.

We have another question in our queue now, his name is Brandon Dobell of William Blair. Please go ahead, Brandon.

Thanks. I had some issue with the zero, one, the one, zero thing. I just got the numbers mixed up. You guys threw me for a loop there. Wanted to focus on Colliers for a second. You mentioned headcount additions thus far, should we expect that to continue and, if so, are you able to keep those additions at kind of reasonable commission split rates when you bring guys over?

The recruiting will continue, Brandon, but not at the level you've seen in the last couple of years. We added significant numbers in the U.S. primarily in '10 and '11, but the recruiting push is still very real for us. These splits are all standard now and on average it is improving our splits across the U.S., so the answer to your question is yes, we are managing the splits with these recruits.

Okay, and in the EMEA business I want to clarify something, I think you said expect it to be flat for the rest of the year. I would assume that means down organically but adding back the impact from the UK acquisition to get to a flat number, or is that flat organically plus the acquisition, so you're going to be up?

Flat organically plus the acquisition.

Got it. Okay. And then sticking with Colliers for a second, actually, kind of a broader question, it sounds like your expectation for being up on the year, revenue, EBITDA and EPS, and a bit of an if then statement, if the economy holds in kind of where it is now, how much wiggle room do you think you guys have given yourselves around all the macro stuff? And I guess, in particular, thinking about Europe, but given the strength in the U.S. business in Colliers, as well, what's your level of confidence around if things get a little bit worse can you still pull that off or is it -- there's not a whole lot of wiggle room based on those comments?

We have some risks in the fourth quarter, but the pipelines, particularly in North America are quite strong right now, so we're feeling optimistic about the North America for the balance of the year.

Okay.

Asia and Europe would be the risk spots.

Yes, okay. And then over in Property Services, a couple questions there. The margin commentary in one respect I understand the margin ceiling is probably higher now given that the GSE contract provided a pretty low margin for you or it's going to be a pretty low margin for you, but the level of confidence or kind of the trajectory towards double-digit margin given that it's a smaller business now so it's tougher to leverage kind of the corporate costs within that segment? I guess how do we get to that double-digit margin given the scale differences now versus a couple years ago?

I mean it remains a variable business, and so we -- it's our challenge to match cost to revenues. It will take the balance of this year, but we -- our goal is for '13 to be running at 10.

Okay, and then a final one -- and I'm sticking with Prop Services for a second -- the run rate in the back of the year, I guess I just want to make sure I understand how the interplay of the GSE contract is working relative to seasonality and that kind of thing, you know, should we expect I guess the third and fourth quarter numbers to look like relative to the first half of the year given the impact of the GSC and the seasonality within that contract, too?

Right, well, I think you have a sense for the franchise business, so let me focus on FAS, which will be down. I think we identified that contract of being at around $100 million.

Yes.

And so if you take, if you annualize that I think it was reasonably flat throughout the year.

Okay.

That will give you your reduction at FAS.

Okay, that's it for me. Thanks, guys.

You're welcome.

So we've got another person that just queued up, and just a quick clarification it is zero, one if you've got a question. So our next questioner is David Gold of Sidoti. Please go ahead, David.

Hey, good morning.

Good morning. Hey, David -- or zero, one, as we've (multiple speakers).

Similar trouble, yes, every other conference call is star, one, as I guess Brandon will tell you. But, anyway, Operator difficulty on my end. A couple of questions for you. So on the Colliers side, getting the margin towards that 7% at this point is that largely a function of just the revenue flow through or are there other changes yet to be made there?

The revenue flow through.

Okay, presumably -- that simple. Okay, and then on the property improvement side, I guess over the years and I guess the comment earlier about it being a variable business, over the years I know you've done a bit to shift the costs to be more variable, but I guess at this point pulling out that $100 million and, of course, as it looked it maybe was going to be a money loser, so to speak, or wasn't going to make a big difference. But from a variability standpoint is this a moment where there are more aggressive costs that have to get taken out to get to that 10% or is it really that simple?

No, I mean we have to be aggressive about it. We have to use zero based approach, and we're going through that exercise. We've got to attack the costs top to bottom.

Got you, so presumably there's some more work to be done there?

Yes.

Okay, and then just one last -- meeting the guidance, basically and obviously with the issues going on in property improvement, you've got a goal at $30 million hole to replace, presumably from Colliers, can you give us some sense of your level of confidence? I mean it sounds like it's all about North America, but I guess the pipelines you're looking at are just that robust where you have good confidence in that right now?

Yes, I think based on where we're seeing things now, David, yes, we do, we do have good confidence. Obviously, we have to speak to that in the context of overall markets, but based on the visibility that we have now and the momentum we have, absent a significant change in the market conditions we are confident.

Got you, got you, and presumably that's all transaction volume in North America?

Predominantly.

Perfect, thank you.

You're welcome.

Okay, so there are no other questions at this time.

Okay. Ladies and gentlemen, thanks for joining us on the conference call, and we hope to hear from you again on the 3rd, which we hope will be good news. So thanks for joining us. Bye.

Well, ladies and gentlemen, this concludes the FirstService Corporation's quarterly earnings conference call. Thanks for your participation and have a great day.