Colliers International Group Inc (CIGI) 2013 Q2 法說會逐字稿

Welcome to the Second Quarter Investors 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 in the 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 US Securities and Exchange Commission.

As a reminder, today's call is being recorded. Today is Tuesday, July 30, 2013. At this time for opening remarks and introductions, I'd like to turn the call over to the Founder and Chief Executive Officer, Mr. Jay Hennick. Please go ahead sir.

Thank you, and good morning everyone. As the announcer just stated, I'm the Founder and Chief Executive Officer of the Company. And 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 results with earnings per share up 29% in an otherwise very busy second quarter. Colliers International posted EBITDA growth of 40%, with margins up almost 200 basis points, partly as a result of the recent acquisition of Colliers Germany, and partly from improved productivity and efficiency as we continue to refine and strengthen our global platform.

During the quarter, Colliers also finalized the consolidation of all of its operations in Germany by completing the acquisitions of Colliers Frankfurt and Colliers Dusseldorf and complementing the acquisitions of Colliers' operations in Munich, Stuttgart, and Berlin earlier in the year.

Having a leadership position in Germany, the anchor of the entire EU, is an important part of our strategy. It not only allows us to operate one fully integrated business in Europe, but it also reinforces our ability to better serve our clients, both regionally and globally.

Another important initiative for Colliers during the quarter was the combination of our Americas business, the US, Canada and Latin America into one business unit. Bringing these operations together helps us leverage client relationships and facilitate a common vision and strategy for our service lines in the region, including brokerage, corporate solutions, property management, valuation, and advisory.

And finally in Commercial Real Estate, winning awards is nothing new. This happens to be an industry that seems to [do well with] awards on a regular basis. However, being recognized as one of the world's top outsourcing firms for the eighth year in a row, being the best commercial real estate advisor in Asia for the first time ever, and being ranked in the Top 4 Real Estate Advisors in Europe for the first time, make us particularly proud and demonstrate once again the momentum that Colliers is building on a global basis.

Revenues at our highly successful Residential Property Management business were up more than 10%. More importantly, we completed a major initiative rebranding all 18 of our regional operations across North America to the FirstService Residential name and brand. Bringing the FirstService Residential brand to the forefronts is an important part of our ambitious growth plans for this division.

By unifying all of our operations under one powerful brand, we can better showcase our market leadership and commitment to service excellence while leveraging our industry leading strengths for the benefit of both our clients and our shareholders.

In Property Services, EBITDA was up 4%, and margin was up significantly on the strength of 12% revenue growth at the FirstService Brands business. Field Assets has finally stabilized with its current revenue run rate, and we look forward to profitable growth for the balance of the year and beyond.

And corporately during the quarter, FirstService simplified its capital structure by eliminating its outstanding preferred shares, and instituting a dividend policy on our common shares. In addition to the 19% annualized internal rate of return, our shareholders have received on their investment in FirstService shares over the past 18 years.

Our new dividend provides shareholders with yet one more source of investment income. However paying dividends also introduces the Company to a growing universe of investors, who only invest in dividend paying stocks thereby increasing our traditional shareholder base and increasing the liquidity of our shares, both of which have helped our market performance.

Now, before we open things up to questions, let me turn things over to John for more of the financial details from the quarter, and then Scott will provide his operational report. John?

Thank you, Jay. As announced in our press release earlier this morning and by Jay in his opening remarks, FirstService reported very solid overall results in a very busy second quarter with strong contributions from Colliers International, FirstService Residential, and FirstService Brands, and a modest contribution from our now stabilized property preservation and distressed asset management operation, all in the context of market conditions that continue to show recovery but with a varying pace depending on the region.

The following is a summary of our consolidated results for our second quarter. Revenues increased 1% to $601.9 million from $593.2 million last year with overall internal growth flat, and our growth in the quarter attributable to acquisitions.

Adjusted EBITDA increased 13% to $46.4 million from $41.2 million last year and an overall margin up 80 basis points, 7.7% compared to 6.9% last year. And adjusted EPS came in at $0.58, up 29%, versus $0.45 we reported in our second quarter last year.

As outlined in our press release and summary financial results released this morning, adjusted EPS includes certain adjustments to EPS 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.

Before moving to our cash flow and balance sheet, we'd like to highlight the contribution of our Colliers International, FirstService Residential, and FirstService Brands to our overall consolidated results, putting aside two things that mask the collective contribution from these operations during our second quarter.

Those being the decline in revenues at our property preservation and distressed asset management operation, and the one-time branding and related costs at our FirstService Residential business, both of which were expected and both of which were discussed in previous conference calls.

Excluding these two items, the collective contribution to our growth in revenues and adjusted EBITDA from these three operations in the quarter was 8% and 16%, respectively, compared to our second quarter last year, underpinning the momentum we have going into the second half of the year and beyond.

A further note, the one-time branding and related costs negatively impacted our adjusted EPS by $0.07 for the quarter. And absent these expenses, our adjusted EPS would have been up 44% over last year.

Turning to cash flow, we reported [about] $18 million in operating cash for the quarter, roughly flat with our second quarter last year, and negatively impacted by the one-time branding and related expenses in our FirstService Residential business as previously discussed. We expect our cash flow to improve substantially in the second half of the year as positive seasonal factors impact our operations in reported results.

During the quarter, we continue to allocate our capital diligently with about $8 million invested in acquisitions, most of which related to completion of the Colliers Germany acquisition initiated in our first quarter, and a further $6 million invested in capital expenditures.

We're on track to invest in the range of $35 million to $40 million in CapEx this year, an amount that's well within our self-imposed historical limits relative to our annual revenue and EBITDA, and down from last year when we incurred a significant spend related to the consolidation and relocation of Colliers UK operation in London.

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

Moving to our balance sheet, our net debt position at quarter-end was $462 million, compared to $419 million at the end of our first quarter. And our leverage, expressed in terms of net debt to trailing 12-month EBITDA, was 2.6 times. Excluding the $77 million of unsecured 6.5% convertible debentures due in 2014, our net debt stood at $385 million with leverage at about 2.1 times.

During the quarter, we completed the previously announced conversion and the redemption of our 7% preferred shares using approximately $39 million in cash, and issuing 2.9 million additional common shares. In so doing, we simplified our capital structure, increased the market capital of our common shares outstanding, and instituted a more heavily or instituted a more broadly-based quarterly dividend payable on our common shares, the first of which was paid just after the end of our second quarter.

And finally in terms of our financial capacity, with cash on hand and committed availability under our revolver, we have about $170 million of liquidity, a level ample to fund operations and investments that will deliver above-average returns to our shareholders in the future.

Now over to Scott for the operational highlights. Scott?

Thank you, John. As I usually do, I will start my divisional review with Colliers. You heard from Jay and John that we generated solid results in Commercial Real Estate, up 7%, approximately half from the acquisition of the Colliers Germany operation and half organic.

Organic growth globally was led by gains in the US, Latin America, Australia and Central and Eastern Europe. By service line, our growth globally was driven by a 10% increase in sales commissions and supported by solid single-digit growth in appraisals. Leasing, property management and other revenue in the aggregate was approximately flat year-over-year.

Colliers generated an EBITDA margin of 8% for the quarter, up from 6.1% in the prior year, driven primarily by continued margin enhancement in the US and improved profitability in Central and Eastern Europe. The division also benefited from the addition of the profitable German operations.

Taking a closer look at our Americas region, revenues were up 4%, driven by solid investment sales increases across the region. By country, we enjoyed a mid-single digit gains in the US, and strong mid-teen increases in Latin America that were tempered by flat year-over-year results in Canada.

We generated a high single-digit margin in the in the Americas for the quarter, up 150 basis points from the prior year as a result of operating leverage and broker productivity increases in the US, and increases in Latin America, driven by the strong higher-margin investment sales activity.

Looking forward for the Americas, there is currently some uncertainty in the market, particularly North America as the recent increase in long-term rates seems to have given pause to the market. That said, based on our pipelines and activity levels today, we're optimistic that we will show year-over-year revenue and margin gains for the balance of the year.

In our Asia-Pac region, revenues were up modestly, driven by mid-single digit increases across all major business lines in Australia and New Zealand, partially offset by a revenue decline in Asia. The decline in Asia was primarily due to decreases during the quarter in investment sales in Hong Kong, the result of a very few large deals in the prior year, and therefore a tough comparison, but also due to an increase earlier this year in stamp duties in Hong Kong on commercial sales, which drove market transaction volumes down 40% from prior-year levels.

Revenues from our other major operations in the region, including China, Singapore and India, were approximately flat with prior year. For the quarter in Asia-Pac, we generated a low double-digit margin, off a bit from the prior year due to reduced margins in Hong Kong relating to the decline in investment sales revenues. Margins outside of Hong Kong were in the aggregate up slightly over prior year.

Looking forward in Asia-Pac, we expect to show modest single-digit growth for the balance of the year. Market growth is tempered somewhat in both Australia and China, but our pipelines are generally solid, and we remain optimistic about the balance of the year.

In our Europe region, revenues were up 20% plus for the quarter, almost entirely due to the acquisition of Colliers Germany at the beginning of the quarter. Excluding the German business, revenues grew by a low-single digit rate with solid gains in Central and Eastern Europe and Russia, offset in part by revenue decline in the UK. The declines in the UK are primarily timing related.

Our EMEA region generated a modest single-digit margin for the quarter, compared to a loss in the prior year. Profitability improved across all operations in Central and Eastern Europe, and of course the region benefited from the addition of the profitable German business.

Looking forward for our Europe business, we expect to show year-over-year organic revenue growth across all major operations with continued margin improvement. In addition, we look for our German operations to meet or exceed the expectation we put forward in our last conference call of $40 million in revenue for the nine-month period, and EBITDA margin of 10% plus.

In summary, for Colliers, we are pleased with the second quarter and first half of 2013, and are optimistic that we will show continued organic growth, and margin enhancement through the balance of the year.

Moving to Residential Property Management. Revenues were $234.8 million for the quarter, up 10% over the prior year, almost all organic growth, driven by new contract wins and increases in management fee revenue, as ancillary revenues were approximately flat for the quarter.

We experienced strong growth in each of our four regions across North America. I've noted in our calls over the last year that we have increasingly seen developers back in the market. This quarter, new development accounted for approximately 20% of our growth, which is the highest level we have seen in some time. The balance came primarily from competitors, but also from self-managed communities switching to professional management.

Our EBITDA margin in the quarter was 6.4%, compared to 8.8% in the prior year. The decline primarily the result of rebranding, including related IT and other one-time expenses, that totaled approximately $4 million for the quarter.

As you know, our 18 separate local brands across North America came together as FirstService Residential on June 27. The investment in rebranding and our technology platform to support it will approximate $6 million this year. We've incurred a little over $5 million year-to-date, and expect further third-quarter spend primarily on signage that will come in at less than $1 million. As we mentioned in our last few calls, we are very excited about the rebranding and are confident the investment will yield significant long-term benefit for our clients and shareholders.

Our margin for the quarter was also impacted to a lesser extent, approximately 50 basis points, by continued volume reductions in our high-margin collection business, which is counter-cyclical to the strengthening housing market. The margin from our core management business was up slightly over the prior year quarter due to operating leverage. Looking forward at FirstService Residential, we expect to continue to generate solid organic growth driven through market share gains and new development.

In our Property Services division, which comprises Field Asset Services and FirstService Brands, revenues were in line with expectation at $55.8 million for the quarter, down from $87.5 million in the prior year quarter, as a result of revenue declines at FAS.

FirstService Brands continued its strong performance this year with revenues that were up 12% year-over-year while Field Assets generated revenue of slightly less than $20 million, a similar level through the first quarter of this year, but down from $50 million plus in the second quarter of last year.

Looking first at FirstService Brands, the double-digit growth continues to be driven by our major franchise systems; Paul Davis Restoration, CertaPro Painters, and in particular, California Closets. Key metrics such as leads and average job size continue to be strong supported by a robust home improvement market. Our current base activity levels and bookings point to similar year-over-year growth for the second half of 2013.

The margin for the seasonally strong second quarter at Brands was close to 25%, off slightly from prior year due primarily to increased marketing expenses, much of which is timing related. The margin for the full year is expected to match prior year levels at approximately 19%.

Revenues at FAS were in line with expectation and the operation generated a modest profit. We expect similar results for the third and fourth quarters.

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

(Operator Instructions) Frederic Bastien, Raymond James.

Good morning guys.

Good morning.

One of the highlights for me was the 9% organic growth that you produced at FirstService Residential. You mentioned some of the reasons that explain that growth, but I was wondering on a go-forward basis, I mean is -- is the high-single digit, low-double digit organic growth, something that you believe is achievable going forward?

I think high-single digit, Frederic, is something that we would expect. We are particularly with developers back in the market, which is a particular strength for us particularly in the high-rise and active adult developments, where we have a very specific offering and are recognized across North America, is really providing a service that is second to none. But in general we continue to win market share in that business. We're the largest by a factor of three relative to our nearest competitor, and we're able to leverage that scale to save our clients' money, and it's a compelling differentiator, and we will continue to win business as a result.

Good. And how should we think about the margins on a go-forward basis? I mean if you -- and if we look back at history, in a few years where you were well above -- you were above 9% in EBITDA margins. I mean is that something that you believe is achievable over the next couple of years?

I think we will start to work our way back to that. This year we'll be in a seven range with the rebranding, but we will start to work our way back to that level as particularly again as development comes back to market.

Okay, great. Another question on the margins, but this time with respect to Colliers. They were at -- if we look at the first half of the year, they were at 5%, and which is about 180 basis point higher than what you did in the same period last year. Is it reasonable to expect that Colliers can deliver similar margin gains in the second half, which would put you at around 8.5% for the full year?

I don't believe we will get to 8.5% this year. We had a strong finish the last year at Colliers, and we are making progress as you've seen quarter-over-quarter, and we expect to in the back half of the year, but we'll be closer to 8%.

Okay. That's helpful. Last one with respect to M&A, are you still seeing a healthy pipeline with respect to potential acquisitions at Colliers?

There's lots of activity in the commercial real estate space, both smaller tuck-unders in markets that can strengthen our existing presence, but also interesting regional opportunities have started to perk up as well companies that we've had relationships with over a long period of time might diversify our service lines, offer something more to our clients, all of which are interesting and active. So, from our perspective, this year was the year of completing five separate acquisitions at Colliers, and bringing Germany in as one operating unit, which was a critical move for us, but we're open to other potential moves if we can buy the brand at a good return on our invested capital.

Perfect. That's good for me. I'll turn it over. Thank you.

Stephen MacLeod, BMO.

Thank you, good morning.

Good morning.

I was just wondering, Scott, you mentioned in your prepared remarks, if you could just revisit the breakdown of the margin at the Residential Property Management business in the quarter?

The breakdown?

Yes. You mentioned kind of -- so we had the rebranding costs that were a weight on the margins, but then I think you also said that -- was that 50 basis points was due to volume reductions in collections? Is that right?

Right. Yes, you're right. So the $4 million in rebrand, IT and other one-time costs. We showed some improvement in our core management business really due to operating leverage, but the continuing decline in the collection revenues did dilute our margin by about 50 basis points.

Okay. And would you expect that kind of going forward, you know core management margins would begin to offset the declines on the collection side or is that something that you expect sort of (multiple speakers)?

We're starting to see that, and I think net of the rebrand costs this year will be close year-over-year in terms of our margin by the end of the year, and see improvement in 2014.

Okay, great. And then just a follow-on from the last set of questions with respect to M&A. Are there any other geographic locations where you have Colliers as affiliates that you would like to see become Company-owned branches?

That's a very good question Stephen. We are feeling at Colliers, and I'm speaking for the management team there, we're feeling like we have a very strong global platform as Company-owned operations now. And the focus of the management team has diverted to strengthening, strengthening, strengthening in core markets, diversifying service lines, and adding talent in places where they think they could do better given the size of the market, et cetera.

So the focus is basically strengthening our existing platform, which we now believe is, by and large complete. There are always opportunities with Colliers affiliates, but there is also opportunities with other third-party commercial real estate firms that might fit into a -- to the UK, it might fit into Canada et cetera, markets in which we own and we can simply strengthen the business.

So from a Colliers standpoint, I don't see anything near term in terms of adding another country. We're happy having affiliates in Turkey and Morocco, and places like that. And -- but in core markets like the United States, Canada, Asia-Pac, we think that it's essential to operate those as Company-owned operations.

Okay, that's great. Thank you. And then just one sort of housekeeping question. Could you just talk about your outlook for stock-based comp, and corporate costs for the rest of the year or for the full year number I guess?

Corporate costs should be in line -- they're going to be a little bit higher, we expect, than they were in this period, but they would be largely in line with what we reported last year, maybe slightly higher based on incentive-based compensation that would be paid in the event that we deliver earnings better than last year. We didn't have any last year. And the stock-based compensation would be similar.

Similar to last year?

Yes.

Okay, great. Thank you.

Varun Choyah, CIBC.

Hello, good morning, and thanks for taking my questions. Just touching on the Property Services business, can you give the breakdown to the franchise and FAS in terms of the revenue split?

FAS did a little less than $20 million this quarter.

All right. And I mean you mentioned before that you turned up slight profit at FAS is -- with regards to this business, are you just going to keep it running as it is or do you plan to like scale down the business or are you just going to have it there for the counter-cyclicality part of the real estate market?

No, I mean we're focused on rebuilding that business and growing it. It's repositioned itself in a changing market. It has an excellent offer we believe. There is some positive signs in terms of business development and new customers. And we're going to take it one step at a time, and rebuild that business profitably. That's the goal.

Okay, fair enough. And a housekeeping question I have is the amortization came in about $20 million, and that was probably due to the I guess accelerated amortization for the legacy brands, because of the rebranding initiative? Is it a go-forward number for amortization or is it just a one-time thing for this quarter?

Yes. It's just a one-time thing totaling about $11 million.

Okay, great. Thanks. And one final question on sort of the RPM rebranding, just a follow-up there, you mentioned that you have the roughly $1 million in technology spend, is that -- did I hear that correctly for next quarter?

No, the remaining expense around the whole rebranding effort will be less than a million in the third quarter and primarily relating to signage that got held up and was not installed by June 27.

Okay, perfect. That's all I got. Thanks a lot.

Sami Abboud, Scotia Bank.

Hi. Good morning, gentlemen. I'm filling in for Anthony Zicha. I have only one question. Regarding ancillary revenues, could you please provide more color as to where the weakness is, and maybe what do you expect, what are the catalysts that you would be looking for to see ancillary revenues grow year-over-year?

They -- the ancillaries generally move with an improving market with the exception of collection revenue, which is a significant component of our ancillary revenue and a high emerging component. So while our insurance revenues in our lockbox, and our transfer and disclosure revenues are all increasing with our management contracts, it's been offset by collection revenues. But we're starting to see the decline slow. And I think we'll be back to a more normalcy as we get into 2014.

Okay, thank you very much.

Brandon Dobell, William Blair.

Thanks, good morning, guys. In the Colliers business for a second, how do we think about broker additions in the second half, or I guess as importantly probably 2014. It sounds you got the geographies you'd like to be, and do you think you have the people that you need to have on board and kind of in line with that how should we think about the strategy around property management opportunity for you?

I will speak to broker additions. I mean recruiting continues to be a focus really in all geographies adding to service lines and in particular, focusing on our major markets. In past quarter we added 60 producers around the world, 23 in the US, and we're on track to have a very strong year in terms of recruiting. And retention, number 1, recruiting, number 2, continues to be a principal focus of that management team at Colliers. Did you ask a question also Brandon about Property Management?

Yes. Just as you [filled out] the transaction side of the operation globally, how do we think about translating that into some of the more recurring businesses especially ones focused on occupiers maybe?

Well, I mean, Property Management is a service line we're committed to. It was up marginally during the quarter.

Okay.

And I think importantly our margin was up, and contributed to some of the overall increase in profitability. In North America, in particular, we've, over the last few years, looked hard at our contracts, and we have resigned from some small or less profitable contracts, which has tempered our growth somewhat, but we're through that, and again we're committed to Property Management. We expect that to be a grower for us moving forward.

Okay.

The other thing on recurring revenue is obviously the Corporate Solutions business, which continues to grow nicely. Obviously, we'd like it to grow a little bit faster. But over the last quarter Colliers has realized some very significant contracts that are typically three to five year contracts. The market is in transition there. Clients are looking for alternatives. And Colliers, as we believe, picked up more than their share or traditional share of that business. So that recurring revenue component of our business is up.

And also our valuation in Real Estate Advisory business continues to be strong. We hope it will last. There's a lot of markets in which now valuations have to be done on an annualized basis. So that creates a [recurability] to those retainers. And for example, in markets like the UK and Canada and other places, building that relationship with the client and continuing to service them helps to create still further recurring revenue.

Okay. Over in the FirstService Brands part of the business, have you guys thought about allocating M&A capital in that part of the business, or do you think you've got enough organic and a runway for growth that the capital is better allocated elsewhere?

Well, it's again a very interesting question, we talk about it all the time. There is franchise opportunities that we see almost on a regular basis, and we go back and forth. Right now, we have lots of runaway room in our existing franchise systems unless something came by that was very synergistic with our other property-related services, and something that we could ultimately scale. We are probably -- I think it's fair to say that we're probably more focused on our existing platforms rather than adding. But if something comes along that's special, we'll look.

Okay. And then final one from me. In the Property Management part of the business now with the rebranding, what has that done for you guys relative to, I guess, conversations with prospective customers. Has it changed the conversation with some of the bigger owners or operators of multi-family, or kind of big communities out there, has it made it easier or has it not changed your ability to go in and kind of pitch for kind of broader, more comprehensive deals, especially across state lines?

I think it's still too early to say. But we are very optimistic about that because developers -- let's just start with developers. Developers are now developing virtually across the US, and it's a lot simpler to say to the developer FirstService Residential can serve you in California, Texas, Miami, and New York.

Whereas in the past, we'd say, well, in California it's Merit, in Miami it's Continental, et cetera, et cetera. That's one of the obvious benefits, and it's still early to say, but we believe that that's going to be a very positive.

The other thing I think that -- again it's early to say, but we're very excited about it is, having one streamline brand allows us to do things direct to our clients on a better basis. And when I say direct to our clients, our clients are typically board of directors or institutions that own buildings for which we manage. But there is also residences living in the -- in those buildings that need things like mortgages and title insurance and homeowner's insurance, and things like that.

And up until now, it's been very, very difficult to access that client base. So, we believe that with one streamline brand, everybody accessing things through one website, albeit regionally, but it's one website gives us lots of opportunity in the future to capitalize on that channel that we're just not capitalizing on today.

Okay, great. Thanks guys. I appreciate it.

David Gold, Sidoti.

Hi, good morning.

Hey, good morning.

Great. Just wanted to follow up a little bit on the commentary, and particularly in North America commercial real estate. Given -- it sounds like pipelines are holding up, but how do you think the second half of the year looks for both you and sort of everyone else with the interest rate increases? Is it as simple as folks using the seasonally slow summer months to reset expectations or re-trade, renegotiate, or do you think there is more of a pause to it than that?

We -- our perception is that there is a pause, but it's not material. And I think our view would be that the second half is going to look similar to the first half with investment sales, and appraisal driving the growth. And leasing continuing to remain flat at best at -- occupiers are very reluctant right now to make long-term commitments.

And in fact we see leasing deals being deferred, and a trend back to short-term renewals. We think leasing is going through a main tepid. But the second half, we think, for us, will look similar to the first half.

Have you seen a slowdown in deal activity related to interest rates? And also in the second quarter, was there some benefit in there for -- given that presumably some had financing in place and maybe the interest rate increases push them to close them more quickly?

We did not see any acceleration. And I -- towards the end of the quarter, we did see some slowdown. I called it a pause in my prepared comments. But again as we moved in to July, it's not material.

Perfect. Thanks so much.

Welcome.

Stephen MacLeod, BMO.

Thanks. I just wanted to follow up quickly on FAS. I was just wondering if you could provide just a little more detail about kind of what you're doing with that business? And how are you positioning it to pursue sort of growth going forward?

Well, I think one of the key things that we're seeing from our clients in that business, they're biggest overriding concern over the last couple of years, is around litigation and negative PR. The regulation has been elevated, process requirements around foreclosures had become onerous.

And we have positioned our offer around risk mitigation and service excellence. And the risk mitigation piece is really around focusing on our processes in workflow to ensure that there are no gaps that expose our clients. And that is being recognized by our existing clients and by potential new clients.

And so, that is the focus. It's around risk mitigation, and then across all our businesses service excellence is a focus. So does that answer your question?

Yes, and maybe, can you just elaborate a little bit about -- on the risk mitigation side of things?

Well, again it's -- our clients are under incredible scrutiny. And litigation is something that they are dealing with every day. And to the extent, our processes, our services can help reduce that. That is a big, big benefit for them.

So I think I can add an example or two maybe. So in different geographic regions, municipalities are levying fines on properties of our clients. We have a process that -- where we inspect those properties on a weekly basis. We have technology that assesses whether work is needed on the exterior of a property. And then we will immediately get client approval to go and rectify the problem before the fines get levied. That's just one example.

There's also, as Scott was talking about litigation, which are things that will happen in the vacant property that results in litigation, our client now being the owner of the property has to defend that litigation. If we're there on a regular basis, fixing a deficiency, then the litigation risk is minimized. And those are just two examples to try and put sort of -- put some color to the issue.

Right. Okay, that's helpful. Great, thank you.

Okay. So there are no other questions at this time.

Okay. Ladies and gentlemen, thanks for joining us. We think it was a good quarter. We hope for better in the subsequent quarters, and look forward to having you all participate. So, thanks for joining us.

Ladies and gentlemen, this concludes the Second Quarter Investors Conference Call. Thank you for your participation and have a great day.