Scott Patterson - Chief Executive Officer Jeremy Rakusin - Chief Financial Officer.

Sami Abboud - Scotiabank Frederic Bastien - Raymond James Stephanie Price - CIBC Brandon Dobell - William Blair & Co..

Good day, ladies and gentlemen. And welcome to the Third 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 maybe 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 U.S.

Securities and Exchange Commission. As a reminder, today’s call is being recorded. Today is Wednesday, October 28, 2015. At this time, for opening remarks and introductions, I’d like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir..

Thank you, Operator. And welcome ladies and gentlemen to our third quarter conference call. Thank you for joining us. With me today is our Chief Financial Officer, Jeremy Rakusin, and together we will walk you through the results for the quarter and answer any questions you have. This morning we announced very strong results for the September quarter.

Revenues were $350 million, up 12% over the prior year, adjusted EBITDA was $39.1 million, up 38%, and adjusted earnings per share came in at $0.50 versus the prior year number of $0.39, up 28%. We are very pleased with these results, which build on the strength of the first two quarters and keep us well on track to achieve our targets for the year.

In particular, I want to note the organic growth rate for the quarter of 10% in local currency, was down from both FirstService Residential and FirstService Brands. At FirstService Residential we continue to win market share in each of our markets across North America.

With near 10% organic growth the gains are clear as the market is growing at a lower single-digit rate. Our growth during the quarter was booed by particular strength in the high rise and lifestyle verticals, where we have significant deal advantage relative to our competitors.

We are leveraging the scale and the depth of our knowledge and experience to differentiate ourselves. Our offer especially in the higher rise vertical is very compelling on a relative basis and we are winning as a result which is helping drive our topline.

During the quarter we closed one acquisition within FirstService Residential, Custom Property Management, which serves the area around West Palm Beach, Florida and fits very well with our Homeowner Associations division in South Florida. Dave Brown founded Custom in the early 80s. He will continue to drive particular operations in his presence.

We have known Dave for years and are very pleased to have him joined the FirstService family. Custom will add 16,000 units under management, about $5 million of revenue and its very representative of the size and tuck-in acquisition that we target at FirstService Residential.

Moving on to FirstService Brands, the organic growth for the quarter was 11% in local currency. Again this quarter driven by a very strong double-digit growth at California Closets, CertaPro Painters, Floorcoverings International and Pillar to Post Home Inspection.

The divisional growth was particularly impressive, given that Paul Davis Restoration now our largest system was down modestly from the prior year quarter as insurance claim activity for the market as a whole continues to lag 2014 levels by 5% to 10%.

With the exception of Paul Davis, our brands have been booed all the year by our home improvement market that continues to benefit from last year’s upswing and new construction, and this year’s increase in existing home sales and also home prices, which drives home equity levels.

Our growth well exceeds market which is a reflection of our strong brands and reputations for quality and service excellence. We reported in the second quarter that we had closed on the acquisition of our Paul Davis Restoration franchise at Central Pennsylvania.

The first in our strategy to acquire the successful franchises in our major markets towards the goal of creating a national company endowment. During the third quarter, we advanced or initiate discussions on several new acquisition opportunities.

And we invested in the operational foundation of our company-owned platform to enhance our ability to integrate and operate future holdings on our acquisitions. Similarly, well we did not close the California Closets acquisition during the quarter, we made progress towards enhancing our acquisition pipeline.

And we made great strides in onboarding the production from our current operations into our new Phoenix production facility and have seen the quality and efficiencies to get started. Before I hand over to Jeremy to walk you through the financials. I want to acknowledge our operating team.

A result of this quarter and year-to-date, a very strong internal growth combined with leverage at EBITDA were primarily reflection of our hard work and great execution of our operating teams at FirstService Residential and FirstService Finance.

We have a exceptional operating personnel on the ground and at the end of day, it’s why we are waiting and growing the way we are. Over to you, Jeremy..

Thank you, Scott and good morning everyone. As highlighted by Scott in his opening remarks, we reported a strong quarter with revenues at $350 million, adjusted EBITDA $39 million and adjusted EPS of $0.50 at 12%, 38% and 28% respectively.

Looking at our consolidated results on a nine-month year-to-date basis, we generated revenues of $948 million, up from $850 million in the prior year period, an increase of 11.5% which included organic growth of 8% or 9% on a local currency basis.

Adjusted EBITDA was $80.7 million, a 31% increase over the $61.6 million last year, accompanied by margin expansion to 8.5%, up from 7.2%. An adjusted EPS was $0.92, up 31% versus $0.70 per share reported for the same period last year.

As disclosed in this morning’s press release, adjusted EBITDA and adjusted EPS includes certain adjustments in operating earning and EPS respectively as determined under GAAP to more appropriately reflect the economic earnings of our businesses. These adjustments are consistent with our approach and disclosures adopted in prior period.

Turning to our segments highlighted for the quarter. Our FirtService Residential division generated revenues of $278 million, an increase of 11% year-over-year. The strong organic growth that Scott previously referenced was balanced across all our markets.

We also saw a significant 53% increase in EBITDA to $25.3 million with our margin expanding to 9.1%, up 250 basis points over the last year’s 6.6% margin.

Our margin in Q3 of last year would have been 8.4%, excluding approximately $4.4 million of cost related to higher than expected medical benefits and the downsizing of our homeowner collection business.

The addition of 70 basis points of margin improvement this quarter came from regional operating improvements across our FirstService Residential platform. We had spoken previously about the ongoing cost and investments been directed towards this operating platform which commenced in 2013 in support of our national rebranding at that time.

This additional layer of cost is necessary to establish our most streamline and centralized structure, which is expected to drive efficiencies and margin expansion over the next three to four years.

It is very encouraging that this past quarter’s margin improvement, we start to see some early evidence of the benefits from earlier phases of these investments, particularly around accounts payable and payroll formation and processes.

Let me now shift for a moment to our FirstService Brands division, which generated revenues of $71.6 million for the third quarter, up 16% versus the prior year period, including the impact of our first Paul Davis Restoration corporate store investment. Our strong topline growth helped drive 11% increase in EBITDA to $16.6 million for the quarter.

We did see a large decline in margin in the order of 100 basis points for the division, largely due to mix from recent Paul Davis and California Closets corporate store acquisitions, as well as continued investments and transaction costs in support of both of these corporate owned strategies.

With respect to our consolidated cash flow and balance sheet, we reported strong operating cash flow of $34 million for our seasonal quarter, largely on the back of a robust topline growth across all businesses and the substantial improvement and profitability delivered by FirstService Residential.

Capital expenditures continued to remain on track with our expectations for the year. On our balance sheet, net debt was $149 million at quarter end, resulting in leverage of just about 1.5 times, net debt to trailing 12-months EBITDA.

With our current capital structure, we are well positioned to deploy our capital prudently and efficiently, with the priorities being on augmenting our strong organic growth with acquisitions that fit well with the strategies at both our residential and brands businesses.

As we look out to the fourth quarter and full fiscal year end, we remain on track to hit our financial targets. We feel confident about the visibility and depth of our new business pipelines and as Scott mentioned, the indicators around the home improvement market continue to look healthy.

When we report back to you on our year-end results, we will be providing some further commentary around our expectations for 2016. And that concludes our prepared comments. I would ask the Operator to please open the call to questions. Thank you..

Perfect. [Operator Instructions] First question coming from Sami Abboud of Scotiabank. Please go ahead, Samy..

Hi. Good morning, gentlemen and congratulations on a strong quarter. I’m filling in for Anthony Zica. My first question’s on, I guess the residential property management side.

Can you please provide maybe more color on the factors contributing to the strong internal growth and what the outlook looks like? Is this something that’s sustainable? You guys are definitely the dominant players in the space and with the whole high rise buildings taking off, what percent it’s about and wins and others?.

Yes, Sami. This is Scott. Our growth was 10% organic in the quarter , which is higher than it has been, as almost 8% this year and historically for the last few years. And the swing was new development, which was little stronger for us in the quarter.

It has averaged about 20% of our organic growth and it was closer to 30% for the quarter, competitive wins about 50% and self managed around 10% and 10% of other. In terms of it being sustainable, our read is that we will beyond average in the 7%, 8% range for the foreseeable future. But new development is quite strong right now..

Thanks.

And on the margin side, very strong improvement -- sorry?.

No, go ahead..

On the margin side, there was some very good improvement on the margins on the residential property management side.

How much of that was related to the operational improvement and what does that entail exactly? I know you covered a bit of it during the call but is this something permanent, is this something that we expect to see over the next few quarters and that will be a part of the permanent changes in margins?.

Yes. Sami, that 70 basis points out of the 250 basis points is the operating improvements and that’s starting to realize upon the investments that we made back in 2013 and our ability to march towards the clear line of sight of 8% margins for the business.

So right now we are seeing the earlier fruits of some of those investments more or lot on the automation around accounts payable and payroll processing, eliminating a lot of the paper and making things a lot more centralized and electronic and gain more scale and batteries with vendors.

So that’s the only part of it, there is more to come and we just think it’s got to be ready pace over the next three or four years as we expand the residential margins to 8%..

Thanks. And last question is on the working capital, it’s been pretty strong this year, the company has been getting lot of cash.

And with the financial flexibility that the company has now, are you planning on speeding up the acquisitions of California Closets and Paul Davis stores, or is that more dependent on whether they are up for sale, the ones that you want to please, what’s the plan here going forward?.

Yeah, we’re working hard on the acquisition side of things on both California Closets and Paul Davis. California Closets will probably I think do at a quicker pace than the Paul Davis deals were, it typically newer to us and we want to make sure that we can operationally integrate them well.

The dialogue is ongoing with multiple parties in both of systems. And it’s just a matter of getting those franchises willing to sell as they discipline in terms that we look to do our deals at. We think that in the next 12 to 18 months we will see increased activity on both of those systems in terms of acquisitions..

But our level of cash flow will not accelerate that..

Okay. Thank you..

All right. Our next question comes from Frederic Bastien of Raymond James. Please go ahead, Frederic..

Good morning, guys. You highlighted in your prepared comments that you didn’t acquire a California Closets franchisee during the quarter.

And I was wondering was it -- were you supposed to and if so, what were the causes of the delay?.

No, we weren’t supposed to. It will be underlying process over the next five years. Again our strategy is to own major markets and Jeremy indicated we’re in discussions with certain of those major markets today so it will be an ongoing measured over the next five years..

Now are these franchises individually owners, are there owners that may have one or two that if, I mean I appreciate that’s going to be lumpy in terms of M&A, but could we see -- you guys potentially add two or three in one fell swoop?.

For the most part they are individually all and that should be your expectation one us as we put these platforms together..

Okay. Thanks.

And then on the margin, historically the FirstService residential margins have been seasonal, how much of the big improvement that we saw in the third quarter was due to seasonality versus just good old margin expansion from the bottom?.

No, a lot of it is more of fundamental and driven by the operating improvements, much of it’s seasonal. We thought attractive on a year-over-year basis and we still think that we’re going to see it on a full year basis towards the end of the year a meaning and full improvement versus 2014. So seasonality is not a big driver of that..

Okay.

But Jeremy, could you remind us though how the margins do move along the quarters during the year?.

Yeah. I mean, Q3 is strongest margin quarter, Q4 will be lower than Q3, but we still see that for the full year as we said earlier this year, FirstService residential being the 6.5% to 7% range we believe we’ll still be on track for that.

And just coming back to your initial question on seasonality, Q3 is the strongest, Q2 is right behind it, Q1 is by far the weakest..

Okay. Thank you. That’s all for me..

Our next question comes from Stephanie Price of CIBC. Please go ahead, Stephanie..

Good morning..

Good morning, Stephanie..

In your prepared remarks you talked about the high-rise in lifestyle vertical and how you’re seeing the strong growth there.

Can you talk a bit about the competition that market versus your traditional gated community?.

Our scale advantage in those two verticals is more significant than it is in the sort of commodity style HOA business. We’re getting close to a billion in that division, our closest competitor is less than half of size. But in those two verticals we estimate our scale advantage to be closer to five times, so it’s quite significant.

And we leverage that scale in many ways to bring cost savings to our clients.

But also we invest in daily basis in both verticals and so we’re able to benchmark operating cost, energy efficiency, insurance loss run ratios and make recommendations to our clients which ultimately reduce their operating budgets, reduce their monthly maintenance costs and enhance the value of the units.

And it’s something that’s simply cannot be replicated by our competitors..

Okay. Great. Thank you. And then Jeremy, in terms of the operational investments that you’d made, can you talk a bit about how much more investments there to go and whether you could see more margin expansion sort of past? I know you’ve kind of guided to a medium term 8% number..

Yeah. We think that the investments will be behind us within the next 12 to 15 months towards the end of 2016. And just to be clear, those are new cost involving investments in the technology and operating platform, centralizing and regionalizing operations from the more local cost.

And we’ll be able to start to remove some of those local costs as we drive through 2017 and ‘18. The margin expansion that we see taking us to 8% will be relatively steady. We’re 6% on residential coming out of last year.

We think we’ll be at 6.5% to 7% this year and then it’s another 100 basis points plus relatively steady increments over -- through 2018 and beyond..

Okay. Great. Thank you very much..

All right. Our current last question comes from Brandon Dobell of William Blair & Co. Please go ahead Brandon..

Thanks. Scott, as you think about, I guess, couple of the personnel related expense buckets of healthcare cost or maybe just a noise in the U.S. about minimum wage and fair wage and things like that.

Any concerns on your part transition from ‘15 to ‘16 about those costs being -- I don’t know, less predictable than you would like, going on faster than you like or coming in the bigger chunks maybe? Just trying to get a sense of the people-related cost and your visibility, your comfort around the trajectory there?.

Right. I mean, labor is by far a biggest cost component, 85% in FirstService Residential and 50-ish in FirstService Brands. So it’s a challenge for us and a focus area of our for sure, we believe we’ve got great visibility around the health cost with a minimum wage. We are watching very closely. We have very few penny minimum wage employees.

But that doesn’t mean we won’t be interrupted in the paths on our related cost..

Right..

So we are following them very closely and read that we have good visibility today. Ultimately, these costs leave the past under our client some way and [indiscernible] ultimately we’ll be able to do that..

Okay. And I think I should enter this but I want to make sure given that the slow of new regulation on the U.S. around the housing market mortgages, real estates those kinds of things.

Any unintended consequences that you guys have seen in residential that have changed to how tenants, and owners, and management companies are able to interact with each other but also with vendors?.

Nothing comes to mind..

Okay. I’ll take it that as the answer but certainly want to make sure.

And then finally, you look across the resi portfolio, any particular, I guess states or areas within states that you feel you’ve got either, a lot more competitive momentum or market share momentum, or the dynamics in an industry are in your favor, or I guess the opposite where you see pockets of weakness that maybe unexpected?.

Everywhere, our markets grew by over 5% organically..

Okay..

Higher total markets were the once where there is proper new development right now, so Texas and Florida and California and here in Toronto. But we are really seeing some organic growth in our markets..

Okay. And then maybe, I hop down a bit late, maybe you touched on this.

But in those markets where you’ve got a good new development contributions to unit growth, how has pricing acted for the existing customers and those markets are able to get more pricing power because of the new developments or maybe better opportunities for you? Or it seems the opposite is happening, I guess, where new development is trading new competition and there is more price pressure?.

I don’t think it is impacted pricing in any materially way. Price increases for us this year have not been significant, a little over 1%. And we are looking for higher or bit more really in ‘16, but no meaningful impacts from our new development during the quarter..

Okay. All right. That’s it from me. Thanks a lot..

Thanks, Brandon..

There are no other questions at this time..

Thank you, Operator. And thank you again, ladies and gentlemen for joining us. And we look forward to our year-end call, which would be early mid-February. Thank you..

Ladies and gentlemen, this concludes the third quarter investors’ conference call. I thank you for your participation and have a great day..