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

Anthony Zicha – Scotiabank Stephen MacLeod – BMO Capital Markets Brandon Dobell – William Blair Stephanie Price – CIBC Marc Riddick – Sidoti Michael Smith – RBC Capital Markets.

Ladies and gentlemen 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 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 U.S.

Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is Wednesday, October 25, 2017. I would like to turn the call over to Chief Executive Officer Mr. Scott Patterson. Please go ahead, sir..

Thank you, operator. Welcome, ladies and gentlemen, to our third quarter conference call. Thank you for joining. I am pleased to be here today with our CFO, Jeremy Rakusin and together we will walk you through the strong results we posted this morning and answer your questions.

Let me start with a high-level review of the numbers and some commentary around our highlights. The results you saw this morning reflect the continuation of the positive themes that we have been talking about on these calls for several quarters now.

Revenues were up 12% over the prior year comprised of mid-single-digit organic growth and the balance from tuck-under acquisitions primarily within our FirstService Brands division. EBITDA was up 14% driven largely by continued margin improvement at FirstService Residential, and earnings per share were up 19%.

So 12%, 14% and 19% at the revenue, EBITDA and EPS lines. This again supports our long-term goal of averaging greater than 10% growth on the top line with leverage at the EBITDA line and again at the earnings per share line. Both of our divisions reported solid results. At FirstService Residential revenues grew 5% in total, 3% organically.

Organic growth was again broad-based across most regions but led by our operations in the Sun Belt in particular Florida, Texas and Nevada. EBITDA margins at FirstService Residential were up again this quarter. This is the tenth consecutive quarter that we have shown year-over-year margin improvement in this division.

Jeremy will give you the details in his commentary. During the quarter, we announced the acquisition of Zalco Realty, which is a leading residential property management company in the greater Washington D.C. area with a particular focus on high-rise.

This was a very important strategic move for us, which positions FirstService Residential as the clear leader in the mid-Atlantic states and significantly bolsters our position in the high-rise market. We've been nurturing this relationship for years and are very pleased to finally bring Zalco into the FirstService family.

Moving on to FirstService Brands revenues for the quarter were up 30% versus the prior year, with a healthy one third coming organically and the balance from six tuck-under acquisitions completed in the last year. Three Paul Davis operations, two California Closets operations and the Advanced Fire partnership deal in Florida.

The organic growth of 10% was driven by solid double-digit growth at both our California Closet and Paul Davis company-owned operations and also at Century Fire. The rest of the operations in this division averaged mid-single-digit organic growth.

Growth at our company owned operations in California Closets and Paul Davis has consistently outpaced the franchise systems this year as we continue to invest in best practices, infrastructure and in building capacity.

The market has been strong for both businesses and we have aggressively added designers and installation crews at California Closets and estimators and project managers at Paul Davis to ensure that we capitalize on the leads that we are generating. Century Fire is a similar story, the market is strong and the labor is tight.

It is a restrainer, we have been very aggressive and successful in recruiting talent to take advantage of the market to the extent we can and the results reflect this. In general the markets impacting our Brands division remain buoyant and expect continued strong results through year-end and into Q1 of 2018.

During the quarter, we announced we have further expanded our California Closet company-owned operations with the acquisition of our franchise in Atlanta. A top ten metropolitan market, which is critical to our company owned strategy.

The acquisition brings to fifteen, the number of company-owned operations and provides us with future volume and capacity utilization for our recently opened Eastern manufacturing center in Grand Rapids, Michigan. During the quarter we added a second line to the Grand Rapids facility and transitioned the production from our Washington D.C. operation.

We feel very positive about our progress and direction with both of our manufacturing facilities Grand Rapids and Phoenix. Before I ask Jeremy to walk through the financials in more detail. I want to comment on the impact that hurricanes Harvey and Irma had on our operations and share how we responded in a few of our businesses.

We have close to 9,000 employees in Texas and Florida including our franchises. About a quarter, of our total workforce, so we had significant exposure to these hurricanes.

Many of our employees were displaced from their homes, and certainly many suffered damage to their homes, but I am relieved and pleased to report that no one was physically harmed and all our employees have now returned to work.

Our platform operations responded quickly to help our people that were most acutely affected with employee and corporate donations of paid time off, so folks could attend to their families and homes and monetary contributions for those in financial distress, as a result of the hurricanes.

There was a very strong response across the FirstService companies to help alleviate the burden on our people in affected areas. At FirstService Residential, we have 20 offices in Texas and Florida supporting the management of about 2,700 communities. Many of our offices were forced to temporarily close.

But we were immediately able to leverage our scale to seamlessly continue providing the most critical services. For example our 24/7 Florida based customer care center, which closed for four days.

We simply transferred the calls to our Las Vegas care center and while wait times increased modestly during this period of very high call volumes, we were able to continue serving our clients. No other company in our markets has this kind of capability.

There are many other examples where scale and depth of resources enabled us to differentiate ourselves and ensure seamless service delivery to our clients. At Paul Davis, we responded to the hurricanes in force to ensure exceptional service for our national customers that have people and assets in Texas and Florida.

We mobilized roughly 45 crews to each of Houston and the surrounding coastal area and South Florida. Some of our crews were working with FirstService Residential managed properties further differentiating FirstService in terms of response and capability.

Net, net the incremental revenue was not material in third quarter and while we will get some lift at Paul Davis in the fourth quarter, it is not expected to be material to our overall results.

Similarly, the incremental costs incurred in the third quarter for additional paid time-off payroll expense, for repairs to our damaged facilities or relating to lost revenue, were not material. And similarly in the fourth quarter we do not expect any incremental cost materially, will impact our results.

And to wrap up my comments, I will say that we are incredibly proud of our people and their resilience and the strong commitment to customer service that they exhibited in the midst of these challenging and stressful events. Also very pleased to see our scale, infrastructure and disaster recovery capability that we've invested in over the years.

We're clearly on full display during this time. Now let me ask Jeremy to provide more detailed commentary..

Thank you, Scott and good morning everyone. As highlighted both in our earlier press release and by Scott in his prepared remarks, we reported a strong third quarter financial performance. Consolidated results included revenues at $457 million, adjusted EBITDA at $53.1 million, and adjusted EPS at $0.74, up 12%, 14% and 19%, respectively.

To summarize our consolidated results for the nine months year-to-date, we generated revenues of $1.27 billion, up from $1.1 billion in the prior year period, an increase of 15%. Adjusted EBITDA was $121.5 million, a 22% increase over the $100 million last year, driven by our top line growth as well as margin expansion to 9.6% up from 9%.

And adjusted EPS was $1.52, up 25% versus $1.22 per share reported for the same period last year. Our adjustments to operating earnings and GAAP EPS in arriving at adjusted EBITDA and adjusted EPS, respectively, are summarized in this morning's press release and are consistent with our approach and disclosures in prior periods.

Turning now to our segmented highlights for the quarter. FirstService Residential generated revenues of $314.6 million, an increase of 5% year-over-year. Our EBITDA for the division increased 15% to $33.3 million. This was accompanied by EBITDA margin expansion to 10.6%, up by 100 basis points over last year’s 9.6% margin.

As we continue to benefit from the ongoing cost reduction initiatives in several areas, particularly in streamlining and reconfiguring local costs into a more regionalized structure.

The year-over-year margin expansion for the quarter was further amplified by the more proactive reallocation of our resources towards higher value client opportunities that we have spoken about over the past year or so. Contribution from certain ancillary services also helped nudge the overall margin higher for the quarter.

Shifting over to our FirstService Brands division. We generated revenues of $141.9 million for the third quarter, up 30% versus the prior-year period. Beyond the strong organic growth that Scott commented on, we continued to realize meaningful contribution to the top line from a number of acquisitions over the past year.

EBITDA during the quarter increased to $23.2 million, a 14% increase year-over-year, with our third quarter margins coming in at 16.3% down from 18.6% in the prior year quarter.

The biggest driver for the reduced margin, as in prior periods, was the strong contribution from the lower margin company-owned operations at Paul Davis, California Closets and Century Fire.

Each of these businesses reported strong double-digit organic growth during the quarter and also benefited from well performing recent acquisitions in the results. Turning now to our balance sheet.

Let me first address the $6.2 million one-time noncash goodwill impairment charge relating to our Service America operation, as disclosed in this morning's press release. Service America is our Florida-based HVAC business and is the smallest of eight service lines within our FirstService Brands division.

We have spoken over our past several quarterly earnings calls going back to Q3 of last year about the challenges relating primarily to Service America's commercial segment and its declining year-over-year revenue since early 2016. Under U.S. GAAP, goodwill is required to be tested for impairment annually.

And we, at FirstService, conduct our annual testing on August 1 of each year. As a result of our annual review during this current third quarter, we concluded it was necessary to take the impairment charge relating to Service America.

This impairment is isolated to that particular business and represents 5.5% of total goodwill for the FirstService Brands division and 2% of our company's consolidated goodwill. These percentages measured prior to the charge.

I would note that the modest noncash amount of the charge does not affect the company's cash flow, liquidity or compliance with debt covenants. As I will now describe further, our balance sheet position and cash flow profile remained very strong.

At quarter-end, net debt on our balance sheet was $233 million, resulting in leverage of 1.5x net debt to trailing 12-month EBITDA and equal to the leverage ratio in both the prior second quarter and at year-end 2016. We have been able to maintain this conservative capital structure through our strong free cash flow generation during the year.

In the third quarter, cash flow from operations before working capital changes was $38 million, contributing to a total of $87 million over the nine months year-to-date, a 20% increase over the $72 million for the same nine month period last year.

During the third quarter, operating cash flow declined versus prior year after accounting for increased working capital to support growth in our FirstService Brands company-owned operations. Turning to our capital spending.

We incurred just over $7 million during the quarter and have now spent $26 million year-to-date in support of our existing businesses.

We maintain our expectations with total annual capital expenditures for 2017 to come in around the $40 million level, including maintenance CapEx in the mid-$30 million range and modest additional growth-related investments. On the acquisition front, we deployed $22 million towards a handful of transactions during the third quarter.

For the nine months year-to-date, we have now allocated a total of $35 million of capital towards that tuck-under additions, a healthy dose of acquisition spending in strategically important markets, which brings in additional revenue to further augment our organic growth.

Our tuck-under acquisitions pipeline and dialog with potential targets continues to be active, as we look to advance the process on a few more transactions in the coming months.

With our fourth quarter now underway, we have good visibility that we will hit our 2017 financial targets established at the beginning of this year, specifically double-digit revenue growth and consolidated EBITDA margin expansion taking us above 9%.

The strong results year-to-date and positive business indicators also provide a solid foundation for our operations heading into 20.18. We will provide some high-level commentary around our outlook for next year on our scheduled earnings call in early February, addressing our 2017 year-end results. That now concludes our prepared comments.

I would now ask Mike, the operator, to please open up the call to questions. Thank you..

Sure. [Operator Instructions] First question comes from Anthony Zicha from Scotiabank. He's is a sell-side analyst. Please go ahead..

Hi, good morning, Scott and Jeremy..

Good morning..

Scott, you mentioned that you benefited slightly from the hurricanes in the quarter. You did mention that Q4 should have somewhat of an increased momentum.

What does history tell you about these past situations with hurricanes? And should we expect an acceleration going into Q2 and Q3 of next year? But more importantly, what does the histories tell you from the past?.

First of all, Tony, it puts incredible stress on our people and the business in general. And we've – as I said, we were exposed. We have a lot of people and assets in the affected areas totally come through it. We've come through it well. History would suggest that it's a double-edged sword.

So, for example, California Closets, Certa ProPainters will be impacted negatively in those markets. Paul Davis will generate incremental revenue in the fourth quarter and it will continue through some construction work and more remediation work, it will continue into the first and second quarter of next year.

And then, FirstService Residential is probably net-net flat in terms of revenue and costs. So I don't see us, as I said in my prepared comments, showing any material lift over incremental costs associated with these events, but we will be dealing with it for many months..

Okay, great.

You mentioned on the branded side, like how confident are you that you will be able to grow faster your corporate stores versus your franchisees? How long, in terms of the timeline, can you sustain that? And in terms of challenges like, can you give us a bit more color about recruiting employees and also their retention?.

What is driving our outperformance over the last year really is the tight labor market. We have increased – and that impacts all of our businesses. We have open positions that virtually every company, every FirstService company, which means that we're capacity constraint.

At our owned operations, we are increasing our investments significantly in recruiting, onboarding, training, and it is making a difference. We're seeing that most clearly, I think, at Paul Davis and California Closets, the owned operations, because we can compare them to our franchise system.

And many of our franchisees, in particular our large franchises, are not investing in the same way to expand capacity.

I mean, it's work to bring on additional crews and to manage additional crews to deal with the turnover, and so we're certainly encouraging our franchise systems to take advantage of the strong markets and we're leading by example and showing them our data and our performance. But we don't own those businesses and we can't control it.

So I would expect, as long as the labor market continues to be as tight as it is, we will outpace the franchise system..

Okay, great. And then one last question. With reference to Paul Davis, where do you stand in terms of capitalizing your network with nationwide insurers? And what kind of critical mass do we need so we could execute that kind of strategy efficiently? And how do you see the timing on that, Scott? Thank you..

I think we need to get to our 20 to 25 major market goal, which effectively gives us a national platform, a thin one but a national platform where we can credibly demonstrate a level of consistency that is – that exceeds the franchise system, not only ours but our competitors, which are primarily franchise organizations.

So we're few years away from that only probably three to four to five..

Okay. Well, thank you very much and congratulations on your results..

Thank you..

All right. Next we have a question from Stephen MacLeod, who's a sell-side analyst from BMO Capital Markets. Please go ahead..

Thank you, good morning..

Good morning, Stephen..

I just wanted to circle around on the FSR business.

Can you just give a little bit of color around where you are in the process of reviewing contracts? I mean, I know we're a couple quarters in now, but just wanted to get a sense as to where you are when you're reviewing these lower profitability contracts and whether the bulk of that is in the rear-view mirror at this point, or do you still see it as an ongoing initiative going forward?.

It's ongoing, Stephen, and it will be. And I've just kind of repositioned it away from our proactive review of contracts, and that certainly, I think, did take place in some markets.

But what we've been – the message we've been communicating in last three quarters, I would say, is that this is – think of this as a more disciplined approach to our renewals and the pricing decisions in general. And this more disciplined approach, and I'll say primarily with respect to renewals, is causing our retention rates to come down.

But our focus is more on balancing healthy retentions with margin. So we're not going to chase lower cost competitors if they come in and cut the price on renewal. We are very focused on the tight labor market, the capacity constraints we have, and focused on ensuring that we allocate our labor effectively.

And so you're seeing that in our results, the retention rate and organic growth is coming down and is modest, but you are seeing our margin also and it's – for us, it's a healthier balance, and so you should expect to see this continue..

Okay. Okay. That's helpful.

When we turn to the FirstService Brands business, just given the trend line in margins, given the strong growth of the company-owned businesses, can you just talk a little bit about how you see that margin evolving for the full-year 2017 and then beyond, as you bring on and generate some of the efficiencies from your California Closets cutting operations?.

I’ll ask Jeremy to….

Steve, I'll take that one.

I'd say the margin declined quarter-over-quarter pretty well a 100% of it contributed to that was due to the strength in the company-owned operations and that's not just Paul Davis and California Closets but also Century Fire fully contributing to that 200 basis points decline, and that is really a function of them outgrowing the rest of the system.

We expect that to potentially be the case in future quarters, but I would say that as long as those businesses are growing and we're adding in additional tuck-under acquisitions, which is our plan for those businesses, we could continue to have a little bit of modest margin dilution for the overall Brands division.

We expect to come in down from last year modestly, but believe that over the longer term, we can hold in, in the mid-teens FirstService Brands margin level for the division..

Yes, okay.

And can you just provide a quick update just in terms of getting to that mid-teens number, where you are in bringing capacity – cutting capacity online?.

You're talking about the Cal Closets efficiencies?.

Right. Yes..

Yes. So we're making strides. The western manufacturing facility at Phoenix has driven some efficiencies there but we are also moving some of that production into the eastern manufacturing facility at – in Grand Rapids, Washington D.C. being the example this particular quarter.

We're also continuing to invest in that business, adding to the senior management team and also trying to increase the capacity utilization at the eastern manufacturing center. So I'd say that the moving parts for west has some efficiencies.

We're still going to gain further as we bring the big Orange County franchise that we acquired earlier this year on stream at some point in 2018.

But that incremental margin expansion we spoke about, 300 basis points or higher is really something it's going to happen over the coming years and also as we win ourself off of the further investments in the centralized manufacturing and corporate structure..

Okay, that’s great. That’s very helpful. Thank you..

Thank you..

All right. Next we have a question from Brandon Dobell, who's a sell-side analyst from William Blair. Please go ahead..

Thanks, good morning, guys.

I guess, first question, if you think about the residential business, should we expect the organic growth to kind of remain in this three-ish percent range? Or are there factors out there in the next couple several quarters that to return it back up to the kind of 5% to 7%? Or I guess pressure it maybe it's new development and some of the market slowing down that would pressure that rate down to kind of a 2% or 1% in the near term?.

Brandon, I think it's going to be at a similar level to what you see in the last few quarters for the foreseeable future and we'll – I mean, we'll foreshadow if we see it ticking up or down, but mid-to-low bouncing around the level that we've seen in the last six months..

Okay, thanks.

And then given the success you guys are having with the production centers in the company-owned locations, how do we think about the opportunity and I guess the time frame around if there is an opportunity to have some of the franchise owners territories take part in the some of the scale that you've built in the production centers?.

It won't be for a few to several years. We – I mean, we're sure to get this mapped out. As it relates to our company-owned operations, we're adding a third line to Phoenix next year. As we start to roll in Boston and the Florida businesses into Grand Rapids, we'll be adding a third line there.

As we make more acquisitions, we will add fourth lines to both in driving efficiencies and capacity utilization along the way. But we – I mean, I think as we continue to make acquisitions, there is an opportunity for us to continue to invest for the company-owned business.

But we are open-minded to bringing on the franchises, but it's not in the near term..

Got it. Okay. And then as we think about the pace of investment, you mentioned the additional lines potentially in 2018, so should we expect CapEx in 2018 to look pretty similar to CapEx in 2017, or is incremental investment in the production facilities? And again, this is without acquisitions, just PP&E investments.

Is incremental investment in 2018 going to be a little bit less than 2017?.

Maintenance CapEx should be relatively same. This year, maintenance CapEx, mid-30s, think of it as around 20% of EBITDA. And then we've always got very modest growth related investments, particularly as we bring other acquisitions online, investing in whether it's vehicle fleets, showrooms, et cetera.

The actual investments in additional lines is very, very modest. I mean just to open the – to give you context, to open the eastern manufacturing center earlier this year and get those lines in place with a total of $3.5 million. So an extra line is quite minimum given that..

Got it.

And then, final one from me, Jeremy, I would imagine the answer – I know the answer but just to confirm with the write-down of goodwill with the Service America business, any change to how we think about the non-controlling interest calculation on the P&L going forward, or tax rate or anything from that write-down?.

No, I the non-controlling interest should still be in, what I've articulated, at 10% to 12% of earnings share. That's not going to change. The tax rate was a little higher this quarter, because of the write-down, but on a full year basis, we expect it to still be in the low-30s range..

Okay, perfect. Thanks guys..

Thank you..

Alright. Next we have a question from Stephanie Price, sell-side analyst from CIBC. Please go ahead..

Good morning..

Good morning Steph..

Good morning..

So Zalco represents the first residential acquisition you've done in over a year.

Can you talk a bit about how you thinking about acquisitions in that residential business and how you look at allocating capital for M&A between the Brands and the Residential businesses?.

Well within FirstService Residential, we are focusing on management companies like Zalco, which I would describe is a same market deal. We operate in that market and that provides us with greater market share. We're secondly focusing on geographic expansion, and then ancillary service lines and companies to fill – load our offering in various markets.

And I would say that the pipeline across those three areas is reasonably active right now. We have been working on the Zalco deal for quite a period of time, as I mentioned in my prepared comments. And we would expect to do more deals like Zalco over the next few years.

In terms of capital allocation, we have priorities across different businesses, we have our company-owned strategy, we have the strategy I just articulated for FirstService Residential, we have our strategy at Century Fire and Fire Protection market, and we are not prioritizing one over the other.

We have the capital to run all three coincidentally, and we're doing just that..

Great thank you. And then in terms of margins in residential, in your prepared remarks, you mentioned it's the tenth quarter of margin expansion.

Can you talk about where you are in the operational improvements in the residential business and how we should think about margin expansion in the future, given these improvements and the work you're doing on the renewal side?.

In other words, will it be on the 11th quarter. I'll let Jeremy take that..

Yeah, hi Stephanie, so where we are in terms of those operational improvements, 2/3 to 3/4 of the way through we've said in prior quarters that the biggest initiative still in front of us is regionalizing and some cases centralizing some of the client accounting functions.

We expect to get continued margin improvement through 2018, but there will be a much smaller grind in terms of basis points improvement versus this year. This quarter's phenomenon did have some of the improved contract economics, and we'll see some of that in Q4 for sure as well. So I think Q3 and Q4 are going to be bigger as a result of that, all-in.

And then as we head into 2018, we should see the margin improvement taper off significantly compared to what you've seen not only for this quarter but also going back last year..

Okay great, thank you very much..

Thank Steph..

All right. Next we have a question from Marc Riddick from Sidoti. He's also a sell-side analyst. Please go ahead..

Hey good morning..

Good morning Marc..

Wanted to follow up on just to confirm as far as the overall company goals on California Closets. I think you already touched on sort of approximate few years, maybe five year time frame on getting to 20 to 25 at Paul Davis.

Just wondering to see if there was any update on the California Closets side?.

Marc, its Jeremy, how are you. We’ve got 15 today. We've articulated a target of 20 to 25. We expect to be there in potentially two to three years. We would like to do at least a couple per year, three would be a strong year for acquisition activity. We're targeting having 50% or little more than our system-wide sales as corporate revenue.

And that would be, in today's figures, $200 million plus. Again, we're 2/3 to 3/4 of the way through just based on the number of franchisees and as a percent of that targeted revenue..

Okay, excellent. And then I wanted to touch on the goal of firming up the discipline on the renewals and pricing to go back to that a little bit on the residential side.

I wanted to just get a sense of maybe some of the, how we should think about maybe the targets that you're looking at, Jeremy? Are we sort of shooting for kind of a general margin target or a general return target that you have and minus these renewals come up or kind of – or is it sort of more on a case-by-case basis that we should think about it?.

I think that we have targets, but it's definitely a case-by-case basis and depending on the strategic significance of the account. What we're really doing is finding a balance.

Retention is very important, but I think we're at a point where perhaps we were over emphasizing retention and keeping accounts even if it required us to drop our price to keep it in the face of price competition. Our competition in this business in really most of our markets are small family-owned companies.

They have different goals, different business models in many cases and they really differentiate on price. And so it disrupts, it recreates a disruptive market. And so we are, on a case-by-case basis, choosing whether to retain the account or not..

Okay, that is very helpful thank you. And then I was wondering and certainly you've touched on the contribution of the company-owned and the leaders of that on the Brand side.

I wonder if you could just spend a few more moments additionally on where we are with Century Fire and what the progress that you're making there and some of the things that you foresee on growth going forward specific to the Fire Protection side of business? Thank you..

Sure, very strong quarter at Century, double-digit organic growth. We are benefiting from a strong real estate development market, which is driving our sprinkler and alarm installation business, but we're also succeeding in driving our repair services and inspection business, which has been a strategic goal.

When we first acquired Century in April of 2016, the focus was on adding to the service side of the business. And we're doing that, it is growing faster than the installation side. We're building the sales force where we've invested heavily in national account capability, and we're seeing a return on that investment.

So very pleased with the momentum at Century Fire, but we're also cognizant of the fact that part of that growth is associated with the strong development market, and that's a cyclical business working very hard to drive service to offset that when we get to a downturn..

Okay great thank you very much..

All right. And the last question we currently have in the queue comes from Michael Smith with RBC Capital Markets. Please go ahead..

Well thank you and good morning, just picking up on that Century Fire comment, can you give us some color on potential for additional tuck-unders?.

Yeah, sure. I mean, it's something we're focused on and working on. It's a fragmented market like many of the others that we operate in. There's thousands of small family-owned fire protection companies. There's also some much larger companies who are also acquisitive.

So we have an active pipeline but we face more competition in this market than we do, and in a few of the other markets where we're active. Private equity firms and acquisitive competitors both hoping for us, which is a difference for us. But we're optimistic that over the next year, we'll add to this business through tuck-unders..

And are you doing, how are you adapting to that competition, like are you still moving ahead on more investments within to grow the operations, maybe opening up branches? Or is there anything that you're doing to sort of combat the, I guess, more difficult acquisition market?.

Not necessarily. I mean, our strategy from the get-go is to fill out our service offering at the 13 locations operations that we have. And we can do that through hiring, recruiting. In other words, greenfield, starting a service line or through tuck-under acquisitions. And we are moving to recruiting and hiring in some cases instead of a tuck-under.

But we're also laser- focused on parts of Florida, Texas and North Carolina right now strategically for our tuck-unders, and so we're going to stay on that and we'll figure it out..

Thank you and just switching gears, just for your central manufacturing facilities for Cal Closets, how many lines can you get?.

We can put into up to five lines in each..

Okay up to five, okay..

That’s under our plan..

And then switching over to the res business, do you expect to get margin expansion from more of a focus on ancillary revenue over the next few years?.

Not necessarily. Our focus is on ancillaries is consistent and constant. And so we would expect that, on balance, our ancillary services will grow in lockstep with our management fee revenue. And quarter-to-quarter, we may see a little bit of mix change. But over the next several years, they should move in line with each other..

Great, thank you. That is it from me..

All right and we don't have any other questions in the queue at this time..

Thank you for joining us and we look forward to our year-end call..

Ladies and gentlemen, this concludes the third quarter investors conference call. Thank you for your participation, and have a nice day..