Welcome to the Fourth Quarter and Year-End 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 as filed with the Canadian Securities Administrators and 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 February 6, 2019. I would like to now turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir..

Thank you, Tasha [ph]. Good morning, ladies and gentlemen, and welcome to our fourth quarter and year-end conference call. Thank you for joining.

As usual Jeremy Rakusin, our CFO is here with me, and together we will walk you through the results we released earlier today, a very strong fourth quarter, and we will also speak to some of our full-year financial metrics. Let me kick off by saying that we are extremely pleased with the way our operations finished the year.

The fourth quarter results exceeded our expectations and capped up another excellent year for FirstService Corporation. Revenues for the quarter were up 13% in total with a robust 8% generated organically, largely driven by double-digit organic growth at FirstService brands.

EBITDA was up 23% over the prior year with consolidated margin expanding by 80 basis points supported by margin improvement at FirstService Residential and lower corporate cost at the FirstService level. Jeremy will provide more detail around the margin expansion in a few minutes.

Both of our divisions had strong quarters at FirstService Residential revenues grew 7% in total, 5% organically, which again is in the mid to low single-digit range that we have generated with consistency over the last two years. Organic growth was broad based geographically and driven primarily by new contract wins.

During the quarter, we announced the acquisitions of condominium concepts management headquartered in Atlanta and with operations in Nashville and Florida and community management group based in Charleston South Carolina condo concepts and community management pulled market leading positions in Atlanta and Charleston respectively and significantly increase our presence in both markets.

In addition, condo concept provides us with a larger footprint in the fast growing Nashville market which we believe we can quickly capitalize on post integration after introducing our systems and differentiators.

These two companies have long tenures, they are highly respected organizations with great cultures and strong teams and we are very excited to welcome them into the FirstService family.

Moving down to FirstService's brand, revenues were up 25% versus the prior year comprised of very strong organic growth of 14% and the balance from tuck under acquisitions completed in the past year, in restoration, in fire service FirstService and relating to our company-owned acquisition strategy at California Closet.

The organic growth of 14% for the division exceeded our expectations primarily due to the very strong results of Paul Davis Restoration.

The large loss claim activity from hurricanes Michael and Florence, plus the wildfires in California led to revenues at Paul Davis National, which matched the significant revenues we generated in the fourth quarter of last year from hurricanes Irma and Harvey.

In addition, our company-owned operations in the mid-Atlantic, the Northeast region and Florida all experienced higher levels of claims and revenue versus the prior year, which drove double-digit organic growth for our restoration operations in total.

This was supported by double-digit organic growth at our home improvement brands, especially CertaPro Painters and California Closets, and we also generated double-digit organic growth at Century Fire, very strong activity across the board in this division.

Our focused investments on recruiting talent and increasing capacity over the last 24-months enabled us to capitalize on the strong markets. During the quarter, we completed two acquisitions under Century Fire.

We added commercial fire and communications, which operates across southwest Florida, plus allied fire protection based in Raleigh, North Carolina. These two acquisitions expand our footprint in key strategic markets and importantly bring two talented young leaders on to the Century team. We have now added five tuck-unders in the Southeast U.S.

to the Century platform since we partnered with Scott [indiscernible] team in 2016. In the fourth quarter, we also made a strategic decision to exit our Service America business. We've been clear over the last few years that Service America was a small non-core business for us.

We thoroughly explored all exit alternatives and at the beginning of Q4 we decided on orderly wind down, which was largely executed and complete by the end of the quarter. Jeremy will add more detail in his prepared comments. Looking forward for FirstService brands the hurricane and wildfire claims response did not carry into Q1 of this year.

For the most part we have moved out of those affected areas. Also while the home improvement market remains solid. It does appear to be easing off slowly due to reduced sales of existing homes and slowing home price gains versus a year ago.

As a result, we expect organic growth in our brands division to return to the mid to high single digit range which is what we've averaged over the past couple of years. Before I hand over to Jeremy I want to reiterate how pleased we are with our fourth quarter and full-year results.

2018 proved to be another excellent year for us with revenues up 12%, EBITDA up 20% and earnings per share up 31% over the prior year. This continues an impressive run for FirstService since our spin off into a separate public company in early 2015. Revenues are up 71% and EBITDA has increased 250% in the four year years since.

Our long term goal is to grow our revenues at an average rate of at least 10% per year with incremental growth at the EBITDA line. We've achieved and exceeded this goal for many years including 2018 and we feel confident that 2019 will bring more of the same.

I want to take this opportunity to thank our operating partners and teams for all they do to drive our success. We have a great company and it is a direct result of the 33,000 engaged employees we have that make a difference every day. On that note, I will transfer over to Jeremy..

Thank you, Scott, and good morning everyone. As highlighted in our press release this morning and reinforcing Scott's earlier comments we had a very strong fourth quarter finish to 2018, which largely mirrored our full-year results.

More specifically during the fourth quarter our consolidated results included revenues of $503 million up 13% versus the prior year quarter, adjusted EBITDA came in at $48.7 million up 23% and adjusted EPS was $0.62 up 27% versus Q4 2017. For the full-year 2018 consolidated financial results showed a similar strong year-over-year growth path.

Annual revenues were $1.93 billion up 12% including 6% organic growth. Adjusted EBITDA was $190.6 million up 20% with our margin expanding by 70 basis points to 9.9% and adjusted EPS was $2.61 up 31%.

As disclosed in this morning's press release, certain adjustments have been made from GAAP operating earnings and per share earnings to arrive at our adjusted EBITDA and EPS results, each of which are consistent with the approach adopted in prior periods.

Furthermore as in all prior quarters of 2018 our press release noted that prior year 2017 results have been recast to reflect the U.S. GAAP revenue recognition standards, which came into effect January 1, 2018 with relatively insignificant impact to our consolidated financial results and no impact on our cash flow.

I'll now walk through the fourth quarter performance of our two reporting divisions FirstService Residential and FirstService brands. Starting with FirstService Residential, revenues were $312 million during the quarter, up 7% versus the prior year period.

Our EBITDA increased to 11% to $25.9 million, driven by 30 basis points of margin expansion quarter-over-quarter reflecting our continued effective labor cost management. For the full-year revenues grew by the same 7% including 4% organic growth.

The division also reported improved profitability for the year with a 9% margin, 50 basis points higher than the 8.5% level in our 2017 full-year results and benefiting from particularly strong margin expansion in the first-half of the year.

Moving onto our FirstService brand division, we reported fourth quarter revenues of $191 million, up 25% versus the prior year period and EBITDA grew by 24% to $23.9 million. For the full-year the division generated very similar robust performance of 22% total revenue growth including a 9% increase on an organic basis along with 23% growth in EBITDA.

On margins for both the fourth quarter and the year were relatively comparable to prior year periods. These very strong results in the FirstService brand division were achieved notwithstanding the wind down of our SERVICE AMERICA business during the fourth quarter.

As Scott noted earlier, and as we have commented on previously, SERVICE AMERICA was small and had been non-core for us over the past few years. The decision to wind down operations while not taken lightly did not have a significant impact on our financial performance for the quarter or the year and will not impact our outlook for 2019.

SERVICE AMERICA'S revenues in 2018 were less than 1% of our consolidated revenues and the business was generating modest operating losses at the time of the wind down decision. In Q4, we incurred $4.9 million of non-recurring charges relating to the wind down, roughly equal amounts of shutdown transaction costs and accelerated asset depreciation.

While these expenses negatively impacted our GAAP operating earnings, they are added back and therefore excluded in the calculation of adjusted EBITDA.

Shifting back to our consolidated financial results, I wanted to also call out the cooperate cost line for the fourth quarter, which were $1.2 million significantly lower than the $3 million in the prior year quarter and roughly $3 million quarterly run rate for the first three quarters of 2018.

The almost $2 million decline in Q4 was largely attributable to a foreign exchange pick up largely attributable to a foreign exchange pickup driven by a combination of a significantly weaker Canadian dollar and higher Canadian dollar denominated net liabilities during the quarter.

This pickup which contributed to that 9.7% consolidated margin for the quarter is an anomaly and we expect future corporate cost to be more in line with prior period trends. Now onto our cash flow, where FirstService ends the year with more than $150 million in operating cash flow before working capital changes, an increase of 24% over 2017.

The fourth quarter cash flow before working capital of $37.45 million an increase at a similar pace, up 26% over the prior year quarter.

Due to a large increase in working capital requirements to fund the strong growth of our Paul Davis and Century Fire company-owned operations, our cash flow from operations experienced a year over year decline after taking into account this working capital usage.

Capital expenditures for 2018 came in at slightly over $40 million, right on the mark with the guidance we previously provided during the year. And on the acquisition front, we deployed almost $60 million on 13 transactions, reflecting 50% higher activity versus 2017.

The deals provide broad based contribution across our operations with three within FirstService Residential, six adding to our Paul Davis and California Closets, company-own platforms and four helping to drive the growth at Century Fire Protection.

In aggregate, these tuck-ins just generate in the order of $100 million in additional revenue on an annualized basis. And the deal pipeline today continues to remain solid.

Turning to our balance sheet, year-end net debt was $268 million resulting in leverage of 1.4 times net debt to 2018 adjusted EBITDA, a tick higher than the 1.3 times level at both the end of the prior third quarter and 2017 year-end.

We were able to keep our leverage ratio in line even with the higher acquisition spending and working capital investments I mentioned earlier, a testament to our ability to generate strong free cash flow, which internally funds our growth.

Yesterday we also announced the approval by our board of directors of an 11% increase in our dividend to $0.60 per share on an annualized basis in U.S. dollars up from the prior $0.54.

This is the fourth consecutive annual dividend hike of 10% plus since our spin off into a separate public company in mid-2015 with a cumulative 50% increase to the $0.60 level from $0.40 at the time of our spin off. Our balance sheet remains strong.

Leverage is conservative and liquidity in terms of remaining available [indiscernible] revolver and cash on hand at year-end was in excess of $130 million. We have significant capacity and flexibility to fund the $22 million an increased annual dividends and drive our growth opportunities both internal and by our tuck under acquisition program.

Let me finally finish by providing with a sense of our outlook for 2019. With both macro indicators and our operational metrics continuing to be positive, the themes supporting our growth expectations remain intact consistent with the track record, we've demonstrated over the past four years since our spin-off.

We anticipate consolidated organic top line growth to be in the mid-single digits. To deliver our targeted total revenue growth of at least 10%, we will look to add several more tuck-under acquisitions during 2019 together with benefiting from deals recently completed within the past several months.

These guideposts for 2019 are consistent with our outsized longer-term goal of compounding annual total revenue grow at 10% or more. We will also aim to increase our consolidated EBITDA margin over 2018, but we expect margin improvement if any in both our FirstService residential and FirstService brands divisions to be incremental.

Our consolidated margin should benefit from divisional mix, if the higher margin FirstService Brand segment continues to grow at a faster pace than the FirstService Residential segment, which is our expectation provided home improvement spending and tuck-under acquisition activity levels remain strong.

Our tax rate is likely to be in the order of 25% to 26% going forward higher than the 22% effective rate we realized in 2018, when we benefited from tax shelter on pre-spin-off stock-based compensation.

Finally, we expect maintenance capital expenditures to tally approximately $45 million, a modest increase from last year as we continue to invest in our three biggest growth engine, the Paul Davis and California Closets company-owned platforms and our Century Fire operations.

This concludes our prepared comments, and I would please ask the operator to open the call to questions. Thank you..

Thank you. [Operator Instructions] And our first question comes from Stephen Sheldon of William Blair. Your line is open..

Thanks. Good morning. First, great to see organic revenue growth acceleration in each segment, you provided some good detail on the brand side.

But can you maybe walk through what drove the fourth quarter acceleration in the Residential segment and maybe how you're thinking about potential organic growth there in 2019?.

Sure.

Stephen, really there's nothing of note that that drove a number of 5% the way we're looking at it is that it continues in that same range that we have been averaging over the last two years and the mid to low-single digit, as you know it's a stable recurring revenue business model that grows through net new contract and sales, net of losses and the way this business model is built and the competition that we're facing we see the 3% to 5% mid to low single digit range is one that, that will continue for us.

No particular region, no property type or service line really stood out as a particular influencer or driver in Q4, which - it was broad based, so….

Okay.

And then can you maybe provide an update on what you're seeing in terms of the labor shortage, you've talked some over the last few quarters about investing in recruiting and retention efforts, so can you may be provide some detail on that and has there been any broader strategic change in how you're trying to find labor to fulfill contracts especially on the residential side..

It continues to be very, very tight.

I don't see that there's been any loosening or more improvement over the last few quarters, but I do think that we are better internally at managing in this type of environment where we were able to bring on talent, there's no strategic shift we've made, I think those are the words you used, it's much more tactical, and as I have said we've invested in recruiting, onboarding and the development of people to ensure that we keep people in this type of environment and I think that really you know certainly relative to a year ago we're much better across the board that and able to deal with it more effectively..

Okay. That's helpful.

And then last one for me, pretty big sequential increases and accounts receivable throughout 2018 and it sounds like some of that was driven by the restoration business and I'm assuming there's probably some impact from acquisitions, so is that more of a timing issue where that could reverse some in 2019 and provide some benefit to free cash flow, I guess just how should we be thinking about that..

Yes, David. The biggest drivers of that working capital usage accounts receivable particularly at Paul Davis company-owned and Century Fire as they add significant top line growth.

Part of the contributor on the Paul Davis size also the type of work here, Scott alluded to it, it's a hurricane activity and the California wildfires you're dealing a lot with insurance companies and certain types of work that will drive a little bit longer days on the receivables.

And then there's also you know further investment in inventory at Century Fire in support of their sprinkler and insulation businesses, you know, investing buying forward in front of price increases and tariffs. So, those would be the biggest drivers.

We expect some normalization you know that working capital usage for the year, which would be higher than, that would be typical in years 2019 and beyond..

Great. Thank you..

Our next question comes from the line of Stephen MacLeod from BMO Capital Markets. Your line is open.

Thank you. Good morning, guys..

Good morning..

I apologize, if I missed it in your prepared remarks, but I just wanted to just ask a follow up call around the strong organic growth rate in the FirstService brands. You know considering that last year was so strong on the back of some PR strength.

Just wondering, you know where you saw relative strength and weakness in your company-owned operations that you cited in your press release?.

Sure.

I think first and foremost it relates to the large loss activity and initially it did not look like the work out of Florence and Michael would match the large or the significant work we did last year on the fourth quarter, but it ended up being more than we expected and with the addition of the California wildfire work we ended up matching our last year large loss revenue and then the nine company owned operations that we have that are primarily located in the mid-Atlantic northeast and also in Florida were all much higher than last year and it's I think claims in general were up, but our operations are also getting a higher share of claims.

We have invested and improved our positioning with regional and national customers we have deeper relationships and it's showing up in the organic growth in these operations and we saw that in the fourth quarter.

So certainly, Paul Davis, I think the other area was California Closets company owned and we've talked for a couple of years about our investment in adding capacity in those businesses, adding installers, adding designers to ensure that we are able to capitalize on the strong home improvement markets and again that showed up for us in the fourth quarter..

Okay that's helpful. And then just as you think about I think in the past you sort of talked about the metrics around the home improvement market while continuing to be favorable are sort of slowing somewhat.

Is that reflective of what you're seeing in the market and what you expect going forward?.

We expect a tempering for certainly in 2019. I think it's primarily driven by the slowing in home price gains, increasing home equity value in our experience is the biggest driver of our business. And those increases are definitely slowing. We expect that that will show up in reduced leads for us later this year..

Right. Okay. And then maybe just finally could you talk a little bit about obviously you continue to execute against your company-owned strategy of rolling in PDR in California Closets franchisees.

Can you talk a little bit about whether the pipeline for that strategy has accelerated or remains the same relative to where you were previously?.

I think largely it remains the same. Certainly at California Closets it remains the same. We would expect to do a couple three of those add-ins every year. Paul Davis is still a new strategy for us and the experience of the operators that have joined our company-owned has been very positive and that word is starting to get around the system.

So I would say that we are seeing more activity on the Paul Davis side, but not significantly more, but more than this time last year I would say..

Right. Okay that's very helpful. Thank you..

Thanks, Steve..

Our next question comes from the line of Marc Riddick from Sidoti. Your line is open..

Hi good morning..

Good morning..

Good morning Mark..

I wanted to touch on a couple of things.

First one of the things that was kind of interesting at least I've seen lately and I wanted to get your thoughts on this is kind of where you are with your marketing efforts around your brands it just anecdotally seems as though I - it feels as though I've seen more commercials for your brands lately than we have in the past and I was wondering if you could sort give us an update on what you're doing there and where you see that going?.

Okay. So that is interesting. I don't think there's been any significant change. There's been some tweaks in the tactics in the mediums that we're using I think particularly at Paul Davis we're doing more TV and radio advertising [indiscernible] doing perhaps more radio advertising but the spend is not up, it's just being allocated differently..

Is there anything in particular that had struck you?.

Well, no, you actually basically answered the question because I think I've kind of noticed more television commercials and so, maybe that's kind of where it lies..

Right. Okay..

But if that's phasing out from it's just netting out kind of the dollars that's great to see; one of the other things I wanted to touch on is if you can sort of give us a bit of an update on the progress with national accounts and kind of where you feel you are and getting to where you want to be on those efforts?.

2018 was a very strong year for us. We added a number of significant accounts and to support that we brought on a lot of capacity, built up our call center, expanded our vendor network. We continue to work on the vendor network to support these national and regional accounts.

So it is very much a work in progress for us and it will continue to be, we've grown the server side at Century Fire which includes the national account program significantly over the last three years.

It's a big driver in that business in terms of influencing the overall organic growth, but where it's still early days and we'll continue to be focused on that over the next number of years..

Okay. Thank you. And then I guess the last question for me, I was wondering that if you could sort of touch a little bit on, you know we've heard you talk about some of the efforts that you have as far as pricing discipline, particularly as you sort of you know looking at me on when renewals come up and sort of trying to be a little more firm on that.

I was wondering if you could certainly give an update as to maybe what you're seeing their receptivity, push-backs, and kind of how you feel that process is going so far. Thank you..

There really isn't anything of note in terms of an update. It's a price competitive business. There is no change and we don't expect that to change, it's really a function of the market structure.

We've hundreds of small competitors that need to compete with us on price and several years ago we I think became a little bit more focused on not competing on price, not chasing these low cost competitors and so it has resulted in our retention kicking down a bit, but with that focus we're more focused on our larger communities High-Rise master-planned communities that require more complex service requirements and net in reallocation of our labor to communities where we're better able to compete and differentiate ourselves.

I think you see some of that in our margins over the last few years..

Okay. Great. Thank you very much..

Thanks, Ron..

Our next question comes from the line of Michael Smith from RBC Capital Markets. Your line is open..

Thank you and good morning. Most of my questions actually been answered, but I just wanted a little bit of clarification on the California Closets or the home improvement market. And I guess, what you're suggesting is that you know there is a definite correlation between housing pricing, house price gains and the amount of business you get.

Are you -- that your expectation with slowing house price gains, that your expectation, but are you actually starting to see in your operations over the last few months?.

We're not, Michael. No, we're not..

Perfect..

[Operator Instructions] Our next question comes from the line of Frederick Bastian from Raymond James. Your line is open..

Good morning, guys.

Are you seeing further opportunities to accelerate the growth of your Century Fire business?.

It's I would say consistent really, Frederic, since 2016 we acquired Century it's a big, big, market. It's very fragmented.

When we came out of the gate strategically, we wanted to fill out our service lines at the 13 operations we have become full service within each operation and we wanted to add tuck-unders in Florida and Texas, in North Carolina, in the southeast. And since that time, we've added five tuck-unders, two in Florida, one in North Carolina, two in Georgia.

The acquisitions in Georgia was really about filling out our service line. The two in Florida, the one in North Carolina were about expanding our geographic footprint. So we're executing on the strategy. We feel very good about our experience with this team and in this market and feel very, very, good about our prospects in the future..

Okay. But in terms of size of deals you're looking at, are they -- would they be significantly larger than sort of the typical California Closets and Paul Davis Restoration businesses..

Yes..

There are -- now there's their tuck-under small single digit revenue tuck-unders..

Okay. And how's the landscape for kind of the new service lines.

I would assume it's still quite competitive?.

In terms of us building out other service lines or adding, oh, are you talking about adding different platforms?.

Yes, yes..

Okay. Yes. There is nothing that we're targeting right now..

Okay. All right. That's all I have. Thank you very much guys..

Thanks, Fred..

There are no further questions at this time..

Thank you, Tasha, and thank you everyone for joining us today. Our first quarter call is scheduled for April 24 and we look forward to chatting then..

Ladies and gentlemen, this concludes the fourth quarter and year end investor's conference call. Thank you for your participation, and have a nice day..