Welcome to the Fourth Quarter 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 is contained in the Company's annual information form as filed with the Canadian Securities Administrators and in the Company's annual report on the 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, February 5, 2020. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Thank you, Christina. Good morning, everyone. Welcome to our fourth quarter and year-end conference call. Thank you for dialing in. Jeremy Rakusin, our CFO, is here with me. I will open with a quick summary of our results and talk to some of our highlights, and then Jeremy will walk you through the quarterly results in more detail and also summarize the full-year. Let me open by saying that we are very pleased with the way we finished the year. The fourth quarter played out largely as we had forecast, and we feel like we are in a very good position entering 2020. Revenues were up 34% over the prior year, primarily due to the acquisition of Global Restoration at the end of the second quarter. Organic growth was 6%, which is a result we are very pleased with knowing that we were up against a strong comparative quarter in 2018. EBITDA increased by 31% year-over-year and reflects a 20 basis point decline in consolidated margins, primarily as a result of the mix change from the inclusion of Global. And earnings per share were up 6%, tempered relative to the EBITDA increase due primarily to our higher share count. Jeremy will provide more detail in his comments. FirstService Residential, revenues grew 11% in total, 7% organically. The organic growth was broad-based across all regions and continues to reflect the strong sales activity in late 2018 and the first six months of 2019. We also saw stronger than expected ancillary revenue during the fourth quarter, which mildly influenced the organic growth number. Topline revenue growth also reflected the Chicago acquisitions completed early in the year. We added Lieberman Management Services in the first quarter as well as DK Condo, the condo management division of Draper and Kramer. Our teams have started…

Thank you, Scott, and good morning, everyone. As Scott just summarized, we capped off 2019 by delivering a strong fourth quarter financial results. On a consolidated basis, quarterly revenues were $676 million, up 34% versus the prior year quarter. Adjusted EBITDA came in at $63.9 million, up 31%, and adjusted EPS at $0.66, up 6% versus Q4 2018. The robust finish to the year helped to reinforce similar strength in our consolidated annual financial results, which included revenues of $2.41 billion for the year, up to 25%, including a very strong 7% overall organic growth. Adjusted EBITDA of $235.2 million, up 23%, with a 9.8% margin, relatively comparable to the 9.9% level in 2018 and adjusted EPS at $3 flat, up 15% versus 2018. 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. As I typically do, let me now turn to a quarterly segment review of our two reporting divisions, FirstService Residential and FirstService Brands. Starting with FirstService Residential, revenues were $347 million during the quarter, an 11% increase versus the prior year period. Our EBITDA came in at $29.8 million, up 15%, driven by both the very strong organic topline growth that Scott described and 30 basis points of margin expansion quarter-over-quarter. These quarterly results largely mirrored the full-year performance, with annual 2019 revenues for the division, up 13%, including the same 7% strong organic growth as in Q4 and improved profitability with a 9.2% margin, 20 basis points higher than the 9% level in 2018. Next, let me summarize our FirstService Brands division results. In the fourth quarter, we reported revenues of $329 million, up…

Thank you. [Operator Instructions] Your first question comes from George Doumet from Scotiabank. Your line is open.

Hey, good morning, guys.

Hey, George.

Hi. Scott, last call, you mentioned that leads or slowing in California Closets and CertaPro. The results don't really show any moderating growth. So is it – do we still expect a soft patch ahead? Did the outlook improved since last quarter? Or are we pulling some execution levers to offset that?

I would say that in the home improvement brands, the leads have been steady the last six months or so. They are, I would say, down from earlier in 2019, but they remain steady. And in December, we did see the sale of existing homes in the U.S. popped by 10% year-over-year and the average home prices were up by almost 10%. Both those moves are higher than we've seen in the last couple of years, which should be good for home improvement spending. So our expectation is that at least for the first couple of quarters will show solid and continued results at the home improvement brands.

Okay. Thanks for that. And maybe moving over to the restoration business, we've closed quite a few regional tuck-unders for Global. I guess, following that are there any geographies or maybe specific competencies that you feel that you're still a little bit under indexed in?

I think Western U.S. perhaps, California, in particular, would be one area, but also the Mid-Atlantic region are regions that we've strategically targeted to add to our footprint. But we feel very good about the tuck-unders that we've completed in the fourth quarter. I feel like we've gotten off to a great start and filled out our footprint nicely moving into 2020.

Okay, great. And maybe one last one, staying on the restoration side of the business. Can you talk a little bit about the progress that we've made on adding, I guess, adding national accounts and maybe increasing share within the ones we have exactly, maybe any color or any detail you can provide there?

Well, only that we feel very good about our progress. We've invested in our sales team. We signed several accounts in the six months that we owned Global. And we feel like we've improved our positioning with existing national accounts. The collaboration between Paul Davis and Global has led to some progress with other national accounts. It's a combined. It's a compelling offer with the Paul Davis footprint. So we're excited about the momentum to-date. And I mentioned last quarter, we will rebrand this year. And we think that will help increase the momentum once we do that later in 2020.

Okay, great. Thanks for the answers.

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

Thank you. Good morning, guys.

Hi, Steve.

Hi. I just wanted to circle around on the FSR business. You talk a little bit about the expectation for mid single-digit growth going forward. Through 2019, it trended sort of well into that high single-digit range. So just curious, would the key driver of that have been the real push on the sales side? Or is there something else that's driving that drove 2019 that isn't expected to recur in 2020?

I think it's just a tapering of the sales. We saw very strong sales at the end of 2018 and beginning of 2019. I noted in our last call that sales had slowed down in the third quarter, which continued into the fourth, and we will see that reflected in the organic growth in 2020. So it's just a – I think a rebalancing of the sales and retention, which are the two key levers, and it's trended back towards the average that we've seen over the last several years.

Okay. That's helpful. You talked previously on the brand side about the California Closets centralized manufacturing initiative, generating 300 to 500 basis points in margin expansion on that side of the business. Can you just talk a little bit about where you are in terms of that project kicking in and beginning to show on the margin for the brand side?

Yes, Steve, yes, the 300 to 500 basis points would be – or 300 basis points or more will be incremental and gradual. We're not the point yet where we have the two facilities, the west and the east manufacturing centers operating at capacity with full lines for 25 or more. We did two acquisitions at the beginning of this year and are waiting for additional ones to add to the 19 that we currently have. But we're making steady progress, both on the manufacturing side and seeing the margin improvements at each individual company-owned location and the quality is always something that we're looking to see, and we've made great strides in that as well as turnaround times. So we're being more efficient, higher quality and stand-alone margin metrics are all improving. Still more to come in that as we add to that roster of targeting 25 or more locations.

Okay. And bridging the gap from 19 to 25, do you expect to do roughly – I mean, not Pinnacle, but sort of two a year kind of thing?

Yes, two – it's obviously slowing, because we were looking for the most attractive ones. If we can do two, that would be a good year.

Okay, that's helpful. And then maybe just finally, sticking with the brand side, on the restoration businesses. Obviously, a little bit of lumpiness in the back half of the year in terms of the comparability on the Paul Davis and Global side, in terms of weather-related activity levels. As you think about the mid single-digit growth rate for 2020, do you expect the growth in Paul Davis and Global to be weighted to the back half of the year naturally?

Not necessarily. I think our expectation is that we will see modest growth out of those operations. And if we do see storm activity in the back half, that will be incremental. But we're assuming that we will experience sort of mid single-digit organic growth off of base that we acquired and then the storms would be incremental.

Okay. That’s very helpful. Thank you. That’s it for me.

Thanks.

Your next question comes from Stephen Sheldon from William Blair. Your line is open.

Hi guys. Good morning and congrats on the results.

Thanks Steve.

Just one for me. On free cash flow, I know timing of items can have an impact, but free cash flow growth was a little slower than adjusted EBITDA in 2019. And I apologize if I missed this. But just as we think about 2020, how are you thinking about a reasonable expectation for free cash flow conversion or just general generation during the year?

Yes, free cash flow should be typically in lockstep. There were some items this year, you'll see a deferred tax line item, but it's growth in lockstep with EBITDA, free cash flow as a percentage of EBITDA, excluding working capital, in the 50% range, and then it really depends on working capital moves and that really is dependent on – a little bit on the restoration sector and timing on accounts receivable and so on. But not much different than what I've said before in terms of kind of 50% free cash flow as a percent of EBITDA metric.

Okay, great. Thank you.

Your next question comes from Matt Logan from RBC Capital Markets. Your line is open.

Thank you and good morning.

Good morning, Matt.

Just following up on Steve's question for organic growth in the residential division. Can you talk about the impact of condo development and what contribution that's having to the resi organic growth?

Condo development has been stable the last few years, Matt, and it's in and around 20% of our organic growth. And maybe a little less, the last half of 2019, where the organic growth pop a bit as a result of our sales activity. And that sales activity was largely around existing high rises and large master-plan communities. So – but on average, over the last several years, it's been around 20% of our organic growth.

And when we think about the organic growth for the Brands division, certainly, the and large loss activity was a little bit light in 2019. If that storm activity reverts to, say, the 10-year average, how should we think about the potential sensitivity of that mid single-digit growth rate?

We would see it increase certainly restoration is…

It's 20% of our overall business.

Within that division.

It's sort of half-ish right.

Yes. And so yes, if we reverted to the 10-year average, that would actually be a significant increase for that platform. So we would see an increase in organic growth. I won’t attach any numbers to it.

But in terms of order of magnitude, would that be 100 basis points or 300 basis points? Like just trying to get some sense of what the potential upside could be depending on kind of weather patterns trend.

Yes. Well, the 2019 major storms were, in terms of storm damage, the cost of storm manage was about 60% of the 10-year average. So we would see a potentially significant…

A pretty sizable increase.

Yes.

Okay. And maybe just rolling it all up, would you mind talking about maybe your top three goals for the business in 2020? And what gets you most excited when you look out over the next three to five years?

It's continuing to enhance our sales platform, I would say, and continuing to add national accounts and increasing the share of wallet with existing customers. So that's about market share, number one. Number two would be building out our branch network. And that is – will largely be through tuck under acquisition, but also could be a greenfield start. And we're looking at that, in a few areas and so building out that platform, again, that's about positioning with national accounts. And then of course, I talked about the rebranding, which is a big goal of ours and a high priority this year. We're very excited about bringing the six brands that we operate under today under one name, with a one vision and a unified message. We think that's going to be powerful for us. Again, in terms of market share and ultimately, the goal is to be the leader in commercial restoration in North America, and we see a clear path to that

And would you say restoration is really the top focus for 2020 and kind of beyond?

Across FirstService?

Yes, across the whole company.

I would say so, yes.

Okay. Well, I appreciate the color. That's all from me. Thank you.

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

Hi, good morning. I wanted to just sort of dig a little bit into some of the investments that you talked about. I guess, on the last call, you've touched on it a little bit around the rebranding, but I think you didn't make a mention of maybe IT spending, personnel. So I was wondering if you could sort of give maybe a little bit more detail on how we might see that in the flow of that through the year. And then I have a quick follow-up after that.

Well, to support the brand, we will need national infrastructure and systems that will enable us to scale and grow. And we step-started down the path, as you suggest, I mentioned it last quarter, it will be a multi-year initiative, but we will stage it and take it one step at a time. The big thing this year is really the rebrand and the marketing spend around that. But there is investment in technology, but not that – not at a level that will significantly impact our margin. I think Jeremy mentioned that we expect our margin in brands to be flattish to be in line with 2019 and that takes into account all of the spend that I'm talking about.

Okay. But from a timing perspective, how should we sort of think about the way that, that would sort of play? I mean, it might be a little – some of that might be a little more difficult to be visible to us, I suppose. So how should we think about sort of that process for you throughout the year? Is there anything lumpy that we should be aware of that you think or just maybe it's already started to some degree, but maybe if you could…?

No. It certainly has started. The actual rollout of the brand will be towards the end of the third quarter and the fourth quarter. So there will be a little more spend, but I wouldn't expect that you'll see it in the margin or I wouldn't expect that we would call it out as something that's tilted our margin.

Okay. All right. Thank you very much.

Thanks, Marc.

[Operator Instructions] Your next question comes from Frederic Bastien from Raymond James. Your line is open.

Hi, good morning. Just one quick one for me. I wanted to touch on your successes in – with new condo developments. With urbanization trends only getting stronger, one wouldn't expect that FSR would see increased competition in that segment. Just wondering what makes you confident that you can retain a dominant share of that market?

Well, urbanization implies high-rise. And just in terms of the sheer scale of our high-rise business relative to our competitors, it's probably 5x or 6x in terms of the number of urban high-rise properties we manage. And so our knowledge, leadership in that area, our ability to benchmark and compare buildings in terms of energy efficiency and operating costs, it becomes a compelling differentiator. So – and our position in the urban areas is generally – we're number one in really every major metro area in North America. So we expect that, that leads to scale and value for our clients. But certainly, our competitors, we do have quality competitors in most of the urban markets, so I think

Okay. Thank you. That was very helpful.

There are no further questions. I would now like to turn the call back over to CEO, Scott Patterson, for closing remarks.

Thank you, everyone, for joining us. We're excited about 2020, and the opportunity we have in front of us. And we look forward to end of April first quarter call. We'll meet you there.

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