FirstService Corporation

Welcome to the first 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 risk and uncertainty. 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 Canadian Securities Administrators and in the company's annual report on Form 40F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is April 27, 2021. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Thank you, Tammy. Good afternoon and welcome everyone to our first quarter conference call. Thank you for joining us and apologies for the hiccup this morning. Our service provider had a technical glitch and the telephone lines were down for a few hours, which coincided with our call, unfortunately. But here we are and we're ready to go. And the call will be recorded and on our website for anybody that wasn't able to make the new time. As usual, I'm on the line with our CFO, Jeremy Rakusin. And let me open by saying that we are very pleased with our strong kickstart to 2021. We continue to be negatively impacted by the pandemic in certain of our service lines, but the diversification of our business model and the efforts of our teams enable us to continue to show strong growth on a consolidated basis. Total revenues for the quarter were up 12% over the prior year, with organic growth accounting for half of the increase. The balance came from acquisitions over the last year, including tuck-unders at First On-Site, Century Fire, and First Service Residential. EBITDA was up 36%, reflecting margin expansion of 150 basis points. Both divisions generated strong margin improvement during the quarter. And Jeremy will provide a detailed breakdown in his prepared comments. And finally, earnings per share were up 78%. At First Service Residential, revenues were up 3% versus the prior year, with organic growth at 1%. Year-over-year growth continues to be tempered in this division by the suspension of services relating to community amenities, primarily in the northeast of the US and Canada. These facilities include pools, fitness areas, spas, restaurants, and various other community services. We've had regions and different amenity facilities open and close over the last six months, but on a net basis, the level of impact hasn't materially changed since the end of the third quarter of 2020. We have these contracts. They've not been canceled. They have been suspended. When the facilities reopen, we will see an increase in revenues. Although the level of service may be reduced in some cases, in line with capacity restrictions and distancing protocol. We're starting to see some reopening of fitness facilities and a portion of our seasonal pools are preparing to reopen, but we do not expect to see pre-COVID levels for the balance of 2021. Looking forward to the second quarter, we expect First Service Residential to continue to perform approximately at current levels adjusted for seasonality, which would lead to a year-over-year increase of over 10% relative to the second quarter of last year, which was negatively impacted by extensive North America-wide lockdowns. Moving on now to first service brands, where we reported a very strong quarter with revenues up 23% and organic growth at 13%. Your organic growth was driven by strong year-over-year increases at our home improvement brands and First Onsite, our newly rebranded commercial restoration platform. First Onsite was up 50% year-over-year with about two-thirds of it coming organically. Your organic growth was largely driven by extreme weather during the quarter, particularly the deep freeze event in Texas. Freezing temperatures in combination with power outages led to burst pipes and sprinkler systems throughout the state. The water damage was significant and most of our customers in Texas were impacted. Our work in the area generated approximately $30 million of incremental revenues during the quarter. The year-over-year revenue increase outside of this event resulted from continued progress with new national accounts and the impact of the Roland acquisition. We have a solid backlog heading into Q2, including continuing work from the Texas deep freeze. We expect another strong quarter with revenues approaching the level achieved in Q1, which would again translate into a significant increase over the prior year. A big highlight for all of us during the quarter was the launch of the first on-site brand. We brought our eight commercial restoration brands together under the first on-site name with a single purpose statement and vision. The team has been working on this for two years, and we are all very excited about where we ended up with the branding and the logo and the messaging. We are confident that the new brand will enhance our culture building initiatives and help accelerate organic growth. We also know that the launch is just the beginning and that creating a brand and building on the brand is an everyday effort. We have a lot of experience in this area and look forward to the opportunity. Our home improvement brands including California Closets, CertiPro Painters, Floor Coverings International, and Pillar to Post Home Inspection are four brands we have been building for over 20 years. During the quarter, this group together was up by over 10%, and that is relative to a tough comp in the prior year that was only marginally impacted by COVID. Activity levels grew throughout the quarter and were particularly strong in March. Rising home prices and home equity levels together with stimulus checks have supported home improvement spending over the last nine months. Through March and into April, leads and bookings have increased further as the vaccine continues to roll out and residential projects that have been deferred throughout the pandemic are again being scheduled. Our challenge is building production capacity to meet the front end needs of our home improvement brands. The labor market is extremely tight right now. We have open positions and are recruiting aggressively, but it will take time to fully build out our capacity. Based on current production levels, we expect our home improvement brands to be up significantly over Q2 in the prior year which of course was impacted by lockdowns. Century Fire was up modestly in the quarter due to the tuck under acquisitions of Aegis Fire Safety and Coronet which were both completed in the fourth quarter of 2020. On an organic basis, Thank you, Scott.

Good afternoon to everyone. The 2021 first quarter performance, as you just heard from Scott, was strong in several respects versus the prior year. For our consolidated quarterly results, we reported revenues of $711 million, a 12% increase over the $634 million for Q1-20. Adjusted EBITDA was $59.8 million, up 36%, versus the prior year's $43.9 million. And this yielded an 8.4% margin for the quarter, reflecting 150 basis points of margin expansion year over year. And finally, our adjusted EPS was 66 cents, representing 78% growth over the 37 cents per share in the prior year quarter. Our adjustments to operating earnings and GAAP EPS in arriving at adjusted EBITDA and adjusted EPS respectively are consistent with our approach and disclosures in prior periods. Now let me walk through the segmented results for our two divisions. First Service Residential generated revenues of $350 million, up 3% over last year's first quarter, while EBITDA was $29 million. Thank you for joining us. resulting from strong home resale activity volumes across all markets. This ancillary revenue from unit resales had a more pronounced impact during Q1, which is our seasonally weaker quarter in terms of both revenue and profit contribution during the year. In terms of our second quarter outlook, our first service residential division margin is expected to be flat compared to the prior year. The pickup we expect to get from continued strong home resale activity lapping the prior year pandemic-driven fall-off will be largely offset by the reinvestments we have made since last Q2 when we took aggressive cost-cutting measures to counter the acute COVID-19 environment. Over now to First Service Brands. Thank you for joining us. First, our home improvement brands benefited from some operating leverage on the back of their robust top-line year-over-year growth. And second, we had an impact from mix, a theme we've talked about before and will continue to see as we've increasingly shifted the brand's division towards more company-owned relative to franchised operations. In the current seasonally weakest first quarter, We had a positive mix impact with greater revenue and profit contribution mix from our restoration operations compared to the prior year, which averaged up the overall margin for the brands division. Looking out to the second quarter, the impact from increased restoration contribution mix will have the reverse impact and average down the brands division margin During the seasonally strong mid-year period. While Q2 revenue growth will be strong, as Scott mentioned, we expect this brand's mixed dynamic to dilute our year-over-year consolidated margin in the upcoming quarter. Turning to our consolidated cash flow, we generated $49 million before working capital changes, a 59% increase versus last year's first quarter. Operating cash flow after working capital came in at $27 million, down from the almost $40 million in Q1-20. The comparatively higher working capital investments this quarter primarily relate to the increased weather-driven activity at our restoration operations and to support balance of year growth in our more seasonal businesses. With our robust growth in earnings and operating cash flow net of capital investments, we reinforced our balance sheet strength. Our net debt of $400 million remained in line with the 2020 year-end level. Leverage as measured by net debt to trailing 12-month EBITDA ticked down a notch to 1.3 times compared to 1.4 times at year-end. Our liquidity, reflecting our cash on hand and our undrawn revolving credit facility balance, sits at $575 million. And our debt profile is attractive, both well-balanced between fixed and floating rates and with a low funding cost at a roughly 2.5% average annual interest rate. During the first quarter, our investment spending was modest. Maintenance CapEx was $13 million, down slightly from last year's level, and tracking in line with the annual $60 million CapEx target we provided at the outset of the year. We also completed two small tuck-under acquisitions, requiring only $2.5 million of spending during the quarter. As we saw last year, as well as from prior years, acquisition capital deployment can be episodic and very quarterly and annually. However, our track record over the years has shown that we can drive at least 5% annual acquisition growth on average to augment our organic growth. And so we are confident in continuing to deliver with our tuck under program. That concludes our prepared comments. I would now ask the operator to please open up the call to questions. Thank you.