EarningsCall · FSV Q4 2023

spk12: Welcome to the fourth quarter 2023 earnings 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 Administration and in the company's annual report on the Form 40F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is February 6, 2024, I would like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead.

spk15: Thank you, Justin. Welcome, ladies and gentlemen, to our fourth quarter and year-end conference call. I'm on with Jeremy Racoosin, our CFO. Thank you for joining us today. We're very pleased with how we finished the year. and with our momentum as we head into 2024. Before I jump into the quarterly results, I want to make a few comments about the year. We closed out 2023 with our revenue up 16 percent over 2022 and our EBITDA up 18 percent. Very strong results. Organic growth for the year at 10 percent accounted for over half of our top line increase. And importantly, the organic growth was balanced equally across our divisions. Both first service residential and first service brands grew organically by 10 percent. We've had some time now to reflect on these results for the year, and we could not be more proud of our teams for how they performed. 2023 represents the third consecutive year with organic growth at 10%, and that is a reflection on our teams and their ability to consistently gain market share. Now I'll turn to the fourth quarter. Total revenues were up 6% over the prior year and right in line with our internal expectations. The growth of the quarter related entirely to acquisitions. Organic growth was nil due to a very strong Q4 last year, driven by significant loss claims activity from hurricanes Ian and Fiona that led to outsized revenues for our restoration brands. EBITDA for the quarter was flat at 103 million, and again, right in line with our expectations. Jeremy will jump into the margin and earnings per share detail in his comments. Looking at our divisional results, first service residential revenues were up 12%, 9% organically. The results are consistent with the previous three quarters this year and reflect solid growth from net new contract wins and again was broad-based across North America with all of our regions showing gains. Looking forward to the coming year, we expect to show growth at first service residential at the high single digit level, with organic growth starting to ease back during the year into the mid single digit range, which is our long term average in this business. This is a contractual recurring revenue model with only modest swings quarter to quarter. Moving on to first service brands, Revenues for the quarter were up 1% compared to the very strong prior year quarter that was up 28% over the same quarter in 2021. Revenues declined 7% on an organic basis with gains at Century Fire and our home improvement brands more than offset by the headwinds at our restoration brands. Let me go through each segment. And I'll start with restoration, which includes our results for Paul Davis and First Onsite. Revenues for the quarter came in lighter than expectation and we're down more than 10% against a tough comp in the prior year. We experienced very mild weather patterns across North America during the quarter. And in addition, our remaining hurricane Ian related backlog did not progress as we expected. We produced only a modest amount of storm-related work, about $15 million during the fourth quarter, which historically is our strongest storm-related revenue quarter. By comparison, we generated $85 million in revenue last year from Hurricanes Ian and Fiona. We've seen an uptick in activity in Q1 from the frigid weather that much of North America experienced in mid-January, and we expect a solid quarter but it will not be at the level we experienced in Q1 last year off the back of winter storm Elliott and the hurricanes. Our expectation is that Q1 restoration revenues will be down at least 10% from prior year. Moving now to our home improvement brands, including California Closets, CertiPro Painters, Floor Coverings International, and Pillar to Post Home Inspection. As a group, these brands were up mid-single digit versus the prior year with organic growth low single digit, very similar results to those we posted in Q3. We continue to face real headwinds in home improvement, and lead activity continues to be sluggish, still off year over year. It's a real tribute to the tenacity of our teams in this segment that we've driven growth the last two quarters in this environment. Interest rate levels and record low home sales have negatively impacted consumer demand, and we don't expect this to abate until late in the year or next year. That said, our teams in home improvement are confident that they can continue to grind out modest gains through 2024. I'll finish my review of the Q4 results with Century Fire, which had another very strong quarter, exceeding our expectations, with organic growth near 20%. Similar to previous quarters this year, we are seeing strength across each of installation, service and inspection, and our national accounts division, and almost all our branches are performing and growing. The Century team has really done a great job this year. Looking forward, we're expecting continued strong results, but certainly more modest growth off the back of the 20% growth this year. Backlogs are solid, about flat with prior year end. Based on current bid activity, our expectations for 2024 growth at Century is high single digits. which is more in line with our experience prior to this past year. Before I pass over to Jeremy, I want to spend a few minutes introducing our new platform acquisition, Roofing Corp of America, which we closed in late December. Roofing Corp is a $400 million revenue business that operates from 16 branches across 11 states. It offers end-to-end roofing services, including new installation, re-roofing, and repair and maintenance primarily to commercial property owners and managers. 90% of the revenue is commercial and the focus go forward as commercial. It's a business that has come together over the last five years through acquisition. We spent significant due diligence time on each acquired company and each branch. and came away very impressed with the businesses that make up Roofing Corp and with the teams, both corporately and at the branch level. We're excited about the opportunity in roofing and excited to be partnering with this group, led by Randy Korak, CEO. We've been looking at roofing in general since late 2020. I've mentioned it on this call in the past. It shares many of the same characteristics as our other businesses in terms of being an essential property service operating in a huge fragmented market with growth potential, both organically and through tuck under acquisition. It's also highly complementary with restoration and fits well with a broader thesis we have around repair, maintenance, and restoration of the built environment and the growth potential in that space. Growth from the continual expansion of the built environment, but also from the increased frequency and volatility of weather. Restoration, roofing, painting, flooring. We will benefit from weather across all these businesses in the coming years. Roofing Corp finished 2023 with momentum. They have a strong backlog of work. And we expect solid organic growth in the mid to high single digit range for 2024. We also expect to be active in terms of building the acquisition pipeline and seeking out tuck owners. With that, let me pass you over to Jeremy, who will provide a more detailed review of our performance and pull together a consolidated look forward for 2024. Jeremy?

spk24: Thank you, Scott. Good morning, everyone. Scott just highlighted we are pleased with the strong full year 2023 financial results we delivered, even in the face of a more tempered fourth quarter when we were up against very strong prior year Q4 2022 headwinds. I will parse out these details in my commentary, starting first with a summary of our consolidated performance and following up with a segmented breakdown across our two divisions. During the fourth quarter, we reported consolidated revenues totaling $1.08 billion and adjusted EBITDA of $103.3 million, up 6% and 1% respectively, with our margin at 9.6% compared to 10.1% in the prior year period. For the full year, consolidated revenues increased 16% to $4.33 billion, underpinned by a strong and broad-based 10% organic growth. Adjusted EBITDA came in at $415.7 million, up 18% over the prior year and yielding a 9.6% margin, up 20 basis points compared to 9.4% in 2022. From a net earnings perspective in the fourth quarter, adjusted EPS was $1.11, down from $1.22 in last year's fourth quarter. For the full year, we reported adjusted EPS of $4.66, up 10% over the $4.24 in 2022. Our annual interest costs almost doubled versus the prior year, largely attributable to the higher interest rate environment. Higher rates in 2023 compared to 2022 had a more than 30% per share or 7% negative impact on our adjusted EPS growth, which otherwise would have matched our EBITDA annual growth rate in 2023. Note that these comments on our adjusted EBITDA and adjusted EPS results, respectively, reflect adjustments to GAAP operating earnings and GAAP EPS, which are disclosed in this morning's press release and are consistent with our approach in prior periods. Now we'll provide additional commentary on our division results for both the fourth quarter and full year. At first service residential for the fourth quarter, revenues were $496 million, up 12% versus the prior year period. And the division reported EBITDA of $43.5 million, up 14% quarter over quarter. Our margin for the quarter was 8.8%, modestly higher than the 8.6% level in Q4 2022. For the full year, revenues hit the $2 billion mark, increasing by 13% over 2022, including 10% organic growth. We also delivered an 11% increase in annual EBITDA, with our full year margin at 9.4%, and in line with the 9.5% margin for 2022. The margin is also down the middle of our typical 9% to 10% annual margin band for the First Service Residential Division and a range consistent with what we also see for 2024. Shifting now to our First Service Brands Division and focusing first on Q4, we recorded revenues of $583 million, a 1% increase. As Scott referenced, our restoration operations had lower revenues versus prior year due to the mild weather during the current quarter compared to the contribution from significant hurricane events in late 2022. The Brands Division saw solid organic revenue growth excluding this restoration-related headwind. For the fourth quarter, our Brands Division EPDA came in at $61.1 million, down 9% versus the prior year quarter. Our division margin during the quarter was 10.5% down from 11.7% in Q4 2022, and as expected, matched the margin level for the prior sequential third quarter, which we noted in our Q3 earnings call. Profitability and margins were lower within our restoration businesses as a result of the reduced weather-driven activity levels and revenues. Margins at our home services brands also moderated in the fourth quarter compared to prior year as increased promotional pricing and marketing initiatives were implemented to preserve our top-line growth. For the full year, revenues were very strong, up 19%, including 11% organic growth. Our annual EBITDA grew 24%, resulting in a 10.4% full-year margin, up 50 basis points, versus the prior year of 9.9%. We will continue to experience quarterly and even annual shifts in our brand division margins into 2024 and beyond, particularly in light of our restoration operations, which depend on certain levels of baseline weather-driven activity. The more periodic and larger area-wide storm events can further exacerbate the year-over-year margin profiles within restoration and thereby influence the brand margin comparisons. Despite these near-term fluctuations, our focus continues to be on the longer-term secular market opportunity for our restoration, repair, and maintenance brand to deliver attractive compounded growth rates. Finally, to close off my commentary on the P&L, we reported lower corporate costs in the fourth quarter due to the benefit of foreign exchange movements. We also had larger-than-typical acquisition-related items during the quarter, which negatively impacted GAAP operating earnings and GAAP EPS, which have no effect on our EBITDA and adjusted EPS performance metrics. Of the $16 million amount in Q4, most related to earn-outs tied to prior tuck-under acquisitions and transaction costs for the larger Roofing Corp of America acquisition, that Scott previously described. Now I'll walk through a summary of our cash flow and capital deployment. For the fourth quarter, we delivered cash flow from operations after working capital totaling $110 million, double the level during the prior year period. For the full year, operating cash flow was $280 million, up significantly over the $106 million in 2022, driven by strong operating earnings growth and conversion of working capital investments in our restoration operations from prior year hurricane activity levels. We incurred $25 million of capital expenditures during Q4, resulting in full year CapEx of $93 million, which came in lower than our most recently indicated target of $100 million. In 2024, We expect total capital expenditures to increase in line with the growth of our operation to approximately $115 million. Maintenance CapEx represents the predominant amount of this spending for service vehicle fleet, IT, and office leasehold replacement cycles across our brands, and will continue to represent roughly 2% of revenues and 20% of EBITDA on a consolidated basis. The fourth quarter also saw significant acquisition spending, totaling $434 million, with the bulk of that amount to finance the Roofing Corp transaction. For the year, we deployed almost $550 million towards acquisitions, and excluding the Roofing Corp transaction, our Tuck Under Acquisition Program spending totaled close to $150 million, which contributes a mid-single-digit percentage of incremental revenue growth above our organic growth base. Beyond these growth-driven capital deployment priorities, we also continued our trend of growing our dividends by yesterday approving an 11% dividend increase to $1 per share annually in U.S. dollars up from the prior $0.90. We have now annually hiked our dividend 10% or higher every year over the past decade. Our 2023 year-end balance sheet continues to be strong, even after the larger roofing corporate investment. We closed out the year with just under $1 billion of net debt, and our leverage sits at a conservative 2.1 times net debt to adjusted EBITDA, up only a half turn from the 1.6 times level at the end of 2022. After current year end, this past January, we also bolstered our liquidity by tapping into $125 million of seniors unsecured notes under our note holder master shell facilities, which have five to seven year maturities with interest coupons in the 5.5% area. Together with our cash on hand and availability under our bank credit facility, our current liquidity is approximately $400 million which is ample for us to drive further acquisition growth as we work through our existing deal pipeline. Looking forward, you've heard Scott comment on the individual brand's top-line near-term growth indicators. With all that in mind, we see upcoming first-quarter consolidated revenue growth to be approximately 10%. Q1 margins will be lower versus prior year, with the residential division margin roughly flat and the brand's division margin down due to our restoration operations, which are comparing against approximately $80 million of hurricane-related revenue in Q1-23 that will not repeat in the first quarter of 2024. For the full year, on a consolidated basis, we expect to deliver top-line growth in the low teens percentage range with a healthy base of organic growth on the back of continued momentum with our brands, together with approximately $400 million revenue contribution from our roofing corp acquisition. With respect to profitability, residential margins will likely perform in line with prior year quarters, while our brands' margins should see modest year-over-year improvement during the latter half of the year when we are no longer comparing against the 2023 hurricane and winter storm events. Piecing it all together, we expect our consolidated EBITDA margin for the full year to be relatively in line to slightly up versus 2023. This now concludes our prepared comments. Operator, please open up the call to questions, and thank you.

spk12: And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by, we compile the Q&A roster. And one moment for our first question. And our first question comes from Michael Dumet from Scotiabank. Your line is now open.

spk13: Hey, good morning, guys. Nice quarter.

spk14: Scott, Jeremy, I think maybe just to start on the guidance for the year, So the way I understand it for 2024, the guidance doesn't include any storm-related activity, which all is equal would suggest lower EBITDA margins for 2024, but you're calling for flat to slightly higher EBITDA margins, which again would imply embedded margins are rising somewhere else. Just trying to see if we can break that down a little bit where the margin expansion is happening, whether it's roofing corp or something else.

spk24: Yeah, correct, Michael. I mean, just to put a box around it, the top line low teens, you know, that does not include, as you said, any additional shots in the arm from storms. It also doesn't include unidentified tuck under acquisitions. I mean, frankly, we do acquisitions every year, and if we continue with that cadence, you could see our top line and bottom line, frankly, resemble acquisitions. pretty close to the performance we just delivered in 23 over 2022. But again, we don't build that into our thinking. Yeah, I'd say the residential margins relatively flat, so no real pickup there. In the brands, it would be a little bit of mix. We're adding the Roofing Corp transaction, which we come in at low double-digit margins, and that's has a little bit of a positive mix impact. And some of the efficiencies that we're going to start to see in our restoration operations from the implementation of the operating platform, it's not going to be in a straight line, but that incrementally over the quarters and into, frankly, beyond 24 will be something that we're working on and should be a small margin enhancer for us as well during the course of 2024.

spk14: Super helpful. Maybe a bigger picture here. So I do, you know, like the thesis around the roofing business. I wonder to what extent there are synergies between, you know, the restoration business and the roofing business. And I wonder, you know, again, if you continue to expand the restoration business, whether or not there are other businesses where, you know, you might increasingly look to explore synergies.

spk15: Michael, certainly roofing is complementary to restoration. As I said in my prepared comments, we've been looking at it for a few years now and really became aware of it or more aware of it through First Onsite and our commercial restoration because we're regularly seeing opportunities in roofing and either subbing it out were walking away from it. So certainly we became more aware of the opportunity through restoration, but it is a discrete opportunity that we see big opportunity in. There will be some collaboration, certainly, between the restoration brands and a roofing corp, but it is a discrete segment and a discrete opportunity for us. Beyond that, I mean, generally, the thesis around repair, maintenance, and restoration and the impact that weather will have on that, I mean, we're very bullish on it. We think CertiPro painters will certainly benefit, and we are CertiPro every year is expanding its commercial capability. And, again, we see collaboration between these areas going forward.

spk02: Really helpful. Appreciate the call. Thank you, guys.

spk12: And thank you. And one moment for our next question. And our next question comes from Steven Sheldon from William & Blair. Your line is now open.

spk04: Hey, good morning. Thank you. Just first, can you talk about top of the funnel trends in the home improvement brands? I think you said it continues to be sluggish. Are you seeing it weaken even more than you'd seen before? And then just as we think about the next couple quarters there, how much visibility do you have into revenue there, just given the backlog that continues to convert?

spk15: It's not weaker, Stephen. It's sort of holding off our lead activity off 5% to 10%. So it's similar to the last few quarters we've had. And we would expect similar results in the first half of the year to what you've seen in the last half of 23. So, I mean, it's tough, it's a grind, but we expect that we'll be up a bit top line. You know, we are continuing to invest in marketing. and continuing to focus on lead conversion and closing rate, which are really two levers more in our control that can help offset the headwinds. And we're having success with that.

spk04: Very helpful. And then as a follow-up within the fire business, is there much of a margin differential between the installation work tied to construction activity versus the recurring inspection and repair work, and just asking that in case we see construction activity taper over the next year or two, and the impact that could have on margins in the firebrand, if there is a mid-shift more towards the recurring revenue streams there.

spk15: No, very, very similar. I would say 2023, the margins were similar. Historically, as we've experienced price increases in steel and other materials, it's impacted installation relative to service, which is more labor-driven. But right now, they're running very similar.

spk04: Great. Thank you.

spk17: And thank you. And one moment for our next question.

spk12: And our next question comes from Steven McLeod from BMO Capital Markets. Your line is now open.

spk07: Great. Thank you. Good morning, guys. Just wanted to circle around on a couple of things related to Q1, particularly within restoration. I know you gave some sort of near-term guidance on the different components. But just wondering, when you put it all together, how do you sort of foresee Q1 organic growth evolving on a consolidated basis within the brands division.

spk15: Jeremy, you want to handle that?

spk24: Sure. I think it's going to be pretty similar, Stephen, to what we just saw in Q4. Similar headwinds in the order of 80 million, I think I mentioned in my prepared comments, 80 million that we're going to be comping against in Q1 versus Q1 of 2023. And that's a similar headwind as what we had just in Q4. So organic revenue growth, as Scott mentioned, was down 7%. It's going to be down about the same amount, including the storms. If you X out that $80 million headwind, it would be healthy organic growth for the brand's vision.

spk07: Yeah. Okay, great. And then just would you expect a similar type of margin impact in Q1? that you saw in Q4, considering the organic is roughly the same?

spk24: On a consolidated, you know, I said that residential would be flat and brands would be down. On a consolidated basis, I would look for Q1 consolidated margins to be down roughly 100 basis points, perhaps a little bit more.

spk07: Okay. And that would be sort of flat flat resi and down brands to get to that. Yeah. Consolidated down.

spk24: Obviously, brands down more than 100 if the other division's flat, but the consolidated would be 100 basis points of potential wider on the compression.

spk07: Yeah. Okay. No, that's very helpful. Thanks, Jeremy. And then just sort of higher level You know, having now owned the roofing business for, you know, six weeks or however long it's been, just wondering if you can give a little bit of color as to kind of what you're seeing so far. I know you mentioned that the business finished the year strongly, which is great. But just wondering, you know, are there, you know, some wins or highlights that you can sort of highlight that you've seen so far?

spk15: Yeah, I mean, it's early days, Stephen. Thinking through the wind, I think the biggest thing from our perspective is just our excitement to be partnering with this group. It's a strong team, and we're just filled with optimism about our opportunity in this business. We've got great operators at the branch level, and generally the alignment. with the management team around building the premier roofing contractor in the US and doing it the right way, ensuring that we're serving the customer, winning day to day and growing organically, and then topping that off with acquisitions. We do expect to be participating. It's a consolidating industry. I expect that we'll have some success completing tuck-unders this year.

spk07: Okay, that's great. Thank you, Scott. And then maybe just sort of higher level, just as we think about the year for 2024, it looks like the comps are a bit tougher in both brands and resi in the first half of the year. So are you kind of expecting the year to shape out that way with sort of tougher comps in Q in the first half and then maybe some stronger growth in the back half of the year?

spk24: Not so much. And I think Scott spoke about it in residential. If you're talking top line, you know, we're going to settle more into a mid-single digital organic top line growth pattern. And brands, sure, you know, the headwinds are most acute in the front half of the year, particularly Q1. A little less so in Q2, but still there with respect to the hurricane-related and winter storm Elliott-related work that we had. It starts to taper off in Q3. And as you know, it was pretty minimal for us in Q4 this year. So, yeah, the winds will fade as we move through the year.

spk06: Okay. That's great. Well, thanks, guys. Appreciate it.

spk12: And thank you. And one moment for our next question. And our next question comes from Darrell Young from Stiefel. Your line is now open.

spk10: Good morning, everyone. Just sticking on the roofing theme, a question around the growth focus and I guess how the organic model is going to work there and what some of the key variables are for winning market share. You know, is it about competing on price or is there a way to pursue a differentiation strategy in terms of large scale or more complex roofing projects or specialty facilities or any color you can give here on what differentiates the growth?

spk15: You know, I think first and foremost, it's a growing market. So there are tailwinds that will drive the growth in the market and then It comes down to serving the customer in the local market and having great leadership locally, great relationships, and delivering on your brand promise. This is a group that has done that historically. One of the reasons why we're so excited about partnering with them is that kind of alignment So it's going to be, you know, the markets are huge. And it's very similar to our other markets. And the opportunity to grow organically is really through your culture, your people, and bringing it every day. And that's the same as all our businesses. And really that's the opportunity that we saw. We'll be taking a long-term perspective. It's incremental. Um, and then, you know, it, it is early days, but there is an opportunity as we fill out our footprint to start develop a national account program, similar to what we've done at first onsite century fire. Um, and, uh, we'll be, we'll be working on that in earnest in the coming coming years.

spk10: That's pretty color. Thank you. Um, and then on the residential property management side, we've seen a number of third-party technology platforms that have kind of popped up in the last few years and looking at helping HOAs and residents self-manage communities and record-keeping and amenity booking and all that. Are you seeing any sort of competitive risks related to that? I know you invest a lot in your own tech stack, but just any color you can give us there in terms of ability to keep winning market share on the resi side and any potential disruption?

spk15: Yeah, I mean, a lot of that technology... would relate to smaller communities where they, you know, technology and the board may be able to manage it themselves. You did mention self-management, so I think that's what you're speaking to. You know, our sweet spot is really the larger communities, more complex communities, high-rise, lifestyle, where there's large numbers of sighted staff. Technology certainly matters. And as you suggest, we continue to invest in ours, but it's more about the day-to-day delivery of service from your teams.

spk11: Got it. Okay. That's it for me. I'll jump back in the queue. Thanks, guys.

spk12: And thank you. And one moment for our next question. And our next question comes from Frederick Bastin from Raymond James. Your line is now open.

spk05: Good afternoon, guys. I just wanted to dig a little further on the M&A side. Scott, on the brand side, you've been pretty vocal about adding services like roofing, insulation, and asbestos removal. Obviously, you took care of the roofing part with RCA, but I was wondering what are your views right now on the other two business lines that you were calling out in prior quarters?

spk15: Right, I mean, nothing close, but I think we're always going to be keeping our eyes out for adjacencies. And again, it's around this maintenance, repair, restoration space. You know, when we service a large loss, commercial large loss, what other opportunities are there? And what are we walking away from? How can we deliver a better service to the customer, which is really what led us to roofing and to comment on some of the other things that you've mentioned. Okay. Nothing close, though.

spk05: Okay. And then this was, I guess, discussed a little earlier on, but presumably the RCA acquisition came in with a laundry list of potential targets. And is that what is giving you the confidence that you might be able to bring in a couple more tuck-ins on that side?

spk15: Yeah, I don't know if it's a laundry list, but there's certainly a pipeline. And over the last few years, we've had many conversations. And so sort of... Combining those efforts will create some opportunity this year. But we also are going to be very careful and focus on fit and strategy. But roofing is a consolidating industry, and it's happening quickly. So we need to be there.

spk05: Great. That's all I have. Thank you.

spk12: And thank you. And we have a follow-up question. One moment. And our follow-up question comes from Tom Callahan from RBC Capital Markets. Your line is now open.

spk19: Hey, good morning guys. Maybe just on the residential side, in terms of the building blocks for 2024, can you just talk about pricing and what you're seeing there? I know through the year in 2023, obviously renewals were running stronger than historical, but maybe what's embedded in your outlook into 2024 there?

spk24: Yeah, Tom, we've been running at 3%, and that contributed to the strong organic growth in the 10% range these past few quarters. Heading into 24, and built into, I think, in Scott's comments about us settling back to a mid-single-digit range is moving back down to the longer-term and typical pricing dynamic in this industry, which is 1% to 2%. So we're incrementally, as we renew contracts throughout the year, we're kind of starting to see that type of pricing dynamic settle back in there. And it makes sense. You know, wage inflation is coming down, and it's a price-competitive industry, and we've always said that. So, you know, that's the look forward.

spk19: Got it. Thanks for that. And just maybe one more, and I know you guys kind of have touched upon it here in your prepared remarks, but just given kind of the macro headwinds and obviously leads being down in the home improvement side of things – but obviously, you know, still showing gains. How are you kind of thinking about that volume slash market share versus kind of the price promotion trade-off and kind of the impact or related impact on margins there as we kind of move forward into 24?

spk15: Yeah, it's definitely a balance that we're working through. It's, you know, it's a growth-oriented group and it's a time when, We can, in some respects, take advantage of the market and gain share, but we want to balance it with margins. We're looking to, this year, not go backwards on margins, certainly, and looking to increase it from what we experienced in 2023.

spk21: Okay, great. Appreciate the call, guys. I'll turn it back. Thanks.

spk12: And thank you. And one moment for our next follow-up question. And our follow-up question comes from Daryl Young from Stifel. Your line is now open.

spk09: Yeah, sorry, guys. Just one last one.

spk10: With respect to the national account strategy and now having sort of fire restoration and roofing all potentially pursuing the same customers. Is there an insurance angle that's starting to work its way through on the commercial side and opportunities to be a preferred vendor with insurance companies as well? Or is that still kind of an early days concept?

spk15: It's not something that's risen to the top. Certainly, national insurance carriers are customers to Paul Davis and First Onsite. Not significant customers to roofing corp and not at all to Century Fire. So it's, I think, more isolated to restoration right now.

spk16: Okay. That's great. Thanks.

spk12: And thank you. And I'm showing no further questions. I would now like to turn the call back over to Scott Patterson for closing remarks.

spk15: Thank you, Justin, and thank you all for joining. We're looking forward to a strong 2024, and we'll reconnect with you all in April around Q1. Have a great day.

spk12: Ladies and gentlemen, this concludes the first quarter investors conference call. Thank you for your participation, and have a nice day. you Thank you. Welcome to the fourth quarter 2023 earnings 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 Administration and in the company's annual report on the Form 40F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is February 6, 2024, I would like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead.

spk15: Thank you, Justin. Welcome, ladies and gentlemen, to our fourth quarter and year-end conference call. I'm on with Jeremy Racoosin, our CFO. Thank you for joining us today. We're very pleased with how we finished the year. and with our momentum as we head into 2024. Before I jump into the quarterly results, I want to make a few comments about the year. We closed out 2023 with our revenue up 16 percent over 2022 and our EBITDA up 18 percent. Very strong results. Organic growth for the year at 10 percent accounted for over half of our top line increase. And importantly, the organic growth was balanced equally across our divisions. Both first service residential and first service brands grew organically by 10%. We've had some time now to reflect on these results for the year, and we could not be more proud of our teams for how they performed. 2023 represents the third consecutive year with organic growth at 10%, and that is a reflection on our teams and their ability to consistently gain market share. Now I'll turn to the fourth quarter. Total revenues were up 6% over the prior year and right in line with our internal expectations. The growth of the quarter related entirely to acquisitions. Organic growth was nil due to a very strong Q4 last year, driven by significant loss claims activity from hurricanes Ian and Fiona that led to outsized revenues for our restoration brands. EBITDA for the quarter was flat at 103 million, and again, right in line with our expectations. Jeremy will jump into the margin and earnings per share detail in his comments. Looking at our divisional results, First Service Residential revenues were up 12 percent, 9 percent organically. The results are consistent with the previous three quarters this year and reflect solid growth from net new contract wins and again was broad-based across North America with all of our regions showing gains. Looking forward to the coming year, we expect to show growth at First Service Residential at the high single-digit level. with organic growth starting to ease back during the year into the mid-single-digit range, which is our long-term average in this business. This is a contractual recurring revenue model with only modest swings quarter to quarter. Moving on to first service brands, revenues for the quarter were up 1% compared to the very strong prior year quarter that was up 28% over the same quarter in 2021. Revenues declined 7 percent on an organic basis, with gains at Century Fire and our home improvement brands more than offset by the headwinds at our restoration brands. Let me go through each segment, and I'll start with restoration, which includes our results for Paul Davis and First Onsite. Revenues for the quarter came in lighter than expectation and were down more than 10 percent against a tough comp in the prior year. We experienced very mild weather patterns across North America during the quarter. And in addition, our remaining hurricane Ian related backlog did not progress as we expected. We produced only a modest amount of storm related work, about 15 million during the fourth quarter. which historically is our strongest storm-related revenue quarter. By comparison, we generated $85 million in revenue last year from Hurricanes Ian and Fiona. We've seen an uptick in activity in Q1 from the frigid weather that much of North America experienced in mid-January, and we expect a solid quarter, but it will not be at the level we experienced in Q1 last year off the back of winter storm Elliott, and the hurricanes. Our expectation is that Q1 restoration revenues will be down at least 10% from prior year. Moving now to our home improvement brands, including California Closets, CertiPro Painters, Floor Coverings International, and Pillar to Post Home Inspection. As a group, these brands were up mid single digit versus the prior year. with organic growth low single digit, very similar results to those we posted in Q3. We continue to face real headwinds in home improvement, and lead activity continues to be sluggish, still off year over year. It's a real tribute to the tenacity of our teams in this segment that we've driven growth the last two quarters in this environment. Interest rate levels and record low home sales have negatively impacted consumer demand, and we don't expect this to abate until late in the year or next year. That said, our teams in home improvement are confident that they can continue to grind out modest gains through 2024. I'll finish my review of the Q4 results with Century Fire. which had another very strong quarter, exceeding our expectations, with organic growth near 20%. Similar to previous quarters this year, we are seeing strength across each of installation, service and inspection, and our national accounts division, and almost all our branches are performing and growing. The Century team has really done a great job this year. Looking forward, we're expecting continued strong results, but certainly more modest growth off the back of the 20% growth this year. Backlogs are solid, about flat with prior year end. Based on current bid activity, our expectations for 2024 growth this century is high single digit, which is more in line with our experience prior to this past year. Before I pass over to Jeremy, I want to spend a few minutes introducing our new platform acquisition, Roofing Corp of America, which we closed in late December. Roofing Corp is a $400 million revenue business that operates from 16 branches across 11 states. It offers end-to-end roofing services, including new installation, re-roofing, and repair and maintenance primarily to commercial property owners and managers. Ninety percent of the revenue is commercial, and the focus go forward is commercial. It's a business that has come together over the last five years through acquisition. We spent significant due diligence time on each acquired company and each branch and came away very impressed with the businesses that make up Roofing Corp and with the teams, both corporately and at the branch level. We're excited about the opportunity in roofing and excited to be partnering with this group led by Randy Korak, CEO. We've been looking at roofing in general since late 2020. I've mentioned it on this call in the past. It shares many of the same characteristics as our other businesses in terms of being an essential property service operating in a huge fragmented market with growth potential, both organically and through tuck under acquisition. It's also highly complementary with restoration and fits well with a broader thesis we have around repair, maintenance, and restoration of the built environment and the growth potential in that space. Growth from the continual expansion of the built environment, but also from the increased frequency and volatility of weather. Restoration, roofing, painting, flooring, we will benefit from weather across all these businesses in the coming years. Roofing Corp finished 2023 with momentum. They have a strong backlog of work, and we expect solid organic growth in the mid to high single-digit range for 2024. We also expect to be active in terms of building the acquisition pipeline and seeking out tuck owners. With that, let me pass you over to Jeremy, who will provide a more detailed review of our performance and pull together a consolidated look forward for 2024. Jeremy?

spk24: Thank you, Scott. Good morning, everyone. Scott just highlighted we are pleased with the strong full-year 2023 financial results we delivered even in the face of a more tempered fourth quarter when we were up against very strong prior year Q4 2022 headwinds. I will parse out these details in my commentary, starting first with a summary of our consolidated performance and following up with a segmented breakdown across our two divisions. During the fourth quarter, we reported consolidated revenues totaling $1.08 billion. and adjusted EBITDA of $103.3 million, up 6% and 1% respectively, with our margin at 9.6% compared to 10.1% in the prior year period. For the full year, consolidated revenues increased 16% to $4.33 billion, underpinned by a strong and broad-based 10% organic growth. Adjusted EBITDA came in at $415.7 million, up 18% over the prior year, and yielding a 9.6% margin, up 20 basis points compared to 9.4% in 2022. From a net earnings perspective in the fourth quarter, adjusted EPS was $1.11, down from $1.22 in last year's fourth quarter. For the full year, we reported adjusted EPS of $4.66, up 10% over the $4.24 in 2022. Our annual interest costs almost doubled versus the prior year, largely attributable to the higher interest rate environment. Higher rates in 2023 compared to 2022 had a more than 30 cent per share or 7% negative impact on our adjusted EPS growth, which otherwise would have matched our EBITDA annual growth rate in 2023. Note that these comments on our adjusted EBITDA and adjusted EPS results, respectively, reflect adjustments to GAAP operating earnings and GAAP EPS, which are disclosed in this morning's press release and are consistent with our approach in prior periods. Now we'll provide additional commentary on our division results for both the fourth quarter and full year. At first service residential for the fourth quarter, revenues were $496 million, up 12% versus the prior year period, and the division reported EBITDA of $43.5 million, up 14% quarter over quarter. Our margin for the quarter was 8.8%, modestly higher than the 8.6% level in Q4 2022. For the full year, revenues hit the $2 billion mark, increasing by 13% over 2022, including 10% organic growth. We also delivered an 11% increase in annual EBITDA with our full year margin at 9.4% and in line with the 9.5% margin for 2022. The margin is also down the middle of our typical 9 to 10% annual margin band for the First Service Residential Division and a range consistent with what we also see for 2024. Shifting now to our First Service Brands Division and focusing first on Q4, we recorded revenues of $583 million, a 1% increase. As Scott referenced, our restoration operations had lower revenues versus prior year due to the mild weather during the current quarter compared to the contribution from significant hurricane events in late 2022. The Brands Division saw solid organic revenue growth, excluding this restoration-related headwind. For the fourth quarter, our Brands Division EBITDA came in at $61.1 million, down 9% versus the prior year quarter. Our division margin during the quarter was 10.5% down from 11.7% in Q4 2022, and as expected, matched the margin level for the prior year sequential third quarter, which we noted in our Q3 earnings call. Profitability and margins were lower within our restoration businesses as a result of the reduced weather-driven activity levels and revenues. Margins at our home services brands also moderated in the fourth quarter compared to prior year as increased promotional pricing and marketing initiatives were implemented to preserve our top-line growth. For the full year, revenues were very strong, up 19%, including 11% organic growth. Our annual EBITDA grew 24%, resulting in a 10.4% full year margin, up 50 basis points, versus the prior year of 9.9%. We will continue to experience quarterly and even annual shifts in our brand division margins into 2024 and beyond, particularly in light of our restoration operations, which depend on certain levels of baseline weather-driven activity. The more periodic and larger area-wide storm events can further exacerbate the year-over-year margin profiles within restoration and thereby influence the brand's margin comparisons. Despite these near-term fluctuations, our focus continues to be on the longer-term secular market opportunity for our restoration repair and maintenance brand to deliver attractive compounded growth rates. Finally, to close off my commentary on the P&L, we reported lower corporate costs in the fourth quarter due to the benefit of foreign exchange movements. We also had larger than typical acquisition-related items during the quarter, which negatively impacted GAAP operating earnings and GAAP EPS, which have no effect on our EBITDA and adjusted EPS. performance metrics. Of the $16 million amount in Q4, most related to earn-outs tied to prior tuck-under acquisitions and transaction costs for the larger Roofing Corp of America acquisition that Scott previously described. Now I'll walk through a summary of our cash flow and capital deployment. For the fourth quarter, we delivered cash flow from operations after working capital totaling $110 million. double the level during the prior year period. For the full year, operating cash flow was $280 million, up significantly over the $106 million in 2022, driven by strong operating earnings growth and conversion of working capital investments in our restoration operations from prior year hurricane activity levels. We incurred $25 million of capital expenditures during Q4, resulting in full-year CapEx of $93 million, which came in lower than our most recently indicated target of $100 million. In 2024, we expect total capital expenditures to increase in line with the growth of our operation to approximately $115 million. Maintenance CapEx represents the predominant amount of this spending for service vehicle fleet IT and office leasehold replacement cycles across our brands, and will continue to represent roughly 2% of revenues and 20% of EBITDA on a consolidated basis. The fourth quarter also saw significant acquisition spending, totaling $434 million, with the bulk of that amount to finance the roofing corp transaction. For the year, we deployed almost $550 million towards acquisitions and excluding the Roofing Corp transaction, our tuck under acquisition program spending totaled close to $150 million, which contributes a mid-single digit percentage of incremental revenue growth above our organic growth base. Beyond these growth-driven capital deployment priorities, we also continued our trend of growing our dividends by yesterday approving an 11% dividend increase to $1 per share annually in U.S. dollars up from the prior $0.90. We have now annually hiked our dividend 10% or higher every year over the past decade. Our 2023 year-end balance sheet continues to be strong even after the larger roofing corporate We closed out the year with just under $1 billion of net debt, and our leverage sits at a conservative 2.1 times net debt to adjusted EBITDA, up only a half turn from the 1.6 times level at the end of 2022. After current year end, this past January, we also bolstered our liquidity by tapping into $125 million of seniors' unsecured notes under our note holder master shell facilities which have five to seven year maturities with interest coupons in the five and a half percent area together with our cash on hand and availability under our bank credit facility our current liquidity is approximately 400 million dollars which is ample for us to drive further acquisition growth as we work through our existing deal pipeline Looking forward, you've heard Scott comment on the individual brands' top line near-term growth indicators. With all that in mind, we see upcoming first quarter consolidated revenue growth to be approximately 10%. Q1 margins will be lower versus prior year, with the residential division margin roughly flat and the brands' division margin down due to our restoration operations, which are comparing against approximately $80 million of hurricane-related revenue in Q1 23 that will not repeat in the first quarter of 2024. For the full year, on a consolidated basis, we expect to deliver top-line growth in the low teens percentage range with a healthy base of organic growth on the back of continued momentum with our brands, together with approximately $400 million revenue contribution from our roofing corp acquisition. With respect to profitability, residential margins will likely perform in line with prior year quarters, while our brand's margins should see modest year-over-year improvement during the latter half of the year when we are no longer comparing against the 2023 hurricane and winter storm events. Piecing it all together, we expect our consolidated EBITDA margin for the full year to be relatively in line to slightly up versus 2023. This now concludes our prepared comments. Operator, please open up the call to questions, and thank you.

spk12: And thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by. We've compiled a Q&A roster. And one moment for our first question. And our first question comes from Michael Dumet from Scotiabank. Your line is now open.

spk13: Hey, good morning, guys. Nice quarter.

spk14: Scott, Jeremy, I think maybe just to start on the guidance for the year. So the way I understand it for 2024, the guidance doesn't include any storm-related activity, which all is equal would suggest lower EBITDA margins for 2024, but you're calling for flat to slightly higher EBITDA margins, which again would imply embedded margins are rising somewhere else. Just trying to see if we can break that down a little bit where the margin expansion is happening, whether it's roofing corp or something else.

spk24: Yeah, correct, Michael. I mean, just to put a box around it, the top line low teens, you know, that does not include, as you said, any additional shod in the arm from storms. It also doesn't include unidentified tuck under acquisitions. I mean, frankly, we do acquisitions every year. And if we continue with that cadence, you could see our top line and bottom line, frankly, resemble pretty close to the performance we just delivered in 23 over 2022. But again, we don't build that into our thinking. I'd say the residential margin is relatively flat, so no real pickup there. In the brands, it would be a little bit of mix. We're adding the roofing corp transaction, which we come in at low double-digit margins, and that's has a little bit of a positive mix impact. And some of the efficiencies that we're going to start to see in our restoration operations from the implementation of the operating platform, it's not going to be in a straight line, but that incrementally over the quarters and into, frankly, beyond 24 will be something that we're working on and should be a small margin enhancer for us as well during the course of 2024.

spk14: Super helpful. Maybe a bigger picture here. So I do like the thesis around the roofing business. I wonder to what extent there are synergies between the restoration business and the roofing business. And I wonder, again, if you continue to expand the restoration business, whether or not there are other businesses where you might increasingly look to explore synergies.

spk15: Michael, certainly roofing is complementary to restoration. As I said in my prepared comments, we've been looking at it for a few years now and really became aware of it or more aware of it through First Onsite and our commercial restoration because we're regularly seeing opportunities in roofing and either subbing it out were walking away from it. So certainly we became more aware of the opportunity through restoration, but it is a discrete opportunity that we see big opportunity in. There will be some collaboration, certainly, between the restoration brands and a roofing corp, but it is a discrete segment and a discrete opportunity for us. Beyond that, I mean, generally, the thesis around repair, maintenance, and restoration and the impact that weather will have on that, I mean, we're very bullish on it. We think CertiPro painters will certainly benefit, and we are CertiPro every year is expanding its commercial capability. And, again, we see collaboration between these areas going forward.

spk02: Really helpful. Appreciate the call. Thank you, guys.

spk12: And thank you. And one moment for our next question. And our next question comes from Steven Sheldon from William & Blair. Your line is now open.

spk04: Hey, good morning. Thank you. Just first, can you talk about top of the funnel trends in the home improvement brands? I think you said it continues to be sluggish. Are you seeing it weaken even more than you'd seen before? And then just as we think about the next couple quarters there, how much visibility do you have into revenue there, just given the backlog that continues to convert?

spk15: It's not weaker, Stephen. It's sort of holding off our lead activity off 5% to 10%. So it's similar to the last few quarters we've had. And we would expect similar results in the first half of the year to what you've seen in the last half of 23. So, I mean, it's tough. It's a grind. But we expect that we'll be up a bit top line. You know, we are continuing to invest in marketing. and continuing to focus on lead conversion and closing rate, which are really two levers more in our control that can help offset the headwinds. And we're having success with that.

spk04: Very helpful. And then as a follow-up within the fire business, is there much of a margin differential between the installation work tied to construction activity versus the recurring inspection and repair work, and just asking that in case we see construction activity taper over the next year or two, and the impact that could have on margins in the firebrand, if there is a mid-shift more towards the recurring revenue streams there.

spk15: No, very, very similar. I would say 2023, the margins were similar. Historically, as we've experienced price increases in steel and other materials, it's impacted installation relative to service, which is more labor driven. But right now, they're running very similar.

spk04: Great.

spk17: Thank you. And thank you. And one moment for our next question.

spk12: And our next question comes from Steven McLeod from BMO Capital Markets. Your line is now open.

spk07: Great. Thank you. Good morning, guys. Just wanted to circle around on a couple of things related to Q1, particularly within restoration. I know you gave some sort of near-term guidance on the different components. But just wondering, when you put it all together, how do you sort of foresee Q1 organic growth evolving on a consolidated basis within the brands division.

spk15: Jeremy, you want to handle that?

spk24: Sure. I think it's going to be pretty similar, Stephen, to what we just saw in Q4. Similar headwinds in the order of 80 million, I think I mentioned in my prepared comments, 80 million that we're going to be comping against in Q1 versus Q1 of 2023. And that's a similar headwind as what we had just in Q4. So organic revenue growth, as Scott mentioned, was down 7%. It's going to be down about the same amount, including the storms. If you X out that $80 million headwind, it would be healthy organic growth for the brand's vision.

spk07: Yeah. Okay, great. And then just would you expect a similar type of margin impact in Q1? that you saw in Q4, considering the organic is roughly the same?

spk24: On a consolidated, you know, I said that residential would be flat and brands would be down. On a consolidated basis, I would look for Q1 consolidated margins to be down roughly 100 basis points, perhaps a little bit more.

spk07: Okay. And that would be sort of flat flat resi and down brands to get to that.

spk24: Yeah. Consolidated down. Obviously, brands down more than 100 if the other division's flat, but the consolidated would be 100 basis points of potential wider on the compression.

spk07: Yeah. Okay. No, that's very helpful. Thanks, Jeremy. And then just sort of higher level You know, having now owned the roofing business for, you know, six weeks or however long it's been, just wondering if you can give a little bit of color as to kind of what you're seeing so far. I know you mentioned that the business finished the year strongly, which is great. But just wondering, you know, are there, you know, some wins or highlights that you can sort of highlight that you've seen so far?

spk15: Yeah, I mean, it's early days, Stephen. Thinking through the wind, I think the biggest thing from our perspective is just our excitement to be partnering with this group. It's a strong team, and we're just filled with optimism about our opportunity in this business. We've got great operators at the branch level, and generally the alignment. with the management team around building the premier roofing contractor in the US and doing it the right way, ensuring that we're serving the customer, winning day to day and growing organically, and then topping that off with acquisitions. We do expect to be participating. It's a consolidating industry. I expect that we'll have some success completing tuck-unders this year.

spk07: Okay, that's great. Thank you, Scott. And then maybe just sort of higher level, just as we think about the year for 2024, it looks like the comps are a bit tougher in both brands and resi in the first half of the year. So are you kind of expecting the year to shape out that way with sort of tougher constant Q in the first half and then maybe some stronger growth in the back half of the year?

spk24: Not so much. And I think Scott spoke about it in residential. If you're talking top line, you know, we're going to settle more into a mid-single digital organic top line growth pattern. And brands, sure, you know, the headwinds are most acute in the front half of the year, particularly Q1. Little less so in Q2, but still there with respect to the hurricane-related and winter storm Elliott-related work that we had. It starts to taper off in Q3. And as you know, it was pretty minimal for us in Q4 this year. So, yeah, the winds will fade as we move through the year.

spk06: Okay. That's great. Well, thanks, guys. Appreciate it.

spk12: And thank you. And one moment for our next question. And our next question comes from Darrell Young from Stiefel. Your line is now open. Good morning, everyone.

spk10: Just sticking on the roofing theme, a question around the growth focus and I guess how the organic model is going to work there and what some of the key variables are for winning market share. You know, is it about competing on price or is there a way to pursue a differentiation strategy in terms of large scale or more complex roofing projects or specialty facilities or any color you can give here on what differentiates the growth?

spk15: You know, I think first and foremost, it's a growing market. So there are tailwinds that will drive the growth in the market and then It comes down to serving the customer in the local market and having great leadership locally, great relationships, and delivering on your brand promise. This is a group that has done that historically. One of the reasons why we're so excited about partnering with them is that kind of alignment So it's going to be, you know, the markets are huge. And it's very similar to our other markets. And the opportunity to grow organically is really through your culture, your people, and bringing it every day. And that's the same as all our businesses. And really, that's the opportunity that we saw. We'll be taking a long-term perspective. It's incremental. Um, and then, you know, it, it is early days, but there is an opportunity as we fill out our footprint to start develop a national account program, similar to what we've done at first onsite century fire. Um, and, uh, we'll be, we'll be working on that in earnest in the coming coming years.

spk11: That's pretty color. Thank you.

spk10: Um, and then on the residential property management side, we've seen a number of third-party technology platforms that have kind of popped up in the last few years and looking at helping HOAs and residents self-manage communities and record-keeping and amenity booking and all that. Are you seeing any sort of competitive risks related to that? I know you invest a lot in your own tech stack, but just any color you can give us there in terms of ability to keep winning market share on the resi side and any potential disruption?

spk15: Yeah, I mean, a lot of that technology... would relate to smaller communities where they, you know, technology and the board may be able to manage it themselves. You did mention self-management, so I think that's what you're speaking to. You know, our sweet spot is really the larger communities, more complex communities, high-rise, lifestyle, where there's large numbers of sighted staff. Technology certainly matters. And as you suggest, we continue to invest in ours, but it's more about the day-to-day delivery of service from your teams.

spk11: Got it. Okay. That's it for me. I'll jump back in the queue. Thanks, guys.

spk12: And thank you. And one moment for our next question. And our next question comes from Frederick Bastin from Raymond James. Your line is now open.

spk05: Good afternoon, guys. I just wanted to dig a little further on the M&A side. Scott, on the brand side, you've been pretty vocal about adding services like roofing, insulation, and asbestos removal. Obviously, you took care of the roofing part with RCA, but I was wondering what are your views right now on the other two business lines that you were calling out in prior quarters?

spk15: Right, I mean, nothing close, but I think we're always going to be keeping our eyes out for adjacencies. And again, it's around this maintenance, repair, restoration space. You know, when we service a large loss, commercial large loss, what other opportunities are there? And what are we walking away from? How can we deliver a better service to the customer, which is really what led us to roofing and to comment on some of the other things that you've mentioned. Okay. Nothing close, though.

spk05: Okay. And then this was, I guess, discussed a little earlier on, but presumably the RCA acquisition came in with a laundry list of potential targets. And is that what is giving you the confidence that you might be able to bring in a couple more tuck-ins on that side?

spk15: Yeah, I don't know if it's a laundry list, but there's certainly a pipeline. And over the last few years, we've had many conversations. And so sort of... Combining those efforts will create some opportunity this year. But it's, you know, we also are going to be very careful and focus on fit and strategy. But this, you know, roofing is a consolidating industry and it's happening quickly. So we need to be there.

spk05: Great. That's all I have. Thank you.

spk12: And thank you. And we have a follow-up question. One moment. And our follow-up question comes from Tom Callahan from RBC Capital Markets. Your line is now open.

spk19: Hey, good morning guys. Maybe just on the residential side, in terms of the building blocks for 2024, can you just talk kind of about pricing and what you're seeing there? I know through the year in 2023, obviously renewals were running kind of stronger than historical, but maybe what's kind of embedded in your outlook into 2024 there?

spk24: Yeah, Tom, we've been running at 3%, and that contributed to the strong organic growth in the 10% range these past few quarters. Heading into 24, and built into, I think, in Scott's comments about us settling back to a mid-single-digit range is moving back down to the longer-term and typical pricing dynamic in this industry, which is 1% to 2%. So we're incrementally, as we renew contracts throughout the year, we're kind of starting to see that type of pricing dynamic settle back in there. And it makes sense. You know, wage inflation is coming down, and it's a price-competitive industry, and we've always said that. So, you know, that's the look forward.

spk19: Got it. Thanks for that. And just maybe one more, and I know you guys kind of have touched upon it here in your prepared remarks, but just given kind of the macro headwinds and obviously leads being down in the home improvement side of things – but obviously still showing gains. How are you thinking about that volume slash market share versus the price promotion trade-off and the impact or related impact on margins there as we move forward into 2024?

spk15: It's definitely a balance that we're working through. It's a growth-oriented group and it's a time when We can, in some respects, take advantage of the market and gain share, but we want to balance it with margins. We're looking to, this year, not go backwards on margins, certainly, and looking to increase it from what we experienced in 2023.