FirstService Corporation

and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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 differ materially from those in the forward-looking statements is contained in the company's annual information form as filed with the Canadian Securities Administrators and in the company's annual report on Form 40F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is February 5th, 2025. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Thank you, Gigi. Good morning, everyone, and welcome to our fourth quarter and year-end conference call. Thank you for joining us. Jeremy Racoosin is on the line with me today and will follow my overview comments with a more detailed review of our financial results. And let me start by emphasizing how pleased we are with how the year closed out. We had a very strong Q4 that capped off another stellar year for First Service Corporation. You all know our long-term goal is to average 10 percent growth on the top line and to match that growth or do a bit better at the EBITDA line. In 2024, we doubled our long-term goal with 20% growth in revenues and 24% growth in our EBITDA. Much of the growth was driven by the acquisition of Ruping Corp of America late last year, but the growth was well supported by most of our other brands. And we're particularly pleased with our consolidated margin for the year that ticked up 20 basis points in a tough environment. It's a credit to our teams that continue to create efficiencies and battle as best they could to match price increases with cost inflation. Jeremy will speak more to the annual results in his comments. Let me move on to the overview of the fourth quarter. Revenues were up 27% with organic growth at 10%, driven primarily by strong results at our brands division. EBITDA was up 33%, reflecting a 50 basis point improvement in margins, and earnings per share were up 21%. Indeed, a strong finish to the year. Looking now at the separate divisions, revenues at first service residential for the quarter were up 5% with organic growth at 3%, matching our expectations and the results for Q3. We laid out last quarter that our communities have been experiencing budgetary pressures from rising costs, including insurance premiums and legislated increases in reserves and maintenance and repairs. The budgetary pressure has in turn put pressure on our management contracts, including the levels of cited labor. As I said last call, we do see this as temporary. as communities work their way through the immediate cash crunch by prioritizing their spend, increasing monthly resident HOA dues, and in some cases, funding projects through special assessments or securing loans. Looking forward, we see organic growth in the low single-digit range for the first half of 2025. The trough will be most acute in the first quarter and then organic growth will build from there through the year. First Service Residential grew organically by 5% for the full year in 2024 and we expect the division to grow at a similar level in 2025. Moving on to First Service Brands, revenues for the quarter were up 45% driven primarily by the addition of Roofing Corp of America and very strong year-over-year results in our restoration segment. Organic growth was 16% for the division, almost entirely driven by restoration. Looking more closely at restoration, Paul Davis and First Onsite together recorded revenues that were up 40% over the prior year. Both brands benefited during the quarter from Hurricanes Helene and Milton. In the aggregate, we generated about $60 million in revenue from named storms compared to $15 million in the prior year quarter. We're pleased with how the year closed out for us in restoration. After a slow start, we finished strong and showed organic growth for the full year of about 5%. If we adjust for named storms, organic growth was over 10%. We booked approximately $90 million of revenue from named storms in 2024, compared to $160 million in 2023. We continue to grow and make progress year to year in our restoration segment. Since acquiring First Onsite, our two brands together have averaged organic growth of almost 10% over the last six years. We feel like we're right on track with our original thesis in this business when we took the big step into commercial restoration with the acquisition of First Onsite in 2019. Looking forward, we are through the mitigation work from the Q4 hurricanes and focus now on securing or preparing for the related reconstruction work As I've mentioned previously, the process of scoping and approving work with adjusters and insurance carriers can take time, and that is before permitting starts. All that to say that backlog conversion becomes hard to forecast. We enter Q1 with a solid backlog that is up modestly over prior year. In addition, we're seeing an uptick in leads from the LA wildfires and the recent cold weather across North America. Based on current visibility, we expect to show mid-single digit growth in our restoration segment in the first quarter. Moving now to Roofing Corp of America, we had another good quarter to end the year, our first full year in partnership with the team at RCA. We accomplished much of what we set out to do in year one. including hitting our due diligence forecast and adding strategic tuck-unders in key markets. The acquisitions of Crowther and Hamilton midway through the year were important additions, and we anticipate further expanding our footprint in 2025. Looking forward in our roofing segment, we expect to show a significant revenue increase in Q1 of 50 percent or more, primarily due to the inclusion of Crowther and Hamilton. to non-seasonal roofing contractors. Their impact will be exaggerated in the first quarter for Roofing Corp when many of the existing branches are slower due to winter weather. We'll see a lesser impact in Q2. Now to our home service brands where revenues were slightly down from the prior year, right in line with our expectations. The environment has improved only modestly since our last call at the end of Q3. Lead activity continues to be down year over year. We're driving higher conversion rates and seeing an increase in average job size, which we expect will lead to a revenue level that is flat to slightly down for the first half of 2025. We're cautiously optimistic that we'll start to see market improvement in Q2. leading to revenue growth in the back half of the year. Home equity values remain strong and home prices continue to increase. These indicators and others all point to a more buoyant home improvement market in 2025. Although the implementation of tariffs may well temper consumer confidence and further delay market improvement, time will tell. And I'll finish with Century Fire, where we had another strong quarter that was up nominally versus the prior year due to a very robust comparative quarter that was up 25% organically versus the fourth quarter in 2022. The team at Century did well to exceed the prior year. Activity levels remain buoyant at Century, and we expect another solid year upcoming with organic growth approaching 10% spread evenly across the quarters. Let me now call on Jeremy to review our results in detail and provide a consolidated look forward.

Thank you, Scott, and good morning, everyone. As you just heard, we are pleased with the strong fourth quarter and full year results we delivered, particularly when looking back to what we outlined as our annual growth objectives at the beginning of 2024. We saw increasing momentum throughout the year and ultimately met or exceeded our financial targets across the board. The fourth quarter specifically showed strong outperformance in aggregate for our two divisions, which more than offset significant negative non-cash foreign exchange adjustments in corporate costs outside of the operating segments. I will elaborate with further details in just a moment. During the fourth quarter, our operating results included consolidated revenues totaling $1.37 billion and adjusted EBITDA of $137.9 million, up 27% and 33% respectively, with our margin at 10.1%, up 50 basis points compared to 9.6% during the prior year. Our Q4 adjusted EPS was $1.34, up 21% over last year's fourth quarter. For the full year, consolidated revenues increased 20% to $5.22 billion, including 4% organic growth. Adjusted EBITDA came in at $513.7 million, up 24% over the prior year. and yielding a 9.8% margin, up 20 basis points compared to 9.6% in 2023. Adjusted EPS for the 2024 fiscal year was $5 even, up 7% versus 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 release and are consistent with our approach in prior periods. Now walking through the quarterly and annual results in our two divisions, I will lead off with First Service Residential. For Q4, revenues were $521 million, up 5% versus the prior year period. And the division reported EBITDA of $46 million, up 6% quarter over quarter. Our margin for the quarter was 8.8% matching the prior year period. For the full year, revenues were $2.1 billion, increasing by 7% over 2023, including 5% organic growth. Annual EBITDA increased 6% with our full year margin at 9.3% and in line with the 9.4% margin for 2023. The division performance matched our expectations both for 2024 as well as the long term. Targets of mid-single-digit annual organic top-line growth with annual margins remaining within our typical 9% to 10% margin band. Looking next at our first service brands division, the very strong fourth quarter included revenues of $844 million, up 45%, compared to Q4 2023, and EBITDA came in at $100.7 million, up 65% year-over-year. The significantly higher profitability was driven by contribution of our roofing corp acquisition acquired in late 2023, as well as improved margins on an organic basis. The Brands Division margin during the quarter was 11.9%, up 140 basis points, over 10.5% in the prior year quarter. Our restoration brands saw higher margins driven by operating leverage from the strong top line growth that Scott described in his comments. We also had improved margins within home services as our California closets company owned operations continued to reduce their promotional activities and optimize their labor costs compared to the prior year quarter. The strong finish to the year in the brands division produced robust annual growth metrics, revenues eclipsing $3 billion and up 32%, while EBITDA grew 40% over the prior year. Our full year 2024 brands margin came in at 11%, up 60 basis points over the prior year of 10.4%. Finally, two remaining points to highlight regarding profitability below the operating division lines. First, we reported significantly higher corporate costs of almost $9 million in the fourth quarter compared to just over $1 million in Q4 of 2023, with almost all of the variance driven by non-cash foreign exchange movements related to the translation of Canadian dollar debt from a prior acquisition. This FX adjustment had a negative impact of $0.08 to our adjusted earnings per share in the fourth quarter. For the full year, our corporate costs were $25 million compared to a little over $14 million versus the prior year. And once again, non-cash foreign exchange movements were the principal driver for the significant increase. Secondly, our annual interest costs were 75% higher in 2024 than the prior due to the higher rate environment, as well as increased debt levels to finance our roofing platform and subsequent tuck-under acquisitions. This tempered our annual EPS performance to 7% year-over-year growth, which was a meaningful gap to our top-line and operating earnings growth rates. In the fourth quarter, we started to see our EPS growth approach our strong operating growth performance as interest rates have started to moderate. I'll now summarize our cash flow and capital deployment. For the year, we delivered cash flow from operations totaling $285 million, which was up modestly versus 2023. Normalizing our operating cash flow to exclude working capital movements given prior year pickups we saw a 19 percent increase on a year-over-year basis. We fully redeployed our cash flow with over $300 million allocated to support our continued growth, two-thirds going towards our tuck-under acquisition program and the remaining third towards capital expenditures for our existing operations. Our acquisition spending during the year totaled $212 million, largely directed towards expanding the geographic footprint of our Roofing Corp operating platform. Our CapEx for 2024 tallied just below our annual target of $115 million. In 2025, we expect total capital expenditures to be approximately $125 million, growing in lockstep with our operations and remaining in line with historical investment trends measured relative to our revenues and EBITDA. In addition to these capital allocation priorities, we also announced yesterday a 10 percent dividend increase to $1.10 per share annually in U.S. dollars, up from the prior $1. Our consistent and robust growth in financial performance over the long term has allowed us to establish a track record of healthy annual dividend hikes of 10 percent plus over the past decade. We are able to allocate our growth capital and deliver incremental dividend returns because our balance sheet continues to remain strong. At 2024 year end, our leverage sits at two times net debt to adjusted EBITDA, down slightly from the prior year end, notwithstanding the significant acquisition activity I noted earlier. We have approximately $360 million of liquidity through our cash on hand and undrawn portion of our bank credit facility. This level is ample for our foreseeable needs, and with the strong support of our bank's syndicate and long-term note holders, we have the ability to tap into incremental debt capacity as necessary. Looking forward, Scott has already provided some color on the top-line growth outlook for the individual brands. Aggregating those indicators, the upcoming first quarter consolidated revenue growth will approach 10 percent, and this pacing should continue into Q2 as we benefit through the incremental contribution from roofing acquisitions that closed in mid-2024. In the back half of the year, we will revert back to consolidated mid-single-digit top-line growth without accounting for any further tuck-under acquisitions. Piecing this together for the full year, we expect our businesses to collectively deliver high single-digit top-line growth In terms of our consolidated margin, we expect Q1 to be modestly higher versus prior year, with the residential division margin roughly flat and our brands division margin up on the continuation of the same themes as recent quarters. These positive brands margin dynamics will moderate in Q2 and beyond, assuming no additional significant weather-driven events and large loss claims in restoration. For the full year, We expect brands division margins to be modestly up and our first service residential margins to be flat to potentially slightly up. This will drive incremental consolidated EBITDA margin expansion during the year compared to 2024. This concludes our prepared comments. Operator, please open up the call to questions. Thank you.