FirstService Corporation

Welcome to the first quarter investor conference call. Today's call is being recorded. All participants on a listen-only mode. After the speaker's presentation, there will be a question 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. The 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 complicated in the forward-looking statements, additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements 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 April 24, 2025. I would now like to turn the call over to the Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Thank you, Olivia. Good morning, everyone. Thank you for joining our Q1 conference call. We reported solid results this morning that we're very pleased with in the current environment. I'll provide a high-level review and touch on some of the highlights, and then pass to Jeremy Racoosin for a more in-depth discussion of the results. Total revenues were up 8% over the prior year, driven primarily by tuck-under acquisitions over the last 12 months. Organic growth was slightly positive, with gains at first service residential largely offset by a modest decline across the first service brands division. EBITDA for the quarter was up 24%, reflecting a strong 110 basis point improvement in our consolidated margin. A number of our brands showed margin improvement. Jeremy will walk through the detail in a few minutes. Finally, our earnings per share for the quarter were up an impressive 37%. Looking at our divisional results, first service residential revenues were up 6%, half organic and half from a few small tuck-unders over the last 12 months. The results were in line with expectation. We had a solid quarter of contract wins and retention as we continue to work our way back to our historical mid-single-digit organic growth rate. Looking forward at first service residential, we expect similar or slightly better organic growth in Q2 and sequential improvement for Q3 and Q4. Moving on to first service brands, revenues for the quarter were up 10%, driven entirely by tuck under acquisitions. Organic growth for the division was slightly down with gains at Century Fire offset by organic declines in home services. and our roofing platform. I'll give a high-level review of each segment and start with restoration. Revenues were generally in line with expectation for the quarter, up mid-single digit, flat organically. We had solid growth in the U.S. with support from Hurricanes Helene and Milton, from which we generated a little over $10 million for the quarter. This was tempered by modest year-over-year declines in our Canadian operations. The Canadian operations of First Onsite and Paul Davis account for about 30% of our North American restoration business. Our overall restoration backlogs at quarter end are solid and at similar levels to year end and prior year. Looking forward to Q2, we expect revenues to continue at approximately the same level sequentially, which would result in similar year over year results to Q1, flat to modestly up. I'll now touch on our roofing segment, which delivered Q1 revenues that were up almost 50% year-over-year, driven by the acquisitions of Crowther Roofing and Hamilton Roofing in Florida. Organically, the revenues were lower than expected and down about 10% from the prior year quarter. There are two principal reasons for the reduction. One was weather in January and February, which reduced our production hours relative to the prior year. And secondly, we're seeing the expected awarding of some large commercial re-roof and new-build contracts deferred. Bid activity has been solid, but the awarding of contracts has slowed. We see it as a timing issue only and directly related to the current economic uncertainty with tariffs. Looking to Q2 and roofing, we will again benefit from the year-over-year impact of the Florida acquisitions and expect our revenues to be up between 25% and 30% versus prior year. Organically, we expect to be down modestly due to the continued impact of contract deferral. The underlying demand dynamics remain strong, and we're optimistic that contract awards will accelerate as we move into the back half of this year. Moving to Century Fire, we had a strong quarter, generally in line with expectation, with revenues up over 10% and organic growth mid-single digit. The Century results were bolstered by particularly strong growth in repair, service, and inspection revenues. Similar to my comments relating to roofing, we did see some deferral of expected larger commercial installation contracts from Q1 into Q2 or later in the year. Again, we see this as timing only. Our backlog continues to build at century, and we expect continued strong results for the balance of the year with organic growth in the high single-digit range. Now on to our home service brands, which as a group generated revenues that were down about 3% year-over-year, just below expectation. It's been well documented over the last few months that consumer confidence has deteriorated due to the persistence of high interest rates and the economic uncertainty. Our lead flow reflected this in Q1 and was down year over year. As I indicated on our last call, our tried and true economic indicators, home equity values and home prices, point to increases in home improvement spending. We remain optimistic that pent-up demand is building and we will start to see it in increased bookings in the second half of this year. Our lead flow is stabilized and our teams continue to drive increased lead conversion. Looking to Q2, we expect revenues to be slightly down relative to the prior year. Before I pass to Jeremy, let me add a few comments. The direct impact of tariffs to first service are immaterial. However, as I have indicated in my comments, we are seeing a moderate indirect impact. The economic uncertainty in the market today that has resulted from the trade war is causing many commercial and residential consumers to pause. It's undeniable. I opened this call by saying that we were very pleased with the results in the current environment, and I want to reiterate that point. We grew organically in Q1, albeit modestly, while driving enhanced margins. It's a testament to the diversification of our business model and the resilience of our brands. The demand drivers across our markets remain compelling, and we are optimistic we will see accelerated activity levels with market stability. On that note, over to you, Jeremy.

Thank you, Scott. Good morning, everyone. We are pleased with today's first quarter financial performance, which delivered strong year-over-year growth in our key profitability metrics. To summarize the consolidated results for the quarter, we reported revenues of $1.25 billion, an 8% increase over the $1.16 billion for Q1 24. Adjusted EBITDA was $103.3 million, up 24% year-over-year, with an 8.3% margin, and resulting in 110 basis points of improvement over the 7.2 percent margin in the prior year quarter. And our adjusted EPS was 92 cents, reflecting 37 percent growth over the prior year. Our adjustments to operating earnings and GAAP EPS in arriving at adjusted EBITDA and adjusted EPS, respectively, are consistent with our approach in prior periods. To now walk through the segment results for our two divisions, I'll start with First Service Residential. The division generated revenues of $525 million, up 6% over last year's first quarter, while EBITDA was $41.6 million, a 17% growth rate over the prior year. This resulted in EBITDA margin of 7.9%, a 70 basis points increase over the 7.2% level in Q1 24. This margin expansion was driven by cost efficiencies that we realized in our property management operations that are dedicated to servicing our community clients, including in areas around client accounting and contact centers. Our operating leaders and teams have been working on these initiatives for some time, and these efforts became more evident in Q1 as we emerged from the past 18 months of industry headwinds, which we have spoken about at length. I would note that the magnitude of the margin improvement was also amplified in our seasonally weakest first quarter. In future quarters, and particularly the second half of 2025, the year-over-year margin expansion will taper to more modest amounts as our top line ticks higher with the resumption of normalized service levels at our managed communities, thus driving a greater mix of cited labor revenue. Now to our First Service Brands Division, where we reported revenues of $726 million for the current quarter, up 10% over last year's Q1. Our EBITDA for the division was $67.8 million, a 22% increase versus the prior year quarter. The resulting margin was 9.3%, up 90 basis points versus last year's 8.4% level, and primarily driven by our home services and restoration businesses. Within home services, our California Closets brand continued to realize the benefits from operating efficiencies and the reduction in promotional activity. Both of these initiatives kicked into higher gear in the second quarter of 2024. So as we lap that period, we expect home services margin performance to be roughly flat year over year for upcoming Q2 and going forward. Restoration margins were also up over Q1 24 as we continue our multi-year journey to streamline our operating processes and optimize our cost structure. As we reiterated before, Profitability metrics within restoration are dependent on weather, job activity levels, and type of work mix, and therefore we don't expect the margin improvement to play out each and every quarter, but rather over time. Our teams across all the service lines in our brand division have been highly focused and successful in grinding out sales and driving market share during a challenging macro environment while ensuring they get a healthy return on bottom line profitability. With respect to our consolidated operating cash flow, we generated more than $75 million before working capital changes and over $40 million, including the impact of working capital. This cash flow conversion was both meaningfully higher than prior year and at a solid level, particularly given the Q1 seasonal trough for some of our businesses. Capital expenditures during the quarter were just shy of $30 million, up modestly over the prior year, and pacing within our full year CapEx guidance of roughly $125 million. We deployed minimal upfront cash towards tuck under acquisition spending during the quarter as we remain disciplined and selective in a competitive transaction valuation environment. Finally, looking at our balance sheet, our debt and cash balances were relatively unchanged at the end of the first quarter compared to 2024 year end. and therefore our net debt remained at $1.1 billion. Our leverage is conservative, sitting at two times net debt to trailing 12 months EBITDA and in line with year end. During the quarter, we also bolstered our debt capacity and flexibility by increasing and extending our five-year revolving bank credit facility to $1.75 billion plus an additional $250 million accordion feature. Our liquidity reflecting cash and undrawn credit facility balances is sizable at more than $800 million, putting us in a very strong financial position to deploy capital as opportunities arise in our acquisition pipeline. Looking forward, in the upcoming second quarter, we are forecasting consolidated revenue growth similar to the 8% growth rate in Q1. EBITDA is expected to increase at a low double-digit growth rate with the residential division margin up and brands division margin in line to slightly up compared to last year's second quarter. Scott commented on the macro uncertainty that is somewhat clouding our visibility on the top line in some of our brands division service lines. But we believe that any headwind impact is timing related and will be offset by pent-up demand. At the same time, we are driving margins and profitability as evident with the strong Q1 performance under our belt, providing us with confidence in delivering on full-year expectations for 2025. That concludes the prepared comment segment. Operator, you can now open up the call to questions. Thank you very much.