FirstService Corporation

Good day, and thank you for standing by. Welcome to the First Rivers Corporation's second quarter 2025 investor conference call. At this time, all participants are on listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Today's call is being recorded. Legal counsel requires us to advise that the discussion schedule 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 forward-looking statements containing 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 July 24th, 2025. I would like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Thank you, Marvin. Good morning, everyone. Thank you for joining our Q2 conference call. As usual, I'm on today with Jeremy Racoosin, I'll kick us off with some high level comments and Jeremy will follow with more detail. I'll start by saying we're very pleased with the results we posted this morning. Solid performance in an environment with continuing uncertainty and weak consumer sentiment. The results were similar sequentially to our Q1. Total revenues were up 9% over the prior year, driven primarily by tuck under acquisitions over the last 12 months. Organic growth was 2% this quarter, with gains at First Service Residential, Century Fire, and our restoration brands tempered by flat year-over-year results in our home service segment and declines in our roofing operations. EBITDA for the quarter was up 19% to $157 million, reflecting a consolidated margin of 11.1%, up 90 basis points over the prior year. Across the board, our operating teams continue to grind out margin gains. Jeremy will spend time on the margin detail in a few minutes. Finally, our earnings per share were up an impressive 26% over the prior year. Looking at our divisional results for service residential revenues, we're up 6% with the organic growth at 3%, similar to Q1 and generally right on expectation. Our net contract wins versus losses continues to improve, and we're comfortable that organic growth will sequentially improve towards our historical mid-single-digit average. Moving to first service brands, revenues for the quarter were up 11%, driven primarily by tuck-unders. Organic growth was low single-digit for the division. Revenues for our two restoration brands, Paul Davis and First Onsite, were up by about 6%, 2% organically, modestly better than our expectation. We're pleased with the momentum we have in our day-to-day branch level activity with both our US and Canadian operations. The number of claims are up and the number of jobs are up, which is a reflection on our efforts over the last few years. in signing new national accounts and especially increasing our share of existing accounts, both with national insurance carriers and commercial owners and managers. Storm-related revenues during the quarter were modest and at approximately the same level as the prior year. Looking forward to Q3 and restoration, we expect the momentum and day-to-day activity to continue which together with a solid quarter end backlog should lead to revenue that is up mid single digit sequentially from Q2. Relative to prior year, we're up against a strong comparative quarter, particularly in Canada that included revenues from two flood events impacting Toronto and Montreal, significant activity related to the Jasper, Alberta wildfires, and a few unusually large claims. At this stage, we expect Q3 revenues to be down 5% to 10% versus prior year. Of course, as we've seen over the last few years, a weather event between now and September 30th can drive the result up materially. Moving to our roofing segment, revenues for the quarter were up 25%, driven by acquisitions, principally the acquisition of Crowther in South Florida, that closed May 1st of last year. Organically, revenues declined by about 10% and were modestly lower than expectation. We continue to see some deferral of large commercial re-roof and new construction projects. Two of our larger branches in particular were at capacity at this time last year, with several large industrial re-roof projects underway. Activity at those operations slowed in the first half of this year. Our market position and relationships remain strong in those markets and the demand drivers remain compelling. We see the slowdown as timing related only and in recent weeks have seen a pickup. Our backlog at our larger operations and across our roofing platform is solid and building. We expect a stronger Q3 with revenues up over 10% versus the prior year, and organic revenues approximately flat with prior year. Moving on to Century Fire, we had a strong quarter with revenues up over 15% versus the prior year, including better than expected organic growth that hit double digits. Virtually all of the 30 plus branches performed well during the quarter, and again, The results were enhanced by particularly strong growth in repair, service, and inspection revenues. During the quarter, we announced the acquisitions of TST Fire Protection and Alliance Fire and Safety, two related fire protection companies based in Utah. Operationally and culturally, the businesses are very similar to Century and provide us with an attractive growth platform in the western U.S., The TST and Alliance teams will continue to operate the businesses, and we're excited to add them as partners as we focus on driving growth in adjacent markets. Our backlog continues to build at century, and we expect strong results for the balance of the year, with the organic growth tempering back into the high single-digit range. Now on to our home service brands, which as a group generated revenues that were flat with a year ago, better than our expectation. Consumer sentiment is down significantly since the beginning of the year, which resulted in our lead flow for the quarter being off almost 10 percent versus prior year. Our teams across the home service brands have successfully increased our close ratio, and we've experienced an increase in average job size, which together drove solid revenues that were flat with a year ago. We believe we continue to take share in our markets. Looking forward, we expect a similar result in Q3 with revenues flat, perhaps slightly down, versus the prior year. As I indicated on our last call, we remain optimistic that pent-up demand is building, and we'll see an increase in activity with interest rate reductions if they occur later this year or early next. Let me now hand it over to Jeremy.

Thank you, Scott. Good morning, everyone. We are pleased with our strong Q2 performance, reflecting year-over-year growth in profitability on the back of the same margin expansion drivers we saw in this year's first quarter. I will provide more details in a moment. First, a walkthrough of our consolidated financial results. Revenues for the second quarter were $1.4 billion, up 9% year-over-year, and we reported adjusted EBITDA of $157.1 million, up 19% versus the prior year. Adjusted EPS came in at $1.71, a 26% increase over Q2 2024. Our six-month year-to-date consolidated financial performance tracks closely to the strong growth metrics in the second quarter, aggregating to revenues of $2.7 billion, an increase of 9% over the $2.5 billion last year. Adjusted EBITDA of $260 million representing 21% growth over the $216 million last year with a margin of 9.8% year-to-date, up 100 basis points year-over-year. And adjusted EPS for the first half of the year sits at $2.63, a 30% increase over the prior year period. Adjustments to operating earnings and GAAP EPS to calculate our adjusted EBITDA and adjusted EPS, respectively, have been summarized in this morning's release and remain consistent with our disclosure in prior periods. Shifting to our operating financial performance for the second quarter, I'll start with our first service residential division. Quarterly revenues came in at $593 million, up 6% over the prior year. EBITDA for the quarter was $65 million, an 11% year-over-year increase with an 11% margin up 40 basis points over the 10.6% margin in Q2 of last year. The margin improvement during the second quarter was driven by the same operating efficiencies noted in our first quarter, principally in areas around client accounting and community resident communications. For the six months year-to-date, Our division EBITDA margin sits at 9.6 percent, up 60 basis points compared to the equivalent prior year period. Consistent with what we said on our Q1 call, we expect the margin improvement from these efficiencies to moderate in the remainder of the year. Within our first service brands division, we reported second quarter revenues of $823 million and 11 percent increase over the prior year period. EBITDA for the quarter came in at $95 million, up 23% year-over-year. Our margin during the quarter was 11.6%, up 110 basis points, versus the 10.5% during last year's Q2. The margin expansion within the vision saw a contribution from the same themes as the first quarter. Our restoration businesses continue to benefit from the optimization of their resources and operating processes, driving superior year-over-year profitability in the face of modest organic growth. And in our home improvement segment, California closets captured additional margin improvement carry-through from labor cost efficiencies and reduced promotional activities. Turning to our cash flow profile, we generated $163 million in operating cash flow during the second quarter, exceeding our consolidated EBITDA for the period with a contribution of positive working capital trends. Our cash flow was up 25% over the prior year quarter and currently sits at over $200 million year-to-date, an increase of 67% over the same period in 2024. Our capital expenditures during the quarter were a little over $30 million, and our year-to-date total of $63 million is right on pace with the annual CapEx target of $125 million we provided at the beginning of the year. Acquisition spending during the quarter was approximately $40 million, largely tied to the fire protection tuck-unders which Scott summarized in his commentary. With the free cash flow surge in the second quarter, we were able to pay down almost $70 million of debt during the period. As a result, our leverage, as measured by net debt to EBITDA, declined to 1.8 times from the two times level at the end of Q1. With our cash on hand and undrawn bank credit facility balances, our liquidity exceeds $860 million. We are well positioned with this balance sheet strength to deploy capital when we see the right opportunities. Concluding with our outlook for the year, we remain firmly on track to hit our annual consolidated growth targets we set out at the beginning of the year, which included high single digit revenue growth and margin expansion driving to double digit EBITDA growth. For the remainder of 2025, our current line of sight is that the year-over-year growth profiles for Q3 and Q4 will be relatively similar to each other. As Scott noted, our First Service Residential Division will revert back towards its mid-single-digit organic revenue growth rate and high single-digit overall growth when accounting for recent tuck under acquisitions. Our First Service Brands Division revenues are expected to be slightly up versus prior year with restoration facing the headwinds of a strong back half of 2024 without assuming any significant weather activity that could materialize in the remainder of 2025. Consolidated revenue growth will settle in at mid single digits absent the closing of any meaningful tuck under acquisitions during the balance of the year. From an operating profitability perspective, I mentioned the tapering of first service residential margin expansion for the remaining quarters down to levels modestly higher than prior year. Margins within the first service brands division will also aggregate to be roughly in line with prior year. As a result, our consolidated EBITDA should increase slightly more than our revenue growth during the balance of the year. That concludes our prepared comments. Marvin, you may now open up the call to questions. Thank you.