FirstService Corporation

Welcome to the First Service Corporation Third Quarter Investors Conference Call. At this time, all participants are in 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. To withdraw your question, please press star 11 again. 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 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 October 23rd, 2025. I would like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Thank you, Dede. Good morning, everyone, and welcome to our third quarter conference call. Thank you for joining us. I'm on with our CFO, Jeremy Racoosin, and together we will walk you through the results we reported this morning. I'll begin with an overview and some segment by segment comments. Jeremy will follow with additional detail. Total revenues were up 4% versus the prior year, driven by tuck under acquisitions completed over the last 12 months. Organic growth was flat overall, as gains at first service residential and century fire were offset by organic declines in our restoration and roofing platforms. EBITDA for the quarter was up 3%, to $165 million, reflecting a consolidated margin of 11.4%, generally in line with the prior year on a consolidated basis. Finally, our earnings per share were up 8% to $1.76. Looking at divisional results, first service residential revenues were up 8% with organic growth at 5%, in line with expectations. Solid net contract wins versus losses have led to an improvement in organic growth sequentially. We expect similar growth for Q4 in the mid-single-digit range. Moving on to first service brands, revenues for the quarter were up 1% in aggregate, with growth from tuck-under acquisitions largely offset by organic declines of 4%. Revenues for our two restoration brands, Paul Davis and First Onsite, were up sequentially relative to Q2, but down versus the prior year by 7%. I mentioned last quarter that we were pleased with the level of activity, both day-to-day at the branch level and in terms of our wallet share gains with national accounts. That continued into Q3. Industry-wide claim activity and weather-related damage was very modest across North America and generally down in every region. but we still generated higher revenue sequentially than the first two quarters of this year. We believe we're capturing market share gains during this prolonged period of mild weather. We were down from the prior year as we were up against a very strong quarter, particularly in Canada, that benefited from significant flood and wildfire restoration work. As well, storm-related revenues in the US were minimal this quarter, compared to Q3 of 2024, when we generated about $10 million of revenue from named storms, primarily Hurricane Ian. Looking to Q4, absent widespread inclement weather or named storms over the next few months, we expect to be down from the prior year quarter by about 20%. We generated $60 million of revenue from Hurricanes Helene and Milton in Q4 of last year. On average, since 2019, our revenues from named storms has exceeded 10% of total restoration revenues. Based on our visibility today, we anticipate this year's revenues from named storms to land at less than 2%, a big drop that impacts Q4 in particular. Apart from CAT storm events, which we all believe will, on average, increase in frequency. We continue to grow and improve our platform and believe we're in an excellent position to capitalize on the long-term opportunity in restoration. Moving to our roofing segment, revenues for the quarter were up mid-single digit, driven by acquisitions. Organically, revenues declined 8%. An improvement over Q2, but below expectations. We simply did not convert backlog into revenue at the rate that we anticipated. We continue to see the deferral of large commercial projects and a general reduction in new construction. Our three largest operations all benefited last year from several large industrial roof projects that have not been replaced this year. Most of our year-over-year decline relates to these specific operations. Bid activity remains solid, but award activity has been delayed. We're confident that our market position and relationships remain strong. The uncertainty in the macro environment is definitely impacting new commercial construction and causing delays in re-roof and maintenance decisions. We continue to believe that the demand drivers in roofing and generally in commercial building maintenance are compelling, and we remain focused on investing in this segment. As evidence of that, we were pleased during the quarter to announce the acquisitions of Springer Peterson Roofing in Lakeland, Florida, and A1 All American Roofing in San Diego, California. These operations extend our presence and capability in two key markets. The Springer Peterson and A1 teams will continue to operate the businesses and we're excited to have them on board with us. They jumped right in collaborating and creating value with our existing operations in the regions. Looking ahead to Q4, we expect total roofing revenues to be up modestly from prior year, again due to acquisitions. Organically, we expect continued weakness with revenues down 10% or more in the seasonally weaker quarter. Moving on to Century Fire, we had another strong quarter with revenues up over 10% versus the prior year. Growth continues to be broad-based across the branch network, and again is supported by robust repair, service, and inspection revenues. Our backlog remains strong at Century, and we expect similar double-digit year-over-year growth for Q4. Now on to our home service brands, which has a group generated revenues that were flat with a year ago, right on expectation, and a result we're proud of in the current environment with weak existing home sales and broad economic uncertainty. Consumer sentiment remains depressed and is down from Q2. Our lead flow reflects this trend. Our teams have held revenues steady by driving a higher close ratio this year, combined with a higher average job size, they are executing extremely well in a challenging environment. Looking forward, we expect a similar result in Q4 with revenues roughly matching the prior year quarter. Let me now hand it over to Jeremy.

Thank you, Scott. Good morning, everyone. Leading off with a recap of our consolidated third quarter financial results, we recorded revenues of $1.45 billion, up 4%, and adjusted EBITDA of $165 million, a 3% increase relative to the prior year period. Our consolidated EBITDA margin for the quarter was 11.4%, down slightly from last year's 11.5% level. Adjusted EPS during Q3 was $1.76, resulting growth of 8% quarter over quarter. The growth on the bottom line exceeded our EBITDA performance as we saw the benefit of reduced interest rates on lower outstanding debt compared to prior year. I'll provide more details on our balance sheet in a few moments. For the nine months here to date, our consolidated financial performance includes revenues of $4.1 billion, up 7% over the $3.85 billion in the prior year. Adjusted EBITDA at $425 million, a 13% increase year-over-year, with our overall EBITDA margin at 10.3%, up 50 basis points, versus a 9.8% margin for the prior year period. And lastly, our adjusted EPS year-to-date is $4.39, reflecting 20% growth over the $3.66 reported for the same period last year. Our adjustments to operating earnings and GAAP EPS in providing adjusted EPD and adjusted EPS respectively are disclosed in this morning's press release and are consistent with approach in prior periods. I'll now walk through the third quarter performance within our two divisions. At first service residential, we generated revenues of $605 million, resulting in 8% growth over the prior year period. EBITDA was $66.4 million, a 13% increase over the third quarter of last year. Our current quarter EBITDA margin came in at 11%, up 50 basis points over the 10.5% in Q3-24, extending the year-to-date margin improvement we have realized through ongoing operating efficiencies and streamlining efforts across our property management platform. Our teams have done a terrific job of execution, driving to a year-to-date margin expansion of 60 basis points. For the upcoming fourth quarter, we expect some tapering of these favorable impacts, leading to margins roughly in line to slightly up versus prior year. Shifting over to our first service brands division, we generated revenues of $842 million during the current third quarter, up 1% versus the prior year period. EBITDA for the division was $102.1 million, down from the $105.8 million last Q3. Our margin of 12.1% compressed 50 basis points compared to the 12.6% margin in last year's third quarter. The lower margin was attributable to negative operating leverage resulting from tempered activity levels and declines in organic top-line growth at our restoration brands and roofing operations. Our home improvement and sentry fire protection brands continue to deliver healthy margins roughly in line with prior year. Reviewing our cash flow profile, we generated more than $125 million in cash flow from operations during the third quarter, driving to a total of $330 million year-to-date, a significant year-over-year increase of roughly 65% compared to prior year periods. Capital expenditures during the quarter totaled $34 million, and spending year-to-date sits at a little under $100 million. We expect to be in line with our annual target of $125 million in CapEx for 2025. Acquisition investment during the quarter was approximately $45 million, largely encompassing the roofing tuck under acquisitions that Scott noted. Our balance sheet at quarter end included net debt of $985 million, resulting in leverage at 1.7 times net debt to trailing 12 months EBITDA. Maintaining a strong balance sheet has always been a cornerstone of First Services operating philosophy and has been aided by the ability of our businesses to collectively generate strong and relatively consistent free cash flows in any type of environment. This has played out once again over the past almost two years since our Roofing Corp of America platform investment at the end of 2023, with the steady quarterly deleveraging bringing us now back in line with our long-term historical trend. We also have more than $900 million of total cash and credit facility capacity, providing us with ample financial flexibility and liquidity. In terms of outlook to close out 2025, Scott has provided top line indicators by brand, which will aggregate to revenues roughly in line with prior year for our upcoming fourth quarter. This will culminate in mid single digit growth in consolidated annual revenues for the full year. We expect that our 2025 consolidated annual EBITDA growth will be in the high single digits approaching 10% compared to prior year. During our February year-end earnings call, we will provide indicators on our outlook for 2026. And that now concludes our prepared comments. Didi, can you please open up the call to questions? Thank you.