FirstService Corporation

Welcome to the fourth quarter investors conference 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 Administrators and in the company's annual report on Form 40-F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is February 4, 2026. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Thank you, Tonya. Good morning, everyone, and welcome to our fourth quarter and year-end conference call. Thank you for joining us today. Jeremy Racoosin is on the line with me and will follow my overview comments with a more detailed review of our financial results for the quarter and the full year. We're pleased with how we closed out the year in an environment that continues to challenge us across several of our businesses. Our fourth quarter results in aggregate were modestly better than our expectation that we communicated at the end of Q3, with revenues up 1%, EBITDA flat with the year ago, and earnings per share up 2% to $1.37. For the year, we reported solid results that we're proud of in the face of tough macro headwinds. Revenues finished 5% up over the prior year, Consolidated EBITDA was up 10%, double the revenue growth, reflecting a 40 basis point improvement in margins. And earnings per share reflected further leverage, with year-over-year growth at 15%. Looking now at the separate divisions for the quarter, revenues at First Service Residential were up 8% in aggregate, with organic growth at 5%. matching our expectations and the results for Q3. The growth was broad-based across North America and generally reflects net contract wins versus losses. Looking forward, we expect organic growth to continue in the mid single-digit range. There could be modest movement from quarter to quarter with seasonality and fluctuation in ancillary services, But on average for 2026, we're expecting mid-single-digit organic growth similar to our full-year result for 2024 and 2025. We will face organic growth pressure early in the year relating to declines in certain amenity management services that we provide to some of our managed communities, but primarily to multifamily rental and other commercial customers. These services include pool construction and renovation, which is being impacted by the same economic headwinds we're seeing in roofing and home services. It also includes contracts to provide custodian and front desk concierge labor. Several contracts, primarily with multifamily apartment owners, were not renewed at year end. Some voluntary and a few involuntary. all primarily due to pricing. These cancellations will impact our revenue, but will have little impact to profitability. We expect to be at the bottom end of our mid-single-digit range at 3 or 4% for Q1. This is unrelated to our core community management business, which we believe will carry the division to mid-single-digit organic growth for the year. Moving on to first service brands, revenues for the quarter were down 3% in aggregate and 7% organically, with organic growth at Century Fire more than offset by organic declines with our restoration brands and our roofing platform. Looking more closely at restoration, Paul Davis and First Onsite together recorded revenues that were flat sequentially compared to Q3, and down 13% versus the prior year, somewhat better than expectation due to our pickup and claim activity during the quarter with our Canadian operations. We benefited in the prior year quarter from hurricanes Helene and Milton and generated about $60 million in revenue from the storms. Excluding these specific events, our restoration brands were up modestly year over year. As I described on last quarter's call, revenues from named storms have on average exceeded 10% of our total restoration revenue since 2019. For 2025, revenues from named storms amounted to less than 2% of total restoration revenues. We finished the year down 4% in restoration relative to an industry that we believe was down over 20%. Our platform investments and focus on day-to-day service delivery continues to drive gains in wallet share with key national accounts and overall market share. Looking forward, we expect to show growth for the full year 2026, assuming we return to historic average weather patterns. Our restoration brands have grown on average by 8% organically since 2019, and we expect that to continue on average going forward. Our backlog at year-end was down from the prior year, pointing to a revenue decline for Q1. However, we've seen an uptick in activity over the last week from the expansive winter storm. It's still very early, but based on activity levels and the nature of the quick response mitigation work, We expect to show Q1 results that are modestly up over the prior year. Moving to our roofing segment, revenues for the quarter were up a few percentage points, the result of tuck-under acquisitions made during the year. However, as expected, revenues were down organically by over 5%. The demand environment in roofing remains muted. New commercial construction outside of the data center and power verticals is down significantly. On the re-roof side, we continue to see tighter capital expenditure budgets amongst our customers and delays with some larger projects. As I noted last quarter, we're confident that our market position and relationships remain strong. Bid activity is solid, and our backlog is stabilized. Our expectation is that we will show modest organic growth this year with sequential improvement quarter to quarter. Looking to Q1, we expect revenues to be up mid-single digit versus the prior year and approximately flat organically. Now to our home service brands, where revenues were up by 3% over the prior year, better than expectation. and a result we're proud of in an environment where consumer confidence remains depressed. The consumer index was down again in December, marking five months of sequential decline. As I set out on the last few calls, our teams are doing more with less by incremental improving lead-to-estimate ratios, close ratios, and average job size. Current economic and industry indicators do not suggest an improved environment through 2026. Our lead flow the last several weeks is flat to slightly down with prior year. If this continues, our current conversion metrics would suggest that we will drive higher revenue year over year in the low to mid single digit range for Q1 and 2026. And I'll finish with Century Fire where we had a strong Q4 and finished to the year. Revenues were up over 10% versus the prior year with high single-digit organic growth. Century continues to experience solid growth on both sides of its business. That is installation and repair service and inspection. The growth is broad-based across almost all our branches at Century. We're benefiting on the installation side of our business from solid activity and multifamily and warehouse with some positive exposure to data center construction. Our backlog is strong and activity levels remain buoyant. Looking forward, we expect another year of 10% growth or more 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. Good morning, everyone. As you just heard for the fourth quarter, we delivered on our expectations provided on our Q3 call, which culminated in solid annual operating and financial performance. As we look back at our consolidated annual results for 2025, we are pleased with the growth we delivered on the earnings lines. notwithstanding the top-line headwinds we were facing throughout the year. I'll first walk through a summary of these financial metrics and then move on to reviews of our segmented divisional performance, as well as our cash flow and balance sheet. Note that my upcoming 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. During the fourth quarter, our consolidated revenues were $1.38 billion, up 1% versus the prior year period. Our adjusted EBITDA of $138 million was in line with Q4 2024, yielding a margin of 9.9%, slightly down from the 10.1% level during the prior year. Our Q4 adjusted EPS was $1.37, up from $1.34, in last year's fourth quarter. For the full year, consolidated revenues increased 5% to $5.5 billion, and adjusted EBITDA came in at $563 million, up 10% over the prior year, and delivering a 10.2% margin, up 40 basis points compared to 9.8% in 2024. Adjusted EPS for the 2025 fiscal year was $5.75, up 15% versus 2024. This 5, 10, and 15% top-to-bottom-line annual growth profile reflects the exceptional efforts of our operating leaders across every brand, as they emphasized efficient job execution in the face of market challenges and drove margin improvement where possible. Turning now to a segmented walkthrough of our two divisions, First service residential revenues during the fourth quarter were $563 million, up 8%, and the division reported EBITDA of $51.5 million, a 12% increase over the prior year period. Our margin for the quarter was 9.1%, modestly up from the 8.8% in Q4 2024. The quarterly performance largely mirrored the full year growth profile for the division. closed out the year with annual revenues of $2.3 billion, up 7% over 2024, including 4% organic growth. Annual EBITDA increased 13% with our full year margin at 9.8%, up 50 basis points over the 9.3% margin for 2024. In summary, the First Service Residential Division achieved key financial targets for the year, getting back to mid-single-digit annual organic top-line growth while also driving profitability to the upper end of our 9% to 10% annual margin band. Looking next at our First Service Brands Division, the fourth quarter included revenues of $820 million, down 3% compared to Q4 2024, and EBITDA was $88.5 million, down 12% year-over-year. These year-over-year decreases were due to declines in organic top-line performance and the related negative operating leverage at our restoration and roofing brands, partially offset by another strong quarter of organic growth and profitability at Century Fire Protection. The brand's division margin during the quarter was 10.8%, down 110 basis points from 11.9% in the prior year quarter. For the full year, revenues were $3.2 billion, and EBITDA came in at $354 million, both up 4% over prior year. As a result, our full year brands margin remained in line with the prior year at 11%. Finally, two remaining points to highlight regarding profitability below the operating division lines that contributed to the 15% annual EPS growth. First, we reported significantly lower corporate costs both during the current fourth quarter and annually for 2025 versus the comparable prior year periods. Most of the variance was attributable to the positive impact of non-cash foreign exchange movements, largely reversing the negative impacts we saw in 2024. Second, our annual interest costs were lowered throughout all periods in 2025 compared to the prior year due to lower debt levels on our balance sheet and declining interest rates. I'll now summarize our cash flow and capital deployment. During Q4, operating cash flow was $155 million, a 33% increase over the prior year quarter. and contributing to annual cash flow from operations of more than $445 million, which was up 56% versus 2024. Our capital expenditures during 2025 totaled $128 million, and we expect 2026 CapEx to be approximately $140 million, an increase proportionate to the collective growth of our businesses. Our acquisition spending during the year totaled $107 million as we remained selective and disciplined in a competitive acquisition environment. Finally, we announced yesterday an 11% dividend increase to $1.22 per share annually in U.S. dollars, up from the prior $1.10. Beyond financing these capital outlays, our strong free cash flow contributed to further strengthening of our balance sheet throughout the year. At 2025 year end, our leverage sits at 1.6 times net debt to adjusted EBITDA, down from two times at prior year end. With cash on hand and undrawn capacity within our bank revolving credit facility aggregating to $970 million, we maintain significant liquidity to direct towards attractive investment opportunities as they emerge. Finally, in terms of outlook, Scott has already provided detailed commentary on the top-line growth indicators for the individual brands. On a consolidated basis for the upcoming first quarter, we are forecasting revenue growth to be in the mid-single-digit range. In subsequent quarters, throughout the year, we expect to see an uptick with high single-digit year-over-year increases in revenue primarily driven by organic growth. Any tuck under acquisitions during the year will contribute further to this top-line growth profile. In terms of consolidated EBITDA for the first quarter, we expect to be roughly in line with Q1 2025. For the balance of the year, we anticipate EBITDA year-over-year growth in the high single digits at similar rates or slightly better than revenue growth. Consolidated EBITDA margin for the full year is expected to be relatively flat compared to the 10.2% annual margin we just reported for 2025. Operator, this concludes the prepared comments. You can now open up the calls to questions. Thank you very much.