FirstService Corporation

Good day and welcome to the first quarter investors conference call. At this time, all participants are on a listen-only mode. After this 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. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain further 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 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 April 23rd, 2026. I would now like to send the call over to 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 were generally in line with expectations. I'll provide a high-level review, touch on some highlights, and then pass to Jeremy Racoosin for a more in-depth discussion of the results. Total revenues were up 5% over the prior year, with the organic growth accounting for over half of the increase. EBITDA for the quarter was up 2%, reflecting a modest and expected decline in our consolidated margin. Jeremy will walk through the detail in a few minutes. And finally, our earnings per share for the quarter were 95 cents, up 3% over the prior year. Looking at our divisional results, first service residential revenues were up 4% in the seasonally week first quarter. All of the growth was organic. We had a solid quarter of contract wins and renewals in our core management business at the upper end of expectation. And as we discussed in our year end call, divisional growth was tempered by modest declines in ancillary services, including pool construction and renovation and contracted labor for commercial maintenance. Looking forward at first service residential, we expect similar or slightly better organic growth in Q2 and some sequential improvement for Q3 and Q4. Moving on to first service brands, revenues for the quarter were up 6%, balanced between organic growth and tuck under acquisition. Organic growth was again this quarter driven by increases at Century Fire. Organic revenues within restoration, roofing, and home services were all approximately flat with the prior year. Looking more closely at our segments, Our restoration brands, First Onsite and Paul Davis together, were up mid-single digit over the prior year, and as I said, flat organically. We're pleased with the performance in Q1 after entering the quarter with a soft pipeline relative to prior year due to the mild weather we experienced in Q4. We saw increased activity from winter storm work that benefited both our brands. The work was primarily quick turn water mitigation and very little carried into Q2. As a result, our overall restoration backlogs at quarter end are at similar levels to year end and down modestly from the prior year. Based on current activity levels and the quarter end backlog, we expect Q2 revenues to be flat to slightly down from prior year levels. Moving now to our roofing segment, Q1 revenues were up 7% over the prior year, driven by tuck-under acquisitions, primarily Lakeland, Florida-based Springer Peterson during Q3 last year. Organically, revenues were flat with the prior year and in line with our expectation. We expect a similar result in Q2, with single-digit top-line growth from acquisitions and approximately flat revenue organically relative to a year ago. Outside of data center work, the new construction market remains depressed and the commercial re-roof market is flat to slightly up while becoming increasingly competitive. We have a strong team in our roofing platform and solid underlying branch operations. We firmly believe we're in a position to accelerate when the market improves. Moving to Century Fire, we had a strong quarter. with total revenues up over 10% and organic growth at a high single-digit level. The century results continue to be balanced between strong growth in repair, service, and inspection revenues, supported by solid growth in installation and contract revenues. The backlog is robust, and we expect a similar result in Q2 and for the balance of the year. Now on to our home services brands, which as a group generated revenues that were up slightly from year-ago levels, modestly lower than our expectation. We started the quarter with an uptick in lead flow and some optimism. However, this dissipated moving into February and reversed with the onset of the Middle East conflict. Leads and activity levels dropped immediately. Our teams made a decision to increase promotional spending and marketing spend to maintain momentum and capacity utilization as we ride out the storm. We were successful in holding our revenue, driving higher conversion rates and larger job size, and certainly taking share in a tough market. It did impact our margin for the quarter, and Jeremy will speak to this in his comments. Our lead flow for Q1 was down double digit, with a steeper decline in March. It remains at depressed levels and is moving in line with consumer sentiment, which is 10% lower than a year ago. It's expected that increased gas prices and inflation in general will dampen home improvement demand in Q2 beyond what we foresaw at the beginning of the year. Based on our sales and backlogs currently, we expect to get close to prior year revenues in Q2. This outlook is impressive in the current environment and again reflects on the tenacity and commitment of our teams. We do remain optimistic that there is pent-up demand in the market and believe we could see a pop in activity with stability in the Middle East and reduced concerns around inflation. On the acquisition front, we acquired two of our larger franchises during the quarter. Our Paul Davis franchise covering the Cleveland and Akron markets and our California Closets operation that owns the franchise territories encompassing Indianapolis, Louisville, Lexington, and Cincinnati. As a reminder, we've had company-owned operations at Paul Davis and California Closets for many years now. We selectively acquire franchises if we believe we can drive incremental growth in the market in partnership with local operators, always in the best long-term interest of the brands. We have other tuck-unders in the pipeline across our segments and expect to complete further deals over the balance of the year. I will now pass over to Jeremy for his comments.

Thank you, Scott. Good morning, everyone. We reported consolidated first quarter results in line with the outlook we provided on our prior year-end call. And in particular, the top-line performance in each of our brands matched our expectations, as you just heard from Scott's walkthrough. of each business line. Highlights of the consolidated quarterly results included revenues of $1.32 billion, reflecting 5% growth over the $1.25 billion last year. Adjusted EBITDA of $106 million, up 2% year-over-year, with an 8% margin down 30 basis points versus the 8.3% margin in Q125. and adjusted EPS at 95 cents, a 3% increase over the prior year. Adjustments to operating earnings and GAAP EPS in arriving at adjusted EBITDA and adjusted EPS respectively are consistent with our approach in prior periods. Turning now to the segmented results for our two divisions, I'll lead off with First Service Residential. The division generated revenues of $546 million up 4% over last year's first quarter, while EBITDA was $46 million, a 10% growth rate over the prior year. This resulted in an EBITDA margin of 8.4%, a 50 basis points increase over the 7.9% level in Q1-25. The margin expansion was driven by broad-based labor cost efficiencies across our operation. This encompassed both a continuation from last year of the initiatives around our client accounting and portfolio management functions, as well as other productivity gains across our teams. Now to first service brands, where we reported revenues of $771 million for the current quarter, up 6% over last year's Q1. Our EBITDA for the division was $64 million, a 5.5% decline versus the prior year quarter. The resulting margin was 8.3% down 100 basis points compared to last year's 9.3% level, and primarily driven by our roofing and home services businesses. The performance at our roofing platform was expected. As we indicated on our February year-end call, the forecast decline was due to job margin pressures in a heightened competitive environment against the backdrop of dormant commercial new development activity. At our home services businesses, we saw the need during the quarter to increase our marketing spend to preserve our top-line performance in the face of macroeconomic uncertainty and the weakening consumer sentiment that Scott referenced. Remodeling spending in our home improvement brands is influenced by interest rate levels and consumer sentiment and home affordability indices, all of which have been undermined by recent geopolitical developments. Periodically in the past, when we have encountered these types of exogenous challenges impacting our key performance indicators, we have tactically deployed promotional initiatives to support the brand and our market share. We expect to continue with these investments at least over the short term covering the second quarter, but we'll be keeping a close pulse on our leading indicators to pull back this spending once the environment improves. A second factor contributing to the first quarter margin compression at our home services brands was reduced capacity utilization of our frontline teams. While we delivered revenues in line with prior year, job volumes declined and we were reluctant to flex our labor costs down in proportion to these reduced activity levels until conditions stabilize and we have greater clarity of market demand trends. With respect to our consolidated operating cash flow, we generated $88 million during the first quarter, a sizable level during our seasonal trough first quarter. and up more than double compared to Q1 2025. Capital expenditures during the quarter were $28 million, slightly below prior year, and we now expect to have our full-year capex coming modestly lower than the initial guidance of $140 million. The resulting high free cash flow conversion rate is a function of our business model and focus around generating cash even when we have periods of more tempered growth on the P&L. This translated into further deleveraging on our balance sheet where our leverage is measured by net debt to EBITDA ticked down to a very conservative 1.5 times compared to 1.6 times at prior year end and versus the two times level at Q1 last year. We have a well-balanced mix of floating and fixed rates and varying maturities of debt instruments. And lastly, our liquidity reflecting cash and undrawn credit facility balances exceeds $1 billion, the highest level in the history of the company, which puts us in a strong financial position to deploy capital as opportunities in our acquisition pipeline arise. Looking forward, in the upcoming second quarter, we are forecasting similar year-over-year trends as we just saw in Q1 across both divisions. We see a continuation of similar EBITDA margin expansion and growth in the first service residential division. This will be largely offset by brands division declines reflecting the ongoing margin pressures in roofing and home services I referenced earlier and which are dictated by the current uncertain geopolitical and macroeconomic environment. This all aggregates on a consolidated basis for Q2 to mid-single-digit top-line growth and EBITDA performance flat to slightly up compared with the prior year. That concludes our prepared comments. Livia, you can now open up the call to questions. Thank you.