FirstService Corporation

Good day and welcome to the second 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 and involve known and unknown risk and uncertainty. 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 different for 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 40S as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is July 23rd, 2026. As a reminder, if you would like to ask a question, please press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. If you would like to remove yourself from the queue, please press star one again. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Thank you, Lisa. Good morning, everyone. Thank you for joining our Q2 conference call. I'm on today with our CFO, Jeremy Rakusin. I'll kick us off with some high-level comments. Jeremy will follow with more details. Let me start by saying that we're generally pleased with our Q2 results in an economic environment that continues to be quite challenging. We're also pleased with the progress we made during the quarter on a few fronts that we believe puts us in position to achieve a stronger second half of the year and gain momentum into 2027. Total revenues for the second quarter were up 2% over the prior year, half organic growth. EBITDA for the quarter was up 3%, reflecting a consolidated margin of 11.2%, up 10 basis points over the prior year, and better than expectation primarily within our brands division. Jeremy will walk through the detail in his prepared comments. Finally, our earnings per share were up 2% over the prior year, in line with top line growth. Looking at our divisional results, First service residential revenues were in line with expectation and up 5% organically. The reported revenues were slightly less at 4% reflecting the sale of our residential pool maintenance operations early in the quarter. We separated and sold residential accounts that have accumulated over the years to focus solely on commercial pool maintenance and management. Our core property management business continues to perform solidly on expectation, and we expect similar results for the balance of the year. Moving on to first service brands, revenues for the quarter were up 1% with strength at Century Fire, tempered by approximately flat results at our restoration and home service brands, and largely offset by revenue declines within our roofing operation. I'll walk through each of the segments. Revenues for our two restoration brands, Hall Davis and First Onsite, were down slightly from the prior year. As we pointed out at the last two quarter ends, we entered the year with a weakened pipeline due to the mild weather experienced in Q4 of last year, which has impacted us in the first half of this year. Towards the end of Q2 and into July, we made significant progress in signing work and bolstering our pipeline back to historically healthy levels. In particular, we won a number of large loss projects across North America that will convert to revenue over the next 12 to 18 months. In addition, we're seeing opportunities for specialty construction projects that have arisen through our restoration work with certain customers and in certain verticals. Looking forward, we expect to show approximately 5% year-over-year growth in the back half of the year for our restoration brands. It's a modest outlook relative to the uptick in activity as it's difficult to forecast how quickly the recent backlog additions will convert to revenue. Our experience suggests that scoping, permitting and insurance navigation could create delays in generating revenue. Storm and hurricane activity in the coming months could add to the backlog and improve this growth outlook. Moving to our roofing segment, revenues for the quarter were down approximately 6% on a reported basis and 10% organically, lower than our expectation. There are a few factors that impacted our top line during the quarter. First and foremost, the market remains stubbornly weak and ultra-competitive. Both the new construction market outside of data centers and the re-roof market. And the market conditions are particularly acute in two of our larger branch regions, Las Vegas and Southwest Florida. In both markets, we have intentionally moved away from certain low margin work that was in our pipeline. The other factor during the quarter was the delay of a few large reroof projects that we expected to complete during the quarter. The delays accounted for half the mess relative to our expectation. All the projects remain in our backlog. The roofing market has been a challenge for us in the past year. It's been a difficult environment, and with ongoing macroeconomic uncertainty, it's unlikely to improve materially in the near term. That said, we strongly believe that the long-term thesis is unchanged. Roofing is a huge market and an essential service with long-term tailwinds. We believe in our team and are focused on continuing to build the platform. As evidence of our ongoing belief in the opportunity, we closed on the acquisition during the quarter of Sheffers Roofing in Kansas City. Sheffers is a leader in the market serving customers throughout Missouri and Northern Arkansas and strengthens our presence in the important Midwest region. Looking forward to Q3, we expect our roofing operations to be down slightly with organic growth off in the mid-single-digit range. Moving to Century Fire, we had another strong quarter that was right on expectation and mirrored our Q1 results. with revenues up over 10% versus the prior year, including high single-digit organic growth. During the quarter, we announced the acquisitions of Titan Fire Protection, based in Tampa, Florida, and GSC Fire and Security, based in Austin, Texas. Titan is a sprinkler installation company serving commercial customers across Central Florida. GSC is an alarm installation and service company serving the Austin and San Antonio markets. In both cases, Century will look to partner with the management teams to broaden the service capability and provide both sprinkler and alarm install and service across the respective customer bases. Looking forward for Century, we finished the quarter with an improved backlog sequentially and expect similar strong 10% plus year-over-year growth for the third and fourth quarters. Now onto our home service brands, which as a group generated revenues that were up slightly versus a year ago, modestly better than our expectation. As a reminder, our home service brands include California Closets, CertiPro Painters, Floor Coverings International and Pillar to Post Home Inspection. Activity levels at these brands are closely tied to the housing market and consumer sentiment, both of which continue to hover around 10-year lows. The teams continue to do a great job driving increases in close ratio and average job size to eke out revenue gains. We're not getting any helpful market improvement, and we're not expecting any over the back half of the year. Market indices and economic forecasts all suggest continued weakness in the housing market and consumer confidence. Looking forward for our home services group, we expect the teams to continue to take market share to drive similar results for the third and fourth quarters with revenues that are slightly up year over year.

Let me now hand off to Jeremy. Thank you, Scott. Good morning, everyone. As always, I'll provide details of our segmented financial performance, summarize our cash flow, capital deployment, and balance sheet position, and close out the commentary with a look forward. But first, a recap of our consolidated financial results. Revenues for the second quarter were $1.45 billion, up 2% year over year, and we reported adjusted EBITDA of $161.7 million, up 3% versus the prior year. Adjusted EPS came in at $1.75, a 2% increase over Q2 2025. This brings our year-to-date consolidated financial performance for the first half of the year to revenues of $2.77 billion, an increase of 4% over last year. Adjusted EBITDA of $267 million, representing 3% growth over the $260 million last year, with a margin of 9.7%. down 10 basis points year over year. And adjusted EPS for the first half of the year sits at $2.69 versus $2.63 in the prior year period. Our adjustments to operating earnings and GAAP EPS to calculate our adjusted EBITDA and adjusted EPS respectively have been summarized in this morning's press release and remain consistent with our disclosure in prior periods. Reviewing the second quarter segmented financial performance, I'll lead off with our first service residential division. Quarterly revenues came in at $617 million, up 4% over the prior year, and as Scott mentioned, up 5% organically. EBITDA for the quarter was $69 million, a 6% year-over-year increase, with an 11.2% margin, up 20 basis points over the 11% margin in Q2 of last year. For the first half of 2026, our division EBITDA margin sits at 9.9%, up 30 basis points compared to the equivalent prior year period. During the remainder of the year, we expect margin improvement to continue at similar pacing to the year-to-date performance as our teams continue to extract efficiencies in various areas of the enterprise. Shifting to the First Service Brands Division, our financial metrics for the second quarter were relatively comparable to last year's Q2, including revenues of $832 million and EBITDA at $96 million, both up 1%. Our margin during the quarter was 11.5% down 10 basis points, with the quarter-over-quarter performance better than both Q1 and our expectations heading into the current quarter. In particular, home services margins performed relatively better as we continue to optimize the balance of marketing and promotional investments in support of lead flow. Turning to our cash flow profile, we generated $112 million in operating cash flow during the second quarter prior to working capital movements and in line with the prior year. Cash flow after accounting for working capital changes was $130 million for the quarter and sits at almost $220 million year-to-date. Our capital expenditures during the quarter were a little over $30 million and with our year-to-date total at $60 million, we expect our annual CapEx to be roughly $130 million, less than our initial target of $140 million we provided at the beginning of the year. Acquisition spending on tuck-under deals during the quarter was just over $40 million. The combination of our recent free cash flow performance together with conservative debt levels on our balance sheet supported our decision during the second quarter to also execute share repurchases under our normal course issuer bid. During the quarter, we purchased more than 1.8 million shares at a total cost of almost $250 million or an average price per share of US dollars, $135.91. With these buybacks, our leverage as measured by net debt to EBITDA increased modestly to 1.8 times from the 1.5 times level at the end of Q1. Our leverage remains conservative and we still have ample liquidity with more than $800 million of cash on hand and undrawn bank credit Thank you for joining us today. when we see acceptable acquisition valuations and target return thresholds. Concluding with an outlook, our first service residential division will deliver growth in the balance of the year largely mirroring recent quarters. Mid single digit top line growth with modest year over year margin improvement. For the brands division, Scott has provided top line growth indicators for each of the operating businesses which aggregates to mid single-digit revenue growth in the back half of the year. This performance will be skewed to the fourth quarter and influenced by the amount of restoration backlog to revenue conversion from the increased pipeline activity levels that Scott referenced as well as capitalizing on any potential seasonal spikes in weather activity in the coming months. Putting it all together on a consolidated basis, for the upcoming third quarter, we expect both revenue and EBITDA growth to be similar to the second quarter in the low single-digit range. For the full year, consolidated revenue growth is expected to be similar to or modestly better than our year-to-date top-line growth, and we are anticipating mid-single-digit annual EBITDA growth over 2025. That concludes our prepared comments. Lisa, you may now open the call to questions. Thank you.