Q2 2024 FirstService Corp Earnings Call

Good day and thank you for standing by. Welcome to the FirstService Corporation's second quarter 2024 earnings conference call.

Operator: for the Earnings 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'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised.

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'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again.

Operator: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. Legal counsel requires us to warn you 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 differ materially 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, July 25th, 2020. I would now like to hand the conference over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Please be advised that today's conference 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 differ materially 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, July 25, 2024.

I would now like to hand the conference over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Scott Patterson: Thank you, Liz. Good morning, everyone. Thank you for joining our Q2 conference call. I'm on today with Jeremy Rakusin.

Thank you, Liz. Good morning, everyone. Thank you for joining our Q2 conference call.

Scott Patterson: I'll kick us off with some high-level comments, and Jeremy will follow with more detail. We were pleased with the results we posted this morning, solid performance that was better than expected. Total revenues were up 16% over the prior year, and again this quarter was driven entirely by acquisition, primarily the addition of Roofing Corp of America in Q4 last year. Organic growth was again flat this quarter, with solid gains at FirstService Residential, offset by declines in restoration within our Brands Division. EBITDA for the quarter was up 12% to $132 million, reflecting a consolidated margin of 10.2%, which we're very pleased with. Jeremy will spend time on the margin details in a few minutes.

I'm on today with Jeremy Rakusin.

I'll kick us off with some high-level comments, and Jeremy will follow with more detail.

We were pleased with the results we posted this morning. Solid performance that in aggregate was better than expectation.

Total revenues were up 16% over the prior year, again this quarter driven entirely by acquisitions.

primarily the addition of Roofing Corp of America in Q4 last year.

Organic growth was again flat this quarter with solid gains at FirstService Residential, offset by declines in restoration within our Brands Division.

EBITDA for the quarter was up 12% to $132 million, reflecting a consolidated margin of 10.2%, which we're very pleased with. Jeremy will spend time on the margin detail in a few minutes.

Scott Patterson: Looking at our divisional results, residential revenues were up 8%, with organic growth close to 7%, which is trending in line with expectations. During the quarter, we announced the acquisition of City.., one of the leading property management players in San Francisco. Cityscape has a healthy high-rise portfolio and strengthens our leadership position across the Bay Area. We've been developing a relationship with the team at Cityscape over the last number of years and are excited that we were able to complete a partnership agreement.

Looking at our divisional results.

residential revenues were up 8%, with organic growth close to 7%, which is trending in line with expectation.

During the quarter we announced the acquisition of Cityscape.

One of the leading property management players in San Francisco.

Cityscape has a healthy high-rise portfolio and strengthens our leadership position across the Bay Area.

We've been developing a relationship with the team at Cityscape over the last number of years and are excited that we were able to complete a partnership agreement.

Scott Patterson: We see a continuing significant opportunity in Northern California, and the Cityscape leadership team will help us capitalize. Looking forward at FirstService Residential for the back half of the year, we're confirming our expectation for organic growth to continue to trend to the mid-single-digit range. Moving on to FirstService Brands.

We see a continuing significant opportunity in Northern California, and the Cityscape leadership team will help us capitalize.

Looking forward at FirstService Residential for the back half of the year, we're confirming our expectation for organic growth to continue to trend to the mid-single-digit range.

Scott Patterson: Revenues for the quarter were up 23%, driven primarily by the acquisition of Roofing Corp of America, but also several tuck-unders across our restoration and roofing segment. However, organically, revenues were down 6% versus the prior year, driven by declines at our restoration brand, very similar to our last two quarters. Revenues for our two restoration brands, Paul Davis and First Onsite, were down in aggregate by about 5%, and organically by over 10%.

Moving on to FirstService Brands.

Revenues for the quarter were up 23% driven primarily by the acquisition of Roofing Corp of America but also several tuck-unders across our restoration and roofing segments.

Organically, revenues were down 6% versus the prior year, driven by declines at our restoration brands, very similar to our last two quarters.

Revenues for our two restoration brands, Paul Davis and First Onsite, were down in aggregate by about 5%.

Scott Patterson: For the third consecutive quarter, we continued to experience mild weather patterns across North America. Industry data points to claim activity of 20% to 30% year over year, depending on the geographic region. For our brands, we were up against a reasonably tough comparative quarter in 2023 that saw us execute on over 30 million hurricanes in backlog. In this year's quarter, we generated only a nominal amount of revenue from named storms, really the remaining tail from Hurricane Inn.

and offer organically by over 10%.

For the third consecutive quarter, we continued to experience mild weather patterns across North America.

Industry data points to claim activity of 20% to 30% year-over-year depending on geographic region.

For our brands, we were up against a reasonably tough comparative quarter in 2023.

that saw us execute on over 30 million of hurricane Ian backlog.

In this year's quarter, we generated only a nominal amount of revenue from named storms, really the remaining tail from Hurricane Ian.

Scott Patterson: Looking forward to Q3 in restoration, we expect a similar quarter sequentially to Q2, which would put us up modestly compared to the prior year. However, if we experience a weather event, it will go up from there.

Looking forward to Q3 in restoration, we expect a similar quarter sequentially to Q2, which would put us up modestly compared to the prior year.

If we experience a weather event, it will go up from there.

Scott Patterson: Turning to roofing, we had a strong quarter that, as expected, was sequentially stronger than Q1, primarily due to seasonality. We generated solid results across almost all our branches and are pleased that the first six months have played out in line with our due diligence expectations. We were also pleased to have made real progress in adding to our roofing platform during the quarter with the acquisitions of Crowther Roofing and Hamilton Roofing, a Florida-based contractor.

Turning to roofing, we had a strong quarter that as expected was sequentially stronger than Q1, primarily due to seasonality.

We generated solid results across almost all our branches and are pleased that the first six months has played out in line with our due diligence expectation.

We were also pleased to have made real progress in adding to our roofing platform during the quarter with the acquisitions of Crowther Roofing and Hamilton Roofing.

Scott Patterson: Florida has one of the largest roofing markets in North America and was our highest priority white space geography, crowding there, primarily in the Southwest, and Hamilton on the Space Coast provide us with an immediate, significant presence in Florida. Florida, and it's a region that we expect to further add.

to Florida-based contractors.

Florida is one of the largest roofing markets in North America and was our highest priority white space geography.

Crowder

primarily in the southwest and Hamilton on the Space Coast provide us with an immediate significant presence in Florida and it's a region that we expect to further add to.

Scott Patterson: Looking forward in roofing, our backlogs are stable, and we expect another solid quarter in line with Q2, plus the boost we will get from the Crowther and Hamilton additions. On to our Home Improvement Brands, which is a group we're down modestly for the quarter by a low single-digit percentage. The Weak Housing Market, Higher Interest Rates, and General Economic Uncertainty have negatively impacted the Home Improvement Market since early last year. We're flat year over year for the first six months and are generally pleased with our performance given current market conditions. We believe we continue to take share. That said, we definitely continue to face headwinds.

Looking forward in roofing, our backlogs are stable, and we expect another solid quarter in line with Q2, plus the boost we will get from the Crowther and Hamilton additions.

On to our Home Improvement Brands, which is a group we're down modestly for the quarter by a low single-digit percentage.

The weak housing market, higher interest rates, and general economic uncertainty have negatively impacted the home improvement market.

since early last year.

We're flat year-over-year for the first six months and are generally pleased with our performance given current market conditions. We believe we continue to take share.

Scott Patterson: And don't expect activity levels to improve through the third quarter. Looking forward to Q3, we expect our home improvement revenues to be down modestly compared to the prior year, similar to what we experienced this past quarter. We're hopeful that interest rate reductions may spur increased activity later in the year. And I'll finish my comments with a look at Century Fire, which had a very strong quarter, up sequentially over Q1, and up organically over the prior year by a high single-digit percentage.

That said, we definitely continue to face headwinds.

And don't expect activity levels to improve through the third quarter.

Looking forward to Q3, we expect our home improvement revenues to be down modestly compared to prior year, similar to what we experienced this past quarter.

We're hopeful that interest rate reductions may spur increased activity later in the year.

And I'll finish my comments with a look at Century Fire, which had a very strong quarter, up sequentially over Q1.

and up organically over the prior year by a high single-digit percentage.

Scott Patterson: The results were right in line with our expectations that we communicated on last quarter's call. Looking forward to the back half of the year, we expect more of the same, with high single-digit year-over-year growth, etc. With that, I will now hand over to Jeremy.

The results were right in line with our expectation that we communicated on last quarter's call.

Looking forward to the back half of the year, we expect more of the same continued strength with high single-digit year-over-year growth at Century.

Jeremy Alan Rakusin: Thank you, Scott. Good morning, everyone.

With that, I will now hand over to Jeremy.

Thank you, Scott, and good morning, everyone. I'll lead off with a summary of our consolidated second quarter financial results, which delivered year-over-year growth higher than the indications provided on our Q1 call in April .

Jeremy Alan Rakusin: I'll lead off with a summary of our consolidated second quarter financial results, which delivered higher year-over-year growth than the indications provided on our Q1 call in April. Revenues for the quarter were $1.3 billion, up 16% year-over-year, and we reported adjusted EBITDA of $132.5 million, up 12% versus the prior year. Adjusted EPS came in at $1.36 versus $1.46 in Q2 2023. Our six-month year-to-date consolidated financial performance included revenues of $2.5 billion, an increase of 15% over $2.1 billion last year.

Revenues for the quarter were $1.3 billion, up 16% year-over-year, and we reported adjusted EBITDA of $132.5 million, up 12% versus the prior year.

Adjusted EPS came in at $1.36 versus $1.46 in Q2 2023.

Our six-month year-to-date consolidated financial performance included revenues of $2.5 billion, an increase of 15% over the $2.1 billion last year.

Jeremy Alan Rakusin: Adjusted EBITDA of $216 million, representing 8% growth over the $200 million last year, with a margin of 8.8%, down 60 basis points year over year, and a more modest decline of 40 basis points when normalized for the significantly higher FX-related corporate costs in the current year-to-date period. Adjusted EPS for the first half of the year is $2.03 compared to $2.31 per share reported during our same six-month period last year.

adjusted EBITDA of 216 million dollars representing 8% growth over the 200 million dollars last year with a margin of 8.8 percent

down 60 basis points year-over-year, and a more modest decline of 40 basis points when normalized for the significantly higher FX related corporate costs in the current year-to-date period.

Adjusted EPS for the first half of the year sits at $2.03 compared to $2.31 per share reported during our same six-month period last year.

Jeremy Alan Rakusin: 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. Regarding our earnings per share performance, as similarly noted during our previous Q1 call, the year-over-year decline compared to 2023 is attributable to almost a doubling in our interest expense, reflecting both higher interest rates and a larger debt balance on the heels of our large Ruthen Corp. of America acquisition at the end of last year. Focusing now on our operating financial performance for the second quarter, I'll start with our FirstService Residential Division. Quarterly revenues came in at $558 million, up 8% over the prior year.

Our 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.

Regarding our earnings per share performance, as similarly noted during our previous Q1 call, the year-over-year decline compared to 2023 is attributable to almost a doubling in our interest expense, reflecting both higher interest rates

and a larger debt balance on the heels of our large Ruthen Corp. of America acquisition at the end of last year.

Focusing now on our operating financial performance for the second quarter, I'll start with our FirstService Residential Division.

Quarterly revenues came in at $558 million, up 8% over the prior year.

Jeremy Alan Rakusin: EBITDA for the quarter was $59 million, a 6% year-over-year increase, with a 10.6% margin, down 20 basis points from the 10.8% margin in Q2 of last year. For the six-month year to date, our division's EBITDA margin sits at 9%, comparable to the 9.1% level for the equivalent prior year period. We continue to expect margins through the balance of the year, in line with 2023 and consistent with our 9-10% annual EBITDA margin performance band over the past several years. In our FirstService Brands Division, we reported second quarter revenues of $740 million, a 23% increase over the prior year period. EBITDA for the quarter came in at $78 million, up 18% year over year.

EBITDA for the quarter was $59 million, a 6% year-over-year increase, with a 10.6% margin, down 20 basis points from the 10.8% margin in Q2 of last year.

For the six months here to date, our division EBITDA margin sits at 9% even, comparable to the 9.1% level for the equivalent prior year period.

We continue to expect margins through the balance of the year in line with 2023 and consistent with our 9-10% annual EBITDA margin performance band over the past several years.

Within our FirstService Brands Division, we reported second quarter revenues of $740 million, a 23% increase over the prior year period.

EBITDA for the quarter came in at $78 million, up 18% year-over-year.

Jeremy Alan Rakusin: Our margin during the quarter was 10.5%, down 40 basis points versus the 10.9% during last year's Q2. The quarterly margin decline was confined to our restoration businesses, which were operating against higher prior year storm-related activity levels. These headwinds moderated compared to the first quarter, however, and were a key reason behind the improved year-over-year margin comparisons sequentially compared to Q1. The second contributing factor to the sequential margin improvement was the tempering of promotional initiatives within our home improvement brand. Scott noted earlier the mild top-line decline in home improvement during Q2, tipping down from the modest top-line growth in the prior first quarter.

Our margin during the quarter was 10.5% down 40 basis points versus the 10.9% during last year's Q2.

The quarterly margin decline was confined to our restoration businesses, which were operating against higher prior year storm-related activity levels.

These headwinds moderated compared to the first quarter, however, and were a key reason behind the improved year-over-year margin comparisons sequentially compared to Q1.

The second contributing factor to the sequential margin improvement was the tempering of promotional initiatives within our home improvement brands.

Scott noted earlier the mild top-line decline in home improvement during Q2, tipping down from the modest top-line growth in the prior first quarter.

Jeremy Alan Rakusin: Nevertheless, during the current quarter, we achieved superior profitability and an improved year-over-year margin profile from this segment compared to our Q1 metrics. We have spoken about being assertive in balancing our growth and margin objectives in the face of the challenging macro remodeling environment, and we are pleased with what our home improvement businesses have delivered to the bottom line year to date. In the back half of the year, with the continued easing of storm-driven year-over-year comparisons in restoration and the added mix of our roofing operations, we expect Brand's division margin improvement in the third and fourth quarters compared to their respective prior year periods.

Nevertheless, during the current quarter, we achieved superior profitability and an improved year-over-year margin profile from this segment compared to our Q1 metrics.

We have spoken about being assertive in balancing our growth and margin objectives in the face of the challenging macro remodeling environment.

And we are pleased with what our home improvement businesses have delivered to the bottom line year-to-date.

In the back half of the year, with the continued easing of storm-driven year-over-year comparisons in restoration and the added mix of our roofing operations, we expect brand's division margin improvement in the third and fourth quarters compared to their respective prior year periods.

Jeremy Alan Rakusin: In terms of our cash flow profile, we delivered over $130 million in operating cash flow during the second quarter, up 52% over the prior year quarter and almost matching our consolidated EBITDA during the period with the benefit of favorable working capital utilization. Our capital expenditures during the quarter were just under $30 million, and our year-to-date total of $54 million is pacing with our previously targeted full-year capex of approximately $115 million. Acquisition spending during the quarter was significant at more than $120 million, and the year-to-date investments in our Tuck Under acquisition program exceed $150 million.

In terms of our cash flow profile, we delivered over $130 million in operating cash flow during the second quarter.

Up 52% over the prior year quarter, and almost matching our consolidated EBITDA during the period, with the benefit of favorable working capital utilization.

Our capital expenditures during the quarter were just under $30 million, and our year-to-date total of $54 million is pacing with our previously targeted full-year capex of approximately $115 million.

Acquisition spending during the quarter was significant at more than $120 million, and the year-to-date investments in our Tuck Under acquisition program exceed $150 million.

Jeremy Alan Rakusin: As a result, we ended the quarter with $1.1 billion of debt on our balance sheet, net of more than $200 million in cash on hand. Together, with undrawn availability under our bank revolving credit facility, our liquidity for any potential immediate capital requirements exceeds $300 million. Leverage, as measured by net debt to EBITDA, sits at 2.3 times, remaining in line with the prior first quarter, as we were able to fund the higher-than-typical acquisition spending with our strong quarterly cash flow.

As a result, we ended the quarter with $1.1 billion of debt on our balance sheet, net of more than $200 million in cash on hand.

Together, with undrawn availability under our bank revolving credit facility, our liquidity for any potential immediate capital requirements exceeds $300 million.

Leverage, as measured by net debt to EBITDA, sits at 2.3 times, remaining in line with the prior first quarter.

as we were able to fund the higher-than-typical acquisition spending with our strong quarterly cash flow.

Jeremy Alan Rakusin: In terms of our outlook, taking into account our reported year-to-date results and the second quarter tuck-under additions in our roofing operations, we are modestly increasing our indicated financial targets that we laid out at the beginning of the year. For 2024, we are now forecasting that consolidated annual revenue and EBITDA will both achieve mid-teens percentage growth over our 2023 annual results. That now concludes our prepared comments. Operator, please open the call to questions. Thank you.

In terms of outlook, taking into account our reported year-to-date results and the second quarter tuck-under additions in our roofing operations, we are modestly increasing our indicated financial targets that we laid out at the beginning of the year.

For 2024, we are now forecasting that consolidated annual revenue and EBITDA will both achieve mid-teens percentage growth over our 2023 annual results.

That now concludes our prepared comments. Operator, please open the call to questions. Thank you.

Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Stephen MacLeod with BMO Capital Markets.

As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Our first question comes from the line of Stephen MacLeod with BMO Capital Markets.

Stephen MacLeod: Thank you. Good morning, guys. Good morning.

Scott Patterson: Just a couple of questions specifically around the restoration business. I know you gave some guidance around sort of Q3 and expectations on that. Can you talk a little bit about what your pipeline potentially may look like with Hurricane Beryl having come through and hit land? Just curious if you have any indication on what that might mean in terms of large loss restoration activity.

Thank you, good morning guys. Just a couple of questions specifically around the restoration business. I know you gave some guidance around sort of Q3 and expectations on that.

Can you talk a little bit about what your pipeline potentially may look like with Hurricane Beryl having come through and hit ground? Just curious if you have any indication on what that might mean in terms of large loss restoration activity.

Scott Patterson: Yeah, Stephen, Beryl will not be a significant event for us or the market, for that matter, although quite localized to Houston. We've definitely seen an increase in claims in that market, but they're more related to residential water mitigation.

Yes, Stephen, Beryl will not be a significant event for us, or the market for that matter. Quite localized to Houston, we've definitely seen an increase.

and claims in that market, but they're more related to residential water mitigation?

Scott Patterson: Certainly, our Paul Davis business in that market has seen increased activity. But not as much commercial or large loss business has come through in general.

So, certainly our Paul Davis business in that market has seen increased activity, but

not as much commercial or large loss.

Commercial claims have come through in general.

Stephen MacLeod: Okay, that's helpful. Thanks, Scott.

Okay, that's helpful. Thanks, Scott.

And then just turning to the outlook for the brands business, you know, you're guiding to some margin improvement in the back half of the year, which is, which is great. Wondering if you can talk a little bit about the organic.

Scott Patterson: And then just turning to the outlook for the brands business, you're guiding to some margin improvement in the back half of the year, which is great. I'm wondering if you can talk a little bit about the organic or maybe total growth on the revenue line, just thinking about the comps that you had from last year. Q3 seems like a tougher comp on the organic side, while Q4, a bit of an easier comp. Just wondering if you can sort of frame how that will impact the back half of the year.

or maybe total growth on the revenue line. Just thinking about the comps that you had from last year, Q3 seems like a tougher comp on the organic side, Q4 a bit of an easier comp. Just wondering if you can sort of frame how that will impact the back half of the year.

Scott Patterson: Let me start, Jeremy, and then you can jump in. I mean, we do expect organic growth within our restoration business, Century Fire. As I said, we'll be down modestly at Home Improvement, but it's not a significant part of the division, and then roofing is a new business for us, so in aggregate, Jeremy, can you jump in and...

Let me start, Jeremy, and then you can jump in. I mean, we do expect organic growth.

Within our restoration business, Century Fire, as I said, will be down modestly at home improvement, but it's not a significant part of the division.

and then Rufine.

is a new business for us. So in aggregate, Jeremy, can you jump in and...

Jeremy Alan Rakusin: Yeah, I'll give some indications, just on Brands Division, I'll speak to Q3, you know, including the fact that we've still got, albeit moderating headwinds, in restoration from last year, $25 million in Q3 and a bit more in Q4, $40 million in the back half of the year. I expect Brands Division, at least in Q3, to be flat, including that, and excluding those restoration headwinds closer to mid-single-digit organic growth as a portfolio. So hopefully, that gives you a bit of an indication metric-wise, Stephen, but then plus Ruth. Yeah, but yeah, sorry, I was speaking to the organic farmer.

Yeah, I'll give some indications, just Brands Division, I'll speak to Q3, you know, including the fact that we've still got, albeit moderating headwinds, in restoration from last year.

You know, $25 million in Q3 and a bit more in Q4, $40 million in the back half of the year.

Expect Brands Division, at least in Q3, to be flat, including that, and excluding those restoration headwinds closer to mid-single-digit organic growth as a portfolio. So hopefully that gives you a bit of indication metric-wise, Stephen.

But then plus roofing.

Stephen MacLeod: So organic, kind of flattish, in Q3, including the $25 million headwinds from last year. Okay, no, that's super helpful. Thanks, guys. Appreciate it. I'll get back in queue.

yeah but yeah yeah sorry I was speaking to the organic

It's organic, kind of flattish, in Q3, including the $25 million headwinds from last year. Yeah. Correct. Okay. No, that's super helpful. Thanks, guys. Appreciate it. I'll get back in queue.

Frederic Bastien: Our next question comes from the line of Frederic Bastien with Raymond James. Frederic, your line is now open.

Our next question comes from a line of Frederic Bastien with Raymond James.

Frederic, your line is now open.

Scott Patterson: You highlighted in your prepared comments that Florida was a priority area for the roofing business. I was wondering if you... would care to share if there are other areas of focus that you can turn to there.

Good morning, guys.

Morning. Morning.

You highlighted in your prepared comments that Florida was a priority area.

Frederic Bastien: for the roofing business. I was wondering if you care to share if there are other areas of focus.

Scott Patterson: Well, Florida remains a priority area for us, Frederic. We covered a couple of regions within Florida in this recent talk. But it is a huge roofing market, so we expect to add to it in time. But to answer your specific question, Texas, the Mid-Atlantic, and California would be priority regions for us, but we do have a fair bit of white space, so we're.., looking at opportunities sort of across the U.S. I would say right now.

Speaker Change: that you can turn to next.

Frederic Bastien: Well, Florida remains a priority area for us, Frederic.

Speaker Change: We covered a couple of regions within Florida with these recent tuck-unders.

Speaker Change: but it is a huge roofing market so we expect to add to it in time.

Speaker Change: But to answer your specific question...

Speaker Change: Texas, Mid-Atlantic, California would be priority regions for us, but we do have a fair bit of white space, so we're,

Speaker Change: looking at opportunities sort of across the U.S. I would say right now.

Frederic Bastien: And would you say, given that we're just seeing out there in the market, that roofing will be your primary engine for organic growth on a cohort basis, or are there other platforms that could come in and weigh in and balance?

Speaker Change: Would you say, given what you're seeing out there in the market, that roofing will be your primary engine for organic growth on a go-forward basis?

Speaker Change: Or are there other platforms that could come in and weigh in and balance?

Scott Patterson: Did you say organic?

Frederic Bastien: Inorganic, M&A. Oh, inorganic, sorry.

Speaker Change: Did you say organic growth?

Speaker Change: inorganic M&A. Oh inorganic, sorry. Certainly roofing is consolidating quickly so it's it's very active right now.

Scott Patterson: Certainly, roofing is consolidating quickly, so it's very active right now, but we have opportunities really across all our platforms, I would say. I would expect that we'll... We'll continue to add in restoration and fire and FirstService residents. Great to hear. Thank you. Awesome. Thanks. That's all I have. Good results, guys. Thank you.

Speaker Change: But we...

Speaker Change: We have opportunities really across all our platforms, I would say. I would expect that we'll...

Speaker Change: We'll continue to add in restoration and fire and FirstService residential.

Speaker Change: And I'll just wait to hear.

Tom Callaghan: Our next question comes from the line of Tom Callaghan with RBC Capital Markets.

Speaker Change: Awesome. Thanks. That's all I have. Good results, guys. Thank you.

Tom Callaghan: Our next question comes from the line of Tom Callaghan with RBC Capital Markets.

Scott Patterson: Thanks, morning, guys. Maybe just to follow up on that line of questioning with respect to roofing, obviously, the deals done this quarter were maybe a little larger than kind of your traditional tuck in. Is that a function of, you know, maybe market structure? Or is it really just a function of wanting to establish a good base right off the bat in those core areas? And how should we think about the kind of sizing of those roofing deals going forward?

Speaker Change: To follow up on that line of questioning with respect to roofing, obviously the deals done this quarter were maybe a little larger than your traditional tuck-in. Is that a function of market structure, or is it really just a function of wanting to establish a good base right off the bat in those core areas, and how should we think about sizing of those roofing deals?

Tom Callaghan: I think that deals will generally be smaller going forward and maybe more in line with the size of Tuck Under that we normally do. When we enter a market, I mean, those were true, too attractive companies that we had really dialed in on Crowther being the larger and being the dominant player in southwest Florida is a big move for us. On average, they will be smaller going forward.

Speaker Change: going forward.

Tom Callaghan: I think that deals would generally be smaller, Tom, going forward and maybe more in line with the size of Tuck Under that we normally do when we enter a market. I mean those were true too attractive.

Speaker Change: companies that we had really dialed in on Crowther being the larger and you know being the dominant player in southwest Florida is a big move for us.

Scott Patterson: Okay, thanks. Thanks for that.

Tom Callaghan: On average, they will be smaller going forward.

Speaker Change: Okay, thanks. Thanks for that. Maybe just separately on Century Fire, you know, strong results continue there. And I'm just curious, when you look at the opportunity set there, like you specifically talked a bit in the past about, you know, bringing all the branches towards full-service providers.

Tom Callaghan: Maybe just separately on Century Fire, you know, strong results continue there. And I'm just curious when you look at the opportunity set there, like you specifically talked a bit in the past about, you know, bringing all the branches toward full service providers. So, you know, sprinkler to alarm or vice versa.

Scott Patterson: And, you know, just wondering from that angle, how much running room is left in terms of that growth opportunity?

Speaker Change: you know, sprinkler to alarm or vice versa, and you know, just wondering from that angle, how much running room is left in terms of that growth opportunity?

Scott Patterson: Certainly, it's still an opportunity, but the surge we saw, I think particularly in 23, where we grew organically over 20%. You know, we really made some strong headway through that period. We're in a period of sort of mid-to-high single-digit organic growth. That's going to be more typical for us moving forward with Century.

Speaker Change: You know, we really made some strong headway through that period, so...

Speaker Change: We're in a period of sort of mid to high single-digit organic growth that's going to be more typical for us moving forward with century.

Tom Callaghan: Okay, thanks for that. I'll pass it back.

Stephen Hardy Sheldon: Our next question comes from Stephen Sheldon with William Blair.

Speaker Change: Okay, thanks for that. I'll pass it back.

Speaker Change: Our next question comes from Stephen Sheldon with William Blair.

Stephen Hardy Sheldon: Hey, thanks. Appreciate you taking my questions.

Jeremy Alan Rakusin: First, on the roofing business, great to hear that it's tracking to your expectations. But can you just remind us of the rough seasonality and whether that's looked any different than you would have thought initially? It seems like the acquired roofing assets may have contributed a lot more than we at least had modeled in the quarter. But you know, that may just reflect some normal seasonal trends that we didn't fully capture. So any detail on the kind of seasonal patterns you're seeing?

Stephen Hardy Sheldon: Hey, thanks. I appreciate you taking my questions. First, just on the roofing business, great to hear that it's tracking to your expectations, but can you just remind us of the rough seasonality?

Speaker Change: And whether that's looked any different than you would have thought initially. It seems like the acquired roofing assets may have contributed a lot more than we at least had modeled in the quarter, but that may just reflect some normal seasonal trends that we didn't fully capture. So any detail on kind of seasonal patterns you're seeing.

Stephen Hardy Sheldon: Yeah, it's Jeremy, Stephen. The first quarter is definitely seasonally weaker than Q2 and Q3, and then it tails off a little bit in Q4. So Q2 and Q3 are the seasonal peaks for most businesses. But we'll see with the Florida-based businesses, that's probably more of a year-round business, given the geography that it sits in, the climate. So yeah, sequentially, more contribution from roofing than in Q1, plus also the month of, as Scott said, this tuck under was, particularly the Grother one, was larger than Tepegun. We got one of the three months in the quarter contribution from that business.

Stephen Hardy Sheldon: Yeah, it's Jeremy, Stephen. First quarter is definitely seasonally weaker than Q2 and 3 and then it tails off a little bit in Q4. So Q2 and Q3.

Jeremy: are the seasonal peaks for most of the businesses. We'll see with the Florida-based businesses, that's probably more of a year-round.

Speaker Change: Just given the geography that it sits in and the climate. So, yeah, sequentially, more contribution from roofing than in Q1, plus also the month of, as Scott said, this tuck under was...

Speaker Change: Particularly, the Grother one was larger than Tepegun. We got one of the three-month and the quarter contribution from that business.

Jeremy Alan Rakusin: Got it. OK, that's helpful.

Scott Patterson: And there's some residential. It sounds like you're optimistic, Scott, about the growth potential in the Northern California market. Can you just talk about what those opportunities look like? Are they more master plan communities or, just generally, where do you see your opportunity to grow in that market? Yeah, master plan primarily, high rise.

Speaker Change: Got it, okay, that's helpful.

Speaker Change: And there's some residential, it sounds like you're optimistic, Scotty, about the growth potential in Northern California market. Can you just talk about what those opportunities look like? Is it more master plan communities or just generally where do you see your opportunity to grow in that market?

Scott Patterson: Yeah, Master Plan primarily. High-rise and large Master Plan communities are a sweet spot for us. And the addition of this team, I think, strengthens our presence and strengthens our positioning in the market.

Scotty: Yeah, Master Plan primarily. High-rise and large Master Plan communities are a sweet spot for us.

Speaker Change: And the addition of this team, I think, strengthens our presence.

Scotty: and strengthens our positioning in the market.

Tim James: Your next question comes from the line of Tim James with TD Security.

Speaker Change: Great, thank you.

Speaker Change: Your next question comes from the line of Tim James with TD Securities.

Tim James: Thank you. Good morning. I have just one question here.

Tim James: Thank you. Good morning. Just one question here. I'm wondering if you could talk about the, and we have been indicating there are promotional investments or expenses being undertaken for the home improvement.

Scott Patterson: I'm wondering if you could talk about the, and we've been indicating there are promotional investments or expenses being undertaken for the home improvement business. I'm just wondering if you can give us a bit of an update on how that is going. Are you seeing evidence of success from those investments? And just remind us of the catalyst or the reason behind that push.

Tim James: business. I'm just wondering if you can give us a bit of an update on

Tim James: How that is going? Are you seeing evidence of success from those investments? And just remind us of the catalyst or the reason behind that push.

Scott Patterson: Well, we had been dialing up our marketing spend and our discounting sort of through the end of 23 and into Q1. But we pulled back this last quarter, Tim, and sort of tweaked our balance between focus on market share gains and the bottom line. And so, as Jeremy indicated, the top line came off modestly, but our margins increased this past quarter, and we feel we're more Yeah, in a sweet spot for us, in the right spot, and we'll likely maintain our current Spend through Q3, and really...

Speaker Change: Well, we had been.

Speaker Change: dialing up our marketing spend and and our discounting sort of through the end of 23 and

Tim James: and into Q1, but we pulled back this last quarter, Tim.

Speaker Change: and sort of tweaked our our balance between

Speaker Change: focus on market share gains and bottom line and so as Jeremy indicated the top line came off modestly but our margins increased this past quarter and we feel we're more

Jeremy: In a sweet spot for us, in the right spot, and we'll likely maintain our current

Jeremy: Spend through Q3, and really...

Scott Patterson: Effectively take what the market gives us in terms of revenue and make sure that we're executing and delivering on our service promise, with a real focus on driving repeat business and word of mouth referral when the environment becomes more favorable. So, Strategically, we made a decision to dial down that spend because not seeing the same results in Q1 that we were in the last part of the... 23.

Speaker Change: effectively take what the market gives us in terms of revenue and make sure that we're executing and delivering on our service promise.

Speaker Change: with a real focus on driving repeat business and word-of-mouth referral when the environment becomes more favorable.

Speaker Change: Strategically, we made a decision to dial down that spend.

Tim James: [inaudible]

Tim James: Not seeing the same results in Q1 that we were in the last part of Q23.

Tim James: Okay, that's very helpful. Thank you.

Speaker Change: Okay, that's very helpful, thank you.

Himanshu Gupta: Our next question comes from the line of Himanshu Gupta with Scotiabank.

Speaker Change: Our next question comes from the line of Himanshu Gupta with Scotiabank.

Jeremy Alan Rakusin: Thank you and good morning everyone. So on FSB margins, I think they were higher than our expectations in Q2. Was there any particular segment which led to better margins?

Himanshu Gupta: Thank you and good morning everyone. So on FSB margins, I think they were higher than our expectations in Q2. Was there any particular segment which led to better margins?

Jeremy Alan Rakusin: No, Himanshu, you know, the sequential improvement quarterly that from Q1 that I spoke about was really around, you know, less headwinds in restoration, what Scott just touched on and what I said in my prepared comments, reduced, you know, discounting and promotion activities in home improvements, so sequential margin improvement profile in Q2. And then you do have the added mix of, I spoke to it on an earlier question, your roofing coming in seasonally higher in Q2 than in Q1. So those would be the three factors that would have contributed to a tighter margin gap in Q2 on a year-over-year basis than in Q1.

Speaker Change: No, Himanshu, you know, it was really the sequential improvement quarterly from Q1 that I spoke about was really around

Speaker Change: Less headwinds in restoration, what Scott just touched on, and what I said in my prepared comments, reduced.

Speaker Change: Discounting and promotion activities in home improvement, so sequential margin improvement.

Speaker Change: profile in Q2. And then we do have the added mix of, I spoke to it on an earlier question, roofing coming in seasonally higher in Q2 than in Q1. So those would be the three factors that would have contributed to tighter margin

Speaker Change: gap in Q2 on a year-over-year basis than in Q1.

Himanshu Gupta: I got it. That's helpful. And then, you know, sticking to the roofing, probably margins, I mean, obviously, too recent for the acquisitions as well. So as you build scale in the roofing business, do you think, you know, margins can improve over a period of time?

Speaker Change: Got it. That's helpful. And then, you know, sticking to the roofing, probably margins. I mean, obviously, too recent for the acquisitions as well. So as you build scale in the roofing business, do you think, you know, margins can improve over a period of time?

Jeremy Alan Rakusin: No, I mean, at this juncture, it's a very decentralized structure with roofing, you know, individual brands operating in their local markets, getting local and regional business. There are some benefits of scale, but they're not about cost reductions and margin enhancement. You know, what I articulated when we invested in and partnered with the roofing core acquisition, as well as with the tuck unders, they'll be a little bit higher than 10%, but we don't see any line of sight to significant margin improvement at this juncture.

Speaker Change: No, I mean, at this juncture, it's a very decentralized structure with roofing, individual brands operating in their local markets, getting local and regional business.

Speaker Change: There are some benefits of scale but they're not about

Speaker Change: Cost Reductions and Margin Enhancement, you know what I articulated when we Invested in and partnered with the roofing core acquisition as well as with the tuck-unders You know, they'll be a little bit higher than 10% but we don't see any Line of sight to significant margin improvement at this juncture

Himanshu Gupta: Got it. And maybe the last question is on Century Fire.

Speaker Change: Got it.

Speaker Change: And maybe the last question is on Century Fire, I mean obviously very strong, you mentioned high single digit for the second half of the year, very similar to Q3 as well. Any thoughts into the next year, I mean given you'll be facing tough comps.

Scott Patterson: I mean, obviously, very strong. You mentioned high single-digit growth for the second half of the year, very similar to Q3 as well. Any thoughts into the next year? I mean, given, you know, you'll be facing tough comps. Do you see further easing as well in that?

Speaker Change: Do you see further easing as well in that business?

Scott Patterson: I think we would expect to continue to grow at a single-digit level, around 25, but we'll certainly update that as we get closer to year end.

Speaker Change: I think we would expect to continue to grow at a single-digit level.

Speaker Change: for 25, but we'll certainly update that as we get closer to year end.

Himanshu Gupta: So, absolutely. Okay. Thank you, guys. I'll turn.

Speaker Change: So, absolutely. Okay, thank you guys. I'll turn it back.

Daryl Young: Our next question comes from the line of Daryl Young with Stiefel.

Speaker Change: Thanks.

Scott Patterson: Hey, good morning, everyone, and congrats on a good result. [inaudible] Just with respect to the residential division, the market share gains have continued to be extremely strong. I know you've added some new service lines within there, but can you just give us a bit of color on maybe which markets are particularly strong and what's been driving that, and also, is labor availability helping you with your cited labor contracts?

Speaker Change: Our next question comes from the line of Daryl Young with Stiefel.

Daryl Young: Hey, good morning, everyone, and congrats on a good result.

Speaker Change: Bye.

Daryl Young: Just with respect to the residential division, I mean, the market share gains have continued to be extremely strong. I know you've added some new service lines within there, but...

Speaker Change: Can you just give us a bit of color on maybe which markets are particularly strong and what's been driving that and also is labor availability helping you with your cited labor contracts?

Scott Patterson: Certainly, labor is much better than it has been over the last few years. I mean, it started to improve in late 23, I would say. And it continues to be much better, turnover certainly down and in line with our experience from pre-COVID 2019. So in general, we're. We're able to attract talent and keep it, which does help us at FirstService Residential. Certainly, it's a very labor-intensive business, and our contracts require, in many cases, a certain headcount.

Daryl Young: Certainly, labor is much better than it has been over the last few years, and it started to improve in late '23, I would say, and it continues to be much better.

Speaker Change: Certainly, labor is much better.

Speaker Change: than it has been over the last few years. I mean it started to improve in late 23 I would say.

Daryl Young: Our turnover is certainly down and in line with our experience from pre-COVID 2019, and so in general, we're able to attract talent and keep it, which does help us at first service. It's a very labor intensive business, and our contracts require, in many cases, a certain headcount, and so keeping that headcount in line with our contractual obligations maintains our revenue, and we struggled with that in 22. Generally solid across North America, First Service Residential, no markets necessarily stronger than others; rather than I would just reiterate the verticals that remains strong for us: high rise, and then the larger lifestyle and master plant communities.

Speaker Change: and it continues to be much better.

Speaker Change: turnover.

Speaker Change: is

Speaker Change: certainly down and in line with our experience from pre-COVID 2019. So in general we're

Speaker Change: We're able to attract talent and keep it.

Speaker Change: which does help us at FirstService Residential, certainly. It's a very labor-intensive business, and our contracts require, in many cases, a certain headcount.

Scott Patterson: So keeping, maintaining that headcount in line with our contractual obligations maintains our revenue, and we struggled with that in 22. Generally, a solid across North America at FirstService Residential, um, no market's necessarily stronger than others, other than I would just reiterate the verticals that remain strong for us, a high rise, and then the larger lifestyle and master plan communities. I don't know if I answered your question.

Speaker Change: And so keeping, maintaining that headcount in line with our contractual obligations maintains our revenue, and we struggled with that in 22.

Speaker Change: Generally...

Speaker Change: No market's necessarily stronger than others, other than I would just reiterate the verticals that remain strong for us.

Speaker Change: High Rise, and then the larger lifestyle and master plan communities.

Daryl Young: I don't know if I answered your question.

Daryl Young: Yeah, no, that's helpful, Collar. And then maybe just one quick nitty-gritty one.

Faiza Alwy: Yeah, no, that's helpful, Color.

Jeremy Alan Rakusin: Sorry for this one, but the minority interest share of earnings as we go forward, just with some of the acquisitions you've done recently, how should we look at that, Jeremy, for the remainder of the year?

Faiza Alwy: And then maybe just one quick, maybe a good one. Sorry for us.

Culler: I don't know if I answered your question. Yeah, no, that's helpful, Culler. And then maybe just one quick nitty-gritty one, sorry for this one, but the minority interest share of earnings as we go forward, just with some of the acquisitions you've done recently, how should we look at that, Jeremy, for the remainder of the year?

Jeremy Rakusin: But the minority interest share earnings, as we go for just with some of the acquisitions you've done recently, how should we look at that, Jeremy, for the remainder of the year? Yeah, I've indicated to most of you, you know, 9% to 10% is a good number. It's tracking lower year to date, and that's often a function of mixed performance amongst the businesses that we're partnered with, but I would still stick with that 9% to 10% conservatively.

Jeremy Alan Rakusin: Yeah, I've indicated to most of you that nine to ten percent is a good number. It's tracking lower year-to-date, but that's often a function of mixed performance amongst the businesses that we're partnered with, but I would still stick with that nine to ten percent conservatively.

Jeremy: Yeah, I've indicated to most of you, you know, nine to ten percent is a good number. It's tracking lower year-to-date, but that's often a function of mixed performance amongst the businesses that we're partnered with, but I would still stick with that nine to ten percent conservatively.

Faiza Alwy: Okay, great, thank you guys.

Daryl Young: Okay, great. Thanks, guys.

Faiza Alwy: That concludes today's question-and-answer session.

Operator: That concludes today's question and answer session. I'd like to turn the call back to Scott Patterson for closing remarks. Thank you, Liz, and thanks.

Speaker Change: Okay, great. Thanks, guys.

Scott Patterson: I'd like to turn the call back to Scott Patterson for closing remarks. Thank you, Liz, and thank you everyone for joining.

Speaker Change: That concludes today's question and answer session. I'd like to turn the call back to Scott Patterson for closing remarks. Thank you, Liz, and thank you everyone for joining.

Scott Patterson: Thank you, Liz, and thank you, everyone, for joining us. Enjoy the rest of your day. We will reconvene at the end of October for Q3.

Scott Patterson: Enjoy the rest of your day.

Scott Patterson: We will reconvene at the end of October for Q3.

Scott Patterson: Enjoy the rest of your day. We will reconvene at the end of October for Q3.

Scott Patterson: Ladies and gentlemen, this concludes the second quarter earnings call.

Operator: Ladies and gentlemen, this concludes the second quarter earnings call. Thank you for your participation, and have a nice day.

Scott Patterson: Thank you for your participation, and have a nice day.

Speaker Change: Ladies and gentlemen, this concludes the second quarter earnings call. Thank you for your participation and have a nice day.