Q1 2025 FirstService Corp Earnings Call
Speaker Change: Welcome to the first quarter investor conference call. Today's call is being recorded. All participants on a listen only mode.
Speaker Change: After this biggest presentation, I'll be a question and answer session. So as a question during the session, you will need to press star 1, 1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: New Council require us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties.
Speaker Change: Bladed in the four-looking statements, additional information concerning factors that could cause actual result.
Speaker Change: to different materially from those in the Ford Lucky statements 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 US Securities and Exchange Commission.
Speaker Change: As a reminder, today's call is being recorded. Today's April 24, 2025.
Speaker Change: I would like to send a call over to the Chief Executive Officer, Mr. Scott Patterson. Please
Thank you, Olivia.
Scott Patterson: Good morning, everyone. Thank you for joining our Q1 conference call.
Scott Patterson: We reported solid results this morning that we're very pleased with in the current environment.
Scott Patterson: I'll provide a high-level review and touch on some of the highlights.
Scott Patterson: and then passed to Jeremy Rakusin for a more in-depth discussion of the results.
Jeremy Rakusin: Total revenues were up 8% over the prior year driven primarily by tuck under acquisitions over the last 12 months.
Jeremy Rakusin: Organic Growth was slightly positive with gains at first service residential, largely offset by a modest decline across the first service brand's division.
Jeremy Rakusin: Ebedop to the quarter was up 24%, reflecting a strong 110 basis point improvement in our consolidated margin. A number of our brands showed margin improvement, Jeremy will walk through the detail in a few minutes.
Jeremy Rakusin: Finally, our earnings per share for the quarter were up and impressive 37%.
Jeremy Rakusin: Looking at our divisional results, FirstService residential revenues were up 6% half organic and half from a few small tuck-unders over the last 12 months.
Jeremy Rakusin: The results were in line with expectation. We had a solid quarter of contract wins and retention, as we continue to work our way back to our historical, mid-single, digital, organic growth rate.
Jeremy Rakusin: Looking forward at FirstService Residential, we expect similar or slightly better organic growth in Q2 and sequential improvement for Q3 and Q4.
Jeremy Rakusin: Moving on, at FirstService Brands, revenues for the quarter were up 10% driven entirely by
Jeremy Rakusin: Organic growth for the division was slightly down with Gaines at Century Fire, Offset Fire, Organic Declarings and Home Services and our roofing platform.
Jeremy Rakusin: I'll give a high level review of each segment and start with restoration.
Jeremy Rakusin: Revenues were generally in line with the expectation for the quarter, up mid-single digit, flat organically.
Jeremy Rakusin: We had solid growth in the U.S. with support from Hurricane Selene and Milton, from which we generated a little over 10 million for the quarter.
Jeremy Rakusin: This was tempered by modest year-over-year declines in our Canadian operations.
Jeremy Rakusin: The Canadian Operations of First On site and Paul Davis account for about 30% of our North American Restoration business.
Jeremy Rakusin: A overall restoration backlog at quarter-end or solid and at similar levels to year-end and prior year.
Jeremy Rakusin: Looking forward to QTQ2, we expect revenues to continue at approximately the same level sequentially.
Jeremy Rakusin: Well, now touch on our roofing segment, which delivered Q1 revenues that were up almost 50% year over year, driven by the acquisitions of Crowder roofing and Hamilton roofing in Florida.
Jeremy Rakusin: Organically, the revenues were lower than expected and down about 10% from the prior year quarter. There are two principle reasons for the reduction.
Jeremy Rakusin: One was weather in January and February , which reduced our production hours relative to the prior year.
Jeremy Rakusin: And secondly, we're seeing the expected awarding of some large commercial re-roof and new build contracts deferred.
Jeremy Rakusin: Did activity has been solid, but the awarding of contracts has slowed?
Jeremy Rakusin: We see it as a timing issue only and directly related to the current economic uncertainty to be with Territz.
Jeremy Rakusin: Looking to Q2 and Roofing, we will again benefit from the year-over-year impact of the Florida
Jeremy Rakusin: and expect our revenues to be up between 25 and 30% versus prior year.
Jeremy Rakusin: Organically, we expect to be downmodestly due to the continued impact of contract of furrow.
Jeremy Rakusin: The underlying demand dynamics remain strong, and we're optimistic that contract awards will accelerate as we move into the back half of this year.
Jeremy Rakusin: Moving to Century Fire, we had a strong quarter, generally in line with expectation with revenues up over 10% in organic growth mid-single digit.
Jeremy Rakusin: The century results were bolstered by particularly strong growth in repair, service and inspection revenues.
Jeremy Rakusin: Similar to my comments relating to roofing, we did see some deferral of expected larger commercial installation contracts from Q1 into Q2 or later in the year.
Again, we see this as timing only.
Jeremy Rakusin: Our backlog continues to build at century, and we expect continued strong results for the balance of the year with the organic growth in the high single digit range.
Jeremy Rakusin: Now on to our home service brands, which is a group generated revenues that were down about 3% year-over-year, just below expectation.
Jeremy Rakusin: It's been well documented over the last few months that consumer competence has deteriorated due to the persistence of high interest rates and the economic uncertainty.
Jeremy Rakusin: Our Lead Flow Reflect Edition Q1 and was down year over year.
Jeremy Rakusin: As they indicated on our last call, are tried and true economic indicators, home equity values, and home prices.
Point to Increases in Home Improvement Spending.
Jeremy Rakusin: We remain optimistic that pent-up demand is building and we will start to see it in increased bookings in the second half of this year.
Jeremy Rakusin: Our lead flow is stabilized and our teams continue to drive increased lead conversion.
Jeremy Rakusin: Looking to Q2, we expect revenues to be slightly down relative to the prior year.
Speaker Change: Before I pass to Jeremy, let me out a few comments.
The direct impact of tariffs to FirstService or immaterial.
Speaker Change: However, as I have indicated my comments, we are seeing a moderate indirect impact.
Speaker Change: The economic uncertainty in the market today that has resulted from the trade war is causing many commercial and residential consumers to pause. It's undeniable.
Speaker Change: I opened this call by saying that we were very pleased with the results in the current environment and I want to reiterate that point.
Speaker Change: We grew organically in Q1, albeit modestly, while driving enhanced margins.
Speaker Change: It's a testament to the diversification of our business model and the resilience of our brands.
Speaker Change: The demand drivers across our markets remain compelling and we are optimistic we will see accelerated activity levels with market stability.
Matt Noteworthy, you Jeremy.
Jeremy Rakusin: Thank you, Scott. Good morning, everyone. We're pleased with today's first quarter financial performance which delivered strong, year-over-your-growth and our key profitability metrics.
Jeremy Rakusin: To summarize the consolidated results for the quarter, we reported revenues of $1.25 billion and an 8% increase over the $1.16 billion for Q-124.
Jeremy Rakusin: Adjusted EBITDA was $103.3 million, up 24% year over year, with an 8.3% margin and resulting in 110 basis points of improvement over the 7.2% margin in the prior year quarter.
Jeremy Rakusin: And our justice EBS was 92 cents reflecting 37% growth over the prior year.
Jeremy Rakusin: Adjustments to Operating Earnings and Gap EPS and Arriving at Adjusted Epidane Adjusted EPS respectively are consistent with our approach in prior periods.
Jeremy Rakusin: To now walk through the segment and results for our two divisions, I'll start with FirstService
Jeremy Rakusin: The division generated revenues of $525 million, up 6% over last year's first quarter, while EBDA was $41.6 million, a 17% growth rate over the prior year.
Jeremy Rakusin: This resulted in an EBITDA margin of 7.9% a 70 base points increase over the 7.2% level in Q124.
Jeremy Rakusin: This margin expansion was driven by cost deficiencies that we realized in our property management operations that are dedicated to servicing our community clients, including in areas around client accounting and contact centers.
Jeremy Rakusin: Our operating leaders and teams have been working on these initiatives for some time and these efforts became more evident in Q1, as we emerged from the past 18 months of industry headwinds which we have spoken about at length.
Jeremy Rakusin: I would note that the magnitude of the margin improvement was also amplified in our seasonly
Jeremy Rakusin: In future quarters, and particularly the second half of 2025, the year of a year margin expansion
Jeremy Rakusin: As our top line takes higher with the resumption of normalized service levels in our managed communities, thus striving a greater mix of sighted labor revenue.
Jeremy Rakusin: Now, into our FirstService Brands division, where we reported revenues of $726 million for the current quarter up 10% of the last year's Q1.
Jeremy Rakusin: Our eBDF for the division was $67.8 million, a 22% increase versus the prior quarter.
Jeremy Rakusin: The resulting margin was 9.3% up 90 basis points versus last year's 8.4% level and primarily driven by our home services and restoration businesses.
Jeremy Rakusin: Within Home Services, our California Closet's brand continued to realize the benefits from operating efficiencies and the reduction in promotional activity.
Jeremy Rakusin: Both of these initiatives kicked into higher gear in the second quarter of 2024, so as we lack that period, we expect home services, margin performance to be roughly flat year over year for upcoming Q2 and going forward.
Jeremy Rakusin: Restoration margins were also up over Q124 as we continue our multi-year journey to streamline our operating processes and optimize our cost structure.
Jeremy Rakusin: As we reiterated before, profitability metrics within restoration are dependent on weather, job activity levels, and type of work mix, and therefore we don't expect the margin improvement to play out each and every quarter but rather over time.
Jeremy Rakusin: Our teams across all the service lines in our brand division have been highly focused and successful in grinding out sales and driving market share during a challenging macro environment while ensuring they get a healthy return on bottom line profitability.
Jeremy Rakusin: With respect to our consolidated operating cash flow, we generated more than $75 million before working capital changes, and over $40 million, including the impact of working capital.
Jeremy Rakusin: This cash flow conversion was both meaningfully higher than prior year and a solid level, particularly given the Q1 seasonal trough for some of our businesses.
Jeremy Rakusin: Capital expenditures during the quarter were just shy of $30 million, up modestly over the prior year, and pacing within our full-year capex guidance of roughly $125 million.
Jeremy Rakusin: We deployed minimal upfront cash towards talk under acquisition spending during the quarter as we remain disciplined and selective in a competitive transaction valuation environment.
Jeremy Rakusin: Finally, looking at our balance sheet, our debt and cash balances were relatively unchanged at the end of the first quarter compared to 2024 year end, and therefore our net debt remained at $1.1 billion.
Jeremy Rakusin: Our leverage is conservative, sitting at two times, not there to try in 12 months, Ebertier, and in line with your end.
Jeremy Rakusin: During the quarter, we also bolstered our debt capacity and flexibility by increasing and extending our five-year revolving bank credit facility to $1.75 billion plus an additional $250 million accordion feature.
Jeremy Rakusin: A liquidity-reflecting cash and undrawn credit facility balances is sizeable at more than $800 million.
Jeremy Rakusin: putting us in a very strong financial position to deploy capital as opportunities arise in our acquisition pipeline.
Jeremy Rakusin: Looking forward, in the upcoming second quarter we are forecasting a solid-aid revenue growth similar to the 8% growth rate in Q1.
Jeremy Rakusin: EBITDA is expected to increase at a low double digit growth rate with the residential division margin up and brand division margin in line to slightly up compared to last year's second
Jeremy Rakusin: Scott commented on the macro uncertainty that is somewhat clouding our visibility on the top line in some of our brand's division service line. But we believe that any headwind impact is timing related and will be offset by pent-up demand.
Jeremy Rakusin: At the same time, we are driving margins and profitability as evident with the strong Q1 performance under our belt, providing us with confidence in delivering on full year expectations for 2025.
Speaker Change: That concludes the prepared comment segment. Operator, you can now open up the call to questions. Thank you very much. Certainly, ladies and gentlemen, to ask a question at this time, you will need to press star 111 on your telephone and wait for your name to be announced.
Speaker Change: To enjoy a question, simply press star one one again. Please stand by when we complicate in our roster.
Speaker Change: First question, coming from the line of Stephen MacLeod with BMO Capital Market, Yalan is now open.
Thank you. Good morning, guys.
Speaker Change: Thanks for the color. Just a couple of questions, just with respect to the macro weakness. Could you just remind us sort of what you would consider to be your consolidated, you know like exposure to. Thank you.
Speaker Change: Sure, I can take a first cut in and then I'll let Scott Lairon, I mean, in terms of the business that we've always said whether it's related to tariffs or other macroeconomic exposure.
We set the home improvement business switches.
Speaker Change: You know, North of $500 million tied to residential homeowner and consumer sentiment.
Speaker Change: and then half a century fire and a third of roofing. [inaudible]
Speaker Change: I'm tied to commercial new development would be about another $500 million. So, you know, a billion dollars on five billion plus.
Speaker Change: 20% of consolidated FirstService Residential, FirstService Corporation revenues would be exposed, you know, some to residential and some to commercial. So modest. Scott, anything to add? Yeah, no, I don't have anything to add to that, Jeremy. Thank you.
Speaker Change: Okay, that's great. Thanks, Jeremy. That's kind of the ballpark I was thinking just wanted to confirm that. And then maybe, maybe just
Speaker Change: sticking with the brands business, you know, you talk a lot about, you talk a lot about sort of delays in projects.
Speaker Change: Staying warm, they're just not committing, is that sort of how to think about it?
The commercial delays were seen at Century Fire and Roofing.
Speaker Change: We particularly on the commercial side, we see it as timing.
work.
It needs to be done. I think that…
Customers,
Speaker Change: I mean, uncertainty causes hesitation, and that's really what we're seeing. They're getting bids.
Speaker Change: You're seeing what the pricing environment is. They have work to do. They're not committing.
Speaker Change: But we don't think that these deferrals can go on for a significant length of time. Residentially, with home services, it's a little bit different.
Speaker Change: Consumer confidence is down. We saw this morning that existing home sales were down 6% in March. It's another indicator that
Speaker Change: The consumer is positing on capital outlays, well, you know, until there's more certainty in the market.
Thank you.
Speaker Change: This, you know, if we get into a recession or a deeper recession, I think that the consumer confidence could stay at, you know, at current levels.
However,
Speaker Change: You know, the homeowner on average is wealthy. The average home equity is significant.
Speaker Change: Relative to history and home prices continue to tick up, creating more equity and certainly historically this is pointed to healthy home improvement spending.
Speaker Change: So, we think as soon as the market stabilizes, we're going to see it and we're optimistic that it will be, you know, later this year.
That's great. Thanks, Scott. And then maybe just finally...
Speaker Change: Just for the M&A environment, you know, if you do see, if we do see a period of more protractive slowdown or delays.
Speaker Change: You talked about your, obviously, in a strong financial position. What are you seeing in terms of multiples and are you seeing potential targets beginning to emerge? Yes, I am.
Speaker Change: Well, I would say that we're actually hearing about some sale processes that have been deferred, pushed to the back half of the year until things settle down, but I would say that the market is still quite active.
Speaker Change: There's no indication that multiples have changed or certain, you know, no indication that they've come down.
Speaker Change: But the market's active, our pipeline's active, we expect to transact this year.
You know, over the balance of the year.
That's great. Okay, thanks guys, appreciate the color. Thank you.
Thank you.
Scott Fletcher: Our next question, coming from the line of Scott Fletcher with CIBC, Yalan is now open.
Scott Fletcher: 10% range. So anyway, you can break out how much of that is weather-related versus commercial delay-related. And I assume that those weather-related delays would be more likely to come back sooner than the commercial delays.
I think that's right, Scott. You know, we-
Scott Fletcher: It's hard to pinpoint that accurately, but I'll spitball it sort of half and half.
You know, some of the-
Scott Fletcher: New roofing contracts are significant, well over $10 million up to 20. I mean, it can, from
Scott Fletcher: Certainly, weather can as well because it reduces your time on a roof, and we certainly saw that in particular in January and February this year.
Scott Fletcher: During our seasonally weakest quarter, because of winter weather, you know, this year we saw...
Scott Fletcher: Weather in the form of rain and high winds and smoke from wildfires impact our production hours in non-seasonal regions.
like Texas, Louisiana, and California. So...
Scott Fletcher: New roofs and re-roofs. We do see that continuing until we see more stability in the market.
Scott Fletcher: Okay, that's helpful. And then on the restoration side, last quarter, you mentioned some unclear timelines on the reconstruction work related to the hurricanes. Is there anything you can update us on on sort of the pipeline on reconstruction work in the restoration business?
Generally, I can't, I mean, it's very slow to convert.
Scott Fletcher: A generated little over 10 million in Q1 from Helene and Milton. We do have remaining backlogs in these events. We expect to convert it really over the balance of the year.
Scott Fletcher: It won't be material to the year or any particular quarter.
I think the real relevant metric is our total backlog.
Scott Fletcher: which is, as I said, in my prepared comments, it's similar to...
Scott Fletcher: Year end and two prior year, which points to similar revenue levels in Q2.
Okay, great. Thank you. I'll leave it there.
Thank you.
Speaker Change: Our next question, coming from the line of, Daryl Young with Stephen, Yalan is now open.
Hey, good morning everyone.
Daryl Young: I think this might be the first quarter since I've covered you guys that you've missed on the top line and beat on margins and I'm just wondering if there's a shift in how you're thinking about managing the business towards more margin centric and maybe dialing back top line growth or is this really just a function of some of the weather and what not issues you've already called out in the quarter.
Speaker Change: Yeah, I mean, well, you know, the margin Jeremy said in his comments.
I mean, the margin of aperture, [inaudible]
Speaker Change: Every day and every year and the teams are doing a great job really across all the brands.
The top line, I mean, you know, also, [inaudible]
We didn't point it out in our comments, but…
There's about 10 million of FX.
Speaker Change: Impact, also, from our Canadian operations that hit our revenue that we didn't...
Speaker Change: And otherwise, no, it's really, it's really these, you know, home improvement again.
at Century and Roofing. I mean, all of it is...
Speaker Change: Really all our brands and the demand environment once we get through this.
Speaker Change: You've seen more requests for pricing, what we'll call it, more shopping by HOAs, but you've always done well and taken share in that kind of environment. Is that sort of how you would be thinking about this time as well or is anything change now that you're at a much bigger scale? No.
Well, I mean the pricing pressure has been very acute.
In that business,
Speaker Change: for the last 18 months. I mean, we've been talking about that particularly in Florida with
Speaker Change: with the pressure on the budgets, the community budgets. We don't see pricing pressure getting
Communities, and their need to be managed.
Speaker Change: We'll continue, and it's always price competitive, so I really don't see it changing.
Got it, okay.
Speaker Change: And then do you have handy what your organic growth rate would be x.fx impact that you spoke to or?
Scott Fletcher: Well, I'll just jump in. 10 million Scott said pretty close to that. That's about 1% on the consolidated line. We did 1.25 over the 1.16 billion last year.
Speaker Change: Got it. Okay, that's it for me. I'll jump back into the queue. Thanks, everyone.
Speaker Change: Thank you. And as I'm minded to ask a question, please press star 11 on your touch. Don't tell a phone. Our next question coming from the lineup, Stephen Sheldon with William Blair, he'll let us know.
Stephen Sheldon: Hey, thanks for taking my questions. The first one here is just really great to see the margin expansion in the residential segment this quarter. So can you just give some more detail on how you're driving to efficiencies in client accounting and the contact center operations we can mention.
Stephen Sheldon: In Hazard View, change it on the potential long-term margin profile. They're relative to the 9% to 10% range. You've talked about it.
Yes, Stephen, so kind of counting is really around, you know,
Stephen Sheldon: Headcount Reductions, and streamlining our process to get those monthly financial statements out to thousands of communities and the boards.
that are our clients of those communities.
Speaker Change: Yeah, and then the contact centers and it's relating to dealing with inbound requests.
Speaker Change: to take the loads off of our frontline portfolio managers and bring it to the back office so they can be more effective in dealing with their boards and...
Speaker Change: can be more productive and increase their loads. So, it's a whole bunch of efficiencies. And at the end of the day, this is all about delivering service excellence and enhancing the customer experience at our communities.
Speaker Change: As to the sustainability of it, we've talked about as you alluded to, a 9% to 10% margin ban last year around the middle point of that, and
Speaker Change: You know, with better margins this year, we'll be in the upper half of that band and, you know, that is our belief for our long term.
Speaker Change: Goal will continue to work on other margin enhancements over time, but being at the upper hand of the 9% to 10% margin ban is a good target for us for the end of this year.
Got it, that's all folks. And then-
But this is follow-up, I think-
Speaker Change: Any updated thoughts about expanding the services portfolio similar to what you guys did when you expanded it into a restoration and roofing? Are you entirely focused on growing and gaining market share in the current and markets, or as we're sitting here a few years down the road? Do you think it could be a new business and then market in the portfolio? How are you guys thinking about it? [inaudible]
Stephen Sheldon: Always open-minded, Stephen, but our focus is on the brands we own today.
Speaker Change: One thing I would add is that we have talked about this. [inaudible]
broader thesis around
Speaker Change: Repair and Maintenance of the Built Environment which includes restoration, it includes roofing, it includes painting, and there are other adjacencies that are...
Very similar. So.
We are certainly interested in that broader thesis.
which has-
You know, many, many drivers.
Speaker Change: and Tailwinds. You know, we talk frequently about the weather events, but the aging building stock.
Speaker Change: the coastal building codes that we're increasingly seeing that are driving...
Speaker Change: Repair and Maintenance Spend. So there are, I would call them adjacencies that were interested in, but they would be part of our current segments and part of our current platforms.
Great, thank you, Jeremy and Scott.
Thanks.
Thank you.
Speaker Change: Our next question coming from Delina, Frederic Bastien with Raymond James, you'll
Speaker Change: Good morning. Guys, I was wondering if you could comment on labor availability and also labor costs. I know this was obviously an issue when...
Speaker Change: We saw inflationary pressures a couple of years back, but presumably things are getting a lot better just based on the margins you deliver, just wanted to see if you could comment on that please, thanks.
Speaker Change: Yes, Frederic, much better, certainly then, you know, a few years ago, our turnover is down, it's really down to
More stable than it's been in a few years.
Speaker Change: And is that helping facilitate market share gains? I know this is obviously a key part of the first service of the story is the ability to continue winning market shares that is that helping contribute.
Speaker Change: The ten year of our folks, particularly the front line, always helps us in terms of driving customer experience, which in turn.
Speaker Change: drives repeat business, retention, and word of mouth referrals. So the answer is the answer is yes.
Okay, great to hear. Thanks for your thoughts.
Thank you.
Speaker Change: And I'm showing no further questions on the Q&A Q at this time. I will now turn the call back over to Mr. Scott Patterson for any closing comments.
Speaker Change: Thank you, Olivia, and thank you all for joining our Q1 call. Enjoy the rest of the day.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now just connect.
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