Q2 2025 FirstService Corp Earnings Call
Good day and thank you for standing by, welcome to the First Service. Corporation, second quarter, 2025 investor conference call.
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Today's call is being recorded.
Speaker Change: Legal counsel requires us to advise that the discussion scheduled to take place today. May contain 4 looking statements, that involve known and unknown risk and uncertainties actual results. May be materially different from any future results performance or achievements contemplated in the 4- looking statements.
Speaker Change: Additional information concerning factors that could cause actual results to materially different from those in forward-looking statements and containing 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. As a reminder today's call is being recorded. Today is July 24th 2025. I would like to turn the call over to Chief Executive Officer. Mr.
Scott Patterson: Scott Patterson, please. Go ahead, sir.
Scott Patterson: Thank You, Marvin.
Good morning everyone. Thank you for joining our Q2 conference call, as usual. I'm on today, with Jeremy rusyn.
Scott Patterson: I'll kick us off with some high-level comments and Jeremy will follow with more detail.
Scott Patterson: I'll start by saying we're very pleased with the results. We posted this morning.
Scott Patterson: Solid performance and an environment with continuing uncertainty and weak consumer sentiment.
Scott Patterson: The results were similar sequentially to our q1.
Scott Patterson: Total revenues were up 9% over the prior year.
Scott Patterson: Driven primarily by tuck under Acquisitions over the last 12 months.
Scott Patterson: Organic growth was 2% this quarter with gains at first service residential Century fire and our restoration brands.
Scott Patterson: Tempered by flat year-over-year results in our home service segment.
Scott Patterson: And declines in our Roofing operations.
Scott Patterson: Eva for the quarter was up. 19% to 157 million.
Scott Patterson: Reflecting, the Consolidated margin of 11.1% up, 90 basis points over the prior year.
Scott Patterson: Across the board. Our operating teams continue to grind out, margin gains.
Scott Patterson: Jeremy will spend time on the margin detail in a few minutes.
Speaker Change: Finally, our earnings per share were up an impressive 26% over the prior year.
Speaker Change: Looking at our divisional results for service residential revenues were up 6% with the organic growth at 3%.
Speaker Change: Similar to q1 and generally write on expectation.
Speaker Change: Our net contract wins versus losses.
Speaker Change: Continues to improve and work comfortable. That organic growth will SE sequentially improve
Speaker Change: towards our historical mid single digit average.
Speaker Change: moving to first service Brands revenues for the quarter were up 11% driven primarily by tuck under
Speaker Change: Organic growth was low single digit for the division.
Speaker Change: Gave us some first on site.
Speaker Change: We're up by about 6% 2% organically.
Modestly better than our expectation.
We're pleased with the momentum. We have in our day-to-day, Branch level activity, with both our us, and Canadian operations.
Speaker Change: The number of claims are up and the number of jobs are up which is a reflection on our efforts over the last few years, in shiny new national accounts and a special increasing our share of existing accounts.
Speaker Change: Both with national insurance carriers and Commercial owners and managers.
Speaker Change: Related revenues during the quarter were modest. And at approximately the same level as the prior year,
Speaker Change: Looking forward to Q3 and restoration. We expect the momentum and day-to-day activity to continue.
Speaker Change: Which together with a solid quarter and backlog should lead to revenue that is up mid single digit sequentially from Q2.
Speaker Change: Relative to Prior Year, we're up against a a strong comparative quarter.
Speaker Change: Particularly in Canada that included revenues from 2 flood events, impacting Toronto and Montreal.
Speaker Change: Significant activity related to The Jasper Alberta wildfires.
Speaker Change: And a few unusually large claims.
Speaker Change: At this stage, we expect T3 revenues to be down 5 to 10 percentage.
Speaker Change: Of course, as we've seen over the last few years, a weather event between now and September 30th can drive the result of materially.
Speaker Change: Moving to our Roofing segment revenues for the quarter were up, 25% driven by Acquisitions principally. The acquisition of crowder and South Florida that closed May 1st of last year.
Speaker Change: Organically revenues declined by about 10% and were modestly lower than expectation.
Speaker Change: We continue to see some deferral of large commercial re-roof and new construction projects.
Speaker Change: 2 of our larger branches in particular were at capacity at this time of year at this time last year.
Speaker Change: With several large industrial re-roof, projects underway.
Speaker Change: Activity at those operations slowed in the first half of this year.
Speaker Change: Our Market position in relationships, remain strong in those markets and the demand drivers remain compelling.
Speaker Change: We see the Slowdown as timing related only.
Speaker Change: And in recent weeks have seen a pickup.
Speaker Change: Our backlog at our larger operations and across our Roofing platform is solid and building.
Speaker Change: We expect a stronger Q3.
Speaker Change: With revenues up over 10% versus the prior year.
Speaker Change: In organic revenue is approximately flat with prior year.
Speaker Change: Moving on to Century fire. We had a strong quarter with revenues up over 15% versus the prior year, including better than expected organic growth. That hit double digits.
Speaker Change: virtually all of the 30 plus branches performed well during the quarter and again,
Speaker Change: The results were enhanced by particularly strong growth and repair service and inspection revenues.
Speaker Change: During the quarter, we announced the Acquisitions of TST fire, protection and Alliance fire and safety 2 related fire protection companies based in Utah.
Speaker Change: Operationally and culturally the businesses are very similar to Century and provide us with an attractive growth platform in the western us.
Speaker Change: The TST and Alliance teams will continue to operate the businesses.
Speaker Change: And we're excited to add them as partners as we focus on driving growth and adjacent markets.
Speaker Change: Our backlog continues to build its century and we expect strong results for the balance of the year.
Speaker Change: With the organic growth tempering back into the high single digit range.
Speaker Change: Now, under our home service Brands which is a group generated revenues that were flat with year ago, better than our expectation.
Speaker Change: Consumer sentiment is down significantly since the beginning of the year.
Speaker Change: Which resulted in our lead flow for the quarter being off almost 10% versus prior year.
Our teams across the Home Service brands have successfully increased our close ratio.
Speaker Change: And we've experienced an increase in average job size.
Speaker Change: Uh, which together drove solid revenues, that were flat with a year ago. We believe we continue to take share in our markets.
Speaker Change: Perhaps slightly down versus the prior year.
Speaker Change: As I indicated on our last call, we remain optimistic. That pent up demand is building
Speaker Change: and we'll see an increase in activity with interest rate reductions. If they occur later this year,
Speaker Change: Uh, or early next.
Jeremy: Let me now hand it over to Jeremy.
Jeremy: Thank you Scott. Good morning everyone. We are pleased with our strong Q2 performance reflecting year of your growth in profitability on the back of the same margin expansion drivers. We saw in this year's first quarter.
Jeremy: I will provide more details in a moment.
Jeremy: First, a walk through of our Consolidated Financial results revenues for the second quarter over 1.4 billion dollars up 9% year-over-year and we reported adjusted Eva Deo 157.1 million up, 19% versus the prior year.
Jeremy: Adjusted EPS came in at $1.71 a 26% increase over Q2 2024.
Jeremy: Our 6 months, year-to-date Consolidated financial performance tracks closely to the strong growth metrics in the second quarter aggregating to revenues of 2.7 billion dollars and increase of 9% over. The 2.5 billion dollars last year, adjusted Eva of 260 million dollars. Representing 21% growth over the 216 million dollars last year.
Jeremy: Share with a margin of 9.8% year to date up 100 basis points year-over-year.
Jeremy: And adjusted EPS for the first half of the year, since it's a 2.63 cents, a 30% increase over the prior year period.
Jeremy: Adjustments to operating earnings and gaap EPS to calculate our adjusted ebitda and adjusted, EPS respectively.
Jeremy: Have been summarized in this morning's release and remain consistent with our disclosure and prior periods.
Jeremy: Shifting to our operating financial performance. For the second quarter, I'll start with our first service residential division.
Jeremy: Quarterly revenues came in at 593 million up 6% over the prior year.
Jeremy: For the quarter was 65 million and 11% year-over-year increase with an 11% margin up, 40 basis points over the 10.6% margin in Q2 of last year.
Jeremy: The margin Improvement. During the second quarter was driven by the same operating efficiencies noted in our first quarter.
Principally in areas around client accounting and Community resident Communications.
Jeremy: For the 6 months year to date our division de margin sits at 9.6% up. 60 basis points compared to the equivalent prior year period.
Jeremy: Consistent with what we said, on our q1 call, we expect the margin improvement from these efficiencies to moderate in the remainder of the year.
Jeremy: Within our first service Brands division we reported second quarter revenues of 823 million and 11% increase over the prior year period.
Jeremy: For the quarter came in at 95 million up 23% year-over-year.
and during the quarter was 11.6% up 110 basis points versus the 10.5% during last year's Q2
Jeremy: The margin expansion within the vision saw.
Jeremy: Contribution from the same themes as the first quarter.
Jeremy: Our restoration businesses continue to benefit from the optimization of their resources and operating processes driving Superior year-over-year. Profitability in the face of modest organic growth,
Jeremy: And in our home improvement segment, California Closets captured additional margin Improvement. Carry through from labor cost efficiencies and reduced promotional activities.
Jeremy: Turning to our cash flow profile. We generated 163 million in operating cash flow during the second quarter exceeding. Our Consolidated Eva for the period with the contribution of positive working capital trends.
Jeremy: Our cash flow was up, 25% over the prior quarter and currently sits at over $200 million a year to date and increase of 67% over the same period in 2024.
Jeremy: Our Capital expenditures during the quarter were a little over 30 million dollars. And our, year-to-date total of 63 million is right on Pace with the annual capex, Target of 125 million. We provided at the beginning of the year.
Scott Patterson: Scott, summarized in his commentary.
Scott Patterson: With the free cash flow surge in the second quarter, we were able to pay down almost 70 million dollars of debt during the period. As a result, our leverage as measured by net debt. To ebta declined to 1.8 times from the 2 times.
Scott Patterson: with our cash on hand and undrawn bank credit facility balances, our liquidity exceeds 860 million
Scott Patterson: We are well positioned with this balance sheet strength to deploy Capital when we see the right opportunities.
Scott Patterson: Concluding with our outlook for the year we remain firmly on track to hit our annual Consolidated, growth targets. We set out at the beginning of the year.
Scott Patterson: Which included High single-digit, Revenue, growth and margin expansion. Driving to double digits ebitda growth.
Scott Patterson: For the remainder of 2025, our current line of sight is that the year-over-year growth profiles for Q3 and Q4 will be relatively similar to each other.
As Scott noted, our first service residential division will re will revert back towards.
Scott Patterson: It's mid single digit. Organic Revenue growth rate.
And high single digit overall growth when accounting for recent tuck under acquisitions.
Scott Patterson: Our first service Brands division revenues are expected to be slightly up versus prior year with restoration facing the headwinds of a strong back half of 2024
Scott Patterson: without assuming any significant weather activity that could materialize in the remainder of 2025.
Scott Patterson: Consolidated Revenue growth was settled in at Med at Mid single digits absent, the closing of any meaningful tuck under Acquisitions during the balance of the year.
Scott Patterson: From an operating profitability perspective, I mentioned the tapering of First Service residential margin expansion for the remaining quarters down to levels modestly higher than prior year.
Scott Patterson: Margins, within the first service Brands division will also aggregate to be roughly in line with prior year.
As a result, our Consolidated ebta should increase slightly more than our Revenue growth during the balance of the year.
Scott Patterson: That concludes our prepared comments, Marvin. You may now open up the call to questions. Thank you.
Thank you at this time, we'll the question answer session.
As a reminder to ask a question, you'll need to 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.
And our first question comes from the line of Stephen McCloud of BMO Capital markets, a line is now open.
Stephen McCloud: Uh, thank you. Thank you. Good morning, guys, or good afternoon. Yeah, good morning guys. Um, just had a couple of questions with respect to the Outlook. Um, starting with the residential business, can you just talk about um, your confidence in in the return to Mid single digit organic growth. In the back, half of the year with respect to some of the community. Budgetary pressures we've seen. Are you seeing those already beginning to reverse?
Stephen McCloud: Uh, I wouldn't say reverse Steven, but, um, uh, they're starting to normalize. Uh, it was most acute last year.
Stephen McCloud: Um we started to see it normalize. I guess it it towards the end of last year and and through the first 6 months, um, so it's really it's playing out as we've described in our last few calls. Uh we expected Q4 q1 and Q2 to be.
Stephen McCloud: Tougher organic growth quarters. Um,
there is still some disruption, uh,
Stephen McCloud: As many communities in Florida are still underfunded uh, and and work towards, um, increasing monthly maintenance fees.
Stephen McCloud: Or implementing a special assessment, we're working closely with our boards. Um,
uh, so there will continue to be some disruption, but we don't expect it to significantly impact, our organic growth going forward. And as I said, my prepared comments, uh, we expect, uh, uh, sequentially improve and move towards that mid single digit number, and we'll, we'll start to see that in Q3.
Speaker Change: Okay, that's great. Thank you. Um, and then just moving to the uh, first service Brands business. Um, you gave some color on, on the Outlook, uh, which is very helpful. Um, you know, the margin in the quarter was quite strong, even despite organic sales growth being more modest in that business.
based on the efficiencies that you've put in place, um, this, you know, if we when we see
Speaker Change: Organic growth beginning to accelerate at some point in time.
Speaker Change: Does. Do the do the plans you put in place lead to a
Speaker Change: Higher margin profile, for the, for the business overall, over the long term.
Uh, yes, even I'll take that as Jeremy, um, for sure. I mean both those businesses would benefit from traditional or natural. Um, operating leverage, uh, if we get, um,
Speaker Change: You know, accelerating Topline growth, you know, Home Improvement, we've been in a sort of flat to slightly down realm and and and acceleration. There would would help um, in in the case of restoration which is the other area where we've seen, uh significant margin Improvement. Uh, that again, is a function of, um, Topline, uh, performance and and we, we've spoken at many times around the weather driven activity levels that can create a more, um, um, you know, volatile quarterly performance. So it really depends on activity levels there. That's why in the back half of this year,
Speaker Change: Uh, with the strong prior comparable. Um, we're not expecting margin Improvement. Uh, a and unless we get um you know, a matching or better level of of whether driven activity
Speaker Change: Okay, that's, that's great. And then maybe just finally on the brands business, um, with the roofing on the roofing side of things. Um, you know, Scott, you mentioned your prepared remarks that the last over the last few weeks, you've seen some improvement. Um, so just wondering, like what what is, what's the backdrop you need to see? Is it more macro driven or is it just people getting people who are making these large investment decisions? Getting more comfortable tariff situation? Like what, what, what exactly do you need to see in order to kind of get that backlog moving? Get those deferrals moving. Uh I think it's I think it's all the above. I mean there, the Tariff uncertainty. Uh I think the expectation that interest rates uh would start moving down,
Speaker Change: Uh and and and that has, that's not happened. And it's it's, you know, pushed out to the later this year or next. I think all of that is
Speaker Change: Is causing hesitation, uh Prospect.
Speaker Change: Um, for perhaps some inflation.
um,
so a number of large commercial customers continue to sit on contracts, but
Speaker Change: Even.
Speaker Change: Um, even with that slowness, we we have started to book work. Uh,
Speaker Change: as I said,
And, um, and it's picking up for us. Um, the bidding activities remain strong throughout. Uh, but we're seeing more commitment. Uh, but there still is there still is some deferral but we we, you know, we expect to see some improvement 23.
Speaker Change: Okay, that's great. Thanks guys. Appreciate it.
Speaker Change: Thank you. 1 moment for our next question.
Stephen Sheldon: And our next question, comes on line of Stephen, Sheldon of William Blair. Your line is now open.
Stephen Sheldon: Hey thanks. Congrats on the the great results here. Starting in restoration, I guess, you talked about uh some of the progress with national accounts and gaining share with more day-to-day work, as that continues.
Stephen Sheldon: Do you think restoration will become less reliant on large storm activity, which I think you talked about potentially being a swing Factor 20% give or take in any given year and potentially make this a business with with slightly less volatility quarter to quarter and year to year than than, at least you've seen. Historically, I guess is, is it is that continuous going to change the profile of the business?
Stephen Sheldon: I'm I'm not sure that's
That's true, Stephen, um, because as we gain ground with national accounts and as we, as we gain, uh, improve our positioning and gain gain more wallet, share, uh, that will translate during cat events. Also will take on more work. I think it just, um,
Stephen Sheldon: it improves our ability to
Stephen Sheldon: uh drive more Revenue in moderate weather conditions and sets us up to win more during cat cat events also,
Okay.
Stephen Sheldon: Got it, that makes sense. And then on Brands, um, just following up on the margins there. I just, I guess high level as you think about the individual segments, and businesses within Brands. Can you just remind us where you still see the biggest room for margin improvement over the coming years and and within restoration, do you think there are multiple years of margin expansion? Just from the better, resource optimization using the the tech platform that you have to build out there?
Stephen Sheldon: Would really be dependent on the game that um re acceleration and re, uh, remodeling spend, you know, the macro factors that drive, um, the Top Line because, you know, we've been added in terms of the labor, efficiencies, and reduced promotion activity for a year now. So it's we're, we're always, uh, tweaking and and trying to get more efficient and reducing overtime hours and return visits, optimizing our labor, all that. But I really think it'll, it'll be a function of, um, um, you know, improved Topline growth when the, the, the macro conditions improve and then restoration. It's it's a multi-year app at the teams have made major strides. We've cemented a lot of the, um, the labor driven efficiencies there and and you know, there will be more opportunities, it's just not going to be in a straight line, but game because it is dependent on.
Stephen Sheldon: Activity levels and then Revenue performance in that business as well.
Stephen Sheldon: All right, great. Thank you.
Stephen Sheldon: Thank you. 1 moment for our next question.
Speaker Change: In our next question, comes from the line of Scott. CER of CIBC your line is now open.
Scott Patterson: Good morning. I wanted to ask on the the, the fire protection business. It seems to be outperforming now a few quarters in a row. Could you just dig into why, what are some of the Dynamics that lets that business outperform relative to some of the other brands? Given their facing the same macro, just curious, if it's something to do with the mix of commercial or, or some idiosyncratic factors in the fire.
Speaker Change: Yeah, I think.
Primarily the growth in repair service and inspection uh, part of their business.
Speaker Change: Uh, it was a, it's a big. It was a big driver in q1 and and um,
Speaker Change: particularly in Q2 and it's
Speaker Change: You know, it's been a multi-year ever effort, uh, around around around the service side of the business. Um,
Speaker Change: we made it a priority when we partnered with the century team,
Speaker Change: To, uh, balance the business and, and drive out the service work. Uh,
To to create more of a 50/50, uh, installation versus service. So it's definitely been a strategic priority.
Uh, and then the investment is followed that. So investing in sales and service techs?
And um, there's been a particular focus on collaborating with the installation teams to convert new installs into ongoing service work.
Speaker Change: And then in the last, I'd say 1218 months a big push.
Speaker Change: On driving inspection sales.
Speaker Change: In in inspection work, that drives service work.
and, and so all of those all those factors, um,
continue to, uh,
Speaker Change: sort of Drive the server side of the business, which has been pulling along the, the installation side, the last few quarters
Speaker Change: Okay, great. That's that's interesting color. And then I want to ask on, on the m&a front, you know, at the end of the year given where leverages now you're tracking to sort of, get leverage back down to the levels that it was when you did the, through the roofing Corp deal, are you giving the current macro is, it still an opportunity other opportunities for platform deals as as leveraged takes down or is tuck? Under is maybe more of the focus given the uncertainty. Yeah, we, you know, our Leverage is always, uh, at a modest level. We I don't know that we've um,
very often been in a position where we haven't been able to be opportunistic around a large deal.
Speaker Change: Um so we we think about the leverage when we're looking at opportunities but it it doesn't influence US 1 way or the other we'll if if there's a strategic fit a larger opportunity we'll uh we'll figure out the balance sheets out of it.
Speaker Change: um,
Speaker Change: So I I think there's certainly an opportunity for larger Acquisitions. Um,
Speaker Change: You know the definition of new platform. Uh, it's not something we're we're seeking out, we have opportunities across the platforms. We have
Speaker Change: so I I would expect that uh, our activity will be focused on on the areas that we
Speaker Change: Uh, service areas we have today.
Speaker Change: Okay, thank you for the color help. That's the 1.
Speaker Change: Thank you, 1 moment for next question. Again, as a reminder to ask the question you'll need to press star 1, 1 on your telephone.
Speaker Change: Our next question comes from the line of Daryl. Young of diesel. Your line is now open.
Speaker Change: In terms of your your products and and if you're seeing any indication that, that may be true and and holding your business in better than maybe some of the broader economic indicators might might indicate, I think, I think there's something there. Um,
Speaker Change: you know, the our largest brand Within
Speaker Change: Our Home Service Groups, California Closets.
Speaker Change: Which, um, caters to, uh, you know, the broad spectrum of consumer but, uh, it does have, it does, uh, uh, a big part of their growth and history. The brand has been around, uh, more affluent customer. And, um,
Speaker Change: That has been helpful. You know, I I mentioned that we've seen our average job size increase,
Speaker Change: Um, and I think that has been weighted towards um, the affluent consumer. Um,
Speaker Change: Which is influenced our group.
Speaker Change: I do believe that's true.
Speaker Change: Got it, okay.
Speaker Change: And then on the roofing business, um, wondering if the the sort of quarterly volatility in in results that you're seeing Stacks up with what you would have seen in your due diligence, on the asset. And I guess I'm just trying to figure out if we're going through a unique period of time for roofing today or if weather and, and starts and stops on projects is something that, you know, was part of the expectation. When we got into this business,
Speaker Change: Uh, no, I think that the, you know, we're in an environment uh, that has uh, influenced Roofing. We're we're certainly not alone. I think we're holding our own, uh, in Roofing and, and perhaps doing better than
Speaker Change: Than uh, the market. Um,
Speaker Change: You know, we we have operations that. Um,
Speaker Change: Have historically relied on large industrial rear roof work and that that, uh, and and some new construction and that has been slower.
Speaker Change: Um,
Speaker Change: And as I said, we're starting to see a pickup. So no, I'm not, I'm not sure we uh identified.
Any volatility in fact, it's, you know, the demand drivers in Roofing are are very compelling.
Speaker Change: With you know influenced by whether uh but also the the Aging built environment it's going to be a big driver in this market. Um we think we're very well positioned.
Speaker Change: We've got a strong team, great partners, and a solid footprint. So
Speaker Change: Uh I think we're in a, in an environment that that's sort of macro driven uh but feel very good about where we're at and where we're going.
Speaker Change: Okay, that's great caller. Thank you.
Speaker Change: Thank you. I'm showing no further questions at this time. I'll now turn it back to Mr. Scott, Patterson for the closing remarks.
Scott Patterson: Uh, thank you Marvin and and thank you everyone for uh, for joining us today.
Um,
Scott Patterson: and uh, end of October, uh, will
Scott Patterson: Be on our Q3 call.
Speaker Change: Enjoy the rest of your day.
Speaker Change: Thank you for your participation. In today's conference, this is conclude the program, you may now disconnect