FirstService(FSV) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q4 2025, consolidated revenues were $1.38 billion, up 1% year-over-year, with adjusted EBITDA of $138 million, yielding a margin of 9.9%, slightly down from 10.1% in the prior year [13] - Adjusted EPS for Q4 was $1.37, up from $1.34 in the previous year, while for the full year, consolidated revenues increased 5% to $5.5 billion, and adjusted EBITDA rose 10% to $563 million, delivering a margin of 10.2%, up 40 basis points compared to 9.8% in 2024 [12][14] Business Line Data and Key Metrics Changes - FirstService Residential revenues for Q4 were $563 million, up 8%, with EBITDA of $51.5 million, a 12% increase year-over-year, and a margin of 9.1%, up from 8.8% in Q4 2024 [14] - FirstService Brands revenues for Q4 were $820 million, down 3% year-over-year, with EBITDA of $88.5 million, down 12%, and a margin of 10.8%, down from 11.9% in the prior year [16] Market Data and Key Metrics Changes - The demand environment in roofing remains muted, with new commercial construction down significantly, while reroofing is expected to stabilize with a focus on backlog and bidding activity [8][42] - Restoration revenues were down 4% for the year, relative to an industry decline of over 20%, but the company expects growth in 2026 assuming a return to historic weather patterns [6][7] Company Strategy and Development Direction - The company aims to focus on tuck-under acquisitions and consolidating underperforming franchises, particularly in markets like California Closets and Paul Davis [24][25] - The management is being patient in the current environment, focusing on finding the right partners and opportunities while maintaining a cautious approach to capital allocation [25][49] Management's Comments on Operating Environment and Future Outlook - Management noted that the current economic indicators do not suggest an improved environment through 2026, with expectations for low to mid-single digit revenue growth in Q1 and 2026 [10][19] - The company anticipates a modest uptick in activity due to recent winter storms, but it remains too early to quantify the impact on revenues [31] Other Important Information - The company announced an 11% dividend increase to $1.22 per share annually, reflecting strong free cash flow and a strengthened balance sheet [18] - Operating cash flow for Q4 was $155 million, a 33% increase year-over-year, contributing to annual cash flow from operations of over $445 million, up 56% versus 2024 [17] Q&A Session Summary Question: Discussion on M&A and market conditions - Management noted that the market is slower than 12 months ago, particularly in roofing, with no significant changes in competitive landscape or multiples observed [22] Question: Future capital deployment strategies - The company plans to focus on acquiring underperforming franchises and tuck-under acquisitions, while being patient in the current high-valuation environment [25] Question: Margin outlook for both segments - Management expects margins to remain flattish year-over-year, with some headwinds in Q1 for the brands segment [28][29] Question: Impact of recent weather events on revenue - Management indicated that while it is early to quantify the impact, they expect modest revenue growth due to increased activity from recent winter storms [31] Question: Competition in the roofing segment - Competition has intensified, leading to compressed gross margins, and management does not expect this to alleviate until there is an uptick in the new construction market [48]