FirstService Q3 Earnings Call Highlights

Key Points

• FirstService delivered solid third-quarter growth despite economic headwinds: Revenue rose 6% to $1.53 billion, adjusted EPS increased 7% to $1.89, and adjusted EBITDA grew 3% to $170 million.
• Restoration, fire protection and residential management offset roofing weakness. Restoration revenue grew 10%, Century Fire exceeded 10% growth, and Residential expanded its EBITDA margin, while roofing revenue declined amid competitive pricing and weak Florida demand.
• Management expects mid-single-digit revenue growth in the fourth quarter and maintained its full-year EBITDA outlook. The company repurchased $300 million of shares in Q3, but expects future buybacks to be more closely aligned with free cash flow while keeping leverage near the mid-2-times range.

FirstService NASDAQ: FSV reported third-quarter revenue growth of 6% and adjusted earnings per share growth of 7%, as strength in its restoration and fire-protection operations helped offset continued weakness in roofing and softer demand across home services.

Chief Executive Officer Scott Patterson said the company’s results met expectations despite what he described as a difficult economic environment. Revenue reached $1.53 billion for the quarter, while adjusted EBITDA increased 3% to $170 million. Consolidated EBITDA margin was 11.1%, compared with 11.4% a year earlier, and adjusted EPS was $1.89.

“We continue to face headwinds across a number of our businesses and are very pleased to show this level of growth in a tough economic environment,” Patterson said. He added that the company believes the performance “bodes well” for the fourth quarter and into 2027.

Residential management posts growth and margin expansion

FirstService Residential generated third-quarter revenue of $633 million, up 5% from the prior-year period. EBITDA increased 7% to $71 million, and the segment’s EBITDA margin expanded 30 basis points to 11.3%.

Chief Financial Officer Jeremy Rakusin said the margin improvement reflected operating teams’ efforts to optimize labor costs and identify additional efficiencies. The company expects further margin expansion in the fourth quarter, supported by those efforts and by the earlier exit from non-core aquatics operations that typically lost money during the seasonal fourth-quarter trough.

Patterson said the residential-property-management business continues to balance growth and profitability in a price-competitive market. The company is focused on larger and more complex management opportunities, including high-rise and master-planned communities. While new development has slowed, a greater share of new wins is coming from existing communities, he said.

Restoration and Century Fire offset roofing pressure

FirstService Brands recorded revenue of $898 million, up 7% year over year, while EBITDA was unchanged at $102 million. Segment EBITDA margin declined 80 basis points to 11.3%, largely due to lower revenue and gross-margin compression in roofing operations.

The company’s restoration brands, Paul Davis and First Onsite, posted 10% revenue growth, exceeding management’s expectations. Patterson said activity was broad-based during the quarter, with Canada and Hawaii contributing to growth. First Onsite has a significant presence in Hawaii, which experienced a series of storms in recent months.

However, continental U.S. insurance-claim activity remained down year to date through the end of the third quarter. Patterson said FirstService has nevertheless won several large-loss projects on the mainland that are expected to convert into revenue over coming months.

Hurricane Isaias, which struck the Florida Panhandle on Oct. 10 as a Category 2 storm, is not expected to materially affect fourth-quarter results. The storm generated less damage and fewer insurance claims than initially expected, according to management. FirstService secured some restoration mitigation and board-up work as well as roofing repair contracts, but Patterson said the contribution would be immaterial.

Restoration backlog at quarter-end was roughly consistent with the second quarter, although the company saw a higher level of quick-turn water-mitigation work that does not typically enter backlog. Management expects restoration revenue growth of mid- to high-single digits in the fourth quarter.

Century Fire delivered another strong quarter, with revenue increasing more than 10%, including high-single-digit organic growth. The company also acquired A&A Fire Protection, a Greenville, South Carolina-based provider of fire-sprinkler design, installation, inspection and repair services. A&A serves commercial customers across South Carolina as well as portions of North Carolina and North Georgia, and President Jake Gilstrap will continue to lead its day-to-day operations.

Century Fire’s backlog increased sequentially, and FirstService expects the business to finish the year with revenue growth of more than 10%.

Roofing remains challenging, though backlog improved

Revenue in FirstService’s roofing operations declined 4% on a reported basis and by a high-single-digit percentage organically during the third quarter. Management cited challenging market conditions, especially in certain larger markets, along with competitive pricing pressure.

Rakusin said both reduced volumes and gross-margin pressure contributed meaningfully to the segment’s lower profitability. He said competitive conditions are expected to persist through at least the fourth quarter, with pressure concentrated in Florida but also present in other locations.

Patterson said roofing backlog improved sequentially and reached its highest level in about a year, describing the trends as early “green shoots.” The company expects reported roofing revenue growth in the mid-single digits during the fourth quarter, while organic revenue is expected to be flat to slightly down.

Florida remains a significant constraint. Patterson said that excluding Florida, the roofing business would generate single-digit organic growth in the fourth quarter. He also said the company is seeing some new-construction wins, although backlog remains weighted toward reroofing work.

Management attributed some of Florida’s weakness to reroofing demand that was pulled forward by Hurricane Ian. The storm created a surge of work that benefited the company at the time but was followed by a significant decline in activity.

Capital deployment and fourth-quarter outlook

FirstService generated nearly $125 million in cash flow from operations before working capital during the quarter, up 6% year over year. Cash flow after working-capital requirements was $84 million, reflecting higher work-in-process inventories and accounts receivable tied to increased restoration activity and pipeline levels.

Capital expenditures totaled $28 million in the quarter and $88 million year to date. The company now expects full-year capital spending of approximately $125 million, lower than its original 2026 budget of $140 million and in line with the prior year.

With tuck-under acquisition spending totaling $25 million in the quarter, FirstService directed more capital toward share repurchases. The company bought back 2.2 million shares for slightly more than $300 million during the third quarter. Since the beginning of the second quarter, it has repurchased 4.1 million shares, or 9% of shares outstanding.

• Net debt ended the quarter at $1.4 billion.
• Leverage was 2.4 times net debt to trailing-12-month EBITDA, up from 1.8 times at the end of the second quarter, primarily due to buybacks.
• FirstService had about $500 million of total cash and credit-facility capacity.
• The company retained authorization to repurchase another 2.6 million shares through late August 2027.

Rakusin said future repurchases would continue but likely at a less aggressive pace, more closely aligned with free-cash-flow generation, share valuation and acquisition opportunities. Management said it is comfortable with leverage in the mid-2-times range but does not want it to rise materially beyond that level except temporarily.

For the fourth quarter, FirstService expects mid-single-digit consolidated revenue growth, similar to the third quarter. The company anticipates consolidated margins slightly above the prior-year level, driven by FirstService Residential. For the full year, it maintained its outlook for mid-single-digit EBITDA growth and consolidated margins relatively in line with the prior year.

About FirstService (NASDAQ:FSV)

FirstService Corporation is a Canadian provider of property management and property services serving customers primarily in the United States and Canada. The company operates through two main businesses: FirstService Residential and FirstService Brands.

FirstService Residential provides property management services for condominium and homeowners' associations, cooperatives, and other residential communities. Its services include community administration, financial management, maintenance coordination, customer support, and related operational services.

FirstService Brands operates and supports a network of property-service businesses, including companies involved in property restoration, painting, flooring, window treatments, and other residential and commercial services.

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