Welcome to the First Quarter Investors Conference Call. Today's call is being recorded. Legal counsel requires us to advise that the discussions 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 materially differ from those in the forward looking statements is contained The company's annual information form as filed with Canadian Securities Administrators and in the company's annual report on Form 40F has filed with the U.
S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is April 27, 2021. I would now like to turn the call over to Chief Executive Officer, Mr.
Scott Patterson. Please go ahead, sir.
Thank you, Tammy. Good afternoon and welcome everyone to our Q1 conference call. Thank you for joining us, and apologies for the hiccup this morning. Our service provider had a technical glitch, and The telephone lines were down for a few hours, which coincided with our call, unfortunately. But here we are, and we're ready to go.
And the call will be recorded and on our website for anybody that wasn't able to make the new time. As usual, I'm on the line with our CFO, Jeremy Racoosin. And let me open By saying that we are very pleased with our strong kick start to 2021. We continue to be negatively impacted by the pandemic in certain of our service lines, but the diversification of our business model and the efforts of our teams enable us to continue to show strong growth on a consolidated basis. Total revenues for the quarter were up 12% over the prior year with organic growth accounting for half of the increase.
The balance came from acquisitions over the last year, including tuck unders at First On-site, Century Fire and FirstService Residential. EBITDA was up 36%, reflecting margin expansion of 150 basis points. Both divisions generated strong margin improvement during the quarter, and Jeremy will provide a detailed breakdown in his prepared comments. And finally, earnings per share were up 78%. At FirstService Residential, revenues were up 3% versus the prior year with organic growth at 1%.
Year over year growth continues to be tempered in this division by the suspension of services relating to community amenities, primarily in the Northeast of the U. S. And Canada. These facilities include pools, Fitness areas, spas, restaurants and various other community services. We've had regions and different amenity facilities open and close over the last 6 months, but on a net basis, The level of impact hasn't materially changed since the end of Q3 of 2020.
We have these contracts. They've not been canceled. They have been suspended. When the facilities reopen, we will see an increase in revenues. Although the level of service may be reduced in some cases, in line with capacity restrictions and distancing protocol, We're starting to see some reopening of fitness facilities and a portion of our seasonal pools are preparing to reopen, But we do not expect to see pre COVID levels for the balance of 2021.
Looking forward to the Q2, we expect FirstService Residential to continue to perform approximately at current levels, Adjusted for seasonality, which would lead to a year over year increase of over 10% relative to the Q2 of last year, which was negatively impacted by extensive North America wide lockdowns. Moving on now to FirstService Brands, where we reported a very strong quarter with revenues up 20 3% and organic growth at 13%. The organic growth was driven by strong year over year increases at our Home Improvement Brands and First On-site, our newly rebranded commercial restoration platform. 1st On-site was up 50% year over year with about 2 thirds of it coming organically. The organic growth was largely driven by extreme weather during the quarter, particularly the deep freeze event in Texas.
Freezing temperatures in combination with power outages led to burst pipes and sprinkler systems throughout the state. The water damage was significant and most of our customers in Texas were impacted. Our work in the area generated approximately $30,000,000 of incremental revenues during the quarter. The year over year revenue increase outside of this event Resulted from continued progress with new national accounts and the impact of the Roland acquisition. We have a solid backlog heading into Q2, including continuing work from the Texas Deep Freeze.
We expect another strong quarter with revenues approaching the level achieved in Q1, which Would again translate into a significant increase over the prior year. A big highlight for all of us during the quarter was The launch of the 1st On-site brand. We brought our 8 commercial restoration brands together under the 1st On-site name with a single purpose statement and vision. The team has been working on this for 2 years, and we are all very excited about where we ended up With the branding and the logo and the messaging. We are confident that the new brand will enhance our culture building initiatives and help accelerate organic growth.
We also know that the launch is just the beginning And that creating a brand and building on the brand is an everyday effort. We have a lot of experience in this area and look forward to the opportunity. Our home improvement brands, including California Closets, CertaPro Painters, Floor Coverings International and Pillar to Post Home Inspection are 4 brands we have been building for over 20 years. During the quarter, this group together was up by over 10%, and that is relative to a tough comp And home equity levels together with stimulus checks have supported home improvement spending over the last 9 months. Through March and into April, leads and bookings have increased further as the vaccine continues to roll out and residential Projects that have been deferred throughout the pandemic are again being scheduled.
Our challenge is building production capacity To meet the front end needs of our home improvement brands, the labor market is extremely tight right now. We have open positions and are recruiting aggressively, but it will take time to fully build out our capacity. Based on current production levels, we expect our home improvement brands to be up significantly over Q2 in the prior year, which of course was impacted by lockdowns. Century Fire was up modestly in Quarter due to the tuck under acquisitions of Aegis Fire Safety and Coronet, which were both completed in the Q4 of 2020. On an organic basis, Century was approximately flat year over year relative to a strong Q1 last year.
The backlog has been building as deferred construction projects are steadily being rescheduled. We expect Centuri to show improved revenues next quarter and show year over year growth in the 10% range. Let me now pass the floor over to Jeremy for a more detailed look at the results.
Thank you, Scott. Good afternoon to everyone. The 2021 Q1 performance, as you just heard from Scott, was strong in several respects versus the prior year. For our consolidated quarterly results, we reported revenues of $711,000,000 a 12% increase Over the $634,000,000 for Q1 'twenty. Adjusted EBITDA was $59,800,000 up 36% versus the prior year's $43,900,000 and this yielded an 8 0.4% margin for the quarter, reflecting 150 basis points of margin expansion year over year.
And finally, our adjusted EPS was $0.66 representing 78% growth over the $0.37 per share in the prior year quarter. Our adjustments to operating earnings GAAP EPS and arriving at adjusted EBITDA and adjusted EPS respectively are consistent with our approach and disclosures in prior periods. Now let me walk through the segmented results for our 2 divisions. FirstService Residential generated revenues of $350,000,000 up 3% over last year's Q1, While EBITDA was $29,400,000 a 23% increase over the prior year. The EBITDA margin for the division came in at 8.4%, up a sizable 140 basis points Over the 7% margin last year.
Consistent with the back half of twenty twenty, We continued to benefit from higher margin transfer and disclosure revenue, resulting from strong home resale activity volumes across all markets. This ancillary revenue from unit resales had a more pronounced impact During Q1, which is our seasonally weaker quarter in terms of both revenue and profit contribution during the year. In terms of our 2nd quarter outlook, our FirstService Residential division margin is expected to be flat compared to the prior year. The pickup we expect to get from continued strong home resale activity lapping the prior year Pandemic driven fall off will be largely offset by the reinvestments we have made since last Q2 Over now to FirstService Brands, where the division reported revenues of $361,000,000 during the Q1, up 23% over last year's Q1. EBITDA came in at $33,400,000 A 52% increase versus the prior year quarter.
The division margin increased to 9.3% from last year's 7.5 percent level with 2 factors driving the margin expansion. 1st, Our home improvement brands benefited from some operating leverage on the back of their robust top line year over year growth. And second, we had an impact from mix, a theme we've talked about before and we'll continue to see As we've increasingly shifted the brands division towards more company owned relative to franchised operations. In the current seasonally weakest Q1, we had a positive mix impact with greater revenue and profit Contribution mix from our restoration operations compared to the prior year, which averaged up the overall margin for the brands division. Looking out to the Q2, the impact from increased restoration contribution mix will have the reverse impact And averaged down the brands division margin during the seasonally strong mid year period.
While Q2 revenue growth will be Strong, as Scott mentioned, we expect this brand's mix dynamic to dilute our year over year consolidated margin in the upcoming quarter. Turning to our consolidated cash flow, we generated $49,000,000 before working capital changes, A 59% increase versus last year's Q1. Operating cash flow after working capital came in at $27,000,000 down from the almost $40,000,000 in Q1 'twenty. The comparatively higher working capital investments this quarter primarily relate to the increased weather driven activity at our restoration operations and to support balance of year growth in our more seasonal businesses. With our robust growth in earnings and operating cash flow net of capital investments, We reinforced our balance sheet strength.
Our net debt of $400,000,000 remained in line with the 2020 year end level. Leverage as measured by net debt to trailing 12 months EBITDA ticked down a notch to 1.3 times compared to 1.4x@yearend. Our liquidity, reflecting our cash on hand and our undrawn revolving credit Facility balance sits at $575,000,000 and our debt profile is attractive, both well balanced between fixed and floating rates and with a low funding cost at a roughly 2.5% average annual interest rate. During the Q1, our investment spending was modest. Maintenance CapEx was $13,000,000 down slightly from last year's level and tracking in line with the annual $60,000,000 CapEx target We provided at the outset of the year.
We also completed 2 small tuck under acquisitions, Acquiring only $2,500,000 of spending during the quarter. As we saw last year, as well as from prior years, Acquisition capital deployment can be episodic and vary quarterly and annually. However, Our track record over the years has shown that we can drive at least 5% annual acquisition growth on average To augment our organic growth and so we are confident in continuing to deliver with our tuck under program. That concludes our prepared comments. I would now ask the operator to please open up the call to questions.
Thank you.
Thank
Your first question comes from the line of George Doumet with Scotiabank.
Hey, good afternoon, guys. Hey, Rod. I just want to talk a little bit about the FirstService brand side, the strength we saw in home improvement, The double digit growth, it looks like obviously the contributing forces there are the strong macro trends, but also I guess it's folks opening their houses to installers. So as you look to maybe next as you look to maybe the back half of the year, so kind of Q3, Q4, Can you talk about that maybe the dynamic, I guess folks opening up their homes and installers and what would you expect to be Kind of the growth above and beyond that 5% that you guys always deliver?
I think for those 4 brands I mentioned, We would expect well, next quarter is relative to the tough Q2 last year. So it will be up significantly Next quarter, but sequentially, I think as well it will be up and the reason is that we are gradually building capacity, which is our Limiter right now. We have leads and bookings that we're trying to catch up to with labor. Labor is very tight, as I said in my prepared comments, but we Specifically, as it relates to the second and third quarter, we should be able to increase our capacity to capture more opportunity. We expect the leads and bookings to remain strong over the next few quarters.
And as you suggest, I think there's a few things that are happening in the vaccine rollout, Creating comfort to invite professional contractors back into the home. And I think there's a feeling that Many have sort of reached the end of their DIY capability and are now turning continuing to invest in the home, but turning to
Okay, thanks for that. Maybe moving over to margins, Are you guys still sticking to the expectation that you for the year, that you wouldn't expect much margin expansion? And if so, I mean, we had 150 basis points this quarter. Can you maybe walk us through what you're thinking in terms of timing in areas we could actually see some compression?
Sure, George. I'll take that. I mean, the short answer is yes for the full year. It's been a consistent theme we've said around top line being the primary growth driver and margins kind of flat, Efforts around improving margins in each of our businesses, but mix being a big component of why we see flattish margins. The 150 basis points this quarter, I think articulated it, but just to sum it up, it's our seasonally weakest quarter and you can get anomalies and swings whether High margin revenue at FirstService Residential, the restoration activity at brands Amplifying the margin swings, and with the remaining three quarters, I said second quarter, we expect consolidated margins to be down.
And back half of the year and the full year flattish is kind of probably the best way to summarize it.
Okay. That's really helpful. Thanks. And just one last one, if I may, maybe for Scott, if you can take us back to the days when you guys rebranded First service residential in 2013. Did you guys see at all a lift in revenues from that activity?
I'm just trying to think about What you guys are thinking maybe in terms of seeing a similar trend for First On-site this year?
I mean, we have, but it's incremental. And the work starts, really starts the day the brand is launched. So it will be incremental, but We believe it will be meaningful over the long term.
Okay. Thank you very much.
Your next question comes from the line of Stephen MacLeod with BMO Capital Markets.
Thank you. Good afternoon, guys.
Hi, Steve.
Hi. I just wanted to dig in a little bit on the amenity closures on the residential side. Scott, you mentioned You had the prepared remarks that you might expect services to remain reduced once things open back up. Is that more a comment around Kind of the back half of this year when the pandemic is sort of still in everyone's fresh memory or still in front of us? Or do you mean that maybe going forward, you would expect amenities to be used more differently, on more of a sustainable basis?
I think it's more in the near term. I don't know what period of time it will be impacted. I think over the longer Term, we will get back to full resumption of our contracts and services, but there Certainly, this year, many communities are navigating through risk issues Associated with reopening, there is a concern that the existing insurance That is in place, does not protect against lawsuits from those that use the facilities and contract COVID. And There is a number of states sort of working through this issue right now and there are pending safe harbor immunity bills That we protect Board members and communities, but it's there is some uncertainty and we know many of our communities have already decided not to open their seasonal amenities this year as a result. So will they reopen in 2022?
I have to assume that they will. But for the balance of this year, we know that we won't be back to pre COVID.
Okay. That makes sense. And can you just remind us how big the amenity business is in terms of normalized FSR revenues?
It's about 15%, Steve.
Yes. Okay. Okay. That's helpful.
And then I just wanted
to make sure I'm sort of understanding the nearer term Q2 outlook, just so I understand. It sounds like for FirstService Residential, you're looking for a revenue increase of roughly 10% but flat margins year over year. And in the brands business, you're looking for More robust revenue growth, but the margin impact that you saw in Q1 will reverse in Q2 because of some of these seasonality impacts. Is that the way to understand it?
Correct.
Okay. Okay, that's great. And then maybe just finally, Scott, you mentioned an interesting trend you're seeing where people are have reached the end of their DIY abilities. Have you really seen that accelerating the demand for home improvement? And is that something that has just kicked in More recently or is that something you've seen for a little while now?
Well, the DIY Phenomena has been very strong throughout the pandemic, much stronger than spending on Professional contractors and professional home improvement. And early on, strong results at the Home Depots and Sherwin Williams, and I mean it was all about residential DIY. And in the last 3 months, And really it's happening now. There's a feeling or a Hypothesis that we're moving through that DIY bubble, but it is happening at the same time as the vaccine. So I think that Certainly, March was up over January, February, and we see it continuing into April.
And again, As I mentioned, our limiter is labor, but it's there.
Okay. Okay. That's very helpful guys. Thank you so much.
Thanks, Steve.
Your next question comes from the line of Stephen Sheldon with William Blair.
Hi, thanks. I wanted to follow-up on, I guess that last comment. Can you maybe just talk some about how you're handling the labor challenges and what you're doing on the side to maybe pull in more resources and better match your ability to provide solutions with the high demand that you're seeing, especially on the home improvement side?
We're just ramping up efforts and leaning into the existing workforce for referrals, Pulling out every tool we have, recruiting tool we have To pull people in, but the with unemployment benefits and stimulus checks, There are currently a number of people that are choosing to stay on the sidelines. I think also Perhaps as a result of COVID safety, but vaccines And the expiration of the unemployment benefits, I think, are going to result in an easing This tightness in the labor market, and I think we're going to, as we get into the 3rd quarter, Be in better shape around capacity.
Got it. Makes sense. And then on the residential side, I guess, have you seen any changes in the competitive landscape? If some regions have opened back up this year, I know you had talked About properties being hesitant to switch providers kind of early on in the pandemic. So I guess is that still the case?
What has that meant in terms of both retention and your ability to win new clients? Right.
It actually has changed, And it's maybe even tilting the other way. We have seen A market increase in Board turnover. Board members are Resigning or simply choosing not to run again, it's been a very tough time, I think, in General for Board members, residents have been in their units and on average have become more involved in their communities. And I would say on average, there is more conflict and certainly more Board turnover. And whenever there's Board turnover, There tend to be RFPs and more turnover of management companies.
And So we will expect to see our retention drop a little bit this year. But on the flip side, we expect our sales to be strong. So It has changed. And net net, the I think we end up in the same position or a similar position in terms of Organic growth, but it's not ideal because turnover always puts pressure on your teams, and it also puts pressure on price. So that's what a summarization of the competitive environment today.
Great. Thank you. Appreciate the commentary.
Thanks, Steve.
Your next question comes from the line of Daryl Young. My apologies. Your next question comes from the line of Matt Logan with RBC Capital Markets.
Thank you and good afternoon.
Hi, Matt.
Jeremy, would you be able to quantify the storm activity In Q1 in dollar terms for both revenue and EBITDA? Yes. So it's 30,000,000
And Scott said it in his prepared comments. I would describe the same type of margin as we get In restoration across the board, 10 ish percent.
And when we I think through your commentary for brands for Q2. How do we roll up all of those various segments? Is there Do you have a percentage handy for the blend of home improvement, Century Fire and Restoration?
Are you talking revenue
or For your revenue growth for Q2.
Scott, do you want to leave with that or?
Yes. I don't know if I have that number. I mean, brands was the home improvement brands were off 30% -ish from 2019 last year, and we expect to be Better than 19 this year, so we'll be the brand home improvement brands will be up over 30. Restoration May not reach the level that we hit in Q1, but And we were up 50% in Q1 year over year, so maybe we're up in the same range as the home improvement brands. Sanctuary Fire will be show much more modest growth And we'll certainly temper that.
So I guess what I'm trying to do is just run through the composition of the brand's revenue and try to think through the respective contributions. So like would we be looking at something north of 20% in terms of the brand's growth rate in Q2? Would that be fair from the aggregate basket?
Probably in that range.
And margins Generally kind of flat year over year?
No, down.
That's down.
Down, starting year over year?
Yes. On mix, again, remember, you're getting what's been traditionally More home improvement skewed businesses, they do better in after Q1, the seasonal trough. They're in the low double digits Margin and then you're layering on some increased restoration Activity levels, which are more in the ten ish range. So it averages down the margins.
Okay. Appreciate that. And maybe just changing gears here. If we think about the residential division and first on-site, could you give us any color on how the organic growth is trending when we Both the COVID related amenity closures and some of the storm activity in Q1?
Let me start with FirstService Residential. If we adjust for the service suspensions, then we'd be right in the middle of that Low to mid single digit organic growth rate that we estimate from quarter to quarter. And then I think restoration, if you take did you say ex Texas?
Yes, ex the storm
yes, ex Texas.
Yes, it'd be in the same range, it'd be in a similar range, sort of mid single digit.
And when we think through kind of the balance of the year, I guess it would be fair to think about those trends as Starting to normalize for some of the amenity closures, but not necessarily reaching 2019 levels and then just good momentum Drew, kind of H2 for the home improvement businesses?
Yes, on home improvement And yes, on residential restoration, we had a very big back half of twenty twenty, And it will be tough to hit those same levels, but that is storm season. But obviously, uncertainty around that piece.
All right, guys. Well, I appreciate the commentary. That's all
from me. I'll turn it back. Thank you.
Thanks, Matt.
Your next question comes from the line of Scott Fromson with CIBC.
Hi, and good afternoon, gentlemen. Just a couple of questions, please. Just wondering, are you seeing ongoing Tivity related to the Texas freeze or is that pretty much done in Q1?
No, we will continue to work on In that area, through Q2, the backlogs, I would Say quite strong. We won't hit the same level in Q2 as we hit in Q1 in Texas from Texas, But there's we'll continue to work certainly on that event.
So it may actually bridge into the tornado and hurricane season. Is that fair to say?
It might, yes.
Okay. And second question more related to brands or also related to brands. Are you seeing Any change in acquisition opportunities to bring franchises back into the company fold? Just wondering if pandemic fatigue Is trading 16 plans?
Not really, Scott, that's a resilient group. And I mean, we those Two strategies at Cal Closets and Paul Davis really haven't changed and they will over time we would Want to own the major markets, but it will take many years, and we're not seeing any real change As a result of the pandemic and timing around that.
Well, that actually sounds like a good thing Pivot reflects on the robustness of the businesses.
That's true. Absolutely.
I'll leave it there. Thank you very much.
Thanks, Your next question comes from the line of Frederic Bastien with Raymond James.
Good morning, guys. I just have one quick question, more housekeeping. You completed Some California Closet company owned acquisitions in early March. How much of that will how do we need to model with respect to revenue on a go forward basis With respect to this Minneapolis acquisition?
It's mid single digits, Frederick, so it's a small tuck under, but we're taking it now up to 20 locations. And So our company owned operations are at a significant level, dollars 200,000,000 plus and we'll continue to You know, attempt to get a couple done a year if we can.
Are there big ones left out there though?
There's a couple of bigger franchises, but obviously the 20 that we've done takes care of most of the landscape, but we'll There's a few more sizable ones, and we can go over 25 or 30 We continue to as the strategy continues to evolve.
Good. And then, I do have one other one. You were contemplating bringing your ownership of the Paul Davis Restoration franchises to Same kind of number, but that changed obviously with the growth of commercial restoration opportunities. So where do you stand On Paul Davis right now? Scott, go ahead.
Yes. There's 11 today kind of it with $100,000,000 plus of revenues. So that strategy continues too. It's separate from the Large loss in commercial acquisition strategy with First On-site, they're in parallel. And obviously, COVID Put a pause on those things just logistically and our efforts continue on that front as well.
Scott, I don't know if there's something else you want to add? Perfect.
Awesome. Okay, great quarter. Thanks guys.
Thanks, Brad.
And I'm showing no further questions at this time. I would like to turn the call back to Mr. Patterson.
Thank you, Tammy. As I said earlier, we're very pleased with our strong start. And again, it's all a reflection on the commitment and work ethic of our teams. They continue to do an amazing job Delivering on our brand promise and we remain extremely grateful. I'll close With that, and look forward to speaking at the end of July.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.