Welcome to the Fourth Quarter and Year End Investors Conference Call. Today’s call is being recorded. Legal counsel requires us to advise the discussion scheduled to take place today may contain forward-looking statements. They may involve known and unknown risks and uncertainties.

Actual results may materially differ 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 in the company’s annual information form as filed with the Canadian Securities Administrators and in the company’s annual report on Form 40-F as filed with the U.S.

Securities and Exchange Commission. As a reminder, today’s call is being recorded. Today is February 15, 2022. I would like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir..

Thank you, Misty. Good morning, everyone. Thank you for joining us today and welcome to our fourth quarter and year-end conference call. Let me open by saying that we are very pleased with how the year finished.

We generated strong top line and EBITDA growth despite a very challenging operating environment, with continuing pandemic challenges, labor shortages and supply chain interruptions.

The results are a direct reflection on our amazing teams who, throughout the pandemic almost 2 years now, have been unwavering in their commitment to deliver on our service promise. So, I want to kick off the call with a big year end shout out to the operating teams across FirstService. Thank you for all you do.

Now, let me jump into the results with a high level review and Jeremy Rakusin, who is on the line with me, will follow with more detail. Total revenues for the quarter were up 11% over the prior year, with organic revenue growth at 3%, relative to a very strong Q4 in 2020. EBITDA was up 5%, reflecting a margin of 9.7% versus 10.3% in the prior year.

Earnings per share were $1.21, up 19%. Jeremy will bridge the year-over-year movement in profitability in his comments. At FirstService Residential, revenues were up 12%, with organic growth at 5% and the balance primarily from the Q3 acquisition of the Condo Management division of Atlantic Pacific.

The organic growth was solid at 5%, particularly considering the very strong comparative quarter from last year that included a surge in ancillary revenue, primarily transfer and disclosure income and project management-related services. We did not match the same level in our most recent quarter and the reduction also impacted our margins.

Jeremy will speak to this in a minute. Otherwise, we are very pleased with the growth that primarily reflected new contract wins. Looking forward to 2022, we expect to show growth of 10% or above at FirstService Residential, split about 50-50 between acquisitions and organic growth.

Given the consistency and recurring nature of the revenues, we should see these metrics approximately play out across each of the quarters. There will be some give and take as ancillary revenues fluctuate, but it is a good proxy for how we expect the year to play out.

Moving on to FirstService Brands, revenues for the quarter were up 9%, with organic growth at 2% and the balance from tuck-under acquisitions over the last year, primarily within restoration and fire protection. The organic growth number reflects the weighted average growth from our restoration brands, our home service brands and Century Fire.

Let me break down each and I will start with restoration, which includes our results from FIRST ONSITE and Paul Davis. Revenues for the quarter were very strong and matched our results from Q4 of 2020.

You will remember we benefited from Hurricane Laura and the Ida windstorms in the last half of 2020 and generated $60 million of related revenue in the fourth quarter. We knew it was a looming hill to climb to match the fourth quarter results and it is a credit to our teams at FIRST ONSITE and Paul Davis that we were able to do it.

We benefited from almost $40 million of revenue from Hurricane Ida during the quarter and outside of this event grew our business through national accounts and increased share of existing customers. Organic growth, excluding named weather events, was mid single-digit.

Including the weather events, organic growth was modestly down due to the tough comparison. During the quarter, we expanded our geographic coverage and enhanced our service capabilities with the completion of 5 restoration acquisitions, 4 within FIRST ONSITE, our commercial platform and 1 within Paul Davis, our residential platform.

At FIRST ONSITE, we added A-1 Flood Tech, serving the Washington, DC and Maryland markets; Bales Restoration, serving metropolitan Seattle; Emergency Fire & Water Restoration, serving Southern Wisconsin; and Kauai Restoration, the leading service provider on the island of Kauai, which solidifies our market leading presence in Hawaii.

At Paul Davis, we added Stat Services, a residential restoration company in Williamsburg, Virginia, adding a new market territory to the Paul Davis network of 330 locations across North America. With each tuck-under acquisition, we add talent, capability and new relationships.

And importantly, we enhance our ability to respond to our national commercial accounts and insurance carriers. Looking forward in restoration, we are expecting another strong year in 2022.

Although we are largely through our work related to Hurricane Ida, we entered the year with a robust backlog of jobs across North America, including many commercial and industrial large loss claims from floods and fires.

Last year, we had a surge in claims and revenue from the Texas deep freeze, which drove record Q1 revenues for our restoration brands. Our goal this quarter is to meet or surpass the prior year quarter and our backlog would support this.

Moving now to our home service brands, including California Closets, CertaPro Painters, Floor Coverings International and Pillar To Post, as the group to home service brands were up 30% for the quarter, all organic. We were particularly pleased with the sequential growth of 18% relative to Q3.

We struggled with capacity during Q2 and particularly during Q3 of 2021 due to the resurgence of COVID, tight labor market and supply chain issues. We had the backlog and it is a credit to our teams in home services that we were able to effectively increase our productivity by almost 20%, Q4 over Q3.

Activity levels remain strong in home services and we expect it to continue at least through Q2 and likely through the year. Like the rest of North America, our capacity was hit hard in January by Omicron, which will have some impact on Q1, but we are largely through it today and expect to finish the quarter strong and show 20% plus growth for Q1.

At Century Fire, we continue to show strong top line growth, up low double-digit versus the prior year with high single-digit organic growth. The commercial construction market remains very strong and Century enters 2022 with a record backlog and very strong bid activity.

In addition, the National Account Service and Repair Program, continues to build momentum. We expect to see double-digit organic growth this year at Century beginning in Q1.

In late December, we were very excited to close on the acquisition of Chesapeake Sprinkler Company based in Maryland and serving the Baltimore and Washington, DC metropolitan markets. Chesapeake is a full service fire protection company and fulfills a key strategic goal for Century of expanding within the Mid-Atlantic region.

We welcome Tim Anderson, CEO and his entire team to the Century family. Before I call on Jeremy, I want to reiterate how pleased we are with our finish to the year and our performance during 2021.

Organic growth for the full year was 10%, which well exceeds our average annual target and is a great reflection on the health of our brands and evidence of our ability to take market share. I want to again thank our operating teams for their continuing commitment and tenacity in a tough environment.

Our culture and business model have enabled us to thrive the last 2 years and gives us confidence for 2022. Our markets across the board remained very active and we expect another excellent year of growth. Over to you, Jeremy..

reduced and deferred spending during the eye of the pandemic, particularly in 2020, requires some catch-up. We also have a couple of planned significant headquarter office moves within our operating businesses that have build-outs and leasehold improvements.

And then finally, the recent surge of tuck-under acquisitions I just referred to, will require some additional growth capital. Excluding these items, our spending for the upcoming year would land at our normalized target level. Finally, a look now at our 2021 year end balance sheet.

We closed out the year with $487 million of net debt, resulting in our leverage at 1.4x net debt to adjusted EBITDA, level with 2020 year-end. Our liquidity is ample at $470 million, reflecting significant cash on hand and capacity under our revolving credit line.

The collective cash flow generation of our businesses kept our balance sheet strong, even with the normalized resumption of working capital investments and an elevated level of acquisition capital spending. Consequently, our Board of Directors yesterday approved an 11% dividend increase to $0.81 per share annually in U.S.

dollars, up from the prior $0.73. We have now hiked the annual dividend by 10%-plus for the past 7 consecutive years since our 2015 spin-off into a new public company, resulting in a doubling of our dividend over that time. Looking forward, Scott and I have provided some segment indications for the upcoming first quarter.

On a consolidated basis for Q1, which is our seasonally weakest quarter, we expect strong double-digit revenue growth sufficient to offset a decline in margins so that our consolidated EBITDA should be flat to modestly up quarter-over-quarter.

For the full 2022 year, we are highly confident in extending our lengthy track record and delivering once again on our target of 10% plus consolidated revenue growth on the back of balanced organic and acquisition growth.

In fact, we believe with the strong market fundamentals driving demand for our services, together with recent acquisitions that we have cemented, we will finish the upcoming year with total top line year-over-year growth in the low teens range.

Margins are expected to incrementally improve versus prior year as we move from Q1 through the remaining quarters. And we expect that by year-end, our annual margins will be relatively in line with 2021, allowing us to deliver double-digit consolidated EBITDA growth for the year. This concludes the prepared comments section.

Operator, would you please open up the call to questions. Thank you..

[Operator Instructions] Your first question is from the line of George Doumet with Scotiabank..

Yes. Good morning, guys..

Good morning..

Just one short question, Jeremy, good morning.

On the 2022 guide of low teens for top line, just wondering, does that include future acquisitions or just the recently announced ones? And second question, just generally speaking, how much of that is pricing?.

On your first question, it only includes acquisitions that we have already closed and that roll incrementally into ‘22, no unidentified acquisitions.

And on the second question, if pricing is more minimal than volume in all of our businesses, we’ve talked about the robust demand for our services, it’s largely volume driven on both sides of our business and pricing is incremental, really, to cover off cost inflation..

Okay. That’s helpful. And just looking at the Residential segment, their pricing usually takes some time I guess it’s based on the contract renewal.

So any commentary there in terms of maybe how far behind we are in terms of catch up when it comes to those contracts and today’s labor cost picture?.

Well, George, third of our revenue is cost plus contracts. So that’s clean and direct. And then the balance relates to fixed price contracts, and I think that’s what you’re talking about. And as those contracts come up, so our first opportunity really would have been this earlier in January.

And as those contracts come up, we engage with our customers around the need to match wage increases, and this always leads to a healthy discussion. We certainly made some headway, not all our contracts come up in January, but a number of them do.

We made great strides, and we’re confident that really by the end of the year, we will have recouped much of the cost increases that we’ve been faced with. And as you heard in our prepared comments, we expect to show strong growth this year while holding our margins. So we certainly believe that that’s the case..

Yes. Thanks, Scott. And just a quick follow-up maybe on the Resi segment.

Any general comments on competition, kind of the smaller, maybe lower price point competitors out there, maybe what’s going on? And can you maybe give a little bit of color on retention rates, how those are trending?.

Sure. I’ve said many times before in this call, our competition is smaller private companies, and they compete on price. So there is always price tension in this environment. And there certainly will be this year. And that really is one of the principal reasons why it will take us the year to work our cost increases through.

But it’s no different than it’s always been. Our competition competes with us on price, and we have to continually prove our value. And so we’ve been successful at that for years and will be successful this year. Our retention rates, we expect this year to be right in that same sort of mid-90s range, 94%, 95%..

Okay. Great, thanks for your answers. Good luck..

Your next question is from the line of Stephen MacLeod with BMO Capital..

Thank you. Good morning guys..

Good morning Steve..

I just had a couple of questions. I just wanted to circle around specifically on the wage environment – or sorry, the labor environment in the U.S.

And I am just curious if you can give just a bit of color around how labor shortages may have impacted Q4 and sort of how you are addressing that as you roll into this current fiscal year?.

Well, the labor shortage impacted us. It’s really impacted us for the last 18 months. I don’t know if there was anything in particular in Q4, except that in the home service brands, I noted that we did dial-up our productivity significantly.

And so we were – we did start to have more success recruiting over the last four months or five months on the front line. And also, we are seeing our turnover return to historical levels, and it certainly had popped earlier in the year, in ‘21.

So, we are slowly filling open positions and adding to capacity, and we are seeing the labor market loosen modestly. It’s still tough. And we still have many, many open positions across the company, but we are making incremental headway..

Okay. That’s great. Thank you.

And then, Scott, I am not sure if you specifically addressed this in your prepared remarks, you may have touched on it, but I was just wondering if you could give a little bit of color around the year-over-year differences in storm activity and how that might have impacted specifically revenues in Q4 of this year versus Q4 of last year?.

We were down in terms of sort of major storm events. We were down over $20 million. And so our total revenues matched sort of the record level we achieved last Q4. But we were down modestly on an organic basis. Ex the storms, we grew organically mid-single digit.

Does that answer your question?.

Yes. Yes. That’s great. Thank you. Thanks.

And then just finally, on the resi side, where are you with respect to amenity open – amenity re-openings? I imagine maybe with the Omicron surge in late Q4 and early Q1, did that impact or that delay some of the re-openings that you would have otherwise seen?.

Well, Q4 and this quarter, Q1, are both non-seasonal. So, many of the facilities – amenity facilities we manage are not open in any event. We did have some re-openings in the fourth quarter, and they did have a modest impact on our growth. I think we will see it more in Q2. We expect to be fully open and operational in Q2 of this year.

Now we were last year, largely open, probably 85%, 90%, but we will see some boost in Q2..

Okay, great. Well, that’s great. Thank you so much..

[Operator Instructions] Your next question is from the line of Stephen Sheldon with William Blair..

Thanks and good morning.

On restoration, I guess as you continue to expand more into larger national accounts, can you kind of remind us what that could mean in terms of more visibility and I guess stability in that business? I know there is potential volatility in restorations due to weather events, but does that change at all as you continue to win larger accounts where you maybe become less reliant on bigger events?.

I don’t know that it does really change the model, Stephen. You have heard us say in the past that FIRST ONSITE has historically generated 15% to 20% of its annual revenue from area-wide events or named storms. We were within that range in ‘21. We were within that range in 2020. We were well below it in 2019.

As we add national accounts, they will have properties within the path of the storm. And so I think that the national accounts enables us to grow organically year-in and year-out. But our dollar value from each storm would likewise grow and see us in that 15% to 20% range still. So, I don’t – I think it will always be a component for us.

We do try to manage it within that level, which we see as a healthy level. We want to continue to drive our day-to-day business outside of these events every year as well..

Got it. That’s helpful.

And then just on the M&A side, curious if you have seen any changes in M&A valuation expectations from sellers out there, especially with some pullback, I guess in public market valuations? I know you guys are really disciplined in what you pay, but have you seen any change in expectations and maybe that creating a more favorable M&A environment for you guys to deploy capital? Thanks..

I mean, as you know, most of our tuck-unders are small businesses, and we have been very effective at managing the valuations around those deals in our historical sort of mid-single digit level. As the size increases, we have seen the valuations really pop. I can’t say that we have seen the markets influence those valuations yet, but it’s still early.

I would think that the interest rate environment and if the market continues at its sort of current levels that we will see a more conducive valuation scenario..

Great. Thank you..

Your next question is from the line of Scott Fromson with CIBC..

Thank you and good morning. Question on the home services brands.

Do you see rising materials and labor costs, I guess along with rising interest rates, putting a cramp on consumer demand, or is the backlog and outlook strong enough to carry you into next year?.

We believe the backlog and outlook will continue to be strong through this year, Scott. None of our metrics show any pause, and we will provide updates quarter-to-quarter through the year if we do see any change..

Okay.

And on the residential management services, are you seeing increased competition from mid-market private equity, or are your connections and relationships enough to sort of preempt bidding?.

We have seen private equity enter every one of our markets over the last year. And certainly, we do see it at – in residential property management as well. It hasn’t – there is always some competition for the acquisitions. I don’t think it’s dramatically changed the environment. But certainly, there is increased competition from private equity..

Okay. Thanks Scott. I will turn it over..

[Operator Instructions] Your next question is from the line of Daryl Young with TD Securities..

Good morning gentlemen..

Good morning Daryl..

First question is around Century Fire and specifically the Chesapeake acquisition.

Should we think of this very similar to restoration, where you are going to continue to build a national footprint from – for the fire platform and the sell-through to national accounts?.

I would say that the path for restoration we are looking today across North America to fill out our footprint. At Century Fire, it’s more targeted to the Southeast, and Florida and Texas and the Carolinas in particular. And then we still have work to do within that footprint.

And then from – and you saw with Chesapeake, the Mid-Atlantic also has been a priority for us. We still have opportunity within those four areas and then we will look beyond it from there. I don’t expect that to happen this year..

Okay. And then in your opening remarks, I think you made reference to on the restoration platform broadening both your national account and insurance relationships.

Was the reference to insurance relationships more on the resi side? And I guess following on that, has there been any – as you have consolidated the commercial platform, has there been any opportunities you have found or seen with the insurance side to maybe exploit an opportunity there?.

Certainly, the insurance carriers and national relationships are important for both FIRST ONSITE and Paul Davis, although they are certainly more important for Paul Davis on the residential side. And Paul Davis is adding new national accounts and have this year.

Sorry, what was the back half of your question?.

Just whether there was any opportunities to drive revenue growth related to maybe a unique insurance relationship for commercial customers or an angle there that…?.

Well, I think the angle is that Paul Davis and FIRST ONSITE have partnered and presented to, I would say, a handful of insurance carriers, a national commercial residential capability that’s really unmatched in the industry. And so we are making some headway on that front. We have got a couple of customers as a result of that.

And it’s certainly something we will be focused on more in the coming years..

Okay, great.

And then just one last one on the resi side, with all the investment that seems to be going in with pension funds looking for single-family rental investments, is there an opportunity there for FirstService Residential to be a property manager or a partner to some of these pension fund investments that are going into developing those single-family rental communities?.

We have looked at it. It is a different business model. And it’s – the economics are quite different, and it’s not something we are pursuing right now, and I don’t really see it in the coming years..

Okay, great. That’s it for me. Thanks very much guys..

[Operator Instructions] There are no further questions at this time..

Thank you, Misty, and thank you, everyone, for joining us today. We look forward to a big upcoming year and kicking it off with our Q1 call at the end of April. Thank you..

Ladies and gentlemen, this concludes the fourth quarter and year end investors conference call. Thank you for your participation and have a nice day..