Welcome to the Second Quarter Investors Conference Call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that 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 these forward-looking statements is contained in the company's annual information form as filed with the Canadian Securities Administration 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 July 23, 2020. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Thank you, [Jessie] and welcome everyone to our Q2 earnings call. Thank you for dialing in. Jeremy Rakusin is on the line with me today. We last spoke on April 23. At that time we were all right in the middle of lockdown. About 85 % of North America was under some sort of lockdown or stay at home measure and really there was no clarity around when these measures would be relaxed. We went through a vigorous re-forecasting exercise based on what we were experiencing in mid April to provide some direction and forward guidance with our Q1 report. Well much has changed over the last three months. As you saw in our release this morning we significantly outperformed our expectations and the guidance we provided. There are a number of factors involved and Jeremy and I will walk you through them. In terms of agenda this morning, I will start with the summary overview of the results and variances from our forecast. I will then touch on two important highlights from the quarter and then Jeremy will follow with a closer review of the financial results. Total revenues for the quarter were up 8% over the prior year. Organic revenue declined by 9% year-over-year but this was more than offset by acquisition growth primarily relating to global restoration and several tuck unders over the last 12 months. EBITDA for the quarter increased by 10% reflecting a 20 basis point increase in margins. At FirstService Residential, revenues were down 9% versus our forecast of down 10% to 15%. At FirstService Brands, revenues were up 39% versus our forecast of flat to up 15%. Margins at both divisions were materially higher than forecast. The principal reason for the outperformance was that markets in general opened up more quickly than anticipated…

Thank you Scott and good morning everyone. As you just heard from Scott we reported financial results that significantly exceeded the expectations we laid out for Q2 during our first quarter call. I will get into more of the specifics around this in a minute but first a summary of the consolidated headlines for the quarter. Revenues were $622 million and adjusted EBITDA was $71.2 million up 8% and 10% respectively. Adjusted EPS came in at $0.86 down 23% from last year's second quarter. Together with our first quarter results our six months here to date consolidated financial performances as follows. Revenues of $1.26 billion an increase of 18% over the $1.06 billion last year. Adjusted EBITDA of $115.1 million representing 22% growth over the $94.2 million last year with a margin of 9.2% up from the 8.9% in the prior year period. And adjusted EPS at $1.23 down 15% versus $1.45 per share reported during our same six month period last year. Our adjustments to operating earnings and its GAAP EPS to calculate our adjusted EBITDA and adjusted EPS respectively have been summarized in this morning's press release and remain consistent with our approach and disclosure in prior periods. I'll now summarize our segmented financial highlights for Q2. Starting with our FirstService Residential division, second quarter revenues came in at $338 million, a 9% decrease over the prior year period. This decline came in slightly better than the 10% to 15% range we provided Q1. Core management revenues were up modestly but were more than offset by ancillary revenue declines in areas we previously called out, specifically amenity management that is our management of pool aquatic restaurant spa and fitness facilities was down in line with forecast. Other ancillary services several of which carry a higher margins such as…

Thank you. [Operator Instructions] Your first question comes from George Doumet with Scotiabank. Your line is open.

Yes. Good morning, guys. Congrats on a very resilient quarter.

Thanks George.

Scott, I wanted to touch on your comments that you mentioned earlier. You said there's a possibility for some pent up demand but you also, your comments also said that there was a really strong momentum that continued into July. So can you maybe help us understand maybe where you see that potential for that pent up demand? Is it the lead orders the California Closets or maybe anything around the commentary there?

Well, we improved sequentially April, May, June and June was particularly strong in terms of leads and book sales and I think that while we have seen it continue, I think there is a feeling that it will be tough to sustain through the balance of the year at current levels. We may see it sustained but with the surge in cases and reading economic reports from other industries in generally I think we share some of the concern that's out there generally that we might see some pullback in the economy. In addition we're watching closely the $600 a week unemployment benefit and when that might end and whether that's propping up some of the home improvement spend.

Okay. Great. Last quarter, I believe the number for furloughed employees around 3,200. Do you guys have that number, where we sit today and as those folks come back to work just kind of wondering how we should think of the evolution of maybe the margins this year and next?

Yes, George, I'll take that. Yes furloughs reduced house terminations in aggregate you're right over 3,000 at Q1. We've got roughly a third of those back and incrementally we see more coming back as activity levels continue to increase. If we see the opening up of a lot of our amenity-related services at FirstService Residential for example. Particularly in areas like the northeast where pools and aquatic areas still remain closed. As to the margin outlook in conjunction with that a lot of the cost savings that we realized should remain in place. Some of those costs we're learning through this pandemic to manage with less resources for a given level of revenue than we have before and so we think some of those efficiencies and cost reductions will be permanent. Parsing out how much is permanent and how much is going to come back that's too early to tell but we think there will be some permanent cost reductions that will be reflected in margins going forward.

Okay. Great. Just one last one if I may Jeremy, on the working capital it was a really big source of cash halfway through the year. Do you expect that to, I guess to revert to a typical, I guess 1% to 2% of revenue drag that we've kind of seen a lot in the last few years?

Yes. I mean the two biggest areas of the pickup in the working capital piece of the cash flow statement was focused collection and AR collection particularly in this environment and obviously with a bit slower growth you're not investing as much on that front and you're more collecting and harvesting off the revenues that have previously been generated but also on tax some of the government stimulus packages on both sides of the border afford us the opportunity to defer taxes which will be paid in their normal course in the back half of the year. So I would say Q2 is an anomaly on the on the working capital pickup but it did help us with the balance sheet and our financial position.

All right guys. Thanks for answers and good luck.

Thank you.

Your next question comes from Frederic Bastien with Raymond James. Your line is open.

Thank you. Jeremy, you touched on some of the costs that you believe you'll be able to permanently take out of the equation. Can you provide a bit more color on the sort of where is that coming from? Is that corporate level? Are you are you able to squeeze some costs out of every brand and across the organization?

Yes. I mean it's areas like marketing, legal, finance, HR, so a lot of those support functions we're just working with leaner costs but there's going to be a lot less travel whether it's business development, air travel; a lot more virtual business development but even executing on work Cal Closets as an example our designers are able to do a lot more virtual consults versus spending time going home to home. So it's just efficient they're getting a lot more done in a given day a lot more productive and without the associated travel costs. Those are some of the examples. Even in the ancillary services side and FirstService Residential again the teams found ways to optimize the cost structure and I think they're going to be able to generate as much or more revenue with less resources going forward.

I would add, I think this situation has enabled all of our businesses to reevaluate and redefine their staffing models. I don't know that there's going to be any particular area that we can pinpoint with accuracy going forward but this will be a very interesting budgeting season for us as we take a fresh look at how we staff.

Thanks for that. My other question relates to your comment about going from defense to offense. Obviously we saw that with the Rolyn acquisition. As we look into the second half leading to next year, I mean how's your appetite right now for acquisition? Do we see you continue the growth as global and into more restoration businesses or are we going to see active in other market segments?

Well, the appetite is definitely there and as you heard we have the liquidity, we have the balance sheet. So we're prepared to be aggressive but not necessarily more aggressive than we have been over the last several years but we're not slowing down as a result of the pandemic or pausing in any way. We've restarted all of our significant strategic initiatives a lot of them have to do are part of the restoration strategy the re-branding and the investment in the infrastructure and then we continue to work on our acquisition pipeline. Again certainly restoration is part of that but we have opportunities in really every other platform as well that we're working on.

Thank you. Very impressive quarter. Well done.

Thanks Frederic.

Your next question comes from Stephen MacLeod with BMO Capital Markets. Your line is open.

Thank you. Good morning guys.

Good morning, Steve.

Good morning. I just had a couple of questions specifically around just a couple of around the outlook. Jeremy, you gave some consolidated color. I just wanted to confirm or just clarify, does the top line impact include the Rolyn acquisition and then secondly with respect to the outlook are you able to give some sort of broad strokes outlook as to how that second half view or full year view is supported by the FirstService Residential and FirstService Brands divisions?

Yes. It does include Rolyn so that would be the -- my comments around us being higher versus reported ‘19 with global in there down on an organic basis but including global and it's tuck-unders. That would be in those numbers. Not too much to say on parsing out the divisions. I mean I would just say that the back half of the year is largely pretty flat profile on the topline. FirstService Residential flat is slightly down most likely and FirstService Brands would be down without the global contribution. If you add in global it would be a relatively flat. So consolidated flat on the back up here on the topline and again the margins are not going to materially differ when we finish the year from last year.

Okay. That's helpful. Thank you. And then I just wanted to talk just clarify kind of the outlook on the FirstService Brands division. Did I understand correctly that you did see momentum continue into July but then you're sort of feeling a bit more cautious from kind of July onwards? Is that the way to think about how you're expecting the back half of the year in the FirstService Brands division?

Well, we saw specifically speaking about the home improvement brands, we saw a strong June, strong activity in July but recognize that June was still down year-over-year just significantly better than April and better than expectation. So if we sustained at these levels it it's still down year-over-year on the home improvement side and then restoration and fire are part of that division also.

All right. Okay. And that brings it to my final question. On restoration and fire, I think you sort of cited that the trends were in line with what you have expected for the broader brands division in Q2 but did you see any impact around like deep cleaning or sanitization on the Paul Davis or global side?

Yes, we did. Both platforms benefited from the COVID work. Global, maybe I can start there generally in line with expectation as you suggest it was up modestly over the first quarter and interestingly it was up organically over the prior year, a period when we didn't own it but commercial property claims we believe are down up at least 20% in North America in part due to COVID, in part due to weather and so for global to show growth year-over-year is something we were very pleased about and part of the reason is the COVID related work, it's thousands of different discrete jobs that we performed, they tend to be smaller jobs lower revenue but it did fill that gap for us and enabled us to show some growth year-over-year where otherwise we might have been down. We have a strong hospitality practice at global and that was down materially because of COVID. So it definitely benefited and it also importantly opened up doors for us and enabled us to engage with new clients that we have since leveraged in them into national accounts and mitigation work. Paul Davis similarly down only slightly from prior year we expected it to be down more dramatically due to shutdowns and inability to access homes but as we discussed the markets rebounded. Paul Davis was able to get into homes and perform work and then the COVID definitely helped it claw its way back to near year ago. So it's certainly been part of the quarter for us and on the FirstService Residential side we're obviously doing janitorial as part of that service offering. So the protocols have all changed and we're obviously performing COVID cleaning in for our communities. It doesn't drive topline revenue but it's certainly part of their service offering now.

Okay. Yes. That's great. And maybe just one more if I could with respect to Rolyn, so you talked a lot about the global sanitization work. Can you talk a bit about, I need to know in it for in the quarter but do you have any insight or any data you can provide around how Rolyn has done with their health care exposure?

Similar to global. They, otherwise, would have been perhaps down year-over-year but the COVID gave it a real boost probably more so with Rolyn on a pro-rata basis than global.

That's very helpful. Thanks guys and congratulations on the quarter.

Thanks Steve.

Your next question comes from Stephen Sheldon with William Blair. Your line is open.

Hi guys. Thanks. With some economy's reopening and then shutting back down, I wanted to ask how it impacted community plans for some of the amenities you operate in the residential segment like pools, gyms and spas. Is there any way you can frame roughly what percentage are open now and how do you expect trends to play out over the rest of the year with the visibility that you have at this point?

Yes, Stephen I can't give you a percentage accurately. I can sort of talk regionally, I mean the amenity spaces are still shut down here in Ontario and in the Northeast particularly New York City and in a number of other pockets and jurisdictions around North America but otherwise they are open and operating and I think our expectation at this point is that they will stay open. The safety protocols may change in terms of utilization of the amenities. The capacity restrictions may change but we have not seen any rollback of the amenities at this point. I think once they open within the community it might be top unless it's legislated but that hasn't happened yet. I don't know if that –

That's helpful.

Yes, okay.

Yes. That's perfect. And then wanted to ask about the new contract side for residential. Any signs that activity there could pick back up again like it did in late 2018 and early 2019 or most property owners kind of remaining in maintenance mode and hesitant to switch providers right now. I guess that that's also a boost or attention but just curious about the new contracts right?

Yes. We had thought that our sales would decline in the quarter and it did. The boards of HOAs and condos today are under incredible pressure in this environment just trying resident alignment around safety protocol and rules within the community whether they're too stringent and are not stringent enough it's, they are under pressure and they are generally not focused on changing out management companies. So it's been hard to get attention in what we do, we're staying on it and we do expect improve sales the balance of the year. That's our hope.

Great. Thank you guys.

Thanks.

Your next question comes from Stephanie Price with CIBC. Your line is open.

Good morning.

Hi Stephanie.

I wanted to ask maybe that amenity question. You just had a little more broadly and just wondering what you've seen in areas that have seen COVID spikes across both divisions and what the environment has been like post Q2?

Those amenities have remained open Stephanie and they're very-very important aspect of the community and so there was pressure within really all the communities to open amenities as soon as possible and then residents can make their own decision around whether they want to use them or not but again we haven't seen any pullback and aren't aware of any changes in terms of capacity restrictions or even utilization whether they're less active than they were. We just haven't seen any change yet.

Okay and then what about on the brand side in terms of areas that are seeing COVID spikes? Have you seen any change in activity there?

We get leads and metrics every day and it's holding steady.

Okay. Great. And then in your prepared remarks you mentioned the possibility of market share gains for the year, just wondering if you can talk a bit about the competitive environment and where you're seeing the possibility for these types of gains?

I don't have, certainly we don't have any hard data on whether we're gaining share but I do know that we are performing and I think we're positioning ourselves very well to gain more share. I mean, so I just think that we are delivering on our promise, very proud of the way we're delivering on our promise and I'm not sure our competition across the board are delivering in the same way. So it's my hypothesis Stephanie more than anything.

Fair enough. All right. Well results this quarter we're definitely above expectation. So thank you very much.

Thanks.

Your next question comes from Daryl Young with TD Securities. Your line is open.

Good morning guys. Just a couple quick ones for me. On the residential side, has there been any increase in opportunities for M&A as a result of some of the other smaller residential providers may be struggling through this environment?

We have not seen it Daryl. It's not yet and I'm not sure we will honestly. This is a recurring revenue model and it is for all our competitors. So I think they'll be fine.

Okay. And then just in terms of storm activity. Is it correct that in 2019 basically restoration had almost zero benefit from storm activity?

Early in the year hangover from fourth quarter of ‘18 we had some but year-to-date in ‘20 almost nil.

Okay. And as we, so as we head into the back half of the year then that could potentially provide some upside to the outlook as well if everything lines up on that front.

Yes, definitely.

And just one last one. So would Rolyn given their niche focus on healthcare and what not would they still have the same benefits from storm activity as global does?

They would because they have national accounts and relationships. So if a storm were to impact any of their customers then we will benefit.

Okay. Great. Thanks very much guys.

Thank you.

Your next question comes from Marc Riddick with Sidoti. Your line is open.

Hi, good morning.

Good morning, Marc.

I wanted to just go over, if you could talk a little bit about the evolution of the investments plans as we are ending last year going into this year there was the announced plans of investing behind global and some other initiatives and some IT spending what have you and then that got postponed obviously or at least some of it did. I was wondering if you could talk about now if you're, it sounds as though you're going to be re-accelerating that and then putting that investment to work going forward. I wonder if you could talk about how maybe what those investments are and how that's evolved from maybe the way you might have been thinking at the end of last year as far as dollar amount? Is it different? Is the scope and scale different? Or is it kind of similar to what you already had planned and now everything just kind of shifted to the right for a couple of quarters?

It's everything we had planned but it's being stretched out over a longer period of time. We have continued to nurse these initiatives along March and April, May and then when we started to see our results come in when we did the private placement it gave us confidence to start to accelerate them again. So the rebranding for one is now scheduled for the first quarter of 2021 and but we are continuing the work on the national infrastructure and the systems that we need to support that unified brand sales, CRM, HR, Enterprise-wide platform, consolidated financial system that sort of thing which will, a lot of that would have taken place in ’20, now it's all being sort of over the next 12 months to 18 months I would say but the dollars are the same.

Okay. That makes sense. I appreciate that. Thank you and then the last thing for me is I was wondering if you could talk about pricing dynamic in both Residential and Brands? If there was anything notable or any changes or if it's been steady issues as far general pricing dynamic that you're seeing. Thank you.

I think the pricing has been steady. We are sort of looking forward to renewals at FirstService Residential and budgets for our communities at FirstService residential and whether there will be a heightened sensitivity around pricing in this environment if that's even possible because that is, it has and always has been a very price sensitive business but I would say we haven't seen anything yet.

Okay. Great. Thank you very much.

Thanks, Marc.

Your next question comes from Matt Logan with RBC. Your line is open.

Thank you and good morning.

Good morning, Matt.

Following up on some of your same store sales figures within the brands division, can you talk about your non-restoration brand such as Century Fire, Cal Closets and Certapro and maybe just give us a sense for how those are performing?

Century was up year-over-year modestly for the quarter and primarily relating to its installation business which is largely tied to new construction. Early on in the quarter here were construction sites that were shut down but only for a very short time and so they entered the quarter with a strong backlog and we are able to generate solid revenues through the period and the backlog remains solid but I think we generally expected that. So they were might have been a bit better than our expectation and the other part of the business is the service and repair business which was down and is down and we expect to slowly claw its way back to year-over-year over the balance of the year and the home improvement brands all rather than slice and dice between Cal Closets and CertaPro because they're all very similar as a group they were down 20% for the quarter. We expected them to be down much more significantly but a big improvement as the quarter went on as I said earlier. Jeremy I don't know if you have anything to add to that or?

No. I think that's exactly right, Scott. 20% down versus more than 50% to 60% expectations. So that's really where the pickup was and Fire as you characterize it the two segments performing.

And following up on some of the questions with regards to storm activity. Can you help us frame the potential upside from a normalization in weather patterns like when we look at your H2 guidance A) would that be included and if we looked at revenue from restoration over the past 12 months what would that figure, B) both on an actual basis and on a normalized basis?

Jeremy, I want to leave that to you.

Yes. So Matt first question in terms of the guidance what I said earlier in my prepared comments we wouldn't expect any significant degree of storm activity in those numbers. Those are hard to forecast but typically as we've said before if we get a normal level of activity again we did not see it in 2019 and it normally plays out in the back half of the year. High teens contribution from storm activity if you look at the last 5 to 10 years, high teens with it waited a bit more to the back end of the year. In the first half of the year in a normal year we would normally see potentially 10% from storm or CertaPro related activity contributing. This year it's pretty well zero. What was the other, did I answer all of your pieces or was there another component I missed Matt?

That helps, Jeremy. Appreciate that but in terms of the high teens contribution what percentage would that be out of restoration or the total piece of revenue?

So that would be out of global restorations numbers.

Sort of global restoration. So what percentage did global represent over the last 12 months?

I mean we bought them they had 400 plus of revenues. They've done roughly that.

Okay. That certainly helps in terms of framing the potential upside. So I'll leave it there. I appreciate the color.

Okay.

And there are no further questions at this time.

Thank you, [Jessie] and thank you everyone for joining. Once again we're very pleased with the quarter. Extremely proud of our teams and how they have executed. We look forward to communicating next in October around Q3. Thank you.

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