FirstService Corporation (NASDAQ:FSV) Q4 2024 Earnings Call Transcript

FirstService Corporation (NASDAQ:FSV) Q4 2024 Earnings Call Transcript February 5, 2025

FirstService Corporation misses on earnings expectations. Reported EPS is $1.34 EPS, expectations were $1.37.

Operator: Welcome to the Fourth Quarter Investors Conference Call. Today’s call is being recorded. [Operator Instructions] 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 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 differ materially 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 5, 2025. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir. Thank you, Gigi.

Scott Patterson: Good morning, everyone, and welcome to our fourth quarter and year-end conference call. Thank you for joining us. Jeremy Rakusin is on the line with me today and will follow my overview comments with a more detailed review of our financial results. Let me start by emphasizing how pleased we are with how the year closed out. We had a very strong Q4 that capped off another stellar year for FirstService Corporation. You all know our long-term goal is to average 10% growth on the top line and to match that growth, we will do a bit better at the EBITDA line. In 2024, we doubled our long-term goal with 20% growth in revenues and 24% growth in our EBITDA. Much of the growth was driven by the acquisition of Roofing Corp of America late last year, but the growth was well supported by most of our other brands.

We are particularly pleased with our consolidated margin for the year that ticked up 20 basis points in a tough environment. It’s a credit to our teams that continue to create efficiencies and battle as best they could to match price increases with cost inflation. Jeremy will speak more to the annual results in his comments. Let me move on to the overview of the fourth quarter. Revenues were up 27% with organic growth at 10%, driven primarily by strong results at our brands division. EBITDA was up 33%, reflecting a 50 basis point improvement in margins, and earnings per share were up 21%. Indeed, a strong finish to the year. Looking now at the separate divisions, revenues at FirstService Residential for the quarter were up 5% with organic growth at 3%, matching our expectations and the results for Q3.

We are experiencing budgetary pressures from rising costs, including insurance premiums, and legislated increases in reserves and maintenance and repairs. The budgetary pressure has in turn put pressure on our management contracts, including the levels of cited labor. As I said last call, we do see this as temporary. As communities work their way through their immediate cash crunch by prioritizing their spend, increasing monthly resident HOA dues, and in some cases, funding projects through special assessments or securing loans. Looking forward, we see organic growth in the low single-digit range for the first half of 2025. The trough will be most acute in the first quarter and then organic growth will build from there through the year. FirstService Residential grew organically by 5% for the full year in 2024, and we expect the division to grow at a similar level in 2025.

Moving on to FirstService Brands. Revenues for the quarter were up 45%, driven primarily by the addition of Roofing Corp of America and very strong year-over-year results in our restoration segment. Organic growth was 16% for the division, almost entirely driven by restoration. Looking more closely at restoration, Paul Davis and First On-site together recorded revenues that were up 40% over the prior year. Both brands benefited during the quarter from hurricanes Helene and Milton. In the aggregate, we generated about $60 million in revenue from named storms compared to $15 million in the prior year quarter. We are pleased with how the year closed out for us in restoration. After a slow start, we finished strong and showed organic growth for the full year of about 5%.

If we adjust for named storms, organic growth was over 10%. We booked approximately $90 million of revenue from named storms in 2024, compared to $160 million in 2023. We continue to grow and make progress year to year in our restoration segment. Since acquiring First On-site, our two brands together have averaged organic growth of almost 10% over the last six years. We feel like we are right on track with our original thesis in this business when we took the big step into commercial restoration with the acquisition of First On-site in 2019. Looking forward, we are through the mitigation work from the Q4 hurricanes and focus now on securing or preparing for the related reconstruction work. As I have mentioned previously, the process of scoping and approving work with adjusters and insurance carriers can take time, and that is before permitting starts.

All that to say that backlog conversion becomes hard to forecast. We enter Q1 with a solid backlog that is up modestly over the prior year. In addition, we are seeing an uptick in leads from the LA wildfires and the recent cold weather across North America. Based on current visibility, we expect to show mid-single-digit growth in our restoration segment in the first quarter. Moving now to Roofing Corp of America. We had another good quarter and the year. Our first full year in partnership with the team at RCA. We accomplished much of what we set out to do in year one, including hitting our due diligence forecast and adding strategic tuck-unders in key markets. The acquisitions of Crowther and Hamilton midway through the year were important additions, and we anticipate further expanding our footprint in 2025.

Looking forward in our roofing segment, we expect to show a significant revenue increase in Q1 of 50% or more, primarily due to the inclusion of Crowther and Hamilton, two nonseasonal roofing contractors. Their impact will be exaggerated in the first quarter for Roofing Corp when many of the existing branches are slower due to winter weather. We will see a lesser impact in Q2. Now to our home service brands, where revenues were slightly down from the prior year, right in line with our expectation. The environment has improved only modestly since our last call at the end of Q3. Lead activity continues to be down year over year. We are driving higher conversion rates and seeing an increase in average job size, which we expect will lead to a revenue level that is flat to slightly down for the first half of 2025.

We are cautiously optimistic that we will start to see market improvement in Q2, leading to revenue growth in the back half of the year. Home equity values remain strong, and home prices continue to increase. These indicators and others all point to a more buoyant home improvement market in 2025, although the implementation of tariffs may well temper consumer confidence and further delay market improvement. Time will tell. And I’ll finish with Century Fire, where we had another strong quarter. It was up nominally versus the prior year due to a very robust comparative quarter. It was up 25% organically versus the fourth quarter in 2022. The team at Century did well to exceed the prior year. Activity levels remain buoyant at Century, and we expect another solid year upcoming with organic growth approaching 10% spread evenly across the quarters.

Let me now call on Jeremy to review our results in detail and provide a consolidated look forward.

Jeremy Rakusin: Thank you, Scott, and good morning, everyone. As you just heard, we are pleased with the strong fourth quarter and full-year results we delivered, particularly when looking back to what we outlined as our annual growth objectives at the beginning of 2024. We saw increasing momentum throughout the year and ultimately matched or exceeded our financial targets across the board. The fourth quarter specifically showed strong outperformance in aggregate for our two divisions, which more than offset significant negative non-cash foreign exchange adjustments and corporate costs outside of the operating segments. I will elaborate with further details in just a moment. During the fourth quarter, our operating results included consolidated revenues totaling $1.37 billion and adjusted EBITDA of $137.9 million, 27% and 33%, respectively, with our margin at 10.1%, up 50 basis points compared to 9.6% during the prior year.

Our Q4 adjusted EPS was $1.34, up 21% over last year’s fourth quarter. For the full year, consolidated revenues increased 20% to $5.22 billion, including 4% organic growth. Adjusted EBITDA came in at $513.7 million, up 24% over the prior year and yielding a 9.8% margin, up 20 basis points compared to 9.6% in 2023. Adjusted EPS for the 2024 fiscal year was $5.00, up 7% versus 2023. Note that these comments on our adjusted EBITDA and adjusted EPS results reflect adjustments to GAAP operating earnings and GAAP EPS, which are disclosed in this morning’s release and are consistent with our approach in prior periods. Now walking through the quarterly and annual results in our two divisions, I will lead off with FirstService Residential. For Q4, revenues were $521 million, up 5% versus the prior year period, and the division reported EBITDA of $46 million, up 6% quarter over quarter.

Our margin for the quarter was 8.8%, matching the prior year period. For the full year, revenues were $2.1 billion, increasing by 7% over 2023, including 5% organic growth. Annual EBITDA increased 6% with our full-year margin at 9.3%, in line with the 9.4% margin for 2023. The division performance matched our expectations both for 2024 as well as the long-term targets of mid-single-digit annual organic top-line growth with annual margins remaining within our typical 9 to 10% margin band. Looking next at our FirstService Brands division, the very strong fourth quarter included revenues of $844 million, up 45% compared to Q4 2023, and EBITDA came in at $100.7 million, up 65% year over year. The significantly higher profitability was driven by the contribution of our Roofing Corp acquisition acquired in late 2023, as well as improved margins on an organic basis.

The brands division margin during the quarter was 11.9%, up 140 basis points over 10.5% in the prior year quarter. Our restoration brands saw higher margins driven by operating leverage from the strong top-line growth that Scott described in his comments. We also had improved margins within Home Services as our California Closets company-owned operations continue to reduce their promotional activities and optimize their labor costs compared to the prior year quarter. The strong finish to the year in the brands division produced robust annual growth metrics, with revenues eclipsing $3 billion and up 32%, while EBITDA grew 40% over the prior year. Our full-year 2024 brands margin came in at 11%, 60 basis points over the prior year of 10.4%. Finally, two remaining points to highlight regarding profitability below the operating division lines.

First, we reported significantly higher corporate costs of almost $9 million in the fourth quarter compared to just over $1 million in Q4 of 2023, with almost all of the variance driven by non-cash foreign exchange movements related to the translation of Canadian dollar debt from a prior acquisition. This FX adjustment had a negative impact of eight cents on our adjusted earnings per share in the fourth quarter. For the full year, our corporate costs were $25 million compared to a little over $14 million versus the prior year, and once again, non-cash foreign exchange movements were the principal driver for the significant increase. Secondly, our annual interest costs were 75% higher in 2024 than the prior year due to the higher rate environment as well as increased debt levels to finance our roofing platform and subsequent tuck-under acquisitions.

This tempered our annual EPS performance to 7% year-over-year growth, which was a meaningful gap to our top-line and operating earnings growth rates. In the fourth quarter, we started to see our EPS growth approach our strong operating growth performance as interest rates have started to moderate. I’ll now summarize our cash flow and capital deployment. For the year, we delivered cash flow from operations totaling $285 million, which was up modestly versus 2023. Normalizing our operating cash flow to exclude working capital movements, given prior year pickups, we saw a 19% increase on a year-over-year basis. We fully redeployed our cash flow with over $300 million allocated to support our continued growth, two-thirds going towards our tuck-under acquisition program, and the remaining third towards capital expenditures for our existing operations.

Our acquisition spending during the year totaled $212 million, largely directed towards expanding the geographic footprint of our Roofing Corp operating platform. Our capex for 2024 tallied just below our annual target of $115 million. In 2025, we expect total capital expenditures to be approximately $125 million, growing in lockstep with our operations and remaining in line with historical investment trends measured relative to our revenues and EBITDA. In addition to these capital allocation priorities, we also announced yesterday a 10% dividend increase to $1.10 per share annually in US dollars, up from the prior $1.00. Our consistent and robust growth in financial performance over the long term has allowed us to establish a track record of healthy annual dividend hikes of 10% plus over the past decade.

We are able to allocate our dividend returns because our balance sheet continues to remain strong. At 2024 year-end, our leverage sits at two times net debt to adjusted EBITDA, down slightly from the prior year-end notwithstanding the significant acquisition activity I noted earlier. We have approximately $360 million of liquidity through our cash on hand and undrawn portion of our bank credit facility. This level is ample for our foreseeable needs, and with the strong support of our bank syndicate and long-term note holders, we have the ability to tap into incremental debt capacity as necessary. Looking forward, Scott has already provided some color on the top-line growth outlook for the individual brands. Aggregating those indicators, the upcoming first quarter consolidated revenue growth will approach 10%, and this pacing should continue into Q2 as we benefit through the incremental contribution from roofing acquisitions that closed in mid-2024.

In the back half of the year, we will revert back to consolidated mid-single-digit top-line growth without accounting for any further tuck-under acquisitions. Piecing this together for the full year, we expect our businesses to collectively deliver high single-digit top-line growth. In terms of our consolidated margin, we expect Q1 to be modestly higher versus the prior year, with the residential division margin roughly flat and our brands division margin up on the continuation of the same themes as recent quarters. These positive brands margin dynamics will moderate in Q2 and beyond, assuming no additional significant weather-driven events and large loss claims in restoration. For the full year, we expect brands division margins to be modestly up, and our FirstService Residential margins to be flat to potentially slightly up.

This will drive incremental consolidated EBITDA margin expansion during the year compared to 2024. This concludes our prepared comments. Operator, please open up the call to questions. Thank you.

Q&A Session

Operator: To be announced. To withdraw your question, please press. Our first question comes from the line of Stephen MacLeod from William Blair.

Stephen MacLeod: Oh, morning, guys.

Jeremy Rakusin: Morning. Stephen MacLeod from BMO. Not William Blair, but anyways, yeah, just thanks for the color. A few follow-up questions here. Just as you think about the pressures you saw in the FirstService Residential business from those budgetary constraints and insurance premiums, wondering what kind of visibility there is into those beginning to ease as you think about the balance of the year.

Scott Patterson: Yes, Stephen. I mean, we are certainly seeing it normalize. Your organic growth that we are seeing in Q4 and will see in Q1 reflects the net of wins, less losses over the last year, and it also bakes in renewals where we have made accommodations around price or where the level of service and number of cited staff has changed. It does not turn on a dime in this business. So we are riding it out for the next few quarters, as I said. But again, we fully expect it to pick up later in the year, and we expect our full-year organic growth to match what we experienced in 2024, mid-single-digit.

Stephen MacLeod: That’s great. Thanks, Scott. And then maybe just turning to the brands division. You talked a little bit about getting through the sort of initial phase of the Helene and Milton hurricane destruction. And just wondering if you can give some color around how that tends to evolve into more remediation and construction work. What’s the typical timeline you see when those weather events pass through and how that conversion works?

Scott Patterson: You know, it’s taking longer and longer. We saw with Hurricane Ian, work from these hurricanes is going to be slow to convert. The backlog of reconstruction work is taking shape, but as I said in my prepared comments, it’s very slow. The adjudication and approval from carriers and then from permitting is slow. This backlog will convert over the next year, but it will take over a year. That’s certainly what we saw with Ian. So it reduces our visibility from quarter to quarter. But we do have work. The backlog is building. Just very difficult to forecast in the near term.

Stephen MacLeod: Okay. Yeah. That makes sense. Thanks, Scott. And then maybe just finally, putting together those dynamics around the restoration business. I don’t know and I apologize if I missed it, but I know you gave some full-year color around the residential top line. Just curious if you have something similar for the brands top line as we factor in those storm revenues potentially being more delayed than previously thought.

Scott Patterson: I think, you know, Jeremy, in his full-year commentary, I think we are looking at mid-single-digit organic growth and then we add in the year-over-year impact of the roofing tuck-under. Jeremy, do you have any more on that?

Jeremy Rakusin: That’s correct, Scott. Directionally, front half stronger with the roofing acquisitions and then the back half flat, sorry, down to mid-single-digit. So organically, Stephen, for the brand division, mid-single-digit organic growth for the year would be a good number.

Stephen MacLeod: That’s great color. Thanks, guys. Appreciate it.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Stephen Sheldon from William Blair.

Stephen Sheldon: Hey. Thanks, guys, and nice work ending the year. Just first on the 2025 revenue guidance, can you maybe just parse out how much of the high single-digit revenue growth that you expect would be organic versus the impact of tuck-under acquisitions you’ve already completed? Is there a way to roughly frame that?

Jeremy Rakusin: Yes. Stephen, it’s Jeremy again. Again, mid-single-digit. We grew 4% this year organically. We see it being mid-single-digits next year. So in that 4 to 5% range would be a good organic number with the rest being, again, tuck-under acquisitions largely filtering through the front half, the first two quarters of the year.

Stephen Sheldon: Got it. That’s helpful. And then, you know, kind of thinking about Roofing Corp now that you’ve owned that for over a year, and I know you’ve done some additional capacity kind of investments there, but just as you’re thinking about the margin profile of that business over the longer term, has it changed at all? And specifically, are there potentially bigger benefits of scale than maybe what you’d considered when you’d entered that market just a little bit over a year ago?

Scott Patterson: Jeremy, why don’t I speak to scale and you can add anything as it relates to margins? Yeah. You know, there’s a few things I would point out, Stephen. One is that the scale and as we grow, it enables us to service what we call premier accounts in our roofing business. That is large regional or national owners of commercial real estate, and think of it similar to our national accounts program at Century or First On-site. And, you know, as a sort of a single operation or even a few branches, it’s really not of interest to the larger owners. But the scale we’re at today, we’re able to make some traction on that front. The other thing I would say relates to purchasing. As we grow, we move into higher tiers of discounts with the major vendors.

It does make a difference to our profitability. So that would be on the material side. But also, it enables us to build an insurance program, which, you know, safety and insurance is a big issue and something that we focus on very closely with the RCA team. And having the scale does bring cost reduction in insurance.

Jeremy Rakusin: And it’s Stephen, just to weigh in on the margin. I mean, in the near term, you know, adding additional tuck-unders and scaling, we’re running these on a very decentralized basis. The individual branches keep their own brand. So we’re not integrating significantly in any way to take out cost reduction. As Scott mentioned, the benefits of scale in the form of procurement on raw materials could have an uptake. You know, other things that could drive margin performance as we increase servicing, that’s typically a higher margin category of revenue. But that will be incremental and over time. So I would not be modeling any incremental margin improvement beyond what we’ve indicated previously for the Roofing Corp platform in the near term.

Stephen Sheldon: Okay. Got it. That’s very helpful, Scott and Jeremy. And maybe just one more if I could. Just back on residential. I know you’ve already talked a little bit about that, but how are your customers on the residential side thinking about amenities heading into spring? As I know you have some seasonal amenities there such as pools. Any signs that the budgetary pressure may weigh on the opening and or staffing levels for amenities as we enter Q2 and Q3?

Scott Patterson: I think in some cases, it’s impacted staffing. It wouldn’t impact the opening of any amenities. They would perhaps cut back on hours or the level of service with the amenities. It’s part of the overall reduction in cited staff that we’ve seen, but it wouldn’t be necessarily specific or targeted at the amenities. It’s more broad than that and would include all site staff, you know, janitorial and food and beverage and so on, Stephen.

Stephen Sheldon: Alright. Thanks. And nice work again.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Scott Fletcher from CIBC World Markets Inc.

Scott Fletcher: Hi. Good morning. You mentioned it briefly in the prepared remarks just on the LA fires. Just curious if that can be something that makes a difference in the first half of the year or if you have enough capacity in the region to get enough business to make a difference, sir. Just any commentary that would be helpful.

Scott Patterson: Yeah. Sure. I mean, we’re definitely seeing an uptick in leads and claims relating to the LA fires. We have built that into our general guidance that we provided on this call. In that area, we’re primarily serving our national accounts in relation to smoke damage. We don’t have a significant branch footprint in the area, which limits our response to local businesses. But we do have a number of claims and work is still coming in. So it will benefit us. And I wouldn’t just say in Q1, I would say it’ll benefit us this year. But still taking shape, I would say, Scott.

Scott Fletcher: Okay. Thanks. And then just on the M&A and the tuck-under program going forward, I think you’ve sort of clearly focused on roofing in 2024. Would that still be the case, you know, all of us being equal in 2025, that roofing deals would be front of line?

Scott Patterson: Yeah. I think that’s fair just because of the activity in the roofing market. It’s consolidating quickly. There are dozens of private equity-owned platforms that are being established, and that activity is spurring all the independent owners to, you know, just take advantage of the consolidation. So it’s happening, and we will participate certainly. But we do have prospects across all our segments right now, I would say. But 2025 could well resemble 2024 with more of our capital being deployed on roofing than the other segments.

Scott Fletcher: Okay. Excellent. Thank you.

Operator: Thank you. One moment again. Our next question comes from the line of Daryl Young from Stifel.

Daryl Young: Hey. Good morning, everyone. First question is around insurance dynamics and just the cost of residential and commercial insurance today and some of the signs of cancellation of insurance that we’ve seen by some of the carriers. How is that impacting how you think about your growth plans for the residential property management business and I guess as well restoration? Is it impacting where you want your footprint to be in the future? Or anything there you can speak to?

Scott Patterson: Yeah. I mean, it’s interesting, and it’s real-time because insurance carriers are in and out of markets and as events happen and certainly increasing premiums. It’s very much an evolving market. I think the one thing that is clear is that the cost of property insurance is going up, and in high-risk areas, it’s going up significantly. And many insurers are declining to renew. So you have more uninsured properties and you have more self-insured homes than ever. So that would impact perhaps Paul Davis more than First On-site on the restoration side. Paul Davis is our brand that primarily serves the residential market. And in high-risk areas, I think that what Paul Davis will do in this environment is create more awareness, brand awareness campaigns in high-risk areas to specifically target self-insured homeowners.

And, you know, as again, there’s just going to be an increasing number of properties that will be self-insured. The thing that we have to keep in mind is that the building stock is ever-increasing, and the damage and the weather events are ever-increasing. So the work’s going to be there. It’s just a question of who’s going to pay for it, whether it’s covered by insurance or whether it’s self-pay or the government stepping in in some way. The work’s going to be there for our restoration brands. We’re confident of that. And then on the FirstService Residential side, I think that the cost of insurance again is going up, but communities are dealing with it. And it goes to my comments around organic growth and FirstService Residential having to increase monthly HOA dues to deal with rising costs.

And, you know, the homeowners, if it’s a single-family home, they’ll have increased insurance costs directly. So they’re working their way through it. I think that there will be insurance always for communities. It’s more of the individual homeowner where we’re going to see more of the disruption, I think.

Daryl Young: Got it. Okay. Thanks. And then maybe one on margins. Is there an element of conservatism that’s in the run rate margin guide that you’re giving? And I’m just looking at it from the perspective of roofing seems to be an accretive driver of the mix. And then I would think as the home improvement brands recover in the back half of the year, they would be additive to margins as well. And then potentially even in resi, some of the home resale transaction and disclosure recovery as well. Is there an argument for upside to margins?

Jeremy Rakusin: A little bit potentially, Daryl. I don’t want to get ahead of our skis. You know, the home improvement improving in the back half, that’s a little early to speculate on that. Obviously, that would help. Although, we’ve gotten a lot of margin improvement through the latter half of 2024, and we’ll get it into the first half of 2025 for sure. You don’t want to commit too much more than that in the back half. Again, resi home resale activity would help that piece of the business, but we haven’t seen a turn yet. Home resales did accelerate in Q4, but that’s, you know, the last two months of that quarter. It was a step up, but let’s see if it’s sustainable and then what we get out of it. And then I can’t remember. There were other parts to your question. But that, yeah. I think we’re being, I think we’ve given you the right kind of indicators as far as the eye can see right now.

Daryl Young: Got it. Okay. That’s great. I’ll jump back in the queue. Thanks, guys.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Tim James from TD Securities.

Tim James: Thank you. Good morning, everyone. Wondering if you could talk or provide some additional details on the residential contract wins that you called out in Texas, Toronto, and Chicago. Just any kind of insights on the nature of those contracts, you know, any competitive dynamics involved there?

Scott Patterson: Not too much to note, Tim. But high rise, I would say, is the theme. It’s a particular expertise of ours. Has been for years. We’re the clear leader in high-rise management across North America and are better able to differentiate ourselves in the high-rise environment than perhaps a sort of vanilla single-family home community. So that would be the one thing I would call out.

Tim James: Okay. Thank you. Just returning to the discussion around changes in the world of insurance and as the environment evolves in terms of insurance and its impact, I guess, on your restoration businesses, can you talk about what it means from a competitive environment perspective? I would assume there’s sort of puts and takes for you, maybe some challenges it creates. You talked about maybe creating a bit more brand awareness as people self-insure. But maybe there are actually some benefits to you as well in terms of scale there. I’m just wondering if you could sort of talk about the competitive environment and what that means for the changing insurance landscape.

Scott Patterson: You know, as I digest your question, it’s not clear to me that there’s a competitive advantage in this evolving market. I think that certainly, we’re in a position to be nimble. We have capital. We can invest in marketing and brand awareness if we need to. Choose to in high-risk areas. So I think we’re in a position to get to our customers and serve our customers, which is always our focus to drive referral and repeat business. But there’s nothing else that jumps out at me, Tim.

Tim James: Okay. Thank you very much.

Operator: Thank you. Our next question comes from the line of Himanshu Gupta from Scotiabank.

Himanshu Gupta: Thank you, and good morning. So my question is on the margins as well. I mean, thanks for the color on the margins. You know, slightly up for brands, and mostly flat on the residential side. So, you know, the question is that, do you think, you know, residential or brands will get impacted by these tariffs, which we were talking about this week? And, like, what input or material cost will get impacted and your ability to pass on to the consumer?

Jeremy Rakusin: Yeah. Himanshu, I can jump in there. You know, we have largely exclusively service-based businesses across most of our operations. Three brands have modest raw material inputs as part of their cost structure. You know, California Closets, Century Fire Protection, and Roofing Corp. Most of the suppliers and vendors for those brands are domestic and therefore wouldn’t be impacted by tariffs. But to the extent there is some modest sourcing from foreign markets requiring imports, we believe and our operating lead covering off the cost of those tariffs through pass-through costing increases in pricing. We think the impact is going to be modest to our cost in any event because, again, because of the bias and skewing more towards labor costs in these businesses.

And so they’ll be modest to begin with, and the net impact to margin will be relatively insignificant because of our ability to pass through. That’s what we think the market will do and our competitors as well.

Himanshu Gupta: Awesome. Thank you, Jeremy, for the call. That’s helpful. And then, you know, just turning to Century Fire, which has been a very strong segment for you. And I think you’re still calling for, like, I think, 10% organic growth this year. So just wondering how much is the growth driven by new installations versus, like, the recurring maintenance kind of business. You know, as commercial development slows down, which we are seeing in, you know, a number of asset classes within real estate, you know, will that have any impact going forward in terms of organic growth on Century Fire?

Scott Patterson: Yeah. We certainly saw a slowdown last year, Himanshu, but bid activity is pretty solid right now. And our backlog is up. So we do expect to see growth in commercial construction, which drives installation. You know, we feel good about that this year, but at the same time, our service division, our national account division will continue to be a growth driver at Century also. So it’s a balance between those two for 2025 is what we’re seeing right now.

Himanshu Gupta: Got it. Thank you, Scott. And my final question is on the roofing side. I mean, obviously, you have now completed one year with RCA. I mean, how did that compare to your underwriting? And, you know, what’s the organic growth in this business in the medium to long term?

Scott Patterson: Right. First year, you know, I think I said in my prepared comments, we accomplished much of what we had set out to or hoped to. And, you know, first and foremost, it’s hitting our forecast, you know, as you describe it, the underwritten amount. And then secondly, it was to start to fill out the footprint in key markets. And certainly, Florida was a high priority for us, and we were very pleased to get the Crowther and Hamilton deal done. In terms of organic growth, you know, long term, you know, going back to our original thesis, this is primarily a commercial roofer as a first priority. But with the increased frequency of weather, the aging building stock, the increased cost of construction, coastal building codes, all these things are going to drive opportunity in roofing and restoration.

And so we have seen since we stepped into restoration in a bigger way six years ago, we’ve seen high single-digit to 10% organic growth. And longer term, we expect to see the same in roofing.

Himanshu Gupta: Thank you. Thank you, Scott, for the call, and I’ll turn it back.

Operator: At this time, I would now like to turn the conference back over to Scott Patterson for closing remarks.

Scott Patterson: Okay. Thank you, Gigi. And thank you, everyone, again, for joining us. Our Q1 is scheduled for the end of April. So we look forward to talking to you again, and enjoy the rest of your day.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.