FirstService Corporation (FSV) Q3 2026 Earnings Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the FirstService Corporation third quarter investor conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference 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 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 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 October 22nd, 2026. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

Scott Patterson: Thank you, Michelle. Good morning, everyone. Thank you for joining our Q3 conference call. As usual, I am on today with Jeremy Rakusin, our CFO. I will kick us off with some high-level comments, and Jeremy will follow with more detail. We posted solid results this morning that in aggregate met our expectations and highlight the diversification of our business model. Total revenues for the quarter grew by 6% over the prior year, with organic growth at 4%. We continue to face headwinds across a number of our businesses and are very pleased to show this level of growth in a tough economic environment. We believe it bodes well for our fourth quarter and into 2027. EBITDA for the quarter was up 3%, reflecting a consolidated margin of 11.1% compared to 11.4% last year, and earnings per share were up 7%. Moving to our divisional results. FirstService Residential revenues grew by 5% over the prior year, reflecting the net of contract wins less losses. Condo HOA management is a price-competitive business, always has been. Our teams at FirstService Residential continue to do a great job balancing organic growth with margin. Q3 represents the eighth consecutive margin with some level of margin improvement while averaging mid-single digit organic growth. Jeremy will speak more on margins in his comments. Looking to the fourth quarter, we expect a similar result at FirstService Residential. Moving to FirstService Brands, revenues for the quarter were up 7%, with strength at our Restoration Brands and Century Fire, supported by solid mid-single digit growth at our Home Services brands, partially offset by revenue declines within our roofing platform. Revenues for our two Restoration Brands, Paul Davis and First Onsite, were up 10% from the prior year, better than expectation. We mentioned during our Q2 call that we had made progress late in Q2, signing work and building our pipeline back to a healthy level. During Q3, we continued to see solid activity levels that were generally broad-based across North America. We are geographically diversified across our two brands. Both Paul Davis and First Onsite have strong market positions in Canada, two of the top three companies by our estimate. Also, First Onsite has a very strong position and is the market leader in Hawaii, which has been hit by a series of storms over the last several months. Activity across Canada and Hawaii helped drive our growth in Q3. Conversely, claim activity in the continental U.S. across the industry has been down year-to-date at the end of Q3. Notwithstanding, we have been successful in signing a number of large loss projects on the mainland that will be converted to revenue over the next many months. In terms of named storms, Hurricane Isaias hit the Florida Panhandle on October 10 as a Cat 2 storm. It was primarily a wind event with some flooding and in general caused less damage than originally feared. Industry insurance claims have been much lower than expected. Our Restoration Brands have secured some work from the event, primarily mitigation and board up, but not a material amount. Similarly, we have secured roofing repair contracts through our operations at RCA, but again, it will not be material to our Q4 results. We have a solid backlog at our Restoration Brands heading into Q4 and expect to show mid to high single-digit growth for the quarter. Moving to our roofing segment, revenues for the quarter were down 4% on a reported basis and high single digit organically. As expected, the roofing market continued to be a challenge during the quarter, particularly in a few of our larger markets. I will say that we did start to see some green shoots across a number of our branches and finished the quarter with a backlog that was up sequentially and at the highest level we have seen over the last year. Looking forward to the fourth quarter, we expect to show mid-single-digit reported growth and organic growth that is flat to slightly down from the prior year. As I mentioned, we will see some roof repair work in the Florida Panhandle from Hurricane Isaias, but otherwise, the Florida market remains very difficult and is holding us back from showing more improvement in Q4. Now on to our Home Services brands, which as a group, generated revenues that were up mid-single digit from the prior year, primarily due to the tuck-under acquisition of the Indianapolis California Closets operation in Q1 of this year. Organic growth was positive but modest. Our teams continue to battle headwinds and produce results in this segment. During the quarter, we again improved conversion and close ratios and drove a higher average job size to overcome a year-over-year reduction in leads and activity. Both the housing market and consumer sentiment worsened during the quarter and are at historic lows. Home improvement indices and forecasts are pointing to lower levels of activity in the coming months, and we expect to see that in our near-term results. Looking to Q4, we expect revenues to be flat in aggregate and down low single digit organically. I will close with Century Fire, where we had another strong quarter in line with expectation. Revenues were up over 10% versus the prior year, including high single-digit organic growth. Late in the quarter, we closed on the acquisition of A&A Fire Protection based in Greenville, South Carolina. A&A is a leading provider of fire sprinkler design, installation, inspection, and repair services to commercial customers across South Carolina and into North Carolina and North Georgia. Jake Gilstrap, President of A&A, will continue to lead day-to-day operations. A&A represents another in a long line of exciting partnership transactions at Century Fire that have expanded our geographic footprint and enhanced our service capability. Looking forward for Century, our quarter end backlog ticked up sequentially again, and we expect to finish the year with a similarly strong 10%+ revenue growth. Let me now hand off to Jeremy.

Jeremy Rakusin: Thank you, Scott. Good morning, everyone. As you just heard, we are pleased with our consolidated third quarter results, particularly given the organic top-line performance, which exceeded our expectations. For the quarter, we recorded revenues of $1.53 billion, up 6%, and adjusted EBITDA of $170 million, a 3% increase relative to the prior year period. Our consolidated EBITDA margin for the quarter was 11.1%, down modestly from last year's 11.4% level. Adjusted EPS during Q3 was $1.89, resulting in growth of 7% quarter-over-quarter. For the nine months year-to-date, our consolidated financial performance includes revenues of $4.3 billion, up 4% over the $4.1 billion in the prior year. Adjusted EBITDA at $437 million, a 3% increase year-over-year, with our overall EBITDA margin at 10.2%, relatively in line with the 10.3% margin for the prior year period. Lastly, our adjusted EPS year-to-date is $4.57, reflecting 4% growth over the $4.39 reported for the same period last year. Our adjustments to operating earnings and GAAP EPS in providing adjusted EBITDA and adjusted EPS respectively are disclosed in this morning's earnings release and are consistent with our approach in prior periods. Turning now to our segment performance, I will start at FirstService Residential. In the third quarter, we generated revenues of $633 million, resulting in 5% growth over the prior year period. EBITDA was $71 million, a 7% increase over the third quarter of last year. Our current quarter EBITDA margin came in at 11.3% with the 30 basis points of margin expansion versus the prior year quarter, matching our year-to-date margin improvement as our operating teams further optimize labor costs and find incremental efficiencies. In the fourth quarter, we will see a continuation of these efforts, and together with the seasonal benefit from exiting non-core aquatics operations earlier this year, we expect our FirstService Residential division to show more significant margin expansion than the year-to-date performance. Looking next at our FirstService Brands division, we generated revenues of $898 million during the current third quarter, up 7% over Q3 2025. EBITDA for the division was $102 million, matching the prior year level. Our margin of 11.3% compressed 80 basis points compared to the 12.1% margin in last year's third quarter. The lower margin was primarily reflected in our roofing operations, which was impacted by both the declining revenues that Scott noted, as well as gross margin compression due to competitive market pressures at certain key branches. In addition, the division profitability included a modest decline in home improvement margins, partially offset by an uptick in margins at Restoration Brands on the back of their strong revenue growth in the quarter. I will now provide a summary of our cash flow and capital deployment. During the third quarter, we generated almost $125 million in cash flow from operations prior to working capital, up 6% year-over-year, in line with earnings growth. Our cash flow after accounting for working capital requirements was $84 million, with the decline quarter-over-quarter due to higher work-in-process inventories and accounts receivable, in conjunction with increased activity and pipeline levels in our Restoration Brands. Year-to-date, we have generated more than $300 million in operating cash flow at a healthy 70% of EBITDA conversion rate. Capital expenditures during the quarter totaled $28 million, and spending year-to-date sits at $88 million, below our 2025 levels. We expect full-year CapEx to now come in at approximately $125 million, in line with last year, and lower than our original 2026 budgeted CapEx of $140 million. With modest tuck-under opportunities tempering our acquisition spending at $25 million for the quarter, we focused our capital deployment efforts on buybacks of FirstService shares. In Q3, we repurchased 2.2 million shares at a cost of a little more than $300 million under our normal course issuer bid. Year-to-date, since the beginning of the second quarter, we have now repurchased 4.1 million or 9% of our outstanding shares. This has contributed to stronger EPS growth in our Q3 results, and we believe that this investment will yield attractive returns over the long term. We currently have remaining capacity to buy back an additional 2.6 million shares under our existing normal course issuer bid, which expires in late August 2027. We will continue to judiciously balance our share repurchases after taking into account other factors, including our acquisition pipeline opportunities, the market valuation of our FirstService shares, and balance sheet, all with the intention of driving long-term value for our shareholders. On the topic of our balance sheet, we ended Q3 with net debt of $1.4 billion, resulting in leverage of 2.4x net debt to trailing 12 months EBITDA, and up sequentially from 1.8x at the end of the previous second quarter, largely due to our share buyback activity. This capital structure remains conservative and well within our comfort level, given the strong free cash flow model of our enterprise. We also have approximately $500 million of total cash and credit facility capacity, providing us with ample financial flexibility and liquidity. Wrapping up with our balance of year outlook, the aggregation of the brand-by-brand top-line indicators Scott has provided will drive to similar mid-single-digit consolidated revenue growth for our upcoming fourth quarter as we delivered in the third quarter. This will also culminate in mid-single-digit growth in consolidated annual revenues for the full year, and at the upper end of the range we expected at mid-year. On the EBITDA line for Q4, we expect consolidated margins to be slightly higher than prior year, driven by FirstService Residential, as noted in my earlier comments. For the full year, we are maintaining our target provided at the end of Q2 of mid-single-digit consolidated annual EBITDA growth and margins relatively in line compared to prior year. During our February year-end earnings call, we will provide more details on our outlook for 2027. That now concludes our prepared comments. Michelle, you may now open up the call to questions. Thank you.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile our Q&A roster. Our first question is going to come from the line of Erin Kyle with CIBC. Your line is open. Please go ahead.

Erin Kyle: Hi. Good morning. Thanks for taking the questions, and congratulations on the strong quarter. It is good to see Brands organic growth return in the quarter. I just want to ask a question on the margin. I appreciate you touched on it there, Jeremy, on the roofing. Are you able to break out how much of that pressure in the roofing business is truly competitive pricing pressure versus lower volumes? As it relates to that, just with competition pressure continuing to increase or at least remain consistent, do you expect the margin profile in that business can recover before the roofing volumes return?

Jeremy Rakusin: Yeah, it is hard to parse out how much of it is due to top-line declines versus margin compression. Both are contributing factors, and we are obviously taken the approach in this competitive environment to make sure we are being competitive to get enough projects in the hopper and protect the top line as best as possible. We expect these competitive pressures to be there for a decent period of time. It is mainly concentrated in Florida, but it is in some other locations across our branches as well. But equally meaningful contributions due to the decline in revenues as well as the gross margin impact. Scott, I do not know if you want to provide any further outlook on the top line competitive pricing dynamics.

Scott Patterson: No, I think certainly in terms of line of sight, we expect it to continue to be very competitive over the near term.

Erin Kyle: Maybe just to follow up on that, how much visibility would you say that you have into this business? Because I appreciate there are several branches spread across several states. What would you say in terms of your visibility into the next 12 months?

Scott Patterson: Listen, we're just starting on our ERP implementation. So right now we're working off 12 different systems. So our visibility relative to our other businesses is limited. The visibility we have is related to our backlog and then coming up with our bid activity and then trying to assess timing around converting that backlog into revenue. Honestly, we've had difficulty forecasting that the last several quarters. So, we're implementing this system. It will improve our information, data and visibility markedly. We'll be through that in 2027.

Erin Kyle: That's helpful. Thank you. Maybe just one more from me on the Restoration Brands business. Just as we think to Q4 and the impact from Hurricane Isaias. Sounds like from some of your prepared remarks, the impact of FirstService might have been a bit lower than we had anticipated. Any color you can give us there in terms of how we should think about modeling named storm revenue for Q4 would be helpful.

Scott Patterson: Yeah. It will be immaterial to our results. We have a lot going on in restoration, but it's not really tied to the recent hurricane. I mean, we've learned over the years that every storm is different. It depends on Hurricane Isaias sort of tempered quickly as soon as it hit landfall, and the water damage wasn't near what was feared. So there were strong winds. We do have some roofing repair work, some restoration work, but it's not material and doesn't form a big part of our backlog at all.

Erin Kyle: That's helpful. Thanks, Scott. I'll pass the line.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Stephen MacLeod with BMO Capital Markets. Your line is open. Please go ahead.

Stephen MacLeod: Thank you. Good morning, guys. Just wanted to follow up on the residential business. Maybe just specifically on restoration. I guess notwithstanding the fact that Hurricane Isaias is not that material to the backlog, can you just talk a little bit about what your backlog sort of looks like right now, and whether you saw it grow from what you had referred to or what you had talked about at the end of Q2?

Scott Patterson: It's about the same level as Q2, Stephen. During Q3, what we did see is more water mitigation work than was visible at the time of our Q2 call. Mitigation really never hits our backlog. It's quick turn work. Some of the activity I described in Hawaii and across certain regions in Canada comprised a healthy level of mitigation, and that was a big driver for us in Q3.

Stephen MacLeod: Okay. That's helpful. Thanks, Scott. Maybe just on the Q4 margin outlook. You gave a lot of color, specifically on the residential business. You gave a lot of color around the top line expectations for Q4. I'm just curious, would you expect that the margins will continue to remain under pressure in the residential business into Q4?

Jeremy Rakusin: When you say the residential business, they're going to be-

Stephen MacLeod: Oh, sorry. I meant to say Brands.

Jeremy Rakusin: Yeah.

Stephen MacLeod: Meant to say Brands.

Jeremy Rakusin: Brands margins will be modestly lower. We are going to grow EBITDA in our mind. But the margin will be down again, largely due to the same dynamics as in Q3, with roofing margins down and every other business sort of roughly in line to partially offsetting that.

Stephen MacLeod: Right. Okay. That is great. Then just Oh, sorry. Go ahead.

Jeremy Rakusin: No, I was going to say, and the full year indications I gave for consolidated margins being in line with us growing mid-single digits should get you to be able to sort of fill in the missing pieces for Q4.

Stephen MacLeod: Yeah. Okay. That is great. Thanks, Jeremy. Then maybe just finally, on the NCIB, you have obviously been very active. You still have the 10% NCIB out there with 2.6 million shares of capacity. Barring any other change in the acquisition pipeline, would you expect to continue to be sort of very active on that NCIB?

Jeremy Rakusin: We would be active, but not as active as we have been starting at the beginning of Q2. We started with a much lower leverage level. I think right now it is going to be in lockstep with generating free cash flow, which our businesses always collectively do. We will be using free cash flow to buy back shares, assuming that the stock price is at levels that we feel are attractive to be doing that, and as also qualified, as you said, by our acquisition pipeline opportunities.

Stephen MacLeod: Yeah. Okay. That is great. Thanks, guys. Appreciate it.

Operator: Thank you, and one moment for our next question. Our next question will come from the line of Stephen Sheldon with William Blair. Your line is open. Please go ahead.

Stephen Sheldon: Hey, thanks. I wanted to ask a follow-up question on roofing margins. It is great to hear that the backlog there is improving, but curious, I guess, are the competitive pressures getting any better or worse than you have seen in the prior few quarters? Has there been any changes, I guess, in bidding activity and what that could mean for margins as we think about fourth quarter into early next year?

Jeremy Rakusin: We think that the margins will continue to be under pressure. As I said, definitely into Q4, we will go through budget with the business as we do with all of our brands for the balance of the year and have a better outlook for 2027. But I think any green shoots that Scott articulated in his comments will be slow to materialize. I think we will have more to say on the margin profile for our brands collectively with indicators for each in our February call.

Stephen Sheldon: Got it. Then just to follow up on residential, sounds like you are expecting similar growth there in the fourth quarter as the third. Wanted to specifically ask about, I guess, the new business pipeline, how that is shaking out to win new contracts and support new communities. Then I guess, kind of and what that means, I guess, for your visibility into growth for next year.

Scott Patterson: Stephen, when you say new communities, are you talking about new development?

Stephen Sheldon: New customers. Whether it's new development-

Scott Patterson: New customers.

Stephen Sheldon: Or competitive wins against, yeah.

Scott Patterson: Yeah. We have a strong sales pipeline in that business, working on it all the time. I did say in my prepared comments, we're trying to balance price and margin, organic growth and margin, because these situations are always very price competitive. So our focus is on larger, more complex management opportunities, high rise and master planned. Historically, we have benefited from new development, and that is slower in this environment. So there's a higher proportion of our new wins coming from existing communities. So I would say it's solid and similar to the level it's been at the last several quarters, which is, I guess, reflected in a stable organic growth rate that you're seeing.

Stephen Sheldon: Good to hear. Thank you.

Operator: Thank you, and one moment for our next question. Our next question comes from the line of Himanshu Gupta with Scotiabank. Your line is open. Please go ahead.

Himanshu Gupta: Thank you, and good morning, everyone. Just on roofing, first question, what is the preference or strategy here? Are you looking to preserve margins or go after organic revenue growth? Are you open to take low margin business in the roofing side?

Scott Patterson: Yeah. Himanshu, it's not dissimilar to my comments on residential. We're trying to find that balance. We are certainly choosing not to bid in certain situations. But in others, with long-term relationships, with strategic relationships, we are adjusting our pricing methodology to be competitive for important customers and relationships. We're picking our spots, and those decisions are being made at the local level. The situation's very different from branch to branch and market to market. We've talked about Southwest Florida, we've talked about Vegas. Those are somewhat unique situations, but the strategy is a little bit different market to market depending on the competitive situation.

Himanshu Gupta: Okay. Thank you. Just talking about market to market here, how many branches in roofing do you think are showing negative growth on organic growth basis? Just trying to see how widespread the pocket of weakness is beyond Florida and Las Vegas.

Scott Patterson: Yeah. We are overweight in Florida just as a percentage of our revenue, if you will, and opportunity. That does weigh on us. Let me put it to you this way, ex Florida Q4, we would show single-digit organic growth. We have a few branches that are still showing weakness, but the majority of them are looking to grow in the next quarter and certainly next year. Part of that is we are coming up against weaker comps also. But the majority of them are growing.

Himanshu Gupta: That is very helpful. One follow-up now. You mentioned roofing backlog has improved on a quarter-over-quarter basis. Is the improvement led by reroofing business, or are you starting to see some backlog from new construction as well?

Scott Patterson: We are seeing a little from new construction. It is heavily weighted to reroof, but we are seeing some wins recently, new construction wins.

Himanshu Gupta: Okay. Is that the reason you mentioned the mention of green shoots because starting to see some new construction as well?

Scott Patterson: It is part of it. It is really just the pickup, it is modest, but it is an increase in activity. New construction is part of that, but we are also seeing it in other areas also.

Himanshu Gupta: Okay. Thank you. Maybe last question now on restoration. On restoration, I think I just want to clarify, you mentioned backlog in Q3 is similar to Q2, but pipeline is stronger. Is that fair to say that? Eventually, we will see that translating from pipeline to backlog.

Scott Patterson: Let me approach it a few ways. We are still working on a number of jobs that involve mitigation, quick turn mitigation that never really hits our backlog. While the backlog is at a similar level, we are very active on a number of different projects. Then to your pipeline comment, we do have some activity that could lead to some larger projects that will hit the backlog and see a tick up by the end of Q4. That is certainly not a certainty at this point. There is a lot that depends on that.

Himanshu Gupta: Got it. Yeah. I think that's helpful. Maybe just one last question, capital allocation. Is it a target leverage here in the context of you being very active on buyback? Would you do more buyback and increase the leverage here?

Scott Patterson: No, it's syncing up with my earlier comments on a prior question. Mid two's of leverage, we're at 2.4, so we're in the zone of still at our comfort level, but don't want to go much higher than that, except for very temporary periods. So that's why I think our buyback activity will be, again, more judicious and in lockstep with free cash flow generation.

Himanshu Gupta: Thank you so much. I'll turn it back.

Operator: Thank you. One moment for our next question, which will come from the line of Tim James with TD Securities. Your line is open. Please go ahead.

Tim James: Thanks very much. Good morning. Just want to think about the roofing business and how it relates to your M&A strategy. Has maybe your learnings or observations around the competitive environment, the dynamics between reroofing and new construction, your geographic footprint, how does that come into play as you think about your M&A approach with roofing going forward?

Scott Patterson: Yeah, certainly, many of those factors come into play, Tim. Our focus on roofing acquisitions really hasn't changed from the beginning. We're focused on reroof, we're focused on commercial, and we're focusing on partnering with founders and longtime owners. Continuing to grow the business with them in partnership. That hasn't changed. When we partnered with the RCA team, we bought a number of branches. We were 70% reroof, 30% new construction. We would like to tilt that more towards reroof as we move forward with acquisitions, and also significantly increase the service component, which we've been successful at doing in Century Fire and we're very focused on at RCA.

Tim James: Thank you. If I could just follow up on that. In terms of your, you mentioned overweight to Florida, and I think some of the types of customers, maybe less data centers, government, et cetera. Does your exposure or lack of exposure in some regions make you that much more incentivized to expand your footprint or diversify your footprint, diversify your customer base? Or does it really just come back down to the economics and finding a business that fits regardless of where it is across the country?

Scott Patterson: No. That's a good point, and I should have added that certainly we're focused on expanding our geographic footprint, and we have a particular focus on white space areas for us where we want to be. We won't buy the businesses we own in local markets. Those are our partners. We're not going to double down in those markets. Yes, we have priority white space that we're focused on.

Tim James: Okay. Thank you very much. Those are all the questions I had.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Frederic Bastien with Raymond James. Your line is open. Please go ahead.

Frederic Bastien: Hi, good morning, guys. Competition for M&A targets has been quite intense for some time. Are you seeing any signs that the recent rise in interest rates is making financial buyers a bit more cautious and potentially easing competition for you guys, creating maybe a more favorable acquisition environment?

Scott Patterson: It would be modest, Frederic. Multiples remain very high. I think there are fewer bidders, on average, for situations we're seeing. But our focus is really on developing relationships with tuck-under, like the A&A Fire deal that we announced this week. That's a family-owned business. They're familiar with Century Fire, familiar with Century's reputation, familiar with other companies that have achieved great success post-partnership with Century. So we're trying to really differentiate ourselves in situations like that, rather than competing on opportunities that are being widely marketed, if you will. So honestly, I don't see the competition reducing right now.

Frederic Bastien: Okay. What do you think needs to change for this environment to become more favorable?

Scott Patterson: Well, I think that we will see, in roofing, in restoration, we will see private equity-owned companies that fail. It's a tough environment in both restoration. I think we're sort of breaking the mold a little bit because claims have been down for a few years. There haven't been gulf storms. We had one recently. So a lot of companies really depend on that activity. In roofing, it's just a very weak demand environment, and we're seeing distressed situations. We're getting lots of calls from folks inquiring about joining our platform. I think it's going to have to be an extended period of weakness here to see some of these things. But I think the multiples in roofing are probably coming down a bit. We're not seeing it in fire or FirstService Residential, residential property management. But I think in roofing, we are seeing multiples come down a bit.

Frederic Bastien: Thanks, Scott. That's helpful.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Daryl Young with Stifel. Your line is open. Please go ahead.

Daryl Young: Good morning, everyone. I just wanted to ask on the restoration business, if the new large contracts that you have in the pipeline, would these be traditional jobs that you would have worked on in the past, or are these new construction with a different, I guess, revenue and earnings profile to them. Are you taking on more execution risk in fixed price contracts to grow that pipeline?

Scott Patterson: No, we're not taking on or looking at any fixed price contracts or any sort of different type of contract that we would not be deploying our expertise, typical expertise. So there's no additional execution risk. It's a balance that we have, in the last few quarters, started to look at opportunities that are with the same customer base and in the same verticals, but involve more capital improvements and new construction. We've been asked to submit bids really based on our experience and reputation. So we do have a few wins, and we're waiting to hear on other opportunities. But it would be very similar to what we'd do in a large loss restoration job.

Daryl Young: Got it. Okay, thanks.

Scott Patterson: I don't know if I answered your question. Yeah.

Daryl Young: No, that's helpful. That's helpful context. Then just one last one in terms of roofing in Florida. Is there a dynamic where we had a whole lot of storms five and six years ago and then no storms the last couple of years? Do customers defer and wait for the next storm to make an insurance claim as opposed to paying to reroof now? Or is that a dynamic that's at play that you see at all?

Scott Patterson: No, I think what really happened was the reroof work got pulled forward with Hurricane Ian. That sort of pulled forward a few years of reroof work, and really more so than we even understood. While our business has benefited at the time and have, even at this time last year, had some Hurricane Ian in the backlog, the fall off has been pretty significant since then. So they're not waiting. It's just got the storm basically created all the reroof work at a point in time.

Daryl Young: Got it. Okay. That's helpful. That's all for me. Thanks very much.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from the line of Faiza Alwy with Deutsche Bank. Your line is open. Please go ahead.

Faiza Alwy: Yes. Hi, thank you. I wanted to ask about margins in the residential business. I think, Jeremy, you mentioned that you expect to see more significant margin expansion in the fourth quarter than the year-to-date performance, and I think you mentioned exiting the non-core aquatics operation. Could you just double-click on that and give us a bit more color on the impact there?

Jeremy Rakusin: Yeah. We've been run rating for the year at around 30 basis points of margin improvement, so that's kind of core and expect that to continue for Q4. Overlaying on top of that would be, again, not having this residential aquatics business that typically loses money in the seasonal trough period of Q4, not in our numbers. I'm not going to put a precise number on where we'll get to on margin improvement, but I'm going to say at least double the 30 basis points that we've seen year to date.

Faiza Alwy: Okay, great. That is very helpful. Just on the Home Services Brands business, I think you talked about positive organic growth, and sounds like you're expecting a modest decline for Q4, which makes sense given the environment. I was just curious on margins there, because I think you said there were some margin headwinds, but I'm not sure if that was just sort of M&A dilution because you make an acquisition there, and how should we think about margins in that business in Q4 if that's decelerating?

Jeremy Rakusin: Within the Brands division overall or one of the particular business lines there?

Faiza Alwy: I was just curious on Home Service Brands, if it's just the top line or if it's more of an M&A impact that's going to make margins worse or better.

Jeremy Rakusin: No. Home Service Brands, our expectation is they've been down the last couple of quarters, a combination of flat revenues, lower volumes, and marketing spend to support the top line. We'll be roughly in line in Q4, again, depending on how we address the. We're always tweaking the dial there around our marketing and promotional activity to support the top lines, and we're looking at that in the context of our lead flow and other front of the funnel indicators. Home Services margin should be roughly in line with Q4 last year in the upcoming quarter.

Faiza Alwy: Okay, perfect. Just last one. I know you've made a bunch of small tuck-under acquisitions, so I'm wondering if you could give us a sense of, as we look ahead to 2027, what's the net impact of M&A that's already been announced on the top line so far for next year?

Jeremy Rakusin: There's not a lot. We've only spent $25 million of spend in the current quarter. It's going to be on a quarterly basis, we're talking about mid-single digits of revenue. Some of the other acquisitions that we did were a lot earlier in the year, so we'll be lapping most of that next year. So most of our growth into 2027, again, we'll give more color in February, is going to be organic unless we close other acquisitions in the balance of the fourth quarter.

Faiza Alwy: Great. Thank you so much.

Operator: Thank you. I am showing no further questions at this time. This will conclude today's question and answer session. Ladies and gentlemen, this will also conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.