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FirstService Corporation (NASDAQ:FSV)
Q1 2020 Earnings Call
Apr 23, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the first 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 the forward-looking statements is contained in the company's annual information filed with the Canadian Securities Administration, the company's annual report on Form 40-F as filed with the US Securities and Exchange Commission.As a reminder, today's call is being recorded. Today is April 23, 2020.

I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

D. Scott Patterson -- President & Chief Executive Officer

Thank you, Jesse. Welcome, ladies and gentlemen to our first quarter conference call. Thank you for dialing in.

Jeremy Rakusin, our CFO, is on the line with me today. In terms of an agenda for the call this morning, I'm going to open and start right into a COVID-19 update, talk about the impacts the pandemic is having on our businesses, the actions we're taking and a look forward. We will then circle back and talk to you about our Q1 results as we normally do, Jeremy and I in tandem. And then Jeremy will close with a focus on our balance sheet and liquidity.

Let me start by saying that all of our businesses have been designated essential services in at least some of their geographic regions, with most being granted essential status across every market. In particular, our management, janitorial, security, restoration and fire safety businesses are delivering services that are protecting the health and safety of our customers during this crisis. I can tell you, I am so proud and inspired by our front-line teams that show up every day and continue to deliver on our service excellence promise.

Our customers are depending on us now more than ever, and I want to personally thank our operating teams for their resilience and commitment during this time. Although our services are deemed essential, they are certainly not immune to the impacts of a pandemic. While COVID-19 did not materially affect our first quarter results, we will see a negative impact in future reporting periods, in particular, the second quarter. The various lockdown, stay at home and social distancing measures are negatively impacting our ability to do work on the premises of both residential and commercial customers. All of our service lines are being impacted with a more pronounced effect being felt within our Brands division.

Let me get a little more specific and talk about each of our divisions. We believe our FirstService Residential division will be relatively resilient. Most of the revenue is essential and contractual and relates to community management. Our boards are counting on us to deliver seamless management services through this period. We will, however, see declines in certain ancillary services, including amenity management, project management, and a number of administrative services. And as a result, we expect year-over-year revenue decline in the second quarter of 10% to 15%. The ancillary services generally carry a higher average margin. So we expect some margin dilution in Q2 versus Q2 of 2019.

Our FirstService Brands division will see a more pronounced year-over-year revenue decline, particularly as a result of our home improvement-related businesses. As mentioned, it is currently very challenging for our operations to perform on-site work and generate revenue. We expect our revenue in this division to be off 40% to 50% in the second quarter, excluding Global Restoration. With Global, we will be flat to up 15%. In terms of profit, we expect to generate a modest low to mid-single-digit margin in Q2. All of our operations acted quickly and boldly in March to reduce operating costs, including headcount reductions, salary cuts and deferral of all discretionary expenses. The Q2 margin estimates I have provided include all of these mitigating measures.

We, like others, cannot predict the duration and severity of the pandemic, and it's difficult for us to see beyond Q2. In fact, I would say that May and June are not highly visible at this point. The situation changes daily. I will say that all of our businesses are mobilized and planning for a return to work. We are confident that we will respond quickly to changes in the marketplace and take full advantage of any and all revenue opportunities. We have a long track record of success, and we fully expect to get through this period of disruption and continue to build on it for years to come. Our performance in the first quarter was another building block in that track record. Pre-COVID, we had momentum, really, across the board that exceeded our expectations. Q1 results would have been even better, particularly in our brands division as our momentum obviously did slow in March.

Total revenues were up 31% over the prior year, relating primarily to the acquisition of Global Restoration at the end of the second quarter of 2019. Organic growth was again 6% this quarter, spread evenly across our divisions. EBITDA increased by 50%, reflecting a 90 basis point increase in margins and earnings per share were up 23%. At FirstService Residential, revenues grew by 6%, all organic. The growth was broad-based geographically and balanced between contract wins and the addition of ancillary services. At FirstService Brands, revenue was up 77%, due primarily to acquisitions, but supported by very solid organic growth of 6%. The organic growth was driven by strong results at Century Fire and the home improvement brands, particularly California Closets and CertaPro Painters. And the results at our home improvement brands are impressive in light of the considerable headwinds they faced during the last two weeks of March.

I will tell you that we are very pleased with the results of our first quarter, which reflect market share gains across the board and strong fundamentals. On that note, I will transfer over to Jeremy for a more detailed review of our quarter and balance sheet.

Jeremy Rakusin -- Chief Financial Officer

Thank you, Scott, and good morning, everyone.

As you heard, we kicked off the 2020 fiscal year with another quarter of strong financial performance. To recap our consolidated Q1 financial results, we reported revenues of $634 million, up 31% over the $486 million in the prior-year quarter. Adjusted EBITDA was $43.9 million, a 50% increase over the prior year's $29.2 million, with our margin coming in at 6.9%, up 90 basis points year-over-year, and our adjusted EPS was $0.37, representing 23% growth over the $0.30 per share in the prior year period. Our adjustments to operating earnings and GAAP EPS in arriving at adjusted EBITDA and adjusted EPS, respectively, are outlined in this morning's press release and are consistent with our approach and disclosures in prior periods.

Turning to our segmented financials by division. FirstService Residential recorded revenues of $340 million, up 6% over last year's first quarter, while EBITDA was $23.9 million, a 9.5% increase over the prior year. The EBITDA margin for the division came in at 7%, up modestly from 6.8% last year. In our FirstService Brands division, we generated revenues of $294 million during the first quarter, up 77% over last year's first quarter, which in turn, drove EBITDA of $21.9 million, double the $11 million in the prior year quarter. The division margin increased to 7.5% from last year's 6.6% level due to a shift in mix of businesses within the brand's portfolio. The current quarter included contribution from Global Restoration with its year-round operations compared to a more seasonal slant in Q1 '19 and prior years, which typically yielded lower first quarter Brands margins.

Now on to a walk-through of our cash flow which was strong across the board. We generated $31 million before working capital changes, a 27% increase year-over-year. Operating cash flow after working capital requirements was up even more, 56% over last year at $14 million. Cash flow improvement is largely attributable to the reduced seasonality in our Brands division versus the prior year, which I previously referenced as well as increased accounts receivable collection. During the first quarter, our capital deployment was modest. Capex in support of our existing businesses was $15 million, tracking in line with the annual $60 million capex level we provided at the outset of the year.

Scott alluded to the cost reduction and cash management initiatives we have undertaken in the face of COVID-19, and that includes a review of our capital expenditures. To counter the impact of the pandemic, we are reducing our estimated annual capex to a level in the order of $45 million, with an ability to flex either up or down as the degree and duration of the crisis plays out. Our other leg of capital deployment acquisition spending was negligible for the quarter compared to the deal flow we saw in Q1 2019. The acquisition activity, we have ebbs and flows from quarter-to-quarter and year-to-year. So the more muted level this quarter is not indicative of any longer-term trend. While the current COVID-19 environment does make it more challenging to advance our deal pipeline, we continue to be active with our prospect list, so we're well positioned to further advance when travel opens up.

The combination of improved cash flow and reduced capital investment kept all of the key metrics related to our balance sheet roughly in line with the 2019 year-end. Our leverage, as measured by net debt to trailing 12 months EBITDA, remained flat with year-end at 2.4 times. We believe that this leverage ratio provides us with sufficient headroom compared to our maximum covenant of 3.5 times to navigate through the COVID-19 environment. Our debt profile is also favorable. We have an attractive low-cost of funding with an average annual interest rate in the range of 3% to 3.5% based on our mix of current floating and fixed rate borrowings.

All significant debt maturities are at minimum close to three years out, with our bank revolver having the nearest-term maturity in January 2023. And most importantly, our liquidity, reflecting our cash on hand and our undrawn revolving credit facility balance is significant at $400 million, a little higher than at 2019 year-end. This liquidity level gives us plenty of runway to withstand the negative impact of the pandemic, particularly given our asset-light business model and ability to generate free cash flow in a highly depressed macroeconomic environment.

That concludes our prepared comments. I ask the operator to open the call to questions at this point. Thank you.

Questions and Answers:

Operator

[Operator Instructions]

Your first question comes from George Doumet with Scotiabank. Your line is open. Please state your question.

George Doumet -- Scotiabank -- Analyst

Good morning. Maybe on the Brands side of the business to start off. I understand this is a tough question. But how do you see the eventual, I guess, the trajectory of the recovery in the back half? I guess, when you look at California Closets versus Restoration and versus Century Fire, maybe how you project that? How you think of that in terms of maybe some lag there? Just your views there, please.

D. Scott Patterson -- President & Chief Executive Officer

Well, that is a tough question, George. It's hard to say. I will tell you that we had, as I said in my prepared comments, very strong momentum leading into this. At Cal Closets, we were building backlogs really at every operation. And we continue to engage with our customers and provide virtual estimates and virtual consults, but we simply are unable to get out and install the work. But the teams are ready to go. And as we are able to get back into homes, we'll start to work through that backlog. And how quickly that happens, we don't know.

And the longer-term impact that this situation has on demand at our home improvement brands, we don't know that either. But I can tell you that we -- there is lead activity that is certainly down, but stabilized and starting to tick up. So we're hopeful.

George Doumet -- Scotiabank -- Analyst

Okay. That's helpful. And you alluded to this earlier, Scott, on the residential side. Can you maybe talk a little bit about what specific service lines and maybe what end markets have been the most impacted to date? I'm just wondering if you're seeing any issues at all when it relates to collections?

D. Scott Patterson -- President & Chief Executive Officer

Okay. So two different questions. At FirstService Residential, our core management services can continue. We manage 8,500 communities. They're all expecting us to manage seamlessly through this period. So financial management, collection of assessments and payment of vendors and so on continues. In many regions, we provide a full-service offering that includes janitorial, front desk visitor screening, package handling, security, building operations, all of that continues seamlessly. But it's the management of fitness centers and spas in aquatic areas that they have, for the most part, been shut down, which results in a reduction of our staff. Project management, construction management or services we provide in many regions, it slowed considerably.

And then administrative services, transfer and disclosure documents, for example, that relate to the sale of a property within our communities. That activity, properties simply aren't moving right now. And so that's a fee that we charge for that service that will be down. And so it's those services that are resulting in the reduced revenue that we're forecasting for Q2.

In terms of the collection of monthly maintenance fees, we haven't seen any impact yet. So that would be for April. There was a little bit of reduction in New York, but outside of New York, really nothing at this point.

George Doumet -- Scotiabank -- Analyst

That's helpful. And just one last one, if I may, maybe to Jeremy. As it relates to the covenant, I think you called them out at 3.5 times. Just wondering, in light of, I guess, all that lower visibility we're facing on both segments, is there an attempt, maybe on your end, to raise those and just to be prudent?

Jeremy Rakusin -- Chief Financial Officer

Not at this point, George. We modeled out many different scenarios, but the way we see the outlook for Q2 and the parameters that Scott outlined shaking out, we think it would be premature to go there. We're pretty comfortable that we're going to stay within that covenant. Obviously, it's a fluid situation. We'll keep evaluating it, but we're in good shape right now.

George Doumet -- Scotiabank -- Analyst

Okay. Thanks for the answers.

Operator

Your next question comes from Stephen MacLeod. Please state your question.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Thank you. Good morning, guys.

D. Scott Patterson -- President & Chief Executive Officer

Good morning.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Just understanding, obviously, lots of, lots of uncertainty out there. I was just wondering if on the FirstService Brands side, you kind of gave two sort of -- two sets of guidance for Q2 or expectations for Q2. One with Global Restoration, and one without. Can you just talk a little bit about -- so the with and without ranged from, I think, down 40% to 50% to being flat to up 15% with Global Restoration. Is that -- can you just clarify, is that because of including Global Restoration in this period where it wasn't included last year? Or are you actually seeing a lot higher growth from Global Restoration?

D. Scott Patterson -- President & Chief Executive Officer

It's the former. Just looking at the organic year-over-year situation in Q2 and then layering in Global, which I think a lot of people have modeled separately or looked at separately.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Okay, that's helpful. And just when you break down the brands business, can you talk a little bit about what you've seen kind of quarter-to-date by service line in terms of where you're seeing any -- I mean, obviously, seeing lots of weakness, but where you're seeing potentially offsetting pockets of growth across the Brands businesses.

D. Scott Patterson -- President & Chief Executive Officer

I can't report any offsetting pockets of growth, Stephen. But let me talk about the home improvement brands as a bucket because they're all very similar. And it's a really unusual situation and that -- leads are certainly off in the last six weeks. But we are -- but they are stable. And I would say in the last couple of weeks, starting to tick up. So we're engaging with customers and providing estimates, and in some cases, booking jobs, but we are unable to deliver the service for the most part. I mean, 85% of North America has effectively been shut down.

So before it starts to open up or before it opens up, we won't actually be able to convert into revenue. Century Fire is pretty resilient to date. There's two pieces of that business. One tied to new construction, about 45% of the revenue, and that's off modestly, but only just modestly. There are some construction sites that they're unable to access, but many which they continue to work on and are deemed essential. And there's a very, very strong backlog of work there. So we will fire back up quickly on that side. And then the other piece of the business is service, inspections and repair. That's down a little bit more. Ironically, the less cyclical part of the business, simply because a lot of the customers are shut down. So they're not getting in to perform the inspection for the service.

But Century Fire, net-net is off only modestly. In line with say FirstService Residential. And then we have the restoration piece, which has been steady for us.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Okay, that's helpful. And when you look at -- when you -- the numbers you put forth for Q2, does that assume that the stability that you've seen over the -- more recently continues through the rest of the quarter? Does it incorporate potentially a bit of a rebound? Like you said, you're starting to see some of the home improvement business ticking up in terms of booking jobs and engaging the customers?

D. Scott Patterson -- President & Chief Executive Officer

No, we haven't. It does -- it really does change day-to-day. So we have not really built any rebound in for Q2.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Yes. Okay. That's very helpful. And then on the FirstService Residential side, could you just clarify -- I think the number is around 25%, but is that a fair estimate of what percentage of FirstService Residential revenues are sort of under that under pressure with respect to the transfer disclosure, the aquatics and spas. Is that the right number to think about?

D. Scott Patterson -- President & Chief Executive Officer

It sounds right. Jeremy, do you want to...?

Jeremy Rakusin -- Chief Financial Officer

Yeah That would be about right, Steve. 20% to 25%.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Okay. That's great. Thank you very much.

Operator

Your next question comes from Stephen Sheldon. Please state your question.

Stephen Sheldon -- William Blair & Co. -- Analyst

First, I wanted to ask kind of what -- and it took me a while to get into the queue, so sorry if I missed this. But what trends have you seen in residential client retention throughout the first quarter, especially in March? And what would you expect looking into the second quarter and the rest of the year?

D. Scott Patterson -- President & Chief Executive Officer

We had a solid first quarter in terms of retention -- in terms of sales and retention. Going forward, I think retention will continue to be -- will continue to be good. And certainly, I don't think boards of directors are focusing on a management change through this disruption. So we expect that our retention will probably improve during this period. But at the same time, it will be harder to pry accounts loose and to win, get board's attention. So we're expecting our sales to temper as well. But the balance between them will probably stay the same.

Stephen Sheldon -- William Blair & Co. -- Analyst

Okay. That's helpful. And then again, sorry, it took me -- but can you restate the parameters you set up again for Q2?

D. Scott Patterson -- President & Chief Executive Officer

For FirstService Residential?

Stephen Sheldon -- William Blair & Co. -- Analyst

Did you give it? I missed it, but I don't know if you gave it for both Residential and Brands, or how you brand it.

D. Scott Patterson -- President & Chief Executive Officer

Yeah. FirstService Residential revenue is down 10% to 15%. There will be some margin dilution because the decline in revenue is from ancillary services, which on average, carry a higher margin. Brands, down 40% to 50% ex-Global, flat to up 15% with Global. In aggregate, low to mid-single-digit margin.

Stephen Sheldon -- William Blair & Co. -- Analyst

Okay. That's helpful. And then as you think about the second quarter, I know you talked about furloughs and other things. Are there other expenses? And I think you said you'd maybe cut all the discretionary spend. Are there any other expenses where you might try to rein in spend if trends in the second quarter deteriorate even more than expected?

D. Scott Patterson -- President & Chief Executive Officer

The answer is yes, but I will tell you that we jumped on this early and boldly. And I must say I'm very proud of the way our teams approached this situation. They faced it head on from the beginning. And the approach was to err on the side of being too aggressive. We did not know and really still do not know what we're dealing with, and we did not want to regret being too passive about this. So I'm very comfortable with the action we've taken. If the situation declines from where it is today, we will have to take further action. But I think we've done the right thing to date.

Stephen Sheldon -- William Blair & Co. -- Analyst

Got it. All right. Thank you very much.

Operator

Your next question comes from Sumayya Syed. Please state your question.

Sumayya Syed -- CIBC World Markets -- Analyst

Thanks. Good morning. Just firstly, typically, in residential, what are the ballpark margins for, I guess, the core property management business versus the more ancillary services?

D. Scott Patterson -- President & Chief Executive Officer

Jeremy, I'll pass over to you.

Jeremy Rakusin -- Chief Financial Officer

Yeah. Sumayya, everything around property management and the site staff, everything labor is kind of 8% to 10% order of magnitude. And on the more transaction-related services, 30% plus and incremental would be higher than that. But just as a current base, in that order. So it is much more significant than the labor services.

Sumayya Syed -- CIBC World Markets -- Analyst

All right. Okay. Thanks for that. I'm not sure if I missed it, but just can you go over how the Global and Paul Davis businesses have done post the shutdown period?

D. Scott Patterson -- President & Chief Executive Officer

So they're a little different. But they had -- Global certainly had a solid first quarter, which was generally in line with its prior year. Keep in mind, we did not own Global in Q1 of last year. But organically year-over-year, it was generally in line. Last year, they had some hurricane work in Q1 carryover. And if you normalize for that, Global was up on a net organic basis, and we follow that closely because it really measures our progress with national accounts.

Global has benefited from commercial COVID work, which has picked up considerably in April. And in addition, I think there's an expectation that reopening and return to work might amplify that and lead to more specialist disinfectant services and initial deep cleans in commercial premises, that sort of thing. And all of that will help to offset the decline in weather-related claims, which have been down for a few quarters now.

And certainly, Paul Davis has been feeling that as well. The impact of COVID, while Paul Davis does have also COVID-related work, it has been more significantly impacted because its business is primarily residential, and they have hundreds and hundreds of jobs that have been effectively paused because they are in homes and they've had to pull out. So residential claims were down all quarter. And we expect that to continue through Q2.

Sumayya Syed -- CIBC World Markets -- Analyst

Okay. That's helpful. And just lastly for me, a bit of a bigger picture question. Obviously, your business has evolved and diversified quite a bit. And looking at the evolution, how do you see, I guess, the company's positioning today as better being able to go through the current downturn versus maybe a few years ago?

D. Scott Patterson -- President & Chief Executive Officer

Well, I think that we have continued to diversify our business. And the addition of Global has certainly helped. We did not envision anything like this when we were making that acquisition. We love the opportunity that we have in restoration, both residential and commercial. But it is -- it will serve us well through this period. Other than that, we're just better across the board and have differentiated ourselves relative to our competitors more substantially.

And I think that in many of our businesses, our leadership position is shining through in the current environment. And we expect that we will emerge in a better position competitively. We believe that our teams are delivering right now.

Sumayya Syed -- CIBC World Markets -- Analyst

Okay. Sounds good. I'll turn it back. thank you.

Operator

Your next question comes from Daryl Young. Please state your question.

Daryl Young -- TD Securities -- Analyst

Good morning, guys.

D. Scott Patterson -- President & Chief Executive Officer

Good morning.

Daryl Young -- TD Securities -- Analyst

My question is on the M&A landscape. Just looking out past the COVID period, if you're seeing or you expect to see an increase in the number of opportunities out there as some of your competitors may have struggled more through this reduced activity level period on both Residential and on the Brands side, specifically, I'm thinking some of the private equity players in the restoration space?

D. Scott Patterson -- President & Chief Executive Officer

Yeah. Well, there's that group, but there's also, really, the broad group of our competitors. We operate in fragmented markets, so really, in every business. Our competitors are primarily small family owned businesses. And I would say that they are generally very nimble and very entrepreneurial and a resilient group. But this is an unusual time, and they are not as well capitalized as we are. And some won't make it, and some may well be more amenable to acquisition. We will be very, I guess, aware and alert for those opportunities. We're not seeing it as yet, it's still early. But we maintain communication with a group of these companies, and we have for years and years and years, and we will continue to, and it's a very respectful relationship.

And so we'd like to think that when those families do get to that point where it's time for them to exit, then that we'll be the call that they make. In terms of the private equity restoration companies, those are all relatively new investments, and I expect that those businesses are well capitalized and will be formidable competitors for us over the next few years.

Daryl Young -- TD Securities -- Analyst

Okay. Great. That's all the questions from me. Thanks.

Operator

Your next question comes from Marc Riddick. Please state your question.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Hi, good morning, gentlemen. Forgive me, it took a little while to get into the call, so I may have missed a little bit in the first few minutes there. But I did want to go over just a similar question to the last one posted, but I wanted to see if you could give an update on your views as to the general acquisition plans behind the company-owned brands and kind of where you want to get to with California Closets and Paul Davis. I was wondering if you can give an update as to your thoughts on that, as well as whether you'd be in a position to -- it seems as though you're financially in a position to act should company-owned brand opportunities arise during the downturn. So I wanted to get your thoughts on that.

D. Scott Patterson -- President & Chief Executive Officer

We believe we are in a position to act. Practically, it's tough to -- it will be tough to close deals in this environment until travel opens up, just in terms of completing our adequate due diligence and develop relationships with the principals and so on. But we're doing what we can. We're certainly working on our pipeline and continuing to prospect and add to it. As it relates to the company-owned at Cal Closets and Paul Davis, those are long-term strategies. We continue to work on them. They will be paused, I think, for a few months here for the reasons I just articulated. But as I said in response to the earlier question, some of the franchises that we ultimately would like to own, this may help us in those discussions or otherwise accelerate discussions.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Okay. Thanks for that. And then I did want to follow-up with thoughts on kind of -- it seems as though given where we are with unemployment and jobs being interrupted, what have you, I was wondering if you could maybe give some thoughts or some comments around -- in the past, when things were going really, really well, it was fairly hard to get a hold of good help. And so I wanted to get a general sense of maybe if there's an opportunity to be in a more advantaged position than maybe some of your peers and how you might be thinking about HR opportunities coming out of the downturn? Thank you.

D. Scott Patterson -- President & Chief Executive Officer

Yeah, that's -- it's an interesting question. I'm not -- it's on our mind. But first and foremost, we have many people that have been furloughed, and we want to get them back. Get them back working and get them back to full weeks and full hours. And then if we have the opportunity to bring on others, we would certainly look to that. And I think you're right. It's probably an environment where there are opportunities for us to add quality talent.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Okay. Great. Thank you very much.

Operator

Your next question comes from Frederic Bastien. Please state your question.

Frederic Bastien -- Raymond James Ltd. -- Analyst

Hey, good morning. I apologize if you've covered this already, but I also waited to get on the call and missed all your prepared comments. What kind of signals are you getting from clients and customers right now? Are they all saying they want you back once the restrictions are lifted? Or are you starting to see some hesitation on their part?

D. Scott Patterson -- President & Chief Executive Officer

I don't think we're seeing any hesitation, but we are certainly revising our protocols around service delivery. And before we do get back, and I'm thinking about in residential homes primarily, but it goes across the board. We will want to communicate very clearly with that customer and share with them our SOPs and new protocols in the new environment. And that -- the work on revising all of that is taking place. We have to ready our installation teams and painting crews for a revised process that ensures their safety, but also ensures the safety of our customers.

Frederic Bastien -- Raymond James Ltd. -- Analyst

Thanks, Scott.

Operator

[Operator Instructions]

Your next question comes from Matt Logan. Please state your question.

Matt Logan -- RBC Capital Markets -- Analyst

Thank you, and good morning.

D. Scott Patterson -- President & Chief Executive Officer

Good morning, Matt.

Matt Logan -- RBC Capital Markets -- Analyst

Just following up on the M&A-related questions. Can you talk about your own willingness to deploy capital over the next two or three quarters? Would you say this is on hold? Or is this -- is there a limit? Or are you only looking at distressed opportunities in the near term?

D. Scott Patterson -- President & Chief Executive Officer

Certainly not looking at distressed opportunities, unless they happen to line up strategically. But there are some -- we have priorities in terms of our acquisition strategy. And so we would -- we're not pushing the pause button, absolutely. We would look to try to -- if we have one of our high priority targets, want to engage and close, we would look to try and find a way to do that.

Matt Logan -- RBC Capital Markets -- Analyst

Appreciate that. And maybe just changing gears. Would you be able to provide any metrics around the quantum of savings from furloughs and operating expense reductions?

D. Scott Patterson -- President & Chief Executive Officer

Yeah, I can give you a few numbers, and then I'll pass it over to Jeremy. But about 3,200 people in total have been furloughed or had their hours reduced. Over 500 with salary cuts, and on average significant cuts. And then a number of a number of terminations. And Jeremy, maybe if you want to provide dollars, I'll pass it to you.

Jeremy Rakusin -- Chief Financial Officer

Yeah, sure. Matt, in terms of annualized impact, roughly, on personnel, cost reduction is around $40 million, and then we've cut some other stuff, T&E, marketing, other things where we're cutting to. That's on an annualized basis. Obviously, we're going to flex and see how long this plays out. That could be reduced. Furloughs, for example, we've got potentially people that we'll bring back in 90 days, call it, if we see an uptick in activity.

Matt Logan -- RBC Capital Markets -- Analyst

Appreciate the commentary. Maybe just providing a bit of a base for 2019 as we think about going forward, would you be able to tell us the 2019 and trailing 12-month adjusted EBITDA, if you had owned Global Restoration for the full period?

Jeremy Rakusin -- Chief Financial Officer

When we do our leverage ratios, if I understand your question correctly, Matt, like the 2.4 times now, includes the impact of Global for the period that we've owned it. And we get a 12-month window on all of our acquisitions. So we acquired this at the end of June. So there would be another quarter of Global built into that 2.4 times leverage. Is that your question?

Matt Logan -- RBC Capital Markets -- Analyst

Yeah. So I guess if I just take your debt and multiply that by 2.4, that would give me the related EBITDA if you'd owned Global for the full year?

Jeremy Rakusin -- Chief Financial Officer

Correct. Plus the other tuck-unders, correct.

Matt Logan -- RBC Capital Markets -- Analyst

Plus the tuck-unders. And I guess last one for me before I turn the floor back. When we look out to 2021 and 2022, can you give us any insights from the GFC in terms of what your experience was then? And if there's any read-throughs that you think might be relevant for investors in the current environment?

D. Scott Patterson -- President & Chief Executive Officer

Scott here. I don't know where to start on that. This is so different. So I'm going to pass. Did you already pass [Phonetic], Jeremy?

Matt Logan -- RBC Capital Markets -- Analyst

Well, I appreciate your commentary regardless, and commend you for providing some color on Q2 and the financials therein.

Jeremy Rakusin -- Chief Financial Officer

Thanks, Matt.

Operator

And there are no further questions at this time.

D. Scott Patterson -- President & Chief Executive Officer

Okay. Well, listen, thank you for joining us today. I wish you all good health in the coming months. And we look forward to updating you in late July on our Q2 call.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

D. Scott Patterson -- President & Chief Executive Officer

Jeremy Rakusin -- Chief Financial Officer

George Doumet -- Scotiabank -- Analyst

Stephen MacLeod -- BMO Capital Markets -- Analyst

Stephen Sheldon -- William Blair & Co. -- Analyst

Sumayya Syed -- CIBC World Markets -- Analyst

Daryl Young -- TD Securities -- Analyst

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Frederic Bastien -- Raymond James Ltd. -- Analyst

Matt Logan -- RBC Capital Markets -- Analyst

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