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FirstService Reports Solid Second Quarter Operating Results

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Growth Tempered By COVID-19 Pandemic

Operating highlights:

Three months ended

Six months ended

June 30

June 30

2020

2019

2020

2019

Revenues (millions)

$

621.6

$

573.9

$

1,255.4

$

1,059.6

Adjusted EBITDA (millions) (note 1)

71.2

65.0

115.1

94.2

Adjusted EPS (note 2)

0.86

1.12

1.23

1.45

GAAP Operating Earnings

44.9

(268.5

)

(1)

60.9

(255.5

)

(1)

GAAP EPS

0.64

(7.48

)

(1)

0.77

(7.69

)

(1)

(1) Includes $314.4 million settlement of long-term incentive arrangement with FirstService's Founder and Chairman.

TORONTO, July 23, 2020 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported results for its second quarter ended June 30, 2020. All amounts are in US dollars.

Revenues for the second quarter were $621.6 million, an 8% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 10% to $71.2 million, and Adjusted EPS (note 2) was $0.86, versus $1.12 in the prior year quarter. During the second quarter, FirstService reported GAAP Operating Earnings of $44.9 million, versus an operating loss of $268.5 million in the prior year period, reflecting the 2019 settlement of the long-term incentive arrangement (“LTIA”) with its Founder and Chairman in the amount of $314.4 million. The GAAP earnings per share was $0.64 in the quarter, compared to a loss per share of $7.48 for the same quarter a year ago.

For the six months ended June 30, 2020, revenues were $1.26 billion, an 18% increase relative to the comparable prior year period, Adjusted EBITDA was $115.1 million, up 22%, and Adjusted EPS was $1.23, versus $1.45 in the prior year period. FirstService’s GAAP Operating Earnings was $60.9 million in the current year period, versus an Operating Loss of $255.5 million in the prior year period. The GAAP earnings per share for the six months year-to-date was $0.77, compared to GAAP loss per share of $7.69 in the prior year period.

“We are pleased to report a solid quarter in the face of significant COVID-19 headwinds. Our financial results exceeded expectations and highlight the resiliency and diversification of our business model,” said Scott Patterson, Chief Executive Officer of FirstService. “We maintain a positive yet cautious outlook for the remainder of the year as we navigate around the ongoing pandemic uncertainty,” he concluded.

About FirstService Corporation
FirstService Corporation is a North American leader in the essential outsourced property services sector, serving its customers through two industry-leading service platforms: FirstService Residential - North America’s largest manager of residential communities; and FirstService Brands - one of North America’s largest providers of essential property services delivered through individually branded franchise systems and company-owned operations.

FirstService generates US$2.4 billion in annual revenues and has approximately 24,000 employees across North America. With significant insider ownership and an experienced management team, FirstService has a long-term track record of creating value and superior returns for shareholders. The common shares of FirstService trade on the NASDAQ under the symbol “FSV” and on the Toronto Stock Exchange under the symbol “FSV”. More information is available at www.firstservice.com.

Segmented Quarterly Results
FirstService Residential revenues were $338.2 million for the second quarter, down 9% versus the prior year quarter. The revenue decline was primarily attributable to client facility closures that negatively impacted the delivery of our amenity management services, stemming from the COVID-19 pandemic. Adjusted EBITDA for the quarter was $37.2 million, versus $39.2 million in the prior year period. GAAP Operating Earnings were $32.0 million, versus $32.3 million for the second quarter of last year. Margins expanded during the quarter from a combination of aggressive cost reduction initiatives and lower than expected decline in higher margin ancillary revenue.

FirstService Brands revenues during the second quarter grew to $283.4 million, up 39% relative to the prior year period. The division recorded a 10% decline in revenues on an organic basis, which was more than offset by the contribution from the large Global Restoration transaction and other tuck-under acquisitions not reflected in last year’s second quarter. The decrease in organic revenue resulted from the various government-mandated “stay at home” measures which negatively impacted activity levels in our service lines tied to home improvement. Adjusted EBITDA for the second quarter was $35.8 million, versus $28.4 million in the prior year period. The year-over-year margin decline was principally driven by acquisition mix, with the addition of Global Restoration yielding lower margins than the overall division. GAAP Operating Earnings were $17.4 million, versus $20.7 million in the prior year quarter, with the decrease due to increased amortization of intangible assets arising from the Global Restoration transaction.

Corporate costs, as presented in Adjusted EBITDA, were $1.9 million in the second quarter, relative to $2.6 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $4.4 million, relative to $321.5 million in the prior year period, with the decrease primarily attributable to the settlement of the LTIA.

Conference Call
FirstService will be holding a conference call on Thursday, July 23, 2020 at 11:00 a.m. Eastern Time to discuss the quarter’s results. The numbers to use for this call are 1) toll-free 1-888-241-0551; or 2) for international callers, 647-427-3415. The call will be simultaneously webcast and can be accessed live or after the call at www.firstservice.com in the “Investors / Newsroom” section.

Forward-looking Statements
This press release includes or may include forward-looking statements. Much of this information can be identified by words such as “expect to,” “expected,” “will,” “estimated” or similar expressions suggesting future outcomes or events. FirstService believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Such factors include: (i) general economic and business conditions, which will, among other things, impact demand for FirstService’s services and the cost of providing services; (ii) the ability of FirstService to implement its business strategy, including FirstService’s ability to acquire suitable acquisition candidates on acceptable terms and successfully integrate newly acquired businesses with its existing businesses; (iii) changes in or the failure to comply with government regulations; and (iv) other factors which are described in FirstService’s annual information form for the year ended December 31, 2019 under the heading “Risk factors” (a copy of which may be obtained at www.sedar.com) and Annual Report on Form 40-F filed with the United States Securities and Exchange Commission (a copy of which may be obtained at www.sec.gov), and subsequent filings (which factors are adopted herein). Forward-looking statements contained in this press release are made as of the date hereof and are subject to change. All forward-looking statements in this press release are qualified by these cautionary statements. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements contained in this press release to reflect subsequent information, events, results or circumstances or otherwise.

Summary financial information is provided in this press release. This press release should be read in conjunction with the Company's consolidated financial statements and MD&A to be made available on SEDAR at www.sedar.com.

Notes
1. Reconciliation of net earnings to adjusted EBITDA:

Adjusted EBITDA is defined as net earnings, adjusted to exclude: (i) income tax; (ii) other expense (income); (iii) interest expense; (iv) depreciation and amortization; (v) acquisition-related items; (vi) stock-based compensation expense; and (vii) settlement of the LTIA. We use adjusted EBITDA to evaluate our own operating performance and our ability to service debt, as well as an integral part of our planning and reporting systems. Additionally, we use this measure in conjunction with discounted cash flow models to determine the Company’s overall enterprise valuation and to evaluate acquisition targets. We present adjusted EBITDA as a supplemental measure because we believe such measure is useful to investors as a reasonable indicator of operating performance because of the low capital intensity of the Company’s service operations. We believe this measure is a financial metric used by many investors to compare companies, especially in the services industry. This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings, net earnings or cash flow from operating activities, as determined in accordance with GAAP. Our method of calculating adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to adjusted EBITDA appears below.

Three months ended

Six months ended

(in thousands of US$)

June 30

June 30

2020

2019

2020

2019

Net earnings (loss)

$

29,917

$

(275,680

)

$

35,697

$

(267,535

)

Income tax

9,603

8,569

11,149

9,778

Other income, net

(147

)

(6,131

)

(376

)

(6,124

)

Interest expense, net

5,530

4,772

14,417

8,341

Operating earnings (loss)

44,903

(268,470

)

60,887

(255,540

)

Depreciation and amortization

23,488

14,165

46,995

26,852

Settlement of long-term incentive arrangement

-

314,379

-

314,379

Acquisition-related items

397

3,202

802

3,880

Stock-based compensation expense

2,443

1,755

6,412

4,610

Adjusted EBITDA

$

71,231

$

65,031

$

115,096

$

94,181

2. Reconciliation of net earnings and diluted net earnings per share to adjusted net earnings and adjusted net earnings per share:

Adjusted earnings per share is defined as diluted net earnings per share, adjusted for the effect, after income tax, of: (i) the non-controlling interest redemption increment; (ii) acquisition-related items; (iii) amortization expense related to intangible assets recognized in connection with acquisitions; (iv) stock-based compensation expense; (v) a stock-based compensation tax adjustment related to a US GAAP change; and (vi) settlement of the LTIA. We believe this measure is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company and enhances the comparability of operating results from period to period. Adjusted earnings per share is not a recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted net earnings per share, as determined in accordance with GAAP. Our method of calculating this non-GAAP measure may differ from other issuers and, accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to adjusted net earnings and of diluted net earnings per share to adjusted earnings per share appears below.

Three months ended

Six months ended

(in thousands of US$)

June 30

June 30

2020

2019

2020

2019

Net earnings (loss)

$

29,917

$

(275,680

)

$

35,697

$

(267,535

)

Non-controlling interest share of earnings

(3,326

)

(2,409

)

(5,081

)

(4,205

)

Settlement of long-term incentive arrangement

-

314,379

-

314,379

Acquisition-related items

397

3,202

802

3,880

Amortization of intangible assets

10,864

4,899

22,225

9,206

Stock-based compensation expense

2,443

1,755

6,412

4,610

Stock-based compensation tax adjustment for US GAAP change

-

(1,510

)

-

(2,854

)

Income tax on adjustments

(3,460

)

(2,439

)

(7,446

)

(4,301

)

Non-controlling interest on adjustments

(298

)

(80

)

(520

)

(168

)

Adjusted net earnings

$

36,537

$

42,117

$

52,089

$

53,012

Three months ended

Six months ended

(in US$)

June 30

June 30

2020

2019

2020

2019

Diluted net earnings (loss) per share

$

0.64

$

(7.40

)

$

0.77

$

(7.59

)

Non-controlling interest redemption increment (decrement)

(0.01

)

0.03

(0.04

)

0.14

Settlement of long-term incentive arrangement

-

8.34

-

8.62

Acquisition-related items

0.01

0.07

0.02

0.09

Amortization of intangible assets, net of tax

0.18

0.09

0.37

0.18

Stock-based compensation expense, net of tax

0.04

0.03

0.11

0.09

Stock-based compensation tax adjustment for US GAAP change

-

(0.04

)

-

(0.08

)

Adjusted earnings per share

$

0.86

$

1.12

$

1.23

$

1.45


FIRSTSERVICE CORPORATION

Condensed Consolidated Statements of Earnings

(in thousands of US dollars, except per share amounts)

Three months

Six months

ended June 30

ended June 30

(unaudited)

2020

2019

2020

2019

Revenues

$

621,597

$

573,908

$

1,255,428

$

1,059,563

Cost of revenues

412,010

388,656

847,159

729,354

Selling, general and administrative expenses

140,799

121,976

299,585

240,638

Depreciation

12,624

9,266

24,770

17,646

Amortization of intangible assets

10,864

4,899

22,225

9,206

Settlement of long-term incentive arrangement

-

314,379

-

314,379

Acquisition-related items (1)

397

3,202

802

3,880

Operating earnings (loss)

44,903

(268,470

)

60,887

(255,540

)

Interest expense, net

5,530

4,772

14,417

8,341

Other expense (income)

(147

)

(6,131

)

(376

)

(6,124

)

Earnings (loss) before income tax

39,520

(267,111

)

46,846

(257,757

)

Income tax

9,603

8,569

11,149

9,778

Net earnings (loss)

29,917

(275,680

)

35,697

(267,535

)

Non-controlling interest share of earnings

3,326

2,409

5,081

4,205

Non-controlling interest redemption increment (decrement)

(531

)

947

(1,791

)

4,967

Net earnings (loss) attributable to Company

$

27,122

$

(279,036

)

$

32,407

$

(276,707

)

Net earnings (loss) per common share

Basic

$

0.64

$

(7.48

)

$

0.77

$

(7.69

)

Diluted

0.64

(7.48

)

0.77

(7.69

)

Adjusted earnings per share (2)

$

0.86

$

1.12

$

1.23

$

1.45

Weighted average common shares (thousands)

Basic

42,397

37,284

41,977

36,002

Diluted

42,710

37,715

42,322

36,452

Notes to Condensed Consolidated Statements of Earnings (Loss)
(1) Acquisition-related items include transaction costs, and contingent acquisition consideration fair value adjustments.
(2) See definition and reconciliation above.

Condensed Consolidated Balance Sheets

(in thousands of US dollars)

(unaudited)

June 30, 2020

December 31, 2019

Assets

Cash and cash equivalents

$

245,257

$

121,198

Restricted cash

20,028

13,093

Accounts receivable

361,046

393,730

Prepaid and other current assets

138,197

140,115

Current assets

764,528

668,136

Other non-current assets

11,884

11,824

Fixed assets

128,684

131,545

Operating lease right-of-use assets

139,580

132,893

Goodwill and intangible assets

989,339

1,011,071

Total assets

$

2,034,015

$

1,955,469

Liabilities and shareholders' equity

Accounts payable and accrued liabilities

$

250,515

$

241,670

Other current liabilities

100,346

80,369

Operating lease liabilities - current

33,045

30,622

Long-term debt - current

56,669

5,545

Current liabilities

440,575

358,206

Long-term debt - non-current

588,525

761,078

Operating lease liabilities - non-current

117,024

111,247

Other liabilities

68,898

66,150

Deferred income tax

54,063

58,239

Redeemable non-controlling interests

162,613

174,662

Shareholders' equity

602,317

425,887

Total liabilities and equity

$

2,034,015

$

1,955,469

Supplemental balance sheet information

Total debt

$

645,194

$

766,623

Total debt, net of cash

399,937

645,425

Consolidated Statements of Cash Flows

(in thousands of US dollars)

Three months ended

Six months ended

June 30

June 30

(unaudited)

2020

2019

2020

2019

Cash provided by (used in)

Operating activities

Net earnings (loss)

$

29,917

$

(275,680

)

$

35,697

$

(267,535

)

Items not affecting cash:

Depreciation and amortization

23,488

14,164

46,995

26,851

Non-cash settlement of long-term incentive arrangement

-

289,721

-

289,721

Deferred income tax

(2,149

)

992

(4,205

)

1,465

Other

1,845

(4,192

)

5,669

(1,058

)

53,101

25,005

84,156

49,444

Changes in non-cash working capital

Accounts receivable

11,911

(27,828

)

32,893

(19,228

)

Payables and accruals

28,814

11,439

18,335

(4,922

)

Other

19,396

10,212

17,657

19,092

Net cash provided by operating activities

113,222

18,828

153,041

44,386

Investing activities

Acquisition of businesses, net of cash acquired

-

(519,758

)

-

(545,531

)

Disposition of business, net of cash disposed

-

13,030

-

13,030

Purchases of fixed assets

(6,733

)

(11,551

)

(22,081

)

(22,287

)

Other investing activities

(603

)

3,188

(786

)

859

Net cash used in investing activities

(7,336

)

(515,091

)

(22,867

)

(553,929

)

Financing activities

Increase in long-term debt, net

(105,072

)

543,216

(121,924

)

588,879

Proceeds received on common share issuance

150,008

-

150,008

-

Purchases of non-controlling interests, net

(11,316

)

(14,223

)

(15,067

)

(33,210

)

Financing fees paid

-

(3,428

)

-

(3,696

)

Dividends paid to common shareholders

(6,867

)

(5,418

)

(13,091

)

(10,275

)

Distributions paid to non-controlling interests

-

(3,075

)

(50

)

(4,269

)

Other financing activities

(1,164

)

2,260

1,228

411

Net cash provided by financing activities

25,589

519,332

1,104

537,840

Effect of exchange rate changes on cash

626

(508

)

(284

)

(311

)

Increase in cash, cash equivalents and restricted cash

132,101

22,561

130,994

27,986

Cash, cash equivalents and restricted cash, beginning of period

133,184

85,269

134,291

79,844

Cash, cash equivalents and restricted cash, end of period

$

265,285

$

107,830

$

265,285

$

107,830

Segmented Results

(in thousands of US dollars)

FirstService

FirstService

(unaudited)

Residential

Brands

Corporate

Consolidated

Three months ended June 30

2020

Revenues

$

338,153

$

283,444

$

-

$

621,597

Adjusted EBITDA

37,245

35,844

(1,858

)

71,231

Operating earnings

31,980

17,364

(4,441

)

44,903

2019

Revenues

$

370,405

$

203,503

$

-

$

573,908

Adjusted EBITDA

39,177

28,431

(2,577

)

65,031

Operating earnings

32,278

20,705

(321,453

)

(268,470

)

FirstService

FirstService

Residential

Brands

Corporate

Consolidated

Six months ended June 30

2020

Revenues

$

677,816

$

577,612

$

-

$

1,255,428

Adjusted EBITDA

61,135

57,790

(3,829

)

115,096

Operating earnings

49,404

22,271

(10,788

)

60,887

2019

Revenues

$

689,715

$

369,848

$

-

$

1,059,563

Adjusted EBITDA

60,996

39,459

(6,274

)

94,181

Operating earnings

47,926

24,597

(328,063

)

(255,540

)

COMPANY CONTACTS:

D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9566