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FirstService Reports Strong Second Quarter Results

Robust, Balanced Organic Growth Drives Double-Digit Revenue Increases Across Both FirstService Residential and FirstService Brands

Operating highlights:

    Three months ended   Six months ended
    June 30   June 30
    2019     2018   2019     2018
                         
Revenues (millions) $ 573.9     $ 495.3   $ 1,059.6     $ 921.8
Adjusted EBITDA (millions) (note 1)   65.0       57.1     94.2       82.5
Adjusted EPS (note 2)   1.12       0.86     1.45       1.10
                         
GAAP Operating Earnings   (268.5 )   (1) 42.4     (255.5 )   (1) 53.4
GAAP EPS   (7.48 )   (1) 0.63     (7.69 )   (1) 0.80
                         
(1) Includes $314.4 million settlement of long-term incentive arrangement with FirstService's Founder and Chairman.      


TORONTO, July 24, 2019 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported strong results for its second quarter ended June 30, 2019. All amounts are in US dollars.

Revenues for the second quarter were $573.9 million, a 16% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 14% to $65.0 million, and Adjusted EPS (note 2) was $1.12, a 30% increase versus the prior year quarter. During the second quarter, FirstService reported a GAAP Operating Loss of $268.5 million, reflecting the settlement of the long-term incentive arrangement (“LTIA”) with its Founder and Chairman in the amount of $314.4 million. GAAP Operating Earnings were $42.4 million in the prior year period. The GAAP loss per share was $7.48 in the quarter, versus GAAP earnings per share of $0.63 for the same quarter a year ago.

For the six months ended June 30, 2019, revenues were $1.06 billion, a 15% increase relative to the comparable prior year period, Adjusted EBITDA was $94.2 million, up 14%, and Adjusted EPS was $1.45, a 32% increase versus the prior year period. The GAAP Operating Loss was $255.5 million in the current year period, relative to GAAP Operating Earnings of $53.4 million in the prior year period. The GAAP loss per share for the six months year-to-date was $7.69, compared to GAAP earnings per share of $0.80 in the prior year period.

“We delivered another quarter of very strong operating results, principally led by solid organic growth across our businesses,” said Scott Patterson, Chief Executive Officer of FirstService. “We are excited about our prospects for the balance of the year, supported by continued broad-based growth and significant contribution from our recently acquired Global Restoration business,” 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 more than US$2 billion in annual revenues and has approximately 22,000 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 $370.4 million for the second quarter, up 13% versus the prior year quarter, with organic growth accounting for half of this increase. Adjusted EBITDA for the quarter was $39.2 million, versus $33.4 million in the prior year period. Top-line growth was primarily driven by contract wins in our property management business, as well as strong contribution from our seasonal pool and amenity management services. Margin improvement was largely attributable to the strength in these seasonal operations. GAAP Operating Earnings were $32.3 million, versus $27.5 million for the second quarter of last year.

FirstService Brands revenues during the second quarter grew to $203.5 million, up 21% relative to the prior year period and including 6% organic growth together with contribution from recent tuck-under acquisitions across our company-owned operations. Adjusted EBITDA for the second quarter was $28.4 million, up from $26.7 million in the prior year period. Organic growth during the quarter was strong at our California Closets and Century Fire Protection company-owned operations and within our franchised systems. Top-line growth and margins within the division were tempered by weaker performance at our Paul Davis company-owned operations relative to the prior year period. GAAP Operating Earnings were $20.7 million, versus $19.1 million in the prior year quarter.

Corporate costs, as presented in Adjusted EBITDA, were $2.6 million in the second quarter, relative to $3.0 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $321.5 million, relative to $4.3 million in the prior year period, with the increase primarily attributable to the settlement of the LTIA with FirstService’s Founder and Chairman.

Conference Call
FirstService will be holding a conference call on Wednesday, July 24, 2019 at 11:00 a.m. Eastern Time to discuss the quarter’s results. The number to use for this call is toll-free 1) 1-888-241-0551 or 2) 647-427-3415 for international callers. 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, 2018 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
    2019     2018     2019     2018  
                         
Net earnings (loss) $ (275,680 )   $ 29,894     $ (267,535 )   $ 38,829  
Income tax   8,569       9,285       9,778       8,613  
Other income, net   (6,131 )     (39 )     (6,124 )     (103 )
Interest expense, net   4,772       3,210       8,341       6,084  
Operating earnings (loss)   (268,470 )     42,350       (255,540 )     53,423  
Depreciation and amortization   14,165       12,903       26,852       24,686  
Settlement of long-term incentive arrangement   314,379       -       314,379       -  
Acquisition-related items   3,202       548       3,880       1,109  
Stock-based compensation expense   1,755       1,317       4,610       3,314  
Adjusted EBITDA $ 65,031     $ 57,118     $ 94,181     $ 82,532  


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
    2019     2018     2019     2018  
                         
Net earnings (loss) $ (275,680 )   $ 29,894     $ (267,535 )   $ 38,829  
Non-controlling interest share of earnings   (2,409 )     (2,915 )     (4,205 )     (5,235 )
Settlement of long-term incentive arrangement   314,379       -       314,379       -  
Acquisition-related items   3,202       548       3,880       1,109  
Amortization of intangible assets   4,899       4,736       9,206       8,650  
Stock-based compensation expense   1,755       1,317       4,610       3,314  
Stock-based compensation tax adjustment for US GAAP change   (1,510 )     (622 )     (2,854 )     (3,037 )
Income tax on adjustments   (2,439 )     (1,574 )     (4,301 )     (3,111 )
Non-controlling interest on adjustments   (80 )     (145 )     (168 )     (255 )
Adjusted net earnings $ 42,117     $ 31,239     $ 53,012     $ 40,264  
                         
    Three months ended   Six months ended
(in US$) June 30   June 30
    2019     2018     2019     2018  
                         
Diluted net earnings (loss) per share $ (7.40 )   $ 0.62     $ (7.59 )   $ 0.79  
Non-controlling interest redemption increment   0.03       0.12       0.14       0.13  
Settlement of long-term incentive arrangement   8.34       -       8.62       -  
Acquisition-related items   0.07       0.02       0.09       0.03  
Amortization of intangible assets, net of tax   0.09       0.09       0.18       0.17  
Stock-based compensation expense, net of tax   0.03       0.03       0.09       0.06  
Stock-based compensation tax adjustment for US GAAP change   (0.04 )     (0.02 )     (0.08 )     (0.08 )
Adjusted earnings per share $ 1.12     $ 0.86     $ 1.45     $ 1.10  


 

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)     2019       2018       2019       2018  
                             
Revenues   $ 573,908     $ 495,348     $ 1,059,563     $ 921,804  
                             
Cost of revenues     388,656       331,445       729,354       629,969  
Selling, general and administrative expenses     121,976       108,102       240,638       212,617  
Depreciation     9,266       8,167       17,646       16,036  
Amortization of intangible assets     4,899       4,736       9,206       8,650  
Settlement of long-term incentive arrangement     314,379       -       314,379       -  
Acquisition-related items (1)     3,202       548       3,880       1,109  
Operating earnings (loss)     (268,470 )     42,350       (255,540 )     53,423  
Interest expense, net     4,772       3,210       8,341       6,084  
Other expense (income)     (6,131 )     (39 )     (6,124 )     (103 )
Earnings (loss) before income tax     (267,111 )     39,179       (257,757 )     47,442  
Income tax     8,569       9,285       9,778       8,613  
Net earnings (loss)     (275,680 )     29,894       (267,535 )     38,829  
Non-controlling interest share of earnings     2,409       2,915       4,205       5,235  
Non-controlling interest redemption increment     947       4,373       4,967       4,905  
Net earnings (loss) attributable to Company   $ (279,036 )   $ 22,606     $ (276,707 )   $ 28,689  
                             
Net earnings (loss) per common share                        
  Basic   $ (7.48 )   $ 0.63     $ (7.69 )   $ 0.80  
  Diluted     (7.48 )     0.62       (7.69 )     0.79  
                           
                             
Adjusted earnings per share (2)   $ 1.12     $ 0.86     $ 1.45     $ 1.10  
                             
Weighted average common shares (thousands)                        
    Basic     37,284       35,936       36,002       35,929  
    Diluted     37,715       36,534       36,452       36,526  

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, 2019   December 31, 2018
             
Assets          
Cash and cash equivalents $ 89,829   $ 66,340
Restricted cash   18,001     13,504
Accounts receivable   383,707     239,925
Prepaid and other current assets   136,042     95,303
  Current assets   627,579     415,072
Other non-current assets   8,869     10,347
Fixed assets   119,914     98,102
Operating lease right-of-use assets   122,866     -
Goodwill and intangible assets   1,005,445     483,953
  Total assets $ 1,884,673   $ 1,007,474
             
             
Liabilities and shareholders' equity          
Accounts payable and accrued liabilities $ 276,176   $ 174,281
Other current liabilities   62,009     48,751
Operating lease liabilities - current   31,967     -
Long-term debt - current   5,914     3,915
  Current liabilities   376,066     226,947
Long-term debt - non-current   918,570     330,608
Operating lease liabilities - non-current   99,027     -
Other liabilities   55,386     55,531
Deferred income tax   68,421     6,577
Redeemable non-controlling interests   153,390     151,585
Shareholders' equity   213,813     236,226
  Total liabilities and equity $ 1,884,673   $ 1,007,474
             
             
Supplemental balance sheet information          
Total debt $ 924,484   $ 334,523
Total debt, net of cash   834,655     268,183



Consolidated Statements of Cash Flows
(in thousands of US dollars)
        Three months ended     Six months ended
        June 30     June 30
(unaudited)     2019       2018       2019       2018  
                           
Cash provided by (used in)                        
                           
Operating activities                        
Net earnings (loss)   $ (275,680 )   $ 29,894     $ (267,535 )   $ 38,829  
Items not affecting cash:                        
  Depreciation and amortization     14,164       12,903       26,851       24,686  
  Non-cash settlement of long-term incentive arrangement     289,721       -       289,721       -  
  Deferred income tax     992       38       1,465       346  
  Other     (4,192 )     1,629       (1,058 )     4,031  
        25,005       44,464       49,444       67,892  
                           
Changes in non-cash working capital                        
  Accounts receivable     (27,828 )     (16,259 )     (19,228 )     (12,181 )
  Payables and accruals     11,439       2,366       (4,922 )     (12,504 )
  Other     10,212       8,701       19,092       4,367  
Net cash provided by operating activities     18,828       39,272       44,386       47,574  
                           
Investing activities                        
Acquisition of businesses, net of cash acquired     (519,758 )     (13,577 )     (545,531 )     (43,179 )
Disposition of business, net of cash disposed     13,030       -       13,030       -  
Purchases of fixed assets     (11,551 )     (9,097 )     (22,287 )     (19,620 )
Other investing activities     3,188       (1,306 )     859       (1,984 )
Net cash used in investing activities     (515,091 )     (23,980 )     (553,929 )     (64,783 )
                           
Financing activities                        
Increase in long-term debt, net     543,216       (8,128 )     588,879       42,086  
Purchases of non-controlling interests, net     (14,223 )     (511 )     (33,210 )     (2,132 )
Financing fees paid     (3,428 )     -       (3,696 )     -  
Dividends paid to common shareholders     (5,418 )     (4,849 )     (10,275 )     (9,249 )
Distributions paid to non-controlling interests     (3,075 )     (2,751 )     (4,269 )     (4,342 )
Repurchases of common shares     -       -       -       (5,941 )
Other financing activities     2,260       893       411       (771 )
Net cash provided by (used in) financing activities     519,332       (15,346 )     537,840       19,651  
                           
Effect of exchange rate changes on cash     (508 )     (206 )     (311 )     (343 )
                           
Increase (decrease) in cash, cash equivalents and restricted cash     22,561       (260 )     27,986       2,099  
                           
Cash, cash equivalents and restricted cash, beginning of period     85,269       69,253       79,844       66,894  
                           
Cash, cash equivalents and restricted cash, end of period   $ 107,830     $ 68,993     $ 107,830     $ 68,993  


 

Segmented Results
(in thousands of US dollars)
                         
                     
    FirstService   FirstService        
(unaudited) Residential   Brands   Corporate   Consolidated
                         
Three months ended June 30                      
                         
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 )
                         
2018                      
  Revenues $ 326,992   $ 168,356   $ -     $ 495,348  
  Adjusted EBITDA   33,402     26,675     (2,959 )     57,118  
                         
  Operating earnings   27,498     19,145     (4,293 )     42,350  
                         
                         
                     
    FirstService   FirstService        
    Residential   Brands   Corporate   Consolidated
                         
Six months ended June 30                      
                         
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 )
                         
2018                      
  Revenues $ 611,127   $ 310,677   $ -     $ 921,804  
  Adjusted EBITDA   50,878     37,838     (6,184 )     82,532  
                         
  Operating earnings   38,864     24,220     (9,661 )     53,423  

 

COMPANY CONTACTS:

D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9500