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FirstService Reports Strong Second Quarter Results

FirstService Brands Drives Double-Digit Revenue and Earnings Growth

Operating highlights:

    Three months ended   Six months ended
    June 30   June 30
    2017   2016   2017   2016
                         
Revenues (millions) $ 434.9   $ 385.1   $ 810.8   $ 692.7
Adjusted EBITDA (millions) (note 1)   47.6     40.2     68.3     53.0
Adjusted EPS (note 2)   0.61     0.52     0.77     0.60
                         
GAAP Operating Earnings   35.8     30.8     45.4     35.1
GAAP EPS   0.50     0.35     0.63     0.30

TORONTO, July 26, 2017 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (NASDAQ:FSV) today reported results for its second quarter ended June 30, 2017. All amounts are in US dollars.

Revenues for the second quarter were $434.9 million, a 13% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 18% to $47.6 million, and Adjusted EPS (note 2) was $0.61, a 17% increase versus the prior year quarter. GAAP Operating Earnings were $35.8 million, relative to $30.8 million in the prior year period. GAAP diluted earnings per share was $0.50 in the quarter, versus $0.35 for the same quarter a year ago.

For the six months ended June 30, 2017, revenues were $810.8 million, a 17% increase relative to the comparable prior year period, Adjusted EBITDA was $68.3 million, up 29%, and Adjusted EPS was $0.77, a 28% increase versus the prior year period. GAAP Operating Earnings were $45.4 million, relative to $35.1 million in the prior year period. GAAP diluted EPS for the six months year-to-date was $0.63, compared to $0.30 in the prior year period.

“We are pleased to report another strong quarter, with FirstService Residential results in line with our expectations and FirstService Brands delivering double digit organic growth across its largest service lines,” said Scott Patterson, Chief Executive Officer of FirstService. “Our Brands businesses benefited from robust home improvement spending and market activity levels and these indicators continue to trend positively as we look out to the second half of this year,” 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$1.5 billion in annual revenues and has more than 17,000 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 $302.9 million for the second quarter, up 5% versus the prior year quarter, including 4% organic growth. Adjusted EBITDA for the quarter was $28.7 million, versus $26.4 million in the prior year period. The results for our FirstService Residential division were driven by strong top-line growth in certain high-rise markets, including South Florida, New York, Toronto and Dallas. Margin improvement reflected efficient labour cost management across our operations. GAAP Operating Earnings were $23.2 million, versus $21.4 million for the second quarter of last year.

FirstService Brands revenues grew to $132.0 million, up 37% relative to the prior year period. Revenue growth was comprised of 11% organic growth and the balance from recent acquisitions. Adjusted EBITDA for the second quarter was $22.1 million, up from $16.7 million in the prior year period. The second quarter was driven by strength across our largest franchised systems and company-owned operations. Paul Davis Restoration capitalized on heightened market activity, while Century Fire Protection continued to broaden its service offering within its geographic footprint. Healthy housing market fundamentals contributed to strong performance at California Closets and other franchised systems, including CertaPro Painters, Floor Coverings International and Pillar To Post Home Inspectors. Top-line growth resulted in strong profitability across our businesses, with the division margin modestly lower during the second quarter versus the prior year period due to increased mix from our lower margin company-owned operations. GAAP Operating Earnings were $16.8 million, versus $13.1 million in the prior year quarter.

Corporate costs, as presented in Adjusted EBITDA, were $3.2 million in the second quarter, relative to $2.9 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $4.2 million, relative to $3.6 million in the prior year period.

Conference Call
FirstService will be holding a conference call on Wednesday, July 26, 2017 at 11:00 a.m. Eastern Time to discuss the quarter’s results. The number to use for this call is 416-623-0333 for Toronto area callers or 1-855-353-9183 for all other callers, passcode 30080# for both. 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.  Forward-looking statements include the Company’s financial performance outlook and statements regarding goals, beliefs, strategies, objectives, plans or current expectations.  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 the Company’s services and the cost of providing services; (ii) the ability of the Company to implement its business strategy, including the Company’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 the Company’s filings with applicable Canadian and United States securities regulatory authorities (which factors are adopted herein).

Summary financial information is provided in this press release.  This press release should be read in conjunction with the Company's quarterly 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; and (vi) stock-based compensation expense. 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
    2017     2016     2017     2016  
                         
Net earnings $ 22,265     $ 18,072     $ 30,885     $ 19,589  
Income tax   11,099       10,262       9,797       11,112  
Other income, net   (110 )     (26 )     (205 )     (101 )
Interest expense, net   2,554       2,486       4,879       4,455  
Operating earnings   35,808       30,794       45,356       35,055  
Depreciation and amortization   10,356       8,494       19,851       15,908  
Acquisition-related items   525       322       771       393  
Stock-based compensation expense   929       635       2,344       1,605  
Adjusted EBITDA $ 47,618     $ 40,245     $ 68,322     $ 52,961  

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; and (v) a stock-based compensation tax adjustment related to a US GAAP change. 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
    2017     2016     2017     2016  
                         
Net earnings $ 22,265     $ 18,072     $ 30,885     $ 19,589  
Non-controlling interest share of earnings   (2,330 )     (1,508 )     (4,159 )     (2,316 )
Acquisition-related items   525       322       771       393  
Amortization of intangible assets   3,565       2,833       6,751       5,225  
Stock-based compensation expense   929       635       2,344       1,605  
Stock-based compensation tax adjustment for US GAAP change   (880 )     -       (4,623 )     -  
Income tax on adjustments   (1,751 )     (1,355 )     (3,521 )     (2,651 )
Non-controlling interest on adjustments   (91 )     (62 )     (162 )     (95 )
Adjusted net earnings $ 22,232     $ 18,937     $ 28,286     $ 21,750  
                         
    Three months ended   Six months ended
(in US$) June 30   June 30
    2017     2016     2017     2016  
                         
Diluted net earnings per share $ 0.50     $ 0.35     $ 0.63     $ 0.30  
Non-controlling interest redemption increment   0.04       0.10       0.10       0.17  
Acquisition-related items   0.01       0.01       0.02       0.01  
Amortization of intangible assets, net of tax   0.06       0.05       0.11       0.09  
Stock-based compensation expense, net of tax   0.02       0.01       0.04       0.03  
Stock-based compensation tax adjustment for US GAAP change   (0.02 )     -       (0.13 )     -  
Adjusted earnings per share $ 0.61     $ 0.52     $ 0.77     $ 0.60  
                         

/EIN News/ --

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)     2017       2016       2017       2016  
                         
Revenues   $ 434,858     $ 385,104     $ 810,827     $ 692,690  
                         
Cost of revenues     301,938       266,434       574,350       488,940  
Selling, general and administrative expenses     86,231       79,060       170,499       152,394  
Depreciation     6,791       5,661       13,100       10,683  
Amortization of intangible assets     3,565       2,833       6,751       5,225  
Acquisition-related items (1)     525       322       771       393  
Operating earnings     35,808       30,794       45,356       35,055  
Interest expense, net     2,554       2,486       4,879       4,455  
Other expense (income)     (110 )     (26 )     (205 )     (101 )
Earnings before income tax     33,364       28,334       40,682       30,701  
Income tax     11,099       10,262       9,797       11,112  
Net earnings     22,265       18,072       30,885       19,589  
Non-controlling interest share of earnings     2,330       1,508       4,159       2,316  
Non-controlling interest redemption increment     1,586       3,857       3,733       6,223  
Net earnings attributable to Company   $ 18,349     $ 12,707     $ 22,993     $ 11,050  
                         
Net earnings per common share                        
Basic   $ 0.51     $ 0.35     $ 0.64     $ 0.31  
Diluted     0.50       0.35       0.63       0.30  
                         
                         
Adjusted earnings per share (2)   $ 0.61     $ 0.52     $ 0.77     $ 0.60  
                         
Weighted average common shares (thousands)                        
Basic     35,921       36,000       35,901       35,984  
Diluted     36,575       36,423       36,562       36,380  

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, 2017   December 31, 2016
           
Assets          
Cash and cash equivalents $ 63,094   $ 43,384
Restricted cash   16,234     13,450
Accounts receivable   170,402     164,074
Prepaid and other current assets   78,192     58,146
Deferred income tax   -     24,738
Current assets   327,922     303,792
Other non-current assets   4,898     5,115
Fixed assets   79,838     73,083
Deferred income tax   477     1,693
Goodwill and intangible assets   400,141     387,281
Total assets $ 813,276   $ 770,964
           
           
Liabilities and shareholders' equity          
Accounts payable and accrued liabilities $ 146,618   $ 142,966
Other current liabilities   52,159     38,813
Long-term debt - current   1,530     1,043
Current liabilities   200,307     182,822
Long-term debt - non-current   279,968     249,866
Other liabilities   26,714     23,729
Deferred income tax   8,382     31,167
Redeemable non-controlling interests   103,312     102,352
Shareholders' equity   194,593     181,028
Total liabilities and equity $ 813,276   $ 770,964
           
           
Supplemental balance sheet information          
Total debt $ 281,498   $ 250,909
Total debt, net of cash   218,404     207,525
           


Consolidated Statements of Cash Flows              
(in thousands of US dollars)
      Three months ended     Six months ended
      June 30     June 30
(unaudited)     2017       2016       2017       2016  
                         
Cash provided by (used in)                        
                         
Operating activities                        
Net earnings   $ 22,265     $ 18,072     $ 30,885     $ 19,589  
Items not affecting cash:                        
Depreciation and amortization     10,357       8,493       19,851       15,907  
Deferred income tax     (34 )     (558 )     363       (1,094 )
Other     442       630       (2,102 )     536  
      33,030       26,637       48,997       34,938  
                         
Changes in non-cash working capital                        
Accounts receivable     (9,676 )     (17,462 )     (5,586 )     (20,851 )
Payables and accruals     11,503       22,993       (5,275 )     19,566  
Other     6,740       6,288       11,065       6,641  
Net cash provided by operating activities     41,597       38,456       49,201       40,294  
                         
Investing activities                        
Acquisition of businesses, net of cash acquired     (2,182 )     (72,043 )     (12,545 )     (77,081 )
Purchases of fixed assets     (8,922 )     (7,078 )     (18,890 )     (13,978 )
Other investing activities     (1,370 )     (2,867 )     (5,688 )     (7,448 )
Net cash used in investing activities     (12,474 )     (81,988 )     (37,123 )     (98,507 )
                         
Financing activities                        
Increase in long-term debt, net     (3,883 )     49,298       30,470       59,374  
Sale (purchases) of non-controlling interests, net     (1,688 )     13       (5,468 )     259  
Dividends paid to common shareholders     (4,397 )     (3,960 )     (8,340 )     (7,421 )
Distributions paid to non-controlling interests     (476 )     (1,832 )     (2,349 )     (3,064 )
Repurchases of Subordinate Voting Shares     -       (1,349 )     (7,416 )     (1,349 )
Other financing activities     (1,363 )     399       609       842  
Net cash (used in) provided by financing activities     (11,807 )     42,569       7,506       48,641  
                         
Effect of exchange rate changes on cash     103       173       126       297  
                         
Increase (decrease) in cash and cash equivalents     17,419       (790 )     19,710       (9,275 )
                         
Cash and cash equivalents, beginning of period     45,675       37,075       43,384       45,560  
                         
Cash and cash equivalents, end of period   $ 63,094     $ 36,285     $ 63,094     $ 36,285  
                         


Segmented Results
(in thousands of US dollars)
                       
                   
  FirstService   FirstService        
(unaudited) Residential   Brands   Corporate   Consolidated
                       
Three months ended June 30                      
                       
2017                      
Revenues $ 302,900   $ 131,958   $ -     $ 434,858
Adjusted EBITDA   28,696     22,122     (3,200 )     47,618
                       
Operating earnings   23,191     16,812     (4,195 )     35,808
                       
2016                      
Revenues $ 288,658   $ 96,446   $ -     $ 385,104
Adjusted EBITDA   26,376     16,730     (2,861 )     40,245
                       
Operating earnings   21,380     13,056     (3,642 )     30,794
                       
                       
                   
  FirstService   FirstService        
  Residential   Brands   Corporate   Consolidated
                       
Six months ended June 30                      
                       
2017                      
Revenues $ 568,753   $ 242,074   $ -     $ 810,827
Adjusted EBITDA   43,129     30,998     (5,805 )     68,322
                       
Operating earnings   32,318     21,286     (8,248 )     45,356
                       
2016                      
Revenues $ 538,464   $ 154,226   $ -     $ 692,690
Adjusted EBITDA   38,113     19,925     (5,077 )     52,961
                       
Operating earnings   27,737     14,447     (7,129 )     35,055

 

COMPANY CONTACTS:

D. Scott Patterson
President & CEO
            
Jeremy Rakusin
Chief Financial Officer

(416) 960-9500

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