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FirstService Reports Strong Third Quarter Results

Residential and Brands Divisions Both Contribute to Significant Revenue and Earnings Growth

Operating highlights:

    Three months ended   Nine months ended
    September 30   September 30
    2016   2015   2016   2015
                         
Revenues (millions) $ 409.1   $ 349.5   $ 1,101.8   $ 948.0
Adjusted EBITDA (millions) (note 1)     46.7     39.1     99.7     80.7
Adjusted EPS (note 2)   0.62     0.50     1.22     0.92
                         
GAAP Operating Earnings   36.6     31.4     71.6     56.8
GAAP EPS   0.43     0.39     0.74     0.50

TORONTO, Oct. 26, 2016 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (NASDAQ:FSV) today reported results for its third quarter ended September 30, 2016. All amounts are in US dollars.

Revenues for the third quarter were $409.1 million, a 17% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 20% to $46.7 million, and Adjusted EPS (note 2) was $0.62, a 24% increase versus the prior year quarter. GAAP Operating Earnings were $36.6 million, relative to $31.4 million in the prior year period. GAAP diluted earnings per share was $0.43 in the quarter, versus $0.39 for the same quarter a year ago.

For the nine months ended September 30, 2016, revenues were $1.10 billion, a 16% increase relative to the comparable prior year period, Adjusted EBITDA was $99.7 million, up 24%, and Adjusted EPS was $1.22, a 33% increase versus the prior year period. GAAP Operating Earnings were $71.6 million, relative to $56.8 million in the prior year period. GAAP diluted EPS for the nine months year-to-date was $0.74, compared to $0.50 in the prior year period.

“Continuing the momentum established in the first half of this year, FirstService delivered another solid quarter of financial results,” said Scott Patterson, Chief Executive Officer of FirstService. “Strong operational execution, robust tuck-under acquisition activity during the year, and a healthy macro environment should enable us to finish 2016 with results that closely track our original expectations for the full 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$1.3 billion in annual revenues and has more than 16,000 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 $299.9 million for the third quarter, up 8% versus the prior year quarter. Revenue growth was comprised of 5% organic growth and the balance from recent acquisitions. Adjusted EBITDA for the quarter was $28.9 million, versus $25.3 million in the prior year period. The results for our FirstService Residential division was driven by balanced property management fee and ancillary services growth, together with continued margin expansion from further streamlining of our operations. GAAP Operating Earnings were $23.5 million, versus $20.3 million for the third quarter of last year.

FirstService Brands revenues grew to $109.2 million, up 53% relative to the prior year period. Revenue growth was comprised of 7% organic growth and the balance from recent acquisitions, including our larger Century Fire business. Adjusted EBITDA for the third quarter was $20.3 million, up from $16.6 million in the prior year period.  The third quarter included very strong growth from our franchise systems at California Closets, Pillar to Post Home Inspectors and Floor Coverings International, together with solid contribution from Paul Davis Restoration. The FirstService Brands division margin was lower during the third quarter versus the prior year period primarily due to increased mix and strong performance from our lower margin company-owned operations, including Century Fire, California Closets and Paul Davis. GAAP Operating Earnings were $16.2 million, versus $14.5 million in the prior year quarter.

Corporate costs, as presented in Adjusted EBITDA, were $2.4 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 $3.1 million, relative to $3.4 million in the prior year period.

Conference Call
FirstService will be holding a conference call on Wednesday, October 26, 2016 at 11:00 a.m. Eastern Time to discuss the quarter’s results. 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   Nine months ended
(in thousands of US$) September 30   September 30
    2016   2015   2016   2015
                         
Net earnings $   22,938     $   18,917     $   42,527     $ 30,291
Income tax     11,427         10,057         22,539       19,316
Other income, net     (71 )       (10 )       (172 )     109
Interest expense, net     2,284         2,453         6,739       7,044
Operating earnings     36,578         31,417         71,633       56,760
Depreciation and amortization     10,048         6,979         25,956       21,112
Acquisition-related items     (541 )       186         (148 )     469
Stock-based compensation expense       618         495         2,223       1,629
Spin-off transaction costs     -         -         -       740
Adjusted EBITDA $   46,703     $   39,077     $   99,664     $ 80,710

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 (loss) 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; and (iv) stock-based compensation expense. 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 (loss) per share to adjusted earnings per share appears below.

    Three months ended   Nine months ended
(in thousands of US$) September 30   September 30
    2016   2015   2016   2015
                         
Net earnings $   22,938     $   18,917     $   42,527     $   30,291  
Non-controlling interest share of earnings     (2,863 )       (2,421 )       (5,179 )       (4,834 )
Acquisition-related items     (541 )       186         (148 )       469  
Amortization of intangible assets     4,475         2,334         9,700         7,275  
Stock-based compensation expense     618         495         2,223         1,629  
Spin-off transaction costs     -         -         -         740  
Spin-off tax charge     -         -         -         1,646  
Income tax on adjustments     (2,006 )       (1,107 )       (4,658 )       (3,628 )
Non-controlling interest on adjustments     (78 )       (44 )       (173 )       (133 )
Adjusted net earnings $   22,543     $   18,360     $   44,292     $   33,455  
                         
    Three months ended   Nine months ended
(in US$) September 30   September 30
    2016   2015   2016   2015
                         
Diluted net earnings per share $   0.43     $   0.39     $   0.74     $   0.50  
Non-controlling interest redemption increment     0.12         0.07         0.29         0.20  
Acquisition-related items     (0.01 )       -         -         0.01  
Amortization of intangible assets, net of tax     0.07         0.03         0.15         0.11  
Stock-based compensation expense, net of tax       0.01         0.01         0.04         0.03  
Spin-off transaction costs, net of tax     -         -         -         0.02  
Spin-off tax charge     -         -         -         0.05  
Adjusted earnings per share $   0.62     $   0.50     $   1.22     $   0.92  
                         


FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
          Three months     Nine months
          ended September 30     ended September 30
(unaudited)       2016         2015         2016       2015
                             
Revenues   $   409,083     $   349,525     $   1,101,773     $ 947,965
                             
Cost of revenues       292,389         241,048         781,329       662,497
Selling, general and administrative expenses       70,609         69,895         223,003       206,387
Depreciation       5,573         4,645         16,256       13,837
Amortization of intangible assets       4,475         2,334         9,700       7,275
Acquisition-related items (1)       (541 )       186         (148 )     469
Spin-off transaction costs       -         -         -       740
Operating earnings       36,578         31,417         71,633       56,760
Interest expense, net       2,284         2,453         6,739       7,044
Other expense (income)       (71 )       (10 )       (172 )     109
Earnings before income tax       34,365         28,974         65,066       49,607
Income tax       11,427         10,057         22,539       19,316
Net earnings       22,938         18,917         42,527       30,291
Non-controlling interest share of earnings       2,863         2,421         5,179       4,834
Non-controlling interest redemption increment       4,311         2,431         10,534       7,326
Net earnings attributable to Company   $   15,764     $   14,065     $   26,814     $ 18,131
                             
Net earnings per common share                        
  Basic   $   0.44     $   0.39     $   0.75     $ 0.50
  Diluted       0.43         0.39         0.74       0.50
                           
                             
Adjusted earnings per share (2)   $   0.62     $   0.50     $   1.22     $ 0.92
                             
Weighted average common shares (thousands)                          
    Basic       35,989         35,974         35,986       35,973
    Diluted       36,449         36,457         36,393       36,581

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) September 30, 2016   December 31, 2015
             
Assets          
Cash and cash equivalents $ 49,180   $ 45,560
Accounts receivable   150,221     114,521
Inventories   28,352     16,155
Prepaid expenses and other current assets     63,476     53,986
  Current assets   291,229     230,222
Other non-current assets   4,822     6,009
Fixed assets   69,623     57,575
Deferred income tax   6,293     6,553
Goodwill and intangible assets   371,095     300,124
  Total assets $ 743,062   $ 600,483
             
             
Liabilities and shareholders' equity          
Accounts payable and accrued liabilities $ 140,885   $ 102,043
Other current liabilities   31,558     24,015
Long-term debt - current   1,143     4,041
  Current liabilities   173,586     130,099
Long-term debt - non-current   242,363     197,158
Other liabilities   18,171     14,670
Deferred income tax   28,501     13,971
Redeemable non-controlling interests   95,190     77,559
Shareholders' equity   185,251     167,026
  Total liabilities and equity $ 743,062   $ 600,483
             
             
Supplemental balance sheet information          
Total debt $ 243,506   $ 201,199
Total debt, net of cash   194,326     155,639


Consolidated Statements of Cash Flows              
(in thousands of US dollars)
        Three months ended     Nine months ended
        September 30     September 30
(unaudited)       2016         2015         2016         2015  
                           
Cash provided by (used in)                        
                           
Operating activities                        
Net earnings   $   22,938     $   18,917     $   42,527     $   30,291  
Items not affecting cash:                        
  Depreciation and amortization       10,048         6,980         25,955         21,113  
  Deferred income tax       4,473         (4,535 )       3,379         (4,312 )
  Other       49         (1,345 )       585         (1,165 )
          37,508         20,017         72,446         45,927  
                           
Changes in non-cash working capital                        
  Accounts receivable       7,768         (150 )       (13,083 )       469  
  Payables and accruals       12,845         28,469         32,411         28,811  
  Other       (9,415 )       (14,326 )       (2,774 )       681  
Net cash provided by operating activities       48,706         34,010         89,000         75,888  
                           
Investing activities                        
Acquisition of businesses, net of cash acquired       (3,353 )       (3,502 )       (80,434 )       (12,002 )
Purchases of fixed assets       (6,101 )       (3,884 )       (20,079 )       (14,291 )
Other investing activities       (2,656 )       (1,262 )       (10,104 )       (2,735 )
Net cash used in investing activities       (12,110 )       (8,648 )       (110,617 )       (29,028 )
                           
Financing activities                        
Increase in long-term debt, net       (17,156 )       (23,497 )       42,218         (40,760 )
Net contributions from Old FSV       -         -         -         1,995  
Sale (purchases) of non-controlling interests, net       (218 )       (29 )       41         (17,415 )
Financing fees paid       -         (4 )       -         (1,090 )
Dividends paid to common shareholders       (4,092 )       (3,597 )       (11,513 )       (3,597 )
Distributions paid to non-controlling interests       (1,180 )       (412 )       (4,244 )       (2,699 )
Repurchases of Subordinate Voting Shares       -         -         (1,349 )       -  
Other financing activities       (933 )       1,523         (91 )       (246 )
Net cash (used in) provided by financing activities       (23,579 )       (26,016 )       25,062         (63,812 )
                           
Effect of exchange rate changes on cash       (122 )       (1,578 )       175         (232 )
                           
Increase (decrease) in cash and cash equivalents       12,895         (2,232 )       3,620         (17,184 )
                           
Cash and cash equivalents, beginning of period       36,285         51,838         45,560         66,790  
                           
Cash and cash equivalents, end of period   $   49,180     $   49,606     $   49,180     $   49,606  


 
Segmented Results
(in thousands of US dollars)
                         
                     
    FirstService   FirstService        
(unaudited) Residential   Brands   Corporate   Consolidated
                         
Three months ended September 30                        
                         
2016                      
  Revenues $ 299,920   $ 109,163   $   -     $ 409,083
  Adjusted EBITDA   28,873     20,272       (2,442 )     46,703
                         
  Operating earnings   23,484     16,219       (3,125 )     36,578
                         
2015                      
  Revenues $ 277,938   $ 71,587   $   -     $ 349,525
  Adjusted EBITDA   25,310     16,648       (2,881 )     39,077
                         
  Operating earnings   20,298     14,524       (3,405 )     31,417
                         
                         
                     
    FirstService   FirstService        
    Residential   Brands   Corporate   Consolidated
                         
Nine months ended September 30                      
                         
2016                      
  Revenues $ 838,384   $ 263,389   $   -     $ 1,101,773
  Adjusted EBITDA   66,986     40,197       (7,519 )     99,664
                         
  Operating earnings   50,973     30,666       (10,006 )     71,633
                         
2015                      
  Revenues $ 766,535   $ 181,430   $   -     $ 947,965
  Adjusted EBITDA   55,141     31,657       (6,088 )     80,710
                         
  Operating earnings   38,655     25,897       (7,792 )     56,760
                             

 

COMPANY CONTACTS:

D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9500

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