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
               

 


            

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