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FirstService Corporation Subordinate Voting Shares

Exchange: TSX Exchange | Oct 20, 2017, 11:00 PM EDT

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FirstService Reports Very Strong Fourth Quarter and Full Year Results

  • Quarterly revenue up 21%
  • Significant margin improvement

Operating highlights:

  Three months ended Year ended
  December 31 December 31
  2016 2015 2016 2015
              
Revenues (millions) $381.1 $316.1 $1,482.9 $1,264.1
Adjusted EBITDA (millions) (note 1)  30.7  22.3  130.3  103.0
Adjusted EPS (note 2)  0.41  0.28  1.62  1.20
              
GAAP Operating Earnings  18.9  14.0  90.6  70.7
GAAP EPS  0.19  0.09  0.92  0.59

TORONTO, Feb. 10, 2017 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (NASDAQ:FSV) today announced strong fourth quarter and full year results for the year ended December 31, 2016. All amounts are in US dollars.

Revenues for the fourth quarter were $381.1 million, a 21% increase relative to the same quarter in the prior year. Adjusted EBITDA (note 1) was $30.7 million, up 37%, and Adjusted EPS (note 2) was $0.41, up 46% from the prior year quarter. GAAP Operating Earnings were $18.9 million, relative to $14.0 million in the prior year period. GAAP diluted EPS was $0.19 per share in the quarter, compared to $0.09 for the same quarter a year ago.

For the year ended December 31, 2016, revenues were $1.48 billion, a 17% increase relative to the prior year. Adjusted EBITDA was $130.3 million, up 27%, and Adjusted EPS was $1.62, up 35% versus the prior year of $1.20. GAAP Operating Earnings were $90.6 million, compared to $70.7 million in the prior year period. GAAP diluted EPS for the year was $0.92, relative to $0.59 in the prior year.

“FirstService delivered strong financial results in the fourth quarter to cap off another impressive year of top and bottom line growth. Solid organic growth combined with the continued realization of cost efficiencies drove superior operating results at both divisions. The further addition of several strategic acquisitions resulted in a more than 30% increase to the bottom line,” said Scott Patterson, Chief Executive Officer of FirstService. “Healthy market indicators and an active acquisition pipeline give us positive momentum into 2017.”

About FirstService Corporation
FirstService Corporation is a North American leader in the property services sector serving its customers through two industry leading 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$1.4 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. 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 Fourth Quarter Results
FirstService Residential revenues totalled $274.4 million for the fourth quarter, up 9% relative to $251.0 million in the prior year quarter. The revenue increase was comprised of 5% organic growth and 4% growth from recent acquisitions. Adjusted EBITDA was $17.2 million, compared to $13.7 million reported in the prior year period. Fourth quarter performance was driven by strong growth in ancillary services revenue, together with significant margin expansion from continuing operating efficiencies. GAAP Operating Earnings were $11.6 million, versus $8.9 million for the fourth quarter of last year.

FirstService Brands revenues totalled $106.7 million, up 64% versus $65.1 million in the prior year period. The increase was comprised of 7% organic growth and the balance from recent acquisitions, including Century Fire. Organic growth was driven by strong results at our Paul Davis, Certa Pro, Floor Coverings International and Pillar to Post franchised operations, as well as our California Closets company-owned operations, offset by continued weak performance at Service America. Adjusted EBITDA for the quarter was $16.1 million, up 42% versus the prior year quarter. GAAP Operating Earnings were $10.5 million, versus $9.2 million in the prior year quarter. The FirstService Brands division margin was lower in the quarter due to increased contribution from our recently acquired Century Fire Protection, Paul Davis and California Closets company-owned operations, relative to our higher margin franchised operations.

Corporate costs, as presented in Adjusted EBITDA were $2.6 million in the fourth quarter, relative to $2.7 million in the prior year period.  On a GAAP basis, corporate costs for the quarter were $3.1, relative to $4.1 million in the prior year period.

Segmented Full Year Results
FirstService Residential revenues were $1.1 billion, up 9% relative to 2015, with the increase comprised of 6% organic growth and 3% from acquisitions. Organic growth was primarily driven by competitive contract wins and new development. Adjusted EBITDA was $84.2 million, up 22% versus the prior year, with related margin expansion driven by continued operating improvements. GAAP Operating Earnings were $62.6 million, compared to $47.6 million in the prior year.

FirstService Brands revenues for the year totalled $370.1 million, up 50% versus the prior year, comprised of 8% organic growth and the balance from recent acquisitions, the most significant being Century Fire. Organic growth resulted primarily from higher system-wide sales at several of our franchised brands, as well as strong revenues at our California Closets company-owned operations. Adjusted EBITDA for the year was $56.3 million, up 31% relative to the prior year. The division operating margin was impacted by the increased revenue mix from our recently acquired company-owned operations, including Century Fire. GAAP Operating Earnings were $41.2 million, versus $35.1 million a year ago.

Corporate costs, as presented in Adjusted EBITDA, were $10.1 million for the full year, relative to $8.8 million in the prior year. On a GAAP basis, corporate costs were $13.2 million, relative to $11.9 million a year ago.

Stock Repurchases
During the year, the Company repurchased 230,000 Subordinate Voting Shares on the open market under its Normal Course Issuer Bid (“NCIB”) at an average price of $41.37 per share. All shares purchased under the NCIB were cancelled. The Company is authorized to repurchase up to an additional 2,870,000 Subordinate Voting Shares under its NCIB, which expires on August 23, 2017.

Conference Call & Presentation
FirstService will be holding a conference call on Friday, February 10, 2017 at 11:00 a.m. Eastern Time to discuss results for the fourth quarter and full year. The call will be simultaneously web cast 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 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; and (vi) stock-based compensation expense. The Company uses adjusted EBITDA to evaluate its own operating performance and its ability to service debt, as well as an integral part of its planning and reporting systems. Additionally, this measure is used in conjunction with discounted cash flow models to determine the Company’s overall enterprise valuation and to evaluate acquisition targets. Adjusted EBITDA is presented as a supplemental measure because the Company believes such measure is useful to investors as a reasonable indicator of operating performance because of the low capital intensity of its service operations. The Company believes 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. The Company’s 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 Twelve months ended
(in thousands of US$)December 31 December 31
  2016  2015  2016  2015
              
Net earnings $11,716  $7,907  $54,243  $38,198
Income tax  4,848   4,096   27,387   23,412
Other expense (income)  (60)  (49)  (232)  60
Interest expense, net  2,413   2,033   9,152   9,077
Operating earnings  18,917   13,987   90,550   70,747
Depreciation and amortization  11,013   7,872   36,969   28,984
Acquisition-related items  209   (61)  61   408
Stock-based compensation expense  521   530   2,744   2,159
Spin-off transaction costs  -   -   -   740
Adjusted EBITDA $30,660  $22,328  $130,324  $103,038

2. Reconciliation of net earnings and net earnings (loss) per common share to adjusted net earnings and adjusted net earnings per share:

Adjusted EPS 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 of intangible assets recognized in connection with acquisitions; and (iv) stock-based compensation expense. The Company believes 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 EPS is not a recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted net earnings per common share, as determined in accordance with GAAP. The Company’s 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 diluted net earnings (loss) per common share to adjusted EPS appears below.

  Three months ended Twelve months ended
(in thousands of US$)December 31 December 31
  2016  2015  2016  2015 
              
Net earnings $11,716  $7,907  $54,243  $38,198 
Non-controlling interest share of earnings  (59)  274   (5,238)  (4,560)
Acquisition-related items  209   (61)  61   408 
Amortization of intangible assets  4,495   2,873   14,195   10,148 
Stock-based compensation expense  521   530   2,744   2,159 
Spin-off transaction costs  -   -   -   740 
Spin-off tax charge  -   -   -   1,646 
Income tax on adjustments  (1,980)  (1,334)  (6,638)  (4,962)
Non-controlling interest on adjustments  (105)  (52)  (278)  (185)
Adjusted net earnings $14,797  $10,137  $59,089  $43,592 
              
  Three months ended Twelve months ended
(in US$)December 31 December 31
  2016  2015  2016  2015 
              
Diluted net earnings (loss) per share $0.19  $0.09  $0.92  $0.59 
Non-controlling interest redemption increment  0.13   0.13   0.42   0.33 
Acquisition-related items  0.01   -   -   0.01 
Amortization of intangible assets, net of tax  0.07   0.05   0.23   0.16 
Stock-based compensation expense, net of tax  0.01   0.01   0.05   0.04 
Spin-off transaction costs, net of tax  -   -   -   0.02 
Spin-off tax charge  -   -   -   0.05 
Adjusted earnings per share $0.41  $0.28  $1.62  $1.20 


FIRSTSERVICE CORPORATION
Operating Results
(in thousands of US$, except per share amounts)
     Three months  Twelve months
     ended December 31  ended December 31
(unaudited)  2016   2015   2016   2015
               
Revenues $381,116  $316,112  $1,482,889  $1,264,077
               
Cost of revenues  268,758   221,466   1,050,087   883,963
Selling, general and administrative expenses  82,219   72,848   305,222   279,235
Depreciation  6,518   4,999   22,774   18,836
Amortization of intangible assets  4,495   2,873   14,195   10,148
Acquisition-related items (1)  209   (61)  61   408
Spin-off transaction costs  -   -   -   740
Operating earnings  18,917   13,987   90,550   70,747
Interest expense, net  2,413   2,033   9,152   9,077
Other expense (income)  (60)  (49)  (232)  60
Earnings before income tax  16,564   12,003   81,630   61,610
Income tax  4,848   4,096   27,387   23,412
Net earnings  11,716   7,907   54,243   38,198
Non-controlling interest share of earnings  59   (274)  5,238   4,560
Non-controlling interest redemption increment  4,874   4,917   15,408   12,243
Net earnings (loss) attributable to Company $6,783  $3,264  $33,597  $21,395
               
Net earnings (loss) per common share             
               
  Basic $0.19  $0.09  $0.93  $0.59
  Diluted  0.19   0.09   0.92   0.59
               
Adjusted earnings per share (2) $0.41  $0.28  $1.62  $1.20
               
Weighted average common shares (thousands)            
  Basic  35,904   36,064   35,966   36,013
  Diluted  36,305   36,513   36,366   36,425

(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$)
       
        
(unaudited)December 31, 2016 December 31, 2015
        
Assets      
Cash and cash equivalents $43,384 $45,560
Restricted cash  13,450  3,769
Accounts receivable  164,074  114,521
Other current assets  58,146  47,532
Deferred income tax  24,738  18,840
 Current assets  303,792  230,222
Other non-current assets  5,115  6,009
Deferred income tax  1,693  6,553
Fixed assets  73,083  57,575
Goodwill and intangible assets  387,281  300,124
 Total assets $770,964 $600,483
        
        
Liabilities and shareholders' equity      
Accounts payable and accrued liabilities $142,966 $102,043
Other current liabilities  38,813  24,015
Long-term debt - current  1,043  4,041
 Current liabilities  182,822  130,099
Long-term debt - non-current  249,866  197,158
Other liabilities  23,729  14,670
Deferred income tax  31,167  13,971
Redeemable non-controlling interests  102,352  77,559
Shareholders' equity  181,028  167,026
 Total liabilities and equity $770,964 $600,483
        
        
Supplemental balance sheet information      
Total debt $250,909 $201,199
Total debt, net of cash  207,525  155,639


Condensed Consolidated Statements of Cash Flows       
(in thousands of US$)
    Three months ended  Twelve months ended
    December 31  December 31
(unaudited)  2016   2015   2016   2015 
              
Cash provided by (used in)            
              
Operating activities            
Net earnings $11,716  $7,907  $54,243  $38,198 
Items not affecting cash:            
 Depreciation and amortization  11,014   7,871   36,969   28,984 
 Deferred income tax  (2,075)  777   1,304   (3,535)
 Other  152   (7,552)  737   (8,717)
    20,807   9,003   93,253   54,930 
              
Changes in operating assets and liabilities  (802)  2,199   15,752   32,160 
Net cash provided by operating activities  20,005   11,202   109,005   87,090 
              
Investing activities            
Acquisition of businesses, net of cash acquired  (10,418)  (338)  (90,852)  (12,340)
Purchases of fixed assets  (9,043)  (5,403)  (29,122)  (19,694)
Other investing activities  (765)  2,491   (10,869)  (244)
Net cash used in investing activities  (20,226)  (3,250)  (130,843)  (32,278)
              
Financing activities            
Increase (decrease) in long-term debt, net  7,167   2,598   49,385   (38,162)
Net contributions (distributions) from/to Old FSV  -   -   -   1,995 
Purchases of non-controlling interests, net  (1,098)  (402)  (1,057)  (17,817)
Dividends paid to common shareholders  (3,958)  (3,599)  (15,471)  (7,196)
Repurchases of subordinate voting shares  (8,166)  (19,467)  (9,515)  (19,467)
Distributions paid to non-controlling interests  (741)  (903)  (4,985)  (3,602)
Other financing activities  1,234   10,448   1,143   9,112 
Net cash used in financing activities  (5,562)  (11,325)  19,500   (75,137)
              
Effect of exchange rate changes on cash  (13)  (673)  162   (905)
              
Decrease in cash and cash equivalents  (5,796)  (4,046)  (2,176)  (21,230)
              
Cash and cash equivalents, beginning of period  49,180   49,606   45,560   66,790 
              
Cash and cash equivalents, end of period $43,384  $45,560  $43,384  $45,560 


Segmented Results
(in thousands of US$)
              
           
  FirstService FirstService    
(unaudited)Residential Brands Corporate Consolidated
              
Three months ended December 31            
              
2016            
 Revenues $274,436 $106,680 $-  $381,116
 Adjusted EBITDA  17,203  16,086  (2,629)  30,660
 Operating earnings  11,566  10,507  (3,156)  18,917
              
2015            
 Revenues $250,972 $65,140 $-  $316,112
 Adjusted EBITDA  13,712  11,304  (2,688)  22,328
 Operating earnings  8,896  9,182  (4,091)  13,987
              
              
           
  FirstService FirstService    
  Residential Brands Corporate Consolidated
              
Year ended December 31            
              
2016            
 Revenues $1,112,820 $370,069 $-  $1,482,889
 Adjusted EBITDA  84,189  56,283  (10,148)  130,324
 Operating earnings  62,539  41,173  (13,162)  90,550
              
2015            
 Revenues $1,017,506 $246,571 $-  $1,264,077
 Adjusted EBITDA  68,853  42,961  (8,776)  103,038
 Operating earnings  47,550  35,079  (11,882)  70,747

 

COMPANY CONTACTS:

D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9500

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