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FirstService Corporation Subordinate Voting Shares

Exchange: TSX Exchange | Oct 17, 2017, 5:23 AM EDT

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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 
             


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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