FirstService Reports Record Second Quarter Results

By GlobeNewswire,  July 29, 2014, 07:30:00 AM EDT


Strong Internal Growth at Colliers International, FirstService Residential and FirstService Brands

Adjusted EBITDA Up by More Than 40% at Colliers International

Operating highlights:

  Three months ended Six months ended
  June 30 June 30
  2014  2013  2014  2013 
         
Revenues (millions) $ 660.7  $ 576.1  $ 1,205.8  $ 1,049.7 
Adjusted EBITDA (millions) (note 1) 59.7  45.2  82.0  55.4 
Adjusted EPS (note 2) 0.74  0.57  0.82  0.39 

TORONTO, July 29, 2014 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (Nasdaq:FSRV) today reported results for its second quarter ended June 30, 2014. All amounts are in US dollars and all percentage revenue variances are calculated on a local currency basis.

Revenues for the second quarter were $660.7 million, a 16% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) was $59.7 million, up 32% and Adjusted EPS (note 2) was $0.74, a 30% increase versus the prior year quarter. GAAP EPS from continuing operations was $0.26 per share in the quarter, versus a loss of $0.21 for the same quarter a year ago. Prior year quarter results were negatively impacted by $0.29 per share resulting from accelerated amortization of intangible assets relating to the re-branding of the Company's residential property management operations.

For the six months ended June 30, 2014, revenues were $1.21 billion, a 17% increase relative to the comparable prior year period, Adjusted EBITDA was $82.0 million, up 48%, and Adjusted EPS was $0.82, up 110% versus the prior year period. GAAP EPS from continuing operations for the six month period was $0.11 per share, compared to a loss of $0.74 in the prior year period.

"Once again, FirstService delivered outstanding results in the second quarter," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService. "Colliers International grew revenues by 22% with EBITDA up by more than 40% and margins up 170 basis points to 9.6%. FirstService Residential continued to deliver excellent top-line growth with multiple contract wins across the entire North American platform. FirstService Brands also had an outstanding quarter with EBITDA up 27% and margins up 250 basis points to almost 22%. Finally, cash flows almost tripled from the same quarter one year ago. With strong operating results and cash flow, ample financial capacity and multiple growth opportunities, FirstService is better positioned than ever to continue delivering outstanding results for the balance of 2014 and beyond," he concluded.

About FirstService Corporation

FirstService Corporation is a global leader in the rapidly growing real estate services sector, one of the largest markets in the world. FirstService manages more than 2.5 billion square feet of residential and commercial properties through its three industry-leading service platforms:Colliers International - one of the largest global players in commercial real estate services; 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$2.5 billion in annual revenues and has more than 24,000 employees world-wide. With significant insider ownership and an experienced management team, FirstService has a long-term track record of creating value and superior returns for shareholders since becoming a publically listed company in 1993. The common shares of FirstService trade on the NASDAQ under the symbol "FSRV" and on the Toronto Stock Exchange under the symbol "FSV". More information is available at www.firstservice.com.

Segmented Quarterly Results

Colliers International revenues totalled $368.5 million for the second quarter compared to $308.5 million in the prior year quarter, up 22%. Revenue growth was comprised of 16% internal growth and 6% growth from recent acquisitions. Internal growth was primarily driven by stronger investment sales and leasing activity in all three regions - Europe, Asia Pacific and the Americas. Adjusted EBITDA was $35.3 million, up 44% from the prior year quarter, with a significant portion of the increase attributable to operating leverage.

FirstService Residential revenues were $236.7 million for the second quarter, up 9% relative to the prior year quarter. Revenue growth was comprised of 7% internal growth and 2% from recent acquisitions. Adjusted EBITDA for the quarter was $14.6 million, up from $13.6 million in the prior year period. Current period operating results were impacted by (i) substantial increases in employee medical benefits costs in the US which are expected to continue impacting results for the next twelve months and (ii) a reduction in higher-margin property transfer and disclosure fees resulting from a reduction in home re-sales in managed communities which is consistent with home re-sale numbers nationally. Prior period results were impacted by re-branding and related costs as a result of the adoption of the "FirstService Residential" brand.

FirstService Brands revenues grew to $55.5 million, up 12% versus the prior year period, with 11% internal growth and 1% from acquisitions completed during the quarter. Adjusted EBITDA for the second quarter was $12.2 million, up 27% over the prior year period. The FirstService Brands results have been revised for all periods to include the Service America business unit, which has been transitioned to FirstService Brands from FirstService Residential. Service America generated revenues of $13.1 million for the second quarter, relative to $13.0 million in the prior year quarter. Service America provides HVAC and plumbing services to residential and commercial customers in Florida and is expected to be better able to grow and share best practices and other benefits within the FirstService Brands segment.

Corporate costs were $2.4 million in the second quarter, relative to $2.6 million in the prior year period, and were positively impacted by changes in foreign exchange rates.

Stock Repurchases

During the quarter, the Company repurchased 105,200 Subordinate Voting Shares on the open market under its Normal Course Issuer Bid ("NCIB") at an average price of US$49.38 per share. All shares purchased under the NCIB were cancelled. The Company is authorized to repurchase up to an additional 2,974,800 Subordinate Voting Shares under its NCIB, which expires on June 8, 2015.

Conference Call

FirstService will be holding a conference call on Tuesday, July 29, 2014 at 11:00 a.m. Eastern Time to discuss the quarter's results. 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 quarterly financial statements and MD&A to be made available on SEDAR at www.sedar.com.

Notes

1. Reconciliation of net earnings from continuing operations to adjusted EBITDA:

Adjusted EBITDA is defined as net earnings from continuing operations, 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 from continuing operations 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 from continuing operations to adjusted EBITDA appears below.

  Three months ended Six months ended
(in thousands of US$) June 30 June 30
  2014  2013  2014  2013 
Net earnings (loss) from continuing operations $ 25,589  $ 4,260  $ 27,049  $ (3,630)
Income tax  9,990   1,210   11,115   (570)
Other income, net  (206)  (508)  (847)  (686)
Interest expense, net  3,413   5,885   6,394   11,053 
Operating earnings  38,786   10,847   43,711   6,167 
Depreciation and amortization  15,978   28,636   29,754   41,166 
Acquisition-related items  1,178   3,741   1,223   5,947 
Stock-based compensation expense (1)  3,764   1,943   7,305   2,128 
Adjusted EBITDA $ 59,706  $ 45,167  $ 81,993  $ 55,408 

2. Reconciliation of net earnings (loss) attributable to common shareholders and diluted net earnings (loss) per share from continuing operations to adjusted net earnings from continuing operations and adjusted net earnings per share from continuing operations:

Adjusted earnings per share is defined as diluted net earnings (loss) per share from continuing operations, 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 from continuing operations, 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 (loss) attributable to shareholders to adjusted net earnings from continuing operations and of diluted net earnings (loss) per share from continuing operations to adjusted earnings per share appears below.

  Three months ended Six months ended
(in thousands of US$) June 30 June 30
  2014  2013  2014  2013 
         
Net earnings (loss) attributable to common shareholders $ 7,659   $ (6,732) $ 1,779   $ (23,259)
Non-controlling interest redemption increment  8,529   6,268  10,543   11,848
Net (earnings) loss from discontinued operations, net of tax  1,675  (149)  2,160   209
Acquisition-related items  1,178   3,741  1,223   5,947
Amortization of intangible assets  7,386   19,900  12,284   24,149
Stock-based compensation expense (1)  3,764   1,943  7,305   2,128
Income tax on adjustments (2,942) (4,530) (4,910) (6,443)
Non-controlling interest on adjustments (390) (2,038) (662) (2,138)
Adjusted net earnings $ 26,859  $ 18,403 $ 29,722  $ 12,441
         
  Three months ended Six months ended
(in US$) June 30 June 30
  2014  2013  2014  2013 
         
Diluted net earnings (loss) per share from continuing operations $ 0.26   $ (0.21) $ 0.11   $ (0.74)
Non-controlling interest redemption increment  0.23   0.19  0.29   0.38
Acquisition-related items  0.03   0.11  0.03   0.18
Amortization of intangible assets, net of tax  0.13   0.43  0.22   0.53
Stock-based compensation expense, net of tax (1)  0.09   0.05  0.17   0.04
Adjusted earnings per share $ 0.74  $ 0.57 $ 0.82  $ 0.39
         
(1)  The increase in stock-based compensation expense was attributable to the increase in the formula price of liability-accounted stock options at Colliers International.
 
 
FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings (Loss)
(in thousands of US dollars, except per share amounts)
 
  Three months Six months
  ended June 30 ended June 30
(unaudited) 2014  2013  2014  2013 
         
Revenues $ 660,729  $ 576,099  $ 1,205,841  $ 1,049,733 
         
Cost of revenues  418,702   375,411  780,392   698,789 
Selling, general and administrative expenses  186,085   157,464  350,761   297,664 
Depreciation   8,592   8,736  17,470   17,017 
Amortization of intangible assets (1)  7,386   19,900  12,284   24,149 
Acquisition-related items (2)  1,178   3,741  1,223   5,947 
Operating earnings  38,786   10,847   43,711   6,167 
Interest expense, net  3,413   5,885   6,394   11,053 
Other expense (income)   (206)  (508)  (847)  (686)
Earnings (loss) before income tax  35,579   5,470   38,164   (4,200)
Income tax  9,990   1,210   11,115   (570)
Net earnings (loss) from continuing operations  25,589   4,260   27,049   (3,630)
Discontinued operations, net of income tax (3)  (1,675)  149   (2,160)  (209)
Net earnings (loss)  23,914   4,409   24,889   (3,839)
Non-controlling interest share of earnings  7,726   4,015   12,567   4,426 
Non-controlling interest redemption increment   8,529   6,268   10,543   11,848 
Net earnings (loss) attributable to Company   7,659   (5,874)  1,779   (20,113)
Preferred share dividends  --   858   --   3,146 
Net earnings (loss) attributable to common shareholders $ 7,659  $ (6,732) $ 1,779  $ (23,259)
         
Net earnings (loss) per common share         
Basic        
Continuing operations $ 0.26  $ (0.21) $ 0.11  $ (0.74)
Discontinued operations (0.05)  --  (0.06) (0.01)
  $ 0.21  $ (0.21) $ 0.05  $ (0.75)
         
Diluted        
Continuing operations $ 0.26  $ (0.21) $ 0.11  $ (0.74)
Discontinued operations (0.05)  --  (0.06) (0.01)
  $ 0.21  $ (0.21) $ 0.05  $ (0.75)
         
Adjusted earnings per share (4) $ 0.74  $ 0.57  $ 0.82  $ 0.39 
         
Weighted average common shares (thousands)        
Basic  35,972   32,119   35,931   31,116 
Diluted  36,369   32,437   36,334   31,492 
 
Notes to Condensed Consolidated Statements of Earnings (Loss)
(1) Amortization of intangible assets for the three and six month periods ended June 30, 2013 includes $11,184 of accelerated amortization related to legacy regional trademarks and trade names in connection with Residential Real Estate Services re-branding.
(2) Acquisition-related items include transaction costs, contingent acquisition consideration fair value adjustments, and contingent acquisition consideration-related compensation expense.
(3) Discontinued operations include the REO rental operation which was sold in April 2014, a commercial real estate consulting business which was sold in July 2014 and Field Asset Services which was sold in September 2013.
(4) See definition and reconciliation above.
 
 
Condensed Consolidated Balance Sheets
(in thousands of US dollars)
       
(unaudited) June 30, 2014 December 31, 2013 June 30, 2013
        
Assets      
Cash and cash equivalents $ 134,943  $ 142,704  $ 90,840 
Accounts receivable  376,100   371,423   341,060 
Inventories  21,531   15,804   15,550 
Prepaid expenses and other current assets  91,495   85,329   70,986 
Current assets  624,069   615,260   518,436 
Other non-current assets  22,899   19,711   23,518 
Fixed assets  112,839   101,554   102,408 
Deferred income tax  101,362   102,629   111,884 
Goodwill and intangible assets  658,132   604,357   652,721 
Total assets $ 1,519,301  $ 1,443,511  $ 1,408,967 
       
Liabilities and shareholders' equity      
Accounts payable and accrued liabilities $ 416,134  $ 485,436  $ 356,659 
Other current liabilities  43,224   39,943   58,199 
Long-term debt - current   38,020   44,785   36,822 
Current liabilities  497,378   570,164   451,680 
Long-term debt - non-current   480,917   328,009   438,818 
Convertible unsecured subordinated debentures  --   --   76,992 
Other liabilities  41,273   43,051   34,416 
Deferred income tax  31,903   31,165   42,428 
Non-controlling interests   221,851   222,073   192,941 
Shareholders' equity  245,979   249,049   171,692 
Total liabilities and equity $ 1,519,301  $ 1,443,511  $ 1,408,967 
       
Supplemental balance sheet information      
Total debt $ 518,937  $ 372,794  $ 552,632 
Total debt, net of cash  383,994   230,090   461,792 
 
 
Consolidated Statements of Cash Flows
(in thousands of US dollars)        
  Three months ended Six months ended
  June 30 June 30
(unaudited)  2014  2013  2014  2013 
         
Cash provided by (used in)         
         
Operating activities         
Net earnings  $ 23,914  $ 4,409  $ 24,889   $ (3,839)
Items not affecting cash:         
Depreciation and amortization   16,008   29,594   29,860   43,092 
Deferred income tax  (6,095) (11,293) (1,735) (16,298)
Other   3,445   265   1,464   1,516 
   37,272   22,975   54,478   24,471 
         
Changes in non-cash working capital         
Accounts receivable  (31,861) (4,034)  5,572   2,969 
Payables and accruals   38,057  (5,413) (58,821) (88,948)
Other   13,345   4,276  (11,340)  12,511 
Contingent acquisition consideration   --   --  (20,064)  -- 
Net cash provided by (used in) operating activities   56,813   17,804  (30,175) (48,997)
         
Investing activities         
Acquisition of businesses, net of cash acquired  (34,896) (7,499) (47,776) (34,688)
Purchases of fixed assets  (21,074) (6,445) (28,773) (12,106)
Other investing activities  (4,049)  421  (3,510) (3,636)
Net cash used in investing activities  (60,019) (13,523) (80,059) (50,430)
         
Financing activities         
Increase in long-term debt, net   32,994   46,037   142,389   138,435 
Redemption of Preferred Shares   --  (39,232)  --  (39,232)
Purchases of non-controlling interests  (641) (1,540) (11,615) (2,529)
Dividends paid to preferred shareholders   --  (249)  --  (2,537)
Dividends paid to common shareholders  (3,598)  --  (7,178)  -- 
Distributions paid to non-controlling interests  (7,893) (7,386) (13,414) (13,040)
Repurchases of Subordinate Voting Shares  (5,195)  --  (10,106)  -- 
Other financing activities   2,500   6,887   3,749   7,201 
Net cash provided by financing activities   18,167   4,517   103,825   88,298 
         
Effect of exchange rate changes on cash   584  (5,516) (1,352) (6,715)
         
Increase (decrease) in cash and cash equivalents   15,545   3,282  (7,761) (17,844)
         
Cash and cash equivalents, beginning of period   119,398   87,558   142,704   108,684 
         
Cash and cash equivalents, end of period  $ 134,943  $ 90,840   $ 134,943   $ 90,840 
 
 
Segmented Revenues, Adjusted EBITDA and Operating Earnings
(in thousands of US dollars)          
           
  Commercial Residential      
  Real Estate Real Estate Property    
(unaudited) Services Services Services (1) Corporate Consolidated
           
Three months ended June 30          
           
2014           
Revenues $ 368,468  $ 236,669  $ 55,536  $ 56  $ 660,729 
Adjusted EBITDA  35,340   14,567   12,177  (2,378)  59,706 
           
Operating earnings  19,590   12,561   10,292  (3,657)  38,786 
           
2013           
Revenues $ 308,452  $ 218,019  $ 49,584  $ 44  $ 576,099 
Adjusted EBITDA  24,519   13,618   9,601  (2,571)  45,167 
           
Operating earnings (2)  9,382  (918)  5,915  (3,532)  10,847 
           
           
  Commercial Residential      
  Real Estate Real Estate Property    
  Services Services Services (1) Corporate Consolidated
           
Six months ended June 30          
           
2014           
Revenues $ 667,948  $ 441,466  $ 96,333  $ 94  $ 1,205,841 
Adjusted EBITDA  51,103   22,184   13,657  (4,951)  81,993 
           
Operating earnings  24,797   15,738   10,285  (7,109)  43,711 
           
2013           
Revenues $ 552,780  $ 409,345  $ 87,508  $ 100  $ 1,049,733 
Adjusted EBITDA  26,929   23,406   10,286  (5,213)  55,408 
           
Operating earnings (2)  2,628   6,199   4,853  (7,513)  6,167 
           
(1)  The segmented results have been revised to present the Service America operations in Property Services for all periods presented. The Service America operations were previously reported in the Residential Real Estate Services segment.
(2)  Operating earnings for the Residential Real Estate Services segment for the three and six month periods ended June 30, 2013 were impacted by $11,184 of accelerated amortization related to legacy regional trademarks and trade names in connection with re-branding.
CONTACT: Jay S. Hennick
         Founder & CEO

         D. Scott Patterson
         President & COO

         John B. Friedrichsen
         Senior Vice President & CFO

         (416) 960-9500
Source: FirstService Corporation

This article appears in: News Headlines

Referenced Stocks: FSRV


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