First quarter highlights:
* Revenues up 24%
* EBITDA up 5%
* Adjusted EPS up 6%
TORONTO, July 28, 2008 (PRIME NEWSWIRE) -- FirstService Corporation (TSX:FSV) (Nasdaq:FSRV) (preferred shares -- TSX:FSV.PR.U) today reported results for its first quarter ended June 30, 2008. All amounts are in U.S. dollars.
Quarterly revenues were $457.8 million, an increase of 24% relative to the same period last year. EBITDA (see definition and reconciliation below) increased 5% to $45.1 million. Adjusted diluted earnings per share from continuing operations (see definition and reconciliation below) were $0.51 for the quarter versus $0.48 in the prior year period, up 6%.
Net earnings from continuing operations in accordance with GAAP were $16.1 million, up 3% versus the prior year period. Diluted net earnings per share from continuing operations in accordance with GAAP were $0.41, up from $0.40 in prior year period, after considering the pro forma affect of preferred share dividends on the prior year period.
"Despite difficult market conditions in the U.S., we are pleased with our first quarter results, which highlight the advantages of our service line and geographic diversification and significant recurring revenue streams," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. "Although we expect challenging market conditions to prevail for the coming year, these same conditions are providing us with an abundance of acquisition opportunities, which we will continue to carefully evaluate as we redeploy the significant proceeds received from the sale of our security division, completed just after the end of the quarter," he added.
About FirstService Corporation
FirstService is a global diversified leader in the rapidly growing real estate services sector, providing services in the following three areas: commercial real estate; residential property management; and property services. Industry-leading service platforms include: Colliers International, the third largest global player in commercial real estate; FirstManagment Partners, the largest manager of residential communities in North America; and TFC, North America's largest provider of property services through franchise and contractor networks.
FirstService is a diversified property services company with more than US$1.7 billion in annualized revenues and over 17,000 employees worldwide. More information about FirstService is available at www.firstservice.com.
Segmented Quarterly Results
Revenues in Commercial Real Estate Services totalled $214.0 million for the quarter, an increase of 11% relative to the prior year quarter. Revenue growth was comprised of a 3% decline in internal revenues, offset by 14% growth from acquisitions completed during the past twelve months. Excluding the favourable impact of foreign exchange, internal revenues declined 8%. Each of the Asia Pacific, New Europe (comprised of Central and Eastern Europe and Russia), Latin America and Canadian operations experienced internal revenue growth, while the U.S. operations, which comprise approximately 25% of segment revenues, experienced a 30% decline due to difficult market conditions, primarily related to the lack of available credit to support sale transactions. First quarter EBITDA was $19.1 million, down 2% versus the year-ago period. EBITDA was impacted by weak revenues in the US operations, offset by solid contributions from operations in the Asia Pacific, New Europe, Latin America and Canadian regions, as well as recently acquired tuck-unders.
Residential Property Management revenues increased to $163.2 million for the quarter, 22% higher than in the prior year period. Internal growth of 11% was attributable to numerous property management contracts won during the last twelve months, while the balance of revenue growth resulted from an acquisition completed late last year. EBITDA for the quarter was $15.9 million, up 16% from $13.7 million one year ago.
Revenues in Property Services totalled $80.6 million, an increase of 88% over the prior year period. The increase in revenues was fully attributable to the October 2007 acquisition of Field Asset Services, a provider of residential property preservation and foreclosure management services to the U.S. financial services industry. Internal revenues in the segment, excluding Field Asset Services, declined 6%, as the Company's consumer-oriented businesses, in particular California Closets, were challenged by the weakening U.S. economy. EBITDA in the first quarter was $12.0 million, up 4% from $11.5 million last year, with the positive impact of Field Asset Services largely offset by declines at the consumer-oriented operations. Field Asset Services affects the Property Services segment's EBITDA margin as it employs a vendor network operating model carrying lower operating margins than franchising.
Quarterly corporate costs were $2.8 million, flat versus $2.8 million in the prior year period.
A comparison of segmented EBITDA to operating earnings is provided below.
Share Repurchases
During the quarter ended June 30, 2008, the Company repurchased 960,300 Subordinate Voting Shares on the open market under its Normal Course Issuer Bid ("NCIB"), representing 3.2% of the shares outstanding prior to the repurchase, at an average price of $15.47 per share. The Company is authorized to repurchase up to an additional 1.76 million shares under the NCIB which expires on June 6, 2009.
Completion of Sale of Security Division
As previously announced, FirstService completed the sale of its Integrated Security Services division for gross proceeds of $187.5 million on July 1, 2008. The results of operations of this division are reported as discontinued operations for the quarter ended June 30, 2008.
Update to Adjusted Earnings Per Share Measure
Beginning with the quarter ended June 30, 2008, FirstService is updating its method for calculating adjusted earnings per share. The updated measure excludes intangible asset amortization expense and stock-based compensation expense. The previous adjusted EPS measure excluded subsets of amortization expense and stock-based compensation expense. The Company believes that the updated adjusted EPS measure is the best way to assess operating performance and is an important metric in valuing the Company's shares. A reconciliation of the updated adjusted earnings measure to the comparable GAAP earnings measure is provided below.
Conference Call
FirstService will be holding a conference call on Tuesday, July 29, 2008 at 11:00 am Eastern Time to discuss results for the first quarter. The call will be simultaneously web cast and can be accessed live or after the call at www.firstservice.com in the "Investor Relations / Newsroom" section.
Forward-looking Statements
This press release includes 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 the Ontario Securities Commission.
FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
---------------------------------------------
(in thousands of U.S. dollars, except per share amounts)
(unaudited)
Three months ended
June 30
--------------------
2008 2007
--------- ---------
Revenues $457,843 $370,494
Cost of revenues 275,579 222,614
Selling, general and administrative expenses 138,146 105,991
Depreciation 6,145 4,187
Amortization of intangible assets other than
backlog 3,629 2,164
Amortization of backlog 529 1,055
--------- ---------
Operating earnings 33,815 34,483
Other income (1,043) (1,278)
Interest expense, net 3,974 2,988
--------- ---------
30,884 32,773
Income taxes 8,778 10,536
--------- ---------
22,106 22,237
Minority interest share of earnings 5,995 6,552
--------- ---------
Net earnings from continuing operations 16,111 15,685
Discontinued operations, net of tax (1) 1,754 2,397
--------- ---------
Net earnings $17,865 $18,082
Preferred share dividends 2,616 --
--------- ---------
Net earnings available to common
shareholders $15,249 $18,082
========= =========
Net earnings per common share
Basic
Continuing operations $0.45 $0.53
Discontinued operations 0.06 0.08
--------- ---------
$0.51 $0.61
========= =========
Diluted (2)
Continuing operations $0.41 $0.48
Discontinued operations 0.06 0.08
--------- ---------
$0.47 $0.56
========= =========
Weighted average common shares outstanding:
(in thousands) Basic 30,099 29,835
Diluted 30,365 30,374
Adjusted diluted net earnings per common
share from continuing operations (3) $0.51 $0.48
--------- ---------
Notes to Condensed Consolidated Statements of Earnings
(1) Reflects: (i) the Integrated Security Services segment and (ii)
the Canadian commercial mortgage securitization operation.
(2) Numerators for diluted earnings per share calculations have
been adjusted to reflect dilution from stock options at
subsidiaries. The adjustment for the quarter ended June 30,
2008 was $1,036 (2007 - $1,019).
(3) See "Reconciliation of net earnings and net earnings per share
to adjusted net earnings and adjusted net earnings per share"
below.
Reconciliation of Net Earnings and Net Earnings Per Share to Adjusted
Net Earnings and Adjusted Net Earnings Per Share
---------------------------------------------------------------------
(in thousands of U.S. dollars, except per share amounts)
(unaudited)
The Company is presenting adjusted earnings measures to eliminate the impact of (i) amortization expense related to intangible assets recognized in connection with acquisitions and (ii) stock-based compensation expense. In addition, the Company is presenting the pro forma impact of preferred share dividends on comparative periods. The preferred share dividend obligation commenced on August 1, 2007 upon the issuance of the Preferred Shares. All of the adjustments are non-cash and are considered "non-GAAP financial measures" under OSC and SEC guidelines. The following tables provide a reconciliation of the adjusted measures:
Three months ended
June 30
------------------
2008 2007
-------- --------
Net earnings from continuing operations $16,111 $15,685
Amortization of intangible assets other than
backlog 3,629 2,164
Amortization of backlog 529 1,055
Stock-based compensation expense 945 850
Deferred income tax (1,795) (1,177)
Minority interest (377) (357)
-------- --------
Adjusted net earnings from continuing
operations $19,042 $18,220
-------- --------
Diluted net earnings per common share from
continuing operations $0.41 $0.48
Pro forma impact of preferred share dividends
on comparative period -- (0.08)
-------- --------
0.41 0.40
Amortization of intangible assets other than
backlog, net of income tax 0.07 0.04
Amortization of backlog, net of income tax 0.01 0.02
Stock-based compensation expense, net of income
tax 0.02 0.02
-------- --------
Adjusted diluted net earnings per common share
from continuing operations $0.51 $0.48
-------- --------
Reconciliation of EBITDA to Net Earnings from Continuing Operations
-------------------------------------------------------------------
(in thousands of U.S. dollars)
(unaudited)
EBITDA is defined as net earnings from continuing operations before minority interest share of earnings, income taxes, interest, depreciation and amortization and stock-based compensation expense. The Company uses EBITDA to evaluate operating performance. EBITDA is an integral part of the Company's planning and reporting systems. Additionally, the Company uses multiples of current and projected EBITDA in conjunction with discounted cash flow models to determine its overall enterprise valuation and to evaluate acquisition targets. The Company believes EBITDA is a reasonable measure of operating performance because of the low capital intensity of its service operations. The Company believes EBITDA is a financial metric used by many investors to compare companies, especially in the services industry, on the basis of operating results and the ability to incur and service debt. EBITDA is not a recognized measure of financial performance under United States generally accepted accounting principles (GAAP), and should not be considered as a substitute for operating earnings, net earnings or cash flows from operating activities, as determined in accordance with GAAP. The Company's method of calculating EBITDA may differ from other issuers and accordingly, EBITDA may not be comparable to measures used by other issuers. A reconciliation of EBITDA to net earnings from continuing operations appears below.
Three months ended
June 30
------------------
2008 2007
-------- --------
Net earnings from continuing operations $16,111 $15,685
Minority interest share of earnings 5,995 6,552
Income taxes 8,778 10,536
Other income (1,043) (1,278)
Interest expense, net 3,974 2,988
-------- --------
Operating earnings 33,815 34,483
Depreciation 6,145 4,187
Amortization of intangible assets other than
backlog 3,629 2,164
Amortization of backlog 529 1,055
-------- --------
44,118 41,889
Stock-based compensation expense 945 850
-------- --------
EBITDA $45,063 $42,739
-------- --------
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands of U.S. dollars)
(unaudited)
June 30 March 31
2008 2008
---------- ----------
Assets
------
Cash and cash equivalents $61,868 $76,818
Restricted cash 10,043 8,858
Accounts receivable 207,921 177,048
Inventories 19,683 20,519
Prepaids and other current assets 60,191 57,409
Assets held for sale 83,445 88,163
---------- ----------
Current assets 443,151 428,815
Fixed assets 83,018 80,991
Other non-current assets 49,994 47,921
Goodwill and intangibles 494,647 488,014
Assets held for sale 42,352 43,602
---------- ----------
Total assets $1,113,162 $1,089,343
========== ==========
Liabilities and shareholders' equity
------------------------------------
Accounts payable and accrued liabilities $230,708 $238,814
Other current liabilities 35,382 24,293
Long term debt - current 24,224 24,777
Liabilities held for sale 37,858 45,758
---------- ----------
Current liabilities 328,172 333,642
Long term debt - non-current 355,993 331,253
Other liabilities 21,621 18,236
Deferred income taxes 37,537 41,618
Liabilities held for sale -- 441
Minority interest 60,468 58,468
Shareholders' equity 309,371 305,685
---------- ----------
Total liabilities and equity $1,113,162 $1,089,343
========== ==========
Total debt $380,217 $356,030
---------- ----------
Total debt, net of cash 318,349 279,212
---------- ----------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands of U.S. dollars)
(unaudited)
Three months ended
June 30
--------------------
2008 2007
--------- ---------
Operating activities
Net earnings from continuing operations $16,111 $15,685
Items not affecting cash:
Depreciation and amortization 10,303 7,406
Deferred income taxes (1,166) (993)
Minority interest share of earnings 6,041 6,552
Other 765 828
Changes in operating assets and liabilities (31,839) (10,893)
Discontinued operations 2,365 12,939
--------- ---------
Net cash provided by operating activities 2,580 31,524
--------- ---------
Investing activities
Acquisitions of businesses, net of cash
acquired (9,166) (51,971)
Purchases of fixed assets, net (8,173) (10,104)
Other investing activities 1,190 10,286
Discontinued operations (676) (687)
--------- ---------
Net cash used in investing (16,825) (52,476)
--------- ---------
Financing activities
Increase in long-term debt, net 24,187 6,887
Other financing activities (23,125) (4,450)
Discontinued operations -- (2,604)
--------- ---------
Net cash provided by (used in) financing 1,062 (167)
--------- ---------
Effect of exchange rate changes on cash 1,744 5,145
--------- ---------
Decrease in cash and cash equivalents (11,439) (15,974)
Cash and cash equivalents, beginning of
period including cash held by discontinued
operations of $3,848 (2007 - $1,364) $80,666 $104,170
--------- ---------
Cash and cash equivalents, end of period
including cash held by discontinued
operations of $7,359 (2007 - $23) $69,227 $88,196
========= =========
Segmented Revenues, EBITDA and Operating Earnings
-------------------------------------------------
(in thousands of US dollars)
(unaudited)
Commercial Residential
Real Estate Property Property
Services Management Services Corporate Consolidated
---------------------------------------------------------
Three months
ended
June 30
2008
Revenues $213,976 $163,176 $80,637 $54 $457,843
EBITDA 19,050 15,859 11,999 (2,790) 44,118
Stock-based
compensation 945
--------
45,063
--------
Operating
earnings 13,532 13,018 10,146 (2,881) 33,815
2007
Revenues $193,563 $134,045 $42,810 $76 $370,494
EBITDA 19,416 13,702 11,548 (2,777) 41,889
Stock-based
compensation 850
--------
42,739
--------
Operating
earnings 15,525 11,512 10,291 (2,845) 34,483