Second quarter operating highlights: September 30, September 30, 2008 2007 --------------- --------------- Revenues $ 453.8 million $ 379.9 million +19% EBITDA $ 45.0 million $ 41.9 million +7% Adjusted EPS from continuing operations $ 0.62 $ 0.53 +17%
TORONTO, Oct. 29, 2008 (GLOBE NEWSWIRE) -- FirstService Corporation (Nasdaq:FSRV) (TSX:FSV) (TSX:FSV.PR.U) today reported results for its second quarter ended September 30, 2008. All amounts are in U.S. dollars.
Quarterly revenues were $453.8 million, an increase of 19% relative to the same period last year. EBITDA (see definition and reconciliation below) increased 7% to $45.0 million. Adjusted diluted earnings per share from continuing operations (see definition and reconciliation below) were $0.62 for the quarter versus $0.53 in the prior year period, up 17%.
Net earnings from continuing operations in accordance with GAAP were $12.4 million versus $15.9 million in the prior year period. Diluted net earnings per share from continuing operations in accordance with GAAP were $0.33, versus $0.41 in the prior year period, after considering the pro forma affect of preferred share dividends on the prior year period.
For the six months ended September 30, 2008, revenues were $911.6 million, an increase of 21% relative to the same period last year. EBITDA increased 6% to $90.1 million. Adjusted diluted earnings per share from continuing operations were $1.12 for the six months versus $1.00 in the prior year period, up 12%.
Net earnings from continuing operations in accordance with GAAP for the six month period were $28.5 million versus $31.5 million in the prior year period. Diluted net earnings per share from continuing operations in accordance with GAAP were $0.74, versus $0.80 in the prior year period, after considering the pro forma affect of preferred share dividends on the prior year period.
On July 1, 2008, FirstService completed the sale of its Integrated Security division, resulting in an after-tax gain of $69.3 million, or $2.34 per share. The sale resulted in net cash proceeds of $155.0 million, which were primarily applied to reduce indebtedness under the Company's revolving credit facility. The Integrated Security division has been classified as a discontinued operation.
"Given current market conditions, we are pleased with our operating results for the quarter which highlight the advantages of our service line diversification, valuable recurring and repeat revenue streams and strong balance sheet and cash flows," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. "The sale of our Integrated Security business early in the quarter, for net cash proceeds of $155 million, reduced our indebtedness and further augmented our already strong balance sheet. The result is the lowest leverage ratios in our history as a public company giving us the financial strength and flexibility we need to continue to grow and prosper in the years to come," 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: FirstService Commercial Real Estate Services, the fourth largest global player in commercial real estate; FirstManagement 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$1.9 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 $188.9 million for the quarter, flat relative to the prior year quarter, with an 8% decline in internal revenues fully offset by revenues from acquisitions completed during the past twelve months. Excluding the impact of foreign exchange fluctuations, internal revenues declined 11%. Investment sales activities slowed considerably in the United States and Australia relative to the prior year quarter, resulting in internal revenue declines of approximately 20% in these markets. Second quarter EBITDA was $9.9 million, down 26% versus the year-ago period. EBITDA was negatively impacted by (i) lower revenues and (ii) $2.0 million in foreign exchange translation losses resulting from significant exchange rate movements during the quarter.
Residential Property Management revenues increased to $167.4 million for the quarter, 16% higher than in the prior year period. Internal growth was 8%, attributable to property management contracts won during the last twelve months as well as increases in ancillary maintenance revenues, while the balance of revenue growth resulted from an acquisition completed late last year. EBITDA for the quarter was $17.7 million, up 8% from $16.4 million one year ago.
Revenues in Property Services totalled $97.5 million, an increase of 109% over the prior year period. The revenue increase was attributable to the October 2007 acquisition of Field Asset Services, a leading 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, continued to be challenged by the weakening U.S. economy. EBITDA in the second quarter was $20.3 million, up 45% from $14.0 million last year. EBITDA margins in the Property Services segment are affected by Field Asset Services, which carries lower operating margins than traditional franchising.
Quarterly corporate costs were $3.2 million, versus $3.5 million in the prior year period.
A comparison of segmented EBITDA to operating earnings is provided below.
Non-operating Charges
During the quarter, the Company reported two non-operating charges that impacted reported operating results under GAAP. First, a $2.5 million non-cash impairment loss was recognized on the Company's 7% stake in Resolve Business Outsourcing Income Fund which was "marked-to-market" in accordance with GAAP. Second, a $5.7 million divestiture bonus was paid to management in connection with the completion of the sale of the Integrated Security division and the related gain on the transaction. Although the divestiture bonus related to a discontinued operation, under GAAP it was required to be reported in continuing operations. Both of these non-operating charges were excluded from adjusted earnings per share.
Share Repurchases
During the quarter ended September 30, 2008, the Company repurchased 91,200 Preferred Shares on the open market under its Normal Course Issuer Bid ("NCIB") at an average price of $18.31 per share. The Company is authorized to repurchase up to an additional 1.76 million Subordinate Voting Shares and 383,800 Preferred Shares under the NCIB which expires on June 6, 2009.
Conference Call
FirstService will be holding a conference call on Wednesday, October 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 Six months ended September 30 September 30 ------------------ ------------------ 2008 2007 2008 2007 -------- -------- -------- -------- Revenues $453,758 $379,935 $911,601 $750,429 Cost of revenues 271,147 223,310 546,726 445,924 Selling, general and administrative expenses 137,919 116,345 276,065 222,336 Depreciation 5,664 4,602 11,809 8,789 Amortization of intangible assets other than backlog 4,146 2,445 7,775 4,609 Amortization of backlog 431 1,463 960 2,518 -------- -------- -------- -------- Operating earnings 34,451 31,770 68,266 66,253 Other income (1,354) (1,216) (2,397) (2,494) Impairment loss on available-for-sale securities(1) 2,485 -- 2,485 -- Integrated Security division divestiture bonus(2) 5,715 -- 5,715 -- Interest expense, net 1,439 2,989 5,413 5,977 -------- -------- -------- -------- 26,166 29,997 57,050 62,770 Income taxes 8,103 9,874 16,881 20,410 -------- -------- -------- -------- 18,063 20,123 40,169 42,360 Minority interest share of earnings 5,645 4,264 11,640 10,816 -------- -------- -------- -------- Net earnings from continuing operations 12,418 15,859 28,529 31,544 Discontinued operations, net of tax(3) 68,328 1,834 70,082 4,231 -------- -------- -------- -------- Net earnings $ 80,746 $ 17,693 $ 98,611 $ 35,775 Preferred share dividends 2,538 1,720 5,154 1,720 -------- -------- -------- -------- Net earnings available to common shareholders $ 78,208 $ 15,973 $ 93,457 $ 34,055 ======== ======== ======== ======== Net earnings per common share Basic Continuing operations $ 0.34 $ 0.47 $ 0.79 $ 1.00 Discontinued operations 2.32 0.06 2.35 0.14 -------- -------- -------- -------- $ 2.66 $ 0.53 $ 3.14 $ 1.14 ======== ======== ======== ======== Diluted(4) Continuing operations $ 0.33 $ 0.44 $ 0.74 $ 0.92 Discontinued operations 2.31 0.06 2.34 0.14 -------- -------- -------- -------- $ 2.64 $ 0.50 $ 3.08 $ 1.06 ======== ======== ======== ======== Adjusted diluted net earnings per common share from continuing operations(5) $ 0.62 $ 0.53 $ 1.12 $ 1.00 ======== ======== ======== ======== Weighted average common shares outstanding: (in thousands) Basic 29,395 29,896 29,746 29,866 Diluted 29,568 30,385 29,971 30,390 Notes to Condensed Consolidated Statements of Earnings (1) Non-cash loss recognized on an other-than-temporary impairment of the Company's 7% equity stake in Resolve Business Outsourcing Income Fund. (2) Non-recurring cash bonus paid to management upon the successful completion of the sale of the Integrated Security division. (3) Reflects: (i) Integrated Security division and (ii) Canadian commercial mortgage securitization operation. (4) Numerators for diluted earnings per share calculations have been adjusted to reflect dilution from stock options at subsidiaries. The adjustment for the quarter ended September 30, 2008 was $62 (2007 - $729) and six months ended September 30, 2008 was $1,098 (2007 - $1,748). (5) 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, (ii) stock-based compensation expense, (iii) a non-recurring bonus paid to management upon the divestiture of the Integrated Security division and (iv) a non-cash impairment loss on available-for-sale securities. 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 Six months ended September 30 September 30 ------------------ ------------------ 2008 2007 2008 2007 -------- -------- -------- -------- Net earnings from continuing operations $ 12,418 $ 15,859 $ 28,529 $ 31,544 Preferred dividends (2,538) (1,720) (5,154) (1,720) Amortization of intangible assets other than backlog 4,146 2,445 7,775 4,609 Amortization of backlog 431 1,463 960 2,518 Impairment loss on available-for-sale securities 2,485 -- 2,485 -- Integrated Security division divestiture bonus 5,715 -- 5,715 -- Stock-based compensation expense 326 1,614 1,271 2,464 Income tax on adjustments (4,250) (1,563) (6,045) (2,740) Minority interest on adjustments (402) (467) (779) (824) -------- -------- -------- -------- Adjusted net earnings from continuing operations $ 18,331 $ 17,631 $ 34,757 $ 35,851 -------- -------- -------- -------- Diluted net earnings per common share from continuing operations $ 0.33 $ 0.44 $ 0.74 $ 0.92 Pro forma impact of preferred share dividends on comparative period -- (0.03) -- (0.12) -------- -------- -------- -------- 0.33 0.41 0.74 0.80 Amortization of intangible assets other than backlog, net of income tax 0.08 0.05 0.14 0.09 Amortization of backlog, net of income tax 0.01 0.03 0.02 0.05 Impairment loss on available-for-sale securities, net of income tax 0.07 -- 0.07 -- Integrated Security division divestiture bonus, net of income tax 0.12 -- 0.12 -- Stock-based compensation expense, net of income tax 0.01 0.04 0.03 0.06 -------- -------- -------- -------- Adjusted diluted net earnings per common share from continuing operations $ 0.62 $ 0.53 $ 1.12 $ 1.00 -------- -------- -------- -------- 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, stock-based compensation expense and other non-cash or non-recurring expenses. 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 Six months ended September 30 September 30 ------------------ ------------------ 2008 2007 2008 2007 -------- -------- -------- -------- Net earnings from continuing operations $ 12,418 $ 15,859 $ 28,529 $ 31,544 Minority interest share of earnings 5,645 4,264 11,640 10,816 Income taxes 8,103 9,874 16,881 20,410 Other income (1,354) (1,216) (2,397) (2,494) Integrated Security division divestiture bonus 5,715 -- 5,715 -- Impairment loss on available-for-sale securities 2,485 -- 2,485 -- Interest expense, net 1,439 2,989 5,413 5,977 -------- -------- -------- -------- Operating earnings 34,451 31,770 68,266 66,253 Depreciation 5,664 4,602 11,809 8,789 Amortization of intangible assets other than backlog 4,146 2,445 7,775 4,609 Amortization of backlog 431 1,463 960 2,518 -------- -------- -------- -------- 44,692 40,280 88,810 82,169 Stock-based compensation expense 326 1,614 1,271 2,464 -------- -------- -------- -------- EBITDA $ 45,018 $ 41,894 $ 90,081 $ 84,633 -------- -------- -------- -------- Condensed Consolidated Balance Sheets ------------------------------------- (in thousands of U.S. dollars) (unaudited) September 30 March 31 2008 2008 ---------- ---------- Assets ------ Cash and cash equivalents $ 94,855 $ 76,818 Restricted cash 9,901 8,858 Accounts receivable 192,095 177,048 Inventories 10,593 20,519 Prepaids and other current assets 75,792 74,700 Assets held for sale 18,223 88,163 ---------- ---------- Current assets 401,459 446,106 Fixed assets 81,574 80,991 Other non-current assets 43,212 30,630 Goodwill and intangibles 497,439 488,014 Assets held for sale 3,419 43,602 ---------- ---------- Total assets $1,027,103 $1,089,343 ========== ========== Liabilities and shareholders' equity ------------------------------------ Accounts payable and accrued liabilities $ 217,169 $ 238,814 Other current liabilities 45,167 24,293 Long term debt - current 22,677 24,777 Liabilities related to assets held for sale 12,045 45,758 ---------- ---------- Current liabilities 297,058 333,642 Long term debt - non-current 222,123 331,253 Other liabilities 19,322 18,236 Deferred income taxes 33,956 41,618 Liabilities related to assets held for sale -- 441 Minority interest 59,362 58,468 Shareholders' equity 395,282 305,685 ---------- ---------- Total liabilities and equity $1,027,103 $1,089,343 ========== ========== Total debt $ 244,800 $ 356,030 ---------- ---------- Total debt, net of cash 149,945 279,212 ---------- ---------- Condensed Consolidated Statements of Cash Flows ----------------------------------------------- (in thousands of U.S. dollars) (unaudited) Three months ended Six months ended September 30 September 30 --------------------- --------------------- 2008 2007 2008 2007 --------- --------- --------- --------- Operating activities Net earnings from continuing operations $ 12,418 $ 15,859 $ 28,529 $ 31,544 Items not affecting cash: Depreciation and amortization 10,241 8,510 20,544 15,916 Deferred income taxes (3,095) (1,467) (4,261) (2,460) Minority interest share of earnings 5,645 4,264 11,640 10,816 Other 119 1,740 930 2,568 Changes in operating assets and liabilities (2,641) (9,693) (34,480) (20,586) Discontinued operations 251 (16,266) 2,616 (3,327) --------- --------- --------- --------- Net cash provided by operating activities 22,938 2,947 25,518 34,471 --------- --------- --------- --------- Investing activities Acquisitions of businesses, net of cash acquired (14,689) (24,306) (23,855) (76,277) Purchases of fixed assets, net (3,954) (5,072) (12,127) (15,176) Other investing activities 8,713 (3,337) 9,903 6,949 Discontinued operations 155,031 (1,917) 154,355 (2,604) --------- --------- --------- --------- Net cash provided by (used in) investing 145,101 (34,632) 128,276 (87,108) --------- --------- --------- --------- Financing activities (Decrease) increase in long-term debt, net (136,357) 18,606 (112,170) 25,493 Other financing activities (5,746) (486) (28,871) (4,936) Discontinued operations -- 6,159 -- 3,555 --------- --------- --------- --------- Net cash (used in) provided by financing (142,103) 24,279 (141,041) 24,112 --------- --------- --------- --------- Effect of exchange rate changes on cash (108) 2,473 1,636 7,618 --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents 25,828 (4,933) 14,389 (20,907) Cash and cash equivalents, beginning of period including cash held by discontinued operations $ 69,227 $ 88,196 $ 80,666 $ 104,170 --------- --------- --------- --------- Cash and cash equivalents, end of period including cash held by discontinued operations $ 95,055 $ 83,263 $ 95,055 $ 83,263 ========= ========= ========= ========= Segmented Revenues, EBITDA and Operating Earnings ------------------------------------------------- (in thousands of U.S. dollars) (unaudited) Commercial Residential Real Estate Property Property Services Management Services Corporate Consolidated ----------------------------------------------------------- Three months ended September 30 2008 Revenues $188,865 $167,388 $ 97,467 $ 38 $453,758 EBITDA 9,850 17,744 20,266 (3,168) 44,692 Stock-based compensation 326 -------- 45,018 -------- Operating earnings 4,259 15,039 18,408 (3,255) 34,451 2007 Revenues $188,842 $144,448 $ 46,555 $ 90 $379,935 EBITDA 13,379 16,414 13,966 (3,479) 40,280 Stock-based compensation 1,614 -------- 41,894 -------- Operating earnings 8,608 13,961 12,751 (3,550) 31,770 Commercial Residential Real Estate Property Property Services Management Services Corporate Consolidated ----------------------------------------------------------- Six months ended September 30 2008 Revenues $402,841 $330,564 $178,104 $ 92 $911,601 EBITDA 28,900 33,603 32,265 (5,958) 88,810 Stock-based compensation 1,271 -------- 90,081 -------- Operating earnings 17,791 28,057 28,554 (6,136) 68,266 2007 Revenues $382,405 $278,493 $ 89,365 $ 166 $750,429 EBITDA 32,795 30,116 25,514 (6,256) 82,169 Stock-based compensation 2,464 -------- 84,633 -------- Operating earnings 24,133 25,473 23,042 (6,395) 66,253