12% Revenue Growth Despite Global Economic Downturn
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Nine month operating highlights:
December 31, December 31,
2008 2007
------------------- -----------------
Revenues $ 1.32 billion $ 1.18 billion + 12%
EBITDA $ 124.4 million $ 123.2 million + 1%
Adjusted EPS $ 1.09 $ 1.48 - 26%
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TORONTO, Feb. 25, 2009 (GLOBE NEWSWIRE) -- FirstService Corporation (Nasdaq:FSRV) (TSX:FSV) (TSX:FSV.PR.U) today reported results for its third quarter ended December 31, 2008 and the nine month period ended December 31, 2008. The nine month transition period reflects the change in year-end to December 31 from the previous fiscal year-end of March 31. All amounts are in US dollars.
For the nine months ended December 31, 2008, operating results from continuing operations included revenues of $1.32 billion, an increase of 12% relative to the nine-month period ended December 31, 2007. EBITDA (1) increased slightly to $124.4 million and Adjusted EPS (2) was $1.09 (GAAP - $0.11) versus $1.48 (GAAP - $1.17) in the prior period.
Revenues for the quarter ended December 31, 2008 were $417.9 million, a decrease of 7% relative to the same period last year. EBITDA decreased 24% to $29.8 million and Adjusted EPS was a loss of $0.18 (GAAP - $(0.74)) for the quarter versus $0.49 (GAAP - $0.25) in the prior year period.
"Despite an extremely challenging economic environment, FirstService delivered respectable results in 2008, while continuing to capitalize on important strategic growth opportunities that position us well for the future," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. "The continued resilience of our Residential Property Management and Property Services divisions demonstrates the power and importance of our diversified business model. In Commercial Real Estate Services, which has been impacted more significantly by current economic conditions, we have taken decisive steps to contain our costs and align our infrastructure with anticipated revenue streams," he concluded.
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; FirstService Residential Management (formerly, 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$1.7 billion in annualized revenues and over 18,000 employees worldwide. More information about FirstService is available at www.firstservice.com.
Segmented Quarterly Results
Residential Property Management revenues increased to $144.7 million for the quarter, 15% higher than in the prior year period. Internal growth was 7%, attributable to property management contracts won during the last twelve months as well as increases in ancillary maintenance revenues, with the balance of the revenue growth attributable to an acquisition completed in January 2008. EBITDA for the quarter was $10.6 million, up 5% from $10.1 million one year ago.
Revenues in Commercial Real Estate Services totalled $182.1 million for the quarter, down 28% relative to the prior year quarter. Internal revenues, which exclude the positive impact of acquisitions, declined 33% (29% on a local currency basis excluding the effects of foreign exchange rate movements). Revenues were negatively impacted by the global economic slowdown and credit contraction. Quarterly EBITDA (1), before a non-recurring cost containment charge, was $9.0 million, versus $22.0 million in the year-ago period. EBITDA was negatively impacted by lower brokerage and leasing revenues in all major markets. The cost containment charge was comprised of severance and lease termination expenses and amounted to $4.5 million for the quarter. The Company's Chicago-based U.S. mortgage brokerage and servicing operation was classified as held for sale as of December 31, 2008 and, by reason of its being held for sale, is being reported as a discontinued operation for all periods presented. This operation generated revenues of $2.1 million for the quarter (2007 - $3.5 million), which amounts are not included in the segment's results noted above.
Revenues in Property Services totalled $91.0 million, an increase of 35% over the prior year period. The revenue increase was attributable primarily to Field Asset Services, which provides property preservation and foreclosure management services to the U.S. financial services industry through its national contractor network. Excluding the revenues generated from Field Asset Services, revenues declined 31%, as consumer-oriented franchise operations, including California Closets, continued to be challenged by the weakening U.S. economy. EBITDA in the third quarter was $9.7 million, which was approximately equal to the prior year. EBITDA margins in the segment were affected by revenue mix, as contractor network operations carry lower operating margins than traditional franchising.
Quarterly corporate costs were $0.8 million, versus $6.9 million in the prior year period. The current year quarter included a $1.1 million foreign currency translation gain and a $0.5 million insurance recovery. The prior year quarter included a non-recurring stock-based compensation charge of $3.3 million.
A comparison of segmented EBITDA to operating earnings is provided below.
Non-operating Charges
During the quarter, the Company recorded a $12.2 million non-cash impairment loss on its investment in units of Resolve Business Outsourcing Income Fund ("Resolve"), which was "marked-to-market" in accordance with GAAP. For the nine months ended December 31, 2008, the total impairment loss on the Resolve units was $14.7 million. Also during the quarter, the Company recorded a $15.6 million non-cash valuation allowance with respect to deferred income tax assets, which increased income tax expense and resulted in an effective tax rate of 54% for the nine months ended December 31, 2008 versus 31% for the same period one year ago. The Company's cash income taxes for the quarter ended December 31, 2008 were $3.1 million (2007 - $9.7 million) and for the nine months ended December 31, 2008 were $20.6 million (2007 - $30.5 million).
Share Repurchases
During the quarter ended December 31, 2008, the Company repurchased 115,600 Preferred Shares on the Toronto Stock Exchange under its Normal Course Issuer Bid ("NCIB") at an average price of $14.82 per share. The Company is authorized to repurchase up to an additional 1.76 million Subordinate Voting Shares and 268,200 Preferred Shares under the NCIB which expires on June 6, 2009.
Conference Call
FirstService will be holding a conference call on Wednesday, February 25, 2009 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.
Footnotes
1. Reconciliation of net (loss) earnings from continuing operations to EBITDA:
Three months ended Nine months ended
December 31 December 31
(in thousands of U.S. dollars) ------------------ ------------------
(unaudited) 2008 2007 2008 2007
-------- -------- -------- --------
Net (loss) earnings from
continuing operations $(18,982) $ 11,082 $ 11,508 $ 42,354
Minority interest share of
earnings 1,914 5,574 14,519 16,112
Income taxes 13,917 4,874 30,878 25,740
Other expense (income) 26 (1,327) (2,422) (3,824)
Integrated Security division
divestiture bonus -- -- 5,715 --
Impairment loss on
available-for-sale securities 12,195 -- 14,680 --
Interest expense, net 3,340 3,440 8,252 9,543
-------- -------- -------- --------
Operating earnings 12,410 23,643 83,130 89,925
Depreciation 7,160 5,529 18,814 14,164
Amortization of intangible
assets other than backlog 3,694 4,194 11,229 8,564
Amortization of backlog 743 1,615 1,703 4,133
-------- -------- -------- --------
24,007 34,981 114,876 116,786
Stock-based compensation
expense 1,280 3,980 2,551 6,444
Cost containment 4,510 -- 6,934 --
-------- -------- -------- --------
EBITDA $ 29,797 $ 38,961 $124,361 $123,230
-------- -------- -------- --------
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.
2. Reconciliation of net (loss) earnings from continuing operations and net (loss) earnings per common share from continuing operations to adjusted net earnings and adjusted net earnings per share:
Three months ended Nine months ended
December 31 December 31
(in thousands of U.S. dollars) ------------------ ------------------
(unaudited) 2008 2007 2008 2007
-------- -------- -------- --------
Net (loss) earnings from
continuing operations $(18,982) $ 11,082 $ 11,508 $ 42,354
Preferred dividends (2,606) (2,616) (7,760) (4,336)
Amortization of intangible
assets other than backlog 3,694 4,194 11,229 8,564
Amortization of backlog 743 1,615 1,703 4,133
Impairment loss on
available-for-sale Securities 12,195 -- 14,680 --
Integrated Security division
divestiture bonus -- -- 5,715 --
Stock-based compensation
expense 1,280 3,980 2,551 6,444
Cost containment 4,510 -- 6,934 --
Income tax on adjustments (5,546) (1,973) (12,247) (4,643)
Minority interest on
adjustments (612) (587) (1,497) (1,384)
-------- -------- -------- --------
Adjusted net earnings from
continuing operations $ (5,324) $ 15,695 $ 32,816 $ 51,132
-------- -------- -------- --------
Three months ended Nine months ended
(in thousands of U.S. dollars, December 31 December 31
except per share amounts) ------------------ ------------------
(unaudited) 2008 2007 2008 2007
-------- -------- -------- --------
Diluted net (loss) earnings
per common share from
continuing operations $(0.74) $0.25 $0.11 $1.17
Pro forma impact of preferred
share dividends on
comparative period -- -- -- (0.12)
-------- -------- -------- --------
(0.74) 0.25 0.11 1.05
Amortization of intangible
assets other than backlog,
net of income tax 0.07 0.08 0.21 0.16
Amortization of backlog, net
of income tax 0.02 0.03 0.04 0.08
Impairment loss on
available-for-sale securities,
net of income tax 0.34 -- 0.41 --
Integrated Security division
divestiture bonus, net of
income tax -- -- 0.12 --
Stock-based compensation
expense, net of income tax 0.03 0.13 0.05 0.19
Cost containment, net of
income tax 0.10 -- 0.15 --
-------- -------- -------- --------
Adjusted diluted net (loss)
earnings per common share
from continuing operations $(0.18) $0.49 $1.09 $1.48
-------- -------- -------- --------
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, (iv) a non-cash impairment loss on available-for-sale securities and (v) non-recurring cost containment charges. 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 considered "non-GAAP financial measures" under OSC and SEC guidelines.
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)
Three months ended Nine months ended
December 31 December 31
------------------ ----------------------
(unaudited) 2008 2007 2008 2007
-------- -------- ---------- ----------
Revenues $417,860 $447,634 $1,322,680 $1,180,582
Cost of revenues 261,276 252,498 801,421 684,473
Selling, general and
administrative expenses 132,577 160,155 406,383 379,323
Depreciation 7,160 5,529 18,814 14,164
Amortization of intangible
assets other than backlog 3,694 4,194 11,229 8,564
Amortization of backlog 743 1,615 1,703 4,133
-------- -------- ---------- ----------
Operating earnings 12,410 23,643 83,130 89,925
Other expense (income) 26 (1,327) (2,422) (3,824)
Impairment loss on
available-for-sale
securities(1) 12,195 -- 14,680 --
Integrated Security
division divestiture
bonus(2) -- -- 5,715 --
Interest expense, net 3,340 3,440 8,252 9,543
-------- -------- ---------- ----------
(3,151) 21,530 56,905 84,206
Income taxes(3) 13,917 4,874 30,878 25,740
-------- -------- ---------- ----------
(17,068) 16,656 26,027 58,466
Minority interest share of
earnings 1,914 5,574 14,519 16,112
-------- -------- ---------- ----------
Net (loss) earnings from
continuing operations (18,982) 11,082 11,508 42,354
Discontinued operations,
net of tax(4) (18,170) (3,097) 50,528 1,406
-------- -------- ---------- ----------
Net (loss) earnings $(37,152) $7,985 $62,036 $43,760
Preferred share dividends 2,606 2,616 7,760 4,336
-------- -------- ---------- ----------
Net (loss) earnings
available to common
shareholders $(39,758) $5,369 $54,276 $39,424
======== ======== ========== ==========
Net (loss) earnings per
common share
Basic
Continuing operations $(0.74) $0.28 $0.12 $1.27
Discontinued operations (0.62) (0.09) 1.71 0.05
-------- -------- ---------- ----------
$(1.36) $0.19 $1.83 $1.32
======== ======== ========== ==========
Diluted(5)
Continuing operations $(0.74) $0.25 $0.11 $1.17
Discontinued operations (0.62) (0.10) 1.70 0.05
-------- -------- ---------- ----------
$(1.36) $0.15 $1.81 $1.22
======== ======== ========== ==========
Adjusted diluted net (loss)
earnings per common share
from continuing
operations(6) $(0.18) $0.49 $1.09 $1.48
======== ======== ========== ==========
Weighted average common
shares outstanding:
(in thousands)
Basic 29,263 29,905 29,584 28,879
Diluted 29,263 30,466 29,755 30,417
Notes to Condensed Consolidated Statements of Earnings
(1) Non-cash loss recognized on the other-than-temporary impairment
of the Company's investment in Resolve.
(2) Non-recurring cash bonus paid to management upon the successful
completion of the sale of the Integrated Security division.
(3) Income tax expense for the three months and nine months ended
December 31, 2008 includes a $15,600 non-cash valuation allowance
charge related to deferred income tax assets (2007 - nil).
(4) Reflects: (i) the Integrated Security segment; (ii) the Canadian
commercial mortgage securitization operation; and (iii) the
Chicago-based U.S. mortgage brokerage and servicing operation.
(5) Numerators for diluted earnings per share calculations have been
adjusted to reflect dilution from stock options at subsidiaries.
The adjustment for the quarter ended December 31, 2008 was nil
(2007 - $743) and nine months ended December 31, 2008 was $530
(2007 - $2,491).
(6) See definition and reconciliation above.
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands of U.S. dollars)
December 31 March 31
(unaudited) 2008 2008
----------- -----------
Assets
------
Cash and cash equivalents $79,642 $75,371
Restricted cash 10,240 8,858
Accounts receivable 175,520 185,384
Inventories 10,572 11,178
Prepaids and other current assets 50,674 57,175
Assets held for sale 14,210 90,849
----------- -----------
Current assets 340,858 428,815
Fixed assets 76,789 79,949
Other non-current assets 39,363 46,022
Goodwill and intangibles 527,124 474,633
Assets held for sale 6,503 59,924
----------- -----------
Total assets $990,637 $1,089,343
=========== ===========
Liabilities and shareholders' equity
------------------------------------
Accounts payable and accrued liabilities $215,992 $237,595
Other current liabilities 35,242 24,293
Long term debt - current 20,899 24,777
Liabilities related to assets held for sale 12,946 46,977
----------- -----------
Current liabilities 285,079 333,642
Long term debt - non-current 245,470 331,253
Other liabilities 21,832 17,914
Deferred income taxes 42,072 41,618
Liabilities related to assets held for sale 278 763
Minority interest 50,067 58,468
Shareholders' equity 345,839 305,685
----------- -----------
Total liabilities and equity $990,637 $1,089,343
=========== ===========
Total debt $266,369 $356,030
----------- -----------
Total debt, net of cash 186,727 280,659
----------- -----------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands of U.S. dollars)
Three months ended Nine months ended
(unaudited) December 31 December 31
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Operating activities
Net (loss) earnings from
continuing operations $(18,982) $11,082 $11,508 $42,354
Items not affecting cash:
Depreciation and
amortization 11,597 11,338 31,746 26,861
Deferred income taxes 14,290 609 10,125 (1,383)
Minority interest share
of earnings 1,914 5,574 14,519 16,112
Other 11,010 4,336 11,938 6,881
Changes in operating assets
and liabilities 16,144 7,442 (11,641) (10,178)
Discontinued operations (3,094) (5,364) (1,815) (8,067)
--------- --------- --------- ---------
Net cash provided by
operating activities 32,879 35,017 66,380 72,580
--------- --------- --------- ---------
Investing activities
Acquisitions of businesses,
net of cash acquired (50,434) (60,370) (74,789) (136,647)
Purchases of fixed assets,
net (2,537) (9,807) (14,719) (24,522)
Other investing activities (6,482) 1,577 (4,060) 5,673
Discontinued operations (728) (493) 153,682 (3,797)
--------- --------- --------- ---------
Net cash (used in) provided
by investing (60,181) (69,093) 60,114 (159,293)
--------- --------- --------- ---------
Financing activities
Increase (decrease) in
long-term debt, net 21,375 69,653 (90,795) 95,146
Other financing activities (1,537) (6,682) (30,574) (11,618)
Discontinued operations -- (192) -- (192)
--------- --------- --------- ---------
Net cash provided by
(used in) financing 19,838 62,779 (121,369) 83,336
--------- --------- --------- ---------
Effect of exchange rate
changes on cash (7,542) (1,243) (5,742) 6,375
--------- --------- --------- ---------
(Decrease) increase in
cash and cash equivalents (15,006) 27,460 (617) 2,998
Cash and cash equivalents,
beginning of period
including cash held by
discontinued operations $95,055 $74,576 $80,666 $99,038
--------- --------- --------- ---------
Cash and cash equivalents,
end of period including
cash held by discontinued
operations $80,049 $102,036 $80,049 $102,036
========= ========= ========= =========
Segmented Revenues, EBITDA and Operating Earnings
-------------------------------------------------
(in thousands of U.S. dollars)
Commercial
Real Residential
Estate Property Property
(unaudited) Services Management Services Corporate Consolidated
----------------------------------------------------------
Three months
ended
December 31
2008
Revenues $182,132 $144,687 $91,010 $31 $417,860
EBITDA 4,458 10,648 9,708 (807) 24,007
Stock-based
compensation 1,280
Cost
containment 4,510 4,510
---------- -----------
8,968 29,797
---------- -----------
Operating
earnings
(loss) (2,803) 8,379 7,724 (890) 12,410
2007
Revenues $254,260 $125,959 $67,299 $116 $447,634
EBITDA 21,980 10,100 9,781 (6,880) 34,981
Stock-based
compensation 3,980
-----------
38,961
-----------
Operating
earnings 14,908 7,365 8,325 (6,955) 23,643
Commercial
Real Residential
Estate Property Property
(unaudited) Services Management Services Corporate Consolidated
----------------------------------------------------------
Nine months
ended
December 31
2008
Revenues $578,192 $475,251 $269,114 $123 $1,322,680
EBITDA 35,417 44,251 41,973 (6,765) 114,876
Stock-based
compensation 2,551
Cost
containment 6,934 6,934
---------- -----------
42,351 124,361
---------- -----------
Operating
earnings 17,442 36,436 36,278 (7,026) 83,130
2007
Revenues $619,184 $404,452 $156,664 $282 $1,180,582
EBITDA 54,411 40,216 35,295 (13,136) 116,786
Stock-based
compensation 6,444
-----------
123,230
-----------
Operating
earnings 39,070 32,837 31,367 (13,349) 89,925