FirstService Reports Strong Third Quarter Results

Toronto, Ontario, CANADA

Double-Digit Revenue Increase at FirstService Brands Drives Strong Earnings Growth

Operating highlights:

  Three months ended Nine months ended
  September 30 September 30
  2018 2017 2018 2017
Revenues (millions)$506.4 $463.4 $1,428.2 $1,285.4
Adjusted EBITDA (millions) (note 1) 59.4  52.6  142.0  119.8
Adjusted EPS (note 2) 0.89  0.73  1.99  1.49
GAAP Operating Earnings 45.3  34.0  98.7  78.3
GAAP EPS 0.70  0.41  1.49  1.02

TORONTO, Oct. 24, 2018 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported strong results for its third quarter ended September 30, 2018. All amounts are in US dollars.

Revenues for the third quarter were $506.4 million, a 9% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 13% to $59.4 million, and Adjusted EPS (note 2) was $0.89, a 22% increase versus the prior year quarter. GAAP Operating Earnings were $45.3 million, relative to $34.0 million in the prior year period. GAAP diluted earnings per share was $0.70 in the quarter, versus $0.41 for the same quarter a year ago.

For the nine months ended September 30, 2018, revenues were $1.43 billion, an 11% increase relative to the comparable prior year period, Adjusted EBITDA was $142.0 million, up 18%, and Adjusted EPS was $1.99, a 34% increase versus the prior year period. GAAP Operating Earnings were $98.7 million, relative to $78.3 million in the prior year period. GAAP diluted EPS for the nine months year-to-date was $1.49, compared to $1.02 in the prior year period.

“We delivered another solid quarter of organic growth across our businesses,” said Scott Patterson, Chief Executive Officer of FirstService. “Our key operating indicators suggest continued strong activity levels and, supported by continued progress with our tuck-under acquisition programs, we expect to cap off a strong 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$1.8 billion in annual revenues and has more than 19,000 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

Impact of New Revenue Recognition Standard
As previously disclosed in our first quarter of this year, FirstService adopted, in accordance with U.S. GAAP effective January 1, 2018, the New Revenue Recognition Standard to all contracts using the full retrospective method. Our prior year 2017 financial results as reported herein have been recast in accordance with the New Revenue Standard to provide a consistent comparison to current year results. The impact is confined to our franchised operations within our FirstService Brands segment, relating to the timing and recognition of franchise fees and the gross revenue recognition of marketing fund fees. The effect of the New Revenue Standard on the prior year third quarter results was an increase of $6.9 million to our consolidated revenues, a decrease of $0.5 million to our consolidated Adjusted EBITDA, resulting in a 30 basis points decrease to our consolidated Adjusted EBITDA margin, and a decrease of $0.01 to our Adjusted EPS. The same $6.9 million increase to our FirstService Brands revenues and $0.5 million decrease to our FirstService Brands Adjusted EBITDA resulted in a reduction of 110 basis points to our FirstService Brands Adjusted EBITDA margin for our recast segmented 2017 third quarter results. The New Revenue Recognition Standard does not have any impact on our cash flow from operations.

Segmented Quarterly Results
FirstService Residential revenues were $331.7 million for the third quarter, up 5% versus the prior year quarter, including 4% organic growth. Adjusted EBITDA for the quarter was $35.9 million, versus $33.3 million in the prior year period. Top-line growth was primarily driven by contract wins in our property management business, as well as strong contribution from our labour-driven ancillary services. GAAP Operating Earnings were $29.9 million, versus $27.8 million for the third quarter of last year.

FirstService Brands revenues during the third quarter grew to $174.6 million, up 17% relative to the prior year period and including 6% organic growth. Adjusted EBITDA for the third quarter was $26.6 million, up from $22.7 million in the prior year period. Organic growth during the quarter was particularly strong at our California Closets and Century Fire Protection businesses, with segment results tempered by softer performance at our Paul Davis company-owned operations relative to the prior year period. Our growth was further augmented by recent tuck-under acquisitions across our company-owned operations at California Closets, Paul Davis Restoration and Century Fire. GAAP Operating Earnings were $19.7 million, versus $10.7 million in the prior year quarter.

Corporate costs, as presented in Adjusted EBITDA, were $3.2 million in the third quarter, relative to $3.4 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $4.4 million, the same level as in the prior year period.

Conference Call
FirstService will be holding a conference call on Wednesday, October 24, 2018 at 11:00 a.m. Eastern Time to discuss the quarter’s results. The number to use for this call is toll-free 1) 1-888-241-0551 or 2) 647-427-3415 for international callers. The call will be simultaneously webcast and can be accessed live or after the call at in the “Investors / Newsroom” section.

Forward-looking Statements
This press release includes or may include forward-looking statements. Much of this information can be identified by words such as “expect to,” “expected,” “will,” “estimated” or similar expressions suggesting future outcomes or events. FirstService believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. 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 FirstService’s services and the cost of providing services; (ii) the ability of FirstService to implement its business strategy, including FirstService’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 FirstService’s annual information form for the year ended December 31, 2017 under the heading “Risk factors” (a copy of which may be obtained at and Annual Report on Form 40-F filed with the United States Securities and Exchange Commission (a copy of which may be obtained at, and subsequent filings (which factors are adopted herein). Forward-looking statements contained in this press release are made as of the date hereof and are subject to change. All forward-looking statements in this press release are qualified by these cautionary statements. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements contained in this press release to reflect subsequent information, events, results or circumstances or otherwise.

Summary financial information is provided in this press release. This press release should be read in conjunction with the Company's consolidated financial statements and MD&A to be made available on SEDAR at

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 Nine months ended
(in thousands of US$)September 30 September 30
  2018 2017  2018  2017 
Net earnings$31,664 $20,821  $70,493  $51,023 
Income tax 10,508  12,016   19,121   21,377 
Other income, net 25  (1,317)  (78)  (1,522)
Interest expense, net 3,101  2,499   9,185   7,378 
Operating earnings 45,298  34,019   98,721   78,256 
Depreciation and amortization 12,277  10,382   36,963   30,233 
Goodwill impairment charge -  6,150   -   6,150 
Acquisition-related items 618  1,180   1,727   1,951 
Stock-based compensation expense 1,233  893   4,547   3,237 
Adjusted EBITDA$59,426 $52,624  $141,958  $119,827 

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 Nine months ended
(in thousands of US$)September 30 September 30
  2018  2017  2018  2017 
Net earnings$31,664  $20,821  $70,493  $51,023 
Non-controlling interest share of earnings (3,653)  (2,582)  (8,888)  (6,741)
Acquisition-related items 618   1,180   1,727   1,951 
Amortization of intangible assets 4,343   3,589   12,993   10,340 
Goodwill impairment charge -   6,150   -   6,150 
Stock-based compensation expense 1,233   893   4,547   3,237 
Stock-based compensation tax adjustment for US GAAP change (87)  (1,307)  (3,124)  (5,930)
Income tax on adjustments (1,450)  (1,748)  (4,560)  (5,269)
Non-controlling interest on adjustments (132)  (112)  (388)  (274)
Adjusted net earnings$32,536  $26,884  $72,800  $54,487 
  Three months ended Nine months ended
(in US$)September 30 September 30
  2018  2017  2018  2017 
Diluted net earnings per share$0.70  $0.41  $1.49  $1.02 
Non-controlling interest redemption increment 0.06   0.08   0.19   0.19 
Acquisition-related items 0.02   0.03   0.05   0.05 
Amortization of intangible assets, net of tax 0.08   0.06   0.26   0.16 
Goodwill impairment charge -   0.17   -   0.17 
Stock-based compensation expense, net of tax 0.03   0.02   0.09   0.06 
Stock-based compensation tax adjustment for US GAAP change -   (0.04)  (0.09)  (0.16)
Adjusted earnings per share$0.89  $0.73  $1.99  $1.49 

Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
   Three months  Nine months
   ended September 30  ended September 30
(unaudited)  2018  2017   2018   2017 
Revenues $506,356 $463,379  $1,428,160  $1,285,394 
Cost of revenues  343,026  317,023   972,995   891,106 
Selling, general and administrative expenses  105,137  94,625   317,754   277,698 
Depreciation  7,934  6,793   23,970   19,893 
Amortization of intangible assets  4,343  3,589   12,993   10,340 
Goodwill impairment charge  -  6,150   -   6,150 
Acquisition-related items (1)  618  1,180   1,727   1,951 
Operating earnings  45,298  34,019   98,721   78,256 
Interest expense, net  3,101  2,499   9,185   7,378 
Other expense (income)  25  (1,317)  (78)  (1,522)
Earnings before income tax  42,172  32,837   89,614   72,400 
Income tax  10,508  12,016   19,121   21,377 
Net earnings  31,664  20,821   70,493   51,023 
Non-controlling interest share of earnings  3,653  2,582   8,888   6,741 
Non-controlling interest redemption increment  2,172  3,096   7,077   6,829 
Net earnings attributable to Company  $25,839 $15,143  $54,528  $37,453 
Net earnings per common share             
Basic $0.72 $0.42  $1.52  $1.04 
Diluted  0.70  0.41   1.49   1.02 
Adjusted earnings per share (2) $0.89 $0.73  $1.99  $1.49 
Weighted average common shares (thousands)            
Basic  35,961  35,926   35,940   35,909 
Diluted  36,661  36,587   36,566   36,566 

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)September 30, 2018 December 31, 2017
Cash and cash equivalents$75,523 $57,187
Restricted cash 12,842  9,707
Accounts receivable 218,576  183,803
Prepaid and other current assets 91,251  73,654
Current assets 398,192  324,351
Other non-current assets 9,372  9,805
Fixed assets 97,878  85,424
Deferred income tax 89  780
Goodwill and intangible assets 481,659  425,764
Total assets$987,190 $846,124
Liabilities and shareholders' equity     
Accounts payable and accrued liabilities$162,022 $157,260
Other current liabilities 54,767  51,657
Long-term debt - current 3,497  2,751
Current liabilities 220,286  211,668
Long-term debt - non-current 325,567  266,874
Other liabilities 61,599  54,639
Deferred income tax 3,660  1,467
Redeemable non-controlling interests 142,078  117,708
Shareholders' equity 234,000  193,768
Total liabilities and equity$987,190 $846,124
Supplemental balance sheet information     
Total debt$329,064 $269,625
Total debt, net of cash 253,541  212,438

Consolidated Statements of Cash Flows       
(in thousands of US dollars)
   Three months ended  Nine months ended
   September 30  September 30
(unaudited)  2018   2017   2018   2017 
Cash provided by (used in)            
Operating activities            
Net earnings $31,664  $20,821  $70,493  $51,023 
Items not affecting cash:            
Depreciation and amortization  12,277   10,383   36,963   30,234 
Goodwill impairment charge  -   6,150   -   6,150 
Deferred income tax  40   (103)  386   260 
Other  1,509   434   5,540   (1,668)
   45,490   37,685   113,382   85,999 
Changes in non-cash working capital            
Accounts receivable  (10,932)  (20,764)  (23,113)  (37,538)
Payables and accruals  4,417   4,895   (8,087)  11,491 
Other  (5,160)  5,249   (793)  16,314 
Net cash provided by operating activities  33,815   27,065   81,389   76,266 
Investing activities            
Acquisition of businesses, net of cash acquired  (9,349)  (22,504)  (52,528)  (35,049)
Purchases of fixed assets  (10,113)  (7,185)  (29,733)  (26,075)
Other investing activities  (2,996)  200   (4,980)  (2,704)
Net cash used in investing activities  (22,458)  (29,489)  (87,241)  (63,828)
Financing activities            
Increase in long-term debt, net  15,995   12,082   58,081   42,552 
Sale (purchases) of non-controlling interests, net  200   -   (1,932)  (5,468)
Financing fees paid  -   -   (575)  - 
Dividends paid to common shareholders  (4,675)  (4,403)  (13,924)  (12,743)
Distributions paid to non-controlling interests  (1,466)  (700)  (5,808)  (3,049)
Repurchases of Subordinate Voting Shares  -   (6,114)  (5,941)  (13,530)
Other financing activities  (2,128)  665   (2,324)  1,274 
Net cash provided by financing activities  7,926   1,530   27,577   9,036 
Effect of exchange rate changes on cash  89   355   (254)  481 
Increase (decrease) in cash, cash equivalents and restricted cash  19,372   (539)  21,471   21,955 
Cash, cash equivalents and restricted cash, beginning of period  68,993   79,328   66,894   56,834 
Cash, cash equivalents and restricted cash, end of period $88,365  $78,789  $88,365  $78,789 

Segmented Results
(in thousands of US dollars)
 FirstService FirstService    
(unaudited)Residential Brands Corporate Consolidated
Three months ended September 30           
Revenues$331,712 $174,644 $-  $506,356
Adjusted EBITDA 35,944  26,633  (3,151)  59,426
Operating earnings 29,945  19,749  (4,396)  45,298
Revenues$314,631 $148,748 $-  $463,379
Adjusted EBITDA 33,320  22,663  (3,359)  52,624
Operating earnings 27,786  10,676  (4,443)  34,019
 FirstService FirstService    
 Residential Brands Corporate Consolidated
Nine months ended September 30           
Revenues$942,839 $485,321 $-  $1,428,160
Adjusted EBITDA 86,822  64,471  (9,335)  141,958
Operating earnings 68,809  43,969  (14,057)  98,721
Revenues$883,384 $402,010 $-  $1,285,394
Adjusted EBITDA 76,449  52,542  (9,164)  119,827
Operating earnings 60,104  30,843  (12,691)  78,256


D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9500