FirstService Reports Strong Third Quarter Results

Growth in Restoration Offsets Continued COVID-19 Headwinds

Toronto, Ontario, CANADA


Operating highlights:

  Three months ended     Nine months ended
 
  September 30     September 30
 
  2020 2019 2020  2019  
              
Revenues (millions)$741.9 $672.3 $1,997.4 $1,731.8  
Adjusted EBITDA (millions) (note 1) 88.7  77.1  203.8  171.3  
Adjusted EPS (note 2) 1.19  0.92  2.44  2.38  
              
GAAP Operating Earnings 59.1  49.7  120.0  (205.8)(1)
GAAP EPS 0.75  0.50  1.52  (6.93)(1)
               
(1) Includes $314.4 million settlement of long-term incentive arrangement with FirstService's Founder and Chairman.     

TORONTO, Oct. 28, 2020 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported strong results for its third quarter ended September 30, 2020. All amounts are in US dollars.

Revenues for the third quarter were $741.9 million, a 10% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 15% to $88.7 million, and Adjusted EPS (note 2) was $1.19, representing 29% growth over the prior year quarter. During the third quarter, FirstService reported GAAP Operating Earnings of $59.1 million, up from $49.7 million in the prior year period. The GAAP diluted earnings per share was $0.75 in the quarter, compared to $0.50 for the same quarter a year ago.

For the nine months ended September 30, 2020, revenues were $2.00 billion, a 15% increase relative to the comparable prior year period, Adjusted EBITDA was $203.8 million, up 19%, and Adjusted EPS was $2.44, versus $2.38 in the prior year period. FirstService’s GAAP Operating Earnings were $120.0 million in the current year period, versus an Operating Loss of $205.8 million in the prior year, reflecting the 2019 settlement of the long-term incentive arrangement (“LTIA”) with its Founder and Chairman in the amount of $314.4 million. The GAAP diluted earnings per share for the nine months year-to-date was $1.52, compared to GAAP loss per share of $6.93 in the prior year period.

“We are pleased to have rebounded this quarter to report strong organic growth buoyed by increased activity levels in restoration,” said Scott Patterson, Chief Executive Officer of FirstService. “Our operations continue to demonstrate resilience in the current pandemic environment and we look forward to a solid finish to the 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 US$2.4 billion in annual revenues and has approximately 24,000 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 www.firstservice.com.

Segmented Quarterly Results
FirstService Residential revenues were $374.8 million for the third quarter, matching the top-line in the prior year quarter. Growth was tempered by continued COVID-related closures of client facilities, which negatively impacted our amenity management services revenue. Adjusted EBITDA for the quarter was $41.8 million, versus $39.8 million in the prior year period. GAAP Operating Earnings were $35.2 million, versus $33.0 million for the third quarter of last year. Margin expansion during the quarter was driven by an increase in higher margin ancillary revenues, primarily related to strong home resale activity.

FirstService Brands revenues during the third quarter grew to $367.2 million, up 24% relative to the prior year period, of which 15% was organic. Organic growth was principally driven by strong performance at our restoration service lines, which benefited from increased storm-related activity and large loss claims relative to last year. Adjusted EBITDA for the third quarter was $48.7 million, versus $40.8 million in the prior year period. GAAP Operating Earnings were $28.5 million, versus $22.1 million in the prior year quarter.

Corporate costs, as presented in Adjusted EBITDA, were $1.8 million in the third quarter, relative to $3.5 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $4.5 million, relative to $5.4 million in the prior year period. The year-over-year cost reduction is due to lower compensation costs and foreign exchange.

Conference Call
FirstService will be holding a conference call on Wednesday, October 28, 2020 at 11:00 a.m. Eastern Time to discuss the quarter’s results. The numbers to use for this call are 1) toll-free 1-888-241-0551; or 2) for international callers, 647-427-3415. The call will be simultaneously webcast 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. 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, 2019 under the heading “Risk factors” (a copy of which may be obtained at www.sedar.com) and Annual Report on Form 40-F filed with the United States Securities and Exchange Commission (a copy of which may be obtained at www.sec.gov), 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 www.sedar.com.

Notes
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; (vi) stock-based compensation expense; and (vii) settlement of the LTIA. 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
  2020  2019  2020  2019 
             
Net earnings (loss)$40,966  $26,336  $76,663  $(241,199)
Income tax 12,969   10,872   24,118   20,650 
Other income, net (269)  (229)  (645)  (6,353)
Interest expense, net 5,464   12,719   19,881   21,060 
Operating earnings (loss) 59,130   49,698   120,017   (205,842)
Depreciation and amortization 26,184   24,181   73,179   51,033 
Settlement of long-term incentive arrangement -   -   -   314,379 
Acquisition-related items 950   1,493   1,752   5,373 
Stock-based compensation expense 2,468   1,772   8,880   6,382 
Adjusted EBITDA$88,732  $77,144  $203,828  $171,325 


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; (v) a stock-based compensation tax adjustment related to a US GAAP change; and (vi) settlement of the LTIA. 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
  2020  2019  2020  2019 
             
Net earnings (loss)$40,966  $26,336  $76,663  $(241,199)
Non-controlling interest share of earnings (760)  (2,057)  (5,841)  (6,262)
Settlement of long-term incentive arrangement -   -   -   314,379 
Acquisition-related items 950   1,493   1,752   5,373 
Amortization of intangible assets 13,191   13,029   35,416   22,235 
Stock-based compensation expense 2,468   1,772   8,880   6,382 
Stock-based compensation tax adjustment for US GAAP change -   -   -   (2,854)
Income tax on adjustments (4,071)  (3,848)  (11,517)  (8,149)
Non-controlling interest on adjustments (303)  (374)  (823)  (542)
Adjusted net earnings$52,441  $36,351  $104,530  $89,363 
             
  Three months ended Nine months ended
(in US$)September 30 September 30
  2020  2019  2020  2019 
             
Diluted net earnings (loss) per share$0.75  $0.50  $1.52  $(6.84)
Non-controlling interest redemption increment 0.17   0.11   0.13   0.25 
Settlement of long-term incentive arrangement -   -   -   8.37 
Acquisition-related items 0.02   0.04   0.04   0.12 
Amortization of intangible assets, net of tax 0.21   0.24   0.60   0.43 
Stock-based compensation expense, net of tax 0.04   0.03   0.15   0.13 
Stock-based compensation tax adjustment for US GAAP change -   -   -   (0.08)
Adjusted earnings per share$1.19  $0.92  $2.44  $2.38 
             



FIRSTSERVICE CORPORATION
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)  2020   2019   2020   2019 
               
Revenues $741,932  $672,253  $1,997,360  $1,731,816 
               
Cost of revenues  496,367   451,671   1,343,526   1,181,025 
Selling, general and administrative expenses  159,301   145,210   458,886   385,848 
Depreciation  12,993   11,152   37,763   28,798 
Amortization of intangible assets  13,191   13,029   35,416   22,235 
Settlement of long-term incentive arrangement  -   -   -   314,379 
Acquisition-related items (1)  950   1,493   1,752   5,373 
Operating earnings (loss)  59,130   49,698   120,017   (205,842)
Interest expense, net  5,464   12,719   19,881   21,060 
Other income  (269)  (229)  (645)  (6,353)
Earnings (loss) before income tax  53,935   37,208   100,781   (220,549)
Income tax  12,969   10,872   24,118   20,650 
Net earnings (loss)  40,966   26,336   76,663   (241,199)
Non-controlling interest share of earnings  760   2,057   5,841   6,262 
Non-controlling interest redemption increment  7,379   4,419   5,588   9,386 
Net earnings (loss) attributable to Company $32,827  $19,860  $65,234  $(256,847)
             
Net earnings (loss) per common share            
Basic $0.76  $0.51  $1.54  $(6.93)
Diluted  0.75   0.50   1.52   (6.93)
             
             
Adjusted earnings per share (2) $1.19  $0.92  $2.44  $2.38 
             
Weighted average common shares (thousands)            
Basic  43,476   39,224   42,480   37,087 
Diluted  43,942   39,691   42,868   37,542 

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, 2020 December 31, 2019
       
Assets     
Cash and cash equivalents$158,570 $121,198 
Restricted cash 23,795  13,093 
Accounts receivable 415,712  393,730 
Prepaid and other current assets 196,015  140,115 
Current assets 794,092  668,136 
Other non-current assets 12,208  11,824 
Fixed assets 130,226  131,545 
Operating lease right-of-use assets 137,511  132,893 
Goodwill and intangible assets 1,048,188  1,011,071 
Total assets$2,122,225 $1,955,469 
       
       
Liabilities and shareholders' equity     
Accounts payable and accrued liabilities$318,695 $241,670 
Other current liabilities 98,013  80,369 
Operating lease liabilities - current 33,901  30,622 
Long-term debt - current 56,501  5,545 
Current liabilities 507,110  358,206 
Long-term debt - non-current 548,130  761,078 
Operating lease liabilities - non-current 114,248  111,247 
Other liabilities 83,784  66,150 
Deferred income tax 51,904  58,239 
Redeemable non-controlling interests 179,161  174,662 
Shareholders' equity 637,888  425,887 
Total liabilities and equity$2,122,225 $1,955,469 
       
       
Supplemental balance sheet information     
Total debt$604,631 $766,623 
Total debt, net of cash 446,061  645,425 



Consolidated Statements of Cash Flows       
(in thousands of US dollars)
   Three months ended  Nine months ended
   September 30  September 30
(unaudited)  2020   2019   2020   2019 
             
Cash provided by (used in)            
             
Operating activities            
Net earnings (loss) $40,966  $26,336  $76,663  $(241,199)
Items not affecting cash:            
Depreciation and amortization  26,184   24,182   73,179   51,033 
Non-cash settlement of long-term incentive arrangement  -   -   -   289,721 
Deferred income tax  (2,134)  (22)  (6,339)  1,443 
Other  2,486   2,058   8,155   1,000 
   67,502   52,554   151,658   101,998 
             
Changes in non-cash working capital            
Accounts receivable  (27,384)  3,010   5,509   (16,218)
Payables and accruals  34,295   (37,878)  52,630   (42,800)
Other  (32,494)  2,549   (14,837)  21,641 
Net cash provided by operating activities  41,919   20,235   194,960   64,621 
             
Investing activities            
Acquisition of businesses, net of cash acquired  (64,507)  (9,585)  (64,507)  (555,116)
Disposition of business, net of cash disposed  -   -   -   13,030 
Purchases of fixed assets  (8,820)  (11,821)  (30,901)  (34,108)
Other investing activities  (544)  (724)  (1,330)  135 
Net cash used in investing activities  (73,871)  (22,130)  (96,738)  (576,059)
             
Financing activities            
Increase in long-term debt, net  (41,863)  23,586   (163,787)  612,465 
Proceeds received on common share issuance  -   -   150,008   - 
Purchases of non-controlling interests, net  (3,723)  (199)  (18,790)  (33,409)
Financing fees paid  -   (167)  -   (3,863)
Dividends paid to common shareholders  (7,168)  (5,883)  (20,259)  (16,158)
Distributions paid to non-controlling interests  (3,368)  (1,995)  (3,418)  (6,264)
Other financing activities  5,255   539   6,483   950 
Net cash provided by (used in) financing activities  (50,867)  15,881   (49,763)  553,721 
             
Effect of exchange rate changes on cash  (101)  586   (385)  275 
             
Increase (decrease) in cash, cash equivalents and restricted cash  (82,920)  14,572   48,074   42,558 
             
Cash, cash equivalents and restricted cash, beginning of period  265,285   107,830   134,291   79,844 
             
Cash, cash equivalents and restricted cash, end of period $182,365  $122,402  $182,365  $122,402 



Segmented Results
(in thousands of US dollars)
        
 FirstService FirstService    
(unaudited)Residential Brands Corporate Consolidated
            
Three months ended September 30           
            
2020           
Revenues$374,756 $367,176 $-  $741,932 
Adjusted EBITDA 41,805  48,678  (1,751)  88,732 
            
Operating earnings 35,200  28,451  (4,521)  59,130 
            
2019           
Revenues$375,196 $297,057 $-  $672,253 
Adjusted EBITDA 39,787  40,838  (3,481)  77,144 
            
Operating earnings 33,036  22,062  (5,400)  49,698 
            
            
          
 FirstService FirstService    
 Residential Brands Corporate Consolidated
            
Nine months ended September 30           
            
2020           
Revenues$1,052,572 $944,788 $-  $1,997,360 
Adjusted EBITDA 102,940  106,468  (5,580)  203,828 
            
Operating earnings 84,604  50,722  (15,309)  120,017 
            
2019           
Revenues$1,064,911 $666,905 $-  $1,731,816 
Adjusted EBITDA 100,783  80,297  (9,755)  171,325 
            
Operating earnings 81,397  46,659  (333,898)  (205,842)


COMPANY CONTACTS:

D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9566