FSV FirstService Corporation

Residential and Brands Divisions Both Contribute to Significant Revenue and Earnings Growth

FirstService Corporation (TSX:FSV) (NASDAQ:FSV) today reported results for its third quarter ended September 30, 2016. All amounts are in US dollars.

Revenues for the third quarter were $409.1 million, a 17% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 20% to $46.7 million, and Adjusted EPS (note 2) was $0.62, a 24% increase versus the prior year quarter. GAAP Operating Earnings were $36.6 million, relative to $31.4 million in the prior year period. GAAP diluted earnings per share was $0.43 in the quarter, versus $0.39 for the same quarter a year ago.

For the nine months ended September 30, 2016, revenues were $1.10 billion, a 16% increase relative to the comparable prior year period, Adjusted EBITDA was $99.7 million, up 24%, and Adjusted EPS was $1.22, a 33% increase versus the prior year period. GAAP Operating Earnings were $71.6 million, relative to $56.8 million in the prior year period. GAAP diluted EPS for the nine months year-to-date was $0.74, compared to $0.50 in the prior year period.

“Continuing the momentum established in the first half of this year, FirstService delivered another solid quarter of financial results,” said Scott Patterson, Chief Executive Officer of FirstService. “Strong operational execution, robust tuck-under acquisition activity during the year, and a healthy macro environment should enable us to finish 2016 with results that closely track our original expectations for the full year,” he concluded.

About FirstService CorporationFirstService 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$1.3 billion in annual revenues and has more than 16,000 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 ResultsFirstService Residential revenues were $299.9 million for the third quarter, up 8% versus the prior year quarter. Revenue growth was comprised of 5% organic growth and the balance from recent acquisitions. Adjusted EBITDA for the quarter was $28.9 million, versus $25.3 million in the prior year period. The results for our FirstService Residential division was driven by balanced property management fee and ancillary services growth, together with continued margin expansion from further streamlining of our operations. GAAP Operating Earnings were $23.5 million, versus $20.3 million for the third quarter of last year.

FirstService Brands revenues grew to $109.2 million, up 53% relative to the prior year period. Revenue growth was comprised of 7% organic growth and the balance from recent acquisitions, including our larger Century Fire business. Adjusted EBITDA for the third quarter was $20.3 million, up from $16.6 million in the prior year period.  The third quarter included very strong growth from our franchise systems at California Closets, Pillar to Post Home Inspectors and Floor Coverings International, together with solid contribution from Paul Davis Restoration. The FirstService Brands division margin was lower during the third quarter versus the prior year period primarily due to increased mix and strong performance from our lower margin company-owned operations, including Century Fire, California Closets and Paul Davis. GAAP Operating Earnings were $16.2 million, versus $14.5 million in the prior year quarter.

Corporate costs, as presented in Adjusted EBITDA, were $2.4 million in the second quarter, relative to $2.9 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $3.1 million, relative to $3.4 million in the prior year period.

Conference CallFirstService will be holding a conference call on Wednesday, October 26, 2016 at 11:00 a.m. Eastern Time to discuss the quarter’s results. 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 StatementsThis press release includes or may include 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 applicable Canadian and United States securities regulatory authorities (which factors are adopted herein).

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

Notes1. 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
		2016					2015					2016					2015
Net earnings		$		22,938			$		18,917			$		42,527			$	30,291
Income tax				11,427					10,057					22,539				19,316
Other income, net				(71	)				(10	)				(172	)			109
Interest expense, net				2,284					2,453					6,739				7,044
Operating earnings				36,578					31,417					71,633				56,760
Depreciation and amortization				10,048					6,979					25,956				21,112
Acquisition-related items				(541	)				186					(148	)			469
Stock-based compensation expense				618					495					2,223				1,629
Spin-off transaction costs				-					-					-				740
Adjusted EBITDA		$		46,703			$		39,077			$		99,664			$	80,710

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 (loss) 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; and (iv) stock-based compensation expense. 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 (loss) per share to adjusted earnings per share appears below.

		Three months ended										Nine months ended
(in thousands of US$)		September 30										September 30
		2016					2015					2016					2015
Net earnings		$		22,938			$		18,917			$		42,527			$		30,291
Non-controlling interest share of earnings				(2,863	)				(2,421	)				(5,179	)				(4,834	)
Acquisition-related items				(541	)				186					(148	)				469
Amortization of intangible assets				4,475					2,334					9,700					7,275
Stock-based compensation expense				618					495					2,223					1,629
Spin-off transaction costs				-					-					-					740
Spin-off tax charge				-					-					-					1,646
Income tax on adjustments				(2,006	)				(1,107	)				(4,658	)				(3,628	)
Non-controlling interest on adjustments				(78	)				(44	)				(173	)				(133	)
Adjusted net earnings		$		22,543			$		18,360			$		44,292			$		33,455
		Three months ended										Nine months ended
(in US$)		September 30										September 30
		2016					2015					2016					2015
Diluted net earnings per share		$		0.43			$		0.39			$		0.74			$		0.50
Non-controlling interest redemption increment				0.12					0.07					0.29					0.20
Acquisition-related items				(0.01	)				-					-					0.01
Amortization of intangible assets, net of tax				0.07					0.03					0.15					0.11
Stock-based compensation expense, net of tax				0.01					0.01					0.04					0.03
Spin-off transaction costs, net of tax				-					-					-					0.02
Spin-off tax charge				-					-					-					0.05
Adjusted earnings per share		$		0.62			$		0.50			$		1.22			$		0.92

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)						2016					2015					2016				2015
Revenues				$		409,083			$		349,525			$		1,101,773			$	947,965
Cost of revenues						292,389					241,048					781,329				662,497
Selling, general and administrative expenses						70,609					69,895					223,003				206,387
Depreciation						5,573					4,645					16,256				13,837
Amortization of intangible assets						4,475					2,334					9,700				7,275
Acquisition-related items (1)						(541	)				186					(148	)			469
Spin-off transaction costs				-					-					-				740
Operating earnings						36,578					31,417					71,633				56,760
Interest expense, net						2,284					2,453					6,739				7,044
Other expense (income)						(71	)				(10	)				(172	)			109
Earnings before income tax						34,365					28,974					65,066				49,607
Income tax						11,427					10,057					22,539				19,316
Net earnings						22,938					18,917					42,527				30,291
Non-controlling interest share of earnings						2,863					2,421					5,179				4,834
Non-controlling interest redemption increment						4,311					2,431					10,534				7,326
Net earnings attributable to Company				$		15,764			$		14,065			$		26,814			$	18,131
Net earnings per common share
	Basic			$		0.44			$		0.39			$		0.75			$	0.50
	Diluted					0.43					0.39					0.74				0.50
Adjusted earnings per share (2)				$		0.62			$		0.50			$		1.22			$	0.92
Weighted average common shares (thousands)
		Basic				35,989					35,974					35,986				35,973
		Diluted				36,449					36,457					36,393				36,581

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, 2016			December 31, 2015
Assets
Cash and cash equivalents		$	49,180		$	45,560
Accounts receivable			150,221			114,521
Inventories			28,352			16,155
Prepaid expenses and other current assets			63,476			53,986
	Current assets		291,229			230,222
Other non-current assets			4,822			6,009
Fixed assets			69,623			57,575
Deferred income tax			6,293			6,553
Goodwill and intangible assets			371,095			300,124
	Total assets	$	743,062		$	600,483
Liabilities and shareholders' equity
Accounts payable and accrued liabilities		$	140,885		$	102,043
Other current liabilities			31,558			24,015
Long-term debt - current			1,143			4,041
	Current liabilities		173,586			130,099
Long-term debt - non-current			242,363			197,158
Other liabilities			18,171			14,670
Deferred income tax			28,501			13,971
Redeemable non-controlling interests			95,190			77,559
Shareholders' equity			185,251			167,026
	Total liabilities and equity	$	743,062		$	600,483
Supplemental balance sheet information
Total debt		$	243,506		$	201,199
Total debt, net of cash			194,326			155,639

Consolidated Statements of Cash Flows
(in thousands of US dollars)
				Three months ended										Nine months ended
				September 30										September 30
(unaudited)					2016					2015					2016					2015
Cash provided by (used in)
Operating activities
Net earnings			$		22,938			$		18,917			$		42,527			$		30,291
Items not affecting cash:
	Depreciation and amortization				10,048					6,980					25,955					21,113
	Deferred income tax				4,473					(4,535	)				3,379					(4,312	)
	Other				49					(1,345	)				585					(1,165	)
					37,508					20,017					72,446					45,927
Changes in non-cash working capital
	Accounts receivable				7,768					(150	)				(13,083	)				469
	Payables and accruals				12,845					28,469					32,411					28,811
	Other				(9,415	)				(14,326	)				(2,774	)				681
Net cash provided by operating activities					48,706					34,010					89,000					75,888
Investing activities
Acquisition of businesses, net of cash acquired					(3,353	)				(3,502	)				(80,434	)				(12,002	)
Purchases of fixed assets					(6,101	)				(3,884	)				(20,079	)				(14,291	)
Other investing activities					(2,656	)				(1,262	)				(10,104	)				(2,735	)
Net cash used in investing activities					(12,110	)				(8,648	)				(110,617	)				(29,028	)
Financing activities
Increase in long-term debt, net					(17,156	)				(23,497	)				42,218					(40,760	)
Net contributions from Old FSV					-					-					-					1,995
Sale (purchases) of non-controlling interests, net					(218	)				(29	)				41					(17,415	)
Financing fees paid					-					(4	)				-					(1,090	)
Dividends paid to common shareholders					(4,092	)				(3,597	)				(11,513	)				(3,597	)
Distributions paid to non-controlling interests					(1,180	)				(412	)				(4,244	)				(2,699	)
Repurchases of Subordinate Voting Shares					-					-					(1,349	)				-
Other financing activities					(933	)				1,523					(91	)				(246	)
Net cash (used in) provided by financing activities					(23,579	)				(26,016	)				25,062					(63,812	)
Effect of exchange rate changes on cash					(122	)				(1,578	)				175					(232	)
Increase (decrease) in cash and cash equivalents					12,895					(2,232	)				3,620					(17,184	)
Cash and cash equivalents, beginning of period					36,285					51,838					45,560					66,790
Cash and cash equivalents, end of period			$		49,180			$		49,606			$		49,180			$		49,606

Segmented Results
(in thousands of US dollars)
		FirstService			FirstService
(unaudited)		Residential			Brands			Corporate					Consolidated
Three months ended September 30
2016
	Revenues	$	299,920		$	109,163		$		-			$	409,083
	Adjusted EBITDA		28,873			20,272				(2,442	)			46,703
	Operating earnings		23,484			16,219				(3,125	)			36,578
2015
	Revenues	$	277,938		$	71,587		$		-			$	349,525
	Adjusted EBITDA		25,310			16,648				(2,881	)			39,077
	Operating earnings		20,298			14,524				(3,405	)			31,417
		FirstService			FirstService
		Residential			Brands			Corporate					Consolidated
Nine months ended September 30
2016
	Revenues	$	838,384		$	263,389		$		-			$	1,101,773
	Adjusted EBITDA		66,986			40,197				(7,519	)			99,664
	Operating earnings		50,973			30,666				(10,006	)			71,633
2015
	Revenues	$	766,535		$	181,430		$		-			$	947,965
	Adjusted EBITDA		55,141			31,657				(6,088	)			80,710
	Operating earnings		38,655			25,897				(7,792	)			56,760

 

COMPANY CONTACTS:

D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9500