Operating highlights:
FirstService Corporation (TSX:FSV) (NASDAQ:FSV) today
reported strong results for its first quarter ended March 31, 2018.
All amounts are in US dollars.
Revenues for the first quarter were $426.5
million, up 12% relative to the same quarter in the prior year,
Adjusted EBITDA (note 1) increased 26% to $25.4 million, and
Adjusted EPS (note 2) was $0.25, representing 56% growth over the
prior year quarter. GAAP Operating Earnings were $11.1 million,
relative to $9.0 million in the prior year period. GAAP diluted
earnings per share was $0.17 per share in the quarter, versus $0.12
in the same quarter a year ago.
“We are pleased to report very strong financial
results for the first quarter, reflecting a continuation of the
focused execution and healthy market fundamentals that have driven
our performance for the past several quarters,” said Scott
Patterson, Chief Executive Officer of FirstService. “With a
favourable housing and home improvement outlook and recent
tuck-under acquisition activity, we have solid momentum towards
achieving our growth objectives for the year.”
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 US$1.7 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 Subordinate Voting
Shares of FirstService trade on the NASDAQ and the Toronto Stock
Exchange under the symbol “FSV.” More information is
available at www.firstservice.com.
Impact of New Revenue Recognition
StandardOn January 1, 2018, as a result of required
changes under U.S. GAAP, FirstService adopted the new accounting
standard ASC 606, Revenue from Contracts with Customers and all the
related amendments (“New Revenue 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, particularly as it relates
to the timing and recognition of franchise fees, as well as the
gross revenue recognition of marketing fund fees. As a result, the
effect of the New Revenue Standard on the prior year first quarter
results was an increase of $4.4 million to our consolidated
revenues, a decrease of $0.6 million to our consolidated Adjusted
EBITDA, resulting in a 20 basis points decrease to our consolidated
Adjusted EBITDA margin, and a decrease of $0.01 to our Adjusted
EPS. The same $4.4 million increase to our FirstService Brands
revenues and $0.6 million decrease to our FirstService Brands
Adjusted EBITDA resulted in an 80 basis point decrease to our
FirstService Brands Adjusted EBITDA margin for our recast segmented
2017 first quarter results.
Segmented Quarterly
ResultsFirstService Residential revenues were $284.1
million for the first quarter, up 7% versus the prior year quarter.
Organic growth accounted for half of this increase, with
performance relatively balanced across our services and
geographies. Adjusted EBITDA for the quarter was $17.5 million, up
from $14.4 million in the prior year period. GAAP Operating
earnings were $11.4 million, up from $9.1 million versus the prior
year period. Operating margin expansion was partially driven by
ongoing efficiencies, and further amplified during our seasonally
weakest first quarter by the contribution of recent acquisitions
with a non-seasonal cash flow profile.
FirstService Brands revenues for the first
quarter totalled $142.3 million, up 24% relative to the prior year
period. The revenue increase was comprised of 10% organic growth,
with the balance coming from tuck-under acquisitions within the
past year at our California Closets and Paul Davis Restoration
company-owned platforms. During the quarter, organic growth was
robust and broad-based across all of our company-owned platforms
and franchised operations. Adjusted EBITDA was $11.2 million, a
significant increase over the $8.3 million in the prior year
quarter. GAAP Operating Earnings were $5.1 million, versus $3.9
million in the prior year quarter. Margin improvement was
attributable to the addition of recent, non-seasonal company-owned
operations in our seasonally lowest quarter, as well as operating
leverage from certain service lines which benefited from strong
top-line growth.
Corporate costs, as presented in Adjusted
EBITDA, were $3.2 million in the first quarter, relative to $2.6
million in the prior year period. On a GAAP basis, corporate costs
for the quarter were $5.4 million, relative to $4.1 million in the
prior year period.
Conference CallFirstService
will be holding a conference call on Wednesday, April 25, 2018 at
11:00 a.m. Eastern Time to discuss results for the first quarter of
2018. 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 web cast 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.
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
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.
Notes1. Reconciliation of net
earnings to Adjusted EBITDA:
Adjusted EBITDA is defined as net earnings,
adjusted to exclude: (i) income tax; (ii) other (income) expense;
(iii) interest expense; (iv) depreciation and amortization; (v)
acquisition-related items; and (vi) stock-based compensation
expense. The Company uses adjusted EBITDA to evaluate its own
operating performance, its ability to service debt, and as an
integral part of its planning and reporting systems. Additionally,
this measure is used in conjunction with discounted cash flow
models to determine the Company’s overall enterprise valuation and
to evaluate acquisition targets. Adjusted EBITDA is presented as a
supplemental measure because the Company believes such a measure is
useful to investors as a reasonable indicator of operating
performance, due to the low capital intensity of the Company’s
service operations. The Company believes 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. The Company’s
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 (loss) to
adjusted EBITDA appears below.
|
|
|
|
Three months ended |
(in
thousands of US dollars) |
|
|
March 31 |
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
|
|
|
|
|
|
$ |
8,935 |
|
|
$ |
8,268 |
|
Income
tax |
|
|
|
|
|
|
|
(672 |
) |
|
|
(1,527 |
) |
Other
(income) expense |
|
|
|
|
|
|
|
(64 |
) |
|
|
(95 |
) |
Interest
expense, net |
|
|
|
|
|
|
|
2,874 |
|
|
|
2,325 |
|
Operating
earnings |
|
|
|
|
|
|
|
11,073 |
|
|
|
8,971 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
11,783 |
|
|
|
9,495 |
|
Acquisition-related items |
|
|
|
|
|
|
|
561 |
|
|
|
246 |
|
Stock-based
compensation expense |
|
|
|
|
|
|
|
1,997 |
|
|
|
1,415 |
|
Adjusted
EBITDA |
|
|
|
|
|
|
$ |
25,414 |
|
|
$ |
20,127 |
|
2. Reconciliation of net earnings and net
earnings per share to adjusted net earnings and adjusted EPS:
Adjusted EPS 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. The
Company believes 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 EPS 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. The Company’s 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 EPS
appears below.
|
|
|
|
Three months ended |
(in
thousands of US dollars) |
|
|
March 31 |
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
|
|
|
|
|
|
$ |
8,935 |
|
|
$ |
8,268 |
|
Non-controlling interest share of earnings |
|
|
|
|
|
|
|
(2,320 |
) |
|
|
(1,829 |
) |
Acquisition-related items |
|
|
|
|
|
|
|
561 |
|
|
|
246 |
|
Amortization of intangible assets |
|
|
|
|
|
|
|
3,914 |
|
|
|
3,186 |
|
Stock-based
compensation expense |
|
|
|
|
|
|
|
1,997 |
|
|
|
1,415 |
|
Stock-based
compensation tax adjustment for US GAAP change |
|
|
|
|
|
|
|
(2,415 |
) |
|
|
(3,743 |
) |
Income tax
on adjustments |
|
|
|
|
|
|
|
(1,537 |
) |
|
|
(1,770 |
) |
Non-controlling interest on adjustments |
|
|
|
|
|
|
|
(110 |
) |
|
|
(71 |
) |
Adjusted
net earnings |
|
|
|
|
|
|
$ |
9,025 |
|
|
$ |
5,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in US
dollars) |
|
|
March 31 |
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net
earnings per share |
|
|
|
|
|
|
$ |
0.17 |
|
|
$ |
0.12 |
|
Non-controlling interest redemption increment |
|
|
|
|
|
|
|
0.01 |
|
|
|
0.06 |
|
Acquisition-related items |
|
|
|
|
|
|
|
0.02 |
|
|
|
0.01 |
|
Amortization of intangible assets, net of tax |
|
|
|
|
|
|
|
0.08 |
|
|
|
0.05 |
|
Stock-based
compensation expense, net of tax |
|
|
|
|
|
|
|
0.04 |
|
|
|
0.02 |
|
Stock-based
compensation tax adjustment for US GAAP change |
|
|
|
|
|
|
|
(0.07 |
) |
|
|
(0.10 |
) |
Adjusted
EPS |
|
|
|
|
|
|
$ |
0.25 |
|
|
$ |
0.16 |
|
FIRSTSERVICE CORPORATION |
Operating Results |
(in
thousands of US dollars, except per share amounts) |
|
|
|
|
|
|
|
|
Three months |
|
|
|
|
|
|
|
|
ended March 31 |
(unaudited) |
|
|
|
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
$ |
426,456 |
|
|
$ |
380,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenues |
|
|
|
|
|
|
|
298,524 |
|
|
|
272,279 |
|
Selling,
general and administrative expenses |
|
|
|
|
|
|
|
104,515 |
|
|
|
89,358 |
|
Depreciation |
|
|
|
|
|
|
|
7,869 |
|
|
|
6,309 |
|
Amortization of intangible assets |
|
|
|
|
|
|
|
3,914 |
|
|
|
3,186 |
|
Acquisition-related items (1) |
|
|
|
|
|
|
|
561 |
|
|
|
246 |
|
Operating earnings |
|
|
|
|
|
|
|
11,073 |
|
|
|
8,971 |
|
Interest
expense, net |
|
|
|
|
|
|
|
2,874 |
|
|
|
2,325 |
|
Other
(income) expense |
|
|
|
|
|
|
|
(64 |
) |
|
|
(95 |
) |
Earnings
before income tax |
|
|
|
|
|
|
|
8,263 |
|
|
|
6,741 |
|
Income
tax |
|
|
|
|
|
|
|
(672 |
) |
|
|
(1,527 |
) |
Net
earnings |
|
|
|
|
|
|
|
8,935 |
|
|
|
8,268 |
|
Non-controlling interest share of earnings |
|
|
|
|
|
|
|
2,320 |
|
|
|
1,829 |
|
Non-controlling interest redemption increment |
|
|
|
|
|
|
|
532 |
|
|
|
2,147 |
|
Net
earnings attributable to Company |
|
|
|
|
|
|
|
6,083 |
|
|
|
4,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
$ |
0.17 |
|
|
$ |
0.12 |
|
|
Diluted |
|
|
|
|
|
|
|
0.17 |
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EPS (2) |
|
|
|
|
|
|
$ |
0.25 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
35,923 |
|
|
|
35,880 |
|
|
|
Diluted |
|
|
|
|
|
|
|
36,526 |
|
|
|
36,561 |
|
(1) Acquisition-related items include contingent
acquisition consideration fair value adjustments, and transaction
costs. (2) See definition and reconciliation above.
Condensed Consolidated Balance Sheets |
|
|
|
|
|
(in
thousands of US dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
March 31, 2018 |
|
December 31, 2017 |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
Cash and
cash equivalents |
$ |
58,699 |
|
$ |
57,187 |
Restricted
cash |
|
10,554 |
|
|
9,707 |
Accounts
receivable |
|
186,474 |
|
|
183,803 |
Prepaid and
other current assets |
|
81,439 |
|
|
73,654 |
|
Current
assets |
|
337,166 |
|
|
324,351 |
Other
non-current assets |
|
9,507 |
|
|
9,805 |
Fixed
assets |
|
92,454 |
|
|
85,424 |
Deferred
income tax |
|
779 |
|
|
780 |
Goodwill
and intangible assets |
|
455,584 |
|
|
425,764 |
|
Total
assets |
$ |
895,490 |
|
$ |
846,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity |
|
|
|
|
|
Accounts
payable and accrued liabilities |
$ |
145,901 |
|
$ |
157,260 |
Other
current liabilities |
|
57,000 |
|
|
51,657 |
Long-term
debt - current |
|
3,207 |
|
|
2,751 |
|
Current
liabilities |
|
206,108 |
|
|
211,668 |
Long-term
debt - non-current |
|
317,231 |
|
|
266,874 |
Other
liabilities |
|
51,060 |
|
|
54,639 |
Deferred
income tax |
|
1,775 |
|
|
1,467 |
Non-controlling interests |
|
127,966 |
|
|
117,708 |
Shareholders' equity |
|
191,350 |
|
|
193,768 |
|
Total
liabilities and equity |
$ |
895,490 |
|
$ |
846,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental balance sheet information |
|
|
|
|
|
Total
debt |
$ |
320,438 |
|
$ |
269,625 |
Total debt,
net of cash |
|
261,739 |
|
|
212,438 |
Condensed Consolidated Statements of Cash
Flows |
|
|
|
|
|
|
(in
thousands of US dollars) |
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
March 31 |
(unaudited) |
|
|
|
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
|
|
|
|
|
|
$ |
8,935 |
|
|
$ |
8,268 |
|
Items not
affecting cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
|
|
|
|
|
11,783 |
|
|
|
9,494 |
|
|
Deferred income
tax |
|
|
|
|
|
|
|
308 |
|
|
|
(3,817 |
) |
|
Other |
|
|
|
|
|
|
|
2,402 |
|
|
|
1,670 |
|
|
|
|
|
|
|
|
|
|
23,428 |
|
|
|
15,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
non cash working capital |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
|
|
|
|
|
4,078 |
|
|
|
(290 |
) |
|
Payables and
accruals |
|
|
|
|
|
|
|
(14,870 |
) |
|
|
(12,046 |
) |
|
Other |
|
|
|
|
|
|
|
(4,334 |
) |
|
|
4,325 |
|
Net cash
provided by operating activities |
|
|
|
|
|
|
|
8,302 |
|
|
|
7,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of businesses, net of cash acquired |
|
|
|
|
|
|
|
(29,602 |
) |
|
|
(10,363 |
) |
Purchases
of fixed assets |
|
|
|
|
|
|
|
(10,523 |
) |
|
|
(9,968 |
) |
Other
investing activities |
|
|
|
|
|
|
|
(678 |
) |
|
|
(3,181 |
) |
Net cash
used in investing activities |
|
|
|
|
|
|
|
(40,803 |
) |
|
|
(23,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
Increase in
long-term debt, net |
|
|
|
|
|
|
|
50,214 |
|
|
|
34,353 |
|
Purchases
of non-controlling interests, net |
|
|
|
|
|
|
|
(1,621 |
) |
|
|
(3,780 |
) |
Dividends
paid to common shareholders |
|
|
|
|
|
|
|
(4,400 |
) |
|
|
(3,943 |
) |
Other
financing activities |
|
|
|
|
|
|
|
(9,196 |
) |
|
|
(7,317 |
) |
Net cash
provided by financing activities |
|
|
|
|
|
|
|
34,997 |
|
|
|
19,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash |
|
|
|
|
|
|
|
(137 |
) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in
cash, cash equivalents and restricted cash |
|
|
|
|
|
|
|
2,359 |
|
|
|
3,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash
equivalents and restricted cash, beginning of period |
|
|
|
|
|
66,894 |
|
|
|
56,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash
equivalents and restricted cash, end of period |
|
|
|
|
|
|
$ |
69,253 |
|
|
$ |
60,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmented Results |
(in
thousands of US dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FirstService |
|
FirstService |
|
|
|
|
(unaudited) |
Residential |
|
Brands |
|
Corporate |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
284,135 |
|
$ |
142,321 |
|
$ |
- |
|
|
$ |
426,456 |
|
Adjusted
EBITDA |
|
17,476 |
|
|
11,163 |
|
|
(3,225 |
) |
|
|
25,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings |
|
11,366 |
|
|
5,075 |
|
|
(5,368 |
) |
|
|
11,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
265,853 |
|
$ |
114,496 |
|
$ |
- |
|
|
$ |
380,349 |
|
Adjusted EBITDA |
|
14,433 |
|
|
8,299 |
|
|
(2,605 |
) |
|
|
20,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
9,127 |
|
|
3,897 |
|
|
(4,053 |
) |
|
|
8,971 |
COMPANY CONTACTS:
D. Scott PattersonChief
Executive
Officer
Jeremy RakusinChief Financial
Officer
(416) 960-9500
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