FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported
strong results for its first quarter ended March 31, 2020. All
amounts are in US dollars.
Revenues for the first quarter were $633.8
million, up 31% relative to the same quarter in the prior year,
Adjusted EBITDA (note 1) increased 50% to $43.9 million, and
Adjusted EPS (note 2) was $0.37, representing 23% growth over the
prior year quarter. GAAP Operating Earnings were $16.0 million,
relative to $12.9 million in the prior year period. GAAP diluted
earnings per share was $0.13 per share in the quarter, versus $0.06
in the same quarter a year ago.
“We are pleased to report first quarter results
which exceeded our expectations,” said Scott Patterson, Chief
Executive Officer of FirstService. “Our focus and attention is now
directed towards the COVID-19 crisis and the impact it is having
across all facets of our operations. I would like to applaud the
tremendous effort and commitment of our front-line employees to
deliver exceptional service to our customers, who depend on us now
more than ever,” he concluded.
COVID-19 Impact and
OutlookDuring the first quarter of 2020, our businesses
had strong momentum as indicated by our financial results for the
period. However, the emergence of the COVID-19 pandemic in North
America during March had a swift impact on our operations across
the board. Our highest priority is maintaining the health and
safety of our associates and employees, customers and communities,
and we have implemented operating practices and procedures to
address work-place challenges in this environment. All of our
businesses have been designated essential services in at least some
of their geographic regions. Despite these exempted designations,
the various “stay-at-home” and social distancing measures are
negatively impacting our ability to do work on the premises of our
residential and commercial customers. It is also challenging to
predict our financial performance in upcoming reporting periods
with reasonable accuracy due to the lack of visibility around the
duration and ensuing severity of the crisis and its dynamic
changes. We do expect, however, to see a meaningful decline in our
second quarter year-over-year financial results, both in terms of
top-line growth and operating margins, with a more pronounced
effect in our Brands division. To mitigate the financial impact
from the coronavirus, we have proactively engaged in cost
containment measures across all of our businesses primarily in the
form of personnel furloughs and salary cuts, and other
discretionary operating and capital expenditure reductions.
Currently, our balance sheet and liquidity remain strong and upon
return to normal macroeconomic market conditions, we believe our
businesses will emerge even better-positioned to capitalize on
their growth opportunities.
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$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 and the Toronto Stock
Exchange under the symbol “FSV”. More information is
available at www.firstservice.com.
Segmented Quarterly
ResultsFirstService Residential revenues were $339.7
million for the first quarter, up 6% versus the prior year quarter
and driven entirely by organic growth. Top-line performance saw
balanced contribution from contract wins and ancillaries. Adjusted
EBITDA for the quarter was $23.9 million, up from $21.8 million in
the prior year period. GAAP Operating Earnings were $17.4 million,
up from $15.6 million versus the first quarter of last year. Our
operating margins were up modestly versus the prior year.
FirstService Brands revenues for the first
quarter totalled $294.2 million, up 77% relative to the prior year
period. The revenue increase was comprised of 6% organic growth,
together with significant contribution from the large Global
Restoration acquisition, as well as other smaller tuck-under
transactions. Adjusted EBITDA was $21.9 million, up from $11.0
million in the prior year quarter. GAAP Operating Earnings were
$4.9 million, versus $3.9 million in the prior year quarter. The
improvement in Adjusted EBITDA margin was driven by a shift in mix
of our businesses, with contribution from Global Restoration having
year-round operations in the current quarter compared to a more
seasonal profile for the Brands division in the prior year. The
decline in GAAP operating earnings margin was due to the
significant amortization of intangibles associated with the Global
acquisition in the current period.
Corporate costs, as presented in Adjusted
EBITDA, were $2.0 million in the first quarter, relative to $3.7
million in the prior year period. On a GAAP basis, corporate costs
for the quarter were $6.3 million, relative to $6.6 million in the
prior year period.
Conference CallFirstService
will be holding a conference call on Thursday, April 23, 2020 at
11:00 a.m. Eastern Time to discuss results for the first quarter of
2020. The numbers to use for this call are 1) toll-free
1-888-241-0551; or 2) for international callers, 647-427-3415, with
the conference ID number 5055243 for all participants. 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) the magnitude and length of
economic and operational disruption resulting from the COVID-19
pandemic; (ii) general economic and business conditions, which
will, among other things, impact demand for FirstService’s services
and the cost of providing services; (iii) 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; (iv) changes in or the
failure to comply with government regulations; and (v) 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. Our interim consolidated financial statements
and related management’s discussion and analysis will 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 |
|
2020 |
|
|
2019 |
|
|
|
|
|
|
Net earnings |
$ |
5,780 |
|
|
$ |
8,145 |
Income tax |
|
1,546 |
|
|
|
1,209 |
Other (income)
expense |
|
(229 |
) |
|
|
7 |
Interest expense,
net |
|
8,887 |
|
|
|
3,569 |
Operating
earnings |
|
15,984 |
|
|
|
12,930 |
Depreciation and
amortization |
|
23,507 |
|
|
|
12,687 |
Acquisition-related items |
|
405 |
|
|
|
678 |
Stock-based
compensation expense |
|
3,969 |
|
|
|
2,855 |
Adjusted
EBITDA |
$ |
43,865 |
|
|
$ |
29,150 |
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 |
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
Net earnings |
$ |
5,780 |
|
|
$ |
8,145 |
|
Non-controlling
interest share of earnings |
|
(1,755 |
) |
|
|
(1,796 |
) |
Acquisition-related items |
|
405 |
|
|
|
678 |
|
Amortization of
intangible assets |
|
11,361 |
|
|
|
4,307 |
|
Stock-based
compensation expense |
|
3,969 |
|
|
|
2,855 |
|
Stock-based
compensation tax adjustment for US GAAP change |
|
- |
|
|
|
(1,344 |
) |
Income tax on
adjustments |
|
(3,986 |
) |
|
|
(1,862 |
) |
Non-controlling
interest on adjustments |
|
(222 |
) |
|
|
(88 |
) |
Adjusted net
earnings |
$ |
15,552 |
|
|
$ |
10,895 |
|
|
|
|
|
|
|
|
Three months ended |
(in US
dollars) |
March 31 |
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
Diluted net
earnings per share |
$ |
0.13 |
|
|
$ |
0.06 |
|
Non-controlling
interest redemption increment (decrement) |
|
(0.03 |
) |
|
|
0.11 |
|
Acquisition-related items |
|
0.01 |
|
|
|
0.02 |
|
Amortization of
intangible assets, net of tax |
|
0.19 |
|
|
|
0.09 |
|
Stock-based
compensation expense, net of tax |
|
0.07 |
|
|
|
0.06 |
|
Stock-based
compensation tax adjustment for US GAAP change |
|
- |
|
|
|
(0.04 |
) |
Adjusted EPS |
$ |
0.37 |
|
|
$ |
0.30 |
|
FIRSTSERVICE CORPORATION |
Operating
Results |
(in thousands of
US dollars, except per share amounts) |
|
|
Three months |
|
|
ended March 31 |
(unaudited) |
|
2020 |
|
|
|
2019 |
|
|
|
|
|
|
Revenues |
$ |
633,831 |
|
|
$ |
485,655 |
|
|
|
|
|
|
Cost of
revenues |
|
435,149 |
|
|
|
340,698 |
Selling, general
and administrative expenses |
|
158,786 |
|
|
|
118,662 |
Depreciation |
|
12,146 |
|
|
|
8,380 |
Amortization of
intangible assets |
|
11,361 |
|
|
|
4,307 |
Acquisition-related items (1) |
|
405 |
|
|
|
678 |
Operating
earnings |
|
15,984 |
|
|
|
12,930 |
Interest expense,
net |
|
8,887 |
|
|
|
3,569 |
Other expense
(income) |
|
(229 |
) |
|
|
7 |
Earnings before
income tax |
|
7,326 |
|
|
|
9,354 |
Income tax |
|
1,546 |
|
|
|
1,209 |
Net
earnings |
|
5,780 |
|
|
|
8,145 |
Non-controlling
interest share of earnings |
|
1,755 |
|
|
|
1,796 |
Non-controlling
interest redemption increment (decrement) |
|
(1,260 |
) |
|
|
4,020 |
Net
earnings attributable to Company |
|
5,285 |
|
|
|
2,329 |
|
|
|
|
|
|
Net
earnings per share |
|
|
|
|
|
Basic |
$ |
0.13 |
|
|
$ |
0.06 |
Diluted |
|
0.13 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EPS (2) |
$ |
0.37 |
|
|
$ |
0.30 |
|
|
|
|
|
|
Weighted average
common shares (thousands) |
|
|
|
|
|
Basic |
|
41,557 |
|
|
|
36,030 |
Diluted |
|
41,937 |
|
|
|
36,497 |
(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, 2020 |
|
December 31, 2019 |
|
|
|
|
|
|
Assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
118,225 |
|
$ |
121,198 |
Restricted cash |
|
14,959 |
|
|
13,093 |
Accounts receivable |
|
372,904 |
|
|
393,730 |
Prepaid and other current
assets |
|
142,539 |
|
|
140,115 |
Current assets |
|
648,627 |
|
|
668,136 |
Other non-current assets |
|
8,583 |
|
|
8,988 |
Deferred income tax |
|
3,061 |
|
|
2,836 |
Fixed assets |
|
134,426 |
|
|
131,545 |
Operating lease right-of-use
assets |
|
130,613 |
|
|
132,893 |
Goodwill and intangible
assets |
|
996,980 |
|
|
1,011,071 |
Total assets |
$ |
1,922,290 |
|
$ |
1,955,469 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
shareholders' equity |
|
|
|
|
|
Accounts payable and accrued
liabilities |
$ |
231,208 |
|
$ |
241,670 |
Unearned revenues |
|
76,783 |
|
|
74,100 |
Other current liabilities |
|
5,786 |
|
|
6,269 |
Operating lease liabilities -
current |
|
31,706 |
|
|
30,622 |
Long-term debt - current |
|
51,149 |
|
|
5,545 |
Current liabilities |
|
396,632 |
|
|
358,206 |
Long-term debt -
non-current |
|
698,835 |
|
|
761,078 |
Operating lease liabilities -
non-current |
|
107,723 |
|
|
111,247 |
Other liabilities |
|
66,090 |
|
|
66,150 |
Deferred income tax |
|
56,237 |
|
|
58,239 |
Non-controlling interests |
|
170,992 |
|
|
174,662 |
Shareholders' equity |
|
425,781 |
|
|
425,887 |
Total liabilities and equity |
$ |
1,922,290 |
|
$ |
1,955,469 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental balance
sheet information |
|
|
|
|
|
Total debt |
$ |
749,984 |
|
$ |
766,623 |
Total debt, net of cash |
|
631,759 |
|
|
645,425 |
Condensed Consolidated
Statements of Cash Flows |
|
|
|
|
|
(in thousands of
US dollars) |
|
|
Three months ended |
|
|
March 31 |
(unaudited) |
|
2020 |
|
|
|
2019 |
|
|
|
|
|
|
|
Cash provided by (used
in) |
|
|
|
|
|
|
|
|
|
|
|
Operating
activities |
|
|
|
|
|
Net earnings |
$ |
5,780 |
|
|
$ |
8,145 |
|
Items not affecting cash: |
|
|
|
|
|
Depreciation and amortization |
|
23,507 |
|
|
|
12,687 |
|
Deferred income tax |
|
(2,056 |
) |
|
|
473 |
|
Other |
|
3,824 |
|
|
|
3,134 |
|
|
|
31,055 |
|
|
|
24,439 |
|
|
|
|
|
|
|
Changes in non cash working
capital |
|
|
|
|
|
Accounts receivable |
|
20,982 |
|
|
|
8,600 |
|
Payables and accruals |
|
(10,479 |
) |
|
|
(16,361 |
) |
Other |
|
(1,739 |
) |
|
|
8,880 |
|
Net cash provided by operating activities |
|
39,819 |
|
|
|
25,558 |
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
|
Acquisition of businesses, net
of cash acquired |
|
- |
|
|
|
(25,773 |
) |
Purchases of fixed assets |
|
(15,348 |
) |
|
|
(10,736 |
) |
Other investing
activities |
|
(183 |
) |
|
|
(2,329 |
) |
Net cash used in investing
activities |
|
(15,531 |
) |
|
|
(38,838 |
) |
|
|
|
|
|
|
Financing
activities |
|
|
|
|
|
Increase in long-term debt,
net |
|
(16,852 |
) |
|
|
45,663 |
|
Purchases of non-controlling
interests, net |
|
(3,751 |
) |
|
|
(18,987 |
) |
Dividends paid to common
shareholders |
|
(6,224 |
) |
|
|
(4,857 |
) |
Other financing
activities |
|
2,342 |
|
|
|
(3,311 |
) |
Net cash provided by (used in)
financing activities |
|
(24,485 |
) |
|
|
18,508 |
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash |
|
(910 |
) |
|
|
197 |
|
|
|
|
|
|
|
Increase (decrease) in cash,
cash equivalents and restricted cash |
|
(1,107 |
) |
|
|
5,425 |
|
|
|
|
|
|
|
Cash, cash equivalents and
restricted cash, beginning of period |
|
134,291 |
|
|
|
79,844 |
|
|
|
|
|
|
|
Cash, cash equivalents and
restricted cash, end of period |
$ |
133,184 |
|
|
$ |
85,269 |
|
|
|
|
|
|
|
Segmented
Results |
(in thousands of
US dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FirstService |
|
FirstService |
|
|
|
|
(unaudited) |
Residential |
|
Brands |
|
Corporate |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
339,663 |
|
$ |
294,168 |
|
$ |
- |
|
|
$ |
633,831 |
Adjusted EBITDA |
|
23,890 |
|
|
21,946 |
|
|
(1,971 |
) |
|
|
43,865 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
17,424 |
|
|
4,907 |
|
|
(6,347 |
) |
|
|
15,984 |
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
319,310 |
|
$ |
166,345 |
|
$ |
- |
|
|
$ |
485,655 |
Adjusted EBITDA |
|
21,819 |
|
|
11,028 |
|
|
(3,697 |
) |
|
|
29,150 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
15,648 |
|
|
3,892 |
|
|
(6,610 |
) |
|
|
12,930 |
COMPANY CONTACTS:
D. Scott Patterson Chief Executive
Officer Jeremy RakusinChief
Financial Officer
(416) 960-9566
FirstService (NASDAQ:FSV)
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