The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from GlobeNewswire (a Nasdaq OMX company)

FirstService Reports Solid Second Quarter Results

Wednesday, July 27, 2011

FirstService Reports Solid Second Quarter Results04:30 EDT Wednesday, July 27, 2011Operating highlights:  Three months endedSix months ended June 30June 30  2011 2010 2011 2010           Revenues (millions)$  565.5 $ 501.4 $ 1,043.9 $ 903.8 Adjusted EBITDA (millions) (note 1) 46.8  44.6  69.4  64.6 Adjusted EPS (note 2)0.54  0.48  0.68  0.63  TORONTO, July 27, 2011 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (Nasdaq:FSRV) preferred shares – (TSX:FSV.PR.U) today reported results for its second quarter ended June 30, 2011. All amounts are in US dollars. Revenues for the second quarter were $565.5 million, a 13% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) was $46.8 million, up 5% from $44.6 million, and Adjusted EPS (note 2) was $0.54, up 13% from $0.48 reported in the prior year quarter. GAAP EPS was $0.11 per share in the quarter, compared to $0.08 for the same quarter a year ago. For the six months ended June 30, 2011, revenues were $1.04 billion, a 16% increase relative to the comparable prior year period, Adjusted EBITDA was $69.4 million, up 7%, while Adjusted EPS was $0.68, up 8%. GAAP EPS for the six month period was a loss of $0.22, compared to earnings of $0.06 in the prior year period. "FirstService delivered solid results for the second quarter in each of its three operating divisions, despite challenging market conditions in certain regions and an uneven global economic recovery," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService. "At FirstService Residential Management, we recently completed two important acquisitions, augmenting our already strong presence in Las Vegas and adding a new platform in Toronto which was a strategic priority for us. During the quarter, we also completed a strategic review of our Property Services division and decided to reorganize operations to reduce costs. In addition, we believe transitioning managerial oversight to the executive team at FirstService will better align the division for growth. We would like to thank Steven Rogers for his long and dedicated service to our Company and look forward to his continuing involvement as a director," he added.About FirstService Corporation FirstService Corporation is a global leader in the rapidly growing real estate services sector, providing a variety of services in commercial real estate, residential property management and property services. As one of the largest property managers in the world, FirstService manages more than 2.4 billion square feet of residential and commercial properties through its three industry-leading service platforms: Colliers International, the third largest global player in commercial real estate services; FirstService Residential Management, the largest manager of residential communities in North America; and Property Services, including North America's largest provider of property preservation, maintenance and management of residential and commercial properties through franchise and contractor networks. FirstService generates over US$2.2 billion in annual revenues and has more than 20,000 employees worldwide. More information about FirstService is available at www.firstservice.com.Segmented Quarterly Results Commercial Real Estate Services revenues totalled $245.7 million for the second quarter, up 13% relative to the prior year quarter. Revenue growth was comprised of 4% internal growth measured in local currencies, a 6% favourable impact from foreign currency translation and 3% growth from recent acquisitions. Internal growth was driven by strong year over year revenue increases in the Europe and Asia Pacific regions. Adjusted EBITDA was $11.1 million, relative to $13.1 million reported in the prior year quarter. Second quarter results were negatively impacted by an adjustment to reduce revenues in the Americas region by $3.3 million resulting from an internal review of a series of property management contracts with one client group where it was determined, in consultation with the client, that a portion of the management fees previously recorded were not chargeable. Excluding this item, Adjusted EBITDA would have been $14.4 million for the quarter, a 10% increase relative to the prior year period. Residential Property Management revenues were $195.7 million for the second quarter, up 16% relative to the prior year quarter. Revenue growth was comprised of 7% internal growth and 9% from recent acquisitions. Adjusted EBITDA for the quarter was $17.9 million, up 9% from $16.5 million in the prior year period. Property Services revenues totalled $124.0 million, up 8% from $115.0 million in the prior year period, attributable evenly to franchise and contractor network services growth. Adjusted EBITDA for the second quarter was $21.1 million, up 10% versus $19.3 million in the prior year quarter. Corporate costs were $3.8 million in the second quarter, relative to $4.7 million in the prior year period. The current quarter's results were positively impacted by a reduction in performance-based compensation accruals relative to the prior year period.Strategic Review and Reorganization of Property Services During the past twelve months, FirstService was approached by certain parties interested in acquiring the franchise operations within the Property Services division. As a result, the Company engaged financial advisors to investigate strategic alternatives, including a potential sale. After exploring the alternatives, the Company concluded it was not in the best interests of its shareholders to sell the franchise operations. One of the outcomes of the review was a transition of managerial oversight of the division to the executive team at FirstService and the purchase of the balance of the shares in the division the Company did not already own subsequent to quarter end, for total consideration of $29.9 million. The total cost of the strategic review and reorganization, including severance and advisory fees, was $4.3 million and was recorded as a reorganization charge as of June 30, 2011. As a result, the Company expects to realize annual administrative cost savings of $2.5 million and a reduction in the non-controlling interest share of earnings, both items together resulting in accretion to earnings per share in the future.Increase to Borrowing Capacity On July 6, 2011, the Company exercised the accordion provision of its credit agreement, thereby increasing the size of its credit facility by $50.0 million, to $275.0 million, on the same terms as the original credit facility. The credit facility matures on September 6, 2012.Deferred Income Tax Valuation Allowance During the second quarter, the Company recorded an increase in its valuation allowance with respect to deferred income tax assets, which increased income tax expense by $4.7 million and decreased GAAP earnings per share by $0.14. In the prior year quarter, the valuation allowance amounted to $2.6 million, or $0.08 per share. For the six months ended June 30, 2011, the increase to income tax expense and reduction to GAAP earnings per share were $9.0 million and $0.27, respectively (2010 - $6.5 million and $0.20, respectively). The valuation allowance relates to tax loss carry-forwards in the Company's Commercial Real Estate operations, which remain available to offset income tax over the next 15 to 20 years.Conference Call FirstService will be holding a conference call on Wednesday, July 27, 2011 at 11:00 a.m. Eastern Time to discuss results for the second quarter. 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 Statements This 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.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) reorganization charges. 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 Six months ended (in thousands of US$) June 30 June 30  2011 20102011 2010           Net earnings$ 10,932  $ 14,674 $ 9,642  $ 21,311  Income tax 12,041   11,174  16,496   10,961  Other expense (income) 862   1,280  1,939   2,912  Interest expense, net 4,305   4,579  8,686   8,655  Operating earnings 28,140   31,707  36,763   43,839  Depreciation and amortization 13,356   12,087  25,426   23,598  Acquisition-related items 502   348  1,374   (4,211) Stock-based compensation expense 476   436  1,542   1,418  Reorganization charge 4,338   --  4,338   --  Adjusted EBITDA$ 46,812  $ 44,578  $69,443  $ 64,644  2. Reconciliation of net earnings (loss) attributable to common shareholders and net earnings (loss) per common share to adjusted net earnings and adjusted net earnings per share: Adjusted earnings per common share is defined as diluted net earnings (loss) per common 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) reorganization charges and (vi) deferred income tax valuation allowances related to tax loss carry-forwards. 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 diluted net earnings per common share from continuing operations is not a recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted net earnings per common share from continuing operations, 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 (loss) attributable to common shareholders to adjusted net earnings and of diluted net earnings (loss) per common share to adjusted earnings per common share appears below.   Three months ended Six months ended (in thousands of US$) June 30 June 30  2011 20102011 2010            Net earnings (loss) attributable to common shareholders$ 3,360  $ 2,294 $ (6,517) $ 1,768  Non-controlling interest redemption increment 1,739   5,930  7,555   6,220  Acquisition-related items 502   348  1,374   (4,211) Amortization of intangible assets 5,773   5,258  10,707   10,009  Stock-based compensation expense 476   436  1,542   1,418  Reorganization charge 4,338   --  4,338   --  Income tax on adjustments (3,568)  (1,964) (5,680)  (3,953) Deferred income tax valuation allowance 4,731   2,572  9,005   6,470  Non-controlling interest on adjustments (734)  (415) (1,277)  1,123  Adjusted net earnings$ 16,617   $14,459 $ 21,047   $18,844                Three months ended Six months ended (in US$) June 30 June 30  2011 20102011 2010           Diluted net earnings (loss) per common share$ 0.11  $ 0.08 $ (0.22) $ 0.06  Non-controlling interest redemption increment 0.06   0.19  0.25   0.20  Acquisition-related items 0.02   0.01  0.05   (0.07) Amortization of intangible assets, net of tax 0.11   0.11  0.21   0.21  Stock-based compensation expense, net of tax 0.01   0.01  0.03   0.03  Reorganization charge 0.09   --  0.09   --  Deferred income tax valuation allowance 0.14   0.08  0.27   0.20  Adjusted earnings per common share$ 0.54  $ 0.48 $ 0.68  $ 0.63          FIRSTSERVICE CORPORATION        Condensed Consolidated Statements of Earnings (Loss)         (in thousands of US dollars, except per share amounts)           Three months Six months   ended June 30 ended June 30 (unaudited)2011  2010 2011  2010              Revenues$ 565,472  $ 501,372 $1,043,854  $ 903,763          Cost of revenues 355,819   309,300 656,433   558,122  Selling, general and administrative expenses 167,655   147,930 323,858   282,415  Depreciation  7,583   6,829 14,719   13,589  Amortization of intangible assets 5,773   5,258 10,707   10,009  Acquisition-related items (1) 502   348 1,374   (4,211)Operating earnings 28,140   31,707  36,763   43,839  Interest expense, net 4,305   4,579  8,686   8,655  Other expense (income)  862   1,280  1,939   2,912  Earnings before income tax 22,973   25,848  26,138   32,272  Income tax (2) 12,041   11,174  16,496   10,961 Net earnings 10,932   14,674  9,642   21,311  Non-controlling interest share of earnings 3,307   3,924  3,553   8,272  Non-controlling interest redemption increment  1,739   5,930  7,555   6,220  Net earnings (loss) attributable to Company  5,886   4,820  (1,466)  6,819  Preferred share dividends 2,526   2,526  5,051   5,051 Net earnings (loss) attributable to common shareholders$ 3,360  $ 2,294 $ (6,517) $ 1,768             Net earnings (loss) per common share      Basic$ 0.11  $ 0.08 $ (0.22) $ 0.06  Diluted$0.11  $0.08 $(0.22) $ 0.06        Adjusted earnings per common share (3)  $0.54  $ 0.48 $ 0.68  $ 0.63          Weighted average common shares (thousands)       Basic 30,093   30,110  30,184   29,903  Diluted 30,615   30,371  30,701   30,152 Notes to Condensed Consolidated Statements of Earnings (1) Acquisition-related items include contingent acquisition consideration fair value adjustments, contingent acquisition consideration-related compensation expense, settlements of contingent liabilities of acquired entities initially recognized at the acquisition date and transaction costs. (2) Income tax expense for the three months ended June 30, 2011 includes a $4,731 valuation allowance related to deferred income tax assets (2010 - $2,572); income tax expense for the six months ended June 30, 2011 includes a $9,005 valuation allowance (2010 - $6,470). (3) See definition and reconciliation above.    Condensed Consolidated Balance Sheets    (in thousands of US dollars)                (unaudited)June 30, 2011 December 31, 2010        Assets     Cash and cash equivalents$ 81,604  $ 100,359  Restricted cash 3,199   4,337  Accounts receivable 290,691   262,654  Inventories 12,099   9,140  Prepaid expenses and other current assets 49,669   43,140   Current assets 437,262   419,630  Other non-current assets 49,150   50,726  Fixed assets 84,864   86,134  Goodwill and intangible assets 583,050   573,051   Total assets $1,154,326   $1,129,541           Liabilities and shareholders' equity     Accounts payable and accrued liabilities$ 318,186  $ 346,157  Other current liabilities 30,334   26,498  Long-term debt - current  24,814   39,249   Current liabilities 373,334   411,904  Long-term debt - non-current  266,869   201,491  Convertible unsecured subordinated debentures 77,000   77,000  Other liabilities 33,168   32,365  Deferred income tax 31,967   33,175  Non-controlling interests  179,534   174,358  Shareholders' equity 192,454   199,248   Total liabilities and equity $1,154,326   $1,129,541           Supplemental balance sheet information    Total debt$ 368,683  $ 317,740  Total debt excluding convertible debentures 291,683   240,740  Total debt, net of cash 287,079   217,381  Total debt excluding convertible debentures, net of cash 210,079   140,381   Consolidated Statements of Cash Flows       (in thousands of US dollars)           Three months ended Six months ended   June 30 June 30 (unaudited) 2011  2010 2011  2010         Cash provided by (used in)              Operating activities        Net earnings $ 10,932  $ 14,674 $ 9,642   $ 21,311  Items not affecting cash:        Depreciation and amortization  13,356   12,087  25,426   23,598  Deferred income tax (555) (2,833)(1,321) (3,226) Other  1,830   2,869  4,820  (4,493)         Changes in operating assets and liabilities (1,438)  14,515 (63,594) (21,074) Net cash provided by (used in) operating activities  24,125   41,312 (25,027)  16,116         Investing activities        Acquisition of businesses, net of cash acquired (8,689) (2,031)(9,873) (4,463) Purchases of fixed assets (7,828) (8,827)(13,172) (15,120) Other investing activities  30   3,606 (474)  4,276  Net cash used in investing activities (16,487) (7,252)(23,519) (15,307)        Financing activities        Increase in long-term debt, net (7,002)  10,184  50,943   10,405  Purchases of non-controlling interests (59) (17,143)(1,497) (17,188) Dividends paid to preferred shareholders (2,526) (2,526)(5,051) (5,051) Other financing activities (2,369) (2,666)(16,512) (1,008) Net cash (used in) provided by financing activities (11,956) (12,151) 27,883  (12,842)         Effect of exchange rate changes on cash  596  (1,879) 1,908   2,484          (Decrease) increase in cash and cash equivalents (3,722)  20,030 (18,755) (9,549)         Cash and cash equivalents, beginning of period  85,326   70,199  100,359   99,778          Cash and cash equivalents, end of period $ 81,604  $ 90,229 $ 81,604  $ 90,229             Segmented Revenues, Adjusted EBITDA and Operating Earnings      (in thousands of US dollars)                   Commercial Residential         Real Estate Property Property     (unaudited) Services Management Services Corporate Consolidated       Three months ended June 30                     2011      Revenues$ 245,731 $ 195,657 $ 124,042 $ 42 $ 565,472 Adjusted EBITDA 11,086  17,929  21,138 (3,817) 46,336  Stock-based compensation     476       46,812 Operating earnings 4,053  14,474  13,491 (3,878) 28,140             2010            Revenues $ 217,143  $ 169,172  $ 115,019  $ 38  $ 501,372  Adjusted EBITDA  13,056   16,505   19,275  (4,694)  44,142   Stock-based compensation          436             44,578              Operating earnings  6,322   13,186   16,938  (4,739)  31,707                            Commercial Residential         Real Estate Property Property       Services Management Services Corporate Consolidated       Six months ended June 30                     2011      Revenues$ 441,330 $ 363,891 $ 238,551 $ 82 $ 1,043,854 Adjusted EBITDA 13,659  29,383  32,397 (7,538) 67,901  Stock-based compensation     1,542       69,443 Operating earnings 685  21,271  22,472 (7,665) 36,763             2010            Revenues $ 371,228  $ 316,023  $ 216,431  $ 81  $ 903,763  Adjusted EBITDA  13,909   28,126   30,155  (8,964)  63,226   Stock-based compensation          1,418             64,644              Operating earnings  5,863   21,497   25,539  (9,060)  43,839 CONTACT: Jay S. Hennick Founder & CEO D. Scott Patterson President & COO John B. Friedrichsen Senior Vice President & CFO (416) 960-9500