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Press release from GlobeNewswire (a Nasdaq OMX company)

FirstService Reports Strong Fourth Quarter and Full Year Results

Wednesday, February 15, 2012

FirstService Reports Strong Fourth Quarter and Full Year Results04:30 EST Wednesday, February 15, 2012Record Revenues Exceed $2.2 Billion for the YearColliers International Finishes With Strong Growth in Revenues and ProfitsOperating highlights:  Three months endedYear ended     December 31December 31   2011201020112010      Revenues (millions) $594.9 $552.1 $2,224.2 $1,986.3Adjusted EBITDA (millions) (note 1) 44.5 37.0 161.6 147.3Adjusted EPS (note 2) 0.52 0.37 1.81 1.61 TORONTO, Feb. 15, 2012 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (Nasdaq:FSRV); preferred shares - (TSX:FSV.PR.U) today reported results for its fourth quarter and year ended December 31, 2011. All amounts are in US dollars. Revenues for the fourth quarter were $594.9 million, an 8% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) was $44.5 million, up 20% from $37.0 million and Adjusted EPS (note 2) was $0.52, up 41% from $0.37 reported in the prior year quarter. GAAP EPS was $2.01 per share in the quarter, compared to a loss of $0.12 for the same quarter a year ago. The increase in GAAP EPS was significantly impacted by the reversal of a deferred income tax valuation allowance amounting to $1.80 per share; excluding this, GAAP EPS would have been $0.21. For the year ended December 31, 2011, revenues were $2.22 billion, a 12% increase relative to the prior year, while Adjusted EBITDA was $161.6 million, up 10%, and Adjusted EPS was $1.81, up 12%. GAAP EPS from continuing operations for the year was $2.03, compared to a $0.11 in the prior year. The increase in GAAP EPS was significantly impacted by the reversal of a deferred income tax valuation allowance amounting to $1.46 per share; excluding this, GAAP EPS would have been $0.57. "2011 was another year of solid growth in revenues and profits, with revenues finishing at a record $2.2 billion," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService. "Colliers International led our growth with strong increases in revenues and profits, particularly in the Americas, Asia and Central and Eastern Europe as we continued to strengthen the brand, increase margins and integrate world-wide operations. FirstService Residential Management once again delivered solid results to both the top and bottom lines completing several acquisitions and strengthening its position as North America's largest property manager. In Property Services, despite the challenges in the US economy, we achieved much better than expected growth in our FS Brands franchising operations while Field Assets, our property preservation and distressed asset management business, fell short as foreclosure volumes decreased versus the prior year," 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 2.3 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 Field Asset Services, one of America's largest property preservation and distressed asset management companies and FS Brands, one of North America's largest providers of property services through franchise 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 Fourth Quarter Results Commercial Real Estate Services revenues totalled $300.4 million for the fourth quarter, up 12% relative to the prior year quarter. Revenue growth was comprised of 10% internal growth measured in local currencies, a 1% favourable impact from foreign currency translation and 1% growth from recent acquisitions. Internal growth was led by the Americas region, which had solid year over year growth in brokerage, property management and project management activity. Adjusted EBITDA was $29.2 million, up 75% from $16.8 million reported in the prior year quarter. The Adjusted EBITDA margin was 9.7%, up 340 basis points over the prior year period. Residential Property Management revenues were $187.9 million for the fourth quarter, up 14% relative to the prior year quarter. Revenue growth was comprised of 5% internal growth from new property management contract wins and 9% from recent acquisitions. Adjusted EBITDA for the quarter was $12.1 million versus $11.5 million in the prior year period. Property Services revenues totalled $106.6 million, down 11% from $119.6 million in the prior year period, primarily attributable to a decline in property preservation and distressed asset management volumes. Adjusted EBITDA for the fourth quarter was $9.7 million, versus $15.9 million in the prior year quarter, due to lower volumes and additional costs incurred on client engagements in the property preservation and distressed asset management operations. Corporate costs were $6.9 million in the fourth quarter, relative to $7.9 million in the prior year period, attributable to lower performance-based executive compensation costs.Segmented Full Year Results Commercial Real Estate Services annual revenues for 2011 totalled $994.6 million, up 15% relative to the prior year. Revenue growth was comprised of 8% internal growth measured in local currencies, a 4% favourable impact from foreign currency translation and 3% growth from recent acquisitions. Adjusted EBITDA for 2011 was $51.9 million, up 31% from $39.5 million reported in the prior year. The Adjusted EBITDA margin increased 60 basis points relative to the prior year. Full year Residential Property Management revenues were $760.5 million, up 15% relative to 2010. Property management client wins resulted in 6% internal growth. Recent acquisitions of operations in Vancouver, Toronto, Las Vegas and Minneapolis accounted for an additional 9% of revenue growth. Adjusted EBITDA was $62.3 million versus $59.1 million in the prior year, primarily attributable to the favourable impact of acquisitions. Property Services revenues for the full year totalled $468.9 million, up 1% versus the prior year. Adjusted EBITDA for the year was $61.7 million, versus $68.2 million in the prior year, primarily due to lower volumes in the property preservation and distressed asset management operations as well as additional costs incurred on client engagements during the second half of the current year. Corporate costs were $16.7 million for the full year, relative to $22.3 million in the prior year. The current year's results were impacted by a reduction in performance-based executive compensation.Reversal of Deferred Income Tax Asset Valuation Allowance During the fourth quarter, the Company completed a reorganization of operations in the United States, which met the criteria under GAAP to reverse an accumulated valuation allowance related to US operations, resulting in a reduction of income tax expense in the amount of $63.2 million, for an increase to net earnings of $1.80 per share. For the year ended December 31, 2011, the reversal resulted in a reduction of income tax expense of $49.7 million, for an increase to net earnings of $1.46 per share. Consistent with the Company's prior presentation of adjusted earnings measures, these amounts have been excluded from adjusted earnings per share.Conference Call FirstService will be holding a conference call on Wednesday, February 15, 2012 at 11:00 a.m. Eastern Time to discuss results for the fourth 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 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) reorganization charges. The Company uses Adjusted EBITDA to evaluate its own operating performance and its ability to service debt, as well 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 measure is useful to investors as a reasonable indicator of operating performance because of the low capital intensity of its 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 to Adjusted EBITDA appears below.     Three months ended Twelve months ended (in thousands of US$) December 31 December 31    2011 20102011 2010           Net earnings$ 78,327 $ 12,223$ 101,743 $ 47,900 Income tax (56,329)  5,776 (26,807)   29,228 Other expense (income) 2,778  (741) 6,317   3,007 Interest expense, net 4,056  4,201 16,808   17,397 Operating earnings 28,832  21,459 98,061   97,532 Depreciation and amortization 12,718  12,646 50,926   47,886 Acquisition-related items 1,701  2,209 4,649   (871) Stock-based compensation expense 349  682 2,335  2,761 Reorganization charge 885  -- 5,590  -- Adjusted EBITDA$ 44,485 $ 36,996$ 161,561 $ 147,308 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 common 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) impairment loss on equity investments; (vi) reorganization charges; and (viii) deferred income tax asset valuation allowances related to tax loss carry-forwards. 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 earnings per common share 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, 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 diluted net earnings (loss) per common share to adjusted net earnings per common share appears below.      Three months ended Twelve months ended (in thousands of US$) December 31 December 31    2011 20102011 2010           Net earnings (loss) attributable to common shareholders$ 65,595 $ (3,675)$ 64,139 $ 3,463 Non-controlling interest redemption increment 1,246  10,053 12,941  18,916 Acquisition-related items 1,701  2,209 4,649  (871) Amortization of intangible assets 4,597  5,087 20,265  19,606 Stock-based compensation expense 349  682 2,335  2,761 Impairment loss on equity investment 3,092  -- 3,092  --  Reorganization charge 885  -- 5,590  --  Income tax on adjustments (2,089)  (2,019) (9,764)  (7,778) Deferred income tax asset valuation allowance (63,193)  (672) (49,745)  12,590 Non-controlling interest on adjustments 3,630  (258) 1,850  153 Adjusted net earnings$ 15,813 $ 11,407$ 55,352 $ 48,840             Three months ended Twelve months ended (in US$) December 31 December 31    2011 20102011 2011           Diluted net earnings (loss) per common share$ 2.01 $ (0.12)$ 2.03 $ 0.11 Non-controlling interest redemption increment 0.04  0.33 0.42  0.62 Acquisition-related items 0.05  0.07 0.14  0.03 Amortization of intangible assets, net of tax 0.09  0.10 0.41  0.40 Stock-based compensation expense, net of tax 0.01  0.01 0.05  0.06 Impairment loss on equity investment 0.10  -- 0.10  -- Reorganization charge, net of tax 0.02  -- 0.12  -- Deferred income tax asset valuation allowance (1.80)  (0.02) (1.46)  0.39 Adjusted net earnings per common share$ 0.52 $ 0.37$ 1.81  $ 1.61      FIRSTSERVICE CORPORATIONCondensed Consolidated Statements of Earnings (Loss) (in thousands of US dollars, except per share amounts)     Three months  Twelve months     ended December 31 ended December 31 (unaudited)2011 20102011 2010          Revenues$ 594,893 $ 552,090$ 2,224,171 $ 1,986,271           Cost of revenues 383,973  331,1931,421,621  1,221,323 Selling, general and administrative expenses 167,669  184,583648,914  620,401 Depreciation  8,121  7,55930,661  28,280 Amortization of intangible assets 4,597  5,08720,265  19,606 Acquisition-related items (1) 1,701  2,2094,649  (871)Operating earnings 28,832  21,459 98,061  97,532 Interest expense, net 4,056  4,201 16,808  17,397 Other expense (income) 2,778  (741) 6,317  3,007 Earnings before income tax 21,998  17,999 74,936  77,128 Income tax (2) (56,329)  5,776 (26,807)  29,228Net earnings 78,327  12,223 101,743  47,900 Non-controlling interest share of earnings 9,026  3,320 14,692  15,420 Non-controlling interest redemption increment  1,246  10,053 12,941  18,916 Net earnings (loss) attributable to Company  68,055  (1,150) 74,110  13,564 Preferred share dividends 2,460  2,525 9,971  10,101Net earnings (loss) attributable to common shareholders$ 65,595 $ (3,675)$ 64,139 $ 3,463          Net earnings (loss) per common share                Basic$ 2.19 $ (0.12)$ 2.13 $ 0.12           Diluted (3)$ 2.01 $ (0.12)$ 2.03 $ 0.11          Adjusted diluted net earnings per common share (4) $ 0.52 $ 0.37$ 1.81 $ 1.61           Weighted average common shares (thousands)       Basic 29,941  30,266 30,094  30,081 Diluted (5) 30,298 30,669 30,551  30,367  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 December 31, 2011 includes a $63,193 reversal of valuation allowance related to deferred income tax assets (2010 -- $672 reversal); income tax expense for the year ended December 31, 2011 includes a $49,745 valuation allowance reversal (2010 -- $12,590 valuation allowance charge). (3) The calculation of diluted net earnings per common share is impacted by the potentially dilutive effect of convertible debentures, which are convertible into common shares. For the three months ended December 31, 2011, the numerator of the calculation is increased by $901 (2010 - nil) and the denominator is increased by 2,750 shares (2010 - nil). For the year ended December 31, 2011, the numerator of the calculation is increased by $3,604 (2010 - nil) and the denominator is increased by 2,750 shares (2010 - nil). (4) See definition and reconciliation above. (5) Excluding the potentially dilutive effect of convertible debentures (see note 3 above).                  Condensed Consolidated Balance Sheets    (in thousands of US dollars)          (unaudited)December 31, 2011 December 31, 2010      Assets     Cash and cash equivalents$ 97,799  $ 100,359  Restricted cash 4,493   4,337  Accounts receivable 286,019   262,654  Other current assets 45,366   39,387  Deferred income tax 16,527   12,893 Current assets 450,204   419,630  Other non-current assets 17,028   27,804  Deferred income tax 87,940   22,922  Fixed assets 94,150   86,134  Goodwill and intangible assets 584,396   573,051 Total assets$ 1,233,718  $ 1,129,541       Liabilities and shareholders' equity     Accounts payable and accrued liabilities$ 354,220  $ 346,157  Other current liabilities 23,657   26,498  Long-term debt - current  216,373   39,249 Current liabilities 594,250   411,904  Long-term debt - non-current  100,042   201,491  Convertible debentures 77,000   77,000  Other liabilities 39,243   32,365  Deferred income tax 38,160   33,175  Non-controlling interests  141,404   174,358  Shareholders' equity 243,619   199,248 Total liabilities and equity$ 1,233,718  $ 1,129,541       Supplemental balance sheet information    Total debt$ 393,415  $ 317,740  Total debt excluding convertible debentures 316,415   240,740  Total debt, net of cash 295,616   217,381  Total debt excluding convertible debentures, net of cash  218,616   140,381       Consolidated Statements of Cash Flows (in thousands of US dollars)   Three months ended Twelve months ended   December 31 December 31 (unaudited)2011 20112011 2010          Cash provided by (used in)                 Operating activities        Net earnings$ 78,327 $ 12,223$ 101,743 $ 47,900 Items not affecting cash:       Depreciation and amortization 12,718  12,646 50,926  47,886 Deferred income tax(64,354)  (438) (64,512)  (7,440) Other  4,859  4,115 12,956  2,817   31,550  28,546 101,113  91,163           Changes in operating assets and liabilities 26,012  26,078 (20,899)  23,888 Net cash provided by operating activities 57,562  54,624 80,214  115,051          Investing activities        Acquisition of businesses, net of cash acquired  (911)  (21,115) (22,975)  (34,710) Purchases of fixed assets (13,360)  (9,303) (37,400)  (32,460) Other investing activities 2,322  (2,460) 1,529  1,045 Net cash used in investing activities (11,949)  (32,878) (58,846)  (66,125)          Financing activities        Increase in long-term debt, net 3,525  8,324 73,962  1,747 Purchases of non-controlling interests (net) (20,161)  (18,617) (55,607)  (38,210) Dividends paid to preferred shareholders  (2,460)  (2,525) (9,971)  (10,101) Other financing activities (4,885)  (1,946) (30,639)  (4,486) Net cash used in financing activities (23,981)  (14,764) (22,255)  (51,050)           Effect of exchange rate changes on cash (1,517)  (1,517) (1,673)  2,705           Increase (decrease) in cash and cash equivalents 20,115  5,465 (2,560)  581           Cash and cash equivalents, beginning of period 77,684  94,894  100,359  99,778           Cash and cash equivalents, end of period$ 97,799 $ 100,359 $ 97,799  $ 100,359    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 December 31        2011      Revenues$ 300,367$ 187,883$ 106,577$ 66$ 594,893Adjusted EBITDA 29,243 12,050 9,704 (6,861) 44,136Stock-based compensation      349       44,485Operating earnings20,4008,9436,359(6,870)28,832 2010            Revenues $ 268,014 $ 164,431   $ 119,572 $ 73 $ 552,090 Adjusted EBITDA  16,759  11,545  15,883  (7,873)  36,314 Stock-based compensation          682             36,996 Operating earnings  7,888  8,189  13,417  (8,035)  21,459               Commercial Residential         Real Estate Property Property        Services Management Services Corporate  ConsolidatedTwelve months ended December 31            2011       Revenues$ 994,579$ 760,501$ 468,903 $ 188$ 2,224,171 Adjusted EBITDA 51,900 62,320 61,703  (16,697) 159,226 Stock-based compensation     2,335        161,561 Operating earnings 22,379 47,202 45,421  (16,941) 98,061  2010            Revenues $ 861,917  $ 662,033  $ 462,141  $ 180  $ 1,986,271  Adjusted EBITDA  39,485   59,119   68,215   (22,272)  144,547  Stock-based compensation          2,761              147,308  Operating earnings  14,694   46,670   58,671   (22,503)  97,532 CONTACT: Jay S. Hennick Founder & CEO D. Scott Patterson President & COO John B. Friedrichsen Senior Vice President & CFO (416) 960-9500