Strong internal growth and disciplined acquisitions drive financial
performance
Yearend highlights: - Revenues $1.36 billion, up 27% - Adjusted EPS $1.37, up 36%
TORONTO, May 16 /CNW/ - FirstService Corporation (NASDAQ: FSRV; TSX: FSV) today reported record results for its fourth quarter and fiscal year ended March 31, 2007 and updated its financial outlook for its fiscal year ending March 31, 2008. All amounts are in US dollars.
For the year ended March 31, 2007, revenues totalled $1.36 billion, up 27% relative to the prior year, while EBITDA (see definition and reconciliation below) increased 29% to $114.6 million versus $88.8 million in the prior year. Adjusted diluted net earnings per share from continuing operations (see definition and reconciliation below) were $1.37, up 36% from $1.01 in the prior year. Diluted earnings per share from continuing operations calculated in accordance with GAAP were $1.14, up 31% versus the prior year.
Fourth quarter revenues were $320.7 million, an increase of 29% relative to the same period last year. EBITDA increased 82% to $18.4 million versus $10.1 million in the prior year period. Adjusted diluted earnings per share from continuing operations for the quarter increased to $0.18 versus $0.06 in the prior year period. Diluted earnings per share from continuing operations calculated in accordance with GAAP for the quarter were $0.08 versus $0.01 in the prior year period.
"We set new records in our financial performance for fiscal 2007 through a combination of strong internal growth and disciplined acquisitions, while remaining true to the FirstService Way of operating," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. "Over the last five years, our revenues, earnings and earnings per share have grown at a compound annual rate of about 30%, an impressive rate of growth across these important performance measures; and with more than $200 million in available cash and other resources, we are well positioned to deliver excellent growth again in fiscal 2008," he concluded.
About FirstService Corporation
------------------------------
FirstService is a leader in the rapidly growing property services sector, providing services in the following areas: commercial real estate; residential property management; property improvement and integrated security services. Market-leading brands include Colliers International in commercial real estate; The Continental Group, The Wentworth Group and The Merit Companies in residential property management; consumer brands California Closets, Paul Davis Restoration, Pillar to Post Home Inspections, CertaPro Painters and Handyman Connection in property improvement; and Intercon Security and Security Services and Technologies in integrated security.
FirstService is a diversified property services company with more than US$1.5 billion in annualized revenues and over 15,000 employees worldwide. More information about FirstService is available at www.firstservice.com.
Segmented Quarterly Results
---------------------------
Revenues in Commercial Real Estate Services totalled $137.8 million for the quarter, an increase of 47% over the prior year period. Acquisitions contributed 32% of the increase while internal growth of 15% represented the balance. Internal growth was led by the Central European and Australian operations, which reported robust brokerage activity. Fourth quarter EBITDA was $10.1 million, up 83% compared to $5.5 million during the year-ago period.
Residential Property Management revenues increased to $107.7 million for the quarter, 23% higher than in the prior year period. Internal growth of 12% resulted from property management contracts added during the past twelve months. The balance of the growth was attributable to acquisitions. EBITDA for the quarter was $8.6 million, up 41% from $6.1 million one year ago.
Revenues in Property Improvement Services totalled $29.7 million, an increase of 15% over the prior year period. Internal revenue growth was 11%, due to higher system-wide sales at the Company's franchise systems. The balance of the growth resulted from recent acquisitions. EBITDA in the fourth quarter was $2.0 million, up significantly from $0.4 million last year.
Integrated Security Services revenues for the fourth quarter were $45.2 million, an increase of 11% relative to the prior year period, attributable to increased systems installation activity in both the United States and Canada. Quarterly EBITDA was $2.2 million, up 54% versus $1.4 million in the prior year period.
Quarterly corporate costs were $4.4 million, relative to $3.2 million in the prior year period, resulting primarily from incremental performance based executive compensation and increased stock-based compensation expenses.
A comparison of segmented EBITDA to operating earnings is provided below.
Updated Financial Outlook
-------------------------
FirstService is updating the outlook for its fiscal year ending March 31, 2008 issued on January 30, 2007 to reflect the completion of the Company's annual budgeting process and the recently announced acquisition. The Company is also updating its definition of EBITDA, as noted below, to better reflect the consolidated EBITDA generated by its operations before non-cash long-term stock-based compensation expenses.
(US$ millions,
except per
share amounts) Year ending March 31, 2008
-------------------------------------------------------
Previous Previous
-------- --------
Updated As Amended(1) As Reported
------- ------------- -----------
Revenues $1,525 - $1,625 $1,450 - $1,550 $1,450 - $1,550
EBITDA $137 - $147 $131 - $141 $126 - $136
Adjusted EPS(2) $1.48 - $1.60 $1.40 - $1.50 $1.40 - $1.50
Notes:
1. Included in the outlook figures in the "Updated" and "Previous As
Amended" columns is an increase of $5.0 million to each of the lower
and upper EBITDA ranges for stock-based compensation expense, which
is now excluded from the definition of EBITDA. This change has no
effect on earnings per share.
2. Adjusted EPS refers to adjusted diluted earnings per share from
continuing operations. The adjustment to EPS eliminates the impact of
accelerated amortization of short-lived intangible assets recognized
on acquisitions completed in the Company's Commercial Real Estate
services operations.
3. The outlook assumes (i) no further acquisitions or divestitures
completed during the outlook period and (ii) current economic
conditions in the markets in which the Company operates remaining
unchanged and in particular the market for commercial real estate
services. Actual results may differ materially. The Company
undertakes no obligation to continue to update this information.
Repurchases of FirstService Shares
----------------------------------
On March 5, 2007 and March 6, 2007, the Company repurchased 38,500 Subordinate Voting Shares for cancellation through the facilities of the Toronto Stock Exchange and NASDAQ National Market pursuant to a normal course issuer bid. The total number of shares repurchased during the fiscal year ended March 31, 2007 is 697,700 at an average cost of US$23.78 representing 2.3% of the total shares outstanding prior to the repurchases. The repurchases were funded with cash on hand.
Conference Call
---------------
FirstService will be holding a conference call on Wednesday, May 16, 2007 at 11:00 a.m. Eastern Time to discuss the results for the fourth quarter and full fiscal year as well as the updated outlook for fiscal 2008. The call will be simultaneously web cast and can be accessed live or after the call at www.firstservice.com in the "Investor Relations/News Releases" section.
Forward-looking Statements
--------------------------
This press release includes 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 the Ontario Securities Commission.
FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
---------------------------------------------
(in thousands of US dollars, except per share amounts)
(unaudited)
Three months ended Year ended
March 31 March 31
-------------------------- --------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Revenues $ 320,744 $ 247,947 $ 1,359,686 $ 1,068,134
Cost of revenues 190,961 162,181 860,236 684,280
Selling, general
and administrative
expenses 111,360 75,647 384,875 295,050
Depreciation and
amortization
other than backlog 6,869 4,472 23,423 16,024
Amortization of
brokerage
backlog(1) 1,294 2,684 8,164 7,554
------------ ------------ ------------ ------------
Operating earnings 10,260 2,963 82,988 65,226
Interest expense,
net 2,252 3,113 9,954 11,879
Other expense
(income) 81 (47) (4,848) (3,776)
Impairment loss on
available-for-sale
securities 3,139 - 3,139 -
------------ ------------ ------------ ------------
4,788 (103) 74,743 57,123
Income taxes (1,224) (2,015) 21,738 17,208
------------ ------------ ------------ ------------
6,012 1,912 53,005 39,915
Minority interest
share of earnings 3,188 1,441 16,318 11,881
------------ ------------ ------------ ------------
Net earnings from
continuing
operations 2,824 471 36,687 28,034
Net (loss) earnings
from discontinued
operations,
net of tax(2) (471) 35,961 (471) 41,463
------------ ------------ ------------ ------------
2,353 36,432 36,216 69,497
Cumulative effect
of change in
accounting
principle,
net of tax(3) - - (1,353) -
------------ ------------ ------------ ------------
Net earnings $ 2,353 $ 36,432 $ 34,863 $ 69,497
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net earnings (loss)
per share
Basic
Continuing
operations $ 0.10 $ 0.02 $ 1.23 $ 0.93
Discontinued
operations (0.02) 1.19 (0.02) 1.37
Cumulative
effect of
change in
accounting
principle - - (0.04) -
------------ ------------ ------------ ------------
$ 0.08 $ 1.21 $ 1.17 $ 2.30
------------ ------------ ------------ ------------
Diluted(4)
Continuing
operations $ 0.08 $ 0.01 $ 1.14 $ 0.87
Discontinued
operations (0.02) 1.17 (0.02) 1.34
Cumulative
effect of
change in
accounting
principle - - (0.04) -
------------ ------------ ------------ ------------
$ 0.06 $ 1.18 $ 1.08 $ 2.21
------------ ------------ ------------ ------------
Weighted average
shares outstanding:
(in thousands)
Basic 29,913 30,035 29,903 30,171
Diluted 30,275 30,683 30,354 30,896
Net earnings per
share, adjusted
diluted from
continuing
operations(5) $ 0.18 $ 0.06 $ 1.37 $ 1.01
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Notes to Condensed Consolidated Statements of Earnings
(1) Amortization of short-lived brokerage backlog intangible assets
recognized upon the acquisitions of Commercial Real Estate Services
businesses in the past twelve months. Brokerage backlog represents the
fair value of pending commercial real estate brokerage transactions and
listings as at the acquisition date. Amortization is recorded to coincide
with the completion of the related brokerage transactions.
(2) Represents (loss) earnings and gain on sale of Resolve, which was
sold in March 2006.
(3) Cumulative effect of the adoption of SFAS No. 123(R), Share Based
Payment, on April 1, 2006.
(4) Numerators for diluted earnings per share calculations have been
adjusted to reflect dilution from stock options at subsidiaries. The
adjustment for the quarter ended March 31, 2007 was $679 (2006 - $269)
and year ended March 31, 2007 was $2,228 (2006 - $1,253).
(5) See "Reconciliation of operating earnings, net earnings and net
earnings per share to adjusted operating earnings, adjusted net earnings
and adjusted net earnings per share" below.
Reconciliation of Operating Earnings, Net Earnings and Net Earnings Per
-----------------------------------------------------------------------
Share to Adjusted Operating Earnings, Adjusted Net Earnings and Adjusted
------------------------------------------------------------------------
Net Earnings Per Share
----------------------
(in thousands of US dollars, except per share amounts)
(unaudited)
The Company is presenting adjusted earnings measures to eliminate the
impact of (i) the amortization of the short-lived brokerage backlog intangible
asset recognized upon the acquisitions of Commercial Real Estate Services
businesses within the past twelve months and (ii) the unrealized impairment
loss on the Company's investment in securities of Resolve Business Outsourcing
Income Trust. All of the adjustments are non-cash and are considered "non-GAAP
financial measures" under OSC and SEC guidelines. The following tables provide
a reconciliation of the adjusted measures:
Three months ended Year ended
March 31 March 31
-------------------------- --------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Operating
earnings $ 10,260 $ 2,963 $ 82,988 $ 65,226
Amortization of
brokerage backlog 1,294 2,684 8,164 7,554
------------ ------------ ------------ ------------
Adjusted operating
earnings $ 11,554 $ 5,647 $ 91,152 $ 72,780
------------ ------------ ------------ ------------
Net earnings from
continuing
operations $ 2,824 $ 471 $ 36,687 $ 28,034
Amortization of
brokerage backlog 1,294 2,684 8,164 7,554
Impairment loss on
available-for-sale
securities 3,139 - 3,139 -
Deferred income tax (983) (1,064) (3,304) (2,892)
Minority interest (150) (206) (896) (364)
------------ ------------ ------------ ------------
Adjusted net
earnings from
continuing
operations $ 6,124 $ 1,885 $ 43,790 $ 32,332
------------ ------------ ------------ ------------
Diluted net
earnings per share
from continuing
operations $ 0.08 $ 0.01 $ 1.14 $ 0.87
Amortization of
brokerage backlog,
net of tax 0.02 0.05 0.15 0.14
Impairment loss on
available-for-sale
securities, net of
tax 0.08 - 0.08 -
------------ ------------ ------------ ------------
Adjusted diluted
net earnings per
share from
continuing
operations $ 0.18 $ 0.06 $ 1.37 $ 1.01
------------ ------------ ------------ ------------
Reconciliation of EBITDA to Operating Earnings
----------------------------------------------
(in thousands of US dollars)
(unaudited)
EBITDA is defined as net earnings from continuing operations before
minority interest share of earnings, income taxes, interest, depreciation and
amortization and stock-based compensation expense. The Company uses EBITDA to
evaluate operating performance. EBITDA is an integral part of the Company's
planning and reporting systems. Additionally, the Company uses multiples of
current and projected EBITDA in conjunction with discounted cash flow models
to determine its overall enterprise valuation and to evaluate acquisition
targets. The Company believes EBITDA is a reasonable measure of operating
performance because of the low capital intensity of its service operations.
The Company believes EBITDA is a financial metric used by many investors to
compare companies, especially in the services industry, on the basis of
operating results and the ability to incur and service debt. EBITDA is not a
recognized measure of financial performance under United States generally
accepted accounting principles (GAAP), and should not be considered as a
substitute for operating earnings, net earnings or cash flows from operating
activities, as determined in accordance with GAAP. The Company's method of
calculating EBITDA may differ from other issuers and accordingly, EBITDA may
not be comparable to measures used by other issuers. A reconciliation of
EBITDA to operating earnings appears below.
Three months ended Year ended
March 31 March 31
-------------------------- --------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Operating
earnings $ 10,260 $ 2,963 $ 82,988 $ 65,226
Depreciation and
amortization other
than backlog 6,869 4,472 23,423 16,024
Amortization of
brokerage backlog 1,294 2,684 8,164 7,554
------------ ------------ ------------ ------------
18,423 10,119 114,575 88,804
Stock-based
compensation
expense 4,211 1,288 6,781 2,591
------------ ------------ ------------ ------------
EBITDA $ 22,634 $ 11,407 $ 121,356 $ 91,395
------------ ------------ ------------ ------------
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands of US dollars)
(unaudited)
March 31 March 31
2007 2006
------------ ------------
Assets
------
Cash and cash equivalents $ 99,038 $ 167,938
Restricted cash 16,930 -
Accounts receivable 163,581 128,276
Inventories 31,768 27,267
Prepaids and other current assets 51,040 31,928
------------ ------------
Current assets 362,357 355,409
Fixed assets 66,297 48,733
Other non-current assets 41,405 39,600
Goodwill and intangibles 346,939 267,262
------------ ------------
Total assets $ 816,998 $ 711,004
------------ ------------
------------ ------------
Liabilities and shareholders' equity
------------------------------------
Accounts payable and accrued liabilities $ 205,529 $ 149,875
Other current liabilities 29,179 16,187
Long term debt - current 22,119 18,646
------------ ------------
Current liabilities 256,827 184,708
Long term debt - non-current 213,030 230,040
Deferred income taxes 29,084 30,041
Other liabilities 4,876 -
Minority interest 48,306 28,463
Shareholders' equity 264,875 237,752
------------ ------------
Total liabilities and equity $ 816,998 $ 711,004
------------ ------------
------------ ------------
Total debt $ 235,149 $ 248,686
------------ ------------
Total debt, net of cash 136,111 80,748
------------ ------------
Condensed Consolidated Statements of Cash Flows
(in thousands of US dollars)
(unaudited)
Year ended March 31
--------------------------
2007 2006
------------ ------------
Operating activities
Net earnings from continuing operations $ 36,687 $ 28,034
Items not affecting cash:
Depreciation and amortization 31,587 23,578
Deferred income taxes (9,531) (4,901)
Minority interest share of earnings 16,318 11,881
Other 5,810 2,648
Changes in operating assets and liabilities (20,850) (8,992)
Discontinued operations (231) 7,101
------------ ------------
Net cash provided by operating activities 59,790 59,349
Investing activities
Acquisitions of businesses,
net of cash acquired (73,431) (26,103)
Purchases of fixed assets, net (26,723) (18,837)
Other investing activities (1,153) 109,985
Discontinued operations (838) (8,563)
------------ ------------
Net cash (used in) provided by investing (102,145) 56,482
Financing activities
(Decrease) increase in long-term debt, net (15,495) 28,514
Other financing activities (13,429) (12,793)
------------ ------------
Net cash (used in) provided by financing (28,924) 15,721
Effect of exchange rate changes on cash 2,379 (1,072)
(Decrease) increase in cash and cash
equivalents (68,900) 130,480
Cash and cash equivalents, beginning of period 167,938 37,458
------------ ------------
Cash and cash equivalents, end of period $ 99,038 $ 167,938
------------ ------------
------------ ------------
Segmented Revenues, EBITDA and Operating Earnings
-------------------------------------------------
(in thousands of US dollars)
(unaudited)
Property
Commercial Residential Improve- Integrated
Real Estate Property ment Security Corpor- Consoli-
Services Management Services Services ate dated
----------------------------------------------------------------
Three months
ended March 31
2007
Revenues $ 137,805 $ 107,722 $ 29,728 $ 45,156 $ 333 $ 320,744
EBITDA 10,063 8,612 1,951 2,158 (4,361) 18,423
Stock-based
compensation 4,211
---------
$ 22,634
---------
Operating
earnings 6,021 6,303 927 1,386 (4,377) 10,260
2006
Revenues $ 93,941 $ 87,342 $ 25,926 $ 40,598 $ 140 $ 247,947
EBITDA 5,494 6,102 372 1,399 (3,248) 10,119
Stock-based
compensation 1,288
---------
$ 11,407
---------
Operating
earnings 1,671 4,496 (666) 751 (3,289) 2,963
Year ended March 31
2007
Revenues $ 608,065 $ 423,797 $ 150,794 $ 176,476 $ 554 $1,359,686
EBITDA 47,699 40,267 30,564 10,601 (14,556) 114,575
Stock-based
compensation 6,781
---------
$ 121,356
---------
Operating
Earnings 31,464 32,623 25,911 7,769 (14,779) 82,988
2006
Revenues $ 438,434 $ 346,133 $ 134,136 $ 149,063 $ 368 $1,068,134
EBITDA 36,465 31,390 25,765 7,660 (12,476) 88,804
Stock-based
compensation 2,591
---------
$ 91,395
---------
Operating
earnings 25,079 25,767 22,016 5,005 (12,641) 65,226