Exceeds $1 billion in revenues for the first time
Yearend highlights:
- Revenues $1.1 billion, up 64%
- EBITDA $89 million, up 57%
- Net earnings up 54%
- Diluted EPS up 51%
- Net after-tax gain of $36 million on sale of Resolve Corporation
TORONTO, May 17 /CNW/ - FirstService Corporation (Nasdaq: FSRV; TSX: FSV)
today reported record results for its fourth quarter and year ended March 31,
2006. All amounts are in US dollars.
For the year ended March 31, 2006, revenues were $1.068 billion, up 64%
versus the prior year period, while EBITDA (see definition and reconciliation
below) was up 57% to $88.8 million. Operating results exclude the Resolve
Corporation business services operation which is classified as a discontinued
operation for all periods presented. Adjusted net earnings from continuing
operations were $32.3 million, up 54% from $21.0 million in the prior year,
while adjusted diluted earnings per share from continuing operations were
$1.01, up 51%. The adjustment (see reconciliations below) represents non-cash
amortization of short-lived intangible assets relating to pending brokerage
transactions and listings recognized on recent acquisitions in the Company's
commercial real estate services platform.
Fourth quarter revenues were $247.9 million, an increase of 24% relative
to the same period last year. EBITDA increased 90% to $10.1 million. Adjusted
net earnings from continuing operations were $1.9 million versus a loss of
$0.5 million in the prior year period. Adjusted diluted earnings per share
from continuing operations were $0.06 versus a loss of $0.03 in the prior year
period.
"Our strong fiscal 2006 results, solid capital base and the favorable
operating environments in each of our service lines position FirstService to
continue delivering outstanding results for our shareholders in fiscal 2007
and beyond," said Jay S. Hennick, Founder and Chief Executive Officer. "The
sale of Resolve was an important step as we sharpen our focus as a property
services company competing in global markets. FirstService has $300 million in
available capital to invest in long-term growth opportunities and we will
continue to capitalize on strong internal growth and appropriate
acquisitions," he added.
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 in residential property management; California
Closets, Paul Davis Restoration, Pillar to Post Home Inspections and CertaPro
Painters in property improvement; and Intercon Security and Security Services
& Technologies in integrated security services.
FirstService is a diversified property services company with more than
US$1 billion in annualized revenues and over 12,000 employees worldwide. More
information about FirstService is available at www.firstservice.com.
Segmented Quarterly Results
---------------------------
The company's Commercial Real Estate Services operation generated
revenues of $93.9 million for the fourth quarter, representing growth of 32%.
Internal growth was 15% relative to the same period one year ago resulting
from continuing robust brokerage activity, particularly along the North
American west coast and in Australia. The balance of the growth was
attributable to the November 2005 acquisition of Los Angeles-based Colliers
Seeley. Fourth quarter EBITDA was $5.5 million, at a margin of 5.8%, up
dramatically from $0.4 million at a margin of 0.6% reported in the prior year
quarter. The increase in margin was attributable to changes in the variable
broker commission structure that result in lower commission expense early in
the calendar year until minimum thresholds are achieved and higher expense
later in the year, provided production targets are met by brokers. The margin
was also impacted by lower administrative spending during the quarter.
Residential Property Management revenues increased to $87.3 million for
the quarter, 27% higher than in the prior year period. Substantially all of
the growth was attributable to contractual property management fee revenues.
EBITDA for the quarter was $6.1 million, up 10% from $5.5 million one year
ago, while margins were 7.0% versus 8.0% primarily due to changes in revenue
mix with proportionately less higher-margin ancillary services revenues
compared to the prior year period.
Revenues in Property Improvement Services totalled $25.9 million, an
increase of 9% over the prior year period. Internal growth in this seasonally
slow quarter was 4%. EBITDA for the fourth quarter was $0.4 million, an
increase of $0.2 million relative to last year.
Integrated Security Services revenues in the fourth quarter were
$40.6 million, a 12% increase relative to the prior year period. Excluding the
impact of foreign exchange, growth was 8%. Revenue growth was attributable to
higher levels of commercial security systems installation activity. Quarterly
EBITDA was $1.4 million versus $2.1 million in the prior year period, a result
of lower gross margins in certain markets consistent with results posted in
earlier quarters of fiscal 2006.
On March 17, 2006, the Company completed the sale of its Resolve business
services operation. An after-tax gain on sale of discontinued operations of
$35.8 million was recorded. Excluding this gain, discontinued operations
reported after-tax earnings of $5.6 million for the fiscal year ended
March 31, 2006, relative to $6.6 million in the prior year. The difference was
primarily a result of a gain on the settlement of a long term contract by
Resolve during the comparative prior year fourth quarter ended March 31, 2005.
Quarterly corporate costs were $3.2 million, $0.3 million higher than in
the prior year quarter. Included in both periods were performance-based
executive compensation accruals and costs for Sarbanes-Oxley compliance work.
A comparison of segmented EBITDA to operating earnings is provided below.
Repurchases of FirstService Shares
----------------------------------
During the period from October 31, 2005 to March 14, 2006, the Company
purchased 571,650 Subordinate Voting Shares for cancellation through the
facilities of the Toronto Stock Exchange and Nasdaq National Market at an
average cost of $23.98 per share pursuant to a normal course issuer bid. The
repurchases represented approximately 1.9% of the total shares outstanding
prior to the repurchase and were funded from operating cash flow and cash on
hand. During the quarter ended March 31, 2006, the number of shares
repurchased was 98,950.
Adoption of New Stock Option Accounting Standard
------------------------------------------------
The Company has been recording compensation expense related to stock
options granted since April 1, 2003. Effective April 1, 2006, FirstService
adopted FASB Statement No. 123(R) Share-Based Payment ("SFAS 123R"). SFAS 123R
requires that share-based compensation transactions, including grants of
employee stock options, be accounted for using a fair value based method and
prescribes detailed calculation methods. The adoption of SFAS 123R will result
in a cumulative effect of an accounting policy charge of $1.0 million, which
will be recorded in the quarter ended June 30, 2006, and represents a
non-recurring, non-cash expense.
Financial Outlook
-----------------
Based on the results of fiscal 2006 and the completion of the Company's
annual budgeting process, FirstService is reiterating the outlook for fiscal
2007 previously issued on March 20, 2006.
<<
Fiscal year ending
March 31, 2007(1)
(in millions of US dollars, except per share amounts)
Revenues $1,125 - $1,200
EBITDA(2) $96 - $105
Adjusted diluted net earnings per share(3) $1.12 - $1.22
Notes
(1) The outlook assumes: (i) no further acquisitions or divestitures
completed during the outlook period (ii) exclusion of expected impact
of one-time cumulative effect adjustments upon adoption of SFAS
123(R) on April 1, 2006 and (iii) 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.
(2) EBITDA is defined as net earnings before minority interest share of
earnings, income taxes, interest, depreciation and amortization.
EBITDA is not a recognized measure of financial performance under
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.
(3) Diluted net earnings per share is adjusted for the impact of
accelerated amortization of short-lived intangible assets acquired in
connection with commercial real estate acquisitions completed during
the past year.
Conference Call
---------------
FirstService will be holding a conference call on Wednesday, May 17, 2006
at 11:00AM Eastern Time to discuss results for the fourth quarter and full
fiscal year as well as the outlook for fiscal 2007. 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 and U.S. Securities and Exchange 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
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Revenues $ 247,947 $ 200,110 $1,068,134 $ 651,376
Cost of revenues 162,181 123,621 684,280 422,784
Selling, general and
administrative expenses 75,647 71,152 295,050 172,179
Depreciation 3,426 3,372 12,340 9,603
Amortization of intangibles
other than backlog 1,046 1,026 3,684 2,769
Amortization of short-lived
brokerage backlog(1) 2,684 3,777 7,554 8,735
----------- ----------- ----------- -----------
Operating earnings (loss) 2,963 (2,838) 65,226 35,306
Other (income) expense(2) (47) (375) (3,776) (375)
Interest expense 3,113 2,732 11,879 7,192
----------- ----------- ----------- -----------
(103) (5,195) 57,123 28,489
Income taxes (2,015) (2,128) 17,208 7,014
----------- ----------- ----------- -----------
1,912 (3,067) 39,915 21,475
Minority interest share
of earnings 1,441 (193) 11,881 6,085
----------- ----------- ----------- -----------
Net earnings (loss) from
continuing operations 471 (2,874) 28,034 15,390
Earnings from discontinued
operations, net of
income taxes 142 2,955 5,644 6,617
Gain (loss) on sale of
discontinued operations,
net of income taxes 35,819 (736) 35,819 1,200
----------- ----------- ----------- -----------
Net earnings (loss) $ 36,432 $ (655) $ 69,497 $ 23,207
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings (loss)
per share
Basic
Continuing
operations $ 0.02 $ (0.10) $ 0.93 $ 0.52
Discontinued
operations - 0.10 0.18 0.22
Sale of discontinued
operations 1.19 (0.02) 1.19 0.04
----------- ----------- ----------- -----------
$ 1.21 $ (0.02) $ 2.30 $ 0.78
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted(3)
Continuing
operations $ 0.01 $ (0.11) $ 0.87 $ 0.49
Discontinued
operations - 0.09 0.18 0.21
Sale of discontinued
operations 1.17 (0.02) 1.16 0.04
----------- ----------- ----------- -----------
$ 1.18 $ (0.04) $ 2.21 $ 0.74
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Adjusted diluted net
earnings (loss) per
share from continuing
operations(4) $ 0.06 $ (0.03) $ 1.01 $ 0.67
----------- ----------- ----------- -----------
Weighted average shares
outstanding:
(in thousands)
Basic 30,035 30,065 30,171 29,777
Diluted 30,683 30,743 30,896 30,467
Notes:
(1) Amortization of short-lived brokerage backlog intangible assets
recognized upon recent acquisitions in the commercial real estate
services segment. 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) Other income for the year ended March 31, 2006 includes a $2,012
pre-tax gain on the disposal of two businesses recognized during the
quarter ended December 31, 2005.
(3) Numerators for diluted earnings per share calculations have been
adjusted to reflect dilution from stock options outstanding at
subsidiaries. The adjustment for the three months ended March 31,
2006 is $269 (2005 - $569) and for the year ended March 31, 2006 is
$1,253 (2005 - $569).
(4) 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 amortization of the short-lived brokerage backlog intangible asset
recognized upon the acquisitions of commercial real estate brokerage
businesses. This amortization is being eliminated because the Company believes
the short-lived and non-cash nature of this charge is not reflective of the
operating performance of the Company. All of the adjustments 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
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Adjusted operating
earnings $ 5,647 $ 939 $ 72,780 $ 44,041
Amortization of
brokerage backlog (2,684) (3,777) (7,554) (8,735)
----------- ----------- ----------- -----------
Operating earnings (loss) $ 2,963 $ (2,838) $ 65,226 $ 35,306
----------- ----------- ----------- -----------
Adjusted net earnings
(loss) from continuing
operations $ 1,885 $ (457) $ 32,332 $ 20,980
Amortization of
brokerage backlog (2,684) (3,777) (7,554) (8,735)
Deferred income taxes 1,064 1,360 2,892 3,145
Minority interest 206 - 364 -
----------- ----------- ----------- -----------
Net earnings (loss) from
continuing operations $ 471 $ (2,874) $ 28,034 $ 15,390
----------- ----------- ----------- -----------
Adjusted diluted net
earnings (loss) per
share from continuing
operations $ 0.06 $ (0.03) $ 1.01 $ 0.67
Amortization of
brokerage backlog, net
of deferred income taxes (0.05) (0.08) (0.14) (0.18)
----------- ----------- ----------- -----------
Diluted net earnings
(loss) per share from
continuing operations $ 0.01 $ (0.11) $ 0.87 $ 0.49
----------- ----------- ----------- -----------
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. The Company uses EBITDA to evaluate operating performance and as
a measure for debt covenants with its lenders. 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
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
EBITDA $ 10,119 $ 5,337 $ 88,804 $ 56,413
Depreciation (3,426) (3,372) (12,340) (9,603)
Amortization of
intangibles other than
brokerage backlog (1,046) (1,026) (3,684) (2,769)
Amortization of
brokerage backlog (2,684) (3,777) (7,554) (8,735)
----------- ----------- ----------- -----------
Operating earnings (loss) $ 2,963 $ (2,838) $ 65,226 $ 35,306
----------- ----------- ----------- -----------
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands of US dollars)
(unaudited)
March 31 March 31
2006 2005
----------- -----------
Assets
Cash and cash equivalents $ 167,938 $ 37,458
Accounts receivable 128,276 168,927
Inventories 27,267 20,878
Prepaids and other current assets 31,698 21,507
----------- -----------
Current assets 355,179 248,770
Fixed assets 48,733 57,241
Other non-current assets 39,911 22,754
Goodwill and intangibles 267,262 297,963
----------- -----------
Total assets $ 711,085 $ 626,728
----------- -----------
----------- -----------
Liabilities and shareholders' equity
------------------------------------
Accounts payable and accrued liabilities $ 149,875 $ 155,429
Other current liabilities 15,144 9,147
Long term debt - current 18,646 18,206
----------- -----------
Current liabilities 183,665 182,782
Long term debt - non-current 230,040 201,809
Deferred income taxes 31,165 29,802
Minority interest 28,463 26,464
Shareholders' equity 237,752 185,871
----------- -----------
Total liabilities and equity $ 711,085 $ 626,728
----------- -----------
----------- -----------
Total debt, excluding interest rate swaps $ 248,686 $ 219,732
----------- -----------
Total debt, net of cash, excluding interest
rate swaps 80,748 182,274
----------- -----------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands of US dollars)
(unaudited)
Year ended March 31
-----------------------
2006 2005
----------- -----------
Operating activities
Net earnings from continuing operations $ 28,034 $ 15,390
Items not affecting cash:
Depreciation and amortization 23,578 21,107
Deferred income taxes (4,325) 473
Minority interest share of earnings 11,881 6,086
Changes in operating assets and liabilities (8,992) (12,145)
Other operating activities 7,519 5,531
----------- -----------
Net cash provided by operating activities 57,695 36,442
----------- -----------
Investing activities
Acquisitions of businesses, net of cash acquired (26,088) (58,978)
Purchases of fixed assets, net (18,837) (12,499)
Other investing activities 95,436 3,022
----------- -----------
Net cash provided by (used in) investing 50,511 (68,455)
----------- -----------
Financing activities
Increases in long-term debt 36,052 48,630
Other financing activities (12,793) 2,087
----------- -----------
Net cash provided by financing 23,259 50,717
----------- -----------
Effect of exchange rate changes on cash (985) 3,134
----------- -----------
Increase in cash and cash equivalents during
the period 130,480 21,838
Cash and cash equivalents, beginning of period 37,458 15,620
----------- -----------
Cash and cash equivalents, end of period $ 167,938 $ 37,458
----------- -----------
----------- -----------
Segmented Revenues, EBITDA and Operating Earnings
-------------------------------------------------
(in thousands of US dollars)
(unaudited)
Commercial Inte- Property
Residential Real grated Improve-
Property Estate Security ment Consol-
Management Services Services Services Corporate idated
---------------------------------------------------------------
Three months ended March 31
2006
Revenues $ 87,342 $ 93,941 $ 40,598 $ 25,926 $ 140 $247,947
EBITDA 6,102 5,494 1,399 372 (3,248) 10,119
Operating
earnings 4,496 1,671 751 (666) (3,289) 2,963
2005
Revenues $ 68,874 $ 70,936 $ 36,251 $ 23,842 $ 207 $200,110
EBITDA 5,543 413 2,130 155 (2,904) 5,337
Operating
earnings 3,960 (4,232) 1,044 (640) (2,970) (2,838)
Year ended March 31
2006
Revenues $346,133 $438,434 $149,063 $134,136 $ 368 $1,068,134
EBITDA 31,390 36,465 7,660 25,765 (12,476) 88,804
Operating
earnings 25,767 25,079 5,005 22,016 (12,641) 65,226
2005
Revenues $275,229 $120,535 $143,160 $111,779 $ 673 $651,376
EBITDA 24,088 11,144 10,286 19,867 (8,972) 56,413
Operating
earnings 18,917 1,276 7,468 16,796 (9,151) 35,306
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