Confirms financial outlook for year ending March 31, 2008
Second quarter highlights:
- Revenues up 26%
- EBITDA up 30%
- Adjusted EPS up 28%
TORONTO, Oct. 30 /CNW/ - FirstService Corporation (TSX: FSV; Nasdaq: FSRV; preferred shares - TSX: FSV.PR.U) today reported record results for its second quarter ended September 30, 2007 and confirmed its financial outlook for its fiscal year ending March 31, 2008. All amounts are in US dollars.
Second quarter revenues were $427.7 million, an increase of 26% relative to the same period last year. EBITDA (see definition and reconciliation below) increased 30% to $42.7 million. Adjusted diluted earnings per common share from continuing operations (see definition and reconciliation below) were up 28% to $0.46 for the quarter, versus $0.36 in the prior year period, adjusting for the $0.06 per common share pro forma impact of the preferred dividends on prior period results.
For the six months ended September 30, 2007, revenues were $847.0 million, an increase of 28% relative to the same period last year. EBITDA (see definition and reconciliation below) increased 28% to $91.1 million. Adjusted diluted earnings per common share from continuing operations (see definition and reconciliation below) were up 25% to $1.04 for the six months, versus $0.83 in the prior year period, adjusting for the $0.06 per common share pro forma impact of the preferred dividends on prior period results.
"These results reflect another quarter of solid internal growth across the board and strong contributions from recently completed acquisitions, all of which are performing in line with our expectations", said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. "We are particularly excited about the long term growth opportunities that can be realized from our recent Field Asset Services acquisition. As a market leader in property preservation services, Field Asset Services contracts with "blue chip" residential mortgage lenders to administer and manage growing portfolios of foreclosed residential properties - a market that is experiencing significant near term growth given current market conditions," he added.
About FirstService Corporation
------------------------------
FirstService is a leader in the rapidly growing property services sector, providing services in the following four areas: commercial real estate; residential property management; integrated security and property improvement services. Industry-leading service platforms include: Colliers International, the third largest global player in commercial real estate; FirstManagement Partners, the largest manager of residential properties in North America; FirstService Security, the fifth largest integrated security company in North America; and The Franchise Company, the second largest property improvement services organization in North America.
FirstService is a diversified property services company with more than US$1.6 billion in annualized revenues and more than 16,000 employees worldwide. More information about FirstService is available at www.firstservice.com.
Segmented Quarterly Results
---------------------------
Revenues in Commercial Real Estate Services totalled $186.9 million for the quarter, an increase of 31%. Internal growth was 14%, due primarily to robust brokerage activity in the Asia Pacific and Central European markets, and 4% attributable to foreign exchange. The balance of the revenue growth was the result of acquisitions, including those completed during the quarter. Second quarter EBITDA was $10.5 million, up 32% versus $7.9 million in the year-ago period. EBITDA was impacted by a non-cash mark-to-market loss of $2.2 million recorded at the end of the quarter on interest rate swaps used to hedge fixed-rate commercial mortgages held for resale. Under accounting rules, the offsetting $2.2 million gain in the market value of the hedged mortgages is not recognized until securitization, which is expected to occur during the fourth quarter. Excluding the impact of the mark-to-market loss, second quarter EBITDA in this segment would have been $12.7 million, up 61% versus the year-ago period.
Residential Property Management revenues increased to $144.4 million for the quarter, 31% higher than in the prior year period. Internal growth of 11% was attributable to property management contract wins in the South Florida, Mid-Atlantic and Las Vegas markets. The balance of revenue growth resulted from acquisitions in the California and Texas markets completed during the first quarter. EBITDA for the quarter was $16.4 million, up 38% from $11.9 million one year ago.
Revenues in Property Improvement Services totalled $46.6 million, an increase of 6% over the prior year period. Internal growth was 3% and the balance was attributable to acquisitions. EBITDA in the second quarter was $14.0 million, up 3% from $13.5 million last year. The recently announced acquisition of Field Asset Services will contribute to Property Improvement earnings commencing in the third quarter.
Integrated Security Services revenues in the second quarter were $49.8 million, an increase of 19% relative to the prior year period, with 15% attributable to continuing momentum in systems installation activity and 4% due to foreign exchange. Quarterly EBITDA was $3.2 million, up 51% from $2.1 million in the prior year.
Quarterly corporate costs were $3.5 million, similar to the $3.4 million recorded in the prior year period.
A comparison of segmented EBITDA to operating earnings is provided below.
Stock Dividend of 7% Cumulative Preferred Shares
------------------------------------------------
A stock dividend of 7% Cumulative Preferred Shares, Series 1 (the "Preferred Shares") was issued to holders of Subordinate Voting Shares and Multiple Voting Shares (together the "Common Shares") on August 1, 2007. A total of 5,979,074 Preferred Shares were issued. The Preferred Shares are traded on the Toronto Stock Exchange, in US dollars, under the symbol FSV.PR.U. The Preferred Shares have been assigned an investment-grade rating of "P-3(low)" by rating agency DBRS. The initial cash dividend on the Preferred Shares for the period from issuance to September 30, 2007 amounting to $1.7 million was paid on October 1, 2007. The next quarterly preferred dividend payment is expected to be made on December 31, 2007.
Financial Outlook
-----------------
FirstService is confirming the outlook for fiscal 2008 issued on October 3, 2007 in connection with the completion of the Field Asset Services acquisition.
(in millions of US dollars, Year ending
except per share amounts) March 31, 2008
----------------
Revenues $1,625 - $1,725
EBITDA $149 - $159
Adjusted EPS(1) $1.37 - $1.49
Notes:
1. 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. Diluted EPS reflects earnings
available to common shareholders after preferred dividends, which
are expected to amount to $0.23 per common share for the fiscal year
ending March 31, 2008.
2. The updated 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.
Conference Call
---------------
FirstService will be holding a conference call on Tuesday, October 30, 2007 at 11:00 am Eastern Time to discuss results for the second quarter as well as the 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 and Media" 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 Six months ended
September 30 September 30
---------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Revenues $ 427,730 $ 338,681 $ 847,042 $ 664,185
Cost of revenues 259,790 217,084 515,527 422,231
Selling, general and
administrative expenses 127,351 89,528 243,694 172,618
Depreciation and
amortization other
than backlog 7,540 5,120 14,364 9,962
Amortization of
brokerage backlog (1) 1,463 2,076 2,518 4,150
---------- ---------- ---------- ----------
Operating earnings 31,586 24,873 70,939 55,224
Interest expense, net 3,360 2,571 6,669 5,307
Other income (1,216) (228) (2,494) (2,383)
---------- ---------- ---------- ----------
29,442 22,530 66,764 52,300
Income taxes 9,705 7,479 22,033 17,708
---------- ---------- ---------- ----------
19,737 15,051 44,731 34,592
Minority interest
share of earnings 4,122 3,078 11,034 8,486
---------- ---------- ---------- ----------
Net earnings from
continuing operations 15,615 11,973 33,697 26,106
Discontinued operations,
net of tax(2) 2,078 - 2,078 -
---------- ---------- ---------- ----------
Net earnings before
cumulative effect of
change in accounting
principle 17,693 11,973 35,775 26,106
Cumulative effect of
change in accounting
principle, net of tax(3) - - - (1,353)
---------- ---------- ---------- ----------
Net earnings $ 17,693 $ 11,973 $ 35,775 $ 24,753
Preferred dividends 1,720 - 1,720 -
---------- ---------- ---------- ----------
Net earnings available
to common shareholders $ 15,973 $ 11,973 $ 34,055 $ 24,753
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per common
share
Basic
Continuing operations $ 0.46 $ 0.40 $ 1.07 $ 0.87
Discontinued
operations 0.07 - 0.07 -
Cumulative effect of
change in accounting
principle - - - (0.04)
---------- ---------- ---------- ----------
$ 0.53 $ 0.40 $ 1.14 $ 0.83
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted (4)
Continuing operations $ 0.43 $ 0.38 $ 0.99 $ 0.81
Discontinued
operations 0.07 - 0.07 -
Cumulative effect of
change in accounting
principle - - - (0.04)
---------- ---------- ---------- ----------
$ 0.50 $ 0.38 $ 1.06 $ 0.77
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average
common shares Basic 29,896 29,840 29,866 29,927
outstanding: Diluted 30,385 30,261 30,390 30,373
(in thousands)
Net earnings per common
share, adjusted diluted
continuing operations (5) $ 0.46 $ 0.36 $ 1.04 $ 0.83
---------- ---------- ---------- ----------
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) Reflects gain on the settlement of a liability in connection with the
March 2006 disposal of the Company's Business Services operations.
(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 September 30, 2007 was $729 (2006 -
$425) and six months ended September 30, 2007 was $1,748 (2006 - $1,302).
(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 amortization of the short-lived brokerage backlog intangible asset recognized upon the acquisitions of Commercial Real Estate Services businesses within the past twelve months. In addition, the Company is presenting the pro forma impact of the preferred dividends on comparative periods. The preferred dividend obligation commenced on August 1, 2007 upon the issuance of the Preferred Shares. 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 Six months ended
September 30 September 30
----------------------- -----------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
Operating earnings $ 31,586 $ 24,873 $ 70,939 $ 55,224
Amortization of brokerage
backlog 1,463 2,076 2,518 4,150
----------- ----------- ----------- -----------
Adjusted operating
earnings $ 33,049 $ 26,949 $ 73,457 $ 59,374
----------- ----------- ----------- -----------
Net earnings from
continuing operations $ 15,615 $ 11,973 $ 33,697 $ 26,106
Amortization of brokerage
backlog 1,463 2,076 2,518 4,150
Deferred income taxes (311) (774) (642) (1,495)
Minority interest (190) (220) (312) (426)
----------- ----------- ----------- -----------
Adjusted net earnings from
continuing operations $ 16,577 $ 13,055 $ 35,261 $ 28,335
----------- ----------- ----------- -----------
Diluted net earnings per
common share from
continuing operations $ 0.43 $ 0.38 $ 0.99 $ 0.81
Amortization of brokerage
backlog, net of
income taxes 0.03 0.04 0.05 0.08
Pro forma impact of
preferred dividends on
comparative periods - (0.06) - (0.06)
----------- ----------- ----------- -----------
Adjusted diluted net
earnings per common share
from continuing
operations $ 0.46 $ 0.36 $ 1.04 $ 0.83
----------- ----------- ----------- -----------
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 Six months ended
September 30 September 30
----------------------- -----------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
Operating earnings $ 31,586 $ 24,873 $ 70,939 $ 55,224
Depreciation and
amortization other
than backlog 7,540 5,120 14,364 9,962
Amortization of brokerage
backlog 1,463 2,076 2,518 4,150
----------- ----------- ----------- -----------
40,589 32,069 87,821 69,336
Stock-based compensation
expense 2,126 802 3,252 1,836
----------- ----------- ----------- -----------
EBITDA $ 42,715 $ 32,871 $ 91,073 $ 71,172
----------- ----------- ----------- -----------
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands of US dollars)
(unaudited)
September 30 March 31
2007 2007
------------- -----------
Assets
------
Cash and cash equivalents $ 74,576 $ 99,038
Restricted cash 10,526 16,930
Accounts receivable 209,110 163,581
Inventories 38,318 31,768
Other current assets 53,155 51,040
------------- -----------
Current assets 385,685 362,357
Fixed assets 77,641 66,297
Other non-current assets 41,852 41,405
Goodwill and intangibles 425,611 346,939
------------- -----------
Total assets $ 930,789 $ 816,998
------------- -----------
------------- -----------
Liabilities and shareholders' equity
------------------------------------
Accounts payable and accrued liabilities $ 233,712 $ 205,529
Other current liabilities 26,479 29,179
Long term debt - current 22,762 22,119
------------- -----------
Current liabilities 282,953 256,827
Long term debt - non-current 238,964 213,030
Other liabilities 12,294 4,876
Deferred income taxes 32,364 29,084
Minority interest 59,734 48,306
Shareholders' equity 304,480 264,875
------------- -----------
Total liabilities and equity $ 930,789 $ 816,998
------------- -----------
------------- -----------
Total debt $ 261,726 $ 235,149
------------- -----------
Total debt, net of cash 187,150 136,111
------------- -----------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands of US dollars)
(unaudited)
Three months ended Six months ended
September 30 September 30
----------------------- -----------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
Operating activities
Net earnings from
continuing operations $ 15,615 $ 11,973 $ 33,697 $ 26,106
Items not affecting cash:
Depreciation and
amortization 9,003 7,196 16,882 14,112
Deferred income taxes (2,482) (532) (2,665) (3,334)
Minority interest share
of earnings 4,122 3,078 11,034 8,486
Other 1,863 1,841 2,691 983
Changes in operating
assets and liabilities (25,174) 2,498 (27,168) (21,865)
----------- ----------- ----------- -----------
Net cash provided by
operating activities 2,947 26,054 34,471 24,488
----------- ----------- ----------- -----------
Investing activities
Acquisitions of businesses,
net of cash acquired (24,306) (5,103) (76,277) (40,986)
Purchases of fixed
assets, net (5,974) (4,290) (17,203) (10,753)
Other investing activities (3,316) (2,949) 7,408 (1,349)
Discontinued operations (1,036) - (1,036) -
----------- ----------- ----------- -----------
Net cash used in investing (34,632) (12,342) (87,108) (53,088)
----------- ----------- ----------- -----------
Financing activities
Increase (decrease) in
long-term debt, net 18,606 24 25,493 (14,967)
Other financing activities (486) (37) (4,936) (7,700)
----------- ----------- ----------- -----------
Net cash provided by
(used in) financing 18,120 (13) 20,557 (22,667)
----------- ----------- ----------- -----------
Effect of exchange rate
changes on cash 2,473 524 7,618 275
----------- ----------- ----------- -----------
(Decrease) increase in
cash and cash equivalents (11,092) 14,223 (24,462) (50,992)
Cash and cash equivalents,
beginning of period 85,668 102,723 99,038 167,938
----------- ----------- ----------- -----------
Cash and cash equivalents,
end of period $ 74,576 $ 116,946 $ 74,576 $ 116,946
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Segmented Revenues, EBITDA and Operating Earnings
-------------------------------------------------
(in thousands of US dollars)
(unaudited)
Commercial Property Inte-
Real Residential Improve- grated
Estate Property ment Security Consol-
Services Management Services Services Corporate idated
--------------------------------------------------------------
Three months ended September 30
2007
Revenues $186,857 $144,448 $ 46,555 $ 49,780 $ 90 $427,730
EBITDA 10,498 16,414 13,966 3,190 (3,479) 40,589
Stock-based
compensation 2,126
----------
42,715
Operating
earnings 5,719 13,961 12,751 2,705 (3,550) 31,586
2006
Revenues $142,402 $110,383 $ 44,032 $ 41,795 $ 69 $338,681
EBITDA 7,932 11,937 13,518 2,108 (3,426) 32,069
Stock-based
compensation 802
----------
32,871
Operating
earnings 4,158 10,376 12,415 1,419 (3,495) 24,873
Commercial Property Inte-
Real Residential Improve- grated
Estate Property ment Security Consol-
Services Management Services Services Corporate idated
--------------------------------------------------------------
Six months ended September 30
2007
Revenues $383,648 $278,493 $ 89,365 $ 95,370 $ 166 $847,042
EBITDA 32,141 30,116 25,514 6,306 (6,256) 87,821
Stock-based
compensation 3,252
----------
91,073
Operating
earnings 23,463 25,473 23,042 5,356 (6,395) 70,939
2006
Revenues $280,288 $214,349 $ 85,693 $ 83,710 $ 145 $664,185
EBITDA 24,033 23,186 24,656 4,226 (6,765) 69,336
Stock-based
compensation 1,836
----------
71,172
Operating
earnings 16,722 20,107 22,461 2,839 (6,905) 55,224