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FirstService Reports Third Quarter Results

Operating highlights:

Three months ended Nine months ended
September 30 September 30
2012 2011 2012 2011
Revenues (millions) $589.8 $585.4 $1,673.0 $1,629.3
Adjusted EBITDA (millions) (note 1) 48.8 47.6 100.8 117.1
Adjusted EPS (note 2) 0.60 0.61 0.94 1.29

TORONTO, Oct. 24, 2012 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (Nasdaq:FSRV) (TSX:FSV.PR.U) today reported results for its third quarter ended September 30, 2012. All amounts are in US dollars.

Revenues for the third quarter were $589.8 million, a 1% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) was $48.8 million, compared to $47.6 million and Adjusted EPS (note 2) was $0.60, versus $0.61 reported in the prior year quarter. GAAP EPS was $0.00 per share in the quarter, versus $0.17 for the same quarter a year ago.

For the nine months ended September 30, 2012, revenues were $1.7 billion, a 3% increase relative to the comparable prior year period, Adjusted EBITDA was $100.8 million relative to $117.1 million and Adjusted EPS was $0.94, versus $1.29 reported in the prior year period. GAAP EPS for the nine month period was a loss of $0.27, compared to a loss of $0.05 in the prior year period.

"Third quarter results reflect another quarter of strong year over year gains in revenues and EBITDA at Colliers International while FirstService Residential posted another quarter of solid growth. As expected, continued weakness in foreclosure services negatively impacted results in Property Services," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService. "As long as market conditions remain stable, we expect to finish the year with overall results comparable to last year," he concluded.

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, one of the largest global players in commercial real estate; FirstService Residential Management, the largest manager of residential communities in North America; and Property Services, one of North America's largest providers of property-related services delivered through franchise and contractor networks.

FirstService generates over $2.3 billion in annual revenues and has more than 23,000 employees worldwide. More information about FirstService is available at www.firstservice.com.

Segmented Quarterly Results

Commercial Real Estate Services revenues totalled $295.6 million for the third quarter, up 17% relative to the prior year quarter. Revenue growth was comprised of 9% internal growth measured in local currencies, a 2% unfavourable impact from foreign currency translation and 10% growth from the recent Colliers UK acquisition. Internal growth was driven by year over year increases in lease brokerage and appraisal, particularly in the Americas region. Adjusted EBITDA was $20.3 million, up from $9.0 million reported in the prior year quarter.

Residential Property Management revenues were $226.6 million for the third quarter, up 9% relative to the prior year quarter. Revenue growth was comprised of 6% internal growth and 3% from recent acquisitions. Adjusted EBITDA for the quarter was $21.5 million compared to $20.9 million in the prior year period.

Property Services revenues totalled $67.4 million, down 46% from $123.8 million in the prior year period, with a 63% reduction in revenues in the property preservation and distressed asset management operations. Revenues declined slightly at the Company's property services franchise brands. Adjusted EBITDA for the third quarter was $9.4 million versus $19.6 million in the prior year quarter. Included in expenses for the current quarter were $2.0 million of costs associated with transitioning out a large distressed asset management contract in August 2012.

Corporate costs were $3.2 million in the third quarter, relative to $2.3 million in the prior year period, with the increase primarily attributable to a non-cash balance sheet foreign currency translation loss.

Stock Repurchases

During the month of September 2012, the Company purchased 246,000 Preferred Shares on the open market under its Normal Course Issuer Bid ("NCIB") at an average price of $25.25 per share. All shares purchased under the NCIB were cancelled. The Company is authorized to repurchase up to an additional 2,550,000 Subordinate Voting Shares and 146,500 Preferred Shares under its NCIB, which expires on June 6, 2013.

Conference Call

FirstService will be holding a conference call on Wednesday, October 24, 2012 at 11:00 a.m. Eastern Time to discuss the quarter's results. 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 Nine months ended
(in thousands of US$) September 30 September 30
2012 2011 2012 2011
Net earnings $19,573 $13,774 $23,385 $23,416
Income tax 7,409 13,026 11,270 29,522
Other expense (income) (1,463) 1,600 (1,751) 3,539
Interest expense, net 5,749 4,066 14,522 12,752
Operating earnings 31,268 32,466 47,426 69,229
Depreciation and amortization 12,714 12,782 37,436 38,208
Acquisition-related items 4,043 1,574 13,470 2,948
Stock-based compensation expense 734 444 2,449 1,986
Reorganization charge -- 367 -- 4,705
Adjusted EBITDA $48,759 $47,633 $100,781 $117,076

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 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. 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 Nine months ended
(in thousands of US$) September 30 September 30
2012 2011 2012 2011
Net earnings (loss) attributable to common shareholders $-- $5,061 $(8,047) $(1,456)
Non-controlling interest redemption increment 10,745 4,140 13,841 11,695
Acquisition-related items 4,043 1,574 13,470 2,948
Amortization of intangible assets 4,744 4,961 14,032 15,668
Stock-based compensation expense 734 444 2,449 1,986
Reorganization charge -- 367 -- 4,705
Income tax on adjustments (1,972) (1,995) (5,923) (7,675)
Deferred income tax valuation allowance -- 4,443 -- 13,448
Non-controlling interest on adjustments (221) (503) (1,085) (1,780)
Adjusted net earnings $18,073 $18,492 $28,737 $39,539
Three months ended Nine months ended
(in US$) September 30 September 30
2012 2011 2012 2011
Diluted net earnings (loss) per common share $-- $0.17 $(0.27) $(0.05)
Non-controlling interest redemption increment 0.35 0.14 0.45 0.38
Acquisition-related items 0.13 0.05 0.42 0.10
Amortization of intangible assets, net of tax 0.10 0.10 0.29 0.31
Stock-based compensation expense, net of tax 0.02 0.01 0.05 0.04
Reorganization charge -- 0.01 -- 0.10
Deferred income tax valuation allowance -- 0.13 -- 0.41
Adjusted earnings per common share $0.60 $0.61 $0.94 $1.29
FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings (Loss)
(in thousands of US dollars, except per share amounts)
Three months Nine months
ended September 30 ended September 30
(unaudited) 2012 2011 2012 2011
Revenues $589,754 $585,424 $1,673,003 $1,629,278
Cost of revenues 389,383 381,215 1,107,360 1,037,648
Selling, general and administrative expenses 152,347 157,387 467,312 481,245
Depreciation 7,969 7,821 23,403 22,540
Amortization of intangible assets 4,744 4,961 14,032 15,668
Acquisition-related items (1) 4,043 1,574 13,470 2,948
Operating earnings 31,268 32,466 47,426 69,229
Interest expense, net 5,749 4,066 14,522 12,752
Other expense (income) (1,463) 1,600 (1,751) 3,539
Earnings before income tax 26,982 26,800 34,655 52,938
Income tax (2) 7,409 13,026 11,270 29,522
Net earnings 19,573 13,774 23,385 23,416
Non-controlling interest share of earnings 6,433 2,113 10,276 5,666
Non-controlling interest redemption increment 10,745 4,140 13,841 11,695
Net earnings (loss) attributable to Company 2,395 7,521 (732) 6,055
Preferred share dividends 2,395 2,460 7,315 7,511
Net earnings (loss) attributable to common shareholders $-- $5,061 $(8,047) $(1,456)
Net earnings (loss) per common share
Basic $-- $0.17 $(0.27) $(0.05)
Diluted $-- $0.17 $(0.27) $(0.05)
Adjusted earnings per common share (3) $0.60 $0.61 $0.94 $1.29
Weighted average common shares (thousands)
Basic 30,030 30,069 30,120 30,145
Diluted 30,364 30,534 30,471 30,645
Notes to Condensed Consolidated Statements of Earnings (Loss)
(1) Acquisition-related items include contingent acquisition consideration fair value adjustments, contingent acquisition consideration-related compensation expense, transaction costs related to the Colliers International UK acquisition and a reclassification of accumulated other comprehensive earnings related to Colliers International UK.
(2) Income tax expense for the three months ended September 30, 2011 includes a $4,443 valuation allowance related to deferred income tax assets; income tax expense for the nine months ended September 30, 2011 includes a $13,448 valuation allowance.
(3) See definition and reconciliation above.
Condensed Consolidated Balance Sheets
(in thousands of US dollars)
(unaudited) September 30, 2012 December 31, 2011
Assets
Cash and cash equivalents $84,321 $97,799
Restricted cash 4,119 4,493
Accounts receivable 321,642 286,019
Inventories 17,084 11,831
Prepaid expenses and other current assets 55,682 50,062
Current assets 482,848 450,204
Other non-current assets 20,631 17,028
Fixed assets 94,819 94,150
Deferred income tax 106,373 87,940
Goodwill and intangible assets 576,913 584,396
Total assets $1,281,584 $1,233,718
Liabilities and shareholders' equity
Accounts payable and accrued liabilities $349,023 $354,220
Other current liabilities 25,157 23,657
Long-term debt - current 37,632 216,373
Current liabilities 411,812 594,250
Long-term debt - non-current 319,019 100,042
Convertible unsecured subordinated debentures 77,000 77,000
Other liabilities 45,954 39,243
Deferred income tax 40,883 38,160
Non-controlling interests 148,070 141,404
Shareholders' equity 238,845 243,619
Total liabilities and equity $1,281,583 $1,233,718
Supplemental balance sheet information
Total debt $433,651 $393,415
Total debt excluding convertible debentures 356,651 316,415
Total debt, net of cash 349,330 295,616
Total debt excluding convertible debentures, net of cash 272,330 218,616
Consolidated Statements of Cash Flows
(in thousands of US dollars)
Three months ended Nine months ended
September 30 September 30
(unaudited) 2012 2011 2012 2011
Cash provided by (used in)
Operating activities
Net earnings $19,573 $13,774 $23,385 $23,416
Items not affecting cash:
Depreciation and amortization 12,713 12,782 37,435 38,208
Deferred income tax (6,988) 1,163 (17,474) (158)
Other 1,890 3,277 6,442 8,097
Net cash provided by operating activities before changes in working capital 27,188 30,996 49,788 69,563
Changes in working capital 28,050 16,683 (30,944) (46,911)
Net cash provided by operating activities 55,238 47,679 18,844 22,652
Investing activities
Acquisition of businesses, net of cash acquired (1,174) (12,191) (14,379) (22,064)
Purchases of fixed assets (8,322) (10,868) (22,621) (24,040)
Other investing activities 123 (319) 574 (793)
Net cash used in investing activities (9,373) (23,378) (36,426) (46,897)
Financing activities
Increase (decrease) in long-term debt, net (23,669) 19,494 38,682 70,437
Purchases of non-controlling interests (2,536) (33,949) (4,167) (35,446)
Dividends paid to preferred shareholders (2,395) (2,460) (7,315) (7,511)
Other financing activities (10,944) (9,242) (24,486) (25,754)
Net cash (used in) provided by financing activities (39,544) (26,157) 2,714 1,726
Effect of exchange rate changes on cash 963 (2,064) 1,390 (156)
Increase (decrease) in cash and cash equivalents 7,284 (3,920) (13,478) (22,675)
Cash and cash equivalents, beginning of period 77,037 81,604 97,799 100,359
Cash and cash equivalents, end of period $84,321 $77,684 $84,321 $77,684
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 September 30
2012
Revenues $295,649 $226,596 $67,449 $60 $589,754
Adjusted EBITDA 20,284 21,541 9,414 (3,214) 48,025
Stock-based compensation 734
48,759
Operating earnings 8,852 18,508 7,161 (3,253) 31,268
2011
Revenues $252,882 $208,727 $123,775 $40 $585,424
Adjusted EBITDA 8,998 20,887 19,602 (2,298) 47,189
Stock-based compensation 444
47,633
Operating earnings 1,294 16,988 16,590 (2,406) 32,466
Commercial Residential
Real Estate Property Property
Services Management Services Corporate Consolidated
Nine months ended September 30
2012
Revenues $800,554 $632,537 $239,750 $162 $1,673,003
Adjusted EBITDA 36,195 52,525 20,885 (11,273) 98,332
Stock-based compensation 2,449
100,781
Operating earnings 5,208 39,344 14,364 (11,490) 47,426
2011
Revenues $694,212 $572,618 $362,326 $122 $1,629,278
Adjusted EBITDA 22,657 50,270 51,999 (9,836) 115,090
Stock-based compensation 1,986
117,076
Operating earnings 1,979 38,259 39,062 (10,071) 69,229
CONTACT: COMPANY CONTACTS: Jay S. Hennick Founder & CEO D. Scott Patterson President & COO John B. Friedrichsen Senior Vice President & CFO (416) 960-9500Source:FirstService Corporation

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