Strategic Focus as Global Leader in Diversified Real Estate Services Enhanced by Sale of Security and Growth of Investment Capital to Drive Long-Term Growth Year-end continuing operations highlights: * Revenues up 33% to $1.57 billion * EBITDA up 9% to $120 million * EPS down 3% to $1.02
TORONTO, May 15, 2008 (PRIME NEWSWIRE) -- FirstService Corporation (TSX:FSV); (Nasdaq:FSRV); preferred shares - (TSX:FSV.PR.U) today reported results for its fourth quarter and fiscal year ended March 31, 2008. All amounts are in US dollars.
"We had solid financial performance this year despite a challenging US and global economy which demonstrated the importance of our diversification across service platforms and international markets," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. "Revenues and EBITDA from our Residential Property Management and Property Services divisions were up sharply over the prior year while results from our Commercial Real Estate division were impacted by market conditions and weaker than expected in the fourth quarter."
For the fiscal year ended March 31, 2008, revenues were $1.57 billion, an increase of 33% relative to last year. EBITDA (see definition and reconciliation below) increased 9% to $119.9 million. Adjusted diluted earnings per common share from continuing operations (see definition and reconciliation below) were $1.02 for the year, versus $1.05 in the prior year, adjusting for the $0.23 per common share pro forma impact of the preferred dividends on prior period results. The Company reported the results of its Security segment, the sale of which was announced on April 14, 2008, and its Canadian commercial mortgage operations which was closed during the fourth quarter, as discontinued operations for all periods presented.
Fourth quarter revenues were $371.7 million, an increase of 35% relative to the same period last year. EBITDA was a loss of $1.4 million versus a profit of $20.1 million in the prior year's fourth quarter. The adjusted loss per common share from continuing operations was $0.34 for the quarter, versus diluted earnings per share of $0.07 in the prior year period, adjusting for the $0.09 per common share pro forma impact of the preferred dividends on prior period results. The Commercial Real Estate segment reported operating results below expectations, mainly in its US operations, as described in the Segmented Quarterly Results below.
"Growth through acquisitions in our three core service divisions was significant for FirstService during the year, strengthening our platforms for the long-term, and positioning us to take advantage of global investment opportunities, with more than $300 million in capital available to move decisively as appropriate within our strategy," said Mr. Hennick. "The sale of our Security segment intensifies our strategic focus as a global provider of diversified real estate services and we are well financed to build competitive advantage in our key growth areas."
About FirstService Corporation
FirstService is a global diversified leader in the rapidly growing real estate services sector, providing services in the following three areas: commercial real estate; residential property management; and property services. Industry-leading service platforms include: Colliers International, the third largest global player in commercial real estate; FirstManagement Partners, the largest manager of residential communities in North America; and TFC, North America's largest provider of property services through franchise and contractor networks.
FirstService is a diversified property services company with over US$1.6 billion in annualized revenues and more than 17,000 employees worldwide. More information about FirstService is available at www.firstservice.com.
Segmented Quarterly Results
Revenues in Commercial Real Estate Services totaled $170.8 million for the quarter, an increase of 24%. Internal growth was 2% (down 5% after adjusting for foreign exchange), primarily due to sharply reduced transaction volumes in the US and Asia Pacific regions relative to the prior year. The balance of the revenue growth was the result of acquisitions completed in prior quarters. Fourth quarter EBITDA was a loss of $13.5 million, versus a profit of $11.1 million in the year-ago period. The primary contributing factors to the EBITDA decline were (i) operating losses at the US commercial mortgage brokerage operations; (ii) operating losses in certain US offices due to decline in investment and sales brokerage volumes; and (iii) lower than expected operating margins in Australia and other Asian markets relative to the prior year quarter. Results in Canada, Eastern Europe and Latin America were mainly in line with expectations, though the results of the recently acquired Russian operations negatively impacted profitability more than expected due to investment spending and seasonal factors impacting transaction volumes.
Residential Property Management revenues increased to $140.5 million for the quarter, 30% higher than in the prior year period. Internal growth of 10% was attributable to property management contract wins, primarily in Florida and in the US Northeast. The balance of revenue growth resulted from acquisitions in the California and Texas markets completed during the first quarter and a recent acquisition in the Northeast completed in the fourth quarter. EBITDA for the quarter was $10.0 million, up 16% from $8.6 million one year ago.
Revenues in Property Services totaled $60.3 million, an increase of 103% over the prior year period, largely attributable to the October 2007 acquisition of Field Asset Services. EBITDA in the fourth quarter was $3.1 million, up 59% from $2.0 million last year.
Quarterly corporate costs were $2.5 million versus $4.4 million recorded in the prior year period, primarily as a result of a reduction in performance-based incentive compensation.
A comparison of segmented EBITDA to operating earnings is provided below.
Disposal of Integrated Security Services Segment
On April 14, 2008, the Company announced that it had entered a definitive agreement to sell its Integrated Security Services segment. The transaction is expected to close as soon as practicable following receipt of required regulatory approvals and satisfaction of other customary closing conditions. These operations generated revenues of $58.0 million for the fourth quarter, up 28%, and EBITDA of $5.2 million, up 139% versus the prior year period. The Security segment is reported as a discontinued operation for all periods presented.
Canadian Commercial Mortgage Operations
As announced on January 29, 2008, the Company decided to wind down its Canadian commercial mortgage operation during the fourth quarter. The wind down is complete as of the current date except for the disposal of remaining mortgage loans receivable. The mortgage assets are expected to be sold as soon as practicable. This operation is reported as a discontinued operation for all periods presented.
Change in Year-end
The Company historically had a March 31 year-end primarily due to weather-related seasonality in its operations. Over the years, the Company's operations have changed such that weather-related seasonality is no longer material. In addition, two of the Company's three remaining segments currently operate on a calendar year basis. As a result, the Company's Board of Directors approved a change in the year-end of the Company to December 31, effective December 31, 2008, pending receipt of consent from relevant tax authorities.
The proposed change in year-end will not cause any change in quarter-ends, will bring the Company's year-end into alignment with its peers in the market, and is expected to generate cost savings due to the elimination of duplication of audits at the two segments that already have calendar year-ends.
Financial Outlook
The Company's Board of Directors carefully considered a number of factors concerning financial outlooks, including volatility in the markets in which the Commercial Real Estate Services business operates, volatility in foreign exchange rates, and the practices of the Company's publicly-traded peers, who do not provide annual financial outlooks. As a result, the Company has decided not to provide an annual financial outlook.
FirstService is committed to a long-term growth strategy that includes average internal revenue growth in the 8-10% range combined with acquisitions to build each of its service platforms, resulting in average percentage growth in revenues, EBITDA and earnings per share in the mid- to upper-teens or better.
Conference Call
FirstService will be holding a conference call on Thursday, May 15, 2008 at 11:00 a.m. Eastern Time to discuss results for the fourth quarter and full fiscal year. 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 Year ended
March 31 March 31
------------------ ---------------------
2008 2007 2008 2007
-------- ------- --------- ---------
Revenues $371,686 $275,691 $1,573,215 $1,180,990
Cost of revenues 236,801 158,587 939,254 731,169
Selling, general and
administrative expenses 137,703 99,836 521,906 344,968
Depreciation and
amortization other than
backlog 9,938 6,091 33,263 20,571
Amortization of brokerage
backlog (1) 1,083 1,294 5,216 8,164
-------- ------- --------- ---------
Operating (loss) earnings (13,839) 9,883 73,576 76,118
Interest expense, net 4,089 1,809 13,502 7,735
Other (income) expense (826) 81 (4,647) (4,848)
Impairment loss on
available-for-sale
securities -- 3,139 -- 3,139
-------- ------- --------- ---------
(17,102) 4,854 64,721 70,092
Income taxes (recovery) (8,861) (827) 16,195 20,261
-------- ------- --------- ---------
(8,241) 5,681 48,526 49,831
Minority interest share
of (loss) earnings (79) 3,095 15,461 15,799
-------- ------- --------- ---------
Net (loss) earnings from
continuing operations (8,162) 2,586 33,065 34,032
Discontinued operations,
net of tax (2) (1,199) (233) 1,334 2,184
-------- ------- --------- ---------
Net (loss) earnings before
cumulative effect of
change in accounting
principle (9,361) 2,353 34,399 36,216
Cumulative effect of
change in accounting
principle, net of
tax (3) -- -- -- (1,353)
-------- ------- --------- ---------
Net (loss) earnings $ (9,361) $ 2,353 $ 34,399 $ 34,863
Preferred share dividends 2,616 -- 6,952 --
-------- ------- --------- ---------
Net (loss) earnings
available to common
shareholders $(11,977) $ 2,353 $ 27,447 $ 34,863
======== ======= ========= =========
Net (loss) earnings per
common share
Basic
Continuing operations $ (0.36) $ 0.09 $ 0.87 $ 1.14
Discontinued
operations (0.04) (0.01) 0.05 0.07
Cumulative effect of
change in
accounting principle -- -- -- (0.04)
-------- ------- --------- ---------
$ (0.40) $ 0.08 $ 0.92 $ 1.17
======== ======= ========= =========
Diluted (4)
Continuing operations $ (0.36) $ 0.07 $ 0.81 $ 1.05
Discontinued operations (0.04) (0.01) 0.04 0.07
Cumulative effect of
change in accounting
principle -- -- -- (0.04)
-------- ------- --------- ---------
$ (0.40) $ 0.06 $ 0.85 $ 1.08
======== ======= ========= =========
Weighted average common
shares outstanding: (in
thousands)
Basic 29,983 29,913 29,905 29,903
Diluted 30,389 30,275 30,547 30,354
Net (loss) earnings per
common share, adjusted
diluted continuing
operations (5) $ (0.34) $ 0.07 $ 1.02 $ 1.05
-------- ------- --------- ---------
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 (i) operations of the Integrated Security Services
segment; (ii) operations of the Canadian commercial mortgage
securitization operation; and (iii) 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 March 31, 2008 was nil (2007 - $679)
and year ended March 31, 2008 was $1,473 (2007 - $2,228).
(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 (i) 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 and (ii) eliminate the impact of the incremental compensation expense related to the review of historical stock option grants. 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 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
----------------- ---------------------
2008 2007 2008 2007
------- ------- --------- ---------
Operating (loss) earnings $(13,839) $ 9,883 $ 73,576 $ 76,118
Amortization of brokerage
backlog 1,083 1,294 5,216 8,164
Incremental stock option
expense -- -- 3,278 --
------- ------- --------- ---------
Adjusted operating (loss)
earnings $(12,756) $ 11,177 $ 82,070 $ 84,282
------- ------- --------- ---------
Net (loss) earnings from
continuing operations $ (8,162) $ 2,586 $ 33,065 $ 34,032
Preferred dividends (2,616) -- (6,952) --
Amortization of brokerage
backlog 1,083 1,294 5,216 8,164
Incremental stock option
expense -- -- 3,278 --
Impairment loss on
available-for-sale
securities -- 3,139 -- 3,139
Deferred income tax (427) (983) (1,524) (3,304)
Minority interest (85) (150) (592) (896)
------- ------- --------- --------
Adjusted net (loss)
earnings from continuing
operations $(10,207) $ 5,886 $ 32,491 $ 41,135
------- ------- --------- --------
Three months ended Year ended
March 31 March 31
----------------- ---------------------
2008 2007 2008 2007
------- ------- --------- ---------
Diluted net (loss)
earnings per common
share from
continuing operations $ (0.36) $ 0.06 $ 0.81 $ 1.05
Amortization of brokerage
backlog, net of tax 0.02 0.02 0.10 0.15
Incremental stock option
expense -- -- 0.11 --
Impairment loss on
available-for-sale
securities, net of tax -- 0.08 -- 0.08
Pro forma impact of
preferred dividends on
comparative periods -- (0.09) -- (0.23)
------- ------- --------- ---------
Adjusted diluted net
(loss) earnings per
common share
from continuing
operations $ (0.34) $ 0.07 $ 1.02 $ 1.05
------- ------- --------- ---------
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 generally accepted accounting principles in the United States of America (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
----------------- ---------------------
2008 2007 2008 2007
------- ------- --------- ---------
Operating (loss) earnings $(13,839) $ 9,883 $ 73,576 $ 76,118
Depreciation and
amortization other than
backlog 9,938 6,091 33,263 20,571
Amortization of brokerage
backlog 1,083 1,294 5,216 8,164
------- ------- --------- ---------
(2,818) 17,268 112,055 104,853
Stock-based compensation
expense 1,375 2,814 7,819 4,956
------- ------- --------- ---------
EBITDA $ (1,443) $ 20,082 $ 119,874 $ 109,809
------- ------- --------- ---------
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands of US dollars)
(unaudited)
March 31 March 31
2008 2007
---------- ---------
Assets
------
Cash and cash equivalents $ 76,818 $ 102,806
Restricted cash 8,858 16,930
Accounts receivable 177,048 124,667
Inventories 20,519 15,293
Other current assets 44,210 36,162
Assets held for resale 88,163 66,499
---------- ---------
Current assets 415,616 362,357
Fixed assets 80,991 61,692
Other non-current assets 61,120 39,198
Goodwill and intangibles 488,014 315,587
Assets held for sale 43,602 38,164
---------- ---------
Total assets $ 1,089,343 $ 816,998
========== =========
Liabilities and shareholders' equity
------------------------------------
Accounts payable and accrued liabilities $ 238,814 $ 183,260
Other current liabilities 24,293 25,828
Long term debt - current 24,777 22,101
Liabilities held for sale 45,758 25,638
---------- ---------
Current liabilities 333,642 256,827
Long term debt - non-current 331,253 213,030
Other non-current liabilities 18,236 4,876
Deferred income taxes 41,618 29,084
Liabilities held for sale 441 --
Minority interest 58,468 48,306
Shareholders' equity 305,685 264,875
---------- ---------
Total liabilities and equity $ 1,089,343 $ 816,998
========== =========
Total debt $ 356,030 $ 235,131
---------- ---------
Total debt, net of cash 279,212 132,325
---------- ---------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands of US dollars)
(unaudited)
Year ended
March 31
--------------------
2008 2007
--------- ---------
Operating activities
Net earnings from continuing operations $ 33,065 $ 34,032
Items not affecting cash:
Depreciation and amortization 38,479 28,735
Deferred income taxes (20,785) (7,267)
Minority interest share of earnings 15,461 15,799
Other 9,901 5,810
Changes in operating assets and liabilities (28,250) (8,550)
Discontinued operations 4,787 (8,769)
--------- ---------
Net cash provided by operating activities 52,658 59,790
--------- ---------
Investing activities
Acquisitions of businesses, net of cash acquired (156,008) (70,096)
Purchases of fixed assets, net (32,183) (25,145)
Other investing activities 16,324 (3,939)
Discontinued operations (3,186) (2,965)
--------- ---------
Net cash used in investing (175,053) (102,145)
--------- ---------
Financing activities
Increase (decrease) in long-term debt, net 119,538 (15,495)
Other financing activities (17,711) (13,429)
Discontinued operations (5,132) 5,132
--------- ---------
Net cash provided by (used in) financing 96,695 (23,792)
--------- ---------
Effect of exchange rate changes on cash 2,196 2,379
--------- ---------
Decrease in cash and cash equivalents (23,504) (63,768)
Cash and cash equivalents, beginning of period,
including cash held by discontinued operations
of $1,364 (2007 - $3,531) $ 104,170 $ 167,938
--------- ---------
Cash and cash equivalents, end of period,
including cash held by discontinued operations
of $3,848 (2007 - $1,364) $ 80,666 $ 104,170
========= =========
Segmented Revenues, EBITDA and Operating Earnings
-------------------------------------------------
(in thousands of US dollars)
(unaudited)
Commercial Residential
Real Estate Property Property
Services Management Services* Corporate Consolidated
--------------------------------------------------------
Three months
ended March 31
2008
Revenues $ 170,837 $ 140,474 $ 60,308 $ 67 $ 371,686
EBITDA (13,465) 10,023 3,104 (2,480) (2,818)
Stock-based
compensation 1,375
------------
(1,443)
------------
Operating
earnings
(loss) (19,552) 6,952 1,378 (2,617) (13,839)
2007
Revenues $ 137,908 $ 107,722 $ 29,728 $ 333 $ 275,691
EBITDA 11,066 8,612 1,951 (4,361) 17,268
Stock-based
compensation 2,814
------------
20,082
------------
Operating
earnings
(loss) 7,030 6,303 927 (4,377) 9,883
Commercial Residential
Real Estate Property Property
Services Management Services* Corporate Consolidated
--------------------------------------------------------
Year ended
March 31
2008
Revenues $ 810,969 $ 544,926 $ 216,972 $ 348 $ 1,573,215
EBITDA 39,033 50,239 38,399 (15,616) 112,055
Stock-based
compensation 7,819
------------
119,874
------------
Operating
earnings
(loss) 17,008 39,790 32,745 (15,967) 73,576
2007
Revenues $ 605,845 $ 423,797 $ 150,794 $554 $ 1,180,990
EBITDA 48,578 40,267 30,564 (14,556) 104,853
Stock-based
compensation 4,956
------------
109,809
------------
Operating
earnings
(loss) 32,363 32,622 25,911 (14,778) 76,118
* Segment previously referred to as Property Improvement Services.