Second quarter operating highlights:
September 30, September 30,
2008 2007
--------------- ---------------
Revenues $ 453.8 million $ 379.9 million +19%
EBITDA $ 45.0 million $ 41.9 million +7%
Adjusted EPS from
continuing operations $ 0.62 $ 0.53 +17%
TORONTO, Oct. 29, 2008 (GLOBE NEWSWIRE) -- FirstService Corporation (Nasdaq:FSRV) (TSX:FSV) (TSX:FSV.PR.U) today reported results for its second quarter ended September 30, 2008. All amounts are in U.S. dollars.
Quarterly revenues were $453.8 million, an increase of 19% relative to the same period last year. EBITDA (see definition and reconciliation below) increased 7% to $45.0 million. Adjusted diluted earnings per share from continuing operations (see definition and reconciliation below) were $0.62 for the quarter versus $0.53 in the prior year period, up 17%.
Net earnings from continuing operations in accordance with GAAP were $12.4 million versus $15.9 million in the prior year period. Diluted net earnings per share from continuing operations in accordance with GAAP were $0.33, versus $0.41 in the prior year period, after considering the pro forma affect of preferred share dividends on the prior year period.
For the six months ended September 30, 2008, revenues were $911.6 million, an increase of 21% relative to the same period last year. EBITDA increased 6% to $90.1 million. Adjusted diluted earnings per share from continuing operations were $1.12 for the six months versus $1.00 in the prior year period, up 12%.
Net earnings from continuing operations in accordance with GAAP for the six month period were $28.5 million versus $31.5 million in the prior year period. Diluted net earnings per share from continuing operations in accordance with GAAP were $0.74, versus $0.80 in the prior year period, after considering the pro forma affect of preferred share dividends on the prior year period.
On July 1, 2008, FirstService completed the sale of its Integrated Security division, resulting in an after-tax gain of $69.3 million, or $2.34 per share. The sale resulted in net cash proceeds of $155.0 million, which were primarily applied to reduce indebtedness under the Company's revolving credit facility. The Integrated Security division has been classified as a discontinued operation.
"Given current market conditions, we are pleased with our operating results for the quarter which highlight the advantages of our service line diversification, valuable recurring and repeat revenue streams and strong balance sheet and cash flows," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. "The sale of our Integrated Security business early in the quarter, for net cash proceeds of $155 million, reduced our indebtedness and further augmented our already strong balance sheet. The result is the lowest leverage ratios in our history as a public company giving us the financial strength and flexibility we need to continue to grow and prosper in the years to come," he added.
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: FirstService Commercial Real Estate Services, the fourth 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 more than US$1.9 billion in annualized revenues and over 17,000 employees worldwide. More information about FirstService is available at www.firstservice.com.
Segmented Quarterly Results
Revenues in Commercial Real Estate Services totalled $188.9 million for the quarter, flat relative to the prior year quarter, with an 8% decline in internal revenues fully offset by revenues from acquisitions completed during the past twelve months. Excluding the impact of foreign exchange fluctuations, internal revenues declined 11%. Investment sales activities slowed considerably in the United States and Australia relative to the prior year quarter, resulting in internal revenue declines of approximately 20% in these markets. Second quarter EBITDA was $9.9 million, down 26% versus the year-ago period. EBITDA was negatively impacted by (i) lower revenues and (ii) $2.0 million in foreign exchange translation losses resulting from significant exchange rate movements during the quarter.
Residential Property Management revenues increased to $167.4 million for the quarter, 16% higher than in the prior year period. Internal growth was 8%, attributable to property management contracts won during the last twelve months as well as increases in ancillary maintenance revenues, while the balance of revenue growth resulted from an acquisition completed late last year. EBITDA for the quarter was $17.7 million, up 8% from $16.4 million one year ago.
Revenues in Property Services totalled $97.5 million, an increase of 109% over the prior year period. The revenue increase was attributable to the October 2007 acquisition of Field Asset Services, a leading provider of residential property preservation and foreclosure management services to the U.S. financial services industry. Internal revenues in the segment, excluding Field Asset Services, declined 6%, as the Company's consumer-oriented businesses, in particular California Closets, continued to be challenged by the weakening U.S. economy. EBITDA in the second quarter was $20.3 million, up 45% from $14.0 million last year. EBITDA margins in the Property Services segment are affected by Field Asset Services, which carries lower operating margins than traditional franchising.
Quarterly corporate costs were $3.2 million, versus $3.5 million in the prior year period.
A comparison of segmented EBITDA to operating earnings is provided below.
Non-operating Charges
During the quarter, the Company reported two non-operating charges that impacted reported operating results under GAAP. First, a $2.5 million non-cash impairment loss was recognized on the Company's 7% stake in Resolve Business Outsourcing Income Fund which was "marked-to-market" in accordance with GAAP. Second, a $5.7 million divestiture bonus was paid to management in connection with the completion of the sale of the Integrated Security division and the related gain on the transaction. Although the divestiture bonus related to a discontinued operation, under GAAP it was required to be reported in continuing operations. Both of these non-operating charges were excluded from adjusted earnings per share.
Share Repurchases
During the quarter ended September 30, 2008, the Company repurchased 91,200 Preferred Shares on the open market under its Normal Course Issuer Bid ("NCIB") at an average price of $18.31 per share. The Company is authorized to repurchase up to an additional 1.76 million Subordinate Voting Shares and 383,800 Preferred Shares under the NCIB which expires on June 6, 2009.
Conference Call
FirstService will be holding a conference call on Wednesday, October 29, 2008 at 11:00 am Eastern Time to discuss results for the first quarter. The call will be simultaneously web cast and can be accessed live or after the call at www.firstservice.com in the "Investor Relations / Newsroom" 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 U.S. dollars, except per share amounts)
(unaudited)
Three months ended Six months ended
September 30 September 30
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
Revenues $453,758 $379,935 $911,601 $750,429
Cost of revenues 271,147 223,310 546,726 445,924
Selling, general and
administrative expenses 137,919 116,345 276,065 222,336
Depreciation 5,664 4,602 11,809 8,789
Amortization of intangible
assets other than backlog 4,146 2,445 7,775 4,609
Amortization of backlog 431 1,463 960 2,518
-------- -------- -------- --------
Operating earnings 34,451 31,770 68,266 66,253
Other income (1,354) (1,216) (2,397) (2,494)
Impairment loss on
available-for-sale
securities(1) 2,485 -- 2,485 --
Integrated Security division
divestiture bonus(2) 5,715 -- 5,715 --
Interest expense, net 1,439 2,989 5,413 5,977
-------- -------- -------- --------
26,166 29,997 57,050 62,770
Income taxes 8,103 9,874 16,881 20,410
-------- -------- -------- --------
18,063 20,123 40,169 42,360
Minority interest share of
earnings 5,645 4,264 11,640 10,816
-------- -------- -------- --------
Net earnings from continuing
operations 12,418 15,859 28,529 31,544
Discontinued operations, net
of tax(3) 68,328 1,834 70,082 4,231
-------- -------- -------- --------
Net earnings $ 80,746 $ 17,693 $ 98,611 $ 35,775
Preferred share dividends 2,538 1,720 5,154 1,720
-------- -------- -------- --------
Net earnings available to
common shareholders $ 78,208 $ 15,973 $ 93,457 $ 34,055
======== ======== ======== ========
Net earnings per common share
Basic
Continuing operations $ 0.34 $ 0.47 $ 0.79 $ 1.00
Discontinued operations 2.32 0.06 2.35 0.14
-------- -------- -------- --------
$ 2.66 $ 0.53 $ 3.14 $ 1.14
======== ======== ======== ========
Diluted(4)
Continuing operations $ 0.33 $ 0.44 $ 0.74 $ 0.92
Discontinued operations 2.31 0.06 2.34 0.14
-------- -------- -------- --------
$ 2.64 $ 0.50 $ 3.08 $ 1.06
======== ======== ======== ========
Adjusted diluted net earnings
per common share from
continuing operations(5) $ 0.62 $ 0.53 $ 1.12 $ 1.00
======== ======== ======== ========
Weighted average common shares
outstanding: (in
thousands) Basic 29,395 29,896 29,746 29,866
Diluted 29,568 30,385 29,971 30,390
Notes to Condensed Consolidated Statements of Earnings
(1) Non-cash loss recognized on an other-than-temporary impairment of
the Company's 7% equity stake in Resolve Business Outsourcing Income
Fund.
(2) Non-recurring cash bonus paid to management upon the successful
completion of the sale of the Integrated Security division.
(3) Reflects: (i) Integrated Security division and (ii) Canadian
commercial mortgage securitization operation.
(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, 2008 was $62
(2007 - $729) and six months ended September 30, 2008 was $1,098
(2007 - $1,748).
(5) See "Reconciliation of net earnings and net earnings per share to
adjusted net earnings and adjusted net earnings per share" below.
Reconciliation of Net Earnings and Net Earnings Per Share to Adjusted
---------------------------------------------------------------------
Net Earnings and Adjusted Net Earnings Per Share
------------------------------------------------
(in thousands of U.S. dollars, except per share amounts)
(unaudited)
The Company is presenting adjusted earnings measures to eliminate the
impact of (i) amortization expense related to intangible assets
recognized in connection with acquisitions, (ii) stock-based
compensation expense, (iii) a non-recurring bonus paid to management
upon the divestiture of the Integrated Security division and (iv) a
non-cash impairment loss on available-for-sale securities. In
addition, the Company is presenting the pro forma impact of preferred
share dividends on comparative periods. The preferred share 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
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
Net earnings from continuing
operations $ 12,418 $ 15,859 $ 28,529 $ 31,544
Preferred dividends (2,538) (1,720) (5,154) (1,720)
Amortization of intangible
assets other than backlog 4,146 2,445 7,775 4,609
Amortization of backlog 431 1,463 960 2,518
Impairment loss on
available-for-sale securities 2,485 -- 2,485 --
Integrated Security division
divestiture bonus 5,715 -- 5,715 --
Stock-based compensation
expense 326 1,614 1,271 2,464
Income tax on adjustments (4,250) (1,563) (6,045) (2,740)
Minority interest on
adjustments (402) (467) (779) (824)
-------- -------- -------- --------
Adjusted net earnings from
continuing operations $ 18,331 $ 17,631 $ 34,757 $ 35,851
-------- -------- -------- --------
Diluted net earnings per common
share from continuing
operations $ 0.33 $ 0.44 $ 0.74 $ 0.92
Pro forma impact of preferred
share dividends on comparative
period -- (0.03) -- (0.12)
-------- -------- -------- --------
0.33 0.41 0.74 0.80
Amortization of intangible
assets other than backlog, net
of income tax 0.08 0.05 0.14 0.09
Amortization of backlog, net of
income tax 0.01 0.03 0.02 0.05
Impairment loss on
available-for-sale securities,
net of income tax 0.07 -- 0.07 --
Integrated Security division
divestiture bonus, net of
income tax 0.12 -- 0.12 --
Stock-based compensation
expense, net of income tax 0.01 0.04 0.03 0.06
-------- -------- -------- --------
Adjusted diluted net earnings
per common share from
continuing operations $ 0.62 $ 0.53 $ 1.12 $ 1.00
-------- -------- -------- --------
Reconciliation of EBITDA to Net Earnings from Continuing Operations
-------------------------------------------------------------------
(in thousands of U.S. dollars)
(unaudited)
EBITDA is defined as net earnings from continuing operations before
minority interest share of earnings, income taxes, interest,
depreciation and amortization, stock-based compensation expense and
other non-cash or non-recurring expenses. 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 net earnings from continuing operations appears below.
Three months ended Six months ended
September 30 September 30
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
Net earnings from continuing
operations $ 12,418 $ 15,859 $ 28,529 $ 31,544
Minority interest share of
earnings 5,645 4,264 11,640 10,816
Income taxes 8,103 9,874 16,881 20,410
Other income (1,354) (1,216) (2,397) (2,494)
Integrated Security division
divestiture bonus 5,715 -- 5,715 --
Impairment loss on
available-for-sale securities 2,485 -- 2,485 --
Interest expense, net 1,439 2,989 5,413 5,977
-------- -------- -------- --------
Operating earnings 34,451 31,770 68,266 66,253
Depreciation 5,664 4,602 11,809 8,789
Amortization of intangible
assets other than backlog 4,146 2,445 7,775 4,609
Amortization of backlog 431 1,463 960 2,518
-------- -------- -------- --------
44,692 40,280 88,810 82,169
Stock-based compensation
expense 326 1,614 1,271 2,464
-------- -------- -------- --------
EBITDA $ 45,018 $ 41,894 $ 90,081 $ 84,633
-------- -------- -------- --------
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands of U.S. dollars)
(unaudited)
September 30 March 31
2008 2008
---------- ----------
Assets
------
Cash and cash equivalents $ 94,855 $ 76,818
Restricted cash 9,901 8,858
Accounts receivable 192,095 177,048
Inventories 10,593 20,519
Prepaids and other current assets 75,792 74,700
Assets held for sale 18,223 88,163
---------- ----------
Current assets 401,459 446,106
Fixed assets 81,574 80,991
Other non-current assets 43,212 30,630
Goodwill and intangibles 497,439 488,014
Assets held for sale 3,419 43,602
---------- ----------
Total assets $1,027,103 $1,089,343
========== ==========
Liabilities and shareholders' equity
------------------------------------
Accounts payable and accrued liabilities $ 217,169 $ 238,814
Other current liabilities 45,167 24,293
Long term debt - current 22,677 24,777
Liabilities related to assets held for sale 12,045 45,758
---------- ----------
Current liabilities 297,058 333,642
Long term debt - non-current 222,123 331,253
Other liabilities 19,322 18,236
Deferred income taxes 33,956 41,618
Liabilities related to assets held for sale -- 441
Minority interest 59,362 58,468
Shareholders' equity 395,282 305,685
---------- ----------
Total liabilities and equity $1,027,103 $1,089,343
========== ==========
Total debt $ 244,800 $ 356,030
---------- ----------
Total debt, net of cash 149,945 279,212
---------- ----------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands of U.S. dollars)
(unaudited)
Three months ended Six months ended
September 30 September 30
--------------------- ---------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Operating
activities
Net earnings
from continuing
operations $ 12,418 $ 15,859 $ 28,529 $ 31,544
Items not
affecting cash:
Depreciation and
amortization 10,241 8,510 20,544 15,916
Deferred income
taxes (3,095) (1,467) (4,261) (2,460)
Minority interest
share of earnings 5,645 4,264 11,640 10,816
Other 119 1,740 930 2,568
Changes in operating
assets and
liabilities (2,641) (9,693) (34,480) (20,586)
Discontinued
operations 251 (16,266) 2,616 (3,327)
--------- --------- --------- ---------
Net cash provided by
operating activities 22,938 2,947 25,518 34,471
--------- --------- --------- ---------
Investing activities
Acquisitions of
businesses,
net of cash
acquired (14,689) (24,306) (23,855) (76,277)
Purchases of fixed
assets, net (3,954) (5,072) (12,127) (15,176)
Other investing
activities 8,713 (3,337) 9,903 6,949
Discontinued
operations 155,031 (1,917) 154,355 (2,604)
--------- --------- --------- ---------
Net cash provided by
(used in) investing 145,101 (34,632) 128,276 (87,108)
--------- --------- --------- ---------
Financing activities
(Decrease) increase
in long-term
debt, net (136,357) 18,606 (112,170) 25,493
Other financing
activities (5,746) (486) (28,871) (4,936)
Discontinued
operations -- 6,159 -- 3,555
--------- --------- --------- ---------
Net cash (used in)
provided by
financing (142,103) 24,279 (141,041) 24,112
--------- --------- --------- ---------
Effect of exchange
rate changes
on cash (108) 2,473 1,636 7,618
--------- --------- --------- ---------
Increase (decrease)
in cash and cash
equivalents 25,828 (4,933) 14,389 (20,907)
Cash and cash
equivalents,
beginning of period
including cash held
by discontinued
operations $ 69,227 $ 88,196 $ 80,666 $ 104,170
--------- --------- --------- ---------
Cash and cash
equivalents, end of
period including
cash held by
discontinued
operations $ 95,055 $ 83,263 $ 95,055 $ 83,263
========= ========= ========= =========
Segmented Revenues, EBITDA and Operating Earnings
-------------------------------------------------
(in thousands of U.S. dollars)
(unaudited)
Commercial Residential
Real Estate Property Property
Services Management Services Corporate Consolidated
-----------------------------------------------------------
Three months ended September 30
2008
Revenues $188,865 $167,388 $ 97,467 $ 38 $453,758
EBITDA 9,850 17,744 20,266 (3,168) 44,692
Stock-based
compensation 326
--------
45,018
--------
Operating
earnings 4,259 15,039 18,408 (3,255) 34,451
2007
Revenues $188,842 $144,448 $ 46,555 $ 90 $379,935
EBITDA 13,379 16,414 13,966 (3,479) 40,280
Stock-based
compensation 1,614
--------
41,894
--------
Operating
earnings 8,608 13,961 12,751 (3,550) 31,770
Commercial Residential
Real Estate Property Property
Services Management Services Corporate Consolidated
-----------------------------------------------------------
Six months ended September 30
2008
Revenues $402,841 $330,564 $178,104 $ 92 $911,601
EBITDA 28,900 33,603 32,265 (5,958) 88,810
Stock-based
compensation 1,271
--------
90,081
--------
Operating
earnings 17,791 28,057 28,554 (6,136) 68,266
2007
Revenues $382,405 $278,493 $ 89,365 $ 166 $750,429
EBITDA 32,795 30,116 25,514 (6,256) 82,169
Stock-based
compensation 2,464
--------
84,633
--------
Operating
earnings 24,133 25,473 23,042 (6,395) 66,253