for fiscal 2008
TORONTO, Jan. 30 /-/ - FirstService Corporation (NASDAQ: FSRV; TSX: FSV) today reported record results for its third quarter ended December 31, 2006, updated its financial outlook for its fiscal year ending March 31, 2007 and presented its preliminary outlook for the fiscal year ending March 31, 2008. All amounts are in US dollars.
Quarterly revenues were $374.8 million, an increase of 26% relative to the same period last year. EBITDA (see definition and reconciliation below) increased 30% to $26.8 million versus $20.7 million in the prior year. Adjusted diluted earnings per share from continuing operations for the quarter increased 30% to $0.30 versus $0.23 in the prior year period. The adjustment to earnings per share represents the non-cash and rapid amortization of short-lived intangible assets, relating to pending commercial real estate brokerage transactions and listings, recognized on acquisitions in the Company's Commercial Real Estate Services unit during the past twelve months.
Cash flow from operations for the quarter was $55.2 million, up 49% from the $36.9 million reported in the third quarter last year.
For the nine months ended December 31, 2006, revenues were $1.04 billion, an increase of 27% relative to the same period one year ago, while EBITDA increased 22% to $96.2 million. Adjusted diluted earnings per share from continuing operations were $1.19, up 25% relative to the prior year period.
"We've had a strong third quarter and are confident we will achieve our internal growth targets for the year" said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. "We have achieved our goal of replacing the earnings we sold in the Resolve IPO with new acquisitions and are in a strong financial position to capitalize on growth opportunities in the coming year", he concluded.
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; consumer brands California Closets, Paul Davis Restoration, Pillar to Post Home Inspections and CertaPro Painters in property improvement; and Intercon Security and SST in integrated security.
FirstService is a diversified property services company with more than US$1.3 billion in annualized revenues and over 13,000 employees worldwide. More information about FirstService is available at http://www.firstservice.com.
Segmented Quarterly Results
---------------------------
Revenues in Commercial Real Estate Services totalled $190.0 million for the quarter, an increase of 35%. Acquisitions contributed 24% of the increase while internal growth of 11% represented the balance. Internal growth was led by the Asia-Pacific and Central European operations, which continued to report strong brokerage activity and corresponding market share gains. Third quarter EBITDA was $13.6 million compared to $11.5 million during the year-ago period. The margin in the current period was impacted primarily by the variable brokerage commission structure adopted for 2006 that resulted in lower commission expense in the first half of the calendar year until minimum thresholds were achieved and higher commission expense later in the calendar year.
Residential Property Management revenues increased to $101.7 million for the quarter, 23% higher than in the prior year period. Internal growth of 13% resulted from property management contracts added during the past twelve months, particularly in South Florida and New York City. The balance of growth was attributable to recent acquisitions. EBITDA for the quarter was $8.5 million, up 17% from $7.3 million one year ago.
Revenues in Property Improvement Services totalled $35.4 million, an increase of 9% over the prior year period. Internal revenue growth was 5%, with the balance of the growth resulting from recent acquisitions. EBITDA in the third quarter was $4.0 million, up 29% from $3.1 million last year, a result of a change in mix favouring royalty revenues which carry higher margins than service revenues.
Integrated Security Services revenues for the third quarter were $47.6 million, an increase of 19% relative to the prior year period. The growth was attributable to increased systems installation activity in both the US and Canada compared to the year ago period. Quarterly EBITDA was $4.2 million, up 51% versus $2.8 million in the prior year and was favourably impacted by higher productivity and operating leverage.
Quarterly corporate costs were $3.4 million, relative to $4.0 million in the prior year period.
A comparison of segmented EBITDA to operating earnings is provided below.
Repurchases of FirstService Shares
----------------------------------
During the period from December 15, 2006 to December 20, 2006, the Company repurchased 342,000 Subordinate Voting Shares for cancellation through the facilities of the Toronto Stock Exchange and NASDAQ National Market at an average cost of US$23.39 pursuant to a normal course issuer bid. The repurchases represented 1.1% of the total shares outstanding prior to the repurchases and were funded from cash on hand. The total number of shares repurchased since March 31, 2006 is 659,200 representing 2.2% of the total shares outstanding prior to the repurchases.
Updated Financial Outlook
-------------------------
FirstService is updating the outlook for its fiscal year ending March 31, 2007 issued on October 31, 2006 to reflect the operating results achieved for the first nine months of the fiscal year as well as the recent acquisitions in its Commercial Real Estate Services operations. The Company is also presenting its preliminary outlook for the fiscal year ending March 31, 2008.
(US$ millions, except per share
amounts) Year ending Year ending
March 31, 2007 March 31, 2008
-------------------------------- ----------------
Updated Previous Preliminary
------- -------- -----------
Revenues $1,275 - $1,325 $1,225 - $1,300 $1,450 - $1,550
EBITDA $111 - $117 $107.5 - $115.5 $126 - $136
Adjusted EPS $1.27 - $1.32 $1.23 - $1.31 $1.40 - $1.50
Note: EPS refers to adjusted diluted earnings per share from continuing
operations. The 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, January, 30, 2007 at 11:00 a.m. Eastern Time to discuss the results for the third quarter as well as the updated outlook for fiscal 2007 and preliminary outlook for fiscal 2008. The call will be simultaneously web cast and can be accessed live or after the call at http://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.
FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
---------------------------------------------
(in thousands of US dollars, except per share amounts)
(unaudited)
Three months ended Nine months ended
December 31 December 31
---------------------------------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Revenues $ 374,757 $ 296,651 $ 1,038,942 $ 820,187
Cost of revenues 247,044 193,580 669,275 522,099
Selling, general and
administrative expenses 100,897 82,408 273,515 219,403
Depreciation and
amortization other
than backlog 6,592 4,021 16,554 11,552
Amortization of
brokerage backlog(1) 2,720 3,712 6,870 4,870
------------ ------------ ------------ ------------
Operating earnings 17,504 12,930 72,728 62,263
Interest expense, net 2,395 2,774 7,702 8,766
Other (income) expense (2,546) (2,542) (4,929) (3,729)
------------ ------------ ------------ ------------
17,655 12,698 69,955 57,226
Income taxes 5,254 4,835 22,962 19,223
------------ ------------ ------------ ------------
12,401 7,863 46,993 38,003
Minority interest share
of earnings 4,644 2,492 13,130 10,440
------------ ------------ ------------ ------------
Net earnings from
continuing operations 7,757 5,371 33,863 27,563
Net earnings from dis-
continued operations,
net of tax(2) - 2,782 - 5,502
------------ ------------ ------------ ------------
Net earnings before
cumulative effect of
change in accounting
principle 7,757 8,153 33,863 33,065
Cumulative effect of
change in accounting
principle, net of tax(3) - - (1,353) -
------------ ------------ ------------ ------------
Net earnings $ 7,757 $ 8,153 $ 32,510 $ 33,065
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net earnings (loss)
per share
Basic
Continuing
operations $ 0.26 $ 0.18 $ 1.14 $ 0.91
Discontinued
operations - 0.09 - 0.18
Cumulative effect
of change in
accounting principle - - (0.05) -
------------ ------------ ------------ ------------
$ 0.26 $ 0.27 $ 1.09 $ 1.09
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted(4)
Continuing
operations $ 0.25 $ 0.16 $ 1.06 $ 0.86
Discontinued
operations - 0.09 - 0.18
Cumulative effect
of change in
accounting principle - - (0.04) -
------------ ------------ ------------ ------------
$ 0.25 $ 0.25 $ 1.02 $ 1.04
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Adjusted diluted net
earnings per share from
continuing operations(5) $ 0.30 $ 0.23 $ 1.19 $ 0.95
------------ ------------ ------------ ------------
Weighted average shares
outstanding: Basic 29,844 30,185 29,899 30,215
(in thousands) Diluted 30,237 30,915 30,338 30,951
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) Represents earnings of Resolve, the Business Services segment, which
operations were sold in March 2006.
(3) Cumulative effect of the adoption of SFAS # 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 December 31, 2006 was $247
(2005 - $283) and nine months ended December 31, 2006 was $1,549
(2005 - $984).
(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. 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 Nine months ended
December 31 December 31
---------------------------------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Adjusted operating
earnings $ 20,224 $ 16,642 $ 79,598 $ 67,133
Amortization of
brokerage backlog (2,720) (3,712) (6,870) (4,870)
------------ ------------ ------------ ------------
Operating earnings $ 17,504 $ 12,930 $ 72,728 $ 62,263
------------ ------------ ------------ ------------
Adjusted net earnings
from continuing
operations $ 9,331 $ 7,514 $ 37,666 $ 30,447
Amortization of
brokerage backlog (2,720) (3,712) (6,870) (4,870)
Deferred income taxes 826 1,411 2,321 1,828
Minority interest 320 158 746 158
------------ ------------ ------------ ------------
Net earnings from
continuing
operations $ 7,757 $ 5,371 $ 33,863 $ 27,563
------------ ------------ ------------ ------------
Adjusted diluted net
earnings per share
from continuing
operations $ 0.30 $ 0.23 $ 1.19 $ 0.95
Amortization of
brokerage backlog,
net of income taxes (0.05) (0.07) (0.13) (0.09)
------------ ------------ ------------ ------------
Diluted net earnings
per share from
continuing operations $ 0.25 $ 0.16 $ 1.06 $ 0.86
------------ ------------ ------------ ------------
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 Nine months ended
December 31 December 31
---------------------------------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
EBITDA $ 26,816 $ 20,663 $ 96,152 $ 78,685
Depreciation and
amortization other
than backlog (6,592) (4,021) (16,554) (11,552)
Amortization of
brokerage backlog (2,720) (3,712) (6,870) (4,870)
------------ ------------ ------------ ------------
Operating earnings $ 17,504 $ 12,930 $ 72,728 $ 62,263
------------ ------------ ------------ ------------
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands of US dollars)
(unaudited)
December 31 March 31
2006 2006
------------ ------------
Assets
------
Cash and cash equivalents $ 137,281 $ 167,938
Accounts receivable 170,862 128,276
Inventories 29,375 27,267
Prepaids and other current assets 52,918 31,928
------------ ------------
Current assets 390,436 355,409
Fixed assets 59,690 48,733
Other non-current assets 49,358 39,600
Goodwill and intangibles 338,071 267,262
------------ ------------
Total assets $ 837,555 $ 711,004
------------ ------------
------------ ------------
Liabilities and shareholders' equity
------------------------------------
Accounts payable and accrued liabilities $ 232,799 $ 149,875
Other current liabilities 30,517 16,187
Long term debt - current 20,756 18,646
------------ ------------
Current liabilities 284,072 184,708
Long term debt - non-current 215,886 230,040
Deferred income taxes 35,297 30,041
Minority interest 42,974 28,463
Shareholders' equity 259,326 237,752
------------ ------------
Total liabilities and equity $ 837,555 $ 711,004
------------ ------------
------------ ------------
Total debt $ 236,642 $ 248,686
------------ ------------
Total debt, net of cash 99,361 80,748
------------ ------------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands of US dollars)
(unaudited)
Three months ended Nine months ended
December 31 December 31
------------------------- -------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Operating activities
Net earnings from
continuing
operations $ 7,757 $ 5,371 $ 33,863 $ 27,563
Items not affecting cash:
Depreciation and
amortization 9,312 7,733 23,424 16,422
Deferred income taxes (607) (1,101) (3,941) (2,887)
Minority interest
share of earnings 4,644 2,492 13,130 10,440
Other (850) (807) 133 (800)
Changes in operating
assets and liabilities 34,912 21,311 13,047 17,222
Discontinued operations - 1,939 - 2,741
------------ ------------ ------------ ------------
Net cash provided by
operating activities 55,168 36,938 79,656 70,701
Investing activities
Acquisitions of
businesses, net of
cash acquired (23,953) (20,166) (64,939) (25,627)
Purchases of fixed
assets, net (4,716) (4,734) (15,469) (14,807)
Other investing
activities 5,414 (158) 4,065 (2,014)
Discontinued operations - (858) - (5,774)
------------ ------------ ------------ ------------
Net cash used in
investing (23,255) (25,916) (76,343) (48,222)
Financing activities
Increase (decrease) in
long-term debt, net (353) 20,625 (15,318) 48,165
Repurchases of Subordinate
Voting Shares, net (7,726) (12,271) (14,092) (11,601)
Other financing
activities (1,700) (131) (3,036) (2,151)
Discontinued operations - (18,595) - (17,511)
------------ ------------ ------------ ------------
Net cash (used in)
provided by financing (9,779) (10,372) (32,446) 16,902
Effect of exchange rate
changes on cash (1,799) (3,453) (1,524) (5)
Increase (decrease) in
cash and cash
equivalents 20,335 (2,803) (30,657) 39,376
------------ ------------ ------------ ------------
Cash and cash
equivalents, beginning
of period 116,946 79,637 167,938 37,458
------------ ------------ ------------ ------------
Cash and cash
equivalents, end
of period $ 137,281 $ 76,834 $ 137,281 $ 76,834
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Segmented Revenues, EBITDA and Operating Earnings
-------------------------------------------------
(in thousands of US dollars)
(unaudited)
Property
Commercial Residential Improve- Integrated
Real Estate Property ment Security Corpor- Consoli-
Services Management Services Services ate dated
----------------------------------------------------------------
Three months
ended December 31
2006
Revenues $ 189,972 $ 101,726 $ 35,373 $ 47,610 $ 76 $ 374,757
EBITDA 13,603 8,469 3,957 4,217 (3,430) 26,816
Operating
earnings 8,721 6,213 2,523 3,544 (3,497) 17,504
2005
Revenues $ 141,241 $ 82,751 $ 32,454 $ 40,091 $ 114 $ 296,651
EBITDA 11,532 7,252 3,080 2,785 (3,986) 20,663
Operating
earnings 6,921 5,879 2,082 2,076 (4,028) 12,930
Nine months
ended December 31
2006
Revenues $ 470,260 $ 316,075 $ 121,066 $ 131,320 $ 221 $1,038,942
EBITDA 37,636 31,655 28,613 8,443 (10,195) 96,152
Operating
earnings 25,443 26,320 24,984 6,383 (10,402) 72,728
2005
Revenues $ 344,493 $ 258,791 $108,210 $ 108,465 $ 228 $ 820,187
EBITDA 30,971 25,288 25,393 6,261 (9,228) 78,685
Operating
earnings 23,408 21,271 22,682 4,254 (9,352) 62,263
