Market Overview

FirstService Reports Third Quarter Results

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  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) 960-9500
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