Market Overview

FirstService Reports Strong Second Quarter Results

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Operating highlights:

    Three months ended   Six months ended
    June 30   June 30
    2018   2017   2018   2017
                         
Revenues (millions) $ 495.3   $ 441.7   $ 921.8   $ 822.0
Adjusted EBITDA (millions) (note 1)   57.1     47.1     82.5     67.2
Adjusted EPS (note 2)   0.86     0.60     1.10     0.75
                         
GAAP Operating Earnings   42.4     35.3     53.4     44.2
GAAP EPS   0.62     0.49     0.79     0.61

TORONTO, July 25, 2018 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (NASDAQ:FSV) today reported strong results for its second quarter ended June 30, 2018. All amounts are in US dollars.

Revenues for the second quarter were $495.3 million, a 12% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 21% to $57.1 million, and Adjusted EPS (note 2) was $0.86, a 43% increase versus the prior year quarter. GAAP Operating Earnings were $42.4 million, relative to $35.3 million in the prior year period. GAAP diluted earnings per share was $0.62 in the quarter, versus $0.49 for the same quarter a year ago.

For the six months ended June 30, 2018, revenues were $921.8 million, a 12% increase relative to the comparable prior year period, Adjusted EBITDA was $82.5 million, up 23%, and Adjusted EPS was $1.10, a 47% increase versus the prior year period. GAAP Operating Earnings were $53.4 million, relative to $44.2 million in the prior year period. GAAP diluted EPS for the six months year-to-date was $0.79, compared to $0.61 in the prior year period.

"We delivered another strong quarter, capitalizing on balanced organic top-line growth across our businesses," said Scott Patterson, Chief Executive Officer of FirstService. "Our results largely mirror the performance in our prior quarter demonstrating the consistency of our business model and keeping us well on track to deliver on our targets for the full year," he concluded.

About FirstService Corporation
FirstService Corporation is a North American leader in the essential outsourced property services sector, serving its customers through two industry-leading service platforms: FirstService Residential - North America's largest manager of residential communities; and FirstService Brands - one of North America's largest providers of essential property services delivered through individually branded franchise systems and company-owned operations.

FirstService generates more than US$1.7 billion in annual revenues and has more than 19,000 employees across North America. With significant insider ownership and an experienced management team, FirstService has a long-term track record of creating value and superior returns for shareholders. The common shares of FirstService trade on the NASDAQ under the symbol "FSV" and on the Toronto Stock Exchange under the symbol "FSV". More information is available at www.firstservice.com.

Impact of New Revenue Recognition Standard
As previously disclosed in our prior first quarter of this year, FirstService adopted, in accordance with U.S. GAAP effective January 1, 2018, the New Revenue Recognition Standard to all contracts using the full retrospective method. Our prior year 2017 financial results as reported herein have been recast in accordance with the New Revenue Standard to provide a consistent comparison to current year results. The impact is confined to our franchised operations within our FirstService Brands segment, relating to the timing and recognition of franchise fees and the gross revenue recognition of marketing fund fees. The effect of the New Revenue Standard on the prior year second quarter results was an increase of $6.8 million to our consolidated revenues, a decrease of $0.5 million to our consolidated Adjusted EBITDA, resulting in a 30 basis points decrease to our consolidated Adjusted EBITDA margin, and a decrease of $0.01 to our Adjusted EPS. The same $6.8 million increase to our FirstService Brands revenues and $0.5 million decrease to our FirstService Brands Adjusted EBITDA resulted in a reduction of 120 basis points to our FirstService Brands Adjusted EBITDA margin for our recast segmented 2017 second quarter results. The New Revenue Recognition Standard does not have any impact on our cash flow from operations.

Segmented Quarterly Results
FirstService Residential revenues were $327.0 million for the second quarter, up 8% versus the prior year quarter, including 5% organic growth. Adjusted EBITDA for the quarter was $33.4 million, versus $28.7 million in the prior year period. The top-line growth was primarily driven by contract wins and new development in several of our larger markets. Margin improvement resulted from ongoing operational efficiencies previously disclosed in prior periods and further optimizing our allocation of labour and resources towards our property management and ancillary service contracts. GAAP Operating Earnings were $27.5 million, versus $23.2 million for the second quarter of last year.

FirstService Brands revenues during the second quarter grew to $168.4 million, up 21% relative to the prior year period and including 8% organic growth. Adjusted EBITDA for the second quarter was $26.7 million, up from $21.6 million in the prior year period. The performance was led by continued strength across our service lines which are benefiting from the current robust home improvement market and also supported by a strong quarter at Century Fire Protection. Growth was further augmented by recent tuck-under acquisitions across our company-owned operations at California Closets, Paul Davis Restoration and Century Fire. GAAP Operating Earnings were $19.1 million, versus $16.3 million in the prior year quarter.

Corporate costs, as presented in Adjusted EBITDA, were $3.0 million in the second quarter, relative to $3.2 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $4.3 million, relative to $4.2 million in the prior year period.

Conference Call
FirstService will be holding a conference call on Wednesday, July 25, 2018 at 11:00 a.m. Eastern Time to discuss the quarter's results. The number to use for this call is toll-free 1) 1-888-241-0551 or 2) 647-427-3415 for international callers. The call will be simultaneously webcast 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. Much of this information can be identified by words such as "expect to," "expected," "will," "estimated" or similar expressions suggesting future outcomes or events. FirstService believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. 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 FirstService's services and the cost of providing services; (ii) the ability of FirstService to implement its business strategy, including FirstService'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 FirstService's annual information form for the year ended December 31, 2017 under the heading "Risk factors" (a copy of which may be obtained at www.sedar.com) and Annual Report on Form 40-F filed with the United States Securities and Exchange Commission (a copy of which may be obtained at www.sec.gov), and subsequent filings (which factors are adopted herein). Forward-looking statements contained in this press release are made as of the date hereof and are subject to change. All forward-looking statements in this press release are qualified by these cautionary statements. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements contained in this press release to reflect subsequent information, events, results or circumstances or otherwise.

Summary financial information is provided in this press release. This press release should be read in conjunction with the Company's consolidated 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; and (vi) stock-based compensation expense. 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   Six months ended
(in thousands of US$) June 30   June 30
    2018     2017     2018     2017  
                         
Net earnings $ 29,894     $ 21,934     $ 38,829     $ 30,202  
Income tax   9,285       10,888       8,613       9,361  
Other income, net   (39 )     (110 )     (103 )     (205 )
Interest expense, net   3,210       2,554       6,084       4,879  
Operating earnings   42,350       35,266       53,423       44,237  
Depreciation and amortization   12,903       10,356       24,686       19,851  
Acquisition-related items   548       525       1,109       771  
Stock-based compensation expense   1,317       929       3,314       2,344  
Adjusted EBITDA $ 57,118     $ 47,076     $ 82,532     $ 67,203  

2. Reconciliation of net earnings and diluted net earnings per share to adjusted net earnings and adjusted net earnings per share:

Adjusted earnings per share is defined as diluted net earnings per 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; and (v) a stock-based compensation tax adjustment related to a US GAAP change. 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 earnings per share is not a recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted net earnings per 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 to adjusted net earnings and of diluted net earnings per share to adjusted earnings per share appears below.

    Three months ended   Six months ended
(in thousands of US$) June 30   June 30
    2018     2017     2018     2017  
                         
Net earnings $ 29,894     $ 21,934     $ 38,829     $ 30,202  
Non-controlling interest share of earnings   (2,915 )     (2,330 )     (5,235 )     (4,159 )
Acquisition-related items   548       525       1,109       771  
Amortization of intangible assets   4,736       3,565       8,650       6,751  
Stock-based compensation expense   1,317       929       3,314       2,344  
Stock-based compensation tax adjustment for US GAAP change   (622 )     (880 )     (3,037 )     (4,623 )
Income tax on adjustments   (1,574 )     (1,751 )     (3,111 )     (3,521 )
Non-controlling interest on adjustments   (145 )     (91 )     (255 )     (162 )
Adjusted net earnings $ 31,239     $ 21,901     $ 40,264     $ 27,603  
                         
    Three months ended   Six months ended
(in US$) June 30   June 30
    2018     2017     2018     2017  
                         
Diluted net earnings per share $ 0.62     $ 0.49     $ 0.79     $ 0.61  
Non-controlling interest redemption increment   0.12       0.04       0.13       0.10  
Acquisition-related items   0.02       0.01       0.03       0.02  
Amortization of intangible assets, net of tax   0.09       0.06       0.17       0.11  
Stock-based compensation expense, net of tax   0.03       0.02       0.06       0.04  
Stock-based compensation tax adjustment for US GAAP change   (0.02 )     (0.02 )     (0.08 )     (0.13 )
Adjusted earnings per share $ 0.86     $ 0.60     $ 1.10     $ 0.75  
                         


FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
          Three months     Six months
          ended June 30     ended June 30
(unaudited)     2018       2017       2018       2017  
                             
Revenues   $ 495,348     $ 441,666     $ 921,804     $ 822,015  
                             
Cost of revenues     331,445       301,804       629,969       574,083  
Selling, general and administrative expenses     108,102       93,715       212,617       183,073  
Depreciation     8,167       6,791       16,036       13,100  
Amortization of intangible assets     4,736       3,565       8,650       6,751  
Acquisition-related items (1)     548       525       1,109       771  
Operating earnings     42,350       35,266       53,423       44,237  
Interest expense, net     3,210       2,554       6,084       4,879  
Other income     (39 )     (110 )     (103 )     (205 )
Earnings before income tax     39,179       32,822       47,442       39,563  
Income tax     9,285       10,888       8,613       9,361  
Net earnings     29,894       21,934       38,829       30,202  
Non-controlling interest share of earnings     2,915       2,330       5,235       4,159  
Non-controlling interest redemption increment     4,373       1,586       4,905       3,733  
Net earnings attributable to Company   $ 22,606     $ 18,018     $ 28,689     $ 22,310  
                             
Net earnings per common share                        
  Basic   $ 0.63     $ 0.50     $ 0.80     $ 0.62  
  Diluted     0.62       0.49       0.79       0.61  
                           
                             
Adjusted earnings per share (2)   $ 0.86     $ 0.60     $ 1.10     $ 0.75  
                             
Weighted average common shares (thousands)                        
    Basic     35,936       35,921       35,929       35,901  
    Diluted     36,534       36,575       36,526       36,562  

Notes to Condensed Consolidated Statements of Earnings (Loss)
(1) Acquisition-related items include transaction costs, and contingent acquisition consideration fair value adjustments.
(2) See definition and reconciliation above.

Condensed Consolidated Balance Sheets          
(in thousands of US dollars)
           
             
(unaudited) June 30, 2018   December 31, 2017
             
Assets          
Cash and cash equivalents $ 57,689   $ 57,187
Restricted cash   11,304     9,707
Accounts receivable   204,891     183,803
Prepaid and other current assets   93,321     73,654
  Current assets   367,205     324,351
Other non-current assets   10,136     9,805
Fixed assets   94,756     85,424
Deferred income tax   84     780
Goodwill and intangible assets   467,795     425,764
  Total assets $ 939,976   $ 846,124
             
             
Liabilities and shareholders' equity          
Accounts payable and accrued liabilities $ 154,382   $ 157,260
Other current liabilities   68,098     51,657
Long-term debt - current   3,213     2,751
  Current liabilities   225,693     211,668
Long-term debt - non-current   309,121     266,874
Other liabilities   55,488     54,639
Deferred income tax   1,820     1,467
Redeemable non-controlling interests   137,124     117,708
Shareholders' equity   210,730     193,768
  Total liabilities and equity $ 939,976   $ 846,124
             
             
Supplemental balance sheet information          
Total debt $ 312,334   $ 269,625
Total debt, net of cash   254,645     212,438


Consolidated Statements of Cash Flows              
(in thousands of US dollars)
        Three months ended     Six months ended
        June 30     June 30
(unaudited)     2018       2017       2018       2017  
                           
Cash provided by (used in)                        
                           
Operating activities                        
Net earnings   $ 29,894     $ 21,934     $ 38,829     $ 30,202  
Items not affecting cash:                        
  Depreciation and amortization     12,903       10,357       24,686       19,851  
  Deferred income tax     38       (34 )     346       363  
  Other     1,629       442       4,031       (2,102 )
        44,464       32,699       67,892       48,314  
                           
Changes in non-cash working capital                        
  Accounts receivable     (16,259 )     (16,484 )     (12,181 )     (16,774 )
  Payables and accruals     2,366       18,642       (12,504 )     6,596  
  Other     8,701       6,740       4,367       11,065  
Net cash provided by operating activities     39,272       41,597       47,574       49,201  
                           
Investing activities                        
Acquisition of businesses, net of cash acquired     (13,577 )     (2,182 )     (43,179 )     (12,545 )
Purchases of fixed assets     (9,097 )     (8,922 )     (19,620 )     (18,890 )
Other investing activities     (1,306 )     277       (1,984 )     (2,904 )
Net cash used in investing activities     (23,980 )     (10,827 )     (64,783 )     (34,339 )
                           
Financing activities                        
Increase in long-term debt, net     (8,128 )     (3,883 )     42,086       30,470  
Purchases of non-controlling interests, net     (511 )     (1,688 )     (2,132 )     (5,468 )
Financing fees paid     -       -       (575 )     -  
Dividends paid to common shareholders     (4,849 )     (4,397 )     (9,249 )     (8,340 )
Distributions paid to non-controlling interests     (2,751 )     (476 )     (4,342 )     (2,349 )
Repurchases of Subordinate Voting Shares     -       -       (5,941 )     (7,416 )
Other financing activities     893       (1,363 )     (196 )     609  
Net cash (used in) provided by financing activities     (15,346 )     (11,807 )     19,651       7,506  
                           
Effect of exchange rate changes on cash     (206 )     103       (343 )     126  
                           
Increase (decrease) in cash, cash equivalents and restricted cash     (260 )     19,066       2,099       22,494  
                           
Cash, cash equivalents and restricted cash, beginning of period     69,253       60,262       66,894       56,834  
                           
Cash, cash equivalents and restricted cash, end of period   $ 68,993     $ 79,328     $ 68,993     $ 79,328  
                           


Segmented Results
(in thousands of US dollars)
                         
                     
    FirstService   FirstService        
(unaudited) Residential   Brands   Corporate   Consolidated
                         
Three months ended June 30                      
                         
2018                      
  Revenues $ 326,992   $ 168,356   $ -     $ 495,348
  Adjusted EBITDA   33,402     26,675     (2,959 )     57,118
                         
  Operating earnings   27,498     19,145     (4,293 )     42,350
                         
2017                      
  Revenues $ 302,900   $ 138,766   $ -     $ 441,666
  Adjusted EBITDA   28,696     21,580     (3,200 )     47,076
                         
  Operating earnings   23,191     16,270     (4,195 )     35,266
                         
                         
                     
    FirstService   FirstService        
    Residential   Brands   Corporate   Consolidated
                         
Six months ended June 30                      
                         
2018                      
  Revenues $ 611,127   $ 310,677   $ -     $ 921,804
  Adjusted EBITDA   50,878     37,838     (6,184 )     82,532
                         
  Operating earnings   38,864     24,220     (9,661 )     53,423
                         
2017                      
  Revenues $ 568,753   $ 253,262   $ -     $ 822,015
  Adjusted EBITDA   43,129     29,879     (5,805 )     67,203
                         
  Operating earnings   32,318     20,167     (8,248 )     44,237

COMPANY CONTACTS:

D. Scott Patterson
President & CEO
           
Jeremy Rakusin
Chief Financial Officer
           
(416) 960-9500

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