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FirstService Reports Strong Fourth Quarter Results

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Strong Organic Growth and Acquisition Activity Drive Revenue and Profitability

Operating highlights:

    Three months ended   Year ended
    December 31   December 31
    2019   2018   2019     2018
                         
Revenues (millions) $ 675.6   $ 503.3   $ 2,407.4     $ 1,931.5
Adjusted EBITDA (millions) (note 1)   63.9     48.7     235.2       190.6
Adjusted EPS (note 2)   0.66     0.62     3.00       2.61
                         
GAAP Operating Earnings   31.4     28.8     (174.4 )   (1) 127.6
GAAP EPS   0.13     0.31     (6.58 )   (1) 1.80
                         
(1) Includes $314.4 million of expense associated with the settlement of the long-term incentive arrangement with FirstService's Founder and Chairman.

TORONTO, Feb. 05, 2020 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV, NASDAQ:FSV) today announced strong fourth quarter and full year results for the year ended December 31, 2019. All amounts are in US dollars.

Revenues for the fourth quarter were $675.6 million, a 34% increase relative to the same quarter in the prior year. Adjusted EBITDA (note 1) was $63.9 million, up 31%, and Adjusted EPS (note 2) was $0.66, up 6% from the prior year quarter. GAAP Operating Earnings were $31.4 million, relative to $28.8 million in the prior year period. GAAP diluted EPS was $0.13 per share in the quarter, compared to $0.31 for the same quarter a year ago.

For the year ended December 31, 2019, revenues were $2.41 billion, a 25% increase relative to the prior year. Adjusted EBITDA was $235.2 million, up 23%, and Adjusted EPS was $3.00, up 15% versus the prior year of $2.61. FirstService's GAAP Operating Loss was $174.4 million in the current year period, reflecting the settlement of the long-term incentive arrangement ("LTIA") with its Founder and Chairman in the amount of $314.4 million during the second quarter of 2019. GAAP Operating Earnings were $127.6 million in the prior year period. The GAAP loss per share for the year was $6.58, compared to GAAP earnings per share of $1.80 in the prior year.

"We are pleased to close out 2019 with a strong fourth quarter of financial results, following on the heels of several other notable achievements throughout the year, including our largest ever acquisition, Global Restoration," said Scott Patterson, Chief Executive Officer of FirstService. "Overall, our businesses delivered solid organic growth and are well-positioned in their respective markets in early 2020," he concluded.

About FirstService Corporation
FirstService Corporation is a North American leader in the property services sector serving its customers through two industry leading 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 US$2.4 billion in annual revenues and has approximately 24,000 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. 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.

Segmented Fourth Quarter Results
FirstService Residential revenues totalled $347.1 million for the fourth quarter, up 11% relative to $312.0 million in the prior year quarter. The revenue increase was comprised of 7% organic growth and the balance from recent acquisitions. Top-line growth was strong across most regions and bolstered by ancillary services. Adjusted EBITDA was $29.8 million, compared to $25.9 million reported in the prior year period, with a modest increase in year-over-year margin. GAAP Operating Earnings were $23.3 million, versus $20.2 million for the fourth quarter of last year.

FirstService Brands revenues totalled $328.5 million, up 72% versus $191.3 million in the prior year period. The increase included 2% organic growth and significant contribution from the large Global Restoration transaction which closed in the second quarter of 2019, as well as other recent tuck-under acquisitions. Organic growth for the quarter was driven primarily by strong performance within our Century Fire Protection and California Closets service lines, largely offset by a significant year-over-year decline at our Paul Davis Restoration company-owned operations due to softer weather-related activity levels. Adjusted EBITDA for the quarter was $38.0 million, up 59% versus the prior year quarter. GAAP Operating Earnings were $13.9 million, versus $11.0 million in the prior year quarter. Margin decline was principally driven by the lower activity levels and revenue at Paul Davis, as well as the addition of Global Restoration, with its lower margin profile than the overall FirstService Brands division, to the current quarter results.

Corporate costs, as presented in Adjusted EBITDA were $3.9 million in the fourth quarter, relative to $1.2 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $5.8, relative to $2.4 million in the prior year period. The year-over-year increase in the current quarter is due to the positive impact of foreign exchange in the prior year period.

Segmented Full Year Results
FirstService Residential revenues were $1.41 billion, up 13% relative to 2018, with the increase comprised of 7% organic growth and the balance from recent tuck-under acquisitions. Organic growth was primarily driven by strong sales resulting in new contract wins throughout the year across most markets. Adjusted EBITDA was $130.6 million, up 16% with modest margin improvement versus the prior year. GAAP Operating Earnings were $104.7 million, compared to $89.0 million in the prior year.

FirstService Brands revenues for the year totalled $995.4 million, up 47% versus the prior year, comprised of 6% organic growth and the balance from recent acquisitions, principally the large Global Restoration transaction. Organic revenue growth was driven by double-digit year-over-year increases at all of our service lines, with the exception of Paul Davis which experienced milder weather patterns and lower activity levels throughout 2019 compared to the prior year. Adjusted EBITDA for the year was $118.3 million, up 34% relative to the prior year. GAAP Operating Earnings were $60.6 million, versus $55.0 million a year ago. The earnings margins in the division were negatively impacted by the same factors cited for the fourth quarter, namely acquisition mix from the addition of the lower margin Global Restoration operations and the lower revenue performance at Paul Davis Restoration.

Corporate costs, as presented in Adjusted EBITDA, were $13.7 million for the full year, relative to $10.5 million in the prior year. On a GAAP basis, corporate costs were $339.7 million, relative to $16.5 million a year ago, with the increase primarily attributable to the settlement of the LTIA with FirstService's Founder and Chairman in the second quarter of 2019.

Conference Call & Presentation
FirstService will be holding a conference call on Wednesday, February 5, 2020 at 11:00 a.m. Eastern Time to discuss the results for the fourth quarter and full year. 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 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. 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, 2018 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; (vi) stock-based compensation expense; and (vii) settlement of the LTIA. The Company uses Adjusted EBITDA to evaluate its own operating performance and its ability to service debt, as well as an integral part of its planning and reporting systems. Additionally, this measure is used in conjunction with discounted cash flow models to determine the Company's overall enterprise valuation and to evaluate acquisition targets. Adjusted EBITDA is presented as a supplemental measure because the Company believes such measure is useful to investors as a reasonable indicator of operating performance because of the low capital intensity of its service operations. The Company believes 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. The Company's 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   Twelve months ended
(in thousands of US$) December 31   December 31
    2019   2018     2019     2018  
                         
Net earnings (loss) $ 13,568   $ 19,787     $ (227,631 )   $ 90,280  
Income tax   6,497     5,801       27,147       24,922  
Other expense (income)   338     (176 )     (6,015 )     (254 )
Interest expense, net   11,020     3,435       32,080       12,620  
Operating earnings (loss)   31,423     28,847       (174,419 )     127,568  
Depreciation and amortization   28,524     15,809       79,557       52,772  
Settlement of long-term incentive arrangement   -     -       314,379       -  
Acquisition-related items   2,166     2,777       7,539       4,504  
Stock-based compensation expense   1,744     1,220       8,126       5,767  
Adjusted EBITDA $ 63,857   $ 48,653     $ 235,182     $ 190,611  

2. Reconciliation of net earnings and net earnings (loss) per common share to adjusted net earnings and adjusted net earnings per share:

Adjusted EPS 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 of intangible assets recognized in connection with acquisitions; (iv) stock-based compensation expense; (v) a stock-based compensation tax adjustment related to a US GAAP change; and (vi) settlement of the LTIA. The Company believes 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 EPS 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. The Company's 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 diluted net earnings per common share to Adjusted EPS appears below.

    Three months ended   Twelve months ended
(in thousands of US$) December 31   December 31
    2019     2018     2019     2018  
                         
Net earnings (loss) $ 13,568     $ 19,787     $ (227,631 )   $ 90,280  
Non-controlling interest share of earnings   (1,612 )     (2,292 )     (7,874 )     (11,180 )
Settlement of long-term incentive arrangement   -       -       314,379       -  
Acquisition-related items   2,166       2,777       7,539       4,504  
Amortization of intangible assets   16,463       4,522       38,698       17,515  
Stock-based compensation expense   1,744       1,220       8,126       5,767  
Stock-based compensation tax adjustment for US GAAP change   -       (769 )     (2,854 )     (3,893 )
Income tax on adjustments   (5,321 )     (2,459 )     (13,470 )     (7,020 )
Non-controlling interest on adjustments   (492 )     (199 )     (1,034 )     (586 )
Adjusted net earnings $ 26,516     $ 22,587     $ 115,879     $ 95,387  
                         
    Three months ended   Twelve months ended
(in US$) December 31   December 31
    2019     2018     2019     2018  
                         
Diluted net earnings (loss) per share $ 0.13     $ 0.31     $ (6.51 )   $ 1.80  
Non-controlling interest redemption increment   0.17       0.17       0.42       0.36  
Settlement of long-term incentive arrangement   -       -       8.13       -  
Acquisition-related items   0.04       0.05       0.16       0.09  
Amortization of intangible assets, net of tax   0.29       0.09       0.72       0.35  
Stock-based compensation expense, net of tax   0.03       0.02       0.15       0.12  
Stock-based compensation tax adjustment for US GAAP change   -       (0.02 )     (0.07 )     (0.11 )
Adjusted earnings per share $ 0.66     $ 0.62     $ 3.00     $ 2.61  


FIRSTSERVICE CORPORATION
Operating Results
(in thousands of US$, except per share amounts)
        Three months     Twelve months
        ended December 31     ended December 31
      2019     2018       2019       2018  
                           
Revenues   $ 675,594   $ 503,313     $ 2,407,410     $ 1,931,473  
                           
Cost of revenues     453,072     347,257       1,634,097       1,320,252  
Selling, general and administrative expenses     160,409     108,623       546,257       426,377  
Depreciation     12,061     11,287       40,859       35,257  
Amortization of intangible assets     16,463     4,522       38,698       17,515  
Settlement of long-term incentive arrangement     -     -       314,379       -  
Acquisition-related items (1)     2,166     2,777       7,539       4,504  
Operating earnings (loss)     31,423     28,847       (174,419 )     127,568  
Interest expense, net     11,020     3,435       32,080       12,620  
Other expense (income)     338     (176 )     (6,015 )     (254 )
Earnings (loss) before income tax     20,065     25,588       (200,484 )     115,202  
Income tax     6,497     5,801       27,147       24,922  
Net earnings (loss)     13,568     19,787       (227,631 )     90,280  
Non-controlling interest share of earnings     1,612     2,292       7,874       11,180  
Non-controlling interest redemption increment     6,719     6,158       16,105       13,235  
Net earnings (loss) attributable to Company   $ 5,237   $ 11,337     $ (251,610 )   $ 65,865  
                           
Net earnings (loss) per common share                        
                           
  Basic   $ 0.13   $ 0.32     $ (6.58 )   $ 1.83  
  Diluted     0.13     0.31       (6.58 )     1.80  
                           
Adjusted earnings per share (2)   $ 0.66   $ 0.62     $ 3.00     $ 2.61  
                           
Weighted average common shares (thousands)                        
  Basic     39,750     35,989       38,225       35,952  
  Diluted     40,141     36,587       38,662       36,571  

(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$)
           
             
  December 31, 2019   December 31, 2018
             
Assets          
Cash and cash equivalents $ 121,198   $ 66,340
Restricted cash   13,093     13,504
Accounts receivable   393,730     239,925
Other current assets   140,115     95,303
  Current assets   668,136     415,072
Other non-current assets   10,412     10,347
Fixed assets   131,545     98,102
Operating lease right-of-use assets   132,893     -
Goodwill and intangible assets   1,011,071     483,953
  Total assets $ 1,954,057   $ 1,007,474
             
             
Liabilities and shareholders' equity          
Accounts payable and accrued liabilities $ 241,671   $ 174,281
Other current liabilities   80,369     48,751
Operating lease liabilities - current   30,622     -
Long-term debt - current   5,545     3,915
  Current liabilities   358,207     226,947
Long-term debt - non-current   761,078     330,608
Operating lease liabilities - non-current   111,247     -
Other liabilities   66,150     55,531
Deferred income tax   56,826     6,577
Redeemable non-controlling interests   174,662     151,585
Shareholders' equity   425,887     236,226
  Total liabilities and equity $ 1,954,057   $ 1,007,474
             
             
Supplemental balance sheet information          
Total debt $ 766,623   $ 334,523
Total debt, net of cash   645,425     268,183


Condensed Consolidated Statements of Cash Flows              
(in thousands of US$)
        Three months ended     Twelve months ended
        December 31     December 31
      2019       2018       2019       2018  
                           
Cash provided by (used in)                        
                           
Operating activities                        
Net earnings   $ 13,568     $ 19,787     $ (227,631 )   $ 90,280  
Items not affecting cash:                        
  Depreciation and amortization     28,524       15,809       79,557       52,772  
  Settlement of long-term incentive arrangement     -       -       289,721       -  
  Deferred income tax     (10,431 )     1,603       (8,988 )     1,989  
  Other     1,258       297       2,258       5,837  
        32,919       37,496       134,917       150,878  
                           
Changes in operating assets and liabilities     10,268       (19,424 )     (27,109 )     (51,417 )
Net cash provided by operating activities     43,187       18,072       107,808       99,461  
                           
Investing activities                        
Acquisition of businesses, net of cash acquired     (24,747 )     (6,916 )     (579,863 )     (59,444 )
Disposal of business, net of cash disposed     -       -       13,030       -  
Purchases of fixed assets     (12,520 )     (10,864 )     (46,628 )     (40,597 )
Other investing activities     (1,639 )     (1,178 )     (1,504 )     (6,158 )
Net cash used in investing activities     (38,906 )     (18,958 )     (614,965 )     (106,199 )
                           
Financing activities                        
Increase (decrease) in long-term debt, net     (182,606 )     4,207       429,859       62,288  
Proceeds received on common share issuance     191,737       -       191,737       -  
Sale (purchases) of non-controlling interests, net     2,761       (468 )     (30,648 )     (2,400 )
Dividends paid to common shareholders     (5,886 )     (4,856 )     (22,044 )     (18,780 )
Repurchases of common shares     -       (3,057 )     -       (8,998 )
Distributions paid to non-controlling interests     -       (1,105 )     (5,725 )     (6,913 )
Other financing activities     1,415       (1,856 )     (2,037 )     (4,755 )
Net cash provided by (used in) financing activities     7,421       (7,135 )     561,142       20,442  
                           
Effect of exchange rate changes on cash     187       (500 )     462       (754 )
                           
Increase (decrease) in cash, cash equivalents and restricted cash     11,889       (8,521 )     54,447       12,950  
                           
Cash, cash equivalents and restricted cash, beginning of period     122,402       88,365       79,844       66,894  
                           
Cash, cash equivalents and restricted cash, end of period   $ 134,291     $ 79,844     $ 134,291     $ 79,844  
                           


Segmented Results
(in thousands of US$)
                         
                     
    FirstService   FirstService        
  Residential   Brands   Corporate   Consolidated
                         
Three months ended December 31                      
                         
2019                      
  Revenues $ 347,087   $ 328,507   $ -     $ 675,594  
  Adjusted EBITDA   29,800     38,001     (3,944 )     63,857  
  Operating earnings   23,309     13,927     (5,813 )     31,423  
                         
2018                      
  Revenues $ 312,001   $ 191,312   $ -     $ 503,313  
  Adjusted EBITDA   25,931     23,897     (1,175 )     48,653  
  Operating earnings   20,234     11,019     (2,406 )     28,847  
                         
                         
                     
    FirstService   FirstService        
    Residential   Brands   Corporate   Consolidated
                         
Year ended December 31                      
                         
2019                      
  Revenues $ 1,411,998   $ 995,412   $ -     $ 2,407,410  
  Adjusted EBITDA   130,583     118,298     (13,699 )     235,182  
  Operating earnings (loss)   104,706     60,586     (339,711 )     (174,419 )
                         
2018                      
  Revenues $ 1,254,840   $ 676,633   $ -     $ 1,931,473  
  Adjusted EBITDA   112,753     88,368     (10,510 )     190,611  
  Operating earnings   89,043     54,988     (16,463 )     127,568  
                             

COMPANY CONTACTS:

D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9500

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