Market Overview

FirstService Reports Solid Second Quarter Operating Results

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Growth Tempered By COVID-19 Pandemic

Operating highlights:

    Three months ended   Six months ended  
    June 30   June 30  
    2020   2019     2020   2019    
                           
Revenues (millions) $ 621.6   $ 573.9     $ 1,255.4   $ 1,059.6    
Adjusted EBITDA (millions) (note 1)   71.2     65.0       115.1     94.2    
Adjusted EPS (note 2)   0.86     1.12       1.23     1.45    
                           
GAAP Operating Earnings   44.9     (268.5 ) (1)   60.9     (255.5 ) (1)
GAAP EPS   0.64     (7.48 ) (1)   0.77     (7.69 ) (1)
                           
(1) Includes $314.4 million settlement of long-term incentive arrangement with FirstService's Founder and Chairman.        

TORONTO, July 23, 2020 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV, NASDAQ:FSV) today reported results for its second quarter ended June 30, 2020. All amounts are in US dollars.

Revenues for the second quarter were $621.6 million, an 8% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 10% to $71.2 million, and Adjusted EPS (note 2) was $0.86, versus $1.12 in the prior year quarter. During the second quarter, FirstService reported GAAP Operating Earnings of $44.9 million, versus an operating loss of $268.5 million in the prior year period, reflecting the 2019 settlement of the long-term incentive arrangement ("LTIA") with its Founder and Chairman in the amount of $314.4 million. The GAAP earnings per share was $0.64 in the quarter, compared to a loss per share of $7.48 for the same quarter a year ago.

For the six months ended June 30, 2020, revenues were $1.26 billion, an 18% increase relative to the comparable prior year period, Adjusted EBITDA was $115.1 million, up 22%, and Adjusted EPS was $1.23, versus $1.45 in the prior year period. FirstService's GAAP Operating Earnings was $60.9 million in the current year period, versus an Operating Loss of $255.5 million in the prior year period. The GAAP earnings per share for the six months year-to-date was $0.77, compared to GAAP loss per share of $7.69 in the prior year period.

"We are pleased to report a solid quarter in the face of significant COVID-19 headwinds. Our financial results exceeded expectations and highlight the resiliency and diversification of our business model," said Scott Patterson, Chief Executive Officer of FirstService. "We maintain a positive yet cautious outlook for the remainder of the year as we navigate around the ongoing pandemic uncertainty," 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 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 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.

Segmented Quarterly Results
FirstService Residential revenues were $338.2 million for the second quarter, down 9% versus the prior year quarter. The revenue decline was primarily attributable to client facility closures that negatively impacted the delivery of our amenity management services, stemming from the COVID-19 pandemic. Adjusted EBITDA for the quarter was $37.2 million, versus $39.2 million in the prior year period. GAAP Operating Earnings were $32.0 million, versus $32.3 million for the second quarter of last year. Margins expanded during the quarter from a combination of aggressive cost reduction initiatives and lower than expected decline in higher margin ancillary revenue.

FirstService Brands revenues during the second quarter grew to $283.4 million, up 39% relative to the prior year period. The division recorded a 10% decline in revenues on an organic basis, which was more than offset by the contribution from the large Global Restoration transaction and other tuck-under acquisitions not reflected in last year's second quarter. The decrease in organic revenue resulted from the various government-mandated "stay at home" measures which negatively impacted activity levels in our service lines tied to home improvement. Adjusted EBITDA for the second quarter was $35.8 million, versus $28.4 million in the prior year period. The year-over-year margin decline was principally driven by acquisition mix, with the addition of Global Restoration yielding lower margins than the overall division. GAAP Operating Earnings were $17.4 million, versus $20.7 million in the prior year quarter, with the decrease due to increased amortization of intangible assets arising from the Global Restoration transaction.

Corporate costs, as presented in Adjusted EBITDA, were $1.9 million in the second quarter, relative to $2.6 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $4.4 million, relative to $321.5 million in the prior year period, with the decrease primarily attributable to the settlement of the LTIA.

Conference Call
FirstService will be holding a conference call on Thursday, July 23, 2020 at 11:00 a.m. Eastern Time to discuss the quarter's results. The numbers to use for this call are 1) toll-free 1-888-241-0551; or 2) for international callers, 647-427-3415. 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, 2019 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. 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
    2020     2019     2020     2019  
                         
Net earnings (loss) $ 29,917     $ (275,680 )   $ 35,697     $ (267,535 )
Income tax   9,603       8,569       11,149       9,778  
Other income, net   (147 )     (6,131 )     (376 )     (6,124 )
Interest expense, net   5,530       4,772       14,417       8,341  
Operating earnings (loss)   44,903       (268,470 )     60,887       (255,540 )
Depreciation and amortization   23,488       14,165       46,995       26,852  
Settlement of long-term incentive arrangement   -       314,379       -       314,379  
Acquisition-related items   397       3,202       802       3,880  
Stock-based compensation expense   2,443       1,755       6,412       4,610  
Adjusted EBITDA $ 71,231     $ 65,031     $ 115,096     $ 94,181  

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; (v) a stock-based compensation tax adjustment related to a US GAAP change; and (vi) settlement of the LTIA. 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
    2020     2019     2020     2019  
                         
Net earnings (loss) $ 29,917     $ (275,680 )   $ 35,697     $ (267,535 )
Non-controlling interest share of earnings   (3,326 )     (2,409 )     (5,081 )     (4,205 )
Settlement of long-term incentive arrangement   -       314,379       -       314,379  
Acquisition-related items   397       3,202       802       3,880  
Amortization of intangible assets   10,864       4,899       22,225       9,206  
Stock-based compensation expense   2,443       1,755       6,412       4,610  
Stock-based compensation tax adjustment for US GAAP change   -       (1,510 )     -       (2,854 )
Income tax on adjustments   (3,460 )     (2,439 )     (7,446 )     (4,301 )
Non-controlling interest on adjustments   (298 )     (80 )     (520 )     (168 )
Adjusted net earnings $ 36,537     $ 42,117     $ 52,089     $ 53,012  
                         
    Three months ended   Six months ended
(in US$) June 30   June 30
    2020     2019     2020     2019  
                         
Diluted net earnings (loss) per share $ 0.64     $ (7.40 )   $ 0.77     $ (7.59 )
Non-controlling interest redemption increment (decrement)   (0.01 )     0.03       (0.04 )     0.14  
Settlement of long-term incentive arrangement   -       8.34       -       8.62  
Acquisition-related items   0.01       0.07       0.02       0.09  
Amortization of intangible assets, net of tax   0.18       0.09       0.37       0.18  
Stock-based compensation expense, net of tax   0.04       0.03       0.11       0.09  
Stock-based compensation tax adjustment for US GAAP change   -       (0.04 )     -       (0.08 )
Adjusted earnings per share $ 0.86     $ 1.12     $ 1.23     $ 1.45  
                         


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)     2020       2019       2020       2019  
                             
Revenues   $ 621,597     $ 573,908     $ 1,255,428     $ 1,059,563  
                             
Cost of revenues     412,010       388,656       847,159       729,354  
Selling, general and administrative expenses     140,799       121,976       299,585       240,638  
Depreciation     12,624       9,266       24,770       17,646  
Amortization of intangible assets     10,864       4,899       22,225       9,206  
Settlement of long-term incentive arrangement     -       314,379       -       314,379  
Acquisition-related items (1)     397       3,202       802       3,880  
Operating earnings (loss)     44,903       (268,470 )     60,887       (255,540 )
Interest expense, net     5,530       4,772       14,417       8,341  
Other expense (income)     (147 )     (6,131 )     (376 )     (6,124 )
Earnings (loss) before income tax     39,520       (267,111 )     46,846       (257,757 )
Income tax     9,603       8,569       11,149       9,778  
Net earnings (loss)     29,917       (275,680 )     35,697       (267,535 )
Non-controlling interest share of earnings     3,326       2,409       5,081       4,205  
Non-controlling interest redemption increment (decrement)     (531 )     947       (1,791 )     4,967  
Net earnings (loss) attributable to Company   $ 27,122     $ (279,036 )   $ 32,407     $ (276,707 )
                             
Net earnings (loss) per common share                        
  Basic   $ 0.64     $ (7.48 )   $ 0.77     $ (7.69 )
  Diluted     0.64       (7.48 )     0.77       (7.69 )
                           
                             
Adjusted earnings per share (2)   $ 0.86     $ 1.12     $ 1.23     $ 1.45  
                             
Weighted average common shares (thousands)                        
    Basic     42,397       37,284       41,977       36,002  
    Diluted     42,710       37,715       42,322       36,452  
                                     

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, 2020   December 31, 2019
             
Assets          
Cash and cash equivalents $ 245,257   $ 121,198  
Restricted cash   20,028     13,093  
Accounts receivable   361,046     393,730  
Prepaid and other current assets   138,197     140,115  
Current assets   764,528     668,136  
Other non-current assets   11,884     11,824  
Fixed assets   128,684     131,545  
Operating lease right-of-use assets   139,580     132,893  
Goodwill and intangible assets   989,339     1,011,071  
Total assets $ 2,034,015   $ 1,955,469  
             
             
Liabilities and shareholders' equity          
Accounts payable and accrued liabilities $ 250,515   $ 241,670  
Other current liabilities   100,346     80,369  
Operating lease liabilities - current   33,045     30,622  
Long-term debt - current   56,669     5,545  
Current liabilities   440,575     358,206  
Long-term debt - non-current   588,525     761,078  
Operating lease liabilities - non-current   117,024     111,247  
Other liabilities   68,898     66,150  
Deferred income tax   54,063     58,239  
Redeemable non-controlling interests   162,613     174,662  
Shareholders' equity   602,317     425,887  
Total liabilities and equity $ 2,034,015   $ 1,955,469  
             
             
Supplemental balance sheet information          
Total debt $ 645,194   $ 766,623  
Total debt, net of cash   399,937     645,425  
               
               
Consolidated Statements of Cash Flows              
(in thousands of US dollars)
        Three months ended     Six months ended
        June 30     June 30
(unaudited)     2020       2019       2020       2019  
                           
Cash provided by (used in)                        
                           
Operating activities                        
Net earnings (loss)   $ 29,917     $ (275,680 )   $ 35,697     $ (267,535 )
Items not affecting cash:                        
  Depreciation and amortization     23,488       14,164       46,995       26,851  
  Non-cash settlement of long-term incentive arrangement     -       289,721       -       289,721  
  Deferred income tax     (2,149 )     992       (4,205 )     1,465  
  Other     1,845       (4,192 )     5,669       (1,058 )
        53,101       25,005       84,156       49,444  
                           
Changes in non-cash working capital                        
  Accounts receivable     11,911       (27,828 )     32,893       (19,228 )
  Payables and accruals     28,814       11,439       18,335       (4,922 )
  Other     19,396       10,212       17,657       19,092  
Net cash provided by operating activities     113,222       18,828       153,041       44,386  
                           
Investing activities                        
Acquisition of businesses, net of cash acquired     -       (519,758 )     -       (545,531 )
Disposition of business, net of cash disposed     -       13,030       -       13,030  
Purchases of fixed assets     (6,733 )     (11,551 )     (22,081 )     (22,287 )
Other investing activities     (603 )     3,188       (786 )     859  
Net cash used in investing activities     (7,336 )     (515,091 )     (22,867 )     (553,929 )
                           
Financing activities                        
Increase in long-term debt, net     (105,072 )     543,216       (121,924 )     588,879  
Proceeds received on common share issuance     150,008       -       150,008       -  
Purchases of non-controlling interests, net     (11,316 )     (14,223 )     (15,067 )     (33,210 )
Financing fees paid     -       (3,428 )     -       (3,696 )
Dividends paid to common shareholders     (6,867 )     (5,418 )     (13,091 )     (10,275 )
Distributions paid to non-controlling interests     -       (3,075 )     (50 )     (4,269 )
Other financing activities     (1,164 )     2,260       1,228       411  
Net cash provided by financing activities     25,589       519,332       1,104       537,840  
                           
Effect of exchange rate changes on cash     626       (508 )     (284 )     (311 )
                           
Increase in cash, cash equivalents and restricted cash     132,101       22,561       130,994       27,986  
                           
Cash, cash equivalents and restricted cash, beginning of period     133,184       85,269       134,291       79,844  
                           
Cash, cash equivalents and restricted cash, end of period   $ 265,285     $ 107,830     $ 265,285     $ 107,830  
                           
           
Segmented Results
(in thousands of US dollars)
                         
                     
    FirstService   FirstService        
(unaudited) Residential   Brands   Corporate   Consolidated
                         
Three months ended June 30                      
                         
2020                      
  Revenues $ 338,153   $ 283,444   $ -     $ 621,597  
  Adjusted EBITDA   37,245     35,844     (1,858 )     71,231  
                         
  Operating earnings   31,980     17,364     (4,441 )     44,903  
                         
2019                      
  Revenues $ 370,405   $ 203,503   $ -     $ 573,908  
  Adjusted EBITDA   39,177     28,431     (2,577 )     65,031  
                         
  Operating earnings   32,278     20,705     (321,453 )     (268,470 )
                         
                         
                     
    FirstService   FirstService        
    Residential   Brands   Corporate   Consolidated
                         
Six months ended June 30                      
                         
2020                      
  Revenues $ 677,816   $ 577,612   $ -     $ 1,255,428  
  Adjusted EBITDA   61,135     57,790     (3,829 )     115,096  
                         
  Operating earnings   49,404     22,271     (10,788 )     60,887  
                         
2019                      
  Revenues $ 689,715   $ 369,848   $ -     $ 1,059,563  
  Adjusted EBITDA   60,996     39,459     (6,274 )     94,181  
                         
  Operating earnings   47,926     24,597     (328,063 )     (255,540 )
                             

COMPANY CONTACTS:

D. Scott Patterson
President & CEO
           
Jeremy Rakusin
Chief Financial Officer

(416) 960-9566

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