Market Overview

FirstService Reports Strong Third Quarter Results

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Operating highlights:

    Three months ended        Nine months ended
 
    September 30        September 30
 
    2020   2019   2020     2019    
                           
Revenues (millions) $ 741.9   $ 672.3   $ 1,997.4   $ 1,731.8    
Adjusted EBITDA (millions) (note 1)   88.7     77.1     203.8     171.3    
Adjusted EPS (note 2)   1.19     0.92     2.44     2.38    
                           
GAAP Operating Earnings   59.1     49.7     120.0     (205.8 ) (1)
GAAP EPS   0.75     0.50     1.52     (6.93 ) (1)
                             
(1) Includes $314.4 million settlement of long-term incentive arrangement with FirstService's Founder and Chairman.          

TORONTO, Oct. 28, 2020 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV, NASDAQ:FSV) today reported strong results for its third quarter ended September 30, 2020. All amounts are in US dollars.

Revenues for the third quarter were $741.9 million, a 10% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 15% to $88.7 million, and Adjusted EPS (note 2) was $1.19, representing 29% growth over the prior year quarter. During the third quarter, FirstService reported GAAP Operating Earnings of $59.1 million, up from $49.7 million in the prior year period. The GAAP diluted earnings per share was $0.75 in the quarter, compared to $0.50 for the same quarter a year ago.

For the nine months ended September 30, 2020, revenues were $2.00 billion, a 15% increase relative to the comparable prior year period, Adjusted EBITDA was $203.8 million, up 19%, and Adjusted EPS was $2.44, versus $2.38 in the prior year period. FirstService's GAAP Operating Earnings were $120.0 million in the current year period, versus an Operating Loss of $205.8 million in the prior year, 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 diluted earnings per share for the nine months year-to-date was $1.52, compared to GAAP loss per share of $6.93 in the prior year period.

"We are pleased to have rebounded this quarter to report strong organic growth buoyed by increased activity levels in restoration," said Scott Patterson, Chief Executive Officer of FirstService. "Our operations continue to demonstrate resilience in the current pandemic environment and we look forward to a solid finish to the 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 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 $374.8 million for the third quarter, matching the top-line in the prior year quarter. Growth was tempered by continued COVID-related closures of client facilities, which negatively impacted our amenity management services revenue. Adjusted EBITDA for the quarter was $41.8 million, versus $39.8 million in the prior year period. GAAP Operating Earnings were $35.2 million, versus $33.0 million for the third quarter of last year. Margin expansion during the quarter was driven by an increase in higher margin ancillary revenues, primarily related to strong home resale activity.

FirstService Brands revenues during the third quarter grew to $367.2 million, up 24% relative to the prior year period, of which 15% was organic. Organic growth was principally driven by strong performance at our restoration service lines, which benefited from increased storm-related activity and large loss claims relative to last year. Adjusted EBITDA for the third quarter was $48.7 million, versus $40.8 million in the prior year period. GAAP Operating Earnings were $28.5 million, versus $22.1 million in the prior year quarter.

Corporate costs, as presented in Adjusted EBITDA, were $1.8 million in the third quarter, relative to $3.5 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $4.5 million, relative to $5.4 million in the prior year period. The year-over-year cost reduction is due to lower compensation costs and foreign exchange.

Conference Call
FirstService will be holding a conference call on Wednesday, October 28, 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   Nine months ended
(in thousands of US$) September 30   September 30
    2020     2019     2020     2019  
                         
Net earnings (loss) $ 40,966     $ 26,336     $ 76,663     $ (241,199 )
Income tax   12,969       10,872       24,118       20,650  
Other income, net   (269 )     (229 )     (645 )     (6,353 )
Interest expense, net   5,464       12,719       19,881       21,060  
Operating earnings (loss)   59,130       49,698       120,017       (205,842 )
Depreciation and amortization   26,184       24,181       73,179       51,033  
Settlement of long-term incentive arrangement   -       -       -       314,379  
Acquisition-related items   950       1,493       1,752       5,373  
Stock-based compensation expense   2,468       1,772       8,880       6,382  
Adjusted EBITDA $ 88,732     $ 77,144     $ 203,828     $ 171,325  


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   Nine months ended
(in thousands of US$) September 30   September 30
    2020     2019     2020     2019  
                         
Net earnings (loss) $ 40,966     $ 26,336     $ 76,663     $ (241,199 )
Non-controlling interest share of earnings   (760 )     (2,057 )     (5,841 )     (6,262 )
Settlement of long-term incentive arrangement   -       -       -       314,379  
Acquisition-related items   950       1,493       1,752       5,373  
Amortization of intangible assets   13,191       13,029       35,416       22,235  
Stock-based compensation expense   2,468       1,772       8,880       6,382  
Stock-based compensation tax adjustment for US GAAP change   -       -       -       (2,854 )
Income tax on adjustments   (4,071 )     (3,848 )     (11,517 )     (8,149 )
Non-controlling interest on adjustments   (303 )     (374 )     (823 )     (542 )
Adjusted net earnings $ 52,441     $ 36,351     $ 104,530     $ 89,363  
                         
    Three months ended   Nine months ended
(in US$) September 30   September 30
    2020     2019     2020     2019  
                         
Diluted net earnings (loss) per share $ 0.75     $ 0.50     $ 1.52     $ (6.84 )
Non-controlling interest redemption increment   0.17       0.11       0.13       0.25  
Settlement of long-term incentive arrangement   -       -       -       8.37  
Acquisition-related items   0.02       0.04       0.04       0.12  
Amortization of intangible assets, net of tax   0.21       0.24       0.60       0.43  
Stock-based compensation expense, net of tax   0.04       0.03       0.15       0.13  
Stock-based compensation tax adjustment for US GAAP change   -       -       -       (0.08 )
Adjusted earnings per share $ 1.19     $ 0.92     $ 2.44     $ 2.38  
                         



FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
          Three months     Nine months
          ended September 30     ended September 30
(unaudited)     2020       2019       2020       2019  
                             
Revenues   $ 741,932     $ 672,253     $ 1,997,360     $ 1,731,816  
                             
Cost of revenues     496,367       451,671       1,343,526       1,181,025  
Selling, general and administrative expenses     159,301       145,210       458,886       385,848  
Depreciation     12,993       11,152       37,763       28,798  
Amortization of intangible assets     13,191       13,029       35,416       22,235  
Settlement of long-term incentive arrangement     -       -       -       314,379  
Acquisition-related items (1)     950       1,493       1,752       5,373  
Operating earnings (loss)     59,130       49,698       120,017       (205,842 )
Interest expense, net     5,464       12,719       19,881       21,060  
Other income     (269 )     (229 )     (645 )     (6,353 )
Earnings (loss) before income tax     53,935       37,208       100,781       (220,549 )
Income tax     12,969       10,872       24,118       20,650  
Net earnings (loss)     40,966       26,336       76,663       (241,199 )
Non-controlling interest share of earnings     760       2,057       5,841       6,262  
Non-controlling interest redemption increment     7,379       4,419       5,588       9,386  
Net earnings (loss) attributable to Company   $ 32,827     $ 19,860     $ 65,234     $ (256,847 )
                         
Net earnings (loss) per common share                        
Basic   $ 0.76     $ 0.51     $ 1.54     $ (6.93 )
Diluted     0.75       0.50       1.52       (6.93 )
                         
                         
Adjusted earnings per share (2)   $ 1.19     $ 0.92     $ 2.44     $ 2.38  
                         
Weighted average common shares (thousands)                        
Basic     43,476       39,224       42,480       37,087  
Diluted     43,942       39,691       42,868       37,542  

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) September 30, 2020   December 31, 2019
             
Assets          
Cash and cash equivalents $ 158,570   $ 121,198  
Restricted cash   23,795     13,093  
Accounts receivable   415,712     393,730  
Prepaid and other current assets   196,015     140,115  
Current assets   794,092     668,136  
Other non-current assets   12,208     11,824  
Fixed assets   130,226     131,545  
Operating lease right-of-use assets   137,511     132,893  
Goodwill and intangible assets   1,048,188     1,011,071  
Total assets $ 2,122,225   $ 1,955,469  
             
             
Liabilities and shareholders' equity          
Accounts payable and accrued liabilities $ 318,695   $ 241,670  
Other current liabilities   98,013     80,369  
Operating lease liabilities - current   33,901     30,622  
Long-term debt - current   56,501     5,545  
Current liabilities   507,110     358,206  
Long-term debt - non-current   548,130     761,078  
Operating lease liabilities - non-current   114,248     111,247  
Other liabilities   83,784     66,150  
Deferred income tax   51,904     58,239  
Redeemable non-controlling interests   179,161     174,662  
Shareholders' equity   637,888     425,887  
Total liabilities and equity $ 2,122,225   $ 1,955,469  
             
             
Supplemental balance sheet information          
Total debt $ 604,631   $ 766,623  
Total debt, net of cash   446,061     645,425  



Consolidated Statements of Cash Flows              
(in thousands of US dollars)
      Three months ended     Nine months ended
      September 30     September 30
(unaudited)     2020       2019       2020       2019  
                         
Cash provided by (used in)                        
                         
Operating activities                        
Net earnings (loss)   $ 40,966     $ 26,336     $ 76,663     $ (241,199 )
Items not affecting cash:                        
Depreciation and amortization     26,184       24,182       73,179       51,033  
Non-cash settlement of long-term incentive arrangement     -       -       -       289,721  
Deferred income tax     (2,134 )     (22 )     (6,339 )     1,443  
Other     2,486       2,058       8,155       1,000  
      67,502       52,554       151,658       101,998  
                         
Changes in non-cash working capital                        
Accounts receivable     (27,384 )     3,010       5,509       (16,218 )
Payables and accruals     34,295       (37,878 )     52,630       (42,800 )
Other     (32,494 )     2,549       (14,837 )     21,641  
Net cash provided by operating activities     41,919       20,235       194,960       64,621  
                         
Investing activities                        
Acquisition of businesses, net of cash acquired     (64,507 )     (9,585 )     (64,507 )     (555,116 )
Disposition of business, net of cash disposed     -       -       -       13,030  
Purchases of fixed assets     (8,820 )     (11,821 )     (30,901 )     (34,108 )
Other investing activities     (544 )     (724 )     (1,330 )     135  
Net cash used in investing activities     (73,871 )     (22,130 )     (96,738 )     (576,059 )
                         
Financing activities                        
Increase in long-term debt, net     (41,863 )     23,586       (163,787 )     612,465  
Proceeds received on common share issuance     -       -       150,008       -  
Purchases of non-controlling interests, net     (3,723 )     (199 )     (18,790 )     (33,409 )
Financing fees paid     -       (167 )     -       (3,863 )
Dividends paid to common shareholders     (7,168 )     (5,883 )     (20,259 )     (16,158 )
Distributions paid to non-controlling interests     (3,368 )     (1,995 )     (3,418 )     (6,264 )
Other financing activities     5,255       539       6,483       950  
Net cash provided by (used in) financing activities     (50,867 )     15,881       (49,763 )     553,721  
                         
Effect of exchange rate changes on cash     (101 )     586       (385 )     275  
                         
Increase (decrease) in cash, cash equivalents and restricted cash     (82,920 )     14,572       48,074       42,558  
                         
Cash, cash equivalents and restricted cash, beginning of period     265,285       107,830       134,291       79,844  
                         
Cash, cash equivalents and restricted cash, end of period   $ 182,365     $ 122,402     $ 182,365     $ 122,402  



Segmented Results
(in thousands of US dollars)
               
  FirstService   FirstService        
(unaudited) Residential   Brands   Corporate   Consolidated
                       
Three months ended September 30                      
                       
2020                      
Revenues $ 374,756   $ 367,176   $ -     $ 741,932  
Adjusted EBITDA   41,805     48,678     (1,751 )     88,732  
                       
Operating earnings   35,200     28,451     (4,521 )     59,130  
                       
2019                      
Revenues $ 375,196   $ 297,057   $ -     $ 672,253  
Adjusted EBITDA   39,787     40,838     (3,481 )     77,144  
                       
Operating earnings   33,036     22,062     (5,400 )     49,698  
                       
                       
                   
  FirstService   FirstService        
  Residential   Brands   Corporate   Consolidated
                       
Nine months ended September 30                      
                       
2020                      
Revenues $ 1,052,572   $ 944,788   $ -     $ 1,997,360  
Adjusted EBITDA   102,940     106,468     (5,580 )     203,828  
                       
Operating earnings   84,604     50,722     (15,309 )     120,017  
                       
2019                      
Revenues $ 1,064,911   $ 666,905   $ -     $ 1,731,816  
Adjusted EBITDA   100,783     80,297     (9,755 )     171,325  
                       
Operating earnings   81,397     46,659     (333,898 )     (205,842 )


COMPANY CONTACTS:

D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9566

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