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FirstService Reports Second Quarter 2022 Results

Operating highlights:

  Three months ended Six months ended 
  June 30 June 30 
  2022 2021 2022 2021 
              
Revenues (millions)$930.7 $831.6 $1,765.3 $1,542.7 
Adjusted EBITDA (millions) (note 1) 91.3  89.9  153.7  149.6 
Adjusted EPS (note 2) 1.12  1.21  1.85  1.87 
              
GAAP Operating Earnings 59.8  61.4  88.9  95.3 
GAAP EPS 0.78  0.83  1.09  1.32 
              

TORONTO, July 27, 2022 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported results for its second quarter ended June 30, 2022. All amounts are in US dollars.

Consolidated revenues for the second quarter were $930.7 million, a 12% increase relative to the same quarter in the prior year, including 6% organic growth. Adjusted EBITDA (note 1) increased 2% to $91.3 million, and Adjusted EPS (note 2) was $1.12, compared to $1.21 in the prior year quarter. During the second quarter, FirstService reported GAAP Operating Earnings of $59.8 million, down from $61.4 million in the prior year period. The GAAP diluted earnings per share was $0.78 in the quarter, compared to $0.83 for the same quarter a year ago.

For the six months ended June 30, 2022, consolidated revenues were $1.77 billion, a 14% increase relative to the comparable prior year period, Adjusted EBITDA was $153.7 million, up 3%, and Adjusted EPS was $1.85, in line with $1.87 in the prior year period. FirstService’s GAAP Operating Earnings were $88.9 million in the current year period, versus $95.3 million in the prior year. The GAAP diluted earnings per share for the six months year-to-date was $1.09, compared to $1.32 in the prior year period.

“We are pleased to have delivered another quarter of balanced, double-digit top-line growth across both of our divisions,” said Scott Patterson, Chief Executive Officer of FirstService. “We continue to see strong demand for our services and remain active with recruiting talent to capitalize on the growth opportunities within all of our markets,” 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$3.4 billion in annual revenues and has approximately 25,000 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”, and are included in the S&P/TSX 60 index. More information is available at www.firstservice.com.

Segmented Quarterly Results
FirstService Residential revenues were $457.5 million for the second quarter, up 13% compared to the prior year quarter, including organic growth of 7%. The strong revenue performance in the quarter was driven by increased labour-related services and contract wins, with particular strength across our markets in the Sun Belt states. Adjusted EBITDA for the quarter was $50.5 million, versus $46.5 million in the prior year period. GAAP Operating Earnings were $43.3 million, versus $40.4 million for the second quarter of last year. Operating margins in the division were impacted by ongoing wage inflation and a higher proportion of labour-driven services relative to higher margin ancillaries, compared to the prior year quarter.

FirstService Brands revenues during the second quarter grew to $473.2 million, up 11% relative to the prior year period. Organic growth was 4%, with the balance from recent tuck-under acquisitions. The revenue growth was driven by continued strength across our home improvement service lines, as well as significant growth at our Century Fire operations. Top-line performance in our restoration businesses was relatively in line with prior year, due to the strong prior year quarter comparative from weather-related activity and large loss claims tied to the Texas Freeze event. Adjusted EBITDA for the second quarter was $43.9 million, versus $48.2 million in the prior year period. GAAP Operating Earnings were $23.7 million, versus $30.7 million in the prior year quarter. Margins within the division declined due to the combination of softer weather-related claims activity and ongoing growth investments within our restoration operations, as well as inflationary impacts within certain areas of our businesses.

Corporate costs, as presented in Adjusted EBITDA, were $3.1 million in the second quarter, relative to $4.8 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $7.1 million, relative to $9.8 million in the prior year period. The year-over-year cost decrease was primarily driven by lower compensation expense.

Conference Call
FirstService will be holding a conference call on Wednesday, July 27, 2022 at 11:00 a.m. Eastern Time to discuss the quarter’s results. This call is being webcast live at the Company’s website at www.firstservice.com. Participants may register for the call here https://register.vevent.com/register/BI57970ff4413b486f82c5d18cab946663 to receive the dial-in number and their unique PIN. To join the webcast in listen only mode, use this link: https://edge.media-server.com/mmc/p/is4n9mqu . It is recommended that you join 10 minutes prior to the event start (although you may register and dial in at any time during the call).

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, 2021 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
  2022 2021  2022  2021 
             
Net earnings$40,506 $44,020  $59,327  $67,863 
Income tax 13,944  14,280   20,338   22,000 
Other expense (income), net 322  (888)  (213)  (2,756)
Interest expense, net 5,041  3,971   9,407   8,158 
Operating earnings 59,813  61,383   88,859   95,265 
Depreciation and amortization 26,912  23,674   52,822   46,899 
Acquisition-related items 586  (107)  2,147   (206)
Stock-based compensation expense 4,035  4,903   9,856   7,690 
Adjusted EBITDA$91,346 $89,853  $153,684  $149,648 

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; and (iv) stock-based compensation expense. 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
  2022  2021  2022  2021 
             
Net earnings$40,506  $44,020  $59,327  $67,863 
Non-controlling interest share of earnings (2,450)  (1,596)  (3,015)  (5,363)
Acquisition-related items 586   (107)  2,147   (206)
Amortization of intangible assets 11,398   10,408   22,864   20,420 
Stock-based compensation expense 4,035   4,903   9,856   7,690 
Income tax on adjustments (4,012)  (3,981)  (8,507)  (7,309)
Non-controlling interest on adjustments (206)  (177)  (434)  (352)
Adjusted net earnings$49,857  $53,470  $82,238  $82,743 
             
  Three months ended Six months ended
(in US$)June 30 June 30
  2022  2021  2022  2021 
             
Diluted net earnings per share$0.78  $0.83  $1.09  $1.32 
Non-controlling interest redemption increment 0.08   0.13   0.17   0.09 
Acquisition-related items 0.01   -   0.05   - 
Amortization of intangible assets, net of tax 0.18   0.17   0.37   0.33 
Stock-based compensation expense, net of tax 0.07   0.08   0.17   0.13 
Adjusted earnings per share$1.12  $1.21  $1.85  $1.87 
             


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
   2022  2021   2022   2021 
               
Revenues $930,707 $831,630  $1,765,279  $1,542,696 
               
Cost of revenues  638,475  554,676   1,214,309   1,045,488 
Selling, general and administrative expenses  204,921  192,004   407,142   355,250 
Depreciation  15,514  13,266   29,958   26,479 
Amortization of intangible assets  11,398  10,408   22,864   20,420 
Acquisition-related items (1)  586  (107)  2,147   (206)
Operating earnings  59,813  61,383   88,859   95,265 
Interest expense, net  5,041  3,971   9,407   8,158 
Other expense (income), net  322  (888)  (213)  (2,756)
Earnings before income tax  54,450  58,300   79,665   89,863 
Income tax  13,944  14,280   20,338   22,000 
Net earnings   40,506  44,020   59,327   67,863 
Non-controlling interest share of earnings  2,450  1,596   3,015   5,363 
Non-controlling interest redemption increment  3,490  5,725   7,661   3,910 
Net earnings attributable to Company  $34,566 $36,699  $48,651  $58,590 
               
Net earnings per common share             
 Basic $0.78 $0.84  $1.10  $1.34 
 Diluted  0.78  0.83   1.09   1.32 
              
               
Adjusted earnings per share (2) $1.12 $1.21  $1.85  $1.87 
               
Weighted average common shares (thousands)            
  Basic  44,193  43,830   44,139   43,764 
  Diluted  44,479  44,365   44,490   44,287 

Notes to Condensed Consolidated Statements of Earnings
(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)
      
       
 June 30, 2022 December 31, 2021
       
Assets     
Cash and cash equivalents$145,106 $165,665 
Restricted cash 36,063  28,606 
Accounts receivable 538,507  551,564 
Prepaid and other current assets 266,059  218,825 
 Current assets 985,735  964,660 
Other non-current assets 21,666  21,098 
Fixed assets 150,129  138,066 
Operating lease right-of-use assets 165,554  159,730 
Goodwill and intangible assets 1,203,841  1,225,469 
 Total assets$2,526,925 $2,509,023 
       
       
Liabilities and shareholders' equity     
Accounts payable and accrued liabilities$369,815 $386,529 
Other current liabilities 147,825  126,460 
Operating lease liabilities - current 47,869  48,047 
Long-term debt - current 35,568  57,436 
 Current liabilities 601,077  618,472 
Long-term debt - non-current 621,204  595,368 
Operating lease liabilities - non-current 128,127  122,337 
Other liabilities 77,916  111,919 
Deferred income tax 40,679  42,070 
Redeemable non-controlling interests 209,534  219,135 
Shareholders' equity 848,388  799,722 
 Total liabilities and equity$2,526,925 $2,509,023 
       
       
Supplemental balance sheet information     
Total debt$656,772 $652,804 
Total debt, net of cash 511,666  487,139 
 
 
Consolidated Statements of Cash Flows       
(in thousands of US dollars)
    Three months ended  Six months ended
    June 30  June 30
   2022   2021   2022   2021 
              
Cash provided by (used in)            
              
Operating activities            
Net earnings $40,506  $44,020  $59,327  $67,863 
Items not affecting cash:            
 Depreciation and amortization  26,912   23,674   52,822   46,899 
 Deferred income tax  (581)  (981)  (1,204)  (1,730)
 Other  4,703   5,024   11,476   7,998 
    71,540   71,737   122,421   121,030 
              
Changes in non-cash working capital            
 Accounts receivable  (3,100)  (46,938)  21,734   (38,686)
 Payables and accruals  4,500   18,552   (35,450)  (8,368)
 Other  (11,141)  36,661   (45,405)  32,747 
Net cash provided by operating activities  61,799   80,012   63,300   106,723 
              
Investing activities            
Acquisition of businesses, net of cash acquired  -   (37,082)  -   (39,603)
Purchases of fixed assets  (19,795)  (15,766)  (36,378)  (29,103)
Other investing activities  (7,855)  (2,210)  (13,969)  (4,276)
Net cash used in investing activities  (27,650)  (55,058)  (50,347)  (72,982)
              
Financing activities            
Increase (decrease) in long-term debt, net  (24,181)  19,748   5,729   (17,905)
Purchases of non-controlling interests, net  (13,415)  (2,009)  (19,179)  (5,400)
Financing fees paid  -   -   (2,333)  - 
Dividends paid to common shareholders  (8,949)  (7,999)  (16,981)  (15,191)
Distributions paid to non-controlling interests  (2,602)  (5,286)  (2,602)  (7,156)
Other financing activities  (930)  264   8,942   9,861 
Net cash provided by (used in) financing activities  (50,077)  4,718   (26,424)  (35,791)
              
Effect of exchange rate changes on cash  503   323   369   533 
              
Increase (decrease) in cash, cash equivalents and restricted cash  (15,425)  29,995   (13,102)  (1,517)
              
Cash, cash equivalents and restricted cash, beginning of period  196,594   177,426   194,271   208,938 
              
Cash, cash equivalents and restricted cash, end of period $181,169  $207,421  $181,169  $207,421 
              
              
              
      
Segmented Results
(in thousands of US dollars)
             
           
  FirstService FirstService    
 Residential Brands Corporate Consolidated
             
Three months ended June 30           
             
2022           
 Revenues$457,489 $473,218 $-  $930,707 
 Adjusted EBITDA 50,468  43,932  (3,054)  91,346 
             
 Operating earnings 43,256  23,669  (7,112)  59,813 
             
2021           
 Revenues$406,221 $425,409 $-  $831,630 
 Adjusted EBITDA 46,494  48,171  (4,812)  89,853 
             
 Operating earnings 40,404  30,749  (9,770)  61,383 
             
             
           
  FirstService FirstService    
  Residential Brands Corporate Consolidated
             
Six months ended June 30           
             
2022           
 Revenues$851,572 $913,707 $-  $1,765,279 
 Adjusted EBITDA 80,878  80,014  (7,208)  153,684 
             
 Operating earnings 66,653  39,420  (17,214)  88,859 
             
2021           
 Revenues$756,701 $785,995 $-  $1,542,696 
 Adjusted EBITDA 75,901  81,578  (7,831)  149,648 
             
 Operating earnings 63,648  47,255  (15,638)  95,265 


COMPANY CONTACTS:

D. Scott Patterson
Chief Executive Officer
        
Jeremy Rakusin
Chief Financial Officer

(416) 960-9566


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