OREANDA-NEWS. FirstService Corporation (TSX:FSV) (NASDAQ:FSV) today reported strong results for its second quarter ended June 30, 2016. All amounts are in US dollars.

Revenues for the second quarter were $385.1 million, an 18% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 25% to $40.2 million, and Adjusted EPS (note 2) was $0.52, a 30% increase versus the prior year quarter. GAAP Operating Earnings were $30.8 million, relative to $23.9 million in the prior year period. GAAP diluted earnings per share was $0.35 in the quarter, versus $0.20 for the same quarter a year ago.

For the six months ended June 30, 2016, revenues were $692.7 million, a 16% increase relative to the comparable prior year period, Adjusted EBITDA was $53.0 million, up 27%, and Adjusted EPS was $0.60, a 46% increase versus the prior year period. GAAP Operating Earnings were $35.1 million, relative to $25.3 million in the prior year period. GAAP diluted EPS for the six month period was $0.30, compared to $0.11 in the prior year period.

“FirstService continued its consistent quarterly performance, with both of our FirstService Residential and FirstService Brands divisions recording double-digit top-line growth,” said Scott Patterson, Chief Executive Officer of FirstService. “Each business delivered in line with our previously established long-term revenue targets through a combination of mid-to-high single digit organic growth and further contribution from tuck-under acquisitions.  Our largest acquisition this year, Century Fire, has also been successfully integrated during this quarter, and we view the fire protection market as another important area of future growth for FirstService,” 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$1.3 billion in annual revenues and has more than 16,000 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”. 

Segmented Quarterly Results
FirstService Residential revenues were $288.7 million for the second quarter, up 10% versus the prior year quarter. Revenue growth was comprised of 7% organic growth and the balance from recent acquisitions. Adjusted EBITDA for the quarter was $26.4 million, versus $20.5 million in the prior year period.  Second quarter performance was driven by strong and diversified growth across most regions, and further margin expansion from ongoing operating efficiencies. GAAP Operating Earnings were $21.4 million, up 41%.

FirstService Brands revenues grew to $96.4 million, up 52% relative to the prior year period. Revenue growth was comprised of 8% organic growth and the balance from recent acquisitions, including our larger Century Fire Protection transaction. Adjusted EBITDA for the second quarter was $16.7 million, up from $13.7 million in the prior year period.  The second quarter included strong performance from CertaPro Painters, California Closets and Pillar to Post Home Inspectors, which continue to benefit from the home improvement environment, as well as margin improvement at our California Closets company-owned operations.  The overall margin for the division declined versus the prior year period due to a significant increase in recently acquired company-owned operations, including Century Fire. GAAP Operating Earnings were $13.1 million, versus $11.8 million in the prior year quarter.

Corporate costs, as presented in Adjusted EBITDA, were $2.9 million in the second quarter, relative to $1.9 million in the prior year period. The increase in corporate costs reflects accrued incentive compensation based on year-to-date results. The prior year period was based upon pre-spin-off cost allocations. On a GAAP basis, corporate costs for the quarter were $3.6 million, relative to $3.0 million in the prior period.

 

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
    2016   2015   2016   2015
                         
Net earnings $   18,072     $   11,808     $   19,589     $ 11,374
Income tax     10,262         9,488         11,112       9,259
Other income, net     (26 )       (83 )       (101 )     119
Interest expense, net     2,486         2,723         4,455       4,591
Operating earnings     30,794         23,936         35,055       25,343
Depreciation and amortization     8,494         7,135         15,908       14,133
Acquisition-related items     322         36         393       283
Stock-based compensation expense         635         465         1,605       1,134
Spin-off transaction costs     -         740         -       740
Adjusted EBITDA $   40,245     $   32,312     $   52,961     $ 41,633
 

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 (loss) 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 (loss) per share to adjusted earnings per share appears below.

         
    Three months ended   Six months ended
(in thousands of US$) June 30   June 30
    2016   2015   2016   2015
                         
Net earnings $   18,072     $   11,808     $   19,589     $   11,374  
Non-controlling interest share of earnings     (1,508 )       (1,294 )       (2,316 )       (2,413 )
Acquisition-related items     322         36         393         283  
Amortization of intangible assets     2,833         2,391         5,225         4,941  
Stock-based compensation expense     635         465         1,605         1,134  
Spin-off transaction costs     -         740         -         740  
Spin-off tax charge     -         1,646         -         1,646  
Income tax on adjustments     (1,355 )       (1,266 )       (2,651 )       (2,520 )
Non-controlling interest on adjustments     (62 )       (45 )       (95 )       (90 )
Adjusted net earnings $   18,937     $   14,481     $   21,750     $   15,095  
                         
    Three months ended   Six months ended
(in US$) June 30   June 30
    2016   2015   2016   2015
                         
Diluted net earnings per share $   0.35     $   0.20     $   0.30     $   0.11  
Non-controlling interest redemption increment     0.10         0.08         0.17         0.13  
Acquisition-related items     0.01         -         0.01         0.01  
Amortization of intangible assets, net of tax     0.05         0.04         0.09         0.07  
Stock-based compensation expense, net of tax           0.01         0.01         0.03         0.02  
Spin-off transaction costs, net of tax     -         0.02         -         0.02  
Spin-off tax charge     -         0.05         -         0.05  
Adjusted earnings per share $   0.52     $   0.40     $   0.60     $   0.41  
                         
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)       2016         2015         2016       2015
                             
Revenues   $   385,104     $   326,251     $   692,690     $ 598,440
                             
Cost of revenues       266,434         224,142         488,940       421,449
Selling, general and administrative expenses       79,060         70,262         152,394       136,492
Depreciation       5,661         4,744         10,683       9,192
Amortization of intangible assets       2,833         2,391         5,225       4,941
Acquisition-related items (1)       322         36         393       283
Spin-off transaction costs       -         740         -       740
Operating earnings       30,794         23,936         35,055       25,343
Interest expense, net       2,486         2,723         4,455       4,591
Other expense (income)       (26 )       (83 )       (101 )     119
Earnings before income tax       28,334         21,296         30,701       20,633
Income tax       10,262         9,488         11,112       9,259
Net earnings       18,072         11,808         19,589       11,374
Non-controlling interest share of earnings       1,508         1,294         2,316       2,413
Non-controlling interest redemption increment       3,857         3,137         6,223       4,895
Net earnings attributable to Company   $   12,707     $   7,377     $   11,050     $ 4,066
                             
Net earnings per common share                        
  Basic   $   0.35     $   0.21     $   0.31     $ 0.11
  Diluted       0.35         0.20         0.30       0.11
                           
                             
Adjusted earnings per share (2)   $   0.52     $   0.40     $   0.60     $ 0.41
                             
Weighted average common shares (thousands)                          
    Basic       36,000         35,971         35,984       35,971
    Diluted       36,423         36,601         36,380       36,619
                                         

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, 2016   December 31, 2015
             
Assets          
Cash and cash equivalents $ 36,285   $ 45,560
Accounts receivable   155,608     114,521
Inventories   26,089     16,155
Prepaid expenses and other current assets     61,406     53,986
  Current assets   279,388     230,222
Other non-current assets   5,333     6,009
Fixed assets   68,825     57,575
Deferred income tax   7,142     6,553
Goodwill and intangible assets   377,141     300,124
  Total assets $ 737,829   $ 600,483
             
             
Liabilities and shareholders' equity          
Accounts payable and accrued liabilities $ 131,977   $ 102,043
Other current liabilities   38,018     24,015
Long-term debt - current   1,178     4,041
  Current liabilities   171,173     130,099
Long-term debt - non-current   259,485     197,158
Other liabilities   15,443     14,670
Deferred income tax   29,841     13,971
Redeemable non-controlling interests   88,783     77,559
Shareholders' equity   173,104     167,026
  Total liabilities and equity $ 737,829   $ 600,483
             
             
Supplemental balance sheet information          
Total debt $ 260,663   $ 201,199
Total debt, net of cash   224,378     155,639
           
Consolidated Statements of Cash Flows              
(in thousands of US dollars)
        Three months ended     Six months ended
        June 30     June 30
(unaudited)       2016         2015         2016         2015  
                           
Cash provided by (used in)                        
                           
Operating activities                        
Net earnings   $   18,072     $   11,808     $   19,589     $   11,374  
Items not affecting cash:                        
  Depreciation and amortization       8,493         7,135         15,907         14,133  
  Deferred income tax       (558 )       (657 )       (1,094 )       223  
  Other       630         (486 )       536         180  
          26,637         17,800         34,938         25,910  
                           
Changes in non-cash working capital                        
  Accounts receivable       (17,462 )       (9,076 )       (20,851 )       619  
  Payables and accruals       22,993         3,504         19,566         342  
  Other       6,288         10,980         6,641         15,007  
Net cash provided by operating activities       38,456         23,208         40,294         41,878  
                           
Investing activities                        
Acquisition of businesses, net of cash acquired       (72,043 )       (4,298 )       (77,081 )       (8,500 )
Purchases of fixed assets       (7,078 )       (6,821 )       (13,978 )       (10,407 )
Other investing activities       (2,867 )       (2,414 )       (7,448 )       (1,473 )
Net cash used in investing activities       (81,988 )       (13,533 )       (98,507 )       (20,380 )
                           
Financing activities                        
Increase in long-term debt, net       49,298         (24,880 )       59,374         (17,263 )
Net contributions from Old FSV       -         31,906         -         1,995  
Sale (purchases) of non-controlling interests, net       13         (9,750 )       259         (17,386 )
Financing fees paid       -         (1,086 )       -         (1,086 )
Dividends paid to common shareholders       (3,960 )       -         (7,421 )       -  
Distributions paid to non-controlling interests       (1,832 )       (737 )       (3,064 )       (2,287 )
Repurchases of Subordinate Voting Shares       (1,349 )       -         (1,349 )       -  
Other financing activities       399         (151 )       842         (1,769 )
Net cash (used in) provided by financing activities         42,569         (4,698 )       48,641         (37,796 )
                           
Effect of exchange rate changes on cash       173         1,719         297         1,346  
                           
Increase (decrease) in cash and cash equivalents       (790 )       6,696         (9,275 )       (14,952 )
                           
Cash and cash equivalents, beginning of period       37,075         45,142         45,560         66,790  
                           
Cash and cash equivalents, end of period   $   36,285     $   51,838     $   36,285     $   51,838