FirstService Reports Second Quarter 2022 Results

Jul 27th, 2022 7:30 EST

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 ResultsFirstService 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 CallFirstService 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 StatementsThis 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.

Notes1. 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 PattersonChief Executive Officer        Jeremy RakusinChief Financial Officer

(416) 960-9566

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