EX-99.1 2 ex991.htm EXHIBIT 99.1 Exhibit 99.1

EXHIBIT 99.1


   FOR: FIRSTSERVICE CORPORATION
     
   COMPANY CONTACTS:
     
   
Jay S. Hennick
   
President & CEO
    416) 960-9500
     
   
John B. Friedrichsen
   
Senior Vice President & CFO
   
(416) 960-9500
 
FOR IMMEDIATE RELEASE

FirstService reports strong third quarter results; Increases current year earnings outlook; Provides preliminary outlook for next year

FISCAL 2005 THIRD QUARTER HIGHLIGHTS:
 
l
Adjusted diluted EPS triples to US$0.27
 
l
Adjusted net earnings triples to US$8.3 million
 
l
Revenues up 49% to US$222 million
 
l
Preliminary outlook for next year including adjusted EPS range of US$0.97-US$1.05
 
TORONTO, Canada, January 26, 2005 - FirstService Corporation (Nasdaq: FSRV; TSX: FSV.SV) today reported results for its third quarter ended December 31, 2004. Quarterly revenues were $221.9 million (all amounts are in US dollars), up 49% over the same period last year. Both EBITDA and operating earnings more than doubled, with EBITDA of $24.4 million compared to $9.9 million in the prior year period and operating earnings of $14.8 million compared to $6.0 million in the third quarter last year 1.

Adjusted net earnings from continuing operations2 were $8.3 million, up from $2.7 million in the prior year period. The adjustment relates to the amortization of short-lived intangible assets recognized upon the recent acquisition of CMN International, Inc. and in particular, the estimated fair value of the backlog of pending real estate brokerage transactions and listings that existed at the acquisition date. Adjusted diluted earnings per share from continuing

1.
See "Reconciliation of EBITDA to operating earnings" below.
2.
See "Reconciliation of operating earnings, net earnings and net earnings per share to adjusted operating earnings, adjusted net earnings and adjusted net earnings per share" below.


 
   
 
 
operations were $0.27, up three-fold from $0.09 in the prior year. All per-share figures reflect the 2 for 1 stock split completed on December 15, 2004.
 
Third quarter results reflect a continuation of the strong operating trends reported in the first and second quarters as well as the impact of acquisitions made during the year. Nine-month revenues were $577.6 million, an increase of 27% relative to the prior year period, including internal growth of 11%. Year-to-date adjusted net earnings were $25.1 million, up 63%, and adjusted diluted earnings per share from continuing operations were $0.83, up 57% versus $0.53 one year ago.

About FirstService Corporation
FirstService is a leader in the rapidly growing service sector, providing services in the following areas: commercial real estate services; residential property management; commercial security systems; property improvement and business services.  Market-leading brands include Colliers International in commercial real estate; Continental, Wentworth and Prime Management in residential property management; Intercon Security and SST in commercial security systems; California Closets, Paul Davis Restoration and Pillar to Post Home Inspections in property improvement; and Resolve Corporation in business services.

FirstService is a diversified service company with more than US$1 billion in annualized revenues and more than 15,000 employees worldwide. More information about FirstService is available at www.firstservice.com. 

Segmented Quarterly Operating Results
Commercial Real Estate Services, established with the acquisition of CMN on November 30, 2004, provided its initial contribution to reported results in the third quarter. For the month of December, extremely strong results were generated, well in excess of the expectations set forth in the Company’s previous outlook. Revenues totalled $49.6 million and EBITDA was $10.7 million. December is traditionally the peak period for brokerage activity, and brokerage operations in North America, Australia and Eastern Europe reported strong results as more transactions closed during the month than were expected, including several sizeable transactions.

Residential Property Management revenues increased to $65.6 million for the quarter, 20% higher than in the prior year period. Internal growth of 10% was attributable to growth in contractual property management revenues. Revenue growth from acquisitions of 10% included property management acquisitions in Chicago and Las Vegas, both representing new regional markets for FirstService. EBITDA for the quarter was $4.1 million at a margin of 6.2%, up significantly from $2.2 million and 4.0% one year ago. The increase in margin reflects higher productivity in property services operations and change in mix due to recent acquisitions.


 
  -2-   
 

Third quarter revenues in Property Improvement Services totalled $27.8 million, an increase of 15% over the prior year period. The Paul Davis Restoration and California Closets franchise systems, as well as the Company’s California Closets "branchise" stores, produced strong revenue gains. EBITDA was $2.9 million in the current quarter, similar to the prior year period.

Integrated Security Services revenues in the third quarter were $37.2 million, up 14% relative to the prior year period. Internal growth accounted for 5% of the increase, while acquisitions represented 5% and foreign exchange on Canadian operations accounted for 4%. Internal growth was attributable to higher systems installation revenues. EBITDA was $2.9 million and the margin was similar to last year at 7.8%.

Third quarter Business Services revenues were $41.3 million, an increase of 11% relative to the prior year period. Excluding the impact of foreign exchange on Canadian operations, revenue growth was 7%. EBITDA was $6.3 million or 15.2% of revenues, up 61% from $3.9 million or 10.5% of revenues in the third quarter last year. The margin increase reflects productivity gains and high capacity utilization in the customer contact centers during the quarter. Fourth quarter results are not expected to be as strong sequentially and comparatively due to expected client volume fluctuations and the non-recurrence of a significant promotional project last year.

Quarterly corporate costs were $2.5 million, up 25% from $1.8 million in the prior year period due to costs related to Sarbanes-Oxley compliance and higher performance-based executive compensation accruals.

For a reconciliation of segmented EBITDA to operating earnings, see "Segmented Revenues, EBITDA and Operating Earnings" below.

Financial Outlook
Based on the strong operating results to date and expectations for the balance of the year, FirstService is increasing and updating the outlook previously issued on November 30, 2004.

(in millions of US dollars, except per share amounts)
  
Year ending March 31, 2005
  
Year ending
March 31, 2006
  
   
Previous
  
Updated
  
Preliminary
  
   
 
 
 
Revenues
  
$745.0 - $775.0
  
$775.0 - $800.0
  
$1,050 - $1,100
  
EBITDA
    
66.0 - 69.0
    
73.0 - 76.0
    
90.0 - 95.0
  
Adjusted diluted earnings per share from
     continuing operations
    
Not provided
  
$0.83 - $0.88
  
$0.97 - $1.05
  

Note: The updated outlook assumes: (i) no further acquisitions or divestitures completed during the outlook period; (ii) a currency exchange rate of C$0.8200 per US$1.0000; and (iii) a 100 basis point increase in floating interest rates during the outlook period. The updated outlook is based on current expectations of existing operations and is forward-looking. Actual results, in particular non-recurring commercial real estate brokerage revenues, may differ materially. The Company undertakes no obligation to update this information.


 
  -3-   
 

Conference Call
FirstService will be holding a conference call on Wednesday, January 26, 2005 at 11:00 am Eastern Time to discuss results for the third quarter, the outlook for the remainder of fiscal 2005 and the preliminary outlook for fiscal 2006. The call will be simultaneously web cast and can be accessed live or after the call at www.firstservice.com in the "Investor Relations / News Releases" section.
 
Forward-looking Statements
This press release includes forward-looking statements. Forward-looking statements include the Company’s financial performance outlook and statements regarding goals, beliefs, strategies, objectives, plans or current expectations. 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 the Company’s services and the cost of providing services; (ii) the ability of the Company to implement its business strategy, including the Company’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 the Company’s filings with the Ontario Securities Commission.
 
-30-
 

 
  -4-   
 



FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
(unaudited)


   
Three months ended
  
Nine months ended
  
   
December 31
  
December 31
  
   
 
 
   
2004
  
2003
  
2004
  
2003
  
   
 
 
 
 
                   
Revenues
  
$
221,884
  
$
148,704
 
$
577,628
  
$
454,579
  
Cost of revenues
    
140,187
    
104,647
    
383,947
    
314,749
  
Selling, general and administrative expenses
    
57,274
    
34,184
    
128,453
    
95,259
  
Depreciation
    
3,916
    
3,390
    
10,654
    
9,631
  
Amortization of intangibles other than backlog
    
739
    
474
    
2,041
    
1,571
  
Amortization of backlog (1)
    
4,958
    
-
    
4,958
    
-
  
     
   
   
   
 
Operating earnings
    
14,810
    
6,009
    
47,575
    
33,369
  
Interest
    
2,798
    
1,992
    
7,357
    
6,097
  
     
   
   
   
 
     
12,012
    
4,017
    
40,218
    
27,272
  
Income taxes
    
3,484
    
1,003
    
11,664
    
8,909
  
     
   
   
   
 
     
8,528
    
3,014
    
28,554
    
18,363
  
Minority interest share of earnings
    
3,361
    
364
    
6,628
    
2,995
  
     
   
   
   
 
Net earnings from continuing operations
    
5,167
    
2,650
    
21,926
    
15,368
  
Net (loss) earnings from discontinued operation,
    net of income taxes
    
-
    
(640
)
  
-
    
2,023
  
(Loss) gain on sale of discontinued operation, net
    of income taxes
    
(225
)
  
-
    
1,936
    
-
  
     
   
   
   
 
Net earnings
  
$
4,942
  
$
2,010
  
$
23,862
  
$
17,391
  
     
   
   
   
 
                           
Net earnings per share (2)
                          
Basic
                          
    Continuing operations
  
$
0.17
  
$
0.09
  
$
0.74
  
$
0.54
  
    Discontinued operation
    
-
    
(0.02
)
  
-
    
0.07
  
    (Loss) gain on sale of discontinued operation
    
(0.01
)
  
-
    
0.06
    
-
  
     
   
   
   
 
   
$
0.16
  
$
0.07
  
$
0.80
  
$
0.61
  
     
   
   
   
 
                           
Diluted
                          
    Continuing operations
  
$
0.17
  
$
0.09
  
$
0.72
  
$
0.53
  
    Discontinued operation
    
-
    
(0.02
)
  
-
    
0.07
  
    (Loss) gain on sale of discontinued operation
    
(0.01
)
  
-
    
0.06
    
-
  
     
   
   
   
 
   
$
0.16
  
$
0.07
  
$
0.78
  
$
0.60
  
     
   
   
   
 
                           
Adjusted diluted net earnings per share from
    continuing operations (3)
  
$
0.27
  
$
0.09
  
$
0.83
  
$
0.53
  
     
   
   
   
 
                           
Weighted average shares                           Basic
    
29,802
    
28,454
    
29,683
    
28,376
  
    outstanding: (in thousands)       Diluted
    
30,376
    
29,190
    
30,255
    
28,828
  

Notes
(1) Estimated amortization of short-lived backlog intangible asset recognized upon the acquisition of CMN. Backlog represents the fair value of pending commercial real estate brokerage transactions and listings as at the acquisition date. Amortization is recorded to coincide with the completion of the related brokerage transactions, which is expected to be 3 to 6 months. The CMN purchase price allocation will be finalized in the fourth quarter.
(2) Share and per-share information has been updated for each period presented to reflect the 2 for 1 stock split completed on December 15, 2004.
(3) See "Reconciliation of operating earnings, net earnings and net earnings per share to adjusted operating earnings, adjusted net earnings and adjusted net earnings per share" below.


 
  -5-   
 

Reconciliation of Operating Earnings, Net Earnings and Net Earnings Per Share to Adjusted Operating Earnings, Adjusted Net Earnings and Adjusted Net Earnings Per Share
(in thousands of US dollars, except per share amounts)
(unaudited)

The Company is presenting adjusted earnings measures to eliminate the impact of amortization of the short-lived backlog intangible asset recognized upon the acquisition of CMN. All of the adjustments are non-cash and are considered "non-GAAP financial measures" under OSC and SEC guidelines. The following tables provide a reconciliation of the adjusted measures:


   
Three months ended
  
Nine months ended
  
   
December 31
  
December 31
  
   
 
 
   
2004
  
2003
  
2004
  
2003
  
   
 
 
 
 
                   
Adjusted operating earnings
  
$
19,768
  
$
6,009
  
$
52,533
  
$
33,369
  
Amortization of backlog
    
(4,958
)
  
-
    
(4,958
)
  
-
  
     
   
   
   
 
Operating earnings
  
$
14,810
  
$
6,009
  
$
47,575
  
$
33,369
  
     
   
   
   
 
                           
Adjusted net earnings from continuing
    operations
  
$
8,340
  
$
2,650
  
$
25,099
  
$
15,368
  
Amortization of backlog
    
(4,958
)
  
-
    
(4,958
)
  
-
  
Deferred income taxes
    
1,785
    
-
    
1,785
    
-
  
     
   
   
   
 
Net earnings from continuing operations
  
$
5,167
  
$
2,650
  
$
21,926
  
$
15,368
  
     
   
   
   
 
 
Adjusted diluted net earnings per share from
    continuing operations
  
$
0.27
  
$
0.09
  
$
0.83
  
$
0.53
  
Amortization of backlog, net of deferred
    income taxes
    
(0.10
)
  
-
    
(0.11
)
  
-
  
                           
Diluted net earnings per share from continuing
    operations
  
$
0.17
  
$
0.09
  
$
0.72
  
$
0.53
  
     
   
   
   
 


 
   -6-  
 


Reconciliation of EBITDA to Operating Earnings
(in thousands of US dollars)
(unaudited)

EBITDA is defined as net earnings from continuing operations before minority interest share of earnings, income taxes, interest, depreciation and amortization. The Company uses EBITDA to evaluate operating performance and as a measure for debt covenants with its lenders. EBITDA is an integral part of the Company’s planning and reporting systems. Additionally, the Company uses multiples of current and projected EBITDA in conjunction with discounted cash flow models to determine its overall enterprise valuation and to evaluate acquisition targets. The Company believes EBITDA is a reasonable measure of operating performance because of the low capital intensity of its service operations. The Company believes EBITDA is a financial metric used by many investors to compare companies, especially in the services industry, on the basis of operating results and the ability to incur and service debt. EBITDA is not a recognized measure of financial performance under United States or Canadian generally accepted accounting principles (GAAP), and should not be considered as a substitute for operating earnings, net earnings or cash flows from operating activities, as determined in accordance with GAAP. The Company’s method of calculating EBITDA may differ from other issuers and accordingly, EBITDA may not be comparable to measures used by other issuers. A reconciliation of EBITDA to operating earnings appears below.


   
Three months ended
  
Nine months ended
  
   
December 31
  
December 31
  
   
 
 
   
2004
  
2003
  
2004
  
2003
  
   
 
 
 
 
EBITDA
  
$
24,423
  
$
9,873
  
$
65,228
  
$
44,571
  
Depreciation
    
(3,916
)
  
(3,390
)
  
(10,654
)
  
(9,631
)
Amortization of intangibles other than backlog
    
(739
)
  
(474
)
  
(2,041
)
  
(1,571
)
Amortization of backlog
    
(4,958
)
  
-
    
(4,958
)
  
-
  
     
   
   
   
 		  
Operating earnings
  
$
14,810
 
$
6,009
  
$
47,575
 
$
33,369
  
     
   
   
   
 



 
   -7-  
 

Condensed Consolidated Balance Sheets
(in thousands of US dollars)
(unaudited)


   
December 31
  
March 31
 
   
2004 
   2004   
   
 
 
Assets
              
Cash and cash equivalents
  
$
44,969
  
$
15,620
  
Accounts receivable
    
169,707
    
97,367
  
Inventories
    
19,818
    
15,229
  
Prepaids and other current assets
    
19,600
    
19,017
  
     
   
 
    Current assets
    
254,094
    
147,233
  
Fixed assets
    
55,169
    
49,826
  
Other non-current assets
    
19,704
    
17,198
  
Goodwill and intangibles
    
301,163
    
223,296
  
     
   
 
    Total assets
  
$
630,130
  
$
437,553
  
     
   
 
Liabilities and shareholders’ equity
              
Accounts payable and accrued liabilities
  
$
161,637
  
$
69,879
 
Other current liabilities
    
5,733
    
12,987
  
Long term debt - current
    
17,019
    
3,502
  
     
   
 
    Current liabilities
    
184,389
    
86,368
  
Long term debt less current portion
    
205,443
    
160,386
  
Deferred income taxes
    
31,185
    
19,594
  
Minority interest
    
25,381
    
16,104
  
Shareholders’ equity
    
183,732
    
155,101
  
     
   
 
    Total liabilities and equity
  
$
630,130
  
$
437,553
  
     
   
 
               
Total debt, excluding interest rate swaps
  
$
219,834
  
$
157,083
  
     
   
 
Total debt, net of cash, excluding interest rate swaps
    
174,865
    
141,463
  
     
   
 


 
  -8-   
 


Condensed Consolidated Statements of Cash Flows
(in thousands of US dollars)
(unaudited)       
   
   
Nine months ended December 31
  
   
 
   
2004
  
2003
  
   
 
 
Operating activities
              
Net earnings
 
$
23,862
  
$
17,391
  
Less: net earnings from discontinued operation
    
-
    
(2,023
)
Less: gain on sale of discontinued operation
    
(1,936
)
  
-
  
Items not affecting cash:
              
    Depreciation
    
10,654
    
9,631
  
    Amortization of intangibles other than backlog
    
2,041
    
1,571
  
    Amortization of backlog
    
4,958
    
-
  
    Deferred income taxes
    
(911
)
  
628
  
    Minority interest share of earnings
    
6,628
    
2,994
  
    Other
    
743
    
469
  
               
Changes in operating assets and liabilities
    
(10,662
)
  
(625
)
     
   
 
Net cash provided by operating activities
    
35,377
    
30,036
  
     
   
 
Investing activities
              
Acquisitions of businesses, net of cash acquired
   
(56,715
)
  
(15,869
)
Purchases of fixed assets, net
    
(10,656
)
  
(9,048
)
Other investing activities
    
3,306
    
(1,485
)
     
   
 
Net cash used in investing
    
(64,065
)
  
(26,402
)
     
   
 
Financing activities
              
Increase in long-term debt
    
47,944
    
3,182
  
Other financing activities
    
2,154
    
102
  
     
   
 
Net cash used in financing
    
50,098
    
3,284
  
     
   
 
Net cash provided by (used in) discontinued operation
    
4,679
    
(33
)
     
   
 
Effect of exchange rate changes on cash
   
3,260
    
(1,006
)
     
   
 
Increase in cash and cash equivalents during the period
    
29,349
    
5,879
  
Cash and cash equivalents, beginning of period
    
15,620
    
5,378
  
     
   
 
Cash and cash equivalents, end of period
  
$
44,969
  
$
11,257
  
     
   
 


 
   -9-  
 


Segmented Revenues, EBITDA and Operating Earnings
(in thousands of US dollars)
(unaudited)

   
Residential Property Management
  
Commercial Real Estate Services
  
Integrated Security Services
  
Property Improve-ment Services*
  
Business Services
  
Corporate
  
Consolidated
  
   
 
 
 
 
 
 
 
Three months ended December 31
                      
                               
2004
                                            
    Revenues
  
$
65,617
  
$
49,599
  
$
37,196
  
$
27,813
  
$
41,258
  
$
401
  
$
221,884
  
    EBITDA
    
4,100
    
10,731
    
2,902
    
2,924
    
6,282
    
(2,516
)
  
24,423
  
    Operating earnings
    
2,797
    
5,508
    
2,282
    
2,040
    
4,725
    
(2,542
)
  
14,810
  
                                             
2003
                                            
    Revenues
  
$
54,887
 
$
-
  
$
32,592
  
$
24,088
  
$
37,042
  
$
95
  
$
148,704
  
    EBITDA
    
2,202
    
-
    
2,561
    
2,992
    
3,899
    
(1,781
)
  
9,873
  
    Operating earnings
    
1,639
    
-
    
2,078
    
1,829
    
2,283
    
(1,820
)
  
6,009
  




   
Residential Property Management
  
Commercial Real Estate Services
  
Integrated Security Services
  
Property Improve-ment Services*
  
Business Services
  
Corporate
  
Consolidated
  
   
 
 
 
 
 
 
 
Nine months ended December 31
                      
                               
2004
                                            
    Revenues
  
$
215,639
  
$
49,599
  
$
106,909
  
$
90,354
  
$
114,661
  
$
466
  
$
577,628
  
    EBITDA
    
18,128
    
10,731
    
8,156
    
19,641
    
14,640
    
(6,068
)
  
65,228
  
    Operating earnings
    
14,455
    
5,508
    
6,424
    
17,333
    
10,036
    
(6,181
)
  
47,575
  
                                             
2003
                                            
    Revenues
  
$
183,828
 
$
-
  
$
92,313
  
$
71,920
  
$
106,248
  
$
270
  
$
454,579
  
    EBITDA
    
14,855
    
-
    
6,836
    
14,944
    
12,825
    
(4,889
)
  
44,571
  
    Operating earnings
    
11,703
    
-
    
5,433
    
13,196
    
8,038
    
(5,001
)
  
33,369
  

 

* Previously known as Consumer Services


-10-