EX-99.1 2 ex991.htm FIRST QUARTER EARNINGS RELEASE DATED JULY 27, 2005 First Quarter earnings release dated July 27, 2005
EXHIBIT 99.1


FirstService Logo




 
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 record first quarter results

Increases financial outlook - fiscal 2006 EPS range now $1.05 to $1.15

Highlights: 
•
Revenues up 72%
•
EBITDA up 75%
•
Adjusted net earnings up 59%
•
Adjusted diluted EPS up 50%


TORONTO, Canada, July 27, 2005 - FirstService Corporation (Nasdaq: FSRV; TSX: FSV.SV) today reported results for its first quarter ended June 30, 2005. All amounts are in US dollars.

Quarterly revenues were $287.9 million, an increase of 72% relative to the same period last year. EBITDA (see definition and reconciliation below) increased 75% to $32.0 million. Adjusted net earnings from continuing operations were $11.5 million, up 59% from $7.3 million in the prior year period. Adjusted diluted earnings per share from continuing operations were $0.36 for the quarter versus $0.24 in the prior year period, up 50%. The adjustment represents the non-cash amortization of short-lived intangible assets, relating to pending commercial real estate brokerage transactions and listings, recognized on the November 2004 acquisition of the Company’s commercial real estate services platform operating as Colliers International.

“The performance of our newly acquired commercial real estate platform, Colliers International, was especially strong,

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not only in North America, but also in the Far East, Australia and New Zealand,” said Jay S. Hennick, President and Chief Executive Officer of FirstService Corporation. “Operating on a global scale is one of the important benefits of this recent acquisition and provides us with many new opportunities for growth in the future. While our results in commercial real estate were impressive, we were also extremely pleased with the performances of our Residential Property Management and Property Improvement divisions. In fact, all of our service lines are well-positioned to deliver solid growth this fiscal year as markets leaders in their respective industries,” he added.

About FirstService Corporation
FirstService is a leader in the rapidly growing service sector, providing services in the following areas: residential property management; commercial real estate services; integrated security services; property improvement and business services.  Market-leading brands include Continental, Wentworth and Prime Management in residential property management; Colliers International in commercial real estate; Intercon Security and SST in integrated security services; California Closets, Paul Davis Restoration, Pillar to Post Home Inspections and CertaPro Painters 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 16,000 employees worldwide. More information about FirstService is available at www.firstservice.com. 

Segmented Quarterly Operating Results
Residential Property Management revenues increased to $84.1 million for the quarter, 24% higher than in the prior year period. Internal growth of 19% was attributable to growth in contractual property management revenues as well as ancillary financial services revenues in several markets. Revenue growth of 5% from acquisitions included property management acquisitions in Chicago and Las Vegas completed during the past twelve months. EBITDA for the quarter was $8.6 million, up 30% from $6.6 million one year ago, while margins improved 60 basis points due to operating leverage and mix change from the increase in high-margin ancillary services revenues.

Results in Commercial Real Estate Services, comprised of the Colliers International operations, significantly exceeded expectations. Revenues totalled $99.3 million for the first quarter representing internal growth of 41% relative to the same period one year ago (at which time this operation was not owned by FirstService) resulting from very strong brokerage activity in most of its markets, especially Hong Kong, New Zealand, Australia and the west coast of North America. First quarter EBITDA was $11.8 million and the margin was 11.9%, reflecting strong incremental contribution from additional revenues.

Revenues in Property Improvement Services totalled $35.2 million, an increase of 19% over the prior year period. The Paul Davis Restoration franchise system and the company-owned California Closets “branchise” stores produced solid

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revenue gains. EBITDA in the seasonally strong first quarter was $9.5 million, an increase of $2.0 million relative to last year, at a margin of 27.1%, 160 basis points higher than last year.

Integrated Security Services revenues in the first quarter were $32.5 million, a decline of 5% relative to the prior year period, primarily as a result of delays in two large U.S. commercial electronic security system projects. Quarterly EBITDA was $1.7 million versus $2.6 million in the prior year period. For the fiscal year, these operations are expected to report growth in both revenues and EBITDA.

First quarter Business Services revenues were $36.7 million, up 4% relative to the prior year period. EBITDA was $2.6 million versus $3.5 million in the first quarter last year. The reduction was attributable to start up costs on a large student loan contract which began generating revenues in mid July as well as costs incurred for an initiative to improve the operating performance and capacity utilization of the fulfilment operations, the benefits of which will begin to be realized later in the year.

Quarterly corporate costs were $2.3 million, relative to $2.0 million in the prior year period primarily due to costs related to Sarbanes-Oxley compliance work.

A comparison of segmented EBITDA to operating earnings is provided below.

Financial Position
The balance sheet as at June 30, 2005 reflects the $100.0 million private placement of 5.44% Senior Notes completed on April 1, 2005, as well as the repayment of $14.3 million of principal on the Company’s 8.06% Senior Notes during the quarter. As at June 30, 2005, the Company’s total debt, excluding interest rate swaps, was $248.1 million and the Company had cash of $67.9 million, for net indebtedness of $180.2 million.

Financial Outlook
Due to strong year to date results and favourable conditions in its markets, FirstService is increasing the outlook for fiscal 2006 previously issued on May 18, 2005.

   
Year ending March 31, 2006
  
(in millions of US dollars, except per share amounts)
  
Updated
  
Previous
  
Revenues
  
$
1,100 - $1,150
  
$
1,050 - $1,100
  
EBITDA
    
97.0 - 104.0
    
92.0 - 99.0
  
Adjusted diluted earnings per share from continuing operations
  
$
1.05 - $1.15
  
$
0.97 - $1.07
  

Note: The updated outlook assumes (i) no further acquisitions or divestitures completed during the outlook period; (ii) current economic conditions in the markets in which the Company operates remaining unchanged and in particular the market for commercial real estate services; and (iii) an average exchange rate of US$0.80 per C$1.00. Actual results may differ materially. The Company undertakes no obligation to continue to update this information.

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Conference Call
FirstService will be holding a conference call on Wednesday, July 27, 2005 at 11:00 AM Eastern Time to discuss results for the first quarter and year as well as the 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.
 
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FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
(unaudited)

   
Three months ended
June 30
  
   
2005
  
2004
  
Revenues
$
287,897
  
$
167,043
  
Cost of revenues
  
180,398
    
114,877
  
Selling, general and administrative expenses
  
75,542
    
33,893
  
Depreciation
  
4,495
    
3,247
  
Amortization of intangibles other than backlog
  
868
    
622
  
Amortization of brokerage backlog (1)
  
669
    
-
  
Operating earnings
  
25,925
    
14,404
  
Other (income) expense
  
(674
)
  
-
  
Interest expense
  
4,204
    
2,239
  
   
22,395
    
12,165
  
Income taxes
  
6,943
    
3,526
  
   
15,452
    
8,639
  
Minority interest share of earnings
  
4,332
    
1,388
  
Net earnings from continuing operations
  
11,120
    
7,251
  
Net earnings from discontinued operations, net of income taxes (2)
  
-
    
2,142
  
Net earnings
$
11,120
  
$
9,393
  
             
Net earnings per share
            
    Basic
            
        Continuing operations
$
0.37
  
$
0.25
  
        Discontinued operations (2)
  
-
    
0.07
  
 
$
0.37
  
$
0.32
  
    Diluted (3)
            
        Continuing operations
$
0.35
  
$
0.24
  
        Discontinued operations (2)
  
-
    
0.07
  
 
$
0.35
  
$
0.31
  
Adjusted diluted net earnings per share from continuing operations (4)
$
0.36
  
$
0.24
  
             
Weighted average shares outstanding: (in thousands)
    
Basic
    
30,204
    
29,560
  
     
Diluted
    
30,879
    
30,200
  

Notes
(1) Amortization of short-lived brokerage backlog intangible assets recognized upon the acquisition of CMN International Inc. operating as Colliers International. Brokerage 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.
(2) Primarily represents gain on sale of Greenspace lawn care operation completed April 1, 2004.
(3) Numerators for diluted earnings per share calculations have been adjusted to reflect dilution from stock options at subsidiaries.
(4) 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.



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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 brokerage backlog intangible asset recognized upon the acquisition of CMN International Inc. 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
June 30
  
   
2005
  
2004
  
Adjusted operating earnings
  
$
26,594
  
$
14,404
  
Amortization of brokerage backlog
    
(669
)
  
-
  
Operating earnings
  
$
25,925
  
$
14,404
  
               
Adjusted net earnings from continuing operations
  
$
11,548
  
$
7,251
  
Amortization of brokerage backlog
    
(669
)
  
-
  
Deferred income taxes
    
241
    
-
  
Net earnings from continuing operations
  
$
11,120
  
$
7,251
  
               
Adjusted diluted net earnings per share from continuing operations
  
$
0.36
  
$
0.24
  
Amortization of brokerage backlog, net of deferred income taxes
    
(0.01
)
  
-
  
Diluted net earnings per share from continuing operations
  
$
0.35
  
$
0.24
  




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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
June 30
  
   
2005
  
2004
  
EBITDA
  
$
31,957
  
$
18,273
  
Depreciation
    
(4,495
)
  
(3,247
)
Amortization of intangibles other than brokerage backlog
    
(868
)
  
(622
)
Amortization of brokerage backlog
    
(669
)
  
-
  
Operating earnings
  
$
25,925
  
$
14,404
  

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


   
June 30
2005
  
March 31
2005
  
Assets
              
Cash and cash equivalents
  
$
67,947
  
$
37,458
  
Accounts receivable
    
161,534
    
168,927
  
Inventories
    
21,426
    
20,878
  
Prepaids and other current assets
    
21,323
    
21,507
  
    Current assets
    
272,230
    
248,770
  
Fixed assets
    
59,694
    
57,241
  
Other non-current assets
    
27,968
    
22,755
  
Goodwill and intangibles
    
299,590
    
297,962
  
    Total assets
  
$
659,482
  
$
626,728
  
               
Liabilities and shareholders’ equity
              
Accounts payable and accrued liabilities
  
$
141,975
  
$
155,429
  
Other current liabilities
    
8,397
    
9,147
  
Long term debt - current
    
17,857
    
18,206
  
    Current liabilities
    
168,229
    
182,782
  
Long term debt - non-current
    
232,508
    
201,809
  
Deferred income taxes
    
32,162
    
29,802
  
Minority interest
    
29,843
    
26,464
  
Shareholders’ equity
    
196,740
    
185,871
  
    Total liabilities and equity
  
$
659,482
  
$
626,728
  
               
Total debt, excluding interest rate swaps
  
$
248,110
  
$
219,732
  
Total debt, net of cash, excluding interest rate swaps
    
180,163
    
182,274
  


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Condensed Consolidated Statements of Cash Flows
(in thousands of US dollars)
(unaudited)  

   
Three months ended June 30
  
   
2005
  
2004
  
Operating activities
              
Net earnings from continuing operations
  
$
11,120
  
$
7,251
  
Items not affecting cash:
              
    Depreciation and amortization
    
6,032
    
3,869
  
    Deferred income taxes
    
232
    
(612
)
    Minority interest share of earnings
    
4,332
    
1,388
  
    Other
    
514
    
83
  
               
Changes in operating assets and liabilities
    
(6,362
)
  
(4,394
)
Net cash provided by operating activities
    
15,868
    
7,585
  
               
Investing activities
              
Acquisitions of businesses, net of cash acquired
   
(3,703
)
  
(6,841
)
Purchases of fixed assets, net
    
(6,824
)
  
(4,146
)
Other investing activities
    
(1,131
)
  
146
  
Net cash used in investing
    
(11,658
)
  
(10,841
)
               
Financing activities
              
Increase in long-term debt
    
28,269
    
(446
)
Other financing activities
    
(1,736
)
  
559
  
Net cash provided by financing
    
26,533
    
113
  
Net cash provided by discontinued operation
    
-
    
4,697
  
Effect of exchange rate changes on cash
   
(254
)
  
811
  
               
Increase in cash and cash equivalents during the period
    
30,489
    
2,365
  
Cash and cash equivalents, beginning of period
    
37,458
    
15,620
  
Cash and cash equivalents, end of period
  
$
67,947
  
$
17,985
  


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

Residential
Property
Management
  
Commercial Real Estate Services
  
 
Integrated
Security
Services
  
Property Improvement Services
  
Business Services
  
Corporate
  
Consolidated
  
Three months ended June 30
                                            
2005
                                            
Revenues
  
$
84,081
  
$
99,304
  
$
32,501
  
$
35,222
  
$
36,681
  
$
108
  
$
287,897
  
EBITDA
    
8,630
    
11,785
    
1,718
    
9,535
    
2,614
    
(2,325
)
  
31,957
  
Operating earnings
    
7,333
    
10,157
    
1,078
    
8,706
    
1,022
    
(2,371
)
  
25,925
  
Brokerage backlog amortization
          
669
                                
Adjusted operating earnings
          
10,826
                                
                                             
2004
                                            
Revenues
  
$
67,958
  
$
-
  
$
34,125
  
$
29,519
  
$
35,420
  
$
21
  
$
167,043
  
EBITDA
    
6,618
    
-
    
2,568
    
7,532
    
3,516
    
(1,961
)
  
18,273
  
Operating earnings
    
5,536
    
-
    
2,014
    
6,871
    
1,988
    
(2,005
)
  
14,404
  



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