EX-99.1 2 ex991.htm EXHIBIT 99.1 - THIRD QUARTER EARNINGS RELEASE DATED JANUARY 31, 2006 Exhibit 99.1 - Third Quarter earnings release dated January 31, 2006

EXHIBIT 99.1



 
 
logo
 
COMPANY CONTACTS:

 
Jay S. Hennick
Founder & CEO
   
 
D. Scott Patterson
President & COO
   
 
John B. Friedrichsen
Senior Vice President & CFO
   
 
(416) 960-9500

FOR IMMEDIATE RELEASE

FirstService reports record third quarter results; residential property management and commercial real estate post strong gains

Highlights: 
 
•
Revenues up 57%
 
•
EBITDA up 15%
 
•
Adjusted net earnings up 21%
 
•
Adjusted diluted EPS up 14%
 
•
Updates financial outlook - fiscal 2006 EPS range now $1.16 to $1.20
 
•
Provides preliminary outlook for year ending March 31, 2007


TORONTO, Canada, January 31, 2006 - FirstService Corporation (Nasdaq: FSRV; TSX: FSV.SV) today reported record results for its third quarter ended December 31, 2005. All amounts are in US dollars.

Quarterly revenues were $342.0 million, an increase of 57% relative to the same period last year. EBITDA (see definition and reconciliation below) increased 15% to $27.9 million. Adjusted net earnings were $10.3 million, up 21% from $8.5 million in the prior year period. Adjusted diluted earnings per share were $0.32, up 14% from $0.28 in the prior year period. The adjustment (see reconciliation below) represents non-cash amortization of short-lived brokerage backlog intangible assets, relating to pending brokerage transactions and listings, recognized on recent acquisitions in the Company’s Colliers International commercial real estate services platform.
 
 
For the nine months ended December 31, 2005, revenues were $946.1 million, up 67% versus the prior year period, while EBITDA was up 46% to $74.6 million. Adjusted net earnings were $35.9 million, up 42% for the nine month period, while adjusted diluted earnings per share were $1.13, up 36%.

“Our results for the third quarter were very strong and continued the momentum that began early in the year. Our balance sheet has never been stronger, putting us in an excellent position for future growth”, said Jay S. Hennick, Founder and Chief Executive Officer. “While we are pleased with the performance of all our service lines, the results from our Residential Property Management business were exceptional both in terms of year over year growth and margin expansion and our Colliers International operation continued its strong performance”, he added.

About FirstService Corporation
FirstService is a leader in the rapidly growing service sector, providing services in the following areas: commercial real estate; residential property management; integrated security services; property improvement and business services.  Market-leading brands include Colliers International in commercial real estate; The Continental Group in residential property management; Intercon Security and Security Services & Technologies 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$1.2 billion in annualized revenues and over 16,000 employees worldwide. More information about FirstService is available at www.firstservice.com. 

Segmented Quarterly Operating Results
Residential Property Management revenues increased to $82.8 million for the quarter, 32% higher than in the prior year period. Internal growth of 29% was attributable to growth in contractual property management fee and ancillary services revenues. Services provided to existing clients recovering from the impact of Hurricane Wilma also contributed to the higher than normal internal growth rate. EBITDA for the quarter was $7.3 million, up 62% from $4.5 million one year ago, while margins improved 170 basis points due to operating leverage and an increase in high-margin ancillary services revenues.

Colliers International, the Company’s commercial real estate services operation, generated revenues of $141.2 million for the third quarter representing growth of 185%, much of which was the result of the acquisitions of CMN International Inc. (“CMN”) in November 2004 and Los Angeles-based Colliers Seeley International, Inc. (“Seeley”) in November 2005. Internal growth was 22% relative to the same period one year ago resulting from continuing robust brokerage activity in most of its markets, especially North America. Third quarter EBITDA was $11.5 million, at a margin of 8.2%. The margin reported in the prior year period reflected the results for the month of December 2004 only, which month is the seasonal peak in this business.
 
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Revenues in Property Improvement Services totalled $32.4 million, an increase of 21% over the prior year period. Internal growth was 12%, with strong system-wide sales increases generated across franchise systems. EBITDA for the third quarter was $3.1 million, an increase of $0.3 million relative to last year.

Integrated Security Services revenues in the third quarter were $40.1 million, an 8% increase relative to the prior year period. Excluding the impact of foreign exchange, growth was 5%. The revenue growth was attributable to higher levels of commercial security systems installation activity. Quarterly EBITDA was $2.8 million versus $2.9 million in the prior year period.

Third quarter Business Services revenues were $45.4 million, up 10% relative to the prior year period. Excluding the impact of foreign exchange, growth was 6%. The revenue increase was the result of higher volumes from several clients as well as the recently won student loan processing contract. EBITDA was $7.3 million, up from $6.3 million in the third quarter last year while margins increased 80 basis points to 16.0%. The increases were attributable mainly to the fulfilment operations, which benefited from continuing higher production volumes and better capacity utilization.

Quarterly corporate costs were $4.0 million, relative to $2.5 million in the prior year period. The increase was attributable to additional management resources necessary to support the growth of the Company, higher performance-based compensation expense and Sarbanes-Oxley related costs.

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

Repurchases of FirstService Shares
During the period from October 31, 2005 to December 23, 2005, the Company purchased 472,700 Subordinate Voting Shares for cancellation through the facilities of the Toronto Stock Exchange and Nasdaq National Market at an average cost of $23.68 per share pursuant to a Normal Course Issuer Bid. The repurchases represented approximately 1.6% of the total shares outstanding prior to the repurchase and were funded from operating cash flow and cash on hand.
 
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Financial Outlook
As a result of continuing strong performance, FirstService is increasing the previously issued outlook for fiscal 2006.
   
Year ending
March 31, 2006
  
Year ending
March 31, 2007
(in millions of US dollars, except per share amounts)
  
Updated
  
Previous
  
Preliminary
  
Revenues
  
$1,200 - $1,225
  
$1,125 - $1,175
  
$1,300 - $1,400
  
EBITDA
  
$
107.0 - $110.0
  
$
102.0 - $108.0
  
$
116.0 - $126.0
  
Adjusted diluted earnings per share
  
$
1.16 - $1.20
  
$
1.08 - $1.16
  
$
1.27 - $1.37
  
 
Note: The outlook assumes (i) no further acquisitions or divestitures completed during the outlook period and (ii) current economic conditions in the markets in which the Company operates remaining unchanged and in particular the market for commercial real estate services. Actual results may differ materially. The Company undertakes no obligation to continue to update this information.

Conference Call
FirstService will be holding a conference call on Tuesday, January 31, 2006 at 11:00AM Eastern Time to discuss results for the third quarter, the outlook for the balance of fiscal 2006 and the preliminary outlook for fiscal 2007. 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 and U.S. Securities and Exchange 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
December 31
  
Nine months ended
December 31
   
2005
  
2004
  
2005
  
2004
  
                   
Revenues
  
$
342,002
  
$
218,184
  
$
946,070
  
$
565,927
  
Cost of revenues
    
222,684
    
137,017
    
603,051
    
373,312
  
Selling, general and administrative expenses
    
91,393
    
56,863
    
247,304
    
127,241
  
Depreciation
    
4,517
    
3,879
    
13,447
    
10,536
  
Amortization of intangibles other than backlog
    
1,043
    
739
    
2,798
    
2,041
  
Amortization of brokerage backlog (1)
    
3,712
    
4,958
    
4,870
    
4,958
  
Operating earnings
    
18,653
    
14,728
    
74,600
    
47,839
  
Other (income) expense (2)
    
(2,542
)
  
(341
)
  
(3,729
)
  
(341
)
Interest expense
    
3,722
    
2,797
    
11,746
    
7,357
  
     
17,473
    
12,272
    
66,583
    
40,823
  
Income taxes
    
6,606
    
3,587
    
22,637
    
11,903
  
     
10,867
    
8,685
    
43,946
    
28,920
  
Minority interest share of earnings
    
2,714
    
3,380
    
10,881
    
6,684
  
Net earnings from continuing operations
    
8,153
    
5,305
    
33,065
    
22,236
  
Net (loss) earnings from discontinued operations,
    net of income taxes
    
-
    
(363
)
  
-
    
1,626
  
Net earnings
  
$
8,153
  
$
4,942
  
$
33,065
  
$
23,862
  
                           
Net earnings (loss) per share
                          
Basic
                          
    Continuing operations
  
$
0.27
  
$
0.17
  
$
1.10
  
$
0.74
  
    Discontinued operations
    
-
    
(0.01
)
  
-
    
0.06
  
   
$
0.27
  
$
0.16
  
$
1.10
  
$
0.80
  
                           
Diluted (3)
                          
                           
    Continuing operations
  
$
0.25
  
$
0.17
  
$
1.04
  
$
0.73
  
    Discontinued operations
    
-
    
(0.01
)
  
-
    
0.05
  
   
$
0.25
  
$
0.16
  
$
1.04
  
$
0.78
  
                           
Adjusted diluted net earnings per share from
    continuing operations (4)
  
$
0.32
  
$
0.28
  
$
1.13
  
$
0.83
  
                           
Weighted average shares
Basic    
30,185
    
29,802
    
30,215
    
29,683
  
    outstanding: (in thousands) 
 Diluted    
30,915
    
30,376
    
30,951
    
30,255
  

Notes
(1) Amortization of short-lived brokerage backlog intangible assets recognized upon the acquisitions of (i) CMN in November 2004; (ii) an additional 11.2% interest in CMN on October 1, 2005; and (iii) an 82.3% interest in Seeley on November 23, 2005. 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) Other income for the quarter ended December 31, 2005 includes a $2,012 pre-tax gain on the disposal of two businesses.
(3) Numerators for diluted earnings per share calculations have been adjusted to reflect dilution from stock options at subsidiaries. The adjustment for the three months ended December 31, 2005 is $283 (2004 - nil) and for the nine months ended December 31, 2005 is $984 (2004 - nil).
(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. This amortization is being eliminated because the Company believes the short-lived and non-cash nature of this charge is not reflective of the operating performance of the Company. All of the adjustments are considered “non-GAAP financial measures” under OSC and SEC guidelines. The following tables provide a reconciliation of the adjusted measures:



   
Three months ended
December 31
  
Nine months ended
December 31
     
2005
    
2004
    
2005
    
2004
  
                           
Adjusted operating earnings
  
$
22,365
  
$
19,686
  
$
79,470
  
$
52,797
  
Amortization of brokerage backlog
    
(3,712
)
  
(4,958
)
  
(4,870
)
  
(4,958
)
Operating earnings
  
$
18,653
  
$
14,728
  
$
74,600
  
$
47,839
  
                           
Adjusted net earnings from continuing
    operations
  
$
10,296
  
$
8,478
  
$
35,949
  
$
25,409
  
Amortization of brokerage backlog
    
(3,712
)
  
(4,958
)
  
(4,870
)
  
(4,958
)
Deferred income taxes
    
1,411
    
1,785
    
1,828
    
1,785
  
Minority interest
    
158
    
-
    
158
    
-
  
Net earnings from continuing operations
  
$
8,153
  
$
5,305
  
$
33,065
  
$
22,236
  
                           
Adjusted diluted net earnings per share from
    continuing operations
  
$
0.32
  
$
0.28
  
$
1.13
  
$
0.83
  
Amortization of brokerage backlog, net of
    deferred income taxes
    
(0.07
)
  
(0.11
)
  
(0.09
)
  
(0.10
)
Diluted net earnings per share from
    continuing operations
  
$
0.25
  
$
0.17
  
$
1.04
  
$
0.73
  


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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 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
December 31
  
Nine months ended
December 31
     
2005
    
2004
    
2005
    
2004
  
                           
EBITDA
  
$
27,925
  
$
24,304
  
$
95,715
  
$
65,374
  
Depreciation
    
(4,517
)
  
(3,879
)
  
(13,447
)
  
(10,536
)
Amortization of intangibles other than brokerage
    backlog
    
(1,043
)
  
(739
)
  
(2,798
)
  
(2,041
)
Amortization of brokerage backlog
    
(3,712
)
  
(4,958
)
  
(4,870
)
  
(4,958
)
Operating earnings
  
$
18,653
  
$
14,728
  
$
74,600
  
$
47,839
  

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


   
December 31
2005
  
March 31
2005
  
               
Assets
              
Cash and cash equivalents
  
$
76,834
  
$
37,458
  
Accounts receivable
    
197,223
    
168,927
  
Inventories
    
23,901
    
20,878
  
Prepaids and other current assets
    
30,376
    
21,507
  
    Current assets
    
328,334
    
248,770
  
Fixed assets
    
66,330
    
57,241
  
Other non-current assets
    
24,904
    
22,754
  
Goodwill and intangibles
    
320,670
    
297,963
  
    Total assets
  
$
740,238
  
$
626,728
  
               
Liabilities and shareholders’ equity
              
Accounts payable and accrued liabilities
  
$
206,086
  
$
155,429
  
Other current liabilities
    
10,531
    
9,147
  
Long term debt - current
    
18,489
    
18,206
  
    Current liabilities
    
235,106
    
182,782
  
Long term debt - non-current
    
230,302
    
201,809
  
Deferred income taxes
    
33,186
    
29,802
  
Minority interest
    
30,783
    
26,464
  
Shareholders’ equity
    
210,861
    
185,871
  
    Total liabilities and equity
  
$
740,238
  
$
626,728
  
               
               
Total debt, excluding interest rate swaps
  
$
248,791
  
$
219,732
  
Total debt, net of cash, excluding interest rate swaps
    
171,957
    
182,274
  


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

 
Nine months ended December 31
 
2005
  
2004
  
Operating activities
        
Net earnings from continuing operations
$ 33,065
  
$ 22,235
  
Items not affecting cash:
            
    Depreciation and amortization
  
21,115
    
17,535
  
    Deferred income taxes
  
(1,499
)
  
(911
)
    Minority interest share of earnings
  
10,881
    
6,684
  
    Other
  
(94
)
  
743
  
             
Changes in operating assets and liabilities
  
7,233
    
(10,660
)
Net cash provided by operating activities
  
70,701
    
35,626
  
             
Investing activities
            
Acquisitions of businesses, net of cash acquired
 
(23,301
)
  
(56,715
)
Purchases of fixed assets, net
  
(20,581
)
  
(10,656
)
Other investing activities
  
(4,340
)
  
3,306
  
Net cash used in investing
  
(48,222
)
  
(64,065
)
             
Financing activities
            
Increases in long-term debt
  
28,951
    
47,944
  
Other financing activities
  
(12,049
)
  
2,154
  
Net cash provided by financing
  
16,902
    
50,098
  
Net cash provided by discontinued operations
  
-
    
4,430
  
Effect of exchange rate changes on cash
 
(5
)
  
3,260
  
Increase in cash and cash equivalents during the period
  
39,376
    
29,349
  
Cash and cash equivalents, beginning of period
  
37,458
    
15,620
  
Cash and cash equivalents, end of period
$
76,834
  
$
44,969
  
 
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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 December 31
                              
                               
2005
                                            
Revenues
  
$
82,751
  
$
141,241
  
$
40,091
  
$
32,454
  
$
45,351
  
$
114
  
$
342,002
  
EBITDA
    
7,252
    
11,532
    
2,785
    
3,080
    
7,262
    
(3,986
)
  
27,925
  
Operating
    earnings
    
5,879
    
6,921
    
2,076
    
2,082
    
5,723
    
(4,028
)
  
18,653
  
                                             
                                             
2004
                                            
Revenues
  
$
62,918
  
$
49,599
  
$
37,196
  
$
26,812
  
$
41,258
  
$
401
  
$
218,184
  
EBITDA
    
4,481
    
10,390
    
2,902
    
2,765
    
6,282
    
(2,516
)
  
24,304
  
Operating
    earnings
    
3,204
    
5,167
    
2,282
    
1,892
    
4,725
    
(2,542
)
  
14,728
  

 
 
Nine months ended December 31
                              
                               
2005
                                            
Revenues
  
$
258,791
  
$
344,493
  
$
108,465
  
$
108,210
  
$
125,883
  
$
228
  
$
946,070
  
EBITDA
    
25,288
    
30,971
    
6,261
    
25,393
    
17,030
    
(9,228
)
  
95,715
  
Operating
    earnings
    
21,271
    
23,408
    
4,254
    
22,682
    
12,337
    
(9,352
)
  
74,600
  
                                             
                                             
2004
                                            
Revenues
  
$
206,355
  
$
49,599
  
$
106,909
  
$
87,937
  
$
114,661
  
$
466
  
$
565,927
  
EBITDA
    
18,545
    
10,390
    
8,156
    
19,711
    
14,640
    
(6,068
)
  
65,374
  
Operating
    earnings
    
14,957
    
5,167
    
6,424
    
17,436
    
10,036
    
(6,181
)
  
47,839
  


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