EX-99.1 2 ex991.htm NEWS RELEASE DATED MAY 16, 2007 News Release dated May 16, 2007
EXHIBIT 99.1

 
 
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 fourth quarter and annual results

Strong internal growth and disciplined acquisitions drive financial performance

Yearend highlights: 
- Revenues $1.36 billion, up 27% 
- Adjusted EPS $1.37, up 36%
 

TORONTO, Ontario, May 16, 2007 - FirstService Corporation (NASDAQ: FSRV; TSX: FSV) today reported record results for its fourth quarter and fiscal year ended March 31, 2007 and updated its financial outlook for its fiscal year ending March 31, 2008. All amounts are in US dollars.

For the year ended March 31, 2007, revenues totalled $1.36 billion, up 27% relative to the prior year, while EBITDA (see definition and reconciliation below) increased 29% to $114.6 million versus $88.8 million in the prior year. Adjusted diluted net earnings per share from continuing operations (see definition and reconciliation below) were $1.37, up 36% from $1.01 in the prior year. Diluted earnings per share from continuing operations calculated in accordance with GAAP were $1.14, up 31% versus the prior year.

- 4 -
Fourth quarter revenues were $320.7 million, an increase of 29% relative to the same period last year. EBITDA increased 82% to $18.4 million versus $10.1 million in the prior year period. Adjusted diluted earnings per share from continuing operations for the quarter increased to $0.18 versus $0.06 in the prior year period. Diluted earnings per share from continuing operations calculated in accordance with GAAP for the quarter were $0.08 versus $0.01 in the prior year period.

“We set new records in our financial performance for fiscal 2007 through a combination of strong internal growth and disciplined acquisitions, while remaining true to the FirstService Way of operating”, said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. “Over the last five years, our revenues, earnings and earnings per share have grown at a compound annual rate of about 30%, an impressive rate of growth across these important performance measures; and with more than $200 million in available cash and other resources, we are well positioned to deliver excellent growth again in fiscal 2008”, he concluded.

About FirstService Corporation
FirstService is a leader in the rapidly growing property services sector, providing services in the following areas: commercial real estate; residential property management; property improvement and integrated security services.  Market-leading brands include Colliers International in commercial real estate; The Continental Group, The Wentworth Group and The Merit Companies in residential property management; consumer brands California Closets, Paul Davis Restoration, Pillar to Post Home Inspections, CertaPro Painters and Handyman Connection in property improvement; and Intercon Security and Security Services and Technologies in integrated security.

FirstService is a diversified property services company with more than US$1.5 billion in annualized revenues and over 15,000 employees worldwide. More information about FirstService is available at www.firstservice.com. 

Segmented Quarterly Results
Revenues in Commercial Real Estate Services totalled $137.8 million for the quarter, an increase of 47% over the prior year period. Acquisitions contributed 32% of the increase while internal growth of 15% represented the balance. Internal growth was led by the Central European and Australian operations, which reported robust brokerage activity. Fourth quarter EBITDA was $10.1 million, up 83% compared to $5.5 million during the year-ago period.

Residential Property Management revenues increased to $107.7 million for the quarter, 23% higher than in the prior year period. Internal growth of 12% resulted from property management contracts added during the past twelve months. The balance of the growth was attributable to acquisitions. EBITDA for the quarter was $8.6 million, up 41% from $6.1 million one year ago.

- 5 -
Revenues in Property Improvement Services totalled $29.7 million, an increase of 15% over the prior year period. Internal revenue growth was 11%, due to higher system-wide sales at the Company’s franchise systems. The balance of the growth resulted from recent acquisitions. EBITDA in the fourth quarter was $2.0 million, up significantly from $0.4 million last year.

Integrated Security Services revenues for the fourth quarter were $45.2 million, an increase of 11% relative to the prior year period, attributable to increased systems installation activity in both the United States and Canada. Quarterly EBITDA was $2.2 million, up 54% versus $1.4 million in the prior year period.

Quarterly corporate costs were $4.4 million, relative to $3.2 million in the prior year period, resulting primarily from incremental performance based executive compensation and increased stock-based compensation expenses.

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

Updated Financial Outlook
FirstService is updating the outlook for its fiscal year ending March 31, 2008 issued on January 30, 2007 to reflect the completion of the Company’s annual budgeting process and the recently announced acquisition. The Company is also updating its definition of EBITDA, as noted below, to better reflect the consolidated EBITDA generated by its operations before non-cash long-term stock-based compensation expenses.
(US$ millions, except per share amounts)
  
Year ending March 31, 2008
 
    
Updated
    
Previous
As Amended1
    
Previous
As Reported
  
Revenues
  
$
1,525 - $1,625
  
$
1,450 - $1,550
  
$
1,450 - $1,550
  
EBITDA
  
$
137 - $147
  
$
131 - $141
  
$
126 - $136
  
Adjusted EPS2
  
$
1.48 - $1.60
  
$
1.40 - $1.50
  
$
1.40 - $1.50
  
 
Notes:
 
1.
Included in the outlook figures in the “Updated” and “Previous As Amended” columns is an increase of $5.0 million to each of the lower and upper EBITDA ranges for stock-based compensation expense, which is now excluded from the definition of EBITDA. This change has no effect on earnings per share.
 
2.
Adjusted EPS refers to adjusted diluted earnings per share from continuing operations. The adjustment to EPS eliminates the impact of accelerated amortization of short-lived intangible assets recognized on acquisitions completed in the Company’s Commercial Real Estate services operations.
 
3.
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.
 
 
- 6 -
Repurchases of FirstService Shares
On March 5, 2007 and March 6, 2007, the Company repurchased 38,500 Subordinate Voting Shares for cancellation through the facilities of the Toronto Stock Exchange and NASDAQ National Market pursuant to a normal course issuer bid. The total number of shares repurchased during the fiscal year ended March 31, 2007 is 697,700 at an average cost of US$23.78 representing 2.3% of the total shares outstanding prior to the repurchases. The repurchases were funded with cash on hand.

Conference Call
FirstService will be holding a conference call on Wednesday, May 16, 2007 at 11:00 a.m. Eastern Time to discuss the results for the fourth quarter and full fiscal year as well as the updated outlook for fiscal 2008. 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 -
- 7 -

FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
(unaudited)
   
Three months ended
March 31
      
Yeah ended
March 31 
  
   
2007
      
2006
      
2007
      
2006
  
                               
Revenues
$
320,744
    
$
247,947
    
$
1,359,686
    
$
1,068,134
  
Cost of revenues
  
190,961
      
162,181
      
860,236
      
684,280
  
Selling, general and administrative expenses
  
111,360
      
75,647
      
384,875
      
295,050
  
Depreciation and amortization other than backlog
  
6,869
      
4,472
      
23,423
      
16,024
  
Amortization of brokerage backlog (1)
  
1,294
      
2,684
      
8,164
      
7,554
  
Operating earnings
  
10,260
      
2,963
      
82,988
      
65,226
  
Interest expense, net
  
2,252
      
3,113
      
9,954
      
11,879
  
Other expense (income)
  
81
      
(47
)
    
(4,848
)
    
(3,776
)
Impairment loss on available-for-sale securities
  
3,139
      
-
      
3,139
      
-
  
   
4,788
      
(103
)
    
74,743
      
57,123
  
Income taxes
  
(1,224
)
    
(2,015
)
    
21,738
      
17,208
  
   
6,012
      
1,912
      
53,005
      
39,915
  
Minority interest share of earnings
  
3,188
      
1,441
      
16,318
      
11,881
  
Net earnings from continuing operations
  
2,824
      
471
      
36,687
      
28,034
  
Net (loss) earnings from discontinued operations, net of tax (2)
  
(471
)
    
35,961
      
(471
)
    
41,463
  
   
2,353
      
36,432
      
36,216
      
69,497
  
Cumulative effect of change in accounting principle, net of tax (3)
  
-
      
-
      
(1,353
)
    
-
  
Net earnings
$
2,353
    
$
36,432
    
$
34,863
    
$
69,497
  
                               
Net earnings (loss) per share
                              
Basic
                              
    Continuing operations
$
0.10
    
$
0.02
    
$
1.23
    
$
0.93
  
    Discontinued operations
  
(0.02
)
    
1.19
      
(0.02
)
    
1.37
  
    Cumulative effect of change in accounting principle
  
-
      
-
      
(0.04
)
    
-
  
 
$
0.08
    
$
1.21
    
$
1.17
    
$
2.30
  
                               
Diluted (4)
                              
    Continuing operations
$
0.08
    
$
0.01
    
$
1.14
    
$
0.87
  
    Discontinued operations
  
(0.02
)
    
1.17
      
(0.02
)
    
1.34
  
    Cumulative effect of change in accounting principle
  
-
      
-
      
(0.04
)
    
-
  
 
$
0.06
    
$
1.18
    
$
1.08
    
$
2.21
  
                               
Weighted average shares outstanding:
(in thousands)
    
Basic
    
29,913
      
30,035
      
29,903
      
30,171
  
     
Diluted 
    
30,275
       30,683       30,354       30,896  
                             
Net earnings per share, adjusted diluted from
    continuing operations (5)
$
0.18
    
$
0.06
    
$
1.37
    
$
1.01
  

Notes to Condensed Consolidated Statements of Earnings
(1) Amortization of short-lived brokerage backlog intangible assets recognized upon the acquisitions of Commercial Real Estate Services businesses in the past twelve months. 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) Represents (loss) earnings and gain on sale of Resolve, which was sold in March 2006.
(3) Cumulative effect of the adoption of SFAS No. 123(R), Share Based Payment, on April 1, 2006.
(4) Numerators for diluted earnings per share calculations have been adjusted to reflect dilution from stock options at subsidiaries. The adjustment for the quarter ended March 31, 2007 was $679 (2006 - $269) and year ended March 31, 2007 was $2,228 (2006 - $1,253).
(5) 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.
 

 
- 8 -
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 (i) the amortization of the short-lived brokerage backlog intangible asset recognized upon the acquisitions of Commercial Real Estate Services businesses within the past twelve months and (ii) the unrealized impairment loss on the Company’s investment in securities of Resolve Business Outsourcing Income Trust. 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
March 31
    
Year ended
March 31
  
     
2007
    
2006
    
2007
    
2006
  
                           
Operating earnings
  
$
10,260
  
$
2,963
  
$
82,988
  
$
65,226
  
Amortization of brokerage backlog
    
1,294
    
2,684
    
8,164
    
7,554
  
Adjusted operating earnings
  
$
11,554
  
$
5,647
  
$
91,152
  
$
72,780
  
                           
                           
Net earnings from continuing operations
  
$
2,824
  
$
471
  
$
36,687
  
$
28,034
  
Amortization of brokerage backlog
    
1,294
    
2,684
    
8,164
    
7,554
  
Impairment loss on available-for-sale securities
    
3,139
    
-
    
3,139
    
-
  
Deferred income tax
    
(983
)
  
(1,064
)
  
(3,304
)
  
(2,892
)
Minority interest
    
(150
)
  
(206
)
  
(896
)
  
(364
)
Adjusted net earnings from continuing operations
  
$
6,124
  
$
1,885
  
$
43,790
  
$
32,332
  
                           
                           
Diluted net earnings per share from continuing operations
  
$
0.08
  
$
0.01
  
$
1.14
  
$
0.87
  
Amortization of brokerage backlog, net of tax
    
0.02
    
0.05
    
0.15
    
0.14
  
Impairment loss on available-for-sale securities, net of tax
    
0.08
    
-
    
0.08
    
-
  
Adjusted diluted net earnings per share from continuing operations
  
$
0.18
  
$
0.06
  
$
1.37
  
$
1.01
  


- 9 -
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 and stock-based compensation expense. The Company uses EBITDA to evaluate operating performance. 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
March 31
    
Year ended
March 31
  
     
2007
    
2006
    
2007
    
2006
  
                           
Operating earnings
  
$
10,260
  
$
2,963
  
$
82,988
  
$
65,226
  
Depreciation and amortization other than backlog
    
6,869
    
4,472
    
23,423
    
16,024
  
Amortization of brokerage backlog
    
1,294
    
2,684
    
8,164
    
7,554
  
     
18,423
    
10,119
    
114,575
    
88,804
  
Stock-based compensation expense
    
4,211
    
1,288
    
6,781
    
2,591
  
                           
EBITDA
  
$
22,634
  
$
11,407
  
$
121,356
  
$
91,395
  


- 10 -
Condensed Consolidated Balance Sheets
(in thousands of US dollars)
(unaudited)
 
    
March 31
2007
    
March 31
2006
  
               
Assets
              
Cash and cash equivalents
  
$
99,038
  
$
167,938
  
Restricted cash
    
16,930
    
-
  
Accounts receivable
    
163,581
    
128,276
  
Inventories
    
31,768
    
27,267
  
Prepaids and other current assets
    
51,040
    
31,928
  
     Current assets
    
362,357
    
355,409
  
Fixed assets
    
66,297
    
48,733
  
Other non-current assets
    
41,405
    
39,600
  
Goodwill and intangibles
    
346,939
    
267,262
  
     Total assets
  
$
816,998
  
$
711,004
  
               
Liabilities and shareholders’ equity
              
Accounts payable and accrued liabilities
  
$
205,529
  
$
149,875
  
Other current liabilities
    
29,179
    
16,187
  
Long term debt - current
    
22,119
    
18,646
  
     Current liabilities
    
256,827
    
184,708
  
Long term debt - non-current
    
213,030
    
230,040
  
Deferred income taxes
    
29,084
    
30,041
  
Other liabilities
    
4,876
    
-
  
Minority interest
    
48,306
    
28,463
  
Shareholders’ equity
    
264,875
    
237,752
  
     Total liabilities and equity
  
$
816,998
  
$
711,004
  
               
               
Total debt
  
$
235,149
  
$
248,686
  
Total debt, net of cash
    
136,111
    
80,748
  

- 11 -
Condensed Consolidated Statements of Cash Flows
(in thousands of US dollars)
(unaudited)
 
  
Year ended
March 31
     
2007
    
2006
  
Operating activities
              
Net earnings from continuing operations
  
$
36,687
  
$
28,034
  
Items not affecting cash:
              
    Depreciation and amortization
    
31,587
    
23,578
  
    Deferred income taxes
    
(9,531
)
  
(4,901
)
    Minority interest share of earnings
    
16,318
    
11,881
  
    Other
    
5,810
    
2,648
  
               
Changes in operating assets and liabilities
    
(20,850
)
  
(8,992
)
Discontinued operations
    
(231
)
  
7,101
  
Net cash provided by operating activities
    
59,790
    
59,349
  
               
Investing activities
              
Acquisitions of businesses, net of cash acquired
   
(73,431
)
  
(26,103
)
Purchases of fixed assets, net
    
(26,723
)
  
(18,837
)
Other investing activities
    
(1,153
)
  
109,985
  
Discontinued operations
    
(838
)
  
(8,563
)
Net cash (used in) provided by investing
    
(102,145
)
  
56,482
  
               
Financing activities
              
(Decrease) increase in long-term debt, net
    
(15,495
)
  
28,514
  
Other financing activities
    
(13,429
)
  
(12,793
)
Net cash (used in) provided by financing
    
(28,924
)
  
15,721
  
Effect of exchange rate changes on cash
   
2,379
    
(1,072
)
(Decrease) increase in cash and cash equivalents
    
(68,900
)
  
130,480
  
Cash and cash equivalents, beginning of period
    
167,938
    
37,458
  
Cash and cash equivalents, end of period
  
$
99,038
  
$
167,938
  

- 12 -
Segmented Revenues, EBITDA and Operating Earnings
(in thousands of US dollars)
(unaudited)
 
    
Commercial Real Estate Services
    
Residential Property Management
    
Property Improve-ment Services
    
Integrated Security Services
    
Corporate
    
Consolidated
  
Three months ended March 31
                        
                                       
2007
                                      
Revenues
  
$
137,805
  
$
107,722
  
$
29,728
  
$
45,156
  
$
333
  
$
320,744
  
EBITDA
    
10,063
    
8,612
    
1,951
    
2,158
    
(4,361
)
  
18,423
  
Stock-based compensation
                                  
4,211
  
                                 
$
22,634
  
Operating earnings
    
6,021
    
6,303
    
927
    
1,386
    
(4,377
)
  
10,260
  
                                       
                                       
2006
                                      
Revenues
  
$
93,941
  
$
87,342
  
$
25,926
  
$
40,598
  
$
140
  
$
247,947
  
EBITDA
    
5,494
    
6,102
    
372
    
1,399
    
(3,248
)
  
10,119
  
Stock-based compensation
                                  
1,288
  
                                 
$
11,407
  
Operating earnings
    
1,671
    
4,496
    
(666
)
  
751
    
(3,289
)
  
2,963
  
                                       

Year ended March 31
                        
                                       
2007
                                      
Revenues
  
$
608,065
  
$
423,797
  
$
150,794
  
$
176,476
  
$
554
  
$
1,359,686
  
EBITDA
    
47,699
    
40,267
    
30,564
    
10,601
    
(14,556
)
  
114,575
  
Stock-based compensation
                                  
6,781
  
                                 
$
121,356
  
Operating Earnings
    
31,464
    
32,623
    
25,911
    
7,769
    
(14,779
)
  
82,988
  
                                       
                                       
2006
                                      
Revenues
  
$
438,434
  
$
346,133
  
$
134,136
  
$
149,063
  
$
368
  
$
1,068,134
  
EBITDA
    
36,465
    
31,390
    
25,765
    
7,660
    
(12,476
)
  
88,804
  
Stock-based compensation
                                  
2,591
  
                                 
$
91,395
  
Operating earnings
    
25,079
    
25,767
    
22,016
    
5,005
    
(12,641
)
  
65,226
  

- 13 -