EX-99.1 2 ex991.htm Q2 EARNINGS NEWS RELEASE ex991.htm
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 second quarter results

Confirms financial outlook for year ending March 31, 2008

Second quarter highlights:
 
•
Revenues up 26%
 
•
EBITDA up 30%
 
•
Adjusted EPS up 28%
 
TORONTO, Canada, October 30, 2007 - FirstService Corporation (TSX: FSV; Nasdaq: FSRV; preferred shares - TSX: FSV.PR.U) today reported record results for its second quarter ended September 30, 2007 and confirmed its financial outlook for its fiscal year ending March 31, 2008.  All amounts are in US dollars.

Second quarter revenues were $427.7 million, an increase of 26% relative to the same period last year.  EBITDA (see definition and reconciliation below) increased 30% to $42.7 million.  Adjusted diluted earnings per common share from continuing operations (see definition and reconciliation below) were up 28% to $0.46 for the quarter, versus $0.36 in the prior year period, adjusting for the $0.06 per common share pro forma impact of the preferred dividends on prior period results.

For the six months ended September 30, 2007, revenues were $847.0 million, an increase of 28% relative to the same period last year.  EBITDA (see definition and reconciliation below) increased 28% to $91.1 million.  Adjusted diluted earnings per common share from continuing operations (see definition and reconciliation below) were up 25% to $1.04 for the six months, versus $0.83 in the prior year period, adjusting for the $0.06 per common share pro forma impact of the preferred dividends on prior period results.

“These results reflect another quarter of solid internal growth across the board and strong contributions from recently completed acquisitions, all of which are performing in line with our expectations”, said Jay S. Hennick, Founder and Chief Executive Officer of FirstService Corporation. “We are particularly excited about the long term growth opportunities that can be realized from our recent Field Asset Services acquisition.  As a market leader in property preservation services, Field Asset Services contracts with “blue chip” residential mortgage lenders to administer and manage growing portfolios of foreclosed residential properties - a market that is experiencing significant near term growth given current market conditions,” he added.

About FirstService Corporation
FirstService is a leader in the rapidly growing property services sector, providing services in the following four areas: commercial real estate; residential property management; integrated security and property improvement services. Industry-leading service platforms include: Colliers International, the third largest global player in commercial real estate; FirstManagement Partners, the largest manager of residential properties in North America; FirstService Security, the fifth largest integrated security company in North America; and The Franchise Company, the second largest property improvement services organization in North America.

FirstService is a diversified property services company with more than US$1.6 billion in annualized revenues and more than 16,000 employees worldwide. More information about FirstService is available at www.firstservice.com.

Segmented Quarterly Results
Revenues in Commercial Real Estate Services totalled $186.9 million for the quarter, an increase of 31%.  Internal growth was 14%, due primarily to robust brokerage activity in the Asia Pacific and Central European markets, and 4% attributable to foreign exchange.  The balance of the revenue growth was the result of acquisitions, including those completed during the quarter.  Second quarter EBITDA was $10.5 million, up 32% versus $7.9 million in the year-ago period.  EBITDA was impacted by a non-cash mark-to-market loss of $2.2 million recorded at the end of the quarter on interest rate swaps used to hedge fixed-rate commercial mortgages held for resale. Under accounting rules, the offsetting $2.2 million gain in the market value of the hedged mortgages is not recognized until securitization, which is expected to occur during the fourth quarter.  Excluding the impact of the mark-to-market loss, second quarter EBITDA in this segment would have been $12.7 million, up 61% versus the year-ago period.

- 2 -
Residential Property Management revenues increased to $144.4 million for the quarter, 31% higher than in the prior year period.  Internal growth of 11% was attributable to property management contract wins in the South Florida, Mid-Atlantic and Las Vegas markets. The balance of revenue growth resulted from acquisitions in the California and Texas markets completed during the first quarter.  EBITDA for the quarter was $16.4 million, up 38% from $11.9 million one year ago.

Revenues in Property Improvement Services totalled $46.6 million, an increase of 6% over the prior year period.  Internal growth was 3% and the balance was attributable to acquisitions.  EBITDA in the second quarter was $14.0 million, up 3% from $13.5 million last year.  The recently announced acquisition of Field Asset Services will contribute to Property Improvement earnings commencing in the third quarter.

Integrated Security Services revenues in the second quarter were $49.8 million, an increase of 19% relative to the prior year period, with 15% attributable to continuing momentum in systems installation activity and 4% due to foreign exchange.  Quarterly EBITDA was $3.2 million, up 51% from $2.1 million in the prior year.

Quarterly corporate costs were $3.5 million, similar to the $3.4 million recorded in the prior year period.

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

Stock Dividend of 7% Cumulative Preferred Shares
A stock dividend of 7% Cumulative Preferred Shares, Series 1 (the “Preferred Shares”) was issued to holders of Subordinate Voting Shares and Multiple Voting Shares (together the “Common Shares”) on August 1, 2007.  A total of 5,979,074 Preferred Shares were issued.  The Preferred Shares are traded on the Toronto Stock Exchange, in US dollars, under the symbol FSV.PR.U.  The Preferred Shares have been assigned an investment-grade rating of “P-3(low)” by rating agency DBRS.  The initial cash dividend on the Preferred Shares for the period from issuance to September 30, 2007 amounting to $1.7 million was paid on October 1, 2007.  The next quarterly preferred dividend payment is expected to be made on December 31, 2007.

- 3 -
Financial Outlook
 
FirstService is confirming the outlook for fiscal 2008 issued on October 3, 2007 in connection with the completion of the Field Asset Services acquisition.
 
(in millions of US dollars, except
per share amounts)
  
Year ending
March 31, 2008
  
       
Revenues
   $
1,625 - $1,725
  
EBITDA
   $
149 - $159
  
Adjusted EPS1
   $
1.37 - $1.49
  
 
Notes:
1. 
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.  Diluted EPS reflects earnings available to common shareholders after preferred dividends, which are expected to amount to $0.23 per common share for the fiscal year ending March 31, 2008.
2. 
 The updated 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, October 30, 2007 at 11:00 am Eastern Time to discuss results for the second quarter as well as the 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 and Media” 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
September 30
    
Six months ended
September 30
  
   
2007
    
2006
    
2007
    
2006
  
                         
Revenues
   $
427,730
     $
338,681
     $
847,042
     $
664,185
  
Cost of revenues
    
259,790
      
217,084
      
515,527
      
422,231
  
Selling, general and administrative expenses
    
127,351
      
89,528
      
243,694
      
172,618
  
Depreciation and amortization other than backlog
    
7,540
      
5,120
      
14,364
      
9,962
  
Amortization of brokerage backlog (1)
    
1,463
      
2,076
      
2,518
      
4,150
  
Operating earnings
    
31,586
      
24,873
      
70,939
      
55,224
  
Interest expense, net
    
3,360
      
2,571
      
6,669
      
5,307
  
Other income
     (1,216 )     (228 )     (2,494 )     (2,383 )
     
29,442
      
22,530
      
66,764
      
52,300
  
Income taxes
    
9,705
      
7,479
      
22,033
      
17,708
  
     
19,737
      
15,051
      
44,731
      
34,592
  
Minority interest share of earnings
    
4,122
      
3,078
      
11,034
      
8,486
  
Net earnings from continuing operations
    
15,615
      
11,973
      
33,697
      
26,106
  
Discontinued operations, net of tax (2)
    
2,078
      
-
      
2,078
      
-
  
Net earnings before cumulative effect of change in accounting principle
    
17,693
      
11,973
      
35,775
      
26,106
  
Cumulative effect of change in accounting principle, net of tax (3)
    
-
      
-
      
-
       (1,353 )
Net earnings
   $
17,693
     $
11,973
     $
35,775
     $
24,753
  
Preferred dividends
    
1,720
      
-
      
1,720
      
-
  
Net earnings available to common shareholders
   $
15,973
     $
11,973
     $
34,055
     $
24,753
  
                                 
Net earnings per common share
                                
    Basic
                                
        Continuing operations
   $
0.46
     $
0.40
     $
1.07
     $
0.87
  
        Discontinued operations
    
0.07
      
-
      
0.07
      
-
  
        Cumulative effect of change in accounting principle
    
-
      
-
      
-
       (0.04 )
    $
0.53
     $
0.40
     $
1.14
     $
0.83
  
                                 
    Diluted (4)
                                
        Continuing operations
   $
0.43
     $
0.38
     $
0.99
     $
0.81
  
        Discontinued operations
    
0.07
      
-
      
0.07
      
-
  
        Cumulative effect of change in accounting principle
    
-
      
-
      
-
       (0.04 )
    $
0.50
     $
0.38
     $
1.06
     $
0.77
  
                                 
Weighted average common shares outstanding:        Basic
    
29,896
      
29,840
      
29,866
      
29,927
  
(in thousands)                                                                   Diluted
    
30,385
      
30,261
      
30,390
      
30,373
  
Net earnings per common share, adjusted diluted continuing operations (5)
   $
0.46
     $
0.36
     $
1.04
     $
0.83
  
 
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) Reflects gain on the settlement of a liability in connection with the March 2006 disposal of the Company’s Business Services operations.
(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 September 30, 2007 was $729 (2006 - $425) and six months ended September 30, 2007 was $1,748 (2006 - $1,302).
(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.
 

 
- 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 brokerage backlog intangible asset recognized upon the acquisitions of Commercial Real Estate Services businesses within the past twelve months.  In addition, the Company is presenting the pro forma impact of the preferred dividends on comparative periods.  The preferred dividend obligation commenced on August 1, 2007 upon the issuance of the Preferred Shares.  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
 September 30
    
Six months ended
 September 30
  
   
2007
    
2006
    
2007
    
2006
  
                         
Operating earnings
   $
31,586
     $
24,873
     $
70,939
     $
55,224
  
Amortization of brokerage backlog
    
1,463
      
2,076
      
2,518
      
4,150
  
Adjusted operating earnings
   $
33,049
     $
26,949
     $
73,457
     $
59,374
  
                                 
Net earnings from continuing operations
   $
15,615
     $
11,973
     $
33,697
     $
26,106
  
Amortization of brokerage backlog
    
1,463
      
2,076
      
2,518
      
4,150
  
Deferred income tax
     (311 )     (774 )     (642 )     (1,495 )
Minority interest
     (190 )     (220 )     (312 )     (426 )
Adjusted net earnings from continuing operations
   $
16,577
     $
13,055
     $
35,261
     $
28,335
  
                                 
Diluted net earnings per common share from continuing operations
   $
0.43
     $
0.38
     $
0.99
     $
0.81
  
Amortization of brokerage backlog, net of tax
    
0.03
      
0.04
      
0.05
      
0.08
  
Pro forma impact of preferred dividends on comparative periods
    
-
       (0.06 )    
-
       (0.06 )
Adjusted diluted net earnings per common share from continuing operations
   $
0.46
     $
0.36
     $
1.04
     $
0.83
  

 
 
- 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 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
September 30
    
Six months ended
September 30
  
   
2007
    
2006
    
2007
    
2006
  
                         
Operating earnings
   $
31,586
     $
24,873
     $
70,939
     $
55,224
  
Depreciation and amortization other than backlog
    
7,540
      
5,120
      
14,364
      
9,962
  
Amortization of brokerage backlog
    
1,463
      
2,076
      
2,518
      
4,150
  
     
40,589
      
32,069
      
87,821
      
69,336
  
Stock-based compensation expense
    
2,126
      
802
      
3,252
      
1,836
  
EBITDA
   $
42,715
     $
32,871
     $
91,073
     $
71,172
  
 
 
- 7 -

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


   
September 30
2007
    
March 31
2007
  
             
Assets
            
Cash and cash equivalents
   $
74,576
     $
99,038
  
Restricted cash
    
10,526
      
16,930
  
Accounts receivable
    
209,110
      
163,581
  
Inventories
    
38,318
      
31,768
  
Other current assets
    
53,155
      
51,040
  
     Current assets
    
385,685
      
362,357
  
Fixed assets
    
77,641
      
66,297
  
Other non-current assets
    
41,852
      
41,405
  
Goodwill and intangibles
    
425,611
      
346,939
  
     Total assets
   $
930,789
     $
816,998
  
Liabilities and shareholders’ equity
                
Accounts payable and accrued liabilities
   $
233,712
     $
205,529
  
Other current liabilities
    
26,479
      
29,179
  
Long term debt - current
    
22,762
      
22,119
  
     Current liabilities
    
282,953
      
256,827
  
Long term debt - non-current
    
238,964
      
213,030
  
Other non-current liabilities
    
12,294
      
4,876
  
Deferred income taxes
    
32,364
      
29,084
  
Minority interest
    
59,734
      
48,306
  
Shareholders’ equity
    
304,480
      
264,875
  
     Total liabilities and equity
   $
930,789
     $
816,998
  
                 
                 
                 
                 
Total debt
   $
261,726
     $
235,149
  
Total debt, net of cash
    
187,150
      
136,111
  


- 8 -
Condensed Consolidated Statements of Cash Flows
(in thousands of US dollars)
(unaudited)

 
   
Three months ended
September 30
    
Six months ended
September 30
  
   
2007
    
2006
    
2007
    
2006
  
Operating activities
                        
Net earnings from continuing operations
   $
15,615
     $
11,973
     $
33,697
     $
26,106
  
Items not affecting cash:
                                
     Depreciation and amortization
    
9,003
      
7,196
      
16,882
      
14,112
  
     Deferred income taxes
     (2,482 )     (532 )     (2,665 )     (3,334 )
     Minority interest share of earnings
    
4,122
      
3,078
      
11,034
      
8,486
  
     Other
    
1,863
      
1,841
      
2,691
      
983
  
                                 
Changes in operating assets and liabilities
     (25,174 )    
2,498
       (27,168 )     (21,865 )
Net cash provided by operating activities
    
2,947
      
26,054
      
34,471
      
24,488
  
Investing activities
                                
Acquisitions of businesses, net of cash acquired
     (24,306 )     (5,103 )     (76,277 )     (40,986 )
Purchases of fixed assets, net
     (5,974 )     (4,290 )     (17,203 )     (10,753 )
Other investing activities
     (3,316 )     (2,949 )    
7,408
       (1,349 )
Discontinued operations
     (1,036 )    
-
       (1,036 )    
-
  
Net cash used in investing
     (34,632 )     (12,342 )     (87,108 )     (53,088 )
Financing activities
                                
Increase (decrease) in long-term debt, net
    
18,606
      
24
      
25,493
       (14,967 )
Other financing activities
     (486 )     (37 )     (4,936 )     (7,700 )
Net cash provided by (used in) financing
    
18,120
       (13 )    
20,557
       (22,667 )
Effect of exchange rate changes on cash
    
2,473
      
524
      
7,618
      
275
  
(Decrease) increase in cash and cash equivalents
     (11,092 )    
14,223
       (24,462 )     (50,992 )
Cash and cash equivalents, beginning of period
    
85,668
      
102,723
      
99,038
      
167,938
  
Cash and cash equivalents, end of period
   $
74,576
     $
116,946
     $
74,576
     $
116,946
  


- 9 -
Segmented Revenues, EBITDA and Operating Earnings
(in thousands of US dollars)
(unaudited)

 
   
Commercial
Real Estate
Services
    
Residential
Property Management
    
Property
Improvement Services
    
Integrated
Security
Services
    
Corporate
    
Consolidated
  
Three months ended September 30
                                    
                                     
2007
                                    
Revenues
   $
186,857
     $
144,448
     $
46,555
     $
49,780
     $
90
     $
427,730
  
EBITDA
    
10,498
      
16,414
      
13,966
      
3,190
       (3,479 )    
40,589
  
Stock-based compensation
                                            
2,126
  
                                             
42,715
  
Operating earnings
    
5,719
      
13,961
      
12,751
      
2,705
       (3,550 )    
31,586
  
                                                 
                                                 
2006
                                                
Revenues
   $
142,402
     $
110,383
     $
44,032
     $
41,795
     $
69
     $
338,681
  
EBITDA
    
7,932
      
11,937
      
13,518
      
2,108
       (3,426 )    
32,069
  
Stock-based compensation
                                            
802
  
                                             
32,871
  
Operating earnings
    
4,158
      
10,376
      
12,415
      
1,419
       (3,495 )    
24,873
  
                                                 

 
   
Commercial
Real Estate
Services
 
  
Residential
Property Management
    
Property
Improvement Services
    
Integrated
Security
Services
    
Corporate
    
Consolidated
  
Six months ended September 30
                                    
                                     
2007
                                    
Revenues
   $
383,648
     $
278,493
     $
89,365
     $
95,370
     $
166
     $
847,042
  
EBITDA
    
32,141
      
30,116
      
25,514
      
6,306
       (6,256 )    
87,821
  
Stock-based compensation
                                            
3,252
  
                                             
91,073
  
Operating earnings
    
23,463
      
25,473
      
23,042
      
5,356
       (6,395 )    
70,939
  
                                                 
                                                 
2006
                                                
Revenues
   $
280,288
     $
214,349
     $
85,693
     $
83,710
     $
145
     $
664,185
  
EBITDA
    
24,033
      
23,186
      
24,656
      
4,226
       (6,765 )    
69,336
  
Stock-based compensation
                                            
1,836
  
                                             
71,172
  
Operating earnings
    
16,722
      
20,107
      
22,461
      
2,839
       (6,905 )    
55,224
  
                                                 



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