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FirstService Reports Strong Third Quarter Results

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·15 min read
In this article:
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Strong Organic Growth Drives Double-Digit Revenue Increases Across Both Divisions

Operating highlights:

Three months ended

Nine months ended

September 30

September 30

2021

2020

2021

2020

Revenues (millions)

$

849.4

$

741.9

$

2,392.1

$

1,997.4

Adjusted EBITDA (millions) (note 1)

94.2

88.7

243.8

203.8

Adjusted EPS (note 2)

1.50

1.19

3.36

2.44

GAAP Operating Earnings

61.5

59.1

156.8

120.0

GAAP EPS

1.03

0.75

2.35

1.52

TORONTO, Oct. 26, 2021 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported strong results for its third quarter ended September 30, 2021. All amounts are in US dollars.

Consolidated revenues for the third quarter were $849.4 million, a 14% increase relative to the same quarter in the prior year, including 8% organic growth. Adjusted EBITDA (note 1) increased 6% to $94.2 million, and Adjusted EPS (note 2) was $1.50, representing 26% growth over the prior year quarter. During the third quarter, FirstService reported GAAP Operating Earnings of $61.5 million, up from $59.1 million in the prior year period. The GAAP diluted earnings per share was $1.03 in the quarter, compared to $0.75 for the same quarter a year ago.

For the nine months ended September 30, 2021, consolidated revenues were $2.39 billion, a 20% increase relative to the comparable prior year period, Adjusted EBITDA was $243.8 million, up 20%, and Adjusted EPS was $3.36, an increase of 38% versus the prior year period. FirstService’s GAAP Operating Earnings were $156.8 million in the current year period, versus $120.0 million in the prior year. The GAAP diluted earnings per share for the nine months year-to-date was $2.35, compared to $1.52 in the prior year period.

“We are pleased that all of our businesses contributed in delivering strong organic growth,” said Scott Patterson, Chief Executive Officer of FirstService. “This performance was particularly impressive, given the ongoing labour and resource constraints which limited our ability to drive further growth. Market demand indicators remain strong and provide us with confidence in navigating through the challenging macroeconomic environment,” he concluded.

About FirstService Corporation

FirstService Corporation is a North American leader in the essential outsourced property services sector, serving its customers through two industry-leading service platforms: FirstService Residential - North America’s largest manager of residential communities; and FirstService Brands - one of North America’s largest providers of essential property services delivered through individually branded franchise systems and company-owned operations.

FirstService generates more than US$3.1 billion in annual revenues and has approximately 24,000 employees across North America. With significant insider ownership and an experienced management team, FirstService has a long-term track record of creating value and superior returns for shareholders. The common shares of FirstService trade on the NASDAQ under the symbol “FSV” and on the Toronto Stock Exchange under the symbol “FSV”, and are included in the S&P/TSX 60 Index. More information is available at www.firstservice.com.

Segmented Quarterly Results
FirstService Residential revenues were $423.1 million for the third quarter, up 13% compared to the prior year quarter, including organic growth of 8% and the remaining contribution from recent tuck-under acquisitions. Revenue growth in the quarter reflected ongoing contract wins and was augmented by increased labour-driven services in our amenity management offering related to further client facility reopenings in the aftermath of the pandemic. Adjusted EBITDA for the quarter was $45.1 million, versus $41.8 million in the prior year period. GAAP Operating Earnings were $38.0 million, versus $35.2 million for the third quarter of last year. Margins decreased during the quarter as a result of increased wage inflation compared to the prior year.

FirstService Brands revenues during the third quarter grew to $426.4 million, up 16% relative to the prior year period. Organic growth was 9%, with the balance from recent tuck-under acquisitions. Top-line growth was broad-based across all of our service lines, including double-digit organic growth at our home improvement brands and Century Fire Protection. Adjusted EBITDA for the third quarter was $53.0 million, versus $48.7 million in the prior year period. GAAP Operating Earnings were $31.1 million, versus $28.5 million in the prior year quarter. The division margin decline was due to increased supply chain costs and associated labour cost increases during the third quarter.

Corporate costs, as presented in Adjusted EBITDA, were $3.9 million in the third quarter, relative to $1.8 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $7.5 million, relative to $4.5 million in the prior year period. The year-over-year cost increase reflects higher compensation expense compared to the prior year third quarter, which included significant COVID-19 expense reductions.

Conference Call
FirstService will be holding a conference call on Tuesday, October 26, 2021 at 11:00 a.m. Eastern Time to discuss the quarter’s results. The numbers to use for this call are 1) toll-free 1-888-241-0551; or 2) for international callers, 647-427-3415. The call will be simultaneously webcast and can be accessed live or after the call at www.firstservice.com in the “Investors / Newsroom” section.

Forward-looking Statements
This press release includes or may include forward-looking statements. Much of this information can be identified by words such as “expect to,” “expected,” “will,” “estimated” or similar expressions suggesting future outcomes or events. FirstService believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. 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 FirstService’s services and the cost of providing services; (ii) the ability of FirstService to implement its business strategy, including FirstService’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 FirstService’s annual information form for the year ended December 31, 2020 under the heading “Risk factors” (a copy of which may be obtained at www.sedar.com) and Annual Report on Form 40-F filed with the United States Securities and Exchange Commission (a copy of which may be obtained at www.sec.gov), and subsequent filings (which factors are adopted herein). Forward-looking statements contained in this press release are made as of the date hereof and are subject to change. All forward-looking statements in this press release are qualified by these cautionary statements. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements contained in this press release to reflect subsequent information, events, results or circumstances or otherwise.

Summary financial information is provided in this press release. This press release should be read in conjunction with the Company's consolidated financial statements and MD&A to be made available on SEDAR at www.sedar.com.

COMPANY CONTACTS:

D. Scott Patterson
President & CEO

Jeremy Rakusin
Chief Financial Officer

(416) 960-9566


Notes
1. Reconciliation of net earnings to adjusted EBITDA:

Adjusted EBITDA is defined as net earnings, adjusted to exclude: (i) income tax; (ii) other expense (income); (iii) interest expense; (iv) depreciation and amortization; (v) acquisition-related items; and (vi) stock-based compensation expense. We use adjusted EBITDA to evaluate our own operating performance and our ability to service debt, as well as an integral part of our planning and reporting systems. Additionally, we use this measure in conjunction with discounted cash flow models to determine the Company’s overall enterprise valuation and to evaluate acquisition targets. We present adjusted EBITDA as a supplemental measure because we believe such measure is useful to investors as a reasonable indicator of operating performance because of the low capital intensity of the Company’s service operations. We believe this measure is a financial metric used by many investors to compare companies, especially in the services industry. This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings, net earnings or cash flow from operating activities, as determined in accordance with GAAP. Our method of calculating adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to adjusted EBITDA appears below.

Three months ended

Nine months ended

(in thousands of US$)

September 30

September 30

2021

2020

2021

2020

Net earnings

$

52,872

$

40,966

$

120,735

$

76,663

Income tax

17,321

12,969

39,321

24,118

Other income, net

(12,539

)

(269

)

(15,295

)

(645

)

Interest expense, net

3,873

5,464

12,031

19,881

Operating earnings

61,527

59,130

156,792

120,017

Depreciation and amortization

23,977

26,184

70,876

73,179

Acquisition-related items

5,152

950

4,946

1,752

Stock-based compensation expense

3,540

2,468

11,230

8,880

Adjusted EBITDA

$

94,196

$

88,732

$

243,844

$

203,828

2. Reconciliation of net earnings and diluted net earnings per share to adjusted net earnings and adjusted net earnings per share:

Adjusted earnings per share is defined as diluted net earnings per share, adjusted for the effect, after income tax, of: (i) the non-controlling interest redemption increment; (ii) acquisition-related items; (iii) amortization expense related to intangible assets recognized in connection with acquisitions; and (iv) stock-based compensation expense. We believe this measure is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company and enhances the comparability of operating results from period to period. Adjusted earnings per share is not a recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted net earnings per share, as determined in accordance with GAAP. Our method of calculating this non-GAAP measure may differ from other issuers and, accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to adjusted net earnings and of diluted net earnings per share to adjusted earnings per share appears below.

Three months ended

Nine months ended

(in thousands of US$)

September 30

September 30

2021

2020

2021

2020

Net earnings

$

52,872

$

40,966

$

120,735

$

76,663

Non-controlling interest share of earnings

(1,564

)

(760

)

(6,927

)

(5,841

)

Acquisition-related items

5,152

950

4,946

1,752

Amortization of intangible assets

10,567

13,191

30,987

35,416

Stock-based compensation expense

3,540

2,468

11,230

8,880

Income tax on adjustments

(3,668

)

(4,071

)

(10,977

)

(11,517

)

Non-controlling interest on adjustments

(404

)

(303

)

(756

)

(823

)

Adjusted net earnings

$

66,495

$

52,441

$

149,238

$

104,530

Three months ended

Nine months ended

(in US$)

September 30

September 30

2021

2020

2021

2020

Diluted net earnings per share

$

1.03

$

0.75

$

2.35

$

1.52

Non-controlling interest redemption increment

0.13

0.17

0.22

0.13

Acquisition-related items

0.11

0.02

0.11

0.04

Amortization of intangible assets, net of tax

0.17

0.21

0.50

0.60

Stock-based compensation expense, net of tax

0.06

0.04

0.18

0.15

Adjusted earnings per share

$

1.50

$

1.19

$

3.36

$

2.44


FIRSTSERVICE CORPORATION

Condensed Consolidated Statements of Earnings

(in thousands of US dollars, except per share amounts)

Three months

Nine months

ended September 30

ended September 30

2021

2020

2021

2020

Revenues

$

849,431

$

741,932

$

2,392,127

$

1,997,360

Cost of revenues

579,309

496,367

1,624,797

1,343,526

Selling, general and administrative expenses

179,466

159,301

534,716

458,886

Depreciation

13,410

12,993

39,889

37,763

Amortization of intangible assets

10,567

13,191

30,987

35,416

Acquisition-related items (1)

5,152

950

4,946

1,752

Operating earnings

61,527

59,130

156,792

120,017

Interest expense, net

3,873

5,464

12,031

19,881

Other income (2)

(12,539

)

(269

)

(15,295

)

(645

)

Earnings before income tax

70,193

53,935

160,056

100,781

Income tax

17,321

12,969

39,321

24,118

Net earnings

52,872

40,966

120,735

76,663

Non-controlling interest share of earnings

1,564

760

6,927

5,841

Non-controlling interest redemption increment

5,693

7,379

9,603

5,588

Net earnings attributable to Company

$

45,615

$

32,827

$

104,205

$

65,234

Net earnings per common share

Basic

$

1.04

$

0.76

$

2.38

$

1.54

Diluted

1.03

0.75

2.35

1.52

Adjusted earnings per share (3)

$

1.50

$

1.19

$

3.36

$

2.44

Weighted average common shares (thousands)

Basic

43,865

43,476

43,798

42,480

Diluted

44,471

43,942

44,351

42,868

Notes to Condensed Consolidated Statements of Earnings
(1) Acquisition-related items include transaction costs, and contingent acquisition consideration fair value adjustments.
(2) Other income includes a $12.5 million pre-tax gain from the divestiture of a small, non-core operation in the FirstService Residential segment.
(3) See definition and reconciliation above.


Condensed Consolidated Balance Sheets

(in thousands of US dollars)

September 30, 2021

December 31, 2020

Assets

Cash and cash equivalents

$

140,861

$

184,295

Restricted cash

31,262

24,643

Accounts receivable

534,279

418,890

Prepaid and other current assets

223,442

191,488

Current assets

929,844

819,316

Other non-current assets

17,430

14,970

Fixed assets

134,791

126,569

Operating lease right-of-use assets

156,708

153,185

Goodwill and intangible assets

1,155,621

1,082,500

Total assets

$

2,394,394

$

2,196,540

Liabilities and shareholders' equity

Accounts payable and accrued liabilities

$

400,015

$

349,692

Other current liabilities

134,922

102,266

Operating lease liabilities - current

38,740

35,315

Long-term debt - current

56,378

56,478

Current liabilities

630,055

543,751

Long-term debt - non-current

509,270

533,126

Operating lease liabilities - non-current

128,885

128,793

Other liabilities

105,191

96,093

Deferred income tax

40,078

41,345

Redeemable non-controlling interests

212,814

193,034

Shareholders' equity

768,101

660,398

Total liabilities and equity

$

2,394,394

$

2,196,540

Supplemental balance sheet information

Total debt

$

565,648

$

589,604

Total debt, net of cash

424,787

405,309


Consolidated Statements of Cash Flows

(in thousands of US dollars)

Three months ended

Nine months ended

September 30

September 30

2021

2020

2021

2020

Cash provided by (used in)

Operating activities

Net earnings

$

52,872

$

40,966

$

120,735

$

76,663

Items not affecting cash:

Depreciation and amortization

23,978

26,184

70,877

73,179

Deferred income tax

(995

)

(2,134

)

(2,725

)

(6,339

)

Other

(3,998

)

2,486

4,000

8,155

71,857

67,502

192,887

151,658

Changes in non-cash working capital

Accounts receivable

(41,135

)

(27,384

)

(79,821

)

5,509

Payables and accruals

22,073

34,295

13,705

52,630

Other

(24,254

)

(32,494

)

8,493

(14,837

)

Net cash provided by operating activities

28,541

41,919

135,264

194,960

Investing activities

Acquisition of businesses, net of cash acquired

(46,408

)

(64,507

)

(86,011

)

(64,507

)

Disposition of business, net of cash disposed

15,780

-

15,780

-

Purchases of fixed assets

(13,245

)

(8,820

)

(42,348

)

(30,901

)

Other investing activities

(1,836

)

(544

)

(6,112

)

(1,330

)

Net cash used in investing activities

(45,709

)

(73,871

)

(118,691

)

(96,738

)

Financing activities

Increase in long-term debt, net

(6,922

)

(41,863

)

(24,827

)

(163,787

)

Proceeds received on common share issuance

-

-

-

150,008

Purchases of non-controlling interests, net

(276

)

(3,723

)

(5,676

)

(18,790

)

Dividends paid to common shareholders

(7,999

)

(7,168

)

(23,190

)

(20,259

)

Distributions paid to non-controlling interests

(1,057

)

(3,368

)

(8,213

)

(3,418

)

Other financing activities

(1,345

)

5,255

8,516

6,483

Net cash used in financing activities

(17,599

)

(50,867

)

(53,390

)

(49,763

)

Effect of exchange rate changes on cash

(531

)

(101

)

2

(385

)

Increase (decrease) in cash, cash equivalents and restricted cash

(35,298

)

(82,920

)

(36,815

)

48,074

Cash, cash equivalents and restricted cash, beginning of period

207,421

265,285

208,938

134,291

Cash, cash equivalents and restricted cash, end of period

$

172,123

$

182,365

$

172,123

$

182,365


Segmented Results

(in thousands of US dollars)

FirstService

FirstService

Residential

Brands

Corporate

Consolidated

Three months ended September 30

2021

Revenues

$

423,069

$

426,362

$

-

$

849,431

Adjusted EBITDA

45,083

53,009

(3,896

)

94,196

Operating earnings

37,998

31,074

(7,545

)

61,527

2020

Revenues

$

374,756

$

367,176

$

-

$

741,932

Adjusted EBITDA

41,805

48,678

(1,751

)

88,732

Operating earnings

35,200

28,451

(4,521

)

59,130

FirstService

FirstService

Residential

Brands

Corporate

Consolidated

Nine months ended September 30

2021

Revenues

$

1,179,770

$

1,212,357

$

-

$

2,392,127

Adjusted EBITDA

120,984

134,587

(11,727

)

243,844

Operating earnings

101,646

78,329

(23,183

)

156,792

2020

Revenues

$

1,052,572

$

944,788

$

-

$

1,997,360

Adjusted EBITDA

102,940

106,468

(5,580

)

203,828

Operating earnings

84,604

50,722

(15,309

)

120,017


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