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FirstService Reports Second Quarter 2023 Results

Operating highlights:

  Three months ended Six months ended 
  June 30 June 30 
  2023 2022 2023 2022 
              
Revenues (millions)$1,119.7 $930.7 $2,138.2 $1,765.3 
Adjusted EBITDA (millions) (note 1) 118.4  91.3  200.4  153.7 
Adjusted EPS (note 2) 1.46  1.12  2.31  1.85 
              
GAAP Operating Earnings 82.3  59.8  123.3  88.9 
GAAP EPS 1.01  0.78  1.37  1.09 
              

TORONTO, July 27, 2023 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported results for its second quarter ended June 30, 2023. All amounts are in US dollars.

Consolidated revenues for the second quarter were $1.12 billion, a 20% increase relative to the same quarter in the prior year, including 15% organic growth. Adjusted EBITDA (note 1) increased 30% to $118.4 million, and Adjusted EPS (note 2) was $1.46, up 30% versus the prior year quarter. During the second quarter, FirstService reported GAAP Operating Earnings of $82.3 million, up from $59.8 million in the prior year period. The GAAP diluted earnings per share was $1.01 in the quarter, compared to $0.78 for the same quarter a year ago.

For the six months ended June 30, 2023, consolidated revenues were $2.14 billion, a 21% increase relative to the comparable prior year period, Adjusted EBITDA was $200.4 million, up 30%, and Adjusted EPS was $2.31, compared to $1.85 in the prior year period. FirstService’s GAAP Operating Earnings were $123.3 million in the current year period, versus $88.9 million in the prior year. The GAAP diluted earnings per share for the six months year-to-date was $1.37, compared to $1.09 in the prior year period.

“We are pleased to have delivered another strong quarter, with our year-over-year growth largely mirroring our prior Q1,” said Scott Patterson, Chief Executive Officer of FirstService. “Our organic top-line growth showed momentum across the board and continues to be the main driver of our performance. Our results year-to-date put us well on track with our expectations for a strong 2023,” 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$4.1 billion in annual revenues and has approximately 27,000 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 $517.1 million for the second quarter, up 13% compared to the prior year quarter, including organic growth of 10%. New contract wins and increased labour-based services with existing clients drove the strong revenue performance, particularly in our high-rise markets across North America. Adjusted EBITDA for the quarter was $55.7 million, versus $50.5 million in the prior year period. GAAP Operating Earnings were $49.2 million, versus $43.3 million for the second quarter of last year. Operating margins were relatively in line with the prior year period.

FirstService Brands revenues during the second quarter grew to $602.6 million, up 27% relative to the prior year period. Organic growth was 20%, with the balance from recent tuck-under acquisitions. All of our service lines contributed to the revenue growth, with particular strength within our restoration operations which benefited from elevated weather-driven activity compared to the prior year. Adjusted EBITDA for the second quarter was $65.8 million, versus $43.9 million in the prior year period. GAAP Operating Earnings were $41.8 million, versus $23.7 million in the prior year quarter. Our margin expansion was primarily due to the operating leverage from significant revenue growth across our restoration platform.

Corporate costs, as presented in Adjusted EBITDA, were $3.2 million in the second quarter, relative to $3.1 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $8.6 million, relative to $7.1 million in the prior year period, with the year-over-year cost increase primarily driven by stock-based compensation expense.

Conference Call
FirstService will be holding a conference call on Thursday, July 27, 2023 at 11:00 a.m. Eastern Time to discuss the quarter’s results. This call is being webcast live at the Company’s website at www.firstservice.com. Participants may register for the call here https://register.vevent.com/register/BIc382b8f12e414c78b9f102caab27fcaa to receive the dial-in number and their unique PIN.

To join the webcast in listen only mode, use this link: https://edge.media-server.com/mmc/p/64pwsc6z . It is recommended that you join 10 minutes prior to the event start (although you may register and dial in at any time during the call).

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, 2022 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.

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, net; (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 Six months ended
(in thousands of US$)June 30 June 30
  2023
  2022 2023
  2022 
             
Net earnings$54,713  $40,506 $77,380  $59,327 
Income tax 19,903   13,944  27,819   20,338 
Other expense (income), net (4,249)  322  (4,513)  (213)
Interest expense, net 11,954   5,041  22,585   9,407 
Operating earnings 82,321   59,813  123,271   88,859 
Depreciation and amortization 29,034   26,912  60,916   52,822 
Acquisition-related items 1,651   586  3,758   2,147 
Stock-based compensation expense 5,347   4,035  12,504   9,856 
Adjusted EBITDA$118,353  $91,346 $200,449  $153,684 


A reconciliation of segment operating earnings to segment Adjusted EBITDA appears below.    
             
(in thousands of US$)           
        
Three months ended, June 30, 2023   FirstService  FirstService    
     Residential  Brands  Corporate
            
Operating earnings (loss)  $49,195 $41,770 $(8,644)
Depreciation and amortization   6,029  22,981  24 
Acquisition-related items   514  1,048  89 
Stock-based compensation expense   -  -  5,347 
Adjusted EBITDA  $55,738 $65,799 $(3,184)
            
            
Three months ended, June 30, 2022   FirstService  FirstService   
     Residential  Brands  Corporate
            
Operating earnings (loss)  $43,256 $23,669 $(7,112)
Depreciation and amortization   7,202  19,687  23 
Acquisition-related items   10  576  - 
Stock-based compensation expense   -  -  4,035 
Adjusted EBITDA  $50,468 $43,932 $(3,054)
            
            
Six months ended, June 30, 2023   FirstService  FirstService    
     Residential  Brands  Corporate
            
Operating earnings (loss)  $71,907 $71,930 $(20,566)
Depreciation and amortization   14,822  46,048  46 
Acquisition-related items   977  2,614  167 
Stock-based compensation expense   -  -  12,504 
Adjusted EBITDA  $87,706 $120,592 $(7,849)
            
            
Six months ended, June 30, 2022   FirstService  FirstService   
     Residential  Brands  Corporate
            
Operating earnings (loss)  $66,653 $39,420 $(17,214)
Depreciation and amortization   14,207  38,569  46 
Acquisition-related items   18  2,025  104 
Stock-based compensation expense   -  -  9,856 
Adjusted EBITDA  $80,878 $80,014 $(7,208)
            

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 Six months ended
(in thousands of US$)June 30 June 30
  2023  2022  2023  2022 
             
Net earnings$54,713  $40,506  $77,380  $59,327 
Non-controlling interest share of earnings (3,376)  (2,450)  (5,809)  (3,015)
Acquisition-related items 1,651   586   3,758   2,147 
Amortization of intangible assets 11,556   11,398   25,842   22,864 
Stock-based compensation expense 5,347   4,035   12,504   9,856 
Income tax on adjustments (4,395)  (4,012)  (9,970)  (8,507)
Non-controlling interest on adjustments (249)  (206)  (531)  (434)
Adjusted net earnings$65,247  $49,857  $103,174  $82,238 
             
  Three months ended Six months ended
(in US$)June 30 June 30
  2023  2022  2023  2022 
             
Diluted net earnings per share$1.01  $0.78  $1.37  $1.09 
Non-controlling interest redemption increment 0.13   0.08   0.23   0.17 
Acquisition-related items 0.04   0.01   0.08   0.05 
Amortization of intangible assets, net of tax 0.19   0.18   0.42   0.37 
Stock-based compensation expense, net of tax 0.09   0.07   0.21   0.17 
Adjusted earnings per share$1.46  $1.12  $2.31  $1.85 
             


FIRSTSERVICE CORPORATION
Condensed Consolidated Statements of Earnings
(in thousands of US dollars, except per share amounts)
     Three months  Six months
     ended June 30  ended June 30
   2023   2022  2023   2022 
               
Revenues $1,119,734  $930,707 $2,138,179  $1,765,279 
               
Cost of revenues  754,263   638,475  1,454,527   1,214,309 
Selling, general and administrative expenses  252,465   204,921  495,707   407,142 
Depreciation  17,478   15,514  35,074   29,958 
Amortization of intangible assets  11,556   11,398  25,842   22,864 
Acquisition-related items (1)  1,651   586  3,758   2,147 
Operating earnings  82,321   59,813  123,271   88,859 
Interest expense, net  11,954   5,041  22,585   9,407 
Other expense (income), net  (4,249)  322  (4,513)  (213)
Earnings before income tax  74,616   54,450  105,199   79,665 
Income tax  19,903   13,944  27,819   20,338 
Net earnings   54,713   40,506  77,380   59,327 
Non-controlling interest share of earnings  3,376   2,450  5,809   3,015 
Non-controlling interest redemption increment  5,977   3,490  10,093   7,661 
Net earnings attributable to Company  $45,360  $34,566 $61,478  $48,651 
               
Net earnings per common share             
 Basic $1.02  $0.78 $1.38  $1.10 
 Diluted  1.01   0.78  1.37   1.09 
              
               
Adjusted earnings per share (2) $1.46  $1.12 $2.31  $1.85 
               
Weighted average common shares (thousands)            
  Basic  44,574   44,193  44,486   44,139 
  Diluted  44,800   44,479  44,733   44,490 

Notes to Condensed Consolidated Statements of Earnings
(1) Acquisition-related items include transaction costs, and contingent acquisition consideration fair value adjustments.
(2) See definition and reconciliation above.


Condensed Consolidated Balance Sheets     
(in thousands of US dollars)
       
 June 30, 2023 December 31, 2022
       
Assets     
Cash and cash equivalents$154,653 $136,219
Restricted cash 28,769  23,129
Accounts receivable 767,456  635,942
Prepaid and other current assets 323,929  313,582
 Current assets1,274,807  1,108,872
Other non-current assets 24,980  38,549
Fixed assets 174,242  167,012
Operating lease right-of-use assets 212,289  205,544
Goodwill and intangible assets 1,367,629  1,254,537
 Total assets$3,053,947 $2,774,514
       
       
Liabilities and shareholders' equity     
Accounts payable and accrued liabilities$417,551 $398,313
Other current liabilities 206,831  153,866
Operating lease liabilities - current 49,952  49,145
Long-term debt - current 36,727  35,665
 Current liabilities711,061  636,989
Long-term debt - non-current 783,219  698,798
Operating lease liabilities - non-current 175,989  168,557
Other liabilities 77,299  78,178
Deferred income tax 65,653  51,097
Redeemable non-controlling interests 252,340  233,429
Shareholders' equity 988,386  907,466
 Total liabilities and equity$3,053,947 $2,774,514
       
       
Supplemental balance sheet information     
Total debt$819,946 $734,463
Total debt, net of cash 665,293  598,244



Consolidated Statements of Cash Flows          
(in thousands of US dollars)
    Three months ended  Six months ended
    June 30
  June 30
   2023   2022   2023   2022 
                  
Cash provided by (used in)                
                  
Operating activities                
Net earnings $54,713  $40,506  $77,380  $59,327 
Items not affecting cash:                
 Depreciation and amortization29,034   26,912   60,916   52,822 
 Deferred income tax (419)  (581)  (691)  (1,204)
 Other  1,995   4,703   10,998   11,476 
    85,323   71,540   148,603   122,421 
                  
Changes in non-cash working capital                
 Accounts receivable (73,765)  (3,100)  (122,353)  21,734 
 Payables and accruals 41,398   4,500   10,992   (35,450)
 Other  33,296   (11,141)  48,707   (45,405)
Net cash provided by operating activities  86,252   61,799   85,949   63,300 
                  
Investing activities                
Acquisition of businesses, net of cash acquired  (11,099)  -   (93,450)  - 
Purchases of fixed assets  (22,723)  (19,795)  (44,204  (36,378)
Other investing activities  6,560   (7,855)  1,256   (13,969)
Net cash used in investing activities  (27,262)  (27,650)  (136,398)  (50,347)
                  
Financing activities                
Increase (decrease) in long-term debt, net  (18,855)  (24,181)  85,045   5,729 
Purchases of non-controlling interests, net  (891)  (13,415)  (3,610)  (19,179)
Dividends paid to common shareholders  (10,024)  (8,949)  (18,980)  (16,981)
Distributions paid to non-controlling interests  (4,114)  (2,602)  (4,472  (2,602)
Other financing activities  1,664   (930)  17,144   6,609 
Net cash provided by (used in) financing activities  (32,220)  (50,077)  75,127   (26,424)
                  
Effect of exchange rate changes on cash  (591)  503   (604)  369 
                  
Increase (decrease) in cash, cash equivalents and restricted cash  26,179   (15,425)  24,074   (13,102)
                  
Cash, cash equivalents and restricted cash, beginning of period  157,243   196,594   159,348   194,271 
                  
Cash, cash equivalents and restricted cash, end of period $183,422  $181,169  $183,422  $181,169 



Segmented Results
(in thousands of US dollars)
            
  FirstService FirstService    
 Residential Brands Corporate Consolidated
              
Three months ended June 30            
              
2023            
 Revenues$517,134 $602,600 $-  $1,119,734
 Adjusted EBITDA55,738  65,799  (3,184)  118,353
              
 Operating earnings49,195  41,770  (8,644)  82,321
              
2022            
 Revenues$457,489 $473,218 $-  $930,707
 Adjusted EBITDA50,468  43,932  (3,054)  91,346
              
 Operating earnings43,256  23,669  (7,112)  59,813
              
              
            
  FirstService FirstService    
  Residential Brands Corporate Consolidated
              
Six months ended June 30            
              
2023            
 Revenues$962,714 $1,175,465 $-  $2,138,179
 Adjusted EBITDA87,706  120,592  (7,849)  200,449
              
 Operating earnings71,907  71,930  (20,566)  123,271
              
2022            
 Revenues$851,572 $913,707 $-  $1,765,279
 Adjusted EBITDA80,878  80,014  (7,208)  153,684
              
 Operating earnings66,653  39,420  (17,214)  88,859
             

 

COMPANY CONTACTS:

D. Scott Patterson
Chief Executive Officer

Jeremy Rakusin
Chief Financial Officer

(416) 960-9566


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