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, Oct. 30 /CNW/ - 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.
    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.

    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,                               Year ending
       except per share amounts)                              March 31, 2008
                                                             ----------------

      Revenues                                               $1,625 - $1,725

      EBITDA                                                     $149 - $159

      Adjusted EPS(1)                                          $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.

    
    FIRSTSERVICE CORPORATION
    Condensed Consolidated Statements of Earnings
    ---------------------------------------------
    (in thousands of US dollars, except per share amounts)
    (unaudited)
                                 Three months ended       Six months ended
                                    September 30            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     Basic      29,896      29,840      29,866      29,927
     outstanding:      Diluted    30,385      30,261      30,390      30,373
      (in thousands)

    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.


    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       Six months ended
                                    September 30            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 taxes           (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
     income taxes                   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
                              ----------- ----------- ----------- -----------
    


    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       Six months ended
                                    September 30            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
                              ----------- ----------- ----------- -----------



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

                                                    September 30    March 31
                                                            2007        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 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
                                                    ------------- -----------


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

                                 Three months ended       Six months ended
                                    September 30            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
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------



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

               Commercial               Property   Inte-
                     Real  Residential  Improve-  grated
                   Estate   Property     ment    Security            Consol-
                 Services  Management  Services  Services  Corporate  idated
               --------------------------------------------------------------

    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               Property   Inte-
                     Real  Residential  Improve-  grated
                   Estate   Property     ment    Security            Consol-
                 Services  Management  Services  Services  Corporate  idated
               --------------------------------------------------------------

    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
    





For further information:

For further information: COMPANY CONTACTS: Jay S. Hennick, Founder &
CEO, D. Scott Patterson, President & COO, John B. Friedrichsen, Senior Vice
President & CFO, (416) 960-9500

Organization Profile

FIRSTSERVICE CORPORATION

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