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FirstService Reports Third Quarter 2023 Results

Operating highlights:

 Three months ended Nine months ended
 September 30 September 30
 2023 2022 2023 2022
                
Revenues (millions)$1,117.1  $960.5  $3,255.3  $2,725.7 
Adjusted EBITDA (millions) (note 1) 111.9   95.5   312.4   249.2 
Adjusted EPS (note 2) 1.25   1.17   3.56   3.02 
                
GAAP Operating Earnings 73.6   62.7   196.8   151.6 
GAAP EPS 0.73   0.77   2.10   1.86 
                

TORONTO, Oct. 26, 2023 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported results for its third quarter ended September 30, 2023. All amounts are in US dollars.

Consolidated revenues for the third quarter were $1.12 billion, a 16% increase relative to the same quarter in the prior year, including 10% organic growth. Adjusted EBITDA (note 1) increased 17% to $111.9 million, and Adjusted EPS (note 2) was $1.25, up 7% versus the prior year quarter. During the third quarter, FirstService reported GAAP Operating Earnings of $73.6 million, up from $62.7 million in the prior year period. The GAAP diluted earnings per share was $0.73 in the quarter, compared to $0.77 for the same quarter a year ago.

For the nine months ended September 30, 2023, consolidated revenues were $3.26 billion, a 19% increase relative to the comparable prior year period, Adjusted EBITDA was $312.4 million, up 25%, and Adjusted EPS was $3.56, up 18% versus the prior year period. FirstService’s GAAP Operating Earnings were $196.8 million in the current year period, versus $151.6 million in the prior year. The GAAP diluted earnings per share for the nine months year-to-date was $2.10, compared to $1.86 in the prior year period.

“We are pleased to report another very good quarter on the back of continued impressive organic growth across our service lines,” said Scott Patterson, Chief Executive Officer of FirstService. “With our financial results thus far in 2023, we are well-positioned to deliver on our expectations of strong performance for the full year,” 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$4.2 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 $537.8 million for the third quarter, up 12% compared to the prior year quarter, including organic growth of 9%. The growth was driven by both new client contract wins and an expanded offering of services with existing clients across most markets. Adjusted EBITDA for the quarter was $56.6 million, versus $49.6 million in the prior year period. GAAP Operating Earnings were $49.0 million, versus $41.7 million for the third quarter of last year. Operating margins were relatively in line with the prior year period.

FirstService Brands revenues during the third quarter grew to $579.3 million, up 20% relative to the prior year period. Organic growth was 11%, with the balance from recent tuck-under acquisitions. All of our service lines contributed to the revenue growth, highlighted by organic strength at our Century Fire and restoration brands. Adjusted EBITDA for the third quarter was $60.7 million, up from $48.8 million in the prior year period. GAAP Operating Earnings were $33.9 million, versus $28.2 million in the prior year quarter. Margin expansion within the division was due to the operating leverage benefits arising from the strong revenue growth within our restoration and Century Fire service lines.

Corporate costs, as presented in Adjusted EBITDA, were $5.3 million in the third quarter, relative to $3.0 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $9.4 million, relative to $7.1 million in the prior year period, with the year-over-year cost increase primarily driven by the impact of foreign exchange.

Conference Call
FirstService will be holding a conference call on Thursday, October 26, 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/BI79338a5b77274924b0c7ab34bcc28475 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/5xx45775 . 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 Nine months ended
(in thousands of US$)September 30 September 30
 2023  2022 2023 2022
              
Net earnings$45,858  $41,341  $123,238  $100,668 
Income tax 16,447   13,830   44,266   34,168 
Other expense (income), net (702)  779   (5,215)  566 
Interest expense, net 11,956   6,759   34,541   16,166 
Operating earnings 73,559   62,709   196,830   151,568 
Depreciation and amortization 33,146   26,901   94,062   79,723 
Acquisition-related items 1,274   1,774   5,032   3,921 
Stock-based compensation expense 3,957   4,117   16,461   13,973 
Adjusted EBITDA$111,936  $95,501  $312,385  $249,185 


    
A reconciliation of segment operating earnings to segment Adjusted EBITDA appears below.   
           
(in thousands of US$)          
       
Three months ended, September 30, 2023   FirstService  FirstService    
    Residential  Brands  Corporate
           
Operating earnings (loss)  $49,001  $33,935 $(9,377)
Depreciation and amortization   9,919   23,204  23 
Acquisition-related items   (2,345)  3,553  66 
Stock-based compensation expense   -   -  3,957 
Adjusted EBITDA  $56,575  $60,692 $(5,331)
           
           
Three months ended, September 30, 2022   FirstService  FirstService   
    Residential  Brands  Corporate
           
Operating earnings (loss)  $41,658  $28,178 $(7,127)
Depreciation and amortization   6,813   20,066  22 
Acquisition-related items   1,173   581  20 
Stock-based compensation expense   -   -  4,117 
Adjusted EBITDA  $49,644  $48,825 $(2,968)
           
           
Nine months ended, September 30, 2023   FirstService  FirstService    
    Residential  Brands  Corporate
           
Operating earnings (loss)  $120,908  $105,865 $(29,943)
Depreciation and amortization   24,741   69,252  69 
Acquisition-related items   (1,368)  6,167  233 
Stock-based compensation expense   -   -  16,461 
Adjusted EBITDA  $144,281  $181,284 $(13,180)
           
           
Nine months ended, September 30, 2022   FirstService  FirstService   
    Residential  Brands  Corporate
           
Operating earnings (loss)  $108,311  $67,598 $(24,341)
Depreciation and amortization   21,020   58,635  68 
Acquisition-related items   1,191   2,606  124 
Stock-based compensation expense   -   -  13,973 
Adjusted EBITDA  $130,522  $128,839 $(10,176)


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
 2023  2022  2023  2022 
            
Net earnings$45,858  $41,341  $123,238  $100,668 
Non-controlling interest share of earnings (4,406)  (2,904)  (10,215)  (5,919)
Acquisition-related items 1,274   1,774   5,032   3,921 
Amortization of intangible assets 14,454   12,202   40,296   35,066 
Stock-based compensation expense 3,957   4,117   16,461   13,973 
Income tax on adjustments (4,787)  (4,243)  (14,757)  (12,750)
Non-controlling interest on adjustments (321)  (280)  (852)  (714)
Adjusted net earnings$56,029  $52,007  $159,203  $134,245 
            
 Three months ended Nine months ended
(in US$)September 30 September 30
 2023  2022  2023  2022 
            
Diluted net earnings per share$0.73  $0.77  $2.10  $1.86 
Non-controlling interest redemption increment 0.20   0.10   0.42   0.27 
Acquisition-related items 0.03   0.04   0.11   0.09 
Amortization of intangible assets, net of tax 0.23   0.19   0.66   0.57 
Stock-based compensation expense, net of tax 0.06   0.07   0.27   0.23 
Adjusted earnings per share$1.25  $1.17  $3.56  $3.02 
            


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
   2023  2022
  2023  2022
                 
Revenues $1,117,109  $960,455  $3,255,288  $2,725,734 
                 
Cost of revenues  756,561   661,097   2,211,088   1,875,406 
Selling, general and administrative expenses  252,569   207,974   748,276   615,116 
Depreciation  18,692   14,699   53,766   44,657 
Amortization of intangible assets  14,454   12,202   40,296   35,066 
Acquisition-related items (1)  1,274   1,774   5,032   3,921 
Operating earnings  73,559   62,709   196,830   151,568 
Interest expense, net  11,956   6,759   34,541   16,166 
Other expense (income), net  (702)  779   (5,215)  566 
Earnings before income tax  62,305   55,171   167,504   134,836 
Income tax  16,447   13,830   44,266   34,168 
Net earnings   45,858   41,341   123,238   100,668 
Non-controlling interest share of earnings  4,406   2,904   10,215   5,919 
Non-controlling interest redemption increment  8,801   4,260   18,894   11,921 
Net earnings attributable to Company  $32,651  $34,177  $94,129  $82,828 
                 
Net earnings per common share               
 Basic $0.73  $0.77  $2.11  $1.87 
 Diluted  0.73   0.77   2.10   1.86 
                
                 
Adjusted earnings per share (2) $1.25  $1.17  $3.56  $3.02 
                 
Weighted average common shares (thousands)              
  Basic  44,613   44,201   44,529   44,179 
  Diluted  44,853   44,496   44,772   44,511 
                   

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)
         
 September 30, 2023 December 31, 2022
        
Assets      
Cash and cash equivalents$150,045  $136,219 
Restricted cash 27,841   23,129 
Accounts receivable 737,771   635,942 
Prepaid and other current assets 341,185   313,582 
 Current assets 1,256,842   1,108,872 
Other non-current assets 24,106   38,549 
Fixed assets 181,344   167,012 
Operating lease right-of-use assets 210,799   205,544 
Goodwill and intangible assets 1,377,629   1,254,537 
 Total assets$3,050,720  $2,774,514 
        
        
Liabilities and shareholders' equity      
Accounts payable and accrued liabilities$401,300  $398,313 
Other current liabilities 194,919   153,866 
Operating lease liabilities - current 50,341   49,145 
Long-term debt - current 37,008   35,665 
 Current liabilities 683,568   636,989 
Long-term debt - non-current 753,960   698,798 
Operating lease liabilities - non-current 175,485   168,557 
Other liabilities 87,845   78,178 
Deferred income tax 66,567   51,097 
Redeemable non-controlling interests 266,105   233,429 
Shareholders' equity 1,017,190   907,466 
 Total liabilities and equity$3,050,720  $2,774,514 
        
        
Supplemental balance sheet information      
Total debt$790,968  $734,463 
Total debt, net of cash 640,923   598,244 


        
Consolidated Statements of Cash Flows       
(in thousands of US dollars)
    Three months ended  Nine months ended
    September 30  September 30
   2023  2022  2023  2022
                  
Cash provided by (used in)            
              
Operating activities            
Net earnings $45,858  $41,341  $123,238  $100,668 
Items not affecting cash:            
 Depreciation and amortization  33,146   26,901   94,062   79,723 
 Deferred income tax  55   (609)  (636)  (1,813)
 Other  5,034   4,819   16,032   16,295 
    84,093   72,452   232,696   194,873 
              
Changes in non-cash working capital            
 Accounts receivable  45,576   (22,960)  (76,777)  (1,226)
 Payables and accruals  (29,489)  (4,397)  (18,497)  (39,847)
 Other  (16,215)  (56,520)  32,492   (101,925)
Net cash provided by (used in) operating activities  83,965   (11,425)  169,914   51,875 
              
Investing activities            
Acquisition of businesses, net of cash acquired  (19,366)  (7,530)  (112,816)  (7,530)
Purchases of fixed assets  (23,465)  (19,076)  (67,669)  (55,454)
Other investing activities  (1,496)  (2,032)  (240)  (16,001)
Net cash used in investing activities  (44,327)  (28,638)  (180,725)  (78,985)
              
Financing activities            
Increase (decrease) in long-term debt, net  (29,196)  60,089   55,849   65,818 
Purchases of non-controlling interests, net  (564)  (2,158)  (4,174)  (21,337)
Dividends paid to common shareholders  (10,033)  (8,949)  (29,013)  (25,930)
Distributions paid to non-controlling interests  (2,450)  (3,649)  (6,922)  (6,251)
Other financing activities  (3,508)  (2,437)  13,636   4,172 
Net cash provided by (used in) financing activities  (45,751)  42,896   29,376   16,472 
              
Effect of exchange rate changes on cash  577   1,180   (27)  1,549 
              
Increase (decrease) in cash, cash equivalents and restricted cash  (5,536)  4,013   18,538   (9,089)
              
Cash, cash equivalents and restricted cash, beginning of period  183,422   181,169   159,348   194,271 
              
Cash, cash equivalents and restricted cash, end of period $177,886  $185,182  $177,886  $185,182 


 
Segmented Results
(in thousands of US dollars)
           
  FirstService FirstService    
 Residential Brands Corporate Consolidated
               
Three months ended September 30
               
               
2023             
 Revenues$537,828  $579,281  $-  $1,117,109 
 Adjusted EBITDA 56,575   60,692   (5,331)  111,936 
               
 Operating earnings 49,001   33,935   (9,377)  73,559 
               
2022             
 Revenues$478,562  $481,893  $-  $960,455 
 Adjusted EBITDA 49,644   48,825   (2,968)  95,501 
               
 Operating earnings 41,658   28,178   (7,127)  62,709 
               
           
  FirstService FirstService    
  Residential Brands Corporate Consolidated
               
Nine months ended September 30             
               
2023             
 Revenues$1,500,542  $1,754,746  $-  $3,255,288 
 Adjusted EBITDA 144,281   181,284   (13,180)  312,385 
               
 Operating earnings 120,908   105,865   (29,943)  196,830 
               
2022             
 Revenues$1,330,134  $1,395,600  $-  $2,725,734 
 Adjusted EBITDA 130,522   128,839   (10,176)  249,185 
               
 Operating earnings 108,311   67,598   (24,341)  151,568 


COMPANY CONTACTS:

D. Scott Patterson
Chief Executive Officer

Jeremy Rakusin
Chief Financial Officer

(416) 960-9566


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