FirstService Reports Better Than Anticipated First Quarter Results

Rhea-AI Summary

FirstService Corporation (FSV) reported strong financial results for Q1 2022, with revenues of $834.6 million, a 17% increase from $711.1 million in Q1 2021, primarily driven by organic growth. Adjusted EBITDA rose to $62.3 million, while adjusted EPS increased to $0.73, up 11% year-over-year. However, GAAP operating earnings declined to $29 million from $33.9 million. Both segments showed growth, with FirstService Residential rising by 12% and FirstService Brands by 22%. The company is experiencing wage inflation and rising corporate costs, impacting margins.

Positive

• Q1 2022 revenues increased by 17% to $834.6 million.
• Adjusted EBITDA rose 4% to $62.3 million.
• Adjusted EPS grew 11% to $0.73.
• FirstService Residential revenues increased by 12%.
• FirstService Brands revenues surged 22%.

Negative

• GAAP operating earnings declined to $29 million from $33.9 million.
• Operating margins impacted by wage inflation and a higher mix of labor-driven services.
• Increased corporate costs of $10.1 million compared to $5.9 million the previous year.

Robust Top-Line Growth Across All Business Lines

Operating highlights:

		Three months
		ended March 31
		2022			2021
Revenues (millions)		$	834.6		$	711.1
Adjusted EBITDA (millions) (note 1)			62.3			59.8
Adjusted EPS (note 2)			0.73			0.66
GAAP Operating Earnings (millions)			29.0			33.9
GAAP EPS			0.32			0.50

TORONTO, April 27, 2022 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported operating and financial results for its first quarter ended March 31, 2022. All amounts are in US dollars.

Consolidated revenues for the first quarter were $834.6 million, up 17% relative to the same quarter in the prior year, including 10% from organic growth. Adjusted EBITDA (note 1) increased 4% to $62.3 million, and Adjusted EPS (note 2) was $0.73, representing 11% growth over the prior year quarter. GAAP Operating Earnings were $29.0 million, relative to $33.9 million in the prior year period. GAAP diluted earnings per share was $0.32 per share in the quarter, versus $0.50 in the same quarter a year ago.

“We are pleased to have opened the year with strong results, driven by top-line growth that exceeded our expectations,” said Scott Patterson, Chief Executive Officer of FirstService. “Our operations delivered very strong organic growth across the board reflecting market share gains and continued momentum with all of our brands,” 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$3.3 billion in annual revenues and has approximately 25,000 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 and 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 $394.1 million for the first quarter, an increase of 12% versus the prior year, including 7% organic growth. Top-line performance was driven by core management and sited labour contract growth, particularly in our Florida, California, New York and Mid-Atlantic markets. Adjusted EBITDA for the quarter was $30.4 million, up from $29.4 million in the prior year period. GAAP Operating Earnings were $23.4 million, versus $23.2 million in the first quarter of last year. Operating margins were impacted by wage inflation, together with the increased mix of labour-driven services relative to higher margin ancillaries.

FirstService Brands revenues for the first quarter totalled $440.5 million, up 22% relative to the prior year period. The revenue increase was comprised of 12% organic growth, with the balance from recent tuck-under acquisitions. Top-line organic growth was exceptionally strong within our home improvement and Century Fire service lines. Adjusted EBITDA was $36.1 million, up from $33.4 million in the prior year quarter. GAAP Operating Earnings were $15.8 million, versus $16.5 million in the prior year quarter. Operating margins declined as a result of higher labour costs and supply chain disruptions at several of our brands, as well as job mix at our restoration brands.

Corporate costs, as presented in Adjusted EBITDA, were $4.2 million in the first quarter, relative to $3.0 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $10.1 million, relative to $5.9 million in the prior year period, with the increase due to the timing of stock-based compensation expense realized in the current quarter, compared to the second quarter in 2021.

Conference Call
FirstService will be holding a conference call on Wednesday, April 27, 2022 at 11:00 a.m. Eastern Time to discuss results for the first quarter of 2022. The numbers to use for this call are 1) toll-free 1-866-220-4111; or 2) for international callers, 1-862-298-9233, with the conference ID number 7684138 for all participants. The call will be simultaneously web cast 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) the magnitude and length of economic and operational disruption resulting from the COVID-19 pandemic; (ii) general economic and business conditions, which will, among other things, impact demand for FirstService’s services and the cost of providing services; (iii) 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; (iv) changes in or the failure to comply with government regulations; and (v) other factors which are described in FirstService’s annual information form for the year ended December 31, 2021 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. Our interim consolidated financial statements and related management’s discussion and analysis will be made available on SEDAR at www.sedar.com.

COMPANY CONTACTS:

D. Scott Patterson
Chief Executive Officer
        
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 (income) expense; (iii) interest expense; (iv) depreciation and amortization; (v) acquisition-related items; and (vi) stock-based compensation expense. The Company uses adjusted EBITDA to evaluate its own operating performance, its ability to service debt, and as an integral part of its planning and reporting systems. Additionally, this measure is used in conjunction with discounted cash flow models to determine the Company’s overall enterprise valuation and to evaluate acquisition targets. Adjusted EBITDA is presented as a supplemental measure because the Company believes such a measure is useful to investors as a reasonable indicator of operating performance, due to the low capital intensity of the Company’s service operations. The Company believes 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. The Company’s 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 (loss) to adjusted EBITDA appears below.

								Three months ended
(in thousands of US dollars)								March 31
								2022				2021
Net earnings								$	18,821			$	23,843
Income tax									6,394				7,720
Other income									(535	)			(1,868	)
Interest expense, net									4,366				4,187
Operating earnings									29,046				33,882
Depreciation and amortization									25,910				23,225
Acquisition-related items									1,561				(99	)
Stock-based compensation expense									5,821				2,787
Adjusted EBITDA								$	62,338			$	59,795

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

Adjusted EPS 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. The Company believes 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 EPS 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. The Company’s 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 EPS appears below.

				Three months ended
(in thousands of US dollars)				March 31
				2022								2021
Net earnings				$	18,821							$	23,843
Non-controlling interest share of earnings					(565			)					(3,767			)
Acquisition-related items					1,561								(99			)
Amortization of intangible assets					11,466								10,012
Stock-based compensation expense					5,821								2,787
Income tax on adjustments					(4,495			)					(3,328			)
Non-controlling interest on adjustments					(228			)					(175			)
Adjusted net earnings				$	32,381							$	29,273
				Three months ended
(in US dollars)				March 31
				2022								2021
Diluted net earnings per share				$	0.32							$	0.50
Non-controlling interest redemption increment (decrement)					0.09								(0.04			)
Acquisition-related items					0.03								-
Amortization of intangible assets, net of tax					0.19								0.16
Stock-based compensation expense, net of tax					0.10								0.04
Adjusted EPS				$	0.73							$	0.66

FIRSTSERVICE CORPORATION
Operating Results
(in thousands of US dollars, except per share amounts)
						Three months
						ended March 31
(unaudited)						2022								2021
Revenues					$	834,572							$	711,066
Cost of revenues						575,834								490,812
Selling, general and administrative expenses						202,221								163,246
Depreciation						14,444								13,213
Amortization of intangible assets						11,466								10,012
Acquisition-related items (1)						1,561								(99			)
Operating earnings						29,046								33,882
Interest expense, net						4,366								4,187
Other income						(535			)					(1,868			)
Earnings before income tax						25,215								31,563
Income tax						6,394								7,720
Net earnings						18,821								23,843
Non-controlling interest share of earnings						565								3,767
Non-controlling interest redemption increment (decrement)						4,171								(1,815			)
Net earnings attributable to Company						14,085								21,891
Net earnings per share
	Basic				$	0.32							$	0.50
	Diluted					0.32								0.50
Adjusted EPS (2)					$	0.73							$	0.66
Weighted average common shares (thousands)
	Basic					44,085								43,696
	Diluted					44,500								44,218

(1) Acquisition-related items include contingent acquisition consideration fair value adjustments, and transaction costs.
(2) See definition and reconciliation above.

Condensed Consolidated Balance Sheets
(in thousands of US dollars)
(unaudited)																	March 31, 2022												December 31, 2021
Assets
Cash and cash equivalents																	$		165,149										$			165,665
Restricted cash																			31,445													28,606
Accounts receivable																			535,283													551,564
Prepaid and other current assets																			225,488													218,825
			Current assets																957,365													964,660
Other non-current assets																			18,915													19,338
Deferred income tax																			1,840													1,760
Fixed assets																			145,364													138,066
Operating lease right-of-use assets																			162,653													159,730
Goodwill and intangible assets																			1,207,965													1,225,469
			Total assets														$		2,494,102										$			2,509,023
Liabilities and shareholders' equity
Accounts payable and accrued liabilities																	$		346,274										$			386,529
Unearned revenues																			114,877													116,415
Other current liabilities																			15,443													10,045
Operating lease liabilities - current																			48,786													48,047
Long-term debt - current																			35,475													57,436
			Current liabilities																560,855													618,472
Long-term debt - non-current																			645,166													595,368
Operating lease liabilities - non-current																			124,392													122,337
Other liabilities																			82,297													111,919
Deferred income tax																			40,378													42,070
Non-controlling interests																			218,743													219,135
Shareholders' equity																			822,271													799,722
			Total liabilities and equity														$		2,494,102										$			2,509,023
Supplemental balance sheet information
Total debt																	$		680,641										$			652,804
Total debt, net of cash																			515,492													487,139

Condensed Consolidated Statements of Cash Flows
(in thousands of US dollars)
												Three months ended
												March 31
(unaudited)												2022									2021
Cash provided by (used in)
Operating activities
Net earnings								$				18,821							$		23,843
Items not affecting cash:
		Depreciation and amortization										25,910									23,225
		Deferred income tax										(623			)						(749	)
		Other										6,773									2,974
												50,881									49,293
Changes in non cash working capital
		Accounts receivable										24,834									8,252
		Payables and accruals										(39,950			)						(26,920	)
		Other										(34,264			)						(3,914	)
Net cash provided by operating activities												1,501									26,711
Investing activities
Acquisition of businesses, net of cash acquired												-									(2,521	)
Purchases of fixed assets												(16,583			)						(13,337	)
Other investing activities												(6,114			)						(2,066	)
Net cash used in investing activities												(22,697			)						(17,924	)
Financing activities
Increase (decrease) in long-term debt, net												29,910									(37,653	)
Purchases of non-controlling interests, net												(5,764			)						(3,391	)
Dividends paid to common shareholders												(8,032			)						(7,192	)
Other financing activities												7,539									7,727
Net cash provided by (used in) financing activities												23,653									(40,509	)
Effect of exchange rate changes on cash												(134			)						210
Increase (decrease) in cash, cash equivalents and restricted cash												2,323									(31,512	)
Cash, cash equivalents and restricted cash, beginning of period												194,271									208,938
Cash, cash equivalents and restricted cash, end of period								$				196,594							$		177,426

Segmented Results
(in thousands of US dollars)
				FirstService			FirstService
(unaudited)				Residential			Brands						Corporate										Consolidated
Three months ended March 31
2022
	Revenues			$	394,083		$		440,489				$	-									$		834,572
	Adjusted EBITDA				30,410				36,082					(4,154							)				62,338
	Operating earnings				23,397				15,751					(10,102							)				29,046
2021
	Revenues			$	350,480		$		360,586				$	-									$		711,066
	Adjusted EBITDA				29,407				33,407					(3,019							)				59,795
	Operating earnings				23,244				16,506					(5,868							)				33,882

FAQ

What were FirstService Corporation's revenues for Q1 2022?

FirstService Corporation reported revenues of $834.6 million for Q1 2022.

How did FirstService's adjusted EBITDA perform in Q1 2022?

Adjusted EBITDA for Q1 2022 was $62.3 million, a 4% increase from the prior year.

What is the adjusted EPS for FirstService in Q1 2022?

The adjusted EPS for FirstService Corporation in Q1 2022 was $0.73.

What challenges did FirstService face in Q1 2022?

FirstService faced challenges including wage inflation and increased corporate costs.

How did the segments of FirstService perform in Q1 2022?

FirstService Residential revenues increased by 12%, while FirstService Brands revenues rose by 22%.