FirstService Reports Second Quarter 2022 Results

Rhea-AI Summary

FirstService Corporation (TSX: FSV; NASDAQ: FSV) reported strong second-quarter results for the period ending June 30, 2022, with revenues of $930.7 million, a 12% increase year-over-year. Adjusted EBITDA rose 2% to $91.3 million, while Adjusted EPS fell to $1.12 from $1.21. For the six months, revenues reached $1.77 billion, up 14%, but GAAP EPS declined to $1.09 from $1.32. The company highlighted robust demand across both divisions, despite challenges like wage inflation impacting margins. A conference call will occur on July 27, 2022, to discuss these results further.

Positive

• Consolidated revenues increased by 12% to $930.7 million for Q2 2022.
• Adjusted EBITDA rose 2% to $91.3 million in Q2 2022.
• Revenues for the six months rose 14% to $1.77 billion.
• FirstService Residential revenues grew 13% to $457.5 million in Q2 2022.
• FirstService Brands revenues increased by 11% to $473.2 million in Q2 2022.

Negative

• Adjusted EPS fell to $1.12 from $1.21 in Q2 2021.
• GAAP Operating Earnings decreased to $59.8 million from $61.4 million in Q2 2021.
• GAAP diluted EPS dropped from $0.83 to $0.78 in Q2 2022.
• GAAP Operating Earnings for six months decreased to $88.9 million from $95.3 million.

Continued Strong Top-Line Growth Across Operations

Operating highlights:

		Three months ended						Six months ended
		June 30						June 30
		2022			2021			2022			2021
Revenues (millions)		$	930.7		$	831.6		$	1,765.3		$	1,542.7
Adjusted EBITDA (millions) (note 1)			91.3			89.9			153.7			149.6
Adjusted EPS (note 2)			1.12			1.21			1.85			1.87
GAAP Operating Earnings			59.8			61.4			88.9			95.3
GAAP EPS			0.78			0.83			1.09			1.32

TORONTO, July 27, 2022 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported results for its second quarter ended June 30, 2022. All amounts are in US dollars.

Consolidated revenues for the second quarter were $930.7 million, a 12% increase relative to the same quarter in the prior year, including 6% organic growth. Adjusted EBITDA (note 1) increased 2% to $91.3 million, and Adjusted EPS (note 2) was $1.12, compared to $1.21 in the prior year quarter. During the second quarter, FirstService reported GAAP Operating Earnings of $59.8 million, down from $61.4 million in the prior year period. The GAAP diluted earnings per share was $0.78 in the quarter, compared to $0.83 for the same quarter a year ago.

For the six months ended June 30, 2022, consolidated revenues were $1.77 billion, a 14% increase relative to the comparable prior year period, Adjusted EBITDA was $153.7 million, up 3%, and Adjusted EPS was $1.85, in line with $1.87 in the prior year period. FirstService’s GAAP Operating Earnings were $88.9 million in the current year period, versus $95.3 million in the prior year. The GAAP diluted earnings per share for the six months year-to-date was $1.09, compared to $1.32 in the prior year period.

“We are pleased to have delivered another quarter of balanced, double-digit top-line growth across both of our divisions,” said Scott Patterson, Chief Executive Officer of FirstService. “We continue to see strong demand for our services and remain active with recruiting talent to capitalize on the growth opportunities within all of our markets,” 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$3.4 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 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 $457.5 million for the second quarter, up 13% compared to the prior year quarter, including organic growth of 7%. The strong revenue performance in the quarter was driven by increased labour-related services and contract wins, with particular strength across our markets in the Sun Belt states. Adjusted EBITDA for the quarter was $50.5 million, versus $46.5 million in the prior year period. GAAP Operating Earnings were $43.3 million, versus $40.4 million for the second quarter of last year. Operating margins in the division were impacted by ongoing wage inflation and a higher proportion of labour-driven services relative to higher margin ancillaries, compared to the prior year quarter.

FirstService Brands revenues during the second quarter grew to $473.2 million, up 11% relative to the prior year period. Organic growth was 4%, with the balance from recent tuck-under acquisitions. The revenue growth was driven by continued strength across our home improvement service lines, as well as significant growth at our Century Fire operations. Top-line performance in our restoration businesses was relatively in line with prior year, due to the strong prior year quarter comparative from weather-related activity and large loss claims tied to the Texas Freeze event. Adjusted EBITDA for the second quarter was $43.9 million, versus $48.2 million in the prior year period. GAAP Operating Earnings were $23.7 million, versus $30.7 million in the prior year quarter. Margins within the division declined due to the combination of softer weather-related claims activity and ongoing growth investments within our restoration operations, as well as inflationary impacts within certain areas of our businesses.

Corporate costs, as presented in Adjusted EBITDA, were $3.1 million in the second quarter, relative to $4.8 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $7.1 million, relative to $9.8 million in the prior year period. The year-over-year cost decrease was primarily driven by lower compensation expense.

Conference Call
FirstService will be holding a conference call on Wednesday, July 27, 2022 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/BI57970ff4413b486f82c5d18cab946663 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/is4n9mqu . 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, 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. 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; (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
		2022			2021				2022				2021
Net earnings		$	40,506		$	44,020			$	59,327			$	67,863
Income tax			13,944			14,280				20,338				22,000
Other expense (income), net			322			(888	)			(213	)			(2,756	)
Interest expense, net			5,041			3,971				9,407				8,158
Operating earnings			59,813			61,383				88,859				95,265
Depreciation and amortization			26,912			23,674				52,822				46,899
Acquisition-related items			586			(107	)			2,147				(206	)
Stock-based compensation expense			4,035			4,903				9,856				7,690
Adjusted EBITDA		$	91,346		$	89,853			$	153,684			$	149,648

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
		2022				2021				2022				2021
Net earnings		$	40,506			$	44,020			$	59,327			$	67,863
Non-controlling interest share of earnings			(2,450	)			(1,596	)			(3,015	)			(5,363	)
Acquisition-related items			586				(107	)			2,147				(206	)
Amortization of intangible assets			11,398				10,408				22,864				20,420
Stock-based compensation expense			4,035				4,903				9,856				7,690
Income tax on adjustments			(4,012	)			(3,981	)			(8,507	)			(7,309	)
Non-controlling interest on adjustments			(206	)			(177	)			(434	)			(352	)
Adjusted net earnings		$	49,857			$	53,470			$	82,238			$	82,743
		Three months ended								Six months ended
(in US$)		June 30								June 30
		2022				2021				2022				2021
Diluted net earnings per share		$	0.78			$	0.83			$	1.09			$	1.32
Non-controlling interest redemption increment			0.08				0.13				0.17				0.09
Acquisition-related items			0.01				-				0.05				-
Amortization of intangible assets, net of tax			0.18				0.17				0.37				0.33
Stock-based compensation expense, net of tax			0.07				0.08				0.17				0.13
Adjusted earnings per share		$	1.12			$	1.21			$	1.85			$	1.87

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
					2022			2021				2022				2021
Revenues				$	930,707		$	831,630			$	1,765,279			$	1,542,696
Cost of revenues					638,475			554,676				1,214,309				1,045,488
Selling, general and administrative expenses					204,921			192,004				407,142				355,250
Depreciation					15,514			13,266				29,958				26,479
Amortization of intangible assets					11,398			10,408				22,864				20,420
Acquisition-related items (1)					586			(107	)			2,147				(206	)
Operating earnings					59,813			61,383				88,859				95,265
Interest expense, net					5,041			3,971				9,407				8,158
Other expense (income), net					322			(888	)			(213	)			(2,756	)
Earnings before income tax					54,450			58,300				79,665				89,863
Income tax					13,944			14,280				20,338				22,000
Net earnings					40,506			44,020				59,327				67,863
Non-controlling interest share of earnings					2,450			1,596				3,015				5,363
Non-controlling interest redemption increment					3,490			5,725				7,661				3,910
Net earnings attributable to Company				$	34,566		$	36,699			$	48,651			$	58,590
Net earnings per common share
	Basic			$	0.78		$	0.84			$	1.10			$	1.34
	Diluted				0.78			0.83				1.09				1.32
Adjusted earnings per share (2)				$	1.12		$	1.21			$	1.85			$	1.87
Weighted average common shares (thousands)
		Basic			44,193			43,830				44,139				43,764
		Diluted			44,479			44,365				44,490				44,287

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, 2022										December 31, 2021
Assets
Cash and cash equivalents																$	145,106									$					165,665
Restricted cash																	36,063														28,606
Accounts receivable																	538,507														551,564
Prepaid and other current assets																	266,059														218,825
			Current assets														985,735														964,660
Other non-current assets																	21,666														21,098
Fixed assets																	150,129														138,066
Operating lease right-of-use assets																	165,554														159,730
Goodwill and intangible assets																	1,203,841														1,225,469
			Total assets													$	2,526,925									$					2,509,023
Liabilities and shareholders' equity
Accounts payable and accrued liabilities																$	369,815									$					386,529
Other current liabilities																	147,825														126,460
Operating lease liabilities - current																	47,869														48,047
Long-term debt - current																	35,568														57,436
			Current liabilities														601,077														618,472
Long-term debt - non-current																	621,204														595,368
Operating lease liabilities - non-current																	128,127														122,337
Other liabilities																	77,916														111,919
Deferred income tax																	40,679														42,070
Redeemable non-controlling interests																	209,534														219,135
Shareholders' equity																	848,388														799,722
			Total liabilities and equity													$	2,526,925									$					2,509,023
Supplemental balance sheet information
Total debt																$	656,772									$					652,804
Total debt, net of cash																	511,666														487,139
Consolidated Statements of Cash Flows
(in thousands of US dollars)
						Three months ended																	Six months ended
						June 30																	June 30
						2022								2021									2022											2021
Cash provided by (used in)
Operating activities
Net earnings					$	40,506					$			44,020								$	59,327										$	67,863
Items not affecting cash:
		Depreciation and amortization				26,912								23,674									52,822											46,899
		Deferred income tax				(581			)					(981				)					(1,204				)							(1,730	)
		Other				4,703								5,024									11,476											7,998
						71,540								71,737									122,421											121,030
Changes in non-cash working capital
		Accounts receivable				(3,100			)					(46,938				)					21,734											(38,686	)
		Payables and accruals				4,500								18,552									(35,450				)							(8,368	)
		Other				(11,141			)					36,661									(45,405				)							32,747
Net cash provided by operating activities						61,799								80,012									63,300											106,723
Investing activities
Acquisition of businesses, net of cash acquired						-								(37,082				)					-											(39,603	)
Purchases of fixed assets						(19,795			)					(15,766				)					(36,378				)							(29,103	)
Other investing activities						(7,855			)					(2,210				)					(13,969				)							(4,276	)
Net cash used in investing activities						(27,650			)					(55,058				)					(50,347				)							(72,982	)
Financing activities
Increase (decrease) in long-term debt, net						(24,181			)					19,748									5,729											(17,905	)
Purchases of non-controlling interests, net						(13,415			)					(2,009				)					(19,179				)							(5,400	)
Financing fees paid						-								-									(2,333				)							-
Dividends paid to common shareholders						(8,949			)					(7,999				)					(16,981				)							(15,191	)
Distributions paid to non-controlling interests						(2,602			)					(5,286				)					(2,602				)							(7,156	)
Other financing activities						(930			)					264									8,942											9,861
Net cash provided by (used in) financing activities						(50,077			)					4,718									(26,424				)							(35,791	)
Effect of exchange rate changes on cash						503								323									369											533
Increase (decrease) in cash, cash equivalents and restricted cash						(15,425			)					29,995									(13,102				)							(1,517	)
Cash, cash equivalents and restricted cash, beginning of period						196,594								177,426									194,271											208,938
Cash, cash equivalents and restricted cash, end of period					$	181,169					$			207,421								$	181,169										$	207,421
Segmented Results
(in thousands of US dollars)
							FirstService						FirstService
							Residential						Brands								Corporate											Consolidated
Three months ended June 30
2022
	Revenues						$	457,489					$		473,218						$			-								$		930,707
	Adjusted EBITDA							50,468							43,932									(3,054					)					91,346
	Operating earnings							43,256							23,669									(7,112					)					59,813
2021
	Revenues						$	406,221					$		425,409						$			-								$		831,630
	Adjusted EBITDA							46,494							48,171									(4,812					)					89,853
	Operating earnings							40,404							30,749									(9,770					)					61,383
							FirstService						FirstService
							Residential						Brands								Corporate											Consolidated
Six months ended June 30
2022
	Revenues						$	851,572					$		913,707						$			-								$		1,765,279
	Adjusted EBITDA							80,878							80,014									(7,208					)					153,684
	Operating earnings							66,653							39,420									(17,214					)					88,859
2021
	Revenues						$	756,701					$		785,995						$			-								$		1,542,696
	Adjusted EBITDA							75,901							81,578									(7,831					)					149,648
	Operating earnings							63,648							47,255									(15,638					)					95,265

COMPANY CONTACTS:

D. Scott Patterson
Chief Executive Officer
        
Jeremy Rakusin
Chief Financial Officer

(416) 960-9566

FAQ

What were FirstService Corporation's Q2 2022 revenues and growth percentage?

FirstService Corporation's Q2 2022 revenues were $930.7 million, representing a 12% increase year-over-year.

How did FirstService Corporation's Adjusted EPS change in Q2 2022 compared to Q2 2021?

FirstService Corporation's Adjusted EPS decreased to $1.12 in Q2 2022, down from $1.21 in Q2 2021.

What is the GAAP diluted EPS for FirstService Corporation for the first half of 2022?

The GAAP diluted EPS for FirstService Corporation for the first half of 2022 was $1.09, compared to $1.32 in the same period of 2021.

How did FirstService Corporation's revenues perform for the six months ended June 30, 2022?

For the six months ended June 30, 2022, FirstService Corporation's revenues were $1.77 billion, which is a 14% increase compared to the prior year.

What were the significant drivers behind FirstService Brands' revenue growth in Q2 2022?

The revenue growth in FirstService Brands for Q2 2022 was driven by strong performance across home improvement service lines and growth in Century Fire operations.