FirstService Reports Second Quarter 2024 Results

Rhea-AI Summary

FirstService (TSX: FSV; NASDAQ: FSV) reported strong financial results for Q2 2024. Consolidated revenues increased 16% to $1.30 billion, while Adjusted EBITDA grew 12% to $132.5 million. Adjusted EPS was $1.36, compared to $1.46 in Q2 2023. For the first six months of 2024, revenues rose 15% to $2.46 billion, with Adjusted EBITDA up 8% to $215.9 million.

The FirstService Residential segment saw 8% revenue growth, driven by new property management contracts. FirstService Brands revenues increased 23%, boosted by Century Fire Protection's growth and the Roofing Corp of America acquisition. However, organic growth in this division declined 6% due to milder weather impacting restoration operations.

Positive

• Consolidated revenues increased 16% year-over-year to $1.30 billion in Q2 2024
• Adjusted EBITDA grew 12% to $132.5 million in Q2 2024
• FirstService Residential segment revenues increased 8% with 7% organic growth
• FirstService Brands revenues grew 23%, boosted by Century Fire Protection and Roofing Corp of America acquisition

Negative

• Adjusted EPS decreased from $1.46 in Q2 2023 to $1.36 in Q2 2024
• FirstService Brands organic revenue declined 6% due to milder weather impacting restoration operations
• Operating earnings margin in FirstService Residential segment was modestly lower due to amortization expense from recent acquisitions
• Corporate costs increased year-over-year due to foreign exchange impact and higher stock-based compensation expense

Insights

Financial Analyst

FirstService 's Q2 2024 results demonstrate robust top-line growth, with consolidated revenues increasing by 16% year-over-year to $1.30 billion. This growth is particularly impressive given the current economic climate. However, the bottom line presents a more complex picture.

While Adjusted EBITDA grew by 12% to $132.5 million, Adjusted EPS decreased from $1.46 to $1.36. This divergence suggests potential pressure on margins or increased costs. The decline in GAAP EPS from $1.01 to $0.78 further underscores this concern.

Breaking down the segments:

• FirstService Residential showed solid organic growth of 7%, driven by new contract wins. However, its operating earnings remained flat, indicating potential margin compression.
• FirstService Brands saw impressive revenue growth of 23%, largely due to the Roofing Corp of America acquisition. Yet, organic revenue declined by 6%, attributed to milder weather impacting restoration operations.

The company's optimism about meeting full-year targets is encouraging, but investors should closely monitor margin trends and the integration of recent acquisitions. The divergence between top-line growth and bottom-line performance warrants careful scrutiny in upcoming quarters.

Market Research Analyst

FirstService's Q2 results reveal interesting market dynamics in the property services sector. The 8% growth in FirstService Residential, with 7% organic growth, suggests a robust demand for residential property management services. This trend could be indicative of broader shifts in the real estate market, possibly driven by increased property investments or a growing preference for professionally managed residential communities.

The performance of FirstService Brands is particularly noteworthy. While the 23% revenue growth is impressive, the 6% organic decline highlights the volatility in weather-dependent services. This underscores the importance of diversification in the property services sector, as evidenced by the positive contribution from the Roofing Corp of America acquisition.

The contrast between Century Fire Protection's solid growth and the challenges faced by restoration operations due to milder weather patterns points to the increasing impact of climate variability on certain segments of the property services industry. Companies in this sector may need to adapt their strategies to account for these fluctuations, potentially through geographic diversification or expansion into less weather-dependent services.

Overall, FirstService's results suggest a resilient property services market, but one that is subject to both macroeconomic factors and environmental conditions. The company's ability to grow through acquisitions while maintaining organic growth in some segments positions it well in this dynamic market landscape.

Strong Top-Line Growth Drives Financial Performance

Operating highlights:

		Three months ended						Six months ended
		June 30						June 30
		2024			2023			2024			2023
Revenues (millions)		$	1,297.5		$	1,119.7		$	2,455.5		$	2,138.2
Adjusted EBITDA (millions) (note 1)			132.5			118.4			215.9			200.4
Adjusted EPS (note 2)			1.36			1.46			2.03			2.31
GAAP Operating Earnings			83.9			82.3			122.0			123.3
GAAP EPS			0.78			1.01			0.92			1.37

TORONTO, July 25, 2024 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported results for its second quarter ended June 30, 2024. All amounts are in US dollars.

Consolidated revenues for the second quarter were $1.30 billion, a 16% increase relative to the same quarter in the prior year. Adjusted EBITDA (note 1) increased 12% to $132.5 million, and Adjusted EPS (note 2) was $1.36, versus $1.46 in the prior year quarter. During the second quarter, FirstService reported Operating Earnings of $83.9 million, up from $82.3 million in the prior year period. Diluted earnings per share was $0.78 in the quarter, compared to $1.01 for the same quarter a year ago.

For the six months ended June 30, 2024, consolidated revenues were $2.46 billion, a 15% increase relative to the comparable prior year period, Adjusted EBITDA was $215.9 million, up 8%, and Adjusted EPS was $2.03, versus $2.31 in the prior year period. FirstService’s Operating Earnings were $122.0 million in the current year period, versus $123.3 million in the prior year. Diluted earnings per share for the six months year-to-date was $0.92, compared to $1.37 in the prior year period.

“We are pleased with our second quarter financial results which were driven by strong revenue growth,” said Scott Patterson, Chief Executive Officer of FirstService. “Based on the current momentum and indicators across our businesses, we are optimistic we will hit our top and bottom line targets in the back half of the 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 company-owned operations and franchise systems.

FirstService generates more than US$4.6 billion in annual revenues and has approximately 30,000 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 $557.5 million for the second quarter, up 8% compared to the prior year quarter, including organic growth of 7%. The growth was driven by new property management contract wins across most markets. Adjusted EBITDA for the quarter was $59.1 million, versus $55.7 million in the prior year period. Operating Earnings were $49.1 million, versus $49.2 million for the second quarter of last year. The Adjusted EBITDA margin for the division was relatively in-line with the prior year, while the operating earnings margin was modestly lower due to amortization expense related to recently completed tuck-under acquisitions.

FirstService Brands revenues during the second quarter grew to $740.0 million, up 23% relative to the prior year period. The revenue increase was driven by solid growth from Century Fire Protection and a significant contribution from our recent Roofing Corp of America acquisition. On an organic basis, division revenues were down 6% versus the prior year second quarter, which benefited from elevated weather-related claims activity at our restoration operations. Adjusted EBITDA for the second quarter was $77.6 million, up from $65.8 million in the prior year period. Operating Earnings were $46.3 million, versus $41.8 million in the prior year quarter. The decline in operating margins was attributable to lower profitability at our restoration brands due to milder weather patterns in the current quarter compared to the prior year period.

Corporate costs, as presented in Adjusted EBITDA (note 1), were $4.2 million in the second quarter, relative to $3.2 million in the prior year period. Corporate costs for the quarter were $11.5 million, relative to $8.6 million in the prior year period, with the year-over-year cost increase driven by the impact of foreign exchange as well as higher stock-based compensation expense.

Conference Call
FirstService will be holding a conference call on Thursday, July 25, 2024 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/BI3340c2e12de24175a540beba39003a0e 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/e2z4g4ax . 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, 2023 under the heading “Risk factors” (a copy of which may be obtained at www.sedarplus.ca) 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.sedarplus.ca.

Notes
1. Reconciliation of net earnings to adjusted EBITDA:

Adjusted EBITDA is defined as net earnings, adjusted to exclude: (i) income tax; (ii) other expense (income); (iii) interest expense, net; (iv) depreciation and amortization; (v) acquisition-related items; and (vi) stock-based compensation expense. We use adjusted EBITDA to evaluate our own operating performance and our ability to service debt, as well as an integral part of our planning and reporting systems. Additionally, we use this measure in conjunction with discounted cash flow models to determine the Company’s overall enterprise valuation and to evaluate acquisition targets. We present adjusted EBITDA as a supplemental measure because we believe such measure is useful to investors as a reasonable indicator of operating performance because of the low capital intensity of the Company’s service operations. We believe this measure is a financial metric used by many investors to compare companies, especially in the services industry. This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings, net earnings or cash flow from operating activities, as determined in accordance with GAAP. Our method of calculating adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to adjusted EBITDA appears below.

		Three months ended								Six months ended
(in thousands of US$)		June 30								June 30
		2024				2023				2024				2023
Net earnings		$	44,937			$	54,713			$	59,834			$	77,380
Income tax			18,584				19,903				24,599				27,819
Other income, net			(115	)			(4,249	)			(1,995	)			(4,513	)
Interest expense, net			20,531				11,954				39,557				22,585
Operating earnings			83,937				82,321				121,995				123,271
Depreciation and amortization			39,225				29,034				76,032				60,916
Acquisition-related items			2,306				1,651				3,906				3,758
Stock-based compensation expense			7,019				5,347				13,927				12,504
Adjusted EBITDA		$	132,487			$	118,353			$	215,860			$	200,449

A reconciliation of segment operating earnings to segment Adjusted EBITDA appears below.
(in thousands of US$)
Three months ended, June 30, 2024					FirstService			FirstService
					Residential			Brands			Corporate (1)
Operating earnings (loss)				$	49,107		$	46,308		$	(11,478	)
Depreciation and amortization					9,773			29,429			23
Acquisition-related items					207			1,827			272
Stock-based compensation expense					-			-			7,019
Adjusted EBITDA				$	59,087		$	77,564		$	(4,164	)
Three months ended, June 30, 2023					FirstService			FirstService
					Residential			Brands			Corporate (1)
Operating earnings (loss)				$	49,195		$	41,770		$	(8,644	)
Depreciation and amortization					6,029			22,981			24
Acquisition-related items					514			1,048			89
Stock-based compensation expense					-			-			5,347
Adjusted EBITDA				$	55,738		$	65,799		$	(3,184	)
Six months ended, June 30, 2024					FirstService			FirstService
					Residential			Brands			Corporate (1)
Operating earnings (loss)				$	75,765		$	73,107		$	(26,877	)
Depreciation and amortization					18,196			57,790			46
Acquisition-related items					725			2,129			1,052
Stock-based compensation expense					-			-			13,927
Adjusted EBITDA				$	94,686		$	133,026		$	(11,852	)
Six months ended, June 30, 2023					FirstService			FirstService
					Residential			Brands			Corporate (1)
Operating earnings (loss)				$	71,907		$	71,930		$	(20,566	)
Depreciation and amortization					14,822			46,048			46
Acquisition-related items					977			2,614			167
Stock-based compensation expense					-			-			12,504
Adjusted EBITDA				$	87,706		$	120,592		$	(7,849	)
(1) Corporate costs represent corporate overhead expenses not directly attributable to reportable segments and are therefore unallocated within segment operating earnings (loss) and Adjusted EBITDA.

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
		2024				2023				2024				2023
Net earnings		$	44,937			$	54,713			$	59,834			$	77,380
Non-controlling interest share of earnings			(2,696	)			(3,376	)			(4,229	)			(5,809	)
Acquisition-related items			2,306				1,651				3,906				3,758
Amortization of intangible assets			17,009				11,556				32,240				25,842
Stock-based compensation expense			7,019				5,347				13,927				12,504
Income tax on adjustments			(6,968	)			(4,395	)			(13,389	)			(9,970	)
Non-controlling interest on adjustments			(320	)			(249	)			(584	)			(531	)
Adjusted net earnings		$	61,287			$	65,247			$	91,705			$	103,174
		Three months ended								Six months ended
(in US$)		June 30								June 30
		2024				2023				2024				2023
Diluted net earnings per share		$	0.78			$	1.01			$	0.92			$	1.37
Non-controlling interest redemption increment			0.16				0.13				0.32				0.23
Acquisition-related items			0.05				0.04				0.08				0.08
Amortization of intangible assets, net of tax			0.26				0.19				0.49				0.42
Stock-based compensation expense, net of tax			0.11				0.09				0.22				0.21
Adjusted earnings per share		$	1.36			$	1.46			$	2.03			$	2.31

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
					2024				2023				2024				2023
Revenues				$	1,297,459			$	1,119,734			$	2,455,504			$	2,138,179
Cost of revenues					862,463				754,263				1,651,040				1,454,527
Selling, general and administrative expenses					309,528				252,465				602,531				495,707
Depreciation					22,216				17,478				43,792				35,074
Amortization of intangible assets					17,009				11,556				32,240				25,842
Acquisition-related items (1)					2,306				1,651				3,906				3,758
Operating earnings					83,937				82,321				121,995				123,271
Interest expense, net					20,531				11,954				39,557				22,585
Other income, net					(115	)			(4,249	)			(1,995	)			(4,513	)
Earnings before income tax					63,521				74,616				84,433				105,199
Income tax					18,584				19,903				24,599				27,819
Net earnings					44,937				54,713				59,834				77,380
Non-controlling interest share of earnings					2,696				3,376				4,229				5,809
Non-controlling interest redemption increment					7,183				5,977				14,239				10,093
Net earnings attributable to Company				$	35,058			$	45,360			$	41,366			$	61,478
Net earnings per common share
	Basic			$	0.78			$	1.02			$	0.92			$	1.38
	Diluted				0.78				1.01				0.92				1.37
Adjusted earnings per share (2)				$	1.36			$	1.46			$	2.03			$	2.31
Weighted average common shares (thousands)
		Basic			44,984				44,574				44,917				44,486
		Diluted			45,100				44,800				45,087				44,733

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, 2024										December 31, 2023
Assets
Cash and cash equivalents																$	210,918									$					187,617
Restricted cash																	20,591														19,260
Accounts receivable																	895,182														842,236
Prepaid and other current assets																	354,824														311,889
			Current assets														1,481,515														1,361,002
Other non-current assets																	34,516														34,418
Fixed assets																	237,755														204,188
Operating lease right-of-use assets																	227,230														218,299
Goodwill and intangible assets																	2,065,169														1,807,836
			Total assets													$	4,046,185									$					3,625,743
Liabilities and shareholders' equity
Accounts payable and accrued liabilities																$	502,549									$					471,083
Other current liabilities																	254,937														211,661
Operating lease liabilities - current																	50,266														50,898
Long-term debt - current																	41,985														37,132
			Current liabilities														849,737														770,774
Long-term debt - non-current																	1,289,151														1,144,975
Operating lease liabilities - non-current																	194,668														183,923
Other liabilities																	131,692														115,938
Deferred income tax																	83,908														53,024
Redeemable non-controlling interests																	415,559														332,963
Shareholders' equity																	1,081,470														1,024,146
			Total liabilities and equity													$	4,046,185									$					3,625,743
Supplemental balance sheet information
Total debt																$	1,331,136									$					1,182,107
Total debt, net of cash																	1,120,218														994,490

Consolidated Statements of Cash Flows
(in thousands of US dollars)
						Three months ended																	Six months ended
						June 30																	June 30
					2024						2023											2024											2023
Cash provided by (used in)
Operating activities
Net earnings					$	44,937					$			54,713								$	59,834										$	77,380
Items not affecting cash:
		Depreciation and amortization				39,225								29,034									76,032											60,916
		Deferred income tax				(2,275			)					(419				)					(4,549				)							(691	)
		Other				8,052								1,995									14,384											10,998
						89,939								85,323									145,701											148,603
Changes in non-cash working capital
		Accounts receivable				(22,637			)					(73,765				)					(2,640				)							(122,353	)
		Payables and accruals				33,002								41,398									(23,282				)							10,992
		Other				30,440								33,296									2,165											48,707
Net cash provided by operating activities						130,744								86,252									121,944											85,949
Investing activities
Acquisition of businesses, net of cash acquired						(123,031			)					(11,099				)					(154,649				)							(93,450	)
Purchases of fixed assets						(29,301			)					(22,723				)					(54,322				)							(44,204	)
Other investing activities						(299			)					6,560									(1,000				)							1,256
Net cash used in investing activities						(152,631			)					(27,262				)					(209,971				)							(136,398	)
Financing activities
Increase (decrease) in long-term debt, net						90,473								(18,855				)					136,728											85,045
Purchases of non-controlling interests, net						(10,221			)					(891				)					(21,442				)							(3,610	)
Dividends paid to common shareholders						(11,244			)					(10,024				)					(21,298				)							(18,980	)
Distributions paid to non-controlling interests						(3,817			)					(4,114				)					(4,470				)							(4,472	)
Other financing activities						3,987								1,664									22,790											17,144
Net cash provided by (used in) financing activities						69,178								(32,220				)					112,308											75,127
Effect of exchange rate changes on cash						123								(591				)					351											(604	)
Increase in cash, cash equivalents and restricted cash						47,414								26,179									24,632											24,074
Cash, cash equivalents and restricted cash, beginning of period						184,095								157,243									206,877											159,348
Cash, cash equivalents and restricted cash, end of period					$	231,509					$			183,422								$	231,509										$	183,422

Segmented Results
(in thousands of US dollars)
							FirstService						FirstService
							Residential						Brands								Corporate											Consolidated
Three months ended June 30
2024
	Revenues						$	557,504					$		739,955						$			-								$		1,297,459
	Adjusted EBITDA							59,087							77,564									(4,164					)					132,487
	Operating earnings							49,107							46,308									(11,478					)					83,937
2023
	Revenues						$	517,134					$		602,600						$			-								$		1,119,734
	Adjusted EBITDA							55,738							65,799									(3,184					)					118,353
	Operating earnings							49,195							41,770									(8,644					)					82,321
							FirstService						FirstService
							Residential						Brands								Corporate											Consolidated
Six months ended June 30
2024
	Revenues						$	1,053,628					$		1,401,876						$			-								$		2,455,504
	Adjusted EBITDA							94,686							133,026									(11,852					)					215,860
	Operating earnings							75,765							73,107									(26,877					)					121,995
2023
	Revenues						$	962,714					$		1,175,465						$			-								$		2,138,179
	Adjusted EBITDA							87,706							120,592									(7,849					)					200,449
	Operating earnings							71,907							71,930									(20,566					)					123,271

COMPANY CONTACTS:

D. Scott Patterson
Chief Executive Officer

Jeremy Rakusin
Chief Financial Officer

(416) 960-9566

FAQ

What was FirstService's (FSV) revenue growth in Q2 2024?

FirstService reported a 16% increase in consolidated revenues, reaching $1.30 billion in Q2 2024 compared to the same quarter in the previous year.

How did FirstService's (FSV) Adjusted EBITDA perform in Q2 2024?

FirstService's Adjusted EBITDA increased by 12% to $132.5 million in Q2 2024 compared to Q2 2023.

What was FirstService's (FSV) Adjusted EPS for Q2 2024?

FirstService reported an Adjusted EPS of $1.36 for Q2 2024, compared to $1.46 in the prior year quarter.

How did FirstService's (FSV) residential segment perform in Q2 2024?

FirstService Residential revenues grew by 8% in Q2 2024, including 7% organic growth, driven by new property management contract wins across most markets.