FSV FirstService Corporation

FirstService Corporation (TSX: FSV; NASDAQ: FSV) today reported results for its second quarter ended June 30, 2020. All amounts are in US dollars.

Revenues for the second quarter were $621.6 million, an 8% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) increased 10% to $71.2 million, and Adjusted EPS (note 2) was $0.86, versus $1.12 in the prior year quarter. During the second quarter, FirstService reported GAAP Operating Earnings of $44.9 million, versus an operating loss of $268.5 million in the prior year period, reflecting the 2019 settlement of the long-term incentive arrangement (“LTIA”) with its Founder and Chairman in the amount of $314.4 million. The GAAP earnings per share was $0.64 in the quarter, compared to a loss per share of $7.48 for the same quarter a year ago.

For the six months ended June 30, 2020, revenues were $1.26 billion, an 18% increase relative to the comparable prior year period, Adjusted EBITDA was $115.1 million, up 22%, and Adjusted EPS was $1.23, versus $1.45 in the prior year period. FirstService’s GAAP Operating Earnings was $60.9 million in the current year period, versus an Operating Loss of $255.5 million in the prior year period. The GAAP earnings per share for the six months year-to-date was $0.77, compared to GAAP loss per share of $7.69 in the prior year period.

“We are pleased to report a solid quarter in the face of significant COVID-19 headwinds. Our financial results exceeded expectations and highlight the resiliency and diversification of our business model,” said Scott Patterson, Chief Executive Officer of FirstService. “We maintain a positive yet cautious outlook for the remainder of the year as we navigate around the ongoing pandemic uncertainty,” he concluded.

About FirstService CorporationFirstService 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 US$2.4 billion in annual revenues and has approximately 24,000 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”. More information is available at www.firstservice.com.

Segmented Quarterly ResultsFirstService Residential revenues were $338.2 million for the second quarter, down 9% versus the prior year quarter. The revenue decline was primarily attributable to client facility closures that negatively impacted the delivery of our amenity management services, stemming from the COVID-19 pandemic. Adjusted EBITDA for the quarter was $37.2 million, versus $39.2 million in the prior year period. GAAP Operating Earnings were $32.0 million, versus $32.3 million for the second quarter of last year. Margins expanded during the quarter from a combination of aggressive cost reduction initiatives and lower than expected decline in higher margin ancillary revenue.

FirstService Brands revenues during the second quarter grew to $283.4 million, up 39% relative to the prior year period. The division recorded a 10% decline in revenues on an organic basis, which was more than offset by the contribution from the large Global Restoration transaction and other tuck-under acquisitions not reflected in last year’s second quarter. The decrease in organic revenue resulted from the various government-mandated “stay at home” measures which negatively impacted activity levels in our service lines tied to home improvement. Adjusted EBITDA for the second quarter was $35.8 million, versus $28.4 million in the prior year period. The year-over-year margin decline was principally driven by acquisition mix, with the addition of Global Restoration yielding lower margins than the overall division. GAAP Operating Earnings were $17.4 million, versus $20.7 million in the prior year quarter, with the decrease due to increased amortization of intangible assets arising from the Global Restoration transaction.

Corporate costs, as presented in Adjusted EBITDA, were $1.9 million in the second quarter, relative to $2.6 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $4.4 million, relative to $321.5 million in the prior year period, with the decrease primarily attributable to the settlement of the LTIA.

Conference CallFirstService will be holding a conference call on Thursday, July 23, 2020 at 11:00 a.m. Eastern Time to discuss the quarter’s results. The numbers to use for this call are 1) toll-free 1-888-241-0551; or 2) for international callers, 647-427-3415. The call will be simultaneously webcast and can be accessed live or after the call at www.firstservice.com in the “Investors / Newsroom” section.

Forward-looking StatementsThis 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, 2019 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.

Notes1. 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; (vi) stock-based compensation expense; and (vii) settlement of the LTIA. 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
		2020				2019				2020				2019
Net earnings (loss)		$	29,917			$	(275,680	)		$	35,697			$	(267,535	)
Income tax			9,603				8,569				11,149				9,778
Other income, net			(147	)			(6,131	)			(376	)			(6,124	)
Interest expense, net			5,530				4,772				14,417				8,341
Operating earnings (loss)			44,903				(268,470	)			60,887				(255,540	)
Depreciation and amortization			23,488				14,165				46,995				26,852
Settlement of long-term incentive arrangement			-				314,379				-				314,379
Acquisition-related items			397				3,202				802				3,880
Stock-based compensation expense			2,443				1,755				6,412				4,610
Adjusted EBITDA		$	71,231			$	65,031			$	115,096			$	94,181

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; (iv) stock-based compensation expense; (v) a stock-based compensation tax adjustment related to a US GAAP change; and (vi) settlement of the LTIA. 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
		2020				2019				2020				2019
Net earnings (loss)		$	29,917			$	(275,680	)		$	35,697			$	(267,535	)
Non-controlling interest share of earnings			(3,326	)			(2,409	)			(5,081	)			(4,205	)
Settlement of long-term incentive arrangement			-				314,379				-				314,379
Acquisition-related items			397				3,202				802				3,880
Amortization of intangible assets			10,864				4,899				22,225				9,206
Stock-based compensation expense			2,443				1,755				6,412				4,610
Stock-based compensation tax adjustment for US GAAP change			-				(1,510	)			-				(2,854	)
Income tax on adjustments			(3,460	)			(2,439	)			(7,446	)			(4,301	)
Non-controlling interest on adjustments			(298	)			(80	)			(520	)			(168	)
Adjusted net earnings		$	36,537			$	42,117			$	52,089			$	53,012
		Three months ended								Six months ended
(in US$)		June 30								June 30
		2020				2019				2020				2019
Diluted net earnings (loss) per share		$	0.64			$	(7.40	)		$	0.77			$	(7.59	)
Non-controlling interest redemption increment (decrement)			(0.01	)			0.03				(0.04	)			0.14
Settlement of long-term incentive arrangement			-				8.34				-				8.62
Acquisition-related items			0.01				0.07				0.02				0.09
Amortization of intangible assets, net of tax			0.18				0.09				0.37				0.18
Stock-based compensation expense, net of tax			0.04				0.03				0.11				0.09
Stock-based compensation tax adjustment for US GAAP change			-				(0.04	)			-				(0.08	)
Adjusted earnings per share		$	0.86			$	1.12			$	1.23			$	1.45

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
(unaudited)					2020				2019				2020				2019
Revenues				$	621,597			$	573,908			$	1,255,428			$	1,059,563
Cost of revenues					412,010				388,656				847,159				729,354
Selling, general and administrative expenses					140,799				121,976				299,585				240,638
Depreciation					12,624				9,266				24,770				17,646
Amortization of intangible assets					10,864				4,899				22,225				9,206
Settlement of long-term incentive arrangement					-				314,379				-				314,379
Acquisition-related items (1)					397				3,202				802				3,880
Operating earnings (loss)					44,903				(268,470	)			60,887				(255,540	)
Interest expense, net					5,530				4,772				14,417				8,341
Other expense (income)					(147	)			(6,131	)			(376	)			(6,124	)
Earnings (loss) before income tax					39,520				(267,111	)			46,846				(257,757	)
Income tax					9,603				8,569				11,149				9,778
Net earnings (loss)					29,917				(275,680	)			35,697				(267,535	)
Non-controlling interest share of earnings					3,326				2,409				5,081				4,205
Non-controlling interest redemption increment (decrement)					(531	)			947				(1,791	)			4,967
Net earnings (loss) attributable to Company				$	27,122			$	(279,036	)		$	32,407			$	(276,707	)
Net earnings (loss) per common share
	Basic			$	0.64			$	(7.48	)		$	0.77			$	(7.69	)
	Diluted				0.64				(7.48	)			0.77				(7.69	)
Adjusted earnings per share (2)				$	0.86			$	1.12			$	1.23			$	1.45
Weighted average common shares (thousands)
		Basic			42,397				37,284				41,977				36,002
		Diluted			42,710				37,715				42,322				36,452

Notes to Condensed Consolidated Statements of Earnings (Loss)(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)
(unaudited)																June 30, 2020										December 31, 2019
Assets
Cash and cash equivalents																$	245,257									$					121,198
Restricted cash																	20,028														13,093
Accounts receivable																	361,046														393,730
Prepaid and other current assets																	138,197														140,115
Current assets																	764,528														668,136
Other non-current assets																	11,884														11,824
Fixed assets																	128,684														131,545
Operating lease right-of-use assets																	139,580														132,893
Goodwill and intangible assets																	989,339														1,011,071
Total assets																$	2,034,015									$					1,955,469
Liabilities and shareholders' equity
Accounts payable and accrued liabilities																$	250,515									$					241,670
Other current liabilities																	100,346														80,369
Operating lease liabilities - current																	33,045														30,622
Long-term debt - current																	56,669														5,545
Current liabilities																	440,575														358,206
Long-term debt - non-current																	588,525														761,078
Operating lease liabilities - non-current																	117,024														111,247
Other liabilities																	68,898														66,150
Deferred income tax																	54,063														58,239
Redeemable non-controlling interests																	162,613														174,662
Shareholders' equity																	602,317														425,887
Total liabilities and equity																$	2,034,015									$					1,955,469
Supplemental balance sheet information
Total debt																$	645,194									$					766,623
Total debt, net of cash																	399,937														645,425
Consolidated Statements of Cash Flows
(in thousands of US dollars)
						Three months ended																	Six months ended
						June 30																	June 30
(unaudited)						2020								2019									2020											2019
Cash provided by (used in)
Operating activities
Net earnings (loss)					$	29,917					$			(275,680				)				$	35,697										$	(267,535	)
Items not affecting cash:
		Depreciation and amortization				23,488								14,164									46,995											26,851
		Non-cash settlement of long-term incentive arrangement				-								289,721									-											289,721
		Deferred income tax				(2,149			)					992									(4,205				)							1,465
		Other				1,845								(4,192				)					5,669											(1,058	)
						53,101								25,005									84,156											49,444
Changes in non-cash working capital
		Accounts receivable				11,911								(27,828				)					32,893											(19,228	)
		Payables and accruals				28,814								11,439									18,335											(4,922	)
		Other				19,396								10,212									17,657											19,092
Net cash provided by operating activities						113,222								18,828									153,041											44,386
Investing activities
Acquisition of businesses, net of cash acquired						-								(519,758				)					-											(545,531	)
Disposition of business, net of cash disposed						-								13,030									-											13,030
Purchases of fixed assets						(6,733			)					(11,551				)					(22,081				)							(22,287	)
Other investing activities						(603			)					3,188									(786				)							859
Net cash used in investing activities						(7,336			)					(515,091				)					(22,867				)							(553,929	)
Financing activities
Increase in long-term debt, net						(105,072			)					543,216									(121,924				)							588,879
Proceeds received on common share issuance						150,008								-									150,008											-
Purchases of non-controlling interests, net						(11,316			)					(14,223				)					(15,067				)							(33,210	)
Financing fees paid						-								(3,428				)					-											(3,696	)
Dividends paid to common shareholders						(6,867			)					(5,418				)					(13,091				)							(10,275	)
Distributions paid to non-controlling interests						-								(3,075				)					(50				)							(4,269	)
Other financing activities						(1,164			)					2,260									1,228											411
Net cash provided by financing activities						25,589								519,332									1,104											537,840
Effect of exchange rate changes on cash						626								(508				)					(284				)							(311	)
Increase in cash, cash equivalents and restricted cash						132,101								22,561									130,994											27,986
Cash, cash equivalents and restricted cash, beginning of period						133,184								85,269									134,291											79,844
Cash, cash equivalents and restricted cash, end of period					$	265,285					$			107,830								$	265,285										$	107,830
Segmented Results
(in thousands of US dollars)
							FirstService						FirstService
(unaudited)							Residential						Brands								Corporate											Consolidated
Three months ended June 30
2020
	Revenues						$	338,153					$		283,444						$			-								$		621,597
	Adjusted EBITDA							37,245							35,844									(1,858					)					71,231
	Operating earnings							31,980							17,364									(4,441					)					44,903
2019
	Revenues						$	370,405					$		203,503						$			-								$		573,908
	Adjusted EBITDA							39,177							28,431									(2,577					)					65,031
	Operating earnings							32,278							20,705									(321,453					)					(268,470	)
							FirstService						FirstService
							Residential						Brands								Corporate											Consolidated
Six months ended June 30
2020
	Revenues						$	677,816					$		577,612						$			-								$		1,255,428
	Adjusted EBITDA							61,135							57,790									(3,829					)					115,096
	Operating earnings							49,404							22,271									(10,788					)					60,887
2019
	Revenues						$	689,715					$		369,848						$			-								$		1,059,563
	Adjusted EBITDA							60,996							39,459									(6,274					)					94,181
	Operating earnings							47,926							24,597									(328,063					)					(255,540	)

COMPANY CONTACTS:

D. Scott PattersonPresident & CEO            Jeremy RakusinChief Financial Officer

(416) 960-9566