FirstService(FSV) - 2025 Q1 - Quarterly Report

Interim Consolidated Financial Statements Consolidated Statements of Earnings In Q1 2025, the company's revenues grew to $1.25 billion, an 8% increase year-over-year, but net earnings attributable to the company significantly decreased to $2.8 million from $6.3 million in Q1 2024, primarily due to increased acquisition-related items and a higher non-controlling interest redemption increment Q1 2025 vs Q1 2024 Earnings Summary | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Revenues | $1,250,826 | $1,158,045 | +8.0% | | Operating Earnings | $39,258 | $38,058 | +3.2% | | Net Earnings | $14,080 | $14,897 | -5.5% | | Net Earnings Attributable to Company | $2,803 | $6,308 | -55.6% | | Diluted EPS | $0.06 | $0.14 | -57.1% | - Acquisition-related items surged to $12.2 million in Q1 2025, a significant increase from $1.6 million in the prior-year quarter, impacting operating earnings[5] - The non-controlling interest redemption increment, which reduces earnings attributable to the company, increased to $10.0 million from $7.1 million year-over-year[5] Consolidated Balance Sheets As of March 31, 2025, total assets grew slightly to $4.23 billion from $4.19 billion at year-end 2024, driven by increases in Goodwill and Operating lease right-of-use assets, while total liabilities also rose, mainly due to higher long-term debt, resulting in a modest increase in total shareholders' equity to $1.21 billion Balance Sheet Summary (as of March 31, 2025) | Account | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total Assets | $4,234,749 | $4,194,852 | | Cash and cash equivalents | $217,200 | $227,598 | | Goodwill | $1,413,596 | $1,395,383 | | Total Liabilities | $2,575,976 | $2,557,769 | | Long-term debt (current & non-current) | $1,308,647 | $1,298,710 | | Total Shareholders' Equity | $1,205,734 | $1,187,746 | - Goodwill increased by $18.2 million since December 31, 2024, reflecting recent acquisition activity[8] - Redeemable non-controlling interests, which are presented outside of shareholders' equity, stood at $453.0 million[8] Consolidated Statements of Cash Flows For Q1 2025, the company generated $41.3 million in cash from operating activities, a significant improvement from an $8.8 million use of cash in the prior-year period, primarily due to higher profitability and lower payments for contingent acquisition consideration, leading to a small overall decrease of $3.4 million in cash and cash equivalents Cash Flow Summary (Three months ended March 31) | Activity | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $41,250 | $(8,800) | | Net cash used in investing activities | $(45,245) | $(57,340) | | Net cash provided by financing activities | $602 | $43,130 | | Decrease in cash, cash equivalents and restricted cash | $(3,408) | $(22,782) | - Cash used for acquisitions of businesses was $8.6 million, significantly lower than the $31.6 million spent in Q1 2024[11] - Financing activities in Q1 2025 were relatively balanced, compared to Q1 2024 which saw a significant net inflow from debt issuance[11] Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial figures, including revenue disaggregation by segment, information on recent acquisitions, debt structure, and segment performance, with both FirstService Residential and FirstService Brands contributing to revenue growth in Q1 2025, alongside three tuck-under acquisitions and an amended credit facility Note 1. Description of the Business - The company operates through two segments: FirstService Residential (property management) and FirstService Brands (essential property services)[12] - FirstService Brands includes well-known names like First Onsite Property Restoration, Paul Davis Restoration, California Closets, and CertaPro Painters[14] Note 3. Revenue Recognition Disaggregated Revenues (Three months ended March 31) | Segment | 2025 (in thousands) | 2024 (in thousands) | YoY Growth | | :--- | :--- | :--- | :--- | | FirstService Residential | $525,087 | $496,124 | +5.8% | | FirstService Brands company-owned | $674,984 | $613,307 | +10.1% | | FirstService Brands franchisor | $48,818 | $46,746 | +4.4% | | Total (excl. franchise fees) | $1,248,889 | $1,156,177 | +8.0% | - The company's backlog of contracted work yet to be performed was $1.03 billion as of March 31, 2025, up from $924.8 million at the end of 2024[19] Note 4. Acquisitions - In Q1 2025, the company completed three acquisitions for a total consideration of $11.9 million (cash of $8.6 million and contingent consideration of $3.3 million)[21] - Acquisitions included an amenity management firm (FirstService Residential), an exterior restoration business, and a Paul Davis franchisee (FirstService Brands)[21] - Acquisition-related items included $3.1 million in transaction costs and a $9.1 million increase related to contingent acquisition consideration fair value adjustments[23] Note 8. Long-Term Debt - In February 2025, the company amended its credit agreement, providing for a $1.75 billion revolving credit facility maturing in February 2030[30] - In January 2024, the company issued a total of $125 million in senior unsecured notes through private placements with New York Life and Prudential[32] Note 14. Segmented Information Segment Operating Earnings (Three months ended March 31) | Segment | 2025 (in thousands) | 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | FirstService Residential | $29,267 | $26,658 | +9.8% | | FirstService Brands | $24,486 | $26,799 | -8.6% | | Corporate | $(14,495) | $(15,399) | N/A | | Consolidated | $39,258 | $38,058 | +3.2% | - FirstService Brands' operating earnings declined despite higher revenues, impacted by a significant increase in acquisition-related items ($9.8 million in Q1 2025 vs $0.3 million in Q1 2024)[47] - The United States continues to be the primary source of revenue, generating $1.12 billion (89.4% of total) in Q1 2025[48] Management's Discussion and Analysis (MD&A) Results of Operations Consolidated revenues for Q1 2025 rose 8% to $1.25 billion, driven by 6% growth in FirstService Residential and 10% in FirstService Brands, with Adjusted EBITDA significantly increasing to $103.3 million and an improved margin of 8.3%, though reported operating earnings remained flat due to a $10.6 million increase in acquisition-related items Q1 2025 Key Performance Indicators (vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Revenues | $1.25 billion | $1.16 billion | +8% | | Operating Earnings | $39.3 million | $38.1 million | +3.1% | | Adjusted EBITDA | $103.3 million | $83.4 million | +23.9% | | Adjusted EBITDA Margin | 8.3% | 7.2% | +110 bps | - FirstService Residential revenues grew 6% (3% organic), with margin improvement attributed to operating efficiencies in its client service delivery model[56] - FirstService Brands revenues grew 10%, but organic revenue declined 2%, with reported growth driven by tuck-under acquisitions and Adjusted EBITDA margin expansion due to improved processes at restoration and home services brands[58] Reconciliation of Non-GAAP Measures This section details the calculation of non-GAAP metrics like Adjusted EBITDA and Adjusted EPS, which management uses to evaluate operating performance, with Adjusted EBITDA at $103.3 million for Q1 2025 and Adjusted EPS significantly increasing to $0.92 from $0.67 in Q1 2024 due to higher adjusted net earnings Reconciliation to Adjusted EBITDA (Q1 2025) | Item | Amount (in thousands) | | :--- | :--- | | Net earnings | $14,080 | | Add: Income tax | $6,000 | | Add: Interest expense, net | $19,264 | | Add: Depreciation and amortization | $44,176 | | Add: Acquisition-related items | $12,233 | | Add: Stock-based compensation | $7,599 | | Less: Other income, net | $(86) | | Adjusted EBITDA | $103,266 | Reconciliation to Adjusted EPS (Q1 2025) | Item | Per Share Amount | | :--- | :--- | | Diluted net earnings per share | $0.06 | | Add: Non-controlling interest redemption increment | $0.22 | | Add: Acquisition-related items | $0.21 | | Add: Amortization of intangible assets, net of tax | $0.28 | | Add: Stock-based compensation expense, net of tax | $0.15 | | Adjusted EPS | $0.92 | Liquidity and Capital Resources The company's liquidity position remains strong, with net cash from operations improving to $41.3 million in Q1 2025, stable net indebtedness at $1.09 billion, and $587.6 million of available credit as of March 31, 2025, ensuring compliance with debt covenants and financial flexibility, with approximately $125 million expected for capital expenditures in 2025 - Net cash provided by operating activities was $41.3 million for Q1 2025, a significant improvement from a use of $8.8 million in Q1 2024[75] - Net indebtedness was $1.09 billion as of March 31, 2025, with $587.6 million of available un-drawn credit[79] - Total contractual obligations as of March 31, 2025, amount to approximately $2.0 billion, with the largest components being long-term debt and operating leases[81] Other Disclosures This section covers redeemable non-controlling interests (RNCI), related-party transactions, and outstanding share data, with the total redemption amount for RNCI at $394.3 million as of March 31, 2025, routine office rentals and loans with senior managers of subsidiaries, and 45.4 million common shares outstanding as of the report date - The redemption amount for Redeemable Non-Controlling Interests (RNCI) was $394.3 million as of March 31, 2025, with the majority ($324.2 million) residing in the FirstService Brands segment[82][83] - The company has related-party transactions for office space rentals with senior managers, amounting to $2.6 million in rent expense for Q1 2025[86] - As of May 2, 2025, the company had 45,444,001 common shares outstanding, with an additional 2,814,675 shares issuable upon exercise of stock options[88]