FirstService Annual Report 2017

Plain-text annual report

Financial Highlights Investment Highlights 1,705 162 1,483 1,264 1,132 1,038 130 103 79 84* 75 Leadership Positions In Very Strong Financial Proﬁle Large, Fragmented Markets • Strong free cash ﬂow • Leading market positions with generation with low capital well-recognized brands in all expenditures service lines • Modest market shares in large, fragmented markets provide signiﬁcant organic and tuck- under acquisition growth opportunities • Scale advantage, proprietary products/services and national coverage are competitive differentiators which are difﬁcult to replicate Proven Business Model • Conservative balance sheet • Ample capital and liquidity to fund future growth • Consistent, growing common share dividends Compelling Growth Prospects • Long and consistent track record of delivering growth • 10%+ average annual revenue growth target • Strong organic growth through • Essential outsourced property competitive advantages in services with highly predictable attractive markets and recurring revenue streams • Margin enhancement • Focus on customer service potential through operating excellence through high employee engagement efﬁciencies • Disciplined tuck-under • Leverage our differentiators to acquisition strategy 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Revenues (US$ millions) Adjusted EBITDA (US$ millions) *Normalized for $9 million of non-recurring expenses. extend our leadership positions and win new business • Partnership philosophy aligns business leaders with shareholders Operational excellence and strong client focus translated into of ﬁnancial performance at FirstService in 2017 another record year platforms: About FirstService Corporation FirstService Corporation is a branded franchise systems North American leader in the and company-owned essential property services operations. sector serving its customers through two industry-leading FirstService Residential and FirstService Residential – North America’s largest manager of residential communities; and FirstService Brands both rely on the same operational foundations for success – a core competency in managing and growing market-leading, value-added outsourced property services businesses; FirstService Brands – one signiﬁcant scale advantages of North America’s largest that are leveraged to create providers of essential property more value for clients; a services to residential and culture focused around commercial customers customer service excellence; delivered through individually and strong brand recognition. Notice of Shareholders’ Meeting The annual meeting of the shareholders will be held on Wednesday April 11, 2018 at 4:00 p.m. (ET) at The Design Exchange, 234 Bay Street, Toronto-Dominion Centre, Toronto, Ontario FirstService 2017 Annual Report Over Two Decades of Consistent Growth 5-YEAR REVENUE CAGR 13% $1,705MM Corporate Information Registrar and Transfer Agent Canada – TSX Trust Company Phone: 1.866.600.5869 E-mail: tmxeinvestorservices@tmx.com U.S. co-transfer agent – Computershare Phone: 1.800.368.5948 E-mail: webqueries@computershare.com Stock Exchange Listings NASDAQ Global Select Market – FSV Toronto Stock Exchange – FSV FirstService common shares are included in the S&P/TSX Composite Index. www.FirstService.com Creating Value One Step FirstService Annual at a Time Report COMPOUNDED 23 YEARS REVENUE ANNUAL GROWTH 19% $37MM Results From Operations Revenues Adjusted EBITDA1 Operating earnings Net earnings Financial Position Total assets Long-term debt Shareholders’ equity Earnings Per Share Data Adjusted EPS2 Diluted net earnings per common share Diluted weighted average common shares outstanding (thousands) Cash dividends per common share Notes and stock-based compensation expense. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (US$ thousands, except per share amounts) Year ended December 31 2017 2016 2015 2014 2013 $ 1,705,456 $ 1,482,889 $ 1,264,077 $ 1,132,002 $ 1,038,087 161,977 107,627 76,673 130,324 90,550 54,243 103,038 70,747 38,198 74,997 45,621 26,192 78,913 37,083 18,452 $ 837,733 $ 770,964 $ 600,483 $ 615,544 $ 610,297 269,625 203,233 250,909 181,028 201,199 167,026 239,357 158,749 225,425 168,660 $ 2.03 1.45 $ 1.62 0.92 $ 1.20 0.59 $ 0.84 0.36 $ 0.96 0.09 36,559 36,366 36,425 36,363 $ 0.49 $ 0.44 $ 0.40 $ - $ 36,306 - 1. Adjusted EBITDA is deﬁned as net earnings before income tax, interest, depreciation, amortization, goodwill impairment charges, other (income) expense, acquisition-related items, 2. Adjusted earnings per share is deﬁned as diluted net earnings per common share, adjusted for the effect, after income tax, of the non-controlling interest redemption increment, amortization, goodwill impairment charges, acquisition-related items, stock-based compensation expense, a stock-based compensation tax adjustment related to a US GAAP change, and an income tax recovery on the enactment of US Tax Reform. Financial Highlights Investment Highlights 1,705 162 1,483 1,264 1,132 1,038 130 103 79 84* 75 Leadership Positions In Very Strong Financial Proﬁle Large, Fragmented Markets • Strong free cash ﬂow • Leading market positions with generation with low capital well-recognized brands in all expenditures service lines • Modest market shares in large, fragmented markets provide signiﬁcant organic and tuck- under acquisition growth opportunities • Scale advantage, proprietary products/services and national coverage are competitive differentiators which are difﬁcult to replicate Proven Business Model • Conservative balance sheet • Ample capital and liquidity to fund future growth • Consistent, growing common share dividends Compelling Growth Prospects • Long and consistent track record of delivering growth • 10%+ average annual revenue growth target • Strong organic growth through • Essential outsourced property competitive advantages in services with highly predictable attractive markets and recurring revenue streams • Margin enhancement • Focus on customer service potential through operating excellence through high employee engagement efﬁciencies • Disciplined tuck-under • Leverage our differentiators to acquisition strategy 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Revenues (US$ millions) Adjusted EBITDA (US$ millions) *Normalized for $9 million of non-recurring expenses. extend our leadership positions and win new business • Partnership philosophy aligns business leaders with shareholders Operational excellence and strong client focus translated into of ﬁnancial performance at FirstService in 2017 another record year platforms: About FirstService Corporation FirstService Corporation is a branded franchise systems North American leader in the and company-owned essential property services operations. sector serving its customers through two industry-leading FirstService Residential and FirstService Residential – North America’s largest manager of residential communities; and FirstService Brands both rely on the same operational foundations for success – a core competency in managing and growing market-leading, value-added outsourced property services businesses; FirstService Brands – one signiﬁcant scale advantages of North America’s largest that are leveraged to create providers of essential property more value for clients; a services to residential and culture focused around commercial customers customer service excellence; delivered through individually and strong brand recognition. Notice of Shareholders’ Meeting The annual meeting of the shareholders will be held on Wednesday April 11, 2018 at 4:00 p.m. (ET) at The Design Exchange, 234 Bay Street, Toronto-Dominion Centre, Toronto, Ontario FirstService 2017 Annual Report Over Two Decades of Consistent Growth 5-YEAR REVENUE CAGR 13% $1,705MM Corporate Information Registrar and Transfer Agent Canada – TSX Trust Company Phone: 1.866.600.5869 E-mail: tmxeinvestorservices@tmx.com U.S. co-transfer agent – Computershare Phone: 1.800.368.5948 E-mail: webqueries@computershare.com Stock Exchange Listings NASDAQ Global Select Market – FSV Toronto Stock Exchange – FSV FirstService common shares are included in the S&P/TSX Composite Index. www.FirstService.com Creating Value One Step FirstService at a Time Report Annual 23 YEARS REVENUE COMPOUNDED ANNUAL GROWTH 19% $37MM 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (US$ thousands, except per share amounts) Year ended December 31 2017 2016 2015 2014 2013 Results From Operations Revenues Adjusted EBITDA1 Operating earnings Net earnings Financial Position Total assets Long-term debt Shareholders’ equity Earnings Per Share Data Adjusted EPS2 Diluted net earnings per common share Diluted weighted average common shares outstanding (thousands) Cash dividends per common share $ 1,705,456 161,977 107,627 76,673 $ 1,482,889 130,324 90,550 54,243 $ 1,264,077 103,038 70,747 38,198 $ 1,132,002 74,997 45,621 26,192 $ 1,038,087 78,913 37,083 18,452 $ 837,733 269,625 203,233 $ 770,964 250,909 181,028 $ 600,483 201,199 167,026 $ 615,544 239,357 158,749 $ 610,297 225,425 168,660 $ $ 2.03 1.45 36,559 0.49 $ $ 1.62 0.92 36,366 0.44 $ $ 1.20 0.59 36,425 0.40 $ $ 0.84 0.36 36,363 - $ $ 0.96 0.09 36,306 - Notes 1. Adjusted EBITDA is deﬁned as net earnings before income tax, interest, depreciation, amortization, goodwill impairment charges, other (income) expense, acquisition-related items, and stock-based compensation expense. 2. Adjusted earnings per share is deﬁned as diluted net earnings per common share, adjusted for the effect, after income tax, of the non-controlling interest redemption increment, amortization, goodwill impairment charges, acquisition-related items, stock-based compensation expense, a stock-based compensation tax adjustment related to a US GAAP change, and an income tax recovery on the enactment of US Tax Reform. Financial Highlights Investment Highlights 1,705 162 1,483 1,264 1,132 1,038 130 103 79 84* 75 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Revenues (US$ millions) Adjusted EBITDA (US$ millions) *Normalized for $9 million of non-recurring expenses. Operational excellence and strong client focus translated into another record year of ﬁnancial performance at FirstService in 2017 Strong Financial Proﬁle • Strong free cash ﬂow generation with low capital expenditures • Conservative balance sheet • Ample capital and liquidity to fund future growth • Consistent, growing common share dividends Compelling Growth Prospects • Long and consistent track record of delivering growth • 10%+ average annual revenue growth target • Strong organic growth through competitive advantages in attractive markets • Margin enhancement potential through operating efﬁciencies • Disciplined tuck-under acquisition strategy Leadership Positions In Very Large, Fragmented Markets • Leading market positions with well-recognized brands in all service lines • Modest market shares in large, fragmented markets provide signiﬁcant organic and tuck- under acquisition growth opportunities • Scale advantage, proprietary products/services and national coverage are competitive differentiators which are difﬁcult to replicate Proven Business Model • Essential outsourced property services with highly predictable and recurring revenue streams • Focus on customer service excellence through high employee engagement • Leverage our differentiators to extend our leadership positions and win new business • Partnership philosophy aligns business leaders with shareholders About FirstService Corporation FirstService Corporation is a North American leader in the essential property services sector serving its customers through two industry-leading 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 to residential and commercial customers delivered through individually branded franchise systems and company-owned operations. FirstService Residential and FirstService Brands both rely on the same operational foundations for success – a core competency in managing and growing market-leading, value-added outsourced property services businesses; signiﬁcant scale advantages that are leveraged to create more value for clients; a culture focused around customer service excellence; and strong brand recognition. Notice of Shareholders’ Meeting The annual meeting of the shareholders will be held on Wednesday April 11, 2018 at 4:00 p.m. (ET) at The Design Exchange, 234 Bay Street, Toronto-Dominion Centre, Toronto, Ontario FirstService 2017 Annual Report Over Two Decades of Consistent Growth 5-YEAR REVENUE CAGR 13% $1,705MM Corporate Information Registrar and Transfer Agent Canada – TSX Trust Company Phone: 1.866.600.5869 E-mail: tmxeinvestorservices@tmx.com U.S. co-transfer agent – Computershare Phone: 1.800.368.5948 E-mail: webqueries@computershare.com Stock Exchange Listings NASDAQ Global Select Market – FSV Toronto Stock Exchange – FSV FirstService common shares are included in the S&P/TSX Composite Index. www.FirstService.com Creating Value One Step FirstService at a Time Report Annual COMPOUNDED 23 YEARS REVENUE ANNUAL GROWTH 19% $37MM Results From Operations Revenues Adjusted EBITDA1 Operating earnings Net earnings Financial Position Total assets Long-term debt Shareholders’ equity Earnings Per Share Data Adjusted EPS2 Diluted net earnings per common share Diluted weighted average common shares outstanding (thousands) Cash dividends per common share Notes and stock-based compensation expense. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (US$ thousands, except per share amounts) Year ended December 31 2017 2016 2015 2014 2013 $ 1,705,456 $ 1,482,889 $ 1,264,077 $ 1,132,002 $ 1,038,087 161,977 107,627 76,673 130,324 90,550 54,243 103,038 70,747 38,198 74,997 45,621 26,192 78,913 37,083 18,452 $ 837,733 $ 770,964 $ 600,483 $ 615,544 $ 610,297 269,625 203,233 250,909 181,028 201,199 167,026 239,357 158,749 225,425 168,660 $ 2.03 1.45 $ 1.62 0.92 $ 1.20 0.59 $ 0.84 0.36 $ 0.96 0.09 36,559 36,366 36,425 36,363 $ 0.49 $ 0.44 $ 0.40 $ - $ 36,306 - 1. Adjusted EBITDA is deﬁned as net earnings before income tax, interest, depreciation, amortization, goodwill impairment charges, other (income) expense, acquisition-related items, 2. Adjusted earnings per share is deﬁned as diluted net earnings per common share, adjusted for the effect, after income tax, of the non-controlling interest redemption increment, amortization, goodwill impairment charges, acquisition-related items, stock-based compensation expense, a stock-based compensation tax adjustment related to a US GAAP change, and an income tax recovery on the enactment of US Tax Reform. A Message From Our CEO Another rewarding year for our shareholders 2017 was a very exciting year for FirstService in many ways. We made signiﬁcant progress in advancing our most important operating strategies; we laid the groundwork for the launch of our Social Purpose initiative in January of this year and we enjoyed another excellent year of top and bottom line growth. Our proven business model enables us to leverage the enormous property service markets in which we operate to drive consistent growth. 2017 represents our 23rd consecutive year of revenue growth. From left: D. Scott Patterson Chief Executive Ofﬁcer, Jeremy Rakusin Chief Financial Ofﬁcer Our highlights this year include: Strong Organic Revenue Growth We pride ourselves on being an organic growth company ﬁrst and our goal across every service line is to grow on an organic basis at a higher rate than the market. We largely achieved this in 2017 and generated a consolidated organic growth rate of 6%, buoyed by a strong economy but also a reﬂection of our ability to consistently take market share. Robust Acquisition Activity We followed up our record 2016 acquisition year with another very strong year of acquisition activity. We closed nine transactions in total; ﬁve in our FirstService Residential division and four within FirstService Brands; investing $40 million for over $80 million in annualized revenue. Our disciplined acquisition program enabled us to more than double our organic revenue growth for a total 15% increase for the year. Continued Margin Improvement Our consolidated EBITDA margin expanded again this year, improving by 70 basis points driven by operating efﬁciencies at FirstService Residential and several of our other brands. While our consolidated margin will be inﬂuenced year to year as we add acquired operations to our results, our operational focus is to enhance margins annually at existing operations within each service line. Conservative Capital Structure Our business model drives very strong free cash ﬂow which we use ﬁrst, to invest aggressively in organic growth initiatives and acquisitions, and secondly, to reward our shareholders through dividends and a judicious share repurchase program; all while maintaining a very conservative capital structure. Our net debt to EBITDA ratio at 2017 year-end was 1.3X, modestly down from a level of 1.5X at the two prior year-ends. Subsequent to year-end, we enhanced our ﬁnancial ﬂexibility by amending our credit facility with an increased capacity to $250 million and extension for another ﬁve years. And lastly, in early February of this year, we increased our dividend by 10% for the third time in less than three years since our June 1, 2015 spin-off into a new public company. Stock Price Appreciation During 2017, the FirstService stock price increased by an impressive 47%. This built further upon signiﬁcant appreciation over the previous two years, resulting in a cumulative 150% increase since becoming an independent public company. The public markets have been robust over the last couple of years but the FirstService story and business model have very clearly been recognized and appreciated since the spin-off. Social Purpose The highlight I am most proud of during 2017 is the work we did to lay the foundation for our Social Purpose launch at the outset of this year. We undertook a nine-month exercise to ﬁnd out what was important to our people, businesses and customers in terms of social responsibility and made a commitment to incorporate this feedback into our business model and messaging for 2018. What we found was inspirational and gave us clear direction. You can ﬁnd out more in the sidebar of this report and also on our website. This is just the start for us – we are committed to consistently build on our efforts to positively impact society. FirstService has entered 2018 in a great position. Our markets remain buoyant and our operating management teams and platforms have never been stronger. Our long term goal is to grow our revenues at an average rate of at least 10% per year with incremental growth at the EBITDA line. We have accomplished this for many years and we believe we will continue for the foreseeable future driven by the following factors: • We have leadership positions but modest shares in huge, fragmented markets. There is signiﬁcant running room for growth both organically and through acquisition. In terms of organic growth, we need to continue to differentiate our service offering and win on a day-to-day basis. This is the principal focus of our operators. We add to organic growth through selected tuck-under acquisitions that expand our geographic reach, broaden our service offering or increase our market share. There is a multitude of small tuck- under prospects in our markets. • We maintain a conservative, ﬂexible balance sheet to ensure that we have ample capital to invest in aggressively driving towards our business plan targets and to opportunistically pursue acquisitions as they arise. • Our people are aligned with our vision and aspirations and driven to make a difference for our customers every day. We have a unique culture at FirstService that I am very proud of. Our strong results in 2017 are a direct result of the efforts of the 33,000 employees that work for FirstService companies and franchises. We want to thank our operating partners and employees for all they do to drive our success. We also thank our shareholders for their continued support. D. Scott Patterson Chief Executive Ofﬁcer FirstService at a Glance Annual revenues: $1.7 billion Annual EBITDA: $162 million Geographical revenue: 94% US / 6% Canada Annual dividend: US$0.54 FirstService Brands Revenues $531M EBITDA $74 M FirstService Brands is a leading North American operator and provider of essential property services to residential and commercial customers, with extensive franchise networks comprising over 1,900 franchises and over 20 company-owned locations in all 50 U.S. states and ten Canadian provinces. In 2017, FirstService Brands’ 16,000 employees within franchised and company-owned operations generated aggregate system-wide revenues of more than US$2 billion. Services are delivered through eight well-known, market-leading brands, each of which aspire to deﬁne service excellence in their respective markets through a strong focus on customer experience. • 10%+ organic growth in every quarter in 2017; strong contribution from company-owned and franchised 2017 Highlights operations • Opened California Closets Eastern Manufacturing Center in Grand Rapids, Michigan • Signiﬁcant progress within Paul Davis Restoration company-owned platform in adding management team strength and building out shared services infrastructure • Closed four tuck-under acquisitions in key markets: • Two Paul Davis company-owned – Washington, D.C.; Omaha, NE • Two California Closets company-owned – Orange County, CA; Atlanta, GA Chuck M. Fallon Chief Executive Ofﬁcer FirstService Residential Charlie E. Chase Chief Executive Ofﬁcer FirstService Brands Revenues $1,174M EBITDA $100M FirstService Residential is the largest residential property manager in North America, with 8,000 communities and 1.6+ million residential units under management. Its mission is to deliver exceptional client service and solutions that enhance the value of every property and the lifestyle of every resident in the communities it manages. In achieving these objectives, FirstService Residential leverages its scale, expertise and local knowledge to add value to its clients and differentiate itself from its competitors. The business invests extensively in a team of people who are committed to customer service excellence and living its values on a daily basis: Being genuinely helpful, aiming high, owning it, doing what’s right, improving it and building great relationships. 2017 Highlights • Recorded 11th consecutive quarter of operating margin improvement since our mid-2015 spin-off • Exceeded 8% annual EBITDA margin one year earlier than initial target • Immediate response and seamless service delivery by our teams and resources to hundreds of our communities in hurricane-affected areas • Closed ﬁve tuck-under acquisitions: • Key acquisition in important Washington, D.C. high rise market (Zalco Realty) • Strengthened property management presence in Minneapolis, Minnesota (Paradise & Associates) • Broadened ancillary services by expanding pool maintenance and lifestyle/amenities capabilities EST. 1983 FITNESS SYSTEMS R “The Fitness & Wellness Experts!” Planned Companies Janitorial Maintenance Security Concierge Social Purpose At FirstService, we deﬁne service excellence daily. Outside of work, this service ethic is manifested through our contributions to social good. Across FirstService, our teams create and participate in hundreds of causes and events that beneﬁt the communities where we live and work. In 2017, we worked to establish the FirstService Social Purpose platform. Launched in January 2018, it recognizes these local efforts to highlight the dedication and humanity of our people, while inspiring us all to further enrich the fabric of our communities. As part of our Social Purpose, we established the FirstService Relief Fund to ﬁnancially assist our people in times of economic hardship. The Relief Fund will be available for natural disasters such as Hurricanes Harvey and Irma, which displaced many of our employees from their homes. It is also available for unfortunate situations such as the death of a family member or unforeseen and uninsured medical expenses. Together with our franchisees, we are 33,000 strong. Collectively, we exert a powerful and positive impact on the communities where we work and live. As a company, we are committed to supporting and nurturing our extraordinary culture which drives an authentic desire to #FirstServeOthers. See our website for more about the FirstService Social Purpose and Relief Fund. A Message From Our CEO Another rewarding year for our shareholders 2017 was a very exciting year for FirstService in many ways. Our highlights this year include: We made signiﬁcant progress in advancing our most important operating strategies; we laid the groundwork for the launch of our Strong Organic Revenue Growth Social Purpose initiative in January of this year and we enjoyed We pride ourselves on being an organic growth company ﬁrst and another excellent year of top and bottom line growth. Our proven our goal across every service line is to grow on an organic basis at a business model enables us to leverage the enormous property higher rate than the market. We largely achieved this in 2017 and service markets in which we operate to drive consistent growth. generated a consolidated organic growth rate of 6%, buoyed by a 2017 represents our 23rd consecutive year of revenue growth. strong economy but also a reﬂection of our ability to consistently take market share. Robust Acquisition Activity We followed up our record 2016 acquisition year with another very strong year of acquisition activity. We closed nine transactions in total; ﬁve in our FirstService Residential division and four within FirstService Brands; investing $40 million for over $80 million in annualized revenue. Our disciplined acquisition program enabled us to more than double our organic revenue growth for a total 15% increase for the year. Continued Margin Improvement Our consolidated EBITDA margin expanded again this year, improving Residential and several of our other brands. While our consolidated margin will be inﬂuenced year to year as we add acquired operations to our results, our operational focus is to enhance margins annually at existing operations within each service line. Conservative Capital Structure Our business model drives very strong free cash ﬂow which we use ﬁrst, to invest aggressively in organic growth initiatives and acquisitions, and secondly, to reward our shareholders through dividends and a judicious share repurchase program; all while maintaining a very conservative capital structure. Our net debt to EBITDA ratio at 2017 year-end was 1.3X, modestly down from a level of 1.5X at the two prior year-ends. Subsequent to year-end, we enhanced our ﬁnancial ﬂexibility by amending our credit facility with an increased capacity to $250 million and extension for another ﬁve years. And lastly, in early February of this year, we increased our dividend by 10% for the third time in less than three years since our June 1, 2015 spin-off into a new public company. Stock Price Appreciation During 2017, the FirstService stock price increased by an impressive 47%. This built further upon signiﬁcant appreciation over the previous two years, resulting in a cumulative 150% increase since becoming an independent public company. The public markets have been robust over the last couple of years but the FirstService story and business model have very clearly been recognized and appreciated since the spin-off. Social Purpose The highlight I am most proud of during 2017 is the work we did to lay the foundation for our Social Purpose launch at the outset of this year. We undertook a nine-month exercise to ﬁnd out what was important to our people, businesses and customers in terms of social responsibility and made a commitment to incorporate this feedback into our business model and messaging for 2018. What we found was inspirational and gave us clear direction. You can ﬁnd out more in the sidebar of this report and also on our website. This is just the start for us – we are committed to consistently build on our efforts to positively impact society. FirstService has entered 2018 in a great position. Our markets remain buoyant and our operating management teams and platforms have never been stronger. Our long term goal is to grow our revenues at an average rate of at least 10% per year with incremental growth at the EBITDA line. We have accomplished this for many years and we believe we will continue for the foreseeable future driven by the following factors: • We have leadership positions but modest shares in huge, fragmented markets. There is signiﬁcant running room for growth both organically and through acquisition. In terms of organic growth, we need to continue to differentiate our service offering and win on a day-to-day basis. This is the principal focus of our operators. We add to organic growth through selected tuck-under acquisitions that expand our geographic reach, broaden our service offering or increase our market share. There is a multitude of small tuck- by 70 basis points driven by operating efﬁciencies at FirstService under prospects in our markets. • We maintain a conservative, ﬂexible balance sheet to ensure that we have ample capital to invest in aggressively driving towards our business plan targets and to opportunistically pursue acquisitions as they arise. • Our people are aligned with our vision and aspirations and driven to make a difference for our customers every day. We have a unique culture at FirstService that I am very proud of. Our strong results in 2017 are a direct result of the efforts of the 33,000 employees that work for FirstService companies and franchises. We want to thank our operating partners and employees for all they do to drive our success. We also thank our shareholders for their continued support. D. Scott Patterson Chief Executive Ofﬁcer From left: D. Scott Patterson Chief Executive Ofﬁcer, Jeremy Rakusin Chief Financial Ofﬁcer FirstService at a Glance Annual revenues: $1.7 billion Annual EBITDA: $162 million Geographical revenue: 94% US / 6% Canada Annual dividend: US$0.54 FirstService Brands Revenues $531M EBITDA $74 M FirstService Brands is a leading North American operator and provider of essential property services to residential and commercial customers, with extensive franchise networks comprising over 1,900 franchises and over 20 company-owned locations in all 50 U.S. states and ten Canadian provinces. In 2017, FirstService Brands’ 16,000 employees within franchised and company-owned operations generated aggregate system-wide revenues of more than US$2 billion. Services are delivered through eight well-known, market-leading brands, each of which aspire to deﬁne service excellence in their respective markets through a strong focus on customer experience. • 10%+ organic growth in every quarter in 2017; strong contribution from company-owned and franchised 2017 Highlights operations • Opened California Closets Eastern Manufacturing Center in Grand Rapids, Michigan • Signiﬁcant progress within Paul Davis Restoration company-owned platform in adding management team strength and building out shared services infrastructure • Closed four tuck-under acquisitions in key markets: • Two Paul Davis company-owned – Washington, D.C.; Omaha, NE • Two California Closets company-owned – Orange County, CA; Atlanta, GA Chuck M. Fallon Chief Executive Ofﬁcer FirstService Residential Charlie E. Chase Chief Executive Ofﬁcer FirstService Brands Revenues $1,174M EBITDA $100M FirstService Residential is the largest residential property manager in North America, with 8,000 communities and 1.6+ million residential units under management. Its mission is to deliver exceptional client service and solutions that enhance the value of every property and the lifestyle of every resident in the communities it manages. In achieving these objectives, FirstService Residential leverages its scale, expertise and local knowledge to add value to its clients and differentiate itself from its competitors. The business invests extensively in a team of people who are committed to customer service excellence and living its values on a daily basis: Being genuinely helpful, aiming high, owning it, doing what’s right, improving it and building great relationships. 2017 Highlights • Recorded 11th consecutive quarter of operating margin improvement since our mid-2015 spin-off • Exceeded 8% annual EBITDA margin one year earlier than initial target • Immediate response and seamless service delivery by our teams and resources to hundreds of our communities in hurricane-affected areas • Closed ﬁve tuck-under acquisitions: • Key acquisition in important Washington, D.C. high rise market (Zalco Realty) • Strengthened property management presence in Minneapolis, Minnesota (Paradise & Associates) • Broadened ancillary services by expanding pool maintenance and lifestyle/amenities capabilities EST. 1983 FITNESS SYSTEMS R “The Fitness & Wellness Experts!” Planned Companies Janitorial Maintenance Security Concierge Social Purpose At FirstService, we deﬁne service excellence daily. Outside of work, this service ethic is manifested through our contributions to social good. Across FirstService, our teams create and participate in hundreds of causes and events that beneﬁt the communities where we live and work. In 2017, we worked to establish the FirstService Social Purpose platform. Launched in January 2018, it recognizes these local efforts to highlight the dedication and humanity of our people, while inspiring us all to further enrich the fabric of our communities. As part of our Social Purpose, we established the FirstService Relief Fund to ﬁnancially assist our people in times of economic hardship. The Relief Fund will be available for natural disasters such as Hurricanes Harvey and Irma, which displaced many of our employees from their homes. It is also available for unfortunate situations such as the death of a family member or unforeseen and uninsured medical expenses. Together with our franchisees, we are 33,000 strong. Collectively, we exert a powerful and positive impact on the communities where we work and live. As a company, we are committed to supporting and nurturing our extraordinary culture which drives an authentic desire to #FirstServeOthers. See our website for more about the FirstService Social Purpose and Relief Fund. A Message From Our CEO Another rewarding year for our shareholders Stock Price Appreciation During 2017, the FirstService stock price increased by an impressive 47%. This built further upon signiﬁcant appreciation over the previous two years, resulting in a cumulative 150% increase since becoming an independent public company. The public markets have been robust over the last couple of years but the FirstService story and business model have very clearly been recognized and appreciated since the spin-off. Social Purpose The highlight I am most proud of during 2017 is the work we did to lay the foundation for our Social Purpose launch at the outset of this year. We undertook a nine-month exercise to ﬁnd out what was important to our people, businesses and customers in terms of social responsibility and made a commitment to incorporate this feedback into our business model and messaging for 2018. What we found was inspirational and gave us clear direction. You can ﬁnd out more in the sidebar of this report and also on our website. This is just the start for us – we are committed to consistently build on 2017 was a very exciting year for FirstService in many ways. Our highlights this year include: We made signiﬁcant progress in advancing our most important operating strategies; we laid the groundwork for the launch of our Strong Organic Revenue Growth Social Purpose initiative in January of this year and we enjoyed We pride ourselves on being an organic growth company ﬁrst and our efforts to positively impact society. another excellent year of top and bottom line growth. Our proven our goal across every service line is to grow on an organic basis at a business model enables us to leverage the enormous property higher rate than the market. We largely achieved this in 2017 and FirstService has entered 2018 in a great position. Our markets service markets in which we operate to drive consistent growth. generated a consolidated organic growth rate of 6%, buoyed by a remain buoyant and our operating management teams and 2017 represents our 23rd consecutive year of revenue growth. strong economy but also a reﬂection of our ability to consistently platforms have never been stronger. Our long term goal is to grow take market share. Robust Acquisition Activity our revenues at an average rate of at least 10% per year with incremental growth at the EBITDA line. We have accomplished this for many years and we believe we will continue for the foreseeable We followed up our record 2016 acquisition year with another very future driven by the following factors: strong year of acquisition activity. We closed nine transactions in total; ﬁve in our FirstService Residential division and four within • We have leadership positions but modest shares in huge, FirstService Brands; investing $40 million for over $80 million in fragmented markets. There is signiﬁcant running room for growth annualized revenue. Our disciplined acquisition program enabled both organically and through acquisition. In terms of organic growth, us to more than double our organic revenue growth for a total 15% we need to continue to differentiate our service offering and win increase for the year. Continued Margin Improvement on a day-to-day basis. This is the principal focus of our operators. We add to organic growth through selected tuck-under acquisitions that expand our geographic reach, broaden our service offering or Our consolidated EBITDA margin expanded again this year, improving increase our market share. There is a multitude of small tuck- by 70 basis points driven by operating efﬁciencies at FirstService under prospects in our markets. Residential and several of our other brands. While our consolidated margin will be inﬂuenced year to year as we add acquired operations • We maintain a conservative, ﬂexible balance sheet to ensure that to our results, our operational focus is to enhance margins annually we have ample capital to invest in aggressively driving towards our at existing operations within each service line. business plan targets and to opportunistically pursue acquisitions as they arise. Conservative Capital Structure Our business model drives very strong free cash ﬂow which we use • Our people are aligned with our vision and aspirations and driven ﬁrst, to invest aggressively in organic growth initiatives and acquisitions, to make a difference for our customers every day. We have a unique and secondly, to reward our shareholders through dividends and a culture at FirstService that I am very proud of. judicious share repurchase program; all while maintaining a very conservative capital structure. Our net debt to EBITDA ratio at 2017 Our strong results in 2017 are a direct result of the efforts of the year-end was 1.3X, modestly down from a level of 1.5X at the two 33,000 employees that work for FirstService companies and prior year-ends. Subsequent to year-end, we enhanced our ﬁnancial franchises. We want to thank our operating partners and employees ﬂexibility by amending our credit facility with an increased capacity for all they do to drive our success. We also thank our shareholders Social Purpose At FirstService, we deﬁne service excellence daily. Outside of work, this service ethic is manifested through our contributions to social good. Across FirstService, our teams create and participate in hundreds of causes and events that beneﬁt the communities where we live and work. In 2017, we worked to establish the FirstService Social Purpose platform. Launched in January 2018, it recognizes these local efforts to highlight the dedication and humanity of our people, while inspiring us all to further enrich the fabric of our communities. As part of our Social Purpose, we established the FirstService Relief Fund to ﬁnancially assist our people in times of economic hardship. The Relief Fund will be available for natural disasters such as Hurricanes Harvey and Irma, which displaced many of our employees from their homes. It is also available for unfortunate situations such as the death of a family member or unforeseen and uninsured medical expenses. Together with our franchisees, we are 33,000 strong. Collectively, we exert a powerful and positive impact on the communities where we work and live. As a company, we are committed to supporting and nurturing our extraordinary culture which drives an authentic desire to #FirstServeOthers. See our website for more about the FirstService Social Purpose and Relief Fund. From left: D. Scott Patterson Chief Executive Ofﬁcer, Jeremy Rakusin Chief Financial Ofﬁcer to $250 million and extension for another ﬁve years. And lastly, in for their continued support. early February of this year, we increased our dividend by 10% for the third time in less than three years since our June 1, 2015 spin-off into a new public company. D. Scott Patterson Chief Executive Ofﬁcer FirstService at a Glance Annual revenues: $1.7 billion Annual EBITDA: $162 million Geographical revenue: 94% US / 6% Canada Annual dividend: US$0.54 FirstService Brands Revenues $531M EBITDA $74 M Charlie E. Chase Chief Executive Ofﬁcer FirstService Brands FirstService Brands is a leading North American operator and provider of essential property services to residential and commercial customers, with extensive franchise networks comprising over 1,900 franchises and over 20 company-owned locations in all 50 U.S. states and ten Canadian provinces. In 2017, FirstService Brands’ 16,000 employees within franchised and company-owned operations generated aggregate system-wide revenues of more than US$2 billion. Services are delivered through eight well-known, market-leading brands, each of which aspire to deﬁne service excellence in their respective markets through a strong focus on customer experience. • 10%+ organic growth in every quarter in 2017; strong contribution from company-owned and franchised 2017 Highlights operations • Opened California Closets Eastern Manufacturing Center in Grand Rapids, Michigan • Signiﬁcant progress within Paul Davis Restoration company-owned platform in adding management team strength and building out shared services infrastructure • Closed four tuck-under acquisitions in key markets: • Two Paul Davis company-owned – Washington, D.C.; Omaha, NE • Two California Closets company-owned – Orange County, CA; Atlanta, GA Revenues $1,174M EBITDA $100M Chuck M. Fallon Chief Executive Ofﬁcer FirstService Residential FirstService Residential is the largest residential property manager in North America, with 8,000 communities and 1.6+ million residential units under management. Its mission is to deliver exceptional client service and solutions that enhance the value of every property and the lifestyle of every resident in the communities it manages. In achieving these objectives, FirstService Residential leverages its scale, expertise and local knowledge to add value to its clients and differentiate itself from its competitors. The business invests extensively in a team of people who are committed to customer service excellence and living its values on a daily basis: Being genuinely helpful, aiming high, owning it, doing what’s right, improving it and building great relationships. 2017 Highlights • Recorded 11th consecutive quarter of operating margin improvement since our mid-2015 spin-off • Exceeded 8% annual EBITDA margin one year earlier than initial target • Immediate response and seamless service delivery by our teams and resources to hundreds of our communities in hurricane-affected areas • Closed ﬁve tuck-under acquisitions: • Key acquisition in important Washington, D.C. high rise market (Zalco Realty) • Strengthened property management presence in Minneapolis, Minnesota (Paradise & Associates) • Broadened ancillary services by expanding pool maintenance and lifestyle/amenities capabilities EST. 1983 FITNESS SYSTEMS R “The Fitness & Wellness Experts!” Planned Companies Janitorial Maintenance Security Concierge A Message From Our CEO Another rewarding year for our shareholders Stock Price Appreciation During 2017, the FirstService stock price increased by an impressive 47%. This built further upon signiﬁcant appreciation over the previous two years, resulting in a cumulative 150% increase since becoming an independent public company. The public markets have been robust over the last couple of years but the FirstService story and business model have very clearly been recognized and appreciated since the spin-off. Social Purpose The highlight I am most proud of during 2017 is the work we did to lay the foundation for our Social Purpose launch at the outset of this year. We undertook a nine-month exercise to ﬁnd out what was important to our people, businesses and customers in terms of social responsibility and made a commitment to incorporate this feedback into our business model and messaging for 2018. What we found was inspirational and gave us clear direction. You can ﬁnd out more in the sidebar of this report and also on our website. This is just the start for us – we are committed to consistently build on 2017 was a very exciting year for FirstService in many ways. Our highlights this year include: We made signiﬁcant progress in advancing our most important operating strategies; we laid the groundwork for the launch of our Strong Organic Revenue Growth Social Purpose initiative in January of this year and we enjoyed We pride ourselves on being an organic growth company ﬁrst and our efforts to positively impact society. another excellent year of top and bottom line growth. Our proven our goal across every service line is to grow on an organic basis at a business model enables us to leverage the enormous property higher rate than the market. We largely achieved this in 2017 and FirstService has entered 2018 in a great position. Our markets service markets in which we operate to drive consistent growth. generated a consolidated organic growth rate of 6%, buoyed by a remain buoyant and our operating management teams and 2017 represents our 23rd consecutive year of revenue growth. strong economy but also a reﬂection of our ability to consistently platforms have never been stronger. Our long term goal is to grow take market share. Robust Acquisition Activity our revenues at an average rate of at least 10% per year with incremental growth at the EBITDA line. We have accomplished this for many years and we believe we will continue for the foreseeable We followed up our record 2016 acquisition year with another very future driven by the following factors: strong year of acquisition activity. We closed nine transactions in total; ﬁve in our FirstService Residential division and four within • We have leadership positions but modest shares in huge, FirstService Brands; investing $40 million for over $80 million in fragmented markets. There is signiﬁcant running room for growth annualized revenue. Our disciplined acquisition program enabled both organically and through acquisition. In terms of organic growth, us to more than double our organic revenue growth for a total 15% we need to continue to differentiate our service offering and win increase for the year. Continued Margin Improvement on a day-to-day basis. This is the principal focus of our operators. We add to organic growth through selected tuck-under acquisitions that expand our geographic reach, broaden our service offering or Our consolidated EBITDA margin expanded again this year, improving increase our market share. There is a multitude of small tuck- by 70 basis points driven by operating efﬁciencies at FirstService under prospects in our markets. Residential and several of our other brands. While our consolidated margin will be inﬂuenced year to year as we add acquired operations • We maintain a conservative, ﬂexible balance sheet to ensure that to our results, our operational focus is to enhance margins annually we have ample capital to invest in aggressively driving towards our at existing operations within each service line. business plan targets and to opportunistically pursue acquisitions as they arise. Conservative Capital Structure Our business model drives very strong free cash ﬂow which we use • Our people are aligned with our vision and aspirations and driven ﬁrst, to invest aggressively in organic growth initiatives and acquisitions, to make a difference for our customers every day. We have a unique and secondly, to reward our shareholders through dividends and a culture at FirstService that I am very proud of. judicious share repurchase program; all while maintaining a very conservative capital structure. Our net debt to EBITDA ratio at 2017 Our strong results in 2017 are a direct result of the efforts of the year-end was 1.3X, modestly down from a level of 1.5X at the two 33,000 employees that work for FirstService companies and prior year-ends. Subsequent to year-end, we enhanced our ﬁnancial franchises. We want to thank our operating partners and employees ﬂexibility by amending our credit facility with an increased capacity for all they do to drive our success. We also thank our shareholders Social Purpose At FirstService, we deﬁne service excellence daily. Outside of work, this service ethic is manifested through our contributions to social good. Across FirstService, our teams create and participate in hundreds of causes and events that beneﬁt the communities where we live and work. In 2017, we worked to establish the FirstService Social Purpose platform. Launched in January 2018, it recognizes these local efforts to highlight the dedication and humanity of our people, while inspiring us all to further enrich the fabric of our communities. As part of our Social Purpose, we established the FirstService Relief Fund to ﬁnancially assist our people in times of economic hardship. The Relief Fund will be available for natural disasters such as Hurricanes Harvey and Irma, which displaced many of our employees from their homes. It is also available for unfortunate situations such as the death of a family member or unforeseen and uninsured medical expenses. Together with our franchisees, we are 33,000 strong. Collectively, we exert a powerful and positive impact on the communities where we work and live. As a company, we are committed to supporting and nurturing our extraordinary culture which drives an authentic desire to #FirstServeOthers. See our website for more about the FirstService Social Purpose and Relief Fund. From left: D. Scott Patterson Chief Executive Ofﬁcer, Jeremy Rakusin Chief Financial Ofﬁcer to $250 million and extension for another ﬁve years. And lastly, in for their continued support. early February of this year, we increased our dividend by 10% for the third time in less than three years since our June 1, 2015 spin-off into a new public company. D. Scott Patterson Chief Executive Ofﬁcer FirstService at a Glance Annual revenues: $1.7 billion Annual EBITDA: $162 million Geographical revenue: 94% US / 6% Canada Annual dividend: US$0.54 Revenues $1,174M EBITDA $100M FirstService Residential is the largest residential property manager in North America, with 8,000 communities and 1.6+ million residential units under management. Its mission is to deliver exceptional client service and solutions that enhance the value of every property and the lifestyle of every resident in the communities it manages. In achieving these objectives, FirstService Residential leverages its scale, expertise and local knowledge to add value to its clients and differentiate itself from its competitors. The business invests extensively in a team of people who are committed to customer service excellence and living its values on a daily basis: Being genuinely helpful, aiming high, owning it, doing what’s right, improving it and building great relationships. 2017 Highlights • Recorded 11th consecutive quarter of operating margin improvement since our mid-2015 spin-off • Exceeded 8% annual EBITDA margin one year earlier than initial target • Immediate response and seamless service delivery by our teams and resources to hundreds of our communities in hurricane-affected areas • Closed ﬁve tuck-under acquisitions: • Key acquisition in important Washington, D.C. high rise market (Zalco Realty) • Strengthened property management presence in Minneapolis, Minnesota (Paradise & Associates) • Broadened ancillary services by expanding pool maintenance and lifestyle/amenities capabilities EST. 1983 FITNESS SYSTEMS R “The Fitness & Wellness Experts!” Planned Companies Janitorial Maintenance Security Concierge FirstService Brands Revenues $531M EBITDA $74 M Chuck M. Fallon Chief Executive Ofﬁcer FirstService Residential Charlie E. Chase Chief Executive Ofﬁcer FirstService Brands FirstService Brands is a leading North American operator and provider of essential property services to residential and commercial customers, with extensive franchise networks comprising over 1,900 franchises and over 20 company-owned locations in all 50 U.S. states and ten Canadian provinces. In 2017, FirstService Brands’ 16,000 employees within franchised and company-owned operations generated aggregate system-wide revenues of more than US$2 billion. Services are delivered through eight well-known, market-leading brands, each of which aspire to deﬁne service excellence in their respective markets through a strong focus on customer experience. 2017 Highlights • 10%+ organic growth in every quarter in 2017; strong contribution from company-owned and franchised operations • Opened California Closets Eastern Manufacturing Center in Grand Rapids, Michigan • Signiﬁcant progress within Paul Davis Restoration company-owned platform in adding management team strength and building out shared services infrastructure • Closed four tuck-under acquisitions in key markets: • Two Paul Davis company-owned – Washington, D.C.; Omaha, NE • Two California Closets company-owned – Orange County, CA; Atlanta, GA Financial Highlights Investment Highlights 1,705 162 1,483 1,264 1,132 1,038 130 103 79 84* 75 Leadership Positions In Very Strong Financial Proﬁle Large, Fragmented Markets • Strong free cash ﬂow • Leading market positions with generation with low capital well-recognized brands in all expenditures service lines • Modest market shares in large, fragmented markets provide signiﬁcant organic and tuck- under acquisition growth opportunities • Scale advantage, proprietary products/services and national coverage are competitive differentiators which are difﬁcult to replicate Proven Business Model • Conservative balance sheet • Ample capital and liquidity to fund future growth • Consistent, growing common share dividends Compelling Growth Prospects • Long and consistent track record of delivering growth • 10%+ average annual revenue growth target • Strong organic growth through • Essential outsourced property competitive advantages in services with highly predictable attractive markets and recurring revenue streams • Margin enhancement • Focus on customer service potential through operating excellence through high employee engagement efﬁciencies • Disciplined tuck-under • Leverage our differentiators to acquisition strategy 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Revenues (US$ millions) Adjusted EBITDA (US$ millions) *Normalized for $9 million of non-recurring expenses. extend our leadership positions and win new business • Partnership philosophy aligns business leaders with shareholders Operational excellence and strong client focus translated into of ﬁnancial performance at FirstService in 2017 another record year platforms: About FirstService Corporation FirstService Corporation is a branded franchise systems North American leader in the and company-owned essential property services operations. sector serving its customers through two industry-leading FirstService Residential and FirstService Residential – North America’s largest manager of residential communities; and FirstService Brands both rely on the same operational foundations for success – a core competency in managing and growing market-leading, value-added outsourced property services businesses; FirstService Brands – one signiﬁcant scale advantages of North America’s largest that are leveraged to create providers of essential property more value for clients; a services to residential and culture focused around commercial customers customer service excellence; delivered through individually and strong brand recognition. Notice of Shareholders’ Meeting The annual meeting of the shareholders will be held on Wednesday April 11, 2018 at 4:00 p.m. (ET) at The Design Exchange, 234 Bay Street, Toronto-Dominion Centre, Toronto, Ontario FirstService 2017 Annual Report Over Two Decades of Consistent Growth 5-YEAR REVENUE CAGR 13% $1,705MM Corporate Information Registrar and Transfer Agent Canada – TSX Trust Company Phone: 1.866.600.5869 E-mail: tmxeinvestorservices@tmx.com U.S. co-transfer agent – Computershare Phone: 1.800.368.5948 E-mail: webqueries@computershare.com Stock Exchange Listings NASDAQ Global Select Market – FSV Toronto Stock Exchange – FSV FirstService common shares are included in the S&P/TSX Composite Index. www.FirstService.com Creating Value One Step FirstService at a Time Report Annual COMPOUNDED 23 YEARS REVENUE ANNUAL GROWTH 19% $37MM Results From Operations Revenues Adjusted EBITDA1 Operating earnings Net earnings Financial Position Total assets Long-term debt Shareholders’ equity Earnings Per Share Data Adjusted EPS2 Diluted net earnings per common share Diluted weighted average common shares outstanding (thousands) Cash dividends per common share Notes and stock-based compensation expense. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (US$ thousands, except per share amounts) Year ended December 31 2017 2016 2015 2014 2013 $ 1,705,456 $ 1,482,889 $ 1,264,077 $ 1,132,002 $ 1,038,087 161,977 107,627 76,673 130,324 90,550 54,243 103,038 70,747 38,198 74,997 45,621 26,192 78,913 37,083 18,452 $ 837,733 $ 770,964 $ 600,483 $ 615,544 $ 610,297 269,625 203,233 250,909 181,028 201,199 167,026 239,357 158,749 225,425 168,660 $ 2.03 1.45 $ 1.62 0.92 $ 1.20 0.59 $ 0.84 0.36 $ 0.96 0.09 36,559 36,366 36,425 36,363 $ 0.49 $ 0.44 $ 0.40 $ - $ 36,306 - 1. Adjusted EBITDA is deﬁned as net earnings before income tax, interest, depreciation, amortization, goodwill impairment charges, other (income) expense, acquisition-related items, 2. Adjusted earnings per share is deﬁned as diluted net earnings per common share, adjusted for the effect, after income tax, of the non-controlling interest redemption increment, amortization, goodwill impairment charges, acquisition-related items, stock-based compensation expense, a stock-based compensation tax adjustment related to a US GAAP change, and an income tax recovery on the enactment of US Tax Reform.

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