FirstService
Annual Report 2018

Plain-text annual report

FirstService 2018 Annual Report Creating Value One Step at a Time $1,931MM $1,931MM $1,931MM 13% 5-YEAR REVENUE CAGR 13% 13% 5-YEAR REVENUE CAGR 5-YEAR REVENUE CAGR 13% 5-YEAR REVENUE CAGR 2014 - 2018 19% 23 YEARS REVENUE COMPOUNDED ANNUAL GROWTH 19% 19% 23 YEARS REVENUE 23 YEARS REVENUE COMPOUNDED COMPOUNDED ANNUAL GROWTH ANNUAL GROWTH 19% 23 YEARS REVENUE COMPOUNDED ANNUAL GROWTH Financial Highlights 71% CUMULATIVE GROWTH $1,931MM 154% 71% 71% CUMULATIVE GROWTH CUMULATIVE GROWTH 2014 - 2018 2014 - 2018 CUMULATIVE GROWTH 2014 - 2018 1,931 1,729 1,931 1,931 191 1,729 1,729 159 1,264 1,132 1,483 1,483 1,483 1,264 1,264 130 1,132 1,132 103 75 71% 154% 211% 154% CUMULATIVE GROWTH CUMULATIVE GROWTH CUMULATIVE GROWTH 2014 - 2018 2014 - 2018 2014 - 2018 CUMULATIVE GROWTH 2014 - 2018 154% 211% 50% 211% CUMULATIVE GROWTH 2014 - 2018 CUMULATIVE GROWTH CUMULATIVE GROWTH CUMULATIVE MARGIN 2014 - 2018 EXPANSION 2014 - 2018 2014 - 2018 191 191 2.61 1,931 2.61 2.61 9.9% 191 211% 50% 50% CUMULATIVE MARGIN CUMULATIVE GROWTH CUMULATIVE MARGIN 2014 - 2018 EXPANSION 2014 - 2018 EXPANSION 2014 - 2018 50% CUMULATIVE MARGIN EXPANSION 2014 - 2018 9.9% 9.9% 2.61 9.9% 1,729 159 159 1,483 1.99 130 130 1,264 1.62 1,132 103 103 1.20 75 75 0.84 9.2% 8.8% 9.2% 9.2% 8.8% 8.8% 8.2% 159 8.2% 8.2% 9.2% 8.8% 8.2% 1.99 1.99 130 6.6% 1.62 1.62 103 1.20 1.20 75 1.99 6.6% 6.6% 6.6% 1.62 1.20 0.84 0.84 0.84 2014 2015 2014 2015 2014 2015 2016 2014 2015 2016 2016 2017 2016 2017 2017 2018 2017 2018 2018 2018 2014 2015 2014 2015 2014 2015 2016 2014 2015 2016 2016 2017 2016 2017 2017 2018 2017 2018 2018 2018 2014 2015 2014 2015 2014 2015 2016 2016 2017 2016 2017 2018 2017 2018 2018 2014 2015 2016 2017 2018 $37MM $37MM $37MM $37MM 2014 2015 2016 2017 2018 Revenues (US$ millions) 2014 2015 2014 2015 2014 2015 2016 2016 2016 2017 2017 2017 2018 2018 2018 Revenues (US$ millions) Revenues (US$ millions) Adjusted EBITDA (US$ millions) Adjusted EBITDA Revenues Adjusted EBITDA Adjusted EPS (US$ millions) (US$) (US$ millions) (US$ millions) Adjusted EPS (US$) Adjusted EPS Adjusted EBITDA (US$ millions) (US$) Adjusted EBITDA Margin Adjusted EBITDA Adjusted EPS Margin (US$) Adjusted EBITDA Margin Adjusted EBITDA Margin 1995 1996 1997 1998 1999 2000 1995 1995 2001 1996 1996 2002 1997 1997 2003 1998 1998 2004 1999 1999 2005 2000 2000 2006 2001 2001 2007 2002 2002 2008 1995 2003 2003 2009 1996 2004 2004 2010 1997 2005 2005 2011 1998 2006 2006 2012 1999 2007 2007 2013 2000 2008 2008 2014 2001 2009 2009 2015 2002 2010 2010 2016 2003 2011 2011 2017 2004 2012 2012 2018 2005 2013 2013 2006 2014 2014 2007 2015 2015 2008 2016 2016 2009 2017 2017 2010 2018 2018 2011 2012 2013 2014 2015 2016 2017 2018 About FirstService Corporation FirstService Residential and FirstService Brands both rely on the same operational foundations for success: • Partnership philosophy aligning business leaders with shareholders to add long-term value. 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; • 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. • Proven business models and core competencies in managing and growing market-leading outsourced property services businesses; • Focus on service excellence and leveraging our significant scale advantages and differentiators to benefit our clients; • Leadership positions with well-recognized brands and modest market shares in very large, fragmented markets providing significant growth opportunities; • Disciplined tuck-under acquisition program ensuring strong returns on invested capital; and FirstService Corporation’s compelling track record of financial performance includes: • Highly predictable and recurring contractual revenue; • Strong free cash flow with modest capital expenditures; • Conservative balance sheet; • Consistent dividend increases (four 10%+ increases in four years since spin-off; cumulative 50% increase); and • Future growth target of 10%+ compounded annual revenue growth. Over Two Decades of Consistent Growth $1,931MM 13% 5-YEAR REVENUE CAGR 19% 23 YEARS REVENUE COMPOUNDED ANNUAL GROWTH 71% CUMULATIVE GROWTH 2014 - 2018 154% CUMULATIVE GROWTH 2014 - 2018 211% CUMULATIVE GROWTH 2014 - 2018 50% CUMULATIVE MARGIN EXPANSION 2014 - 2018 1,931 1,729 1,483 1,264 1,132 191 2.61 9.9% 9.2% 8.8% 8.2% 1.99 1.62 6.6% 159 130 103 75 1.20 0.84 $37MM 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Revenues (US$ millions) Adjusted EBITDA (US$ millions) Adjusted EPS (US$) Adjusted EBITDA Margin (US$ thousands, except per share amounts) Year ended December 31 2018 2017 2016 2015 2014 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 $ 1,931,473 190,611 127,568 90,280 $ 1,729,031 159,312 104,962 75,047 $ 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 $ 1,007,474 334,523 236,226 $ 848,266 269,625 192,286 $ 770,964 250,909 181,028 $ 600,483 201,199 167,026 $ 615,544 239,357 158,749 $ $ 2.61 1.80 36,571 0.54 $ $ 1.99 1.41 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 - Notes 1. Adjusted EBITDA is defined as net earnings before income tax, interest, depreciation, amortization, 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, acquisition-related items, stock-based compensation expense, and a stock-based compensation tax adjustment related to a US GAAP change. A Message From Our CEO 2018 was another excellent year for FirstService Corporation. From left: D. Scott Patterson Chief Executive Officer, Jeremy Rakusin Chief Financial Officer We have a proven business model and strategy that has delivered consistent revenue growth and shareholder returns for over two decades. We operate in huge, highly fragmented property service markets with significant running room for growth. Our relentless focus on customer experience drives retention, repeat business and word-of-mouth referral resulting in market share gains and consistent year-over-year organic growth. We augment this with selective tuck-under acquisitions to take total top-line growth to 10%+. Our 2018 results reflect the continued execution of our strategy and represent our 25th consecutive year of revenue growth. We have many highlights to be proud of in 2018 including: Double-Digit Revenue Growth Our top line grew by 12% in 2018 with a healthy 50/50 balance between organic growth and acquisitions. We consider organic growth to be the most important measure of brand health across our various service lines and we are very pleased with the 6% generated year-over-year. We continue to differentiate our service delivery and win market share. Strategic Acquisitions During 2018, we completed 15 strategic acquisitions balanced between our two divisions: ten in FirstService Brands and five in FirstService Residential. Through these transactions we increased market share, broadened our service offering and expanded our geographic footprint. Importantly, the deals also brought new top level talent into the FirstService family. The leadership and talent at prospective targets is the principal asset we focus on and ultimately pay for. Last year, we added a number of young leaders to our team and we expect them to help drive growth for many years. Improved Margins Our consolidated margins increased again this year, by 70 basis points, supported by increases at both divisions. We have a strong culture of “continuous improvement” that drives our daily focus on customer experience and also results in the consistent realization of cost efficiencies across our operations. This has been particularly apparent in recent years at FirstService Residential as we consolidate systems and leverage our scale, and this discipline for incremental improvement extends to every operation. Free Cash Flow Supported a Strong Balance Sheet and Increasing Dividends We generated another year of strong operating cash flow, which enabled us to invest in our businesses while also driving internal and acquisition growth initiatives. Our balance sheet remained strong at year-end with a leverage ratio of 1.4x net debt to EBITDA. Early in 2018, we also expanded our debt capacity with an increased and extended credit facility allowing for $350 million of total borrowing (including a $100 million accordion feature). Our financial flexibility also allowed us to recently increase our annual dividend to US$0.60 per share, the fourth successive 10%+ hike and a cumulative 50% increase since our spin-off into a new public company in June 2015. Social Purpose We launched our Social Purpose program in 2018 as a way to highlight our ongoing commitment to serving our local communities and to encourage our teams to do even more. The energy and enthusiasm around Social Purpose was incredible and in our first year, we participated in more than 200 community-related initiatives. In addition, our teams quickly embraced the opportunity to help each other by financially supporting the FirstService Relief Fund, which assists our people facing financial hardship during times of crisis. We approved 29 grants in 2018 with awareness and momentum increasing throughout the year. See the back cover of this report for more information on #FirstServeOthers and our plans for 2019. People We are an essential services company comprised of 34,000 employees who share a deep commitment to serve others. Our people are our greatest asset and the strength of their engagement is our competitive advantage. During 2018, we increased our investment in people development and culture-building initiatives for the fifth year running. We operate in very tight labour markets across North America and our ability to recruit, hire, onboard, train and retain employees who share our values is critical to our continued success. We aspire to be THE employer of choice in all our markets and, in 2018, we again saw returns from our investments with improvement in recruiting metrics, employee retention and employee engagement measures. Summary and Look Forward We are very pleased with our strong 2018 results which continue an impressive run for us since our spin-off in June 2015. Revenues are up more than 70%, EBITDA is up 154% and our stock price is up 145% over the four years since. We have consistently stated that our long-term goal is to grow our revenues at an average annual rate of at least 10% with incremental growth at the EBITDA line. We have achieved and exceeded this goal for many years and are confident that 2019 will deliver more of the same. Our markets continue to show strength and operationally we are in an excellent position to capitalize. Longer term, we remain excited about the huge growth opportunities we have in our service markets and the potential for continued efficiencies and margin improvement across the board. We want to thank our operating partners and teams for their continued commitment to making a difference every day. Together, we are successfully building iconic, winning brands with service excellence as the foundation. It is an exciting journey with much work still to do. D. Scott Patterson Chief Executive Officer FirstService at a Glance FirstService Residential FirstService Brands 65% 35% Revenue by division 56% 44% EBITDA by division1 1. Excludes unallocated corporate costs. Employees Franchisee Associates 59% 41% 34,000 Total Employed Cumulative Dividend Growth*: 50% *as of February 2019  Revenues $677M EBITDA $88 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 approximately 1,800 franchises and almost 30 company-owned locations in all 50 U.S. states and ten Canadian provinces. In 2018, FirstService Brands’ 17,000 employees within franchised and company-owned operations generated aggregate system-wide revenues of approximately US$2.2 billion. Services are delivered through seven well-known, market-leading brands, each of which aspire to define service excellence in their respective markets through a strong focus on customer experience. 2018 Highlights • Robust 9% annual organic growth exceeding overall market growth • Significant progress within Paul Davis Restoration company-owned platform in adding management team strength and building out shared services infrastructure • Very active tuck-under acquisition activity across all company-owned platforms with 10 closed transactions: • Four Restoration company-owned – three with Paul Davis Restoration (Seattle, WA; Lexington, KY; Western Canada) and one independent operation • Two California Closets company-owned – Las Vegas, NV; Houston, TX • Four Century Fire tuck-unders increasing scale around Atlanta, GA metropolitan area and expanding geographic footprint in Tampa, FL and Raleigh, NC Revenues $1,255M EBITDA $113M Chuck M. Fallon Chief Executive Officer FirstService Residential FirstService Residential is the largest residential property manager in North America, with 8,500 communities and more than 1.7 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. 2018 Highlights • Achieved highest level of gross revenue from new client contract wins • Recorded 15th consecutive quarter of operating margin improvement since our June 2015 spin-off • Achieved 9% annual EBITDA margin • Closed five tuck-under acquisitions: • Added scale in large Atlanta, GA metropolitan area and established presence in growing Nashville, TN market • Strengthened property management presence in South Carolina, particularly in Charleston metropolitan area • Broadened amenity management service offering Planned Companies Janitorial Maintenance Security Concierge EST. 1983 R FITNESS SYSTEMS “The Fitness & Wellness Experts!” Our Social Purpose #FirstServeOthers has always been core to who we are at FirstService. After all, it’s this service-minded approach that has allowed us to grow and prosper over the past two decades. Launching our Social Purpose program in 2018 provided a platform to leverage the good work we were already doing as an organization, and to motivate and inspire our teams to do more. We are galvanizing our collective efforts using the hashtag #FirstServeOthers, which sends a proud signal that we are people who want to foster healthy communities for everyone to live, work and play. Not only has our engagement in Social Purpose activities been rewarding to our people on a personal level, we are also seeing benefits as an organization. In addition to helping attract and retain like-minded individuals to our companies, our team members are supporting each other through donations to the FirstService Relief Fund and engaging with colleagues at sister companies by attending, supporting or volunteering at each other’s events. This collaboration strengthens the fabric of our organization by fostering camaraderie and enhancing our reputation as a great place to work. At FirstService, Social Purpose takes on many forms: • Volunteering for a local charity • Participating in fundraising events • Contributing to the FirstService Relief Fund to help our own • Collecting items for donation drives • Rolling up our sleeves and getting things done • Helping those who need it most • Inspiring others through our actions and stories This year we have further defined our Social Purpose to represent our collective commitment to initiatives that support Our People, to activities that support Our Community and to causes that improve Our Environment. With 34,000 people throughout our organization, the impact we can create is immense. How will you #FirstServeOthers? 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. Notice of Shareholders’ Meeting The annual meeting of the share- holders will be held on Wednesday April 10, 2019 at 4:00 p.m. (ET) at The Design Exchange, 234 Bay Street, Toronto-Dominion Centre, Toronto, Ontario FirstService.com FirstService Residential California partnered with the United Way Volunteers from Paul Davis worked with Habijax CertaPro Painters team members participated in a Habitat for Humanity project Super Restoration helped prepare 124,416 meals for Feed My Starving Children 

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