Constellation Software Inc.
TSX : CSU

Constellation Software Inc.

May 06, 2009 17:00 ET

Constellation Software Inc. Announces Results for the First Quarter Ended March 31, 2009

TORONTO, ONTARIO--(Marketwire - May 6, 2009) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the first quarter ended March 31, 2009. Please note that all dollar amounts referred to in this press release are U.S. Dollars unless otherwise stated.

The following press release should be read in conjunction with the unaudited consolidated interim financial statements for the three month period ended March 31, 2009 and the accompanying notes, and with our audited consolidated annual financial statements and our annual MD&A for the year ended December 31, 2008 which can be found on SEDAR at www.sedar.com and on the Company's website www.csisoftware.com. Additional information about the Company is also available on SEDAR at www.sedar.com.

Q1 2009 Highlights:

- Revenue increased $24 million or 32% to $97 million as compared to Q1 2008

- Adjusted EBITDA increased $8 million or 64% to $21 million as compared to Q1 2008

- Adjusted Net Income increased $6 million or 51% to $17 million ($0.79 on a fully diluted per share basis) from $11 million ($0.52 on a fully diluted per share basis) in Q1 2008

- $3 million was deployed on one acquisition and $2 million in holdbacks related to prior acquisitions was paid

First quarter revenue was $97 million, an increase of 32%, or $24 million, compared to $73 million for the comparable period in 2008. The increase was entirely attributable to growth from acquisitions, as organic growth from our existing business was estimated at approximately negative 6%.

Adjusted EBITDA for the first quarter was $21 million, a 64% increase compared to the prior year's first quarter Adjusted EBITDA of $13 million. First quarter Adjusted EBITDA per share on a fully diluted basis increased 64% to $0.97 compared to $0.59 for the same period last year.

Adjusted Net Income for the first quarter was $17 million, compared to the prior year's first quarter Adjusted Net Income of $11 million, a 51% increase. First quarter Adjusted Net Income per share on a fully diluted basis increased 52% to $0.79 compared to $0.52 for the prior year's first quarter.

Net income for the first quarter was $3.8 million compared to the prior year's first quarter net income of $4.3 million. On a fully diluted per share basis, this translates into net income per share of $0.18 for the first quarter of 2009, compared to $0.20 in the same period of 2008.

The following table displays our revenue by reporting segment and the percentage change for the three months ended March 31, 2009 compared to the same period in 2008:



----------------------------------------
Three months ended Period-Over-Period
Mar. 31, Change
----------------------------------------
2009 2008 $ %
---- ---- - -
($000, except percentages)

Public Sector
Licenses 9,014 5,441 3,573 66%
Professional services and other:
Services 21,697 12,187 9,510 78%
Hardware and other 5,029 4,086 943 23%
Maintenance 38,751 26,601 12,150 46%
----------------------------------------
74,491 48,315 26,176 54%
----------------------------------------
----------------------------------------

Private Sector
Licenses 1,843 3,432 (1,589) -46%
Professional services and other:
Services 2,915 3,923 (1,008) -26%
Hardware and other 798 1,071 (273) -25%
Maintenance 17,205 16,862 343 2%
----------------------------------------
22,761 25,288 (2,527) -10%
----------------------------------------


Public Sector

For the quarter ended March 31, 2009, total revenue in the public sector segment increased by 54%, or $26 million, to $74 million, compared to $48 million for the quarter ended March 31, 2008. The increase for the three month period was significant across all revenue types. Revenue growth from acquired businesses was significant for the three month period as we have completed fourteen acquisitions since the beginning of 2008 in our public sector segment. It is estimated that acquisitions completed since the beginning of 2008 contributed approximately $27 million to our Q1 2009 revenues. In calculating our organic growth, we assume that the companies we've acquired continue, during the 12 months following their acquisition, to achieve revenues at a level consistent with the revenues they achieved during the 12 months preceding their acquisition by Constellation. Actual revenues achieved by each company acquired could be higher or lower than the amounts estimated, however Constellation believes that this method of calculating organic growth provides a reasonable estimate of actual organic growth achieved. Revenues decreased organically by $1 million in Q1 2009. Organic revenue declines or increases were negligible across all operating groups.

Private Sector

For the quarter ended March 31, 2009, total revenue in the private sector segment decreased 10%, or $2 million, to $23 million, compared to $25 million for the quarter ended March 31, 2008. Revenue growth from acquired businesses was not as strong as in the public sector as we have only completed eight acquisitions since the beginning of 2008 in our private sector segment. It is estimated that acquisitions completed since the beginning of 2008 contributed approximately $1.4 million to our Q1 2009 revenues, if they had sustained their revenue run rates at the time of acquisition. Revenues decreased organically by $4 million in Q1 2009. The organic revenue decline was primarily driven by the following:

- Homebuilder and Friedman operating groups (decrease of approximately $3.6 million). These operating groups continued to feel the effects of the housing slowdown in the U.S. The decline was apparent across all revenue streams as many of our clients and prospective clients have delayed purchasing decisions. Our Homebuilding and Friedman operating groups are significantly affected by decreasing demand for new housing and building products. These groups continue to see decreased demand for their products and services and we believe that demand will decrease further given the weakness in the underlying industries that they serve.

"Our revenues, excluding the contribution from acquisitions, were lower in Q1 than in the comparable prior year's quarter" commented Mark Leonard, President of Constellation. "Our near term prospects for organic growth are poor. Despite the organic revenue contraction, we are pleased with our profitability."

Conference Call and Webcast

Management will host a conference call at 8:30 a.m. (ET) on Thursday, May 7, 2009 to answer questions regarding the results. The teleconference numbers are 416-340-2218 or 866-226-1793. The call will also be webcast live and archived on Constellation's web site at www.csisoftware.com.

A replay of the conference call will be available as of 11:30 a.m. ET the same day until 11:59 p.m. ET on May 21, 2009. To access the replay, please dial 416-695-5800 or 1-800-408-3053 followed by the passcode 7030877#.

Forward Looking Statements

Certain statements herein may be "forward looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Constellation or the industry to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly from the results discussed in the forward looking statements. These forward looking statements reflect current assumptions and expectations regarding future events and operating performance and are made as of the date hereof and Constellation assumes no obligation, except as required by law, to update any forward looking statements to reflect new events or circumstances.

Non-GAAP Measures

The term "Adjusted EBITDA" refers to net income before deducting interest, taxes, depreciation, amortization, other expenses, loss on held for trading investments related to mark to market adjustments and foreign exchange, and before including gain (loss) on sale of short-term investments, marketable securities and other assets. The Company believes that Adjusted EBITDA is useful supplemental information as it provides an indication of the results generated by the Company's main business activities prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration asset depreciation and the other items listed above. "Adjusted EBITDA margin" refers to the percentage that Adjusted EBITDA for any period represents as a portion of total revenue for that period.

"Adjusted Net Income" means net income plus amortization of intangible assets and future income taxes. The Company believes that Adjusted Net Income is useful supplemental information as it provides an indication of the results generated by the Company's main business activities prior to taking into consideration amortization of intangibles and future income taxes as these are non-cash expenses that do not necessarily reflect the decrease in economic value of acquisitions. The majority of future income taxes relate to the amortization of intangible assets, and thus are being added back to more closely match the non-cash future tax recovery with the amortization of intangibles. "Adjusted Net Income margin" refers to the percentage that Adjusted Net Income for any period represents as a portion of total revenue for that period.

Adjusted EBITDA and Adjusted Net Income are not recognized measures under GAAP and, accordingly, shareholders are cautioned that Adjusted EBITDA and Adjusted Net Income should not be construed as alternatives to net income determined in accordance with GAAP as an indicator of the financial performance of the Company or as a measure of the Company's liquidity and cash flows. The Company's method of calculating Adjusted EBITDA and Adjusted Net Income may differ from other issuers and, accordingly, Adjusted EBITDA and Adjusted Net Income may not be comparable to similar measures presented by other issuers.

The following table reconciles Adjusted EBITDA to net income:



------------------------------
Three months ended
Mar. 31,
---------------------------
2009 2008
---- ----
($000, except percentages)

Total revenue $ 97,252 $ 73,603
---------------------------
---------------------------

Net income 3,781 4,329
Add back:
Income taxes (recovery) 1,809 (348)
Foreign exchange gain (1,027) (471)
Interest expense 680 163
Gain on sale of short-term investments,
marketable securities and other assets 0 (48)
Other expenses 188 0
Amortization of intangible assets 14,379 8,096
Depreciation 750 785

Adjusted EBITDA 20,560 12,506
Adjusted EBITDA margin 21% 17%
------------------------------


The following table reconciles Adjusted Net Income to net income:

------------------------------
Three months ended
Mar. 31,
---------------------------
2009 2008
---- ----
($000, except percentages)
Total revenue $ 97,252 $ 73,603
---------------------------
---------------------------

Net income 3,781 4,329
Add back:
Amortization of intangible assets 14,379 8,096
Future income taxes (recovery) (1,343) (1,309)

Adjusted net income 16,817 11,116
Adjusted net income margin 17% 15%
------------------------------


The following tables provide supplemental income statement and cash flow
information of MAJES:

Statement of Operations
For the 3 months ended March 31, 2009

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Constellation
Software Inc.
(excluding
(Unaudited) MAJES) MAJES Consolidated
-------------------------------------------

Revenue $ 78,588 $ 18,664 $ 97,252
Cost of revenue 28,108 7,721 35,829
----------------------------------------------------------------------------
Gross Profit 50,480 10,943 61,423

----------------------------------------------------------------------------
Total Expenses (pre amortization) 34,689 6,174 40,863
----------------------------------------------------------------------------

Adjusted EBITDA 15,791 4,769 20,560

EBITDA as % Total Revenue 20% 26% 21%

Depreciation 742 8 750

Income before the undernoted 15,049 4,761 19,810

Amortization of intangible assets 12,330 2,049 14,379

Other Expenses (159) - (159)

Income before income taxes 2,878 2,712 5,590

Income taxes 1,272 537 1,809

----------------------------------------------------------------------------
Net Income $ 1,606 $ 2,175 $ 3,781
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Cash flow from operating activities
For the 3 months ended March 31, 2009

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Constellation
Software Inc.
(excluding
(Unaudited) MAJES) MAJES Consolidated
-------------------------------------------

Cash flows from operating
activities:
Net income $ 1,606 $ 2,175 $ 3,781
Adjustments to reconcile net
income to net cash flows from
operations:
Depreciation 742 8 750
Amortization of intangible assets 12,330 2,049 14,379
Future income taxes (946) (397) (1,343)
Other non-cash items (949) - (949)
Change in non-cash operating
working capital (14,211) (1,536) (15,747)
---------------------------------------------------------------------------
Cash flows from operating
activities $ (1,428) $ 2,299 $ 871



The following table reconciles Adjusted EBITDA to net income for MAJES:

Adjusted EBITDA to net income reconciliation
For the 3 months ended March 31, 2009

----------------------------------------------------------------------------
----------------------------------------------------------------------------

Constellation
Software Inc.
(excluding
(Unaudited) MAJES) MAJES Consolidated
-------------------------------------------

Total revenue $ 78,588 $ 18,664 $ 97,252
-------------------------------------------
-------------------------------------------

Net income 1,606 2,175 3,781
Add back:
Income tax expense 1,272 537 1,809
Other expenses (159) - (159)
Amortization of intangible assets 12,330 2,049 14,379
Depreciation 742 8 750

Adjusted EBITDA 15,791 4,769 20,560
Adjusted EBITDA margin 20% 26% 21%


About Constellation Software Inc.

Constellation's common shares are listed on the Toronto Stock Exchange under the symbol "CSU". Constellation Software is an international provider of market leading software and services to a number of industries across both the public and private sectors. The Company acquires, manages and builds vertical market software businesses that provide mission-critical software solutions to address the specific needs of its customers in those industries.



CONSTELLATION SOFTWARE INC.
Interim Consolidated Balance Sheets
(In thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31 December 31
2009 2008
----------------------------------------------------------------------------
(Unaudited)
Assets

Current assets:
Cash $ 16,890 $ 30,405
Short-term investments and marketable
securities available for sale 8,479 9,979
Accounts receivable 65,100 61,079
Work in progress 18,340 15,392
Inventory 3,448 2,308
Prepaid expenses and other current assets 9,960 8,395
Investment tax credits recoverable 1,399 1,504
Future income taxes 3,787 3,779
---------------------------------------------------------------------------
127,403 132,841

Restricted cash 750 750
Property and equipment 9,615 9,381
Future income taxes 5,868 5,713
Notes receivable 3,675 3,643
Investment tax credits recoverable 1,784 1,808
Other long-term assets 3,052 3,656
Intangible assets 179,580 188,070
Goodwill 39,937 39,937

----------------------------------------------------------------------------
$ 371,664 $ 385,799
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Bank indebtedness $ 54,209 $ 60,200
Accounts payable and accrued liabilities 42,734 63,429
Dividends payable 926 -
Acquisition holdback payments 9,076 10,901
Deferred revenue 132,711 115,466
Income taxes payable 1,347 3,197
---------------------------------------------------------------------------
241,003 253,193

Future income taxes 25,554 26,778
Other long-term liabilities 11,537 10,446

Shareholders equity:
Capital stock 99,283 99,283
Shareholder loans (636) (931)
Accumulated other comprehensive loss (8,212) (6,901)
Retained earnings 3,135 3,931
---------------------------------------------------------------------------
93,570 95,382

----------------------------------------------------------------------------
$ 371,664 $ 385,799
----------------------------------------------------------------------------
----------------------------------------------------------------------------



CONSTELLATION SOFTWARE INC.
Interim Consolidated Statements of Operations
(In thousands of U.S. dollars, except per share amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
March 31,
2009 2008
----------------------------------------------------------------------------
(Unaudited)

Revenue $ 97,252 $ 73,603
Cost of revenue 35,829 28,627
----------------------------------------------------------------------------
61,423 44,976

Research and development 14,701 11,630
Sales and marketing 10,097 8,041
General and administration 16,065 12,799
Depreciation 750 785
----------------------------------------------------------------------------
41,613 33,255
----------------------------------------------------------------------------

Income before the undernoted 19,810 11,721

Amortization of intangible assets 14,379 8,096
Other expenses 188 -
Gain on sale of short-term investments,
marketable securities and other assets - (48)
Interest expense, net 680 163
Foreign exchange gain (1,027) (471)
----------------------------------------------------------------------------

Income before income taxes 5,590 3,981

Income taxes (recovery):
Current 3,152 961
Future (1,343) (1,309)
---------------------------------------------------------------------------
1,809 (348)

----------------------------------------------------------------------------
Net income $ 3,781 $ 4,329
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Income per share:
Basic $ 0.18 $ 0.21
Diluted 0.18 0.20

----------------------------------------------------------------------------
----------------------------------------------------------------------------

Weighted average number of shares
outstanding:
Basic 21,150 21,113
Diluted 21,192 21,192
Outstanding at the end of the period 21,192 21,192

----------------------------------------------------------------------------
----------------------------------------------------------------------------



CONSTELLATION SOFTWARE INC.
Interim Consolidated Statements of Retained Earnings (deficit)
(In thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
March 31,
2009 2008
----------------------------------------------------------------------------
(Unaudited)

Retained earnings (deficit), beginning of period $ 3,931 $ (7,249)

Net income 3,781 4,329

Dividends (4,577) (3,814)

----------------------------------------------------------------------------
Retained earnings (deficit), end of period $ 3,135 $ (6,734)
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Interim Consolidated Statements of Comprehensive Income
(In thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
March 31,
2009 2008
----------------------------------------------------------------------------
(Unaudited)

Net Income $ 3,781 $ 4,329

Other comprehensive loss, net of tax:

Net unrealized mark-to-market adjustment
loss on available-for-sale financial
assets during the period (1,425) (1,058)

Net unrealized foreign exchange adjustment
loss on available-for-sale financial
assets during the period (96) (109)

Transfer of unrealized gain from prior periods
upon derecognition of available-for-sale
investments - (39)

Amounts reclassified to earnings during the period 210 -

----------------------------------------------------------------------------
Comprehensive income $ 2,470 $ 3,123
----------------------------------------------------------------------------
----------------------------------------------------------------------------



CONSTELLATION SOFTWARE INC.
Interim Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
March 31,
2009 2008
----------------------------------------------------------------------------
(Unaudited)

Cash flows from operating activities:
Net income $ 3,781 $ 4,329
Adjustments to reconcile net income to
net cash flows from operations:
Depreciation 750 785
Amortization of intangible assets 14,379 8,096
Non-cash interest (36) (51)
Future income taxes (1,343) (1,309)
Other 188 -
Gain on sale of short-term investments,
marketable securities, and other assets - (48)
Unrealized foreign exchange (gain) loss (1,101) (245)
Change in non-cash operating working
capital (15,747) (7,724)
---------------------------------------------------------------------------
Cash flows from operating activities 871 3,833

Cash flows from financing activities:
Decrease in other long-term liabilities (53) (138)
Increase (decrease) in bank indebtedness (5,991) 3,300
Credit facility financing fees (16) -
Dividends (3,651) (3,814)
Repayment of shareholder loans 298 456
---------------------------------------------------------------------------
Cash flows from financing activities (9,413) (196)

Cash flows from investing activities:
Acquisition of businesses, net of cash
acquired (2,925) (2,689)
Acquisition holdback payments (1,939) (523)
Additions to short-term investments,
marketable securities and other assets - (8,405)
Decrease in other assets (240) 226
Property and equipment purchased (921) (513)
---------------------------------------------------------------------------
Cash flows used in investing activities (6,025) (11,904)

Effect of currency translation adjustment on
cash and cash equivalents 1,052 (107)
----------------------------------------------------------------------------

Decrease in cash and cash equivalents (13,515) (8,374)

Cash, beginning of period 30,405 19,796

----------------------------------------------------------------------------
Cash, end of period $ 16,890 $ 11,422
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Contact Information