Constellation Software Inc.
TSX : CSU

Constellation Software Inc.

April 27, 2016 17:18 ET

Constellation Software Inc. Announces Results for the First Quarter Ended March 31, 2016 and Declares Quarterly Dividend

TORONTO, ONTARIO--(Marketwired - April 27, 2016) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the first quarter ended March 31, 2016 and declared a $1.00 per share dividend payable on July 6, 2016 to all common shareholders of record at close of business on June 17, 2016. This dividend has been designated as an eligible dividend for the purposes of the Income Tax Act (Canada). Please note that all dollar amounts referred to in this press release are in U.S. Dollars unless otherwise stated.

The following press release should be read in conjunction with the Company's Unaudited Condensed Consolidated Interim Financial Statements for the three months ended March 31, 2016 and the accompanying notes, our Management Discussion and Analysis for the three months ended March 31, 2016 and with our annual Consolidated Financial Statements, prepared in accordance with International Financial Reporting Standards ("IFRS") and our annual Management's Discussion and Analysis for the year ended December 31, 2015, 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 2016 Headlines:

  • Revenue grew 15% (negative 2% organic growth, 0% after adjusting for changes in foreign exchange rates) to $487 million compared to $423 million in Q1 2015.
  • Adjusted EBITA increased $15 million or 15% to $108 million as compared to $93 million in Q1 2015.
  • Adjusted Net Income decreased 16% to $63 million ($2.95 on a diluted per share basis) from $75 million ($3.52 on a diluted per share basis) in Q1 2015.
  • The Company recorded an unrealized foreign exchange loss of $19 million ($0.91 on a diluted per share basis) compared to an unrealized foreign exchange gain of $2 million ($0.08 on a diluted per share basis) in Q1 2015.
  • Net income decreased 43% to $19 million ($0.88 on a diluted per share basis) from $33 million ($1.55 on a diluted per share basis) in Q1 2015.
  • Six acquisitions were completed for aggregate cash consideration of $32 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $3 million.
  • Cash flows from operations for the first quarter of 2016 was $146 million, an increase of 30%, or $33 million, compared to $113 million for the comparable period in 2015.

First quarter 2016 revenue was $487 million, an increase of 15%, or $64 million, compared to $423 million for the comparable period in 2015. The increase is mainly attributable to growth from acquisitions as the Company experienced negative organic growth of 2%, 0% after adjusting for the impact of the appreciation of the US dollar against most major currencies in which the Company transacts business.

Adjusted EBITA for the first quarter 2016 was $108 million, a 15% increase compared to the prior year's first quarter Adjusted EBITA of $93 million. First quarter 2016 Adjusted EBITA per share on a diluted basis increased 15% to $5.08, compared to $4.41 for the same period last year. Adjusted EBITA margin was 22% for the three months ended March 31, 2016 compared to 22% for the prior year's first quarter. Adjusted EBITA margins in the first quarter of every year are typically lower as compared to other quarters, largely attributable to increased payroll tax costs associated with our annual bonus payments that are made in the month of March.

Adjusted Net Income for the first quarter 2016 was $63 million, compared to the prior year's first quarter Adjusted Net Income of $75 million, a 16% decrease. First quarter 2016 Adjusted Net Income per share on a diluted basis decreased 16% to $2.95 compared to $3.52 for the prior year's first quarter. Excluding the impact of the $19 million unrealized foreign exchange loss in Q1 2016 and the $2 million unrealized foreign exchange gain in Q1 2015 the Adjusted Net Income per share on a diluted basis would have been $3.86 and $3.44 for the first quarters of 2016 and 2015 respectively, representing a 12% increase from Q1 2015 to Q1 2016.

Net income for the first quarter 2016 was $19 million, compared to the prior year's first quarter Net income of $33 million. Net income per share on a diluted per share basis for the first quarter of 2016 decreased 43% to $0.88, compared to $1.55 for the first quarter of 2015.

Cash flows from operations for the first quarter of 2016 were $146 million, an increase of 30%, or $33 million, compared to $113 million for the comparable period in 2015.

The following table displays our revenue by reportable segment and the percentage change for the three months ended March 31, 2016 compared to the same periods in 2015:

Three months ended March 31, Period-Over-Period Change
2016 2015 $ %
($M, except percentages)
Public Sector
Licenses 19.9 19.3 0.6 3 %
Professional services 75.6 74.8 0.8 1 %
Hardware and other 23.5 25.3 (1.9 ) -7 %
Maintenance and other recurring 202.8 171.5 31.3 18 %
321.7 290.9 30.8 11 %
Private Sector
Licenses 12.9 11.0 1.8 16 %
Professional services 20.8 17.9 2.9 16 %
Hardware and other 7.1 5.7 1.3 23 %
Maintenance and other recurring 124.5 97.3 27.2 28 %
165.2 132.0 33.2 25 %

Public Sector

For the quarter ended March 31, 2016, total revenue in the public sector reportable segment increased 11%, or $31 million, to $322 million, compared to $291 million for the quarter ended March 31, 2015. For purposes of calculating organic growth, the adjustment required to March 31, 2015 revenue relating to pre-acquisition revenue earned in that period from the 19 acquisitions we completed in the previous twelve months was $39 million. Organic revenue growth was negative 2% for the three months ended March 31, 2016 compared to the same period in 2015 and 0% after adjusting for the impact of the appreciation of the US dollar against most major currencies in which the Company transacts business.

Private Sector

For the quarter ended March 31, 2016, total revenue in the private sector reportable segment increased 25%, or $33 million to $165 million, compared to $132 million for the quarter ended March 31, 2015. For purposes of calculating organic growth, the adjustment required to March 31, 2015 revenue relating to pre-acquisition revenue earned in that period from the 18 acquisitions we completed in the previous twelve months was $34 million. Organic revenue growth was negative 1% in the three months ended March 31, 2016 compared to the same period in 2015 and 2% after adjusting for the impact of the appreciation of the US dollar against most major currencies in which the Company transacts business.

Conference Call and Webcast

Management will host a conference call at 8:00 a.m. (ET) on Thursday, April 28, 2016 to answer questions regarding the results. The teleconference numbers are 416-340-2216 or 866-225-2055. The call will also be webcast live and archived on Constellation's website at www.csisoftware.com.

A replay of the conference call will be available as of 12:30 pm. ET the same day until 11:59 p.m. ET on May 12, 2016. To access the replay, please dial 905-694-9451 or 800-408-3053 followed by the passcode 9390982.

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-IFRS Measures

The term "Adjusted EBITA" refers to net income before adjusting for finance and other income, bargain purchase gain, finance costs, income taxes, share in net income or loss of equity investees, impairment of non-financial assets, amortization, TSS membership liability revaluation charge, and foreign exchange gain or loss. The Company believes that Adjusted EBITA 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 intangible asset amortization and the other items listed above. "Adjusted EBITA margin" refers to the percentage that Adjusted EBITA for any period represents as a portion of total revenue for that period. Previously the Company has reported "Adjusted EBITDA" in certain financial disclosures, but has determined that Adjusted EBITA is a more meaningful measure going forward. Adjusted EBITDA refers to Adjusted EBITA as defined above then further excludes depreciation. The Company uses depreciation as a proxy for the cash flows used to purchase property and equipment required to support the Company's main business activities. As such, the Company believes Adjusted EBITA is a more useful measure then Adjusted EBITDA.

"Adjusted net income" means net income adjusted for non-cash expenses (income) such as amortization of intangible assets, deferred income taxes, the TSS membership liability revaluation charge, and certain other expenses (income), and excludes the portion of the adjusted net income of Total Specific Solutions (TSS) B.V. ("TSS") attributable to the minority owners of TSS. 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 intangible assets, deferred income taxes, the TSS membership liability revaluation charge, and certain other non-cash expenses (income) incurred or recognized by the Company from time to time, and adjusts for the portion of TSS' Adjusted net income not attributable to shareholders of Constellation. "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 EBITA and Adjusted net income are not recognized measures under IFRS and, accordingly, readers are cautioned that Adjusted EBITA and Adjusted net income should not be construed as alternatives to net income determined in accordance with IFRS. The Company's method of calculating Adjusted EBITA and Adjusted net income may differ from other issuers and, accordingly, Adjusted EBITA and Adjusted net income may not be comparable to similar measures presented by other issuers. Adjusted EBITA includes 100% of the Adjusted EBITA of TSS.

The following table reconciles Adjusted EBITA to net income:

Three months ended
March 31,
2016 2015
($M, except percentages)
Total revenue 487.0 422.9
Net income 18.7 32.9
Adjusted for:
Income tax expense (recovery) 12.1 11.4
Foreign exchange (gain) loss 19.2 (1.7 )
TSS membership liability revaluation charge 5.2 6.0
Share in net (income) loss of equity investees (0.2 ) (0.7 )
Finance and other income (0.0 ) (0.3 )
Finance costs 5.8 4.3
Amortization of intangible assets 47.1 41.5
Adjusted EBITA 107.7 93.4
Adjusted EBITA margin 22 % 22 %

The following table reconciles Adjusted net income to net income:

Three months ended
March 31,
2016 2015
($M, except percentages)
Total revenue 487.0 422.9
Net income 18.7 32.9
Adjusted for:
Amortization of intangible assets 47.1 41.5
TSS membership liability revaluation charge 5.2 6.0
Less non-controlling interest in the Adjusted net income of TSS (3.7 ) (3.2 )
Deferred income tax expense (recovery) (4.7 ) (2.5 )
-
Adjusted net income 62.5 74.7
Adjusted net income margin 13 % 18 %

About Constellation Software Inc.

Constellation's common shares are listed on the Toronto Stock Exchange under the symbol "CSU". Constellation acquires, manages and builds vertical market software businesses.

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Financial Position
(In thousands of U.S. dollars)
(Unaudited)
March 31, 2016 December 31, 2015
Assets
Current assets:
Cash $ 271,096 $ 178,471
Accounts receivable 232,194 226,771
Work in progress 63,061 59,483
Inventories 25,820 24,332
Other assets 75,676 67,246
667,847 556,303
Non-current assets:
Property and equipment 44,679 42,072
Deferred income taxes 52,782 56,650
Other assets 34,400 32,186
Intangible assets 966,002 952,109
1,097,863 1,083,017
Total assets $ 1,765,710 $ 1,639,320
Liabilities and Shareholders' Equity
Current liabilities:
CSI Facility $ - $ -
CNH Facility 9,085 8,725
TSS membership liability 22,327 19,602
Accounts payable and accrued liabilities 246,109 274,981
Dividends payable 21,210 21,326
Deferred revenue 536,976 421,027
Provisions 6,809 8,420
Acquisition holdback payments 9,723 9,116
Income taxes payable 15,200 6,561
867,439 769,758
Non-current liabilities:
CNH Facility 131,840 126,407
TSS membership liability 39,275 34,482
Debentures 234,563 220,043
Deferred income taxes 114,584 109,795
Acquisition holdback payments 4,946 6,987
Other liabilities 34,652 34,566
559,860 532,280
Total liabilities 1,427,299 1,302,038
Shareholders' equity:
Capital stock 99,283 99,283
Accumulated other comprehensive income (loss) (30,669 ) (34,319 )
Retained earnings 269,797 272,318
338,411 337,282
Total liabilities and shareholders' equity $ 1,765,710 $ 1,639,320
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Income
(In thousands of U.S. dollars, except per share amounts)
Three months ended March 31, 2016 and 2015
(Unaudited)
2016 2015
Revenue
License $ 32,772 $ 30,325
Professional services 96,362 92,706
Hardware and other 30,520 31,048
Maintenance and other recurring 327,328 268,812
486,982 422,891
Expenses
Staff 255,227 221,852
Hardware 18,196 17,785
Third party license, maintenance and professional services 44,594 38,800
Occupancy 12,041 10,581
Travel 13,687 11,810
Telecommunications 4,958 4,086
Supplies 2,432 2,745
Software and equipment 8,481 6,814
Professional fees 6,743 4,807
Other, net 8,031 6,284
Depreciation 4,873 3,926
Amortization of intangible assets 47,072 41,481
426,335 370,971
Foreign exchange loss (gain) 19,206 (1,723 )
TSS membership liability revaluation charge 5,180 6,030
Share in net (income) loss of equity investee (224 ) (690 )
Finance and other expense (income) (9 ) (258 )
Finance costs 5,755 4,283
29,908 7,642
Income before income taxes 30,739 44,278
Current income tax expense (recovery) 16,754 13,896
Deferred income tax expense (recovery) (4,686 ) (2,544 )
Income tax expense (recovery) 12,068 11,352
Net income 18,671 32,926
Earnings per share
Basic and diluted $ 0.88 $ 1.55
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Comprehensive Income
(In thousands of U.S. dollars, except per share amounts)
Three months ended March 31, 2016 and 2015
(Unaudited)
2016 2015
Net income $ 18,671 $ 32,926
Items that are or may be reclassified subsequently to net income:
Net change in fair value
of derivatives designated as hedges
during the period (107 ) (230 )
Foreign currency translation differences from foreign operations 3,729 (11,929 )
Current income tax recovery (expense) - -
Deferred income tax recovery (expense) 28 70
Other comprehensive (loss) income for the period, net of income tax 3,650 (12,089 )
Total comprehensive income for the period $ 22,321 $ 20,837
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)
(Unaudited)
Three months ended March 31, 2016
Capital stock Accumulated other comprehensive income/(loss) Total accumulated other comprehensive income/(loss) Retained earnings Total
Cumulative translation account Amounts related to gains/(losses) on derivatives designed as hedges
Balance at January 1, 2016 $ 99,283 $ (33,614 ) $ (705 ) $ (34,319 ) $ 272,318 $ 337,282
Total comprehensive income for the period
Net income - - - - 18,671 18,671
Other comprehensive income (loss)
Net change in fair value
of derivatives designated as hedges
during the period - - (107 ) (107 ) - (107 )
Foreign currency translation differences from foreign operations - 3,729 - 3,729 - 3,729
Current tax recovery (expense) - - - - - -
Deferred tax recovery (expense) - - 28 28 - 28
Total other comprehensive income (loss) for the period - 3,729 (79 ) 3,650 - 3,650
Total comprehensive income (loss) for the period - 3,729 (79 ) 3,650 18,671 22,321
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company - - - - (21,192 ) (21,192 )
Balance at March 31, 2016 $ 99,283 $ (29,885 ) $ (784 ) $ (30,669 ) $ 269,797 $ 338,411
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)
(Unaudited)
Three months ended March 31, 2015
Capital stock Accumulated other comprehensive income/(loss) Total accumulated other comprehensive income/(loss) Retained earnings Total
Cumulative translation account Amounts related to gains/(losses) on derivatives designed as hedges
Balance at January 1, 2015 $ 99,283 $ (18,880 ) $ (410 ) $ (19,290 ) $ 179,838 $ 259,831
Total comprehensive income for the period
Net income - - - - 32,926 32,926
Other comprehensive income (loss)
Net change in fair value
of derivatives designated as hedges
during the year - - (230 ) (230 ) (230 )
Foreign currency translation differences from foreign operations - (11,929 ) - (11,929 ) - (11,929 )
Current tax recovery (expense) - - - -
Deferred tax recovery (expense) - 70 70 - 70
Total other comprehensive income for the period - (11,929 ) (160 ) (12,089 ) - (12,089 )
Total comprehensive income for the period - (11,929 ) (160 ) (12,089 ) 32,926 20,837
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company - - - - (21,192 ) (21,192 )
Balance at March 31, 2015 $ 99,283 $ (30,809 ) $ (570 ) $ (31,379 ) $ 191,572 $ 259,476
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Cash Flows
(In thousands of U.S. dollars)
Three months ended March 31, 2016 and 2015
(Unaudited)
2016 2015
Cash flows from operating activities:
Net income $ 18,671 $ 32,926
Adjustments for:
Depreciation 4,873 3,926
Amortization of intangible assets 47,072 41,481
TSS membership liability revaluation charge 5,180 6,030
Share in net (income) loss of equity investee (224 ) (690 )
Finance and other income (9 ) (258 )
Finance costs 5,755 4,283
Income tax expense (recovery) 12,068 11,352
Foreign exchange loss (gain) 19,206 (1,723 )
Change in non-cash operating working capital exclusive of effects of business combinations 41,896 29,939
Income taxes paid (8,045 ) (14,618 )
Net cash flows from operating activities 146,443 112,648
Cash flows from (used in) financing activities:
Interest paid (6,105 ) (3,591 )
Increase (decrease) in revolving credit facility, net - 3,500
Credit facility transaction costs (1,212 ) -
Dividends paid (21,192 ) (21,192 )
Net cash flows from (used in) in financing activities (28,509 ) (21,283 )
Cash flows from (used in) investing activities:
Acquisition of businesses, net of cash acquired (23,828 ) (20,511 )
Post-acquisition settlement payments, net of receipts (1,545 ) (1,681 )
Interest and dividends received 5 41
Property and equipment purchased (3,170 ) (2,138 )
Net cash flows from (used in) investing activities (28,538 ) (24,289 )
Effect of foreign currency on cash and cash equivalents 3,229 (5,938 )
Increase (decrease) in cash and cash equivalents 92,625 61,138
Cash, beginning of period 178,471 70,679
Cash, end of period $ 271,096 $ 131,817

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