Constellation Software Inc. Announces Results for the First Quarter Ended March 31, 2017 and Declares Quarterly Dividend

| Source: Constellation Software Inc. Constellation Software Inc.

TORONTO, ONTARIO--(Marketwired - April 27, 2017) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the first quarter ended March 31, 2017 and declared a $1.00 per share dividend payable on July 6, 2017 to all common shareholders of record at close of business on June 16, 2017. 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, 2017 and the accompanying notes, our Management Discussion and Analysis for the three months ended March 31, 2017 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, 2016, 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 2017 Headlines:

  • Revenue grew 14% (1% organic growth, 3% after adjusting for changes in foreign exchange rates) to $555 million compared to $487 million in Q1 2016.
  • Adjusted EBITA increased $23 million or 21% to $131 million as compared to $108 million in Q1 2016.
  • Adjusted Net Income increased 51% to $95 million ($4.46 on a diluted per share basis) from $63 million ($2.95 on a diluted per share basis) in Q1 2016.
  • The Company recorded an unrealized foreign exchange loss of $2 million ($0.07 on a diluted per share basis) in Q1 2017 compared to an unrealized foreign exchange loss of $19 million ($0.91 on a diluted per share basis) in Q1 2016.
  • Net income increased to $1.91 on a diluted per share basis compared to $0.88 on a diluted per share basis in Q1 2016.
  • Twelve acquisitions were completed for aggregate cash consideration of $62 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $20 million.
  • Cash flows from operations were $182 million, an increase of 24%, or $36 million, compared to $146 million for the comparable period in 2016.
  • Subsequent to March 31, 2017, the Company entered into agreements to acquire six entities for aggregate cash consideration of $38 million on closing plus cash holdbacks of $5 million for total consideration of $43 million.

Total revenue for the quarter ended March 31, 2017 was $555 million, an increase of 14%, or $68 million, compared to $487 million for the comparable period in 2016. The increase is primarily attributable to growth from acquisitions as the Company experienced organic growth of 1% in the quarter, 3% after adjusting for the impact of the net appreciation of the US dollar against most major currencies in which the Company transacts business.

For the quarter ended March 31, 2017, Adjusted EBITA increased to $131 million compared to $108 million for the same period in 2016 representing an increase of 21%. Adjusted EBITA margin was 24% for the quarter ended March 31, 2017 and 22% for the same period in 2016. For the quarter ended March 31, 2017 Adjusted EBITA per share on a diluted basis increased 21% to $6.16, compared to $5.08 for the same period last year.

For the quarter ended March 31, 2017, Adjusted net income increased to $95 million from $63 million for the same period in 2016, representing an increase of 51%. Adjusted net income margin was 17% for the quarter ended March 31, 2017 and 13% for the same period in 2016. Excluding the impact of the $2 million unrealized foreign exchange loss in Q1 2017 and the $19 million unrealized foreign exchange loss in Q1 2016 the margins would have been 17% for both periods. For the quarter ended March 31, 2017 Adjusted net income per share on a diluted basis increased 51% to $4.46, compared to $2.95 for the same period last year.

Net income for the quarter ended March 31, 2017 was $40 million, an increase of 117% over net income of $19 million for the same period in 2016. On a per share basis this translated into a net income per diluted share of $1.91 in the quarter ended March 31, 2017 an increase of 117% over net income per diluted share of $0.88 for the same period in 2016.

Cash flows from operations for the quarter ended March 31, 2017 were $182 million, an increase of 24%, or $36 million, compared to $146 million for the comparable period in 2016.

The following table displays our revenue by reportable segment and the percentage change for the three months ended March 31, 2017 compared to the same period in 2016:

Three months ended March 31, Period-Over-Period Change Organic Growth
2017 2016 $ % %
($M, except percentages)
Public Sector
Licenses 21.7 19.9 1.8 9 % -18 %
Professional services 89.3 75.6 13.7 18 % 2 %
Hardware and other 24.6 23.5 1.2 5 % 3 %
Maintenance and other recurring 238.6 202.8 35.9 18 % 3 %
374.2 321.7 52.5 16 % 1 %
Private Sector
Licenses 13.4 12.9 0.6 4 % -5 %
Professional services 23.2 20.8 2.4 12 % 0 %
Hardware and other 6.8 7.1 (0.2 ) -3 % -8 %
Maintenance and other recurring 137.7 124.5 13.2 11 % 3 %
181.1 165.2 15.9 10 % 1 %

For purposes of calculating organic growth, estimated pre-acquisition revenue from the relevant companies acquired in 2016 and 2017 was added to actual reported revenue for the three months ended March 31, 2016.

Public Sector

For the quarter ended March 31, 2017, total revenue in the public sector reportable segment increased 16%, or $52 million to $374 million, compared to $322 million for the quarter ended March 31, 2016. Organic revenue growth was 1% in Q1 2017 compared to the same period in 2016, and 3% after adjusting for the impact of the net appreciation of the US dollar against most major currencies in which the Company transacts business.

Private Sector

For the quarter ended March 31, 2017, total revenue in the private sector reportable segment increased 10%, or $16 million to $181 million, compared to $165 million for the quarter ended March 31, 2016. Organic revenue growth was 1% in Q1 2017 compared to the same period in 2016, and 3% after adjusting for the impact of the net 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 Friday, April 28, 2017 to answer questions regarding the results. The teleconference numbers are 416-340-2218 or 800-377-0758. 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 p.m. ET the same day until 11:59 p.m. ET on May 28, 2017. To access the replay, please dial 905-694-9451 or 800-408-3053 followed by the passcode 1286858.

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.

"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,
2017 2016
($M, except percentages)
Total revenue 555.3 487.0
Net income 40.4 18.7
Adjusted for:
Income tax expense (recovery) 18.0 12.1
Foreign exchange (gain) loss 1.5 19.2
TSS membership liability revaluation charge 13.1 5.2
Share in net (income) loss of equity investees (0.0 ) (0.2 )
Finance and other income (0.0 ) (0.0 )
Finance costs 5.3 5.8
Amortization of intangible assets 52.3 47.1
Adjusted EBITA 130.6 107.7
Adjusted EBITA margin 24 % 22 %

The following table reconciles Adjusted net income to net income:

Three months ended
March 31,
2017 2016
($M, except percentages)
Total revenue 555.3 487.0
Net income 40.4 18.7
Adjusted for:
Amortization of intangible assets 52.3 47.1
TSS membership liability revaluation charge 13.1 5.2
Less non-controlling interest in the Adjusted net income of TSS (5.2 ) (3.7 )
Deferred income tax expense (recovery) (6.1 ) (4.7 )
Adjusted net income 94.5 62.5
Adjusted net income margin 17 % 13 %

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, 2017 December 31, 2016
Assets
Current assets:
Cash $ 473,889 $ 353,499
Equity securities available-for-sale 996 4,236
Accounts receivable, net 260,468 243,554
Work in progress 63,372 56,541
Inventories 21,943 19,667
Other assets 94,045 96,181
914,713 773,678
Non-current assets:
Property and equipment 47,277 46,395
Deferred income taxes 47,629 49,863
Other assets 19,438 19,782
Intangible assets 1,035,546 993,743
1,149,890 1,109,783
Total assets $ 2,064,603 $ 1,883,461
Liabilities and Shareholders' Equity
Current liabilities:
CSI Facility $ - $ -
CNH Facility 7,477 7,361
TSS membership liability 31,603 26,435
Accounts payable and accrued liabilities 263,987 291,697
Dividends payable 21,241 21,051
Deferred revenue 621,231 460,975
Provisions 6,309 7,955
Acquisition holdback payments 26,448 17,056
Income taxes payable 41,022 40,634
1,019,318 873,164
Non-current liabilities:
CNH Facility 117,368 115,336
TSS Membership Liability 55,593 46,502
Debentures 225,046 223,870
Deferred income taxes 131,644 129,585
Acquisition holdback payments 5,946 855
Other liabilities 30,310 36,640
565,907 552,788
Total liabilities 1,585,225 1,425,952
Shareholders' equity:
Capital stock 99,283 99,283
Accumulated other comprehensive income (loss) (33,480 ) (36,108 )
Retained earnings 413,575 394,334
479,378 457,509
Total liabilities and shareholders' equity $ 2,064,603 $ 1,883,461
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Income
(In thousands of U.S. dollars, except per share amounts)
Three months ended March 31, 2017 and 2016
Unaudited
2017 2016
Revenue
License $ 35,132 $ 32,772
Professional services 112,413 96,362
Hardware and other 31,426 30,520
Maintenance and other recurring 376,355 327,328
555,326 486,982
Expenses
Staff 289,315 255,227
Hardware 16,320 18,196
Third party license, maintenance and professional services 50,003 44,594
Occupancy 13,436 12,041
Travel 15,824 13,687
Telecommunications 5,068 4,958
Supplies 3,872 2,432
Software and equipment 9,537 8,481
Professional fees 6,925 6,743
Other, net 9,172 8,031
Depreciation 5,299 4,873
Amortization of intangible assets 52,285 47,072
477,056 426,335
Foreign exchange loss (gain) 1,494 19,206
TSS membership liability revaluation charge 13,115 5,180
Share in net (income) loss of equity investee (49 ) (224 )
Finance and other expense (income) (21 ) (9 )
Finance costs 5,258 5,755
19,797 29,908
Income before income taxes 58,473 30,739
Current income tax expense (recovery) 24,108 16,754
Deferred income tax expense (recovery) (6,068 ) (4,686 )
Income tax expense (recovery) 18,040 12,068
Net income 40,433 18,671
Earnings per share
Basic and diluted $ 1.91 $ 0.88
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, 2017 and 2016
Unaudited
2017 2016
Net income $ 40,433 $ 18,671
Items that are or may be reclassified subsequently to net income:
Net change in fair value of available-for-sale financial asset during the period (1,314 ) -
Net change in fair value of derivatives designated as hedges during the period 164 (107 )
Amounts reclassified to profit during the period related to realized losses (gains) on available-for-sale financial assets 879 -
Foreign currency translation differences from foreign operations 2,891 3,729
Deferred income tax recovery (expense) 8 28
Other comprehensive (loss) income for the period, net of income tax 2,628 3,650
Total comprehensive income (loss) for the period $ 43,061 $ 22,321
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)
Unaudited
Three months ended March 31, 2017
Capital Accumulated other comprehensive Total Retained Total
stock income/(loss) accumulated earnings
other
comprehensive
income/(loss)
Cumulative Amounts Amounts
translation related to related to
account gains/losses gains/(losses)
on on
available- derivatives
for-sale designed
financial as
assets hedges
Balance at January 1, 2017 $ 99,283 $ (35,748 ) $ 17 $ (377 ) $ (36,108 ) $ 394,334 $ 457,509
Total comprehensive income for the period:
Net income - - - - - 40,433 40,433
Other comprehensive income (loss)
Net change in fair value of available-for-sale financial asset during the period - - (1,314 ) - (1,314 ) - (1,314 )
Net change in fair value of derivatives designated as hedges during the period - - - 164 164 - 164
Amounts reclassified to profit during the period related to realized losses (gains) on available-for-sale financial assets - - 879 - 879 - 879
Foreign currency translation differences from foreign operations - 2,891 - - 2,891 - 2,891
Deferred tax recovery (expense) - - 57 (49 ) 8 - 8
Total other comprehensive income (loss) for the period - 2,891 (378 ) 115 2,628 - 2,628
Total comprehensive income (loss) for the period - 2,891 (378 ) 115 2,628 40,433 43,061
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company - - - - - (21,192 ) (21,192 )
Balance at March 31, 2017 $ 99,283 $ (32,857 ) $ (361 ) $ (262 ) $ (33,480 ) $ 413,575 $ 479,378
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 Accumulated other comprehensive Total Retained Total
stock income/(loss) accumulated earnings
other
comprehensive
income/(loss)
Cumulative Amounts Amounts
translation related to related to
account gains/losses gains/(losses)
on on
available- derivatives
for-sale designed
financial as
assets 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 available-for-sale financial asset during the period - - - - - - -
Net change in fair value of derivatives designated as hedges during the period - - - (107 ) (107 ) - (107 )
Amounts reclassified to profit during the period related to realized losses (gains) on available-for-sale financial assets - - - - - - -
Foreign currency translation differences from foreign operations - 3,729 - - 3,729 - 3,729
Deferred tax recovery (expense) - - 28 28 - 28
Total other comprehensive income for the period - 3,729 - (79 ) 3,650 - 3,650
Total comprehensive income 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 Cash Flows
(In thousands of U.S. dollars)
Three months ended March 31, 2017 and 2016
Unaudited
2017 2016
Cash flows from operating activities:
Net income $ 40,433 $ 18,671
Adjustments for:
Depreciation 5,299 4,873
Amortization of intangible assets 52,285 47,072
TSS membership liability revaluation charge 13,115 5,180
Share in net (income) loss of equity investee (49 ) (224 )
Finance and other income (21 ) (9 )
Finance costs 5,258 5,755
Income tax expense (recovery) 18,040 12,068
Foreign exchange loss (gain) 1,494 19,206
Change in non-cash operating working capital exclusive of effects of business combinations 71,217 41,896
Income taxes paid (25,097 ) (8,045 )
Net cash flows from operating activities 181,974 146,443
Cash flows from (used in) financing activities:
Interest paid (5,451 ) (6,105 )
Credit facility transaction costs - (1,212 )
Dividends paid (21,192 ) (21,192 )
Net cash flows from (used in) in financing activities (26,643 ) (28,509 )
Cash flows from (used in) investing activities:
Acquisition of businesses, net of cash acquired (48,837 ) (23,828 )
Post-acquisition settlement payments, net of receipts (5,355 ) (1,545 )
Proceeds from sale of available-for-sale equity securities 2,013 -
Interest, dividends and other proceeds received 19,553 5
Property and equipment purchased (4,410 ) (3,170 )
Net cash flows from (used in) investing activities (37,036 ) (28,538 )
Effect of foreign currency on cash and cash equivalents 2,095 3,229
Increase (decrease) in cash and cash equivalents 120,390 92,625
Cash, beginning of period 353,499 178,471
Cash, end of period $ 473,889 $ 271,096

Contact Information:

Jamal Baksh
Chief Financial Officer
(416) 861-9677
info@csisoftware.com
www.csisoftware.com