Constellation Software Inc.
TSX : CSU

Constellation Software Inc.

March 04, 2009 17:00 ET

Constellation Software Inc. Announces Results for the Fourth Quarter and Year Ended December 31, 2008 and Declares Annual Dividend

TORONTO, ONTARIO--(Marketwire - March 4, 2009) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the fourth quarter and fiscal year ended December 31, 2008, and declared a $0.216 per share dividend payable on March 31, 2009 to all common shareholders and class A non-voting shareholders of record at close of business on March 17, 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 Company's audited annual Consolidated Financial Statements, prepared in accordance with Canadian GAAP 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.

2008 Highlights:

- Revenue grew 36% compared to 2007. Organic revenue growth was 5% in 2008 versus 1% in 2007

- Adjusted EBITDA increased $23 million or 56% to $64 million as compared to 2007

- Adjusted Net Income increased by 64% to $54 million ($2.57 on a fully diluted per share basis) from $33 million ($1.56 on a fully diluted per share basis) in 2007

- $62 million was deployed on 21 acquisitions and $9 million in holdbacks relating to prior acquisitions was paid

- Dividend declared of $0.216 per share, a 20% increase over 2007

Q4 2008 Highlights:

- Revenue grew 49% compared to Q4 2007. Organic revenue growth was 2% versus 4% in Q4 2007

- Adjusted EBITDA increased $12 million or 111% to $22 million as compared to Q4 2007

- Adjusted Net Income increased by 103% to $19 million ($0.90 on a fully diluted per share basis) from $9 million ($0.44 on a fully diluted per share basis) in Q4 2007

- $2.5 million was deployed on five acquisitions and $6.2 million in holdbacks related to prior acquisitions was paid

- The company's credit facility was increased from $105 million to $130 million

- A full quarter of results were included for the Asset, Justice, and Education Solutions businesses purchased from MAXIMUS (the "MAJES" acquisition) on September 30, 2008. Revenue, Adjusted EBITDA and Cashflow from Operations for the MAJES businesses were $17 million, $3 million, and ($1) million, respectively

Fourth quarter revenue was $98 million, an increase of 49%, or $32 million, compared to $66 million for the comparable period in 2007. For the 2008 fiscal year, total revenues were $331 million, an increase of 36% over 2007. The increases for both the fourth quarter and the full year compared to the same periods in the prior year, were mainly attributable to growth from acquisitions, as organic growth from our existing business was estimated at approximately 2% for the fourth quarter and 5% for the full year.

Adjusted EBITDA for the fourth quarter was $22 million, a 111% increase compared to the prior year's fourth quarter Adjusted EBITDA of $11 million. Fourth quarter Adjusted EBITDA per share on a fully diluted basis increased 110% to $1.05 compared to $0.50 for the same period last year. Adjusted EBITDA for the year ended December 31, 2008 was $64 million, an increase of 56% over last year's Adjusted EBITDA of $41 million for the comparable period. Adjusted EBITDA per share on a fully diluted basis for the year ended December 31, 2008 increased 57% to $3.04, compared to $1.94 for the same period in 2007.

Adjusted Net Income for the fourth quarter was $19 million, compared to the prior year's fourth quarter Adjusted Net Income of $9 million, an 103% increase. Fourth quarter Adjusted Net Income per share on a fully diluted basis increased 105% to $0.90 compared to $0.44 for the prior year's fourth quarter. Adjusted Net Income for the year ended December 31, 2008 was $54 million, an increase of 64% over last year's Adjusted Net Income of $33 million. Adjusted Net Income per share on a fully diluted basis for the twelve month period ended December 31, 2008 increased 65% to $2.57, compared to $1.56 for the same period in 2007.

Net income for the fourth quarter was $4 million compared to the prior year's fourth quarter net income of $2 million. On a fully diluted per share basis, this translates into net income per share of $0.19 for the fourth quarter of 2008, compared to $0.08 in the same period of 2007. For the year ended December 31, 2008 net income was $15 million or $0.71 per diluted share compared to net income of $11 million or $0.52 per share last year.

The following table displays our revenue by reporting segment and the percentage change for the three and twelve months ended December 31, 2008 compared to the same periods in 2007:



---------------------------- -----------------------------
Three months Period- Fiscal year Period-
ended Over-Period ended Over-Period
Dec. 31, Change Dec. 31, Change
---------------------------- -----------------------------
2008 2007 $ % 2008 2007 $ %
------ ----- ----- ------ ------- ------ ------ -----
($000, except percentages) ($000, except percentages)
---------------------------- -----------------------------

Public Sector
Licenses 7,433 5,122 2,311 45% 25,028 17,705 7,323 41%
Professional
services
and other:
Services 23,251 11,185 12,066 108% 65,440 42,667 22,773 53%
Hardware and
other 5,419 3,558 1,861 52% 16,114 11,508 4,606 40%
Maintenance 38,224 23,372 14,852 64% 124,187 84,924 39,263 46%
---------------------------- -----------------------------
74,327 43,237 31,090 72% 230,769 156,804 73,965 47%
---------------------------- -----------------------------
---------------------------- -----------------------------

Private Sector
Licenses 2,570 2,327 243 10% 11,969 10,161 1,808 18%
Professional
services
and other:
Services 3,516 3,704 (188) -5% 15,443 14,433 1,010 7%
Hardware and
other 775 920 (145) -16% 3,844 4,059 (215) -5%
Maintenance 17,209 15,880 1,329 8% 68,507 57,566 10,941 19%
---------------------------- -----------------------------
24,070 22,831 1,239 5% 99,763 86,219 13,544 16%
---------------------------- -----------------------------


Public Sector

For the quarter ended December 31, 2008, total revenue in the public sector segment increased 72%, or $31 million, to $74 million, compared to $43 million for the quarter ended December 31, 2007. For the year ended December 31, 2008, total revenue increased by 47% or $74 million, to $231 million, compared to $157 million for the comparable period in 2007. The increases for both the three and twelve month periods were significant across all revenue types. Revenue growth from acquired businesses was significant for both the three and twelve month periods as we completed twenty-three acquisitions since the beginning of 2007 in our public sector segment. It is estimated that acquisitions contributed approximately $28 million to our Q4 2008 revenues and $57 million to our revenues in the year ended December 31, 2008. The remaining $3 million of revenue growth for Q4 and $17 million of revenue growth for the year ended December 31, 2008 in this sector was generated from organic sources. The organic growth was primarily driven by the following:

- Trapeze operating group (decrease of approximately $0.7 million for Q4 and an increase of $8 million for the full year). Trapeze experienced a significant increase in all revenue types in the year primarily due to strong bookings in their European businesses and their North American transit business. For the quarter, they experienced a slight decline in organic revenues primarily due to the weakening of non U.S. dollar denominated revenue streams in Q4 2008 versus Q4 2007. As well, Trapeze acquired certain assets from MAXIMUS Inc. on September 30, 2008 which had negative organic growth in Q4 2008 when compared to Q4 2007.

- Harris operating group (increase of approximately $3 million for Q4 and $9 million for the full year). For both the quarter and the year, Harris had significant increases across all revenue types primarily due to strong demand for new name and add-on licenses and services in their utility and municipal software businesses.

- Emphasys operating group (increase of approximately $0.4 million for Q4 and $0.2 million for the full year). The Emphasys organic growth primarily results from strong demand for new name and add-on licenses and services from their public housing and housing finance customers.

Private Sector

For the quarter ended December 31, 2008, total revenue in the private sector segment increased 5%, or $1 million, to $24 million, compared to $23 million for the quarter ended December 31, 2007. For the year ended December 31, 2008, total revenue increased by 16% or $14 million, to $100 million, compared to $86 million for the comparable period in 2007. Revenue growth from acquired businesses was not as strong as in the public sector as we have only completed thirteen acquisitions since the beginning of 2007 in our private sector segment. It is estimated that acquisitions contributed approximately $3 million of revenue growth to our Q4 2008 revenues and $19 million of revenue growth to our revenues in the year ended December 31, 2008. Revenues decreased organically by $1 million in Q4 2008 and by $5 million in the year ended December 31, 2008. The organic revenue decline was driven by the following:

- Jonas operating group (increase of approximately $1 million for Q4 and $5 million for the full year). The Jonas organic growth in the quarter and for the full year was driven by sales to new and existing customers in the construction vertical, increasing customer share in the private club vertical through selling add on products, and by strong license and professional services revenue in the food services vertical.

- Homebuilder and Friedman Operating Groups (decrease of approximately $3 million for Q4 and $10 million for the full year). 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.

"I was pleased with the returns generated in the quarter and with the amount of capital deployed in 2008", commented Mark Leonard, President and Chairman of Constellation. "Our businesses continue to be resilient in this tough economic climate. Although we exceeded our long range targets for the business in 2008, we remain cautious about our near term prospects for organic growth."

Conference Call and Webcast

Management will host a conference call at 8:30 a.m. (ET) on Thursday, March 5, 2009 to answer questions regarding the results. The teleconference numbers are 416-641-6144 or 1-866-862-3931. 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 12 a.m. ET on March 19, 2009. To access the replay, please dial 416-695-5800 or 1-800-408-3053 followed by the passcode 3282931#.

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.

Effective Q1 2008, the term "Adjusted Net Income" means net income plus amortization of intangible assets and future income taxes. Prior to Q1 2008, Adjusted Net Income was reported on the basis of net income plus amortization of intangible assets. The method of adjustment has been changed to include future income taxes since 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 items with the associated amortization of intangibles. All previously reported Adjusted Net Income figures have been restated below to reflect the new method of adjustment. 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 increase or decrease in the economic value of acquisitions. ''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 Fiscal year ended
Dec. 31, Dec. 31,
-------------------- ----------------------
2008 2007 2008 2007
-------- -------- --------- ---------
($000, except ($000, except
percentages) percentages)
Total revenue $ 98,397 $ 66,068 $ 330,532 $ 243,023
-------------------- ----------------------
-------------------- ----------------------

Net income 3,970 1,640 14,994 11,110
Add back:
Income tax expense 543 526 1,996 3,958
Foreign exchange (gain) loss 30 424 (455) 2,466
Interest expense (income) 598 (108) 1,115 (508)
Loss on held for trading
investments related to
mark to market adjustments 288 0 421 0
Gain on sale of short-term
investments, marketable
securities and other assets 0 (15) (8) (1,369)
Other (income) expenses 0 (56) 0 14
Amortization of intangible
assets 15,629 7,419 42,635 22,364
Depreciation 1,133 706 3,642 3,117

Adjusted EBITDA 22,191 10,536 64,340 41,152
Adjusted EBITDA margin 23% 16% 19% 17%
-------------------- ----------------------

The following table reconciles Adjusted Net Income to net income:

-------------------- ----------------------
Three months ended Fiscal year ended
Dec. 31, Dec. 31,
-------------------- ----------------------
2008 2007 2008 2007
-------- -------- --------- ---------
($000, except ($000, except
percentages) percentages)
Total revenue $ 98,397 $ 66,068 $ 330,532 $ 243,023
-------------------- ----------------------
-------------------- ----------------------

Net income 3,970 1,640 14,994 11,110
Add back:
Amortization of
intangible assets 15,629 7,419 42,635 22,364
Future income taxes
(recovery) (603) 302 (3,185) (315)

Adjusted net income 18,996 9,361 54,444 33,159
Adjusted net income margin 19% 14% 16% 14%
-------------------- ----------------------

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


Statement of Operations

For the year-ended December 31, 2008

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

Revenue $ 313,974 $ 16,558 $ 330,532

Cost of revenue 117,686 7,004 124,690
---------------------------------------------------------------------------
Gross Profit 196,288 9,554 205,842

---------------------------------------------------------------------------
Total Expenses
(pre amortization) 135,339 6,163 141,502
---------------------------------------------------------------------------

Adjusted EBITDA 60,949 3,391 64,340
EBITDA as % Total Revenue 19% 20% 19%

Depreciation 3,459 183 3,642

Income before the undernoted 57,490 3,208 60,698

Amortization of intangible
assets 40,568 2,067 42,635
Other Expenses 1,073 - 1,073

Income before income taxes 15,849 1,141 16,990

Income taxes 1,996 - 1,996

---------------------------------------------------------------------------
Net Income $ 13,853 $ 1,141 $ 14,994
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Cash flow from operating activities

For the year-ended December 31, 2008

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

Cash flows from operating
activities:
Net income $ 13,853 $ 1,141 $ 14,994
Adjustments to reconcile net
income to net cash flows
from operations:
Depreciation 3,459 183 3,642
Amortization of intangible
assets 40,568 2,067 42,635
Future income taxes (3,958) 773 (3,185)
Other non-cash items (163) - (163)
Change in non-cash operating
working capital 9,932 (5,087) 4,845
---------------------------------------------------------------------------
Cash flows from operating
activities $ 63,691 $ (923) $ 62,768

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


Adjusted EBITDA to net income reconciliation

For the year-ended December 31, 2008

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

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

Total revenue $ 313,974 $ 16,558 $ 330,532
------------------------------------------
------------------------------------------

Net income 13,853 1,141 14,994
Add back:
Income tax expense 1,996 - 1,996
Other expenses 1,073 - 1,073
Amortization of intangible
assets 40,568 2,067 42,635
Depreciation 3,459 183 3,642

Adjusted EBITDA 60,949 3,391 64,340
Adjusted EBITDA margin 19% 20% 19%


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.
Consolidated Balance Sheets
(In thousands of U.S. dollars)

December 31, 2008 and 2007
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2008 2007
---------------------------------------------------------------------------

Assets

Current assets:
Cash $ 30,405 $ 19,796
Short-term investments and marketable
securities available for sale 9,979 1,217
Accounts receivable 61,079 47,177
Work in progress 15,392 10,839
Inventory 2,308 2,069
Prepaid expenses and other current assets 8,395 7,608
Investment tax credits recoverable 1,504 661
Future income taxes 3,779 1,096
--------------------------------------------------------------------------
132,841 90,463

Restricted cash 750 750
Property and equipment 9,381 8,025
Future income taxes 5,713 3,890
Notes receivable 3,643 3,490
Investment tax credits recoverable 1,808 1,779
Other long-term assets 3,656 1,214
Intangible assets 188,070 128,942
Goodwill 39,937 28,594

---------------------------------------------------------------------------
$ 385,799 $ 267,147
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Bank indebtedness $ 60,200 $ 19,342
Accounts payable and accrued liabilities 63,429 43,892
Acquisition holdback payments 10,901 10,442
Deferred revenue 115,466 78,870
Income taxes payable 3,197 3,426
Future income taxes - 347
--------------------------------------------------------------------------
253,193 156,319

Future income taxes 26,778 21,238
Other long-term liabilities 10,446 2,708

Shareholders equity:
Capital stock 99,283 99,283
Shareholder loans (931) (1,915)
Accumulated other comprehensive loss (6,901) (3,237)
Retained earnings (deficit) 3,931 (7,249)
--------------------------------------------------------------------------
95,382 86,882

Commitments
Guarantees
Subsequent events

---------------------------------------------------------------------------
$ 385,799 $ 267,147
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CONSTELLATION SOFTWARE INC.
Consolidated Statements of Operations
(In thousands of U.S. dollars, except per share amounts)

Years ended December 31, 2008 and 2007

---------------------------------------------------------------------------
---------------------------------------------------------------------------
2008 2007
---------------------------------------------------------------------------

Revenue $ 330,532 $ 243,023
Cost of revenue 124,690 92,113
---------------------------------------------------------------------------
205,842 150,910

Research and development 48,224 36,965
Sales and marketing 37,693 28,666
General and administration 55,585 44,127
Depreciation 3,642 3,117
---------------------------------------------------------------------------
145,144 112,875
---------------------------------------------------------------------------

Income before the undernoted 60,698 38,035

Amortization of intangible assets 42,635 22,364
Other expenses - 14
Gain on sale of short-term investments,
marketable securities and other assets (8) (1,369)
Loss on held for trading investments
related to mark to market adjustments 421 -
Interest expense (income), net 1,115 (508)
Foreign exchange (gain) loss (455) 2,466
---------------------------------------------------------------------------

Income before income taxes 16,990 15,068

Income taxes (recovery):
Current 5,181 4,273
Future (3,185) (315)
-------------------------------------------------------------------------
1,996 3,958

---------------------------------------------------------------------------
Net income $ 14,994 $ 11,110
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Income per share:
Basic $ 0.71 $ 0.53
Diluted 0.71 0.52

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

Weighted average number of
shares outstanding:
Basic 21,140 21,110
Diluted 21,192 21,192
Outstanding at the end of the period 21,192 21,192
---------------------------------------------------------------------------



CONSTELLATION SOFTWARE INC.
Consolidated Statements of Retained Earnings (deficit)
(In thousands of U.S. dollars)

Years ended December 31, 2008 and 2007

---------------------------------------------------------------------------
---------------------------------------------------------------------------
2008 2007
---------------------------------------------------------------------------

Deficit, beginning of year $ (7,249) $ (15,180)

Net income 14,994 11,110

Dividends (3,814) (3,179)

---------------------------------------------------------------------------
Retained Earnings (deficit), end of year $ 3,931 $ (7,249)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Consolidated Statements of Comprehensive Income
(In thousands of U.S. dollars)

Years ended December 31, 2008 and 2007

---------------------------------------------------------------------------
---------------------------------------------------------------------------
2008 2007
---------------------------------------------------------------------------

Net Income $ 14,994 $ 11,110

Other comprehensive income (loss), net of tax:

Net unrealized mark-to-market adjustment
loss on available-for-sale financial
assets during the period (1,518) (99)

Net unrealized foreign exchange adjustment
gain (loss) on available-for-sale financial
assets during the period (2,107) 14

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

---------------------------------------------------------------------------
Comprehensive income $ 11,330 $ 11,025
---------------------------------------------------------------------------



CONSTELLATION SOFTWARE INC.
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)

Years ended December 31, 2008 and 2007

---------------------------------------------------------------------------
---------------------------------------------------------------------------
2008 2007
---------------------------------------------------------------------------

Cash flows from operating activities:
Net income $ 14,994 $ 11,110
Adjustments to reconcile net income to
net cash flows from operations:
Depreciation 3,642 3,117
Amortization of intangible assets 42,635 22,364
Non-cash interest (153) (161)
Future income taxes (3,185) (315)
Gain on sale of short-term investments,
marketable securities, and other assets (8) (1,369)
Loss on held for trading investments
related to mark to market adjustments 421 -
Unrealized foreign exchange (gain) loss (423) 2,300
Change in non-cash operating
working capital 4,845 (2,658)
-------------------------------------------------------------------------
Cash flows from operating activities 62,768 34,388

Cash flows from financing activities:
Increase in other long-term liabilities 297 521
Increase in bank indebtedness 40,858 19,342
Credit facility financing fees (1,268) (549)
Dividends (3,814) (3,179)
Issuance of shareholder loans - (447)
Repayment of shareholder loans 959 869
-------------------------------------------------------------------------
Cash flows from financing activities 37,032 16,557

Cash flows from investing activities:
Acquisition of businesses, net of cash
acquired (62,134) (48,096)
Acquisition holdback payments (8,736) (4,194)
Investment in VCG Inc. (85) (4,000)
Reduction (additions) to short-term
investments, marketable securities
and other assets (12,379) 3,343
Decrease in restricted cash - 108
Decrease (increase) in other assets (1,442) 685
Property and equipment purchased (2,771) (2,997)
-------------------------------------------------------------------------
Cash flows used in investing activities (87,547) (55,151)

Effect of currency translation adjustment
on cash and cash equivalents (1,644) (1,805)
---------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents 10,609 (6,011)

Cash, beginning of period 19,796 25,807

---------------------------------------------------------------------------
Cash, end of period $ 30,405 $ 19,796
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Supplemental cash flow information:
Income taxes paid $ 3,791 $ 2,649
Interest paid 1,821 517
Investment tax credits received 908 1,399
Interest received 660 1,025

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