Constellation Software Inc.
TSX : CSU

Constellation Software Inc.

August 07, 2008 17:00 ET

Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2008

TORONTO, ONTARIO--(Marketwire - Aug. 7, 2008) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the three and six months ended June 30, 2008. 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 and six month periods ended June 30, 2008 and the accompanying notes, and with our audited consolidated annual financial statements and our annual MD&A for the year ended December 31, 2007 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.

Q2 2008 Highlights:

- Revenue increased to $77.7 million from $60.5 million in Q2 2007, representing a 29% increase. Organic revenue growth over the same period was 5%

- Adjusted EBITDA increased to $13.9 million from $10.9 million in Q2 2007, representing a 28% increase

- Adjusted Net Income increased to $12.0 million ($0.57 on a fully diluted per share basis) from $8.4 million ($0.40 on a fully diluted per share basis) in Q2 2007, representing a 43% increase

- Nine acquisitions were completed in the quarter for net cash consideration of $13.4 million, and holdbacks related to prior acquisitions of $0.2 million were paid

Second quarter revenue was $77.7 million, an increase of 29%, or $17.3 million, compared to $60.5 million for the comparable period in 2007. Total revenue for the six months ended June 30, 2008 was $151 million, an increase of 30% over last year's revenues of $116 million for the same period.

Adjusted EBITDA for the second quarter was $13.9 million, a 28% increase compared to the prior year's second quarter Adjusted EBITDA of $10.9 million. Second quarter Adjusted EBITDA per share on a fully diluted basis increased 29% to $0.66, compared to $0.51 for the same period last year. Adjusted EBITDA for the six month period ended June 30, 2008 was $26.4 million, an increase of 37% over last year's Adjusted EBITDA of $19.3 million for the same period. Adjusted EBITDA per share on a fully diluted basis for the six month period increased 37% to $1.25, compared to $0.91 for the same period in 2007.

Adjusted Net Income for the second quarter was $12.0 million, compared to the prior year's second quarter Adjusted Net Income of $8.4 million, a 43% increase. Second quarter Adjusted Net Income per share on a fully diluted basis increased 43% to $0.57 compared to $0.40 for the prior year's second quarter. Adjusted Net Income for the six month period ended June 30, 2008 was $23.1 million, an increase of 51% over last year's Adjusted Net Income of $15.3 million. Adjusted Net Income per share on a fully diluted basis for the six month period ended June 30, 2007 increased 51% to $1.09 compared to $0.72 for the same period in 2007.

The method of calculating Adjusted Net Income was modified in Q1 2008. The change was a result of the large increase in "future tax expense (recovery)" in the first quarter. Future tax recovery primarily relates to the amortization of intangible assets. Adjusted Net Income was changed to exclude the impact of this non-cash amount. Management believes that excluding the impact of future tax provides a more accurate picture of the company's results as it more closely matches the non cash future tax items with the associated amortization of intangibles. A reconciliation of net income to Adjusted Net Income and a restatement of previously reported Adjusted Net Income amounts are included in this press release.

Net income for the second quarter was $3.4 million compared to the prior year's second quarter net income of $3.5 million. On a fully diluted per share basis, this translates into net income per share of $0.16 for the second quarter of 2008, compared to $0.17 in the same period of 2007. For the six months ended June 30, 2008 net income was $7.7 million or $0.36 per diluted share compared to $6.1 million or $0.29 per share last year.

The following table displays our revenue by reporting segment and the percentage change for the three and six months ended June 30, 2008 compared to the same periods in 2007:



---------------------------- ---------------------------
Three months Period-Over Six months Period-Over
ended -Period ended -Period
Jun. 30, Change Jun. 30, Change
---------------------------- ---------------------------
2008 2007 $ % 2008 2007 $ %
------- ------ ------ ----- ------ ------ ------ ----
($000, except percentages) ($000, except percentages)
Public Sector
Licenses 5,950 4,557 1,393 30.6% 11,391 7,940 3,451 43.5%
Professional
services and other:
Services 14,354 11,125 3,229 29.0% 26,541 20,558 5,983 29.1%
Hardware and other 3,499 2,919 580 19.9% 7,586 5,888 1,698 28.8%
Maintenance 28,965 20,738 8,227 39.7% 55,565 39,720 15,845 39.9%
---------------------------- ---------------------------
52,768 39,339 13,429 34.1% 101,083 74,106 26,977 36.4%
---------------------------- ---------------------------
---------------------------- ---------------------------

Private Sector
Licenses 3,107 2,736 371 13.5% 6,539 5,397 1,142 21.1%
Professional
services and other:
Services 3,903 3,470 433 12.5% 7,825 7,258 567 7.8%
Hardware and other 1,063 1,074 (11) -1.0% 2,133 2,195 (62)-2.8%
Maintenance 16,901 13,868 3,033 21.9% 33,765 27,424 6,341 23.1%
---------------------------- ---------------------------
24,974 21,148 3,826 18.1% 50,262 42,274 7,988 18.9%
---------------------------- ---------------------------
---------------------------- ---------------------------


Public Sector

For the quarter ended June 30, 2008, total revenue in the public sector segment increased 34%, or $13.4 million, to $52.8 million, compared to $39.3 million for the quarter ended June 30, 2007. For the six months ended June 30, 2008 total revenue increased by 36% or $27.0 million, to $101.1 million, compared to $74.1 million for the comparable period in 2007. The increases for both the three and six month periods were significant across all revenue types. Revenue growth from acquired businesses was significant for both the three and six month periods as we completed 17 acquisitions since the beginning of 2007 in our public sector segment. It is estimated that these acquisitions contributed approximately $9.2 million to our Q2 2008 revenues and $17.6 million to our revenues in the six months ended June 30, 2008. The remaining $4.2 million of revenue growth for Q2 and $9.4 million of revenue growth for the first six months of 2008 in this sector was generated from organic sources. The organic growth was primarily driven by the following:

- Trapeze Operating Group (increase of approximately $2.8 million for Q2 and $6.3 million for the first six months). Trapeze experienced a significant increase in all revenue types in the quarter and year to date in their UK, Continental Europe and North American businesses.

- Harris Operating Group (increase of approximately $1.7 million for Q2 and $3.5 million for the first six months). Harris experienced a significant increase in all revenue types in the quarter and year to date primarily due to continued strong sales to existing clients and new customers.

- Emphasys Operating Group (decrease of approximately $0.2 million for Q2 and $0.4 million for the first six months). Emphasys experienced a decrease in license and services revenue primarily due to timing of bookings.

Private Sector

For the quarter ended June 30, 2008, total revenue in the private sector segment increased 18%, or $3.8 million, to $25.0 million, compared to $21.1 million for the quarter ended June 30, 2007. For the six months ended June 30, 2008 total revenue increased by 19% or $8.0 million, to $50.3 million, compared to $42.3 million for the comparable period in 2007. The increases for both the three and six month periods were primarily due to license, professional services and maintenance revenues. Revenue growth from acquired businesses was significant for both the three and six month periods as we completed 10 acquisitions since the beginning of 2007 in our private sector segment. It is estimated that these acquisitions contributed approximately $5.3 million to our Q2 2008 revenues and $10.2 million to our revenues in the six months ended June 30, 2008. Revenue decreased organically by $1.4 million in Q2 2008 and by $2.3 million in the six months ended June 30, 2008. The organic revenue decline was primarily driven by the following:

- Jonas Operating Group (increase of approximately $1.1 million for Q2 and $2.4 million for the first six months). The Jonas organic growth in quarter and year to date 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 $2.5 million for Q2 and $4.6 million for the first 6 months). These Operating Groups continued to feel the effects of the housing slowdown in the U.S. The decline was particularly apparent in licenses and services revenue as many of our clients and prospective clients have delayed purchasing decisions.

"Despite a continued slowdown in the housing and building products sector, we are pleased to see continued strong organic growth in other parts of our business," said Mark Leonard, President of Constellation. "We also had a very active quarter of acquisitions closing nine deals and deploying over $13.7 million in capital. The continued positive organic growth combined with our acquisitions provide us comfort that we will achieve the minimum 20% revenue growth per share that we targeted in our 2006-2010 objectives."

During the quarter, Constellation completed nine acquisitions for total net cash consideration of approximately $13.4 million, and paid holdbacks related to prior acquisitions of $0.2 million. At June 30, 2008, Constellation's cash position (net of borrowings on our line of credit) decreased to negative $17.1 million, from $1.2 million at December 31, 2007.

"Including two acquisitions closed after quarter end, we have deployed over $28 million on fourteen acquisitions in 2008," commented John Billowits, Chief Financial Officer of Constellation. "We are pleased with our deployment of capital year to date and continue to remain optimistic about the current acquisition environment."

Conference Call and Webcast

Management will host a conference call at 8:30 a.m. (ET) on Friday, August 8, 2008 to answer questions regarding the results. The teleconference numbers are 416-641-6144 or 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 11:59 p.m. ET on August 22, 2008. To access the replay, please dial 416-695-5800 or 1-800-408-3053 followed by the passcode 3267386#.

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 and foreign exchange, and before including gain 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 Six months ended
Jun. 30, Jun. 30,
-------------------------- --------------------------
2008 2007 2008 2007
-------- -------- --------- ---------
($000, except percentages) ($000, except percentages)

Total revenue $ 77,742 $ 60,487 $ 151,345 $ 116,380
------------------------- --------------------------
------------------------- --------------------------

Net income 3,402 3,542 7,731 6,144
Add back:
Income tax expense 388 1,073 40 2,077
Foreign exchange
(gain) loss (192) 1,345 (663) 1,351
Interest expense
(income) 234 (34) 397 (149)
(Gain) loss on
sale of short-term
investments,
marketable
securities and
other assets 24 (1,119) (24) (1,354)
Amortization of
intangible assets 9,201 5,209 17,297 9,643
Depreciation 841 855 1,626 1,548

Adjusted EBITDA 13,898 10,871 26,404 19,260
Adjusted EBITDA
margin 17.9% 18.0% 17.4% 16.5%
------------------------- --------------------------



The following table reconciles Adjusted Net Income to net income:

-------------------------- --------------------------
Three months ended Six months ended
Jun. 30, Jun. 30,
-------------------------- --------------------------
2008 2007 2008 2007
-------- -------- --------- ---------
($000, except percentages) ($000, except percentages)

Total revenue $ 77,742 $ 60,487 $ 151,345 $ 116,380
------------------------- --------------------------
------------------------- --------------------------

Net income 3,402 3,542 7,731 6,144
Add back:
Appreciation in
common shares
eligible for
redemption 0 0 0 0
Amortization of
intangible assets 9,201 5,209 17,297 9,643
Future income
taxes (recovery) (603) (348) (1,912) (501)

Adjusted net income 12,000 8,403 23,116 15,286
Adjusted net income
margin 15.4% 13.9% 15.3% 13.1%
------------------------- --------------------------



The following table provides a restatement of our previously reported
Adjusted net income figures to include future income taxes:

Quarter Ended
----------------------------------------------------------------
----------------------------------------------------------------
Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30,
2006 2006 2007 2007 2007 2007 2008 2008
------ ------ ------ ------ ------ ------ ------ ------
($000, except per share amounts)

ANI per
previous
method 6,776 8,975 7,036 8,751 8,628 9,059 12,426 12,603
Future tax
expense
(recovery) 727 (15) (154) (348) (115) 302 (1,309) (603)
----------------------------------------------------------------
ANI per
current
method 7,503 8,960 6,882 8,403 8,513 9,361 11,117 12,000

Fully diluted
shares 21,192 21,192 21,192 21,192 21,192 21,192 21,192 21,192

ANI/share
per
previous
method 0.32 0.42 0.33 0.41 0.41 0.43 0.59 0.59
ANI/share
per current
method 0.35 0.42 0.32 0.40 0.40 0.44 0.52 0.57


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)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
June 30, December 31,
2008 2007
----------------------------------------------------------------------------
(Unaudited)

Assets

Current assets:
Cash $ 9,316 $ 19,796
Restricted cash 1,747 750
Short-term investments and marketable securities
available for sale 11,535 1,217
Accounts receivable 49,358 47,177
Work in progress 14,469 10,839
Inventory 2,631 2,069
Prepaid expenses and other current assets 8,565 7,608
Investment tax credit receivable 1,130 661
Future income taxes 1,175 1,096
---------------------------------------------------------------------------
99,926 91,213

Property and equipment 8,391 8,025
Future income taxes 3,330 3,890
Notes receivable 3,547 3,490
Share purchase warrants 571 571
Investment tax credit receivable 2,338 1,779
Other long-term assets 760 643
Intangible assets 131,249 128,942
Goodwill 38,661 28,594
----------------------------------------------------------------------------
$ 288,773 $ 267,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Bank indebtedness $ 28,200 $ 19,342
Accounts payable and accrued liabilities 35,989 43,892
Acquisition holdback payments 12,616 10,442
Deferred revenue 91,779 78,870
Income taxes payable 2,551 3,426
Future income taxes 197 347
---------------------------------------------------------------------------
171,332 156,319

Future income taxes 23,555 21,238
Acquisition holdback payments 1,195 1,000
Other long-term liabilities 2,931 1,708

Shareholders equity:
Capital stock 99,283 99,283
Shareholder loans (1,067) (1,915)
Accumulated other comprehensive loss (5,124) (3,237)
Deficit (3,332) (7,249)
---------------------------------------------------------------------------
89,760 86,882

----------------------------------------------------------------------------
$ 288,773 $ 267,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------



CONSTELLATION SOFTWARE INC.
Interim Consolidated Statements of Operations
(In thousands of U.S. dollars, except per share amounts)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
(Unaudited) (Unaudited)

Revenue $ 77,742 $ 60,487 $ 151,345 $ 116,380
Cost of revenue 28,625 23,020 57,252 44,537
----------------------------------------------------------------------------
49,117 37,467 94,093 71,843

Research and development 11,327 8,862 22,957 17,772
Sales and marketing 9,841 7,324 17,882 14,365
General and administration 14,051 10,410 26,850 20,446
Depreciation 841 855 1,626 1,548
----------------------------------------------------------------------------
36,060 27,451 69,315 54,131
----------------------------------------------------------------------------

Income before the undernoted 13,057 10,016 24,778 17,712

Amortization of intangible
assets 9,201 5,209 17,297 9,643
(Gain) loss on sale of
short-term investments,
marketable securities and
other assets 24 (1,119) (24) (1,354)
Interest expense (income),
net 234 (34) 397 (149)
Foreign exchange (gain) loss (192) 1,345 (663) 1,351
----------------------------------------------------------------------------

Income before income taxes 3,790 4,615 7,771 8,221

Income taxes (recovery)
Current 991 1,421 1,952 2,578
Future (603) (348) (1,912) (501)
---------------------------------------------------------------------------
388 1,073 40 2,077

----------------------------------------------------------------------------
Net Income $ 3,402 $ 3,542 $ 7,731 $ 6,144
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Income per share:
Basic $ 0.16 $ 0.17 $ 0.37 $ 0.29
Diluted 0.16 0.17 0.36 0.29

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

Weighted average number of
shares outstanding:
Basic 21,147 21,111 21,130 21,102
Diluted 21,192 21,192 21,192 21,192
Outstanding at the end
of the period 21,192 21,192 21,192 21,192

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



CONSTELLATION SOFTWARE INC.
Interim Consolidated Statements of Deficit
(In thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
(Unaudited) (Unaudited)

Deficit, beginning of period $ (6,734) $ (15,757) $ (7,249) $ (15,180)

Net income 3,402 3,542 7,731 6,144

Dividends - - (3,814) (3,179)

----------------------------------------------------------------------------
Deficit, end of period $ (3,332) $ (12,215) $ (3,332) $ (12,215)
----------------------------------------------------------------------------
----------------------------------------------------------------------------



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

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
(Unaudited) (Unaudited)

Net Income $ 3,402 $ 3,542 $ 7,731 $ 6,144

Other comprehensive income
(loss) (680) (746) (1,972) 86

----------------------------------------------------------------------------
Comprehensive income $ 2,722 $ 2,796 $ 5,759 $ 6,230
----------------------------------------------------------------------------
----------------------------------------------------------------------------



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

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
(Unaudited) (Unaudited)

Cash flows from operating
activities:
Net income $ 3,402 $ 3,542 $ 7,731 $ 6,144
Adjustments to reconcile
net income to net cash
flows from operations:
Increase in investment
tax credit receivable (724) (49) (1,028) (158)
Depreciation 841 855 1,626 1,548
Amortization of intangible
assets 9,201 5,209 17,297 9,643
Accretion interest 28 - 57 -
Interest on shareholder
loans (15) (24) (37) (49)
Future income taxes (603) (348) (1,912) (501)
(Gain) loss on sale of
short-term investments,
marketable securities,
and other assets 24 (1,119) (24) (1,354)
Unrealized foreign
exchange (gain) loss (128) 1,300 (373) 1,283
Change in non-cash
operating working capital (710) (3,228) (7,921) (12,041)
---------------------------------------------------------------------------
Cash flows from operating
activities 11,316 6,138 15,416 4,515

Cash flows from financing
activities:
(Decrease) increase in
long-term liabilities 361 21 223 (209)
Increase in bank indebtedness 5,558 1,171 8,858 3,593
Credit facility financing fees (354) - (354) -
Dividends - - (3,814) (3,179)
Issuance of shareholder loans - - - (447)
Repayment of shareholder
loans, net 416 - 885 809
---------------------------------------------------------------------------
Cash flows used in
financing activities 5,981 1,192 5,798 567

Cash flows from investing
activities:
Acquisition of businesses,
net of cash acquired (13,400) (1,590) (16,089) (15,407)
Acquisition holdback
payments (217) (2,608) (740) (3,408)
Reduction (additions) to
short-term investments,
marketable securities
and other assets (3,753) 3,151 (12,158) 3,952
Decrease (increase) in
restricted cash (997) - (997) 858
Decrease (increase) in
other assets (268) (3,914) (309) (4,224)
Property and equipment
purchased (998) (768) (1,511) (1,285)
---------------------------------------------------------------------------
Cash flows used in
investing activities (19,633) (5,729) (31,804) (19,514)

Effect of currency
translation adjustment on
cash and cash equivalents 230 (785) 110 (751)
----------------------------------------------------------------------------

Increase (decrease) in
cash and cash equivalents (2,106) 816 (10,480) (15,183)

Cash, beginning of period 11,422 9,808 19,796 25,807

----------------------------------------------------------------------------
Cash, end of period $ 9,316 $ 10,624 $ 9,316 $ 10,624
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Contact Information