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Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2013 and Declares Quarterly Dividend

TORONTO, ONTARIO--(Marketwired - July 31, 2013) - Constellation Software Inc. (CSU.TO) ("Constellation" or the "Company") today announced its financial results for the second quarter ended June 30, 2013 and declared a $1.00 per share dividend payable on October 3, 2013 to all common shareholders of record at close of business on September 17, 2013. 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 and six months ended June 30, 2013 and the accompanying notes, our Management's Discussion and Analysis for the three and six months ended June 30, 2013, 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, 2012, 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 2013 Headlines:

  • Cash flows from operations for the first six months of 2013 increased $14 million or 35% to $52 million from $38 million for the comparable period in 2012.
  • Revenue grew 43% (8% organically) to $298 million compared to $209 million in Q2 2012. 
  • Adjusted EBITDA increased $18 million or 41% to $62 million as compared to Q2 2012.
  • Adjusted Net Income increased 39% to $50 million ($2.36 on a diluted per share basis) from $36 million ($1.71 on a diluted per share basis) in Q2 2012.
  • Seven acquisitions were completed for aggregate cash consideration of $88 million (which includes acquired cash) plus cash holdbacks of $11 million and estimated value of contingent consideration of $1 million.
  • Net borrowings (bank indebtedness less cash) increased by $88 million or 140% to $151 million from $63 million in Q1 2013.

Cash flows from operations for the second quarter of 2013 were $18 million, a decrease of 31%, or $8 million, compared to $26 million for the comparable period in 2012. The decrease was caused by a negative variance in changes in non-cash operating working capital in the second quarter of 2013 versus the second quarter of 2012, and reverses the comparable positive variance in changes in non-cash operating working capital in the first quarter of 2013 versus the first quarter of 2012. The negative variance in the second quarter of 2013 primarily relates to the timing of payments associated with the Company's bonus plan. For the first six months of 2013 cash flows from operations were $52 million, an increase of 35%, or $14 million, compared to $38 million for the comparable period in 2012.

Second quarter 2013 revenue was $298 million, an increase of 43%, or $89 million, compared to $209 million for the comparable period in 2012. For the first six months of 2013 total revenues were $555 million, an increase of 37%, or $150 million, compared to $404 million for the comparable period in 2012. The increase for both the three and six month periods compared to the same periods in the prior year is mainly attributable to growth from acquisitions, however, the Company did experience positive organic growth of 8% and 4%, respectively. During the second quarter of 2013, a contract that was previously accounted for on a zero margin basis was completed, resulting in the recognition of previously deferred profit margin as part of professional services revenue in the amount of $5 million. Excluding this amount, organic growth would have been 6% and 3% for the three and six month periods ended June 30, 2013 respectively.

Adjusted EBITDA for the second quarter of 2013 was $62 million, a 41% increase compared to the prior year's second quarter Adjusted EBITDA of $44 million. Second quarter 2013 Adjusted EBITDA per share on a diluted basis increased 41% to $2.91, compared to $2.06 for the same period last year. Adjusted EBITDA for the six month period ended June 30, 2013 was $104 million, a 26% increase over last year's Adjusted EBITDA of $83 million for the same period. Adjusted EBITDA per share on a diluted basis for the six month period ended June 30, 2013 increased 26% to $4.92, compared to $3.92 for the same period last year.

Adjusted Net Income for the second quarter of 2013 was $50 million, compared to the prior year's second quarter Adjusted Net Income of $36 million, a 39% increase. Second quarter 2013 Adjusted Net Income per share on a diluted basis increased 39% to $2.36 compared to $1.71 for the prior year's second quarter. Adjusted Net Income for the six month period ended June 30, 2013 was $83 million, an increase of 23% over last year's Adjusted Net Income of $68 million. Adjusted Net Income per share on a diluted basis for the six month period ended June 30, 2013 increased 23% to $3.94, compared to $3.20 for the same period in 2012.

Net income for the second quarter 2013 was $19 million compared to the prior year's second quarter net income of $18 million. On a diluted per share basis, this translates into net income per share of $0.91 for the second quarter of 2013 compared to $0.83 for the same period of 2012. Net income for the six month period ended June 30, 2013 was $28 million, a decrease of 10% over last year's Net income of $32 million. Net income per share on a diluted basis for the six month period ended June 30, 2013 decreased 10% to $1.34, compared to $1.49 for the same period in 2012.

The following table displays our revenue by reportable segment and the percentage change for the three and six months ended June 30, 2013 compared to the same periods in 2012:

    Three months ended
June 30,
  Period-Over-Period Change     Six months ended
June 30,
  Period-Over-Period Change  
    2013   2012   $   %     2013   2012   $   %  
    ($000, except percentages)     ($000, except percentages)  
Public Sector                                    
Licenses   15,703   10,864   4,839   45 %   28,878   20,654   8,224   40 %
Professional services   53,180   35,489   17,691   50 %   96,359   67,791   28,568   42 %
Hardware and other   25,319   18,756   6,563   35 %   47,490   41,045   6,445   16 %
Maintenance and other recurring   107,197   82,613   24,584   30 %   204,802   156,464   48,338   31 %
    201,399   147,722   53,677   36 %   377,529   285,954   91,575   32 %
                                     
Private Sector                                    
Licenses   8,354   5,130   3,224   63 %   15,847   10,280   5,567   54 %
Professional services   13,771   10,446   3,325   32 %   25,691   20,271   5,420   27 %
Hardware and other   4,158   3,595   563   16 %   7,795   6,661   1,134   17 %
Maintenance and other recurring   70,507   42,076   28,431   68 %   127,758   81,081   46,677   58 %
    96,790   61,247   35,543   58 %   177,091   118,293   58,798   50 %

Public Sector

For the quarter ended June 30, 2013, total revenue in the public sector reportable segment increased by 36%, or $54 million to $201 million, compared to $148 million for the quarter ended June 30, 2012. For the six months ended June 30, 2013, total revenue increased by 32%, or $92 million to $378 million, compared to $286 million for the comparable period in 2012. Revenue growth from acquired businesses contributed approximately $40 million to our Q2 2013 revenues and $80 million to our six months ended June 30, 2013 revenues compared to the same periods in 2012, as we completed 26 acquisitions since the beginning of 2012. Organic revenue growth was 10% in Q2 2013 and 4% for the six months ended June 30, 2013 compared to the same periods in 2012. As mentioned above, during the quarter ended June 30, 2013, a contract that was previously accounted for on a zero margin basis due to uncertainty regarding profitability was completed, resulting in the recognition of previously deferred profit margin as part of professional services revenue in the amount of $5 million. Excluding this amount, organic growth would have been 6% and 2% for the three and six month periods ended June 30, 2013, respectively.

Private Sector

For the quarter ended June 30, 2013, total revenue in the private sector reportable segment increased 58%, or $36 million to $97 million, compared to $61 million for the quarter ended June 30, 2012. For the six months ended June 30, 2013 total revenue increased by 50%, or $59 million to $177 million, compared to $118 million for the comparable period in 2012. Revenue growth from acquired businesses contributed approximately $32 million to our Q2 2013 revenues and $53 million to our six months ended June 30, 2013 revenues compared to the same periods in 2012, as we completed 23 acquisitions since the beginning of 2012. Revenues increased organically by 6% in Q2 2013 and 5% for the six months ended June 30, 2013 compared to the same periods in 2012.

Conference Call and Webcast

Management will host a conference call at 9:00 a.m. (ET) on Thursday, August 1, 2013 to answer questions regarding the results. The teleconference numbers are 416-695-6623 or 800-952-4972. 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 11:30 a.m. ET the same day until 11:59 p.m. ET on August 14, 2013. To access the replay, please dial 905-694-9451 or 800-408-3053 followed by the passcode 4538771.

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 EBITDA" refers to net income before adjusting for finance income, finance costs, income taxes, equity in net income or loss of equity investees, impairment of non-financial assets, depreciation, amortization, and foreign exchange gain or loss. 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 amortization and the other items listed above. "Adjusted EBITDA margin" refers to the percentage that Adjusted EBITDA for any period represents as a portion of total revenue for that period.

"Adjusted net income" means net income adjusted for non-cash expenses (income) such as amortization of intangible assets, deferred income taxes, and certain other expenses (income). 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, and certain other non-cash expenses (income) incurred or recognized by the Company from time to time. "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 IFRS and, accordingly, readers are cautioned that Adjusted EBITDA 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 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: 


(Unaudited)
    Three months ended
June 30,
      Six months ended
June 30,
 
      2013       2012       2013       2012  
    ($000, except percentages)     ($000, except percentages)  
                                 
Total revenue   $ 298,189     $ 208,969     $ 554,620     $ 404,247  
                                 
Net income     19,232       17,592       28,431       31,516  
Adjusted for:                                
Income tax expense     7,761       3,666       10,430       6,977  
Foreign exchange loss (gain)     361       (217 )     2,136       (9 )
Equity in net (income) loss of equity investees     (13 )     209       (357 )     1,091  
Finance income     (10 )     (394 )     (500 )     (1,463 )
Finance costs     2,151       774       3,267       1,792  
Amortization of intangible assets     29,800       20,269       56,261       39,544  
Depreciation     2,422       1,803       4,634       3,521  
                                 
Adjusted EBITDA     61,704       43,702       104,302       82,969  
Adjusted EBITDA margin     21 %     21 %     19 %     21 %

The following table reconciles Adjusted net income to net income:  

(Unaudited)     Three months ended
June 30,
      Six months ended
June 30,
 
      2013       2012       2013       2012  
    ($000, except percentages)     ($000, except percentages)  
                                 
Total revenue   $ 298,189     $ 208,969     $ 554,620     $ 404,247  
                                 
Net income     19,232       17,592       28,431       31,516  
Adjusted for:                                
Amortization of intangible assets     29,800       20,269       56,261       39,544  
Deferred income tax expense (recovery)     1,074       (1,700 )     (1,237 )     (3,192 )
                                 
Adjusted net income     50,106       36,161       83,455       67,868  
Adjusted net income margin     17 %     17 %     15 %     17 %

About Constellation Software Inc.

Constellation Software acquires, manages and builds vertical market software businesses that provide mission-critical software solutions.

SOURCE: CONSTELLATION SOFTWARE INC.

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Financial Position
(In thousands of U.S. dollars)
 
(Unaudited)
      June 30,       December 31,
      2013       2012
Assets              
Current assets:              
  Cash   $ 32,364     $ 41,313
  Equity security available-for-sale     742       470
  Accounts receivable     169,665       126,987
  Work in progress     54,138       36,926
  Inventories     20,585       18,739
  Other assets     41,980       29,178
      319,474       253,613
Non-current assets:              
  Property and equipment     22,633       21,300
  Deferred income taxes     55,424       104,307
  Other assets     36,038       31,104
  Intangible assets     550,309       402,355
      664,404       559,066
Total assets   $ 983,878     $ 812,679
Liabilities and Shareholders' Equity              
               
Current liabilities:              
  Bank indebtedness   $ 183,823     $ 44,356
  Accounts payable and accrued liabilities     153,860       147,559
  Dividends payable     20,552       20,945
  Deferred revenue     289,128       224,049
  Provisions     6,671       6,396
  Acquired contract liabilities     2,260       3,535
  Acquisition holdback payments     21,450       20,635
  Income taxes payable     3,371       5,066
      681,115       472,541
Non-current liabilities:              
  Deferred income taxes     17,584       29,283
  Acquired contract liabilities     17,584       26,073
  Acquisition holdback payments     5,674       5,973
  Other liabilities     20,310       20,005
      61,152       81,334
Total liabilities     742,267       553,875
               
Shareholders' equity:              
  Capital stock     99,283       99,283
  Accumulated other comprehensive income     (1,619 )     1,621
  Retained earnings     143,947       157,900
      241,611       258,804
               
Total liabilities and shareholders' equity   $ 983,878     $ 812,679
   
CONSTELLATION SOFTWARE INC.  
Condensed Consolidated Interim Statements of Income
(In thousands of U.S. dollars, except per share amounts)
 
   
(Unaudited)  
    Three months ended
June 30,
    Six months ended
June 30,
 
      2013       2012       2013       2012  
                                 
                                 
Revenue   $ 298,189     $ 208,969     $ 554,620     $ 404,247  
                                 
Expenses                                
  Staff     158,243       113,689       306,347       219,320  
  Hardware     16,246       10,705       32,257       22,932  
  Third party license, maintenance and professional services     25,829       14,715       44,269       28,961  
  Occupancy     6,694       5,039       13,274       9,664  
  Travel     11,125       7,766       20,631       16,012  
  Telecommunications     3,334       2,553       6,427       5,050  
  Supplies     4,975       3,866       9,623       7,298  
  Professional fees     3,760       2,222       7,221       4,067  
  Other, net     6,279       4,712       10,269       7,974  
  Depreciation     2,422       1,803       4,634       3,521  
  Amortization of intangible assets     29,800       20,269       56,261       39,544  
      268,707       187,339       511,213       364,343  
                                 
Foreign exchange loss (gain)     361       (217 )     2,136       (9 )
Equity in net (income) loss of equity investees     (13 )     209       (357 )     1,091  
Finance income     (10 )     (394 )     (500 )     (1,463 )
Finance costs     2,151       774       3,267       1,792  
      2,489       372       4,546       1,411  
                                 
Profit before income taxes     26,993       21,258       38,861       38,493  
                                 
Current income tax expense     6,687       5,366       11,667       10,169  
Deferred income tax expense (recovery)     1,074       (1,700 )     (1,237 )     (3,192 )
Income tax expense     7,761       3,666       10,430       6,977  
                                 
Net income     19,232       17,592       28,431       31,516  
                                 
Earnings per share                                
  Basic and diluted   $ 0.91     $ 0.83     $ 1.34     $ 1.49  
 
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Comprehensive Income
(In thousands of U.S. dollars, except per share amounts)
 
(Unaudited)
    Three months ended
June 30,
  Six months ended
June 30,
      2013     2012     2013     2012
                         
Net income   $ 19,232   $ 17,592   $ 28,431   $ 31,516
                         
Items that are or may be reclassified subsequently to profit or loss:                        
                           
  Net change in fair value of available-for-sale financial asset during the period    
161
   
1,066
   
272
   
4,914
                           
  Net unrealized foreign exchange gain (loss) on available-for-sale financial asset during the period    
-
   
(148)
   
-
   
(27)
                           
  Amounts reclassified to profit during the period related to realized gains on available-for-sale financial asset    
-
   
(31)
   
-
   
(1,063)
                           
  Foreign currency translation differences from foreign operations     (822)     (1,943)     (3,433)     (802)
                           
  Current income tax recovery (expense)     (27)     70     (79)     (8)
                           
  Deferred income tax recovery (expense)     -     18     -     (313)
                           
Other comprehensive (loss) income for the period, net of income tax     (688)     (968)     (3,240)     2,701
                         
Total comprehensive income for the period   $ 18,544   $ 16,624   $ 25,191   $ 34,217
   
CONSTELLATION SOFTWARE INC.  
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)
 
   
(Unaudited)  
Six months ended June 30, 2013  
      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 available-for-sale financial assets
                       
                                             
Balance at January 1, 2013   $ 99,283   $ 1,450     $ 171   $ 1,621     $ 157,900     $ 258,804  
                                             
Total comprehensive income for the period                                            
                                             
Net income     -     -       -     -       28,431       28,431  
                                             
Other comprehensive income (loss)                                            
                                             
Net change in fair value of available-for-sale financial asset during the period    

-
   

-
     

272
   

272
     

-
     

272
 
                                             
Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial asset during the period    

-
   

-
     

-
   

-
     

-
     

-
 
                                             
Amounts reclassified to profit during the period related to realized gains on available-for-sale investment    

-
   

-
     

-
   

-
     

-
     

-
 
                                             
Foreign currency translation differences from foreign operations    
-
   
(3,433
)    
-
   
(3,433
)    
-
     
(3,433
)
                                             
Current tax recovery     -     (79 )     -     (79 )     -       (79 )
                                             
Deferred tax recovery     -     -       -     -       -       -  
                                             
Total other comprehensive income (loss) for the period    
-
   
(3,512
)    
272
   
(3,240
)    
-
     
(3,240
)
                                             
Total comprehensive income (loss) for the period     -     (3,512 )     272     (3,240 )     28,431       25,191  
                                             
Transactions with owners, recorded directly in equity                                            
Dividends to shareholders of the Company     -     -       -     -       (42,384 )     (42,384 )
                                             
Balance at June 30, 2013   $ 99,283   $ (2,062 )   $ 443   $ (1,619 )   $ 143,947     $ 241,611  
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)
 
(Unaudited)
Six months ended June 30, 2012
      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 available-for-sale financial assets                          
                                               
Balance at January 1, 2012   $ 99,283   $ 182     $ 6,779     $ 6,961     $ 150,036     $ 256,280  
                                               
Total comprehensive income for the period                                              
                                               
Net income     -     -       -       -       31,516       31,516  
                                               
Other comprehensive income (loss)                                              
                                               
Net change in fair value of available-for-sale financial assets during the period    

-
   

-
     

4,914
     

4,914
     

-
     

4,914
 
                                               
Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial assets during the period    

-
   

-
     

(27
)     (27 )     -       (27 )
                                               
Amounts reclassified to profit during the period related to realized gains on available-for-sale financial assets    

-
   

-
     

(1,063
)    

(1,063
)    

-
     

(1,063
)
                                               
Foreign currency translation differences from from foreign operations     -     (802 )     -       (802 )     -       (802 )
                                               
Current tax expense     -     (8 )     -       (8 )     -       (8 )
                                               
Deferred tax expense     -     125       (438 )     (313 )     -       (313 )
                                               
Total other comprehensive income for the period     -     (685 )     3,386       2,701       -       2,701  
                                               
Total comprehensive income for the period     -     (685 )     3,386       2,701       31,516       34,217  
                                               
Transactions with owners, recorded directly in equity                                              
Dividends to shareholders of the Company     -     -       -       -       (42,384 )     (42,384 )
                                               
Balance at June 30, 2012   $ 99,283   $ (503 )   $ 10,165     $ 9,662     $ 139,168     $ 248,113  
   
CONSTELLATION SOFTWARE INC.  
Condensed Consolidated Interim Statements of Cash Flows
(In thousands of U.S. dollars)
 
   
(Unaudited)  
      Three months ended
June 30,
      Six months ended
June 30,
 
      2013       2012       2013       2012  
Cash flows from operating activities:                                
  Net income   $ 19,232     $ 17,592     $ 28,431     $ 31,516  
  Adjustments for:                                
    Depreciation     2,422       1,803       4,634       3,521  
    Amortization of intangible assets     29,800       20,269       56,261       39,544  
    Equity in net (income) loss of equity investees     (13 )     209       (357 )     1,091  
    Finance income     (10 )     (394 )     (500 )     (1,463 )
    Finance costs     2,151       774       3,267       1,792  
    Income tax expense     7,761       3,666       10,430       6,977  
    Foreign exchange loss (gain)     361       (217 )     2,136       (9 )
  Change in non-cash operating working capital exclusive of effects of business combinations    
(34,125
)    
(9,495
)    
(38,249
)    
(33,839
)
  Income taxes paid     (9,607 )     (8,013 )     (14,169 )     (10,715 )
  Net cash flows from operating activities     17,972       26,194       51,884       38,415  
                                 
Cash flows from (used in) financing activities:                                
  Interest paid     (776 )     (501 )     (1,281 )     (837 )
  Decrease in other non current liabilities     144       322       121       122  
  Increase in bank indebtedness, net     76,251       16,342       139,251       29,342  
  Credit facility transaction costs     -       (46 )     -       (1,886 )
  Dividends paid     (21,192 )     (21,192 )     (42,384 )     (21,192 )
  Net cash flows from (used in) in financing activities     54,427       (5,075 )     95,707       5,549  
                                 
Cash flows from (used in) investing activities:                                
  Acquisition of businesses, net of cash acquired     (75,158 )     (42,830 )     (145,051 )     (50,637 )
  Post-acquisition settlement payments, net of receipts     (5,464 )     (4,132 )     (10,685 )     (4,633 )
  Purchases of available-for-sale financial assets     -       (80 )     -       (80 )
  Proceeds from sale of available-for-sale equity securities     -       55       -       1,863  
  Proceeds from sale of intangible assets     -       101       -       101  
  Interest received     -       41       -       79  
  Proceeds from sale of assets     121       -       5,544       -  
  Property and equipment purchased     (3,186 )     (1,251 )     (5,297 )     (2,541 )
  Net cash flows used in investing activities     (83,687 )     (48,096 )     (155,489 )     (55,848 )
                                 
Effect of foreign currency on cash and cash equivalents     (661 )     (165 )     (1,051 )     63  
Decrease in cash and cash equivalents     (11,949 )     (27,142 )     (8,949 )     (11,821 )
Cash, beginning of period     44,313       48,813       41,313       33,492  
                                 
Cash, end of period   $ 32,364     $ 21,671     $ 32,364     $ 21,671