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Constellation Software Inc. Announces Results for the First Quarter Ended March 31, 2019 and Declares Quarterly Dividend

TORONTO, May 01, 2019 (GLOBE NEWSWIRE) -- Constellation Software Inc. (CSU.TO) (“Constellation” or the “Company”) today announced its financial results for the first quarter ended March 31, 2019 and declared a $1.00 per share dividend payable on July 8, 2019 to all common shareholders of record at close of business on June 14, 2019. 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, 2019 and the accompanying notes, our Management Discussion and Analysis for the three months ended March 31, 2019 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, 2018, 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 2019 Headlines:

  • Revenue grew 14% (negative 1% organic growth, positive 3% after adjusting for changes in foreign exchange rates) to $819 million compared to $718 million in Q1 2018.
  • Adjusted EBITA increased $21 million or 13% to $179 million as compared to $159 million in Q1 2018.
  • Net income increased 5% to $87 million ($4.09 on a diluted per share basis) from $83 million ($3.90 on a diluted per share basis) in Q1 2018.
  • Adjusted net income decreased 11% to $127 million ($5.97 on a diluted per share basis) from $143 million ($6.73 on a diluted per share basis) in Q1 2018.
  • A number of acquisitions were completed for aggregate cash consideration of $47 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $22 million resulting in total consideration of $70 million.
  • Cash flows from operations were $284 million, an increase of 10%, or $26 million, compared to $258 million for the comparable period in 2018.

Total revenue for the quarter ended March 31, 2019 was $819 million, an increase of 14%, or $100 million, compared to $718 million for the comparable period in 2018. The increase is primarily attributable to growth from acquisitions as the Company experienced organic growth of negative 1%, positive 3% after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business.  For acquired companies, organic growth is calculated as the difference between actual revenues achieved by each company in the financial period following acquisition compared to the estimated revenues they achieved in the corresponding financial period preceding the date of acquisition by Constellation. 

For the quarter ended March 31, 2019, Adjusted EBITA increased to $179 million compared to $159 million for the same period in 2018 representing an increase of 13%.  Adjusted EBITA margin was 22% for both periods.   Included in the Q1 2019 results was an EBITA loss of $13 million relating to a business acquired in Q4 2018.  The seller of that business capitalized the balance sheet on closing with cash in the amount of €47 million ($53 million) that will be utilized to fund expected losses generated by the business.  Based on current estimates an EBITA loss of approximately $20 million inclusive of restructuring costs, will be recorded by the business in the full year 2019 results.  There was no current income tax recovery recorded in Q1 2019 associated with these losses.     

Net income for the quarter ended March 31, 2019 was $87 million compared to net income of $83 million for the same period in 2018.  On a per share basis this translated into a net income per diluted share of $4.09 in the quarter ended March 31, 2019 compared to net income per diluted share of $3.90 for the same period in 2018.

For the quarter ended March 31, 2019, Adjusted net income decreased to $127 million from $143 million for the same period in 2018, representing a decrease of 11%.  Adjusted net income margin was 15% for the quarter ended March 31, 2019 and 20% for the same period in 2018.  Excluding the impact of the $1 million unrealized foreign exchange loss in Q1 2019, and the $14 million unrealized foreign exchange gain and an $8 million financial liability accrual reversal recorded to finance and other income in Q1 2018, the margins would have been 16% and 17% for Q1 2019 and Q1 2018 respectively.   

For the quarter ended March 31, 2019 Cash flows from operations were $284 million, an increase of 10%, or $26 million, compared to $258 million for the comparable period in 2018. 

The following table displays our revenue by reportable segment and the percentage change for the three months ended March 31, 2019 compared to the same period in 2018:

           
  Three months
ended March 31,
Period-Over-
Period Change
Organic
Growth
           
  2019 2018 $ % %
  ($M, except percentages)
Public Sector          
Licenses 34 29 5   18 % -7 %
Professional services 122 111 11   10 % -7 %
Hardware and other 30 26 4   14 % -2 %
Maintenance and other recurring 364 320 44   14 % 1 %
  549 486 64   13 % -2 %
           
Private Sector          
Licenses 19 15 4   24 % 7 %
Professional services 36 31 5   15 % -1 %
Hardware and other 6 6 (0 ) -1 % -12 %
Maintenance and other recurring 208 180 28   16 % 2 %
  269 233 36   16 % 2 %
           
Due to rounding, certain totals may not foot and certain percentages may not reconcile.  
           

For purposes of calculating organic growth, estimated pre-acquisition revenue from the relevant companies acquired in 2018 and 2019 was added to actual reported revenue for the three months ended March 31, 2018.

Public Sector

For the quarter ended March 31, 2019, total revenue in the public sector reportable segment increased 13%, or $64 million to $549 million, compared to $486 million for the quarter ended March 31, 2018.  For purposes of calculating organic growth, estimated pre-acquisition revenues included from the relevant companies acquired in 2018 and 2019 was $73 million for the three months ended March 31, 2018.  Organic revenue growth was negative 2% for the three months ended March 31, 2019 compared to the same period in 2018, and positive 2% after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business.

Private Sector

For the quarter ended March 31, 2019, total revenue in the private sector reportable segment increased 16%, or $36 million to $269 million, compared to $233 million for the quarter ended March 31, 2018.  For purposes of calculating organic growth, estimated pre-acquisition revenues included from the relevant companies acquired in 2018 and 2019 was $32 million for the three months ended March 31, 2018.  Organic revenue growth was 2% in for the three months ended March 31, 2019 compared to the same period in 2018, and 5% after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business.

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,
 
    2019 2018  
    ($M, except percentages)  
         
Total revenue   819   718    
         
Net income   87   83    
Adjusted for:        
Income tax expense (recovery)   28   19    
Foreign exchange (gain) loss   1   (14 )  
TSS membership liability revaluation charge   10   7    
Finance and other income   (3 ) (9 )  
Bargain purchase gain   (28 ) (0 )  
Finance costs   9   5    
Amortization of intangible assets   75   69    
         
Adjusted EBITA   179   159    
Adjusted EBITA margin   22 % 22 %  
         
Due to rounding, certain totals may not foot and certain percentages may not reconcile.
         

The following table reconciles Adjusted net income to net income:

         
    Three months ended
March 31,
 
    2019 2018  
    ($M, except percentages)  
         
Total revenue   819   718    
         
Net income   87   83    
Adjusted for:        
Amortization of intangible assets   75   69    
TSS membership liability revaluation charge   10   7    
Bargain purchase gain   (28 ) (0 )  
Less non-controlling interest in the Adjusted        
net income of TSS   (9 ) (7 )  
Deferred income tax expense (recovery)   (8 ) (8 )  
         
Adjusted net income   127   143    
Adjusted net income margin   15 % 20 %  
         
Due to rounding, certain totals may not foot and certain percentages may not reconcile.
 

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.

For further information:

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

SOURCE: CONSTELLATION SOFTWARE INC.

 

     
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Financial Position
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
       
Unaudited    
    March 31, 2019   December 31, 2018  
       
Assets    
       
Current assets:    
  Cash $ 717   $ 589  
  Accounts receivable   362     362  
  Unbilled revenue   97     80  
  Inventories   39     34  
  Other assets   165     143  
      1,380     1,207  
       
Non-current assets:    
  Property and equipment   67     67  
  Right of use assets   209     -  
  Deferred income taxes   48     47  
  Other assets   65     64  
  Intangible assets   1,556     1,549  
      1,944     1,728  
       
Total assets $ 3,324   $ 2,935  
       
Liabilities and Shareholders' Equity    
       
Current liabilities:    
  CSI facility $ -   $ -  
  Debt without recourse to Constellation Software Inc.   1     51  
  TSS membership liability   65     67  
  Accounts payable and accrued liabilities   388     464  
  Dividends payable   445     21  
  Deferred revenue   877     657  
  Provisions   19     7  
  Acquisition holdback payables   47     47  
  Lease obligations   51     -  
  Income taxes payable   38     30  
      1,931     1,344  
       
Non-current liabilities:    
  Debt without recourse to Constellation Software Inc.   104     102  
  TSS membership liability   114     117  
  Debentures   218     215  
  Deferred income taxes   195     192  
  Acquisition holdback payables   12     25  
  Lease obligations   170     -  
  Other liabilities   74     74  
      888     725  
       
Total liabilities   2,820     2,069  
       
       
Shareholders' equity:    
  Capital stock   99     99  
  Accumulated other comprehensive income (loss)   (40 )   (37 )
  Retained earnings   445     804  
      505     866  
       
       
       
Total liabilities and shareholders' equity $ 3,324   $ 2,935  
       

 

   
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Income
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
     
Three months ended March 31, 2019 and 2018    
Unaudited    
  Three months ended March 31,
  2019   2018  
     
     
Revenue    
License $ 53   $ 44  
Professional services   158     142  
Hardware and other   36     33  
Maintenance and other recurring   572     500  
    819     718  
     
Expenses    
Staff   445     389  
Hardware   21     18  
Third party license, maintenance and professional services   69     61  
Occupancy   9     19  
Travel, telecommunications, supplies, software and equipment   44     42  
Professional fees   11     10  
Other, net   21     13  
Depreciation   21     7  
Amortization of intangible assets   75     69  
    715     628  
     
     
Foreign exchange loss (gain)   1     (14 )
TSS membership liability revaluation charge   10     7  
Finance and other expense (income)   (3 )   (9 )
Bargain purchase (gain)   (28 )   (0 )
Finance costs   9     5  
    (11 )   (11 )
     
Income before income taxes   115     101  
     
Current income tax expense (recovery)   36     26  
Deferred income tax expense (recovery)   (8 )   (8 )
Income tax expense (recovery)   28     19  
     
Net income   87     83  
     
Earnings per share    
Basic and diluted $ 4.09   $ 3.90  
     
     

 

     
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Comprehensive Income
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
     
Three months ended March 31, 2019 and 2018    
Unaudited    
  Three months ended March 31,
    2019     2018  
     
Net income $ 87   $ 83  
     
Items that are or may be reclassified subsequently to net income:    
     
Foreign currency translation differences from foreign operations   (3 )   (4 )
     
Deferred income tax recovery (expense)   -     -  
     
Other comprehensive (loss) income for the period, net of income tax   (3 )   (4 )
     
Total comprehensive income (loss) for the period $ 83   $ 78  
     

 

     
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
         
         
Unaudited        
Three months ended March 31, 2019        
  Capital
stock

  Accumulated other
comprehensive income/(loss)
Retained earnings
  Total
 
    Cumulative translation account      
         
Balance at January 1, 2019 $    99   $    (37 ) $    804   $    866  
         
Total comprehensive income for the period:        
         
Net income   -     -     87     87  
         
Other comprehensive income (loss)        
         
Foreign currency translation differences from        
foreign operations   -     (3 )   -     (3 )
         
Total other comprehensive income (loss)        
for the period     -        (3 )     -        (3 )
         
Total comprehensive income (loss) for the period     -        (3 )     87       83  
         
Transactions with owners, recorded directly in equity        
Dividends to shareholders of the Company   -     -     (445 )   (445 )
         
Balance at March 31, 2019 $    99   $    (40 ) $    445   $    505  
         

 

 
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
         
         
Unaudited        
Three months ended March 31, 2018        
         
  Capital
stock

  Accumulated other comprehensive income/(loss) Retained earnings
  Total
 
    Cumulative translation account      
         
Balance at January 1, 2018 $    99   $    (27 ) $    532   $    604  
         
Impact of change in accounting policy   -     -     (23 )   (23 )
         
Total comprehensive income for the period:        
         
Net income   -     -     83     83  
         
Other comprehensive income (loss)        
         
Foreign currency translation differences from        
foreign operations   -     (4 )   -     (4 )
         
Total other comprehensive income for the period     -        (4 )     -        (4 )
         
Total comprehensive income for the period     -        (4 )     83       78  
         
Transactions with owners, recorded directly in equity        
Dividends to shareholders of the Company   -     -     (21 )   (21 )
         
Balance at March 31, 2018 $    99   $    (31 ) $    570   $    638  
         

 

 
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Cash Flows
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
         
Three months ended March 31, 2019 and 2018    
Unaudited    
      Three months ended March 31,
      2019   2018  
         
Cash flows from operating activities:    
  Net income $ 87   $ 83  
  Adjustments for:    
    Depreciation   21     7  
    Amortization of intangible assets   75     69  
    TSS membership liability revaluation charge   10     7  
    Finance and other expense (income)   (3 )   (9 )
    Bargain purchase (gain)   (28 )   (0 )
    Finance costs   9     5  
    Income tax expense (recovery)   28     19  
    Foreign exchange loss (gain)   1     (14 )
  Change in non-cash operating assets and liabilities    
    exclusive of effects of business combinations   123     147  
  Income taxes paid   (38 )   (55 )
  Net cash flows from operating activities   284     258  
         
Cash flows from (used in) financing activities:    
  Interest paid on lease obligations   (2 )   -  
  Interest paid on other facilities   (8 )   (5 )
  Increase (decrease) in New CNH Facility, net   (51 )   (58 )
  Repayments of Acceo facility   (0 )   -  
  Repayments of lease obligations   (10 )   -  
  Distribution to TSS minority owners   (11 )   -  
  Dividends paid   (21 )   (21 )
  Net cash flows from (used in) in financing activities   (103 )   (84 )
         
Cash flows from (used in) investing activities:    
  Acquisition of businesses   (47 )   (320 )
  Cash obtained with acquired businesses   25     23  
  Post-acquisition settlement payments, net of receipts   (26 )   (17 )
  Interest, dividends and other proceeds received   3     1  
  Property and equipment purchased   (7 )   (4 )
  Net cash flows from (used in) investing activities   (52 )   (317 )
         
Effect of foreign currency on    
  cash and cash equivalents   (1 )   2  
         
Increase (decrease) in cash   128     (141 )
         
Cash, beginning of period   589     489  
         
Cash, end of period $ 717   $ 348