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Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2019 and Declares Quarterly Dividend

Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2019 and Declares Quarterly Dividend

TORONTO, Aug. 02, 2019 (GLOBE NEWSWIRE) -- Constellation Software Inc. (CSU.TO) (“Constellation” or the “Company”) today announced its financial results for the second quarter ended June 30, 2019 and declared a $1.00 per share dividend payable on October 7, 2019 to all common shareholders of record at close of business on September 16, 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 and six months ended June 30, 2019 and the accompanying notes, our Management Discussion and Analysis for the three and six months ended June 30, 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.

Q2 2019 Headlines:

  • Revenue grew 12% (negative 1% organic growth, positive 2% after adjusting for changes in foreign exchange rates) to $846 million compared to $752 million in Q2 2018. 
  • Adjusted EBITA increased $33 million or 19% to $208 million as compared to $175 million in Q2 2018.  Adjusted EBITA margin was 25% as compared to 23% in Q2 2018.
  • Net income increased 41% to $73 million ($3.45 on a diluted per share basis) from $52 million ($2.45 on a diluted per share basis) in Q2 2018.
  • Adjusted net income increased 13% to $137 million ($6.49 on a diluted per share basis) from $122 million ($5.75 on a diluted per share basis) in Q2 2018.    
  • A number of acquisitions were completed for aggregate cash consideration of $82 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $28 million resulting in total consideration of $110 million.
  • Cash flows from operations (after adjusting for the impact of IFRS 16 Leases, which was adopted on January 1, 2019) were $36 million, a decrease of 32%, or $17 million, compared to $53 million for the comparable period in 2018.
  • Subsequent to June 30, 2019, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $190 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $30 million resulting in total consideration of $221 million. 

Total revenue for the quarter ended June 30, 2019 was $846 million, an increase of 12%, or $94 million, compared to $752 million for the comparable period in 2018.  For the first six months of 2019 total revenues were $1,665 million, an increase of 13%, or $194 million, compared to $1,471 million for the comparable period in 2018.  The increase for both the three and six month periods compared to the same periods in the prior year is primarily attributable to growth from acquisitions as the Company experienced organic growth of negative 1% in both periods, 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.

For the quarter ended June 30, 2019, Adjusted EBITA increased to $208 million compared to $175 million for the same period in 2018 representing an increase of 19%.  For the first six months of 2019, Adjusted EBITA increased to $387 million compared to $334 million during the same period in 2018, representing an increase of 16%.  Adjusted EBITA margin was 25% and 23% for the three and six months ended June 30, 2019 respectively, compared to 23% during the same periods in 2018.

Net income for the quarter ended June 30, 2019 was $73 million compared to net income of $52 million for the same period in 2018.  On a per share basis, this translated into a net income per diluted share of $3.45 in the quarter ended June 30, 2019 compared to net income per diluted share of $2.45 for the same period in 2018.  For the six months ended June 30, 2019, net income was $160 million or $7.54 per diluted share compared to $135 million or $6.35 per diluted share for the same period in 2018.

For the quarter ended June 30, 2019, Adjusted net income increased to $137 million from $122 million for the same period in 2018, representing an increase of 13%.  Adjusted net income margin was 16% for the quarter ended June 30, 2019 and 16% for the same period in 2018.  For the first six months of 2019 and 2018, Adjusted net income was $264 million.  Adjusted net income margin was 16% for the six months ended June 30, 2019 and 18% for the same period in 2018.  Excluding the impact of the unrealized foreign exchange (gain) loss recorded in each of the three and six month periods ended June 30, 2018 and 2019, and the $7.9 million financial liability accrual reversal recorded to finance and other income in Q1 2018, the margins would have been 18% and 17% for the respective periods in 2019, and 17% for both the respective periods in 2018.

In conjunction with the Company’s adoption of IFRS 16 on January 1, 2019, lease obligation and interest payments that have historically been deducted from cash flows from operations are now recorded as a component of cash flows used in financing activities. For the three and six months ended June 30, 2019, lease obligation and interest payments totaled $15 million and $26 million respectively. Cash flows from operations for the quarter ended June 30, 2019 after deducting these lease related payments were $36 million, a decrease of 32%, or $17 million, compared to $53 million for the comparable period in 2018. Cash flows from operations for the six months ended June 30, 2019 after deducting these lease related payments were $308 million, a decrease of 1%, or $2 million, compared to $311 million for the comparable period in 2018.

The following table displays our revenue by reportable segment and the percentage change for the three and six months ended June 30, 2019 compared to the same periods in 2018:

                         
    Three months ended
June 30,
Period-Over-
Period Change
Organic
Growth
  Six months ended
June 30,
Period-Over-
Period Change
Organic
Growth
                         
    2019 2018 $ % %   2019 2018 $ % %
    ($M, except percentages)   ($M, except percentages)
Public Sector                        
Licenses   36   29 7   26 % 0 %   70 57 13 22 % -4 %
Professional services   125   114 11   10 % -6 %   247 225 22 10 % -6 %
Hardware and other   33   36 (2 ) -7 % -17 %   64 62 1 2 % -11 %
Maintenance and other recurring   369   322 47   15 % 1 %   732 642 91 14 % 1 %
    564   500 63   13 % -2 %   1,113 986 127 13 % -2 %
                         
Private Sector                        
Licenses   25   19 5   27 % 15 %   44 35 9 26 % 11 %
Professional services   38   39 (0 ) -1 % -11 %   74 70 5 6 % -6 %
Hardware and other   7   7 0   1 % -6 %   14 14 0 0 % -9 %
Maintenance and other recurring 212   186 25   14 % 2 %   420 366 53 15 % 2 %
    282   252 30   12 % 1 %   552 485 67 14 % 1 %
                         
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 and six months ended June 30, 2018.

Public Sector

For the quarter ended June 30, 2019, total revenue in the public sector reportable segment increased 13%, or $63 million to $564 million, compared to $500 million for the quarter ended June 30, 2018.  For the six months ended June 30, 2019, total revenue increased by 13%, or $127 million to $1,113 million, compared to $986 million for the comparable period in 2018.  For purposes of calculating organic growth, estimated pre-acquisition revenues included from the relevant companies acquired in 2018 and 2019 was $73 million and $146 million for the three and six month periods ended June 30, 2018, respectively.  Organic revenue growth was negative 2% for both the three and six months ended June 30, 2019 compared to the same periods in 2018, and positive 1% 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 June 30, 2019, total revenue in the private sector reportable segment increased 12%, or $30 million to $282 million, compared to $252 million for the quarter ended June 30, 2018.  For the six months ended June 30, 2019, total revenue increased by 14%, or $67 million to $552 million, compared to $485 million for the comparable period in 2018. For purposes of calculating organic growth, estimated pre-acquisition revenues included from the relevant companies acquired in 2018 and 2019 was $28 million and $60 million for the three and six month periods ended June 30, 2018, respectively.  Organic revenue growth was 1% for both the three and six months ended June 30, 2019 compared to the same periods in 2018, and 4% 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
June 30,
      Six months ended
June 30,
 
      2019   2018
      2019
2018
 
    ($M, except percentages)   ($M, except percentages)
                     
Total revenue     846   752         1,665   1,471    
                     
Net income     73   52         160   135    
Adjusted for:                    
Income tax expense (recovery)     30   27         58   46    
Foreign exchange (gain) loss     13   9         15   (5 )  
TSS membership liability revaluation charge     8   14         18   21    
Finance and other income     (0 ) (1 )       (3 ) (10 )  
Bargain purchase gain     -   (0 )       (28 ) (0 )  
Finance costs     9   5         18   10    
Amortization of intangible assets     75   70         151   139    
                     
Adjusted EBITA     208   175         387   334    
Adjusted EBITA margin     25 % 23 %       23 % 23 %  
                     
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 June 30,       Six months ended June 30,  
      2019
2018
      2019
2018
 
    ($M, except percentages)   ($M, except percentages)
                     
Total revenue     846   752         1,665   1,471    
                         
Net income     73   52         160   135    
Adjusted for:                        
Amortization of intangible assets     75   70         151   139    
TSS membership liability revaluation charge     8   14         18   21    
Bargain purchase gain     -   (0 )       (28 ) (0 )  
Less non-controlling interest in the Adjusted                        
net income of TSS     (7 ) (6 )       (16 ) (13 )  
Deferred income tax expense (recovery)     (12 ) (8 )       (20 ) (16 )  
                         
Adjusted net income     137   122         264   264    
Adjusted net income margin     16 % 16 %       16 % 18 %  
                     
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
      June 30, 2019     December 31, 2018  
                 
Assets              
                 
Current assets:              
  Cash   $ 214   $ 589  
  Accounts receivable     368     362  
  Unbilled revenue     105     80  
  Inventories     45     34  
  Other assets     183     143  
        915     1,207  
                 
Non-current assets:              
  Property and equipment     69     67  
  Right of use assets     211     -  
  Deferred income taxes     48     47  
  Other assets     66     64  
  Intangible assets   1,621     1,549  
        2,014     1,728  
                 
Total assets   $ 2,929   $ 2,935  
                 
Liabilities and Shareholders' Equity              
                 
Current liabilities:              
  CSI facility   $ -   $ -  
  Debt without recourse to Constellation Software Inc.     11     51  
  TSS membership liability     69     67  
  Accounts payable and accrued liabilities     400     464  
  Dividends payable     22     21  
  Deferred revenue     802     657  
  Provisions     17     7  
  Acquisition holdback payables     53     47  
  Lease obligations     54     -  
  Income taxes payable     25     30  
        1,452     1,344  
                 
Non-current liabilities:              
  Debt without recourse to Constellation Software Inc.     106     102  
  TSS membership liability     121     117  
  Debentures     222     215  
  Deferred income taxes     202     192  
  Acquisition holdback payables     15     25  
  Lease obligations     170     -  
  Other liabilities     76     74  
        913     725  
                 
Total liabilities     2,365     2,069  
                 
                 
Shareholders' equity:              
  Capital stock     99     99  
  Accumulated other comprehensive income (loss)     (32 )   (37 )
  Retained earnings     497     804  
        564     866  
                 
                 
Total liabilities and shareholders' equity   $ 2,929   $ 2,935  
                 

 

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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 and six months ended June 30, 2019 and 2018            
Unaudited                
    Three months ended June 30,   Six months ended June 30,
      2019       2018       2019       2018  
                                 
                                 
Revenue                                
License   $ 61     $ 48     $ 113     $ 92  
Professional services     164       153       322       295  
Hardware and other     41       43       77       76  
Maintenance and other recurring     581       508       1,152       1,008  
      846       752       1,665       1,471  
                                 
Expenses                                
Staff     437       390       882       780  
Hardware     22       24       43       42  
Third party license, maintenance and professional services     73       67       142       128  
Occupancy     9       20       17       39  
Travel, telecommunications, supplies, software and equipment   49       45       93       87  
Professional fees     11       9       22       19  
Other, net     15       15       36       28  
Depreciation     21       7       42       13  
Amortization of intangible assets     75       70       151       139  
      713       647       1,428       1,275  
                                 
                                 
Foreign exchange loss (gain)     13       9       15       (5 )
TSS membership liability revaluation charge     8       14