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Constellation Software Inc. Announces Results for the First Quarter Ended March 31, 2018 and Declares Quarterly Dividend

TORONTO, April 25, 2018 (GLOBE NEWSWIRE) -- Constellation Software Inc. (CSU.TO) (“Constellation” or the “Company”) today announced its financial results for the first quarter ended March 31, 2018 and declared a $1.00 per share dividend payable on July 5, 2018 to all common shareholders of record at close of business on June 15, 2018. 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, 2018 and the accompanying notes, our Management Discussion and Analysis for the three months ended March 31, 2018 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, 2017, 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 2018 Headlines:

  • Revenue grew 29% (5% organic growth, 0% after adjusting for changes in foreign exchange rates) to $719 million compared to $555 million in Q1 2017.
  • Adjusted EBITA increased $28 million or 21% to $159 million as compared to $131 million in Q1 2017.
  • Net income increased 104% to $83 million ($3.90 on a diluted per share basis) from $40 million ($1.91 on a diluted per share basis) in Q1 2017.
  • Adjusted net income increased 51% to $143 million ($6.73 on a diluted per share basis) from $95 million ($4.46 on a diluted per share basis) in Q1 2017.
  • A number of acquisitions were completed for aggregate cash consideration of $320 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $47 million resulting in total consideration of $367 million.
  • Cash flows from operations were $258 million, an increase of 42%, or $76 million, compared to $182 million for the comparable period in 2017.

Total revenue for the quarter ended March 31, 2018 was $719 million, an increase of 29%, or $163 million, compared to $555 million for the comparable period in 2017.  The increase is primarily attributable to growth from acquisitions as the Company experienced organic growth of 5% in the quarter, 0% after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business.  The Company adopted IFRS 15 “Revenue from contracts with customers” (“IFRS 15”) effective January 1, 2018 utilizing the cumulative effect method.  Under the cumulative effect method comparative periods have not been restated however the quantitative differences between reported results under IFRS 15 and those that would have been reported under IAS 11 and IAS 18 (“prior IFRS”) have been disclosed.  For the quarter ended March 31, 2018 total revenue was $9 million higher than it would have been under prior IFRS.  The organic growth figures included above and below exclude the impact of this increase.

For the quarter ended March 31, 2018, Adjusted EBITA increased to $159 million compared to $131 million for the same period in 2017 representing an increase of 21%.  Adjusted EBITA margin was 22% for the quarter ended March 31, 2018 and 24% for the same period in 2017.  For the quarter ended March 31, 2018 Adjusted EBITA per share on a diluted basis increased 21% to $7.48, compared to $6.16 for the same period last year.  For the quarter ended March 31, 2018 Adjusted EBITA was $9 million higher than it would have been under prior IFRS.  Excluding the impact of IFRS 15 Adjusted EBITA margin would have been 21% in Q1 2018.  The margin decline is primarily the result of lower margins on recently acquired businesses.

Net income for the quarter ended March 31, 2018 was $83 million compared to net income of $40 million for the same period in 2017.  On a per share basis this translated into a net income per diluted share of $3.90 in the quarter ended March 31, 2018 compared to net income per diluted share of $1.91 for the same period in 2017.

For the quarter ended March 31, 2018, Adjusted net income increased to $143 million from $95 million for the same period in 2017, representing an increase of 51%.  Adjusted net income margin was 20% for the quarter ended March 31, 2018 and 17% for the same period in 2017.  For the quarter ended March 31, 2018 Adjusted net income was $5 million higher than it would have been under prior IFRS.  Excluding the impact of a $14 million unrealized foreign exchange gain recorded in Q1 2018, an $8 million financial liability accrual reversal recorded to finance and other income in Q1 2018, the $5 million impact of IFRS 15 and a $2 million unrealized foreign exchange loss recorded in Q1 2017 the margins would have been 16% and 17% for Q1 2018 and Q1 2017 respectively.

Cash flows from operations for the quarter ended March 31, 2018 were $258 million, an increase of 42%, or $76 million, compared to $182 million for the comparable period in 2017.

The following table displays our revenue by reportable segment and the percentage change for the three months ended March 31, 2018 compared to the same period in 2017:

                     
                     
    Three months ended   Period-Over-Period     Organic  
    March 31,   Change     Growth  
    2018 2017   $ %     %  
    ($M, except percentages)        
Public Sector                    
Licenses   29 22   7 31%     -5%  
Professional services   111 89   22 24%     3%  
Hardware and other   26 25   2 8%     -9%  
Maintenance and other recurring   320 239   81 34%     7%  
    486 374   111 30%     5%  
                     
Private Sector                    
Licenses   15 13   2 14%     -3%  
Professional services   31 23   8 35%     4%  
Hardware and other   6 7   (1) -7%     -37%  
Maintenance and other recurring   180 138   42 31%     9%  
    233 181   52 29%     5%  
                     

For purposes of calculating organic growth, estimated pre-acquisition revenue from the relevant companies acquired in 2017 and 2018 was added to actual reported revenue for the three month period ended March 31, 2017.

Public Sector

For the quarter ended March 31, 2018, total revenue in the public sector reportable segment increased 30%, or $111 million to $486 million, compared to $374 million for the quarter ended March 31, 2017.  Organic revenue growth was 5% in Q1 2018 compared to the same period in 2017, and -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.   For the quarter ended March 31, 2018 total revenue was $8 million higher than it would have been under prior IFRS.   Organic growth excludes the impact of this increase.

Private Sector

For the quarter ended March 31, 2018, total revenue in the private sector reportable segment increased 29%, or $52 million to $233 million, compared to $181 million for the quarter ended March 31, 2017.  Organic revenue growth was 5% in Q1 2018 compared to the same period in 2017, and 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 March 31, 2018 total revenue was $0.3 million higher than it would have been under prior IFRS.   Organic growth excludes the impact of this increase.

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,  
      2018 2017  
      ($M, except percentages)  
           
Total revenue
     718 555   
           
Net income
    83 40  
Adjusted for:
         
Income tax expense (recovery)
    19 18  
Foreign exchange (gain) loss
    (14) 1  
TSS membership liability revaluation charge     7 13  
Share in net (income) loss of equity investees      (0) (0)  
Finance and other income
    (9) (0)  
Bargain purchase gain
    (0)  
Finance costs
    5 5  
Amortization of intangible assets
    69 52  
           
Adjusted EBITA     159 131  
Adjusted EBITA margin     22% 24%  
           
Certain totals and percentages may not reconcile due to rounding    
           

The following table reconciles Adjusted net income to net income: 

           
           
      Three months ended  
      March 31,  
      2018 2017  
      ($M, except percentages)  
           
Total revenue     718 555   
           
Net income     83 40  
Adjusted for:          
Amortization of intangible assets     69 52  
TSS membership liability revaluation charge     7 13  
Bargain purchase gain     (0) -  
Less non-controlling interest in the Adjusted          
net income of TSS     (7) (5)  
Deferred income tax expense (recovery)     (8) (6)  
           
Adjusted net income     143 95  
Adjusted net income margin     20% 17%  
           
Certain totals and percentages may not reconcile due to rounding    
           

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 thousands of U.S. dollars)                
                         
Unaudited                    
                         
                  March 31, 2018   December 31, 2017      
Assets                    
                         
Current assets:                    
  Cash             $ 347,526   $ 488,964      
  Accounts receivable             340,444     316,538      
  Unbilled revenue             87,816     64,109      
  Inventories               26,930     23,196      
  Other assets             156,496     100,098      
                    959,212     992,905      
                         
Non-current assets:                  
  Property and equipment           57,508     53,817      
  Deferred income taxes             37,640     38,362      
  Other assets             56,910     21,801      
  Intangible assets   1,494,193     1,181,333      
                    1,646,251     1,295,313      
                         
Total assets             $ 2,605,463   $ 2,288,218      
                         
Liabilities and Shareholders' Equity            
                         
Current liabilities:                  
  CSI Facility             $   $      
  New CNH Facility             41,234     96,398      
  TSS Membership Liability           53,100     49,215      
  Accounts payable and accrued liabilities         362,717     379,573      
  Dividends payable             21,431     21,575      
  Deferred revenue             800,702     541,108      
  Provisions               8,134     10,377      
  Acquisition holdback payables           67,434     42,867      
  Income taxes payable             28,773     31,028      
                    1,383,525     1,172,141      
                         
Non-current liabilities:                  
  TSS Membership Liability           93,408     86,575      
  Debentures               229,215     236,462      
  Deferred income taxes             165,657     148,961      
  Acquisition holdback payables           15,185     6,480      
  Other liabilities             80,523     33,521      
                    583,988     511,999      
                         
Total liabilities               1,967,513     1,684,140      
                         
                         
Shareholders' equity:                  
  Capital stock             99,283     99,283      
  Accumulated other comprehensive income (loss)       (30,905 )   (26,739 )    
  Retained earnings             569,572     531,534      
                    637,950     604,078      
                         
                         
Total liabilities and shareholders' equity       $ 2,605,463   $ 2,288,218      
                         


CONSTELLATION SOFTWARE INC.      
Condensed Consolidated Interim Statements of Income        
(In thousands of U.S. dollars, except per share amounts)        
         
Three months ended March 31, 2018 and 2017        
Unaudited        
     
    2018       2017    
         
         
Revenue        
License $ 43,819     $ 35,132    
Professional services   142,170       112,413    
Hardware and other   32,770       31,426    
Maintenance and other recurring   499,700       376,355    
    718,459       555,326    
         
Expenses        
Staff   389,412       289,315    
Hardware   17,797       16,320    
Third party license, maintenance and professional services   61,471       50,003    
Occupancy   19,132       13,436    
Travel   18,267       15,824    
Telecommunications   6,150       5,068    
Supplies   4,610       3,872    
Software and equipment   12,912       9,537    
Professional fees   10,178       6,925    
Other, net   13,266       9,172    
Depreciation   6,651       5,299    
Amortization of intangible assets   68,632       52,285    
    628,478       477,056    
         
         
Foreign exchange loss (gain)   (13,977 )     1,494    
TSS membership liability revaluation charge   6,840       13,115    
Share in net (income) loss of equity investee   (235 )     (49 )  
Finance and other expense (income)   (8,887 )     (21 )  
Bargain purchase gain   (105 )        
Finance costs   5,216       5,258    
    (11,148 )     19,797    
         
Income before income taxes   101,129       58,473    
         
Current income tax expense (recovery)   26,492       24,108    
Deferred income tax expense (recovery)   (7,907 )     (6,068 )  
Income tax expense (recovery)   18,585       18,040    
         
Net income   82,544       40,433    
         
Earnings per share        
Basic and diluted $ 3.90     $ 1.91    
         
         


CONSTELLATION SOFTWARE INC.      
Condensed Consolidated Interim Statements of Comprehensive Income      
(In thousands of U.S. dollars, except per share amounts)      
                   
Three months ended March 31, 2018 and 2017      
Unaudited              
               
                2018       2017  
                   
Net income         $ 82,544     $ 40,433  
                   
Items that are or may be reclassified subsequently to net income:      
                   
Net change in fair value            
  of available-for-sale financial          
  asset during the period         -       (1,314 )
                   
Net change in fair value            
  of derivatives designated as hedges        
  during the period         -       164  
                   
Amounts reclassified to profit during the period      
  related to realized losses (gains) on        
  available-for-sale financial assets       -       879  
                   
Foreign currency translation differences from foreign operations   (4,166 )     2,891  
                   
Deferred income tax recovery (expense)     -       8  
                   
Other comprehensive (loss) income for the period, net of income tax   (4,166 )     2,628  
                   
Total comprehensive income (loss) for the period $ 78,378     $ 43,061  
                   


CONSTELLATION SOFTWARE INC.          
Condensed Consolidated Interim Statements of Changes in Equity      
(In thousands of U.S. dollars)      
                       
                       
Unaudited                    
Three months ended March 31, 2018                        
          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
Amounts
related to
gains/(losses)
on derivatives
designed as
hedges
     
                       
Balance at January 1, 2018   $ 99,283 $ (26,739 ) $ -  $ -  $ (26,739 ) $ 531,534   $ 604,078  
                       
Impact of change in accounting policy (note 20)     -   -     -   -   -     (23,314 )   (23,314 )
                       
Total comprehensive income for the period:              
                       
Net income           -   -     -   -   -     82,544     82,544  
                       
Other comprehensive income (loss)              
                       
Net change in fair value              
  of available-for-sale financial              
  asset during the period     -   -     -   -   -     -     -  
                       
Net change in fair value              
  of derivatives designated as hedges              
  during the period     -   -     -   -   -     -     -  
                       
Amounts reclassified to profit during the period              
  related to realized losses (gains) on              
  available-for-sale financial assets     -   -     -   -   -     -     -  
                       
Foreign currency translation differences from              
  foreign operations     -   (4,166 )   -   -   (4,166 )   -     (4,166 )
                       
Deferred tax recovery (expense)     -   -     -   -   -     -     -  
                       
Total other comprehensive income (loss)              
  for the period       -      (4,166 )     -      -      (4,166 )     -        (4,166 )
                       
Total comprehensive income (loss) for the period       -      (4,166 )     -      -      (4,166 )     82,544       78,378  
                       
Transactions with owners, recorded directly in equity              
Dividends to shareholders of the Company     -   -     -   -   -     (21,192 )   (21,192 )
                       
Balance at March 31, 2018   $ 99,283 $ (30,905 ) $ -  $ -  $ (30,905 ) $ 569,572   $ 637,950  
                                       


CONSTELLATION SOFTWARE INC.          
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)        
                   
                   
Unaudited                
Three months ended March 31, 2017              
                   
      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
Amounts
related to
gains/(losses)
on derivatives
designed as
hedges
     
                   
Balance at January 1, 2017 $    99,283 $    (35,748 ) $    17   $    (377 ) $    (36,108 ) $    394,334   $    457,509  
                   
Total comprehensive income for the period:              
                   
Net income     -   -     -     -     -     40,433     40,433  
                   
Other comprehensive income (loss)              
                   
Net change in fair value              
  of available-for-sale financial              
  asset during the period   -   -     (1,314 )   -     (1,314 )   -     (1,314 )
                   
Net change in fair value              
  of derivatives designated as hedges              
  during the period   -   -     -     164     164     -     164  
                   
Amounts reclassified to profit during the period              
  related to realized losses (gains) on              
  available-for-sale financial assets   -   -     879     -     879     -     879  
                   
Foreign currency translation differences from              
  foreign operations   -   2,891     -     -     2,891     -     2,891  
                   
Deferred tax recovery (expense)   -   -     57     (49 )   8     -     8  
                   
Total other comprehensive income for the period     -      2,891       (378 )     115       2,628       -        2,628  
                   
Total comprehensive income for the period     -      2,891       (378 )     115       2,628       40,433       43,061  
                   
Transactions with owners, recorded directly in equity              
Dividends to shareholders of the Company   -   -       -     -     (21,192 )   (21,192 )
                   
Balance at March 31, 2017 $    99,283 $    (32,857 ) $    (361 ) $    (262 ) $    (33,480 ) $    413,575   $    479,378  
                   


CONSTELLATION SOFTWARE INC.    
Condensed Consolidated Interim Statements of Cash Flows      
(In thousands of U.S. dollars)          
                     
Three months ended March 31, 2018 and 2017      
Unaudited              
                 
                  2018       2017  
                     
Cash flows from operating activities:        
  Net income       $ 82,544     $ 40,433  
  Adjustments for:          
    Depreciation       6,651       5,299  
    Amortization of intangible assets     68,632       52,285  
    TSS membership liability revaluation charge   6,840       13,115  
    Share in net (income) loss of equity investee   (235 )     (49 )
    Finance and other expense (income)   (8,887 )     (21 )
    Bargain purchase gain       (105 )      
    Finance costs       5,216       5,258  
    Income tax expense (recovery)     18,585       18,040  
    Foreign exchange loss (gain)     (13,977 )     1,494  
  Change in non-cash operating assets and liabilities      
    exclusive of effects of business combinations   147,025       71,217  
  Income taxes paid       (54,615 )     (25,097 )
  Net cash flows from operating activities   257,674       181,974  
                     
Cash flows from (used in) financing activities:      
  Interest paid         (5,268 )     (5,451 )
  Increase (decrease) in New CNH Facility, net   (57,677 )      
  Dividends paid       (21,192 )     (21,192 )
  Net cash flows from (used in) in financing activities   (84,137 )     (26,643 )
                     
Cash flows from (used in) investing activities:      
  Acquisition of businesses, net of cash      
    acquired         (296,457 )     (48,837 )
  Post-acquisition settlement payments, net of receipts   (16,598 )     (5,355 )
  Proceeds from sale of available-for-sale equity securities         2,013  
  Interest, dividends and other proceeds received   748       19,553  
  Property and equipment purchased     (4,466 )     (4,410 )
  Net cash flows from (used in) investing activities   (316,773 )     (37,036 )
                     
Effect of foreign currency on          
  cash and cash equivalents     1,798       2,095  
                     
Increase (decrease) in cash       (141,438 )     120,390  
                     
Cash, beginning of period       488,964       353,499  
                     
Cash, end of period     $ 347,526     $ 473,889