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

TORONTO, Oct. 31, 2019 (GLOBE NEWSWIRE) -- Constellation Software Inc. (CSU.TO) (“Constellation” or the “Company”) today announced its financial results for the third quarter ended September 30, 2019 and declared a $1.00 per share dividend payable on January 8, 2020 to all common shareholders of record at close of business on December 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 nine months ended September 30, 2019 and the accompanying notes, our Management Discussion and Analysis for the three and nine months ended September 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.

Q3 2019 Headlines:

  • Revenue grew 15% (negative 2% organic growth, 0% after adjusting for changes in foreign exchange rates) to $870 million compared to $759 million in Q3 2018.
  • Net income increased 24% to $82 million ($3.85 on a diluted per share basis) from $66 million ($3.10 on a diluted per share basis) in Q3 2018.
  • A number of acquisitions were completed for aggregate cash consideration of $278 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $67 million resulting in total consideration of $345 million.
  • Cash flows from operations (“CFO”) (after adjusting for the impact of IFRS 16 Leases, which was adopted on January 1, 2019) were $163 million, an increase of 14%, or $20 million, compared to $143 million for the comparable period in 2018.
  • Free cash flow available to shareholders (“FCFA2S”) increased $22 million to $134 million compared to $112 million for the same period in 2018 representing an increase of 20%.   
  • Subsequent to September 30, 2019, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $56 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $24 million resulting in total consideration of $79 million. 

Total revenue for the quarter ended September 30, 2019 was $870 million, an increase of 15%, or $111 million, compared to $759 million for the comparable period in 2018.  For the first nine months of 2019 total revenues were $2,534 million, an increase of 14%, or $305 million, compared to $2,230 million for the comparable period in 2018.  The increase for both the three and nine 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 2% and negative 1% respectively, 0% 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.

Net income for the quarter ended September 30, 2019 was $82 million compared to net income of $66 million for the same period in 2018.  On a per share basis, this translated into a net income per diluted share of $3.85 in the quarter ended September 30, 2019 compared to net income per diluted share of $3.10 for the same period in 2018.  For the nine months ended September 30, 2019, net income was $241 million or $11.39 per diluted share compared to $200 million or $9.45 per diluted share for the same period in 2018.

For the quarter ended September 30, 2019, CFO increased $34 million to $177 million compared to $143 million for the same period in 2018 representing an increase of 24%.  For the first nine months of 2019, CFO increased $58 million to $512 million compared to $454 million during the same period in 2018, representing an increase of 13%.  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 CFO are now recorded as a component of cash flows used in financing activities.  For the three and nine months ended September 30, 2019 lease obligation and interest payments totaled $14 million and $40 million respectively.  If lease obligation and interest payments were deducted from CFO for the three and nine months ended September 30, 2019 the increase in CFO would have been 14% and 4% over the same periods in 2018.

For the quarter ended September 30, 2019, FCFA2S increased $22 million to $134 million compared to $112 million for the same period in 2018 representing an increase of 20%.  For the first nine months of 2019, FCFA2S increased $16 million to $397 million compared to $381 million during the same period in 2018, representing an increase of 4%.  The primary reason for the large variance between the 4% growth in FCFA2S and the 14% revenue growth for the first nine months of 2019 is that FCFA2S includes the impact of changes in non-cash operating assets and liabilities exclusive of effects of business combinations or “changes in non-cash operating working capital”.  For the nine months ended September 30, 2019 there was $44 million of cash used in non-cash operating working capital compared to $19 million of cash generated from non-cash operating working capital for the same period in 2018.  See Appendix A – “Note to shareholders regarding our replacement non-IFRS measure”, included in our Management Discussion and Analysis for the three and nine months ended September 30, 2019, for further discussion around the FCFA2S metric.

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

    Three months ended
September 30,
Period-Over-
Period Change
Organic
Growth
  Nine months ended
September 30,
Period-Over-
Period Change
Organic
Growth
                         
    2019 2018 $ % %   2019 2018 $ % %
    ($M, except percentages)   ($M, except percentages)
Public Sector                        
Licenses   32 31 2 5% -18%   102 88 14 16% -9%
Professional services 127 114 13 11% -8%   375 339 35 10% -7%
Hardware and other   37 33 5 15% 1%   101 95 6 6% -7%
Maintenance and other recurring   387 328 59 18% 1%   1,119 969 150 15% 1%
    584 506 79 16% -2%   1,697 1,492 206 14% -2%
                         
Private Sector                        
Licenses   19 18 1 3% -8%   63 53 10 18% 5%
Professional services 36 34 3 8% -5%   111 104 7 7% -6%
Hardware and other   8 8 0 1% -14%   21 21 0 0% -11%
Maintenance and other recurring   223 194 29 15% 0%   642 560 82 15% 2%
    286 254 32 13% -1%   837 738 99 13% 0%
                         
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 nine months ended September 30, 2018.

Public Sector

For the quarter ended September 30, 2019, total revenue in the public sector reportable segment increased 16%, or $79 million to $584 million, compared to $506 million for the quarter ended September 30, 2018.  For the nine months ended September 30, 2019, total revenue increased by 14%, or $206 million to $1,697 million, compared to $1,492 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 $91 million and $237 million for the three and nine month periods ended September 30, 2018, respectively.  Organic revenue growth was negative 2% for both the three and nine months ended September 30, 2019 compared to the same periods in 2018, and 0% and positive 1% respectively 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 September 30, 2019, total revenue in the private sector reportable segment increased 13%, or $32 million to $286 million, compared to $254 million for the quarter ended September 30, 2018.  For the nine months ended September 30, 2019, total revenue increased by 13%, or $99 million to $837 million, compared to $738 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 $36 million and $96 million for the three and nine month periods ended September 30, 2018, respectively.  Organic revenue growth was negative 1% and 0% for the three and nine months ended September 30, 2019 respectively compared to the same periods in 2018, and 1% and 3% respectively 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

Free cash flow available to shareholders ‘‘FCFA2S’’ refers to net cash flows from operating activities less interest paid on lease obligations, interest paid on other facilities, credit facility transaction costs, repayments of lease obligations, the TSS membership liability revaluation charge, and property and equipment purchased, and includes interest and dividends received.  Constellation believes that FCFA2S is useful supplemental information as it provides an indication of the uncommitted cash flow that is available to shareholders if Constellation does not make any acquisitions, or investments, and does not repay any debts.  While Constellation could use the FCFA2S to pay dividends or repurchase shares, Constellation’s objective is to invest all of our FCFA2S in acquisitions which meet Constellation’s hurdle rate. 

FCFA2S is not a recognized measure under IFRS and, accordingly, readers are cautioned that FCFA2S should not be construed as an alternative to net cash flows from operating activities. 

The following table reconciles FCFA2S to net cash flows from operating activities:

      Three months ended
September 30,
      Nine months ended
September 30,
 
      2019 2018       2019 2018  
    ($M, except percentages)   ($M, except percentages)
                     
Net cash flows from operating activities     177   143         512   454    
Adjusted for:                    
Interest paid on lease obligations     (2 ) -         (5 ) -    
Interest paid on other facilities     (8 ) (7 )       (23 ) (17 )  
Credit facility transaction costs     (0 ) (3 )       (0 ) (3 )  
Repayments of lease obligations     (12 ) -         (35 ) -    
TSS membership liability revaluation charge     (12 ) (17 )       (30 ) (38 )  
Property and equipment purchased     (9 ) (6 )       (24 ) (18 )  
Interest and dividends received     0   2         3   3    
                     
Free cash flow available to shareholders     134   112         397   381    
                     
Due to rounding, certain totals may not foot.                    
                     

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
    September 30, 2019   December 31, 2018   September 30, 2018  
         
Assets      
         
Current assets:      
  Cash $ 235   $ 589   $ 456  
  Accounts receivable   390     362     330  
  Unbilled revenue   106     80     89  
  Inventories   43     34     32  
  Other assets   182     143     158  
      956     1,207     1,066  
         
Non-current assets:      
  Property and equipment   70     67     58  
  Right of use assets   220     -     -  
  Deferred income taxes   38     47     47  
  Other assets   71     64     59  
  Intangible assets   1,882     1,549     1,506  
      2,281     1,728     1,671  
         
Total assets $ 3,237   $ 2,935   $ 2,737  
         
Liabilities and Shareholders' Equity      
         
Current liabilities:      
  CSI facility $ 21   $ -   $ -  
  Debt without recourse to Constellation Software Inc.   99     51     63  
  TSS membership liability   84     67     61  
  Accounts payable and accrued liabilities   454     464     385  
  Dividends payable   21     21     21  
  Deferred revenue   790     657     681  
  Provisions   14     7     5  
  Acquisition holdback payables   77     47     57  
  Lease obligations   57     -     -  
  Income taxes payable   30     30     35  
      1,646     1,344     1,309  
         
Non-current liabilities:      
  Debt without recourse to Constellation Software Inc.   115     102     108  
  TSS membership liability   110     117     107  
  Debentures   219     215     227  
  Deferred income taxes   241     192     179  
  Acquisition holdback payables   22     25     15  
  Lease obligations   179     -     -  
  Other liabilities   93     74     77  
      978     725     715  
         
Total liabilities   2,624     2,069     2,024  
         
         
Shareholders' equity:      
  Capital stock   99     99     99  
  Accumulated other comprehensive income (loss)   (44 )   (37 )   (32 )
  Retained earnings   558     803     645  
      613     866     713  
         
         
Total liabilities and shareholders' equity $ 3,237   $ 2,935   $ 2,737  
         


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 nine months ended September 30, 2019 and 2018            
Unaudited              
  Three months ended September 30,     Nine months ended September 30,  
  2019     2018     2019     2018  
               
               
Revenue              
License $ 51     $ 49     $ 165     $ 141  
Professional services   164       148       485       443  
Hardware and other   45       40       122       116  
Maintenance and other recurring   609       521       1,762       1,529  
    870       759       2,534       2,230  
               
Expenses              
Staff   434       384       1,316       1,163  
Hardware   25       22       68       64  
Third party license, maintenance and professional services   75       66       218       194  
Occupancy   9       19       26       58  
Travel, telecommunications, supplies, software and equipment   50       44       143       131  
Professional fees   12       9       34       28  
Other, net   18       11       53       40  
Depreciation   23       7       65       20  
Amortization of intangible assets   84       70       234       209  
    730       633       2,158       1,908  
               
               
Foreign exchange loss (gain)   6       8       20       3  
TSS membership liability revaluation charge   12       17       30       38  
Finance and other expense (income)   1       (3 )     (2 )     (13 )
Bargain purchase (gain)   (7 )     (1 )     (36 )     (1 )
Finance costs   11       8       29       18  
    22       30       41       45  
               
Income before income taxes   117       97       335       277  
               
Current income tax expense (recovery)   44       32       121       93  
Deferred income tax expense (recovery)   (8 )     (1 )     (28 )     (16 )
Income tax expense (recovery)   36       31       94       77  
               
Net income   82       66       241       200  
               
Earnings per share              
Basic and diluted $ 3.85     $ 3.10     $ 11.39     $ 9.45  
               


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 and nine months ended September 30, 2019 and 2018            
Unaudited              
  Three months ended September 30,   Nine months ended September 30,
  2019   2018   2019   2018
               
Net income $ 82     $ 66   $ 241     $ 200  
               
Items that are or may be reclassified subsequently to net income:              
               
Foreign currency translation differences from foreign operations   (12 )     2     (7 )     (5 )
               
Deferred income tax recovery (expense)   -       -     -       -  
               
Other comprehensive (loss) income for the period, net of income tax   (12 )     2     (7 )     (5 )
               
Total comprehensive income (loss) for the period $ 70     $ 68   $ 234     $ 195  
               


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
Nine months ended September 30, 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   -     -     241     241  
         
Other comprehensive income (loss)        
         
Foreign currency translation differences from foreign operations   -     (7 )   -     (7 )
         
Total other comprehensive income (loss) for the period   -     (7 )   -     (7 )
         
Total comprehensive income (loss) for the period   -     (7 )   241     234  
         
Transactions with owners, recorded directly in equity        
Dividends to shareholders of the Company   -     -     (487 )   (487 )
         
Balance at September 30, 2019 $ 99   $ (44 ) $ 558   $ 613  


     
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        
Nine months ended September 30, 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   -     -     200     200  
         
Other comprehensive income (loss)        
         
Foreign currency translation differences from foreign operations   -     (5 )   -     (5 )
         
Total other comprehensive income for the period   -     (5 )   -     (5 )
         
Total comprehensive income for the period   -     (5 )   200     195  
         
Transactions with owners, recorded directly in equity        
Dividends to shareholders of the Company   -     -     (64 )   (64 )
         
Balance at September 30, 2018 $ 99   $ (32 ) $ 645   $ 713  
         


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 and nine months ended September 30, 2019 and 2018              
Unaudited              
      Three months ended September 30,     Nine months ended September 30,  
        2019       2018       2019       2018  
                   
Cash flows from operating activities:              
  Net income $ 82     $ 66     $ 241     $ 200  
  Adjustments for:              
    Depreciation   23       7       65       20  
    Amortization of intangible assets   84       70       234       209  
    TSS membership liability revaluation charge   12       17       30       38  
    Finance and other expense (income)   1       (3 )     (2 )     (13 )
    Bargain purchase (gain)   (7 )     (1 )     (36 )     (1 )
    Finance costs   11       8       29       18  
    Income tax expense (recovery)   36       31       94       77  
    Foreign exchange loss (gain)   6       8       20       3  
  Change in non-cash operating assets and liabilities exclusive of effects of business combinations   (37 )     (27 )     (44 )     19  
  Income taxes paid   (32 )     (34 )     (119 )     (116 )
  Net cash flows from operating activities   177       143       512       454  
                   
Cash flows from (used in) financing activities:              
  Interest paid on lease obligations   (2 )     -       (5 )     -  
  Interest paid on other facilities   (8 )     (7 )     (23 )     (17 )
  Increase (decrease) in CSI facility   22       -       22       -  
  Increase (decrease) in revolving credit under debt facilities without recourse to CSI   89       -       49       (35 )
  Proceeds from issuance of term debt under facilities without recourse to CSI   11       110       11       110  
  Repayments of term debt under facilities without recourse to CSI   (0 )     (0 )     (2 )     (0 )
  Credit facility transaction costs   (0 )     (3 )     (0 )     (3 )
  Repayments of lease obligations   (12 )     -       (35 )     -  
  Distribution to TSS minority owners   -       -       (11 )     -  
  Dividends paid   (21 )     (21 )     (487 )     (64 )
  Net cash flows from (used in) in financing activities   79       80       (481 )     (8 )
                   
Cash flows from (used in) investing activities:              
  Acquisition of businesses   (278 )     (92 )     (408 )     (454 )
  Cash obtained with acquired businesses   68       8       103       48  
  Post-acquisition settlement payments, net of receipts   (8 )     (21 )     (45 )     (53 )
  Purchases of other investments   (4 )     -       (9 )     -  
  Interest, dividends and other proceeds received   2       2       5       3  
  Property and equipment purchased   (9 )     (6 )     (24 )     (18 )
  Net cash flows from (used in) investing activities   (228 )     (110 )     (378 )     (475 )
                   
Effect of foreign currency on cash and cash equivalents   (7 )     (1 )     (6 )     (4 )
                   
Increase (decrease) in cash   21       112       (354 )     (33 )
                   
Cash, beginning of period   214       344       589       489  
                   
Cash, end of period $ 235     $ 456     $ 235     $ 456