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Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2018 and Declares Quarterly Dividend

TORONTO, July 26, 2018 (GLOBE NEWSWIRE) -- Constellation Software Inc. (CSU.TO) (“Constellation” or the “Company”) today announced its financial results for the second quarter ended June 30, 2018 and declared a $1.00 per share dividend payable on October 3, 2018 to all common shareholders of record at close of business on September 14, 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 and six months ended June 30, 2018 and the accompanying notes, our Management Discussion and Analysis for the three and six months ended June 30, 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.

Q2 2018 Headlines:

  • Revenue grew 25% (4% organic growth, 1% after adjusting for changes in foreign exchange rates) to $752 million compared to $600 million in Q2 2017. 
  • Adjusted EBITA increased $21 million or 13% to $175 million as compared to $155 million in Q2 2017. 
  • Net income increased 2% to $52 million ($2.45 on a diluted per share basis) from $51 million ($2.41 on a diluted per share basis) in Q2 2017.
  • Adjusted net income increased 9% to $122 million ($5.75 on a diluted per share basis) from $12 million ($5.30 on a diluted per share basis) in Q2 2017.    
  • A number of acquisitions were completed for aggregate cash consideration of $43 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $12 million resulting in total consideration of $55 million.
  • Cash flows from operations were $53 million, a decrease of 13%, or $7 million, compared to $60 million for the comparable period in 2017.

Total revenue for the quarter ended June 30, 2018 was $752 million, an increase of 25%, or $152 million, compared to $600 million for the comparable period in 2017.  For the first six months of 2018 total revenues were $1,471 million, an increase of 27%, or $315 million, compared to $1,155 million for the comparable period in 2017.  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 4% in both the three and six month periods, 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.  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 three and six months ended June 30, 2018 total revenue was $1 million lower and $7 million higher respectively than it would have been under prior IFRS.  The organic growth figures included above and below exclude the impact of IFRS 15.

For the quarter ended June 30, 2018, Adjusted EBITA increased to $175 million compared to $155 million for the same period in 2017 representing an increase of 13%.  For the first six months of 2018, Adjusted EBITA increased to $334 million compared to $285 million during the same period in 2017, representing an increase of 17%.  For the three and six months ended June 30, 2018, Adjusted EBITA was $2 million lower and $8 million higher respectively, than it would have been under prior IFRS.  Adjusted EBITA margin was 23% for both the three and six months ended June 30, 2018, compared to 26% and 25% during the same periods in 2017.  Excluding the impact of IFRS 15, Adjusted EBITA margin would have been 24% and 22% for the three and six months ended June 30, 2018, respectively.  The margin decline is primarily the result of lower margins on recently acquired businesses. 

Net income for the quarter ended June 30, 2018 was $52 million compared to net income of $51 million for the same period in 2017.  On a per share basis, this translated into a net income per diluted share of $2.45 in the quarter ended June 30, 2018 compared to net income per diluted share of $2.41 for the same period in 2017.  For the six months ended June 30, 2018, net income was $135 million or $6.35 per diluted share compared to $92 million or $4.32 per diluted share for the same period in 2017.

For the quarter ended June 30, 2018, Adjusted net income increased to $122 million from $112 million for the same period in 2017, representing an increase of 9%.  Adjusted net income margin was 16% for the quarter ended June 30, 2018 and 19% for the same period in 2017.  For the quarter ended June 30, 2018, Adjusted net income was $1 million lower than it would have been under prior IFRS.  For the first six months of 2018, Adjusted net income increased to $265 million from $207 million during the same period in 2017, representing an increase of 28%.  Adjusted net income margin was 18% for both the six months ended June 30, 2018 and June 30, 2017.  For the six months ended June 30, 2018, Adjusted net income was $4 million higher than it would have been under prior IFRS.  Excluding the impact of the unrealized foreign exchange (gain) loss recorded in each of the three and six month periods ended June 30, 2017 and 2018, a $8 million financial liability accrual reversal recorded to finance and other income in Q1 2018, and the impacts of IFRS 15, the margins would have been 18% and 17% for the respective periods in 2018, and 19% and 18% for the respective periods in 2017.   

Cash flows from operations for the quarter ended June 30, 2018 were $53 million, an decrease of 13%, or $7 million, compared to $60 million for the comparable period in 2017.   

The following table displays our revenue by reportable segment and the percentage change for the three and six months ended June 30, 2018 compared to the same periods in 2017:

                         
    Three months ended Period-Over-Period Organic   Six months ended Period-Over-Period Organic
    June 30, Change Growth   June 30, Change Growth
                         
    2018 2017 $ % %   2018 2017 $ % %
    ($M, except percentages)     ($M, except percentages)  
Public Sector                        
Licenses   29 25 4   16 % -8 %   57 46 11   23 % -7 %
Professional services   114 96 18   19 % -2 %   225 185 40   21 % 1 %
Hardware and other   36 35 1   4 % -6 %   62 59 3   5 % -7 %
Maintenance and other recurring 322 251 71   28 % 7 %   642 490 152   31 % 7 %
    500 406 94   23 % 3 %   986 780 205   26 % 4 %
                         
Private Sector                        
Licenses   19 16 3   19 % 1 %   35 30 5   17 % -1 %
Professional services   39 25 14   56 % 19 %   70 48 22   46 % 12 %
Hardware and other   7 7 (0 ) 0 % -31 %   14 14 (1 ) -4 % -34 %
Maintenance and other recurring 186 146 41   28 % 6 %   366 283 83   29 % 7 %
    252 194 58   30 % 6 %   485 375 110   29 % 5 %
                         
Certain totals and percentages may not reconcile due to rounding.                  
                   

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 and six months ended June 30, 2017.

Public Sector

For the quarter ended June 30, 2018, total revenue in the public sector reportable segment increased 23%, or $94 million to $500 million, compared to $406 million for the quarter ended June 30, 2017.  For the six months ended June 30, 2018, total revenue increased by 26%, or $205 million to $986 million, compared to $780 million for the comparable period in 2017.  For the three and six months ended June 30, 2018 total revenue was respectively $2 million lower and $7 million higher than it would have been under prior IFRS.   Organic growth excludes the impact of IFRS 15.  Organic revenue growth was 3% and 4%, respectively, for the three and six months ended June 30, 2018 compared to the same periods in 2017, and 0% for both periods 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, 2018, total revenue in the private sector reportable segment increased 30%, or $58 million to $252 million, compared to $194 million for the quarter ended June 30, 2017.  For the six months ended June 30, 2018, total revenue increased by 29%, or $110 million to $485 million, compared to $375 million for the comparable period in 2017.  For the three and six months ended June 30, 2018 total revenue was respectively $0.2 million and $0.5 million higher than it would have been under prior IFRS.   Organic growth excludes the impact of IFRS 15.  Organic revenue growth was 6% and 5% for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017, and 4% 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

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,
   
      2018  2017        2018  2017     
    ($M, except percentages)   ($M, except percentages)  
                       
Total revenue     752   600         1,471   1,155      
                       
Net income     52   51         135   92      
Adjusted for:                      
Income tax expense (recovery)     27   25         46   43      
Foreign exchange (gain) loss     9   2         (5 ) 3      
TSS membership liability revaluation charge     14   15         21   29      
Share in net (income) loss of equity investees     0   (0 )       (0 ) (0 )    
Finance and other income     (1 ) (0 )       (10 ) (0 )    
Bargain purchase gain     (0 ) -         (0 ) -      
Finance costs     5   5         10   11      
Amortization of intangible assets     70   56         139   108      
                       
Adjusted EBITA     175   155         334   285      
Adjusted EBITA margin     23 % 26 %       23 % 25 %    
                       
Certain totals and percentages may not reconcile due to rounding.                  
                       
                       

 The following table reconciles Adjusted net income to net income:

                     
      Three months ended
June 30,
      Six months ended
June 30,
 
      2018 2017       2018 2017  
    ($M, except percentages)   ($M, except percentages)
                     
Total revenue     752   600         1,471   1,155    
                     
Net income     52   51         135   92    
Adjusted for:                    
Amortization of intangible assets     70   56         139   108    
TSS membership liability revaluation charge     14   15         21   29    
Bargain purchase gain     (0 ) -         (0 ) -    
Less non-controlling interest in the Adjusted                    
net income of TSS     (6 ) (5 )       (13 ) (11 )  
Deferred income tax expense (recovery)     (8 ) (5 )       (16 ) (11 )  
                     
Adjusted net income     122   112         264   207    
Adjusted net income margin     16 % 19 %       18 % 18 %  
                     
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      
    June 30, 2018   December 31, 2017  
       
Assets      
       
Current assets:      
Cash   $ 343,566   $ 488,964  
Accounts receivable     329,650     316,538  
Unbilled revenue     83,808     64,109  
Inventories     29,503     23,196  
Other assets     153,484     100,098  
      940,011     992,905  
       
Non-current assets:      
Property and equipment     58,129     53,817  
Deferred income taxes     54,254     38,362  
Other assets     56,583     21,801  
Intangible assets   1,444,583     1,181,333  
      1,613,549     1,295,313  
       
Total assets   $ 2,553,560   $ 2,288,218  
       
Liabilities and Shareholders' Equity      
       
Current liabilities:      
CSI Facility   $ -   $ -  
New CNH Facility     62,551     96,398  
TSS Membership Liability     55,370     49,215  
Accounts payable and accrued liabilities     347,975     379,573  
Dividends payable     21,235     21,575  
Deferred revenue     711,471     541,108  
Provisions     5,836     10,377  
Acquisition holdback payables     61,558     42,867  
Income taxes payable     30,588     31,028  
      1,296,584     1,172,141  
       
Non-current liabilities:      
TSS Membership Liability     97,403     86,575  
Debentures     224,247     236,462  
Deferred income taxes     174,118     148,961  
Acquisition holdback payables     14,924     6,480  
Other liabilities     80,173     33,521  
      590,865     511,999  
       
Total liabilities     1,887,449     1,684,140  
       
       
Shareholders' equity:      
Capital stock     99,283     99,283  
Accumulated other comprehensive income (loss)     (33,547 )   (26,739 )
Retained earnings     600,375     531,534  
      666,111     604,078  
       
       
       
Total liabilities and shareholders' equity   $ 2,553,560   $ 2,288,218  
       
       

 

CONSTELLATION SOFTWARE INC.            
Condensed Consolidated Interim Statements of Income              
(In thousands of U.S. dollars, except per share amounts)              
               
Three and six months ended June 30, 2018 and 2017              
Unaudited              
  Three months ended June 30,   Six months ended June 30,
    2018       2017       2018       2017  
               
               
Revenue              
License $ 47,861     $ 40,872     $ 91,680     $ 76,004  
Professional services   152,644       120,705       294,814       233,118  
Hardware and other   43,214       41,930       75,984       73,356  
Maintenance and other recurring   508,326       396,577       1,008,026       772,932  
    752,045       600,084       1,470,504       1,155,410  
               
Expenses              
Staff   390,441       296,769       779,853       586,084  
Hardware   23,961       23,091       41,758       39,411  
Third party license, maintenance and professional services   66,611       50,539       128,082       100,542  
Occupancy   19,785       14,434       38,917       27,870  
Travel   21,006       18,068       39,273       33,892  
Telecommunications   6,296       5,267       12,446       10,335  
Supplies   4,602       3,608       9,212       7,480  
Software and equipment   13,167       9,819       26,079       19,356  
Professional fees   8,901       6,768       19,079       13,693  
Other, net   15,135       11,814       28,401       20,986  
Depreciation   6,747       5,321       13,398       10,620  
Amortization of intangible assets   69,898       55,738       138,530       108,023  
    646,550       501,236       1,275,028       978,292  
               
               
Foreign exchange loss (gain)   8,673       1,865       (5,304 )     3,359  
TSS membership liability revaluation charge   13,872       15,415       20,712       28,530  
Share in net (income) loss of equity investee   2       (77 )     (233 )     (126 )
Finance and other expense (income)   (1,157 )     (408 )     (10,044 )     (429 )
Bargain purchase gain   (14 )     -       (119 )     -  
Finance costs   5,005       5,473       10,221       10,731  
    26,381       22,268       15,233       42,065  
               
Income before income taxes   79,114       76,580       180,243       135,053  
               
Current income tax expense (recovery)   34,963       30,108       61,455       54,216  
Deferred income tax expense (recovery)     (7,844 )       (4,678 )       (15,751 )       (10,746 )
Income tax expense (recovery)     27,119         25,430         45,704         43,470  
               
Net income     51,995         51,150         134,539         91,583  
               
Earnings per share              
 Basic and diluted $   2.45     $   2.41     $   6.35     $   4.32  
               
               
               

 

CONSTELLATION SOFTWARE INC.              
Condensed Consolidated Interim Statements of Comprehensive Income              
(In thousands of U.S. dollars, except per share amounts)              
                 
Three and six months ended June 30, 2018 and 2017              
Unaudited              
    Three months ended June 30,   Six months ended June 30,
      2018       2017       2018       2017  
                 
Net income $null