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Constellation Software Inc. Announces Results for the Third Quarter Ended September 30, 2020 and Declares Quarterly Dividend

Constellation Software Inc.
·14 min read

TORONTO, Nov. 02, 2020 (GLOBE NEWSWIRE) -- Constellation Software Inc. (TSX:CSU) (“Constellation” or the “Company”) today announced its financial results for the third quarter ended September 30, 2020 and declared a $1.00 per share dividend payable on January 11, 2021 to all common shareholders of record at close of business on December 18, 2020. 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, 2020 and the accompanying notes, our Management Discussion and Analysis for the three and nine months ended September 30, 2020 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, 2019, 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

Our board remains inspired by the dedication and commitment of the Constellation employees who continue to adapt and find new ways to provide value and make a difference in support of each other and our customers by finding opportunities in the challenges created by COVID-19.

Q3 2020 Headlines:

  • Revenue grew 15% (negative 1% organic growth, negative 3% after adjusting for changes in foreign exchange rates) to $1,003 million compared to $870 million in Q3 2019.

  • Net income increased 50% to $122 million ($5.76 on a diluted per share basis) from $82 million ($3.85 on a diluted per share basis) in Q3 2019.

  • Impairment of intangible and other non-financial assets was $3 million in Q3 2020 versus nil in Q3 2019.

  • A number of acquisitions were completed for aggregate cash consideration of $123 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $25 million resulting in total consideration of $148 million.

  • Cash flows from operations (“CFO”) were $234 million, an increase of 32%, or $57 million, compared to $177 million for the comparable period in 2019.

  • Free cash flow available to shareholders1 (“FCFA2S”) increased $47 million to $181 million compared to $134 million for the same period in 2019.

  • The Company determined that certain of its subsidiaries qualified for an estimated aggregate amount of $12 million of grants from various government authorities, and recognized such amounts as a reduction to expenses in the quarter.

  • On May 20, 2020 the Company entered into a binding agreement with IJssel B.V. to purchase 100% of the shares of Topicus.com B.V., a Netherlands-based diversified vertical market software provider. The transaction is currently expected to close in 2020, subject to the satisfaction of certain closing conditions.

  • Subsequent to September 30, 2020, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $47 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $19 million resulting in total consideration of $66 million.

1. See Non-IFRS measures.

Total revenue for the quarter ended September 30, 2020 was $1,003 million, an increase of 15%, or $133 million, compared to $870 million for the comparable period in 2019. For the first nine months of 2020 total revenues were $2,878 million, an increase of 14%, or $343 million, compared to $2,534 million for the comparable period in 2019. 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 1% and negative 4% respectively, and negative 3% 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.

Net income for the quarter ended September 30, 2020 was $122 million compared to net income of $82 million for the same period in 2019. On a per share basis, this translated into a net income per diluted share of $5.76 in the quarter ended September 30, 2020 compared to net income per diluted share of $3.85 for the same period in 2019. For the nine months ended September 30, 2020, net income was $288 million or $13.58 per diluted share compared to $241 million or $11.39 per diluted share for the same period in 2019.

For the quarter ended September 30, 2020, CFO increased $57 million to $234 million compared to $177 million for the same period in 2019 representing an increase of 32%. For the first nine months of 2020, CFO increased $320 million to $831 million compared to $512 million during the same period in 2019, representing an increase of 62%.

For the quarter ended September 30, 2020, FCFA2S increased $47 million to $181 million compared to $134 million for the same period in 2019. For the first nine months of 2020, FCFA2S increased $285 million to $682 million compared to $397 million during the same period in 2019, representing an increase of 72%.

The Company is closely monitoring the impact of COVID-19 on all aspects of its business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. The COVID-19 pandemic has had disruptive effects in countries in which the Company operates and has adversely impacted many of its business units’ operations to date, including through the cancellation by certain customers of their ongoing software maintenance contracts and the suspension or cancellation of new software purchases. The pandemic may also have an adverse impact on many of the Company’s customers, including their ability to satisfy ongoing payment obligations to the Company, which could increase the Company’s bad debt exposure. The future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may continue to adversely affect the Company’s results of operations, cash flows and financial position as well as its customers in future periods, and this impact could be material.

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,

2020

2019

2020

2019

($ in millions, except percentages)

($ in millions, except percentages)

Net cash flows from operating activities

234

177

831

512

Adjusted for:

Interest paid on lease obligations

(2

)

(2

)

(6

)

(5

)

Interest paid on other facilities

(8

)

(8

)

(22

)

(23

)

Credit facility transaction costs

(0

)

(0

)

(0

)

(0

)

Payments of lease obligations

(17

)

(12

)

(47

)

(35

)

TSS membership liability revaluation charge

(20

)

(12

)

(55

)

(30

)

Property and equipment purchased

(5

)

(9

)

(19

)

(24

)

Interest and dividends received

0

0

1

3

Free cash flow available to shareholders

181

134

682

397

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, 2020

December 31, 2019

September 30, 2019

Assets

Current assets:

Cash

$

565

$

316

$

235

Accounts receivable

420

422

390

Unbilled revenue

102

110

106

Inventories

30

31

43

Other assets

217

184

182

1,333

1,062

956

Non-current assets:

Property and equipment

80

78

70

Right of use assets

239

234

220

Deferred income taxes

50

45

38

Other assets

79

72

71

Intangible assets

2,097

1,997

1,882

2,546

2,425

2,281

Total assets

$

3,879

$

3,488

$

3,237

Liabilities and Shareholders' Equity

Current liabilities:

CSI facility

$

-

$

63

$

21

Debt without recourse to Constellation Software Inc.

4

57

99

TSS membership liability

104

86

84

Accounts payable and accrued liabilities

535

529

454

Dividends payable

21

21

21

Deferred revenue

917

788

790

Provisions

11

13

14

Acquisition holdback payables

71

76

77

Lease obligations

68

62

57

Income taxes payable

90

36

30

1,821

1,732

1,646

Non-current liabilities:

Debt without recourse to Constellation Software Inc. (note 8)

169

153

115

TSS membership liability

184

136

110

Debentures

213

222

219

Deferred income taxes

253

246

241

Acquisition holdback payables

30

25

22

Lease obligations

191

187

179

Other liabilities

116

101

93

1,155

1,069

978

Total liabilities

2,976

2,800

2,624

Shareholders' equity:

Capital stock

99

99

99

Accumulated other comprehensive income (loss)

(49

)

(40

)

(44

)

Retained earnings

852

628

558

902

687

613

Total liabilities and shareholders' equity

$

3,879

$

3,488

$

3,237


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, 2020 and 2019

Unaudited

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

Revenue

License

$

57

$

51

$

166

$

165

Professional services

187

164

534

485

Hardware and other

45

45

122

122

Maintenance and other recurring

713

609

2,056

1,762

1,003

870

2,878

2,534

Expenses

Staff

504

434

1,493

1,316

Hardware

25

25

70

68

Third party license, maintenance and professional services

82

75

237

218

Occupancy

9

9

26

26

Travel, telecommunications, supplies, software and equipment

32

50

114

143

Professional fees

15

12

41

34

Other, net

5

18

10

53

Depreciation

26

23

77

65

Amortization of intangible assets

103

84

293

234

800

730

2,362

2,158

Foreign exchange loss (gain)

1

6

5

20

TSS membership liability revaluation charge

20

12

55

30

Finance and other expense (income)

(2

)

1

(4

)

(2

)

Bargain purchase gain

(0

)

(7

)

(0

)

(36

)

Impairment of intangible and other non-financial assets

3

-

11

-

Finance costs

13

11

34

29

34

22

101

41

Income before income taxes

168

117

414

335

Current income tax expense (recovery)

62

44

177

121

Deferred income tax expense (recovery)

(16

)

(8

)

(50

)

(28

)

Income tax expense (recovery)

46

36

127

94

Net income

122

82

288

241

Earnings per share

Basic and diluted

$

5.76

$

3.85

$

13.58

$

11.39


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, 2020 and 2019

Unaudited

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

Net income

$

122

$

82

$

288

$

241

Items that are or may be reclassified subsequently to net income:

Foreign currency translation differences from foreign operations

8

(12

)

(9

)

(7

)

Deferred income tax recovery (expense)

-

-

-

-

Other comprehensive income (loss) for the period, net of income tax

8

(12

)

(9

)

(7

)

Total comprehensive income (loss) for the period

$

130

$

70

$

279

$

234


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, 2020

Capital
stock

Accumulated other
comprehensive income (loss)

Retained earnings

Total

Cumulative translation account

Balance at January 1, 2020

$

99

$

(40

)

$

628

$

687

Total comprehensive income for the period:

Net income

-

-

288

288

Other comprehensive income (loss)

Foreign currency translation differences from

foreign operations

-

(9

)

-

(9

)

Total other comprehensive income (loss)

for the period

-

(9

)

-

(9

)

Total comprehensive income (loss) for the period

-

(9

)

288

279

Transactions with owners, recorded directly in equity

Dividends to shareholders of the Company

-

-

(64

)

(64

)

Balance at September 30, 2020

$

99

$

(49

)

$

852

$

902


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 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 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, 2020 and 2019

Unaudited

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

Cash flows from operating activities:

Net income

$

122

$

82

$

288

$

241

Adjustments for:

Depreciation

26

23

77

65

Amortization of intangible assets

103

84

293

234

TSS membership liability revaluation charge

20

12

55

30

Finance and other expense (income)

(2

)

1

(4

)

(2

)

Bargain purchase (gain)

(0

)

(7

)

(0

)

(36

)

Impairment of intangible and other non-financial assets

3

-

11

-

Finance costs

13

11

34

29

Income tax expense (recovery)

46

36

127

94

Foreign exchange loss (gain)

1

6

5

20

Change in non-cash operating assets and liabilities

exclusive of effects of business combinations

(32

)

(37

)

69

(44

)

Income taxes paid

(66

)

(32

)

(123

)

(119

)

Net cash flows from (used in) operating activities

234

177

831

512

Cash flows from (used in) financing activities:

Interest paid on lease obligations

(2

)

(2

)

(6

)

(5

)

Interest paid on other facilities

(8

)

(8

)

(22

)

(23

)

Increase (decrease) in CSI facility

(100

)

22

(65

)

22

Increase (decrease) in revolving credit under debt facilities without recourse to CSI

-

89

(55

)

49

Proceeds from issuance of term debt under facilities without recourse to CSI

7

11

22

11

Repayments of term debt under facilities without recourse to CSI

(1

)

(0

)

(5

)

(2

)

Credit facility transaction costs

(0

)

(0

)

(0

)

(0

)

Payments of lease obligations

(17

)

(12

)

(47

)

(35

)

Distribution to TSS minority owners

-

-

-

(11

)

Dividends paid

(21

)

(21

)

(64

)

(487

)

Net cash flows from (used in) in financing activities

(143

)

79

(242

)

(481

)

Cash flows from (used in) investing activities:

Acquisition of businesses

(123

)

(278

)

(298

)

(408

)

Cash obtained with acquired businesses

31

68

55

103

Post-acquisition settlement payments, net of receipts

(24

)

(8

)

(79

)

(45

)

Purchases of other investments

-

(4

)

(2

)

(9

)

Interest, dividends and other proceeds received

1

2

2

5

Property and equipment purchased

(5

)

(9

)

(19

)

(24

)

Net cash flows from (used in) investing activities

(120

)

(228

)

(340

)

(378

)

Effect of foreign currency on

cash and cash equivalents

8

(7

)

(1

)

(6

)

Increase (decrease) in cash

(21

)

21

249

(354

)

Cash, beginning of period

585

214

316

589

Cash, end of period

$

565

$

235

565

235