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Constellation Software Inc. Announces Results for the Fourth Quarter and Year Ended December 31, 2019 and Declares Quarterly Dividend

TORONTO, Feb. 13, 2020 (GLOBE NEWSWIRE) -- Constellation Software Inc. (CSU.TO) (“Constellation” or the “Company”) today announced its financial results for the fourth quarter and year ended December 31, 2019 and declared a $1.00 per share dividend payable on April 7, 2020 to all common shareholders of record at close of business on March 16, 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 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.

Q4 2019 Headlines:

  • Revenue grew 15% (negative 3% organic growth, negative 2% after adjusting for changes in foreign exchange rates) to $956 million compared to $831 million in Q4 2018. 
  • Net income decreased 49% to $92 million ($4.34 on a diluted per share basis) from $179 million ($8.46 on a diluted per share basis) in Q4 2018.  Excluding the amortization of intangible assets expense and bargain purchase gains net income decreased 1%.
  • A number of acquisitions were completed for aggregate cash consideration of $141 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $33 million resulting in total consideration of $175 million.
  • Cash flows from operations (“CFO”) (after adjusting for the impact of IFRS 16 Leases, which was adopted on January 1, 2019) were $236 million, an increase of 13%, or $28 million, compared to $208 million for the comparable period in 2018.
  • Free cash flow available to shareholders (“FCFA2S”) increased $14 million to $193 million compared to $180 million for the same period in 2018 representing an increase of 8%.   
  • Subsequent to December 31, 2019, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $63 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $42 million resulting in total consideration of $104 million. 

2019 Headlines:

  • Revenue grew 14% (negative 1% organic growth, positive 1% after adjusting for changes in foreign exchange rates) to $3,490 million compared to $3,060 million in 2018. 
  • Net income decreased 12% to $333 million ($15.73 on a diluted per share basis) from $379 million ($17.91 on a diluted per share basis) in 2018.  Excluding the amortization of intangible assets expense and bargain purchase gains net income increased 5%.
  • A number of acquisitions were completed for aggregate cash consideration of $549 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $139 million resulting in total consideration of $688 million.
  • Cash flows from operations (“CFO”) (after adjusting for the impact of IFRS 16 Leases, which was adopted on January 1, 2019) were $708 million, an increase of 7%, or $46 million, compared to $662 million for the comparable period in 2018.
  • Free cash flow available to shareholders (“FCFA2S”) increased $32 million to $590 million compared to $559 million for the same period in 2018 representing an increase of 6%.   

Total revenue for the quarter ended December 31, 2019 was $956 million, an increase of 15%, or $125 million, compared to $831 million for the comparable period in 2018.  For the year ended December 31, 2019 total revenues were $3,490 million, an increase of 14%, or $430 million, compared to $3,060 million for the comparable period in 2018.  The increase for both the three and twelve 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 3% and negative 1% respectively, negative 2% 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.

Net income for the quarter ended December 31, 2019 was $92 million compared to net income of $179 million for the same period in 2018.  On a per share basis, this translated into a net income per diluted share of $4.34 in the quarter ended December 31, 2019 compared to net income per diluted share of $8.46 for the same period in 2018.  For the year ended December 31, 2019, net income was $333 million or $15.73 per diluted share compared to $379 million or $17.91 per diluted share for the same period in 2018.

For the quarter ended December 31, 2019, CFO increased $46 million to $255 million compared to $208 million for the same period in 2018 representing an increase of 22%.  For the year ended December 31, 2019, CFO increased $105 million to $767 million compared to $662 million during the same period in 2018, representing an increase of 16%.  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 twelve months ended December 31, 2019 lease obligation and interest payments totaled $19 million and $59 million respectively.  If lease obligation and interest payments were deducted from CFO for the three and twelve months ended December 31, 2019 the increase in CFO would have been 13% and 7% over the same periods in 2018.

For the quarter ended December 31, 2019, FCFA2S increased $14 million to $193 million compared to $180 million for the same period in 2018 representing an increase of 8%.  For the year ended December 31, 2019, FCFA2S increased $32 million to $590 million compared to $559 million during the same period in 2018, representing an increase of 6%.  The primary reason for the large variance between the 6% growth in FCFA2S and the 14% revenue growth for the year-ended December 31, 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 year ended December 31, 2019 there was $28 million of cash used in non-cash operating working capital compared to $14 million of cash generated from non-cash operating working capital for the same period in 2018. 

The following table displays our revenue by reportable segment and the percentage change for the three and twelve months ended December 31, 2019 compared to the same periods in 2018:

                             
      Three months ended
December 31,
Period-Over-
Period Change
Organic
Growth
  Year ended
December 31,
Period-Over-
Period Change
Organic
Growth
 
                             
      2019 2018 $ % %   2019 2018 $ % %  
      ($ in millions, except percentages)   ($ in millions, except percentages)  
  Public Sector                          
  Licenses   41 33 8   24 % -4 %   143 121 22   18 % -7 %  
  Professional services   147 132 15   12 % -8 %   522 471 51   11 % -7 %  
  Hardware and other   42 51 (9 ) -17 % -25 %   143 146 (3 ) -2 % -13 %  
  Maintenance and other recurring 425 340 85   25 % 3 %   1,544 1,309 235   18 % 2 %  
      655 556 99   18 % -2 %   2,353 2,047 305   15 % -2 %  
                             
  Private Sector                          
  Licenses   21 24 (4 ) -15 % -20 %   83 77 6   8 % -3 %  
  Professional services   41 41 (0 ) 0 % -8 %   151 144 7   5 % -7 %  
  Hardware and other   9 7 2   26 % -2 %   30 28 2   7 % -8 %  
  Maintenance and other recurring 230 202 28   14 % 0 %   873 763 110   14 % 1 %  
      300 275 26   9 % -3 %   1,138 1,013 125   12 % -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 twelve months ended December 31, 2018.

Public Sector

For the quarter ended December 31, 2019, total revenue in the public sector reportable segment increased 18%, or $99 million to $655 million, compared to $556 million for the quarter ended December 31, 2018.  For the year ended December 31, 2019, total revenue increased by 15%, or $305 million to $2,353 million, compared to $2,047 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 $115 million and $351 million for the three and twelve month periods ended December 31, 2019, respectively.  Organic revenue growth was negative 2% for both the three and twelve months ended December 31, 2019 compared to the same periods in 2018, and negative 1% and 0% 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 December 31, 2019, total revenue in the private sector reportable segment increased 9%, or $26 million to $300 million, compared to $275 million for the quarter ended December 31, 2018.  For the year ended December 31, 2019, total revenue increased by 12%, or $125 million to $1,138 million, compared to $1,013 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 $132 million for the three and twelve month periods ended December 31, 2019, respectively.  Organic revenue growth was negative 3% and negative 1% for the three and twelve months ended December 31, 2019 respectively compared to the same periods in 2018, and negative 2% and positive 2% 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
December 31,
      Year ended
December 31,
   
        2019   2018         2019   2018      
      ($ in millions, except percentages)   ($ in millions, except percentages)  
                         
  Net cash flows from operating activities     255   208         767   662      
  Adjusted for:                      
  Interest paid on lease obligations     (2 ) -         (7 ) -      
  Interest paid on other facilities     (8 ) (7 )       (31 ) (24 )    
  Credit facility transaction costs     (2 ) (1 )       (3 ) (4 )    
  Payments of lease obligations     (17 ) -         (51 ) -      
  TSS membership liability revaluation charge     (22 ) (18 )       (52 ) (55 )    
  Property and equipment purchased     (10 ) (7 )       (34 ) (25 )    
  Interest and dividends received     0   4         3   5      
                         
  Free cash flow available to shareholders     193   180         590   559      
                         
  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.  
Consolidated Statements of Financial Position          
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
                     
                     
                  December 31, 2019 December 31, 2018
                     
Assets                
                     
Current assets:                
  Cash             $ 316   $ 589  
  Accounts receivable             422     362  
  Unbilled revenue             110     80  
  Inventories               31     34  
  Other assets             184     143  
                    1,062     1,207  
                     
Non-current assets:              
  Property and equipment           78     67  
  Right of use assets             234     -  
  Deferred income taxes             45     47  
  Other assets             72     64  
  Intangible assets   1,997     1,549  
                    2,425     1,728  
                     
Total assets             $ 3,488   $ 2,935  
                     
Liabilities and Shareholders' Equity        
                     
Current liabilities:              
  CSI facility             $ 63   $ -  
  Debt without recourse to Constellation Software Inc.       57     51  
  TSS membership liability           86     67  
  Accounts payable and accrued liabilities         529     464  
  Dividends payable             21     21  
  Deferred revenue             788     657  
  Provisions               13     7  
  Acquisition holdback payables           76     47  
  Lease obligations             62     -  
  Income taxes payable             36     30  
                    1,732     1,344  
                     
Non-current liabilities:              
  Debt without recourse to Constellation Software Inc.       153     102  
  TSS membership liability           136     117  
  Debentures               222     215  
  Deferred income taxes             246     192  
  Acquisition holdback payables           25     25  
  Lease obligations             187     -  
  Other liabilities             101     74  
                    1,069     725  
                     
Total liabilities               2,800     2,069  
                     
                     
Shareholders' equity:              
  Capital stock             99     99  
  Accumulated other comprehensive income (loss)       (40 )   (37 )
  Retained earnings             628     804  
                    687     866  
                     
                     
Total liabilities and shareholders' equity       $ 3,488   $ 2,935  
                     


CONSTELLATION SOFTWARE INC.
Consolidated Statements of Income      
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
       
       
       
  Years ended December 31,
    2019       2018  
       
       
Revenue      
License $ 226     $ 198  
Professional services   673       616  
Hardware and other   173       175  
Maintenance and other recurring   2,417       2,072  
    3,490       3,060  
       
Expenses      
Staff   1,797       1,565  
Hardware   101       96  
Third party license, maintenance and professional services   300       265  
Occupancy   35       78  
Travel, telecommunications, supplies, software and equipment   201       181  
Professional fees   49       39  
Other, net   73       52  
Depreciation   92       27  
Amortization of intangible assets   331       279  
    2,979       2,582  
       
       
Foreign exchange loss (gain)   11       (3 )
TSS membership liability revaluation charge   52       55  
Finance and other expense (income)   (4 )     (17 )
Bargain purchase gain   (45 )     (69 )
Finance costs   42       26  
    55       (8 )
       
Income before income taxes   456       486  
       
Current income tax expense (recovery)   164       127  
Deferred income tax expense (recovery)   (41 )     (20 )
Income tax expense (recovery)   123       106  
       
Net income   333       379  
       
Earnings per share      
Basic and diluted $ 15.73     $ 17.91  
       


CONSTELLATION SOFTWARE INC.        
Consolidated Statements of Comprehensive Income        
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
                     
         
                     
                Years ended December 31,
                  2019       2018  
                     
Net income           $ 333     $ 379  
                     
Items that are or may be reclassified subsequently to net income:        
                     
Foreign currency translation differences from foreign operations     (4 )     (10 )
                     
Deferred income tax recovery (expense)     -       -  
                     
Other comprehensive (loss) income for the period, net of income tax     (4 )     (10 )
                     
Total comprehensive income (loss) for the period   $ 330     $ 369  


CONSTELLATION SOFTWARE INC.    
Consolidated Statements of Changes in Equity    
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
             
             
Year ended December 31, 2019        
      Capital
stock
Accumulated other
comprehensive (loss) income
Retained earnings Total
             
       Cumulative translation account 
             
Balance at January 1, 2019 $   99 $   (37 ) $   804   $   866  
             
Total comprehensive income for the period:        
             
Net income     -   -     333     333  
             
Other comprehensive income (loss)        
             
Foreign currency translation differences from        
  foreign operations   -   (4 )   -     (4 )
             
Total other comprehensive income (loss)        
  for the period     -      (4 )     -        (4 )
             
Total comprehensive income (loss) for the period     -      (4 )     333       330  
             
Transactions with owners, recorded directly in equity        
Dividends to shareholders of the Company   -   -     (509 )   (509 )
             
Balance at December 31, 2019 $   99 $   (40 ) $   628   $   687  


CONSTELLATION SOFTWARE INC.    
Consolidated Statements of Changes in Equity    
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
             
             
Year ended December 31, 2018        
             
      Capital
stock
Accumulated other
comprehensive (loss) income
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   -   -     379     379  
             
Other comprehensive income (loss)        
             
Foreign currency translation differences from        
  foreign operations   -   (10 )   -     (10 )
             
Total other comprehensive income for the period     -      (10 )     -        (10 )
             
Total comprehensive income for the period     -      (10 )     379       369  
             
Transactions with owners, recorded directly in equity        
Dividends to shareholders of the Company   -   -     (85 )   (85 )
             
Balance at December 31, 2018 $   99 $   (37 ) $   804   $   866  


CONSTELLATION SOFTWARE INC.      
Consolidated Statements of Cash Flows      
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
                     
       
                     
                Years ended December 31,
                  2019       2018  
                     
Cash flows from operating activities:      
  Net income       $ 333     $ 379  
  Adjustments for:          
    Depreciation       92       27  
    Amortization of intangible assets   331       279  
    TSS membership liability revaluation charge   52       55  
    Finance and other expense (income)   (4 )     (17 )
    Bargain purchase (gain)   (45 )     (69 )
    Finance costs       42       26  
    Income tax expense (recovery)   123       106  
    Foreign exchange loss (gain)   11       (3 )
  Change in non-cash operating assets and liabilities      
    exclusive of effects of business combinations   (28 )     14  
  Income taxes paid   (140 )     (135 )
  Net cash flows from operating activities   767       662  
                     
Cash flows from (used in) financing activities:      
  Interest paid on lease obligations     (7 )     -  
  Interest paid on other facilities     (31 )     (24 )
  Increase (decrease) in CSI facility     65       -  
  Increase (decrease) in revolving credit under debt facilities without recourse to CSI   5       (46 )
  Proceeds from issuance of term debt under facilities without recourse to CSI   49       110  
  Repayments of term debt under facilities without recourse to CSI   (2 )     (1 )
  Credit facility transaction costs   (3 )     (4 )
  Payments of lease obligations     (51 )     -  
  Distribution to TSS minority owners     (11 )     -  
  Dividends paid   (509 )     (85 )
  Net cash flows from (used in) in financing activities   (496 )     (49 )
                     
Cash flows from (used in) investing activities:      
  Acquisition of businesses   (549 )     (523 )
  Cash obtained with acquired businesses     118       118  
  Post-acquisition settlement payments, net of receipts   (74 )     (80 )
  Purchases of other investments     (11 )     (3 )
  Interest, dividends and other proceeds received   6       5  
  Property and equipment purchased   (34 )     (25 )
  Net cash flows from (used in) investing activities   (544 )     (508 )
                     
Effect of foreign currency on      
  cash and cash equivalents   1       (6 )
                     
Increase (decrease) in cash   (273 )     100  
                     
Cash, beginning of period   589       489  
                     
Cash, end of period $ 316     $ 589