Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2016 and Declares Quarterly Dividend

TORONTO, ONTARIO--(Marketwired - July 27, 2016) - Constellation Software Inc. (CSU.TO) ("Constellation" or the "Company") today announced its financial results for the second quarter ended June 30, 2016 and declared a $1.00 per share dividend payable on October 5, 2016 to all common shareholders of record at close of business on September 16, 2016. 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, 2016 and the accompanying notes, our Management's Discussion and Analysis for the three and six months ended June 30, 2016, 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, 2015, 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 2016 Headlines:

• Revenue grew 19% (2% organic growth, 3% after adjusting for changes in foreign exchange rates) to $529 million compared to $444 million in Q2 2015.

• Adjusted EBITA increased $32 million or 32% to $131 million as compared to $99 million in Q2 2015.

• Adjusted Net Income increased 13% to $90 million ($4.24 on a diluted per share basis) from $80 million ($3.76 on a diluted per share basis) in Q2 2015.

• Net income increased 68% to $55 million ($2.60 on a diluted per share basis) from $33 million ($1.54 on a diluted per share basis) in Q2 2015.

• Ten acquisitions were completed for aggregate cash consideration of $49 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $5 million.

• Cash flows from operations were $73 million, an increase of 14%, or $9 million, compared to $64 million for the comparable period in 2015.

Second quarter 2016 revenue was $529 million, an increase of 19%, or $85 million, compared to $444 million for the comparable period in 2015. For the first six months of 2016 total revenues were $1,016 million, an increase of 17%, or $149 million, compared to $866 million for the comparable period in 2015. The increase for both the three and six month periods ended June 30, 2016 compared to the same periods in the prior year is mainly attributable to growth from acquisitions as the Company experienced organic growth of 2% and 0% respectively, 3% and 1% respectively after adjusting for the impact of the appreciation of the US dollar against most major currencies in which the Company transacts business.

Adjusted EBITA for the second quarter of 2016 was $131 million, a 32% increase compared to the prior year's second quarter Adjusted EBITA of $99 million. Second quarter 2016 Adjusted EBITA per share on a diluted basis increased 32% to $6.16, compared to $4.67 for the same period last year. Adjusted EBITA for the six month period ended June 30, 2016 was $238 million, a 24% increase over last year's Adjusted EBITA of $192 million for the same period. Adjusted EBITA per share on a diluted basis for the six month period ended June 30, 2016 increased 24% to $11.24, compared to $9.08 for the same period last year.

Adjusted Net Income for the second quarter of 2016 was $90 million, compared to the prior year's second quarter Adjusted Net Income of $80 million, a 13% increase. Second quarter 2016 Adjusted Net Income per share on a diluted basis increased 13% to $4.24 compared to $3.76 for the prior year's second quarter. Adjusted Net Income for the six month period ended June 30, 2016 was $153 million, a decrease of 1% over last year's Adjusted Net Income of $154 million. Adjusted Net Income per share on a diluted basis for the six month period ended June 30, 2016 decreased 1% to $7.19, compared to $7.29 for the same period in 2015. Adjusted net income margin was 17% for the quarter ended June 30, 2016 and 18% for the same period in 2015. Adjusted net income margin was 15% in the first six months of 2016 and 18% for the same period in 2015. Excluding the impact of the $6.6 million and $25.8 million unrealized foreign exchange loss recorded in the three and six months ended June 30, 2016 respectively, the margins would have been 18% for both the respective periods in 2016.

Net income for the second quarter 2016 was $55 million compared to the prior year's second quarter net income of $33 million. Net income per share on a diluted per share basis for the second quarter of 2016 increased 68% to $2.60, compared to $1.54 for the same period of 2015. Net income for the six month period ended June 30, 2016 was $74 million, an increase of 12% over net income of $66 million for the same period in 2015. Net income per share on a diluted basis for the six month period ended June 30, 2016 increased 12% to $3.48, compared to $3.09 for the same period in 2015.

Cash flows from operations for the second quarter of 2016 were $73 million, an increase of 14%, or $9 million, compared to $64 million for the comparable period in 2015. For the first six months of 2016 cash flows from operations were $219 million, an increase of 24%, or $42 million, compared to $177 million for the comparable period in 2015.

The following table displays our revenue by reportable segment and the percentage change for the three and six months ended June 30, 2016 compared to the same periods in 2015:

		Three months ended June 30,				Period-Over- Period Change				Six months ended June 30,				Period-Over- Period Change
		2016		2015		$		%		2016		2015		$	%
		($M, except percentages)								($M, except percentages)
Public Sector
Licenses		21.3		22.2		(0.9)		-4%		41.2		41.5		(0.3)	-1%
Professional services		87.2		79.2		8.0		10%		163.0		154.3		8.7	6%
Hardware and other		31.9		25.6		6.3		25%		55.4		50.9		4.4	9%
Maintenance and other recurring		213.2		182.6		30.7		17%		417.0		354.9		62.1	17%
		353.5		309.5		44.0		14%		676.5		601.6		74.9	12%
Private Sector
Licenses		13.8		10.8		3.0		27%		26.6		21.8		4.8	22%
Professional services		24.1		17.2		6.8		40%		44.6		34.8		9.7	28%
Hardware and other		7.1		6.4		0.7		11%		14.2		12.1		2.0	17%
Maintenance and other recurring		130.2		99.5		30.6		31%		253.8		196.0		57.8	29%
		175.1		134.0		41.2		31%		339.1		264.8		74.3	28%

Public Sector

For the quarter ended June 30, 2016, total revenue in the public sector reportable segment increased by 14%, or $44 million to $354 million, compared to $310 million for the quarter ended June 30, 2015. For the six months ended June 30, 2016, total revenue increased by 12%, or $75 million to $677 million, compared to $602 million for the comparable period in 2015. For purposes of calculating organic growth, pre-acquisition revenues included from the 26 companies acquired since the beginning of 2015 were $38 million and $76 million for the three and six month periods ended June 30, 2015, respectively. Organic revenue growth was 2% and 0% respectively for the three and six months ended June 30, 2016 compared to the same periods in 2015, and 2% and 1% respectively after adjusting for the impact of the appreciation of the US dollar against most major currencies in which the Company transacts business.

Private Sector

For the quarter ended June 30, 2016, total revenue in the private sector reportable segment increased 31%, or $41 million to $175 million, compared to $134 million for the quarter ended June 30, 2015. For the six months ended June 30, 2016 total revenue increased by 28%, or $74 million to $339 million, compared to $265 million for the comparable period in 2015. For purposes of calculating organic growth, pre-acquisition revenues included from the 21 companies acquired since the beginning of 2015 were $38 million and $72 million for the three and six month periods ended June 30, 2015, respectively. Organic revenue growth was 2% and 1% respectively for the three and six months ended June 30, 2016 compared to the same periods in 2015, and 4% and 3% respectively after adjusting for the impact of the appreciation of the US dollar against most major currencies in which the Company transacts business.

Conference Call and Webcast

Management will host a conference call at 8:30 a.m. (ET) on Thursday, July 28, 2016 to answer questions regarding the results. The teleconference numbers are 647-788-4919 or 877-291-4570. The call will also be webcast live and archived on Constellation's website at www.csisoftware.com.

A replay of the conference call will be available as of 11:30 a.m. ET the same day until 11:59 p.m. ET on August 11, 2016. To access the replay, please dial 416-621-4642 or 800-585-8367 followed by the passcode 49507848.

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. Previously the Company has reported "Adjusted EBITDA" in certain financial disclosures, but has determined that Adjusted EBITA is a more meaningful measure going forward. Adjusted EBITDA refers to Adjusted EBITA as defined above then further excludes depreciation. The Company uses depreciation as a proxy for the cash flows used to purchase property and equipment required to support the Company's main business activities. As such, the Company believes Adjusted EBITA is a more useful measure then Adjusted EBITDA.

"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,
		2016		2015		2016		2015
		($M, except percentages)				($M, except percentages)
Total revenue		528.7		443.5		1,015.7		866.4
Net income		55.0		32.7		73.7		65.6
Adjusted for:
Income tax expense (recovery)		20.0		16.1		32.1		27.4
Foreign exchange (gain) loss		6.6		(0.7)		25.8		(2.5)
TSS membership liability revaluation charge		1.7		3.4		6.9		9.4
Share in net (income) loss of equity investees		(0.1)		(0.3)		(0.3)		(0.9)
Finance and other income		(0.3)		(0.1)		(0.3)		(0.3)
Finance costs		5.3		4.6		11.0		8.9
Amortization of intangible assets		42.2		43.3		89.3		84.8
Adjusted EBITA		130.5		99.0		238.2		192.4
Adjusted EBITA margin		25%		22%		23%		22%

The following table reconciles Adjusted net income to net income:

		Three months ended June 30,				Six months ended June 30,
		2016		2015		2016		2015
		($M, except percentages)				($M, except percentages)
Total revenue		528.7		443.5		1,015.7		866.4
Net income		55.0		32.7		73.7		65.6
Adjusted for:
Amortization of intangible assets		42.2		43.3		89.3		84.8
TSS membership liability revaluation charge		1.7		3.4		6.9		9.4
Less non-controlling interest in the Adjusted
net income of TSS		(5.1)		(3.1)		(8.8)		(6.3)
Deferred income tax expense (recovery)		(3.9)		3.5		(8.6)		1.0
								-
Adjusted net income		89.9		79.7		152.5		154.4
Adjusted net income margin		17%		18%		15%		18%

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.

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Financial Position
(In thousands of U.S. dollars)
(Unaudited)
			June 30, 2016				December 31, 2015
Assets
Current assets:
	Cash		$	242,974			$	178,471
	Equity securities available-for-sale			13,028				-
	Accounts receivable, net			235,216				226,771
	Work in progress			63,399				59,483
	Inventories			24,261				24,332
	Other assets			73,607				67,246
				652,485				556,303
Non-current assets:
	Property and equipment			46,902				42,072
	Deferred income taxes			43,289				56,650
	Other assets			37,006				32,186
	Intangible assets			977,776				952,109
				1,104,973				1,083,017
Total assets			$	1,757,458			$	1,639,320
Liabilities and Shareholders' Equity
Current liabilities:
	CSI Facility		$	-			$	-
	CNH Facility			8,328				8,725
	TSS membership liability			22,435				19,602
	Accounts payable and accrued liabilities			243,714				274,981
	Dividends payable			21,081				21,326
	Deferred revenue			493,427				421,027
	Provisions			6,089				8,420
	Acquisition holdback payments			16,872				9,116
	Income taxes payable			29,031				6,561
				840,977				769,758
Non-current liabilities:
	CNH Facility			125,243				126,407
	TSS Membership Liability			39,466				34,482
	Debentures			233,923				220,043
	Deferred income taxes			108,048				109,795
	Acquisition holdback payments			1,415				6,987
	Other liabilities			36,511				34,566
				544,606				532,280
Total liabilities				1,385,583				1,302,038
Shareholders' equity:
	Capital stock			99,283				99,283
	Accumulated other comprehensive income (loss)			(31,008	)			(34,319	)
	Retained earnings			303,600				272,318
				371,875				337,282
Total liabilities and shareholders' equity			$	1,757,458			$	1,639,320

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, 2016 and 2015
(Unaudited)
				Three months ended June 30,						Six months ended June 30,
				2016			2015			2016			2015
Revenue
	License		$	35,053		$	33,026		$	67,825		$	63,351
	Professional services			111,230			96,410			207,592			189,116
	Hardware and other			38,995			31,994			69,515			63,042
	Maintenance and other recurring			343,390			282,080			670,718			550,892
				528,668			443,510			1,015,650			866,401
Expenses
	Staff			260,375			223,086			515,602			444,938
	Hardware			21,869			18,430			40,065			36,215
	Third party license, maintenance and professional services			46,990			38,412			91,584			77,212
	Occupancy			12,502			10,277			24,543			20,858
	Travel			15,634			13,839			29,321			25,649
	Telecommunications			5,864			4,305			10,822			8,391
	Supplies			2,255			2,156			4,687			4,901
	Software and equipment			9,109			8,226			17,590			15,040
	Professional fees			6,751			5,885			13,494			10,692
	Other, net			11,735			15,644			19,766			21,928
	Depreciation			5,109			4,250			9,982			8,176
	Amortization of intangible assets			42,239			43,312			89,311			84,793
				440,432			387,822			866,767			758,793
Foreign exchange loss (gain)				6,598			(743	)		25,804			(2,466)
TSS membership liability revaluation charge				1,687			3,378			6,867			9,408
Share in net (income) loss of equity investee				(83	)		(250	)		(307	)		(940)
Finance and other expense (income)				(263	)		(62	)		(272	)		(320)
Finance costs				5,266			4,643			11,021			8,926
				13,205			6,966			43,113			14,608
Income before income taxes				75,031			48,722			105,770			93,000
Current income tax expense (recovery)				23,917			12,566			40,671			26,462
Deferred income tax expense (recovery)				(3,881	)		3,502			(8,567	)		958
Income tax expense (recovery)				20,036			16,068			32,104			27,420
Net income				54,995			32,654			73,666			65,580
Earnings per share
	Basic and diluted		$	2.60		$	1.54		$	3.48		$	3.09

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, 2016 and 2015
(Unaudited)
		Three months ended June 30,						Six months ended June 30,
		2016			2015			2016			2015
Net income		$	54,995		$	32,654		$	73,666		$	65,580
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		334			-			334			-
Net change in fair value
	of derivatives designated as hedges
	during the period		84			215			(23	)		(15	)
Foreign currency translation differences from foreign operations			(692	)		1,073			3,037			(10,856	)
Deferred income tax recovery (expense)			(65	)		(64	)		(37	)		6
Other comprehensive (loss) income for the period, net of income tax			(339	)		1,224			3,311			(10,865	)
Total comprehensive income for the period		$	54,656		$	33,878		$	76,977		$	54,715

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)
(Unaudited)
Six months ended June 30, 2016
		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, 2016		$	99,283	$	(33,614	)		$	-			$	(705	)	$	(34,319	)	$	272,318	$	337,282
Total comprehensive income for the period
Net income			-		-				-				-			-			73,666		73,666
Other comprehensive income (loss)
Net change in fair value
	of available-for-sale financial
	asset during the period		-		-				334				-			334			-		334
Net change in fair value
	of derivatives designated as hedges
	during the period		-		-				-				(23	)		(23	)		-		(23	)
Foreign currency translation differences from
	foreign operations		-		3,037				-				-			3,037			-		3,037
Deferred tax recovery (expense)			-		-				(44	)			7			(37	)		-		(37	)
Total other comprehensive income (loss)
for the period			-		3,037				290				(16	)		3,311			-		3,311
Total comprehensive income (loss) for the period			-		3,037				290				(16	)		3,311			73,666		76,977
Transactions with owners, recorded directly in equity
	Dividends to shareholders of the Company		-		-				-				-			-			(42,384	)	(42,384	)
Balance at June 30, 2016		$	99,283	$	(30,577	)		$	290			$	(721	)	$	(31,008	)	$	303,600	$	371,875

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)
(Unaudited)
Six months ended June 30, 2015
			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, 2015			$	99,283		$	(18,880	)		$	-		$	(410	)		$	(19,290	)		$	179,838		$	259,831
Total comprehensive income for the period
Net income				-			-				-			-				-				65,580			65,580
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			-			-				-			(15	)			(15	)			-			(15	)
Foreign currency translation differences from
	foreign operations			-			(10,856	)			-			-				(10,856	)			-			(10,856	)
Deferred tax recovery (expense)				-			-							6				6				-			6
Total other comprehensive income for the period				-			(10,856	)			-			(9	)			(10,865	)			-			(10,865	)
Total comprehensive income for the period				-			(10,856	)			-			(9	)			(10,865	)			65,580			54,715
Transactions with owners, recorded directly in equity
	Dividends to shareholders of the Company			-			-							-				-				(42,384	)		(42,384	)
Balance at June 30, 2015			$	99,283		$	(29,736	)		$	-		$	(419	)		$	(30,155	)		$	203,034		$	272,162

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Cash Flows
(In thousands of U.S. dollars)
Three and six months ended June 30, 2016 and 2015
(Unaudited)
				Three months ended June 30,								Six months ended June 30,
				2016				2015				2016				2015
Cash flows from operating activities:
		Net income		$	54,995			$	32,654			$	73,666			$	65,580
	Adjustments for:
		Depreciation			5,109				4,250				9,982				8,176
		Amortization of intangible assets			42,239				43,312				89,311				84,793
		TSS membership liability revaluation charge			1,687				3,378				6,867				9,408
		Share in net (income) loss of equity investee			(83	)			(250	)			(307	)			(940	)
		Finance and other income			(263	)			(62	)			(272	)			(320	)
		Finance costs			5,266				4,643				11,021				8,926
		Income tax expense (recovery)			20,036				16,068				32,104				27,420
		Foreign exchange loss (gain)			6,598				(743	)			25,804				(2,466	)
	Change in non-cash operating working capital
		exclusive of effects of business combinations			(53,144	)			(21,450	)			(11,248	)			8,489
	Income taxes paid				(9,553	)			(17,632	)			(17,598	)			(32,250	)
	Net cash flows from operating activities				72,887				64,168				219,330				176,816
Cash flows from (used in) financing activities:
	Interest paid				(5,743	)			(3,838	)			(11,848	)			(7,429	)
	Increase (decrease) in revolving credit facility, net				-				85,891				-				89,391
	Repayments of CNH facility				(4,495	)			-				(4,495	)			-
	Credit facility transaction costs				-				-				(1,212	)			-
	Dividends paid				(21,192	)			(21,192	)			(42,384	)			(42,384	)
	Net cash flows from (used in) in financing activities				(31,430	)			60,861				(59,939	)			39,578
Cash flows from (used in) investing activities:
	Acquisition of businesses, net of cash
	acquired				(42,870	)			(109,168	)			(66,698	)			(129,679	)
	Post-acquisition settlement payments, net of receipts				(4,688	)			(13,955	)			(6,233	)			(15,636	)
	Purchases of available-for-sale equity securities				(12,694	)			-				(12,694	)			-
	Interest and dividends received				145				2				150				43
	Property and equipment purchased				(6,517	)			(3,406	)			(9,687	)			(5,544	)
	Net cash flows from (used in) investing activities				(66,624	)			(126,527	)			(95,162	)			(150,816	)
Effect of foreign currency on
	cash and cash equivalents				(2,955	)			1,687				274				(4,251	)
Increase (decrease) in cash and cash equivalents					(28,122	)			189				64,503				61,327
Cash, beginning of period					271,096				131,817				178,471				70,679
Cash, end of period				$	242,974			$	132,006			$	242,974			$	132,006