Constellation Software Inc. Announces Results for the First Quarter Ended March 31, 2021 and Declares Quarterly Dividend

TORONTO, May 05, 2021 (GLOBE NEWSWIRE) -- Constellation Software Inc. (TSX:CSU) (“Constellation” or the “Company”) today announced its financial results for the first quarter ended March 31, 2021 and declared a $1.00 per share dividend payable on July 10, 2021 to all common shareholders of record at close of business on June 19, 2021. 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 months ended March 31, 2021 and the accompanying notes, our Management Discussion and Analysis for the three months ended March 31, 2021 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, 2020, 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

Q1 2021 Headlines:

• Revenue increased 23% (6% organic growth, 1% after adjusting for changes in foreign exchange rates) to $1,176 million compared to $953 million in Q1 2020.

• A $263 million expense related to the increase in fair value of redeemable preferred securities was incurred in the quarter, $261 million of which is non-cash related. Fair value of the preferred securities is primarily dependent on the price movement of Topicus.com Inc.’s (TSXV:TOI) Subordinate Voting Shares.

• Net loss for Q1 2021 was $175 million ($0.41 on a diluted per share basis), compared to net income of $83 million ($3.91 on a diluted per share basis) in Q1 2020.

• A number of acquisitions were completed for total consideration of $448 million including holdbacks, contingent consideration and amounts related to Topicus.com B.V.

• Cash flows from operations (“CFO”) were $495 million, an increase of 37%, or $135 million, compared to $361 million for the comparable period in 2020.

• Free cash flow available to shareholders¹ (“FCFA2S”) decreased $42 million to $269 million, after accounting for the non-controlling interest in Topicus.com Inc., compared to $311 million for the same period in 2020 representing a decrease of 14%.

• Subsequent to March 31, 2021, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $187 (which includes acquired cash). Deferred payments have an estimated value of $11 resulting in total consideration of $198.
  

Total revenue for the quarter ended March 31, 2021 was $1,176 million, an increase of 23%, or $223 million, compared to $953 million for the comparable period in 2020. The increase is primarily attributable to growth from acquisitions as the Company experienced organic growth of 6%, 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. For acquired companies, organic growth is calculated as the difference between actual revenues achieved by each company in the financial period following acquisition compared to the estimated revenues they achieved in the corresponding financial period preceding the date of acquisition by Constellation.

In conjunction with the acquisition of Topicus.com B.V., Topicus.com Coöperatief U.A. (“Topicus Coop”) issued 5,842,882 Topicus Coop Preference Units (the “Preferred Securities”) to Ijssel B.V. for an initial subscription price of $102 million plus an additional subscription amount of $34 million which will be owed by Ijssel B.V. to the Company and will be payable in May 2021. The Company (through Topicus Coop) also issued 5,842,882 Topicus Coop Ordinary Units to Ijssel B.V. The Preferred Securities are non-voting and are redeemable at the option of the holder for a redemption price of approximately €19.06 ($23.28) per security. The redemption price may either be settled in cash or through the issuance of a variable number of Topicus Coop Ordinary Units. The number of Topicus Coop Ordinary Units would be determined based on the terms of the Preferred Securities. The Preferred Securities are convertible into Topicus Coop Ordinary Units at a conversion ratio of 1:1, and the Topicus Coop Ordinary Units are convertible into Subordinate Voting Shares of Topicus.com Inc. also at a conversion ratio of 1:1. The Preferred Securities holders will also be entitled to a fixed annual cumulative dividend of 5% per annum on the initial Preferred Securities value of approximately €19.06 ($23.28) per security.

The Preferred Securities will be recorded at fair value at the end of each reporting period. The change in fair value of the Preferred Securities is recorded as redeemable preferred securities expense (income) in the condensed consolidated interim statements of income. Based on the Preferred Securities conversion right, the value of the Preferred Securities is primarily dependent on the price movement of Topicus’ Subordinate Voting Shares. At March 31, 2021 the market price of Topicus’ Subordinate Voting Shares closed at C$82.54 or approximately $65.54. The increase in value from $23.28 to $65.54 multiplied by the 5.8 million Preferred Securities outstanding equals approximately $247 million. The difference between $247 million and the fair value adjustment of $263 million primarily relates to the impact of share price volatility and optionality and the accrued dividend of $2 million.

As the threshold for the mandatory conversion or redemption of all Preferred Securities was reached on April 29, 2021, it is expected that the holders will provide their notification for conversion no later than May 29, 2021 at which time the associated liability excluding accrued dividends will be extinguished and reclassified to equity.

Net loss for the quarter ended March 31, 2021 was $175 million compared to net income of $83 million for the same period in 2020. On a per share basis this translated into a net loss per diluted share of $0.41 in the quarter ended March 31, 2021 compared to net income per diluted share of $3.91 for the same period in 2020.

For the quarter ended March 31, 2021, CFO increased $135 million to $495 million compared to $361 million for the same period in 2020 representing an increase of 37%.

For the quarter ended March 31, 2021, FCFA2S decreased $42 million to $269 million compared to $311 million for the same period in 2020 representing a decrease of 14%.

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 IRGA / TSS membership liability revaluation charge, and property and equipment purchased, and includes interest and dividends received. The portion of this amount applicable to non-controlling interests is then deducted. We believe that FCFA2S is useful supplemental information as it provides an indication of the uncommitted cash flow that is available to shareholders if we do not make any acquisitions, or investments, and do not repay any debts. While we could use the FCFA2S to pay dividends or repurchase shares, our objective is to invest all of our FCFA2S in acquisitions which meet our 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 March 31,
		2021		2020
	($ in millions, except percentages)
Net cash flows from operating activities		495		361
Adjusted for:
Interest paid on lease obligations		(2	)	(2	)
Interest paid on other facilities		(9	)	(8	)
Credit facility transaction costs		(2	)	-
Payments of lease obligations		(20	)	(14	)
IRGA / TSS membership liability revaluation charge		(61	)	(18	)
Property and equipment purchased		(4	)	(7	)
Interest and dividends received		1		0
		397		311
Less amount attributable to
Non-controlling interests		(128	)	-
Free cash flow available to shareholders		269		311
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.)
Unaudited
		March 31, 2021			December 31, 2020			March 31, 2020
Assets
Current assets:
	Cash	$	932		$	758		$	364
	Accounts receivable		518			483			455
	Unbilled revenue		128			98			104
	Inventories		27			27			32
	Other assets		288			219			209
			1,892			1,585			1,163
Non-current assets:
	Property and equipment		92			86			78
	Right of use assets		266			251			233
	Deferred income taxes		57			52			46
	Other assets		80			75			70
	Intangible assets		2,759			2,325			1,987
			3,254			2,790			2,414
Total assets		$	5,147		$	4,375		$	3,577
Liabilities and Shareholders' Equity
Current liabilities:
	Debt with recourse to Constellation Software Inc.	$	122		$	113		$	90
	Debt without recourse to Constellation Software Inc.		34			28			2
	Redeemable preferred securities		390			-			-
	Accounts payable and accrued liabilities		637			666			453
	Dividends payable		21			21			21
	Deferred revenue		1,296			962			1,035
	Provisions		15			12			10
	Acquisition holdback payables		78			85			78
	Lease obligations		77			74			59
	Income taxes payable		91			78			60
			2,761			2,040			1,809
Non-current liabilities:
	Debt with recourse to Constellation Software Inc.		527			421			348
	Debt without recourse to Constellation Software Inc.		271			199			143
	Deferred income taxes		371			285			250
	Acquisition holdback payables		31			37			30
	Lease obligations		214			201			191
	Other liabilities		139			146			87
			1,554			1,288			1,049
Total liabilities			4,315			3,328			2,858
Shareholders' equity:
	Capital stock		99			99			99
	Other equity		(165	)		-			-
	Accumulated other comprehensive income (loss)		(67	)		(31	)		(70	)
	Retained earnings		950			980			690
	Non-controlling interests		15			-			-
			832			1,048			719
Total liabilities and shareholders' equity		$	5,147		$	4,375		$	3,577

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.)
Unaudited
	Three months ended March 31,
		2021			2020
Revenue
License	$	66		$	57
Professional services		237			178
Hardware and other		39			42
Maintenance and other recurring		834			676
		1,176			953
Expenses
Staff		641			510
Hardware		22			23
Third party license, maintenance and professional services		96			79
Occupancy		9			9
Travel, telecommunications, supplies, software and equipment		39			51
Professional fees		15			14
Other, net		5			5
Depreciation		29			25
Amortization of intangible assets		118			94
		975			810
Foreign exchange loss (gain)		(13	)		(6	)
IRGA/TSS Membership liability revaluation charge		61			18
Finance and other expense (income)		(2	)		(0	)
Impairment of intangible and other non-financial assets		3			5
Redeemable preferred securities expense (income)		263			-
Finance costs		15			11
		327			28
Income (loss) before income taxes		(126	)		115
Current income tax expense (recovery)		64			44
Deferred income tax expense (recovery)		(14	)		(12	)
Income tax expense (recovery)		49			33
Net income (loss)		(175	)		83
Net income (loss) attributable to:
Equity holders of Constellation Software Inc.		(9	)		83
Non-controlling interests		(166	)		-
Net income (loss)		(175	)		83
Earnings per common share of Constellation Software Inc.
Basic and diluted	$	(0.41	)	$	3.91

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.)
Unaudited
	Three months ended March 31,
		2021			2020
Net income (loss)	$	(175	)	$	83
Items that are or may be reclassified subsequently to net income:
Foreign currency translation differences from foreign operations and other		(23	)		(30	)
Other comprehensive income (loss) for the period, net of income tax		(23	)		(30	)
Total comprehensive income (loss) for the period	$	(198	)	$	53
Total other comprehensive income (loss) attributable to:
Equity holders of Constellation Software Inc.		(17	)		(30	)
Non-controlling interests		(6	)		-
Total other comprehensive income (loss)	$	(23	)	$	(30	)
Total comprehensive income (loss) attributable to:
Equity holders of Constellation Software Inc.		(26	)		53
Non-controlling interests		(172	)		-
Total comprehensive income (loss)	$	(198	)	$	53

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statement of Changes in Equity
(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)
Unaudited
Three months ended March 31, 2021
	Equity Attributable to Shareholders of CSI
	Capital stock			Other equity			Accumulated other comprehensive income (loss)			Retained earnings			Total			Non- controlling interests			Total equity
Balance at January 1, 2021	$	99		$	-		$	(31	)	$	980		$	1,048			-		$	1,048
Total comprehensive income for the period:
Net income (loss)		-			-			-			(9	)		(9	)		(166	)		(175	)
Other comprehensive income (loss)
Foreign currency translation differences from
foreign operations and other		-			-			(17	)		-			(17	)		(6	)		(23	)
Total other comprehensive income (loss)
for the period		-			-			(17	)		-			(17	)		(6	)		(23	)
Total comprehensive income (loss) for the period		-			-			(17	)		(9	)		(26	)		(172	)		(198	)
Transactions with owners, recorded directly in equity
Special dividend of Topicus Subordinated Voting Shares		-			(141	)		(16	)		-			(157	)		157			-
Issuance of Topicus Coop Ordinary Units to non-controlling interests (note 4)		-			(21	)		(2	)		-			(23	)		23			-
Net acquisition of non-controlling interest associated with acquisitions and other movements		-			(3	)		-			0			(3	)		6			3
Dividends to shareholders of the Company		-						-			(21	)		(21	)		-			(21	)
Balance at March 31, 2021	$	99		$	(165	)	$	(67	)	$	950		$	817		$	15		$	832

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statement of Changes in Equity
(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)
Unaudited
Three months ended March 31, 2020
	Equity Attributable to Shareholders of CSI
	Capital stock			Other equity			Accumulated other comprehensive income (loss)			Retained earnings			Total			Non- controlling interests			Total equity
Balance at January 1, 2020	$	99		$	-		$	(40	)	$	628		$	687		$	-		$	687
Total comprehensive income for the period:
Net income (loss)		-			-			-			83			83			-			83
Other comprehensive income (loss)
Foreign currency translation differences from
foreign operations and other		-			-			(30	)		-			(30	)		-			(30	)
Total other comprehensive income (loss) for the period		-			-			(30	)		-			(30	)		-			(30	)
Total comprehensive income (loss) for the period		-			-			(30	)		83			53			-			53
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company		-						-			(21	)		(21	)		-			(21	)
Balance at March 31, 2020	$	99		$	-		$	(70	)	$	690		$	719		$	-		$	719

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.)
Unaudited
			Three months ended March 31,
				2021			2020
Cash flows from operating activities:
	Net income (loss)		$	(175	)	$	83
	Adjustments for:
		Depreciation		29			25
		Amortization of intangible assets		118			94
		IRGA/TSS Membership liability revaluation charge		61			18
		Finance and other expense (income)		(2	)		(0	)
		Impairment of intangible and other non-financial assets		3			5
		Redeemable preferred securities expense (income)		263			-
		Finance costs		15			11
		Income tax expense (recovery)		49			33
		Foreign exchange loss (gain)		(13	)		(6	)
	Change in non-cash operating assets and liabilities
		exclusive of effects of business combinations		198			136
	Income taxes paid			(51	)		(38	)
	Net cash flows from (used in) operating activities			495			361
Cash flows from (used in) financing activities:
	Interest paid on lease obligations			(2	)		(2	)
	Interest paid on other facilities			(9	)		(8	)
	Increase (decrease) in CSI facility			-			(65	)
	Increase (decrease) in revolving credit debt facilities without recourse to CSI			6			(55	)
	Proceeds from issuance of term debt facilities without recourse to CSI			79			-
	Repayments of term debt facilities without recourse to CSI			(1	)		(1	)
	Credit facility transaction costs			(2	)		-
	Payments of lease obligations			(20	)		(14	)
	Distribution to the Joday Group			(22	)		-
	Dividends paid			(21	)		(21	)
	Net cash flows from (used in) in financing activities			6			(167	)
Cash flows from (used in) investing activities:
	Acquisition of businesses			(314	)		(107	)
	Cash obtained with acquired businesses			44			14
	Post-acquisition settlement payments, net of receipts			(46	)		(32	)
	Purchases of other investments			(0	)		(1	)
	Interest, dividends and other proceeds received			3			0
	Property and equipment purchased			(4	)		(7	)
	Net cash flows from (used in) investing activities			(319	)		(133	)
Effect of foreign currency on
	cash and cash equivalents			(9	)		(13	)
Increase (decrease) in cash				174			48
Cash, beginning of period				758			316
Cash, end of period			$	932		$	364