Constellation Software Inc. Announces Results for the Third Quarter Ended September 30, 2022 and Declares Quarterly Dividend

Constellation Software Inc.

TORONTO, Nov. 04, 2022 (GLOBE NEWSWIRE) -- Constellation Software Inc. (TSX:CSU) (“Constellation” or the “Company”) today announced its financial results for the third quarter ended September 30, 2022 and declared a $1.00 per share dividend payable on January 11, 2023 to all common shareholders of record at close of business on December 20, 2022. 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, 2022 and the accompanying notes, our Management Discussion and Analysis for the three and nine months ended September 30, 2022 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, 2021, 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.

Q3 2022 Headlines:

• Revenue grew 33% (negative 3% organic growth, 2% after adjusting for changes in foreign exchange rates) to $1,725 million compared to $1,299 million in Q3 2021.

• Net income attributable to common shareholders increased 28% to $136 million ($6.42 on a diluted per share basis) from $107 million ($5.04 on a diluted per share basis) in Q3 2021.

• A number of acquisitions were completed for aggregate cash consideration of $207 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $61 million resulting in total consideration of $268 million.

• Cash flows from operations (“CFO”) were $321 million, an increase of 10%, or $29 million, compared to $292 million for the comparable period in 2021.

• Free cash flow available to shareholders¹ (“FCFA2S”) increased $3 million to $229 million compared to $226 million for the same period in 2021.

Total revenue for the quarter ended September 30, 2022 was $1,725 million, an increase of 33%, or $426 million, compared to $1,299 million for the comparable period in 2021. For the first nine months of 2022 total revenues were $4,774 million, an increase of 28%, or $1,051 million, compared to $3,724 million for the comparable period in 2021. 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 3% and negative 2% respectively, positive 2% 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. Organic growth is not a standardized financial measure and might not be comparable to measures disclosed by other issuers.

Net income attributable to common shareholders of CSI for the quarter ended September 30, 2022 was $136 million compared to $107 million for the same period in 2021. On a per share basis this translated into a net income per diluted share of $6.42 in the quarter ended September 30, 2022 compared to net income per diluted share of $5.04 for the same period in 2021. For the nine months ended September 30, 2022, net income attributable to common shareholders of CSI was $360 million or $16.99 per diluted share compared to $186 million or $8.79 per diluted share for the same period in 2021. There was no change in the number of shares outstanding.

For the quarter ended September 30, 2022, CFO increased $29 million to $321 million compared to $292 million for the same period in 2021 representing an increase of 10%. For the nine months ended September 30, 2022, CFO decreased $61 million to $897 million compared to $959 million for the same period in 2021 representing a decrease of 6%. The primary reasons for the decline in CFO for the nine months ended September 30, 2022 is that CFO 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 (“NCOWC”), and income taxes paid. For the nine months ended September 30, 2022 there was $27 million of cash used in NCOWC compared to $53 million of cash generated from NCOWC for the same period in 2021. Cash used in NCOWC associated with the Company’s recently acquired Altera business unit was $32 million for the nine months ended September 30, 2022. There are many reasons contributing to the NCOWC impact variance for the Company, including Altera, none of which are indicative of an underlying concern with the overall NCOWC balance. Specifically, there are no concerns with accounts receivable or unbilled revenue aging. Income taxes paid increased 87% or $41 million for the quarter ended September 30, 2022 and 42% or $83 million for the nine months ended September 30, 2022 over the same periods in 2021. Approximate $50 million and $100 million cash tax payments were made in the three and nine month periods ending September 30, 2022 respectively relating to the deferral of R&E expenses associated with the Tax Cuts and Jobs Act.

For the quarter ended September 30, 2022, FCFA2S increased $3 million to $229 million compared to $226 million for the same period in 2021 representing an increase of 1%. For the nine months ended September 30, 2022, FCFA2S decreased $76 million to $563 million compared to $639 million for the same period in 2021 representing a decrease of 12%. The items negatively impacting CFO summarized above are the same items negatively impacting FCFA2S. On February 1, 2022, the Topicus Preferred Shares and Topicus Coop Preference Units were converted to Topicus Subordinate Voting Shares and Topicus Coop Ordinary Units respectively. As a result of this conversion the non-controlling interest in Topicus.com Inc. decreased from approximately 70% to 39%.

1. See Non-IFRS measures.

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 September 30,							Nine months ended September 30,
			2022		2021					2022		2021
		($ in millions)							($ in millions)
Net cash flows from operating activities			321		292					897		959
Adjusted for:
Interest paid on lease obligations			(3	)	(2	)				(8	)	(7	)
Interest paid on other facilities			(23	)	(12	)				(49	)	(30	)
Credit facility transaction costs			(0	)	(0	)				(3	)	(4	)
Payments of lease obligations			(24	)	(21	)				(69	)	(61	)
IRGA / TSS membership liability revaluation charge			(33	)	(25	)				(89	)	(107	)
Property and equipment purchased			(8	)	(7	)				(27	)	(18	)
Interest and dividends received			0		1					0		1
			230		226					652		732
Less amount attributable to
Non-controlling interests			(1	)	1					(89	)	(93	)
Free cash flow available to shareholders			229		226					563		639
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, 2022			December 31, 2021			September 30, 2021
Assets
Current assets:
	Cash		$	665		$	763		$	961
	Accounts receivable			744			600			512
	Unbilled revenue			219			140			144
	Inventories			46			35			32
	Other assets			473			296			278
				2,146			1,835			1,929
Non-current assets:
	Property and equipment			121			93			91
	Right of use assets			274			245			252
	Deferred income taxes			155			66			63
	Other assets			160			99			94
	Intangible assets			4,469			3,428			3,006
				5,179			3,931			3,506
Total assets			$	7,325		$	5,766		$	5,434
Liabilities and Shareholders' Equity
Current liabilities:
	Debt with recourse to Constellation Software Inc.		$	364		$	143		$	137
	Debt without recourse to Constellation Software Inc.			234			60			54
	Redeemable preferred securities			-			7			7
	Accounts payable and accrued liabilities			917			832			720
	Dividends payable			21			22			21
	Deferred revenue			1,545			1,158			1,168
	Provisions			9			11			11
	Acquisition holdback payables			148			94			92
	Lease obligations			89			79			81
	Income taxes payable			99			56			86
				3,425			2,461			2,377
Non-current liabilities:
	Debt with recourse to Constellation Software Inc.			522			561			550
	Debt without recourse to Constellation Software Inc.			705			354			325
	Deferred income taxes			465			436			393
	Acquisition holdback payables			62			68			49
	Lease obligations			206			190			195
	Other liabilities			239			175			145
				2,200			1,784			1,656
Total liabilities				5,625			4,245			4,034
Shareholders' equity:
	Capital stock			99			99			99
	Other equity			-			(179	)		(162	)
	Accumulated other comprehensive income (loss)			(227	)		(66	)		(69	)
	Retained earnings			1,632			1,206			1,103
	Non-controlling interests			196			460			429
				1,700			1,521			1,401
Total liabilities and shareholders' equity			$	7,325		$	5,766		$	5,434

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Income (loss)
(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)
Unaudited
		Three months ended September 30,								Nine months ended September 30,
			2022				2021				2022				2021
Revenue
License		$	79			$	69			$	220			$	206
Professional services			375				256				985				747
Hardware and other			54				45				151				127
Maintenance and other recurring			1,217				929				3,418				2,643
			1,725				1,299				4,774				3,724
Expenses
Staff			925				676				2,581				1,982
Hardware			31				25				88				71
Third party license, maintenance and professional services			167				113				443				317
Occupancy			12				10				35				30
Travel, telecommunications, supplies, software and equipment			80				46				215				129
Professional fees			26				21				78				53
Other, net			64				21				132				41
Depreciation			38				31				105				90
Amortization of intangible assets			177				134				491				376
			1,521				1,077				4,167				3,087
Foreign exchange loss (gain)			(57	)			(5	)			(98	)			(3	)
IRGA/TSS Membership liability revaluation charge			33				25				89				107
Finance and other expense (income)			8				(4	)			24				(9	)
Bargain purchase gain			(3	)			(1	)			(4	)			(1	)
Impairment of intangible and other non-financial assets			-				1				1				7
Redeemable preferred securities expense (income)			-				-				-				295
Finance costs			29				18				73				50
			11				34				86				446
Income (loss) before income taxes			193				188				521				190
Current income tax expense (recovery)			113				70				322				209
Deferred income tax expense (recovery)			(63	)			(4	)			(189	)			(43	)
Income tax expense (recovery)			50				67				133				166
Net income (loss)			143				121				388				24
Net income (loss) attributable to:
Common shareholders of Constellation Software Inc.			136				107				360				186
Non-controlling interests			7				15				28				(162	)
Net income (loss)			143				121				388				24
Earnings per common share of Constellation Software Inc.
Basic and diluted		$	6.42			$	5.04			$	16.99			$	8.79

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Comprehensive Income (loss)
(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)
Unaudited
		Three months ended September 30,								Nine months ended September 30,
			2022				2021				2022				2021
Net income (loss)		$	143			$	121			$	388			$	24
Items that are or may be reclassified subsequently to net income (loss):
Foreign currency translation differences from foreign operations and other, net of tax			(93	)			(21	)			(184	)			(39	)
Other comprehensive income (loss) for the period, net of income tax			(93	)			(21	)			(184	)			(39	)
Total comprehensive income (loss) for the period		$	50			$	100			$	204			$	(15	)
Total other comprehensive income (loss) attributable to:
Common shareholders of Constellation Software Inc.			(80	)			(13	)			(156	)			(19	)
Non-controlling interests			(13	)			(8	)			(27	)			(19	)
Total other comprehensive income (loss)		$	(93	)		$	(21	)		$	(184	)		$	(39	)
Total comprehensive income (loss) attributable to:
Common shareholders of Constellation Software Inc.			56				93				204				167
Non-controlling interests			(6	)			7				1				(182	)
Total comprehensive income (loss)		$	50			$	100			$	204			$	(15	)

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
Nine months ended September 30, 2022
		Equity Attributable to Common Shareholders of CSI
		Capital stock			Other equity			Accumulated other comprehensive income (loss)			Retained earnings			Total			Non-controlling interests			Total equity
Balance at January 1, 2022		$	99		$	(179	)	$	(66	)	$	1,206		$	1,061			460		$	1,521
Total comprehensive income (loss) for the period:
Net income (loss)			-			-			-			360			360			28			388
Other comprehensive income (loss)
Foreign currency translation differences from
	foreign operations and other, net of tax		-			-			(156	)		-			(156	)		(27	)		(184	)
Total other comprehensive income (loss)
	for the period		-			-			(156	)		-			(156	)		(27	)		(184	)
Total comprehensive income (loss) for the period			-			-			(156	)		360			204			1			204
Transactions with owners, recorded directly in equity
	Conversion of redeemable preferred securities to subordinate voting shares of Topicus.com Inc. and ordinary units of Topicus Coop and other related movements		-			305			(5	)		-			301			(301	)		-
	Non-controlling interests arising from business combinations		-			-			-			-			-			41			41
	Other movements in non-controlling interests		-			-			-			2			2			(5	)		(2	)
	Dividends to shareholders of the Company		-			-			-			(64	)		(64	)		-			(64	)
	Reclassification of other equity to retained earnings		-			(127	)		-			127			-			-			-
Balance at September 30, 2022		$	99		$	-		$	(227	)	$	1,632		$	1,504		$	196		$	1,700

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
Nine months ended September 30, 2021
		Equity Attributable to Common 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 (loss) for the period:
Net income (loss)			-			-			-			186			186			(162	)		24
Other comprehensive income (loss)
Foreign currency translation differences from
	foreign operations and other, net of tax		-			-			(19	)		-			(19	)		(19	)		(39	)
Total other comprehensive income (loss) for the period			-			-			(19	)		-			(19	)		(19	)		(39	)
Total comprehensive income (loss) for the period			-			-			(19	)		186			167			(182	)		(15	)
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		-			(21	)		(2	)		-			(23	)		23			-
	Net acquisition of non-controlling interest associated with acquisitions and other movements		-			1			-			1			1			1			3
	Dividends to shareholders of the Company		-			-			-			(64	)		(64	)		-			(64	)
	Reclassification of Redeemable preferred securities of Topicus Coop from liabilities to non-controlling interest		-			-			-						-			434			434
	Accrued dividends to preference unit holders of Topicus Coop		-			-			-						-			(5	)		(5	)
Balance at September 30, 2021		$	99		$	(162	)	$	(69	)	$	1,103		$	972		$	429		$	1,401

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 September 30,								Nine months ended September 30,
					2022				2021				2022				2021
Cash flows from (used in) operating activities:
	Net income (loss)			$	143			$	121			$	388			$	24
	Adjustments for:
		Depreciation			38				31				105				90
		Amortization of intangible assets			177				134				491				376
		IRGA/TSS Membership liability revaluation charge			33				25				89				107
		Finance and other expense (income)			8				(4	)			24				(9	)
		Bargain purchase (gain)			(3	)			(1	)			(4	)			(1	)
		Impairment of intangible and other non-financial assets			-				1				1				7
		Redeemable preferred securities expense (income)			-				-				-				295
		Finance costs			29				18				73				50
		Income tax expense (recovery)			50				67				133				166
		Foreign exchange loss (gain)			(57	)			(5	)			(98	)			(3	)
	Change in non-cash operating assets and liabilities
		exclusive of effects of business combinations			(8	)			(47	)			(27	)			53
	Income taxes paid				(89	)			(48	)			(279	)			(196	)
	Net cash flows from (used in) operating activities				321				292				897				959
Cash flows from (used in) financing activities:
	Interest paid on lease obligations				(3	)			(2	)			(8	)			(7	)
	Interest paid on debt				(23	)			(12	)			(49	)			(30	)
	Increase (decrease) in CSI facility				(32	)			-				205				-
	Increase (decrease) in Topicus revolving credit debt facility without recourse to CSI				7				12				112				24
	Proceeds from issuance of debt facilities without recourse to CSI				22				6				447				140
	Repayments of debt facilities without recourse to CSI				(17	)			(2	)			(30	)			(4	)
	Other financing activities				3				-				4				-
	Credit facility transaction costs				(0	)			(0	)			(3	)			(4	)
	Payments of lease obligations				(24	)			(21	)			(69	)			(61	)
	Distribution to the Joday Group				-				-				(23	)			(22	)
	Dividends paid to redeemable preferred security holders				-				-				(7	)			-
	Dividends paid to common shareholders of the Company				(21	)			(21	)			(64	)			(64	)
	Net cash flows from (used in) in financing activities				(89	)			(41	)			516				(29	)
Cash flows from (used in) investing activities:
	Acquisition of businesses				(207	)			(130	)			(1,421	)			(736	)
	Cash obtained with acquired businesses				42				28				190				112
	Post-acquisition settlement payments, net of receipts				(39	)			(16	)			(98	)			(101	)
	Receipt of additional subscription amount from the sellers of Topicus.com B.V.				-				-				-				33
	Purchases of other investments				(0	)			(14	)			(96	)			(15	)
	Proceeds from sales of other investments				-				8				3				8
	Interest, dividends and other proceeds received				1				1				4				4
	Property and equipment purchased				(8	)			(7	)			(27	)			(18	)
	Net cash flows from (used in) investing activities				(211	)			(131	)			(1,445	)			(713	)
Effect of foreign currency on
	cash and cash equivalents				(32	)			(10	)			(67	)			(13	)
Increase (decrease) in cash					(11	)			110				(99	)			203
Cash, beginning of period				$	676			$	851			$	763			$	758
Cash, end of period				$	665			$	961			$	665			$	961