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Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2015 and Declares Quarterly Dividend

TORONTO, ONTARIO--(Marketwired - July 29, 2015) - Constellation Software Inc. ( CSU.TO ) ("Constellation" or the "Company") today announced its financial results for the second quarter ended June 30, 2015 and declared a $1.00 per share dividend payable on October 5, 2015 to all common shareholders of record at close of business on September 17, 2015. 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, 2015 and the accompanying notes, our Management's Discussion and Analysis for the three and six months ended June 30, 2015, 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, 2014, 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 2015 Headlines:

  • Revenue grew 7% (negative 4% organic growth) to $444 million compared to $416 million in Q2 2014. Changes in foreign exchange rates resulted in an approximate 6% reduction in organic growth.
  • Adjusted EBITA increased $18 million or 22% to $99 million as compared to $81 million in Q2 2014. Changes in foreign exchange rates resulted in less than a 1% reduction in Adjusted EBITA margin.
  • Adjusted Net Income increased 23% to $80 million ($3.76 on a diluted per share basis) from $65 million ($3.07 on a diluted per share basis) in Q2 2014.
  • Net income increased 42% to $33 million ($1.54 on a diluted per share basis) from $23 million ($1.08 on a diluted per share basis) in Q2 2014.
  • Eight acquisitions were completed for aggregate cash consideration of $112 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $10 million.
  • Cash flows from operations were $64 million, an increase of 46%, or $20 million, compared to $44 million for the comparable period in 2014.
  • The amount drawn on the Company's credit facilities increased to $298 million from $204 million in Q1 2015.

Second quarter 2015 revenue was $444 million, an increase of 7%, or $28 million, compared to $416 million for the comparable period in 2014. For the first six months of 2015 total revenues were $866 million, an increase of 7%, or $56 million, compared to $811 million for the comparable period in 2014. The increase for both the three and six month periods ended June 30, 2015 compared to the same periods in the prior year is attributable to growth from acquisitions as the Company experienced negative organic growth of growth of 4% and 3%, respectively.

Adjusted EBITA for the second quarter of 2015 was $99 million, a 22% increase compared to the prior year's second quarter Adjusted EBITA of $81 million. Second quarter 2015 Adjusted EBITA per share on a diluted basis increased 22% to $4.67, compared to $3.83 for the same period last year. Adjusted EBITA for the six month period ended June 30, 2015 was $192 million, a 34% increase over last year's Adjusted EBITA of $144 million for the same period. Adjusted EBITA per share on a diluted basis for the six month period ended June 30, 2015 increased 34% to $9.08, compared to $6.79 for the same period last year.

Adjusted Net Income for the second quarter of 2015 was $80 million, compared to the prior year's second quarter Adjusted Net Income of $65 million, a 23% increase. Second quarter 2015 Adjusted Net Income per share on a diluted basis increased 23% to $3.76 compared to $3.07 for the prior year's second quarter. Adjusted Net Income for the six month period ended June 30, 2015 was $154 million, an increase of 30% over last year's Adjusted Net Income of $118 million. Adjusted Net Income per share on a diluted basis for the six month period ended June 30, 2015 increased 30% to $7.29, compared to $5.58 for the same period in 2014.

Net income for the second quarter 2015 was $33 million compared to the prior year's second quarter net income of $23 million. Net income per share on a diluted per share basis for the second quarter of 2015 increased 42% to $1.54, compared to $1.08 for the same period of 2014. Net income for the six month period ended June 30, 2015 was $66 million, an increase of 106% over net income of $32 million for the same period in 2014. Net income per share on a diluted basis for the six month period ended June 30, 2015 increased 106% to $3.09, compared to $1.50 for the same period in 2014.

Cash flows from operations for the second quarter of 2015 were $64 million, an increase of 46%, or $20 million, compared to $44 million for the comparable period in 2014. For the first six months of 2015 cash flows from operations were $177 million, an increase of 23%, or $33 million, compared to $144 million for the comparable period in 2014.

The following table displays our revenue by reportable segment and the percentage change for the three and six months ended June 30, 2015 compared to the same periods in 2014:

  Three months ended   Period-Over-     Six months ended   Period-Over-  
  June 30,   Period Change     June 30,   Period Change  
  2015   2014   $   %     2015   2014   $   %  
  ($M, except percentages)     ($M, except percentages)  
Public Sector                                  
Licenses 22.2   21.0   1.2   6 %   41.4   37.2   4.2   11 %
Professional services 78.9   81.5   (2.6 ) -3 %   153.7   156.7   (3.0 ) -2 %
Hardware and other 25.6   29.8   (4.2 ) -14 %   50.9   58.4   (7.5 ) -13 %
Maintenance and other recurring 181.6   161.4   20.2   13 %   353.1   319.2   33.9   11 %
  308.3   293.7   14.6   5 %   599.2   571.5   27.7   5 %
                                   
Private Sector                                  
Licenses 10.9   9.4   1.5   16 %   21.9   19.6   2.3   12 %
Professional services 17.5   17.8   (0.3 ) -2 %   35.4   34.5   0.9   3 %
Hardware and other 6.4   5.3   1.1   22 %   12.1   10.5   1.7   16 %
Maintenance and other recurring 100.5   89.8   10.7   12 %   197.8   174.8   23.0   13 %
  135.3   122.2   13.0   11 %   267.2   239.3   27.9   12 %

Public Sector

For the quarter ended June 30, 2015, total revenue in the public sector reportable segment increased by 5%, or $15 million to $308 million, compared to $294 million for the quarter ended June 30, 2014. For the six months ended June 30, 2015, total revenue increased by 5%, or $28 million to $599 million, compared to $572 million for the comparable period in 2014. Total revenue growth from acquired businesses contributed approximately $30 million to our Q2 2015 revenues and $50 million to our six months ended June 30, 2015 revenues compared to the same periods in 2014, as we completed 18 acquisitions since the beginning of 2014. Organic revenue growth was negative 5% in Q2 2015 and negative 4% for the six months ended June 30, 2015 compared to the same periods in 2014. For the three and six months ended June 30, 2015, the appreciation of the US dollar against most major currencies in which the Company transacts business resulted in approximate 7% and 6% respective reductions in the public sector revenue organic growth rates compared to the comparable periods of 2014.

Private Sector

For the quarter ended June 30, 2015, total revenue in the private sector reportable segment increased 11%, or $13 million to $135 million, compared to $122 million for the quarter ended June 30, 2014. For the six months ended June 30, 2015 total revenue increased by 12%, or $28 million to $267 million, compared to $239 million for the comparable period in 2014. Total revenue growth from acquired businesses contributed approximately $16 million to our Q2 2015 revenues and $33 million to our six months ended June 30, 2015 revenues compared to the same periods in 2014, as we completed 16 acquisitions since the beginning of 2014. Organic revenue growth was negative 2% for both the three and six month periods ended June 30, 2015 compared to the same periods in 2014. For the three and six months ended June 30, 2015, the appreciation of the US dollar against most major currencies in which the Company transacts business resulted in approximate 5% and 4% respective reductions in the private sector revenue organic growth rates compared to the comparable periods of 2014.

Conference Call and Webcast

Management will host a conference call at 9:00 a.m. (ET) on Thursday, July 30, 2015 to answer questions regarding the results. The teleconference numbers are 416-340-2216 or 866-225-0198. 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 12, 2015. To access the replay, please dial 905-694-9451 or 800-408-3053 followed by the passcode 2063785.

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, 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     Six months ended  
  June 30,     June 30,  
  2015   2014     2015   2014  
  ($M, except percentages)     ($M, except percentages)  
                   
Total revenue 443.5   415.9     866.4   810.8  
                   
Net income 32.7   23.0     65.6   31.9  
Adjusted for:                  
Income tax expense (recovery) 16.1   10.3     27.4   18.5  
Foreign exchange (gain) loss (0.7 ) 2.2     (2.5 ) 2.3  
TSS membership liability revaluation charge 3.4   -     9.4   -  
Share in net (income) loss of equity investees (0.3 ) (0.4 )   (0.9 ) (0.5 )
Finance and other income (0.1 ) (1.4 )   (0.3 ) (1.9 )
Finance costs 4.6   3.5     8.9   6.8  
Amortization of intangible assets 43.3   44.0     84.8   86.8  
                   
Adjusted EBITA 99.0   81.1     192.4   143.9  
Adjusted EBITA margin 22 % 20 %   22 % 18 %

The following table reconciles Adjusted net income to net income:

  Three months ended     Six months ended  
  June 30,     June 30,  
  2015   2014     2015   2014  
  ($M, except percentages)     ($M, except percentages)  
                   
Total revenue 443.5   415.9     866.4   810.8  
                   
Net income 32.7   23.0     65.6   31.9  
Adjusted for:                  
Amortization of intangible assets 43.3   44.0     84.8   86.8  
TSS membership liability revaluation charge 3.4   -     9.4   -  
Less non-controlling interest in the Adjusted net income of TSS (3.1 ) -     (6.3 ) -  
Deferred income tax expense (recovery) 3.5   (1.9 )   1.0   (0.3 )
                   
Adjusted net income 79.7   65.0     154.4   118.4  
Adjusted net income margin 18 % 16 %   18 % 15 %

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,    December 31,  
     2015    2014  
Assets            
             
Current assets:            
  Cash $ 132,006   $ 70,679  
  Accounts receivable   201,752     200,056  
  Work in progress   64,629     51,483  
  Inventories   28,256     25,246  
  Other assets   74,482     63,294  
      501,125     410,758  
             
Non-current assets:            
  Property and equipment   36,394     37,227  
  Deferred income taxes   60,139     60,763  
  Other assets   35,382     36,942  
  Intangible assets   943,446     887,435  
      1,075,361     1,022,367  
               
Total assets $ 1,576,486   $ 1,433,125  
             
Liabilities and Shareholders' Equity            
             
Current liabilities:            
  Bank indebtedness $ 160,201   $ 66,326  
  TSS membership liability   19,281     17,345  
  Accounts payable and accrued liabilities   220,977     244,996  
  Dividends payable   21,119     21,192  
  Deferred revenue   436,743     347,336  
  Provisions   7,494     13,399  
  Acquisition holdback payments   22,974     22,665  
  Income taxes payable   18,908     25,588  
      907,697     758,847  
             
Non-current liabilities:            
  Bank indebtedness   132,585     149,654  
  TSS membership liability   33,918     30,515  
  Debentures   74,364     78,642  
  Deferred income taxes   107,432     107,275  
  Acquisition holdback payments   1,735     3,603  
  Other liabilities   46,593     44,758  
      396,627     414,447  
               
Total liabilities   1,304,324     1,173,294  
             
             
Shareholders' equity:            
  Capital stock   99,283     99,283  
  Accumulated other comprehensive income (loss)   (30,155 )   (19,290 )
  Retained earnings   203,034     179,838  
      272,162     259,831  
             
             
Total liabilities and shareholders' equity $ 1,576,486   $ 1,433,125  
             
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, 2015 and 2014  
(Unaudited)  
  Three months ended June 30,   Six months ended June 30,  
  2015   2014   2015   2014  
                         
                         
Revenue                        
  License $ 33,026   $ 30,357   $ 63,351   $ 56,838  
  Professional services   96,410     99,350     189,116     191,160  
  Hardware and other   31,994     35,056     63,042     68,848  
  Maintenance and other recurring   282,080     251,168     550,892     493,934  
    443,510     415,931     866,401     810,780  
                         
Expenses                        
  Staff   223,086     224,426     444,938     450,098  
  Hardware   18,430     19,755     36,215     38,494  
  Third party license, maintenance and professional services   38,412     38,196     77,212     73,515  
  Occupancy   10,277     10,206     20,858     20,164  
  Travel   13,839     12,535     25,649     23,950  
  Telecommunications   4,305     4,152     8,391     8,097  
  Supplies   10,382     9,174     19,941     17,881  
  Professional fees   5,885     5,211     10,692     10,250  
  Other, net   15,644     7,063     21,928     16,204  
  Depreciation   4,250     4,094     8,176     8,181  
  Amortization of intangible assets   43,312     43,985     84,793     86,787  
    387,822     378,797     758,793     753,621  
                         
                         
Foreign exchange loss (gain)   (743 )   2,177     (2,466 )   2,349  
TSS membership liability revaluation charge   3,378     -     9,408     -  
Share in net (income) loss of equity investee   (250 )   (415 )   (940 )   (535 )
Finance and other income   (62 )   (1,386 )   (320 )   (1,854 )
Finance costs   4,643     3,528     8,926     6,842  
    6,966     3,904     14,608     6,802  
                         
Income before income taxes   48,722     33,230     93,000     50,357  
                         
Current income tax expense (recovery)   12,566     12,183     26,462     18,794  
Deferred income tax expense (recovery)   3,502     (1,911 )   958     (291 )
Income tax expense (recovery)   16,068     10,272     27,420     18,503  
                         
Net income   32,654     22,958     65,580     31,854  
                         
Earnings per share                        
    Basic and diluted $ 1.54   $ 1.08   $ 3.09   $ 1.50  
                         
                         
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, 2015 and 2014  
(Unaudited)  
  Three months ended June 30,   Six months ended June 30,  
    2015     2014     2015     2014  
                         
Net income $ 32,654   $ 22,958   $ 65,580   $ 31,854  
                         
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   -     -     -     93  
                         
  Net change in fair value of derivatives designated as hedges during the period   215     -     (15 )   -  
                         
  Amounts reclassified to profit during the period related to realized gains on available-for-sale financial asset   -     (310 )   -     (574 )
                         
  Foreign currency translation differences from foreign operations   1,073     1,318     (10,856 )   1,638  
                         
  Current income tax recovery (expense)   -     -     -     35  
                         
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