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Press release from Marketwire

Constellation Software Inc. Announces Results for the Third Quarter Ended September 30, 2010

Wednesday, November 03, 2010

Constellation Software Inc. Announces Results for the Third Quarter Ended September 30, 201016:58 EDT Wednesday, November 03, 2010TORONTO, ONTARIO--(Marketwire - Nov. 3, 2010) - Constellation Software Inc. (TSX:CSU)("Constellation" or the "Company") today announced its financial results for the three and nine months ended September 30, 2010. Please note that all dollar amounts referred to in this press release are U.S. Dollars unless otherwise stated.The following press release should be read in conjunction with the unaudited consolidated interim financial statements for the three and nine month periods ended September 30, 2010 and the accompanying notes, and with our annual consolidated financial statements and our annual MD&A for the year ended December 31, 2009 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 2010 Highlights:Revenue grew 52% compared to Q3 2009. Organic revenue growth was negative 3%. Excluding the impact of the Public Transit Solutions ('PTS') business acquired in Q4 2009, organic growth was 2% in Q3 2010 compared to 0% in Q3 2009. Adjusted EBITDA grew 38% compared to Q3 2009. Adjusted Net Income grew 76% compared to Q3 2009. Two acquisitions were completed in the quarter for net cash consideration of $4 million, and holdbacks related to prior acquisitions of $3 million were paid. Subsequent to September 30, 2010, the Company completed two acquisitions for aggregate cash consideration of $36 million. Third quarter revenue was $163 million, an increase of 52%, or $56 million, compared to $107 million for the comparable period in 2009. Total revenue for the nine months ended September 30, 2010 was $459 million, an increase of 50% over last year's revenues of $306 million for the same period.Constellation acquired PTS from Continental Automotive AG ('Continental') on November 2, 2009. Given the substantial amount of non-recurring revenue historically earned by PTS, gross revenue from PTS has fluctuated significantly in the past and may continue to do so in the future. Constellation expects revenue from PTS to decline significantly in the twelve months following acquisition compared to revenue in the twelve months preceding acquisition. Excluding PTS, organic growth for Constellation was 2% in Q3 2010 and 3% for the first nine months of 2010 compared to nil organic growth and negative organic growth of 2% for the same periods in 2009, respectively.The following table provides a summary of the impact of PTS on Constellation's organic revenue growth:Organic Revenue GrowthThree months endedNine months endedSeptember 30, 2010September 30, 2010Constellation-3%-6%Constellation excluding PTS2%3%Adjusted EBITDA for the third quarter 2010 was $32 million, a 38% increase compared to the prior year's third quarter Adjusted EBITDA of $23 million. Third quarter Adjusted EBITDA per share on a fully diluted basis increased 38% to $1.50, compared to $1.09 for the same period last year. Adjusted EBITDA for the nine month period ended September 30, 2010 was $84 million, an increase of 27% over last year's Adjusted EBITDA of $66 million for the same period. Adjusted EBITDA per share on a fully diluted basis for the nine month period ended September 30, 2010 increased 27% to $3.95, compared to $3.11 for the same period in 2009.Adjusted Net Income for the third quarter 2010 was $26 million, compared to the prior year's third quarter Adjusted Net Income of $15 million, a 76% increase. Third quarter Adjusted Net Income per share on a fully diluted basis increased 75% to $1.21 compared to $0.69 for the prior year's third quarter. Adjusted Net Income for the nine month period ended September 30, 2010 was $64 million, an increase of 35% over last year's Adjusted Net Income of $48 million for the same period. Adjusted Net Income per share on a fully diluted basis for the nine month period ended September 30, 2010 increased 35% to $3.04 compared to $2.25 for the same period in 2009.Net income for the third quarter 2010 was $14.2 million compared to the prior year's third quarter net income of $2.7 million. On a fully diluted per share basis, this translates into net income per share of $0.67 for the third quarter of 2010, compared to $0.13 in the same period of 2009. For the nine months ended September 30, 2010 net income was $23.9 million or $1.13 per diluted share compared to $10.2 million or $0.48 per share last year.In Q3 2010, the Company recorded an extraordinary gain of $3.5 million relating to negative goodwill associated with the PTS acquisition. Negative goodwill has arisen on acquisition because the estimated fair value of the separately identifiable assets acquired net of the liabilities acquired exceeded the total consideration paid.The following table displays our revenue by reportable segment and the percentage change for the three and nine months ended September 30, 2010 compared to the same periods in 2009:Three months endedPeriod-Over-PeriodNine months endedPeriod-Over-PeriodSeptember 30,ChangeSeptember 30,Change20102009$%20102009$%($000, except percentages) ($000, except percentages)Public SectorLicenses9,5618,0521,50919%26,67224,1952,47710%Professional services and other:Services34,69521,80512,89059%103,26065,63137,62957%Hardware and other17,7728,1179,655119%46,01320,10025,913129%Maintenance58,36243,13115,23135%167,994123,43144,56336%120,39081,10539,28548%343,939233,357110,58247%Private SectorLicenses4,1202,4161,70471%10,2736,1554,11867%Professional services and other:Services7,6242,9524,672158%20,9419,08211,859131%Hardware and other2,5421,0661,476138%6,0742,7453,329121%Maintenance28,13819,7408,39843%78,16254,70723,45543%42,42426,17416,25062%115,45072,68942,76159%Public SectorFor the quarter ended September 30, 2010, total revenue in the public sector segment increased 48%, or $39 million, to $120 million, compared to $81 million for the quarter ended September 30, 2009. For the nine months ended September 30, 2010, total revenue increased by 47% or $111 million, to $344 million, compared to $233 million for the comparable period in 2009. The increases for both the three and nine month periods were significant across all revenue types. Revenue growth from acquired businesses was significant for both the three and nine month periods as we completed twelve acquisitions since the beginning of 2009 in our public sector segment. It is estimated that acquisitions completed since the beginning of 2009 contributed approximately $45 million to our Q3 2010 revenues and $130 million to our revenues in the nine months ended September 30, 2010. Revenues decreased organically by $5 million in Q3 2010 and $20 million in the nine months ended September 30, 2010 compared to the same periods in 2009. Excluding PTS, organic growth for the Public Sector was nil in Q3 2010 and 3% for the nine months ended September 30, 2010 compared to the same periods in 2009.Organic Revenue GrowthThree months endedNine months endedSeptember 30, 2010September 30, 2010Public Sector-7%-8%Public Sector excluding PTS0%3%The organic revenue change was primarily driven by the following:Trapeze operating group (decrease of approximately $6 million in Q3 and a decrease of approximately $24 million for the nine months ended September 30, 2010). For both Q3 and the nine months ended September 30, 2010, the negative organic growth was primarily caused by the PTS business as PTS recognized substantial non-recurring revenue in the twelve months prior to acquisition that Trapeze does not expect to re- occur in the corresponding financial period following acquisition. Excluding the impact of PTS, Trapeze experienced no organic growth in Q3 and an increase of approximately $2 million for the nine months ended September 30, 2010. Harris operating group (increase of approximately $0.5 million in Q3 and an increase of approximately $5 million for the nine months ended September 30, 2010). For the nine months ended September 30, 2010, Harris had continued strong revenue from existing clients and new customers in their utility, local government, and school business units. Private SectorFor the quarter ended September 30, 2010, total revenue in the private sector segment increased by 62%, or $16 million, to $42 million, compared to $26 million for the quarter ended September 30, 2009. For the nine months ended September 30, 2010 total revenue increased by 59% or $43 million, to $115 million, compared to $73 million for the comparable period in 2009. Revenue growth from acquired businesses was significant for both the three and nine month periods as we completed seventeen acquisitions since the beginning of 2009 in our private sector segment. It is estimated that acquisitions completed since the beginning of 2009 contributed approximately $15 million to our Q3 2010 revenues and $39 million to our revenues in the nine months ended September 30, 2010. Revenues increased organically by $2 million in Q3 2010 and $3 million in the nine months ended September 30, 2010 compared to the same periods in 2009. The organic revenue change was negligible across each of the private sector operating groups.During the quarter, Constellation completed two acquisitions for total net cash consideration of approximately $4 million, and paid holdbacks related to prior acquisitions of $3 million. At September 30, 2010, Constellation's cash position (net of borrowings on our line of credit) decreased to negative $15 million, from negative $10 million at December 31, 2009. Subsequent to September 30, 2010, the Company completed two acquisitions for aggregate cash consideration of $36 million.Conference Call and WebcastManagement will host a conference call at 8:30 a.m. (ET) on Thursday, November 4, 2010 to answer questions regarding the results. The teleconference numbers are 416-340-8410 or 800-446-4472. The call will also be webcast live and archived on Constellation's web site 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 November 17, 2010. To access the replay, please dial 416-695-5800 or 800-408-3053 followed by the passcode 3210266#.Forward Looking StatementsCertain 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-GAAP MeasuresThe term "Adjusted EBITDA" refers to net income before deducting interest, taxes, depreciation, other expenses (income), amortization, and foreign exchange (gain) loss. The Company believes that Adjusted EBITDA 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 asset depreciation and the other items listed above. "Adjusted EBITDA margin" refers to the percentage that Adjusted EBITDA for any period represents as a portion of total revenue for that period."Adjusted Net Income" means net income plus non-cash expenses (income) such as amortization of intangible assets, future income taxes, and certain other income/expenses. 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, future income taxes, and certain other non-cash income/expenses incurred by the Company from time to time. "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 EBITDA and Adjusted Net Income are not recognized measures under GAAP and, accordingly, shareholders are cautioned that Adjusted EBITDA and Adjusted Net Income should not be construed as alternatives to net income determined in accordance with GAAP as an indicator of the financial performance of the Company. The Company's method of calculating Adjusted EBITDA and Adjusted Net Income may differ from other issuers and, accordingly, Adjusted EBITDA and Adjusted Net Income may not be comparable to similar measures presented by other issuers.The following table reconciles Adjusted EBITDA to net income:Three months endedNine months endedSeptember 30,September 30,2010200920102009($000, except percentages)($000, except percentages)Total revenue$162,814$107,279$459,389$306,046Net income14,2112,70623,87210,234Add back:Income taxes2,1561,0847,0274,714Extraordinary gain(3,518)0(3,518)0Foreign exchange (gain) loss(980)2,02241624Interest expense, net8415422,4951,908Other (income) expenses(81)0(393)1,441Amortization of intangible assets17,54415,58350,01444,271Depreciation1,6711,0674,1482,706Adjusted EBITDA31,84423,00483,68665,898Adjusted EBITDA margin20%21%18%22%The following table reconciles Adjusted Net Income to net income:Three months endedNine months endedSeptember 30,September 30,2010200920102009($000, except percentages)($000, except percentages)Total revenue$162,814$107,279$459,389$306,046Net income (loss)14,2112,70623,87210,234Add back:Amortization of intangible assets17,54415,58350,01444,271Extraordinary gain(3,518)0(3,518)0Future income taxes (recovery)(2,572)(3,722)(6,007)(6,749)Adjusted net income25,66514,56764,36147,756Adjusted net income margin16%14%14%16%The following tables provide supplemental statement of operations and cash flow information of PTS and certain assets and liabilities acquired from MAXIMUS Inc.'s Asset, Justice, and Education businesses ('MAJES'):Statement of OperationsFor the three and nine months ended September 30, 2010For the three months ended September 30, 2010For the nine months ended September 30, 2010(Unaudited)Constellation Software Inc. (excluding MAJES and PTS)MAJESPTSConsolidatedConstellation Software Inc. (excluding MAJES and PTS)MAJESPTSConsolidatedRevenue$113,710$19,109$29,995$162,814$321,149$57,608$80,632$459,389Cost of revenue42,9675,48520,89569,347120,14118,43652,273190,850Gross Profit70,74313,6249,10093,467201,00839,17228,359268,539Total Expenses (excluding amortization)49,8246,6765,12361,623145,35420,75018,749184,853Adjusted EBITDA20,9196,9483,97731,84455,65418,4229,61083,686EBITDA as % Total Revenue18%36%13%20%17%32%12%18%Depreciation1,125844621,6713,0663207624,148Income before the undernoted19,7946,8643,51530,17352,58818,1028,84879,538Amortization of intangible assets16,0971,447-17,54445,6704,344-50,014Other expenses (income), net1,863(2)(2,081)(220)2,26825(150)2,143Income before extraordinary gain and income taxes1,8345,4195,59612,8494,65013,7338,99827,381Extraordinary gain--3,5183,518--3,5183,518Income taxes(923)2,0591,0202,1564113,7602,8567,027Net Income$2,757$3,360$8,094$14,211$4,239$9,973$9,660$23,872Cash flow from operating activitiesFor the three and nine months ended September 30, 2010For the three months ended September 30, 2010 For the nine months ended September 30, 2010(Unaudited)Constellation Software Inc. (excluding MAJES and PTS)MAJESPTSConsolidatedConstellation Software Inc. (excluding MAJES and PTS)MAJESPTSConsolidatedCash flow s from operating activities:Net income$2,757$3,360$8,094$14,211$4,239$9,973$9,660$23,872Adjustments to reconcile net income to net cash flows from operations:Depreciation1,125844621,6713,0663207624,148Amortization of intangible assets16,0971,447-17,54445,6704,344-50,014Extraordinary gain--(3,518)(3,518)--(3,518)(3,518)Future income taxes(1,936)(645)9(2,572)(5,284)(782)59(6,007)Other non-cash items73(4)(1,118)(1,049)(393)21(78)(450)Change in non-cash operating working capital(1,938)3,521(4,258)(2,675)501(383)(5,028)(4,910)Cash flows from operating activities$16,178$7,763$(329)$23,612$47,799$13,493$1,858$63,149The following table reconciles Adjusted EBITDA to net income for PTS and MAJES:Adjusted EBITDA to net income reconciliationFor the three and nine months ended September 30, 2010For the three months ended September 30, 2010For the nine months ended September 30, 2010(Unaudited)ConstellationConstellationSoftware Inc.Software Inc.(excluding(excludingMAJES andMAJES andPTS)MAJESPTSConsolidatedPTS)MAJESPTSConsolidatedTotal revenue$113,710$19,109$29,995$162,814$321,149$57,608$80,632$459,389Net income2,7573,3608,09414,2114,2399,9739,66023,872Add back:Income tax expense(923)2,0591,0202,1564113,7602,8567,027Extraordinary gain--(3,518)(3,518)--(3,518)(3,518)Other expenses (income), net1,863(2)(2,081)(220)2,26825(150)2,143Amortization of intangible assets16,0971,447-17,54445,6704,344-50,014Depreciation1,125844621,6713,0663207624,148Adjusted EBITDA20,9196,9483,97731,84455,65418,4229,61083,686Adjusted EBITDA margin18%36%13%20%17%32%12%18%About Constellation Software Inc.Constellation's common shares are listed on the Toronto Stock Exchange under the symbol "CSU". Constellation Software is an international provider of market leading software and services to a number of industries across both the public and private sectors. The Company acquires, manages and builds vertical market software businesses that provide mission-critical software solutions to address the specific needs of its customers in those industries.CONSTELLATION SOFTWARE INC.Interim Consolidated Balance Sheets(In thousands of U.S. dollars)September 30, 2010December 31, 2009(Unaudited)AssetsCurrent assets:Cash$24,654$33,249Short-term investments and marketable securities available for sale26,02522,323Accounts receivable109,73899,742Work in progress26,67921,349Inventory16,05012,702Prepaid expenses and other current assets19,84419,606Notes receivable4,0223,833Investment tax credits recoverable1,7442,250Future income taxes3,6174,445232,373219,499Restricted cash9572,229Property and equipment16,23910,539Future income taxes15,17910,155Investment tax credits recoverable3,4732,133Other long-term assets4,0897,169Intangible assets197,512187,788Goodwill47,48340,977$517,305$480,489Liabilities and Shareholders' EquityCurrent liabilities:Bank indebtedness$39,629$43,100Accounts payable and accrued liabilities106,777111,307Acquisition holdback payments3,2083,587Deferred revenue156,018136,857Income taxes payable3,8753,751309,507298,602Future income taxes34,97728,121Other long-term liabilities43,39245,708Shareholders equity:Capital stock99,28399,283Shareholder loans(469)(646)Accumulated other comprehensive income (loss)2,675(157)Retained earnings27,9409,578129,429108,058$517,305$480,489CONSTELLATION SOFTWARE INC.Interim Consolidated Statements of Operations(In thousands of U.S. dollars, except per share amounts)Three months ended September 30,Nine months ended September 30,2010200920102009(Unaudited)(Unaudited)Revenue$162,814$107,279$459,389$306,046Cost of revenue69,34740,115190,850112,93493,46767,164268,539193,112Research and development20,56316,47864,05246,460Sales and marketing14,11010,71443,07531,494General and administration26,95016,96877,72649,260Depreciation1,6711,0674,1482,70663,29445,227189,001129,920Income before the undernoted30,17321,93779,53863,192Amortization of intangible assets17,54415,58350,01444,271Other (income) expenses(81)-(393)1,441Interest expense, net8415422,4951,908Foreign exchange (gain) loss(980)2,02241624Income before extraordinary gain and income taxes12,8493,79027,38114,948Extraordinary gain (taxes - nil)3,518-3,518-Income taxes (recovery):Current4,7284,80613,03411,463Future(2,572)(3,722)(6,007)(6,749)2,1561,0847,0274,714Net income$14,211$2,706$23,872$10,234Income per share:Basic$0.67$0.13$1.13$0.48Diluted0.670.131.130.48Weighted average number of shares outstanding:Basic21,18021,17121,17821,163Diluted21,19221,19221,19221,192Outstanding at the end of the period21,19221,19221,19221,192CONSTELLATION SOFTWARE INC.Interim Consolidated Statements of Retained Earnings (In thousands of U.S. dollars) Three months ended September 30,Nine months ended September 30,2010200920102009(Unaudited)(Unaudited)Retained earnings, beginning of period$13,729$6,882$9,578$3,931Net income14,2112,70623,87210,234Dividends--(5,510)(4,577)Retained earnings, end of period$27,940$9,588$27,940$9,588Interim Consolidated Statements of Comprehensive Income(In thousands of U.S. dollars)Three months ended September 30,Nine months ended September 30,2010200920102009(Unaudited)(Unaudited)Net income$14,211$2,706$23,872$10,234Other comprehensive net income:Net unrealized mark-to-market adjustment gain (loss) on available-for-sale financial assets during the period8703,7203,3544,099Net unrealized foreign exchange gain (loss) on available-for-sale financial assets during the period409(218)(31)524Reclassification of unrealized gain upon derecognition of available-for-sale investments--(696)-Amounts reclassified to net income during the period related to other than temporary losses in available-for-sale investments---1,474Future tax expense on unrealized net gains(192)-(844)-Foreign currency translation adjustment742-1,049-Comprehensive income$16,040$6,208$26,704$16,331CONSTELLATION SOFTWARE INC.Interim Consolidated Statements of Cash Flows (In thousands of U.S. dollars)Three months endedNine months endedSeptember 30,September 30,2010200920102009(Unaudited)(Unaudited)Cash flows from operating activities:Net income$14,211$2,706$23,872$10,234Adjustments to reconcile net income to net cash flows from operations:Depreciation1,6711,0674,1482,706Amortization of intangible assets17,54415,58350,01444,271Extraordinary gain(3,518)-(3,518)-Non-cash interest(70)(30)(211)(101)Future income taxes(2,572)(3,722)(6,007)(6,749)Other1-(280)1,441Foreign exchange (gain) loss(980)2,02241624Change in non-cash operating working capital(2,675)11,918(4,910)(4,543)Cash flows from operating activities23,61229,54463,14947,883Cash flows from (used in) financing activities:Increase (decrease) in other long-term liabilities(716)(135)(209)(194)Increase (decrease) in bank indebtedness, net(19,825)17,000(3,471)(6,200)Credit facility financing fees(13)(26)(13)(54)Dividends paid--(5,510)(4,577)Repayment of shareholder loans172207329Cash flows from (used in) financing activities(20,537)16,841(8,996)(10,696)Cash flows from (used in) investing activities:Acquisition of businesses, net of cash acquired(3,628)(38,701)(43,533)(44,295)Acquisition holdback payments(2,667)701(5,489)(1,871)Earnout payments--(71)-Acquisitions of short-term investments, marketable securities and other assets, net(2,163)(1,521)(10,411)(1,411)Decrease in restricted cash-(50)1,272(50)Decrease (increase) in other assets(149)(177)699(306)Property and equipment purchased(1,926)(978)(5,149)(2,907)Cash flows used in investing activities(10,533)(40,726)(62,682)(50,840)Effect of currency translation adjustment on cash and cash equivalents1,750(1,132)(66)221Increase (decrease) in cash and cash equivalents(5,708)4,527(8,595)(13,432)Cash, beginning of period30,36212,44633,24930,405Cash, end of period$24,654$16,973$24,654$16,973Supplemental cash flow information:Income taxes paid$8,911$1,103$13,926$9,917Interest paid9956843,1272,331Investment tax credits received844551,382260Interest received5-8446FOR FURTHER INFORMATION PLEASE CONTACT: John BillowitsConstellation Software Inc.Chief Financial Officer(416) 861-2279info@csisoftware.comwww.csisoftware.com