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Press release from Marketwire

Constellation Software Inc. Announces Results for the First Quarter Ended March 31, 2011

Wednesday, May 04, 2011

Constellation Software Inc. Announces Results for the First Quarter Ended March 31, 201117:00 EDT Wednesday, May 04, 2011TORONTO, ONTARIO--(Marketwire - May 4, 2011) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the three months ended March 31, 2011. 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 Condensed Consolidated Interim Financial Statements for the three months ended March 31, 2011 and the accompanying notes, and with our annual Consolidated Financial Statements and our annual MD&A for the year ended December 31, 2010 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 2011 Highlights:Revenue grew 23% compared to Q1 2010. Organic revenue growth was 5% in Q1 2011 compared to negative 6% in Q1 2010. Adjusted EBITDA grew 47% compared to Q1 2010. Adjusted EBITDA margin was 20% in Q1 2011 compared to 16% in Q1 2010. Adjusted net income grew 43% compared to Q1 2010. Cash flow from operations grew 107% compared to Q1 2010. Two acquisitions, and a 50% investment in a third company, were completed in the quarter for net cash consideration of $10 million, and holdbacks related to prior acquisitions of $1 million were paid. Subsequent to March 31, 2011, the Company completed four acquisitions for aggregate cash consideration of $10 million plus holdbacks of $1 million. First quarter revenue was $178 million, an increase of 23%, or $33 million, compared to $145 million for the comparable period in 2010.Adjusted EBITDA for the first quarter 2011 was $35 million, a 47% increase compared to the prior year's first quarter Adjusted EBITDA of $24 million. First quarter Adjusted EBITDA per share on a fully diluted basis increased 47% to $1.65, compared to $1.13 for the same period last year.Adjusted net income for the first quarter 2011 was $27 million, compared to the prior year's first quarter Adjusted net income of $19 million, a 43% increase. First quarter Adjusted net income per share on a fully diluted basis increased 43% to $1.28 compared to $0.89 for the prior year's first quarter.Net income for the first quarter 2011 was $64 million, compared to the prior year's first quarter net income of $8 million. First quarter net income per share on a fully diluted basis increased 700% to $3.03 compared to $0.38 for the prior year's first quarter. The significant increase in net income in the first quarter of 2011 was due to an increase in deferred income tax recovery of $52 million compared to the same period in 2010. The increase in income tax recovery was primarily due to the transfer of certain intangible assets from one subsidiary to another during the period. A deferred tax asset was recorded on the increase in fair market value arising on the sale of intellectual property between entities within the Company at the purchaser's tax rate notwithstanding that the gains are not otherwise recorded for financial reporting. The deferred income tax recovery being recorded through profit or loss represents the amount of these deferred income tax deductions that the Company has determined will be utilized for income tax purposes in the future. These deductions will be available to the Company over a fifteen year period and, as such, the Company expects a reduction in the current income tax rate in 2011 as a percent of Adjusted net income before tax as compared to 2010.The following table displays our revenue by reportable segment and the percentage change for the three months ended March 31, 2011 compared to the same periods in 2010:Three months endedPeriod-Over-PeriodMarch 31,Change 2011 2010 $ % ($000, except percentages)Public SectorLicenses0,5468,3232,22327%Professional services and other:Services33,45834,992(1,534)-4%Hardware and other21,25715,4835,77437%Maintenance65,68952,37913,31025%130,950111,17719,77318%Private SectorLicenses4,6662,7591,90769%Professional services and other:Services8,3306,1582,17235%Hardware and other2,7501,3081,442110%Maintenance30,93623,4447,49232%46,68233,66913,01339%Public Sector For the quarter ended March 31, 2011, total revenue in the public sector reportable segment increased 18%, or $20 million, to $131 million, compared to $111 million for the quarter ended March 31, 2010. The increase was significant across all revenue types other than professional services which decreased 4%, or $2 million, to $33 million, compared to $35 million for the quarter ended March 31, 2010. Revenue growth from acquired businesses was significant as we completed eleven acquisitions since the beginning of 2010 in our public sector segment. It is estimated that acquisitions completed since the beginning of 2010 contributed approximately $16 million to our Q1 2011 revenues. Revenues increased organically by 4% or $5 million in Q1 2011 compared to the same period in 2010.The organic revenue change was primarily driven by the following: -Volaris operating group (formerly the Trapeze operating group) (increase of approximately $4 million for the three months ended March 31, 2011). The organic growth was primarily driven by strong revenue from existing clients and new customers in its transit business unit. -Harris operating group (increase of approximately $1 million for the three months ended March 31, 2011). The organic growth was primarily driven by strong revenue from existing and new clients in its utility business unit. Private SectorFor the quarter ended March 31, 2011, total revenue in the private sector reportable segment increased 39%, or $13 million, to $47 million, compared to $34 million for the quarter ended March 31, 2010. Revenue growth from acquired businesses was significant for the three month period as we completed thirteen acquisitions since the beginning of 2010 in our private sector segment. It is estimated that acquisitions completed since the beginning of 2010 contributed approximately $10 million to our Q1 2011 revenues. Revenues increased organically by 9% or $3 million in Q1 2011 compared to the same period in 2010.The organic revenue change was primarily driven by the following: -Jonas operating group (increase of approximately $2 million for the three months ended March 31, 2011). Jonas' organic growth was driven by strong sales to both existing and new customers primarily in its' fitness, construction, and food service verticals. -Homebuilder and Friedman operating groups (increase of approximately $1 million for the three months ended March 31, 2011). The organic growth was primarily driven by strong sales to both existing and new customers in Homebuilders' non- homebuilding business units. Constellation's bank indebtedness, net of cash, increased to $55 million at March 31, 2011 as compared to $15 million at December 31, 2010, mainly due to a $42 million dividend payment. Following the Board of Directors decision on April 4, 2011 to undertake a review of strategic alternatives for the Company with the objective of enhancing shareholder value, the Company suspended negotiations of a new $250 million credit facility with a new syndicate of lenders that would have replaced the existing $160 million facility. There is no defined timeline for this strategic review and there can be no assurance that this review will result in any specific action. The negotiations for the new credit facility will not resume until the outcome of the review is completed.OutlookFor fiscal 2011, the Company expects gross revenue to be in the range of $725 million to $750 million and Adjusted EBITDA to be in the range of $145 million to $170 million. These statements are "forward looking statements" and are based on various assumptions which management believes are reasonable under the current circumstances. Although management believes the assumptions are reasonable in the current circumstances, they are subject to various risks and uncertainties and there are several factors that could cause actual results to differ materially from those specified above. See "Forward Looking Statements".Conference Call and WebcastManagement will host a conference call at 8:30 a.m. (ET) on Thursday, May 5, 2011 to answer questions regarding the results. The teleconference numbers are 416-695-6616 or 800-355-4959. 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 May 19, 2011. To access the replay, please dial 905-694-9451 or 800-408-3053 followed by the passcode 6571482#.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. Specifically, the statements included under "Outlook" above are forward looking and are based on the assumptions that revenue growth will be in the range of 15%-19% for fiscal 2011 (which includes the impact of all companies acquired to date and a moderate increase in organic growth over the recent performance of the Company), Adjusted EBITDA margins will be in the range of 20-23% for fiscal 2011 (which represents a moderate increase over the recent performance of the Company), no material acquisitions will be completed during the remainder of fiscal 2011 and general economic and market conditions will remain consistent with those in effect on May 4, 2011. Forward looking statements involve significant risks and uncertainties, and 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, including the risk that revenue can fluctuate significantly based on the demand for our software products, level of product and price competition, the geographical mix of our sales together with fluctuations in foreign currency, changes in mix and pricing of software solutions that our customers demand, our ability to successfully implement projects, order cancellations, renewal of maintenance agreements with customers, and patterns of spending and changes in budgeting cycles of our customers, and the risk that Adjusted EBITDA can fluctuate significantly based on the pricing and mix of software solutions that we sell, our customer demand, the geographical mix of our sales and cost base together with fluctuations in foreign currency exchange rates, and employee bonuses which are based on the performance of the Company. 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 MeasuresThis press release includes certain measures which have not been prepared in accordance with IFRS such as Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income margin.The term "Adjusted EBITDA" refers to net income before deducting finance income, finance costs, income taxes, depreciation, amortization, and foreign exchange loss (gain). 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, deferred income taxes, and certain other expenses (income). 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, and certain other non-cash expenses (income) 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 IFRS 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 IFRS. 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 endedMarch 31,20112010($000, except percentages)Total revenue$ 177,632$ 144,846Net income64,2298,031Add back:Income taxes(52,704)(482)Foreign exchange2,065(579)Finance income(368)(284)Finance cost1,161952Amortization of intangible assets18,52514,958Depreciation2,1261,246Adjusted EBITDA35,03423,842Adjusted EBITDA margin20%16%The following table reconciles Adjusted net income to net income:Three months endedMarch 31,20112010($000, except percentages)Total revenue$ 177,632$ 144,846Net income64,2298,031Add back:Amortization of intangible assets18,52514,958Deferred income tax recovery(55,712)(4,077)Adjusted net income27,04218,912Adjusted net income margin15%13%The following tables provide supplemental net income and cash flow information of PTS:Statement of OperationsFor the three months ended March 31, 2011(Unaudited)Constellation Software Inc. (excluding PTS) PTS ConsolidatedRevenue$145,136$32,496$177,632Expenses115,50827,090142,598Adjusted EBITDA29,6285,40635,034EBITDA as % Total Revenue20%17%20%Depreciation1,6085182,126Amortization of intangible assets18,525-18,525Other expenses, net2,2046542,85822,3371,17223,509Income before income taxes7,2914,23411,525Income tax (recovery) expense(53,311)607(52,704)Net Income$60,602$3,627$64,229Cash flow from operating activitiesFor the three months ended March 31, 2011(Unaudited)Constellation Software Inc. (excluding PTS) PTS ConsolidatedCash flows from operating activities:Net income$60,602$3,627$64,229Adjustments to reconcile net income to net cash flows from operations:Depreciation1,6085182,126Amortization of intangible assets18,525-18,525Income tax (recovery) expense(53,311)607(52,704)Other non-cash items2,2206382,858Change in non-cash operating working capital(339)(13,037)(13,376)Income taxes paid(1,718)(661)(2,379)Cash flows from operating activities$27,587$(8,308)$19,279The following table reconciles Adjusted EBITDA to net income for PTS: Adjusted EBITDA to net income reconciliationFor the three months ended March 31, 2011(Unaudited)Constellation Software Inc. (excluding PTS) PTS ConsolidatedTotal revenue$145,136$32,496$177,632Net income60,6023,62764,229Add back:Income tax (recovery) expense(53,311)607(52,704)Other expenses, net2,2046542,858Amortization of intangible assets18,525-18,525Depreciation1,6085182,126Adjusted EBITDA29,6285,40635,034Adjusted EBITDA margin20%17%20%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.Condensed Consolidated Interim Statements of Financial Position(In thousands of U.S. dollars)(Unaudited)March 31, 2011December 31, 2010January 1, 2010AssetsCurrent assets:Cash$30,143$30,911$33,249Equity securities available for sale27,86623,72322,323Accounts receivable96,82792,09795,992Work in progress26,03324,40822,516Inventories18,15515,94514,320Other assets26,56826,46326,261225,592213,547214,661Non-current assets:Property and equipment14,32013,4698,226Deferred income taxes82,00427,17015,765Other assets25,46923,54813,879Intangible assets268,187269,987222,239389,980334,174260,109Total assets$615,572$547,721$474,770Liabilities and Shareholders' EquityCurrent liabilities:Bank indebtedness$85,616$46,041$41,153Accounts payable and accrued liabilities81,544104,90586,639Deferred revenue188,305158,025135,299Provisions2,3392,2538,312Acquired contract liabilities6,85910,9087,652Acquisition holdback payments8,5036,9203,587Income taxes payable1,5961,4243,757374,762330,476286,399Non-current liabilities:Deferred income taxes29,64929,61127,307Acquired contract liabilities33,70735,63341,482Acquisition holdback payments2,4022,7442,537Other liabilities6,3336,2064,01872,09174,19475,344Total liabilities446,853404,670361,743Shareholders' equityCapital stock99,28399,28399,283Accumulated other comprehensive income11,3987,5753,004Retained earnings58,03836,19310,740168,719143,051113,027Total liabilities and shareholders' equity$615,572$547,721$474,770CONSTELLATION SOFTWARE INC.Condensed Consolidated Interim Statements of Comprehensive Income(In thousands of U.S. dollars, except per share amounts)Three months ended March 31, 2011 and 2010(Unaudited)20112010Revenue$177,632$144,846ExpensesStaff95,91986,319Hardware12,1219,337Third party license, maintenance and professional services12,6637,662Occupancy4,5883,936Travel6,2685,259Telecommunications2,5372,351Supplies4,1632,684Professional fees2,1361,250Other2,2032,206Income before the undernoted35,03423,842Depreciation2,1261,246Amortization of intangible assets18,52514,958Foreign exchange2,065(579)Finance income(368)(284)Finance costs1,16195223,50916,293Profit before income tax11,5257,549Current income tax expense3,0083,595Deferred income tax recovery(55,712)(4,077)Income tax recovery(52,704)(482)Net income64,2298,031Net change in fair value on available-for-sale financial assets during the period3,3252,074Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial assets during the period209(351)Reclassification of unrealized gain upon derecognition of available-for-sale investments-(696)Amounts reclassified to profit during the period related to realized gains on available-for-sale investments(334)-Deferred tax expense on unrealized net gains noted above(480)(604)Foreign currency translation differences from foreign operations1,103(10)Other comprehensive income for the period, net of income tax3,823413Total comprehensive income for the period$68,052$8,444Earnings per shareBasic and diluted$3.03$0.38CONSTELLATION SOFTWARE INC.Condensed Consolidated Statements of Changes in Equity(In thousands of U.S. dollars)(Unaudited)Three months ended March 31, 2011Capital stockAccumulated other comprehensive income/(loss)Accumulated other comprehensive income/(loss)Retained earningsTotalCumulative translation accountUnrealized gains/losses on available-for-sale financial assetsBalance at January 1, 2011$99,283$432$7,143$7,575$36,193$143,051Total comprehensive income for the periodNet income64,22964,229Other comprehensive income (loss)Net change in fair value on available-for-sale financial assets during the period3,3253,3253,325Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial assets during the period209209209Amounts reclassified to profit during the period related to realized gains on available-for-sale investments(334)(334)(334)Deferred tax expense on unrealized net gains(480)(480)(480)Foreign currency translation adjustment1,1031,1031,103Total other comprehensive income (loss) for the period1,1032,7203,823-3,823Total comprehensive income for the period1,1032,7203,82364,22968,052Transactions with owners, recorded directly in equityDividends to owners of the Company(42,384)(42,384)Balance at March 31, 2011$99,283$1,535$9,863$11,398$58,038$168,719CONSTELLATION SOFTWARE INC.Condensed Consolidated Statements of Changes in Equity(In thousands of U.S. dollars)(Unaudited) Three months ended March 31, 2010 Capital stockAccumulated other comprehensive income/(loss)Accumulated other comprehensive income/(loss)Retained earningsTotalCumulative translation accountUnrealized gains/losses on available-for-sale financial assetsBalance at January 1, 2010$99,283$-$3,004$3,004$10,740$113,027Total comprehensive income for the periodNet income8,0318,031Other comprehensive income (loss)Net change in fair value on available-for-sale financial assets during the period2,0742,074-2,074Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial assets during the period(351)(351)-(351)Reclassification of unrealized gain from prior periods upon derecognition of available-for-sale upon derecognition of available-for-sale investments(696)(696)-(696)Deferred tax expense on unrealized net gains(604)(604)-(604)Foreign currency translation adjustment(10)-(10)-(10)Total other comprehensive income (loss) for the period(10)423413-413Total comprehensive income for the period(10)4234138,0318,444Transactions with owners, recorded directly in equityDividends to owners of the Company(5,510)(5,510)Balance at March 31, 2010$99,283$(10)$3,427$3,417$13,261$115,961CONSTELLATION SOFTWARE INC.Condensed Consolidated Statements of Cash Flows(In thousands of U.S. dollars)Three months ended March 31, 2011 and 2010(Unaudited)20112010Cash flows from operating activities:Net income$ 64,229$ 8,031Adjustments for:Depreciation2,1261,246Amortization of intangible assets18,52514,958Finance income(368)(284)Finance costs1,161952Income tax expense(52,704)(482)Foreign exchange gain2,065(579)Change in non-cash operating working capital(13,376)(10,445)Income taxes paid(2,379)(4,068)Net cash flows from operating activities19,2799,329Cash flows from financing activities:Interest paid(887)(882)Decrease (increase) in other non current liabilities8753Increase in bank indebtedness, net38,64415,465Dividends paid(42,384)(5,510)Net cash flows from financing activities(4,540)9,126Cash flows from investing activities:Acquisition of businesses, net of cash acquired(10,391)(15,261)Post acquisition settlement payments, net(1,052)(1,018)Purchases of equity securities(1,249)(7,217)Proceeds from sale of equity securities643-Decrease (increase) in restricted cash450(457)Interest received3743Decrease in other non-current assets-305Property and equipment purchased(2,599)(1,590)Cash flows used in investing activities(14,161)(25,195)Effect of currency translation adjustment on cash and cash equivalents(1,346)(112)Increase (decrease) in cash and cash equivalents(768)(6,852)Cash, beginning of period30,91133,249Cash, end of period$ 30,143$ 26,397FOR FURTHER INFORMATION PLEASE CONTACT: John BillowitsConstellation Software Inc.Chief Financial Officer(416) 861-2279info@csisoftware.comwww.csisoftware.com