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Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2012 and Declares Quarterly Dividend

Wednesday, August 01, 2012

Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2012 and Declares Quarterly Dividend17:00 EDT Wednesday, August 01, 2012TORONTO, ONTARIO--(Marketwire - Aug. 1, 2012) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the three and six months ended June 30, 2012 and declared a $1.00 per share dividend payable on October 3, 2012 to all common shareholders of record at the close of business on September 17, 2012. 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, 2012 and the accompanying notes, 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, 2011, 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 2012 Highlights:Revenue grew 7% to $209 million compared to $195 million in Q2 2011. Adjusted EBITDA grew 5% to $44 million compared to $42 million in Q2 2011. Adjusted net income increased $2 million or 8% to $36 million ($1.71 on a diluted per share basis) from $34 million ($1.58 on a diluted per share basis) in Q2 2011. Eleven acquisitions were completed in the quarter for aggregate cash consideration of $47 million plus cash holdbacks of $9 million. Subsequent to June 30, 2012, the Company declared a quarterly dividend of $1.00 per share payable on October 3, 2012 to all shareholders of record as of September 17, 2012. Second quarter 2012 revenue was $209 million, an increase of 7%, or $14 million, compared to $195 million for the comparable period in 2011. For the first six months of 2012 total revenues were $404 million, an increase of 8% or $32 million, compared to $373 million for the comparable period in 2011.Net income for the second quarter 2012 was $18 million compared to the prior year's second quarter net income of $56 million. On a diluted per share basis, this translates into net income per share of $0.83 for the second quarter of 2012. This compares unfavourably to $2.64 for the same period of 2011, which included a significant deferred income tax recovery that was unique to the prior period. Excluding the deferred income tax recovery, net income increased by 3% to $16 million in the quarter ended June 30, 2012 from $15 million in the quarter ended June 30, 2011. Net income for the first six months 2012 was $32 million compared to last year's net income of $118 million. On a diluted per share basis, this translates into net income per share of $1.49 for the first six months of 2012. This compares unfavourably to $5.59 for the same period of 2011, which included a significant deferred income tax recovery that was unique to the prior period. Excluding the deferred income tax recovery, net income increased by 18% to $28 million in the first six months of 2012 from $24 million in the first six months of 2011.Adjusted EBITDA for the second quarter 2012 was $44 million, a 5% increase compared to the prior year's second quarter Adjusted EBITDA of $42 million. Second quarter 2012 Adjusted EBITDA per share on a diluted basis increased 5% to $2.06, compared to $1.97 for the same period last year. Adjusted EBITDA for the six month period ended June 30, 2012 was $83 million, an 8% increase over last year's Adjusted EBITDA of $77 million for the same period. Adjusted EBITDA per share on a diluted basis for the six month period ended June 30, 2012 increased 8% to $3.92, compared to $3.62 for the same period last year.Adjusted net income for the second quarter 2012 was $36 million, compared to the prior year's second quarter Adjusted net income of $34 million, an 8% increase. Second quarter 2012 Adjusted net income per share on a diluted basis increased 8% to $1.71 compared to $1.58 for the prior year's second quarter. Adjusted net income for the six month period ended June 30, 2012 was $68 million, an increase of 12% over last year's Adjusted net income of $61 million. Adjusted net income per share on a diluted basis for the six month period ended June 30, 2012 increased 12% to $3.20, compared to $2.86 for the same period in 2011.The following table displays our revenue by reportable segment and the percentage change for the three and six months ended June 30, 2012 compared to the same period in 2011:Three months endedPeriod-Over-PeriodSix months endedPeriod-Over-PeriodJune 30,ChangeJune 30,Change20122011$%20122011$%($000, except percentages)($000, except percentages)Public SectorLicenses10,86410,6072572%20,65420,760(106)-1%Professional services35,48939,036(3,547)-9%67,79172,494(4,703)-6%Hardware and other18,75625,622(6,866)-27%41,04545,276(4,231)-9%Maintenance and other recurring82,61370,97511,63816%156,464138,66017,80413%147,722146,2401,4821%285,954277,1908,7643%Private SectorLicenses5,1304,9611693%10,2809,2141,06612%Professional services10,4468,5801,86622%20,27116,9113,36020%Hardware and other3,5953,09550016%6,6615,82883314%Maintenance and other recurring42,07632,2239,85331%81,08163,58817,49328%61,24748,85912,38825%118,29395,54122,75224%Public SectorFor the quarter ended June 30, 2012, total revenue in the public sector reportable segment increased by 1%, or $2 million to $148 million, compared to $146 million for the quarter ended June 30, 2011. For the six months ended June 30, 2012, total revenue increased by 3%, or $9 million to $286 million, compared to $277 million for the comparable period in 2011. Revenue growth from acquired businesses contributed approximately $11 million to our Q2 2012 revenues and $16 million to our six months ended June 30, 2012 revenues compared to the same periods in 2011, as we completed 17 acquisitions since the beginning of 2011. Organic revenues decreased by 7% in Q2 2012 and decreased by 3% in the six months ended June 30, 2012 compared to the same periods in 2011. Excluding Public Transit Solutions ("PTS"), where revenue was expected to decrease, organic revenues decreased by 4% in Q2 2012 and decreased by 2% in the six months ended June 30, 2012 respectively, compared to the same periods in 2011.Constellation acquired the Public Transit Solutions business ("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 will continue to do so in the future.Private SectorFor the quarter ended June 30, 2012, total revenue in the private sector reportable segment increased 25%, or $12 million to $61 million, compared to $49 million for the quarter ended June 30, 2011. For the six months ended June 30, 2012 total revenue increased by 24%, or $22 million to $118 million, compared to $96 million for the comparable period in 2011. Revenue growth from acquired businesses contributed approximately $10 million to our Q2 2012 revenues and $18 million to our six months ended June 30, 2012 revenues compared to the same periods in 2011, as we completed 20 acquisitions since the beginning of 2011. Revenues increased organically by 5% in both Q2 2012 and in the six months ended June 30, 2012 compared to the same periods in 2011.At June 30, 2012, Constellation's cash position (net of borrowings on our line of credit) decreased to net borrowings of $6 million, from a net cash position of $33 million at December 31, 2011. The decrease in our cash position from December 31, 2011 to June 30, 2012 is primarily due to $47 million invested in acquisitions, $21 million in dividends paid, offset by $26 million in cash flow from operations.Conference Call and WebcastManagement will host a conference call at 9:00 a.m. (ET) on Thursday, August 2, 2012 to answer questions regarding the results. The teleconference numbers are 416-695-6616 or 800-766-6630. 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 16, 2012. To access the replay, please dial 905-694-9451 or 800-408-3053 followed by the passcode 3771898.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-IFRS MeasuresThe term "Adjusted EBITDA" refers to net income before adjusting for finance income, finance costs, income taxes, equity in net loss of equity investees, impairment of non-financial assets, 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 amortization 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. See "Results of Operations -Adjusted EBITDA" and "- Adjusted net income" for a reconciliation of Adjusted EBITDA and Adjusted net income to net income.The following table reconciles Adjusted EBITDA to net income:Three months endedSix months ended(Unaudited)June 30,June 30,2012201120122011($000, except percentages)($000, except percentages)Total revenue$208,969$195,099$404,247$372,731Net income17,59255,98631,516118,474Adusted for:Income tax expense (recovery)3,666(35,083)6,977(86,046)Foreign exchange (gain) loss(217)1,868(9)3,933Equity in net loss of equity investees20901,0910Finance income(394)(3,004)(1,463)(3,372)Finance costs7741,9661,7923,127Amortization of intangible assets20,26918,07339,54436,598Depreciation1,8031,9563,5214,082Adjusted EBITDA43,70241,76282,96976,796Adjusted EBITDA margin21%21%21%21%The following table reconciles Adjusted net income to net income: Three months endedSix months ended(Unaudited)June 30,June 30,2012201120122011($000, except percentages)($000, except percentages)Total revenue$208,969$195,099$404,247$372,731Net income17,59255,98631,516118,474Adusted for:Amortization of intangible assets20,26918,07339,54436,598Deferred income tax expense (recovery)(1,700)(40,552)(3,192)(94,523)Adjusted net income36,16133,50767,86860,549Adjusted net income margin17%17%17%16%The following tables provide supplemental statement of operations and cash flow information for PTS: Supplemental financial informationFor the three months ended June 30, 2012For the six months ended June 30, 2012 (Unaudited)Constellation Software Inc. (excluding PTS) PTS ConsolidatedConstellation Software Inc. (excluding PTS) PTS ConsolidatedRevenue$179,380$29,589$208,969$341,848$62,399$404,247Adjusted EBITDA38,2275,47543,70270,83812,13182,969EBITDA as % Total Revenue21%19%21%21%19%21%Net Income$13,207$4,385$17,592$21,385$10,131$31,516Cash flows from operating activities:Net income$13,207$4,385$17,592$21,385$10,131$31,516Adjustments to reconcile net income to net cash flows from operations, including taxes paid:17,13895918,09738,9181,82040,738Change in non-cash operating working capital(5,732)(3,763)(9,495)(12,268)(21,571)(33,839)Cash flows from operating activities$24,613$1,581$26,194$48,035$(9,620)$38,415The following table reconciles Adjusted EBITDA to net income for PTS: Adjusted EBITDA to net income reconciliationFor the three months ended June 30, 2012For the six months ended June 30, 2012 (Unaudited)Constellation Software Inc. (excluding PTS) PTS ConsolidatedConstellation Software Inc. (excluding PTS) PTS ConsolidatedTotal revenue$179,380$29,589$208,969$341,848$62,399$404,247Net income13,2074,38517,59221,38510,13131,516Adjusted for:Income tax expense2,7329343,6665,6461,3316,977Other expenses (income)37023721,0613501,411Amortization of intangible assets20,269-20,26939,544-39,544Depreciation1,6491541,8033,2023193,521Adjusted EBITDA38,2275,47543,70270,83812,13182,969Adjusted EBITDA margin21%19%21%21%19%21%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) June 30,December 31, 2012 2011AssetsCurrent assets:Cash$21,671$33,492Equity securities available-for-sale24,32721,222Accounts receivable107,804100,398Work in progress33,15626,244Inventories14,98313,539Other assets27,21925,633229,160220,528Non-current assets:Property and equipment15,46114,591Deferred income taxes102,71999,659Other assets26,59428,005Intangible assets301,153267,792445,927410,047Total assets$675,087$630,575Liabilities and Shareholders' EquityCurrent liabilities:Bank indebtedness$27,535$-Accounts payable and accrued liabilities95,287114,952Dividends payable21,217-Deferred revenue201,586181,450Provisions3,1563,555Acquired contract liabilities2,0454,750Acquisition holdback payments17,83211,378Income taxes payable4,2804,751372,938320,836Non-current liabilities:Deferred income taxes14,45811,259Acquired contract liabilities27,04428,051Acquisition holdback payments2,9802,474Other liabilities9,55411,67554,03653,459Total liabilities426,974374,295Shareholders' equity:Capital stock99,28399,283Accumulated other comprehensive income9,6626,961Retained earnings139,168150,036248,113256,280Total liabilities and shareholders' equity$675,087$630,575CONSTELLATION SOFTWARE INC.Condensed Consolidated Interim Statements of Comprehensive Income(In thousands of U.S. dollars, except per share amounts)(Unaudited)Three months ended June 30,Six months ended June 30,2012201120122011(Recast)(Recast)Revenue$208,969$ 195,099$404,247$372,731ExpensesStaff113,689100,687219,320196,606Hardware10,70516,76322,93228,884Third party license, maintenance and professional services14,71511,94928,96124,612Occupancy5,0394,7159,6649,303Travel7,7667,19016,01213,458Telecommunications2,5532,3445,0504,881Supplies3,8664,1337,2988,296Professional fees2,2222,5844,0674,720Other4,7122,9727,9745,175Depreciation1,8031,9563,5214,082Amortization of intangible assets20,26918,07339,54436,598187,339173,366364,343336,615Foreign exchange (gain) loss(217)1,868(9)3,933Equity in net loss of equity investees209-1,091-Finance income(394)(3,004)(1,463)(3,372)Finance costs7741,9661,7923,1273728301,4113,688Profit before income tax21,25820,90338,49332,428Current income tax expense5,3665,46910,1698,477Deferred income tax expense (recovery)(1,700)(40,552)(3,192)(94,523)Income tax expense (recovery)3,666(35,083)6,977(86,046)Net income17,59255,98631,516118,474Net change in fair value on available-for-sale financial assets during the period1,0662404,9143,565Net unrealized foreign exchange gain (loss) on available-for-sale financial assets during the period(148)9(27)218Amounts reclassified to profit during the period related to realized gains on available-for-sale financial assets(31)(2,778)(1,063)(3,112)Foreign currency translation differences from foreign operations(1,943)(300)(802)803Current income tax recovery (expense)70-(8)-Deferred income tax recovery (expense)18458(313)(22)Other comprehensive income (loss) for the period, net of income tax(968)(2,371)2,7011,452Total comprehensive income for the period$16,624$53,615$34,217$119,926Earnings per shareBasic and diluted$0.83$2.64$1.49$5.59CONSTELLATION SOFTWARE INC.Condensed Consolidated Interim Statements of Changes in Equity(In thousands of U.S. dollars)Six months ended June 30, 2012(Unaudited)Capital stockAccumulated other comprehensive income/(loss)Total accumulated other comprehensive income/(loss)Retained earningsTotalCumulative translation accountAmounts related to gains/losses on available- for-sale financial assetsBalance at January 1, 2012$99,283$182$6,779$6,961$150,036$256,280Total comprehensive income for the periodNet income31,51631,516Other comprehensive income (loss)Net change in fair value on available-for-sale financial assets during the period4,9144,914-4,914Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial assets during the period(27)(27)-(27)Amounts reclassified to profit during the period related to realized gains on available-for-sale investments(1,063)(1,063)-(1,063)Foreign currency translation differences from foreign operations(802)(802)-(802)Current tax expense(8)(8)(8)Deferred tax expense125(438)(313)-(313)Total other comprehensive income for the period(685)3,3862,701-2,701Total comprehensive income for the period(685)3,3862,70131,51634,217Transactions with owners, recorded directly in equityDividends to owners of the Company(42,384)(42,384)Balance at June 30, 2012$99,283$(503)$10,165$9,662$139,168$248,113CONSTELLATION SOFTWARE INC.Condensed Consolidated Interim Statements of Changes in Equity(In thousands of U.S. dollars)Six months ended June 30, 2011(Unaudited)Capital stockAccumulated other comprehensive income/(loss)Total accumulated other comprehensive income/(loss)Retained earnings (Recast)TotalCumulative translation accountAmounts related to 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 income118,474118,474Other comprehensive income (loss)Net change in fair value on available-for-sale financial assets during the period3,5653,565-3,565Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial assets during the period218218-218Amounts reclassified to profit during the period related to realized gains on available-for-sale investments(3,112)(3,112)-(3,112)Foreign currency translation differences from foreign operations803-803-803Deferred tax expense(22)(22)-(22)Total other comprehensive income (loss) for the period8036491,452-1,452Total comprehensive income for the period8036491,452118,474119,926Transactions with owners, recorded directly in equityDividends to owners of the Company(42,384)(42,384)Balance at June 30, 2011$99,283$1,235$7,792$9,027$112,283$220,593CONSTELLATION SOFTWARE INC.Condensed Consolidated Interim Statements of Cash Flows(In thousands of U.S. dollars)(Unaudited)Three months ended June 30,Six months ended June 30,2012201120122011(Recast)(Recast)Cash flows from operating activities:Net income$17,592$55,986$31,516$118,474Adjustments for:Depreciation1,8031,9563,5214,082Amortization of intangible assets20,26918,07339,54436,598Equity in net loss of equity investees209-1,091-Finance income(394)(3,004)(1,463)(3,372)Finance costs7741,9661,7923,127Income tax expense (recovery)3,666(35,083)6,977(86,046)Foreign exchange loss(217)1,868(9)3,933Change in non-cash operating working capital(9,495)(29,572)(33,839)(42,948)Income taxes paid(8,013)(4,349)(10,715)(6,728)Net cash flows from operating activities26,1947,84138,41527,120Cash flows from financing activities:Interest paid(501)(1,576)(837)(2,463)Increase in other non current liabilities322(246)122(159)Increase in bank indebtedness, net16,34217,07129,34255,715Credit facility transaction costs(46)-(1,886)-Dividends paid(21,192)-(21,192)(42,384)Net cash flows from (used in) financing activities(5,075)15,2495,54910,709Cash flows from investing activities:Acquisition of businesses, net of cash acquired(42,830)(21,153)(50,637)(31,544)Post-acquisition settlement payments, net of receipts(4,132)(47)(4,633)(1,099)Purchases of available-for-sale financial assets(80)(4,695)(80)(5,944)Proceeds from sale of available-for-sale financial assets555,8451,8636,488Proceeds from sale of intangible assets101101-Increase in restricted cash---450Interest received4111779154Property and equipment purchased(1,251)(1,465)(2,541)(4,064)Cash flows provided from (used in) investing activities(48,096)(21,398)(55,848)(35,559)Effect of foreign currency translation adjustment on cash and cash equivalents(165)(1,623)63(2,969)Increase (decrease) in cash and cash equivalents(27,142)69(11,821)(699)Cash, beginning of period48,81330,14333,49230,911Cash, end of period$21,671$30,212$21,671$30,212FOR FURTHER INFORMATION PLEASE CONTACT: John BillowitsConstellation Software Inc.Chief Financial Officer(416) 861-2279info@csisoftware.comwww.csisoftware.com