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

Wednesday, October 31, 2012

Constellation Software Inc. Announces Results for the Third Quarter Ended September 30, 2012 and Declares Quarterly Dividend17:00 EDT Wednesday, October 31, 2012TORONTO, ONTARIO--(Marketwire - Oct. 31, 2012) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the three and nine months ended September 30, 2012 and declared a $1.00 per share dividend payable on January 4, 2013 to all common shareholders of record at the close of business on December 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 nine months ended September 30, 2012 and the accompanying notes, and with our Annual Consolidated Financial Statements, prepared in accordance with International Financial Reporting Standards ("IFRS") and our 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.Q3 2012 Highlights:Revenue grew 12% to $226 million compared to $202 million in Q3 2011. Organic revenue growth was negative 2% in Q3 2012 compared to 11% in Q3 2011. Adjusted EBITDA grew 9% to $49 million compared to $44 million in Q3 2011. Adjusted net income increased $2 million or 6% to $42 million ($1.99 on a diluted per share basis) from $40 million ($1.87 on a diluted per share basis) in Q3 2011. Seven acquisitions were completed in the quarter for aggregate cash consideration of $24 million (which includes acquired cash and acquired bank indebtedness) plus cash holdbacks of $9 million and the estimated value of contingent consideration of $6 million. Cash flows from operating activities declined to $46 million ($2.15 on a diluted per share basis) compared to $54 million ($2.53 on a diluted per share basis) in Q3 2011. Subsequent to September 30, 2012, the Company completed three acquisitions for aggregate cash consideration of $4 million plus holdbacks of $0.4 million. Third quarter 2012 revenue was $226 million, an increase of 12%, or $24 million, compared to $202 million for the comparable period in 2011. For the first nine months of 2012, total revenue was $630 million, an increase of 10% or $55 million, compared to $575 million for the comparable period in 2011.Net income for the third quarter 2012 was $21 million compared to the prior year's third quarter net income of $19 million. On a diluted per share basis, this represents net income per share of $0.99 for the third quarter of 2012. This compares favourably to $0.91 for the same period in 2011. Net income for the first nine months of 2012 was $53 million compared to last year's net income of $138 million. On a diluted per share basis, this represents net income per share of $2.48 for the first nine months of 2012. This compares unfavourably to $6.50 for the same period in 2011, which included a significant deferred income tax recovery that was recognized in the prior period. Excluding the income tax recovery, net income remained unchanged at $20 million in the quarter ended September 30, 2012 compared to the quarter ended September 30, 2011 and increased by 10% to $48 million from $44 million in the nine months ended September 30, 2012.Adjusted EBITDA for the third quarter 2012 was $49 million, a 9% increase compared to the prior year's third quarter Adjusted EBITDA of $44 million. Third quarter 2012 Adjusted EBITDA per share on a diluted basis increased 9% to $2.30, compared to $2.10 for the same period last year. Adjusted EBITDA for the nine month period ended September 30, 2012 was $132 million, a 9% increase over Adjusted EBITDA of $121 million for the same period in the prior year. Adjusted EBITDA per share on a diluted basis for the nine month period ended September 30, 2012 increased 9% to $6.21, compared to $5.72 for the same period in prior year.Adjusted net income for the third quarter of 2012 was $42 million, compared to the prior year's third quarter Adjusted net income of $40 million, a 6% increase. Third quarter 2012 Adjusted net income per share on a diluted basis increased 6% to $1.99 compared to $1.87 for the prior year's third quarter. Adjusted net income for the nine month period ended September 30, 2012 was $110 million, an increase of 10% over Adjusted net income of $100 million for the same period in the prior year. Adjusted net income per share on a diluted basis for the nine month period ended September 30, 2012 increased 10% to $5.19, compared to $4.73 for the same period in 2011.Net indebtedness (bank indebtedness less cash) of $3 million, increased by $36 million for the nine months ended September 30, 2012 primarily due to acquisitions. For the nine month period ended September 30, 2012, twenty-two acquisitions were completed and combined with post-acquisition settlement payments resulted in cash outflows of $77 million. In the prior year, sixteen acquisitions were completed for net cash consideration, when combined with post-acquisition settlement payments, of $36 million.The following table displays our revenue by reportable segment and the percentage change for the three and nine months ended September 30, 2012 compared to the same period in 2011:Three months endedPeriod-Over-PeriodNine months endedPeriod-Over-PeriodSeptember 30,Change September 30,Change 2012 2011 $ % 2012 2011 $ % ($000, except percentages)($000, except percentages)Public SectorLicenses12,65610,9271,72916%33,31032,2371,0733%Professional services39,68936,7062,9838%107,480109,200(1,720)-2%Hardware and other22,40729,035(6,628)-23%63,45274,311(10,859)-15%Maintenance and other recurring85,83173,17412,65717%242,295211,28431,01115%160,583149,84210,7417%446,537427,03219,5055%Private SectorLicenses6,1344,7131,42130%16,41413,9272,48718%Professional services10,8059,0181,78720%31,07625,9295,14720%Hardware and other3,3023,0192839%9,9638,8471,11613%Maintenance and other recurring45,15635,6619,49527%126,23799,24926,98827%65,39752,41112,98625%183,690147,95235,73824%Public SectorFor the quarter ended September 30, 2012, total revenue in the public sector reportable segment increased by 7%, or $11 million to $161 million, compared to $150 million for the quarter ended September 30, 2011. For the nine months ended September 30, 2012, total revenue increased by 5%, or $20 million to $447 million, compared to $427 million for the comparable period in 2011. Revenue growth from acquired businesses contributed approximately $17 million to our Q3 2012 revenue and $33 million to our nine months ended September 30, 2012 revenue compared to the same periods in 2011. We completed 21 acquisitions in this segment since the beginning of 2011, 10 of which were acquired in fiscal year 2011. Organic revenue decreased by 4% in Q3 2012 and decreased by 3% in the nine months ended September 30, 2012 compared to the same periods in 2011. Excluding Public Transit Solutions ("PTS"), where revenue was expected to decrease, organic revenue remained unchanged in Q3 2012 and decreased by 1% in the nine months ended September 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 September 30, 2012, total revenue in the private sector reportable segment increased 25%, or $13 million to $65 million, compared to $52 million for the quarter ended September 30, 2011. For the nine months ended September 30, 2012 total revenue increased by 24%, or $36 million to $184 million, compared to $148 million for the comparable period in 2011. Revenue growth from acquired businesses contributed approximately $10 million to our Q3 2012 revenue and $28 million to our nine months ended September 30, 2012 revenue compared to the same periods in 2011. We completed 23 acquisitions in this segment since the beginning of 2011, 12 of which were acquired in fiscal year 2011. Revenue increased organically by 5% in both Q3 2012 and in the nine months ended September 30, 2012 compared to the same periods in 2011.Conference Call and WebcastManagement will host a conference call at 9:00 a.m. (ET) on Friday, November 2, 2012 to answer questions regarding the results. The teleconference numbers are 416-340-8527 or 877-440-9795. 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 November 17, 2012. To access the replay, please dial 905-694-9451 or 800-408-3053 followed by the passcode 2722800.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 adjusted for 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 ended Nine months ended (Unaudited) September 30, September 30, 2012 2011 2012 2011 ($000, except percentages) ($000, except percentages) Total revenue$225,980$202,253$630,227$574,984Net income21,06519,30552,581137,779Adjusted for:Income tax expense (recovery)4,8335,75811,810(80,288)Foreign exchange (gain) loss(321)(905)(330)3,028Equity in net (income) loss of equity investees(216)08750Finance income(2,066)(2,795)(3,529)(6,167)Finance costs1,1311,4622,9234,589Impairment of non-financial assets05180518Amortization of intangible assets22,09919,13561,64355,733Depreciation2,1121,9575,6336,039Adjusted EBITDA48,63744,435131,606121,231Adjusted EBITDA margin22%22%21%21%The following table reconciles Adjusted net income to net income: Three months endedNine months ended(Unaudited)September 30,September 30, 2012 2011 2012 2011 ($000, except percentages)($000, except percentages)Total revenue$225,980$202,253$630,227$574,984Net income21,06519,30552,581137,779Adjusted for:Amortization of intangible assets22,09919,13561,64355,733Impairment of non-financial assets05180518Deferred income tax (recovery) expense(1,085)759(4,277)(93,764)Adjusted net income42,07939,717109,947100,266Adjusted net income margin19%20%17%17%The following tables provide supplemental statement of operations and cash flow information for PTS:Supplemental financial informationFor the three months ended September 30, 2012For the nine months ended September 30, 2012 ConstellationConstellation Software Inc.Software Inc.(Unaudited)(excluding PTS)PTSConsolidated(excluding PTS)PTSConsolidatedRevenue$193,251$32,729$225,980$535,099$95,128$630,227Adjusted EBITDA42,7955,84248,637113,63317,973131,606EBITDA as % Total Revenue22%18%22%21%19%21%Net Income$16,509$4,556$21,065$37,894$14,687$52,581Cash flows from operating activities:Net income$16,509$4,556$21,065$37,894$14,687$52,581Adjustments to reconcile net income to net cash flows from operations, including taxes paid:18,8541,12219,97657,7722,94260,714Change in non-cash operating working capital2,9511,5414,492(9,317)(20,030)(29,347)Cash flows from operating activities$38,314$7,219$45,533$86,349$(2,401)$83,948The following table reconciles Adjusted EBITDA to net income for PTS:Adjusted EBITDA to net income reconciliationFor the three months ended September 30, 2012For the nine months ended September 30, 2012ConstellationConstellationSoftware Inc.Software Inc.(Unaudited)(excluding PTS)PTSConsolidated(excluding PTS)PTSConsolidatedTotal revenue$193,251$32,729$225,980$535,099$95,128$630,227Net income16,5094,55621,06537,89414,68752,581Adjusted for:Income tax expense3,9898444,8339,6352,17511,810Other expenses (income)(1,739)267(1,472)(678)617(61)Amortization of intangible assets22,099-22,09961,643-61,643Depreciation1,9371752,1125,1394945,633Adjusted EBITDA42,7955,84248,637113,63317,973131,606Adjusted EBITDA margin22%18%22%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.SOURCE: CONSTELLATION SOFTWARE INC.CONSTELLATION SOFTWARE INC.Condensed Consolidated Interim Statements of Financial Position(In thousands of U.S. dollars)(Unaudited)September 30,December 31,20122011AssetsCurrent assets:Cash$35,742$33,492Equity securities available-for-sale26,14521,222Accounts receivable120,16396,259Work in progress35,30126,244Inventories19,88813,539Other assets33,58629,772270,825220,528Non-current assets:Property and equipment17,53214,591Deferred income taxes105,27199,659Other assets36,71228,005Intangible assets330,032267,792489,547410,047Total assets$760,372$630,575Liabilities and Shareholders' EquityCurrent liabilities:Bank indebtedness$39,226$-Accounts payable and accrued liabilities123,516114,952Dividends payable20,970-Deferred revenue224,618181,450Provisions3,9473,555Acquired contract liabilities2,4124,750Acquisition holdback payments19,92811,378Income taxes payable3,5354,751438,152320,836Non-current liabilities:Deferred income taxes20,55011,259Acquired contract liabilities24,85828,051Acquisition holdback payments4,7292,474Other liabilities16,17211,67566,30953,459Total liabilities504,461374,295Shareholders' equity:Capital stock99,28399,283Accumulated other comprehensive income17,5876,961Retained earnings139,041150,036255,911256,280Total liabilities and shareholders' equity$760,372$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 September 30,Nine months ended September 30,2012201120122011(Recast)(Recast)Revenue$225,980$202,253$630,227$574,984ExpensesStaff120,197103,085339,517299,691Hardware14,55418,72337,48647,607Third party license, maintenance and professional services15,13413,32044,09537,932Occupancy5,4504,94815,11414,251Travel8,5957,22124,60720,679Telecommunications2,7922,5547,8427,435Supplies3,5123,45110,81011,747Professional fees3,9792,0688,0466,788Other3,1302,44811,1047,623Depreciation2,1121,9575,6336,039Amortization of intangible assets22,09919,13561,64355,733201,554178,910565,897515,525Impairment of non-financial assets-518-518Foreign exchange (gain) loss(321)(905)(330)3,028Equity in net (income) loss of equity investees(216)-875-Finance income(2,066)(2,795)(3,529)(6,167)Finance costs1,1311,4622,9234,589(1,472)(1,720)(61)1,968Profit before income tax25,89825,06364,39157,491Current income tax expense5,9184,99916,08713,476Deferred income tax (recovery) expense(1,085)759(4,277)(93,764)Income tax expense (recovery)4,8335,75811,810(80,288)Net income21,06519,30552,581137,779Net change in fair valueon available-for-sale financial assets during the period8,90791313,8214,478Net unrealized foreign exchange gain (loss)on available-for-sale financial assets during the period72(308) 45(90)Amounts reclassified to profit during the periodrelated to realized gains on available-for-sale financial assets(1,900)(2,770)(2,963) (5,882) Foreign currency translation differences from foreign operations1,875(2,015)1,073(1,212)Current income tax recovery34752675Deferred income tax recovery (expense)(1,063)430(1,376)408Other comprehensive income (loss) for the period, net of income tax7,925(3,675)10,626(2,223)Total comprehensive income for the period$28,990$15,630$63,207$135,556Earnings per shareBasic and diluted$0.99$0.91$2.48$6.50CONSTELLATION SOFTWARE INC.Condensed Consolidated Interim Statements of Changes in Equity(In thousands of U.S. dollars)Nine months ended September 30, 2012(Unaudited)CapitalAccumulated otherTotal accumulated otherRetainedTotalstockcomprehensivecomprehensiveearningsincome/(loss)income/(loss)CumulativeAmountstranslationrelated toaccountgains/losseson available-for-salefinancialassetsBalance at January 1, 2012$99,283$182$6,779$6,961$150,036$256,280Total comprehensive income for the periodNet income52,58152,581Other comprehensive income (loss)Net change in fair valueon available-for-sale financial assets during the period 13,821 13,821 - 13,821Net unrealized foreign exchange adjustmentgain (loss) on available-for-sale financial assets during the period 45 45 - 45Amounts reclassified to profit during the periodrelated to realized gains on available-for-sale investments (2,963 ) (2,963 ) - (2,963 )Foreign currency translation differences from foreign operations1,073-1,073-1,073Current tax expense26-26-26Deferred tax expense-(1,376)(1,376)-(1,376)Total other comprehensive income for the period1,0999,52710,626-10,626Total comprehensive income for the period1,0999,52710,62652,58163,207Transactions with owners, recorded directly in equityDividends to owners of the Company(63,576)(63,576)Balance at September 30, 2012$99,283$1,281$16,306$17,587$139,041$255,911Nine months ended September 30, 2011(Unaudited)CapitalAccumulated otherTotal accumulated otherRetainedTotalstockcomprehensivecomprehensiveearningsincome/(loss)income/(loss)(Recast -Note 2)CumulativeAmountstranslationrelated toaccountgains/losseson available-for-salefinancialassetsBalance at January 1, 2011$99,283$432$7,143$7,575$36,193$143,051Total comprehensive income for the periodNet income137,779137,779Other comprehensive income (loss)Net change in fair valueon available-for-sale financial assets during the period 4,478 4,478 - 4,478Net unrealized foreign exchange adjustmentgain (loss) on available-for-sale financial assets during the period (90 ) (90 ) - (90 )Amounts reclassified to profit during the periodrelated to realized gains on available-for-sale investments (5,882 ) (5,882 ) - (5,882 )Foreign currency translation differences from foreign operations(1,212)-(1,212)-(1,212)Current tax expense75-75-75Deferred tax expense124284408-408Total other comprehensive income (loss) for the period(1,013)(1,210)(2,223)-(2,223)Total comprehensive income (loss) for the period(1,013)(1,210)(2,223)137,779135,556Transactions with owners, recorded directly in equityDividends to owners of the Company(42,384)(42,384)Balance at September 30, 2011$99,283$(581)$5,933$5,352$131,588$236,223CONSTELLATION SOFTWARE INC.Condensed Consolidated Interim Statements of Cash Flows(In thousands of U.S. dollars)(Unaudited)Three months ended September 30,Nine months ended September 30,2012201120122011(Recast)(Recast)Cash flows from operating activities:Net income$21,065$19,305$52,581$137,779Adjustments for:Depreciation2,1121,9575,6336,039Amortization of intangible assets22,09919,13561,64355,733Impairment of non-financial assets-518-518Equity in net (income) loss of equity investees(216)-875-Finance income(2,066)(2,795)(3,529)(6,167)Finance costs1,1311,4622,9234,589Income tax expense (recovery)4,8335,75811,810(80,288)Foreign exchange (gain) loss(321)(905)(330)3,028Change in non-cash operating working capital4,49212,511(29,347)(30,437)Income taxes paid(7,596)(3,295)(18,311)(10,023)Net cash flows from operating activities45,53353,65183,94880,771Cash flows from financing activities:Interest paid(634)(1,526)(1,471)(3,989)Increase (decrease) in other non current liabilities(192)(1,800)(70)(1,959)Increase (decrease) in bank indebtedness, net6,710(67,746)36,052(12,031)Credit facility transaction costs(191)-(2,077)-Dividends paid(21,192)-(42,384)(42,384)Net cash flows used in financing activities(15,499)(71,072)(9,950)(60,363) Cash flows from investing activities:Acquisition of businesses, net of cash acquired(14,507 ) (1,510)(65,144)(33,054)Post-acquisition settlement payments, net of receipts(7,038)(1,503)(11,671)(2,602)Purchases of equity securities available-for-sale(131)-(211)(5,944)Proceeds from sale of equity securities available-for-sale7,2937,0119,15613,499Proceeds from sale of intangible assets-101-Decrease in restricted cash-107-557Interest received164164243318Property and equipment purchased(2,132)(1,640)(4,673)(5,704)Cash flows provided from (used in) investing activities(16,351)2,629(72,199)(32,930)Effect of foreign currency translation adjustment on cash and cash equivalents 388 2,751 451 (218 )Increase (decrease) in cash and cash equivalents14,071(12,041)2,250(12,740)Cash, beginning of period21,67130,21233,49230,911Cash, end of period$35,742$18,171$35,742$18,171FOR FURTHER INFORMATION PLEASE CONTACT: Contact Information: Constellation Software Inc.John BillowitsChief Financial Officer(416) 861-2279info@csisoftware.comwww.csisoftware.com