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Constellation Software Inc. Announces Results for the Fourth Quarter and Year Ended December 31, 2012 and Declares Quarterly Dividend

Wednesday, March 06, 2013

Constellation Software Inc. Announces Results for the Fourth Quarter and Year Ended December 31, 2012 and Declares Quarterly Dividend17:00 EST Wednesday, March 06, 2013TORONTO, ONTARIO--(Marketwire - March 6, 2013) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the fourth quarter and fiscal year ended December 31, 2012 and declared a $1.00 per share dividend payable on April 4, 2013 to all common shareholders of record at the close of business on March 18, 2013. 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 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, 2012, 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.2012 Highlights:Revenue grew 15% to $891 million compared to $773 million in 2011 Adjusted EBITDA increased $17 million or 10% to $186 million as compared to 2011 Adjusted net income increased $32 million or 23% to $172 million ($8.13 on a fully diluted per share basis) from $140 million ($6.63 on a fully diluted per share basis) in 2011 Thirty-five acquisitions were completed for aggregate cash consideration of $141 million (which includes acquired cash and acquired bank indebtedness) plus cash holdbacks of $29 million and estimated value of contingent consideration of $10 million Cash flows from operations increased $7 million or 5% to $145 million from $138 million in 2011 $35 million in cash proceeds was received and a $21 million gain was realized relating to the sale of investments Q4 2012 Highlights:Revenue grew 32% to $261 million compared to $198 million in Q4 2011. Organic revenue growth was 8% compared to 7% in Q4 2011 Adjusted EBITDA grew 15% to $54 million compared to Q4 2011 Adjusted net income grew 55% to $62 million compared to Q4 2011 Thirteen acquisitions were completed in the quarter for aggregate cash consideration of $62 million (which includes acquired cash and acquired bank indebtedness) plus cash holdbacks of $8 million and estimated value of contingent consideration of $2 million Additional Highlights:Subsequent to December 31, 2012, the Company completed six acquisitions for aggregate cash consideration of $32 million For Q1 2013, the Company expects gross revenue to be in the range of $245 million to $260 million and expects Adjusted EBITDA margin to be in the range of 14% to 18% Fourth quarter 2012 revenue was $261 million, an increase of 32%, or $63 million, compared to $198 million for the comparable period in 2011. For fiscal year 2012, total revenue was $891 million, an increase of 15%, or $118 million, compared to $773 million for the 2011 fiscal year. The increase for the quarter ended December 31, 2012 relative to the same period in the prior year is largely attributed to growth from acquisitions as organic growth was 8%. The increase for fiscal year 2012 is mainly attributed to growth from acquisitions as organic growth was 1% compared to fiscal year 2011.Net income for the quarter ended December 31, 2012 increased $21 million to $40 million from $19 million for the same period in 2011. On a fully diluted per share basis this translated into Net income per share of $1.89 in the quarter ended December 31, 2012 compared to Net income per share of $0.92 in the quarter ended December 31, 2011. Net income for the year ended December 31, 2012 was $93 million compared to $157 million in fiscal year 2011. For the year ended December 31, 2012, Net income was reduced due to income tax expense of $18 million compared to income tax recovery of $75 million in 2011. The income tax recovery for the year ended December 31, 2011 was primarily due to a transfer of certain intangible assets from one subsidiary to another. In the prior year, 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 rate of tax of the entity that acquired the assets notwithstanding that the gains are not otherwise recorded for accounting and financial reporting on consolidation. The deferred income tax recovery recorded through profit or loss represented the amount of these deferred income tax deductions that the Company determined was probable of being utilized for income tax deduction purposes in the future. Excluding the deferred income tax recovery, Net income for the year ended December 31, 2012 increased $24 million to $87 million from $63 million in fiscal year 2011. Net income per share on a fully diluted basis for the year increased to $4.11 from $2.99 in fiscal year 2011.Adjusted EBITDA for the quarter ended December 31, 2012 increased 15% to $54 million compared to $47 million for the same period in 2011. On a fully diluted per share basis this translated into Adjusted EBITDA per share of $2.56 in the quarter ended December 31, 2012 compared to Adjusted EBITDA per share of $2.24 in the quarter ended December 31, 2011. Adjusted EBITDA for the year ended December 31, 2012 increased $17 million to $186 million from $169 million in fiscal year 2011. Adjusted EBITDA per share on a fully diluted basis for the year increased to $8.77 from $7.96 in fiscal year 2011.Adjusted net income for the quarter ended December 31, 2012 increased 55% to $62 million compared to $40 million for the same period in 2011. On a fully diluted per share basis this translated into Adjusted net income per share of $2.94 in the quarter ended December 31, 2012 compared to Adjusted net income per share of $1.90 in the quarter ended December 31, 2011. The increase in Adjusted net income for the quarter ended December 31, 2012 is largely due to the gains on sales of available-for-sale financial assets. Adjusted net income for the year ended December 31, 2012 increased $32 million, or 23%, to $172 million from $140 million in fiscal year 2011. Adjusted net income per share on a fully diluted basis for the year increased to $8.13 from $6.63 in fiscal year 2011.Net indebtedness (bank indebtedness less cash) of $3 million, increased by $37 million for the year primarily due to acquisitions. For the year ended December 31, 2012, thirty-five acquisitions were completed, and combined with post-acquisition settlement payments resulted in cash outflows of $139 million. In the prior year, twenty-two acquisitions were completed for net cash consideration, when combined with post-acquisition settlement payments, resulted in cash outflows of $46 million.The following table displays our revenue by reportable segment and the percentage change for the three and twelve months ended December 31, 2012 compared to the same periods in 2011:Three months endedPeriod-Over-PeriodFiscal year endedPeriod-Over-PeriodDecember 31,ChangeDecember 31,Change 2012 2011 $% 2012 2011 $%($000, except percentages)($000, except percentages)Public SectorLicenses15,54111,5114,03035%48,85143,7485,10312%Professional services47,33537,08110,25428%154,815146,2818,5346%Hardware and other34,34822,82211,52651%97,80097,1336671%Maintenance and other recurring92,23073,20519,02526%334,525284,48950,03618%189,454144,61944,83531%635,991571,65164,34011%Private SectorLicenses7,1425,4321,71031%23,55619,3594,19722%Professional services11,2598,9562,30326%42,33534,8857,45021%Hardware and other3,5962,73686031%13,55911,5831,97617%Maintenance and other recurring49,54836,61412,93435%175,785135,86339,92229%71,54553,73817,80733%255,235201,69053,54527%Public SectorFor the quarter ended December 31, 2012, total revenue in the public sector reportable segment increased by 31%, or $44 million to $189 million, compared to $145 million for the quarter ended December 31, 2011. For the year ended December 31, 2012, total revenue increased by 11%, or $64 million to $636 million, compared to $572 million in 2011. Revenue growth from acquired businesses contributed approximately $34 million to our Q4 2012 revenues and $67 million to our year ended December 31, 2012 revenues compared to the same periods in 2011. We have completed 28 acquisitions since the beginning of 2011, 10 of which were acquired in fiscal year 2011. Organic revenues increased by 7% in Q4 2012 and were unchanged in the year ended December 31, 2012 compared to the same periods in 2011. Excluding PTS, organic revenues increased 7% in Q4 2012 and 1% in the year ended December 31, 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 December 31, 2012, total revenue in the private sector reportable segment increased 33%, or $18 million to $72 million, compared to $54 million for the quarter ended December 31, 2011. For the year ended December 31, 2012 total revenue increased by 27%, or $53 million to $255 million, compared to $202 million for the comparable period in 2011. Revenue growth from acquired businesses contributed approximately $14 million to our Q4 2012 revenues and $42 million to our year ended December 31, 2012 revenues compared to the same periods in 2011. We have completed 29 acquisitions since the beginning of 2011, 12 of which were acquired in fiscal year 2011. Revenues increased organically by 8% in Q4 2012 and by 6% for the year ended December 31, 2012 compared to the same periods in 2011.OutlookFor Q1 2013, the Company expects gross revenue to be in the range of $245 million to $260 million and expects Adjusted EBITDA margin to be in the range of 14% to 18%. These statements are "forward looking statements" and are based on the following assumptions which management believes are reasonable under the current circumstances including (i) Revenue growth will be in the range of 26% to 33% for Q1 2013, which includes the impact of all companies acquired to date; (ii) the European acquisitions that the Company completed during the second half of 2012 and in the first quarter of 2013 will likely have negative Adjusted EBITDA in Q1 2013, and in aggregate, the European (including UK) operations of the Company will generate single digit Adjusted EBITDA margins during the quarter; (iii) North American hiring by the Company during Q1 2013 will be increased to provide additional professional services capacity to address backlog and to staff new investments in growth initiatives; (iv) no material acquisitions will be completed during the remainder of Q1 2013; and (iv) general economic and market conditions will remain consistent with those in effect on March 6, 2013. Although management believes these 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" below and also the Company's Management Discussion and Analysis for the year ended December 31, 2012.Appointment of New Board MembersThe Company also announced today that it has increased the size of its board of directors to eight members and has appointed Mark Miller, Chief Operating Officer of the Company and Chief Executive Officer of the Volaris Operating Group, and Jeff Bender, Chief Executive Officer of the Harris Operating Group, as new directors of the Company. Conference Call and WebcastManagement will host a conference call at 9:00 a.m. (ET) on Thursday, March 7, 2013 to answer questions regarding the results. The teleconference numbers are 416-340-8061 or 866-225-0198. The call will also be webcast live and archived on Constellation's website at www.csisoftware.com.A replay of the conference call will be available as of 11:30 a.m. ET the same day until 11:59 p.m. ET on March 21, 2013. To access the replay, please dial 905-694-9451 or 800-408-3053 followed by the passcode 3104756.Forward-Looking Statements Certain statements herein including those under "Outlook" above, 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 income or loss of equity investees, impairment of non-financial assets, depreciation, amortization, and foreign exchange gain or 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 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 or recognized 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, readers 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 endedFiscal year endedDecember 31,December 31, 2012 2011 2012 2011 ($000, except percentages)($000, except percentages)Total revenue$260,999$198,357$891,226$773,341Net income40,05119,39592,632157,174Adjusted for:Income tax expense (recovery)6,2405,08518,050(75,203)Foreign exchange (gain) loss1,1523648223,392Equity in net (income) loss of equity investees(36)-839-Finance income(19,649)(1,100)(23,178)(7,267)Finance costs1,0789864,0015,575Impairment of non-financial assets-(29)-489Amortization of intangible assets23,49920,91785,14276,650Depreciation2,0101,8297,6437,868Adjusted EBITDA54,34547,447185,951168,678Adjusted EBITDA margin21%24%21%22%The following table reconciles Adjusted net income to net income:Three months endedFiscal year endedDecember 31,December 31, 2012 2011 2012 2011 ($000, except percentages)($000, except percentages)Total revenue$260,999$198,357$891,226$773,341Net income40,05119,39592,632157,174Adjusted for:Amortization of intangible assets23,49920,91785,14276,650Impairment of non-financial assets-(29)-489Deferred income tax (recovery) expense(1,299)(54)(5,576)(93,818)Adjusted net income62,25140,229172,198140,495Adjusted net income margin24%20%19%18%The following tables provide supplemental statement of operations and cash flow information for PTS:For the three months ended December 31, 2012For the year ended December 31, 2012(Unaudited)Constellation Software Inc. (excluding PTS)PTSConsolidatedConstellation Software Inc. (excluding PTS)PTSConsolidatedRevenue$225,766$35,233$260,999$760,865$130,361$891,226Adjusted EBITDA48,7505,59554,345162,38323,568185,951EBITDA as % Total Revenue22%16%21%21%18%21%Net Income$35,291$4,760$40,051$73,185$19,447$92,632Cash flows from operating activities:Net income$35,291$4,760$40,051$73,185$19,447$92,632Adjustments to reconcile net income to net cash flows from operations, including taxes paid:11,663(2,828)8,83569,43511469,549Change in non-cash operating working capital(3,946)15,90311,957(13,263)(4,127)(17,390)Cash flows from operating activities$43,008$17,835$60,843$129,357$15,434$144,791The following table reconciles Adjusted EBITDA to net income for PTS:For the three months ended December 31, 2012For the year ended December 31, 2012 (Unaudited)Constellation Software Inc. (excluding PTS) PTS ConsolidatedConstellation Software Inc. (excluding PTS) PTS ConsolidatedTotal revenue$225,766$35,233$260,999$760,865$130,361$891,226Net income 35,2914,760 40,051 73,18519,447 92,632Adjusted for:Income tax expense6,516(276)6,24016,1511,89918,050Other expenses (income)(18,374)919(17,455)(19,052)1,536(17,516)Amortization of intangible assets23,499-23,49985,142-85,142Depreciation1,8181922,0106,9576867,643Adjusted EBITDA48,7505,59554,345162,38323,568185,951Adjusted EBITDA margin22%16%21%21%18%21%About Constellation Software Inc.Constellation Software acquires, manages and builds vertical market software businesses that provide mission-critical software solutions. CONSTELLATION SOFTWARE INC.Consolidated Statements of Financial Position(In thousands of U.S. dollars)December 31,December 31,20122011AssetsCurrent assets:Cash$41,313$33,492Equity securities available-for-sale47021,222Accounts receivable126,98796,259Work in progress36,92626,244Inventories18,73913,539Other assets29,17829,772253,613220,528Non-current assets:Property and equipment21,30014,591Deferred income taxes104,30799,659Other assets31,10428,005Intangible assets402,355267,792559,066410,047Total assets$812,679$630,575Liabilities and Shareholders' EquityCurrent liabilities:Bank indebtedness$44,356$-Accounts payable and accrued liabilities147,559114,952Dividends payable20,945-Deferred revenue224,049181,450Provisions6,3963,555Acquired contract liabilities3,5354,750Acquisition holdback payments20,63511,378Income taxes payable5,0664,751472,541320,836Non-current liabilities:Deferred income taxes29,28311,259Acquired contract liabilities26,07328,051Acquisition holdback payments5,9732,474Other liabilities20,00511,67581,33453,459Total liabilities553,875374,295Shareholders' equity:Capital stock99,28399,283Accumulated other comprehensive income1,6216,961Retained earnings157,900150,036258,804256,280Total liabilities and shareholders' equity$812,679$630,575CONSTELLATION SOFTWARE INC.Consolidated Statements of Comprehensive Income (In thousands of U.S. dollars, except per share amounts)Years ended December 31, 2012 and 201120122011Revenue$891,226$773,341ExpensesStaff469,677401,379Hardware61,44660,854Third party license, maintenance and professional services61,46951,066Occupancy21,02318,918Travel35,96730,038Telecommunications10,9969,992Supplies15,30815,314Professional fees15,0318,623Other, net14,3588,479Depreciation7,6437,868Amortization of intangible assets85,14276,650798,060689,181Impairment of non-financial assets-489Foreign exchange loss8223,392Equity in net loss of equity investees839-Finance income(23,178)(7,267)Finance costs4,0015,575(17,516)2,189Profit before income tax110,68281,971Current income tax expense23,62618,615Deferred income tax recovery(5,576)(93,818)Income tax expense (recovery)18,050(75,203)Net income92,632157,174Net change in fair value of available-for-sale financial assets during the period13,9685,773Net unrealized foreign exchange gain (loss) on available-for-sale financial assets during the period45(31)Amounts reclassified to profit during the period related to realized gains on available-for-sale financial assets(21,735) (6,253)Foreign currency translation differences from foreign operations1,164(1,188)Current income tax recovery (expense)104(34)Deferred income tax recovery1,114172Other comprehensive loss for the period, net of income tax(5,340)(1,561)Total comprehensive income for the period$87,292$155,613Earnings per shareBasic and diluted$4.37$7.42CONSTELLATION SOFTWARE INC.Consolidated Statements of Changes in Equity (In thousands of U.S. dollars)Year ended December 31, 2012Capital 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 income----92,63292,632Other comprehensive income (loss)Net change in fair value of available-for-sale financial assets during the period--13,96813,968-13,968Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial assets during the period--4545-45Amounts reclassified to profit during the period related to realized gains on available-for-sale investments--(21,735)(21,735)-(21,735)Foreign currency translation differences from foreign operations-1,164-1,164-1,164Current tax recovery-104-104-104Deferred tax recovery--1,1141,114-1,114Total other comprehensive income (loss) for the period-1,268(6,608)(5,340)-(5,340)Total comprehensive income (loss) for the period-1,268(6,608)(5,340)92,63287,292Transactions with owners, recorded directly in equityDividends to shareholders of the Company----(84,768)(84,768)Balance at December 31, 2012$99,283$1,450$171$1,621$157,900$258,804CONSTELLATION SOFTWARE INC.Consolidated Statements of Changes in Equity (In thousands of U.S. dollars)Year ended December 31, 2011Capital stock Accumulated 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, 2011$99,283$1,379$7,143$8,522$35,246$143,051Total comprehensive income for the periodNet income----157,174157,174Other comprehensive income (loss)Net change in fair value of available-for-sale financial assets during the period - - 5,773 5,773 - 5,773Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial assets during the period - - (31) (31) - (31)Amounts reclassified to profit during the period related to realized gains on available-for-sale investments - - (6,253) (6,253) - (6,253)Foreign currency translation differences from foreign operations - (1,188) - (1,188) - (1,188)Current tax expense-(34)-(34)-(34)Deferred tax recovery-25147172-172Total other comprehensive loss for the period-(1,197)(364)(1,561)-(1,561)Total comprehensive income (loss) for the period-(1,197)(364)(1,561)157,174155,613Transactions with owners, recorded directly in equityDividends to shareholders of the Company----(42,384)(42,384)Balance at December 31, 2011$99,283$182$6,779$6,961$150,036$256,280CONSTELLATION SOFTWARE INC.Consolidated Statements of Cash Flows (In thousands of U.S. dollars) Years ended December 31, 2012 and 201120122011Cash flows from operating activities:Net income$92,632$157,174Adjustments for:Depreciation7,6437,868Amortization of intangible assets85,14276,650Impairment of non-financial assets-489Equity in net loss of equity investees839-Finance income(23,178)(7,267)Finance costs4,0015,575Income tax expense (recovery)18,050(75,203)Foreign exchange loss8223,392Change in non-cash operating working capital exclusive of effects of business combinations(17,390)(15,896)Income taxes paid(23,770)(15,249)Net cash flows from operating activities144,791137,533Cash flows from (used in) financing activities:Interest paid(1,761)(4,979)Increase (decrease) in other non current liabilities(973)3,720Increase (decrease) in bank indebtedness, net41,052(47,877)Credit facility transaction costs(2,077)-Dividends paid(63,576)(42,384)Net cash flows used in financing activities(27,335)(91,520)Cash flows from (used in) investing activities:Acquisition of businesses, net of cash acquired(121,154)(40,511)Post-acquisition settlement payments, net of receipts(17,445)(5,345)Purchases of equity securities available-for-sale(211)(5,944)Proceeds from sale of equity securities available-for-sale34,97714,268Proceeds from sale of intangible assets101-Decrease in restricted cash-557Interest received51,113Property and equipment purchased(6,100)(7,350)Cash flows used in investing activities(109,827)(43,212)Effect of foreign currency on cash and cash equivalents192(220)Increase in cash and cash equivalents7,8212,581Cash, beginning of period33,49230,911Cash, end of period$41,313$33,492FOR FURTHER INFORMATION PLEASE CONTACT: Contact Information: Constellation Software Inc.John BillowitsChief Financial Officer(416) 861-2279info@csisoftware.comwww.csisoftware.com