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Press release from Marketwire

Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2013 and Declares Quarterly Dividend

Wednesday, July 31, 2013

Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2013 and Declares Quarterly Dividend

17:00 EDT Wednesday, July 31, 2013

TORONTO, ONTARIO--(Marketwired - July 31, 2013) - Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its financial results for the second quarter ended June 30, 2013 and declared a $1.00 per share dividend payable on October 3, 2013 to all common shareholders of record at close of business on September 17, 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 Unaudited Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2013 and the accompanying notes, our Management's Discussion and Analysis for the three and six months ended June 30, 2013, 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, 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.

Q2 2013 Headlines:

  • Cash flows from operations for the first six months of 2013 increased $14 million or 35% to $52 million from $38 million for the comparable period in 2012.
  • Revenue grew 43% (8% organically) to $298 million compared to $209 million in Q2 2012.
  • Adjusted EBITDA increased $18 million or 41% to $62 million as compared to Q2 2012.
  • Adjusted Net Income increased 39% to $50 million ($2.36 on a diluted per share basis) from $36 million ($1.71 on a diluted per share basis) in Q2 2012.
  • Seven acquisitions were completed for aggregate cash consideration of $88 million (which includes acquired cash) plus cash holdbacks of $11 million and estimated value of contingent consideration of $1 million.
  • Net borrowings (bank indebtedness less cash) increased by $88 million or 140% to $151 million from $63 million in Q1 2013.

Cash flows from operations for the second quarter of 2013 were $18 million, a decrease of 31%, or $8 million, compared to $26 million for the comparable period in 2012. The decrease was caused by a negative variance in changes in non-cash operating working capital in the second quarter of 2013 versus the second quarter of 2012, and reverses the comparable positive variance in changes in non-cash operating working capital in the first quarter of 2013 versus the first quarter of 2012. The negative variance in the second quarter of 2013 primarily relates to the timing of payments associated with the Company's bonus plan. For the first six months of 2013 cash flows from operations were $52 million, an increase of 35%, or $14 million, compared to $38 million for the comparable period in 2012.

Second quarter 2013 revenue was $298 million, an increase of 43%, or $89 million, compared to $209 million for the comparable period in 2012. For the first six months of 2013 total revenues were $555 million, an increase of 37%, or $150 million, compared to $404 million for the comparable period in 2012. The increase for both the three and six month periods compared to the same periods in the prior year is mainly attributable to growth from acquisitions, however, the Company did experience positive organic growth of 8% and 4%, respectively. During the second quarter of 2013, a contract that was previously accounted for on a zero margin basis was completed, resulting in the recognition of previously deferred profit margin as part of professional services revenue in the amount of $5 million. Excluding this amount, organic growth would have been 6% and 3% for the three and six month periods ended June 30, 2013 respectively.

Adjusted EBITDA for the second quarter of 2013 was $62 million, a 41% increase compared to the prior year's second quarter Adjusted EBITDA of $44 million. Second quarter 2013 Adjusted EBITDA per share on a diluted basis increased 41% to $2.91, compared to $2.06 for the same period last year. Adjusted EBITDA for the six month period ended June 30, 2013 was $104 million, a 26% increase over last year's Adjusted EBITDA of $83 million for the same period. Adjusted EBITDA per share on a diluted basis for the six month period ended June 30, 2013 increased 26% to $4.92, compared to $3.92 for the same period last year.

Adjusted Net Income for the second quarter of 2013 was $50 million, compared to the prior year's second quarter Adjusted Net Income of $36 million, a 39% increase. Second quarter 2013 Adjusted Net Income per share on a diluted basis increased 39% to $2.36 compared to $1.71 for the prior year's second quarter. Adjusted Net Income for the six month period ended June 30, 2013 was $83 million, an increase of 23% over last year's Adjusted Net Income of $68 million. Adjusted Net Income per share on a diluted basis for the six month period ended June 30, 2013 increased 23% to $3.94, compared to $3.20 for the same period in 2012.

Net income for the second quarter 2013 was $19 million compared to the prior year's second quarter net income of $18 million. On a diluted per share basis, this translates into net income per share of $0.91 for the second quarter of 2013 compared to $0.83 for the same period of 2012. Net income for the six month period ended June 30, 2013 was $28 million, a decrease of 10% over last year's Net income of $32 million. Net income per share on a diluted basis for the six month period ended June 30, 2013 decreased 10% to $1.34, compared to $1.49 for the same period in 2012.

The following table displays our revenue by reportable segment and the percentage change for the three and six months ended June 30, 2013 compared to the same periods in 2012:

Three months ended
June 30,
Period-Over-Period Change Six months ended
June 30,
Period-Over-Period Change
2013 2012 $ % 2013 2012 $ %
($000, except percentages) ($000, except percentages)
Public Sector
Licenses 15,703 10,864 4,839 45 % 28,878 20,654 8,224 40 %
Professional services 53,180 35,489 17,691 50 % 96,359 67,791 28,568 42 %
Hardware and other 25,319 18,756 6,563 35 % 47,490 41,045 6,445 16 %
Maintenance and other recurring 107,197 82,613 24,584 30 % 204,802 156,464 48,338 31 %
201,399 147,722 53,677 36 % 377,529 285,954 91,575 32 %
Private Sector
Licenses 8,354 5,130 3,224 63 % 15,847 10,280 5,567 54 %
Professional services 13,771 10,446 3,325 32 % 25,691 20,271 5,420 27 %
Hardware and other 4,158 3,595 563 16 % 7,795 6,661 1,134 17 %
Maintenance and other recurring 70,507 42,076 28,431 68 % 127,758 81,081 46,677 58 %
96,790 61,247 35,543 58 % 177,091 118,293 58,798 50 %

Public Sector

For the quarter ended June 30, 2013, total revenue in the public sector reportable segment increased by 36%, or $54 million to $201 million, compared to $148 million for the quarter ended June 30, 2012. For the six months ended June 30, 2013, total revenue increased by 32%, or $92 million to $378 million, compared to $286 million for the comparable period in 2012. Revenue growth from acquired businesses contributed approximately $40 million to our Q2 2013 revenues and $80 million to our six months ended June 30, 2013 revenues compared to the same periods in 2012, as we completed 26 acquisitions since the beginning of 2012. Organic revenue growth was 10% in Q2 2013 and 4% for the six months ended June 30, 2013 compared to the same periods in 2012. As mentioned above, during the quarter ended June 30, 2013, a contract that was previously accounted for on a zero margin basis due to uncertainty regarding profitability was completed, resulting in the recognition of previously deferred profit margin as part of professional services revenue in the amount of $5 million. Excluding this amount, organic growth would have been 6% and 2% for the three and six month periods ended June 30, 2013, respectively.

Private Sector

For the quarter ended June 30, 2013, total revenue in the private sector reportable segment increased 58%, or $36 million to $97 million, compared to $61 million for the quarter ended June 30, 2012. For the six months ended June 30, 2013 total revenue increased by 50%, or $59 million to $177 million, compared to $118 million for the comparable period in 2012. Revenue growth from acquired businesses contributed approximately $32 million to our Q2 2013 revenues and $53 million to our six months ended June 30, 2013 revenues compared to the same periods in 2012, as we completed 23 acquisitions since the beginning of 2012. Revenues increased organically by 6% in Q2 2013 and 5% for the six months ended June 30, 2013 compared to the same periods in 2012.

Conference Call and Webcast

Management will host a conference call at 9:00 a.m. (ET) on Thursday, August 1, 2013 to answer questions regarding the results. The teleconference numbers are 416-695-6623 or 800-952-4972. 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 14, 2013. To access the replay, please dial 905-694-9451 or 800-408-3053 followed by the passcode 4538771.

Forward Looking Statements

Certain 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 Measures

The 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.

The following table reconciles Adjusted EBITDA to net income:


(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2013 2012 2013 2012
($000, except percentages) ($000, except percentages)
Total revenue $ 298,189 $ 208,969 $ 554,620 $ 404,247
Net income 19,232 17,592 28,431 31,516
Adjusted for:
Income tax expense 7,761 3,666 10,430 6,977
Foreign exchange loss (gain) 361 (217 ) 2,136 (9 )
Equity in net (income) loss of equity investees (13 ) 209 (357 ) 1,091
Finance income (10 ) (394 ) (500 ) (1,463 )
Finance costs 2,151 774 3,267 1,792
Amortization of intangible assets 29,800 20,269 56,261 39,544
Depreciation 2,422 1,803 4,634 3,521
Adjusted EBITDA 61,704 43,702 104,302 82,969
Adjusted EBITDA margin 21 % 21 % 19 % 21 %

The following table reconciles Adjusted net income to net income:

(Unaudited) Three months ended
June 30,
Six months ended
June 30,
2013 2012 2013 2012
($000, except percentages) ($000, except percentages)
Total revenue $ 298,189 $ 208,969 $ 554,620 $ 404,247
Net income 19,232 17,592 28,431 31,516
Adjusted for:
Amortization of intangible assets 29,800 20,269 56,261 39,544
Deferred income tax expense (recovery) 1,074 (1,700 ) (1,237 ) (3,192 )
Adjusted net income 50,106 36,161 83,455 67,868
Adjusted net income margin 17 % 17 % 15 % 17 %

About Constellation Software Inc.

Constellation Software acquires, manages and builds vertical market software businesses that provide mission-critical software solutions.

S OURCE: CONSTELLATION SOFTWARE INC.

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Financial Position
(In thousands of U.S. dollars)
(Unaudited)
June 30, December 31,
2013 2012
Assets
Current assets:
Cash $ 32,364 $ 41,313
Equity security available-for-sale 742 470
Accounts receivable 169,665 126,987
Work in progress 54,138 36,926
Inventories 20,585 18,739
Other assets 41,980 29,178
319,474 253,613
Non-current assets:
Property and equipment 22,633 21,300
Deferred income taxes 55,424 104,307
Other assets 36,038 31,104
Intangible assets 550,309 402,355
664,404 559,066
Total assets $ 983,878 $ 812,679
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ 183,823 $ 44,356
Accounts payable and accrued liabilities 153,860 147,559
Dividends payable 20,552 20,945
Deferred revenue 289,128 224,049
Provisions 6,671 6,396
Acquired contract liabilities 2,260 3,535
Acquisition holdback payments 21,450 20,635
Income taxes payable 3,371 5,066
681,115 472,541
Non-current liabilities:
Deferred income taxes 17,584 29,283
Acquired contract liabilities 17,584 26,073
Acquisition holdback payments 5,674 5,973
Other liabilities 20,310 20,005
61,152 81,334
Total liabilities 742,267 553,875
Shareholders' equity:
Capital stock 99,283 99,283
Accumulated other comprehensive income (1,619 ) 1,621
Retained earnings 143,947 157,900
241,611 258,804
Total liabilities and shareholders' equity $ 983,878 $ 812,679
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Income
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2013 2012 2013 2012
Revenue $ 298,189 $ 208,969 $ 554,620 $ 404,247
Expenses
Staff 158,243 113,689 306,347 219,320
Hardware 16,246 10,705 32,257 22,932
Third party license, maintenance and professional services 25,829 14,715 44,269 28,961
Occupancy 6,694 5,039 13,274 9,664
Travel 11,125 7,766 20,631 16,012
Telecommunications 3,334 2,553 6,427 5,050
Supplies 4,975 3,866 9,623 7,298
Professional fees 3,760 2,222 7,221 4,067
Other, net 6,279 4,712 10,269 7,974
Depreciation 2,422 1,803 4,634 3,521
Amortization of intangible assets 29,800 20,269 56,261 39,544
268,707 187,339 511,213 364,343
Foreign exchange loss (gain) 361 (217 ) 2,136 (9 )
Equity in net (income) loss of equity investees (13 ) 209 (357 ) 1,091
Finance income (10 ) (394 ) (500 ) (1,463 )
Finance costs 2,151 774 3,267 1,792
2,489 372 4,546 1,411
Profit before income taxes 26,993 21,258 38,861 38,493
Current income tax expense 6,687 5,366 11,667 10,169
Deferred income tax expense (recovery) 1,074 (1,700 ) (1,237 ) (3,192 )
Income tax expense 7,761 3,666 10,430 6,977
Net income 19,232 17,592 28,431 31,516
Earnings per share
Basic and diluted $ 0.91 $ 0.83 $ 1.34 $ 1.49
CONSTELLATION 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,
2013 2012 2013 2012
Net income $ 19,232 $ 17,592 $ 28,431 $ 31,516
Items that are or may be reclassified subsequently to profit or loss:
Net change in fair value of available-for-sale financial asset during the period
161

1,066

272

4,914
Net unrealized foreign exchange gain (loss) on available-for-sale financial asset during the period
-

(148)

-

(27)
Amounts reclassified to profit during the period related to realized gains on available-for-sale financial asset
-

(31)

-

(1,063)
Foreign currency translation differences from foreign operations (822) (1,943) (3,433) (802)
Current income tax recovery (expense) (27) 70 (79) (8)
Deferred income tax recovery (expense) - 18 - (313)
Other comprehensive (loss) income for the period, net of income tax (688) (968) (3,240) 2,701
Total comprehensive income for the period $ 18,544 $ 16,624 $ 25,191 $ 34,217
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)
(Unaudited)
Six months ended June 30, 2013
Capital
stock
Accumulated other
comprehensive
income/(loss)
Total accumulated other
comprehensive
income/(loss)
Retained
earnings
Total
Cumulative
translation
account
Amounts related to gains/losses
on available-for-sale financial assets
Balance at January 1, 2013 $ 99,283 $ 1,450 $ 171 $ 1,621 $ 157,900 $ 258,804
Total comprehensive income for the period
Net income - - - - 28,431 28,431
Other comprehensive income (loss)
Net change in fair value of available-for-sale financial asset during the period

-


-


272


272


-


272
Net unrealized foreign exchange adjustment gain (loss) on available-for-sale financial asset during the period

-


-


-


-


-


-
Amounts reclassified to profit during the period related to realized gains on available-for-sale investment

-


-


-


-


-


-
Foreign currency translation differences from foreign operations
-

(3,433
)
-

(3,433
)
-

(3,433
)
Current tax recovery - (79 ) - (79 ) - (79 )
Deferred tax recovery - - - - - -
Total other comprehensive income (loss) for the period
-

(3,512
)
272

(3,240
)
-

(3,240
)
Total comprehensive income (loss) for the period - (3,512 ) 272 (3,240 ) 28,431 25,191
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company - - - - (42,384 ) (42,384 )
Balance at June 30, 2013 $ 99,283 $ (2,062 ) $ 443 $ (1,619 ) $ 143,947 $ 241,611
CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)
(Unaudited)
Six months ended June 30, 2012
Capital
stock
Accumulated other
comprehensive
income/(loss)
Total accumulated other
comprehensive
income/(loss)
Retained
earnings
Total
Cumulative
translation
account
Amounts related to gains/losses on available-for-sale financial assets
Balance at January 1, 2012 $ 99,283 $ 182 $ 6,779 $ 6,961 $ 150,036 $ 256,280
Total comprehensive income for the period
Net income - - - - 31,516 31,516
Other comprehensive income (loss)
Net change in fair value of available-for-sale financial assets during the period

-


-


4,914


4,914


-


4,914
Net 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 financial assets

-


-


(1,063
)

(1,063
)

-


(1,063
)
Foreign currency translation differences from from foreign operations - (802 ) - (802 ) - (802 )
Current tax expense - (8 ) - (8 ) - (8 )
Deferred tax expense - 125 (438 ) (313 ) - (313 )
Total other comprehensive income for the period - (685 ) 3,386 2,701 - 2,701
Total comprehensive income for the period - (685 ) 3,386 2,701 31,516 34,217
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company - - - - (42,384 ) (42,384 )
Balance at June 30, 2012 $ 99,283 $ (503 ) $ 10,165 $ 9,662 $ 139,168 $ 248,113
CONSTELLATION 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,
2013 2012 2013 2012
Cash flows from operating activities:
Net income $ 19,232 $ 17,592 $ 28,431 $ 31,516
Adjustments for:
Depreciation 2,422 1,803 4,634 3,521
Amortization of intangible assets 29,800 20,269 56,261 39,544
Equity in net (income) loss of equity investees (13 ) 209 (357 ) 1,091
Finance income (10 ) (394 ) (500 ) (1,463 )
Finance costs 2,151 774 3,267 1,792
Income tax expense 7,761 3,666 10,430 6,977
Foreign exchange loss (gain) 361 (217 ) 2,136 (9 )
Change in non-cash operating working capital exclusive of effects of business combinations
(34,125
)
(9,495
)
(38,249
)
(33,839
)
Income taxes paid (9,607 ) (8,013 ) (14,169 ) (10,715 )
Net cash flows from operating activities 17,972 26,194 51,884 38,415
Cash flows from (used in) financing activities:
Interest paid (776 ) (501 ) (1,281 ) (837 )
Decrease in other non current liabilities 144 322 121 122
Increase in bank indebtedness, net 76,251 16,342 139,251 29,342
Credit facility transaction costs - (46 ) - (1,886 )
Dividends paid (21,192 ) (21,192 ) (42,384 ) (21,192 )
Net cash flows from (used in) in financing activities 54,427 (5,075 ) 95,707 5,549
Cash flows from (used in) investing activities:
Acquisition of businesses, net of cash acquired (75,158 ) (42,830 ) (145,051 ) (50,637 )
Post-acquisition settlement payments, net of receipts (5,464 ) (4,132 ) (10,685 ) (4,633 )
Purchases of available-for-sale financial assets - (80 ) - (80 )
Proceeds from sale of available-for-sale equity securities - 55 - 1,863
Proceeds from sale of intangible assets - 101 - 101
Interest received - 41 - 79
Proceeds from sale of assets 121 - 5,544 -
Property and equipment purchased (3,186 ) (1,251 ) (5,297 ) (2,541 )
Net cash flows used in investing activities (83,687 ) (48,096 ) (155,489 ) (55,848 )
Effect of foreign currency on cash and cash equivalents (661 ) (165 ) (1,051 ) 63
Decrease in cash and cash equivalents (11,949 ) (27,142 ) (8,949 ) (11,821 )
Cash, beginning of period 44,313 48,813 41,313 33,492
Cash, end of period $ 32,364 $ 21,671 $ 32,364 $ 21,671

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Constellation Software Inc.
Jamal Baksh
Chief Financial Officer
(416) 861-9677
info@csisoftware.com
www.csisoftware.com

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