Constellation Software Inc. Announces Results for the Fourth Quarter and Year Ended December 31, 2017 and Declares Quarterly Dividend

TORONTO, Feb. 14, 2018 (GLOBE NEWSWIRE) — Constellation Software Inc. (TSX:CSU) (“Constellation” or the “Company”) today announced its financial results for the fourth quarter and year ended December 31, 2017 and declared a $1.00 per share dividend payable on April 5, 2018 to all common shareholders of record at close of business on March 16, 2018. 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, 2017, 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.

Q4 2017 Headlines:

  • Revenue grew 22% (8% organic growth, 5% after adjusting for changes in foreign exchange rates) to $688 million compared to $564 million in Q4 2016. 
  • Adjusted EBITA increased $23 million or 15% to $175 million as compared to $151 million in Q4 2016. 
  • Net income increased 16% to $76 million ($3.59 on a diluted per share basis) from $66 million ($3.10 on a diluted per share basis) in Q4 2016.
  • Adjusted net income increased 15% to $141 million ($6.63 on a diluted per share basis) from $122 million ($5.75 on a diluted per share basis) in Q4 2016. 
  • A number of acquisitions were completed for aggregate cash consideration of $84 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $22 million resulting in total consideration of $106 million.
  • Cash flows from operations were $163 million, an increase of 22%, or $29 million, compared to $134 million for the comparable period in 2016.
  • Subsequent to December 31, 2017, the Company completed a number of acquisitions for aggregate cash consideration of $278 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $42 million resulting in total consideration of $320 million.
  • Subsequent to February 14, 2018 the Company policy will be to only issue press releases for acquisitions having an aggregate purchase price of $50 million or more.

2017 Headlines:

  • Revenue grew 17% (3% organic growth, 3% after adjusting for changes in foreign exchange rates) to $2,479 million compared to $2,125 million in 2016.
  • Adjusted EBITA increased $91 million or 17% to $621 million as compared to $530 million in 2016. 
  • Net income increased 7% to $222 million ($10.47 on a diluted per share basis) from $207 million ($9.76 on a diluted per share basis) in 2016.
  • Adjusted net income increased 17% to $463 million ($21.84 on a diluted per share basis) from $395 million ($18.64 on a diluted per share basis) in 2016.
  • A number of acquisitions were completed for aggregate cash consideration of $269 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $60 million resulting in total consideration of $329 million.
  • Cash flows from operations were $528 million, an increase of 8%, or $37 million, compared to $491 million for the comparable period in 2016. 

Total revenue for the quarter ended December 31, 2017 was $688 million, an increase of 22%, or $124 million, compared to $564 million for the comparable period in 2016.  For the year ended December 31, 2017 total revenues were $2,479 million, an increase of 17%, or $354 million, compared to $2,125 million for the comparable period in 2016.  The increase for both the three and twelve month periods ended December 31, 2017 is primarily attributable to growth from acquisitions as the Company experienced organic growth of 8% and 3% respectively, 5% and 3% respectively after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business.

For the quarter ended December 31, 2017, Adjusted EBITA increased to $175 million compared to $151 million for the same period in 2016 representing an increase of 15%.  Adjusted EBITA margin was 25% for the quarter ended December 31, 2017 and 27% for the same period in 2016.  For the year ended December 31, 2017, Adjusted EBITA increased to $621 million compared to $530 million during the same period in 2016, representing an increase of 17%.  Adjusted EBITA margin was 25% for both the years ended December 31, 2017 and 2016. 

Net income for the quarter ended December 31, 2017 was $76 million compared to net income of $66 million for the same period in 2016.  On a per share basis this translated into a net income per diluted share of $3.59 in the quarter ended December 31, 2017 compared to net income per diluted share of $3.10 for the same period in 2016.  For the year ended December 31, 2017, net income was $222 million or $10.47 per diluted share compared to $207 million or $9.76 per diluted share for the same period in 2016.

For the quarter ended December 31, 2017, Adjusted net income increased to $141 million from $122 million for the same period in 2016, representing an increase of 15%.  Adjusted net income margin was 20% for the quarter ended December 31, 2017 and 22% for the same period in 2016.  For the year ended December 31, 2017, Adjusted net income increased to $463 million from $395 million during the same period in 2016, representing an increase of 17%.  Adjusted net income margin was 19% for both the years ended December 31, 2017 and 2016.

Cash flows from operations for the quarter ended December 31, 2017 were $163 million, an increase of 22%, or $29 million, compared to $134 million for the comparable period in 2016.  Cash flows from operations for the year ended December 31, 2017 were $528 million, an increase of 8%, or $37 million, compared to $491 million for the comparable period in 2016.   

The following table displays our revenue by reportable segment and the percentage change for the three and twelve month periods ended December 31, 2017 compared to the same periods in 2016:

                       
      Three months ended
December 31,
Period-Over-
Period Change
Organic
Growth
  Year ended
December 31,
Period-Over-
Period Change
Organic
Growth 
 
      2017 2016 $ % %   2017 2016 $ % %   
      ($M, except percentages)     ($M, except percentages)    
  Public Sector                          
  Licenses   32 25 7 27 % 3 %   107 88 19 22 % -6 %  
  Professional services   112 94 18 19 % 7 %   398 344 54 16 % 3 %  
  Hardware and other   43 32 10 32 % 21 %   139 120 18 15 % 8 %  
  Maintenance and other recurring 287 232 54 23 % 7 %   1,046 876 170 19 % 4 %  
      473 384 89 23 % 8 %   1,689 1,428 261 18 % 4 %  
                             
  Private Sector                          
  Licenses   18 14 4 26 % 14 %   64 55 9 16 % 5 %  
  Professional services   28 23 5 21 % 9 %   100 90 10 11 % 1 %  
  Hardware and other   8 6 1 22 % -3 %   29 27 2 6 % -7 %  
  Maintenance and other recurring 161 136 25 18 % 6 %   598 524 73 14 % 4 %  
      215 180 35 19 % 7 %   790 697 93 13 % 3 %  
                               
  Certain totals and percentages may not reconcile due to rounding.                  
                           

For purposes of calculating organic growth, estimated pre-acquisition revenue from the relevant companies acquired in 2016 and 2017 was added to actual reported revenue for the three and twelve month periods ended December 31, 2017.

Public Sector

For the quarter ended December 31, 2017, total revenue in the public sector reportable segment increased 23%, or $89 million to $473 million, compared to $384 million for the quarter ended December 31, 2016.  For the year ended December 31, 2017, total revenue increased by 18%, or $261 million to $1,689 million, compared to $1,428 million for the comparable period in 2017.  Organic revenue growth was 8% and 4% respectively for the three and twelve month periods ended December 31, 2017 compared to the same periods in 2016, and 5% and 3% respectively after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business.   

Private Sector

For the quarter ended December 31, 2017, total revenue in the private sector reportable segment increased 19%, or $35 million to $215 million, compared to $180 million for the quarter ended December 31, 2016.  For the year ended December 31, 2017, total revenue increased by 13%, or $94 million to $790 million, compared to $697 million for the comparable period in 2016.  Organic revenue growth was 7% and 3% respectively for the three and twelve month periods ended December 31, 2017 compared to the same periods in 2016, and 5% and 3% respectively after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business.  

Conference Call and Webcast
Management will host a conference call at 8:00 a.m. (ET) on Thursday, February 15, 2018 to answer questions regarding the results.  The teleconference numbers are 647-788-4919 or 877-291-4570.  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 12:30 p.m. ET the same day until 11:59 p.m. ET on March 1, 2018. To access the replay, please dial 416-621-4642 or 800-585-8367 followed by the passcode 2869957.

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 EBITA’’ refers to net income before adjusting for finance and other income, bargain purchase gain, finance costs, income taxes, share in net income or loss of equity investees, impairment of non-financial assets, amortization, TSS membership liability revaluation charge, and foreign exchange gain or loss.  The Company believes that Adjusted EBITA 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 intangible asset amortization and the other items listed above.  ‘‘Adjusted EBITA margin’’ refers to the percentage that Adjusted EBITA 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, the TSS membership liability revaluation charge, and certain other expenses (income), and excludes the portion of the adjusted net income of Total Specific Solutions (TSS) B.V. (“TSS”) attributable to the minority owners of TSS.  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, the TSS membership liability revaluation charge, and certain other non-cash expenses (income) incurred or recognized by the Company from time to time, and adjusts for the portion of TSS’ Adjusted net income not attributable to shareholders of Constellation.  ‘‘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 EBITA and Adjusted net income are not recognized measures under IFRS and, accordingly, readers are cautioned that Adjusted EBITA 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 EBITA and Adjusted net income may differ from other issuers and, accordingly, Adjusted EBITA and Adjusted net income may not be comparable to similar measures presented by other issuers.  Adjusted EBITA includes 100% of the Adjusted EBITA of TSS.

The following table reconciles Adjusted EBITA to net income:

                         
        Three months ended
December 31,
      Year ended
December 31,
   
        2017   2016         2017   2016      
      ($M, except percentages)   ($M, except percentages)  
                         
  Total revenue     688   564         2,479   2,125      
                         
  Net income     76   66         222   207      
  Adjusted for:                      
  Income tax expense (recovery)     30   20         99   80      
  Foreign exchange (gain) loss     (2 ) 1         9   26      
  TSS membership liability revaluation charge     10   8         50   22      
  Share in net (income) loss of equity investees     (0 ) 0         (0 ) (5 )    
  Finance and other income     (1 ) (8 )       (3 ) (11 )    
  Bargain purchase gain     (5 )         (10 )      
  Finance costs     5   5         25   22      
  Amortization of intangible assets     63   59         230   191      
                         
  Adjusted EBITA     175   151         621   530      
  Adjusted EBITA margin     25 % 27 %       25 % 25 %    
                         
  Certain totals and percentages may not reconcile due to rounding.                  
                         

The following table reconciles Adjusted net income to net income:

                     
        Three months ended
December 31,
      Year ended
December 31,
   
        2017   2016         2017   2016      
      ($M, except percentages)   ($M, except percentages)      
                         
  Total revenue     688   564         2,479   2,125      
                         
  Net income     76   66         222   207      
  Adjusted for:                      
  Amortization of intangible assets     63   59         230   191      
  TSS membership liability revaluation charge     10   8         50   22      
  Bargain purchase gain     (5 )         (10 )      
  Less non-controlling interest in the Adjusted                      
  net income of TSS     (6 ) (5 )       (22 ) (19 )    
  Deferred income tax expense (recovery)     3   (5 )       (8 ) (5 )    
                         
  Adjusted net income     141   122         463   395      
  Adjusted net income margin     20 % 22 %       19 % 19 %    
                         
  Certain totals and percentages may not reconcile due to rounding.                  
                         

About Constellation Software Inc.

Constellation’s common shares are listed on the Toronto Stock Exchange under the symbol “CSU”. Constellation acquires, manages and builds vertical market software businesses.

For further information:

Jamal Baksh
Chief Financial Officer
(416) 861-9677
info@csisoftware.com
www.csisoftware.com

SOURCE: CONSTELLATION SOFTWARE INC.

         
CONSTELLATION SOFTWARE INC.        
Consolidated Statements of Financial Position            
(In thousands of U.S. dollars)              
   
                  December 31, 2017 December 31, 2016  
                       
Assets                  
                       
Current assets:                  
  Cash             $ 488,964   $ 353,499    
  Equity securities available-for-sale               4,236    
  Accounts receivable, net           316,538     243,554    
  Work in progress             64,109     56,541    
  Inventories               23,196     19,667    
  Other assets             100,098     96,181    
                    992,905     773,678    
                       
Non-current assets:                
  Property and equipment           53,817     46,395    
  Deferred income taxes             38,362     49,863    
  Other assets             21,801     19,782    
  Intangible assets   1,181,333     993,743    
                    1,295,313     1,109,783    
                       
Total assets             $ 2,288,218   $ 1,883,461    
                       
Liabilities and Shareholders’ Equity          
                       
Current liabilities:                
  CSI Facility             $   $    
  New CNH Facility             96,398        
  CNH Facility                 7,361    
  TSS Membership Liability           49,215     26,435    
  Accounts payable and accrued liabilities         379,573     291,697    
  Dividends payable             21,575     21,051    
  Deferred revenue             541,108     460,975    
  Provisions               10,377     7,955    
  Acquisition holdback payables           42,867     17,056    
  Income taxes payable             31,028     40,634    
                    1,172,141     873,164    
                       
Non-current liabilities:                
  CNH Facility                 115,336    
  TSS Membership Liability           86,575     46,502    
  Debentures               236,462     223,870    
  Deferred income taxes             148,961     129,585    
  Acquisition holdback payables           6,480     855    
  Other liabilities             33,521     36,640    
                    511,999     552,788    
                       
Total liabilities               1,684,140     1,425,952    
                       
                       
Shareholders’ equity:                
  Capital stock             99,283     99,283    
  Accumulated other comprehensive income (loss)       (26,739 )   (36,108 )  
  Retained earnings             531,534     394,334    
                       
                       
                       
Total liabilities and shareholders’ equity       $ 2,288,218   $ 1,883,461    
                       

 

     
CONSTELLATION SOFTWARE INC.    
Consolidated Statements of Income          
(In thousands of U.S. dollars, except per share amounts)      
                   
              Years ended December 31,
                2017       2016  
                   
Revenue                  
License         $ 170,384     $ 142,534  
Professional services         498,195       434,488  
Hardware and other         167,636       147,749  
Maintenance and other recurring       1,643,206       1,400,315  
                2,479,421       2,125,086  
                   
Expenses                  
Staff               1,236,874       1,058,989  
Hardware               92,666       82,304  
Third party license, maintenance and professional services               212,604       192,703  
Occupancy               58,885       51,696  
Travel               73,632       61,745  
Telecommunications               21,949       21,674  
Supplies               16,120       9,820  
Software and equipment               42,936       36,547  
Professional fees               31,311       28,249  
Other, net               48,644       28,963  
Depreciation               22,576       22,376  
Amortization of intangible assets               230,494       190,574  
                2,088,691       1,785,640  
                   
                   
Foreign exchange loss (gain)       8,611       25,990  
TSS membership liability revaluation charge   49,912       21,635  
Share in net (income) loss of equity investee   (369 )     (5,317 )
Finance and other expense (income)       (3,176 )     (10,834 )
Bargain purchase gain         (9,918 )      
Finance costs           24,788       21,573  
                69,848       53,047  
                   
Income before income taxes       320,882       286,399  
                   
Current income tax expense (recovery)       106,476       84,943  
Deferred income tax expense (recovery)               (7,562 )     (5,328 )
Income tax expense (recovery)               98,914       79,615  
                   
Net income           221,968       206,784  
                   
Earnings per share            
Basic and diluted       $ 10.47     $ 9.76  
                   
                   

 

       
CONSTELLATION SOFTWARE INC.      
Consolidated Statements of Comprehensive Income      
(In thousands of U.S. dollars, except per share amounts)      
                   
              Years ended December 31,
                2017       2016  
                   
Net income         $ 221,968     $ 206,784  
                   
Items that are or may be reclassified subsequently to net income:      
                   
Net change in fair value            
  of available-for-sale financial          
  asset during the period         (1,314 )     5,224  
                   
Net change in fair value            
  of derivatives designated as hedges        
  during the period         538       468  
                   
Amounts reclassified to profit during the period      
  related to realized losses (gains) on        
  available-for-sale financial assets       1,288       (5,204 )
                   
Foreign currency translation differences from foreign operations   9,009       (2,134 )
                   
Deferred income tax recovery (expense)     (152 )     (143 )
                   
Other comprehensive (loss) income for the period, net of income tax   9,369       (1,789 )
                   
Total comprehensive income (loss) for the period $ 231,337     $ 204,995  
                   

 

           
CONSTELLATION SOFTWARE INC.          
Consolidated Statements of Changes in Equity              
(In thousands of U.S. dollars)              
                   
Year ended December 31, 2017              
      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
Amounts
related to
gains/(losses)
on derivatives
designed as
hedges
     
                   
Balance at January 1, 2017 $ 99,283 $ (35,748 ) $ 17   $ (377 ) $ (36,108 ) $ 394,334   $ 457,509  
                   
Total comprehensive income for the period:              
                   
Net income                       221,968     221,968  
                   
Other comprehensive income (loss)              
                   
Net change in fair value              
  of available-for-sale financial              
  asset during the period         (1,314 )       (1,314 )       (1,314 )
                   
Net change in fair value              
  of derivatives designated as hedges              
  during the period             538     538         538  
                   
Amounts reclassified to profit during the period              
  related to realized losses (gains) on              
  available-for-sale financial assets         1,288         1,288         1,288  
                   
Foreign currency translation differences from              
  foreign operations     9,009             9,009         9,009  
                   
Deferred tax recovery (expense)         9     (161 )   (152 )       (152 )
                   
Total other comprehensive income (loss)              
  for the period       9,009     (17 )   377     9,369           9,369  
                   
Total comprehensive income (loss) for the period       9,009     (17 )   377     9,369     221,968     231,337  
                   
Transactions with owners, recorded directly in equity              
Dividends to shareholders of the Company                     (84,768 )   (84,768 )
                   
Balance at December 31, 2017 $ 99,283 $ (26,739 ) $     $     $ (26,739 ) $ 531,534   $ 604,078  
                   

 

           
CONSTELLATION SOFTWARE INC.          
Consolidated Statements of Changes in Equity        
(In thousands of U.S. dollars)              
                   
Year ended December 31, 2016              
                   
      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
Amounts
related to
gains/(losses)
on derivatives
designed as
hedges
     
                   
Balance at January 1, 2016 $ 99,283 $ (33,614 ) $     $ (705 ) $ (34,319 ) $ 272,318   $ 337,282  
                   
Total comprehensive income for the period:              
                   
Net income                       206,784     206,784  
                   
Other comprehensive income (loss)              
                   
Net change in fair value              
  of available-for-sale financial              
  asset during the period         5,224         5,224         5,224  
                   
Net change in fair value              
  of derivatives designated as hedges              
  during the period             468     468         468  
                   
Amounts reclassified to profit during the period              
  related to realized losses (gains) on              
  available-for-sale financial assets         (5,204 )       (5,204 )       (5,204 )
                   
Foreign currency translation differences from              
  foreign operations     (2,134 )           (2,134 )       (2,134 )
                   
Deferred tax recovery (expense)         (3 )   (140 )   (143 )       (143 )
                   
Total other comprehensive income for the period       (2,134 )   17     328     (1,789 )         (1,789 )
                   
Total comprehensive income for the period       (2,134 )   17     328     (1,789 )   206,784     204,995  
                   
Transactions with owners, recorded directly in equity              
Dividends to shareholders of the Company                   (84,768 )   (84,768 )
                   
Balance at December 31, 2016 $ 99,283 $ (35,748 ) $ 17   $ (377 ) $ (36,108 ) $ 394,334   $ 457,509  
                   

 

     
CONSTELLATION SOFTWARE INC.    
Consolidated Statements of Cash Flows        
(In thousands of U.S. dollars)          
                     
                Years ended December 31,
                  2017       2016  
                     
Cash flows from operating activities:        
  Net income       $ 221,968     $ 206,784  
  Adjustments for:          
    Depreciation       22,576       22,376  
    Amortization of intangible assets     230,494       190,574  
    TSS membership liability revaluation charge   49,912       21,635  
    Share in net (income) loss of equity investee   (369 )     (5,317 )
    Finance and other expense (income)   (3,176 )     (10,834 )
    Bargain purchase gain       (9,918 )      
    Finance costs       24,788       21,573  
    Income tax expense (recovery)     98,914       79,615  
    Foreign exchange loss (gain)     8,611       25,990  
  Change in non-cash operating working capital      
    exclusive of effects of business combinations   (15,149 )     (16,496 )
  Income taxes paid       (100,894 )     (45,019 )
  Net cash flows from operating activities   527,757       490,881  
                     
Cash flows from (used in) financing activities:      
  Interest paid         (22,144 )     (22,867 )
  Increase (decrease) in New CNH Facility, net   94,846        
  Repayments of CNH facility     (138,177 )     (8,709 )
  Credit facility transaction costs     (2,450 )     (1,212 )
  Dividends paid       (84,768 )     (84,768 )
  Net cash flows from (used in) in financing activities   (152,693 )     (117,556 )
                     
Cash flows from (used in) investing activities:      
  Acquisition of businesses, net of cash      
    acquired         (225,147 )     (152,310 )
  Post-acquisition settlement payments, net of receipts   (30,866 )     (25,791 )
  Purchases of available-for-sale equity securities         (27,707 )
  Proceeds from sale of available-for-sale equity securities   2,828       28,491  
  Interest, dividends and other proceeds received   22,993       1,729  
  Property and equipment purchased     (19,711 )     (19,098 )
  Net cash flows from (used in) investing activities   (249,903 )     (194,686 )
                     
Effect of foreign currency on          
  cash and cash equivalents     10,304       (3,611 )
                     
Increase (decrease) in cash and cash equivalents   135,465       175,028  
                     
Cash, beginning of period       353,499       178,471  
                     
Cash, end of period     $ 488,964     $ 353,499