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Constellation Software Inc. Announces Results for the Third Quarter Ended September 30, 2017 and Declares Quarterly Dividend

T.CSU | October 26, 2017

TORONTO, Oct. 26, 2017 (GLOBE NEWSWIRE) -- Constellation Software Inc. (TSX:CSU) (“Constellation” or the “Company”) today announced its financial results for the third quarter ended September 30, 2017 and declared a $1.00 per share dividend payable on January 4, 2018 to all common shareholders of record at close of business on December 15, 2017. 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, 2017 and the accompanying notes, our Management Discussion and Analysis for the three and nine months ended September 30, 2017 and with our annual Consolidated Financial Statements, prepared in accordance with International Financial Reporting Standards (“IFRS”) and our annual Management’s Discussion and Analysis for the year ended December 31, 2016, 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 2017 Headlines:

Revenue grew 17% (4% organic growth, 2% after adjusting for changes in foreign exchange rates) to $637 million compared to $546 million in Q3 2016.
Adjusted EBITA increased $21 million or 15% to $162 million as compared to $140 million in Q3 2016.
Net income decreased 20% to $54 million ($2.56 on a diluted per share basis) from $68 million ($3.18 on a diluted per share basis) in Q3 2016.
Adjusted net income declined 4% to $116 million ($5.45 on a diluted per share basis) from $121 million ($5.70 on a diluted per share basis) in Q3 2016. Excluding the impact of unrealized foreign exchange (gains) and losses recorded in Q3 2017 and Q3 2016 Adjusted net income increased 3% to $123 million ($5.81 on a diluted per share basis) from $120 million ($5.65 on a diluted per share basis) in Q3 2016.
Fourteen acquisitions were completed for aggregate cash consideration of $52 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $12 million.
Cash flows from operations were $123 million, a decrease of 11%, or $15 million, compared to $138 million for the comparable period in 2016.
Subsequent to September 30, 2017, the Company entered into agreements to acquire seven entities for aggregate cash consideration of $41 million on closing plus cash holdbacks of $9 million for total consideration of $50 million.

Total revenue for the quarter ended September 30, 2017 was $637 million, an increase of 17%, or $91 million, compared to $546 million for the comparable period in 2016. For the first nine months of 2017 total revenues were $1,792 million, an increase of 15%, or $231 million, compared to $1,561 million for the comparable period in 2016. The increase for both the three and nine month periods compared to the same periods in the prior year is primarily attributable to growth from acquisitions as the Company experienced organic growth of 4% and 2% respectively, 2% and 3% respectively after adjusting for the impact of the changes in the valuation of the US dollar against most major currencies in which the Company transacts business.

For the quarter ended September 30, 2017, Adjusted EBITA increased to $162 million compared to $140 million for the same period in 2016 representing an increase of 15%. Adjusted EBITA margin was 25% for the quarter ended September 30, 2017 and 26% for the same period in 2016. For the first nine months of 2017, Adjusted EBITA increased to $447 million compared to $379 million during the same period in 2016, representing an increase of 18%. Adjusted EBITA margin was 25% in the first nine months of 2017 and 24% for the same period in 2016.

Net income for the quarter ended September 30, 2017 was $54 million compared to net income of $68 million for the same period in 2016. On a per share basis this translated into a net income per diluted share of $2.56 in the quarter ended September 30, 2017 compared to net income per diluted share of $3.18 for the same period in 2016. For the nine months ended September 30, 2017, net income was $146 million or $6.88 per diluted share compared to $141 million or $6.66 per diluted share for the same period in 2016.

For the quarter ended September 30, 2017, Adjusted net income decreased to $116 million from $121 million for the same period in 2016, representing a decrease of 4%. Adjusted net income margin was 18% for the quarter ended September 30, 2017 and 22% for the same period in 2016. For the first nine months of 2017, Adjusted net income increased to $322 million from $273 million during the same period in 2016, representing an increase of 18%. Adjusted net income margin was 18% in the first nine months of 2017 and 17% for the same period in 2016. Excluding the impact of the unrealized foreign exchange (gain) loss recorded in each of the three and nine month periods ended September 30, 2016 and 2017 the margins would have been 19% for both of the respective periods in 2017, and 22% and 19% for the respective periods in 2016.

Cash flows from operations for the quarter ended September 30, 2017 were $123 million, a decrease of 11%, or $15 million, compared to $138 million for the comparable period in 2016.

The following table displays our revenue by reportable segment and the percentage change for the three and nine months ended September 30, 2017 compared to the same periods in 2016:


	Three months ended September 30,		Period-Over- Period Change			Organic Growth		Nine months ended September 30,		Period-Over- Period Change			Organic Growth
	2017	2016	$	%		%		2017	2016	$	%		%
	($M, except percentages)							($M, except percentages)
Public Sector
Licenses	28	21	7	34	%	2	%	75	63	12	20	%	-9	%
Professional services	101	87	14	16	%	4	%	287	251	36	14	%	1	%
Hardware and other	37	33	4	12	%	4	%	96	88	8	9	%	3	%
Maintenance and other recurring	269	226	43	19	%	5	%	759	643	115	18	%	3	%
	436	368	68	18	%	5	%	1,217	1,045	172	16	%	2	%

Private Sector
Licenses	16	14	2	15	%	3	%	46	41	5	12	%	2	%
Professional services	24	22	2	8	%	-3	%	72	67	5	8	%	-2	%
Hardware and other	7	7	0	4	%	-10	%	21	21	0	1	%	-8	%
Maintenance and other recurring	153	134	19	14	%	4	%	437	388	48	12	%	3	%
	200	178	23	13	%	2	%	575	517	59	11	%	2	%

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 nine months ended September 30, 2016.

Public Sector

For the quarter ended September 30, 2017, total revenue in the public sector reportable segment increased 18%, or $68 million to $436 million, compared to $368 million for the quarter ended September 30, 2016. For the nine months ended September 30, 2017, total revenue increased by 16%, or $172 million to $1,217 million, compared to $1,045 million for the comparable period in 2016. Organic revenue growth was 5% and 2% respectively for the three and nine months ended September 30, 2017 compared to the same periods in 2016, and 3% and 2% for 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 September 30, 2017, total revenue in the private sector reportable segment increased 13%, or $23 million to $200 million, compared to $178 million for the quarter ended September 30, 2016. For the nine months ended September 30, 2017, total revenue increased by 11%, or $59 million to $575 million, compared to $517 million for the comparable period in 2016. Organic revenue growth was 2% for both the three and nine months ended September 30, 2017 compared to the same periods in 2016, and 1% 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 7:30 a.m. (ET) on Friday, October 27, 2017 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 November 10, 2017. To access the replay, please dial 416-621-4642 or 800-585-8367 followed by the passcode 99526408.

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 September 30,					Nine months ended September 30,
		2017		2016			2017		2016
	($M, except percentages)					($M, except percentages)

Total revenue		636		546			1,792		1,561

Net income		54		67			146		141
Adjusted for:
Income tax expense (recovery)		26		27			69		59
Foreign exchange (gain) loss		8		(1	)		11		25
TSS membership liability revaluation charge		12		7			40		14
Share in net (income) loss of equity investees		(0	)	(5	)		(0	)	(6	)
Finance and other income		(1	)	(3	)		(2	)	(3	)
Bargain purchase gain		(5	)	-			(5	)	-
Finance costs		9		5			19		16
Amortization of intangible assets		60		43			168		132

Adjusted EBITA		162		140			447		379
Adjusted EBITA margin		25	%	26	%		25	%	24	%

Certain totals and percentages may not reconcile due to rounding.

The following table reconciles Adjusted net income to net income:


		Three months ended September 30,					Nine months ended September 30,
		2017		2016			2017		2016
	($M, except percentages)					($M, except percentages)

Total revenue		636		546			1,792		1,561

Net income		54		67			146		141
Adjusted for:
Amortization of intangible assets		60		43			168		132
TSS membership liability revaluation charge		12		7			40		14
Bargain purchase gain		(5	)	-			(5	)	-
Less non-controlling interest in the Adjusted
net income of TSS		(5	)	(4	)		(16	)	(13	)
Deferred income tax expense (recovery)		(0	)	8			(11	)	(1	)

Adjusted net income		115		121			322		273
Adjusted net income margin		18	%	22	%		18	%	17	%

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


CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Financial Position
(In thousands of U.S. dollars)

Unaudited
		September 30, 2017			December 31, 2016

Assets

Current assets:
	Cash	$	414,586		$	353,499
	Equity securities available-for-sale		-			4,236
	Accounts receivable, net		298,798			243,554
	Work in progress		68,602			56,541
	Inventories		29,240			19,667
	Other assets		107,499			96,181
			918,725			773,678

Non-current assets:
	Property and equipment		53,006			46,395
	Deferred income taxes		34,494			49,863
	Other assets		21,436			19,782
	Intangible assets		1,139,435			993,743
			1,248,371			1,109,783

Total assets		$	2,167,096		$	1,883,461

Liabilities and Shareholders' Equity

Current liabilities:
	CSI Facility	$	-		$	-
	New CNH Facility		74,881			-
	CNH Facility		-			7,361
	TSS Membership Liability		45,063			26,435
	Accounts payable and accrued liabilities		328,304			291,697
	Dividends payable		20,794			21,051
	Deferred revenue		556,190			460,975
	Provisions		9,336			7,955
	Acquisition holdback payments		34,968			17,056
	Income taxes payable		55,537			40,634
			1,125,073			873,164

Non-current liabilities:
	CNH Facility		-			115,336
	TSS Membership Liability		79,271			46,502
	Debentures		238,693			223,870
	Deferred income taxes		139,657			129,585
	Acquisition holdback payments		4,965			855
	Other liabilities		30,588			36,640
			493,174			552,788

Total liabilities			1,618,247			1,425,952


Shareholders' equity:
	Capital stock		99,283			99,283
	Accumulated other comprehensive income (loss)		(27,044	)		(36,108	)
	Retained earnings		476,610			394,334
			548,849			457,509


Total liabilities and shareholders' equity		$	2,167,096		$	1,883,461

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Income
(In thousands of U.S. dollars, except per share amounts)

Three and nine months ended September 30, 2017 and 2016
Unaudited
	Three months ended September 30,						Nine months ended September 30,
		2017			2016			2017			2016


Revenue
License	$	44,478		$	35,285		$	120,482		$	103,110
Professional services		125,530			109,872			358,648			317,464
Hardware and other		43,852			39,515			117,208			109,030
Maintenance and other recurring		422,599			360,974			1,195,531			1,031,692
		636,459			545,646			1,791,869			1,561,296

Expenses
Staff		312,667			266,142			898,751			781,744
Hardware		24,208			21,660			63,619			61,725
Third party license, maintenance and professional services		55,059			51,264			155,601			142,848
Occupancy		15,584			13,047			43,454			37,590
Travel		18,546			15,678			52,438			44,999
Telecommunications		5,716			5,376			16,051			16,198
Supplies		4,103			2,304			11,583			6,991
Software and equipment		11,200			9,590			30,556			27,180
Professional fees		7,921			6,438			21,614			19,932
Other, net		14,126			8,263			35,112			28,029
Depreciation		5,768			5,454			16,388			15,436
Amortization of intangible assets		59,829			42,676			167,852			131,987
		534,727			447,892			1,513,019			1,314,659


Foreign exchange loss (gain)		7,567			(1,026	)		10,926			24,778
TSS membership liability revaluation charge		11,781			7,070			40,311			13,937
Share in net (income) loss of equity investee		(80	)		(5,410	)		(206	)		(5,717	)
Finance and other expense (income)		(1,291	)		(2,929	)		(1,720	)		(3,201	)
Bargain purchase gain		(5,008	)		-			(5,008	)		-
Finance costs		8,725			5,332			19,456			16,353
		21,694			3,037			63,759			46,150

Income before income taxes		80,038			94,717			215,091			200,487

Current income tax expense (recovery)		25,975			19,244			80,191			59,915
Deferred income tax expense (recovery)		(206	)		8,011			(10,952	)		(556	)
Income tax expense (recovery)		25,769			27,255			69,239			59,359

Net income		54,269			67,462			145,852			141,128

Earnings per share
Basic and diluted	$	2.56		$	3.18		$	6.88		$	6.66

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Comprehensive Income
(In thousands of U.S. dollars, except per share amounts)

Three and nine months ended September 30, 2017 and 2016
Unaudited
	Three months ended September 30,						Nine months ended September 30,
		2017			2016			2017			2016

Net income	$	54,269		$	67,462		$	145,852		$	141,128

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		-			6,612			(1,314	)		6,946

Net change in fair value
of derivatives designated as hedges
during the period		193			157			538			134

Amounts reclassified to profit during the period
related to realized losses (gains) on
available-for-sale financial assets		-			(2,539	)		1,288			(2,539	)

Foreign currency translation differences from foreign operations		857			1,264			8,704			4,301

Deferred income tax recovery (expense)		(58	)		(541	)		(152	)		(578	)

Other comprehensive (loss) income for the period, net of income tax		992			4,953			9,064			8,264

Total comprehensive income (loss) for the period	$	55,261		$	72,415		$	154,916		$	149,392

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)


Unaudited
Nine months ended September 30, 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		-		-			-			-			-			145,852			145,852

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		-		8,704			-			-			8,704			-			8,704

Deferred tax recovery (expense)		-		-			9			(161	)		(152	)		-			(152	)

Total other comprehensive income (loss)
for the period		-		8,704			(17	)		377			9,064			-			9,064

Total comprehensive income (loss) for the period		-		8,704			(17	)		377			9,064			145,852			154,916

Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company		-		-			-			-			-			(63,576	)		(63,576	)

Balance at September 30, 2017	$	99,283	$	(27,044	)	$	-		$	-		$	(27,044	)	$	476,610		$	548,849

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of U.S. dollars)


Unaudited
Nine months ended September 30, 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		-		-			-			-			-			141,128			141,128

Other comprehensive income (loss)

Net change in fair value
of available-for-sale financial
asset during the period		-		-			6,946			-			6,946			-			6,946

Net change in fair value
of derivatives designated as hedges
during the period		-		-			-			134			134			-			134

Amounts reclassified to profit during the period
related to realized losses (gains) on
available-for-sale financial assets		-					(2,539	)		-			(2,539	)		-			(2,539	)

Foreign currency translation differences from
foreign operations		-		4,301			-			-			4,301			-			4,301

Deferred tax recovery (expense)		-		-			(545	)		(33	)		(578	)		-			(578	)

Total other comprehensive income for the period		-		4,301			3,862			101			8,264			-			8,264

Total comprehensive income for the period		-		4,301			3,862			101			8,264			141,128			149,392

Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company		-		-						-			-			(63,576	)		(63,576	)

Balance at September 30, 2016	$	99,283	$	(29,313	)	$	3,862		$	(604	)	$	(26,055	)	$	349,870		$	423,098

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Cash Flows
(In thousands of U.S. dollars)

Three and nine months ended September 30, 2017 and 2016
Unaudited
			Three months ended September 30,						Nine months ended September 30,
				2017			2016			2017			2016

Cash flows from operating activities:
	Net income		$	54,269		$	67,462		$	145,852		$	141,128
	Adjustments for:
		Depreciation		5,768			5,454			16,388			15,436
		Amortization of intangible assets		59,829			42,676			167,852			131,987
		TSS membership liability revaluation charge		11,781			7,070			40,311			13,937
		Share in net (income) loss of equity investee		(80	)		(5,410	)		(206	)		(5,717	)
		Finance and other income		(1,291	)		(2,929	)		(1,720	)		(3,201	)
		Bargain purchase gain		(5,008	)		-			(5,008	)		-
		Finance costs		8,725			5,332			19,456			16,353
		Income tax expense (recovery)		25,769			27,255			69,239			59,359
		Foreign exchange loss (gain)		7,567			(1,026	)		10,926			24,778
	Change in non-cash operating working capital
		exclusive of effects of business combinations		(28,069	)		2,038			(28,421	)		(9,210	)
	Income taxes paid			(16,539	)		(10,094	)		(69,517	)		(27,692	)
	Net cash flows from operating activities			122,721			137,828			365,152			357,158

Cash flows from (used in) financing activities:
	Interest paid			(5,572	)		(5,547	)		(16,707	)		(17,395	)
	Increase (decrease) in New CNH Facility, net			74,608			-			74,608			-
	Repayments of CNH facility			(134,248	)		-			(138,177	)		(4,495	)
	Credit facility transaction costs			(1,942	)		-			(1,942	)		(1,212	)
	Dividends paid			(21,192	)		(21,192	)		(63,576	)		(63,576	)
	Net cash flows from (used in) in financing activities			(88,346	)		(26,739	)		(145,794	)		(86,678	)

Cash flows from (used in) investing activities:
	Acquisition of businesses, net of cash
		acquired		(41,863	)		(34,500	)		(156,062	)		(101,198	)
	Post-acquisition settlement payments, net of receipts			(4,723	)		(12,050	)		(21,611	)		(18,283	)
	Purchases of available-for-sale equity securities			-			(13,902	)		-			(26,596	)
	Proceeds from sale of available-for-sale equity securities			-			14,276			2,828			14,276
	Interest, dividends and other proceeds received			1,152			644			21,607			794
	Property and equipment purchased			(5,450	)		(3,934	)		(14,382	)		(13,621	)
	Net cash flows from (used in) investing activities			(50,884	)		(49,466	)		(167,620	)		(144,628	)

Effect of foreign currency on
	cash and cash equivalents			1,331			(143	)		9,349			131

Increase (decrease) in cash and cash equivalents				(15,178	)		61,480			61,087			125,983

Cash, beginning of period				429,764			242,974			353,499			178,471

Cash, end of period			$	414,586		$	304,454		$	414,586		$	304,454