Constellation Software Inc. Announces Results for the Second Quarter Ended June 30, 2020 and Declares Quarterly Dividend

TORONTO, Aug. 06, 2020 (GLOBE NEWSWIRE) -- Constellation Software Inc. (TSX:CSU) (“Constellation” or the “Company”) today announced its financial results for the second quarter ended June 30, 2020 and declared a $1.00 per share dividend payable on October 9, 2020 to all common shareholders of record at close of business on September 18, 2020. 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, 2020 and the accompanying notes, our Management Discussion and Analysis for the three and six months ended June 30, 2020 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, 2019, 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

Our board remain both grateful and impressed by the Constellation employees who continue to re-think, re-invent and re-imagine how they support each other and our customers through the many challenges created by COVID-19.

Q2 2020 Headlines:

• Revenue grew 9% (negative 8% organic growth, negative 7% after adjusting for changes in foreign exchange rates) to $922 million compared to $846 million in Q2 2019. 
• Net income increased 12% to $83 million ($3.90 on a diluted per share basis) from $73 million ($3.45 on a diluted per share basis) in Q2 2019.
• Impairment of intangible and other non-financial assets was $4 million in Q2 2020 versus nil in Q2 2019.
• A number of acquisitions were completed for aggregate cash consideration of $67 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $17 million resulting in total consideration of $84 million.
• Cash flows from operations (“CFO”) were $237 million, an increase of 370%, or $186 million, compared to $50 million for the comparable period in 2019.
• Free cash flow available to shareholders¹ (“FCFA2S”) increased $178 million to $190 million compared to $12 million for the same period in 2019.  
• CFO and FCFA2S were positively impacted by the deferral of approximately $29 million of tax instalment payments to the second half of 2020 in conjunction with the certain government’s COVID-19 relief programs. 
• The Company determined that certain of its subsidiaries qualified for an estimated aggregate amount of $17 million of grants from various government authorities, and recognized such amounts as a reduction to expenses in the quarter.
• On May 20, 2020 the Company entered into a binding agreement with IJssel B.V. to purchase 100% of the shares of Topicus.com B.V., a Netherlands-based diversified vertical market software provider.  The transaction is currently expected to close in 2020, subject to the satisfaction of certain closing conditions.
• Subsequent to June 30, 2020, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $64 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $14 million resulting in total consideration of $78 million. 

1. See Non-IFRS measures.  

Total revenue for the quarter ended June 30, 2020 was $922 million, an increase of 9%, or $76 million, compared to $846 million for the comparable period in 2019.  For the first six months of 2020 total revenues were $1,875 million, an increase of 13%, or $210 million, compared to $1,665 million for the comparable period in 2019.  The increase for both the three and six 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 negative 8% and negative 5% respectively, negative 7% and negative 4% 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.

Net income for the quarter ended June 30, 2020 was $83 million compared to net income of $73 million for the same period in 2019.  On a per share basis, this translated into a net income per diluted share of $3.90 in the quarter ended June 30, 2020 compared to net income per diluted share of $3.45 for the same period in 2019.  For the six months ended June 30, 2020, net income was $166 million or $7.81 per diluted share compared to $160 million or $7.54 per diluted share for the same period in 2019.

For the quarter ended June 30, 2020, CFO increased $186 million to $237 million compared to $50 million for the same period in 2019 representing an increase of 370%.  For the first six months of 2020, CFO increased $263 million to $597 million compared to $334 million during the same period in 2019, representing an increase of 79%. 

For the quarter ended June 30, 2020, FCFA2S increased $178 million to $190 million compared to $12 million for the same period in 2019.  For the first six months of 2020, FCFA2S increased $238 million to $501 million compared to $263 million during the same period in 2019, representing an increase of 91%.   

CFO and FCFA2S for the three and six months ended June 30, 2020 were positively impacted by the deferral of approximately $29 million of tax instalment payments to the second half of 2020 in conjunction with certain government’s COVID-19 relief programs.

The Company is closely monitoring the impact of COVID-19 on all aspects of its business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. The COVID-19 pandemic has had disruptive effects in countries in which the Company operates and has adversely impacted many of its business units’ operations to date, including through the cancellation by certain customers of their ongoing software maintenance contracts and the suspension or cancellation of new software purchases.  The pandemic may also have an adverse impact on many of the Company’s customers, including their ability to satisfy ongoing payment obligations to the Company, which could increase the Company’s bad debt exposure. The future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may continue to adversely affect the Company’s results of operations, cash flows and financial position as well as its customers in future periods, and this impact could be material.

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

Free cash flow available to shareholders ‘‘FCFA2S’’ refers to net cash flows from operating activities less interest paid on lease obligations, interest paid on other facilities, credit facility transaction costs, repayments of lease obligations, the TSS membership liability revaluation charge, and property and equipment purchased, and includes interest and dividends received.  Constellation believes that FCFA2S is useful supplemental information as it provides an indication of the uncommitted cash flow that is available to shareholders if Constellation does not make any acquisitions, or investments, and does not repay any debts.  While Constellation could use the FCFA2S to pay dividends or repurchase shares, Constellation’s objective is to invest all of our FCFA2S in acquisitions which meet Constellation’s hurdle rate.

FCFA2S is not a recognized measure under IFRS and, accordingly, readers are cautioned that FCFA2S should not be construed as an alternative to net cash flows from operating activities. 

The following table reconciles FCFA2S to net cash flows from operating activities:

			Three months ended June 30,							Six months ended June 30,
			2020		2019					2020		2019
		($ in millions, except percentages)							($ in millions, except percentages)
Net cash flows from operating activities			237		50					597		334
Adjusted for:
Interest paid on lease obligations			(2	)	(2	)				(4	)	(4	)
Interest paid on other facilities			(5	)	(7	)				(14	)	(15	)
Credit facility transaction costs			(0	)	-					(0	)	-
Payments of lease obligations			(16	)	(13	)				(30	)	(23	)
TSS membership liability revaluation charge			(17	)	(8	)				(35	)	(18	)
Property and equipment purchased			(6	)	(8	)				(13	)	(15	)
Interest and dividends received			0		0					0		3
Free cash flow available to shareholders			190		12					501		263
Due to rounding, certain totals may not foot.

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
[phone]
[e-mail]
www.csisoftware.com

SOURCE: CONSTELLATION SOFTWARE INC.

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Financial Position
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
Unaudited
									June 30, 2020			December 31, 2019			June 30, 2019
Assets
Current assets:
	Cash								$	585		$	316		$	214
	Accounts receivable									393			422			368
	Unbilled revenue									103			110			105
	Inventories									32			31			45
	Other assets									207			184			183
										1,319			1,062			915
Non-current assets:
	Property and equipment									78			78			69
	Right of use assets									241			234			211
	Deferred income taxes									45			45			48
	Other assets									73			72			66
	Intangible assets									2,011			1,997			1,621
										2,448			2,425			2,014
Total assets									$	3,767		$	3,488		$	2,929
Liabilities and Shareholders' Equity
Current liabilities:
	CSI facility								$	98		$	63		$	-
	Debt without recourse to Constellation Software Inc.									3			57			11
	TSS membership liability									93			86			69
	Accounts payable and accrued liabilities									480			529			400
	Dividends payable									21			21			22
	Deferred revenue									938			788			802
	Provisions									10			13			17
	Acquisition holdback payables									72			76			53
	Lease obligations									67			62			54
	Income taxes payable									95			36			25
										1,879			1,732			1,452
Non-current liabilities:
	Debt without recourse to Constellation Software Inc.									159			153			106
	TSS membership liability									164			136			121
	Debentures									210			222			222
	Deferred income taxes									243			246			202
	Acquisition holdback payables									29			25			15
	Lease obligations									193			187			170
	Other liabilities									98			101			76
										1,095			1,069			913
Total liabilities										2,974			2,800			2,365
Shareholders' equity:
	Capital stock									99			99			99
	Accumulated other comprehensive income (loss)									(57)			(40)			(32)
	Retained earnings									752			628			497
										794			687			564
Total liabilities and shareholders' equity									$	3,767		$	3,488		$	2,929

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Income
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
Three and six months ended June 30, 2020 and 2019
Unaudited
							Three months ended June 30,								Six months ended June 30,
								2020				2019				2020				2019
Revenue
License							$	51			$	61			$	108			$	113
Professional services								170				164				347				322
Hardware and other								35				41				77				77
Maintenance and other recurring								666				581				1,342				1,152
								922				846				1,875				1,665
Expenses
Staff								480				437				990				882
Hardware								22				22				45				43
Third party license, maintenance and professional services								77				73				156				142
Occupancy								8				9				17				17
Travel, telecommunications, supplies, software and equipment								31				49				82				93
Professional fees								13				11				26				22
Other, net								0				15				5				36
Depreciation								25				21				51				42
Amortization of intangible assets								96				75				190				151
								752				713				1,562				1,428
Foreign exchange loss (gain)								10				13				4				15
TSS membership liability revaluation charge								17				8				35				18
Finance and other expense (income)								(1	)			(0	)			(2	)			(3	)
Bargain purchase gain								(0	)			-				(0	)			(28	)
Impairment of intangible and other non-financial assets								4				-				8				-
Finance costs								10				9				22				18
								39				30				67				19
Income before income taxes								131				103				246				218
Current income tax expense (recovery)								70				42				115				78
Deferred income tax expense (recovery)								(22	)			(12	)			(34	)			(20	)
Income tax expense (recovery)								48				30				80				58
Net income								83				73				166				160
Earnings per share
Basic and diluted							$	3.90			$	3.45			$	7.81			$	7.54

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Comprehensive Income
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
Three and six months ended June 30, 2020 and 2019
Unaudited
							Three months ended June 30,						Six months ended June 30,
								2020			2019			2020				2019
Net income							$	83		$	73		$	166			$	160
Items that are or may be reclassified subsequently to net income:
Foreign currency translation differences from foreign operations								13			8			(17	)			4
Deferred income tax recovery (expense)								-			-			-				-
Other comprehensive (loss) income for the period, net of income tax								13			8			(17	)			4
Total comprehensive income (loss) for the period							$	96		$	81		$	149			$	164

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
Unaudited
Six months ended June 30, 2020
			Capital stock		Accumulated other comprehensive income (loss)			Retained earnings			Total
					Cumulative translation account
Balance at January 1, 2020			$	99	$	(40	)	$	628		$	687
Total comprehensive income for the period:
Net income				-		-			166			166
Other comprehensive income (loss)
Foreign currency translation differences from
	foreign operations			-		(17	)		-			(17	)
Total other comprehensive income (loss)
	for the period			-		(17	)		-			(17	)
Total comprehensive income (loss) for the period				-		(17	)		166			149
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company				-		-			(42	)		(42	)
Balance at June 30, 2020			$	99	$	(57	)	$	752		$	794

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Changes in Equity
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
Unaudited
Six months ended June 30, 2019
			Capital stock		Accumulated other comprehensive income (loss)			Retained earnings			Total
					Cumulative translation account
Balance at January 1, 2019			$	99	$	(37	)	$	804		$	866
Total comprehensive income for the period:
Net income				-		-			160			160
Other comprehensive income (loss)
Foreign currency translation differences from
	foreign operations			-		4			-			4
Total other comprehensive income (loss) for the period				-		4			-			4
Total comprehensive income for the period				-		4			160			164
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company				-		-			(466	)		(466	)
Balance at June 30, 2019			$	99	$	(32	)	$	497		$	564

 

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Cash Flows
(In millions of U.S. dollars, except per share amounts.  Due to rounding, numbers presented may not foot.)
Three and six months ended June 30, 2020 and 2019
Unaudited
								Three months ended June 30,								Six months ended June 30,
									2020				2019				2020				2019
Cash flows from operating activities:
	Net income							$	83			$	73			$	166			$	160
	Adjustments for:
		Depreciation							25				21				51				42
		Amortization of intangible assets							96				75				190				151
		TSS membership liability revaluation charge							17				8				35				18
		Finance and other expense (income)							(1	)			(0	)			(2	)			(3	)
		Bargain purchase (gain)							(0	)			-				(0	)			(28	)
		Impairment of intangible and other non-financial assets							4				-				8				-
		Finance costs							10				9				22				18
		Income tax expense (recovery)							48				30				80				58
		Foreign exchange loss (gain)							10				13				4				15
	Change in non-cash operating assets and liabilities
		exclusive of effects of business combinations							(35	)			(130	)			100				(7	)
	Income taxes paid								(19	)			(49	)			(57	)			(88	)
	Net cash flows from operating activities								237				50				597				334
Cash flows from (used in) financing activities:
	Interest paid on lease obligations								(2	)			(2	)			(4	)			(4	)
	Interest paid on other facilities								(5	)			(7	)			(14	)			(15	)
	Increase (decrease) in CSI facility								100				-				35				-
	Increase (decrease) in revolving credit under debt facilities without recourse to CSI								-				11				(55	)			(40	)
	Proceeds from issuance of term debt under facilities without recourse to CSI								15				-				15				-
	Repayments of term debt under facilities without recourse to CSI								(3	)			(1	)			(4	)			(1	)
	Credit facility transaction costs								(0	)			-				(0	)			-
	Payments of lease obligations								(16	)			(13	)			(30	)			(23	)
	Distribution to TSS minority owners								-				-				-				(11	)
	Dividends paid								(21	)			(445	)			(42	)			(466	)
	Net cash flows from (used in) in financing activities								67				(457	)			(100	)			(560	)
Cash flows from (used in) investing activities:
	Acquisition of businesses								(68	)			(82	)			(175	)			(130	)
	Cash obtained with acquired businesses								10				10				24				35
	Post-acquisition settlement payments, net of receipts								(23	)			(12	)			(55	)			(37	)
	Purchases of other investments								(1	)			(6	)			(2	)			(6	)
	Interest, dividends and other proceeds received								1				1				1				3
	Property and equipment purchased								(6	)			(8	)			(13	)			(15	)
	Net cash flows from (used in) investing activities								(87	)			(97	)			(220	)			(149	)
Effect of foreign currency on
	cash and cash equivalents								5				1				(9	)			0
Increase (decrease) in cash									221				(503	)			269				(375	)
Cash, beginning of period									364				717				316				589
Cash, end of period								$	585			$	214				585				214