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Constellation Software Inc. Announces Results for the Third Quarter Ended September 30, 2022 and Declares Quarterly Dividend

TORONTO, Nov. 04, 2022 (GLOBE NEWSWIRE) — Constellation Software Inc. (TSX:CSU) (“Constellation” or the “Company”) today announced its financial results for the third quarter ended September 30, 2022 and declared a $1.00 per share dividend payable on January 11, 2023 to all common shareholders of record at close of business on December 20, 2022. 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, 2022 and the accompanying notes, our Management Discussion and Analysis for the three and nine months ended September 30, 2022 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, 2021, 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 2022 Headlines:

  • Revenue grew 33% (negative 3% organic growth, 2% after adjusting for changes in foreign exchange rates) to $1,725 million compared to $1,299 million in Q3 2021.
  • Net income attributable to common shareholders increased 28% to $136 million ($6.42 on a diluted per share basis) from $107 million ($5.04 on a diluted per share basis) in Q3 2021.
  • A number of acquisitions were completed for aggregate cash consideration of $207 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $61 million resulting in total consideration of $268 million.
  • Cash flows from operations (“CFO”) were $321 million, an increase of 10%, or $29 million, compared to $292 million for the comparable period in 2021.
  • Free cash flow available to shareholders1 (“FCFA2S”) increased $3 million to $229 million compared to $226 million for the same period in 2021.

Total revenue for the quarter ended September 30, 2022 was $1,725 million, an increase of 33%, or $426 million, compared to $1,299 million for the comparable period in 2021. For the first nine months of 2022 total revenues were $4,774 million, an increase of 28%, or $1,051 million, compared to $3,724 million for the comparable period in 2021. 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 negative 3% and negative 2% respectively, positive 2% 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. Organic growth is not a standardized financial measure and might not be comparable to measures disclosed by other issuers.

Net income attributable to common shareholders of CSI for the quarter ended September 30, 2022 was $136 million compared to $107 million for the same period in 2021. On a per share basis this translated into a net income per diluted share of $6.42 in the quarter ended September 30, 2022 compared to net income per diluted share of $5.04 for the same period in 2021. For the nine months ended September 30, 2022, net income attributable to common shareholders of CSI was $360 million or $16.99 per diluted share compared to $186 million or $8.79 per diluted share for the same period in 2021. There was no change in the number of shares outstanding.

For the quarter ended September 30, 2022, CFO increased $29 million to $321 million compared to $292 million for the same period in 2021 representing an increase of 10%. For the nine months ended September 30, 2022, CFO decreased $61 million to $897 million compared to $959 million for the same period in 2021 representing a decrease of 6%. The primary reasons for the decline in CFO for the nine months ended September 30, 2022 is that CFO includes the impact of changes in non-cash operating assets and liabilities exclusive of effects of business combinations or, changes in non-cash operating working capital (“NCOWC”), and income taxes paid. For the nine months ended September 30, 2022 there was $27 million of cash used in NCOWC compared to $53 million of cash generated from NCOWC for the same period in 2021. Cash used in NCOWC associated with the Company’s recently acquired Altera business unit was $32 million for the nine months ended September 30, 2022. There are many reasons contributing to the NCOWC impact variance for the Company, including Altera, none of which are indicative of an underlying concern with the overall NCOWC balance. Specifically, there are no concerns with accounts receivable or unbilled revenue aging. Income taxes paid increased 87% or $41 million for the quarter ended September 30, 2022 and 42% or $83 million for the nine months ended September 30, 2022 over the same periods in 2021. Approximate $50 million and $100 million cash tax payments were made in the three and nine month periods ending September 30, 2022 respectively relating to the deferral of R&E expenses associated with the Tax Cuts and Jobs Act.

For the quarter ended September 30, 2022, FCFA2S increased $3 million to $229 million compared to $226 million for the same period in 2021 representing an increase of 1%. For the nine months ended September 30, 2022, FCFA2S decreased $76 million to $563 million compared to $639 million for the same period in 2021 representing a decrease of 12%. The items negatively impacting CFO summarized above are the same items negatively impacting FCFA2S. On February 1, 2022, the Topicus Preferred Shares and Topicus Coop Preference Units were converted to Topicus Subordinate Voting Shares and Topicus Coop Ordinary Units respectively. As a result of this conversion the non-controlling interest in Topicus.com Inc. decreased from approximately 70% to 39%.

1. See Non-IFRS measures.

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 IRGA / TSS membership liability revaluation charge, and property and equipment purchased, and includes interest and dividends received. The portion of this amount applicable to non-controlling interests is then deducted. We believe that FCFA2S is useful supplemental information as it provides an indication of the uncommitted cash flow that is available to shareholders if we do not make any acquisitions, or investments, and do not repay any debts. While we could use the FCFA2S to pay dividends or repurchase shares, our objective is to invest all of our FCFA2S in acquisitions which meet our 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 September 30,       Nine months ended September 30,  
      2022 2021       2022 2021  
    ($ in millions)   ($ in millions)
                     
Net cash flows from operating activities     321   292         897   959    
Adjusted for:                    
Interest paid on lease obligations     (3 ) (2 )       (8 ) (7 )  
Interest paid on other facilities     (23 ) (12 )       (49 ) (30 )  
Credit facility transaction costs     (0 ) (0 )       (3 ) (4 )  
Payments of lease obligations     (24 ) (21 )       (69 ) (61 )  
IRGA / TSS membership liability revaluation charge     (33 ) (25 )       (89 ) (107 )  
Property and equipment purchased     (8 ) (7 )       (27 ) (18 )  
Interest and dividends received     0   1         0   1    
                     
      230   226         652   732    
Less amount attributable to                    
Non-controlling interests     (1 ) 1         (89 ) (93 )  
                     
Free cash flow available to shareholders     229   226         563   639    
                     
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
(416) 861-9677
[email protected]
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        
      September 30, 2022   December 31, 2021   September 30, 2021  
           
Assets        
           
Current assets:        
  Cash   $ 665   $ 763   $ 961  
  Accounts receivable     744     600     512  
  Unbilled revenue     219     140     144  
  Inventories     46     35     32  
  Other assets     473     296     278  
        2,146     1,835     1,929  
           
Non-current assets:        
  Property and equipment     121     93     91  
  Right of use assets     274     245     252  
  Deferred income taxes     155     66     63  
  Other assets     160     99     94  
  Intangible assets   4,469     3,428     3,006  
        5,179     3,931     3,506  
           
Total assets   $ 7,325   $ 5,766   $ 5,434  
           
Liabilities and Shareholders’ Equity        
           
Current liabilities:        
  Debt with recourse to Constellation Software Inc.   $ 364   $ 143   $ 137  
  Debt without recourse to Constellation Software Inc.     234     60     54  
  Redeemable preferred securities         7     7  
  Accounts payable and accrued liabilities     917     832     720  
  Dividends payable     21     22     21  
  Deferred revenue     1,545     1,158     1,168  
  Provisions     9     11     11  
  Acquisition holdback payables     148     94     92  
  Lease obligations     89     79     81  
  Income taxes payable     99     56     86  
        3,425     2,461     2,377  
           
Non-current liabilities:        
  Debt with recourse to Constellation Software Inc.     522     561     550  
  Debt without recourse to Constellation Software Inc.     705     354     325  
  Deferred income taxes     465     436     393  
  Acquisition holdback payables     62     68     49  
  Lease obligations     206     190     195  
  Other liabilities     239     175     145  
        2,200     1,784     1,656  
           
Total liabilities     5,625     4,245     4,034  
           
           
Shareholders’ equity:        
  Capital stock     99     99     99  
  Other equity         (179 )   (162 )
  Accumulated other comprehensive income (loss)     (227 )   (66 )   (69 )
  Retained earnings     1,632     1,206     1,103  
  Non-controlling interests     196     460     429  
        1,700     1,521     1,401  
           
           
           
Total liabilities and shareholders’ equity   $ 7,325   $ 5,766   $ 5,434  
           

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Income (loss)
(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)
                 
             
Unaudited                
    Three months ended September 30,   Nine months ended September 30,
      2022       2021       2022       2021  
                 
                 
Revenue                
License   $ 79     $ 69     $ 220     $ 206  
Professional services     375       256       985       747  
Hardware and other     54       45       151       127  
Maintenance and other recurring     1,217       929       3,418       2,643  
      1,725       1,299       4,774       3,724  
                 
Expenses                
Staff     925       676       2,581       1,982  
Hardware     31       25       88       71  
Third party license, maintenance and professional services   167       113       443       317  
Occupancy     12       10       35       30  
Travel, telecommunications, supplies, software and equipment   80       46       215       129  
Professional fees     26       21       78       53  
Other, net     64       21       132       41  
Depreciation     38       31       105       90  
Amortization of intangible assets     177       134       491       376  
      1,521       1,077       4,167       3,087  
                 
                 
Foreign exchange loss (gain)     (57 )     (5 )     (98 )     (3 )
IRGA/TSS Membership liability revaluation charge   33       25       89       107  
Finance and other expense (income)     8       (4 )     24       (9 )
Bargain purchase gain     (3 )     (1 )     (4 )     (1 )
Impairment of intangible and other non-financial assets         1       1       7  
Redeemable preferred securities expense (income)                     295  
Finance costs     29       18       73       50  
      11       34       86       446  
                 
Income (loss) before income taxes     193       188       521       190  
                 
Current income tax expense (recovery)     113       70       322       209  
Deferred income tax expense (recovery)     (63 )     (4 )     (189 )     (43 )
Income tax expense (recovery)     50       67       133       166  
                 
Net income (loss)     143       121       388       24  
                 
Net income (loss) attributable to:                
Common shareholders of Constellation Software Inc.   136       107       360       186  
Non-controlling interests     7       15       28       (162 )
Net income (loss)     143       121       388       24  
                 
Earnings per common share of Constellation Software Inc.              
Basic and diluted   $ 6.42     $ 5.04     $ 16.99     $ 8.79  
                 

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statements of Comprehensive Income (loss)
(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)
                 
             
Unaudited                
    Three months ended September 30,   Nine months ended September 30,
      2022       2021       2022       2021  
                 
Net income (loss)   $ 143     $ 121     $ 388     $ 24  
                 
Items that are or may be reclassified subsequently to net income (loss):              
                 
Foreign currency translation differences from foreign operations and other, net of tax   (93 )     (21 )     (184 )     (39 )
                 
Other comprehensive income (loss) for the period, net of income tax   (93 )     (21 )     (184 )     (39 )
                 
Total comprehensive income (loss) for the period $ 50     $ 100     $ 204     $ (15 )
                 
Total other comprehensive income (loss) attributable to:                
Common shareholders of Constellation Software Inc.     (80 )     (13 )     (156 )     (19 )
Non-controlling interests     (13 )     (8 )     (27 )     (19 )
Total other comprehensive income (loss)   $ (93 )   $ (21 )   $ (184 )   $ (39 )
                 
Total comprehensive income (loss) attributable to:                
Common shareholders of Constellation Software Inc.     56       93       204       167  
Non-controlling interests     (6 )     7       1       (182 )
Total comprehensive income (loss)   $ 50     $ 100     $ 204     $ (15 )
                 

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statement of Changes in Equity
(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)
                 
Unaudited              
Nine months ended September 30, 2022              
    Equity Attributable to Common Shareholders of CSI    
    Capital stock
  Other equity Accumulated other comprehensive income (loss) Retained earnings
  Total
  Non-controlling interests
  Total equity
 
                 
Balance at January 1, 2022 $ 99   $ (179 ) $ (66 ) $ 1,206   $ 1,061     460   $ 1,521  
                 
Total comprehensive income (loss) for the period:              
                 
Net income (loss)               360     360     28     388  
                 
Other comprehensive income (loss)              
                 
Foreign currency translation differences from              
  foreign operations and other, net of tax           (156 )       (156 )   (27 )   (184 )
                 
Total other comprehensive income (loss)              
  for the period           (156 )       (156 )   (27 )   (184 )
                 
Total comprehensive income (loss) for the period           (156 )   360     204     1     204  
                 
Transactions with owners, recorded directly in equity              
                 
  Conversion of redeemable preferred securities to subordinate voting shares of Topicus.com Inc. and ordinary units of Topicus Coop and other related movements       305     (5 )       301     (301 )    
                 
  Non-controlling interests arising from business combinations                       41     41  
                 
  Other movements in non-controlling interests               2     2     (5 )   (2 )
                 
  Dividends to shareholders of the Company               (64 )   (64 )       (64 )
                 
  Reclassification of other equity to retained earnings       (127 )       127              
                 
Balance at September 30, 2022 $ 99   $   $ (227 ) $ 1,632   $ 1,504   $ 196   $ 1,700  
                 

CONSTELLATION SOFTWARE INC.
Condensed Consolidated Interim Statement of Changes in Equity
(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)
                 
Unaudited              
Nine months ended September 30, 2021              
                 
    Equity Attributable to Common Shareholders of CSI    
    Capital stock
  Other equity Accumulated other comprehensive income (loss) Retained earnings
  Total
  Non-controlling interests
  Total equity
 
                 
Balance at January 1, 2021 $ 99   $   $ (31 ) $ 980   $ 1,048   $   $ 1,048  
                 
Total comprehensive income (loss) for the period:              
                 
Net income (loss)               186     186     (162 )   24  
                 
Other comprehensive income (loss)              
                 
Foreign currency translation differences from              
  foreign operations and other, net of tax           (19 )       (19 )   (19 )   (39 )
                 
Total other comprehensive income (loss) for the period           (19 )       (19 )   (19 )   (39 )
                 
Total comprehensive income (loss) for the period           (19 )   186     167     (182 )   (15 )
                 
Transactions with owners, recorded directly in equity              
                 
  Special dividend of Topicus Subordinated Voting Shares       (141 )   (16 )       (157 )   157      
                 
  Issuance of Topicus Coop Ordinary Units to non-controlling interests       (21 )   (2 )       (23 )   23      
                 
  Net acquisition of non-controlling interest associated with acquisitions and other movements       1         1     1     1     3  
                 
  Dividends to shareholders of the Company               (64 )   (64 )       (64 )
                 
  Reclassification of Redeemable preferred securities of Topicus Coop from liabilities to non-controlling interest                     434     434  
                 
  Accrued dividends to preference unit holders of Topicus Coop                     (5 )   (5 )
                 
Balance at September 30, 2021 $ 99   $ (162 ) $ (69 ) $ 1,103   $ 972   $ 429   $ 1,401  
                 

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.)
                     
                     
Unaudited                
        Three months ended September 30,   Nine months ended September 30,
          2022       2021       2022       2021  
                     
Cash flows from (used in) operating activities:              
  Net income (loss)   $ 143     $ 121     $ 388     $ 24  
  Adjustments for:                
    Depreciation     38       31       105       90  
    Amortization of intangible assets   177       134       491       376  
    IRGA/TSS Membership liability revaluation charge   33       25       89       107  
    Finance and other expense (income)   8       (4 )     24       (9 )
    Bargain purchase (gain)   (3 )     (1 )     (4 )     (1 )
    Impairment of intangible and other non-financial assets           1       1       7  
    Redeemable preferred securities expense (income)                       295  
    Finance costs     29       18       73       50  
    Income tax expense (recovery)   50       67       133       166  
    Foreign exchange loss (gain)   (57 )     (5 )     (98 )     (3 )
  Change in non-cash operating assets and liabilities              
    exclusive of effects of business combinations   (8 )     (47 )     (27 )     53  
  Income taxes paid   (89 )     (48 )     (279 )     (196 )
  Net cash flows from (used in) operating activities   321       292       897       959  
                     
Cash flows from (used in) financing activities:              
  Interest paid on lease obligations     (3 )     (2 )     (8 )     (7 )
  Interest paid on debt     (23 )     (12 )     (49 )     (30 )
  Increase (decrease) in CSI facility     (32 )           205        
  Increase (decrease) in Topicus revolving credit debt facility without recourse to CSI   7       12       112       24  
  Proceeds from issuance of debt facilities without recourse to CSI   22       6       447       140  
  Repayments of debt facilities without recourse to CSI   (17 )     (2 )     (30 )     (4 )
  Other financing activities   3             4        
  Credit facility transaction costs   (0 )     (0 )     (3 )     (4 )
  Payments of lease obligations     (24 )     (21 )     (69 )     (61 )
  Distribution to the Joday Group                 (23 )     (22 )
  Dividends paid to redeemable preferred security holders                 (7 )      
  Dividends paid to common shareholders of the Company   (21 )     (21 )     (64 )     (64 )
  Net cash flows from (used in) in financing activities   (89 )     (41 )     516       (29 )
                     
Cash flows from (used in) investing activities:              
  Acquisition of businesses   (207 )     (130 )     (1,421 )     (736 )
  Cash obtained with acquired businesses     42       28       190       112  
  Post-acquisition settlement payments, net of receipts   (39 )     (16 )     (98 )     (101 )
  Receipt of additional subscription amount from the sellers of Topicus.com B.V.                       33  
  Purchases of other investments     (0 )     (14 )     (96 )     (15 )
  Proceeds from sales of other investments           8       3       8  
  Interest, dividends and other proceeds received   1       1       4       4  
  Property and equipment purchased   (8 )     (7 )     (27 )     (18 )
  Net cash flows from (used in) investing activities   (211 )     (131 )     (1,445 )     (713 )
                     
Effect of foreign currency on              
  cash and cash equivalents   (32 )     (10 )     (67 )     (13 )
                     
Increase (decrease) in cash   (11 )     110       (99 )     203  
                     
Cash, beginning of period $ 676     $ 851     $ 763     $ 758  
                     
Cash, end of period $ 665     $ 961     $ 665     $ 961  
                     

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