CSU Constellation Software Inc

Constellation Software Inc. (TSX:CSU) (“Constellation” or the “Company”) today announced its financial results for the third quarter ended September 30, 2020 and declared a $1.00 per share dividend payable on January 11, 2021 to all common shareholders of record at close of business on December 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 nine months ended September 30, 2020 and the accompanying notes, our Management Discussion and Analysis for the three and nine months ended September 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 remains inspired by the dedication and commitment of the Constellation employees who continue to adapt and find new ways to provide value and make a difference in support of each other and our customers by finding opportunities in the challenges created by COVID-19.

Q3 2020 Headlines:

• Revenue grew 15% (negative 1% organic growth, negative 3% after adjusting for changes in foreign exchange rates) to $1,003 million compared to $870 million in Q3 2019.  
• Net income increased 50% to $122 million ($5.76 on a diluted per share basis) from $82 million ($3.85 on a diluted per share basis) in Q3 2019.
• Impairment of intangible and other non-financial assets was $3 million in Q3 2020 versus nil in Q3 2019.
• A number of acquisitions were completed for aggregate cash consideration of $123 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $25 million resulting in total consideration of $148 million.
• Cash flows from operations (“CFO”) were $234 million, an increase of 32%, or $57 million, compared to $177 million for the comparable period in 2019.
• Free cash flow available to shareholders1 (“FCFA2S”) increased $47 million to $181 million compared to $134 million for the same period in 2019.
• The Company determined that certain of its subsidiaries qualified for an estimated aggregate amount of $12 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 September 30, 2020, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $47 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $19 million resulting in total consideration of $66 million.

1.  See Non-IFRS measures. 

Total revenue for the quarter ended September 30, 2020 was $1,003 million, an increase of 15%, or $133 million, compared to $870 million for the comparable period in 2019. For the first nine months of 2020 total revenues were $2,878 million, an increase of 14%, or $343 million, compared to $2,534 million for the comparable period in 2019. 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 1% and negative 4% respectively, and negative 3% for both periods 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 September 30, 2020 was $122 million compared to net income of $82 million for the same period in 2019. On a per share basis, this translated into a net income per diluted share of $5.76 in the quarter ended September 30, 2020 compared to net income per diluted share of $3.85 for the same period in 2019. For the nine months ended September 30, 2020, net income was $288 million or $13.58 per diluted share compared to $241 million or $11.39 per diluted share for the same period in 2019.

For the quarter ended September 30, 2020, CFO increased $57 million to $234 million compared to $177 million for the same period in 2019 representing an increase of 32%. For the first nine months of 2020, CFO increased $320 million to $831 million compared to $512 million during the same period in 2019, representing an increase of 62%.

For the quarter ended September 30, 2020, FCFA2S increased $47 million to $181 million compared to $134 million for the same period in 2019.   For the first nine months of 2020, FCFA2S increased $285 million to $682 million compared to $397 million during the same period in 2019, representing an increase of 72%.

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 September 30,							Nine months ended September 30,
			2020		2019					2020		2019
		($ in millions, except percentages)							($ in millions, except percentages)
Net cash flows from operating activities			234		177					831		512
Adjusted for:
Interest paid on lease obligations			(2	)	(2	)				(6	)	(5	)
Interest paid on other facilities			(8	)	(8	)				(22	)	(23	)
Credit facility transaction costs			(0	)	(0	)				(0	)	(0	)
Payments of lease obligations			(17	)	(12	)				(47	)	(35	)
TSS membership liability revaluation charge			(20	)	(12	)				(55	)	(30	)
Property and equipment purchased			(5	)	(9	)				(19	)	(24	)
Interest and dividends received			0		0					1		3
Free cash flow available to shareholders			181		134					682		397
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 BakshChief Financial Officer (416) 861-9677 info@csisoftware.com 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, 2020			December 31, 2019			September 30, 2019
Assets
Current assets:
	Cash		$	565		$	316		$	235
	Accounts receivable			420			422			390
	Unbilled revenue			102			110			106
	Inventories			30			31			43
	Other assets			217			184			182
				1,333			1,062			956
Non-current assets:
	Property and equipment			80			78			70
	Right of use assets			239			234			220
	Deferred income taxes			50			45			38
	Other assets			79			72			71
	Intangible assets			2,097			1,997			1,882
				2,546			2,425			2,281
Total assets			$	3,879		$	3,488		$	3,237
Liabilities and Shareholders' Equity
Current liabilities:
	CSI facility		$	-		$	63		$	21
	Debt without recourse to Constellation Software Inc.			4			57			99
	TSS membership liability			104			86			84
	Accounts payable and accrued liabilities			535			529			454
	Dividends payable			21			21			21
	Deferred revenue			917			788			790
	Provisions			11			13			14
	Acquisition holdback payables			71			76			77
	Lease obligations			68			62			57
	Income taxes payable			90			36			30
				1,821			1,732			1,646
Non-current liabilities:
	Debt without recourse to Constellation Software Inc. (note 8)			169			153			115
	TSS membership liability			184			136			110
	Debentures			213			222			219
	Deferred income taxes			253			246			241
	Acquisition holdback payables			30			25			22
	Lease obligations			191			187			179
	Other liabilities			116			101			93
				1,155			1,069			978
Total liabilities				2,976			2,800			2,624
Shareholders' equity:
	Capital stock			99			99			99
	Accumulated other comprehensive income (loss)			(49	)		(40	)		(44	)
	Retained earnings			852			628			558
				902			687			613
Total liabilities and shareholders' equity			$	3,879		$	3,488		$	3,237

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 nine months ended September 30, 2020 and 2019
Unaudited
		Three months ended September 30,								Nine months ended September 30,
			2020				2019				2020				2019
Revenue
License		$	57			$	51			$	166			$	165
Professional services			187				164				534				485
Hardware and other			45				45				122				122
Maintenance and other recurring			713				609				2,056				1,762
			1,003				870				2,878				2,534
Expenses
Staff			504				434				1,493				1,316
Hardware			25				25				70				68
Third party license, maintenance and professional services			82				75				237				218
Occupancy			9				9				26				26
Travel, telecommunications, supplies, software and equipment			32				50				114				143
Professional fees			15				12				41				34
Other, net			5				18				10				53
Depreciation			26				23				77				65
Amortization of intangible assets			103				84				293				234
			800				730				2,362				2,158
Foreign exchange loss (gain)			1				6				5				20
TSS membership liability revaluation charge			20				12				55				30
Finance and other expense (income)			(2	)			1				(4	)			(2	)
Bargain purchase gain			(0	)			(7	)			(0	)			(36	)
Impairment of intangible and other non-financial assets			3				-				11				-
Finance costs			13				11				34				29
			34				22				101				41
Income before income taxes			168				117				414				335
Current income tax expense (recovery)			62				44				177				121
Deferred income tax expense (recovery)			(16	)			(8	)			(50	)			(28	)
Income tax expense (recovery)			46				36				127				94
Net income			122				82				288				241
Earnings per share
Basic and diluted		$	5.76			$	3.85			$	13.58			$	11.39

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 nine months ended September 30, 2020 and 2019
Unaudited
		Three months ended September 30,							Nine months ended September 30,
			2020			2019				2020				2019
Net income		$	122		$	82			$	288			$	241
Items that are or may be reclassified subsequently to net income:
Foreign currency translation differences from foreign operations			8			(12	)			(9	)			(7	)
Deferred income tax recovery (expense)			-			-				-				-
Other comprehensive income (loss) for the period, net of income tax			8			(12	)			(9	)			(7	)
Total comprehensive income (loss) for the period		$	130		$	70			$	279			$	234

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
Nine months ended September 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			-			-				288			288
Other comprehensive income (loss)
Foreign currency translation differences from
foreign operations			-			(9	)			-			(9	)
Total other comprehensive income (loss)
for the period			-			(9	)			-			(9	)
Total comprehensive income (loss) for the period			-			(9	)			288			279
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company			-			-				(64	)		(64	)
Balance at September 30, 2020		$	99		$	(49	)		$	852		$	902

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
Nine months ended September 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			-			-				241				241
Other comprehensive income (loss)
Foreign currency translation differences from
foreign operations			-			(7	)			-				(7	)
Total other comprehensive income (loss) for the period			-			(7	)			-				(7	)
Total comprehensive income for the period			-			(7	)			241				234
Transactions with owners, recorded directly in equity
Dividends to shareholders of the Company			-			-				(487	)			(487	)
Balance at September 30, 2019		$	99		$	(44	)		$	558			$	613

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 nine months ended September 30, 2020 and 2019
Unaudited
				Three months ended September 30,								Nine months ended September 30,
					2020				2019				2020				2019
Cash flows from operating activities:
	Net income			$	122			$	82			$	288			$	241
	Adjustments for:
		Depreciation			26				23				77				65
		Amortization of intangible assets			103				84				293				234
		TSS membership liability revaluation charge			20				12				55				30
		Finance and other expense (income)			(2	)			1				(4	)			(2	)
		Bargain purchase (gain)			(0	)			(7	)			(0	)			(36	)
		Impairment of intangible and other non-financial assets			3				-				11				-
		Finance costs			13				11				34				29
		Income tax expense (recovery)			46				36				127				94
		Foreign exchange loss (gain)			1				6				5				20
	Change in non-cash operating assets and liabilities
	exclusive of effects of business combinations				(32	)			(37	)			69				(44	)
	Income taxes paid				(66	)			(32	)			(123	)			(119	)
	Net cash flows from (used in) operating activities				234				177				831				512
Cash flows from (used in) financing activities:
	Interest paid on lease obligations				(2	)			(2	)			(6	)			(5	)
	Interest paid on other facilities				(8	)			(8	)			(22	)			(23	)
	Increase (decrease) in CSI facility				(100	)			22				(65	)			22
	Increase (decrease) in revolving credit under debt facilities without recourse to CSI				-				89				(55	)			49
	Proceeds from issuance of term debt under facilities without recourse to CSI				7				11				22				11
	Repayments of term debt under facilities without recourse to CSI				(1	)			(0	)			(5	)			(2	)
	Credit facility transaction costs				(0	)			(0	)			(0	)			(0	)
	Payments of lease obligations				(17	)			(12	)			(47	)			(35	)
	Distribution to TSS minority owners				-				-				-				(11	)
	Dividends paid				(21	)			(21	)			(64	)			(487	)
	Net cash flows from (used in) in financing activities				(143	)			79				(242	)			(481	)
Cash flows from (used in) investing activities:
	Acquisition of businesses				(123	)			(278	)			(298	)			(408	)
	Cash obtained with acquired businesses				31				68				55				103
	Post-acquisition settlement payments, net of receipts				(24	)			(8	)			(79	)			(45	)
	Purchases of other investments				-				(4	)			(2	)			(9	)
	Interest, dividends and other proceeds received				1				2				2				5
	Property and equipment purchased				(5	)			(9	)			(19	)			(24	)
	Net cash flows from (used in) investing activities				(120	)			(228	)			(340	)			(378	)
Effect of foreign currency on
	cash and cash equivalents				8				(7	)			(1	)			(6	)
Increase (decrease) in cash					(21	)			21				249				(354	)
Cash, beginning of period					585				214				316				589
Cash, end of period				$	565			$	235				565				235