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

Constellation Software Inc.

TORONTO, Aug. 04, 2022 (GLOBE NEWSWIRE) -- Constellation Software Inc. (TSX:CSU) (“Constellation” or the “Company”) today announced its financial results for the second quarter ended June 30, 2022 and declared a $1.00 per share dividend payable on October 11, 2022 to all common shareholders of record at close of business on September 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 six months ended June 30, 2022 and the accompanying notes, our Management Discussion and Analysis for the three and six months ended June 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

Q2 2022 Headlines:

• Revenue grew 30% (negative 2% organic growth, 2% after adjusting for changes in foreign exchange rates) to $1,618 million compared to $1,249 million in Q2 2021.

• Net income attributable to common shareholders increased 43% to $126 million ($5.94 on a diluted per share basis) from $88 million ($4.16 on a diluted per share basis) in Q2 2021.

• A number of acquisitions were completed for aggregate cash consideration of $1,000 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $62 million resulting in total consideration of $1,062 million.

• Cash flows from operations (“CFO”) were $78 million, a decrease of 55%, or $93 million, compared to $171 million for the comparable period in 2021.

• Free cash flow available to shareholders¹ (“FCFA2S”) decreased $133 million to $12 million compared to $145 million for the same period in 2021.

• Subsequent to June 30, 2022, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $134 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $30 million resulting in total consideration of $164 million.

Total revenue for the quarter ended June 30, 2022 was $1,618 million, an increase of 30%, or $370 million, compared to $1,249 million for the comparable period in 2021. For the first six months of 2022 total revenues were $3,050 million, an increase of 26%, or $625 million, compared to $2,425 million for the comparable period in 2021. 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 2% and negative 1% respectively, 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.

The Net income attributable to common shareholders of CSI for the quarter ended June 30, 2021 was $126 million compared to net income of $88 million for the same period in 2021. On a per share basis this translated into a net income per diluted share of $5.94 in the quarter ended June 30, 2022 compared to net income per diluted share of $4.16 for the same period in 2021. For the six months ended June 30, 2022, net income attributable to common shareholders of CSI was $224 million or $10.58 per diluted share compared to $80 million or $3.76 per diluted share for the same period in 2021.

For the quarter ended June 30, 2022, CFO decreased $93 million to $78 million compared to $171 million for the same period in 2021 representing a decrease of 55%. For the first six months of 2022, CFO decreased $91 million to $576 million compared to $667 million during the same period in 2021, representing a decrease of 14%. The primary reason for the decline in CFO for the three and six months ended June 30, 2022 is the impact of changes in non-cash operating assets and liabilities exclusive of effects of business combinations. For the three and six months ended June 30, 2022 there was $188 million and $18 million of cash used in non-cash operating working capital respectively compared to $99 million of cash used and $100 million of cash generated from non-cash operating working capital for the same periods in 2021. There are many reasons contributing to the non-cash operating working capital impact variance none of which are indicative of an underlying concern with the Company’s overall non-cash operating working capital balance. Specifically, no concerns with accounts receivable or unbilled revenue aging. In addition, income taxes paid increased 50% or $49 million for the quarter ended June 30, 2022 and 28% or $41 million for the six months ended June 30, 2022 over the same periods in 2021.

For the quarter ended June 30, 2022, FCFA2S decreased $133 million to $12 million compared to $145 million for the same period in 2021. For the first six months of 2022, FCFA2S decreased $79 million to $335 million compared to $413 million during the same period in 2021, representing a decrease of 19%. 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 June 30,							Six months ended June 30,
			2022		2021					2022		2021
		($ in millions, except percentages)							($ in millions, except percentages)
Net cash flows from operating activities			78		171					576		667
Adjusted for:
Interest paid on lease obligations			(3	)	(2	)				(5	)	(5	)
Interest paid on other facilities			(16	)	(9	)				(26	)	(18	)
Credit facility transaction costs			(2	)	(2	)				(3	)	(4	)
Payments of lease obligations			(23	)	(20	)				(45	)	(41	)
IRGA / TSS membership liability revaluation charge			(29	)	(22	)				(56	)	(82	)
Property and equipment purchased			(12	)	(7	)				(19	)	(11	)
Interest and dividends received			0		1					0		1
			(7	)	110					422		507
Less amount attributable to
Non-controlling interests			18		35					(87	)	(94	)
Free cash flow available to shareholders			12		145					335		413
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
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
									June 30, 2022			December 31, 2021			June 30, 2021
Assets
Current assets:
	Cash								$	676		$	763		$	851
	Accounts receivable									776			600			505
	Unbilled revenue									236			140			137
	Inventories									46			35			28
	Other assets									511			296			271
										2,244			1,835			1,792
Non-current assets:
	Property and equipment									129			93			93
	Right of use assets									292			245			263
	Deferred income taxes									97			66			58
	Other assets									145			99			86
	Intangible assets									4,515			3,428			3,000
										5,178			3,931			3,499
Total assets									$	7,421		$	5,766		$	5,291
Liabilities and Shareholders' Equity
Current liabilities:
	Debt with recourse to Constellation Software Inc.								$	389		$	143		$	131
	Debt without recourse to Constellation Software Inc.									206			60			41
	Redeemable preferred securities									-			7			7
	Accounts payable and accrued liabilities									892			832			671
	Dividends payable									21			22			21
	Deferred revenue									1,669			1,158			1,222
	Provisions									10			11			13
	Acquisition holdback payables									142			94			78
	Lease obligations									91			79			80
	Income taxes payable									77			56			67
										3,497			2,461			2,332
Non-current liabilities:
	Debt with recourse to Constellation Software Inc.									541			561			548
	Debt without recourse to Constellation Software Inc.									746			354			327
	Deferred income taxes									476			436			372
	Acquisition holdback payables									62			68			43
	Lease obligations									225			190			209
	Other liabilities									203			175			139
										2,254			1,784			1,637
Total liabilities										5,751			4,245			3,969
Shareholders' equity:
	Capital stock									99			99			99
	Other equity									-			(179	)		(162	)
	Accumulated other comprehensive income (loss)									(147	)		(66	)		(56	)
	Retained earnings									1,514			1,206			1,017
	Non-controlling interests									204			460			423
										1,670			1,521			1,322
Total liabilities and shareholders' equity									$	7,421		$	5,766		$	5,291

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 June 30,								Six months ended June 30,
								2022				2021				2022				2021
Revenue
License							$	72			$	71			$	141			$	137
Professional services								340				254				610				491
Hardware and other								50				43				97				82
Maintenance and other recurring								1,156				880				2,201				1,714
								1,618				1,249				3,050				2,425
Expenses
Staff								873				665				1,656				1,306
Hardware								29				23				56				45
Third party license, maintenance and professional services								153				109				276				205
Occupancy								12				10				23				19
Travel, telecommunications, supplies, software and equipment								80				44				135				83
Professional fees								28				17				52				32
Other, net								32				14				68				19
Depreciation								35				30				67				59
Amortization of intangible assets								168				124				314				242
								1,411				1,035				2,647				2,010
Foreign exchange loss (gain)								(42	)			15				(42	)			2
IRGA/TSS Membership liability revaluation charge								29				22				56				82
Finance and other expense (income)								18				(2	)			15				(4	)
Bargain purchase gain								(0	)			0				(1	)			0
Impairment of intangible and other non-financial assets								0				2				1				5
Redeemable preferred securities expense (income)								-				32				-				295
Finance costs								25				17				44				32
								30				86				74				413
Income (loss) before income taxes								177				128				328				2
Current income tax expense (recovery)								110				75				209				138
Deferred income tax expense (recovery)								(67	)			(25	)			(126	)			(39	)
Income tax expense (recovery)								43				50				83				99
Net income (loss)								134				78				245				(97	)
Net income (loss) attributable to:
Common shareholders of Constellation Software Inc.								126				88				224				80
Non-controlling interests								8				(11	)			21				(177	)
Net income (loss)								134				78				245				(97	)
Earnings per common share of Constellation Software Inc.
Basic and diluted							$	5.94			$	4.16			$	10.58			$	3.76

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 June 30,								Six months ended June 30,
								2022				2021				2022				2021
Net income (loss)							$	134			$	78			$	245			$	(97	)
Items that are or may be reclassified subsequently to net income (loss):
Foreign currency translation differences from foreign operations and other, net of tax								(96	)			5				(91	)			(18	)
Other comprehensive income (loss) for the period, net of income tax								(96	)			5				(91	)			(18	)
Total comprehensive income (loss) for the period							$	38			$	83			$	154			$	(115	)
Total other comprehensive income (loss) attributable to:
Common shareholders of Constellation Software Inc.								(85	)			11				(76	)			(6	)
Non-controlling interests								(11	)			(6	)			(15	)			(11	)
Total other comprehensive income (loss)							$	(96	)		$	5			$	(91	)		$	(18	)
Total comprehensive income (loss) attributable to:
Common shareholders of Constellation Software Inc.								41				99				148				73
Non-controlling interests								(3	)			(16	)			6				(188	)
Total comprehensive income (loss)							$	38			$	83			$	154			$	(115	)

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
Six months ended June 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)				-		-			-			224			224			21			245
Other comprehensive income (loss)
Foreign currency translation differences from
	foreign operations and other, net of tax			-		-			(76	)		-			(76	)		(15	)		(91	)
Total other comprehensive income (loss)
	for the period			-		-			(76	)		-			(76	)		(15	)		(91	)
Total comprehensive income (loss) for the period				-		-			(76	)		224			148			6			154
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				-		-			-			-			-			40			40
Other movements in non-controlling interests				-		-			-			(1	)		(1	)		(1	)		(2	)
Dividends to shareholders of the Company				-		-			-			(42	)		(42	)		-			(42	)
Reclassification of other equity to retained earnings				-		(127	)		-			127			-			-			-
Balance at June 30, 2022			$	99	$	-		$	(147	)	$	1,514		$	1,466		$	204		$	1,670

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
Six months ended June 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)				-		-			-			80			80			(177	)		(97	)
Other comprehensive income (loss)
Foreign currency translation differences from
	foreign operations and other, net of tax			-		-			(6	)		-			(6	)		(11	)		(18	)
Total other comprehensive income (loss) for the period				-		-			(6	)		-			(6	)		(11	)		(18	)
Total comprehensive income (loss) for the period				-		-			(6	)		80			73			(188	)		(115	)
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			-			0			1			2			3
Dividends to shareholders of the Company				-		-			-			(42	)		(42	)		-			(42	)
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 June 30, 2021			$	99	$	(162	)	$	(56	)	$	1,017		$	899		$	423		$	1,322

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 June 30,								Six months ended June 30,
									2022				2021				2022				2021
Cash flows from (used in) operating activities:
	Net income (loss)							$	134			$	78			$	245			$	(97	)
	Adjustments for:
		Depreciation							35				30				67				59
		Amortization of intangible assets							168				124				314				242
		IRGA/TSS Membership liability revaluation charge							29				22				56				82
		Finance and other expense (income)							18				(2	)			15				(4	)
		Bargain purchase (gain)							(0	)			0				(1	)			0
		Impairment of intangible and other non-financial assets							0				2				1				5
		Redeemable preferred securities expense (income)							-				32				-				295
		Finance costs							25				17				44				32
		Income tax expense (recovery)							43				50				83				99
		Foreign exchange loss (gain)							(42	)			15				(42	)			2
	Change in non-cash operating assets and liabilities
		exclusive of effects of business combinations							(188	)			(99	)			(18	)			100
	Income taxes paid								(146	)			(97	)			(190	)			(149	)
	Net cash flows from (used in) operating activities								78				171				576				667
Cash flows from (used in) financing activities:
	Interest paid on lease obligations								(3	)			(2	)			(5	)			(5	)
	Interest paid on debt								(16	)			(9	)			(26	)			(18	)
	Increase (decrease) in CSI facility								237				-				237				-
	Increase (decrease) in Topicus revolving credit debt facility without recourse to CSI								48				6				105				12
	Proceeds from issuance of debt facilities without recourse to CSI								342				55				425				134
	Repayments of debt facilities without recourse to CSI								(6	)			(1	)			(13	)			(2	)
	Other financing activities								2				-				2				-
	Credit facility transaction costs								(2	)			(2	)			(3	)			(4	)
	Payments of lease obligations								(23	)			(20	)			(45	)			(41	)
	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	)			(42	)			(42	)
	Net cash flows from (used in) in financing activities								559				6				605				12
Cash flows from (used in) investing activities:
	Acquisition of businesses								(1,000	)			(292	)			(1,214	)			(606	)
	Cash obtained with acquired businesses								110				40				148				85
	Post-acquisition settlement payments, net of receipts								(26	)			(39	)			(59	)			(85	)
	Receipt of additional subscription amount from the sellers of Topicus.com B.V.								-				33				-				33
	Purchases of other investments								-				-				(96	)			(0	)
	Proceeds from sales of other investments								-				-				3				-
	Interest, dividends and other proceeds received								3				1				4				3
	Property and equipment purchased								(12	)			(7	)			(19	)			(11	)
	Net cash flows from (used in) investing activities								(924	)			(263	)			(1,233	)			(582	)
Effect of foreign currency on
	cash and cash equivalents								(33	)			5				(35	)			(4	)
Increase (decrease) in cash									(321	)			(81	)			(87	)			94
Cash, beginning of period								$	996			$	932			$	763			$	758
Cash, end of period								$	676			$	851			$	676			$	851