Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Toronto Stock Exchange  >  Constellation Software Inc.    CSU   CA21037X1006

CONSTELLATION SOFTWARE INC.

(CSU)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryAll NewsPress ReleasesOfficial PublicationsSector news

Constellation Software : Q2 2020 Financial Statements

share with twitter share with LinkedIn share with facebook
08/06/2020 | 05:09pm EDT

Condensed Consolidated Interim Financial Statements (In U.S. dollars)

CONSTELLATION

SOFTWARE INC.

For the three and six months ended June 30, 2020 and 2019 Unaudited

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 (note 5)

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 (note 5)

73

72

66

Intangible assets (note 6)

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 (note 7)

$

98

$

63

$

-

Debt without recourse to Constellation Software Inc. (note 8)

3

57

11

TSS membership liability (note 9)

93

86

69

Accounts payable and accrued liabilities

480

529

400

Dividends payable (note 13)

21

21

22

Deferred revenue

938

788

802

Provisions (note 11)

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. (note 8)

159

153

106

TSS membership liability (note 9)

164

136

121

Debentures (note 10)

210

222

222

Deferred income taxes

243

246

202

Acquisition holdback payables

29

25

15

Lease obligations

193

187

170

Other liabilities (note 5)

98

101

76

1,095

1,069

913

Total liabilities

2,974

2,800

2,365

Shareholders' equity (note 13):

Capital stock

99

99

99

Accumulated other comprehensive income (loss)

(57)

(40)

(32)

Retained earnings

752

628

497

794

687

564

Subsequent events (notes 13 and 20)

Total liabilities and shareholders' equity

$

3,767

$

3,488

$

2,929

See accompanying notes to the condensed consolidated interim financial statements.

1

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 (note 9)

17

8

35

18

Finance and other expense (income) (note 14)

(1)

(0)

(2)

(3)

Bargain purchase gain

(0)

-

(0)

(28)

Impairment of intangible and other non-financial assets

4

-

8

-

Finance costs (note 14)

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 (note 15)

$

3.90

$

3.45

$

7.81

$

7.54

See accompanying notes to the condensed consolidated interim financial statements.

2

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

See accompanying notes to the condensed consolidated interim financial statements.

3

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

Retained earnings

Total

income (loss)

Cumulative translation account

Balance at January 1, 2020

$

99

$

(40)

$

628

$

687

Total comprehensive income for the period:

Net income

-

Other comprehensive income (loss)

Foreign currency translation differences from

foreign operations

-

Total other comprehensive income (loss)

for the period

-

Total comprehensive income (loss) for the period

-

Transactions with owners, recorded directly in equity

Dividends to shareholders of the Company (note 13)

-

Balance at June 30, 2020

$

99

$

See accompanying notes to the condensed consolidated interim financial statements.

-

166

166

(17)

-

(17)

(17)

-

(17)

(17)

166

149

-

(42)

(42)

(57)

$

752

$

794

4

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

Retained earnings

Total

income (loss)

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 (note 13)

-

-

(466)

(466)

Balance at June 30, 2019

$

99

$

(32)

$

497

$

564

See accompanying notes to the condensed consolidated interim financial statements.

5

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

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 (note 19)

(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 (note 9)

-

-

-

(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 (note 4)

(68)

(82)

(175)

(130)

Cash obtained with acquired businesses (note 4)

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

See accompanying notes to the condensed consolidated interim financial statements.

6

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

Notes to the condensed consolidated interim financial statements

1.

Reporting entity

11.

Provisions

2.

Basis of presentation

12.

Income taxes

3.

Significant accounting policies

13.

Capital and other components of equity

4.

Business acquisitions

14.

Finance and other income and finance costs

5.

Other assets and other non-current liabilities

15.

Earnings per share

6.

Intangible assets

16.

Financial instruments

7.

CSI facility

17.

Operating segments

8.

Debt without recourse to CSI

18.

Contingencies

9.

TSS Membership liability

19.

Changes in non-cash operating assets and liabilities

10.

Debentures

20.

Subsequent events

7

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

1. Reporting entity

Constellation Software Inc. is a company domiciled in Canada. The address of Constellation's registered office is 20 Adelaide Street East, Suite 1200, Toronto, Ontario, Canada. The condensed consolidated interim financial statements of Constellation as at and for the period ended June 30, 2020 comprise Constellation and its subsidiaries (together referred to as "Constellation", "CSI", or the "Company") and the Company's interest in associates. The Company is engaged principally in the development, installation and customization of software and in the provision of related professional services and support for customers globally across over 100 diverse markets.

2. Basis of presentation

(a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and using the accounting policies disclosed in Note 3 of the Company's 2019 annual consolidated financial statements except as disclosed herein.

The policies applied in these condensed consolidated interim financial statements are based on International Financial Reporting Standards (IFRS), issued and outstanding as of August 6, 2020, the date the Board of Directors approved the condensed consolidated interim financial statements.

These condensed consolidated interim financial statements should be read in conjunction with the Company's 2019 annual consolidated financial statements.

(b) Basis of measurement

The condensed consolidated interim financial statements have been prepared on the historical cost basis except for certain assets and liabilities initially recognized in connection with business combinations, derivative financial instruments and contingent consideration related to business acquisitions, which are measured at their estimated fair value.

(c) Functional and presentation of currency

The condensed consolidated interim financial statements are presented in U.S. dollars, which is Constellation's functional currency.

(d) Use of estimates and judgements

The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses, consistent with those disclosed in the 2019 annual consolidated financial statements and described in these condensed consolidated interim financial statements. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Estimates are based on historical experience and other assumptions that are considered reasonable in the circumstances. The actual amount or

8

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

values may vary in certain instances from the assumptions and estimates made. Changes will be recorded, with corresponding effect in profit or loss, when, and if, better information is obtained.

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 adversely impacted many of Constellation's business units' operations to date. 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.

During the six months ended June 30, 2020, the Company recorded income of $18 relating to government grants from various government authorities relating to the pandemic. The Company has recorded the income of $18 within "Other, net" expenses in the condensed consolidated interim statements of income.

3. Significant accounting policies

The significant accounting policies used in preparing these condensed consolidated interim financial statements are unchanged from those disclosed in the Company's 2019 annual consolidated financial statements and have been applied consistently to all periods presented in these condensed consolidated interim financial statements; however, the Company is now presenting one reportable segment, consistent with the objective and basic principles of IFRS 8. See note 17, Operating Segments, for further details.

The accounting policies have been applied consistently by Constellation's subsidiaries.

4. Business acquisitions

During the six-month period ended June 30, 2020, the Company completed a number of acquisitions for aggregate cash consideration of $175 plus cash holdbacks of $55 and contingent consideration with an estimated fair value of $10 resulting in total consideration of $240. The contingent consideration is payable on the achievement of certain financial targets in the post-acquisition periods. The obligation for contingent consideration for acquisitions during the six-month period ended June 30, 2020 has been recorded at its estimated fair value at the various acquisition dates. The estimated fair value of the applicable contingent consideration is calculated using the estimated financial outcome and resulting expected contingent consideration to be paid and inclusion of a discount rate as appropriate. For these arrangements, the estimated increase to the initial consideration is not expected to exceed $19. Aggregate contingent consideration of $53 (December 31, 2019 - $59) has been reported in the condensed consolidated interim statement of financial position at its estimated fair value relating to applicable acquisitions completed in the current and prior periods. Changes made to the estimated fair value of contingent consideration are included in "Other, net" expenses in the condensed consolidated interim statements of income. An expense of $8 and a recovery of $4 been recorded for the three and six months ended June 30, 2020, as a result of such changes (expense of $0 and $6 for the three and six months ended June 30, 2019).

There were no acquisitions during the six-month period that were deemed to be individually significant. The majority of the businesses acquired during the six-month period were acquisitions of shares and the remainder were asset acquisitions. The cash holdbacks are generally payable within a two-year period and are adjusted, as necessary, for such items as working capital or net tangible asset assessments, as defined in the agreements, and claims under the respective representations and warranties of the purchase and sale agreements.

9

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

The acquisitions during the six month period ended June 30, 2020 include software companies catering to the following markets: advertising and marketing, asset management, automotive, aviation, communications, compliance, construction, education, healthcare, hospitality, legal, logistics, industrial distribution, mining, moving and storage, oil and gas, private clubs and daily fee golf courses, public libraries, real estate brokers and agents, retail management and distribution, third party logistics warehouse management systems, creative agencies, textiles and apparel, trade unions, school administration, manufacturing plant performance, homebuilders, financial services, computerized maintenance management systems, and utilities all of which are software businesses similar to existing businesses operated by the Company. The acquisitions have been accounted for using the acquisition method with the results of operations included in these consolidated financial statements from the date of each acquisition.

The goodwill recognized in connection with these acquisitions is primarily attributable to the application of Constellation's best practices to improve the operations of the companies acquired, other intangibles that do not qualify for separate recognition including assembled workforce and synergies with existing businesses of Constellation. Goodwill in the amount of $2 is expected to be deductible for income tax purposes.

The gross contractual amounts of acquired receivables was $36; however, the Company has recorded an allowance of $2 as part of the acquisition accounting to reflect contractual cash flows that are not expected to be collected.

Due to the complexity and timing of certain acquisitions made, the Company is in the process of determining and finalizing the estimated fair value of the net assets acquired as part of the acquisitions closed during the last two quarters of 2019 and first two quarters of 2020. The amounts determined on a provisional basis generally relate to net asset assessments and measurement of the assumed liabilities, including acquired contract liabilities. The cash consideration associated with these provisional estimates totals $594.

The aggregate impact of acquisition accounting applied in connection with business acquisitions in the six-month period ended June 30, 2020 is as follows:

10

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

Assets acquired:

Cash

$

24

Accounts receivable

35

Other current assets

15

Property and equipment

5

Other non-current assets

23

Deferred income taxes

1

Technology assets

126

Customer assets

126

356

Liabilities assumed:

Current liabilities

30

Deferred revenue

38

Deferred income taxes

44

Other non-current liabilities

20

133

Goodwill

17

Total consideration

$

240

The 2020 business acquisitions did not have a material impact to either the consolidated revenue or the consolidated net income for the six months ended June 30, 2020. The materiality threshold is reviewed on a regular basis taking into account the quantitative (contribution to revenue and net income) and qualitative (size and comparability with other Constellation businesses) factors of current period acquisitions on both an individual and aggregate basis.

11

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

5. Other assets and other non-current liabilities

(a) Other assets

June 30, 2020

December 31, 2019

Prepaid and other current assets

$

105

$

96

Investment tax credits recoverable

28

26

Sales tax receivable

14

18

Equity securities held for trading

8

10

Other receivables

52

34

Total other current assets

$

207

$

184

Investment tax credits recoverable

$

13

$

13

Costs to obtain a contract

38

37

Non-current trade and other receivables and other assets

20

20

Equity accounted investees

2

2

Total other non-current assets

$

73

$

72

(b) Other non-current liabilities

June 30, 2020

December 31, 2019

Contingent consideration

$

34

$

42

Deferred revenue

38

41

Other non-current liabilities

26

18

Total other non-current liabilities

$

98

$

101

12

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

6. Intangible Assets

Technology

Customer

Non-compete

Assets

Assets

Backlog

agreements

Trademarks

Goodwill

Total

Cost

Balance at January 1, 2019

$

1,793

$

964

$

16

$

3

$

7

$

302

$

3,085

Acquisitions through business combinations

368

344

0

-

-

59

770

Effect of movements in foreign exchange

8

1

0

0

(0)

0

10

Balance at December 31, 2019

$

2,169

$

1,309

$

16

$

3

$

7

$

361

$

3,865

Balance at January 1, 2020

$

2,169

$

1,309

$

16

$

3

$

7

$

361

$

3,865

Acquisitions through business combinations

125

126

-

-

-

19

270

Effect of movements in foreign exchange

(40)

(28)

0

(0)

0

(7)

(75)

Balance at June 30, 2020

$

2,254

$

1,406

$

17

$

3

$

7

$

373

$

4,060

Accumulated amortization and impairment losses

Balance at January 1, 2019

$

1,124

$

391

$

16

$

3

$

2

$

-

$

1,536

Amortization for the period

226

104

0

(0)

0

-

331

Effect of movements in foreign exchange

1

0

(0)

0

-

-

2

Balance at December 31, 2019

$

1,351

$

495

$

16

$

3

$

2

$

-

$

1,868

Balance at January 1, 2020

$

1,351

$

495

$

16

$

3

$

2

$

-

$

1,868

Amortization for the period

124

66

0

0

0

-

190

Impairment charge

5

2

-

-

-

1

8

Effect of movements in foreign exchange

(12)

(5)

(0)

(0)

0

-

(17)

Balance at June 30, 2020

$

1,468

$

559

$

17

$

3

$

2

$

1

$

2,049

Carrying amounts

At January 1, 2019

$

669

$

573

$

-

$

-

$

6

$

302

$

1,549

At December 31, 2019

$

817

$

813

$

(0)

$

0

$

5

$

361

$

1,997

At January 1, 2020

$

817

$

813

$

(0)

$

0

$

5

$

361

$

1,997

At June 30, 2020

$

786

$

848

$

0

$

(0)

$

5

$

372

$

2,011

13

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

7. CSI Facility

On December 13, 2019, Constellation completed an amendment and restatement of its revolving credit facility agreement (the "CSI Facility"), with a syndicate of Canadian chartered banks, U.S. banks, and a Japanese bank in the amount of $700, extending its maturity date to December 2024. The CSI Facility bears a variable interest rate with no fixed repayments required over the term to maturity. Interest rates are calculated at standard U.S. and Canadian reference rates plus interest rate spreads based on a leverage table. The CSI Facility is currently collateralized by the majority of the Company's assets including the assets of certain material subsidiaries. The CSI Facility contains standard events of default which if not remedied within a cure period would trigger the repayment of any outstanding balance. As at June 30, 2020 $100 (December 31, 2019 - $65) had been drawn from this credit facility, and letters of credit totaling $19 (December 31, 2019 - $21) were issued, which limits the borrowing capacity on a dollar-for-dollar basis. Transaction costs associated with the CSI Facility are being amortized through profit or loss using the effective interest rate method. As at June 30, 2020 the carrying amount of such costs is $2 (December 31, 2019 - $2).

8. Debt without recourse to CSI

Certain of CSI's subsidiaries have entered into term debt facilities and revolving credit facilities with various financial institutions. CSI does not guarantee the debt of its subsidiaries, nor are there any cross-guarantees between subsidiaries. The credit facilities are collateralized by substantially all of the assets of the borrowing entity and its subsidiaries. The credit facilities typically bear interest at a rate calculated using an interest rate index plus a margin. The financing arrangements for each subsidiary typically contain certain restrictive covenants, which may include limitations or prohibitions on additional indebtedness, payment of cash dividends, redemption of capital, capital spending, making of acquisitions and sales of assets. In addition, certain financial covenants must be met by those subsidiaries that have outstanding debt.

Debt without recourse to CSI comprises the following:

Revolving Credit Facilities

Term Debt Facilities

Total

Principal outstanding at June 30, 2020 (and equal to fair value)

$

-

$

166

$

166

Deduct: Carrying value of transaction costs included in debt balance

-

(4)

(4)

Carrying value at June 30, 2020

-

162

162

Current portion

-

3

3

Non-current portion

-

159

159

14

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

The annual minimum repayment requirements for the term facilities without recourse to CSI is as follows:

Year

Term Debt Facilities

2020

2

2021

3

2022

3

2023

113

2024

1

2025

44

166

9. TSS Membership Liability

On December 23, 2014, in accordance with the terms of the purchase and sale agreement for the Total Specific Solutions ("TSS") acquisition, and on the basis of the term sheets attached thereto, Constellation and the sellers of TSS along with members of TSS' executive management team (collectively, the "minority owners") entered into a Members Agreement pursuant to which the minority owners acquired 33.29% of the voting interests in Constellation Software Netherlands Holding Cooperatief U.A. ("CNH"), a subsidiary of Constellation and the indirect owner of 100% of TSS. Total proceeds from this transaction was €39 ($49).

Commencing any time after December 31, 2014, each of the minority owners may exercise a put option to sell all or a portion of their interests in CNH back to Constellation for an amount calculated in accordance with a valuation methodology described within the Members Agreement. Accordingly, the Company classified the proceeds from the Members Agreement as a liability. The main valuation driver in such calculation is the maintenance and other recurring revenue of CNH. Upon the exercise of a put option, Constellation would be obligated to redeem up to 33.33% of the minority owners' interests put, no later than 30 business days from the date notice is received, and up to 33.33% on each of the first and second anniversary of the date the first redemption payment is made. In determining the valuation of the liability at each reporting period, the Company assumes the minority owners exercised their put option on the last day of the current reporting period, and redeemed 33.33% of their interests on exercise (which is classified as a current liability), and will redeem 33.33% on each of the first and second anniversary dates. Maintenance and recurring revenue of CNH for the trailing twelve months determined at the end of the current reporting period was used as the basis for valuing the interests at each redemption date. Any increase or decrease in the value of the membership liability is recorded as an expense or income in the consolidated statements of income for the period.

The seller of TSS also has an option available to it to sell approximately 68% of its interests in CNH, for an amount calculated in accordance with a valuation methodology described within the Members Agreement, in the event that Robin Van Poelje, TSS' CEO, is no longer employed by TSS. The remaining interest of approximately 32% can be sold via the put option described above.

In the event of a change of control in Constellation, the minority owners would have the option to sell 100% of their interests in CNH for an amount calculated in accordance with a valuation methodology described within the Members Agreement. Constellation would be obligated to remit payment in respect thereof no later than 30 business days from the date notice is given.

15

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

Commencing at any time after December 31, 2023, Constellation may exercise a call option to purchase all of the minority owners' interests in CNH, for an amount calculated in accordance with a valuation methodology described within the Members Agreement. Upon exercise of the call option, the full purchase price will be paid within 30 business days of the notice date, following which the minority owners' membership in CNH will be terminated.

If any of TSS' executive management team that participate in the Members Agreement are terminated for urgent cause as defined in Section 7:678 of the Dutch Civil Code, Constellation shall have the right to purchase all of the interests beneficially owned by the terminated executive for an amount calculated in accordance with a valuation methodology described within the Members Agreement. The full purchase price will be paid within 30 business days from the date notice is given, following which the terminated executive's membership in CNH will be terminated. An option does exist for the terminated executive to elect to be paid in annual installments of 33.33% of his interests in CNH over a 3-year period. The valuation of the interests being purchased will be calculated at each reporting period. During the periods ended June 30, 2020 and December 31, 2019, no options were exercised.

10. Debentures

On October 1, 2014 and November 19, 2014, the Company issued debentures with a total principal value of C$96 for total proceeds of C$91. On September 30, 2015, the Company issued another tranche of debentures (collectively with the 2014 issuances called the "Debentures") with a total principal value of C$186 for total proceeds of C$214.

The Debentures have a maturity date of March 31, 2040 (the "Maturity Date").

The interest rate from and including:

  • March 31, 2018 but excluding March 31, 2019 was 8.1%
  • March 31, 2019 but excluding March 31, 2020 was 8.8%
  • March 31, 2020 but excluding March 31, 2021 is 8.4%

Subsequent from and including March 31, 2021 to but excluding the Maturity Date, the interest rate applicable to the Debentures will be reset on an annual basis on March 31 of each year, at a rate equal to the annual average percentage change in the All-items Consumer Price Index during the 12-month period ending on December 31 in the prior year (which amount may be positive or negative) plus 6.5%. Notwithstanding the foregoing, the interest rate applicable to the debentures will not be less than 0%. The Company may, subject to certain approvals, elect the Payment in Kind election ("PIK Election"), in lieu of paying interest in cash, to satisfy all or any portion of its interest obligation payable on an interest payment date by issuing to each Debenture holder PIK Debentures equal to the amount of the interest obligation to be satisfied. The PIK Debentures will have the same terms and conditions as the Debentures and will form part of the principal amount of the Debentures. If, on any interest payment date, the Company fails to pay the amount of interest owing on the Debentures in full in cash, the Company will not (A) declare or pay dividends of any kind on the Common Shares, nor (B) participate in any share buyback or redemption involving the Common Shares, until the date on which the Company pays such interest (or the unpaid portion thereof) in cash to holders of the Debentures; however, where the Company has issued PIK Debentures in respect of all or a portion of the amount of interest owing on the Debentures on an interest payment date, the Company may resume declaring or paying dividends of any kind on the Common Shares and participating in any share buyback or redemption involving the Common Shares beginning on the next earlier of (i) the interest payment date of which the Company pays the amount of interest owing on the Debentures in full in cash and (ii) the date on which the Company repays all amounts owing under the PIK Debenture. All payments in respect of the Debentures will be subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company.

16

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

The Debentures will be redeemable in certain circumstances at the option of the Company or the holder. During the period beginning on March 16 and ending on March 31 of each year, the Company will have the right, at its option, to give notice to holders of Debentures of its intention to redeem the Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for redemption. During the period beginning on March 1 and ending on March 15 of each year, holders of Debentures will also have the right, at their option, to give notice to the Company of their intention to require the Company to repurchase (or to "put") the Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for repurchase.

During the periods ended June 30, 2020 and December 31, 2019, no notices for redemption of the Debentures were received or given by the Company.

The fair value of the debentures as at June 30, 2020 was $267 (December 31, 2019 - $286).

11. Provisions

At January 1, 2020

$

16

Reversal

(2)

Provisions recorded during the period

8

Provisions used during the period

(8)

Effect of movements in foreign exchange and other

(0)

At June 30, 2020

$

14

Provisions classified as current liabilities

10

Provisions classified as other non-current liabilities

3

The provisions balance is comprised of various individual provisions for onerous contracts and other estimated liabilities of the Company of uncertain timing or amount.

12. Income taxes

Income tax expense is recognized based on management's best estimate of the actual income tax rate for the interim period applied to the pre-tax income of the interim period for each entity in the consolidated group. As a result of foreign exchange fluctuations, acquisitions and ongoing changes due to intercompany transactions amongst entities operating in different jurisdictions, the Company has determined that a reasonable estimate of a weighted average annual tax rate cannot be determined on a consolidated basis. The Company's consolidated effective tax rate in respect of continuing operations for the three and six months ended June 30, 2020 was 37% and 33% (29% and 27% for the three and six months ended June 30, 2019).

Constellation is subject to tax audits in the countries in which the Company does business globally. These tax audits could result in additional tax expense in future periods relating to historical filings. Reviews by tax authorities generally focus on, but are not limited to, the validity of the Company's inter-company transactions, including financing and transfer pricing policies which generally involve subjective areas of taxation and a significant degree

17

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

of judgment. If any of these tax authorities are successful with their challenges, the Company's income tax expense may be adversely affected and Constellation could also be subject to interest and penalty charges.

13. Capital and other components of equity

Common Shares

Number

Amount

June 30, 2020

21,191,530

$

99

December 31, 2019

21,191,530

$

99

Dividends and other distributions to shareholders

During the three months ended March 31, 2020, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on March 16, 2020. The dividend declared in the quarter ended March 31, 2020 representing $21 were paid and settled on April 7, 2020. During the three months ended June 30, 2020, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on June 19, 2020. The dividend declared in the quarter ended June 30, 2020 representing $21 were paid and settled on July 10, 2020.

A dividend of $1.00 per share representing $21 was accrued as at December 31, 2019 and subsequently paid and settled on January 8, 2020.

18

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

14. Finance and other expense (income) and finance costs

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

Interest income on cash

$

(0)

$

(0)

$

(0)

$

(3)

(Increase) decrease in the fair value of equity securities held for trading

(0)

(0)

2

(0)

Share in net (income) loss of equity investee

0

0

0

(0)

Finance and other income

(1)

(0)

(3)

(0)

Finance and other expense (income)

$

(1)

$

(0)

$

(2)

$

(3)

Interest expense on debt and debentures

$

8

$

7

$

16

$

15

Interest expense on lease obligations

2

2

4

4

Amortization of debt related transaction costs

0

0

1

1

Amortization of debenture discount (premium) and associated rights offering, net

(1)

(1)

(2)

(2)

Other finance costs

1

1

3

1

Finance costs

$

10

$

9

$

22

$

18

15. Earnings per share

Basic and diluted earnings per share

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

Numerator:

Net income

$

83

$

73

$

166

$

160

Denominator:

Basic and diluted shares outstanding

21,191,530

21,191,530

21,191,530

21,191,530

Earnings per share

Basic and diluted

$

3.90

$

3.45

$

7.81

$

7.54

16. Financial instruments

Fair values versus carrying amounts

The carrying values of cash, accounts receivable, accounts payable, accrued liabilities, dividends payable, income taxes payable, the majority of acquisition holdbacks, debt without recourse to CSI and the CSI Facility, approximate their fair values due to the short-term nature of these instruments. Bank debt and debt without recourse to CSI is subject to market interest rates.

Fair value hierarchy

19

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

The table below analyzes financial instruments carried at fair value, by valuation method.

  • level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
  • level 2 inputs are inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly (i.e. prices) or indirectly (i.e. derived from prices); and
  • level 3 inputs are inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).

In the table below, the Company has segregated all financial assets and liabilities that are measured at fair value into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

Financial assets and financial liabilities measured at fair value as at June 30, 2020 and December 31, 2019 in the condensed consolidated interim financial statements are summarized below. The Company has no additional financial liabilities measured at fair value after initial recognition other than those recognized in connection with business combinations.

June 30, 2020

December 31, 2019

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets:

Equity securities held for trading

$

8

$

-

$

-

$

8

$

10

$

-

$

-

$

10

8

-

-

8

10

-

-

10

Liabilities:

Contingent consideration

$

-

$

-

$

53

$

53

$

-

$

-

$

59

$

59

-

-

53

53

-

-

59

59

There were no transfers of fair value measurement between level 1, 2 and 3 of the fair value hierarchy in the periods ended June 30, 2020 and December 31, 2019.

The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in level 3 of the fair value hierarchy.

20

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

Balance at January 1, 2020

$

59

Increase from business acquisitions

10

Cash recoveries (payments)

(9)

Charges through profit or loss

(3)

Foreign exchange and other movements

(5)

Balance at June 30, 2020

53

Contingent consideration classified as current liabilities

19

Contingent consideration classified as other non-current liabilities

34

Estimates of the fair value of contingent consideration are performed by the Company on a quarterly basis. Key unobservable inputs include revenue/profitability growth rates and the discount rates applied (8% to 11%). The estimated fair value increases as the annual revenue/profitability growth rate increases and as the discount rate decreases and vice versa.

17. Operating segments

For fiscal 2019 and earlier periods, the Company aggregated CSI into two distinct segments for financial reporting purposes: (i) the public sector reportable segment, which included business units focused primarily on government and government-related customers, and (ii) the private sector reportable segment, which included business units focused primarily on commercial customers. Following the guidance set out by IFRS 8, Operating Segments ("IFRS 8"), the public sector reportable segment was derived by combining the Company's Volaris, Harris and TSS operating segments, and the private sector reportable segment was derived by combining the Company's Vela, Jonas and Perseus operating segments. While the operating segments in the public sector were comprised of businesses that primarily serve government and government-related customers, they also included businesses that serve commercial customers, and similarly the operating groups in the private sector were comprised of businesses that primarily serve commercial customers but also include businesses that serve government and government- related customers. For the fiscal years ended December 31, 2019 and 2018 approximately 35% and 30% respectively of the revenue in in the public sector reportable segment was generated from commercial customers, and 15% and 16% respectively of revenue in the private sector reportable segment was generated from government and government-related customers.

Each of the Company's operating segments operate essentially as mini Constellations, conglomerates of small vertical market software companies with similar economic characteristics. Each operating segment CEO is focused on investing capital that generates returns at or above the investment hurdle rates set by CSI's head office (primarily the President) and the Board of Directors, irrespective of whether the acquired business operates primarily in the public or private sector. Accordingly presenting information on a public and private sector basis is no longer meaningful and the Company now aggregates the six operating segments into one reportable segment, consistent with the objective and basic principles of IFRS 8.

21

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

18. Contingencies

In the normal course of operations, the Company is subject to litigation and claims from time to time. The Company may also be subject to lawsuits, investigations and other claims, including environmental, labour, income and sales tax, product, customer disputes and other matters. Management believes that adequate provisions have been recorded in the accounts where required. Although it is not always possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such contingencies will not have a material adverse impact on the results of operations, financial position or liquidity of the Company.

19. Changes in non-cash operating assets and liabilities

Three months ended

Six months ended

June 30,

June 30,

2020

2019

2020

2019

Decrease (increase) in current accounts receivable

$

77

$

10

$

48

$

18

Decrease (increase) in current unbilled revenue

6

(5)

12

(22)

Decrease (increase) in other current assets

6

(16)

(4)

(30)

Decrease (increase) in inventories

1

(6)

0

(10)

Decrease (increase) in other non-current assets

(3)

(1)

1

(1)

Increase (decrease) in other non-current liabilities

5

(5)

(8)

(6)

Increase (decrease) in current accounts payable and accrued liabilities,

excluding holdbacks from acquisitions

(4)

(8)

(68)

(79)

Increase (decrease) in current deferred revenue

(123)

(97)

122

115

Increase (decrease) in current provisions

(0)

(2)

(3)

8

Change in non-cash operating working capital

$

(35)

$

(130)

$

100

$

(7)

20. Subsequent events

On August 6, 2020 the Company declared a $1.00 per share dividend that is payable on October 9, 2020 to all common shareholders of record at close of business on September 18, 2020.

On May 20, 2020 the Company entered into a binding agreement with IJssel B.V. (the "Seller") to purchase 100% of the shares of Topicus.com B.V. ("Topicus"), 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. The purchase of Topicus will be financed with TSS' cash on hand and its existing revolving line of credit and requires no additional funding from Constellation. Consideration will be in the form of a cash payment plus the issuance to the Seller of approximately 9% of the shares of the new operating group Topicus.com (the merged TSS and Topicus economic entity). Annual gross revenues of Topicus for 2019 were approximately €101 and total tangible assets at December 31, 2019 were approximately €7.

Subsequent to June 30, 2020, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $64 on closing plus cash holdbacks of $12 and contingent consideration with an estimated fair value of $2 for total consideration of $78. The business acquisitions include companies catering primarily to the not-for-profit organizations, distillery, mining, retail management and distribution, communications, rental, healthcare, textiles and apparel, manufacturing plant performance, small and

22

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated.) (Due to rounding, numbers presented may not foot.)

Three and six months ended June 30, 2020 and 2019 (Unaudited)

medium sized businesses, aerospace, fleet and facility management, and marine asset management verticals and are all software companies similar to the existing business of the Company.

23

Disclaimer

Constellation Software Inc. published this content on 06 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 August 2020 21:08:08 UTC

share with twitter share with LinkedIn share with facebook
All news about CONSTELLATION SOFTWARE INC.
09/21CONSTELLATION SOFTWARE : Files Preliminary Prospectus in Connection with Propose..
PU
09/21CONSTELLATION SOFTWARE INC. : Files Preliminary Prospectus in Connection with Pr..
AQ
09/17CONSTELLATION SOFTWARE INC. : Ex-dividend day for
FA
08/16CONSTELLATION SOFTWARE INC. : Announces Changes to its Management Team
AQ
08/07CONSTELLATION SOFTWARE INC. : Announces Results for the Second Quarter Ended Jun..
AQ
08/06CONSTELLATION SOFTWARE : Q2 2020 Shareholders Report
PU
08/06CONSTELLATION SOFTWARE : Q2 2020 Management Discussion and Analysis
PU
08/06CONSTELLATION SOFTWARE : Q2 2020 Financial Statements
PU
08/06CONSTELLATION SOFTWARE : Announces Results for the Second Quarter Ended June 30,..
PU
08/06CONSTELLATION SOFTWARE INC. : Announces Results for the Second Quarter Ended Jun..
AQ
More news
Financials (USD)
Sales 2020 3 849 M - -
Net income 2020 350 M - -
Net Debt 2020 72,0 M - -
P/E ratio 2020 67,3x
Yield 2020 0,36%
Capitalization 23 484 M 23 479 M -
EV / Sales 2020 6,12x
EV / Sales 2021 5,21x
Nbr of Employees 19 000
Free-Float 93,8%
Chart CONSTELLATION SOFTWARE INC.
Duration : Period :
Constellation Software Inc. Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends CONSTELLATION SOFTWARE INC.
Short TermMid-TermLong Term
TrendsBearishBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 9
Average target price 1 253,99 $
Last Close Price 1 108,18 $
Spread / Highest target 28,8%
Spread / Average Target 13,2%
Spread / Lowest Target -0,35%
EPS Revisions
Managers
NameTitle
Mark Henri Leonard Chairman & President
Mark Robert Miller Chief Operating Officer & Director
Jamal Nizam Baksh Chief Financial Officer
Stephen R. Scotchmer Lead Independent Director
Jeff James Bender Director
Sector and Competitors
1st jan.Capitalization (M$)
CONSTELLATION SOFTWARE INC.16.91%23 255
ORACLE CORPORATION14.80%183 122
SAP SE8.88%183 053
SERVICENOW INC.63.60%88 589
INTUIT INC.14.58%80 558
DOCUSIGN, INC.176.64%37 963