Constellation Software : Q4 2021 Management Discussion and Analysis

CONSTELLATION SOFTWARE INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

The following discussion and analysis should be read in conjunction with the Annual Consolidated Financial Statements for the year ended December 31, 2021, which we prepared in accordance with International Financial Reporting Standards ("IFRS"). Certain information included herein is forward-looking and based upon assumptions and anticipated results that are subject to uncertainties. Should one or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. See "Forward-Looking Statements" and "Risks and Uncertainties".

Unless otherwise indicated, all dollar amounts are expressed in U.S. dollars. All references to "$" are to U.S. dollars and all references to "C$" are to Canadian dollars. Due to rounding, certain totals and subtotals may not foot and certain percentages may not reconcile.

Additional information about Constellation Software Inc. (the "Company" or "Constellation"), including our most recently filed Annual Information Form ("AIF"), is available on SEDAR at www.sedar.com.

Forward Looking Statements

Certain statements in this report may contain "forward looking" statements that involve risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Words such as "may", "will", "expect", "believe", "plan", "intend", "should", "anticipate" and other similar terminology are intended to identify forward looking statements. These statements reflect current assumptions and expectations regarding future events and operating performance as of the date of this MD&A, February 10, 2022. 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, including, but not limited to, the factors discussed under "Risks and Uncertainties". Although the forward looking statements contained in this MD&A are based upon what management of the Company believes are reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward looking statements. These forward looking statements are made as of the date of this MD&A and the Company assumes no obligation, except as required by law, to update any forward looking statements to reflect new events or circumstances. This report should be viewed in conjunction with the Company's other publicly available filings, copies of which can be obtained electronically on SEDAR at www.sedar.com.

Non-IFRS Measures

This MD&A includes certain measures which have not been prepared in accordance with IFRS such as Free cash flow available to shareholders.

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.

1

FCFA2S is not a recognized measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Accordingly, readers are cautioned that FCFA2S should not be construed as an alternative to net cash flows from operating activities. See ''Results of Operations -Free cash flow available to shareholders" for a reconciliation of FCFA2S to net cash flows from operating activities.

Corporate Reorganization

On January 4, 2021 (in anticipation of the acquisition of Topicus.com B.V.), the Company's subsidiary, Constellation Software Netherlands Holding Coöperatief U.A. ("CSNH"), which principally holds the Total Specific Solutions Operating Group ("TSS"), completed a corporate reorganization. In conjunction with the reorganization, the following steps were completed on January 4, 2021:

• CSNH changed its name to Topicus.com Coöperatief U.A. ("Topicus Coop").
• The Company engaged in a series of transactions the result of which was that its then existing equity interest in Topicus Coop became an equity interest in Topicus.com Inc. ("Topicus") and Topicus became the new parent company of Topicus Coop. Topicus issued and Constellation received 39,412,385 preferred shares of Topicus (the "Topicus Preferred Shares") and 39,412,385 subordinate voting shares of Topicus (the "Topicus Subordinate Voting Shares"). CSI distributed 39,412,367 of the Topicus Subordinate Voting Shares to its common shareholders pursuant a dividend-in-kind and continues to hold 18 Topicus Subordinate Voting Shares of Topicus.
• Constellation also holds 1 super voting share of Topicus (the "Topicus Super Voting Share"). The Topicus Super Voting Share entitles Constellation to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding Topicus Super Voting Shares and Topicus Subordinate Voting Shares. As a result, Constellation Software Inc. controls Topicus.
• Topicus Coop issued 19,665,642 Preference Units and 19,665,642 Ordinary Units to Joday Investments II B.V. ("Joday") and certain individual investors affiliated therewith (being the previous minority owners of CSNH) (collectively known as the "Joday Group").

The Company now reflects a non-controlling interest in Topicus of 69.7% as at December 31, 2021. The equity interest of 30.3% that the Company reflects in Topicus principally comprises the ordinary units of Topicus Coop ("Topicus Coop Ordinary Units") that are currently owned by the Joday Group and subject to the terms of the investor rights and governance agreement entered into by CSI, the Joday Group, Ijssel B.V., Topicus and Topicus Coop on January 5, 2021 (the "IRGA").

Overview

We acquire, manage and build vertical market software ("VMS") businesses. Generally, these businesses provide mission critical software solutions that address the specific needs of our customers in particular markets. Our focus on acquiring businesses with growth potential, managing them well and then building them, has allowed us to generate significant cash flows and revenue growth during the past several years.

Our revenue consists primarily of software license fees, maintenance and other recurring fees, professional service fees and hardware sales. Software license revenue is comprised of license fees charged for the use of our software products generally licensed under multiple-year or perpetual arrangements. Maintenance and other recurring revenue primarily consists of fees charged for customer support on our software products post-delivery and also includes, to a lesser extent, recurring fees derived from software as a service, subscriptions, combined software/support contracts, transaction-related revenues, and hosted products. Maintenance and other recurring fee arrangements generally include rights to certain product updates "when and if available". Professional service revenue consists of fees charged for implementation and integration services, customized programming, product training and consulting. Hardware sales include the resale of third party hardware that forms part of our customer

2

solutions, as well as sales of customized hardware assembled internally. Our customers typically purchase a combination of software, maintenance, professional services and hardware, although the type, mix and quantity of each vary by customer and by product.

Expenses consist primarily of staff costs, the cost of hardware, third party licenses, maintenance and professional services to fulfill our customer arrangements, travel and occupancy costs, depreciation, and other general operating expenses.

Results of Operations

(In millions of dollars, except percentages and per share amounts) Unaudited

	Three months ended	Period-Over-			Year ended	Period-Over-Period
		December 31,	Period Change			December 31,		Change
		2021		2020	$	%			2021		2020		$	%
Revenue		1,383		1,091	291	27%			5,106		3,969		1,137	29%
Expenses		1,004		774	230	30%			3,716		2,843		873	31%
Amortization of intangible assets		142		110	32	29%			518		403		114	28%
Foreign exchange (gain) loss		4		(3)	7	NM			1		2		(1)	-51%
IRGA / TSS membership liability revaluation charge		25		10	15	152%			132		65		67	104%
Finance and other income		2		0	1	351%			(7)		(4)		(4)	100%
Bargain purchase gain		(1)		(1)	0	NM			(2)		(2)		(0)	29%
Impairment of intangible and other non-financial assets		5		1	4	266%			12		12		(0)	-4%
Redeemable preferred securities expense (income)		-		-	-	NM			295		-		295	NM
Finance costs		18		12	6	50%			68		46		22	47%
Income before income taxes		184		189	(4)	-2%			374		603		(229)	-38%
Income tax expense (recovery)
Current income tax expense (recovery)		48		44	4	8%			257		221		35	16%
Deferred income tax expense (recovery)		(8)		(4)	(4)	98%			(51)		(55)		4	-6%
Income tax expense (recovery)		40		40	(0)	-1%			206		167		39	23%
Net income (loss) attributable to:														-29%
Equity holders of CSI		124		149	(25)	-17%			310		436		(126)
Non-controlling interests		21		-	21	NM			(142)		-		(142)	NM
Net income (loss)		145		149	(4)	-3%			169		436		(268)	-61%
Net cash flows from operating activities		341		355	(14)	-4%			1,300		1,186		114	10%
Free cash flow available to shareholders		244		307	(63)	-21%			883		989		(106)	-11%
Weighted average number of shares
outstanding
Basic and diluted		21.2		21.2					21.2		21.2
Net income (loss) per share
Basic and diluted	$	5.86	$	7.02	$ (1.16)	-17%	$	14.65	$	20.59	$	(5.94)	-29%
Net cash flows from operating activities per share
Basic and diluted	$	16.09	$	16.73	$ (0.64)	-4%	$	61.33	$	55.96	$	5.37	10%
Free cash flow available to shareholders per share
Basic and diluted	$	11.50	$	14.47	$ (2.98)	-21%	$	41.69	$	46.68	$	(4.99)	-11%
Cash dividends declared per share
Basic and diluted	$	1.00	$	1.00	$ -	0%	$	4.00	$	4.00	$	-	0%
Total assets									5,766		4,375		1,390	32%
Total long-term liabilities									1,784		1,288		496	39%

NM - Not meaningful

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

3

Comparison of the three and twelve month periods ended December 31, 2021 and 2020

Revenue:

Total revenue for the quarter ended December 31, 2021 was $1,383 million, an increase of 27%, or $291 million, compared to $1,091 million for the comparable period in 2020. For the year ended December 31, 2021 total revenues were $5,106 million, an increase of 29%, or $1,137 million, compared to $3,969 million for the 2020 fiscal year. The increase for both the three and twelve 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 4% and 7% respectively, 5% 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. For acquired companies, organic growth is calculated as the difference between actual revenues achieved by each company in the financial period following acquisition compared to the estimated revenues they achieved in the corresponding financial period preceding the date of acquisition by Constellation. Organic growth is not a standardized financial measure and might not be comparable to measures disclosed by other issuers.

The following table displays the breakdown of our revenue according to revenue type:

		Three months ended	Period-Over-	Q420			Year ended	Period-Over-	Q420
		Proforma	Organic		Proforma	Organic
		December 31,	Period Change	Adj.	Growth		December 31,	Period Change	Adj.	Growth
						(Note 1)							(Note 2)
		2021	2020	$	%	$	%		2021	2020	$	%	$	%
			($ in millions, except percentages)				($ in millions, except percentages)
Licenses		81	68	13	19%	10	4%		287	234	53	23%	40	5%
Professional services		286	217	69	32%	52	6%		1,033	751	282	37%	196	9%
Hardware and other		49	47	2	4%	8	-12%		176	169	7	4%	19	-7%
Maintenance and other recurring		967	759	208	27%	164	5%		3,611	2,815	796	28%	532	8%
$M - Millions of dollars		1,383	1,091	291	27%	234	4%		5,106	3,969	1,137	29%	787	7%

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

Note 1: Estimated pre-acquisition revenues for the three months ended December 31, 2020 from companies acquired after September 30, 2020. (Obtained from unaudited vendor financial information.)

Note 2: Estimated pre-acquisition revenues for the twelve months ended December 31, 2020 from companies acquired after December 31, 2019. (Obtained from unaudited vendor financial information.)

For comparative purposes the table below shows the quarterly organic growth as compared to the same period in the prior year by revenue type since Q4 2019.

				Quarter Ended
	Dec. 31	Mar. 31	Jun. 30	Sep. 30	Dec. 31	Mar. 31	Jun. 30	Sep. 30	Dec. 31
	2019	2020	2020	2020	2020	2021	2021	2021	2021
Licenses	‐10%	‐8%	‐30%	‐10%	‐6%	‐4%	18%	3%	4%
Professional services	‐8%	‐8%	‐17%	‐8%	‐4%	6%	17%	8%	6%
Hardware and other	‐22%	3%	‐23%	‐7%	‐13%	‐12%	15%	‐12%	‐12%
Maintenance and other recurring	2%	0%	‐3%	2%	4%	7%	12%	8%	5%
Revenue	‐3%	‐2%	‐8%	‐1%	1%	6%	14%	7%	4%

4

The following table shows the same information adjusting for the impact of foreign exchange movements.

				Quarter Ended
	Dec. 31	Mar. 31	Jun. 30	Sep. 30	Dec. 31	Mar. 31	Jun. 30	Sep. 30	Dec. 31
	2019	2020	2020	2020	2020	2021	2021	2021	2021
Licenses	‐9%	‐7%	‐28%	‐11%	‐7%	‐8%	12%	2%	5%
Professional services	‐7%	‐6%	‐16%	‐10%	‐6%	1%	10%	6%	8%
Hardware and other	‐21%	4%	‐22%	‐10%	‐15%	‐16%	9%	‐13%	‐11%
Maintenance and other recurring	3%	2%	‐1%	1%	2%	3%	7%	6%	6%
Revenue	‐2%	0%	‐7%	‐3%	‐1%	1%	8%	5%	5%

Expenses:

The following table displays the breakdown of our expenses:

	Three months ended	Period-Over-		Year ended	Period-Over-
	December 31,	Period Change		December 31,	Period Change
	2021	2020	$	%		2021	2020	$	%
Expenses	($ in millions, except percentages)		($ in millions, except percentages)
Staff	714	557	157	28%		2,695	2,050	645	31%
Hardware	28	27	1	5%		99	97	2	2%
Third party license, maintenance
and professional services	116	93	23	25%		433	330	103	31%
Occupancy	10	9	1	13%		40	35	5	14%
Travel, Telecommunications, Supplies &
Software and equipment	57	38	19	49%		186	152	33	22%
Professional fees	26	19	7	36%		79	60	19	31%
Other, net	22	3	19	548%		62	13	49	373%
Depreciation	31	28	3	11%		121	105	16	15%
	1,004	774	230	30%		3,716	2,843	873	31%

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

Overall expenses for the quarter ended December 31, 2021 increased 30%, or $230 million to $1,004 million, compared to $774 million during the same period in 2020. As a percentage of total revenue, expenses equalled 73% for the quarter ended December 31, 2021 and 71% for the same period in 2020. During the fiscal year ended December 31, 2021, expenses increased 31%, or $873 million to $3,716 million, compared to $2,843 million during the 2020 fiscal year. As a percentage of total revenue, expenses were 73% for the fiscal year ended December 31, 2021 and 72% for the same period in 2020. For the three and twelve months ended December 31, 2021 the change in valuation of the US dollar against most major currencies in which the Company transacts business resulted in an approximate 1% decrease and 2% increase in expenses respectively compared to the comparable periods of 2020.

Staff expense - Staff expenses increased 28% or $157 million for the quarter ended December 31, 2021 and 31% or $645 million for the fiscal year ended December 31, 2021 over the same periods in 2020. Staff expense can be broken down into five key operating departments: Professional Services, Maintenance, Research and Development, Sales and Marketing, and General and Administrative. Included within staff expenses for each of

5