Mr. Jamal Baksh reports

CONSTELLATION SOFTWARE INC. ANNOUNCES RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2018 AND DECLARES QUARTERLY DIVIDEND

Constellation Software Inc. has released its financial results for the third quarter ended Sept. 30, 2018, and declared a $1-per-share dividend payable on Jan. 4, 2019, to all common shareholders of record at close of business on Dec. 14, 2018. 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.

This press release should be read in conjunction with the company's unaudited condensed consolidated interim financial statements for the three and nine months ended Sept. 30, 2018, and the accompanying notes, the company's management discussion and analysis for the three and nine months ended Sept. 30, 2018, and with its annual consolidated financial statements, prepared in accordance with international financial reporting standards (IFRS), and its annual management's discussion and analysis for the year ended Dec. 31, 2017, which can be found on SEDAR and on the company's website. Additional information about the company is also available on SEDAR.

Q3 2018 headlines:

• Revenue grew 19 per cent (minus-1-per-cent organic growth, 0 per cent after adjusting for changes in foreign exchange rates) to $759-million compared with $637-million in Q3 2017.
• Adjusted EBITA (earnings before interest, tax and amortization) increased $35-million or 22 per cent to $197-million as compared with $162-million in Q3 2017.
• Net income increased 21 per cent to $66-million ($3.10 per share diluted) from $54-million ($2.56 per share diluted) in Q3 2017.
• Adjusted net income increased 26 per cent to $145-million ($6.85 per share diluted) from $116-million ($5.45 per share diluted) in Q3 2017.
• A number of acquisitions were completed for aggregate cash consideration of $92-million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $22-million, resulting in total consideration of $114-million.
• Cash flows from operations were $143-million, an increase of 17 per cent or $20-million, compared with $123-million for the comparable period in 2017.

Total revenue for the quarter ended Sept. 30, 2018, was $759-million, an increase of 19 per cent or $123-million, compared with $637-million for the comparable period in 2017. For the first nine months of 2018, total revenues were $2,230-million, an increase of 24 per cent or $438-million, compared with $1,792-million for the comparable period in 2017. The increase for both the three- and nine-month periods compared with the same periods in the prior year is primarily attributable to growth from acquisitions as the company experienced organic growth of negative 1 per cent and positive 2 per cent in the three- and nine-month periods, respectively, 0 per cent and 1 per cent, respectively, after adjusting for the impact of changes in the valuation of the U.S. dollar against most major currencies in which the company transacts business. There were various large professional services contracts in the U.S. health care vertical completed in 2017 that were not replaced with similar contracts in 2018. Also, a continuing implementation in the transit vertical had a much larger third party hardware shipment in Q3 2017 than in Q3 2018. Excluding the U.S. health care vertical and the business responsible for the transit implementation, organic growth after adjusting for the impact of changes in the valuation of the U.S. dollar against most major currencies in which the company transacts business was 2 per cent and 3 per cent for three and nine months ended Sept. 30, 2018, respectively. The company adopted IFRS 15, Revenue from contracts with customers, effective Jan. 1, 2018, utilizing the cumulative effect method. Under the cumulative effect method comparative periods have not been restated; however, the quantitative differences between reported results under IFRS 15 and those that would have been reported under IAS 11 and IAS 18 have been disclosed. For the three and nine months ended Sept. 30, 2018, total revenue was $1-million lower and $7-million higher, respectively, than it would have been under prior IFRS. The organic growth figures included above and below exclude the impact of IFRS 15.

For the quarter ended Sept. 30, 2018, adjusted EBITA increased to $197-million compared with $162-million for the same period in 2017, representing an increase of 22 per cent. For the first nine months of 2018, adjusted EBITA increased to $531-million compared with $447-million during the same period in 2017, representing an increase of 19 per cent. For the three and nine months ended Sept. 30, 2018, adjusted EBITA was $1-million lower and $7-million higher, respectively, than it would have been under prior IFRS. Adjusted EBITA margin was 26 per cent and 24 per cent for the three and nine months ended Sept. 30, 2018, respectively, compared with 25 per cent during the same periods in 2017. Excluding the impact of IFRS 15, adjusted EBITA margin would still have been 26 per cent and 24 per cent for the three and nine months ended Sept. 30, 2018, respectively. The margin decline for the nine months ended Sept. 30, 2018, is primarily the result of lower margins on recently acquired businesses.

Net income for the quarter ended Sept. 30, 2018, was $66-million compared with net income of $54-million for the same period in 2017. On a per-share basis, this translated into a net income per diluted share of $3.10 in the quarter ended Sept. 30, 2018, compared with net income per diluted share of $2.56 for the same period in 2017. For the nine months ended Sept. 30, 2018, net income was $200-million or $9.45 per diluted share compared with $146-million or $6.88 per diluted share for the same period in 2017.

For the quarter ended Sept. 30, 2018, adjusted net income increased to $145-million from $116-million for the same period in 2017, representing an increase of 26 per cent. Adjusted net income margin was 19 per cent for the quarter ended Sept. 30, 2018, and 18 per cent for the same period in 2017. For the quarter ended Sept. 30, 2018, adjusted net income was $300,000 higher than it would have been under prior IFRS (IAS 18). For the first nine months of 2018, adjusted net income increased to $410-million from $322-million during the same period in 2017, representing an increase of 27 per cent. Adjusted net income margin was 18 per cent for both the nine months ended Sept. 30, 2018, and Sept. 30, 2017. For the nine months ended Sept. 30, 2018, adjusted net income was $5-million higher than it would have been under prior IFRS (IAS 18). Excluding the impact of the unrealized foreign exchange (gain) loss recorded in each of the three- and nine-month periods ended Sept. 30, 2017, and Sept. 30, 2018, a $7.9-million financial liability accrual reversal recorded to finance and other income in Q1 2018, and the impacts of IFRS 15, the margins would have been 20 per cent and 18 per cent for the respective periods in 2018, and 19 per cent for both the respective periods in 2017.

For the quarter ended Sept. 30, 2018, cash flows from operations were $143-million, an increase of 17 per cent or $20-million, compared with $123-million for the comparable period in 2017. For the first nine months of 2018, cash flows from operations were $454-million, an increase of 24 per cent or $88-million, compared with $365-million for the comparable period in 2017.

Public sector

For the quarter ended Sept. 30, 2018, total revenue in the public sector reportable segment increased 16 per cent or $70-million to $506-million, compared with $436-million for the quarter ended Sept. 30, 2017. For the nine months ended Sept. 30, 2018, total revenue increased by 23 per cent or $275-million to $1,492-million, compared with $1,217-million for the comparable period in 2017. For the three and nine months ended Sept. 30, 2018, total revenue was, respectively, $1-million lower and $6-million higher than it would have been under prior IFRS. Organic growth excludes the impact of IFRS 15. Organic revenue growth was negative 3 per cent and positive 1 per cent, respectively, for the three and nine months ended Sept. 30, 2018, compared with the same periods in 2017, and negative 2 per cent and negative 1 per cent, respectively, after adjusting for the impact of changes in the valuation of the U.S. dollar against most major currencies in which the company transacts business. Excluding the U.S. healthcare vertical and the business responsible for the transit implementation, as mentioned above, organic growth after adjusting for the impact of changes in the valuation of the U.S. dollar against most major currencies in which the company transacts business was 1 per cent and 2 per cent for three and nine months ended Sept. 30, 2018, respectively.

Private sector

For the quarter ended Sept. 30, 2018, total revenue in the private sector reportable segment increased 26 per cent or $53-million to $254-million, compared with $200-million for the quarter ended Sept. 30, 2017. For the nine months ended Sept. 30, 2018, total revenue increased by 28 per cent or $163-million to $738-million, compared with $575-million for the comparable period in 2017. For the three and nine months ended Sept. 30, 2018, total revenue was, respectively, $400,000 and $1-million higher than it would have been under prior IFRS. Organic growth excludes the impact of IFRS 15. Organic revenue growth was 2 per cent and 4 per cent for the three and nine months ended Sept. 30, 2018, respectively, compared with the same periods in 2017, and 4 per cent and 3 per cent, respectively, after adjusting for the impact of changes in the valuation of the U.S. dollar against most major currencies in which the company transacts business.

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.

                            CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME  
                          (in thousands of U.S. dollars, except per-share amounts)

                                           Three months ended Sept. 30     Nine months ended Sept. 30
                                                 2018             2017          2018             2017
Revenue                                                 
Licence                                    $   49,216       $   44,478    $  140,896       $  120,482
Professional services                         148,034          125,530       442,848          358,648
Hardware and other                             40,378           43,852       116,362          117,208
Maintenance and other recurring               521,445          422,599     1,529,471        1,195,531
                                              759,073          636,459     2,229,577        1,791,869
Expenses                                      
Staff                                         383,568          312,667     1,163,421          898,751
Hardware                                       22,452           24,208        64,210           63,619
Third party licence, maintenance and 
professional services                          65,792           55,059       193,874          155,601
Occupancy                                      19,494           15,584        58,411           43,454
Travel                                         19,298           18,546        58,571           52,438
Telecommunications                              6,152            5,716        18,598           16,051
Supplies                                        4,551            4,103        13,763           11,583
Software and equipment                         14,024           11,200        40,103           30,556
Professional fees                               9,140            7,921        28,219           21,614
Other, net                                     11,367           14,126        39,768           35,112
Depreciation                                    6,599            5,768        19,997           16,388
Amortization of intangible assets              70,244           59,829       208,774          167,852
                                              632,681          534,727     1,907,709        1,513,019
Foreign exchange loss (gain)                    8,440            7,567         3,136           10,926
TSS membership liability revaluation charge    16,920           11,781        37,632           40,311
Share in net (income) loss of equity 
investee                                         (554)             (80)         (787)            (206)
Finance and other expense (income)             (2,531)          (1,291)      (12,575)          (1,720)
Bargain purchase (gain)                          (500)          (5,008)         (619)          (5,008)
Finance costs                                   7,853            8,725        18,074           19,456
                                               29,628           21,694        44,861           63,759
Income before income taxes                     96,764           80,038       277,007          215,091
Current income tax expense (recovery)          31,683           25,975        93,138           80,191
Deferred income tax expense (recovery)           (624)            (206)      (16,375)         (10,952)
Income tax expense (recovery)                  31,059           25,769        76,763           69,239
Net income                                     65,705           54,269       200,244          145,852
Earnings per share                            
Basic and diluted                          $     3.10       $     2.56    $     9.45       $     6.88

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