Mr. Jamal Baksh reports

CONSTELLATION SOFTWARE INC. ANNOUNCES RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2018 AND DECLARES QUARTERLY AND SPECIAL DIVIDENDS

Constellation Software Inc. has released its financial results for the fourth quarter and year ended Dec. 31, 2018, and has declared a $1-per-share dividend and $20-per-share special dividend both payable on April 5, 2019, to all common shareholders of record at the close of business on March 16, 2019. Constellation invested $603-million in acquisitions during 2018 at rates of return that the company believes will be attractive. It is optimistic about its acquisition pace for 2019, but it feels that it has capital in excess of its needs and should return the excess to shareholders. Both dividends have been designated as eligible dividends 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 annual consolidated financial statements, prepared in accordance with international financial reporting standards (IFRS) and the company's annual management's discussion and analysis for the year ended Dec. 31, 2018, which can be found on SEDAR and on the company's website. Additional information about the company is also available on SEDAR.

Fourth quarter 2018 headlines:

• Revenue grew 21 per cent (2-per-cent organic growth, 3 per cent after adjusting for changes in foreign exchange rates) to $831-million compared with $688-million in fourth quarter 2017.
• Adjusted EBITA (net income before adjusting for finance and other income, bargain purchase gain, finance costs, income taxes, share in net income or loss of equity investees, impairment of non-financial assets, amortization, TSS membership liability revaluation charge, and foreign exchange gain or loss) increased $51-million or 29 per cent to $226-million as compared with $175-million in fourth quarter 2017.
• Net income increased 135 per cent to $179-million ($8.45 on a diluted per-share basis) from $76-million ($3.60 on a diluted per-share basis) in fourth quarter 2017. Excluding the $63-million bargain purchase gain described herein, net income increased 52 per cent to $116-million ($5.49 on a diluted per-share basis).
• Adjusted net income increased 33 per cent to $187-million ($8.84 on a diluted per-share basis) from $141-million ($6.64 on a diluted per-share basis) in fourth quarter 2017.
• A number of acquisitions were completed for aggregate cash consideration of $69-million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $32-million resulting in total consideration of $101-million.
• Cash flows from operations were $208-million, an increase of 28 per cent, or $46-million, compared with $163-million for the comparable period in 2017.

2018 headlines:

• Revenue grew 23 per cent (2-per-cent organic growth, 1 per cent after adjusting for changes in foreign exchange rates) to $3.06-billion compared with $2,479-million in 2017.
• Adjusted EBITA increased $136-million or 22 per cent to $757-million as compared with $621-million in 2017.
• Net income increased 71 per cent to $379-million ($17.90 on a diluted per-share basis) from $222-million ($10.47 on a diluted per-share basis) in 2017. Excluding the $63-million bargain purchase gain described herein, net income increased 43 per cent to $317-million ($14.94 on a diluted per-share basis).
• Adjusted net income increased 29 per cent to $597-million ($28.17 on a diluted per-share basis) from $463-million ($21.84 on a diluted per-share basis) in 2017.
• A number of acquisitions were completed for aggregate cash consideration of $523-million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $108-million resulting in total consideration of $631-million.
• Cash flows from operations were $662-million, an increase of 25 per cent, or $134-million, compared with $528-million for 2017.

Total revenue for the quarter ended Dec. 31, 2018, was $831-million, an increase of 21 per cent, or $143-million, compared with $688-million for the comparable period in 2017. For the 2018 fiscal year, total revenues were $3.06-billion, an increase of 23 per cent, or $581-million, compared with $2,479-million for the 2017 fiscal year. The increase for both the three- and 12-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 2 per cent in both periods, 3 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. For acquired companies, organic growth is calculated as the difference between actual revenues achieved by each company in the financial period following acquisition compared with the estimated revenues they achieved in the corresponding financial period preceding the date of acquisition by Constellation. The company adopted international financial reporting standard 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 (prior IFRS) have been disclosed in the company's financial statements. For the three and 12 months ended Dec. 31, 2018, total revenue was $3-million lower and $4-million higher, respectively, than it would have been under prior IFRS. The organic growth figures included herein exclude the impact of IFRS 15.

For the quarter ended Dec. 31, 2018, adjusted EBITA increased to $226-million compared with $175-million for the same period in 2017, representing an increase of 29 per cent. For the fiscal year ended Dec. 31, 2018, adjusted EBITA increased to $757-million compared with $621-million during the same period in 2017, representing an increase of 22 per cent. For the three and 12 months ended Dec. 31, 2018, adjusted EBITA was $3-million lower and $4-million higher, respectively, than it would have been under prior IFRS. Adjusted EBITA margin was 27 per cent and 25 per cent for the three and 12 months ended Dec. 31, 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 27 per cent and 25 per cent for the three and 12 months ended Dec. 31, 2018, respectively.

Net income for the quarter ended Dec. 31, 2018, was $179-million compared with net income of $76-million for the same period in 2017. On a per-share basis, this translated into a net income per diluted share of $8.45 in the quarter ended Dec. 31, 2018, compared with net income per diluted share of $3.60 for the same period in 2017. For the 2018 fiscal year, net income was $379-million or $17.90 per diluted share compared with $222-million or $10.47 per diluted share for the 2017 fiscal year. Excluding the $63-million bargain purchase gain described herein, net income was $116-million ($5.49 on a diluted per-share basis) for the quarter ended Dec. 31, 2018, and $317-million ($14.94 on a diluted per-share basis) for the 2018 fiscal year.

For the quarter ended Dec. 31, 2018, adjusted net income increased to $187-million from $141-million for the same period in 2017, representing an increase of 33 per cent. Adjusted net income margin was 23 per cent for the quarter ended Dec. 31, 2018, and 20 per cent for the same period in 2017. For the quarter ended Dec. 31, 2018, adjusted net income was $2-million lower than it would have been under prior IFRS (IAS 18). For the fiscal year ended Dec. 31, 2018, adjusted net income increased to $597-million from $463-million during the same period in 2017, representing an increase of 29 per cent. Adjusted net income margin was 20 per cent for the fiscal year ended Dec. 31, 2018, and 19 per cent for the same period in 2017. For the fiscal year ended Dec. 31, 2018, adjusted net income was $3-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 12-month periods ended Dec. 31, 2017, and 2018, as well as an $8-million financial liability accrual reversal recorded to finance and other income in first quarter 2018, and the impacts of IFRS 15, the margins would have been 22 per cent and 19 per cent for the respective periods in 2018, and 20 per cent and 19 per cent for the respective periods in 2017.

For the quarter ended Dec. 31, 2018, cash flows from operations were $208-million, an increase of 28 per cent, or $46-million, compared with $163-million for the comparable period in 2017. For the 2018 fiscal year, cash flows from operations were $662-million, an increase of 25 per cent, or $134-million, compared with $528-million for 2017.

Public sector

For the quarter ended Dec. 31, 2018, total revenue in the public-sector reportable segment increased 18 per cent or $83-million to $556-million, compared with $473-million for the quarter ended Dec. 31, 2017. For the fiscal year ended Dec. 31, 2018, total revenue increased by 21 per cent or $358-million to $2,048-million, compared with $1,689-million for the comparable period in 2017. For purposes of calculating organic growth, estimated preacquisition revenues included from the relevant companies acquired in 2017 and 2018 were $84-million and $332-million for the three- and 12-month periods ended Dec. 31, 2017, respectively. For the three and 12 months ended Dec. 31, 2018, total revenue was, respectively, $3-million lower and $2-million higher than it would have been under prior IFRS. Organic revenue growth was 1 per cent for both the three and 12 months ended Dec. 31, 2018, compared with the same periods in 2017, and 2 per cent and 0 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. Organic growth excludes the impact of IFRS 15.

Private sector

For the quarter ended Dec. 31, 2018, total revenue in the private-sector reportable segment increased 28 per cent or $60-million to $275-million, compared with $215-million for the quarter ended Dec. 31, 2017. For the fiscal year ended Dec. 31, 2018, total revenue increased by 28 per cent or $222-million to $1,013-million, compared with $790-million for the comparable period in 2017. For purposes of calculating organic growth, estimated preacquisition revenues included from the relevant companies acquired in 2017 and 2018 were $48-million and $179-million for the three- and 12-month periods ended Dec. 31, 2017, respectively. For the three and 12 months ended Dec. 31, 2018, total revenue was, respectively, $400,000 and $1-million higher than it would have been under prior IFRS. Organic revenue growth was 4 per cent for both the three and 12 months ended Dec. 31, 2018, compared with the same periods in 2017, and 6 per cent and 4 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. Organic growth excludes the impact of IFRS 15.

Bargain purchase gains

Bargain purchase gains totalling $68-million and $69-million were recorded in the three- and 12-month periods ended Dec. 31, 2018, relating to nine acquisitions made during 2017 and 2018. Of the 2018 amounts, $63-million relates to a single acquisition made in the fourth quarter for aggregate cash consideration of nil. Prior to acquisition, the previous owners had begun an extensive restructuring of the business, which will need to be completed under Constellation's ownership. It is therefore expected that the business will generate large cash and operating losses in 2019. For Constellation to ensure a sufficient return on its investment in the turnaround of the business, there was a requirement as part of the acquisition for the seller to capitalize the balance sheet on closing with cash in the amount of 47 million euros ($53-million (U.S.)). While this cash will be required to finance losses generated by the business in 2019, IFRS does not permit a restructuring accrual to be recorded as part of the opening balance sheet acquisition accounting for the majority of the expected charges. The result is a bargain purchase gain of $63-million being recorded in the fourth quarter 2018 results, and based on current estimates, an EBITA loss inclusive of restructuring costs of approximately $46-million will be recorded in the 2019 results.

About Constellation Software Inc.

Constellation acquires, manages and builds vertical market software businesses.

                                                       
                       CONSOLIDATED STATEMENTS OF INCOME                                                  
            (in millions of U.S. dollars, except per-share amounts)      
                                                                                   
                                                                   Years ended Dec. 31,
                                                                     2018         2017
Revenue
Licence                                                            $198.3       $170.4
Professional services                                               615.6        498.2
Hardware and other                                                  174.6        167.6
Maintenance and other recurring                                   2,071.6      1,643.2
                                                                  3,060.1      2,479.4
Expenses
Staff                                                             1,565.1      1,236.9
Hardware                                                             95.9         92.7
Third party licence, maintenance and professional services          264.7        212.6
Occupancy                                                            78.2         58.9
Travel, telecommunications, supplies, software and equipment        181.1        154.6
Professional fees                                                    39.1         31.3
Other, net                                                           52.3         48.6
Depreciation                                                         27.0         22.6
Amortization of intangible assets                                   278.8        230.5
                                                                  2,582.2      2,088.7
Foreign exchange loss (gain)                                         (3.1)         8.6
TSS membership liability revaluation charge                          55.2         49.9
Finance and other expense (income)                                  (17.0)        (3.5)
Bargain purchase (gain)                                             (68.5)        (9.9)
Finance costs                                                        25.9         24.8
                                                                     (7.5)        69.9
Income before income taxes                                          485.4        320.8
Current income tax expense (recovery)                               126.6        106.5
Deferred income tax expense (recovery)                              (20.5)        (7.6)
Income tax expense (recovery)                                       106.1         98.9
Net income                                                          379.3        221.9
Earnings per share
Basic and diluted                                                 $ 17.90      $ 10.47

We seek Safe Harbor.