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Stock Exchange Symbol: DH
Website: www.dhltd.com
TORONTO, Aug. 7, 2013 /CNW/ - Davis + Henderson Corporation ("D+H" or
the "Corporation" or the "Company") today reported solid financial
results for the three and six months ended June 30, 2013 as it prepares
to accelerate its strategic agenda of becoming a leading North American
financial technology ("FinTech") provider through the previously
announced agreement to acquire Harland Financial Solutions ("HFS") in a
US $1.2 billion transaction.
"D+H continues to execute well on our strategies by building our
presence in the U.S. community bank and credit union marketplace while
supporting the growth of our Canadian customers," said Gerrard Schmid,
Chief Executive Officer. "Notable second quarter highlights included
the 58% year-over-year increase in U.S. revenues and the broad-based
growth achieved across all Canadian service categories. We are
encouraged by these results and by the prospects ahead as we finalize
the recent acquisition of HFS, which we expect to close on or about
August 19, 2013, and move forward as a larger, more capable North
American FinTech provider.
As a result of growth in both the U.S. and Canada, D+H derived 11.2% of
its second quarter revenue in the U.S., up from 7.7% a year ago.
"As second quarter results demonstrate, our business is operating on
plan and with greater focus following the divestiture of non-strategic
assets in May and success with recent initiatives designed to achieve
tighter integration between our U.S. Point of Sale (POS), Loan
Origination Systems (LOS) and cloud-based infrastructure solutions,"
said Brian Kyle, Chief Financial Officer. "As a result, the timing of
the HFS acquisition is ideal. Following closing, we will move to
integrate our sales activities and products to add more value to our
existing customers and to attract new customers".
Second Quarter Highlights
-
Revenue from continuing operations increased 8.9% to $197.1 million from
$181.0 million in the same quarter in 2012, reflecting U.S. Segment
revenue growth of 58.2% year over year and a 4.8% increase in Canadian
Segment.
-
Net income of $13.6 million ($0.2298 per share) decreased 34.8%,
compared to $20.9 million ($0.3526 per share) for the same quarter in
2012, primarily due to loss from discontinued operations of $8.8
million, partially offset by an unrealized gain of $1.2 million on fair
value changes related to interest-rate swaps.
-
Adjusted EBITDA1 increased 2.2% to $58.3 million (29.6% margin) from $57.1 million
(31.5% margin) for the same period in 2012.
-
Adjusted net income1 increased 5.7% to $34.2 million from $32.3 million in 2012 and Adjusted
net income per share increased to $0.5774 , from $0.5461 in the second
quarter of 2012.
-
Debt repayments during the second quarter of 2013 were $20.5 million.
-
On May 10, 2013, D+H announced the closing of the previously announced
divestiture of its non-strategic business processing operations
("discontinued operations").
-
During the second quarter of 2013, D+H paid a dividend of $0.32 per
share to its shareholders.
-
On July 23, 2013, D+H announced the execution of a purchase agreement to
acquire 100% of HFS, a leading U.S. based provider of strategic
financial technology, including lending and compliance, core banking,
and channel management technology solutions to U.S. banks, credit
unions, and mortgage companies.
Six-Month Highlights
-
Revenue from continuing operations increased 6.5% to $368.8 million from
$346.3 million for the same six-month period in 2012.
-
Net income was $19.4 million ($0.3267 per share), a decrease of $16.5
million, or 46.0%, compared to $35.8 million ($0.6047 per share) for
the same period of 2012, mainly due to loss from discontinued
operations of $19.5 million ($0.3289 per share), partially offset by an
increase in EBITDA, lower interest expense and a non-cash gain on
remeasurement of previously held equity interest in Compushare.
-
Adjusted EBITDA increased 3.4% to $101.4 million (27.5% margin) from
$98.1 million (28.3% margin) for the same period in 2012.
-
Adjusted net income increased 5.8% to $57.3 million from $54.2 million
for the same 2012 period and Adjusted net income per share increased to
$0.9675 from $0.9143 .
-
Debt repayments for the first six months of 2013 were $21.5 million.
-
During the first six months of 2013, dividends of $0.64 per share were
paid to shareholders, up from $0.62 per share in the same period of
2012.
_______________________________
1 D+H's financial results are prepared in accordance with IFRS. D+H
reports several non-IFRS financial measures, including EBITDA, Adjusted
EBITDA and Adjusted net income used above. Adjusted EBITDA is
calculated as EBITDA, adjusted to remove certain items of note such as
acquisition-related and other charges, including transaction costs and
retention expenses related to acquisitions, corporate development
charges related to strategic acquisition initiatives, business
integration charges, and expenses associated with cost-realignment
initiatives, all of which are not considered to be part of normal
course of operations. Adjusted net income is calculated as net
income, adjusted to remove certain non-cash items and certain items of
note as described above, discontinued operations, gain on remeasurement
of the previously held equity interest in Compushare, and the related
tax effects of these adjustments including tax effects of acquisitions
and corporate conversions. These items are excluded in calculating
Adjusted EBITDA and Adjusted net income as they are not considered
indicative of the underlying business performance for the period being
reviewed and management believes that excluding these adjustments is
more reflective of ongoing operating results. Any non-IFRS financial
measures should be considered in context with the IFRS financial
statement presentation and should not be considered in isolation or as
a substitute for IFRS net income or cash flows. Further, D+H's measures
may be calculated differently from similarly titled measures of other
companies. See Non-IFRS Financial Measures for a more complete
description of these terms.
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D+H's unaudited condensed interim consolidated financial statements for
the second quarter of 2013, accompanying notes to the financial
statements and management's discussion & analysis ("MD&A") along with
the supplementary financial information will be available today at www.dhltd.com and tomorrow on www.sedar.com.
For a more detailed discussion of the results, management's outlook,
please see the MD&A below.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This press release contains certain statements that constitute
forward-looking information within the meaning of applicable securities
laws ("forward-looking statements"). Statements concerning D+H's
objectives, goals, strategies, intentions, plans, beliefs, expectations
and estimates, and the business, operations, financial performance and
condition of D+H are forward-looking statements. The words "believe",
"expect", "anticipate", "estimate", "intend", "may", "will", "would"
and similar expressions and the negative of such expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. These
forward-looking statements are subject to important assumptions,
including the following specific assumptions: the ability of D+H to
meet its revenue, "EBITDA", "Adjusted EBITDA" and "Adjusted net income"
targets (see Non-IFRS Financial Measures for a more complete
description of the terms EBITDA, Adjusted EBITDA and Adjusted net
income); general industry and economic conditions; changes in D+H's
relationship with its customers and suppliers; pricing pressures and
other competitive factors; the anticipated effect of acquisitions on
the financial performance of D+H; and the expected benefits arising as
a result of acquisitions. D+H has also made certain macroeconomic and
general industry assumptions in the preparation of such forward-looking
statements. While D+H considers these factors and assumptions to be
reasonable based on information currently available, there can be no
assurance that actual results will be consistent with these
forward-looking statements.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause D+H's actual results,
performance or achievements, or developments in its industry, to differ
materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward-looking statements.
Risks related to forward-looking statements include, among other things,
challenges presented by declines in the use of personal and business
cheques; the Company's dependence on a limited number of large
financial institution customers and dependence on their acceptance of
new programs; strategic initiatives being undertaken to meet the
Company's financial objective; stability and growth in the real estate,
mortgage and lending markets; increased pricing pressures and increased
competition which could lead to loss of contracts or reduced margins;
as well as general market conditions, including economic and interest
rate dynamics. Given these uncertainties, readers are cautioned not to
place undue reliance on such forward-looking statements. The documents
incorporated by reference herein also identify additional factors that
could affect the operating results and performance of the Company.
Forward-looking statements are based on management's current plans,
estimates, projections, beliefs and opinions, and D+H does not
undertake any obligation to update forward-looking statements should
assumptions related to these plans, estimates, projections, beliefs and
opinions change except as required by applicable securities laws.
All of the forward-looking statements made in this press release and the
documents incorporated by reference herein are qualified by these
cautionary statements and other cautionary statements or factors
contained herein, and there can be no assurance that the actual results
or developments will be realized or, even if substantially realized,
that they will have the expected consequences to, or effects on, the
Company.
CONFERENCE CALL
D+H will discuss its financial results for the three and six months
ended June 30, 2013 via conference call at 10:00 a.m. EST (Toronto
time) on Thursday, August 8, 2013. The number to use for this call is
416-764-8609 for Local / International callers or 1-888-390-0605 for US
/ Canada callers. The conference call will be hosted by Gerrard Schmid,
Chief Executive Officer and by Brian Kyle, Chief Financial Officer. The
conference call will also be available on the web by accessing CNW
Group's website www.newswire.ca/en/webcast/detail/1203055/1319325. For anyone unable to listen to the scheduled call, the rebroadcast
number will be: 416-764-8677 for Toronto area callers, or 1-888-390-0541 for all other callers, with
Encore Password 911804. The rebroadcast will be available until
Thursday, August 22, 2013. An archive recording of the conference call
will also be available at the above noted web address for one month
following the call and a text version of the call will be available at www.dhltd.com.
ADDITIONAL INFORMATION
Additional information relating to the Company, including the Company's
most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") of financial
condition and results of operations has been prepared with an effective
date of August 7, 2013 and should be read in conjunction with Davis +
Henderson Corporation's (the "Corporation" or the "Company" or "Davis +
Henderson" or "D+H" or the "Business" or "we" or "our") MD&A in the
Annual Report for the year ended December 31, 2012, dated February 26,
2013, and the unaudited condensed interim consolidated financial
statements for the three and six months ended June 30, 2013. External
economic and industry factors remain substantially unchanged from those
described in the annual MD&A and the Corporation's most recently filed
Annual Information Form, except as described herein.
NON-IFRS FINANCIAL MEASURES
The information presented within the tables in this MD&A include certain
adjusted financial measures such as "EBITDA" (Income from continuing
operations excluding interest, taxes, depreciation and amortization and
fair value adjustments of interest-rate swaps which are directly
related to interest expense, income from investment in an associate and
gain on remeasurement of a previously held equity interest in an
associate), "EBITDA Margin" (EBITDA divided by revenue) and adjusted
financial measures such as "Adjusted EBITDA" (EBITDA adjusted to remove
acquisition-related and other charges, including expenses incurred in
connection with cost-realignment initiatives, corporate development
expenses related to strategic acquisition initiatives, certain
retention and incentive expenses, transaction costs and business
integration costs incurred in connection with acquisitions, all of
which are not considered to be incurred in the normal course of
operations and are not indicative of the underlying business
performance), "Adjusted EBITDA Margin" (Adjusted EBITDA divided by
revenue), "Adjusted net income" (net income before certain non-cash
charges such as amortization of intangibles from acquisitions and fair
value adjustments of interest-rate swaps and certain items of note such
as acquisition-related and other charges, discontinued operations,
including tax effects of these items and tax effects of acquisitions
and corporate conversion), and "Adjusted net income per share", all of
which are not defined terms under International Financial Reporting
Standards ("IFRS").
These non-IFRS financial measures should be read in conjunction with the
Consolidated Statements of Income. See the reconciliation of EBITDA,
Adjusted EBITDA and Adjusted net income to the most directly comparable
IFRS measure, "net income", in the "Operating Results" section of this
MD&A.
Management believes these supplementary measures provide useful
additional information related to the operating results of the
Corporation. Management uses these subtotals as measures of financial
performance and as a supplement to the Consolidated Statements of
Income. Investors are cautioned that these measures should not be
construed as an alternative to using net income as a measure of
profitability or as an alternative to the IFRS Consolidated Statements
of Income or other IFRS statements.
Further, these measures do not have any standardized meaning and D+H's
method of calculating each balance may not be comparable to
calculations used by other companies bearing the same description.
EBITDA
In addition to its use by management as an internal measure of financial
performance, EBITDA (with adjustments) is used to measure compliance
with certain financial covenants under the Company's credit facility
and bonds. EBITDA is also used by D+H as a factor in assessing the
performance and the value of a business. EBITDA has limitations as an
analytical tool, and the reader should not consider it in isolation or
as a substitute for analysis of results as reported under IFRS.
Adjusted EBITDA
Adjusted EBITDA is also used by D+H in assessing the performance of its
businesses. Adjusted EBITDA excludes: (i) acquisition-related expenses
such as transaction costs, business integration costs and certain
retention and incentive costs incurred as part of acquisitions; and
(ii) other charges such as corporate development costs related to
strategic acquisition initiatives and costs incurred in connection with
cost-realignment initiatives, all of which are not considered to be
part of the normal course of operations. These items are excluded in
calculating Adjusted EBITDA as they are not considered indicative of
the underlying business performance for the period being reviewed and
management believes that excluding these adjustments is more reflective
of ongoing operating results.
Similar to EBITDA, Adjusted EBITDA also has limitations as an analytical
tool, and the reader should not consider it in isolation or as a
substitute for analysis of results as reported under IFRS.
Adjusted Net Income and Adjusted Net Income per Share
Adjusted net income is used as a measure of internal performance similar
to net income, but is calculated after removing the impacts of certain
items of note such as: acquisition-related and other charges, including
transaction costs, retention and incentive expenses and business
integration costs related to acquisitions; corporate development
charges related to strategic acquisition initiatives and expenses
associated with cost-realignment initiatives, all of which are not
considered to be part of normal course of operations; discontinued
operations; and, certain non-cash items such as amortization of
intangibles from acquisitions, gain on remeasurement of the previously
held equity interest in Compushare and fair value adjustments of
interest-rate swaps. Also excluded from Adjusted net income are the tax
effects of corporate conversion and acquisitions. These items are
excluded in calculating Adjusted net income as they are not considered
indicative of the financial performance of the Business for the periods
being reviewed.
ADDITIONAL IFRS MEASURES
Income from Operating Activities
D+H provides as part of its Consolidated Statement of Income an
additional IFRS measure for "Income from Operating Activities".
Management believes that this measure provides relevant information to
understand the Corporation's financial performance. This additional
IFRS measure is representative of activities that would normally be
regarded as "operating" for the Company.
STRATEGY
D+H's goal is to be a leading financial technology ("FinTech") provider
to the North American financial services marketplace. FinTech companies
develop and deliver technology and technology-enabled products and
services to banks, credit unions and other leading financial services
customers who use these solutions to drive growth, improve customer
convenience, streamline operations, reduce infrastructure costs and
enhance compliance.
D+H's strategy is to establish market-leading positions within
well-defined and growing service areas in the financial services
marketplace, and to reinforce these positions with technology solutions
that deliver increasing value to our customers and shareholders. We
expect to advance this strategy through organic initiatives, by
partnering with third parties and making selective acquisitions. By
growing revenue while maintaining efficient operations, D+H intends to
achieve its long-term financial objective of growing earnings.
In July 2013, D+H significantly advanced its FinTech goal and strategy
by agreeing to acquire Harland Financial Solutions (see Subsequent
Event below) in a transaction designed to be immediately accretive to
shareholders at an Adjusted net income per share level and with
targeted accretion in the high single-digit range at the Adjusted net
income per share level in 2014, before any potential synergies. HFS
will add: 5,400 U.S. bank and credit union customers to bring our
combined customer count to over 6,200 (not counting shared customer
relationships); a suite of market-leading FinTech products including
LaserPro®, America's first choice for lending and compliance solutions,
core banking technology and a number of innovative channel solutions;
1,350 employees across some 17 facilities; and, Adjusted revenues
(calculated as revenue after removing the effect of purchase accounting
on the fair value of acquired deferred revenue) and Adjusted EBITDA of
approximately $306 million and $104 million for the last 12 months
ended March 31, 2013. Management believes the addition of HFS will
provide D+H with sales and revenue synergies in the U.S. banking and
credit union marketplace, and improve the Company's value proposition
as a single-source FinTech provider. In particular, in HFS's
experience, core banking technology providers enjoy a significant
advantage in cross-selling additional FinTech solutions. As HFS is
considered one of the top four providers of core banking technology in
the United States, and one of only two providers of contemporary core
banking solutions, D+H expects to benefit from its value proposition in
cross-selling its expanded FinTech suite of products including our
Mortgagebot and Compushare solutions.
The HFS acquisition is fully aligned with D+H's overall vision and with
its ongoing plan to reduce risk by increasing revenue diversification
by geography and service line. On a pro forma basis (amounts exclude
revenue related to the Non-strategic Businesses, and pro forma amounts
reflect the Corporation and HFS as a combined entity), the combined
enterprise generated approximately 36% of its 2012 revenue in the U.S.
(compared to 8% in 2012 prior to the acquisition). On service-line
basis, the combined enterprise generated approximately 70% of its pro
forma 2012 revenue from solutions serving customers' broader banking
and lending operations and 30% from payment solutions versus 57% and
43% respectively prior to the acquisition. The acquisition will also
enhance D+H's profile, creating a Company with 2012 pro forma revenues
of approximately $1.1 billion, (including non-strategic operations
divested in May 2013) and comparability with large U.S. FinTech
companies that are owned and followed by U.S. investors and analysts. A
high degree of pro forma revenue will be under long-term contract,
adding further stability to our business.
Going forward, management will remain focused on executing its North
American growth strategy with emphasis on: i) cross-selling its suite
of FinTech solutions including Mortgagebot Point of Sale ("POS") and
Loan Origination Systems ("LOS") products, Compushare cloud-based
infrastructure technology and the HFS technology portfolio primarily
within the U.S. marketplace to existing banks and credit union
customers as well as some 6,000 plus other U.S. community banks and
credit unions that could benefit from these offerings; ii) enhancing
services, capabilities and cost effectiveness across all service lines
in Canada and the U.S. as a means of enhancing customer value and
creating additional free cash flow iii) building new subscription-based
business in its payment solutions service line where it recently won
number of Canadian financial institution mandates; iv) expanding its
offering through strategic partnerships; v) reducing leverage taken on
to acquire HFS while continuing to support the Company's current
dividend to shareholders.
In addition, D+H will explore incremental growth opportunities by: i)
creating adjacent offerings, such as our recent expansion into consumer
loan origination technology ii) introducing our combined suite of
products selectively in international markets, and iii) offering the
HFS product suite to Canadian credit unions.
In carrying out its cross-selling strategy, D+H will work to achieve
best practices and synergies in a number of areas including integrating
sales activities to better serve our customers, and focusing on
creating tighter linkages between our technologies to create a more
integrated offering to enhance customer satisfaction as we grow.
As the Company has targeted reducing its Debt to EBITDA ratio (with
adjustments as required pursuant to D+H's lending agreements) to below
2.5 times by 2016 from an expected 3.4 times when the acquisition of
HFS closes on or about August 19, 2013, and management believes the
addition of HFS has significantly accelerated its FinTech goal and
market positioning, D+H plans to emphasize organic growth and growth
through partnerships in the near term rather than growth through
acquisition.
D+H's advancements on the FinTech 100, a list of the top financial technology firms in the world (according to
their FinTech revenues) prepared by American Banker, Bank Technology
News and IDC Financial Insights and the Branham300 are a reflection of
D+H's increasing technological capabilities and steps taken to provide
a broad spectrum of financial technology products and services to its
customers including ongoing innovation and growth to better serve the
financial services industry.
For a detailed discussion of the results for the three and six months
ended June 30, 2013 and management's outlook, please see below.
ACCOUNTING PRINCIPLES AND FINANCIAL INFORMATION PRESENTATION
The Company's unaudited condensed interim consolidated financial
statements have been prepared in accordance with IFRS, specifically IAS
34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB").
Results from continuing operations include the performance of acquired
businesses from the respective dates of acquisition and exclude results
from operations classified as discontinued operations.
Effective January 1, 2013, D+H reports its revenues under the following
categories: (i) payment solutions; (ii) lending processing solutions
(previously reported as loan servicing solutions and loan registration
and recovery services) and; (iii) banking technology solutions
(previously reported as lending technology services). For segment
reporting purposes, payment solutions, lending processing solutions and
the banking technology solutions which include banking technology
solutions to the Canadian mortgage market and technology solutions in
the commercial lending, small business lending and leasing areas are
reported as part of the Canadian Segment. The U.S. Segment consists of
banking technology solutions to the U.S. mortgage market, including
results from SaaS POS and LOS as well as Compushare's cloud-based
solutions.
Comparative periods have been conformed to the current period
classification.
All amounts are in Canadian dollars, unless otherwise specified.
DIVESTITURE
On May 10, 2013, D+H closed the previously announced transaction to
divest its non-strategic business processing operations, comprised of
credit card services, contact centre services, benefits and
administration, coupon and rebate services and real estate services.
These operations largely served customers comprised of retailers, real
estate boards and packaged goods companies and provided services that
are not considered part of D+H's strategic business of serving
financial institutions as its long-term strategy.
The results of operations of these components were included as part of
business service solutions and loan servicing solutions in the Canadian
Segment in prior periods. These components and the related transition
services have been classified as discontinued operations for all
periods presented. Refer to note 13 of the unaudited condensed interim
consolidated financial statements for the three and six months ended
June 30, 2013 for further information related to the impact of these
discontinued operations on the financial statements of the Corporation.
SUBSEQUENT EVENT
On July 23, 2013, D+H announced that it had entered into an agreement to
indirectly purchase all of the outstanding shares of capital stock of
Harland Financial Solutions, Inc., Harland Financial Solutions
Worldwide Limited and Harland Israel Ltd. (collectively referred to as
"HFS"). HFS is a leading U.S. based provider of strategic financial
technology, including lending and compliance, core banking, and channel
management technology solutions to U.S. banks, credit unions, and
mortgage companies. HFS is headquartered in Lake Mary, Florida and
operates from offices throughout the U.S., as well as Dublin, Ireland,
Trivandrum, India and Tel Aviv, Israel.
The purchase price is approximately US $1.2 billion in cash, subject to
post-closing adjustments. The purchase price and associated
transaction costs will be financed as follows (refer to the Short-Form
Prospectus filed on SEDAR dated August 1, 2013 for further details):
(i) Gross proceeds of approximately $400.2 million from issuance of 18.7
million subscription receipts ("Subscription Receipts"). Each
Subscription Receipt entitles the holder to receive one common share of
the Corporation upon the close of the acquisition, at a price of
$21.40;
(ii) Gross proceeds of $200 million from issuance of 6.00%, 5-year,
extendible convertible unsecured subordinated debentures
("Debentures"). The Debentures are convertible at the holder's option
into the common shares of the Corporation at the conversion price of
$28.90 ("Conversion Price"). The Debentures can be converted anytime
after closing of the acquisition and the earlier of a) September 30,
2018 and b) the last business day immediately preceding the date
specified by the Corporation for redemption of the Debentures.
The Debentures may not be redeemed by the Corporation before September
30, 2016 (except in certain limited circumstances). On or after
September 30, 2016 and prior to September 30, 2017, the Debentures may
be redeemed at the Corporation's option at a redemption price equal to
their principal amount plus accrued and unpaid interest, provided that
the then market price of the common shares of the Corporation exceeds
125% of the Conversion Price. On or after September 30, 2017 and prior
to the September 30, 2018, the Debentures may be redeemed by the
Corporation, at a redemption price equal to their principal amount plus
accrued and unpaid interest.
The Debentures will be the Corporation's direct obligations and will not
be secured by any mortgage, pledge, hypothec or other charge and will
be subordinated to the Corporation's other liabilities;
(iii) Balance of purchase price through non-revolving, non-amortizing
secured credit facilities, maturing in 5 years and may include senior
secured guaranteed notes.
As part of the above mentioned changes to D+H's structure, D+H will also
replace its current $355 million revolving, non-amortizing term credit
facility with a new revolving, non-amortizing 5-year term credit
facility.
The financing includes an overallotment for both the subscription
receipts and convertible debentures that may be exercised on closing;
the impact of which will reduce borrowings against the secured credit
facilities.
Closing of the transaction is subject to regulatory approvals and other
customary conditions and is expected to occur on or about August 19,
2013.
In the event the acquisition does not close by February 28, 2014, or
earlier if the stock purchase agreement between the Corporation and
seller is terminated, or the Corporation announces that it does not
intend to proceed with the acquisition (in any case, a "Termination
Event", and the date upon which such event occurs, the "Termination
Date"):
(i) Holders of the subscription receipts will be entitled to receive an
amount equal to the full subscription price, plus certain accrued
interest,
(ii) The Debentures' maturity will be deemed to be the Termination Date,
(iii) 50% of the commission payable for the Subscription Receipts and
100% of the commission payable for the Debentures will be payable to
the underwriters.
OPERATING RESULTS - SECOND QUARTER AND YEAR-TO-DATE 2013
The following tables should be read in conjunction with the condensed
interim consolidated statements of income for the three and six months
ended June 30, 2013 and include non-IFRS financial measures. Management
believes these supplementary disclosures provide useful additional
information. See Non-IFRS Financial Measures and Additional IFRS
Measures sections for a description of non-IFRS and additional IFRS
measures terms used.
The consolidated results include those of Compushare effective from the
date of acquisition of January 29, 2013. Revenues and expenses
relating to Compushare have been reported as part of the U.S. Segment.
Overview
D+H delivered solid operating performance in the first six months of
2013 that was consistent with its strategic agenda of becoming a
leading FinTech provider to the North American financial services
marketplace. Year-over-year growth in revenues was attributable mainly
to the U.S. Segment and reflected the inclusion of Compushare and
Avista as well as organic growth in our other SaaS revenues. U.S.
Segment contributed to year-over-year growth in EBITDA and Adjusted
EBITDA as a result of acquisitions and organic growth. Consolidated
EBITDA also included non-normal-course charges of $5.8 million related
to corporate development costs related to strategic acquisition
initiatives, certain retention and incentive costs in connection with
the acquisition of businesses, business integration costs and expense
related to cost-realignment initiatives, reported as part of
Corporate. Consolidated net income for the second quarter of 2013 was
lower compared to the same period in 2012 primarily due to loss from
discontinued operations related to the divestiture. Consolidated
Adjusted net income, which excluded the loss from discontinued
operations, was higher than the comparative period.
(in thousands of Canadian dollars, except per share amounts, unaudited)
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|
|
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Quarter ended June 30,
|
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Six months ended June 30,
|
|
|
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2013
|
2012
|
|
2013
|
2012
|
|
Revenue
|
$
|
197,134
|
$
|
180,989
|
|
$
|
368,795
|
$
|
346,310
|
|
Expenses
|
|
144,551
|
|
128,289
|
|
|
274,215
|
|
253,363
|
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EBITDA 1
|
|
52,583
|
|
52,700
|
|
|
94,580
|
|
92,947
|
|
Depreciation of capital assets and amortization of non-acquisition
intangibles
|
|
6,657
|
|
6,986
|
|
|
13,176
|
|
13,451
|
|
Amortization of intangibles from acquisitions
|
|
11,060
|
|
10,706
|
|
|
21,974
|
|
21,101
|
|
Income from operating activities
|
|
34,866
|
|
35,008
|
|
|
59,430
|
|
58,395
|
|
Interest expense
|
|
4,516
|
|
4,821
|
|
|
8,987
|
|
9,642
|
|
Income from investment in an associate, net of tax 2
|
|
-
|
|
(38)
|
|
|
(130)
|
|
(38)
|
|
Gain on remeasurement of previously-held equity interest 2
|
|
-
|
|
-
|
|
|
(1,587)
|
|
-
|
|
Fair value adjustment of derivative instruments 3
|
|
(1,203)
|
|
616
|
|
|
(1,310)
|
|
(1,029)
|
|
Income tax expense
|
|
9,158
|
|
8,345
|
|
|
14,638
|
|
13,379
|
|
Income from continuing operations
|
|
22,395
|
|
21,264
|
|
|
38,832
|
|
36,441
|
|
Loss from discontinued operations, net of tax 4
|
|
(8,786)
|
|
(377)
|
|
|
(19,481)
|
|
(620)
|
|
Net income
|
$
|
13,609
|
$
|
20,887
|
|
$
|
19,351
|
$
|
35,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operating activities per share, basic and diluted 5, 6
|
$
|
0.5886
|
$
|
0.5910
|
|
$
|
1.0033
|
$
|
0.9858
|
|
Income from continuing operations per share, basic and diluted 5, 6
|
$
|
0.3781
|
$
|
0.3590
|
|
$
|
0.6556
|
$
|
0.6152
|
Loss from discontinued operations, per share, basic and diluted,
net of tax 4, 5, 6
|
$
|
(0.1483)
|
$
|
(0.0064)
|
|
$
|
(0.3289)
|
$
|
(0.0105)
|
|
Net income per share, basic and diluted 5, 6
|
$
|
0.2298
|
$
|
0.3526
|
|
$
|
0.3267
|
$
|
0.6047
|
|
1
|
EBITDA is a non-IFRS term. See Non-IFRS Financial Measures for a more
complete description of this term.
|
|
2
|
Income from investment in an associate consists of D+H's share of profit
from Compushare, the minority investment purchased on April 24, 2012. Upon acquisition of the remaining interest in January 2013, a gain
related to remeasurement of the previously held equity interest was
recognized in accordance with IFRS standards.
|
|
3
|
Includes mark-to-market adjustments of interest-rate swaps that are not
designated as hedges for hedge accounting purposes, and for which any
change in the fair value of these contracts is recorded through the
Consolidated Statements of Income.
|
|
4
|
On May 10, 2013 D+H closed the previously announced transaction to
divest its non-strategic business processing operations. These
operations were reported as part of business service solutions and loan
servicing in prior periods and have now been classified as discontinued
operations for both the current and comparative periods presented.
|
|
5
|
Diluted net income per share reflects the impacts of outstanding
options. If the average market price during the period is below the
option price plus the fair market value of the option, then the options
are not included in the dilution calculation.
|
|
6
|
Weighted average number of shares outstanding during the second quarter
and first six months of 2013 was 59,233,373 shares (Three and six
months ended June 30, 2012 - 59,233,373 shares).
|
(in thousands of Canadian dollars, unaudited)
|
|
Quarter ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2013
|
2012
|
|
2013
|
2012
|
|
Revenue
|
|
$
|
197,134
|
$
|
180,989
|
|
$
|
368,795
|
$
|
346,310
|
|
Expenses
|
|
|
144,551
|
|
128,289
|
|
|
274,215
|
|
253,363
|
|
EBITDA 1
|
|
|
52,583
|
|
52,700
|
|
|
94,580
|
|
92,947
|
|
EBITDA Margin
|
|
|
26.7%
|
|
29.1%
|
|
|
25.6%
|
|
26.8%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related and other charges 2
|
|
|
5,764
|
|
4,378
|
|
|
6,792
|
|
5,115
|
|
Adjusted EBITDA 1
|
|
$
|
58,347
|
$
|
57,078
|
|
$
|
101,372
|
$
|
98,062
|
|
Adjusted EBITDA Margin
|
|
|
29.6%
|
|
31.5%
|
|
|
27.5%
|
|
28.3%
|
|
1
|
EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial
Measures for a more complete description of these terms.
|
|
2
|
Acquisition-related and other charges for the second quarter of 2013
included corporate development costs related to strategic acquisition
initiatives, certain retention and incentive costs in connection with
the acquisitions of businesses, business integration costs and expenses
related to cost-realignment initiatives. Acquisition-related and other
charges for the same period in 2012 included certain retention and
incentive costs related to the Mortgagebot and Avista acquisitions as
well as expenses related to cost-realignment initiatives.
|
|
|
|
|
|
Quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
|
|
2013 vs. 2012
|
|
|
2013 vs. 2012
|
|
|
|
|
|
% change
|
|
|
% change
|
|
Revenue
|
|
8.9%
|
|
|
6.5%
|
|
EBITDA 1
|
|
(0.2%)
|
|
|
1.8%
|
|
Adjusted EBITDA 1
|
|
2.2%
|
|
|
3.4%
|
1 EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial
Measures for a more complete description of these terms.
(in thousands of Canadian dollars, except per share amounts, unaudited)
|
|
|
|
Quarter ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
2013
|
2012
|
|
2013
|
2012
|
|
Net income
|
$
|
13,609
|
$
|
20,887
|
|
$
|
19,351
|
$
|
35,821
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles from acquisitions
|
|
11,060
|
|
10,706
|
|
|
21,974
|
|
21,101
|
|
|
|
Gain on remeasurement of previously-held equity interest 2
|
|
-
|
|
-
|
|
|
(1,587)
|
|
-
|
|
|
|
Fair value adjustment of derivative instruments 3
|
|
(1,203)
|
|
616
|
|
|
(1,310)
|
|
(1,029)
|
|
|
Other items of note:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related and other charges 4
|
|
5,764
|
|
4,378
|
|
|
6,792
|
|
5,115
|
|
|
Tax effect of above adjustments 6
|
|
(3,814)
|
|
(4,615)
|
|
|
(7,392)
|
|
(7,469)
|
|
|
Loss from discontinued operations, net of tax 5
|
|
8,786
|
|
377
|
|
|
19,481
|
|
620
|
|
Adjusted net income 1
|
$
|
34,202
|
$
|
32,349
|
|
$
|
57,309
|
$
|
54,159
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income per share, basic and diluted 1, 7, 8
|
$
|
0.5774
|
$
|
0.5461
|
|
$
|
0.9675
|
$
|
0.9143
|
|
|
|
|
|
Quarter ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
|
|
2013 vs. 2012
|
|
|
2013 vs. 2012
|
|
|
|
|
|
% change
|
|
|
% change
|
|
Adjusted net income per share, basic and diluted 1, 7, 8
|
|
5.7%
|
|
|
5.8%
|
|
1
|
Adjusted net income and Adjusted net income per share are non-IFRS
terms. See Non-IFRS Financial Measures for a more complete description
of these terms.
|
|
2
|
Upon acquisition of the remaining interest in Compushare in January
2013, a gain related to remeasurement of the previously held equity
interest was recognized in accordance with IFRS standards.
|
|
3
|
Includes mark-to-market adjustments of interest-rate swaps that are not
designated as hedges for hedge accounting purposes, and for which any
change in the fair value of these contracts is recorded through the
Consolidated Statement of Income.
|
|
4
|
Acquisition-related and other charges for the second quarter of 2013
included corporate development costs related to strategic initiatives,
certain retention and incentive costs in connection with the
acquisitions of businesses, business integration costs and expenses
related to cost-realignment initiatives. Acquisition-related and other
charges for the same period in 2012 included certain retention and
incentive costs related to the Mortgagebot and Avista acquisitions as
well as expenses related to cost-realignment initiatives.
|
|
5
|
On May 10, 2013 D+H closed the previously announced transaction to
divest its non-strategic business processing operations. The results
of these components were included as part of business service solutions
and loan servicing solutions in the Canadian Segment in prior periods.
These components and the related transition services have been
classified as discontinued operations for all periods presented.
|
|
6
|
The following adjustments to net income are tax effected at their
respective tax rates: (i) amortization of acquisition intangibles; (ii)
fair value adjustment of derivative instruments; and (iii)
acquisition-related and other charges.
|
|
7
|
Diluted Adjusted net income per share (non-IFRS term) reflects the
impacts of outstanding options. If the average market price during the
period is below the option price plus the fair market value of the
option, then the options are not included in the dilution calculation.
|
|
8
|
Weighted average number of shares outstanding during the second quarter
and first six months of 2013 was 59,233,373 shares (Three and six
months ended June 30, 2012 - 59,233,373 shares).
|
OPERATING RESULTS BY SEGMENT
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30,
|
|
|
|
|
Canadian
Segment
|
|
|
U.S.
Segment
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
2013
|
2012
|
|
2013
|
2012
|
|
2013
|
2012
|
|
2013
|
2012
|
|
Revenue
|
$
|
175,092
|
$
|
167,054
|
|
$
|
22,042
|
$ 13,935
|
|
$
|
-
|
$
|
-
|
|
$
|
197,134
|
$
|
180,989
|
|
Expenses
|
|
125,909
|
|
117,177
|
|
|
12,878
|
6,734
|
|
|
5,764
|
|
4,378
|
|
|
144,551
|
|
128,289
|
|
EBITDA 1
|
|
49,183
|
|
49,877
|
|
|
9,164
|
7,201
|
|
|
(5,764)
|
|
(4,378)
|
|
|
52,583
|
|
52,700
|
|
EBITDA Margin
|
|
28.1%
|
|
29.9%
|
|
|
41.6%
|
51.7%
|
|
|
-
|
|
-
|
|
|
26.7%
|
|
29.1%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related and other charges 2
|
|
-
|
|
-
|
|
|
-
|
-
|
|
|
5,764
|
|
4,378
|
|
|
5,764
|
|
4,378
|
|
Adjusted EBITDA 1
|
$
|
49,183
|
$
|
49,877
|
|
$
|
9,164
|
$ 7,201
|
|
$
|
-
|
$
|
-
|
|
$
|
58,347
|
$
|
57,078
|
|
Adjusted EBITDA Margin
|
|
28.1%
|
|
29.9%
|
|
|
41.6%
|
51.7%
|
|
|
-
|
|
-
|
|
|
29.6%
|
|
31.5%
|
|
|
Six months ended June 30,
|
|
|
|
|
|
Canadian
Segment
|
|
|
U.S.
Segment
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
2013
|
2012
|
|
2013
|
2012
|
|
2013
|
2012
|
|
2013
|
2012
|
|
Revenue
|
$
|
327,472
|
$
|
320,784
|
|
$
|
41,323
|
$ 25,526
|
|
$
|
-
|
$
|
-
|
|
$
|
368,795
|
$
|
346,310
|
|
Expenses
|
|
243,270
|
|
235,962
|
|
|
24,153
|
12,286
|
|
|
6,792
|
|
5,115
|
|
|
274,215
|
|
253,363
|
|
EBITDA 1
|
|
84,202
|
|
84,822
|
|
|
17,170
|
13,240
|
|
|
(6,792)
|
|
(5,115)
|
|
|
94,580
|
|
92,947
|
|
EBITDA Margin
|
|
25.7%
|
|
26.4%
|
|
|
41.6%
|
51.9%
|
|
|
-
|
|
-
|
|
|
25.6%
|
|
26.8%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related and other charges 2
|
|
-
|
|
-
|
|
|
-
|
-
|
|
|
6,792
|
|
5,115
|
|
|
6,792
|
|
5,115
|
|
Adjusted EBITDA 1
|
$
|
84,202
|
$
|
84,822
|
|
$
|
17,170
|
$ 13,240
|
|
$
|
-
|
$
|
-
|
|
$
|
101,372
|
$
|
98,062
|
|
Adjusted EBITDA Margin
|
|
25.7%
|
|
26.4%
|
|
|
41.6%
|
51.9%
|
|
|
-
|
|
-
|
|
|
27.5%
|
|
28.3%
|
|
1
|
EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial
Measures for a more complete description of these terms.
|
|
2
|
Acquisition-related and other charges for the second quarter of 2013
included corporate development costs related to strategic initiatives,
certain retention and incentive costs in connection with the
acquisitions of businesses, business integration costs and expenses
related to cost-realignment initiatives. Acquisition-related and other
charges for the same period in 2012 included certain retention and
incentive costs related to the Mortgagebot and Avista acquisitions as
well as expenses related to cost-realignment initiatives.
|
REVENUE
Revenue - Consolidated
(in thousands of Canadian dollars, unaudited)
|
|
|
Quarter ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2013
|
2012
|
|
2013
|
2012
|
|
Payment solutions
|
|
$
|
78,591
|
$
|
76,787
|
$
|
152,270
|
$
|
151,568
|
|
Lending processing solutions 1
|
|
|
76,145
|
|
70,581
|
|
141,268
|
|
134,982
|
|
Banking technology solutions 2
|
|
|
42,398
|
|
33,621
|
|
75,257
|
|
59,760
|
|
|
|
$
|
197,134
|
$
|
180,989
|
$
|
368,795
|
$
|
346,310
|
|
1
|
|
Reported as loan servicing solutions and loan registration and recovery
services in prior periods.
|
|
2
|
|
Reported as lending technology services in prior periods.
|
Consolidated revenue for the second quarter of 2013 was $197.1 million,
an increase of $16.1 million, or 8.9%, compared to the same period in
2012. For the first six months of 2013, consolidated revenue of $368.8
million, increased by $22.5 million, or 6.5%, compared to the same
period in 2012. These increases were primarily due to higher
transaction volumes in loan registration and recovery services and
growth within the U.S. Segment as a result of the inclusion of
Compushare effective from January 29, 2013, and annualization of Avista
acquired on May 3, 2012, as well as ongoing organic growth in
Mortgagebot.
Revenue - Canadian Segment
Total revenues in the Canadian Segment for the second quarter of 2013 of
$175.1 million, increased by $8.0 million, or 4.8%, compared to the
same quarter in 2012. For the first six months in 2013, total revenues
were $327.5 million, an increase of $6.7 million, or 2.1%, compared to
the same period in 2012.
(in thousands of Canadian dollars, unaudited)
|
Quarter ended June 30,
|
Six months ended June 30,
|
|
|
2013
|
2012
|
2013
|
2012
|
|
Payment solutions
|
$
|
78,591
|
$
|
76,787
|
$
|
152,270
|
$
|
151,568
|
|
Lending processing solutions 1
|
|
76,145
|
|
70,581
|
|
141,268
|
|
134,982
|
|
Banking technology solutions 2
|
|
20,356
|
|
19,686
|
|
33,934
|
|
34,234
|
|
|
$
|
175,092
|
$
|
167,054
|
$
|
327,472
|
$
|
320,784
|
|
1
|
Reported as loan servicing solutions and loan registration and recovery
services in prior periods.
|
|
2
|
Reported as lending technology services in prior periods.
|
Payment Solutions
Payment solutions include: (i) the cheque supply program which serves
the personal and small business account holders of our financial
services customers; and (ii) various subscription fee-based enhancement
services and other service offerings directed towards the chequing and
credit card programs. These service offerings (excluding the component
of enhancement and identity protection services that are integrated in
the cheque order) currently represent a small component of revenues
within this revenue category. Cheque order volumes are declining as
consumers and small businesses choose other payment methods. These
volume declines have been partially offset by increased average order
values for cheques and growth in service enhancements to the chequing
and credit card programs.
Revenue from payment solutions for the second quarter of 2013 was $78.6
million, an increase of $1.8 million, or 2.3%, compared to the same
quarter in 2012. For the six months ended June 30, 2013, revenue was
$152.3 million, an increase of $0.7 million, or 0.5%, compared to the
same period in 2012. For the second quarter and first six-month period
of 2013, revenues from payments solutions reflected the positive impact
of higher average order values and product and service enhancements in
the chequing and credit card programs partially offset by volume
declines in cheque orders. Revenues for the second quarter of 2013 were
also higher as a result of having one additional business day than in
the prior-year period, whereas, revenues for the first six months of
2013 were impacted by having one less business day compared to the same
period in 2012. Management believes that the downward trend in cheque
order volumes is in the low to mid-single digit range annually, and in
recent periods, there has been more volatility in personal cheque order
volumes, while the decline in business cheque order volumes continues
to be in the low single digit range with comparatively minimal
volatility. Management expects that these trends will continue through
the remainder of 2013. D+H continues to develop service enhancements to
offset this impact and to generate future growth within this category.
Lending Processing Solutions
Lending processing solutions consist of two distinct customer solutions
sets: loan registration and recovery and student loan administration
services. Loan registration and recovery services, which accounts for
approximately 55% to 65% of the revenues within this category, support
the personal and commercial lending activities of our financial
services customers with the registration and management of data related
to secured lending for both personal and real property loans as well as
recovery services related to both secured and unsecured lending
activities. Loans relating to vehicle purchases are a significant
driver of activity and are variable. In general, registration services
are affected by both economic cyclicality and seasonality, while
recovery services are, in general, counter-cyclical. Related services
include mortgage discharge solutions and various search-related
services, both of which we deliver on behalf of our financial
institution customers.
In our student loan administration services area, which accounts for
approximately 35% to 45% of revenues within this category, we manage a
$20 billion student loan portfolio encompassing service to 1.7 million
students on behalf of Canadian federal and provincial governments and
lenders. Services include student enrollment, management of funds'
disbursement, loan tracking, student support services, reporting and
collections. In general, student loan servicing volumes have been
stable and modestly growing on higher student loan balances and
extended loan durations.
Lending processing solutions revenues for the second quarter of 2013
were $76.1 million, an increase of $5.6 million, or 7.9%, compared to
the same quarter in 2012. For the first six months of 2013, revenues
were $141.3 million, an increase of $6.3 million, or 4.7%, compared to
the same period in 2012. For both the second quarter and the first-six
months of 2013, the increase was mainly due to higher transaction
volumes in registration and recovery services reflecting a continuing
recovery within the auto and auto lending markets, an increase in
automotive lending recovery services and higher average order values in
the student loans program. These increases were partially offset by an
expected reduction in fees from a previously announced consolidation
and integration between two customers within the student loans
program. Volumes in the student loan administration service area are
expected to be relatively stable and modestly growing in the short
term. Activities related to cost management and improving delivery
efficiency are being directed towards lowering the impact of reduced
pricing and fees related to the recent customer consolidation. The
benefits from these cost management initiatives that we started to
realize in 2012 will continue into 2013.
Banking Technology Solutions
Banking technology solutions reported as part of the Canadian segment
include services directed towards mortgage markets in Canada. Also
included in this category are the technology products and services we
offer in both Canada and the U.S. directed towards leasing, commercial
lending and small business lending. Revenues related to mortgage
markets currently represent approximately 75% to 85% of revenues within
this category with approximately 35% to 45% attributable to
transaction-based fees earned in connection with Canadian mortgage
originations. Mortgage origination fees can be variable and are
impacted by many factors including the economy, the housing market,
interest rates and changes in government regulations among others.
Revenue from banking technology solutions related to the Canadian
Segment for the second quarter of 2013 was $20.4 million, an increase
of $0.7 million, or 3.4%, compared to the same quarter in 2012.
Revenue was $33.9 million for the first six months of 2013, a decrease
of $0.3 million, or 0.9%, compared to the same quarter in 2012. The
second quarter 2013 revenue increase was due to higher professional
services revenue which was partially offset by lower mortgage
origination fees resulting from softer Canadian housing and mortgage
market activity and strategic price modifications. Revenue for the
first six months of 2013 was impacted by lower mortgage origination
fees and price modifications, partially offset by higher professional
services fees. In general, industry analysts expect the
recently observed softening in Canadian housing market prices and sales
volumes to continue at a moderate level in major urban areas throughout
the remainder of 2013. Revenues in future periods may continue to be
impacted by strategic price modifications, which are expected to be
offset by potential revenue from the launch of new products in the
Canadian lending market, including extension of our technology
solutions across various areas in the lending value chain.
Revenue - U.S. Segment
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Quarter ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2013
|
2012
|
2013
|
2012
|
|
Banking technology solutions
|
|
$
|
22,042
|
$
|
13,935
|
$
|
41,323
|
$
|
25,526
|
|
|
|
$
|
22,042
|
$
|
13,935
|
$
|
41,323
|
$
|
25,526
|
Revenues from the U.S. SaaS loan origination solutions related to
Mortgagebot and Avista and Compushare's cloud-based services are
reported as part of the U.S. Segment. Within U.S. revenues related to
mortgage markets, 65% to 75% relate to recurring subscription fees and
approximately 15% to 25% relate to transaction-based activity.
Revenue for the second quarter of 2013 was $22.0 million, an increase of
$8.1 million, or 58.2%, compared to $13.9 million for the same period
in 2012. For the six months ended June 30, 2013, revenue was $41.3
million, an increase of $15.8 million, or 61.9%, compared to the same
period in 2012. The increases for the current and six-month periods of
2013 were due to the inclusion of Compushare since its acquisition of
January 29, 2013, annualization of Avista and organic growth in
Mortgagebot related to the growing client base.
EXPENSES
Expenses - Consolidated
(in thousands of Canadian dollars, unaudited)
|
|
Quarter ended June 30,
|
Six months ended June 30,
|
|
|
|
|
2013
|
2012
|
2013
|
2012
|
|
Employee compensation and benefits 1
|
$
|
49,120
|
$
|
44,066
|
$
|
96,167
|
$
|
88,638
|
|
Non-compensation direct expenses 2
|
|
66,128
|
|
62,053
|
|
124,170
|
|
119,000
|
|
Other operating expenses 3
|
|
29,303
|
|
22,170
|
|
53,878
|
|
45,725
|
|
|
|
$
|
144,551
|
$
|
128,289
|
$
|
274,215
|
$
|
253,363
|
|
1
|
Employee compensation and benefits on a consolidated basis includes
retention and incentive expenses related to acquisitions of businesses
and are net of apprenticeship tax credits and amounts capitalized
related to software product development.
|
|
2
|
Non-compensation direct expenses include materials, shipping, selling
expenses and third party direct disbursements.
|
|
3
|
Other operating expenses include occupancy costs, communication costs,
licensing fees, professional fees, contractor fees, transaction costs
related to acquisitions of businesses, corporate development costs
related to strategic acquisition initiatives and expenses not included
in other categories.
|
Consolidated expenses of $144.6 million for the second quarter of 2013
increased by $16.3 million, or 12.7%, compared to the same quarter in
2012. For the first six months of 2013, consolidated expenses were
$274.2 million, an increase of $20.9 million, or 8.2%, compared to the
same period in 2012. Consolidated expenses included
acquisition-related and other charges of $5.8 million for the second
quarter of 2013 and $6.8 million for the first six months of 2013,
which are considered non-normal-course expenses and recognized as part
of Corporate. Acquisition-related and other charges of $4.4 million
were recorded in the second quarter of 2012 and $5.1 million for the
first six months of 2012. The inclusion of Compushare and
annualization of Avista expenses also contributed to the increase for
the second quarter and first six-month period of 2013.
Expenses - Canadian Segment
Total expenses for the Canadian Segment for the second quarter of 2013
of $125.9 million, increased $8.7 million, or 7.4%, compared to the
same quarter in 2012 on higher revenues and other items explained
below, partially offset by savings realized from recent transformation
and cost reduction activities. Expenses for the first six months of
2013 were $243.3 million, an increase of $7.3 million, or 3.1%, on
higher revenues that were partially offset by benefits from recent
transformation and cost reduction activities. Increase in expenses for
the second quarter and the first six months of 2013 were also
attributable to change in product mix and timing related to new organic
growth initiatives.
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Quarter ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
2013
|
2012
|
|
2013
|
2012
|
|
Employee compensation and benefits 1
|
$
|
38,892
|
$
|
36,235
|
|
$
|
78,415
|
$
|
77,037
|
|
Non-compensation direct expenses 2
|
|
65,509
|
|
61,774
|
|
|
122,978
|
|
118,464
|
|
Other operating expenses 3
|
|
21,508
|
|
19,168
|
|
|
41,877
|
|
40,461
|
|
|
|
|
$
|
125,909
|
$
|
117,177
|
|
$
|
243,270
|
$
|
235,962
|
|
1
|
Employee compensation and benefits are net of apprenticeship tax credits
and amounts capitalized related to software product development.
|
|
2
|
Non-compensation direct expenses include materials, shipping, selling
expenses and third party direct disbursements.
|
|
3
|
Other operating expenses include occupancy costs, communication costs,
licensing fees, professional fees, contractor fees and expenses not
included in other categories. Other operating expenses are net of
inter-segment management fees received from the U.S. segment.
|
Employee compensation and benefits costs of $38.9 million for the second
quarter of 2013 for the Canadian Segment were higher by $2.7 million,
or 7.3%, compared to the same quarter in 2012, and for the first six
months of 2013, costs of $78.4 million, increased by $1.4 million, or
1.8%, compared to the same period in 2012 primarily due to timing of
capitalization of projects related to professional services and
employee related incentive costs.
Non-compensation direct expenses for the Canadian Segment were $65.5
million for the second quarter of 2013, an increase of $3.7 million, or
6.0%, compared to the same quarter in 2012. For the first six months
of 2013, non-compensation direct expenses of $123.0 million, increased
by $4.5 million, or 3.8%, compared to the same period in 2012. In
general, these expenses directionally change with revenue changes. An
increase in direct costs associated with the lending processing
solutions and payment solutions service areas, is consistent with the
increase in revenues.
Other operating expenses of $21.5 million for the second quarter of 2013
were higher by $2.3 million, or 12.2%, compared to the same quarter in
2012, and for the first six months of the current year, other operating
expenses of $41.9 million, increased by $1.4 million, or 3.5%, compared
to the same period in 2012. The increase in the second quarter of 2013
was due to replacement of full-time staff (recorded in employee
compensation and benefits) with outsourced labour and higher consulting
costs, partially offset by cost efficiencies realized from
transformation and integration activities. Increase in the second
quarter of 2013 is also attributable to a change in product mix in the
Canadian Segment. The Canadian Segment is undergoing a transition
where higher margin products are being replaced with lower margin
offerings, however, this trend is expected to stabilize.
Expenses - U.S. Segment
Total expenses for the U.S. Segment for the second quarter of 2013 were
$12.9 million, an increase of $6.1 million, or 91.2%, compared to the
same quarter in 2012. For the first six months of 2013, expenses were
$24.2 million, an increase of $11.9 million, or 96.6%. These increases
were primarily due to the inclusion of the Compushare cost base and
annualization of expenses for Avista.
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Quarter ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
2013
|
2012
|
|
2013
|
2012
|
|
Employee compensation and benefits2
|
$
|
7,811
|
$
|
3,934
|
|
$
|
14,443
|
$
|
7,081
|
|
Non-compensation direct expenses
|
|
619
|
|
279
|
|
|
1,192
|
|
536
|
|
Other operating expenses 1
|
|
4,448
|
|
2,521
|
|
|
8,518
|
|
4,669
|
|
|
|
|
$
|
12,878
|
$
|
6,734
|
|
$
|
24,153
|
$
|
12,286
|
|
1
|
Other operating expenses include inter-segment management fees,
occupancy costs and expenses not included in other categories.
|
|
2
|
Employee compensation and benefits are net of amounts capitalized
related to software product development.
|
Employee compensation and benefits costs of $7.8 million for the second
quarter of 2013 for the U.S. Segment were higher by $3.9 million, or
98.6%, compared to the same quarter in 2012 and for the first six
months of 2013, costs of $14.4 million, increased by $7.4 million, or
104.0%, compared to the same period in 2012. These increases were
primarily due to the inclusion of the Compushare and Avista cost base
and increased costs related to the alignment of employee benefits as a
result of integration of the Mortgagebot and Avista businesses.
Non-compensation direct expenses for the U.S. Segment of $0.6 million
for the second quarter of 2013 were higher by $0.3 million, or 121.9%, compared to the same period in 2012, and for the
first six months of 2013, costs of $1.2 million, increased by $0.7
million, or 122.4%, compared to the same period in 2012, due to
inclusion of Compushare.
Other operating expenses of $4.4 million for the second quarter of 2013
were higher by $1.9 million, or 76.4%, compared to the same quarter in
2012. For the six months ended June 30, 2013, costs of $8.5 million,
increased by $3.8 million, or 82.4%, compared to the same period in
2012. These increases were primarily attributable to the inclusion of
Compushare and Avista expenses and expenses associated with growth
initiatives.
Expenses - Corporate
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Quarter ended June 30,
|
Six months ended June 30,
|
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Employee compensation and benefits
|
$
|
2,417
|
$
|
3,897
|
$
|
3,309
|
$
|
4,520
|
|
Other operating expenses
|
|
3,347
|
|
481
|
|
3,483
|
|
595
|
|
|
|
|
$
|
5,764
|
$
|
4,378
|
$
|
6,792
|
$
|
5,115
|
Employee compensation and benefits
Employee compensation and benefits expenses for the second quarter of
2013 and 2012 consisted of retention and incentive expenses incurred in
connection with Avista and Mortgagebot acquisitions. The second quarter
of 2013 also included severances related to cost-realignment
initiatives.
Other expenses
Other expenses for the second quarter of 2013 included transaction costs
related to strategic acquisition initiatives, transaction costs
incurred in connection with the acquisition of Compushare and business
integration costs. For the same period in 2012, the other operating
expenses related to transaction costs incurred in connection with the
acquisition of Avista.
EBITDA AND EBITDA MARGIN
Consolidated EBITDA for the second quarter of 2013 was $52.6 million, a
decrease of $0.1 million, or 0.2%, compared to $52.7 million for the
same quarter in 2012. For the first six months of 2013, consolidated
EBITDA of $94.6 million, increased $1.6 million, or 1.8%, from $92.9
million for the same period in 2012. EBITDA margin of 26.7% on a
consolidated basis for the second quarter of 2013 decreased from 29.1%
for the same period in 2012 due to inclusion of Compushare in the U.S.
Segment for which margins are lower than the overall U.S. Segment in
the 2013 period. EBITDA growth in the U.S. Segment was partially offset
by retention and incentive expenses, cost-realignment initiatives and
acquisition transaction costs in Corporate. For the six-month period of
2013, consolidated EBITDA margin of 25.6% decreased from 26.8% for the
same period in 2012.
Canadian Segment
Canadian Segment EBITDA for the second quarter of 2013 was $49.2
million, a decrease of $0.7 million, or 1.4%, compared to the same
quarter in 2012. EBITDA for the first six months of 2013 was $84.2
million, a decrease of $0.6 million, or 0.7%. The results in both 2013
periods reflected higher expenses related to changes in product mix and
timing related to new organic growth initiatives, partially offset by
growth in revenues and savings realized from recent transformation and
cost reduction activities.
EBITDA margin for the second quarter and the first six months of 2013
was 28.1% and 25.7% respectively, compared to 29.9% and 26.4% for the
same periods in 2012 due to the change in product mix.
U.S. Segment
U.S. Segment EBITDA for the second quarter of 2013 was $9.2 million, an
increase of $2.0 million, compared to the same quarter in 2012,
attributable to the inclusion of Compushare cloud-based services and
annualization of Avista LOS services and continued growth in our other
SaaS businesses. EBITDA for the first six months of 2013 was $17.2
million, an increase of $4.0 million, or 29.7%. EBITDA margin of 41.6%
for the second quarter of 2013 was lower than the 51.7% a year-ago and
EBITDA margin for the first six months of 2013 of 41.6%, was lower than
51.9% during the same period in 2012 primarily due to the inclusion of
Compushare.
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
Consolidated Adjusted EBITDA during the second quarter of 2013 was $58.3
million, an increase of $1.3 million, or 2.2%, compared to the same
quarter in 2012. For the first six months of 2013, consolidated
Adjusted EBITDA of $101.4 million, increased by $3.3 million, or 3.4%.
Consolidated Adjusted EBITDA excluded acquisition-related and other
charges of $5.8 million for the second quarter of 2013, consisting of
$3.0 million related to strategic acquisition initiatives, $1.8 million
related cost-realignment initiatives and $1.0 million to retention and
incentive costs and integration expenses associated with acquisitions.
On a consolidated basis, Adjusted EBITDA margin for the second quarter
and the first six months of 2013 was 29.6% and 27.5%, respectively,
compared to 31.5% and 28.3% for the same period in 2012.
DEPRECIATION OF CAPITAL ASSETS AND AMORTIZATION OF NON-ACQUISITION
INTANGIBLES
Consolidated depreciation of capital assets and amortization of
non-acquisition intangible assets of $6.7 million in the second quarter
of 2013 decreased by $0.3 million, or 4.7%, compared to the same period
in 2012. For the first six months of 2013, depreciation and
amortization was $13.2 million, a decrease of $0.3 million, or 2.0%,
compared to the same period in 2012.
AMORTIZATION OF INTANGIBLES FROM ACQUISITIONS
Consolidated amortization of acquisition intangibles for the second
quarter of 2013 was $11.1 million, an increase of $0.4 million,
compared to the same period in 2012. For the six months ended June 30,
2013, the amortization was $22.0 million, an increase of $0.9 million,
or 4.1%, compared to the same period in 2012. The increase was
attributable to the amortization resulting from the acquisitions of
Compushare in January 2013 and Avista in May 2012.
INCOME FROM OPERATING ACTIVITIES
Consolidated income from operating activities was $34.9 million for the
three months ended June 30, 2013, a decrease of $0.1 million, or 0.4%,
compared to $35.0 million for the same quarter in 2012. For the six
months ended June 30, 2013, income from operating activities was $59.4
million, an increase of $1.0 million, or 1.8%, compared to $58.4
million for the same period in 2012. As discussed above, revenue
growth reflected the inclusion of Compushare and annualization of
Avista, as well as continued growth from our other SaaS businesses.
Expenses reflected acquisition-related costs and other charges, as well
as the inclusion of Compushare and Avista expenses.
INTEREST EXPENSE
Interest expense for the second quarter of 2013 decreased by $0.3
million compared to the same quarter in 2012 as a result of favourable
pricing on the renewed credit facility, due to renegotiated terms, and
a lower average loan balance as debt repayments have offset increases
in long-term, fixed-rate borrowings related to acquisitions. For the
six-month period in 2013, interest expense decreased by $0.7 million
compared to the same period in 2012.
INCOME FROM INVESTMENT IN AN ASSOCIATE
Consolidated net income for the first six months of 2013 and 2012
included D+H's share of income related to the minority interest held in
Compushare up to January 28, 2013, after which, the results were
consolidated upon obtaining 100% ownership on January 29, 2013.
FAIR VALUE ADJUSTMENT OF DERIVATIVE INSTRUMENTS
Interest-rate swaps
Compared to a net unrealized loss of $0.6 million in the second quarter
of 2012, a net unrealized gain of $1.2 million on interest-rate swaps
was recognized in the second quarter of 2013 reflecting fair value
adjustments related to changes in market interest rates at June 30,
2013 compared to March 31, 2013. For the first six months of 2013, the
net unrealized gain related to the interest-rate swaps was $1.3
million, compared to a net unrealized gain of $1.0 million for the same
period in 2012.
INCOME TAX EXPENSE
An income tax expense of $9.2 million was recorded in the second quarter
of 2013 compared to an income tax expense of $8.3 million for the same
period in 2012 on increased income from continuing operations before
income tax. The second quarter of 2013 included a current tax expense
of $5.4 million and a deferred tax expense of $3.8 million.
Tax expense for the first six months of 2013 was $14.6 million compared
to $13.4 million for the same period in 2012.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for the second quarter of 2013 was
$22.4 million ($0.3781 per share) compared to $21.3 million ($0.3590
per share) for the same period in 2012. The increase in the second
quarter of 2013 was primarily attributable to unrealized gain on fair
value changes related to interest-rate swaps. Income from continuing
operations for the first six months of 2013 was $38.8 million ($0.6556
per share) compared to $36.4 million ($0.6152 per share) for the same
period in 2012. The increase was due to higher income from operating
activities and gain on remeasurement of the previously held equity
interest relating to Compushare, partially offset by an increase in
income tax expense.
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations of $8.8 million ($0.1483 per share)
for the second quarter of 2013 was related to the divestiture of D+H's
non-strategic business processing operations on May 10, 2013. See
Divestiture section for more details. For the comparative period in
2012, the loss from discontinued operations was $0.4 million ($0.0064
per share). Loss from discontinued operations for the second quarter of
2013 included a loss on disposal of $8.1 million. For the first six
months of 2013, loss from discontinued operations was $19.5 million
($0.3289 per share), which included a loss on disposal of $8.1 million
and a loss of $11.2 million related to measurement to fair value less
estimated costs to sell the assets held for sale, compared to a loss of
$0.6 million ($0.0105 per share) for the same period in 2012.
NET INCOME
Consolidated net income of $13.6 million ($0.2298 per share) for the
second quarter of 2013 was lower by $7.3 million, or 34.8%, compared to
consolidated net income of $20.9 million ($0.3526 per share) for the
same quarter in 2012, primarily due to the loss from discontinued
operations of $8.8 million described above. This impact was partially
offset by fair value changes related to interest-rate swaps of $1.8
million. For the six month period ended June 30, 2013, consolidated net
income of $19.4 million ($0.3267 per share) was lower by $16.5 million,
or 46.0%, compared to $35.8 million for the same period in 2012
($0.6047 per share), primarily attributable to loss from discontinued
operations, net of taxes, of $19.5 million. This decrease was
partially offset by the gain on remeasurement of previously held equity
interest in Compushare.
ADJUSTED NET INCOME
Consolidated Adjusted net income of $34.2 million ($0.5774 per share)
for the second quarter of 2013 was higher by $1.9 million compared to
the $32.3 million ($0.5461 per share) for the same period in 2012.
Consolidated Adjusted net income for the first six months of 2013 was
$57.3 million ($0.9675 per share), an increase of $3.2 million, or
5.8%, compared to $54.2 million ($0.9143 per share) for the same period
in 2012. These increases were mainly due to higher Adjusted EBITDA.
Consolidated Adjusted net income excludes the after-tax impacts of the
following items: (i) impacts of non-cash items such as amortization of
intangibles from acquisitions, gains and losses related to fair value
adjustment of derivative instruments and a gain on remeasurement of
previously held equity interest in Compushare; (ii) other items of note
such as acquisition-related and other charges described earlier as well
as the loss on discontinued operations; and (iii) non-cash tax expense
/ recoveries relating to acquisitions.
CONSOLIDATED CASH FLOW AND LIQUIDITY
The following table is derived from, and should be read in conjunction
with, the Consolidated Statements of Cash Flows. Management believes
this disclosure provides useful additional information related to the
cash flows of the Corporation, repayment of debt and other investing
activities.
Consolidated Summary of Cash Flows
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
Quarter ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
Cash and cash equivalents provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
$
|
22,395
|
$
|
21,264
|
|
$
|
38,832
|
$
|
36,441
|
|
Depreciation and amortization of assets
|
|
|
|
17,717
|
|
17,692
|
|
|
35,150
|
|
34,552
|
|
Amortization and fair value adjustment of derivative instruments
|
|
|
|
(1,203)
|
|
616
|
|
|
(1,310)
|
|
(1,029)
|
|
Income from investment in an associate, net of tax
|
|
|
|
-
|
|
(38)
|
|
|
(130)
|
|
(38)
|
|
Gain on remeasurement of previously held equity interest
|
|
|
|
-
|
|
-
|
|
|
(1,587)
|
|
-
|
|
Interest expense
|
|
|
|
4,516
|
|
4,821
|
|
|
8,987
|
|
9,642
|
|
Non-cash income tax and options expenses
|
|
|
|
9,200
|
|
8,242
|
|
|
14,791
|
|
15,194
|
|
|
|
|
|
52,625
|
|
52,597
|
|
|
94,733
|
|
94,762
|
|
Changes in non-cash working capital items
|
|
|
|
5
|
|
(12,669)
|
|
|
(15,143)
|
|
(27,309)
|
|
Changes in other operating assets and liabilities
|
|
|
|
(1,355)
|
|
348
|
|
|
437
|
|
1,031
|
|
Cash flows from (used in) discontinued operations
|
|
|
|
(5,268)
|
|
406
|
|
|
(9,999)
|
|
992
|
|
Interest paid
|
|
|
|
(4,175)
|
|
(4,486)
|
|
|
(8,218)
|
|
(8,707)
|
|
Income tax paid
|
|
|
|
(779)
|
|
-
|
|
|
(2,123)
|
|
-
|
|
Net cash from operating activities
|
|
|
|
41,053
|
|
36,196
|
|
|
59,687
|
|
60,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in long-term indebtedness
|
|
|
|
(20,481)
|
|
35,561
|
|
|
5,568
|
|
40,561
|
|
Payment of issuance costs of long-term indebtedness
|
|
|
|
-
|
|
(111)
|
|
|
-
|
|
(111)
|
|
Dividends paid during the period
|
|
|
|
(18,955)
|
|
(18,362)
|
|
|
(37,910)
|
|
(36,724)
|
|
Net cash from (used in) financing activities
|
|
|
|
(39,436)
|
|
17,088
|
|
|
(32,342)
|
|
3,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(6,635)
|
|
(6,130)
|
|
|
(12,921)
|
|
(16,666)
|
|
Acquisition of investment in an associate
|
|
|
|
-
|
|
(10,058)
|
|
|
-
|
|
(10,058)
|
|
Acquisition of subsidiary
|
|
|
|
(456)
|
|
(37,946)
|
|
|
(24,849)
|
|
(37,946)
|
|
Cash flows from (used in) discontinued operations
|
|
|
|
8,500
|
|
-
|
|
|
8,500
|
|
-
|
|
Net cash used in investing activities
|
|
|
|
1,409
|
|
(54,134)
|
|
|
(29,270)
|
|
(64,670)
|
|
Increase (decrease) in cash and cash equivalents for the period
|
|
|
|
3,026
|
|
(850)
|
|
|
(1,925)
|
|
(175)
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
768
|
|
2,888
|
|
|
5,719
|
|
2,213
|
|
Cash and cash equivalents, end of period
|
|
|
$
|
3,794
|
$
|
2,038
|
|
$
|
3,794
|
$
|
2,038
|
As at June 30 2013, cash and cash equivalents totalled $3.8 million,
compared to $5.7 million at December 31, 2012.
Operating Activities
Operating activities provided $41.1 million during the quarter ended
June 30, 2013, compared to $36.2 million for the same period in 2012.
For the first six months of 2013, operating activities provided $59.7
million, compared to $60.8 million for the same period in 2012. The
change in net cash from operating activities for the quarter and
six-month period ended June 30, 2013 was primarily due to working
capital changes as described below.
Changes in Non-Cash Working Capital and Other Items
(in thousands of Canadian dollars, unaudited)
|
|
Quarter ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
Change in non-cash working capital
|
$
|
5
|
$
|
(12,669)
|
|
$
|
(15,143)
|
$
|
(27,309)
|
|
Change in other operating assets and liabilities
|
|
(1,355)
|
|
348
|
|
|
437
|
|
1,031
|
|
Discontinued operations
|
|
(5,268)
|
|
406
|
|
|
(9,999)
|
|
992
|
|
Increase in non-cash working capital and other items
|
$
|
(6,618)
|
$
|
(11,915)
|
|
$
|
(24,705)
|
$
|
(25,286)
|
The net increase in non-cash working capital in the second quarter of
2013 primarily related to an increase in trade receivables attributable
to an increase in volumes and accruals related to certain incentive
payments and apprenticeship tax credits, strategic acquisition
initiatives, cost realignment initiatives and certain retention and
incentive costs.
The net increase in non-cash working capital for the first six months of
2013 related to an increase in trade receivables partially offset by an
increase in accrued payables.
Cash flows used in discontinued operations of $5.3 million represents
the net change in operating activities and working capital from April
1, 2013 to May 10, 2013 closing, as well as incremental and directly
attributable selling costs and the transfer of cash associated with
these operations.
Financing Activities
Net cash used in financing activities was $39.4 million during the
quarter ended June 30, 2013, compared to $17.1 million used for the
same period in 2012. The net change during the quarter was primarily
due to repayment of funds drawn from our credit facilities to finance
the acquisition of Compushare and Avista and an increase in dividend
payments following a dividend increase in the fourth quarter of 2012.
For the first six months of 2013, net cash used in financing activities
was $32.3 million, compared to $3.7 million provided by financing
activities for the same period in 2012. The net change was primarily
due to funds drawn from our credit facilities to finance the
acquisition of Avista and the minority investment in Compushare in
2012.
Dividends
During the second quarter of 2013, D+H paid a dividend of $0.32 per
share to its shareholders. For the same quarter in 2012, $0.31 per
share was paid to shareholders. During the first six months of 2013,
D+H paid $0.64 per share to its shareholders, and for the same period
in 2012, $0.62 per share was paid.
Investing Activities
During the second quarter of 2013, $1.4 million was used for investing
activities, by way of capital expenditures, compared to $54.1 million
for capital expenditures and acquisition of Avista and minority
interest in Compushare during the same period in 2012. For the
six-month period ended June 30, 2013, investing activities used $29.3
million for capital expenditures and acquisition of the remaining
outstanding shares of Compushare, compared to $64.7 million during the
same period in 2012 for capital expenditures and acquisition of Avista
and the minority investment in Compushare. Investing activities also
include the proceeds from the sale of the non-strategic business
processing operations in May 2013.
Capital Expenditures
Consolidated capital expenditures were $6.6 million for the second
quarter of 2013, $0.5 million higher compared to the same period of
2012. For the six months ended June 30, 2013, capital expenditures
were $12.9 million, a decrease of $3.7 million, compared to the same period in
2012. Lower capital expenditures in the first six months of 2013
reflected timing of expenditures.
EIGHT QUARTER CONSOLIDATED STATEMENT OF INCOME - SUMMARY
(in thousands of Canadian dollars, except per share amounts, unaudited)
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Revenue
|
|
$
|
197,134
|
$
|
171,661
|
$
|
172,457
|
$
|
176,689
|
$
|
180,989
|
$
|
165,321
|
$
|
166,580
|
$
|
169,334
|
|
Expenses1
|
|
|
144,551
|
|
129,664
|
|
131,082
|
|
129,405
|
|
128,289
|
|
125,074
|
|
121,865
|
|
123,655
|
|
EBITDA 1, 3
|
|
|
52,583
|
|
41,997
|
|
41,375
|
|
47,284
|
|
52,700
|
|
40,247
|
|
44,715
|
|
45,679
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related and other charges 1
|
|
|
5,764
|
|
1,028
|
|
6,558
|
|
3,265
|
|
4,378
|
|
737
|
|
637
|
|
610
|
|
Adjusted EBITDA 3
|
|
$
|
58,347
|
$
|
43,025
|
$
|
47,933
|
$
|
50,549
|
$
|
57,078
|
$
|
40,984
|
$
|
45,352
|
$
|
46,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA 1, 3
|
|
$
|
52,583
|
$
|
41,997
|
$
|
41,375
|
$
|
47,284
|
$
|
52,700
|
$
|
40,247
|
$
|
44,715
|
$
|
45,679
|
Depreciation of capital assets and amortization
of non-acquisition intangibles
|
|
|
6,657
|
|
6,519
|
|
7,568
|
|
6,648
|
|
6,986
|
|
6,465
|
|
6,171
|
|
5,242
|
|
Amortization of intangibles from acquisitions
|
|
|
11,060
|
|
10,914
|
|
11,292
|
|
10,597
|
|
10,706
|
|
10,395
|
|
10,465
|
|
10,496
|
|
Income from operating activities3
|
|
|
34,866
|
|
24,564
|
|
22,515
|
|
30,039
|
|
35,008
|
|
23,387
|
|
28,079
|
|
29,941
|
|
Interest expense
|
|
|
4,516
|
|
4,471
|
|
4,629
|
|
4,943
|
|
4,821
|
|
4,821
|
|
4,909
|
|
4,792
|
|
Loss (income) from investment in an associate, net of tax
|
|
|
-
|
|
(130)
|
|
23
|
|
(53)
|
|
(38)
|
|
-
|
|
-
|
|
-
|
|
Gain on remeasurement of previously held equity interest 2
|
|
|
-
|
|
(1,587)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Amortization and fair value adjustment of derivative instruments4
|
|
|
(1,203)
|
|
(107)
|
|
(542)
|
|
(445)
|
|
616
|
|
(1,645)
|
|
(145)
|
|
3,991
|
|
Income tax expense
|
|
|
9,158
|
|
5,480
|
|
4,165
|
|
5,987
|
|
8,345
|
|
5,034
|
|
7,758
|
|
5,685
|
|
Income from continuing operations
|
|
|
22,395
|
|
16,437
|
|
14,240
|
|
19,607
|
|
21,264
|
|
15,177
|
|
15,557
|
|
15,473
|
|
Loss from discontinued operations, net of tax 5
|
|
|
(8,786)
|
|
(10,695)
|
|
(529)
|
|
(2)
|
|
(377)
|
|
(243)
|
|
(188)
|
|
(413)
|
|
Net income
|
|
$
|
13,609
|
$
|
5,742
|
$
|
13,711
|
$
|
19,605
|
$
|
20,887
|
$
|
14,934
|
$
|
15,369
|
$
|
15,060
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles from acquisitions
|
|
$
|
11,060
|
$
|
10,914
|
$
|
11,292
|
$
|
10,597
|
$
|
10,706
|
$
|
10,395
|
$
|
10,465
|
$
|
10,496
|
|
|
|
Gain on remeasurement of previously held equity interest 2
|
|
|
-
|
|
(1,587)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
Amortization and fair value adjustment of derivative instruments 4
|
|
|
(1,203)
|
|
(107)
|
|
(542)
|
|
(445)
|
|
616
|
|
(1,645)
|
|
(145)
|
|
3,991
|
|
|
Other items of note:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related and other charges 1
|
|
|
5,764
|
|
1,028
|
|
6,558
|
|
3,265
|
|
4,378
|
|
737
|
|
637
|
|
610
|
|
|
Tax effect of above adjustments 6
|
|
|
(3,814)
|
|
(3,578)
|
|
(5,543)
|
|
(3,962)
|
|
(4,615)
|
|
(2,854)
|
|
(3,237)
|
|
(4,311)
|
|
|
Loss from discontinued operations, net of tax 5
|
|
|
8,786
|
|
10,695
|
|
529
|
|
2
|
|
377
|
|
243
|
|
188
|
|
413
|
|
|
Tax effect of acquisitions 7
|
|
|
-
|
|
-
|
|
-
|
|
(1,156)
|
|
-
|
|
-
|
|
2,080
|
|
-
|
|
Adjusted net income3
|
|
$
|
34,202
|
$
|
23,107
|
$
|
26,005
|
$
|
27,906
|
$
|
32,349
|
$
|
21,810
|
$
|
25,357
|
$
|
26,259
|
|
Adjusted net income per share, basic and diluted 3, 8, 9
|
|
$
|
0.5774
|
$
|
0.3901
|
$
|
0.4390
|
$
|
0.4711
|
$
|
0.5461
|
$
|
0.3682
|
$
|
0.4281
|
$
|
0.4433
|
Income from continuing operations per share,
basic and diluted 8,9
|
|
$
|
0.3781
|
$
|
0.2775
|
$
|
0.2404
|
$
|
0.3310
|
$
|
0.3590
|
$
|
0.2562
|
$
|
0.2626
|
$
|
0.2612
|
Loss from discontinued operations per share,
basic and diluted 8,9
|
|
$
|
(0.1483)
|
$
|
(0.1806)
|
$
|
(0.0089)
|
$
|
-
|
$
|
(0.0064)
|
$
|
(0.0041)
|
$
|
(0.0032)
|
$
|
(0.0070)
|
|
Net income per share, basic and diluted 8,9
|
|
$
|
0.2298
|
$
|
0.0969
|
$
|
0.2315
|
$
|
0.3310
|
$
|
0.3526
|
$
|
0.2521
|
$
|
0.2595
|
$
|
0.2542
|
|
1
|
Acquisition-related and other charges for the second quarter of 2013
included corporate development costs related to strategic initiatives,
certain retention and incentive costs in connection with the
acquisitions of businesses, business integration costs and expenses
related to cost-realignment initiatives. Acquisition-related and other
charges for the same period in 2012 included certain retention and
incentive costs related to the Mortgagebot and Avista acquisitions as
well as expenses related to cost-realignment initiatives.
|
|
2
|
Upon acquisition of the remaining interest in January 2013, a gain
related to remeasurement of the previously held equity interest was
recognized in accordance with IFRS standards.
|
|
3
|
EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per
share are non-IFRS terms. See Non-IFRS Financial Measures for a more
complete description of these terms. Income from operating activities
is an additional IFRS term. See Additional IFRS Measures for a more
complete description of this term.
|
|
4
|
Includes mark-to-market adjustments of interest-rate swaps that are not
designated as hedges for hedge accounting purposes, and for which any
change in the fair value of these contracts is recorded through the
Consolidated Statement of Income.
|
|
5
|
On May 10, 2013, D+H announced the closing of the previously announced
divestiture of its non-strategic business processing operations. The
results of operations of these components were included as part of
business service solutions and loan servicing solutions in the Canadian
Segment in prior periods. These components and the related transition
services have been classified as discontinued operations for all
periods presented.
|
|
6
|
The following adjustments to net income are tax effected at their
respective tax rates: (i) amortization of acquisition intangibles; (ii)
amortization and fair value adjustment of derivative instruments; and
(iii) acquisition-related and other charges.
|
|
7
|
Adjustments for the third quarter of 2012 included a non-cash tax
recovery related to liabilities recognized in connection with the
acquisition of Mortgagebot. Adjustments for the fourth quarter of 2011
related to de-recognition of previously recognized tax attributes.
|
|
8
|
Diluted Adjusted net income per share (non-IFRS term) reflects the
impacts of outstanding options. If the average market price during the
period is below the option price plus the fair market value of the
option, then the options are not included in the dilution calculation.
|
|
9
|
Weighted average number of shares outstanding during the second quarter
of 2013 was 59,233,373 shares (Q2 2012 - 59,233,373 shares).
|
D+H has generally reported quarterly revenues that are relatively stable
and growing when measured on a year-over-year basis. More recent
changes in the economic environment, specifically the housing and
mortgage markets and the auto lending markets, have increased
volatility. Also, there has been more volatility in personal cheque
order volumes. Measured on a sequential quarter-to-quarter basis,
revenues can also vary due to seasonality. Fees earned in connection
with mortgage origination services and automobile loan registration
services are typically stronger in the second and third quarters than
in the first and fourth quarters. The acquisitions of Avista on May 3,
2012 and Compushare on January 29, 2013 increased revenues and
expenses. EBITDA was impacted by acquisition-related and other charges
during the quarters, including transaction costs, business integration
costs and certain retention and incentive costs related to acquisitions
as well as other charges attributable to cost-realignment initiatives
and strategic acquisition initiatives that are not considered to be
incurred in the normal course of operations. Adjusted EBITDA removes
the impacts of these charges as these are not indicative of the
underlying business performance and management believes that excluding
these items is more reflective of ongoing operating results.
Net income has been more variable as it has been affected by non-cash
items such as fair value adjustments of interest-rate swaps,
amortization of intangibles from acquisitions, acquisition-related and
other charges, discontinued operations, gain on remeasurement of the
equity-interest held in Compushare and changes in other non-cash tax
items.
Common Shares Outstanding
As at June 30, 2013, and August 7, 2013, common shares outstanding were
59,233,373, the same as at December 31, 2012.
Normal Course Issuer Bid ("NCIB")
As of June 30, 2013 and August 7, 2013, no shares were purchased under
the NCIB.
Financial Instruments
The Company utilizes interest-rate swaps to hedge interest rate exposure
and foreign exchange forward contracts to hedge foreign currency.
Interest-rate swaps
In respect of interest-rate swap contracts with its lenders, as of June
30, 2013, the Company's borrowing rates on 53.0% of outstanding
long-term indebtedness under the Seventh Amended and Restated Credit
Agreement ("Credit Agreement") are effectively fixed at the interest
rates and for the time periods ending as outlined in the following
table:
(in thousands of Canadian dollars, unaudited)
|
|
|
Fair value of interest-rate
swaps
|
|
|
Maturity Date
|
Notional amount
|
Asset
|
Liability
|
Interest Rate ¹
|
|
|
December 18, 2014
|
$
|
25,000
|
$
|
-
|
$
|
480
|
2.720%
|
|
|
March 18, 2015
|
|
25,000
|
|
-
|
|
627
|
2.940%
|
|
|
March 18, 2017
|
|
25,000
|
|
-
|
|
1,255
|
3.350%
|
|
|
March 20, 2017
|
|
20,000
|
|
-
|
|
1,015
|
3.366%
|
|
|
$
|
95,000
|
$
|
-
|
$
|
3,377
|
|
|
1
|
The listed interest rates exclude bankers' acceptance fees and
prime-rate spreads currently in effect. Such fees and spreads could
increase or decrease depending on the Company's financial leverage
compared to certain levels specified in the Credit Agreement. Based on
the financial leverage as at June 30, 2013, the Company's long-term
bank indebtedness will be subject to bankers' acceptance fees of 1.50%
over the applicable BA rate and prime rate spreads of 0.50% over the
prime rate.
|
Foreign exchange forward contracts
The Company had no foreign exchange forward contracts in place as at
June 30, 2013.
Long-Term Indebtedness
Long-term indebtedness is recorded on the Consolidated Statement of
Financial Position, net of unamortized deferred financing fees.
Long-term indebtedness as at June 30, 2013, before deducting
unamortized deferred finance fees of $5.1 million, was $358.7 million,
compared to $346.3 million at December 31, 2012.
As at June 30, 2013, the Company had $534.4 million of committed funds
consisting of $355.0 million under the credit facility (of which $179.3
million was drawn as at June 30, 2013) and $179.4 million drawn from
bonds. The Company also had $287.3 million of additional uncommitted
arrangements available, subject to prior approval of the relevant
lenders with any fees, spreads and other additional terms to be
negotiated at that time, of which $150.0 million was under the credit
facility and $137.3 million from the bonds.
The Company has historically hedged against increases in market interest
rates on certain of its debt by utilizing interest-rate swaps and by
issuing fixed rate long-term bonds as described above. As at June 30,
2013, the average effective interest rate on the Corporation's total
indebtedness was approximately 4.4%, compared to 4.5% as at December
31, 2012.
The MD&A included in the 2012 Annual Report contains further details on
the credit facility, bonds and hedging policies. Refer to the
Short-Form Prospectus filed on SEDAR, dated August 1, 2013, for
arrangements related to credit facility, and other debt instruments in
connection with the announcement of the acquisition of HFS.
BUSINESS RISKS
A comprehensive discussion of the risks that impact the Business can be
found on the Corporation's most recently filed Annual Information Form
and the most recently filed annual MD&A, available on SEDAR at www.sedar.com. Risks and uncertainties related to the Corporation have not changed
since the filing of the 2012 Annual Information Form and the 2012
annual MD&A. In addition to those risks, please refer to the Risk
Factors in the Short Form Prospectus dated August 1, 2013 for specific
risks related to the HFS acquisition.
OUTLOOK
D+H's long-term financial objective is to deliver sustainable and
growing earnings through continued organic revenue growth and by way of
strategic acquisitions. Management believes the recent agreement to
acquire HFS (see Subsequent Event) will: (i) strengthen our ability to
deliver on our goal of being a leading FinTech provider to the North
American financial services industry; (ii) provide enhanced revenue
diversification; (iii) deliver strong and sustainable cash flows to
fund future growth, distributions and deleveraging; and (iv) support
our long-term strategy.
Going forward, we will focus on executing our organic growth initiatives
including cross-selling our now larger suite of FinTech solutions
inclusive of HFS, achieving effective integration of our HFS platform
technologies and sales plans, and continuing to diligently identify and
realize on efficiency opportunities to better serve customers, and
achieve our financial goals. We believe that our market leadership and
combined capabilities will solidly position D+H in the markets we serve
and allow us to grow, consistent with our long-term objectives.
As set out in our statement of strategy, we look to grow through a
combination of organic initiatives, partnering with third parties and,
over time, by way of selective additional acquisitions. Our organic
initiatives include: (i) cross-selling our expanded FinTech products
including SaaS mortgage POS, LOS and cloud-based offerings with those
provided by the newly acquired HFS to both our now larger customer base
and 6,000 plus other U.S. financial institutions who could benefit from
our technology portfolio; (ii) advancing our payment solutions through
growth in value-added consumer and business services to financial
institution customers; (iii) expanding our current technology-enabled
offerings within the mortgage, auto, personal, student lending,
commercial and leasing markets; and (iv) exploring opportunities to
provide our expanded solutions to customers in selected international
markets and to Canada's credit unions.
We also look to add to our organic growth through partnerships with
other leading providers. D+H has established a number of such
partnerships over the years, as has HFS, and we intend to capitalize on
our expanded customer base to build on these mutually beneficial
relationships as we move forward.
The acquisition of HFS - along with the other eight acquisitions D+H has
made since 2006 - has significantly advanced our FinTech vision, and
added a defensible business model, growing revenues, strong cash flows,
capable management and important new capabilities that improve our
sales potential and risk profile. Following past acquisitions, D+H has
focused on reducing leverage used for acquisition purposes. Consistent
with our approach, we intend to repay debt following the HFS
acquisition and have set a target of reducing our Debt to EBITDA ratio
to below 2.5 times by 2016 while supporting our current dividend.
During this period, we expect deleveraging to occur before we pursue
additional acquisitions.
With the inclusion of several new service areas over the last several
years, we expect to continue to experience some increase in variability
in year-over-year quarterly revenues, EBITDA, net income and cash
flows, due to, among other items: (i) volatility in personal cheque
order volume declines; (ii) competitive dynamics in the Canadian
lending environment; (iii) volume variances within the mortgage
origination and lien registration markets; (iv) timing differences and
variability in professional services work; and (v) fees and expenses
associated with acquisitions and related integration activities.
Within the Canadian Segment, D+H believes that revenues from banking
technology solutions in 2013 may be impacted by more moderate housing
prices and lower real estate activity compared to the previous years
and potential pricing model adjustments, which are expected to be
offset by potential revenue from the launch of new products in the
Canadian lending market, including extension of our technology
solutions across various areas in the lending value chain. In
addition, within our Canadian Segment, EBITDA and margins may be
impacted from the timing of customer adoption of new products and
service, which may cause pressure on overall Canadian Segment EBITDA
and margins in the short term as these programs mature. In the U.S.
Segment, which will represent a larger share of our business following
the acquisition of HFS, we expect to benefit more fully from the
emerging recovery of the U.S. economy and banking sector, anticipated
growth in spending by community banks and credit unions on core banking
technology and additional FinTech solutions and increased need for
lending technology products that can meet regulatory and compliance
requirements. Further, a slight recovery in the U.S. housing market is
expected to somewhat offset a reduction in refinancing activity in
2013.
Inclusive of HFS for the final months of 2013, we anticipate total
capital spending of approximately $40 million for 2013, which may vary
based on spending in support of new growth opportunities if and as they
arise.
As described earlier, the Corporation does not expect to pay any
significant cash taxes until after 2013.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This MD&A contains certain statements that constitute forward-looking
information within the meaning of applicable securities laws
("forward-looking statements"). Statements concerning D+H's objectives,
goals, strategies, intentions, plans, beliefs, expectations and
estimates, and the business, operations, financial performance and
condition of D+H are forward-looking statements. The words "believe",
"expect", "anticipate", "estimate", "intend", "may", "will", "would"
and similar expressions and the negative of such expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. These
forward-looking statements are subject to important assumptions,
including the following specific assumptions: the ability of D+H to
meet its revenue, "EBITDA", "Adjusted EBITDA" and "Adjusted net income"
targets (see Non-IFRS Financial Measures for a more complete
description of the terms EBITDA, Adjusted EBITDA and Adjusted net
income); general industry and economic conditions; changes in D+H's
relationship with its customers and suppliers; pricing pressures and
other competitive factors; the anticipated effect of acquisitions on
the financial performance of D+H; and the expected benefits arising as
a result of acquisitions. D+H has also made certain macroeconomic and
general industry assumptions in the preparation of such forward-looking
statements. While D+H considers these factors and assumptions to be
reasonable based on information currently available, there can be no
assurance that actual results will be consistent with these
forward-looking statements.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause D+H's actual results,
performance or achievements, or developments in its industry, to differ
materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward-looking statements.
Risks related to forward-looking statements include, among other things,
challenges presented by declines in the use of personal and business
cheques; the Company's dependence on a limited number of large
financial institution customers and dependence on their acceptance of
new programs; strategic initiatives being undertaken to meet the
Company's financial objective; stability and growth in the real estate,
mortgage and lending markets; increased pricing pressures and increased
competition which could lead to loss of contracts or reduced margins;
as well as general market conditions, including economic and interest
rate dynamics. Given these uncertainties, readers are cautioned not to
place undue reliance on such forward-looking statements. The documents
incorporated by reference herein also identify additional factors that
could affect the operating results and performance of the Company.
Forward-looking statements are based on management's current plans,
estimates, projections, beliefs and opinions, and D+H does not
undertake any obligation to update forward-looking statements should
assumptions related to these plans, estimates, projections, beliefs and
opinions change except as required by applicable securities laws.
All of the forward-looking statements made in this MD&A and the
documents incorporated by reference herein are qualified by these
cautionary statements and other cautionary statements or factors
contained herein, and there can be no assurance that the actual results
or developments will be realized or, even if substantially realized,
that they will have the expected consequences to, or effects on, the
Company.
ADDITIONAL INFORMATION
Additional information relating to the Company, including the Company's
most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.
|
Consolidated Statements of Financial Position
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
December 31, 2012
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,794
|
|
$
|
5,719
|
|
Trade and other receivables
|
|
|
85,770
|
|
|
84,996
|
|
Prepayments
|
|
|
12,422
|
|
|
14,104
|
|
Inventories
|
|
|
2,651
|
|
|
4,181
|
|
Total current assets
|
|
|
104,637
|
|
|
109,000
|
|
Deferred tax assets
|
|
|
29,918
|
|
|
28,095
|
|
Property, plant and equipment
|
|
|
28,329
|
|
|
30,201
|
|
Investment in an associate
|
|
|
-
|
|
|
10,145
|
|
Intangible assets
|
|
|
415,532
|
|
|
421,366
|
|
Goodwill
|
|
|
724,380
|
|
|
690,583
|
|
Total non-current assets
|
|
|
1,198,159
|
|
|
1,180,390
|
|
Total assets
|
|
$
|
1,302,796
|
|
$
|
1,289,390
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Trade payables, accrued and other liabilities
|
|
$
|
91,272
|
|
$
|
99,910
|
|
Deferred revenue
|
|
|
15,168
|
|
|
12,586
|
|
Current tax liabilities
|
|
|
12,341
|
|
|
697
|
|
Total current liabilities
|
|
|
118,781
|
|
|
113,193
|
|
Deferred revenue
|
|
|
9,038
|
|
|
9,419
|
|
Derivative liabilities held for risk management
|
|
|
3,377
|
|
|
4,686
|
|
Loans and borrowings
|
|
|
353,588
|
|
|
340,577
|
|
Deferred tax liabilities
|
|
|
118,955
|
|
|
113,291
|
|
Other long-term liabilities
|
|
|
6,232
|
|
|
6,116
|
|
Total non-current liabilities
|
|
|
491,190
|
|
|
474,089
|
|
Total liabilities
|
|
|
609,971
|
|
|
587,282
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
Capital
|
|
|
673,833
|
|
|
673,680
|
|
Retained earnings
|
|
|
3,600
|
|
|
22,544
|
|
Accumulated other comprehensive income
|
|
|
15,392
|
|
|
5,884
|
|
Total equity
|
|
|
692,825
|
|
|
702,108
|
|
Total liabilities and equity
|
|
$
|
1,302,796
|
|
$
|
1,289,390
|
|
|
|
Consolidated Statements of Income
|
|
(in thousands of Canadian dollars, except per share amounts, unaudited)
|
|
|
Three months ended
|
Six months ended
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
Revenue
|
$
|
197,134
|
|
|
$
|
180,989
|
|
|
$
|
368,795
|
|
|
$
|
346,310
|
|
Employee compensation and benefits
|
|
49,120
|
|
|
|
44,066
|
|
|
|
96,167
|
|
|
|
88,638
|
|
Other expenses
|
|
95,431
|
|
|
|
84,223
|
|
|
|
178,048
|
|
|
|
164,725
|
|
Income from operating activities before depreciation and amortization
|
|
52,583
|
|
|
|
52,700
|
|
|
|
94,580
|
|
|
|
92,947
|
|
Depreciation of property, plant and equipment
|
|
2,273
|
|
|
|
2,312
|
|
|
|
4,209
|
|
|
|
4,205
|
|
Amortization of intangible assets
|
|
15,444
|
|
|
|
15,380
|
|
|
|
30,941
|
|
|
|
30,347
|
|
Income from operating activities
|
|
34,866
|
|
|
|
35,008
|
|
|
|
59,430
|
|
|
|
58,395
|
|
Finance expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment of derivative instruments
|
|
(1,203)
|
|
|
|
616
|
|
|
|
(1,310)
|
|
|
|
(1,029)
|
|
|
Interest expense
|
|
4,516
|
|
|
|
4,821
|
|
|
|
8,987
|
|
|
|
9,642
|
|
Gain on remeasurement of previously held equity interest
|
|
-
|
|
|
|
-
|
|
|
|
(1,587)
|
|
|
|
-
|
|
Income from investment in an associate, net of income tax
|
|
-
|
|
|
|
(38)
|
|
|
|
(130)
|
|
|
|
(38)
|
|
Income from continuing operations before income tax
|
|
31,553
|
|
|
|
29,609
|
|
|
|
53,470
|
|
|
|
49,820
|
|
Income tax expense
|
|
9,158
|
|
|
|
8,345
|
|
|
|
14,638
|
|
|
|
13,379
|
|
Income from continuing operations
|
|
22,395
|
|
|
|
21,264
|
|
|
|
38,832
|
|
|
|
36,441
|
|
Loss from discontinued operations, net of income tax
|
|
(8,786)
|
|
|
|
(377)
|
|
|
|
(19,481)
|
|
|
|
(620)
|
|
Net income
|
$
|
13,609
|
|
|
$
|
20,887
|
|
|
$
|
19,351
|
|
|
$
|
35,821
|
|
Income per share from continuing operations, basic and diluted
|
$
|
0.3781
|
|
|
$
|
0.3590
|
|
|
$
|
0.6556
|
|
|
$
|
0.6152
|
|
Loss per share from discontinued operations, basic and diluted
|
$
|
(0.1483)
|
|
|
$
|
(0.0064)
|
|
|
$
|
(0.3289)
|
|
|
$
|
(0.0105)
|
|
Net income per share, basic and diluted
|
$
|
0.2298
|
|
|
$
|
0.3526
|
|
|
$
|
0.3267
|
|
|
$
|
0.6047
|
|
|
|
Consolidated Statements of Comprehensive Income
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
Net income
|
$
|
13,609
|
|
|
$
|
20,887
|
|
|
$
|
19,351
|
|
|
$
|
35,821
|
|
The following items may be reclassified subsequently to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective portion of changes in fair value
|
|
-
|
|
|
|
(244)
|
|
|
|
-
|
|
|
|
(74)
|
|
|
Net amount transferred to profit or loss
|
|
-
|
|
|
|
196
|
|
|
|
-
|
|
|
|
(85)
|
|
Foreign currency translation
|
|
5,962
|
|
|
|
3,056
|
|
|
|
9,508
|
|
|
|
119
|
|
Total comprehensive income
|
$
|
19,571
|
|
|
$
|
23,895
|
|
|
$
|
28,859
|
|
|
$
|
35,781
|
|
|
|
Consolidated Statements of Changes in Equity
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
Three months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
Foreign
currency
translation
reserve
|
|
|
|
Hedging
reserve
|
|
|
|
Retained
earnings
|
|
|
|
Total equity
|
|
Balance at April 1, 2013
|
|
|
$
|
673,791
|
|
|
$
|
9,430
|
|
|
$
|
-
|
|
|
$
|
8,946
|
|
|
$
|
692,167
|
|
Net income for the period
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,609
|
|
|
|
13,609
|
|
Foreign currency translation
|
|
|
|
-
|
|
|
|
5,962
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,962
|
|
Dividends
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,955)
|
|
|
|
(18,955)
|
|
Options
|
|
|
|
42
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42
|
|
Balance at June 30, 2013
|
|
|
$
|
673,833
|
|
|
$
|
15,392
|
|
|
$
|
-
|
|
|
$
|
3,600
|
|
|
$
|
692,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Share capital
|
|
|
|
Foreign
currency
translation
reserve
|
|
|
|
Hedging
reserve
|
|
|
|
Retained
earnings
|
|
|
|
Total equity
|
|
Balance at April 1, 2012
|
|
|
$
|
673,352
|
|
|
$
|
6,389
|
|
|
$
|
(351)
|
|
|
$
|
24,021
|
|
|
$
|
703,411
|
|
Net income for the period
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,887
|
|
|
|
20,887
|
|
Cash flow hedges
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(48)
|
|
|
|
-
|
|
|
|
(48)
|
|
Foreign currency translation
|
|
|
|
-
|
|
|
|
3,056
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,056
|
|
Dividends
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,362)
|
|
|
|
(18,362)
|
|
Options
|
|
|
|
163
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
163
|
|
Balance at June 30, 2012
|
|
|
$
|
673,515
|
|
|
$
|
9,445
|
|
|
$
|
(399)
|
|
|
$
|
26,546
|
|
|
$
|
709,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Share capital
|
|
|
|
Foreign
currency
translation
reserve
|
|
|
|
Hedging
reserve
|
|
|
|
Retained
earnings
|
|
|
|
Total equity
|
|
Balance at January 1, 2013
|
|
|
$
|
673,680
|
|
|
$
|
5,884
|
|
|
$
|
-
|
|
|
$
|
22,544
|
|
|
$
|
702,108
|
|
Impact of transition to IAS 19R
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(385)
|
|
|
|
(385)
|
|
Net income for the period
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,351
|
|
|
|
19,351
|
|
Foreign currency translation
|
|
|
|
-
|
|
|
|
9,508
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,508
|
|
Dividends
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37,910)
|
|
|
|
(37,910)
|
|
Options
|
|
|
|
153
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
153
|
|
Balance at June 30, 2013
|
|
|
$
|
673,833
|
|
|
$
|
15,392
|
|
|
$
|
-
|
|
|
$
|
3,600
|
|
|
$
|
692,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Share capital
|
|
|
|
Foreign
currency
translation
reserve
|
|
|
|
Hedging
reserve
|
|
|
|
Retained
earnings
|
|
|
|
Total equity
|
|
Balance at January 1, 2012
|
|
|
$
|
673,163
|
|
|
$
|
9,326
|
|
|
$
|
(240)
|
|
|
$
|
27,449
|
|
|
$
|
709,698
|
|
Net income for the period
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,821
|
|
|
|
35,821
|
|
Cash flow hedges
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(159)
|
|
|
|
-
|
|
|
|
(159)
|
|
Foreign currency translation
|
|
|
|
-
|
|
|
|
119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
119
|
|
Dividends
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,724)
|
|
|
|
(36,724)
|
|
Options
|
|
|
|
352
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
352
|
|
Balance at June 30, 2012
|
|
|
$
|
673,515
|
|
|
$
|
9,445
|
|
|
$
|
(399)
|
|
|
$
|
26,546
|
|
|
$
|
709,107
|
|
|
|
Consolidated Statements of Cash Flows
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Six months ended
|
|
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
|
Cash and cash equivalents provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
$
|
22,395
|
|
|
$
|
21,264
|
|
|
$
|
38,832
|
|
|
$
|
36,441
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
|
2,273
|
|
|
|
2,312
|
|
|
|
4,209
|
|
|
|
4,205
|
|
|
Amortization of intangible assets
|
|
|
|
15,444
|
|
|
|
15,380
|
|
|
|
30,941
|
|
|
|
30,347
|
|
|
Fair value adjustment of derivative instruments
|
|
|
|
(1,203)
|
|
|
|
616
|
|
|
|
(1,310)
|
|
|
|
(1,029)
|
|
|
Interest expense
|
|
|
|
4,516
|
|
|
|
4,821
|
|
|
|
8,987
|
|
|
|
9,642
|
|
|
Income tax expense
|
|
|
|
9,158
|
|
|
|
8,079
|
|
|
|
14,638
|
|
|
|
14,842
|
|
|
Options expense
|
|
|
|
42
|
|
|
|
163
|
|
|
|
153
|
|
|
|
352
|
|
|
Income from investment in an associate, net of income tax
|
|
|
|
-
|
|
|
|
(38)
|
|
|
|
(130)
|
|
|
|
(38)
|
|
|
Gain on remeasurement of previously held equity interest
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,587)
|
|
|
|
-
|
|
|
Changes in non-cash working capital items
|
|
|
|
5
|
|
|
|
(12,669)
|
|
|
|
(15,143)
|
|
|
|
(27,309)
|
|
|
Changes in other operating assets and liabilities
|
|
|
|
(1,355)
|
|
|
|
348
|
|
|
|
437
|
|
|
|
1,031
|
|
|
Cash flows from (used in) discontinued operations
|
|
|
|
(5,268)
|
|
|
|
406
|
|
|
|
(9,999)
|
|
|
|
992
|
|
Cash generated from operating activities
|
|
|
|
46,007
|
|
|
|
40,682
|
|
|
|
70,028
|
|
|
|
69,476
|
|
|
Interest paid
|
|
|
|
(4,175)
|
|
|
|
(4,486)
|
|
|
|
(8,218)
|
|
|
|
(8,707)
|
|
|
Income taxes paid
|
|
|
|
(779)
|
|
|
|
-
|
|
|
|
(2,123)
|
|
|
|
-
|
|
Net cash from operating activities
|
|
|
|
41,053
|
|
|
|
36,196
|
|
|
|
59,687
|
|
|
|
60,769
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term indebtedness
|
|
|
|
(20,481)
|
|
|
|
(25,000)
|
|
|
|
(21,497)
|
|
|
|
(30,000)
|
|
Proceeds from long-term indebtedness
|
|
|
|
-
|
|
|
|
60,561
|
|
|
|
27,065
|
|
|
|
70,561
|
|
Payment of issuance costs of long-term
|
|
|
|
-
|
|
|
|
(111)
|
|
|
|
-
|
|
|
|
(111)
|
|
Dividends paid
|
|
|
|
(18,955)
|
|
|
|
(18,362)
|
|
|
|
(37,910)
|
|
|
|
(36,724)
|
|
Net cash from (used in) financing activities
|
|
|
|
(39,436)
|
|
|
|
17,088
|
|
|
|
(32,342)
|
|
|
|
3,726
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
|
(2,770)
|
|
|
|
(512)
|
|
|
|
(4,693)
|
|
|
|
(4,197)
|
|
Acquisition of intangible assets
|
|
|
|
(3,865)
|
|
|
|
(5,618)
|
|
|
|
(8,228)
|
|
|
|
(12,469)
|
|
Acquisition of subsidiary
|
|
|
|
(456)
|
|
|
|
(37,946)
|
|
|
|
(24,849)
|
|
|
|
(37,946)
|
|
Sale of discontinued operations
|
|
|
|
8,500
|
|
|
|
-
|
|
|
|
8,500
|
|
|
|
-
|
|
Acquisition of investment in an associate
|
|
|
|
-
|
|
|
|
(10,058)
|
|
|
|
-
|
|
|
|
(10,058)
|
|
Net cash from (used in) investing activities
|
|
|
|
1,409
|
|
|
|
(54,134)
|
|
|
|
(29,270)
|
|
|
|
(64,670)
|
|
Increase (decrease) in cash and cash equivalents for the period
|
|
|
|
3,026
|
|
|
|
(850)
|
|
|
|
(1,925)
|
|
|
|
(175)
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
768
|
|
|
|
2,888
|
|
|
|
5,719
|
|
|
|
2,213
|
|
Cash and cash equivalents, end of period
|
|
|
$
|
3,794
|
|
|
$
|
2,038
|
|
|
$
|
3,794
|
|
|
$
|
2,038
|
About D+H
D+H is a leading provider of secure and reliable technology solutions to
North American financial institutions with a reputation for being a
trusted partner that helps clients build deeper, more profitable
relationships with their customers based on rich industry and market
insight, and consumer knowledge. Our integrated, compliant technology
solutions enable clients to grow, compete, and optimize their
operations, while our forward looking approach helps them stay ahead of
the market and anticipate changing consumer needs.
Today, more than 1,700 banks and credit unions across North America rely
on D+H to deliver solutions across three broad service areas: Banking
and Lending Technology, Lending Processing Solutions, and Payments
Solutions. The acquisition of Harland Financial Solutions, and its
complementary product suite, will enhance D+H's position as a North
American financial technology ("FinTech") provider, increase our
current client base to 6,200 banks and credit unions, expand our
capabilities as a leader in lending and compliance solutions, core
banking technology solutions and channel solutions, create significant
cross-selling and revenue synergies, improve diversification and
provide further support for our growth strategies.
In 2012, D+H rose to 35th on the FinTech 100, a ranking of the top
technology providers to the global financial services industry, and is
ranked 24th on the 2013 Branham 300, a listing of the top Canadian ICT
companies.
Davis + Henderson Corporation is listed on the Toronto Stock Exchange under the symbol DH. Further
information can be found at www.dhltd.com and in the disclosure documents filed by Davis + Henderson Corporation
with the securities regulatory authorities at www.sedar.com.
SOURCE: Davis + Henderson Corporation
 For further information: Brian Kyle, Executive Vice President and Chief Financial Officer, Davis + Henderson Corporation, (416) 696-7700, investorrelations@dhltd.com or visit our website at www.dhltd.com.
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|
