Stock Exchange Symbol: DH
Website: www.dhltd.com
TORONTO, Feb. 25, 2014 /CNW/ - Davis + Henderson Corporation ("D+H" or
the "Corporation" or the "Company") delivered strong growth and
performance for the three months and year ended December 31, 2013 as it
continued to build its standing as a leading financial technology
("FinTech") provider.
"This was a transformational period for D+H as a combination of
strategic FinTech acquisitions and organic growth more than tripled our
U.S. customer base, broadened our suite of leading technology solutions
for banks and credit unions, substantially diversified our revenues and
drove strong bottom line accretion," said Gerrard Schmid, Chief
Executive Officer. "We are particularly pleased to have ended the year
with very positive momentum, including steady progression in our U.S.
operational integration, and encouraging customer feedback to our
cross-selling efforts. We are now well positioned for the growth trends
in the North American financial services marketplace with technologies
that address customer needs for compliance, fee-based revenue growth,
greater operational efficiency and cloud computing."
As a result of progress in 2013, D+H expanded its customer base to
approximately 7,000 banks, specialty lenders, community banks and
credit unions. This further reduces our customer concentration, and
results in better balance in our business with 35% of its 2013 Adjusted
revenue1 generated in payments solutions, 32% in banking technology solutions
and 33% in lending processing solutions, as well a balanced mix between
Canadian and U.S. revenue. The Company expects to make further gains in
2014 as a result of the inclusion of Harland Financial Solutions
("HFS"), acquired in August 2013 and the growth within our U.S.
businesses.
"During the fourth quarter, we completed the integration of our U.S.
sales and administration functions, developed a technology integration
plan that we are now deploying, and delivered strong growth in revenues
and Adjusted net income1," said Brian Kyle, Chief Financial Officer. "Positive cash flow
allowed us to make another debt repayment in the fourth quarter.
Looking to 2014, we intend to continue to deploy our cash surplus
strategy with support for growth initiatives, debt repayment and
dividends."
In early 2014, all of the Company's U.S. businesses aligned under the
D+H brand, which replaced the legacy brands Harland Financial
Solutions, Mortgagebot and Compushare. Moving to a unified brand
enables D+H to better communicate its value proposition, build greater
equity in the North American and global FinTech market and support
cross-selling strategies.
Fourth Quarter Highlights
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Revenues from continuing operations increased by 50.2% to $259.1 million
from $172.5 million in the same quarter in 2012, reflecting the
inclusion of HFS revenues in the U.S. Segment and organic growth in the
Canadian Segment.
-
Adjusted revenues1 of $272.1 million were $99.7 million, or 57.8%, higher than a year ago.
-
Adjusted EBITDA1 increased by 69.5% to $81.3 million (29.9% margin) from $47.9 million
(27.8% margin) in 2012.
-
Net income of $17.4 million ($0.2151 per share, basic and $0.2147 per
share, diluted), was higher compared to net income of $13.7 million
($0.2315 per share, basic and diluted) in the same quarter in 2012,
reflecting higher EBITDA, offset by higher amortization of intangible
assets from acquisitions and increased interest expense attributable to
the HFS acquisition.
-
Adjusted net income1 increased by 61.6% to $42.0 million from $26.0 million in 2012 mainly
due to the addition of HFS. Adjusted net income per share1 increased by 18.6% to $0.5206, from $0.4390 in 2012 reflecting the
additional common shares issued to finance the HFS acquisition on
August 16, 2013.
-
Debt repayments during the fourth quarter of 2013 were $15.0 million,
resulting in an end of year Debt to EBITDA ratio of 2.93. This ratio,
after eliminating the impacts of non-cash foreign exchange volatility,
was 2.87.
-
D+H paid $0.32 per share in dividends to its shareholders.
-
D+H climbed the Report on Business Board Games 2013 rankings this year, placing 25th out of 232 companies listed on the S&P/TSX.
2013 Highlights
-
On August 16, 2013, D+H acquired 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 and credit unions, for approximately US$1.2 billion.
-
On May 10, 2013, D+H divested its non-strategic business processing
operations that were not considered part of D+H's long-term strategic
goal of providing technology solutions to the financial services
marketplace.
-
Revenues from continuing operations increased by 20.4% to $837.1 million
from $695.5 million for 2012.
-
Adjusted revenues were $866.3 million, an increase of $170.8 million, or 24.6%, compared
to 2012.
-
Adjusted EBITDA increased by 25.9% to $247.5 million (28.6% margin) from
$196.5 million (28.3% margin) in 2012.
-
Net income was $43.7 million ($0.6480 per share, basic and $0.6472 per
share, diluted), a decrease of $25.5 million, or 36.9%, compared to
$69.1 million ($1.1672 per share, basic and diluted) in 2012, mainly
due to a loss from discontinued operations of $18.1 million ($0.2680
per share, basic and $0.2677 per share, diluted), the after-tax impacts
of transaction costs and acquisition related charges in connection with
the acquisition of HFS, increased amortization of intangible assets
from acquisitions and higher interest expense.
-
Adjusted net income increased by 25.9% to $136.1 million from $108.1
million in 2012 mainly due to the addition of HFS. Adjusted net income
per share increased by 10.7% to $2.0197 per share from $1.8245 per
share. Adjusted net income per share for 2013 was impacted by the
additional 21,505,000 common shares issued to partially fund the
acquisition of HFS.
-
D+H raised $460.2 million by issuing 21,505,000 common shares, $230.0
million by issuing 5-year 6% convertible debentures and issued 10-year
bonds of US$225.0 million and $20 million.
-
Total debt repayments for 2013 were $51.5 million.
-
D+H paid $1.28 per share in dividends to shareholders, up from $1.25 per
share in 2012.
____________________________
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1 D+H's financial results are prepared in accordance with IFRS. D+H
reports several non-IFRS financial measures, including EBITDA, EBIDTA
Margin, Adjusted revenues, Adjusted EBITDA, Adjusted EBITDA Margin,
Adjusted net income and Adjusted net income per share used above. See
Non-IFRS Financial Measures in D+H's Management Discussion and Analysis
for the year ended December 31, 2013 for a more complete description of
these terms. 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 revenues, net
income or cash flows. Further, D+H's measures may be calculated
differently from similarly titled measures of other companies.
|
D+H's consolidated financial statements for 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 and 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.
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 in Canada 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; changes in the U.S. banking and financial services
industry and demand for HFS's products and services; 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 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
Davis + Henderson will discuss its financial results for the three and
twelve months ended December 31, 2013 via conference call at 10:00 a.m.
EST (Toronto time) on Wednesday, February 26, 2014. The number to use
for this call is 647-427-7450 (Local/Int'l) or 1-888-231-8191
(toll-free within North America). 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 http://www.newswire.ca/en/webcast/detail/1295997/1429921. For anyone unable to listen to the scheduled call, the rebroadcast
number will be: 416-849-0833 (Local/Int'l), or 1-855-859-2056 for all other callers, with Encore
Password 52770382. The rebroadcast will be available until Wednesday
March 12, 2014. 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 of Davis + Henderson Corporation
(the "Corporation" or the "Company" or "D+H" or the "Business") has
been prepared with an effective date of February 25, 2014 and should be
read in conjunction with D+H's audited consolidated financial
statements for the year ended December 31, 2013. This MD&A comments on
D+H's operations, performance and financial condition for the years
ended December 31, 2013 and 2012.
NON-IFRS FINANCIAL MEASURES
The information presented within this MD&A include certain adjusted
financial measures such as "Adjusted revenues", "EBITDA", "EBITDA
Margin" (EBITDA divided by revenues), "Adjusted EBITDA", "Adjusted
EBITDA Margin" (Adjusted EBITDA divided by Adjusted revenues),
"Adjusted net income", 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 reconciliations of
"Adjusted Revenues", "EBITDA", "Adjusted EBITDA" and "Adjusted net
income" to the most directly comparable IFRS measures, "revenues" and
"net income", in the "Operating Results" section of this MD&A.
Management believes these supplementary financial measures provide
useful additional information related to the operating results of the
Corporation. Management uses these measures to assess 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 measure may not be comparable to
calculations used by other companies bearing the same description.
Adjusted Revenues
Effective from the third quarter of 2013, the Company uses Adjusted
revenues as a measure in determining Adjusted EBITDA and as a measure
of performance due to the impact of applying acquisition accounting on
the acquisition of HFS.
Upon acquisition, the acquired deferred revenue balances were adjusted
to reflect the fair value based on estimated costs of future delivery
of the related services. These fair value adjustments to deferred
revenues, recorded as of the acquisition date in accordance with the
business combination accounting standard, will reduce revenues
recognized post-acquisition under IFRS. Adjusted revenues exclude
these acquisition accounting effects.
Management expects to use Adjusted revenues as a measure to the extent
that the amortization impacts of the fair value adjustment to the
acquired deferred revenues at the time of the HFS acquisition are
significant to the Consolidated Statements of Income.
Management believes that this non-IFRS measure provides investors with
useful information regarding the underlying performance of the business
operations and facilitates meaningful comparisons of pre-acquisition
operations to post-acquisition revenues. Without considering these
non-IFRS adjustments, acquisition accounting adjustments made in
accordance with IFRS may make it difficult to make meaningful
comparisons of the underlying operations of the business between
periods.
EBITDA
EBITDA is defined as income from continuing operations excluding
interest, taxes, depreciation and amortization, other non-cash finance
charges and fair value adjustments of interest-rate swaps which are
directly related to interest expense, income from investment in an
associate and gain on re-measurement of previously held equity interest
in the Compushare investment. EBITDA is also described as income from
operating activities before depreciation and amortization in the
Consolidated Statements of Income.
In addition to its use by management as an internal measure of financial
performance, EBITDA (with certain adjustments) is used to measure
compliance with certain financial covenants under the Company's Credit
Facility (as defined in the "Contractual Obligations" section) 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 in connection with acquisitions; (ii) other
charges such as corporate development costs related to strategic
acquisition initiatives; and (iii) costs incurred in connection with
cost-realignment initiatives, all of which are not considered to be
part of the normal course of operations. Beginning in the third
quarter of 2013, the Company's calculation of Adjusted EBITDA also
excluded effects of acquisition accounting on the fair value of
deferred revenues and deferred costs acquired from the acquisition of
HFS.
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.
As described above, upon acquisition of HFS, the acquired deferred
revenue balances were adjusted to reflect the fair value based on
estimated costs of future delivery of the related services. Similarly,
deferred costs, which include sales commissions and implementation
costs, were adjusted to reflect their fair values of these items at the
acquisition date. These fair value adjustments to deferred revenue and
deferred costs recorded as of the acquisition date will reduce revenues
and expenses recognized post-acquisition under IFRS primarily over the
next two years, after which the impact to the consolidated results
would not be significant. Adjusted EBITDA excludes these effects from
the results in the periods reported.
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, basic
Adjusted net income is used as a measure of internal performance similar
to net income, but is calculated by adjusting for the impacts of
certain non-cash items and certain items of note on an after-tax
basis. These adjustments include the after-tax impacts of: the effects
of acquisition accounting on fair value of deferred revenue and
deferred costs acquired from the acquisition of HFS;
acquisition-related and other charges; 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 intangible assets from
acquisitions, gain on re-measurement of the previously held equity
interest in Compushare, non-cash finance charges such as deferred
financing fees associated with the Previous Credit Facility (as defined
in the "Contractual Obligations" section) written off upon the
refinancing in connection with the acquisition of HFS, amortization of
other deferred financing charges, accretion of the Debentures (as
defined in the "Contractual Obligations" section), fair value
adjustments of interest-rate swaps and tax effects of acquisitions.
These items are excluded in calculating Adjusted net income as they are
not considered indicative of the financial performance of the Company
for the periods being reviewed.
Basic Adjusted net income per share is calculated by dividing Adjusted
net income for the period by the weighted average number of shares
outstanding during the period.
ADDITIONAL IFRS MEASURES
Income from Operating Activities
D+H provides as part of its Consolidated Statements 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.
ACQUISITIONS
Harland Financial Solutions
On August 16, 2013, D+H completed the acquisition of all of the
outstanding shares of Harland Financial Solutions, Inc., Harland
Financial Solutions Worldwide Limited and Harland Israel Ltd.
(collectively referred to as "HFS"), for a purchase price of
approximately US$1.2 billion in cash, subject to post-closing
adjustments. 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 operates from offices throughout
the U.S., as well as Dublin, Ireland, Trivandrum, India and Tel Aviv,
Israel. For further information, refer to note 4(a) of the audited
consolidated financial statements of the Corporation for the year ended
December 31, 2013.
Revenues from HFS are included in the Banking Technology Solutions
service area in the U.S. Segment.
Compushare
On January 29, 2013, D+H purchased all remaining shares of Santa Ana,
California-based Compushare Inc. ("Compushare"), a technology
management and cloud computing provider to financial institutions.
Building on its initial minority investment in Compushare acquired on
April 24, 2012, this transaction gives D+H one hundred percent
ownership of Compushare. For further information, refer to note 4(b) of
the audited consolidated financial statements of the Corporation for
the year ended December 31, 2013.
Revenues from Compushare are included as part of the enterprise category
within the Banking Technology Solutions service area in the U.S.
Segment.
DIVESTITURE
On May 10, 2013, D+H divested 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 to be part of D+H's long-term
strategic goal of providing technology solutions to the financial
services marketplace.
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 now been classified as discontinued operations for all
periods presented. Refer to note 26 of the audited consolidated
financial statements for the year ended December 31, 2013 for further
information related to the impact of these discontinued operations on
the financial statements of the Corporation.
STRATEGY
D+H's goal is to be a leading financial technology ("FinTech") provider
to the financial services marketplace by delivering differentiated
services that underpin comprehensive and robust product offerings.
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 and efficiencies,
reduce infrastructure costs and enhance compliance requirements.
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 integrated
technology solutions that deliver increasing value to our customers and
shareholders. We expect to advance this strategy through organic
initiatives and selective acquisitions. By growing revenue while
maintaining efficient operations, D+H intends to achieve its long-term
financial objective of growing earnings.
On August 16, 2013, D+H significantly advanced its FinTech goal and
strategy by acquiring HFS. HFS added: over 5,000 U.S. bank and credit
union customers to bring our combined customer count to approximately
7,000 (not counting shared customer relationships); a suite of
market-leading FinTech products including lending and compliance
solutions which lead in the United States, core banking technology and
a number of innovative channel solutions; and over 1,400 employees
across 17 facilities. Management believes the addition of HFS provides
D+H with revenue synergies in the U.S. banking and credit union
marketplace and will improve the Company's value proposition as a
single-source FinTech provider.
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.
Going forward, management will remain focused on executing its growth
strategy with emphasis on: (i) developing an integrated operating model
in the United States that will support efficient and effective growth;
(ii) cross-selling D+H's suite of FinTech solutions including its SaaS
products, cloud-based infrastructure technology and the HFS suite of
FinTech products primarily within the U.S. marketplace to existing bank
and credit union customers as well approximately 7,000 other U.S.
community banks and credit unions that could benefit from these
offerings; (iii) enhancing services, capabilities and cost
effectiveness across all service lines in Canada and the U.S. as a
means of enhancing customer value, expanding margins, and creating
additional free cash flow; (iv) building new subscription-based
offerings in its payments solutions service line where it won a number
of Canadian financial institution mandates in recent years; (v)
extending an integrated D+H brand into the U.S. market; and vi)
expanding its offering through strategic partnerships.
In carrying out its cross-selling strategy, D+H will work to achieve
synergies in a number of areas including integrating sales activities
to better serve customers, and focusing on creating tighter linkages
between our technologies to enhance customer satisfaction as D+H grows.
In January 2014, we announced that D+H is now operating as a single
brand in North America and globally, following the rebranding of our
legacy HFS, Mortgagebot and Compushare brands to D+H. Leading
technology products and solutions from these brands are now operating
under the D+H brand, but will continue to use their existing product
names. D+H anticipates the rebranding will be a strategic enabler that
will allow us to unlock synergies and create tangible benefits for our
businesses and clients. The move is aligned with our long-term plan,
outlined following the HFS acquisition, and is the next step in D+H's
continuing evolution as a FinTech leader.
The Company is committed to reducing leverage while continuing to
support its current dividend payments. Without taking into account any
future acquisitions or strategic investment initiatives, the Company
expects to reduce its Total Funded Debt/EBITDA ratio, as defined in the
'Contractual Obligations' section, to below 2.5 in 2015 from 3.05 on
the date of acquisition of HFS. At year-end 2013, debt repayments had
reduced this ratio to 2.93. After removing the impacts of foreign
exchange fluctuations, this ratio was 2.87.
INDUSTRY TRENDS AND MARKET OPPORTUNITY
Payments Solutions
Payments 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 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 but growing component of
revenues within this revenue category.
As a result of growth in credit cards, debit cards and other electronic
forms of payment such as online banking and mobile payments, the number
of cheques written has declined and is expected to continue to decline.
Management believes that the downward trend in cheque order volumes is
in the mid-single digits annually. 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 digits
with comparatively less volatility. Management expects that these
trends will continue in 2014. D+H continues to develop service
enhancements to offset this impact and to generate future growth within
this category.
Payments solutions revenues are also affected by consumer confidence and
employment. D+H believes the number of cheques printed is driven by the
number of cheques written, the number of new chequing accounts opened
and reorders reflecting changes in consumers' personal situations
(i.e., changes in address, marital status, employment status, etc.).
Consumer confidence directly correlates with consumer spending, while
employment also affects revenues through the number of new chequing
accounts being opened. These volume declines have been partially
offset by increased average order values for cheques, and growth in
both service enhancements to the chequing and credit card programs and
fee-based subscription offerings. Recently announced upcoming changes
in Canada Post's delivery models may have a longer term impact on
consumer appetite to order and receive cheques in the mail. The Company
is currently developing strategies to mitigate the impact this change
will have on our chequing business.
Lending Processing Solutions
Lending processing solutions consist of two distinct sets of customer
solutions: loan registration and recovery and student loan
administration services.
Loan Registration and Recovery
Loan registration and recovery services, which account 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, new and resale, 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. Registration activities are
seasonally higher in the spring and summer relative to the fall and
winter periods. Related services include mortgage discharge solutions
and various search-related services, both of which we deliver on behalf
of our financial institution customers. The economy has been
experiencing continuing recovery within the auto and auto lending
markets. The recovery is expected to continue in 2014. Increases in
lender portfolios over the last three years should continue to drive
volume increases in 2014 in our recovery business despite falling
delinquency rates.
Student Loans Administration
In our student loans administration services area, which accounts for
approximately 35% to 45% of revenues within the lending processing
solutions category, we manage a $21 billion student loan portfolio
servicing 1.7 million students on behalf of Canadian federal and
provincial governments and lenders. Our capabilities include student
enrollment, management of funds disbursement, loan tracking, student
support services, reporting and collections. These capabilities rely on
technology-driven solutions. We continue to evolve our service delivery
primarily through the introduction of new digital service channels and
self-serve options. Revenues from this program are primarily earned
based upon the number of student loans serviced while enrolled in
school and the number of loans serviced while students are in the
repayment cycle. D+H also earns revenue from professional services work
connected to program enhancements requested by the lenders. The
delivery of these professional services is impacted by the timing of
government approval of these services. Student loan servicing volumes
are expected to stabilize and modestly grow on higher student loan
balances and extended loan durations as demand among Canadian students
for funds through the federal student loans program continues to
increase. Revenues in this area are not significantly impacted by
seasonality.
Banking Technology Solutions
Canadian Banking Technology Solutions
In the Canadian Segment, banking technology solutions is reported within
the lending category and includes solutions directed towards mortgage
markets in Canada. Also included in this category are the technology
products and services supporting leasing, commercial lending and small
business lending. Revenues related to Canadian mortgage markets
currently represent approximately 75% to 85% of revenues within this
category of which over 90% is 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.
Regulatory changes aimed at cooling the Canadian housing market have had
less of an impact in 2013 than expected. While interest rates are
expected to remain steady in the near term, the government continues to
closely monitor activity in the housing market and any further
intervention may impact revenues in future periods. These revenues may
also continue to be impacted by strategic price modifications, which
are expected to be offset over time by potential revenues from the
launch of new products for Canadian lenders, including extension of our
technology solutions across various areas in the lending value chain.
U.S. Banking Technology Solutions
Effective August 16, 2013, the Company includes revenues from HFS in its
U.S. Segment. HFS derives its revenues from processing and
account-based fees for cloud services (outsourcing), licenses for
in-house solutions, and installation, maintenance, and support fees
from its installed customer base. The majority of HFS' revenues are
earned pursuant to long-term contracts with typical contract durations
of five to seven years. Revenues from our U.S. banking technology
solutions are classified into enterprise and lending offering
categories.
Enterprise solutions primarily consist of revenues from core processing
systems including content management, financial accounting and payments
solutions, a number of innovative channel solutions related to
self-service, business intelligence and branch automation solutions and
cloud-based infrastructure technology solutions offerings.
Lending solutions primarily consist of loan and deposit origination and
mortgage compliance offerings for a wide variety of loan types,
including consumer, mortgage and commercial loans, and also market
offerings related to commercial lending risk management, underwriting
and portfolio management solutions. Within the U.S. lending solutions
category revenues, approximately 55% to 65% come from recurring
subscription fees, and less than 10% from transaction-based activity.
During the past 25 years, the number of financial institutions in the
United States has been declining. While the decline accelerates at
certain points (due to events like the 2008 financial crisis) it has a
long term consolidation rate of approximately 3% per year, with most
occurring amongst the very smallest of banks, primarily as a result of
mergers and acquisitions. An acquisition benefits us when a newly
combined institution is processed on our platform, or elects to move to
one of our platforms, and negatively impacts us when a competing
platform is selected. Financial institution acquisitions also impact
our financial results due to early contract termination fees in our
multi-year customer contracts. Contract termination fees are primarily
generated when an existing customer with a multi-year contract is
acquired by another financial institution. These fees can vary from
period to period based on the number and size of customers that are
acquired and how early in the contract term the contract is terminated.
Today we effectively serve the largest of financial institutions with
several discrete market-leading products. We also target in the United
States the 13,000 commercial banks, credit unions and other leading
financial services customers that have assets less than US$10 billion
with a broad array of solutions. These financial institutions are
facing increasing challenges to improve their competitiveness and
operational performance, including requirements to comply with an
increasingly complex regulatory environment, the emergence of new
technologies and channels, and margin compression on traditional
products. As a result, financial institutions invest significant
capital in order to process transactions more efficiently, manage risk
and information more effectively, maintain regulatory compliance and
offer new and innovative products and services to their customers.
For a detailed discussion of the operating results for the three months
and year ended December 31, 2013 and management's outlook, please see
below.
ACCOUNTING PRINCIPLES AND FINANCIAL INFORMATION PRESENTATION
The Company's audited consolidated financial statements have been
prepared in accordance with IFRS, 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) payments 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). Beginning in the
third quarter of 2013, the Company further segregates its U.S. banking
technology solutions category into: a) enterprise; and b) lending
offerings. For segment reporting purposes, revenues in respect of
payments solutions, lending processing solutions and banking technology
solutions (including technology solutions to the Canadian mortgage
market and the commercial lending, small business lending and leasing
markets) are reported as part of the Canadian Segment. The U.S.
Segment includes revenues from banking technology solutions to the U.S.
market and effective August 16, 2013, revenues relating to HFS.
Comparative periods have been conformed to the current period
classification, where applicable.
All amounts are in Canadian dollars, unless otherwise specified.
OPERATING RESULTS - FOURTH QUARTER OF 2013
(in thousands of Canadian dollars, except per share amounts, unaudited)
|
|
Quarter ended December 31,
|
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
259,075
|
$
|
172,457
|
|
Expenses
|
|
190,876
|
|
131,082
|
|
EBITDA 1
|
|
68,199
|
|
41,375
|
|
Depreciation of capital assets and amortization
|
|
|
|
|
|
|
of non-acquisition intangibles
|
|
10,937
|
|
7,568
|
|
Amortization of intangible assets from acquisitions
|
|
27,631
|
|
11,292
|
|
Income from operating activities
|
|
29,631
|
|
22,515
|
|
Interest expense
|
|
15,509
|
|
4,629
|
|
Loss from investment in an associate, net of tax 2
|
|
-
|
|
23
|
|
Fair value adjustment of derivative instruments 3
|
|
(138)
|
|
(542)
|
|
Income tax expense (recovery)
|
|
(975)
|
|
4,165
|
|
Income from continuing operations
|
|
15,235
|
|
14,240
|
|
Income (loss) from discontinued operations, net of tax 4
|
|
2,133
|
|
(529)
|
|
Net income
|
$
|
17,368
|
$
|
13,711
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per share,
|
|
|
|
|
|
|
|
Basic 5
|
$
|
0.1887
|
$
|
0.2404
|
|
|
|
Diluted 6
|
$
|
0.1883
|
$
|
0.2404
|
|
Income (loss) from discontinued operations, per share, net of tax 4
|
|
|
|
|
|
|
|
Basic 5
|
$
|
0.0264
|
$
|
(0.0089)
|
|
|
|
Diluted 6
|
$
|
0.0264
|
$
|
(0.0089)
|
|
Net income per share
|
|
|
|
|
|
|
|
Basic 5
|
$
|
0.2151
|
$
|
0.2315
|
|
|
|
Diluted 6
|
$
|
0.2147
|
$
|
0.2315
|
|
1
|
EBITDA is a non-IFRS term. See Non-IFRS Financial Measures for a more
complete description of
this term.
|
|
2
|
Loss from investment in an associate consists of D+H's share of loss
from Compushare, the minority
investment purchased on April 24, 2012.
|
|
3
|
Balance represents 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 divested its non-strategic business processing
operations. These operations
were reported as part of business service solutions and loan servicing
solutions in prior periods and have
now been classified as discontinued operations for both the current and
comparative periods
presented. Income during the fourth quarter of 2013 mainly related to a
working capital
adjustment.
|
|
5
|
Weighted average number of shares outstanding during the fourth quarter
of 2013 was 80,738,373
shares (Q4 2012 - 59,233,373 shares).
|
|
6
|
Diluted per share measure reflects the impacts of outstanding stock
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 for income from
operating activities per share.
Weighted average number of shares outstanding, on a diluted basis,
during the fourth quarter of
2013 was 80,906,132 (Q4 2012 - 59,233,373 shares).
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Quarter ended December 31,
|
|
|
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
259,075
|
$
|
172,457
|
|
Acquisition accounting adjustments 1
|
|
13,058
|
|
-
|
|
Adjusted revenues 2
|
$
|
272,133
|
$
|
172,457
|
|
1
|
Fair value of the deferred revenue balance acquired with the
acquisition of HFS was adjusted to reflect estimated costs of
future delivery of services. This add-back represents the
amortization of the deferred revenue that was written-off.
|
|
2
|
Adjusted revenues is a non-IFRS term. See Non-IFRS Financial
Measures for a more complete description of this term.
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Quarter ended December 31,
|
|
|
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
259,075
|
$
|
172,457
|
|
Expenses
|
|
190,876
|
|
131,082
|
|
EBITDA 1
|
|
68,199
|
|
41,375
|
|
EBITDA Margin 1
|
|
26.3%
|
|
24.0%
|
|
Adjustments:
|
|
|
|
|
|
|
Acquisition accounting adjustments 2
|
|
9,217
|
|
-
|
|
|
Acquisition-related and other charges 3
|
|
3,842
|
|
6,558
|
|
Adjusted EBITDA 1
|
$
|
81,258
|
$
|
47,933
|
|
Adjusted EBITDA Margin 1
|
|
29.9%
|
|
27.8%
|
|
1
|
EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin
are non-IFRS terms. See Non-IFRSFinancial Measures for a more
complete description of these terms.
|
|
2
|
Acquisition accounting adjustments relate to the amortization of the
fair
value adjustments on deferred revenues and deferred costs acquired in
connection with the acquisition of HFS. See "Adjusted revenues" and
"Adjusted EBITDA" in the Non-IFRS Financial Measures for a more
complete description of these terms.
|
|
3
|
Acquisition-related and other charges for Q4 2013 included business
integration costs related to the acquisition of HFS and retention and
incentive costs in connection with the acquisitions of businesses.
Acquisition-related and other charges for Q4 2012 included transaction
costs and certain retention and incentive costs related to the
Mortgagebot
and Avista acquisitions, charges related to cost-realignment
initiatives,
corporate development expenses related to strategic acquisition
initiatives
and business integration costs.
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Quarter ended December 31,
|
|
|
|
|
|
2013
|
|
2012
|
|
Net income
|
$
|
17,368
|
$
|
13,711
|
|
Adjustments:
|
|
|
|
|
|
|
Non-cash items:
|
|
|
|
|
|
|
|
Acquisition accounting adjustments 1
|
|
9,217
|
|
-
|
|
|
|
Non-cash interest expense 2
|
|
1,349
|
|
-
|
|
|
|
|
Amortization of intangible assets from acquisitions
|
|
27,631
|
|
11,292
|
|
|
|
Fair value adjustment of derivative instruments 3
|
|
(138)
|
|
(542)
|
|
|
Other items of note:
|
|
|
|
|
|
|
|
Acquisition-related and other charges 4
|
|
3,842
|
|
6,558
|
|
|
Tax effect of above adjustments 5
|
|
(15,100)
|
|
(5,543)
|
|
|
Loss (income) from discontinued operations, net of tax 6
|
|
(2,133)
|
|
529
|
|
Adjusted net income 7
|
$
|
42,036
|
$
|
26,005
|
|
Adjusted net income per share, basic 7, 8
|
$
|
0.5206
|
$
|
0.4390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31,
|
|
|
|
|
|
|
|
2013 vs. 2012
|
|
|
|
|
|
|
|
% change
|
|
Adjusted net income 7
|
|
|
|
61.6%
|
|
Adjusted net income per share, basic 7, 8
|
|
|
|
18.6%
|
|
1
|
Acquisition accounting adjustments relate to the amortization of the
fair value adjustments on
deferred revenues and deferred costs acquired in connection with the
acquisition of HFS.
|
|
2
|
Non-cash interest expense relates to accretion of Debentures issued to
partially fund the
acquisition of HFS and amortization of deferred financing charges
incurred in connection
with the Company's financing arrangements.
|
|
3
|
Amounts include 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
|
Acquisition-related and other charges included business integration
costs related to the
acquisition of HFS and retention and incentive costs in connection with
the acquisitions of
businesses. Acquisition-related and other charges for Q4 2012 included
transaction costs
and certain retention and incentive costs related to the Mortgagebot and
Avista acquisitions,
charges related to cost-realignment initiatives, corporate development
expenses related to
strategic acquisition initiatives and business integration costs.
|
|
5
|
The adjustments to net income are tax effected at their respective tax
rates.
|
|
6
|
On May 10, 2013 D+H divested 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.
|
|
7
|
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.
|
|
8
|
Weighted average number of shares outstanding during the fourth quarter
of 2013 was
80,738,373 shares (Q4 2012 - 59,233,373 shares).
|
OPERATING RESULTS BY SEGMENT
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31,
|
|
|
|
|
|
|
|
Canadian
Segment
|
|
|
|
|
U.S.
Segment
|
|
|
|
|
Corporate
|
|
|
|
|
Consolidated
|
|
|
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
159,193
|
$
|
157,070
|
|
$
|
99,882
|
$
|
15,387
|
|
$
|
-
|
$
|
-
|
|
$
|
259,075
|
$
|
172,457
|
|
Acquisition accounting adjustments 1
|
|
-
|
|
-
|
|
|
13,058
|
|
-
|
|
|
-
|
|
-
|
|
|
13,058
|
|
-
|
|
Adjusted revenues 2
|
$
|
159,193
|
$
|
157,070
|
|
$
|
112,940
|
$
|
15,387
|
|
$
|
-
|
$
|
-
|
|
$
|
272,133
|
$
|
172,457
|
|
1
|
Fair value of the deferred revenue balance acquired with the acquisition
of HFS was adjusted to reflect estimated costs of future delivery of
services. This add-back represents the amortization of the deferred
revenue that was written-off.
|
|
2
|
Adjusted revenues is a non-IFRS term. See Non-IFRS Financial Measures
for a more complete description of this term.
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
December 31,
|
|
|
|
|
|
|
|
Canadian
Segment
|
|
|
|
|
U.S.
Segment
|
|
|
|
|
Corporate
|
|
|
|
|
Consolidated
|
|
|
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
159,193
|
$
|
157,070
|
|
$
|
99,882
|
$
|
15,387
|
|
$
|
-
|
$
|
-
|
|
$
|
259,075
|
$
|
172,457
|
|
Expenses
|
|
119,052
|
|
115,825
|
|
|
67,982
|
|
8,699
|
|
|
3,842
|
|
6,558
|
|
|
190,876
|
|
131,082
|
|
EBITDA 1
|
|
40,141
|
|
41,245
|
|
|
31,900
|
|
6,688
|
|
|
(3,842)
|
|
(6,558)
|
|
|
68,199
|
|
41,375
|
|
EBITDA Margin 1
|
|
25.2%
|
|
26.3%
|
|
|
31.%
|
|
43.5%
|
|
|
-
|
|
-
|
|
|
26.3%
|
|
24.0%
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition accounting adjustments 2
|
|
-
|
|
-
|
|
|
9,217
|
|
-
|
|
|
-
|
|
-
|
|
|
9,217
|
|
-
|
|
Acquisition-related and other charges 3
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
3,842
|
|
6,558
|
|
|
3,842
|
|
6,558
|
|
Adjusted EBITDA 1
|
$
|
40,141
|
$
|
41,245
|
|
$
|
41,117
|
$
|
6,688
|
|
$
|
-
|
$
|
-
|
|
$
|
81,258
|
$
|
47,933
|
|
Adjusted EBITDA Margin 1
|
|
25.2%
|
|
26.3%
|
|
|
36.4%
|
|
43.5%
|
|
|
-
|
|
-
|
|
|
29.9%
|
|
27.8%
|
|
1
|
EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are
non-IFRS terms. See Non-IFRS Financial Measures for a more complete
description of these terms.
|
|
2
|
Acquisition accounting adjustments relate to the amortization of the
fair value adjustments on deferred revenues and deferred costs acquired
in connection with the acquisition of HFS. See "Adjusted revenues" and
"Adjusted EBITDA" in the Non-IFRS Financial Measures for a more
complete description of these terms.
|
|
3
|
Acquisition-related and other charges for Q4 2013 included business
integration costs related to the acquisition of HFS and retention and
incentive costs in connection with the acquisitions of businesses.
Acquisition-related and other charges for Q4 2012 included transaction
costs and certain retention and incentive costs related to the
Mortgagebot and Avista acquisitions, charges related to
cost-realignment initiatives, corporate development expenses related to
strategic acquisition initiatives and business integration costs.
|
|
|
|
|
|
|
|
|
Quarter ended December 31,
|
|
|
|
|
|
|
Canadian
|
|
U.S.
|
|
|
|
|
|
|
|
Segment
|
|
Segment
|
Consolidated
|
|
|
|
|
|
|
2013 vs. 2012
|
|
2013 vs. 2012
|
2013 vs. 2012
|
|
|
|
|
|
|
% change
|
|
% change
|
% change
|
|
Revenues
|
|
|
1.4%
|
|
549.1%
|
50.2%
|
|
Adjusted revenues 1
|
|
|
1.4%
|
|
634.0%
|
57.8%
|
|
Adjusted EBITDA 1
|
|
|
(2.7%)
|
|
514.8%
|
69.5%
|
|
1
|
Adjusted revenues and Adjusted EBITDA are non-IFRS terms. See
Non-IFRS Financial Measures for a more complete description of
these terms.
|
REVENUES AND ADJUSTED REVENUES
Revenues and Adjusted Revenues - Consolidated
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31,
|
|
|
Canadian Segment
|
|
|
|
U.S. Segment
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
|
|
Revenues
|
|
Revenues
|
|
|
Revenues
|
|
Adjustment1
|
|
|
Adjusted
revenues2
|
|
Revenues
|
|
|
Revenues
|
|
Adjustment1
|
|
|
Adjusted
revenues2
|
|
Revenues
|
|
Payments solutions
|
$
|
75,958
|
$
|
76,113
|
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
-
|
|
$
|
75,958
|
$
|
-
|
|
$
|
75,958
|
$
|
76,113
|
|
Lending processing solutions
|
|
67,852
|
|
63,683
|
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
67,852
|
|
-
|
|
|
67,852
|
|
63,683
|
|
Banking technology solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
-
|
|
-
|
|
|
53,115
|
|
1,910
|
|
|
55,025
|
|
-
|
|
|
53,115
|
|
1,910
|
|
|
55,025
|
|
-
|
|
|
Lending
|
|
15,383
|
|
17,274
|
|
|
46,767
|
|
11,148
|
|
|
57,915
|
|
15,387
|
|
|
62,150
|
|
11,148
|
|
|
73,298
|
|
32,661
|
|
Total Revenues
|
$
|
159,193
|
$
|
157,070
|
|
$
|
99,882
|
$
|
13,058
|
|
$
|
112,940
|
$
|
15,387
|
|
$
|
259,075
|
$
|
13,058
|
|
$
|
272,133
|
$
|
172,457
|
|
1
|
Adjustment is related to non-cash fair value adjustment to deferred
revenues acquired in connection with the acquisition of HFS. Fair value
of the deferred revenue balance was adjusted to reflect estimated costs
of future delivery of the services. This add-back represents the
amortization of the deferred revenue that was written-off.
|
|
2
|
Adjusted revenues is a non-IFRS term. See Non-IFRS Financial Measures
for a more complete description of this term.
|
Consolidated Adjusted revenues for the fourth quarter of 2013 was $272.1
million, an increase of $99.7 million, or 57.8%, compared to the same
period in 2012. This increase was primarily due to the inclusion of
HFS and Compushare revenues effective August 16, 2013 and January 29,
2013, respectively, in the U.S. Segment and growth in our other SaaS
businesses in the U.S. Also contributing to this increase, but to a
lesser extent, was revenue growth from lending processing solutions in
the Canadian Segment.
Consolidated revenues for the fourth quarter of 2013 were $259.1
million, an increase of $86.6 million, or 50.2%, compared to the same
period in 2012. Revenues for the fourth quarter in 2013 were impacted
by the fair value adjustment to deferred revenues acquired from HFS.
Revenues - Canadian Segment
Total revenues in the Canadian Segment for the fourth quarter of 2013 of
$159.2 million, increased by $2.1 million, or 1.4%, compared to the
same quarter in 2012. Adjusted revenues are the same as revenues for
the Canadian Segment as this segment was not subject to acquisition
accounting adjustments.
Payments Solutions
Revenues from payments solutions for the fourth quarter of 2013 were
$76.0 million, a decrease of $0.2 million, or 0.2%, compared to the
same quarter in 2012. Revenues from payments solutions reflected volume
declines in cheque orders partially offset by the positive impact of
higher average order values and product and service enhancements in the
chequing and credit card programs.
Lending Processing Solutions
Lending processing solutions revenues for the fourth quarter of 2013
were $67.9 million, an increase of $4.2 million, or 6.5%, compared to
the same quarter in 2012. 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 and higher
average order values combined with higher volumes in the student loans
program.
Banking Technology Solutions - Lending
Revenues in the fourth quarter of 2013 from banking technology solutions
within the Canadian Segment were $15.4 million, a decrease of $1.9
million, or 10.9%, compared to the same quarter in 2012. Fourth
quarter 2013 revenues reflected lower mortgage origination fees
resulting from strategic price modifications. We expect the impact of
strategic price modifications to be fully accounted for by the end of
the second quarter of 2014. Origination volumes during the quarter
remained relatively unchanged compared to the same period in 2012.
Revenues and Adjusted Revenues - U.S. Segment
Total revenues in the U.S. Segment for the fourth quarter of 2013 of
$99.9 million increased by $84.5 million, or 549.1%, compared to the
same quarter in 2012. Fourth quarter Adjusted revenues for the U.S.
Segment of $112.9 million were $97.6 million, or 634.0%, ahead of the
same period of 2012. The sharp increase in revenues and Adjusted
revenues in the fourth quarter of 2013 was primarily due to the
inclusion of HFS and to a lesser degree, Compushare. A strong U.S.
dollar in the latter part of the year compared to the prior year
benefited Adjusted revenues in the U.S. Segment by $6.3 million. This
impact was calculated using the methodology described previously.
Enterprise Solutions
Revenue from enterprise solutions within the U.S. Segment for the fourth
quarter of 2013 was $53.1 million.
Adjusted revenues, which are calculated after removing the impacts of
purchase accounting adjustments related to fair value of deferred
revenues, were $55.0 million for the fourth quarter of 2013. There
were no comparable figures for the same period in 2012.
Lending Solutions
Revenue from lending solutions in the U.S. Segment for the fourth
quarter of 2013 was $46.8 million, an increase of $31.4 million, or
203.9%, compared to $15.4 million for the same period in 2012. Revenues
for the fourth quarter of 2013 benefited from inclusion of HFS since
its acquisition on August 16, 2013. Revenues recorded under IFRS for
the fourth quarter of 2013 were impacted by acquisition-accounting
adjustments related to fair value of deferred revenue acquired through
the acquisition of HFS. Adjusted revenues of $57.9 million, which
removed these acquisition accounting impacts, increased by $42.5
million compared to the same quarter in 2012, due to the inclusion of
HFS.
In our other SaaS businesses in the U.S., year-over-year increases in
revenues were attributable to higher subscription fees from a growing
customer base and were partially offset by the impact of lower
re-financing activity compared to a year ago when historically low
interest rates encouraged consumers to re-finance their mortgages.
EXPENSES
Expenses - Consolidated
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31,
|
|
|
|
|
|
Canadian
Segment
|
|
|
|
|
U.S.
Segment
|
|
|
|
|
Corporate
|
|
|
|
|
Consolidated
|
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
Employee compensation and benefits 1
|
$
|
40,454
|
$
|
36,433
|
|
$
|
42,179
|
$
|
4,697
|
|
$
|
878
|
$
|
3,284
|
|
$
|
83,511
|
$
|
44,414
|
|
Non-compensation direct expenses 2
|
|
58,949
|
|
58,708
|
|
|
6,956
|
|
269
|
|
|
-
|
|
-
|
|
|
65,905
|
|
58,977
|
|
Other operating expenses 3
|
|
19,649
|
|
20,684
|
|
|
18,847
|
|
3,733
|
|
|
2,964
|
|
3,274
|
|
|
41,460
|
|
27,691
|
|
Total Expenses
|
$
|
119,052
|
$
|
115,825
|
|
$
|
67,982
|
$
|
8,699
|
|
$
|
3,842
|
$
|
6,558
|
|
$
|
190,876
|
$
|
131,082
|
|
1
|
Employee compensation and benefits on a consolidated basis includes
retention and incentive expenses related to acquisitions of businesses
and share-based compensation expenses 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, royalties and third party direct disbursements.
|
|
3
|
Other operating expenses include occupancy costs, communication costs,
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. Other operating expenses in the Canadian Segment are net
of management fees charged to the U.S. segment by the Canadian Segment.
|
Consolidated expenses of $190.9 million for the fourth quarter of 2013
increased by $59.8 million, or 45.6%, compared to the same quarter in
2012. The increase was attributable to the inclusion of HFS expenses
effective from August 16, 2013 and Compushare expenses effective from
January 29, 2013. Consolidated expenses also included
acquisition-related and other charges of $3.8 million for the fourth
quarter of 2013, which are not considered reflective of normal course
operations and are disclosed as part of Corporate. Acquisition-related
and other charges of $6.6 million were recorded in the fourth quarter
of 2012.
Expenses - Canadian Segment
Total Canadian Segment expenses for the fourth quarter of 2013 of $119.1
million, increased $3.2 million, or 2.8%, compared to the same quarter
in 2012.
Employee compensation and benefits costs of $40.5 million for the fourth
quarter of 2013 for the Canadian Segment were higher by $4.0 million,
or 11.0%, compared to the same quarter in 2012. The increase was
primarily due to an increase in share-based compensation expense
attributable to an increase in the share price of D+H partially offset
by savings realized from cost-realignment initiatives.
Non-compensation direct expenses for the Canadian Segment were $58.9
million for the fourth quarter of 2013, an increase of $0.2 million, or
0.4%, compared to the same quarter in 2012. In general, these expenses
directionally change with revenue changes. An increase in direct costs
associated with the lending processing solutions area, consistent with
the increase in revenues, was partially offset by savings realized from
cost-realignment initiatives.
Other operating expenses of $19.6 million for the fourth quarter of 2013
decreased by $1.0 million, or 5.0%, compared to the same quarter in
2012. The decrease in the fourth quarter of 2013 was due to cost
efficiencies realized from transformation and integration activities.
Expenses - U.S. Segment
Total expenses for the U.S. Segment for the fourth quarter of 2013 were
$68.0 million, an increase of $59.3 million, or 681.5%, compared to the
same quarter in 2012 with the increase mainly attributable to the
inclusion of HFS and Compushare.
Employee compensation and benefits costs of $42.2 million for the fourth
quarter of 2013 for the U.S. Segment increased by $37.5 million
compared to the same period in 2012. Non-compensation direct expenses
for the U.S. Segment of $7.0 million for the fourth quarter of 2013
were higher by $6.7 million compared to the same period in 2012. Other
operating expenses of $18.8 million for the fourth quarter of 2013 were
higher by $15.1 million, compared to the same quarter in 2012. These
increases were primarily attributable to the inclusion of HFS and
Compushare expenses. Other operating expenses also included a
management fee, for corporate-related services, charged to the U.S.
Segment by the Canadian Segment.
Expenses - Corporate
Employee compensation and benefits
Employee compensation and benefits expenses of $0.9 million recorded as
corporate expenses for the fourth quarter of 2013 consisted of
retention and incentive expenses incurred in connection with the
acquisitions. For the fourth quarter of 2012, expenses of $3.3 million
consisted of charges related to cost-realignment initiatives of
$1.2 million, and retention and incentive expenses of $2.1 million
incurred in connection with Avista and Mortgagebot acquisitions.
Other expenses
Other expenses of $3.0 million mainly consisted of business integration
costs incurred in connection with the acquisition of HFS. For the same
period in 2012, other operating expenses of $3.3 million included
corporate development expenses related to strategic acquisition
initiatives and business integration costs.
EBITDA AND EBITDA MARGIN
Consolidated EBITDA for the fourth quarter of 2013 was $68.2 million, an
increase of $26.8 million, or 64.8%, compared to $41.4 million for the
same quarter in 2012. Fourth quarter 2013 EBITDA margin of 26.3% was
higher than the 24.0% margin for the same period in 2012.
Canadian Segment
Canadian Segment EBITDA for the fourth quarter of 2013 was $40.1
million, a decrease of $1.1 million, or 2.7%, compared to the same
quarter in 2012. EBITDA margin for the Canadian Segment for the fourth
quarter was 25.2%, compared to 26.3% for the same period in 2012.
U.S. Segment
U.S. Segment EBITDA for the fourth quarter of 2013 was $31.9 million, an
increase of $25.2 million, compared to the same quarter in 2012. EBITDA
margin was 31.9% for the fourth quarter of 2013 compared to 43.5% a
year ago.
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
Consolidated Adjusted EBITDA during the fourth quarter of 2013 was $81.3
million, an increase of $33.3 million, or 69.5%, compared to the same
quarter in 2012, primarily due to the inclusion of HFS. Adjusted EBITDA
growth in the U.S. Segment for the three-month period in 2013 was
partially offset by a lower Canadian Segment Adjusted EBITDA.
Fourth quarter 2013 consolidated Adjusted EBITDA was calculated by
removing (i) $9.2 million of acquisition accounting adjustments to fair
value of deferred revenues and deferred costs associated with the
acquisition of HFS; and (ii) acquisition-related and other charges of
$3.8 million, consisting of business integration costs incurred in
connection with the acquisition of HFS and retention and incentive
costs and integration expenses associated with acquisitions.
On a consolidated basis, Adjusted EBITDA margin for the fourth quarter
of 2013 was 29.9%, compared to 27.8% for the same period in 2012, due
to the inclusion of HFS in the U.S. Segment. Although HFS has lower
margins than our other U.S. Segment offerings, it has a higher margin
than the overall Canadian Segment.
Canadian Segment
Canadian Segment Adjusted EBITDA for the fourth quarter of 2013 was
$40.1 million, a decrease of $1.1 million, or 2.7%, compared to the
same quarter in 2012. Adjusted EBITDA was impacted by lower cheque
volumes, lower mortgage origination fees resulting from pricing
modifications and an increase in share-based compensation as described
above. The decrease in Adjusted EBITDA was partially offset by growth
in product and service enhancements in the chequing and credit card
programs, higher transaction volumes in registration and recovery
services and savings realized from recent transformation and
cost-realignment activities in the Canadian Segment.
Canadian Segment Adjusted EBITDA margin for the fourth quarter was 25.2%
compared to 26.3% for the same period in 2012. Adjusted EBITDA is the
same as EBITDA in the Canadian Segment. Lower margins in the fourth
quarter of 2013 were primarily due to changes in product mix resulting
from factors impacting Adjusted EBITDA described above, partially
offset by savings realized from recent transformation and
cost-realignment activities.
U.S. Segment
Adjusted EBITDA for the U.S. Segment during the fourth quarter of 2013
was $41.1 million, an increase of $34.4 million, or 514.8%, compared to
the same quarter in 2012 mainly due to the inclusion of HFS and
Compushare.
Adjusted EBITDA in the U.S. Segment excluded the impacts of $9.2 million
attributable to acquisition accounting adjustments related to fair
value of deferred revenues and deferred costs on D+H's acquisition of
HFS, in accordance with IFRS, which consisted of $13.1 million of
acquisition accounting adjustments related to fair value of deferred
revenues and $3.8 million of fair value adjustments related to deferred
costs. A strong U.S. dollar in the latter part of the year compared to
the prior year benefited Adjusted EBITDA in the U.S. Segment by $2.2
million. This impact was calculated using the methodology described
below.
Adjusted EBITDA margin for the U.S. Segment for the fourth quarter of
2013 was 36.4%, compared to 43.5% for the same period in 2012. As
described earlier, HFS margins are lower than the previously combined
SaaS offerings in the U.S. Segment, which resulted in a lower Adjusted
EBITDA margin in 2013, compared to 2012.
DEPRECIATION OF CAPITAL ASSETS AND AMORTIZATION OF NON-ACQUISITION
INTANGIBLE ASSETS
Consolidated depreciation of capital assets and amortization of
non-acquisition intangible assets of $10.9 million in the fourth
quarter of 2013 increased by $3.4 million, or 44.5%, compared to the
same period in 2012 due to the inclusion of HFS and Compushare.
Depreciation of capital assets and amortization of non-acquisition
intangible assets can be impacted by timing of capital expenditures and
completion of projects.
AMORTIZATION OF INTANGIBLE ASSETS FROM ACQUISITIONS
Consolidated amortization of acquisition intangible assets for the
fourth quarter of 2013 was $27.6 million, an increase of $16.3 million,
compared to the same period in 2012. The increase for the fourth
quarter was attributable to the amortization resulting from the
acquisitions of HFS and Compushare.
INCOME FROM OPERATING ACTIVITIES
Consolidated income from operating activities was $29.6 million for the
three months ended December 31, 2013, an increase of $7.1 million, or
31.6%, compared to $22.5 million for the same quarter in 2012. The
increase in the fourth quarter of 2013 was as a result of an increase
in EBITDA as described above. Income from operating activities was
impacted by acquisition-related costs and other charges in connection
with the HFS acquisition and higher amortization of intangible assets
from acquisitions.
INTEREST EXPENSE
Interest expense of $15.5 million for the fourth quarter of 2013
increased by $10.9 million compared to the same quarter in 2012. The
increase was a result of incremental debt financing through the Credit
Facility bearing a higher credit spread and bonds and Debentures issued
to partially fund the HFS acquisition. Interest expense for the fourth
quarter of 2013 also included a non-cash interest charge of $1.3
million consisting of: (i) accretion expense of $0.5 million related to
the Debentures, and (ii) $0.8 million related to amortization of
deferred financing charges incurred in connection with the Company's
financing arrangements.
INCOME FROM INVESTMENT IN AN ASSOCIATE
Consolidated net income for the fourth quarter of 2012 included D+H's
share of income related to the minority interest held in Compushare.
Effective January 29, 2013, Compushare's results were consolidated when
D+H obtained 100% ownership.
FAIR VALUE ADJUSTMENT OF DERIVATIVE INSTRUMENTS
An unrealized gain of $0.1 million related to fair value changes on
derivative instruments was recognized in the fourth quarter of 2013,
compared to $0.5 million in the fourth quarter of 2012.
For interest-rate swaps that are not designated as hedges for accounting
purposes, these unrealized gains and losses are recognized in income.
In general, a loss on interest-rate swaps is recorded when interest
rates decrease as compared to certain previous periods and a gain is
recorded when interest rates increase. Provided the Company does not
cancel its interest-rate swaps, the unrealized amounts represent a
non-cash unrealized gain or loss that will subsequently reverse through
the Consolidated Statements of Income as the related swaps mature. D+H
has historically held its derivative contracts to maturity.
INCOME TAX EXPENSE
An income tax recovery of $1.0 million was recorded in the fourth
quarter of 2013 compared to an income tax expense of $4.2 million
recognized for the same period in 2012. The income tax recovery is
mainly attributable to a reduced income tax rate resulting from a
change in the geographic mix of income from continuing operations and
an increase in the amortization of intangible assets from acquisitions
which resulted in a higher tax recovery.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for the fourth quarter of 2013 was
$15.2 million compared to $14.2 million for the same period in 2012.
Income from continuing operations was impacted by a higher EBITDA of
$26.8 million resulting from the acquisition of HFS and was partially
offset by higher amortization expense of $16.3 million relating to
acquisition intangible assets and higher interest expense of $10.9
million on debt drawn to fund the HFS acquisition.
INCOME FROM DISCONTINUED OPERATIONS
Income from discontinued operations of $2.1 million for the fourth
quarter of 2013 was mainly attributable to a working capital
adjustment, offset by services performed pursuant to a previously
negotiated transitional services agreement in connection with the
divestiture of D+H's non-strategic business processing operations on
May 10, 2013. For the comparative period in 2012, the loss from
discontinued operations was $0.5 million. Refer to the 'Divestiture'
section for further details.
NET INCOME
Consolidated net income of $17.4 million for the fourth quarter of 2013
was higher by $3.7 million, compared to consolidated net income of
$13.7 million for the same quarter in 2012. Net income in the fourth
quarter of 2013 benefited from a higher EBITDA of $26.8 million
resulting from the acquisition of HFS but was offset by higher
amortization expense of $16.3 million relating to acquisition
intangible assets, and higher interest expense of $10.9 million on debt
drawn to fund the HFS acquisition. A loss from discontinued operations
of $2.1 million also impacted net income in the fourth quarter of 2013.
NET INCOME PER SHARE
Net income per share, basic
Consolidated basic net income per share of $0.2151 for the fourth
quarter of 2013 was lower compared to a net income per share of $0.2315
for the same quarter in 2012, primarily due to the additional common
shares issued in connection with the acquisition of HFS and the other
items discussed above impacting net income, including those related to
the acquisition of HFS.
Net income per share, diluted
For the fourth quarter of 2013, the inclusion of additional potential
shares related to share-based compensation had a dilutive effect on net
income while additional potential shares related to the Debentures had
an anti-dilutive effect on net income. Net income per share for the
three-month period on a diluted basis was $0.2147 per share, compared to net income per share of $0.2315 for the same
period in 2012. Per share amounts, on a diluted basis, were also
impacted by the additional common shares issued to fund the HFS
acquisition. Refer to note 22 of the Company's audited consolidated
financial statements for the year ended December 31, 2013 for the
calculation of diluted net income per share.
ADJUSTED NET INCOME AND ADJUSTED NET INCOME PER SHARE
Consolidated Adjusted net income of $42.0 million for the fourth quarter
of 2013 was higher by $16.0 million, or 61.6%, compared to the $26.0
million for the same period in 2012. Consolidated Adjusted net income
per share of $0.5206 increased by 18.6% from $0.4390 per share for the
same period in 2012. These increases were mainly due to higher Adjusted
EBITDA resulting from the inclusion of HFS results, partially impacted
by higher depreciation of capital assets and amortization of
non-acquisition intangible assets and higher cash interest expense on
debt drawn to fund the HFS acquisition. Adjusted net income per share
for the fourth quarter of 2013 was impacted by the 21,505,000
additional shares issued to fund the acquisition of HFS.
CONSOLIDATED CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
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 December 31,
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
Cash and cash equivalents provided by (used in):
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
15,235
|
$
|
14,240
|
|
Depreciation and amortization of assets
|
|
|
38,568
|
|
18,860
|
|
Fair value adjustment of derivative instruments
|
|
|
(138)
|
|
(542)
|
|
Interest expense, including amortization of deferred finance fees and
accretion
|
|
15,509
|
|
4,629
|
|
Non-cash income tax and options expenses
|
|
|
(781)
|
|
4,091
|
|
Income from investment in an associate, net of tax
|
|
|
-
|
|
23
|
|
Decrease in non-cash working capital and other items
|
|
|
21,075
|
|
22,083
|
|
Cash generated from operating activities
|
|
|
89,468
|
|
63,384
|
|
Interest paid
|
|
|
|
(8,674)
|
|
(4,248)
|
|
Income tax paid
|
|
|
(1,670)
|
|
-
|
|
Net cash from operating activities
|
|
|
79,124
|
|
59,136
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
Net change in long-term indebtedness
|
|
|
(15,000)
|
|
(26,187)
|
|
Dividends paid
|
|
|
|
(25,836)
|
|
(18,956)
|
|
Net cash used in financing activities
|
|
|
(40,836)
|
|
(45,143)
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(17,639)
|
|
(9,717)
|
|
Net cash used in investing activities
|
|
|
(17,639)
|
|
(9,717)
|
|
Increase in cash and cash equivalents for the period
|
|
|
20,649
|
|
4,276
|
|
Cash and cash equivalents, beginning of period
|
|
|
11,749
|
|
1,443
|
|
Cash and cash equivalents, end of period
|
|
$
|
32,398
|
$
|
5,719
|
As at December 31, 2013, cash and cash equivalents totalled $32.4
million, compared to $5.7 million at December 31, 2012.
Operating Activities
Operating activities provided $79.1 million during the quarter ended
December 31, 2013, compared to $59.1 million for the same period in
2012. The change in net cash from operating activities was primarily
attributable to higher EBITDA in the fourth quarter of 2013 due to the
acquisition of HFS, and non-cash working capital changes as described
below. Net cash from operating activities for the fourth quarter of
2013 were also impacted by increased interest payments reflecting the
HFS acquisition and income tax installment payments made during the
fourth quarter of 2013.
Changes in Non-Cash Working Capital and Other Items
(in thousands of Canadian dollars, unaudited)
|
|
|
Quarter ended December 31,
|
|
|
|
|
2013
|
|
2012
|
|
Change in non-cash working capital
|
$
|
29,374
|
$
|
25,091
|
|
Change in other operating assets and liabilities
|
|
(8,109)
|
|
(3,094)
|
|
Discontinued operations
|
|
(190)
|
|
86
|
|
Decrease in non-cash working capital and other items
|
$
|
21,075
|
$
|
22,083
|
The net decrease in non-cash working capital in the fourth quarter of
2013 reflected an increase in compensation costs, increased trade
payables reflecting cash management initiatives taken by the Company,
and increased deferred revenues due to growth in the HFS business. This
was partially offset by increased prepayments reflecting deferred costs
and integration expenses.
The net increase in other operating assets and liabilities for the
fourth quarter of 2013 primarily related to increased non-current
accounts receivable and deferred costs, related to growth in our HFS
business since its acquisition, and partially offset by increased other
long-term liabilities mainly resulting from a higher share-based
compensation expense attributable to an increase in the Company's share
price.
Cash flows used in discontinued operations of $0.2 million in the fourth
quarter of 2013 is attributable to activities undertaken in accordance
with the previously negotiated transition services agreement associated
with the divestiture of D+H's non-strategic business processing
operations on May 10, 2013.
Financing Activities
Net cash used in financing activities was $40.8 million during the
fourth quarter, compared to $45.1 million used in the same period in
2012. The net change was primarily due to debt repayments and a
dividend payment. D+H made net debt repayments of $15.0 million during
the fourth quarter of 2013, compared to $26.2 million in the same
period in 2012.
Dividends
During the fourth quarter of 2013, D+H paid a dividend of $0.32 per
share ( $25.8 million) to its shareholders on record as of November 30,
2013. For the same quarter in 2012, $0.32 per share ( $19.0 million)
was paid to shareholders. The increase in total dividends paid
reflected 21,505,000 additional common shares issued in connection with
the acquisition of HFS in August 2013.
Investing Activities
Net cash of $17.6 million was used in investing activities during the
fourth quarter of 2013, reflecting capital expenditures, compared to
$9.7 million used in investing activities in the fourth quarter of
2012, also for capital expenditures.
Higher capital expenditures in the fourth quarter of 2013 were mainly
due to the inclusion of HFS.
Consolidated Operating Results - Overview
D+H delivered solid operating performance in 2013 that was consistent
with its strategic agenda of becoming a leading FinTech provider to the
financial services marketplace. Year-over-year growth in revenues and
Adjusted revenues was attributable to the U.S. Segment and reflected
the inclusion of HFS and Compushare. The U.S. Segment also contributed
to year-over-year growth in Adjusted EBITDA as a result of
acquisitions. Consolidated EBITDA for 2013 was impacted by $23.8
million of acquisition-related expenses, which were reported as part of
Corporate. EBITDA was also negatively impacted by the acquisition
accounting adjustments of $24.2 million related to the fair value of
deferred revenues and deferred costs acquired from the acquisition of
HFS. Consolidated net income for 2013 was lower compared to 2012
primarily due to the loss on discontinued operations and the impacts of
higher debt and amortization expense in relation to the HFS
acquisition, partially offset by higher EBITDA and lower income tax
expense. Consolidated Adjusted net income, which excluded non-cash and
non-normal course items, was higher than the comparative period
primarily as a result of the HFS acquisition.
(in thousands of Canadian dollars, except per share amounts, unaudited)
|
|
Years ended December 31,
|
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
837,093
|
$
|
695,456
|
|
Expenses
|
|
637,630
|
|
513,850
|
|
EBITDA 1
|
|
199,463
|
|
181,606
|
|
|
|
|
|
|
|
Depreciation of capital assets and amortization of non-acquisition
intangibles
|
|
31,645
|
|
27,667
|
|
Amortization of intangible assets from acquisitions
|
|
68,787
|
|
42,990
|
|
Income from operating activities
|
|
99,031
|
|
110,949
|
|
Interest expense
|
|
35,747
|
|
19,214
|
|
Other finance charges 2
|
|
3,224
|
|
-
|
|
Income from investment in an associate, net of tax 3
|
|
(130)
|
|
(68)
|
|
Gain on re-measurement of previously-held equity interest 3
|
|
(1,587)
|
|
-
|
|
Fair value adjustment of derivative instruments 4
|
|
(6,207)
|
|
(2,016)
|
|
Income tax expense
|
|
6,280
|
|
23,531
|
|
Income from continuing operations
|
|
61,704
|
|
70,288
|
|
Loss from discontinued operations, net of tax 5
|
|
(18,052)
|
|
(1,151)
|
|
Net income
|
$
|
43,652
|
$
|
69,137
|
|
Income from continuing operations per share,
|
|
|
|
|
|
|
Basic 7
|
$
|
0.9160
|
$
|
1.1866
|
|
|
Diluted 6
|
$
|
0.9149
|
$
|
1.1866
|
|
Loss from discontinued operations, per share, net of tax 5
|
|
|
|
|
|
|
Basic 7
|
$
|
(0.2680)
|
$
|
(0.0194)
|
|
|
Diluted 6
|
$
|
(0.2677)
|
$
|
(0.0194)
|
|
Net income per share,
|
|
|
|
|
|
|
Basic 7
|
$
|
0.6480
|
$
|
1.1672
|
|
|
Diluted 6
|
$
|
0.6472
|
$
|
1.1672
|
|
1
|
EBITDA is a non-IFRS term. See Non-IFRS Financial Measures for a more
complete description of this term.
|
|
2
|
Upon acquisition of HFS, the Credit Facility replaced the Previous
Credit Facility entered into in 2011,
resulting in a write-off of the unamortized deferred debt issuance costs
related to the Previous Credit
Facility.
|
|
3
|
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 re-measurement of the previously held equity interest
was recognized in accordance with
IFRS standards.
|
|
4
|
Includes a gain recognized resulting from fair value changes relating to
two foreign exchange forward
contracts entered into by D+H on July 25, 2013 to economically hedge the
foreign exchange exposure
related to the U.S. dollar purchase price of HFS. Amounts also included
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.
|
|
5
|
On May 10, 2013 D+H divested its non-strategic business processing
operations. These operations
were reported as part of business service solutions and loan servicing
solutions in prior periods and have now
been classified as discontinued operations for both the current and
comparative periods presented.
|
|
6
|
Diluted per share reflects the impacts of outstanding stock 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 for income from operating
activities per share. Weighted average
number of shares outstanding on a diluted basis during 2013 was
67,443,419 shares (2012 - 59,233,373
shares).
|
|
7
|
Weighted average number of shares outstanding during 2013 was 67,364,031
shares (2012 - 59,233,373
shares).
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
837,093
|
$
|
695,456
|
|
Acquisition accounting adjustments 1
|
|
29,165
|
|
-
|
|
Adjusted revenues 2
|
$
|
866,258
|
$
|
695,456
|
|
1
|
Fair value of the deferred revenue balance acquired with the acquisition
of HFS was adjusted to reflect estimated costs of future delivery of
services.
This add-back represents the amortization of the deferred revenue that
was
written-off.
|
|
2
|
Adjusted revenues is a non-IFRS term. See Non-IFRS Financial Measures
for a complete description of this term.
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
2013
|
|
2012
|
|
Revenue
|
$
|
837,093
|
$
|
695,456
|
|
Expenses
|
|
637,630
|
|
513,850
|
|
EBITDA 1
|
|
199,463
|
|
181,606
|
|
EBITDA Margin 1
|
|
23.8%
|
|
26.1%
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
Acquisition accounting adjustments 2
|
|
24,247
|
|
-
|
|
|
Acquisition-related and other charges 3
|
|
23,760
|
|
14,938
|
|
Adjusted EBITDA 1
|
$
|
247,470
|
$
|
196,544
|
|
Adjusted EBITDA Margin 1
|
|
28.6%
|
|
28.3%
|
|
1
|
EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin
are non-IFRS terms. See Non-IFRS Financial Measures for a more
complete description of these terms.
|
|
2
|
Acquisition accounting adjustments relate to the amortization of the
fair
value adjustments on deferred revenues and deferred costs acquired
in connection with the acquisition of HFS. See "Adjusted revenues" and
"Adjusted EBITDA" in the Non-IFRS Financial Measures for a more
complete description of these terms.
|
|
3
|
Acquisition-related and other charges for 2013 included transaction
costs related to the acquisitions of HFS and Compushare, retention
and incentive costs in connection with the acquisitions, business
integration costs and expenses related to cost-realignment initiatives.
Acquisition-related and other charges for 2012 included transaction
costs and certain retention and incentive costs related to the
Mortgagebot
and Avista acquisitions, charges related to cost-realignment
initiatives,
corporate development expenses related to strategic acquisition
initiatives
and business integration costs.
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
2013
|
|
2012
|
|
Net Income
|
$
|
43,652
|
$
|
69,137
|
|
Adjustments:
|
|
|
|
|
|
|
Non-cash items:
|
|
|
|
|
|
|
|
Acquisition accounting adjustments 1
|
|
24,247
|
|
-
|
|
|
|
Non-cash interest expense 2
|
|
2,058
|
|
-
|
|
|
|
Other finance charges 3
|
|
3,224
|
|
-
|
|
|
|
Amortization of intangible assets from acquisitions
|
|
68,787
|
|
42,990
|
|
|
|
Gain on re-measurement of previous-held equity interest 4
|
|
(1,587)
|
|
-
|
|
|
|
Fair value adjustment of derivative instruments 5
|
|
(6,207)
|
|
(2,016)
|
|
|
Other items of note:
|
|
|
|
|
|
|
|
Acquisition-related and other charges 6
|
|
23,760
|
|
14,938
|
|
|
Tax effect of above adjustments 7
|
|
(38,207)
|
|
(16,974)
|
|
|
Loss from discontinued operations, net of tax 8
|
|
18,052
|
|
1,151
|
|
|
Tax effect of acquisitions 9
|
|
(1,726)
|
|
(1,156)
|
|
Adjusted net income 10
|
$
|
136,053
|
$
|
108,070
|
|
|
|
|
|
|
|
|
|
Adjusted net income per share 10, 11
|
$
|
2.0197
|
$
|
1.8245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 vs. 2012
|
|
|
|
|
|
|
|
% change
|
|
Adjusted net income 10
|
|
|
|
25.9%
|
|
Adjusted net income per share 10, 11
|
|
|
|
10.7%
|
|
1
|
Acquisition accounting adjustments relate to the amortization of the
fair value adjustments on
deferred revenues and deferred costs acquired in connection with the
acquisition of HFS.
|
|
2
|
Non-cash interest charges relate to accretion of Debentures issued to
partially fund the
acquisition of HFS and amortization of deferred financing charges
incurred in connection with
the Company's financing arrangements.
|
|
3
|
Upon acquisition of HFS, the Credit Facility replaced the Previous
Credit Facility entered into
in 2011, resulting in a write-off of the unamortized deferred debt
issuance costs related to the
Previous Credit Facility.
|
|
4
|
Upon acquisition of the remaining interest in Compushare in January
2013, a non-cash gain
related to re-measurement of the previously held equity interest was
recognized in accordance
with IFRS standards.
|
|
5
|
Includes a gain recognized resulting from fair value changes relating to
two foreign exchange
forward contracts entered into by D+H on July 25, 2013 to economically
hedge the foreign
exchange exposure related to the U.S. dollar purchase price of HFS.
Amounts also included
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.
|
|
6
|
Acquisition-related and other charges for 2013 include transaction costs
related to the
acquisition of HFS, 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 2012 included transaction
costs and certain
retention and incentive costs related to the Mortgagebot and Avista
acquisitions, charges
related to cost-realignment initiatives, corporate development expenses
related to strategic
acquisition initiatives and business integration costs.
|
|
7
|
The adjustments to net income are tax effected at their respective tax
rates.
|
|
8
|
On May 10, 2013 D+H divested 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.
|
|
9
|
This adjustment reflects: (i) a non-cash tax recovery related to
liabilities recognized in
connection with the acquisition of Mortgagebot, and (ii) a one-time
income tax expense
arising from the revaluation of the Company's deferred taxes to reflect
the change in future
US income tax rates resulting from the acquisition of HFS.
|
|
10
|
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.
|
|
11
|
Weighted average number of shares outstanding during 2013 was 67,364,031
shares
(2012 - 59,233,373 shares).
|
OPERATING RESULTS BY SEGMENT
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
Canadian
Segment
|
|
|
|
|
U.S.
Segment
|
|
|
|
|
Corporate
|
|
|
|
|
Consolidated
|
|
|
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
654,608
|
$
|
638,811
|
|
$
|
182,485
|
$
|
56,645
|
|
$
|
-
|
$
|
-
|
|
$
|
837,093
|
$
|
695,456
|
|
Acquisition accounting adjustments 1
|
|
-
|
|
-
|
|
|
29,165
|
|
-
|
|
|
-
|
|
-
|
|
|
29,165
|
|
-
|
|
Adjusted revenues 2
|
$
|
654,608
|
$
|
638,811
|
|
$
|
211,650
|
$
|
56,645
|
|
$
|
-
|
$
|
-
|
|
$
|
866,258
|
$
|
695,456
|
|
1 Acquisition accounting adjustments in 2013 relate to non-cash fair
value adjustments to deferred revenues acquired in connection with the
acquisition of HFS. The deferred revenue balance was adjusted to
reflect its fair value, calculated by estimating costs of future
delivery of the services. This add-back represents the amortization of
the deferred revenue that was written-off.
|
|
2Adjusted revenues is a non-IFRS term. See Non-IFRS Financial Measures
for a more complete description of this term.
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
Canadian
Segment
|
|
|
|
|
U.S.
Segment
|
|
|
|
|
Corporate
|
|
|
|
|
Consolidated
|
|
|
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
654,608
|
$
|
638,811
|
|
$
|
182,485
|
$
|
56,645
|
|
$
|
-
|
$
|
-
|
|
$
|
837,093
|
$
|
695,456
|
|
Expenses
|
|
485,790
|
|
470,928
|
|
|
128,080
|
|
27,984
|
|
|
23,760
|
|
14,938
|
|
|
637,630
|
|
513,850
|
|
EBITDA 1
|
|
168,818
|
|
167,883
|
|
|
54,405
|
|
28,661
|
|
|
(23,760)
|
|
(14,938)
|
|
|
199,463
|
|
181,606
|
|
EBITDA Margin 1
|
|
25.8%
|
|
26.3%
|
|
|
29.8%
|
|
50.6%
|
|
|
-
|
|
-
|
|
|
23.8%
|
|
26.1%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition accounting adjustments 2
|
|
-
|
|
-
|
|
|
24,247
|
|
-
|
|
|
-
|
|
-
|
|
|
24,247
|
|
-
|
|
|
Acquisition-related and other charges 3
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
23,760
|
|
14,938
|
|
|
23,760
|
|
14,938
|
|
Adjusted EBITDA 1
|
$
|
168,818
|
$
|
167,883
|
|
$
|
78,652
|
$
|
28,661
|
|
$
|
-
|
$
|
-
|
|
$
|
247,470
|
$
|
196,544
|
|
Adjusted EBITDA Margin 1
|
|
25.8%
|
|
26.3%
|
|
|
37.2%
|
|
50.6%
|
|
|
-
|
|
-
|
|
|
28.6%
|
|
28.3%
|
|
1
|
EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are
non-IFRS terms. See Non-IFRS Financial Measures for a more complete
description of these terms.
|
|
2
|
Acquisition accounting adjustments in 2013 relate to non-cash fair value
adjustments to deferred revenues and deferred costs acquired in
connection with the acquisition of HFS.
|
|
3
|
Acquisition-related and other charges for 2013 include transaction costs
related to the acquisitions of HFS and Compushare, retention and
incentive costs in connection with the acquisitions, business
integration costs and expenses related to cost-realignment initiatives.
Acquisition-related and other charges for 2012 included transaction
costs and certain retention and incentive costs related to the
Mortgagebot and Avista acquisitions, charges related to
cost-realignment initiatives, corporate development expenses related to
strategic acquisition initiatives and business integration costs.
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
|
|
|
Canadian
|
|
U.S.
|
|
|
|
|
|
|
|
Segment
|
|
Segment
|
Consolidated
|
|
|
|
|
|
|
2013 vs. 2012
|
|
2013 vs. 2012
|
2013 vs. 2012
|
|
|
|
|
|
|
% change
|
|
% change
|
% change
|
|
Revenues
|
|
|
2.5%
|
|
222.2%
|
20.4%
|
|
Adjusted revenues 1
|
|
|
2.5%
|
|
273.6%
|
24.6%
|
|
Adjusted EBITDA 1
|
|
|
0.6%
|
|
174.4%
|
25.9%
|
|
1
|
Adjusted revenues and Adjusted EBITDA are non-IFRS terms. See
Non-IFRS Financial Measures for a more complete description of
these terms.
|
REVENUES AND ADJUSTED REVENUES
Revenues and Adjusted Revenues - Consolidated
The table below shows the Company's Adjusted revenues by its major
service areas:
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
|
2013
|
2012
|
|
Adjusted Revenues - Consolidated
|
|
|
|
|
|
|
|
|
|
|
Payments solutions
|
|
|
|
|
|
|
35%
|
43%
|
|
|
Lending processing solutions 1
|
|
|
|
|
|
|
33%
|
38%
|
|
|
Banking technology solutions 2
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
|
10%
|
-
|
|
|
|
Lending
|
|
|
|
|
|
|
22%
|
19%
|
|
|
|
|
|
|
|
|
100%
|
100%
|
|
1
|
Reported as loan servicing solutions and loan registration and recovery
services
in prior periods.
|
|
2
|
Reported as lending technology services in prior periods. Beginning in
the third
quarter of 2013, the Company reports banking technology solutions
segregated
further into enterprise and lending categories to reflect the major
service areas
of HFS.
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
Canadian
Segment
|
|
|
|
|
|
|
|
|
|
U.S.
Segment
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
|
|
Revenues
|
|
Revenues
|
|
|
Revenues
|
|
Adjustment1
|
|
|
Adjusted
revenues 2
|
|
Revenues
|
|
|
Revenues
|
|
Adjustment1
|
|
|
Adjusted
revenues2
|
|
Revenues
|
|
Payments solutions
|
$
|
304,360
|
$
|
301,432
|
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
-
|
|
$
|
304,360
|
$
|
-
|
|
$
|
304,360
|
$
|
301,432
|
|
Lending processing solutions
|
|
282,161
|
|
265,885
|
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
282,161
|
|
-
|
|
|
282,161
|
|
265,885
|
|
Banking technology solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
-
|
|
-
|
|
|
79,564
|
|
7,102
|
|
|
86,666
|
|
-
|
|
|
79,564
|
|
7,102
|
|
|
86,666
|
|
-
|
|
|
Lending
|
|
68,087
|
|
71,494
|
|
|
102,921
|
|
22,063
|
|
|
124,984
|
|
56,645
|
|
|
171,008
|
|
22,063
|
|
|
193,071
|
|
128,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
$
|
654,608
|
$
|
638,811
|
|
$
|
182,485
|
$
|
29,165
|
|
$
|
211,650
|
$
|
56,645
|
|
$
|
837,093
|
$
|
29,165
|
|
$
|
866,258
|
$
|
695,456
|
|
1
|
Adjustment is related to non-cash fair value adjustment to deferred
revenues acquired in connection with the acquisition of HFS. The
deferred revenue balance was adjusted to reflect its fair value,
calculated by estimating costs of future delivery of the services. This
add-back represents the amortization of the deferred revenue that was
written-off.
|
|
2
|
Adjusted revenues is a non-IFRS term. See Non-IFRS Financial Measures
for a more complete description of this term.
|
Consolidated Adjusted revenues for 2013 were $866.3 million, an increase
of $170.8 million, or 24.6%, compared to 2012. This increase was
primarily due to the inclusion of HFS and Compushare revenues effective
August 16, 2013 and January 29, 2013, respectively, in the U.S. Segment
and growth in our other SaaS businesses in the U.S. Also contributing
to this increase was revenue growth in payments solutions and lending
processing solutions in the Canadian Segment.
Consolidated revenues for 2013 were $837.1 million, an increase of
$141.6 million, or 20.4%, compared to 2012. Revenues in 2013 were
impacted by the fair value adjustment to deferred revenues acquired
from HFS.
Revenues - Canadian Segment
Total revenues in the Canadian Segment for 2013 were $654.6 million, an
increase of $15.8 million, or 2.5%, compared to 2012. Adjusted
revenues are the same as revenues for the Canadian Segment as this
segment was not subject to acquisition-accounting adjustments.
Payments Solutions
Revenues from payments solutions for 2013 were $304.4 million, an
increase of $2.9 million, or 1.0%, compared to 2012. 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. Management believes that the downward trend in cheque order
volumes is in the mid-single digits, annually, with variations in the
personal and business cheque categories. 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 digits with comparatively minimal volatility.
Lending Processing Solutions
Lending processing solutions revenues for 2013 were $282.2 million, an
increase of $16.3 million, or 6.1%, compared to 2012. 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 and higher volumes in the student loans program. These
increases were partially offset by lower professional service fees
within the student loans program due to timing of customer approval of
these services.
Banking Technology Solutions - Lending
All revenues from the banking technology solutions service area within
the Canadian Segment come from lending solution offerings. Revenues
from this service area for 2013 were $68.1 million, a decrease of $3.4
million, or 4.8%, compared to 2012. Revenues for 2013 were impacted by
price modifications and lower origination volumes within our mortgage
origination business, partially offset by higher professional service
fees earned in connection with our technology solutions directed
towards leasing, commercial lending and small business lending.
Revenues and Adjusted Revenues - U.S. Segment
Total revenues in the U.S. Segment for 2013 were $182.5 million, an
increase of $125.8 million, or 222.2%, compared to 2012. For 2013,
Adjusted revenues of $211.7 million, were $155.0 million, or 273.6%,
ahead of the previous year. The sharp increases in both revenues and
Adjusted revenues were due to the inclusion of HFS and Compushare. A
strong U.S. dollar in the latter part of the year compared to the prior
year benefited Adjusted revenues in the U.S. segment by $9.6 million.
The foreign exchange impact was calculated as the difference between
the current period's actual results and the current period's results in
local currencies converted at the prior period's foreign exchange
rates.
Enterprise Solutions
Revenues from enterprise solutions within the U.S. Segment for 2013 were
$79.6 million. Revenues recorded under IFRS in 2013 were impacted by
acquisition accounting adjustments related to fair value of deferred
revenue acquired through the acquisition of HFS. Adjusted revenues,
which are calculated after removing the impacts of purchase accounting
adjustments related to fair value of deferred revenue, were $86.7
million for 2013. There was no comparable for Adjusted revenues for
the same period in 2012.
Lending Solutions
Revenues from lending solutions in the U.S. Segment for 2013 were $102.9
million, an increase of $46.3 million, or 81.7%, compared to 2012.
Revenues in 2013 benefited from the inclusion of HFS since its
acquisition on August 16, 2013. Revenues recorded under IFRS in 2013
were impacted by acquisition accounting adjustments related to the
acquisition of HFS. Adjusted revenues of $125.0 million, which removed
these acquisition accounting impacts, increased by $68.3 million
compared to 2012, due to the inclusion of HFS.
In our other SaaS businesses in the U.S., for 2013, revenues increased
year over year primarily due to higher subscription fees from a growing
customer base and were partially offset by lower transaction volumes
due to the impact of lower re-financing activity compared to a year ago
when historically low interest rates encouraged consumers to re-finance
their mortgages. Revenues for 2013 also benefited from annualization of
Avista, acquired in May 2012.
EXPENSES
Expenses - Consolidated
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
Canadian
Segment
|
|
|
|
|
U.S.
Segment
|
|
|
|
|
Corporate
|
|
|
|
|
Consolidated
|
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
Employee compensation and benefits 1
|
$
|
159,208
|
$
|
151,862
|
|
$
|
78,886
|
$
|
15,943
|
|
$
|
4,783
|
$
|
11,001
|
|
$
|
242,877
|
$
|
178,806
|
|
Non-compensation direct expenses2
|
|
246,058
|
|
237,491
|
|
|
11,208
|
|
1,062
|
|
|
-
|
|
-
|
|
|
257,266
|
|
238,553
|
|
Other operating expenses 3
|
|
80,524
|
|
81,575
|
|
|
37,986
|
|
10,979
|
|
|
18,977
|
|
3,937
|
|
|
137,487
|
|
96,491
|
|
Total Expenses
|
$
|
485,790
|
$
|
470,928
|
|
$
|
128,080
|
$
|
27,984
|
|
$
|
23,760
|
$
|
14,938
|
|
$
|
637,630
|
$
|
513,850
|
|
1
|
Employee compensation and benefits on a consolidated basis includes
retention and incentive expenses related to acquisitions of businesses
and share-based compensation expenses 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, royalties and third party direct disbursements.
|
|
3
|
Other operating expenses include occupancy costs, communication costs,
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. Other operating expenses in the Canadian Segment are net
of management fees charged to the U.S. segment by the Canadian Segment.
|
Consolidated expenses for 2013 were $637.6 million, an increase of
$123.8 million, or 24.1%, compared to 2012. The increase was
attributable to the inclusion of HFS expenses effective from August 16,
2013 and Compushare expenses effective from January 29, 2013.
Consolidated expenses also included acquisition-related and other
charges of $23.8 million for 2013, which are not considered reflective
of normal course operations. These costs are not included in the
segment results, but are disclosed as part of Corporate.
Acquisition-related and other charges of $14.9 million were recorded in
2012. Annualization of Avista expenses also contributed to the
increase in 2013.
Expenses - Canadian Segment
Total expenses for the Canadian Segment in 2013 were $485.8 million, an
increase of $14.9 million, or 3.2%, due to higher revenues, partially
offset by benefits from recent transformation and cost-realignment
activities. The increase in expenses in 2013 was also attributable to
a change in product mix and increased investments in new organic growth
initiatives.
Employee compensation and benefits costs of $159.2 million for 2013 for
the Canadian Segment were higher by $7.3 million, or 4.8%, compared to
2012. This increase was primarily due to an increase in share-based
compensation expense attributable to an increase in the share price of
D+H, timing of capitalization of internally developed projects and
employee related incentive costs. These increases were partially offset
by savings realized from cost-realignment initiatives.
Non-compensation direct expenses for the Canadian Segment of $246.1
million for 2013 increased by $8.6 million, or 3.6%, compared to 2012.
In general, these expenses directionally change with revenue changes.
An increase in direct costs associated with the lending processing
solutions was consistent with the increase in revenue. These increases
were partially offset by savings realized from cost re-alignment
initiatives.
Other operating expenses of $80.5 million for 2013 decreased by $1.1
million, or 1.3%, compared to 2012. Benefits from cost-realignment
initiatives were partially offset by an increase in expenses due to
changes in product mix in the Canadian Segment, a trend that is
expected to stabilize. Other operating expenses in the Canadian Segment
are net of management fees charged to the U.S. Segment.
Expenses - U.S. Segment
Total expenses for the U.S. Segment in 2013 were $128.1 million, an
increase of $100.1 million, with the increase attributable to the
inclusion of HFS and Compushare in the 2013 periods and annualization
of expenses for Avista, acquired in May 2012.
Employee compensation and benefits costs of $78.9 million in 2013,
increased by $62.9 million, compared to 2012. This increase was
primarily due to the inclusion of the HFS and Compushare cost bases.
Non-compensation direct expenses in 2013 of $11.2 million, increased by
$10.1 million, compared to 2012, primarily due to the inclusion of HFS
and Compushare.
Other operating expenses of $38.0 million for 2013 were higher by $27.0
million, or 246.0%, compared to the previous year. The increase was
primarily attributable to the inclusion of HFS and Compushare expenses.
Other operating expenses also included a management fee, for
corporate-related services, charged to the U.S. Segment by the Canadian
Segment.
Expenses - Corporate
Total expenses of $23.8 million were recorded in Corporate for 2013.
Employee compensation and benefits expenses of $4.8 million recorded as
corporate expenses for 2013 and $11.0 million for 2012 consisted of
retention and incentive expenses incurred in connection with
acquisitions and severances related to cost-realignment initiatives.
Other expenses of $19.0 million for 2013 mainly consisted of transaction
and business integration costs incurred in connection with the
acquisition of HFS. For 2012, other operating expenses of $3.9 million
consisted of corporate development expenses related to strategic
acquisition initiatives, transaction costs and business integration
costs incurred in connection with the acquisition of Avista.
EBITDA AND EBITDA MARGIN
Consolidated EBITDA in 2013 of $199.5 million, increased by $17.9
million, or 9.8%, from $181.6 million for 2012. Consolidated EBITDA
margin of 23.8% decreased from 26.1% in 2012.
Canadian Segment
Canadian Segment EBITDA for 2013 was $168.8 million, an increase of $0.9
million, or 0.6%, compared to 2012. EBITDA margin for the Canadian
Segment for 2013 was 25.8%, compared to 26.3% in 2012.
U.S. Segment
U.S. Segment EBITDA in 2013 was $54.4 million, an increase of $25.7
million, or 89.8%, compared to 2012. EBITDA margin for 2013 of 29.8%
was lower than the margin of 50.6% during 2012.
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
Consolidated Adjusted EBITDA of $247.5 million in 2013, increased by
$50.9 million, or 25.9%, compared to 2012, primarily due to the
inclusion of HFS. Consolidated Adjusted EBITDA was calculated by
removing from EBITDA: (i) $24.2 million of acquisition accounting
adjustments to fair value of deferred revenues and deferred costs
associated with the acquisition of HFS; (ii) acquisition-related and
other charges of $23.8 million, consisting of transaction costs
expensed under IFRS, retention and incentive costs and integration
expenses associated with acquisitions.
On a consolidated basis, Adjusted EBITDA margin for 2013 was 28.6%
compared to 28.3% for 2012 due to the inclusion of HFS in the U.S.
Segment. Although HFS has lower margins than our other U.S. Segment
offerings, it has a higher margin than the overall Canadian Segment.
Canadian Segment
Adjusted EBITDA was $168.8 million for 2013, an increase of $0.9
million, or 0.6%, compared to 2012. Adjusted EBITDA in 2013 reflected
growth in revenues, higher management fees charged to the U.S. Segment
and savings realized from recent transformation and cost-realignment
activities in the Canadian Segment. These increases were partially
offset by higher expenses related to changes in product mix, price
modifications related to mortgage originations, increased investments
in new organic growth initiatives and an increase in share-based
compensation expense as described above.
Adjusted EBITDA margin of 25.8% in 2013 was lower than the Adjusted
EBITDA margin of 26.3% in 2012. Adjusted EBTIDA margin for 2013 was
impacted by the changes in product mix and an increase in share-based
compensation expense attributable to an increase in the share price of
D+H.
U.S. Segment
U.S. Segment Adjusted EBITDA for 2013 of $78.7 million, increased by
$50.0 million, or 174.4%, compared to 2012. This increase was primarily
attributable to the inclusion of HFS and Compushare, annualization of
Avista and continued growth in our other SaaS businesses. Adjusted
EBITDA also benefited by $3.4 million due to a strong U.S. dollar in
the latter part of the year. This impact was calculated using the
methodology described previously.
Adjusted EBITDA in the U.S. Segment excluded the impacts of $24.2
million attributable to the IFRS acquisition accounting adjustments
related to fair value of deferred revenues and deferred costs on D+H's
acquisition of HFS. This consisted of $29.2 million of acquisition
accounting adjustments related to fair value of deferred revenues and
$5.0 million of fair value adjustments related to deferred costs.
U.S. Segment Adjusted EBITDA margin for 2013 was 37.2%, compared to
50.6% for 2012. As described earlier, HFS margins are lower than the
other SaaS offerings within our U.S. Segment, which resulted in lower
Adjusted EBITDA margins in 2013.
DEPRECIATION OF CAPITAL ASSETS AND AMORTIZATION OF NON-ACQUISITION
INTANGIBLE ASSETS
Consolidated depreciation of capital assets and amortization of
non-acquisition intangible assets of $31.6 million increased by $4.0
million, or 14.4%, compared to 2012, mainly due to the inclusion of HFS
and Compushare.
AMORTIZATION OF INTANGIBLE ASSETS FROM ACQUISITIONS
Consolidated amortization of intangible assets from acquisitions for
2013 was $68.8 million, an increase of $25.8 million, or 60.0%,
compared to 2012. The increase was attributable to the amortization
resulting primarily from the acquisition of HFS on August 16, 2013 and
to a lesser extent the acquisition of Compushare on January 29, 2013
and annualization of amortization expense resulting from the
acquisition of Avista in May 2012.
INCOME FROM OPERATING ACTIVITIES
Consolidated income from operating activities was $99.0 million in 2013,
a decrease of $11.9 million, or 10.7%, compared to $110.9 million for
2012. This reflected an increase in amortization and depreciation as
described above, a decrease in EBITDA as a result of acquisition
accounting adjustments related to fair value of deferred revenues, net
of deferred costs, associated with the acquisition of HFS, and
transaction and integration costs in connection with the HFS
acquisition. These decreases were partially offset by EBITDA growth in
our other SaaS businesses.
INTEREST EXPENSE
Interest expense of $35.7 million for 2013 increased by $16.5 million,
or 86.0%, compared to 2012. The increase reflected incremental debt
financing through the Credit Facility bearing a higher credit spread
and bonds and Debentures issued to partially fund the HFS acquisition
in 2013. Interest expense for 2013 also included a non-cash interest
charge of $2.1 million consisting of: (i) accretion expense of $0.8
million related to Debentures issued in connection with the acquisition
of HFS, and (ii) $1.3 million related to the amortization of deferred
financing charges incurred in connection with the Company's financing
arrangements. The difference between the carrying value and the face
value of the Debentures is accreted over the 5-year term of the
Debentures such that the liability at maturity will equal the face
value of $230 million. Prior to the acquisition in August 2013,
interest expense had been favourably impacted by lower average loan
balances as a result of debt repayments and favourable pricing on the
renewal of the Previous Credit Facility, due to renegotiated terms.
INCOME FROM INVESTMENT IN AN ASSOCIATE
Consolidated net income for 2012 and for the first 28 days of January
2013 included D+H's share of income related to the minority interest
held in Compushare. Compushare's results were consolidated when D+H
obtained 100% ownership on January 29, 2013.
GAIN ON RE-MEASUREMENT OF PREVIOUSLY HELD EQUITY INTEREST
Upon acquisition of the remaining outstanding shares of Compushare, a
gain of $1.6 million was recognized on re-measurement of the previously
held equity interest in accordance with IFRS.
FAIR VALUE ADJUSTMENT OF DERIVATIVE INSTRUMENTS
A net gain of $6.2 million related to fair value changes on derivative
instruments was recognized in 2013, compared to $2.0 million in 2012.
The gain in 2013 was attributable to fair value adjustments pertaining
to interest-rate swaps and foreign exchange forward contracts used to
economically hedge a portion of the foreign exchange risk related to
the U.S. dollar acquisition price of HFS, as described below:
Interest rate swaps
Net unrealized gain from interest-rate swaps, reflecting fair value
adjustments related to changes in market interest rates over 2013 was
$1.5 million. Net unrealized gain relating to interest-rate swaps was
$2.0 million in 2012.
Foreign exchange forward contracts
D+H entered into two foreign exchange forward contracts to economically
hedge the foreign exchange risk related to the U.S. dollar acquisition
price of HFS. A gain of $4.7 million relating to the fair value
changes during the period was recorded in 2013. These forward
contracts were settled upon the completion of the acquisition of HFS on
August 16, 2013.
OTHER FINANCE CHARGES
As a result of the acquisition of HFS, the Company entered into a new
non-revolving, non-amortizing secured Credit Facility, maturing in five
years and senior secured bonds with a 10-year term.
Also, this Credit Facility replaced the Company's Previous Credit
Facility entered into in 2011, resulting in the unamortized deferred
debt issuance costs related to the previous facilities of $3.2 million
being written-off to net income.
INCOME TAX EXPENSE
An income tax expense of $6.3 million was recorded in 2013 compared to
an income tax expense of $23.5 million in 2012. The income tax expense
was lower in 2013 compared to 2012 due to a change in the geographic
mix of income from continuing operations. Also, an increase in the
amortization of intangible assets from acquisitions resulted in a tax
recovery which partially offset the income tax expense.
The 2013 income tax expense was increased as a result of non-deductible
acquisition costs but was also reduced by a tax recovery related to
liabilities recognized in connection with the acquisition of
Mortgagebot and the recognition of previously unrecognized tax losses.
The 2012 income tax expense on income from operations was also reduced
by a smaller tax recovery related to liabilities previously recognized
in connection with the acquisition of Mortgagebot.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for 2013 was $61.7 million compared to
$70.3 million for 2012. The decrease was primarily attributable to
lower income from operating activities as described earlier, higher
interest expense on debt drawn to fund the HFS acquisition and the
write-off of deferred finance fees related to the Previous Credit
Facility, partially offset by a lower income tax expense and a higher
gain on fair value changes related to derivative instruments compared
to 2012.
LOSS FROM DISCONTINUED OPERATIONS
This loss was related to the divestiture of D+H's non-strategic business
processing operations on May 10, 2013. See Divestiture section for more
details.
Loss from discontinued operations in 2013 was $18.1 million ( $0.2680
per share, basic and $0.2677 per share, diluted), compared to a loss of
$1.2 million ( $0.0194 per share, basic and diluted) for 2012. The
results of 2013 included a loss on disposal of $5.9 million, a loss of
$11.2 million related to measurement to fair value less estimated costs
to sell the assets held for sale, and losses from operating activities
of $2.5 million. The loss from discontinued operations was partially
offset by an income tax recovery of $1.4 million pertaining to the
discontinued operations.
NET INCOME
Consolidated net income of $43.7 million for 2013 was lower by $25.5
million, or 36.9%, compared to $69.1 million for 2012, primarily due to
a loss from discontinued operations, net of taxes, of $18.1 million,
transaction costs and other acquisition related charges in connection
with the acquisition of HFS, an increase in amortization and
depreciation, and interest on incremental debt. This decrease was
partially offset by a lower income tax expense, the benefits of
fair-value changes related to derivative instruments of $6.2 million
and a gain on re-measurement of previously held equity interest in
Compushare.
NET INCOME PER SHARE
Net income per share, basic
Basic net income per share is calculated by dividing net income for the
year by the weighted average number of shares outstanding during the
year.
Consolidated basic net income per share of $0.6480 for 2013 was lower
compared to $1.1672 per share for 2012, primarily due to the 21,505,000
additional common shares issued in connection with the acquisition of
HFS and the other items discussed above impacting net income, including
those related to the acquisition.
Net income per share, diluted
Diluted net income per share is calculated by adjusting net income and
the weighted average number of shares outstanding during the year for
the effects of dilutive potential shares (resulting from share-based
compensation and Debentures). The diluted per share amounts for
share-based compensation are calculated using the treasury stock
method, as if all the share equivalents, where the average market price
exceeds the issue price, had been exercised at the beginning of the
reporting period, or the date of issue, if later, and that the funds
obtained thereby were used to purchase shares of the Company at the
average trading price of the common shares during the period. Dilution
impact of the Debentures is calculated using the if-converted method as
at the beginning of the year, or the date of issue, if later.
For 2013, the inclusion of additional potential shares related to
share-based compensation had a dilutive effect on net income while
additional potential shares related to the Debentures had an
anti-dilutive effect on net income. Net income per share on a diluted
basis was $0.6472 in 2013 compared to $1.1672 for 2012. Per share
amounts were also impacted by the additional common shares issued in
connection with the HFS acquisition. Refer to note 22 of the Company's
audited consolidated financial statements for the year ended December
31, 2013 for the calculation of diluted net income per share.
ADJUSTED NET INCOME AND ADJUSTED NET INCOME PER SHARE
Consolidated Adjusted net income for 2013 was $136.1 million ( $2.0197
per share), an increase of $28.0 million, or 25.9%, compared to $108.1
million ( $1.8245 per share) for 2012. This increase was mainly due to
higher Adjusted EBITDA in the U.S. segment resulting from the inclusion
of HFS results and lower income tax expense, partially offset by higher
depreciation and interest expense as a result of HFS. Adjusted net
income per share for 2013 was impacted by the additional shares issued
to fund the acquisition of HFS.
CONSOLIDATED CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
The following table is derived from, and should be read in conjunction
with, the Consolidated Statements of Cash Flows for the year ended
December 31, 2013. 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)
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
Cash and cash equivalents provided by (used in):
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
$
|
61,704
|
$
|
70,288
|
|
Depreciation and amortization of assets
|
|
|
|
100,432
|
|
70,657
|
|
Fair value adjustment of derivative instruments
|
|
|
|
(6,207)
|
|
(2,016)
|
|
Interest expense, including amortization of deferred finance fees and
accretion
|
|
35,747
|
|
19,214
|
|
Other finance charges
|
|
|
|
3,224
|
|
-
|
|
Non-cash income tax and options expenses
|
|
|
|
6,822
|
|
25,184
|
|
Income from investment in an associate, net of tax
|
|
|
|
(130)
|
|
(68)
|
|
Gain on re-measurement of previously held equity interest
|
|
|
|
(1,587)
|
|
-
|
|
Decrease (increase) in non-cash working capital and other items
|
|
|
|
17,907
|
|
(2,955)
|
|
Cash generated from operating activities
|
|
|
|
217,912
|
|
180,304
|
|
Interest paid
|
|
|
|
|
(23,081)
|
|
(17,118)
|
|
Income tax paid
|
|
|
|
|
(4,966)
|
|
-
|
|
Net cash from operating activities
|
|
|
|
189,865
|
|
163,186
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Net change in long-term indebtedness
|
|
|
|
561,131
|
|
(3,415)
|
|
Proceeds from issuance of Debentures
|
|
|
|
230,000
|
|
-
|
|
Issuance costs of Credit Facility and Debentures
|
|
|
|
(17,878)
|
|
(902)
|
|
Proceeds from issuance of shares
|
|
|
|
460,207
|
|
-
|
|
Payment of issuance costs of shares
|
|
|
|
(19,883)
|
|
-
|
|
Dividends paid
|
|
|
|
|
(89,582)
|
|
(74,042)
|
|
Net cash from (used in) financing activities
|
|
|
|
1,123,995
|
|
(78,359)
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(39,862)
|
|
(33,317)
|
|
Acquisition of investment in an associate
|
|
|
|
-
|
|
(10,058)
|
|
Acquisition of subsidiaries
|
|
|
|
(1,256,450)
|
|
(37,946)
|
|
Proceeds from sale of property, plant and equipment
|
|
|
|
631
|
|
-
|
|
Proceeds from sale of discontinued operations
|
|
|
|
8,500
|
|
-
|
|
Net cash used in investing activities
|
|
|
|
(1,287,181)
|
|
(81,321)
|
|
Increase in cash and cash equivalents for the year
|
|
|
|
26,679
|
|
3,506
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
5,719
|
|
2,213
|
|
Cash and cash equivalents, end of the year
|
|
|
$
|
32,398
|
$
|
5,719
|
D+H's primary liquidity needs are: (i) to fund normal operating
expenses; (ii) to meet the interest and principal requirements of our
outstanding indebtedness; (iii) to fund dividend payments; (iv) to fund
capital expenditures, including product development, and operating
lease payments; and (v) to fund strategic acquisitions. We believe
these needs will be satisfied using cash flows generated by our
operations, our cash and cash equivalents of $32.4 million as at
December 31, 2013 ( $5.7 million at December 31, 2012) and available
borrowings under our revolving Credit Facility.
Operating Activities
Operating activities provided $189.9 million for 2013, an increase of
$26.7 million, compared to $163.2 million for 2012. This increase was
primarily attributable to higher EBITDA as a result of the HFS
acquisition, and non-cash working capital changes as described below.
Net cash from operating activities were also impacted by increased
interest payments reflecting the HFS acquisition and income tax
installment payments made during 2013.
Changes in Non-Cash Working Capital and Other Items
(in thousands of Canadian dollars, unaudited)
|
|
|
Years ended December 31,
|
|
|
|
|
2013
|
|
2012
|
|
Change in non-cash working capital
|
$
|
38,134
|
$
|
(3,528)
|
|
Change in other operating assets and liabilities
|
|
(9,080)
|
|
(1,218)
|
|
Discontinued operations
|
|
(11,147)
|
|
1,791
|
|
Decrease (increase) in non-cash working capital and other items
|
$
|
17,907
|
$
|
(2,955)
|
The net decrease in non-cash working capital in 2013 reflected increased
trade payables reflecting cash management initiatives taken by the
Company and increased deferred revenues due to growth in the HFS
business. This was partially offset by increased prepayments reflecting
deferred costs and integration expenses.
The net increase in other operating assets and liabilities for 2013
primarily related to increased non-current accounts receivable and
deferred costs, related to growth in our HFS business since its
acquisition, and was partially offset by increased other long-term
liabilities mainly resulting from higher share-based compensation
expense attributable to an increase in the Company's share price.
Cash flows used in discontinued operations of $11.1 million represent
directly attributable selling costs and the transfer of cash associated
with these operations and impact of activities undertaken in accordance
with the previously negotiated transition services agreement.
The Company expects to experience continued variability of non-cash
working capital due to the nature and timing of services rendered in
connection with the businesses acquired.
Financing Activities
Net cash provided by financing activities was $1.1 billion for 2013,
compared to $78.4 million used in financing activities for 2012. The
net change was primarily due to funds drawn from the Credit Facility
and proceeds from issuances of bonds, common shares and Debentures in
connection with the acquisition of HFS, net of issue costs.
During 2013, D+H made net debt repayments of $51.5 million, compared to
$54.0 million in the previous year. D+H also made dividend payments
totalling $89.6 million ($1.28 per share) during 2013, compared to
$74.0 million ($1.25 per share) in 2012. This increase in dividend
payments reflected a dividend increase in the fourth quarter of 2012
and dividends on the 21,505,000 additional common shares issued in
connection with the acquisition of HFS in August 2013.
Issuance of Common Shares
Gross proceeds of approximately $460.2 million were received from the
issuance of 21,505,000 subscription receipts to partially fund the
acquisition of HFS, which included an over-allotment option for the
subscription receipts exercised on closing. Each subscription receipt
entitled the holder to receive one common share of the Corporation upon
the close of the acquisition, at a price of $21.40.
With the completion of the acquisition on August 16, 2013, each
subscription receipt was automatically exchanged into one common share
of the Corporation.
Investing Activities
During 2013, investing activities used $1.3 billion of cash, which was
primarily for the acquisition of HFS on August 16, 2013 for a cash
purchase price of approximately US$1.2 billion and $39.9 million on
capital expenditures. Cash used in investing activities during the year
was partially offset by the proceeds from the sale of the non-strategic
business processing operations in May 2013. In 2012, $81.3 million was
used in investing activities reflecting capital expenditures, the
acquisition of Avista and a minority investment in Compushare.
Capital Expenditures
For 2013, capital expenditures were $39.9 million, an increase of $6.5
million, compared to 2012. The increase in capital expenditures was
primarily attributable to the acquisition of HFS. Total capital
expenditure for 2013 was also higher than the previous guidance
provided by management in the third quarter of 2013 due to increased
investments in growth opportunities during the fourth quarter of 2013.
Expenditures in 2013 and 2012 included investment in integration and
upgrade activities as well as development of technology products and
capability.
EIGHT QUARTER CONSOLIDATED STATEMENTS OF INCOME - SUMMARY
(in thousands of Canadian dollars, except per share amounts, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Revenues
|
$
|
259,075
|
$
|
209,223
|
$
|
197,134
|
$
|
171,661
|
$
|
172,457
|
$
|
176,689
|
$
|
180,989
|
$
|
165,321
|
|
Acquisition accounting adjustments 1
|
|
13,058
|
|
16,107
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Adjusted revenues 2
|
$
|
272,133
|
$
|
225,330
|
$
|
197,134
|
$
|
171,661
|
$
|
172,457
|
$
|
176,689
|
$
|
180,989
|
$
|
165,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
259,075
|
$
|
209,223
|
$
|
197,134
|
$
|
171,661
|
$
|
172,457
|
$
|
176,689
|
$
|
180,989
|
$
|
165,321
|
|
Expenses 3
|
|
190,876
|
|
172,539
|
|
144,551
|
|
129,664
|
|
131,082
|
|
129,405
|
|
128,289
|
|
125,074
|
|
EBITDA 2, 3
|
|
68,199
|
|
36,684
|
|
52,583
|
|
41,997
|
|
41,375
|
|
47,284
|
|
52,700
|
|
40,247
|
|
EBITDA Margin 2
|
|
26.3%
|
|
17.5%
|
|
26.7%
|
|
24.5%
|
|
24.0%
|
|
26.8%
|
|
29.1%
|
|
24.3%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquistion accounting adjustments 1
|
|
9,217
|
|
15,030
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Acquisition-related and other charges 3
|
|
3,842
|
|
13,126
|
|
5,764
|
|
1,028
|
|
6,558
|
|
3,265
|
|
4,378
|
|
737
|
|
Adjusted EBITDA 2
|
$
|
81,258
|
$
|
64,840
|
$
|
58,347
|
$
|
43,025
|
$
|
47,933
|
$
|
50,549
|
$
|
57,078
|
$
|
40,984
|
|
Adjusted EBITDA Margin 2
|
|
29.9%
|
|
28.8%
|
|
29.6%
|
|
25.1%
|
|
27.8%
|
|
28.6%
|
|
31.5%
|
|
24.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA 2, 3
|
$
|
68,199
|
$
|
36,684
|
$
|
52,583
|
$
|
41,997
|
$
|
41,375
|
$
|
47,284
|
$
|
52,700
|
$
|
40,247
|
|
Depreciation of capital assets and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of non-acquisition intangibles
|
|
10,937
|
|
7,532
|
|
6,657
|
|
6,519
|
|
7,568
|
|
6,648
|
|
6,986
|
|
6,465
|
|
Amortization of intangible assets from acquisitions
|
|
27,631
|
|
19,182
|
|
11,060
|
|
10,914
|
|
11,292
|
|
10,597
|
|
10,706
|
|
10,395
|
|
Income from operating activities 2
|
|
29,631
|
|
9,970
|
|
34,866
|
|
24,564
|
|
22,515
|
|
30,039
|
|
35,008
|
|
23,387
|
|
Interest expense
|
|
15,509
|
|
11,251
|
|
4,516
|
|
4,471
|
|
4,629
|
|
4,943
|
|
4,821
|
|
4,821
|
|
Other finance charges 4
|
|
-
|
|
3,224
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Loss (income) from investment in an associate, net of tax
|
|
-
|
|
-
|
|
-
|
|
(130)
|
|
23
|
|
(53)
|
|
(38)
|
|
-
|
|
Gain on re-measurement of previously held equity interest 5
|
|
-
|
|
-
|
|
-
|
|
(1,587)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Fair value adjustment of derivative instruments 6
|
|
(138)
|
|
(4,759)
|
|
(1,203)
|
|
(107)
|
|
(542)
|
|
(445)
|
|
616
|
|
(1,645)
|
|
Income tax expense (recovery)
|
|
(975)
|
|
(7,383)
|
|
9,158
|
|
5,480
|
|
4,165
|
|
5,987
|
|
8,345
|
|
5,034
|
|
Income from continuing operations
|
|
15,235
|
|
7,637
|
|
22,395
|
|
16,437
|
|
14,240
|
|
19,607
|
|
21,264
|
|
15,177
|
|
Income (loss) from discontinued operations, net of tax 7
|
|
2,133
|
|
(704)
|
|
(8,786)
|
|
(10,695)
|
|
(529)
|
|
(2)
|
|
(377)
|
|
(243)
|
|
Net income
|
|
17,368
|
|
6,933
|
|
13,609
|
|
5,742
|
|
13,711
|
|
19,605
|
|
20,887
|
|
14,934
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition accounting adjustments 1
|
|
9,217
|
|
15,030
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
Non-cash interest expense 8
|
|
1,349
|
|
709
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
Other finance charges 4
|
|
-
|
|
3,224
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
Amortization of intangible assets from acquisitions
|
|
27,631
|
|
19,182
|
|
11,060
|
|
10,914
|
|
11,292
|
|
10,597
|
|
10,706
|
|
10,395
|
|
|
|
Gain on re-measurement of previously held equity interest 5
|
|
-
|
|
-
|
|
-
|
|
(1,587)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
Fair value adjustment of derivative instruments 6
|
|
(138)
|
|
(4,759)
|
|
(1,203)
|
|
(107)
|
|
(542)
|
|
(445)
|
|
616
|
|
(1,645)
|
|
|
Other items of note:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related and other charges 3
|
|
3,842
|
|
13,126
|
|
5,764
|
|
1,028
|
|
6,558
|
|
3,265
|
|
4,378
|
|
737
|
|
Tax effect of above adjustments 9
|
|
(15,100)
|
|
(15,715)
|
|
(3,814)
|
|
(3,578)
|
|
(5,543)
|
|
(3,962)
|
|
(4,615)
|
|
(2,854)
|
|
|
Loss (income) from discontinued operations, net of tax 7
|
|
(2,133)
|
|
704
|
|
8,786
|
|
10,695
|
|
529
|
|
2
|
|
377
|
|
243
|
|
|
Tax effect of acquisitions 10
|
|
-
|
|
(1,726)
|
|
-
|
|
-
|
|
-
|
|
(1,156)
|
|
-
|
|
-
|
|
Adjusted net income 2
|
$
|
42,036
|
$
|
36,708
|
$
|
34,202
|
$
|
23,107
|
$
|
26,005
|
$
|
27,906
|
$
|
32,349
|
$
|
21,810
|
|
Adjusted net income per share, basic 2, 12
|
$
|
0.5206
|
$
|
0.5245
|
$
|
0.5774
|
$
|
0.3901
|
$
|
0.4390
|
$
|
0.4711
|
$
|
0.5461
|
$
|
0.3682
|
|
Income from continuing operations per share, 11, 12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.1887
|
$
|
0.1091
|
$
|
0.3781
|
$
|
0.2775
|
$
|
0.2404
|
$
|
0.3310
|
$
|
0.3590
|
$
|
0.2562
|
|
|
|
Diluted
|
$
|
0.1883
|
$
|
0.1089
|
$
|
0.3781
|
$
|
0.2775
|
$
|
0.2404
|
$
|
0.3310
|
$
|
0.3590
|
$
|
0.2562
|
|
Income (loss) from discontinued operations per share, 11, 12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.0264
|
$
|
(0.0101)
|
$
|
(0.1483)
|
$
|
(0.1806)
|
$
|
(0.0089)
|
$
|
-
|
$
|
(0.0064)
|
$
|
(0.0041)
|
|
|
|
Diluted
|
$
|
0.0264
|
$
|
(0.0100)
|
$
|
(0.1483)
|
$
|
(0.1806)
|
$
|
(0.0089)
|
$
|
-
|
$
|
(0.0064)
|
$
|
(0.0041)
|
|
Net income per share, 11, 12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.2151
|
$
|
0.0991
|
$
|
0.2298
|
$
|
0.0969
|
$
|
0.2315
|
$
|
0.3310
|
$
|
0.3526
|
$
|
0.2521
|
|
|
|
Diluted
|
$
|
0.2147
|
$
|
0.0989
|
$
|
0.2298
|
$
|
0.0969
|
$
|
0.2315
|
$
|
0.3310
|
$
|
0.3526
|
$
|
0.2521
|
|
1
|
Acquisition accounting adjustments consisted of fair value adjustments
related to deferred revenues and deferred costs acquired in connection
with the acquisition of HFS.
|
|
2
|
Adjusted Revenue, EBITDA, EBITDA Margin, Adjusted EBITDA, Adjusted
EBITDA Margin, 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.
|
|
3
|
Acquisition-related and other charges for the fourth quarter of 2013
mainly consisted of business integration costs incurred in connection
with the acquisition of HFS and certain retention and incentive costs
in connection with the recent acquisitions. Acquisition-related and
other charges for the other periods included certain retention and
incentive costs related to the acquisitions, expenses related to
cost-realignment initiatives and corporate development expenses related
to strategic acquisition initiatives.
|
|
4
|
Upon acquisition of HFS, the Credit Facility replaced the Previous
Credit Facility entered into in 2011, resulting in a write-off of the
unamortized deferred debt issuance costs related to the Previous Credit
Facility.
|
|
5
|
Upon acquisition of the remaining interest in Compushare in January
2013, a non-cash gain related to re-measurement of the previously held
equity interest was recognized in accordance with IFRS standards.
|
|
6
|
Gain in the third quarter of 2013 was mainly attributable to the fair
value changes of the foreign exchange forward contracts entered into
by D+H to economically hedge the foreign exchange risk arising from the
proceeds denominated in U.S. dollar to fund the acquisition of HFS.
Gains and losses in the other periods included 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.
|
|
7
|
On May 10, 2013, D+H completed the 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 now been classified
as discontinued operations for all periods presented.
|
|
8
|
Non-cash interest expense charges relate to accretion of Debentures
issued to partially fund the acquisition of HFS and amortization of
deferred financing charges incurred in connection with the Company's
financing arrangements.
|
|
9
|
The adjustments to net income are tax effected at their respective tax
rates.
|
|
10
|
Adjustments for the third quarters of 2013 and 2012 included a non-cash
tax recovery related to liabilities recognized in connection with the
acquisition of Mortgagebot. Adjustment for the third quarter of 2013
also includes a one-time income tax expense arising from the
revaluation of the Company's deferred taxes to reflect the change in
future US income tax rates resulting from the acquisition of HFS.
|
|
11
|
Diluted per share reflects the impacts of outstanding stock 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 for income from operating
activities per share. Weighted average number of shares outstanding on
a diluted basis during the fourth quarter of 2013 was 80,906,132
shares.
|
|
12
|
Weighted average number of shares outstanding during the fourth quarter
of 2013 was 80,738,373 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 also been increased volatility in personal
cheque order volumes. Measured on a sequential quarter-to-quarter
basis, revenues can vary due to seasonality. Revenue for certain
service offerings by D+H can also vary based on the timing of work
performed. 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, Compushare on January 29, 2013
and HFS on August 16, 2013 increased revenues and expenses. EBITDA was
impacted by acquisition-accounting adjustments related to fair value of
deferred revenues and deferred costs, acquisition-related and other
charges, 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 were not part of the normal
course of operations. Adjusted EBITDA removes the impacts of these
items as these are not indicative of underlying business performance
and management believes that excluding these items is more reflective
of ongoing operating results.
Net income is variable as it has been affected by non-cash items such as
acquisition accounting adjustments related to fair value of deferred
revenues and deferred costs, fair value adjustments of derivative
instruments, amortization of intangible assets from acquisitions, gain
on re-measurement of the equity-interest held in Compushare and other
items such as acquisition-related and other charges, loss from
discontinued operations, and changes in other non-cash interest and tax
items.
Common Shares
As at December 31, 2013 and February 25, 2014, D+H had the following
common shares and potential common shares outstanding:
-
80,738,373 common shares issued and outstanding (as at December 31, 2012
- 59,233,373),
-
$230.0 million principal amount of Debentures outstanding (as at
December 31, 2012 - nil). These Debentures are convertible at the
option of the holder to common shares at a conversion price of $28.90
per common share, representing 34.6021 common shares per $1,000
principal amount of the Debenture, for a total of 7,958,483 shares.
Please refer to note 17 of the Company's audited consolidated financial
statements for the year ended December 31, 2013 for further details.
-
916,028 stock options outstanding (as at December 31, 2012 - 726,821).
Each stock option is exercisable into one common share of the Company.
Please refer to note 20 of the Company's audited consolidated financial
statements for the year ended December 31, 2013 for further details.
Normal Course Issuer Bid ("NCIB")
The NCIB program expired in 2013. No shares were repurchased under the
NCIB in 2013.
Hedging
The Company primarily manages its foreign currency risk by way of
economic hedges. Due to the Company's debt structure, substantially all
gains and losses on the Company's U.S. dollar denominated debt are
recognized in other comprehensive income. Furthermore, the Company
intends to pay down its U.S. dollar denominated debt using $USD earned
in its U.S. businesses. Revenues earned and associated expenses
incurred are also generally denominated in the same currency.
The Company also utilizes interest-rate swaps to hedge interest rate
exposure and, from time to time, foreign exchange forward contracts to
hedge foreign currency risk.
Interest-rate swaps
In respect of interest-rate swap contracts with its lenders, as of
December 31, 2013, the Company's borrowing rates on 40.8% of
outstanding long-term indebtedness under the Eighth Amended and
Restated Credit Agreement ("Credit Facility") 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 2
|
$
|
25,000
|
$
|
-
|
$
|
361
|
2.720%
|
|
|
March 18, 2015 2
|
|
25,000
|
|
-
|
|
514
|
2.940%
|
|
|
March 18, 2017 2
|
|
25,000
|
|
-
|
|
1,269
|
3.350%
|
|
|
March 20, 2017 2
|
|
20,000
|
|
-
|
|
1,026
|
3.366%
|
|
|
October 17, 2016 (US$25,000) 3
|
|
26,590
|
|
-
|
|
84
|
0.835%
|
|
|
October 17, 2016 (US$25,000) 3
|
|
26,590
|
|
-
|
|
84
|
0.835%
|
|
|
October 17, 2016 (US$25,000) 3
|
|
26,590
|
|
-
|
|
13
|
0.784%
|
|
|
October 17, 2018 (US$25,000) 3
|
|
26,590
|
|
-
|
|
39
|
1.645%
|
|
|
$
|
201,360
|
$
|
-
|
$
|
3,390
|
|
|
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 Facility agreement.
Based on the financial leverage
as at December 31, 2013, the Company's long-term bank indebtedness will
be subject to bankers'
acceptance fees of 2.25% over the applicable BA rate and prime rate
spreads of 1.25% over the
prime rate.
|
|
2
|
Not-designated as hedges for the purposes of hedge accounting. Fair
value changes on these swaps
impact the Consolidated Statements of Income.
|
|
3
|
Designated as hedges for the purposes of hedge accounting. Fair value
changes on these swaps impact
other comprehensive income.
|
During the year, the Company entered into four 3-month resetting
interest-rate swaps totalling US$100.0 million (US$25.0 million each),
which mature on October 17, 2016 or October 17, 2018, as detailed in
the table above, to fix interest rates on its U.S. dollar denominated
debt. These interest-rate swaps have been designated as cash flow
hedges for hedge accounting purposes.
As at December 31, 2013, the Company would have to pay $3.4 million if
it were to close out all of its interest-rate swap contracts as set out
in the Consolidated Statements of Financial Position. It is not
management's present intention to close out these contracts and the
Company has historically held its derivative contracts to maturity.
Subsequent to December 31, 2013, the Company entered into a 3-month
resetting interest-rate swap of US$25.0 million to fix interest rates
on its U.S. dollar denominated debt. Reflecting this interest rate
swap, the Company's borrowing rates would have been effectively fixed
for approximately 46.1% of the outstanding long-term indebtedness of
D+H under the Credit Facility agreement. This interest-rate swap has
been designated as a cash flow hedge for hedge accounting purposes.
Foreign exchange contracts
The Company had no foreign exchange contracts in place at December 31,
2013.
CONTRACTUAL OBLIGATIONS
|
|
|
|
|
|
Less than
|
|
1 - 3
|
|
4 - 5
|
|
After 5
|
|
(in thousands of Canadian dollars, unaudited)
|
|
Total
|
|
1 year
|
|
years
|
|
years
|
|
years
|
|
Long-term indebtedness
|
$
|
933,850
|
$
|
-
|
$
|
-
|
$
|
574,030
|
$
|
359,820
|
|
Debentures
|
|
230,000
|
|
-
|
|
-
|
|
230,000
|
|
-
|
|
Operating leases
|
|
57,332
|
|
13,939
|
|
20,685
|
|
14,222
|
|
8,486
|
|
Employee future benefits
|
|
3,384
|
|
211
|
|
423
|
|
423
|
|
2,327
|
|
Purchase obligations
|
|
14,490
|
|
8,673
|
|
5,150
|
|
667
|
|
-
|
|
Obligations relating to deferred compensation program
|
|
|
8,542
|
|
3,946
|
|
4,596
|
|
-
|
|
-
|
|
Other obligations
|
|
20,913
|
|
12,140
|
|
6,559
|
|
2,214
|
|
-
|
|
Total contractual obligations
|
$
|
1,268,511
|
$
|
38,909
|
$
|
37,413
|
$
|
821,556
|
$
|
370,633
|
Long-term indebtedness
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
As at December 31,
|
|
|
Reference
|
Interest rate
|
Maturity
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Previous Credit Facility (secured)
|
1
|
BA/LIBOR + 1.50%
|
Apr 2017
|
$
|
-
|
$
|
172,306
|
|
Credit Facility (secured)
|
2
|
|
|
|
|
|
|
|
|
Revolver (US$25,000; C$42,000)
|
2a
|
BA/LIBOR + 2.25%
|
Aug 2018
|
|
68,590
|
|
-
|
|
|
Non-revolver I (US$400,000)
|
2b
|
LIBOR + 2.25%
|
Aug 2018
|
|
425,440
|
|
-
|
|
Credit facilities
|
|
|
|
|
494,030
|
|
172,306
|
|
|
|
|
|
|
|
|
|
|
Bond (secured)
|
3a
|
6.99%
|
Jun 2017
|
|
50,000
|
|
50,000
|
|
Bond (secured)
|
3a
|
6.17%
|
Jun 2017
|
|
30,000
|
|
30,000
|
|
Bond (secured) (US$63,000)
|
3a
|
6.59%
|
Apr 2021
|
|
67,007
|
|
62,679
|
|
Bond (secured) (US$16,500)
|
3a
|
4.94%
|
Jun 2022
|
|
17,549
|
|
16,416
|
|
Bond (secured) (US$15,000)
|
3a
|
4.94%
|
Jun 2022
|
|
15,954
|
|
14,923
|
|
Bond (secured)
|
3b
|
5.76%
|
Aug 2023
|
|
20,000
|
|
-
|
|
Bond (secured) (US$100,000)
|
3b
|
5.51%
|
Aug 2023
|
|
106,360
|
|
-
|
|
Bond (secured) (US$75,000)
|
3b
|
5.51%
|
Aug 2023
|
|
79,770
|
|
-
|
|
Bond (secured) (US$50,000)
|
3b
|
5.51%
|
Aug 2023
|
|
53,180
|
|
-
|
|
Bonds
|
|
|
|
|
439,820
|
|
174,018
|
|
|
|
|
|
|
933,850
|
|
346,324
|
|
Deferred finance costs
|
|
|
|
|
(9,721)
|
|
(5,747)
|
|
|
|
|
|
$
|
924,129
|
$
|
340,577
|
The Company has guaranteed all of the obligations under the Credit
Facility and bonds, with such guarantees secured by a security interest
over all the Company's assets.
The table below lists committed and uncommitted arrangements available
to D+H. Uncommitted arrangements are subject to the prior approval of
the relevant lenders with any fees, spreads and other additional terms
to be negotiated at that time:
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
As at December 31, 2013
|
|
|
|
|
Committed
|
|
Uncommitted
|
|
Outstanding
|
|
Available
|
|
Revolver
|
|
$
|
355,000
|
$
|
-
|
$
|
68,590
|
$
|
286,410
|
|
Non-revolver I
|
|
|
425,440
|
|
-
|
|
425,440
|
|
-
|
|
Uncommitted arrangements
|
|
|
-
|
|
100,000
|
|
-
|
|
100,000
|
|
Credit Facility
|
|
|
780,440
|
|
100,000
|
|
494,030
|
|
386,410
|
|
Bonds
|
|
|
439,820
|
|
93,816
|
|
439,820
|
|
93,816
|
|
|
|
$
|
1,220,260
|
$
|
193,816
|
$
|
933,850
|
$
|
480,226
|
The Company partially financed the HFS acquisition through the Credit
Facility. Subsequent to the HFS acquisition, the Company repaid
US$244.0 million of the total amounts drawn under the Non-revolver II
(further described below) from the proceeds of US$225.0 million and
$20.0 million of issued bonds. The non-revolving, non-amortizing
secured Credit Facility and bonds are noted in the table above and
further described below.
|
1.
|
Previous Credit Facility: Effective August 16, 2013, the Seventh Amended and Restated Credit
Agreement ("Previous Credit Facility") was replaced with the Credit
Facility.
|
|
2.
|
Credit Facility: the Credit Facility provides for the following:
|
|
|
2a.
|
A revolving term credit facility in the amount of $355.0 million
("Revolver"),
|
|
|
2b.
|
A non-revolving, non-amortizing term credit facility in the amount of
US$400.0 million (C$425.4 million) ("Non-revolver I").
|
|
|
A non-revolving, non-amortizing term credit facility in the amount of
US$244.0 million ("Non-revolver II") was also available at August 16,
2013.The Credit Facility matures on August 16, 2018, however
Non-revolver I and Non-revolver II (collectively "Non-revolver I and
II") are available as a single drawdown for the purposes of financing
the HFS acquisition and following the drawdown, both facilities were
permanently reduced to the amount drawn ($425.4 million and US$244.0
million, respectively). On August 26, 2013, Non-revolver II was fully
repaid with proceeds from the newly issued bonds (see 3b below) and
does not provide for additional borrowings. Non-revolver I's borrowing
capacity will be permanently reduced upon any payments by the Company
on outstanding balances.
Drawings under the Credit Facility bear interest at the applicable
floating rate plus a margin. The margin can vary based on leverage as
determined by the Total Funded Debt/EBITDA ratio, as described below.
The replacement of the Previous Credit Facility with the Credit Facility
resulted in a $3.2 million loss associated with the write-off of
unamortized deferred debt issuance costs pertaining to the Previous
Credit Facility. This loss was recognized in finance expenses - other
finance charges in the Consolidated Statements of Income for the year
ended December 31, 2013.
3. Bonds:
3a. During the year ended December 31, 2013, all of D+H's secured bonds
that were outstanding as at December 31, 2012 had their coupon rates
increased by 1% per annum on a temporary basis until the Company's
Total Funded Debt/EBITDA Ratio (described below) is less than 3.00 for
two consecutive fiscal quarters.
Effective January 1, 2014, the Company expects the coupon rates to be
reduced by the additional 1% as the Company's Total Funded Debt/EBITDA
Ratio has been less than 3.00 for the two previous fiscal quarters.
3b. On August 26, 2013, D+H issued in aggregate proceeds US$225.0
million and $20.0 million of senior secured bonds, the proceeds of
which were used to refinance amounts drawn under the Non-revolver II.
As at December 31, 2013, the average effective interest rate on the
Company's total indebtedness, including the Debentures, was 4.8%,
compared to 4.5% at December 31, 2012.
Covenants
The Company's indebtedness is subject to a number of covenants and
restrictions including the requirement to meet certain financial ratios
and financial condition tests. One such ratio is the Total Funded Debt
/ EBITDA Ratio ("Debt to EBITDA ratio"). As at December 31, 2013, this
ratio was calculated at 2.93 (December 31, 2012 - 1.76).
Debt to EBITDA ratio - foreign exchange impact
The Canadian dollar has experienced volatility in the latter part of
2013 and this trend is expected to continue in 2014. The Debt to EBITDA
ratio is impacted by this volatility as the Company's U.S. dollar
denominated borrowings are translated at the period-end exchange rate
while EBITDA (as it pertains to this ratio), denominated in local
currencies, is translated at average exchange rates for the period. The
acquisition of HFS in the third quarter of 2013 significantly changed
the Company's debt structure. As such, in order to assess management's
capital management efforts post the HFS acquisition, management
eliminates the impact of foreign exchange from this ratio by
calculating it using the applicable rates for the period ended
September 30, 2013. As such, the Debt to EBITDA ratio, after removing
the impacts of foreign exchange fluctuations, was 2.87.
Total Funded Debt / EBITDA Ratio - calculation
Total Funded Debt includes all of the Company's outstanding
indebtedness, amounts capitalized under finance leases, bankers'
acceptances and letters of credit. Debentures are excluded from Total
Funded Debt.
EBITDA, for the purposes of the Total Funded Debt / EBITDA Ratio, is
calculated on a twelve-month trailing basis as Net income plus:
interest expense, depreciation and amortization, income tax and capital
tax expenses, other non-cash expenses and certain restructuring and
transaction expenses, to the extent expensed in the Consolidated
Statements of Income. Other add-backs to Net income include changes in
the Company's deferred revenue balance and impacts of acquisition
accounting adjustments affecting revenue with respect to the HFS
acquisition.
For a complete definition of Total Funded Debt / EBITDA ratio, refer to
the Credit Facility filed on www.sedar.com.
Debentures
On August 13, 2013, the Company issued $230.0 million principal amount
of 6.00% convertible unsecured subordinated debentures ("Debentures")
for net proceeds of $220.6 million. These Debentures pay interest
semi-annually on March 31 and September 30, commencing with the initial
interest payment on March 31, 2014 and have a maturity date of
September 30, 2018. The Debentures are convertible at the option of the
holder to common shares at a conversion price of $28.90 per common
share. The Company has the option to redeem the Debentures on and after
September 30, 2016 and at any time prior to September 30, 2017 at a
redemption price equal to 100% of their principal amount plus accrued
and unpaid interest provided that the current market price of the
common shares is at least 125% of the conversion price of $28.90. On or
after September 30, 2017 and prior to September 30, 2018, the
Debentures may be redeemed in whole or in part at the option of the
Company at a redemption price equal to their principal amount plus
accrued and unpaid interest. On redemption or maturity the Company may
elect to repay the principal and satisfy its interest obligations by
issuing D+H common shares. 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.
Operating leases
D+H rents facilities, equipment and vehicles under various operating
leases. At December 31, 2013, minimum payments under these lease
obligations totalled $57.3 million.
Employee future benefits
Obligations relating to employee future benefits relate to the Company's
non-pension post-retirement benefit plans. The latest actuarial
valuation of the post-retirement benefit plans was performed as of
December 31, 2013.
Purchase obligations
Purchase obligations consist of agreements to purchase goods and
services that are enforceable and legally binding and that specify all
significant terms, including fixed or minimum quantities to be
purchased, price provisions and timing of the transaction.
Obligations relating to the deferred compensation program
The Company's deferred compensation program as at December 31, 2013
consisted of two components: (i) restricted share units plan ("RSUs")
and (ii) performance share units plan ("PSUs"). Both components have a
three-year vesting period and are cash-settled share-based
compensation. The RSUs vest 1/3 on each of the first, second and third
anniversaries of January 1 of the calendar year in which the award of
RSUs is made whereas the PSUs vest on the third anniversary of January
1 of the calendar year in which the award of PSUs is made. The PSUs
also have a performance target which is based on the annual three-year
change in earnings per share during the vesting period as measured
against a performance grid set for a specific period. The per share
earnings is a derivative calculation of pre-incentive Adjusted net
income before taxes, as well as certain other adjustments made from
time to time as approved by the Human Resources Compensation Committee.
The fair value amount payable is recognized as an expense with a
corresponding increase in liabilities over the three-year vesting
period. The liability is re-measured at each reporting date and at
settlement date. Any changes in the fair value of the liability are
recognized in profit or loss.
Other obligations
Other obligations include retention and incentive obligations related to
the acquisitions along with certain lease related liabilities.
SELECTED ANNUAL INFORMATION
|
|
|
|
|
Years ended December 31,
|
(in thousands of Canadian dollars except per share amounts,
unaudited)
|
|
|
2013
|
|
20123
|
|
20113
|
|
Revenues
|
|
$
|
837,093
|
$
|
695,456
|
$
|
655,714
|
|
Income from continuing operations
|
|
$
|
61,704
|
$
|
70,288
|
$
|
91,139
|
|
|
Per share, basic 1
|
|
$
|
0.9160
|
$
|
1.1866
|
$
|
1.5830
|
|
|
Per share, diluted 1
|
|
$
|
0.9149
|
$
|
1.1866
|
$
|
1.5830
|
|
Net income
|
|
$
|
43,652
|
$
|
69,137
|
$
|
89,928
|
|
|
Per share, basic 1
|
|
$
|
0.6480
|
$
|
1.1672
|
$
|
1.5620
|
|
|
Per share, diluted 1
|
|
$
|
0.6472
|
$
|
1.1672
|
$
|
1.5620
|
|
Total assets
|
|
$
|
2,913,817
|
$
|
1,264,466
|
$
|
1,246,978
|
|
Total non-current financial liabilities 2
|
|
$
|
1,145,987
|
$
|
351,379
|
$
|
359,958
|
|
Total non-current liabilities
|
|
$
|
1,534,891
|
$
|
449,165
|
$
|
430,453
|
|
Dividends paid per share
|
|
$
|
1.2800
|
$
|
1.2500
|
$
|
1.2233
|
|
1
|
Weighted average number of shares outstanding during 2013 was 67,364,031
shares (2012 - 59,233,373 shares;
2011 - 57,573,099 shares). Weighted average number of shares outstanding
during 2013, on a diluted basis, was
67,443,419 shares (2012 - 59,233,373 shares; 2011 - 57,573,099 shares).
|
|
2
|
Non-current financial liabilities include: derivative liabilities held
for risk management, loans and borrowings,
Debentures and other long-term liabilities.
|
|
3
|
Balances restated to reflect discontinued operations. See 'Divestiture'
section.
|
Revenue
Consolidated revenues for 2013 were $837.1 million, an increase of
$141.6 million, compared to 2012. The increase in revenues was
primarily due to the inclusion of HFS and Compushare revenues and
growth in certain other areas, as described above.
Consolidated revenues for 2012 were $695.5 million, an increase of $39.7
million, compared to 2011. The increase was primarily due to growth in
Mortgagebot and the inclusion of Avista acquired on May 3, 2012, in the
U.S. segment.
Income from continuing operations and Income from continuing operations
per share, basic and diluted
Income from continuing operations for 2013 was $61.7 million compared to
$70.3 million for 2012. The decrease was primarily attributable to
acquisition-related and other charges as described earlier, higher
amortization of intangible assets from acquisitions as a result of the
HFS acquisition, higher interest expense on debt drawn to fund the HFS
acquisition and the write-off of deferred finance fees related to the
Previous Credit Facility, partially offset by a higher gain on fair
value changes related to derivative instruments and a lower income tax
expense compared to 2012. Income from continuing operations per share
for 2013, both basic and diluted, were also impacted by additional
common shares issued in connection with the acquisition of HFS.
Income from continuing operations for 2012 was $70.3 million, a decrease
of $20.9 million compared to 2011. The decrease was primarily
attributable to a higher income tax expense as income from continuing
operations from 2011 benefitted from inclusion of non-cash tax
recoveries of $20.8 million attributable to D+H's conversion to a
corporation. Income from continuing operations per share in 2012, both
basic and diluted, was also impacted by additional common shares issued
in connection with the acquisition of Mortgagebot in April 2011.
Net income and Net income per share, basic and diluted
Net income of $43.7 million for 2013 was lower by $25.5 million,
compared to $69.1 million for 2012, primarily due to transaction costs
and acquisition related charges in connection with the acquisition of
HFS, an increase in amortization of intangible assets from
acquisitions, interest on incremental debt and acquisition-related
charges incurred in connection with the acquisition of HFS, and loss
from discontinued operations of $18.1 million, net of taxes. This
decrease was partially offset by the benefits of fair value changes
related to derivative instruments of $6.2 million and a gain on
re-measurement of previously held equity interest in Compushare for
2013. Net income per share for 2013, both basic and diluted, was also
impacted by additional common shares issued in connection with the
acquisition of HFS.
Net income for 2012 was $69.1 million, a decrease of $20.8 million
compared to 2011. The decrease was primarily attributable to an
increased income tax expense as net income from 2011 benefited from
inclusion of non-cash tax recoveries of $20.8 million attributable to
D+H's conversion to a corporation. Net income per share for 2012, both
basic and diluted, was also impacted by additional common shares issued
in connection with the acquisition of Mortgagebot in April 2011.
Total assets
Total assets of $2.9 billion at December 31, 2013 increased by $1.6
billion compared to December 31, 2012. The increase mainly relates to
$734.8 million of additional intangible assets and $817.8 million of
additional goodwill resulting from the HFS, and to a lesser extent, the
Compushare acquisitions. Other increases in cash and cash equivalents,
accounts receivable, both current and non-current, prepayments and
other current assets, property plant and equipment and other assets
were also mainly due to the HFS acquisition.
Total assets of $1,264.5 million at December 31, 2012 increased by $17.5
million compared to December 31, 2011. The increase related to the
acquisition of Avista, acquisition of a minority interest in Compushare
by the Company and an increase in cash and accounts receivable balances
as at December 31, 2012, compared to December 31, 2011. The increase in
cash was attributable to timing of payments, and the increase in
accounts receivable was related to higher revenues in 2012 than 2011.
The increase was partially offset by amortization of acquisition
intangible assets.
Total non-current financial liabilities
Total non-current financial liabilities at December 31, 2013 of $1.1
billion increased by $0.8 billion from total non-current financial
liabilities at December 31, 2012. The increase was primarily driven by
drawings from the Non-revolver I under the Credit Facility and issuance
of bonds and Debentures, as further described above, in connection with
the HFS acquisition.
Total non-current financial liabilities at December 31, 2012 of $351.4
million decreased by $8.6 million from total non-current financial
liabilities at December 31, 2011. This decrease was primarily driven by
a lower liability at December 31, 2012 associated with D+H's
outstanding derivative instruments and debt repayments.
Total non-current liabilities
Total non-current liabilities at December 31, 2013 of $1.5 billion
increased by $1.1 billion from total non-current liabilities at
December 31, 2012. The increase was primarily driven by drawings from
the Non-revolver I, issuance of bonds and Debentures, and a higher
deferred tax liability, all resulting in connection with the HFS
acquisition.
Total non-current liabilities at December 31, 2012 of $449.2 million
increased by $18.7 million from total non-current liabilities at
December 31, 2011. This increase was mainly due to an increase in
deferred tax liabilities attributable to intangible assets related to
acquisitions, temporary differences related to capitalized software
development expenses and increased deferred partnership income.
Dividends per share
Cash dividends declared and paid in 2013 were $1.28 per share, compared
to cash dividends declared and paid of $1.25 per share in 2012.
Cash dividends declared and paid in 2011 were $1.07 per share, in
addition to a $0.15 per share distribution that was paid in January
2011 (declared on December 31, 2012 when D+H was an income trust). As
such, total payments in 2011 to shareholders were $1.22 per share.
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 acquisition of
HFS will: (i) strengthen our ability to deliver on our goal of being a
leading FinTech provider to the financial services industry; (ii)
provide enhanced revenue diversification; (iii) deliver strong and
sustainable cash flows to fund future growth, dividends and
deleveraging; and (iv) support our long-term strategy.
Going forward, we will focus on building an integrated operating model
for our U.S. operations that will enable us to efficiently and
effectively execute our organic growth initiatives including
cross-selling our now larger suite of FinTech solutions inclusive of
HFS. This includes achieving effective integration of our HFS platform
technologies and sales plans. Simultaneously across all operations, we
will continue 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 existing SaaS offerings and cloud-based offerings with those
provided by the newly acquired HFS to both our now larger customer base
and approximately 7,000 other U.S. financial institutions that could
benefit from our technology portfolio; (ii) advancing our payments
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 strategy executed by D+H over the past number of years
has evolved our FinTech leadership position within the North American
market and has strengthened our operating model by diversifying revenue
and reduced our risk profile by lowering our customer concentration and
product dependency. 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
expect to reduce our Debt to EBITDA ratio to below 2.5 in 2015 while
supporting our current dividend.
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.
Canadian Segment
Within the Canadian Segment, the downward trend in cheque order volumes
is expected to continue to be in the mid-single digits through 2014,
with ongoing volatility in personal cheque order volumes coupled with
comparatively minimal volatility in business cheque order volumes.
In the Canadian banking technology service area, Canadian housing
markets analysts are expecting a softening in real estate activity,
along with a softening in home sale pricing in 2014. Furthermore, a
potential rate increase by the Bank of Canada would likely further
slowdown activity and moderate home prices. In addition, the broker
market will continue to experience competition from internal mobile
sales force at lending institutions. Revenues from Canadian banking
technology service area may be impacted by pricing model adjustments,
which may 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.
Revenues within the lending processing solutions is expected to benefit
from: (i) growth in tuition rates and an increase in uptake rates in
the student loans administration service area; and (ii) continuing
recovery within the auto and auto lending markets, including increased
repossessions.
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. Within the auto and
auto lending markets, growth in new and resold car sales is expected to
continue in 2014, while increases in lender portfolio values should
continue to drive recovery volume increases despite falling delinquency
rates.
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.
U.S. Segment
In the U.S. Segment, we expect to benefit 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. The
recovering U.S. housing market will be offset by the impact that higher
interest rates may have on refinancing activity which will negatively
impact transaction-related volumes and revenues within our businesses
that service the U.S. mortgage markets. We also anticipate revenue
synergies from cross selling opportunities between our existing SaaS
customers and product offerings. Additionally, community banks are
expected to increase technology investment on new core systems over the
next few years. Overall, forecasts from IDC Financial Insights suggest
that North American FinTech spending will grow between 4% and 6% in
2014 and 2015 among banks and credit unions that are primary users of
our current technologies. Across banks and credit unions of all sizes,
IDC projects that the FinTech market will be valued at over $61 billion
by the end of 2015. There are currently over 13,000 financial
institutions in the U.S., of which we currently serve over 6,000. Our
technology suite allows us to offer products to large and small
financial institutions alike and we are reaching into the available
markets to gain a foothold among the approximately 7,000 banks and
credit unions who have not used D+H before. We believe we are
well-positioned to capture our share of market expansion through our
strategies.
Capital spend
For 2014, inclusive of HFS, we anticipate total capital spending of
approximately $50 to $55 million, focusing more on new growth
opportunities. Capital spending in 2014 may vary based on spending in
support of new growth opportunities if and as they arise.
Cash taxes
The Corporation will pay its 2013 Canadian tax liability in early 2014
and will begin to make increased Canadian tax installment payments in
2014, in addition to its existing U.S. tax installment payments, which
have increased due to the acquisition of HFS.
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.
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 in Canada 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; changes in the U.S. banking and financial services
industry and demand for HFS's products and services; 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 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)
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32,398
|
|
$
|
5,719
|
|
Trade and other receivables
|
|
|
111,156
|
|
|
84,996
|
|
Prepayments and other current assets
|
|
|
25,370
|
|
|
14,104
|
|
Inventories
|
|
|
3,059
|
|
|
4,181
|
|
Total current assets
|
|
|
171,983
|
|
|
109,000
|
|
Non-current trade receivable
|
|
|
22,179
|
|
|
-
|
|
Deferred tax assets
|
|
|
4,327
|
|
|
3,171
|
|
Property, plant and equipment
|
|
|
44,913
|
|
|
30,201
|
|
Investment in an associate
|
|
|
-
|
|
|
10,145
|
|
Intangible assets
|
|
|
1,156,170
|
|
|
421,366
|
|
Goodwill
|
|
|
1,508,430
|
|
|
690,583
|
|
Other assets
|
|
|
5,815
|
|
|
-
|
|
Total non-current assets
|
|
|
2,741,834
|
|
|
1,155,466
|
|
Total assets
|
|
$
|
2,913,817
|
|
$
|
1,264,466
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Trade payables, accrued and other liabilities
|
|
$
|
129,728
|
|
$
|
99,910
|
|
Deferred revenue
|
|
|
86,885
|
|
|
12,586
|
|
Current tax liabilities
|
|
|
24,780
|
|
|
697
|
|
Total current liabilities
|
|
|
241,393
|
|
|
113,193
|
|
Non-current deferred revenue
|
|
|
22,048
|
|
|
9,419
|
|
Derivative liabilities held for risk management
|
|
|
3,029
|
|
|
4,686
|
|
Loans and borrowings
|
|
|
924,129
|
|
|
340,577
|
|
Convertible debentures
|
|
|
209,647
|
|
|
-
|
|
Deferred tax liabilities
|
|
|
366,856
|
|
|
88,367
|
|
Other long-term liabilities
|
|
|
9,182
|
|
|
6,116
|
|
Total non-current liabilities
|
|
|
1,534,891
|
|
|
449,165
|
|
Total liabilities
|
|
|
1,776,284
|
|
|
562,358
|
|
EQUITY
|
|
|
|
|
|
|
|
Capital
|
|
|
1,117,785
|
|
|
672,853
|
|
Reserves
|
|
|
43,519
|
|
|
6,711
|
|
Retained earnings (deficit)
|
|
|
(23,771)
|
|
|
22,544
|
|
Total equity
|
|
|
|
1,137,533
|
|
|
702,108
|
|
Total liabilities and equity
|
|
$
|
2,913,817
|
|
$
|
1,264,466
|
|
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended,
|
|
Twelve months ended,
|
(in thousands of Canadian dollars, except per share amounts,
unaudited)
|
|
December
31, 2013
|
|
|
December
31, 2012
|
|
|
December
31, 2013
|
|
|
December
31, 2012
|
|
Revenue
|
$
|
259,075
|
|
$
|
172,457
|
|
$
|
837,093
|
|
$
|
695,456
|
|
Employee compensation and benefits
|
|
83,511
|
|
|
44,414
|
|
|
242,877
|
|
178,806
|
|
Other expenses
|
|
107,365
|
|
|
86,668
|
|
|
394,753
|
|
|
335,044
|
|
Income from operating activities before depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and amortization
|
|
68,199
|
|
|
41,375
|
|
|
199,463
|
|
|
181,606
|
|
Depreciation of property, plant and equipment
|
|
4,075
|
|
|
2,198
|
|
|
11,173
|
|
|
8,554
|
|
Amortization of intangible assets
|
|
34,493
|
|
|
16,662
|
|
|
89,259
|
|
|
62,103
|
|
Income from operating activities
|
|
29,631
|
|
|
22,515
|
|
|
99,031
|
|
|
110,949
|
|
Finance expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment of derivative instruments
|
|
(138)
|
|
|
(542)
|
|
|
(6,207)
|
|
|
(2,016)
|
|
|
Interest expense
|
|
15,509
|
|
|
4,629
|
|
|
35,747
|
|
|
19,214
|
|
|
Other finance charges
|
|
-
|
|
|
-
|
|
|
3,224
|
|
|
-
|
|
Gain on remeasurement of previously held equity interest
|
|
-
|
|
|
-
|
|
|
(1,587)
|
|
|
-
|
|
Income from investment in an associate, net of income tax
|
|
-
|
|
|
23
|
|
|
(130)
|
|
|
(68)
|
|
Income from continuing operations before income tax
|
|
14,260
|
|
|
18,405
|
|
|
67,984
|
|
|
93,819
|
|
Income tax expense
|
|
(975)
|
|
|
4,165
|
|
|
6,280
|
|
|
23,531
|
|
Income from continuing operations
|
|
15,235
|
|
|
14,240
|
|
|
61,704
|
|
|
70,288
|
|
Loss from discontinued operations, net of income tax
|
|
2,133
|
|
|
(529)
|
|
|
(18,052)
|
|
|
(1,151)
|
|
Net income
|
$
|
17,368
|
|
$
|
13,711
|
|
$
|
43,652
|
|
$
|
69,137
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share from continuing operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.1887
|
|
$
|
0.2404
|
|
$
|
0.9160
|
|
$
|
1.1866
|
|
|
Diluted
|
$
|
0.1883
|
|
$
|
0.2404
|
|
$
|
0.9149
|
|
$
|
1.1866
|
|
Loss per share from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.0264
|
|
$
|
(0.0089)
|
|
$
|
(0.2680)
|
|
$
|
(0.0194)
|
|
|
Diluted
|
$
|
0.0264
|
|
$
|
(0.0089)
|
|
$
|
(0.2677)
|
|
$
|
(0.0194)
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.2151
|
|
$
|
0.2315
|
|
$
|
0.6480
|
|
$
|
1.1672
|
|
|
Diluted
|
$
|
0.2147
|
|
$
|
0.2315
|
|
$
|
0.6472
|
|
$
|
1.1672
|
|
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Twelve months ended
|
|
(in thousands of Canadian dollars, unaudited)
|
December
31, 2013
|
|
December
31,2012
|
|
December
31, 2013
|
|
December
31, 2012
|
|
Net income
|
$
|
17,368
|
|
$
|
13,711
|
|
$
|
43,652
|
|
$
|
69,137
|
The following items may be reclassified
subsequently to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective portion of changes in fair value
|
|
(220)
|
|
|
-
|
|
|
(220)
|
|
|
(126)
|
|
|
|
Net amount transferred to profit or loss
|
|
-
|
|
|
533
|
|
|
-
|
|
|
366
|
|
|
Foreign currency translation
|
|
25,116
|
|
|
1,819
|
|
|
27,597
|
|
|
(3,442)
|
|
Total comprehensive income
|
$
|
42,264
|
|
$
|
16,063
|
|
$
|
71,029
|
|
$
|
65,935
|
|
Consolidated Statements of Changes in Equity
|
|
|
|
|
|
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2013
|
|
|
|
|
|
Reserves
|
|
|
|
|
|
|
|
Share
capital
|
|
Equity-settled
share based
compensation
|
|
Equity
component
of
Convertible
debentures
|
|
Foreign
currency
translation
reserve
|
|
Hedging
reserve
|
|
Retained
earnings
(deficit)
|
|
Total
equity
|
|
Balance at September 30, 2013
|
$
|
1,117,785
|
$
|
1,175
|
$
|
8,889
|
$
|
8,365
|
$
|
-
|
$
|
(15,303)
|
$
|
1,120,911
|
|
Net income for the period
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
17,368
|
|
17,368
|
|
Foreign currency translation
|
|
-
|
|
-
|
|
-
|
|
25,116
|
|
-
|
|
-
|
|
25,116
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
(220)
|
|
|
|
(220)
|
|
Share issuance
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Equity component of convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debentures, net of tax
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Dividends
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(25,836)
|
|
(25,836)
|
|
Stock options
|
|
-
|
|
194
|
|
-
|
|
-
|
|
-
|
|
-
|
|
194
|
|
Balance at December 31, 2013
|
$
|
1,117,785
|
$
|
1,369
|
$
|
8,889
|
$
|
33,481
|
$
|
(220)
|
$
|
(23,771)
|
$
|
1,137,533
|
|
|
|
|
|
Three months ended December 31, 2012
|
|
|
|
|
|
Reserves
|
|
|
|
|
|
|
Share
capital
|
|
Equity-settled
share based
compensation
|
|
Equity
component
of
Convertible
debentures
|
|
Foreign
currency
translation
reserve
|
|
Hedging
reserve
|
|
Retained
earnings
|
|
Total
equity
|
|
Balance at September 30, 2012
|
$
|
672,853
|
$
|
838
|
$
|
-
|
$
|
4,065
|
$
|
(533)
|
$
|
27,789
|
$
|
705,012
|
|
Net income for the period
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13,711
|
|
13,711
|
|
Cash flow hedges
|
|
-
|
|
-
|
|
-
|
|
-
|
|
533
|
|
-
|
|
533
|
|
Foreign currency translation
|
|
-
|
|
-
|
|
-
|
|
1,819
|
|
-
|
|
-
|
|
1,819
|
|
Dividends
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(18,956)
|
|
(18,956)
|
|
Stock options
|
|
-
|
|
(11)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(11)
|
|
Balance at December 31, 2012
|
$
|
672,853
|
$
|
827
|
$
|
-
|
$
|
5,884
|
$
|
-
|
$
|
22,544
|
$
|
702,108
|
|
|
|
Twelve months ended December 31, 2013
|
|
|
|
|
Reserves
|
|
|
|
|
|
|
|
Share
capital
|
|
Equity-settled
share based
compensation
|
|
Equity
component
of
convertible
debentures
|
|
Foreign
currency
translation
reserve
|
|
Hedging
reserve
|
|
Retained
earnings
(deficit)
|
|
Total
equity
|
|
Balance at January 1, 2013
|
$
|
672,853
|
$
|
827
|
$
|
-
|
$
|
5,884
|
$
|
-
|
$
|
22,544
|
$
|
702,108
|
|
Impact of transition to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAS 19R
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(385)
|
|
(385)
|
|
Net income for the period
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
43,652
|
|
43,652
|
|
Foreign currency translation
|
|
-
|
|
-
|
|
-
|
|
27,597
|
|
-
|
|
-
|
|
27,597
|
|
Cash flow hedges
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(220)
|
|
-
|
|
(220)
|
|
Share issuance
|
|
444,932
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
444,932
|
|
Equity component of convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debentures, net of tax
|
|
-
|
|
-
|
|
8,889
|
|
-
|
|
-
|
|
-
|
|
8,889
|
|
Dividends
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(89,582)
|
|
(89,582)
|
|
Stock options
|
|
-
|
|
542
|
|
-
|
|
-
|
|
-
|
|
-
|
|
542
|
|
Balance at December 31, 2013
|
$
|
1,117,785
|
$
|
1,369
|
$
|
8,889
|
$
|
33,481
|
$
|
(220)
|
$
|
(23,771)
|
$
|
1,137,533
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
Twelve months ended December 31, 2012
|
|
|
|
|
Reserves
|
|
|
|
|
|
|
|
Share
capital
|
|
Equity-settled
share based
compensation
|
|
Equity
component
of
convertible
debentures
|
|
Foreign
currency
translation
reserve
|
|
Hedging
reserve
|
|
Retained
earnings
|
|
Total
equity
|
|
Balance at January 1, 2012
|
$
|
672,853
|
$
|
310
|
$
|
-
|
$
|
9,326
|
$
|
(240)
|
$
|
27,449
|
$
|
709,698
|
|
Net income for the period
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
69,137
|
|
69,137
|
|
Cash flow hedges
|
|
-
|
|
-
|
|
-
|
|
-
|
|
240
|
|
-
|
|
240
|
|
Foreign currency translation
|
|
-
|
|
-
|
|
-
|
|
(3,442)
|
|
-
|
|
-
|
|
(3,442)
|
|
Dividends
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(74,042)
|
|
(74,042)
|
|
Stock options
|
|
-
|
|
517
|
|
-
|
|
-
|
|
-
|
|
-
|
|
517
|
|
Balance at December 31, 2012
|
$
|
672,853
|
$
|
827
|
$
|
-
|
$
|
5,884
|
$
|
-
|
$
|
22,544
|
$
|
702,108
|
|
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
Twelve months ended
|
|
(in thousands of Canadian dollars, unaudited)
|
|
December 31, 2013
|
|
December 31, 2012
|
|
December 31, 2013
|
|
December 31, 2012
|
|
Cash and cash equivalents provided by (used in):
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
15,235
|
$
|
14,240
|
$
|
61,704
|
$
|
70,288
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
4,075
|
|
2,198
|
|
11,173
|
|
8,554
|
|
Amortization of intangible assets
|
|
34,493
|
|
16,662
|
|
89,259
|
|
62,103
|
|
Fair value adjustment of derivative instruments
|
|
(138)
|
|
(542)
|
|
(6,207)
|
|
(2,016)
|
|
Interest expense
|
|
14,160
|
|
4,278
|
|
32,983
|
|
17,891
|
|
Amortization of deferred financing fees
|
|
847
|
|
351
|
|
2,003
|
|
1,323
|
|
Interest accretion expense
|
|
502
|
|
-
|
|
761
|
|
-
|
|
Other finance charges
|
|
-
|
|
-
|
|
3,224
|
|
-
|
|
Income tax expense
|
|
(975)
|
|
4,102
|
|
6,280
|
|
24,667
|
|
Stock options
|
|
194
|
|
(11)
|
|
542
|
|
517
|
|
Income from investment in an associate, net of income tax
|
|
-
|
|
23
|
|
(130)
|
|
(68)
|
|
Gain on remeasurement of previously held equity interest
|
|
-
|
|
-
|
|
(1,587)
|
|
-
|
|
Changes in non-cash working capital items
|
|
29,374
|
|
25,091
|
|
38,134
|
|
(3,528)
|
|
Changes in other operating assets and liabilities
|
|
(8,109)
|
|
(3,094)
|
|
(9,080)
|
|
(1,218)
|
|
Cash flows from (used in) discontinued operations
|
|
(190)
|
|
86
|
|
(11,147)
|
|
1,791
|
|
Cash generated from operating activities
|
|
89,468
|
|
63,384
|
|
217,912
|
|
180,304
|
|
Interest paid
|
|
(8,674)
|
|
(4,248)
|
|
(23,081)
|
|
(17,118)
|
|
Income taxes paid
|
|
(1,670)
|
|
-
|
|
(4,966)
|
|
-
|
|
Net cash from operating activities
|
|
79,124
|
|
59,136
|
|
189,865
|
|
163,186
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Repayment of long-term indebtedness
|
|
(15,000)
|
|
(26,187)
|
|
(581,042)
|
|
(106,467)
|
|
Proceeds from long-term indebtedness
|
|
-
|
|
-
|
|
1,142,173
|
|
103,052
|
|
Payment of issuance costs of long-term indebtedness
|
|
|
|
-
|
|
(8,521)
|
|
(902)
|
|
Proceeds from issuance of convertible debentures
|
|
-
|
|
-
|
|
230,000
|
|
-
|
|
Payment of issuance costs of convertible debentures
|
|
-
|
|
-
|
|
(9,357)
|
|
-
|
|
Proceeds from issuance of shares
|
|
-
|
|
-
|
|
460,207
|
|
-
|
|
Payment of issuance costs of shares
|
|
-
|
|
-
|
|
(19,883)
|
|
-
|
|
Dividends paid
|
|
(25,836)
|
|
(18,956)
|
|
(89,582)
|
|
(74,042)
|
|
Net cash from (used in) financing activities
|
|
(40,836)
|
|
(45,143)
|
|
1,123,995
|
|
(78,359)
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
(3,601)
|
|
(2,124)
|
|
(11,647)
|
|
(7,676)
|
|
Acquisition of intangible assets
|
|
(14,038)
|
|
(7,593)
|
|
(28,215)
|
|
(25,641)
|
|
Acquisition of subsidiaries
|
|
-
|
|
-
|
|
(1,256,450)
|
|
(37,946)
|
|
Acquisition of investment in an associate
|
|
-
|
|
-
|
|
-
|
|
(10,058)
|
|
Proceeds from sale of property, plant and equipment
|
|
-
|
|
-
|
|
631
|
|
-
|
|
Sale of discontinued operations
|
|
-
|
|
-
|
|
8,500
|
|
-
|
|
Net cash used in investing activities
|
|
(17,639)
|
|
(9,717)
|
|
(1,287,181)
|
|
(81,321)
|
|
Increase in cash and cash equivalents for the period
|
|
20,649
|
|
4,276
|
|
26,679
|
|
3,506
|
|
Cash and cash equivalents, beginning of period
|
|
11,749
|
|
1,443
|
|
5,719
|
|
2,213
|
|
Cash and cash equivalents, end of period
|
$
|
32,398
|
$
|
5,719
|
$
|
32,398
|
$
|
5,719
|
About D+H
D+H is a leading North American provider of secure and reliable technology
solutions to domestic and global 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. Today,
approximately 7,000 banks, speciality lenders, community banks and
credit unions rely on D+H to deliver solutions across three broad
service areas: Banking Technology Solutions (Enterprise, Lending);
Lending Processing Solutions; and Payments Solutions. 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.
D+H is one of the world's top FinTech companies as measured on the
FinTech 100 list and recognized on the Branham 300 ranking as one of
the top ICT companies in Canada.
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
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.
