Stock Exchange Symbol: DH
Website: www.dhltd.com
TORONTO, April 29, 2014 /CNW/ - "D+H opened 2014 with strong
contributions from acquisitions and solid organic growth in both the
United States and Canada, driving strong growth in Adjusted revenues1, Adjusted EBITDA1 and Adjusted net income1," said Gerrard Schmid, Chief Executive Officer. "We moved our
integration agenda ahead in the first quarter and now operate as D+H in
all markets with consolidated U.S. and Canadian sales forces. This
provides us with a good foundation to advance our standing as a leading
financial technology ("FinTech") provider".
As expected, recent strategic acquisitions continued to positively
diversify D+H's business. In the first quarter, the U.S. Segment
accounted for 46% of Adjusted revenues, versus 13% in the same period a
year ago, while lending processing and banking technology service areas
accounted for 73% of first quarter Adjusted revenues compared to 57% a
year ago.
"Our operations generated solid cash flows in the quarter which allowed
us to continue to deleverage, while supporting our growth initiatives
and dividend" said Brian Kyle, Chief Financial Officer.
First Quarter Highlights
-
Revenues from continuing operations increased by 55.1% to $266.3 million
from $171.7 million a year ago, or 49.4% after eliminating the impacts
of foreign exchange volatility, reflecting the inclusion of Harland
Financial Solutions' ("HFS") revenues in the U.S. Segment and organic
growth in the Canadian Segment.
-
Adjusted revenues of $275.7 million were $104.1 million, or 60.6%, higher than a year ago.
After eliminating the impacts of foreign exchange volatility, Adjusted
revenues increased by 54.4%.
-
Adjusted EBITDA increased by 83.0% to $78.7 million (28.6% margin) from
$43.0 million (25.1% margin) in 2013. After eliminating the impacts of
foreign exchange volatility, Adjusted EBITDA increased by 74.4%.
-
Net income increased to $12.0 million ($0.1488 per share, basic and
$0.1484 per share, diluted), from $5.7 million ($0.0969 per share,
basic and diluted) a year ago, reflecting higher EBITDA, offset by
higher amortization of intangible assets from acquisitions and
increased interest expense attributable to the HFS acquisition. Net
income in the first quarter of 2013 was impacted by a loss from
discontinued operations of $10.7 million.
-
Adjusted net income increased by 68.0% to $38.8 million from $23.1
million in 2013 mainly due to the addition of HFS. Adjusted net income
per share1 increased by 23.2% to $0.4808, from $0.3901 in 2013 and reflects the
additional common shares issued in connection with the HFS acquisition,
and was also impacted by differences in seasonality of D+H's legacy
businesses and HFS.
-
Debt repayments during the first quarter of 2014 were $5.0 million,
resulting in a March 31, 2014 Debt to EBITDA ratio of 2.93. This ratio,
after eliminating the impacts of non-cash foreign exchange volatility,
was 2.76.
-
D+H paid $0.32 per share in dividends to shareholders.
-
D+H reaffirmed its leadership position in the FinTech marketplace by
being ranked the top Canadian Software-as-a-Service company in the
Branham300 rankings for the second year in a row.
D+H's unaudited condensed interim consolidated financial statements for
the first quarter of 2014, 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; the Company's ability to successfully integrate
acquisitions; changes in the U.S. banking and financial services
industry and demand for HFS's products and services; the Company's
ability to comply with government regulations; 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 referenced 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.
____________________________________________________
1 D+H's financial results are prepared in accordance with International
Financial Reporting Standards ("IFRS"). D+H reports several non-IFRS
financial measures, including EBITDA, EBITDA 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 three
months ended March 31, 2014 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.
|
Conference Call
Davis + Henderson will discuss its financial results for the three
months ended March 31, 2014 via conference call at 10:00 a.m. ET
(Toronto time) on Wednesday, April 30, 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/1334807/1475329. 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 26392767. The rebroadcast will be available until Thursday May
15, 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 April 29, 2014 and should be
read in conjunction with D+H's MD&A in the Annual Report for the year
ended December 31, 2013, dated February 25, 2014, and the unaudited
condensed interim consolidated financial statements for the three
months ended March 31, 2014. External economic and industry factors
remain substantially unchanged from those described in the annual MD&A
and the Corporation's most recently filed Annual Information Form,
except as described herein.
NON-IFRS FINANCIAL MEASURES
The information presented within this MD&A include certain financial
measures such as "Adjusted revenues", "EBITDA", "EBITDA margin" (EBITDA
divided by revenue), "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 Statement of Income, prepared in accordance with IFRS.
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 Statement 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 Statement
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
The Company uses Adjusted revenues as a measure of performance which
eliminates the impact of applying acquisition accounting on the
acquisition of HFS. Adjusted revenues is also used in determining
Adjusted EBITDA.
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 Statement 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 deem 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 Statement 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 'Hedges' 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 following the acquisition, after which the impact to the
consolidated results would not be significant. Adjusted EBITDA excludes
the effects of these adjustments 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 HFS; acquisition-related and other
charges; expenses associated with cost-realignment initiatives;
discontinued operations; all of which are not considered to be part of
normal course of 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 D+H's previous credit facility 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
'Convertible Debentures' section), fair value adjustments of
interest-rate swaps and tax effects of these items. 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 Statement of Income an
additional IFRS measure for "Income from Operating
Activities". Management believes that this measure provides relevant
information to understand the Corporation's financial performance. This
additional IFRS measure is representative of activities that would
normally be regarded as "operating" for the Company.
STRATEGY
D+H's goal is to be a leading financial technology ("FinTech") provider
to the 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.
In 2013, D+H significantly advanced its FinTech goal and strategy by
acquiring HFS. This acquisition substantially increased D+H's combined
customer count and added a suite of market-leading FinTech products to
its current offering. 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.
In January 2014, the Company began operating under its single, signature
D+H brand in North America and globally, following the retirement of
our legacy HFS, Mortgagebot and Compushare brands. All of our leading
technology products and solutions now include the D+H brand in addition
to their existing product names. We believe rebranding is a strategic
enabler that will allow us to unlock synergies and create tangible
benefits for our business and clients.
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, lending and lending
compliance and core bank technology primarily within the U.S.
marketplace to existing bank and credit union customers as well as
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 area
where it won a number of Canadian financial institution mandates in
recent years; (v) extending the 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.
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
'Long-term indebtedness' section, to below 2.5 in 2015, on a foreign
exchange normalized basis, from 3.05 on the date of acquisition of HFS.
At March 31, 2014, debt repayments had reduced this ratio to 2.93.
After removing the impacts of foreign exchange fluctuations, this ratio
was 2.76.
For a detailed discussion of the operating results for the three months
ended March 31, 2014 and management's outlook, please see below.
ACCOUNTING PRINCIPLES AND FINANCIAL INFORMATION PRESENTATION
The Company's unaudited condensed interim consolidated financial
statements have been prepared in accordance with IFRS, specifically IAS
34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB").
Results from continuing operations include the performance of acquired
businesses from the respective dates of acquisition and exclude results
from operations classified as discontinued operations.
Effective January 1, 2014 the Company modified its basis of reporting
such that the results from our technology products and services
supporting leasing, commercial lending and small business lending,
which have been experiencing growth in the U.S., are reported as part
of the U.S. Segment. Prior to January 1, 2014, the results from these
operations were reported as part of the Canadian Segment. This revised
view allows management to better evaluate its cross-selling strategies
in the U.S. that were implemented after the HFS acquisition and is
consistent with how this part of our business is managed and reviewed
by the Company's senior management.
Comparative periods have been conformed to the current period
classification, where applicable.
All amounts are in Canadian dollars, unless otherwise specified.
OPERATING RESULTS - FIRST QUARTER 2014
The following discussion should be read in conjunction with the
unaudited condensed interim consolidated financial statements for the
three months ended March 31, 2014 and includes non-IFRS financial
measures. Management believes these supplementary disclosures provide
useful additional information. See Non-IFRS Financial Measures and
Additional IFRS Measures sections for a description of non-IFRS and
additional IFRS measures used.
Consolidated Operating Results - Overview
D+H delivered solid operating performance in the first quarter of 2014
that was consistent with its strategic agenda of becoming a leading
FinTech provider to the financial services marketplace. Year-over-year
growth in revenues, Adjusted revenues and Adjusted EBITDA was primarily
attributable to the U.S. Segment and reflected the inclusion of HFS,
and a full quarter of Compushare's revenues (annualization).
Consolidated EBITDA was higher for the first quarter of 2014 and was
inclusive of $3.5 million of acquisition-related expenses, which were
reported as part of Corporate, and acquisition accounting adjustments
of $6.3 million related to the fair value of deferred revenues and
deferred costs acquired from the acquisition of HFS. Consolidated net
income for the first quarter of 2014 was higher compared to 2013
primarily due to higher EBITDA, partially offset by the impacts of
higher interest and amortization expense as a result of the HFS
acquisition. Consolidated Adjusted net income and Adjusted net income
per share, which excluded non-cash and non-normal course items, were
also higher than the comparative period primarily as a result of the
HFS acquisition. Adjusted net income and Adjusted net income per share
also benefited from differences in seasonality of D+H's legacy
businesses and HFS, as further discussed below. Adjusted net income per
share was also impacted by the additional common shares issued in
August 2013 to partially fund the HFS acquisition.
(in thousands of Canadian dollars, except per share amounts, unaudited)
|
|
|
Quarter ended March 31
|
|
|
|
2014
|
|
|
2013
|
|
Revenues
|
$
|
266,291
|
|
$
|
171,661
|
|
Expenses
|
|
197,291
|
|
|
129,664
|
|
EBITDA 1
|
|
69,000
|
|
|
41,997
|
|
Depreciation of capital assets and amortization of non-acquisition
intangibles
|
|
9,456
|
|
|
6,519
|
|
Amortization of intangible assets from acquisitions
|
|
28,582
|
|
|
10,914
|
|
Income from operating activities
|
|
30,962
|
|
|
24,564
|
|
Interest expense
|
|
15,249
|
|
|
4,471
|
|
Income from investment in an associate, net of tax 2
|
|
-
|
|
|
(130)
|
|
Gain on re-measurement of previously-held equity interest
|
|
-
|
|
|
(1,587)
|
|
Fair value adjustment of derivative instruments 3
|
|
(204)
|
|
|
(107)
|
|
Income tax expense
|
|
3,053
|
|
|
5,480
|
|
Income from continuing operations
|
|
12,864
|
|
|
16,437
|
|
Loss from discontinued operations, net of tax 4
|
|
(846)
|
|
|
(10,695)
|
|
Net income
|
$
|
12,018
|
|
$
|
5,742
|
|
|
|
|
|
|
|
|
Income from continuing operations per share,
|
|
|
|
|
|
|
Basic 5
|
$
|
0.1593
|
|
$
|
0.2775
|
|
Diluted 6
|
$
|
0.1589
|
|
$
|
0.2775
|
|
Loss from discontinued operations, per share, net of tax 4
|
|
|
|
|
|
|
Basic 5
|
$
|
(0.0105)
|
|
$
|
(0.1806)
|
|
Diluted 6
|
$
|
(0.0105)
|
|
$
|
(0.1806)
|
|
Net income per share
|
|
|
|
|
|
|
Basic 5
|
$
|
0.1488
|
|
$
|
0.0969
|
|
Diluted 6
|
$
|
0.1484
|
|
$
|
0.0969
|
|
1
|
EBITDA is a non-IFRS term. See Non-IFRS Financial Measures for a more
complete description of this term.
|
|
2
|
Income from investment in an associate consists of D+H's share of income
from Compushare, a minority investment prior to D+H acquiring 100%
control in January 2013.
|
|
3
|
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 Statement of Income.
|
|
4
|
Loss relates to D+H's divesture of its non-strategic business processing
operations on May 10, 2013.
|
|
5
|
Weighted average number of shares outstanding during the first quarter
of 2014 was 80,739,132 shares (first quarter of 2013 - 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 first quarter of 2014 was 80,951,884 (first
quarter of 2013 - 59,233,373 shares).
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Quarter ended March 31
|
|
|
|
|
2014
|
2013
|
|
Revenues
|
$ 266,291
|
$ 171,661
|
|
Acquisition accounting adjustments 1
|
9,457
|
-
|
|
Adjusted revenues 2
|
$ 275,748
|
$ 171,661
|
|
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 on acquisition.
|
|
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 March 31
|
|
|
2014
|
2013
|
|
Revenues
|
$ 266,291
|
$ 171,661
|
|
Expenses
|
197,291
|
129,664
|
|
EBITDA 1
|
69,000
|
41,997
|
|
EBITDA Margin 1
|
25.9%
|
24.5%
|
|
Adjustments:
|
|
|
|
|
Acquisition accounting adjustments 2
|
6,250
|
-
|
|
|
Acquisition-related and other charges 3
|
3,490
|
1,028
|
|
Adjusted EBITDA 1
|
$ 78,740
|
$ 43,025
|
|
Adjusted EBITDA Margin 1
|
28.6%
|
25.1%
|
|
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' section for a
more complete description of these terms.
|
|
3
|
Acquisition-related and other charges for the first quarter of 2014
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 the first
quarter of 2013 included transaction costs and certain retention and
incentive costs related to acquisition of businesses and business
integration costs.
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
Quarter ended March 31,
|
|
|
|
|
2014
|
2013
|
|
Net income
|
$ 12,018
|
$ 5,742
|
|
Adjustments:
|
|
|
|
|
Non-cash items:
|
|
|
|
|
|
Acquisition accounting adjustments 1
|
6,250
|
-
|
|
|
|
Non-cash interest expense 2
|
1,524
|
-
|
|
|
|
Amortization of intangible assets from acquisitions
|
28,582
|
10,914
|
|
|
|
Gain on re-measurement of previously-held equity interest 3
|
-
|
(1,587)
|
|
|
|
Fair value adjustment of derivative instruments 4
|
(204)
|
(107)
|
|
|
Other items of note:
|
|
|
|
|
|
Acquisition-related and other charges 5
|
3,490
|
1,028
|
|
|
Tax effect of above adjustments 6
|
(13,688)
|
(3,578)
|
|
|
Loss from discontinued operations, net of tax 7
|
846
|
10,695
|
|
Adjusted net income 8
|
$ 38,818
|
$ 23,107
|
|
|
|
|
|
|
|
Adjusted net income per share, basic 8, 9
|
$ 0.4808
|
$ 0.3901
|
|
|
|
|
Quarter ended March 31
|
|
|
|
|
|
2014 vs. 2013
|
|
|
|
|
|
% change
|
|
Adjusted net income 7
|
|
68.0%
|
|
Adjusted net income per share, basic 7, 8
|
|
23.2%
|
|
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 the 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 the remaining interest in Compushare in January
2013, a gain related to re-measurement of the previously held equity
interest was recognized in the first quarter of 2013, in accordance
with IFRS standards.
|
|
4
|
Amounts include mark-to-market adjustments to interest-rate swaps that
are not designated as hedges for hedge accounting purposes, and for
which any change in the fair value of these contracts is recorded
through the Consolidated Statement of Income.
|
|
5
|
Acquisition-related and other charges for the first quarter of 2014
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 first quarter
of 2013 included transaction costs and certain retention and incentive
costs related to acquisition of businesses and business integration
costs.
|
|
6
|
The adjustments to net income are tax effected at their respective tax
rates.
|
|
7
|
Loss relates to D+H's divesture of its non-strategic business processing
operations on May 10, 2013.
|
|
8
|
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.
|
|
9
|
Weighted average number of shares outstanding during the first quarter
of 2014 was 80,739,132 shares (first quarter of 2013 - 59,233,373
shares).
|
OPERATING RESULTS BY SEGMENT
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31,
|
|
|
|
|
|
Canadian
Segment
|
|
|
U.S.
Segment
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
2014
|
2013
|
|
2014
|
2013
|
|
2014
|
2013
|
|
2014
|
2013
|
|
Revenues
|
$ 150,093
|
$148,640
|
|
$116,198
|
$23,021
|
|
$ -
|
$ -
|
|
$266,291
|
$171,661
|
|
Acquisition accounting adjustments 1
|
-
|
-
|
|
9,457
|
-
|
|
-
|
-
|
|
9,457
|
-
|
|
Adjusted revenues 2
|
$ 150,093
|
$148,640
|
|
$125,655
|
$23,021
|
|
$ -
|
$ -
|
|
$275,748
|
$171,661
|
|
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 on acquisition.
|
|
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 March 31,
|
|
|
|
|
|
Canadian
Segment
|
|
|
U.S.
Segment
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
2014
|
2013
|
|
2014
|
2013
|
|
2014
|
2013
|
|
2014
|
2013
|
|
Revenues
|
$ 150,093
|
$148,640
|
|
$116,198
|
$23,021
|
|
$ -
|
$ -
|
|
$ 266,291
|
$171,661
|
|
Expenses
|
116,172
|
114,890
|
|
77,629
|
13,746
|
|
3,490
|
1,028
|
|
197,291
|
129,664
|
|
EBITDA 1
|
33,921
|
33,750
|
|
38,569
|
9,275
|
|
(3,490)
|
(1,028)
|
|
69,000
|
41,997
|
|
EBITDA Margin 1
|
22.6%
|
22.7%
|
|
33.2%
|
40.3%
|
|
-
|
-
|
|
25.9%
|
24.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition accounting adjustments 2
|
-
|
-
|
|
6,250
|
-
|
|
-
|
-
|
|
6,250
|
-
|
|
Acquisition-related and other charges 3
|
-
|
-
|
|
-
|
-
|
|
3,490
|
1,028
|
|
3,490
|
1,028
|
|
Adjusted EBITDA 1
|
$ 33,921
|
$ 33,750
|
|
$ 44,819
|
$ 9,275
|
|
$ -
|
$ -
|
|
$ 78,740
|
$ 43,025
|
|
Adjusted EBITDA Margin 1
|
22.6%
|
22.7%
|
|
35.7%
|
40.3%
|
|
-
|
-
|
|
28.6%
|
25.1%
|
|
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 section for a
more complete description of these terms.
|
|
3
|
Acquisition-related and other charges for the first quarter of 2014
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 the first
quarter of 2013 included transaction costs and certain retention and
incentive costs related to acquisition of businesses and business
integration costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Segment
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
2014 vs. 2013
|
|
2014 vs. 2013
|
2014 vs. 2013
|
|
|
|
|
|
|
|
|
|
|
|
% change
|
|
% change
|
% change
|
|
Revenues
|
|
|
|
|
|
|
|
1.0%
|
|
404.7%
|
55.1%
|
|
Adjusted revenues 1
|
|
|
|
|
|
|
|
1.0%
|
|
445.8%
|
60.6%
|
|
Adjusted EBITDA 1
|
|
|
|
|
|
|
|
0.5%
|
|
383.2%
|
83.0%
|
|
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
The following table reflects the relative size of each of the major
service areas as a percentage of consolidated Adjusted revenues based
on a rolling twelve-month period:
|
|
|
|
|
|
|
Twelve months ended March 31,
|
|
|
|
|
|
|
|
|
2014
|
2013
|
|
Adjusted Revenues - Consolidated
|
|
|
|
|
|
|
|
|
|
Payments solutions
|
|
|
|
|
|
|
31.5%
|
42.8%
|
|
|
Lending processing solutions
|
|
|
|
|
|
29.2%
|
38.0%
|
|
|
Banking technology solutions
|
|
|
|
|
|
|
|
|
|
|
Lending
|
|
|
|
|
|
|
24.9%
|
18.7%
|
|
|
|
Enterprise
|
|
|
|
|
|
|
14.4%
|
0.5%
|
|
|
|
|
|
|
|
|
100.0%
|
100.0%
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31
|
|
|
|
Canadian
Segment
|
|
|
|
|
|
U.S.
Segment
|
|
|
|
|
|
Consolidated
|
|
|
2014
|
2013
|
|
|
|
|
2014
|
2013
|
|
|
|
|
2014
|
2013
|
|
|
Revenues
|
Revenues
|
|
Revenues
|
Adjustment 1
|
|
Adjusted
revenues 2
|
Revenues
|
|
Revenues
|
Adjustment 1
|
|
Adjusted
revenues 2
|
Revenues
|
|
Payments solutions
|
$ 74,703
|
$ 73,679
|
|
$ -
|
$ -
|
|
$ -
|
$ -
|
|
$ 74,703
|
$ -
|
|
$ 74,703
|
$ 73,679
|
|
Lending processing solutions
|
66,278
|
65,123
|
|
-
|
-
|
|
-
|
-
|
|
66,278
|
-
|
|
66,278
|
65,123
|
|
Banking technology solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending
|
9,112
|
9,838
|
|
60,439
|
8,322
|
|
68,761
|
19,508
|
|
69,551
|
8,322
|
|
77,873
|
29,346
|
|
|
Enterprise
|
-
|
-
|
|
55,759
|
1,135
|
|
56,894
|
3,513
|
|
55,759
|
1,135
|
|
56,894
|
3,513
|
|
|
Total Revenues
|
$ 150,093
|
$ 148,640
|
|
$ 116,198
|
$ 9,457
|
|
$ 125,655
|
$ 23,021
|
|
$ 266,291
|
$ 9,457
|
|
$ 275,748
|
$ 171,661
|
|
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 on
acquisition.
|
|
2
|
Adjusted revenues is a non-IFRS term. See Non-IFRS Financial Measures
for a more complete description of this term.
|
Revenues and Adjusted Revenues - Consolidated
Consolidated Adjusted revenues for the first quarter of 2014 were $275.7
million, an increase of $104.1 million, or 60.6%, compared to the same
period in 2013. After eliminating the impacts of foreign exchange
volatility, Adjusted revenues increased by 54.4% in the first quarter
of 2014 (see U.S. Segment discussion below for further details). The
increase in Adjusted revenues was primarily due to the inclusion of
HFS, and to a lesser extent, the annualization and growth in revenues
of Compushare, acquired on January 29, 2013. Payments solutions and
lending processing solutions in the Canadian Segment also contributed
to the overall revenue growth.
Consolidated revenues for the first quarter of 2014 were $266.3 million,
an increase of $94.6 million, or 55.1%, compared to the same period in
2013. After eliminating the impacts of foreign exchange volatility,
revenues increased by 49.4% in the first quarter of 2014. Revenues in
the 2014 period were impacted by the fair value adjustment to deferred
revenues acquired from HFS.
Revenues - Canadian Segment
Total revenues in the Canadian Segment for the first quarter of 2014 of
$150.1 million, increased by $1.5 million, or 1.0%, compared to the
same quarter in 2013. Adjusted revenues are the same as revenues for
the Canadian Segment as this segment was not subject to acquisition
accounting adjustments.
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 alternative 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 years, 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 through 2014. D+H continues to develop service
enhancements to offset this impact and to generate future growth within
this category. Revenues in this area are not significantly impacted by
seasonality.
Revenues from payments solutions for the first quarter of 2014 were
$74.7 million, an increase of $1.0 million, or 1.4%, compared to the
same quarter in 2013. Revenues from payments solutions reflected the
positive impact of higher average order values due to product and
service enhancements in the chequing and credit card programs and
higher volumes in our subscription fee-based enhancement services
offerings. These increases were partially offset by volume declines in
cheque orders.
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 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.
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 the Canadian federal and
provincial governments and lenders. Services include student
enrollment, management of funds disbursement, loan tracking, student
support services, reporting and collections. 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. Revenues in this area are not significantly impacted by
seasonality.
D+H and the Government of Canada are parties to a contract pursuant to
which D+H provides financial and related services in support of the
Canada Student Loans and Grants Program ("CSLP") as well as the student
loan and grant programs of certain Canadian provinces. The contract
with the Government of Canada will expire on March 31, 2016 after which
it may be renewed by the Government of Canada for 1-year terms up to a
maximum of two such terms. In line with government procurement policy,
the Government of Canada has initiated consultations with industry
regarding the requirements for administering the CSLP after the expiry
of the existing contract and we expect a request for proposals will be
issued in the late-Spring of 2014. D+H intends to aggressively defend
its incumbency and believes the quality of our delivery thus far will
help us remain competitive in the bid process.
Lending processing solutions revenues for the first quarter of 2014 were
$66.3 million, an increase of $1.2 million, or 1.8%, compared to the
same quarter in 2013. The increase was mainly due to higher transaction
volumes in recovery services and, to a lesser extent, higher average
order values in registration services and higher volumes in the student
loans program. The rate of year-over-year growth was muted by a
reduction in the student loan program project-related and professional
services revenues compared to the first quarter of 2013.
Banking Technology Solutions - Lending
In the Canadian Segment, banking technology solutions, reported within
the lending category, are directed towards mortgage markets in Canada.
Revenues within this category are attributable to transaction-based
fees earned in connection with Canadian mortgage originations. These
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. Revenues in this area are subject to some
seasonality as the second and third quarters have historically
experienced a higher level of origination activity, consistent with the
overall housing market in Canada. As described above, revenues
pertaining to our technology products and services supporting leasing,
commercial lending and small business lending are now reported as part
of the U.S. Segment.
Canadian banking technology solutions revenues in the first quarter of
2014 were $9.1 million, a decrease of $0.7 million, or 7.4%, compared
to the same quarter in 2013. This reflected lower mortgage origination
fees resulting from price modifications and was partially offset by
higher origination volumes. We expect the impact of price modifications
to be fully accounted for by the end of the second quarter of 2014.
Revenues and Adjusted Revenues - U.S. Segment
Revenues from U.S. banking technology solutions are classified into
lending solutions and enterprise solutions categories, as further
described below. With the acquisition of HFS, we expect higher levels
of seasonality in revenues from our U.S. banking technology service
area, as revenues are expected to be stronger in the second and fourth
quarters, with the latter being the busiest period. Revenues in the
first and third quarters for HFS have historically been weaker.
Total revenues in the U.S. Segment for the first quarter of 2014 of
$116.2 million increased by $93.2 million, or 404.7%, compared to the
same quarter in 2013. First quarter Adjusted revenues for the U.S.
Segment of $125.7 million were $102.6 million, or 445.8%, ahead of the
same period of 2013. The sharp increase in revenues and Adjusted
revenues was primarily due to the inclusion of HFS and to a lesser
degree, our cloud-based solutions. As noted above, HFS revenues in the
first quarter have historically been weaker. A strong U.S. dollar in
the first quarter of 2014 compared to the same period in 2013 benefited
revenues and Adjusted revenues in the U.S. Segment by $9.8 million and
$10.6 million, respectively. After eliminating these foreign exchange
impacts, revenues increased by 362.1% and Adjusted revenues by 399.7%.
The foreign exchange impact was calculated as the difference between
the current quarter's actual results and the current quarter's results
in local currencies converted at the foreign exchange rates in effect
during the same quarter of the prior year.
Lending Solutions
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 50% to 60% comes from recurring
subscription fees which generally are market resilient; 15% to 25%
comes from sales of software and associated professional services,
which can be variable due to timing; 15% to 25% are attributable to
post-contract maintenance services, and less than 5% to transaction
based revenues which are sensitive to changes in market conditions.
Effective January 1, 2014, also included in this category are the
technology products and services supporting leasing, commercial lending
and small business lending, which were previously reported as part of
the Canadian Segment.
U.S. lending solutions revenue for the first quarter of 2014 was $60.4
million, an increase of $40.9 million, or 209.8%, compared to $19.5
million for the same period in 2013. Revenues for the first quarter of
2014 benefited from inclusion of HFS. Revenues recorded under IFRS for
the first quarter of 2014 were impacted by acquisition-accounting
adjustments related to fair value of deferred revenue acquired through
the acquisition of HFS. Adjusted revenues of $68.8 million, which
removed these acquisition accounting impacts, increased by $49.3
million compared to the same quarter in 2013 due to the inclusion of
HFS.
Although to a lesser extent, an increase in professional services fees
related to our leasing, commercial lending and small business lending
offering also contributed to revenue growth in this category.
Enterprise Solutions
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.
U.S. enterprise solutions revenues for the first quarter of 2014 were
$55.8 million, an increase of $52.2 million, compared to the same
period in 2013. Revenues recorded under IFRS for the first quarter of
2014 benefited from the acquisition of HFS, and to a lesser degree,
growth in, and annualization of, Compushare's revenues.
Adjusted revenues, which are calculated after removing the impacts of
purchase accounting adjustments related to fair value of deferred
revenues, were $56.9 million for the first quarter of 2014, an increase
of $53.4 million, compared to the same period in 2013 for reasons noted
above.
EXPENSES
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31,
|
|
|
|
Canadian
Segment
|
|
|
U.S.
Segment
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
2014
|
2013
|
|
2014
|
2013
|
|
2014
|
2013
|
|
2014
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits 1
|
$ 39,919
|
$ 37,435
|
|
$ 47,895
|
$ 8,720
|
|
$ 988
|
$ 892
|
|
$ 88,802
|
$ 47,047
|
|
Non-compensation direct expenses 2
|
59,227
|
57,469
|
|
8,955
|
573
|
|
-
|
-
|
|
68,182
|
58,042
|
|
Other operating expenses 3
|
17,026
|
19,986
|
|
20,779
|
4,453
|
|
2,502
|
136
|
|
40,307
|
24,575
|
|
Total Expenses
|
$ 116,172
|
$ 114,890
|
|
$ 77,629
|
$ 13,746
|
|
$ 3,490
|
$ 1,028
|
|
$ 197,291
|
$ 129,664
|
|
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 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.
|
Expenses - Consolidated
Consolidated expenses of $197.3 million for the first quarter of 2014
increased by $67.6 million, or 52.2%, compared to the same quarter in
2013. The increase was mainly attributable to the inclusion of HFS
expenses and Compushare expenses effective from January 29, 2013.
Consolidated expenses also included acquisition-related and other
charges of $3.5 million for the first quarter of 2014, which are not
considered reflective of normal course operations and are disclosed as
part of Corporate. Acquisition-related and other charges of $1.0
million were recorded in the first quarter of 2013.
Expenses - Canadian Segment
Total Canadian Segment expenses for the first quarter of $116.2 million,
increased $1.3 million, or 1.1%, compared to the same quarter in 2013.
Employee compensation and benefits costs of $39.9 million for the first
quarter of 2014 for the Canadian Segment were higher by $2.5 million,
or 6.6%, compared to the same quarter in 2013. The increase in expenses
for the first quarter of 2014 was due to higher severance payments made
to employees in the normal course of operations and an increase in
share-based compensation expense reflecting a higher stock price. These
increases were offset by benefits realized from past savings
initiatives implemented in prior periods.
Non-compensation direct expenses for the Canadian Segment were $59.2
million for the first quarter of 2014, an increase of $1.8 million, or
3.1%, compared to the same quarter in 2013. In general, these expenses
directionally change with revenue changes. This increase in
non-compensation direct expenses for the first quarter of 2014
reflected higher volumes in our subscription fee-based enhancement
services offerings within our payments solutions service area and an
increase in direct costs associated with the lending processing
solutions service area, consistent with the increase in revenues.
Other operating expenses of $17.0 million for the first quarter of 2014
decreased by $3.0 million, or 14.8%, compared to the same quarter in
2013. The decrease was primarily due to a higher management fee charged
by the Canadian Segment to the U.S. Segment since the acquisition of
HFS. The management fee charged to the U.S. Segment was $3.0 million
for the first quarter of 2014, compared to $1.0 million charged for the
first quarter of 2013. The first quarter 2014 management fees represent
an expected annual charge of $12.0 million for 2014, compared to an
annual charge of $6.9 million for 2013 reflecting the increased focus
of the Company's management team on U.S. operations.
Expenses - U.S. Segment
Total expenses for the U.S. Segment for the first quarter of 2014 were
$77.6 million, an increase of $63.9 million, or 464.7%, compared to the
same quarter in 2013 with the increase mainly attributable to the
inclusion of HFS and, to a lesser extent, the annualization of
Compushare's results.
Employee compensation and benefits costs of $47.9 million in the first
quarter for the U.S. Segment increased by $39.2 million compared to the
same period in 2013. Non-compensation direct expenses for the U.S.
Segment of $9.0 million for the first quarter of 2014 were higher by
$8.4 million compared to the same period in 2013. Other operating
expenses of $20.8 million for the first quarter of 2014 were higher by
$16.3 million, compared to the same quarter in 2013. These increases
were primarily attributable to the inclusion of HFS and the
annualization of Compushare's expenses. Other operating expenses also
included a management fee, as further described above, 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 $1.0 million recorded as
corporate expenses for the first quarter of 2014 primarily consisted of
retention and incentive expenses incurred in connection with the
acquisitions. For the same period in 2013, employee compensation and
benefits included $0.9 million relating to retention and incentive
expenses in connection with acquisitions.
Other expenses
Other expenses of $2.5 million mainly consisted of business integration
costs incurred in connection with the acquisition of HFS. For the same
period in 2013, other operating expenses of $0.1 million included
transaction costs incurred in connection with the acquisition of
Compushare and business integration costs.
EBITDA AND EBITDA MARGIN
Consolidated EBITDA for the first quarter of 2014 was $69.0 million, an
increase of $27.0 million, or 64.3%, compared to $42.0 million for the
same quarter in 2013. First quarter 2014 EBITDA margin of 25.9% was
higher than the 24.5% margin for the same period in 2013.
Canadian Segment
Canadian Segment EBITDA for the first quarter of 2014 was $33.9 million,
a moderate increase of $0.2 million, or 0.5%, compared to the same
quarter in 2013. EBITDA margin for the Canadian Segment for the first
quarter of 2014 was 22.6%, compared to 22.7% for the same period in
2013. See Adjusted EBITDA for Canadian Segment for further discussion
of the Canadian Segment results.
U.S. Segment
U.S. Segment EBITDA for the first quarter of 2014 was $38.6 million, an
increase of $29.3 million, compared to the same quarter in 2013. EBITDA
margin was 33.2% for the first quarter of 2014 compared to 40.3% a year
ago.
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
Consolidated Adjusted EBITDA during the first quarter of 2014 was $78.7
million, an increase of $35.7 million, or 83.0%, compared to the same
quarter in 2013, primarily due to the inclusion of HFS and, to a lesser
extent, annualization of Compushare. After eliminating the impacts of
foreign exchange volatility, Adjusted EBITDA increased by 74.4% in the
first quarter of 2014.
First quarter 2014 consolidated Adjusted EBITDA was calculated by
removing: (i) $6.3 million of acquisition accounting adjustments to
fair value of deferred revenues and deferred costs associated with the
acquisition of HFS representing an add-back to revenues of $9.5 million
and expenses of $3.2 million; and (ii) acquisition-related and other
charges of $3.5 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 first quarter of
2014 was 28.6%, compared to 25.1% for the same period in 2013, 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 Canadian Segment.
Canadian Segment
Adjusted EBITDA is the same as EBITDA in the Canadian Segment. Canadian
Segment Adjusted EBITDA for the first quarter of 2014 was $33.9
million, an increase of $0.2 million, or 0.5%, compared to the same
quarter in 2013. Adjusted EBITDA benefited from higher revenues in
payments solutions and lending processing solutions service areas,
which was offset by lower mortgage origination fees and higher employee
compensation expenses as described above.
Canadian Segment Adjusted EBITDA margin for the first quarter was 22.6%
compared to 22.7% for the same period in 2013. Adjusted EBITDA margin
was impacted by higher employee compensation expenses as described
above and benefited from savings realized from recent transformation
and cost-realignment activities and, to a lesser extent, a higher
management fee charged to the U.S. Segment since the acquisition of
HFS.
U.S. Segment
Adjusted EBITDA for the U.S. Segment during the first quarter of 2014
was $44.8 million, an increase of $35.5 million, or 383.2%, compared to
the same quarter in 2013 mainly due to the inclusion of HFS and, to a
lesser extent, Compushare. A strong U.S. dollar in the first quarter of
2014 compared to the same period in 2013 benefited Adjusted EBITDA in
the U.S. Segment by $3.7 million. After eliminating this foreign
exchange impact, Adjusted EBITDA increased by 343.2%.
Adjusted EBITDA in the U.S. Segment excluded the impacts of $6.3 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 $9.5 million of
acquisition accounting adjustments related to fair value of deferred
revenues and $3.2 million of fair value adjustments related to deferred
costs.
Adjusted EBITDA margin for the U.S. Segment for the first quarter of
2014 was 35.7%, compared to 40.3% for the same period in 2013. 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 2014, compared to 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 $9.5 million in the first quarter
of 2014 increased by $2.9 million, or 45.1%, compared to the same
period in 2013 mainly due to the inclusion of HFS.
AMORTIZATION OF INTANGIBLE ASSETS FROM ACQUISITIONS
Consolidated amortization of acquisition intangible assets for the first
quarter of 2014 was $28.6 million, an increase of $17.7 million,
compared to the same period in 2013. The increase was attributable to
the amortization resulting from the acquisition of HFS, and
annualization of Compushare.
INCOME FROM OPERATING ACTIVITIES
Consolidated income from operating activities was $31.0 million for the
first quarter of 2014, an increase of $6.4 million, or 26.0%, compared
to $24.6 million for the same quarter in 2013. The increase reflected
growth 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 $15.2 million for the first quarter of 2014
increased by $10.8 million compared to the same quarter in 2013. This
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 August 2013. Interest expense for
the first quarter of 2014 also included a non-cash interest charge of
$1.5 million consisting of accretion expense of $1.0 million related to
the Debentures and $0.5 million related to amortization of deferred
financing charges incurred in connection with the Company's financing
arrangements.
FAIR VALUE ADJUSTMENT OF DERIVATIVE INSTRUMENTS
An unrealized gain of $0.2 million related to fair value changes on
derivative instruments was recognized in the first quarter of 2014,
compared to $0.1 million in the first quarter of 2013. These changes
are related to our interest-rate swaps.
For the interest-rate swaps that are not designated as hedges for
accounting purposes, these unrealized gains and losses are recognized
in the Consolidated Statement of 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 Statement of Income as the related swaps mature. D+H has
historically held its derivative contracts to maturity. The Company is
a fixed-rate payer on all of its interest rate swaps.
INCOME TAX EXPENSE
An income tax expense of $3.1 million was recorded in the first quarter
of 2014 compared to an income tax expense of $5.5 million recognized
for the same period in 2013. The income tax expense in the first
quarter of 2014 is mainly attributable to income from continuing
operations, after giving effect to the amortization of intangible
assets from acquisitions, and is lower than the expected tax at
statutory rates primarily as a result of the geographic mix of such
income.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for the first quarter of 2014 was
$12.9 million, a decrease of $3.6 million, compared to $16.4 million
for the same period in 2013. Income from continuing operations
reflected higher EBITDA of $27.0 million resulting from the acquisition
of HFS, partially offset by higher amortization expense of $17.7
million relating to acquisition intangible assets and higher interest
expense of $10.8 million on debt drawn to fund the HFS acquisition.
LOSS FROM DISCONTINUED OPERATIONS
A loss from discontinued operations of $0.8 million was recorded for the
first quarter of 2014 in connection with the divestiture of D+H's
non-strategic business processing operations on May 10, 2013. This loss
was attributable to: (i) loss on disposal of $0.9 million pertaining to
the previously negotiated asset purchase agreement, and (ii) $0.1
million of operating income from discontinued operations pertaining to
the previously negotiated transitional services agreement. For the
comparative period in 2013, the loss from discontinued operations was
$10.7 million.
NET INCOME
Consolidated net income of $12.0 million for the first quarter of 2014
was higher by $6.3 million, compared to consolidated net income of $5.7
million for the same quarter in 2013. Net income in the first quarter
of 2014 benefited from an increase in EBITDA of $27.0 million resulting
from the acquisition of HFS but was offset by higher amortization
expense of $17.7 million relating to acquisition intangible assets, and
higher interest expense of $10.8 million on debt drawn to fund the HFS
acquisition.
NET INCOME PER SHARE
Net income per share, basic
Consolidated basic net income per share of $0.1488 for the first quarter
of 2014 was higher compared to a net income per share of $0.0969 for
the same quarter in 2013, on account of acquisition accretion even
though we issued additional common shares in August 2013 in connection
with the acquisition of HFS.
Net income per share, diluted
For the first quarter of 2014, the inclusion of additional potential
shares related to stock options 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 first
quarter of 2014 on a diluted basis was $0.1484 per share, compared to net income per share of $0.0969 for the same
period in 2013. Per share amounts, on a diluted basis, were also
impacted by the additional common shares issued in August 2013 to fund
the HFS acquisition.
ADJUSTED NET INCOME AND ADJUSTED NET INCOME PER SHARE
Consolidated Adjusted net income of $38.8 million for the first quarter
of 2014 was higher by $15.7 million, or 68.0%, compared to the $23.1
million for the same period in 2013. Consolidated Adjusted net income
per share of $0.4808 increased by 23.2% from $0.3901 per share for the
same period in 2013. These increases were mainly due to a higher
Adjusted EBITDA resulting from the inclusion of HFS results, partially
impacted by higher depreciation of capital assets, 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 first quarter of 2014 was also impacted by the additional
shares issued, in August 2013, to fund the acquisition of HFS.
The strong growth in Adjusted net income per share in the first quarter
of 2014 was primarily due to the positive accretion arising from the
acquisition of HFS. This accretion was further magnified due to the
seasonality of the legacy D+H business. Historically, for the legacy
D+H businesses, the first quarter is seasonally muted compared to the
rest of the year.
CONSOLIDATED CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
The following table is derived from, and should be read in conjunction
with, the Consolidated Statement 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 March 31,
|
|
|
|
|
|
|
2014
|
2013
|
|
Cash and cash equivalents provided by (used in):
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
Income from continuing operations
|
|
$ 12,864
|
$ 16,437
|
|
Depreciation and amortization of assets
|
|
38,038
|
17,433
|
|
Fair value adjustment of derivative instruments
|
|
(204)
|
(107)
|
|
Interest expense, including amortization of deferred finance fees and
accretion
|
15,249
|
4,471
|
|
Non-cash income tax and options expenses
|
|
3,091
|
5,591
|
|
Income from investment in an associate, net of tax
|
|
-
|
(130)
|
|
Gain on re-measurement of previously held equity interest
|
|
-
|
(1,587)
|
|
Increase in non-cash working capital and other items
|
|
(3,628)
|
(18,087)
|
|
Cash generated from operating activities
|
|
65,410
|
24,021
|
|
Interest paid
|
|
|
(19,257)
|
(4,043)
|
|
Income tax paid
|
|
(19,834)
|
(1,344)
|
|
Net cash from operating activities
|
|
26,319
|
18,634
|
|
FINANCING ACTIVITIES
|
|
|
|
|
Net change in long-term indebtedness
|
|
(5,000)
|
26,049
|
|
Dividends paid
|
|
|
(25,837)
|
(18,955)
|
|
Net cash used in (from) financing activities
|
|
(30,837)
|
7,094
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
Capital expenditures
|
|
(11,393)
|
(6,286)
|
|
Acquisition of subsidiaries
|
|
-
|
(24,393)
|
|
Net cash used in investing activities
|
|
(11,393)
|
(30,679)
|
|
Decrease in cash and cash equivalents for the period
|
|
(15,911)
|
(4,951)
|
|
Cash and cash equivalents, beginning of period
|
|
32,398
|
5,719
|
|
Cash and cash equivalents, end of period
|
|
$ 16,487
|
$ 768
|
As at March 31, 2014, cash and cash equivalents totalled $16.5 million,
compared to $32.4 million at December 31, 2013.
Operating Activities
Operating activities provided $26.3 million during the quarter ended
March 31, 2014, compared to $18.6 million for the same period in 2013.
The change in net cash from operating activities was primarily
attributable to higher EBITDA in the first quarter of 2014 due to the
acquisition of HFS, offset by an increase in non-cash working capital
and other items as described below. Net cash from operating activities
for the first quarter of 2014 were also impacted by income tax
payments, and increased interest payments reflecting the HFS
acquisition.
Changes in Non-Cash Working Capital and Other Items
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
Quarter ended March 31,
|
|
|
|
|
|
|
2014
|
2013
|
|
Changes in non-cash working capital items
|
|
$ 4,972
|
$ (14,794)
|
|
Changes in other operating assets and liabilities
|
|
(7,782)
|
1,438
|
|
Cash flows used in discontinued operations
|
|
(818)
|
(4,731)
|
|
Increase in non-cash working capital and other items
|
|
$ (3,628)
|
$ (18,087)
|
The net decrease in non-cash working capital in the first quarter of
2014 was primarily due to an increase in current deferred revenues,
reflecting increased revenues from HFS, which was partially offset by a
decrease in accrued and other liabilities, mainly reflecting short term
incentive payments.
The net increase in other operating assets and liabilities for the first
quarter of 2014 was attributable to increased non-current accounts
receivable and deferred costs reflecting growth in our HFS business.
Cash flows used in discontinued operations in the first quarter of 2014
is attributable to cash outflows pertaining to the culmination of the
previously negotiated asset purchase agreement, partially offset by
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 $30.8 million during the first
quarter of 2014, compared to net cash from financing activities of $7.1
million in the same period in 2013. Net cash used in 2014 was primarily
due to debt repayments and a dividend payment. D+H made net debt
repayments of $5.0 million during the first quarter of 2014, compared
to a net debt drawdown of $26.0 million in the same period in 2013. The
drawdown in the first quarter of 2013 was to fund the Compushare
acquisition.
Dividends
During the first quarter of 2014, D+H paid a dividend of $0.32 per share
($25.8 million) to its shareholders of record as of March 10, 2014.
For the same quarter in 2013, $0.32 per share ($19.0 million) was paid
to shareholders. The increase in total dividends paid during the first
quarter of 2014 is due to the additional common shares issued to
partially fund the acquisition of HFS in August 2013.
Investing Activities
Net cash of $11.4 million was used in investing activities during the
first quarter of 2014, reflecting capital expenditures, compared to
$30.7 million used in investing activities in the first quarter of
2013. Cash used in the first quarter of 2013 was higher due to the
acquisition of Compushare.
EIGHT QUARTER CONSOLIDATED STATEMENTS OF INCOME - SUMMARY
(in thousands of Canadian dollars, except per share amounts, unaudited)
|
|
|
|
2014
|
|
|
|
2013
|
2012
|
|
|
|
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
|
Revenues
|
$ 266,291
|
$ 259,075
|
$ 209,223
|
$ 197,134
|
$ 171,661
|
$ 172,457
|
$ 176,689
|
$ 180,989
|
|
Acquisition accounting adjustments 1
|
9,457
|
13,058
|
16,107
|
-
|
-
|
-
|
-
|
-
|
|
Adjusted revenues 2
|
|
|
$ 275,748
|
$ 272,133
|
$ 225,330
|
$ 197,134
|
$ 171,661
|
$ 172,457
|
$ 176,689
|
$ 180,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$ 266,291
|
$ 259,075
|
$ 209,223
|
$ 197,134
|
$ 171,661
|
$ 172,457
|
$ 176,689
|
$ 180,989
|
|
Expenses 3
|
197,291
|
190,876
|
172,539
|
144,551
|
129,664
|
131,082
|
129,405
|
128,289
|
|
EBITDA 2, 3
|
69,000
|
68,199
|
36,684
|
52,583
|
41,997
|
41,375
|
47,284
|
52,700
|
|
EBITDA Margin 2
|
25.9%
|
26.3%
|
17.5%
|
26.7%
|
24.5%
|
24.0%
|
26.8%
|
29.1%
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Acquistion accounting adjustments 1
|
6,250
|
9,217
|
15,030
|
-
|
-
|
-
|
-
|
-
|
|
Acquisition-related and other charges 3
|
|
|
3,490
|
3,842
|
13,126
|
5,764
|
1,028
|
6,558
|
3,265
|
4,378
|
|
Adjusted EBITDA 2
|
$ 78,740
|
$ 81,258
|
$ 64,840
|
$ 58,347
|
$ 43,025
|
$ 47,933
|
$ 50,549
|
$ 57,078
|
|
Adjusted EBITDA Margin 2
|
28.6%
|
29.9%
|
28.8%
|
29.6%
|
25.1%
|
27.8%
|
28.6%
|
31.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA 2, 3
|
$ 69,000
|
$ 68,199
|
$ 36,684
|
$ 52,583
|
$ 41,997
|
$ 41,375
|
$ 47,284
|
$ 52,700
|
|
Depreciation of capital assets and amortization
|
|
|
|
|
|
|
|
|
|
of non-acquisition intangibles
|
9,456
|
10,937
|
7,532
|
6,657
|
6,519
|
7,568
|
6,648
|
6,986
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets from acquisitions
|
28,582
|
27,631
|
19,182
|
11,060
|
10,914
|
11,292
|
10,597
|
10,706
|
|
Income from operating activities 2
|
30,962
|
29,631
|
9,970
|
34,866
|
24,564
|
22,515
|
30,039
|
35,008
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
15,249
|
15,509
|
11,251
|
4,516
|
4,471
|
4,629
|
4,943
|
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
|
(204)
|
(138)
|
(4,759)
|
(1,203)
|
(107)
|
(542)
|
(445)
|
616
|
|
Income tax expense (recovery)
|
3,053
|
(975)
|
(7,383)
|
9,158
|
5,480
|
4,165
|
5,987
|
8,345
|
|
Income from continuing operations
|
12,864
|
15,235
|
7,637
|
22,395
|
16,437
|
14,240
|
19,607
|
21,264
|
|
Income (loss) from discontinued operatios, net of tax 7
|
(846)
|
2,133
|
(704)
|
(8,786)
|
(10,695)
|
(529)
|
(2)
|
(377)
|
|
Net income
|
12,018
|
17,368
|
6,933
|
13,609
|
5,742
|
13,711
|
19,605
|
20,887
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
Acquisition accounting adjustments 1
|
|
|
6,250
|
9,217
|
15,030
|
-
|
-
|
-
|
-
|
-
|
|
Non-cash interest expense 8
|
|
|
1,524
|
1,349
|
709
|
-
|
-
|
-
|
-
|
-
|
|
Other finance charges 4
|
|
|
-
|
-
|
3,224
|
-
|
-
|
-
|
-
|
-
|
|
Amortization of intangible assets from acquisitions
|
|
|
28,582
|
27,631
|
19,182
|
11,060
|
10,914
|
11,292
|
10,597
|
10,706
|
|
Gain on re-measurement of previously held equity interest 5
|
|
|
-
|
-
|
-
|
-
|
(1,587)
|
-
|
-
|
-
|
|
Fair value adjustment of derivative instruments 6
|
|
|
(204)
|
(138)
|
(4,759)
|
(1,203)
|
(107)
|
(542)
|
(445)
|
616
|
|
Other items of note:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related and other charges 3
|
|
|
3,490
|
3,842
|
13,126
|
5,764
|
1,028
|
6,558
|
3,265
|
4,378
|
|
Tax effect of above adjustments 9
|
|
|
(13,688)
|
(15,100)
|
(15,715)
|
(3,814)
|
(3,578)
|
(5,543)
|
(3,962)
|
(4,615)
|
|
Loss (income) from discontinued operations, net of tax 7
|
|
|
846
|
(2,133)
|
704
|
8,786
|
10,695
|
529
|
2
|
377
|
|
Tax effect of acquisitions 10
|
|
|
-
|
-
|
(1,726)
|
-
|
-
|
-
|
(1,156)
|
-
|
|
Adjusted net income 2
|
$ 38,818
|
$ 42,036
|
$ 36,708
|
$ 34,202
|
$ 23,107
|
$ 26,005
|
$ 27,906
|
$ 32,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income per share, basic 2, 12
|
$ 0.4808
|
$ 0.5206
|
$ 0.5245
|
$ 0.5774
|
$ 0.3901
|
$ 0.4390
|
$ 0.4711
|
$ 0.5461
|
|
Income from continuing operations per share, 11, 12
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$ 0.1593
|
$ 0.1887
|
$ 0.1091
|
$ 0.3781
|
$ 0.2775
|
$ 0.2404
|
$ 0.3310
|
$ 0.3590
|
|
Diluted
|
|
|
$ 0.1589
|
$ 0.1883
|
$ 0.1089
|
$ 0.3781
|
$ 0.2775
|
$ 0.2404
|
$ 0.3310
|
$ 0.3590
|
|
Income (loss) from discontinued operations per share, 11, 12
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$ (0.0105)
|
$ 0.0264
|
$ (0.0101)
|
$ (0.1483)
|
$ (0.1806)
|
$ (0.0089)
|
$ -
|
$ (0.0064)
|
|
Diluted
|
|
|
$ (0.0105)
|
$ 0.0264
|
$ (0.0100)
|
$ (0.1483)
|
$ (0.1806)
|
$ (0.0089)
|
$ -
|
$ (0.0064)
|
|
Net income per share, 11, 12
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$ 0.1488
|
$ 0.2151
|
$ 0.0991
|
$ 0.2298
|
$ 0.0969
|
$ 0.2315
|
$ 0.3310
|
$ 0.3526
|
|
Diluted
|
|
|
$ 0.1484
|
$ 0.2147
|
$ 0.0989
|
$ 0.2298
|
$ 0.0969
|
$ 0.2315
|
$ 0.3310
|
$ 0.3526
|
|
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 first quarter of 2014
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 current Credit Facility replaced a 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
|
Income/(loss) relates to D+H's divesture of its non-strategic business
processing operations on May 10, 2013.
|
|
8
|
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.
|
|
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 first quarter of 2014 was 80,951,884 shares.
|
|
12
|
Weighted average number of shares outstanding during the first quarter
of 2014 was 80,739,132 shares.
|
D+H has generally reported quarterly revenues that are relatively stable
and growing when measured on a year-over-year basis. More recently,
acquisitions and 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 acquisition of HFS is also expected to impact
seasonality of D+H's revenues as, historically, HFS has experienced
stronger revenues in the second and fourth quarters.
Acquisitions in the prior periods increased revenues and expenses and
EBITDA was impacted by acquisition-accounting adjustments related to
fair value of deferred revenues and deferred costs, acquisition-related
and other charges 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 increased revenues and
expenses from acquisitions and non-cash items such as acquisition
accounting adjustments, 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, Debentures and Stock Options
As at March 31, 2014 and April 29, 2014, D+H had the following common
shares and potential common shares outstanding:
-
80,740,968 common shares issued and outstanding (as at December 31, 2013
- 80,738,373). The increase in the number of shares in the first
quarter of 2014 is attributable to the conversion of some Debentures by
the Debenture-holders into common shares.
-
$229.9 million principal amount of Debentures outstanding (as at
December 31, 2013 - $230.0 million). 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 7,955,887 shares.
-
916,028 stock options outstanding (as at December 31, 2013 - 916,028).
Each stock option is exercisable into one common share of the
Corporation.
Hedges
The Company utilizes interest-rate swaps to hedge interest rate exposure
and foreign exchange forward contracts to hedge foreign currency risk.
Interest-rate swaps
At March 31, 2014, the Company's outstanding interest rate swaps were as
follows:
(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
|
$ -
|
$ 270
|
2.720%
|
|
March 18, 2015 2
|
25,000
|
-
|
411
|
2.940%
|
|
March 18, 2017 2
|
25,000
|
-
|
1,265
|
3.350%
|
|
March 20, 2017 2
|
20,000
|
-
|
1,020
|
3.366%
|
|
October 17, 2016 (US$25,000) 3
|
27,638
|
-
|
79
|
0.835%
|
|
October 17, 2016 (US$25,000) 3
|
27,638
|
-
|
79
|
0.835%
|
|
October 17, 2016 (US$25,000) 3
|
27,638
|
-
|
52
|
0.784%
|
|
October 17, 2016 (US$25,000) 3
|
27,638
|
-
|
59
|
0.820%
|
|
October 17, 2018 (US$25,000) 3
|
27,638
|
-
|
130
|
1.645%
|
|
|
$ 233,190
|
$ -
|
$ 3,365
|
|
|
1
|
The listed interest rates offset BA rate/LIBOR and prime-rates currently
in effect by way of fixed rate paying swaps. 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 March 31, 2014, the Company's long-term
bank indebtedness will be subject to spreads of 2.25% on BA rate/LIBOR
rate loans and 1.25% on prime rate loans.
|
|
2
|
Not-designated as hedges for the purposes of hedge accounting. Fair
value changes on these swaps impact the Consolidated Statement of
Income.
|
|
3
|
Designated as hedges for the purposes of hedge accounting. Fair value
changes on these swaps impact other comprehensive income.
|
As at March 31, 2014, 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 Statement 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.
In respect of interest-rate swap contracts with its lenders, as of March
31, 2014, the Company's borrowing rates on 46.0% 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 above. As a result of
these swaps, 77.0% of the Company's total indebtedness, including
Debentures, is effectively fixed.
Foreign exchange contracts
For the Company's foreign exchange contracts, the Company is required to
deliver the agreed U.S. dollar amount and in return receive the
contracted Canadian dollar amount set forth in each contract. The
Company has historically held its derivative contracts to maturity.
These foreign exchange contracts are designated as hedges of the
Corporation's net investment in foreign operations for which the U.S.
dollar is the functional currency, in accordance with IAS 39 with the
change in fair value of the hedging instrument (foreign exchange
forward contracts), to the extent it is effective, is recorded in other
comprehensive income.
At March 31, 2014, the Company's foreign exchange forward contracts
aggregating US$21.0 million was as follows:
(in thousands of Canadian dollars, unaudited)
|
|
|
Fair value of foreign exchange contracts
|
|
|
Maturity date
|
Notional amount (USD)
|
Asset
|
Liability
|
Exchange rate
|
|
|
|
|
|
|
|
April 28, 2014
|
$ 2,000
|
$ 7
|
$ -
|
1.1091
|
|
May 29, 2014
|
2,000
|
7
|
-
|
1.1099
|
|
June 27, 2014
|
3,000
|
11
|
-
|
1.1106
|
|
September 29, 2014
|
7,000
|
23
|
-
|
1.1128
|
|
December 23, 2014
|
7,000
|
23
|
-
|
1.1150
|
|
|
$ 21,000
|
$ 71
|
$ -
|
|
|
|
|
|
|
|
Long-term indebtedness
As at March 31, 2014 and December 31, 2013, the Company's long-term
indebtedness was as follows:
(in thousands of Canadian dollars, unaudited)
|
|
|
Interest rate 1
|
Maturity
|
March 31, 2014
|
December 31, 2013
|
|
|
|
|
|
|
|
|
Credit Facility (secured)
|
|
|
|
|
|
|
Revolver (US$25,000; C$37,000)
|
|
BA/LIBOR + 2.25%
|
Aug 2018
|
$ 64,638
|
$ 68,590
|
|
Non-revolver I (US$400,000)
|
|
LIBOR + 2.25%
|
Aug 2018
|
442,200
|
425,440
|
|
Credit facilities
|
|
|
|
506,838
|
494,030
|
|
|
|
|
|
|
|
|
Bond (secured)
|
|
5.99%
|
Jun 2017
|
50,000
|
50,000
|
|
Bond (secured)
|
|
5.17%
|
Jun 2017
|
30,000
|
30,000
|
|
Bond (secured) (US$63,000)
|
|
5.59%
|
Apr 2021
|
69,647
|
67,007
|
|
Bond (secured) (US$16,500)
|
|
3.94%
|
Jun 2022
|
18,241
|
17,549
|
|
Bond (secured) (US$15,000)
|
|
3.94%
|
Jun 2022
|
16,583
|
15,954
|
|
Bond (secured)
|
|
5.76%
|
Aug 2023
|
20,000
|
20,000
|
|
Bond (secured) (US$100,000)
|
|
5.51%
|
Aug 2023
|
110,550
|
106,360
|
|
Bond (secured) (US$75,000)
|
|
5.51%
|
Aug 2023
|
82,913
|
79,770
|
|
Bond (secured) (US$50,000)
|
|
5.51%
|
Aug 2023
|
55,275
|
53,180
|
|
Bonds
|
|
|
|
453,209
|
439,820
|
|
|
|
|
|
960,047
|
933,850
|
|
Deferred finance costs
|
|
|
|
(9,306)
|
(9,721)
|
|
|
|
|
|
$ 950,741
|
$ 924,129
|
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 March 31, 2014
|
|
|
|
Committed
|
Uncommitted
|
Outstanding
|
Available
|
|
Revolver
|
|
$ 355,000
|
$ -
|
$ 64,638
|
$ 290,362
|
|
Non-revolver I
|
|
442,200
|
-
|
442,200
|
-
|
|
Uncommitted arrangements
|
|
-
|
100,000
|
-
|
100,000
|
|
Credit Facility
|
|
797,200
|
100,000
|
506,838
|
390,362
|
|
Bonds
|
|
453,209
|
96,330
|
453,209
|
96,330
|
|
|
|
$ 1,250,409
|
$ 196,330
|
$ 960,047
|
$ 486,692
|
|
|
|
|
|
|
|
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 March 31, 2014, this
ratio was calculated at 2.93 (December 31, 2013 - 2.93).
Debt to EBITDA ratio - foreign exchange impact
The Debt to EBITDA ratio is impacted by volatility in foreign exchange
fluctuations 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. Therefore, in order to assess management's capital
management efforts post the HFS acquisition, as an internal measure,
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 2.76 (December 31,
2013 - 2.87).
Convertible Debentures
As at March 31, 2014, the Company had $229.9 million principal amount of
6.00% convertible unsecured subordinated debentures ("Debentures")
outstanding. During the first three months of 2014, 75 Debentures were
converted into 2,595 common shares of the Corporation.
Effective interest rate
As at March 31, 2014, the average effective interest rate on the
Company's total indebtedness, including the Debentures, was 4.7%,
compared to 4.8% at December 31, 2013.
OUTLOOK
D+H's long-term financial objective is to deliver sustainable and
growing earnings through continued organic revenue growth, partnering
with third parties and, over time, by way of strategic acquisitions.
Management believes the acquisition of HFS will continue to: (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 continue to
execute our organic growth initiatives including cross-selling our
suite of FinTech solutions and developing product innovations and
functionalities that meet the needs of our customers, differentiate D+H
and achieve our financial goals. Simultaneously across all operations,
we will continue to diligently identify and realize on efficiency
opportunities to better serve customers, improve our competiveness and
enhance margins. 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, on a
foreign exchange normalized basis, while supporting our current
dividends.
With the inclusion of several new service areas arising from
acquisitions made over the last several years, we expect to continue to
experience some increase in variability in quarterly revenues, EBITDA,
net income and cash flows, due to, among other items: (i) personal
cheque order volume declines; (ii) dynamics in the Canadian and U.S.
lending environments; (iii) volume variances within the mortgage
origination and lien registration markets; (iv) timing and variability
in sales activity, including professional services work, and cash
receipts; and (v) fees and expenses associated with acquisitions and
related integration activities.
Historically, for the legacy D+H businesses, the second and third
quarters are typically stronger whereas HFS experiences stronger sales
in the second and fourth quarters. The impact of these differences in
seasonality between D+H's legacy businesses and HFS may result in
continued volatility in year-over-year growth until the fourth quarter
of 2014. Growth seen in the first quarter of 2014 therefore may not
reflect growth in future periods.
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 less volatility in business cheque order volumes. In
order to offset this decline, management will continue to focus on
growing the various subscription fee-based enhancement services
offerings.
In the Canadian banking technology service area, Canadian housing
markets analysts are expecting a slight increase in real estate
activity, along with home price growth consistent with the rate of
inflation. 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 are expected to benefit
from: (i) growth in tuition rates and an increase in uptake rates in
the student loans administration service area; and (ii) modest growth
within the auto and auto lending markets.
Volumes in the student loan administration service area are expected to
be relatively stable and modestly growing in the short term. In light
of the expected CSLP request for proposals by the Government of Canada,
management's focus in this area will be to successfully obtain renewal
of the contract. Within the auto and auto lending markets, modest
growth in new and resold car sales is expected to continue through
2014, while increases in lender portfolio values and the strong auto
recovery from the last few years should continue to drive strong
repossession activity.
In addition, within our Canadian Segment, EBITDA and margins may be
impacted from the timing of customer adoption of new products and
services, which may cause pressure on overall Canadian Segment EBITDA
and margins until these new offerings generate sufficient volume to
deliver operational leverage.
U.S. Segment
In the U.S. Segment, we expect to benefit from the recovery of the U.S.
economy and banking sector, increased need for lending technology
products that can meet regulatory and compliance requirements and
anticipated growth in spending by community banks and credit unions on
core banking technology and additional FinTech solutions. Recovering
housing market activity is also expected to be a positive driver for
our businesses that serve the U.S. mortgage markets, partially offset
by lower consumer refinancing activity on account of higher interest
rates compared to a year ago. 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. There are currently over 13,000 financial institutions in the
U.S., of which we currently serve about 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 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, we anticipate total capital spending of approximately $50
million to $55 million, with a focus on new growth opportunities.
Capital spending may vary based on spending in support of new growth
opportunities if and as they arise.
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; the Company's ability to successfully integrate
acquisitions; changes in the U.S. banking and financial services
industry and demand for HFS's products and services; the Company's
ability to comply with government regulations; 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 referenced 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
|
ASSETS
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ 16,487
|
|
$ 32,398
|
|
Trade and other receivables
|
|
112,985
|
|
111,156
|
|
Prepayments and other current assets
|
|
23,685
|
|
25,370
|
|
Inventories
|
|
2,969
|
|
3,059
|
|
Total current assets
|
|
156,126
|
|
171,983
|
|
Non-current trade receivable
|
|
28,109
|
|
22,179
|
|
Deferred tax assets
|
|
2,349
|
|
4,327
|
|
Property, plant and equipment
|
|
44,224
|
|
44,913
|
|
Intangible assets
|
|
1,166,964
|
|
1,156,170
|
|
Goodwill
|
|
1,544,969
|
|
1,508,430
|
|
Other assets
|
|
7,598
|
|
5,815
|
|
Total non-current assets
|
|
2,794,213
|
|
2,741,834
|
|
Total assets
|
|
$ 2,950,339
|
|
$ 2,913,817
|
|
LIABILITIES
|
|
|
|
|
|
Trade payables, accrued and other liabilities
|
|
$ 123,479
|
|
$ 129,728
|
|
Deferred revenue
|
|
96,447
|
|
86,885
|
|
Current tax liabilities
|
|
18,408
|
|
24,780
|
|
Total current liabilities
|
|
238,334
|
|
241,393
|
|
Non-current deferred revenue
|
|
19,787
|
|
22,048
|
|
Derivative liabilities held for risk management
|
|
2,684
|
|
3,029
|
|
Loans and borrowings
|
|
950,741
|
|
924,129
|
|
Convertible debentures
|
|
210,537
|
|
209,647
|
|
Deferred tax liabilities
|
|
365,437
|
|
366,856
|
|
Other long-term liabilities
|
|
9,166
|
|
9,182
|
|
Total non-current liabilities
|
|
1,558,352
|
|
1,534,891
|
|
Total liabilities
|
|
1,796,686
|
|
1,776,284
|
|
EQUITY
|
|
|
|
|
|
Capital
|
|
1,117,860
|
|
1,117,785
|
|
Reserves
|
|
73,383
|
|
43,519
|
|
Retained deficit
|
|
(37,590)
|
|
(23,771)
|
|
Total equity
|
|
1,153,653
|
|
1,137,533
|
|
Total liabilities and equity
|
|
$ 2,950,339
|
|
$ 2,913,817
|
|
Consolidated Statements of Income
|
|
|
|
|
(in thousands of Canadian dollars, except per share amounts, unaudited)
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2014
|
|
March 31, 2013
|
|
Revenues
|
$ 266,291
|
|
$ 171,661
|
|
Employee compensation and benefits
|
88,802
|
|
47,047
|
|
Other expenses
|
108,489
|
|
82,617
|
|
Income from operating activities before depreciation and amortization
|
69,000
|
|
41,997
|
|
Depreciation of property, plant and equipment
|
3,775
|
|
1,936
|
|
Amortization of intangible assets
|
34,263
|
|
15,497
|
|
Income from operating activities
|
30,962
|
|
24,564
|
|
Finance expenses:
|
|
|
|
|
Fair value adjustment of derivative instruments
|
(204)
|
|
(107)
|
|
Interest expense
|
15,249
|
|
4,471
|
|
Gain on remeasurement of previously held equity interest
|
-
|
|
(1,587)
|
|
Income from investment in an associate, net of income tax
|
-
|
|
(130)
|
|
Income from continuing operations before income tax
|
15,917
|
|
21,917
|
|
Income tax expense
|
3,053
|
|
5,480
|
|
Income from continuing operations
|
12,864
|
|
16,437
|
|
Loss from discontinued operations, net of income tax
|
(846)
|
|
(10,695)
|
|
Net income
|
$ 12,018
|
|
$ 5,742
|
|
Earnings per share
|
|
|
|
|
Income per share from continuing operations,
|
|
|
|
|
Basic
|
$ 0.1593
|
|
$ 0.2775
|
|
Diluted
|
$ 0.1589
|
|
$ 0.2775
|
|
Loss per share from discontinued operations,
|
|
|
|
|
Basic
|
$ (0.0105)
|
|
$ (0.1806)
|
|
Diluted
|
$ (0.0105)
|
|
$ (0.1806)
|
|
Net income per share
|
|
|
|
|
Basic
|
$ 0.1488
|
|
$ 0.0969
|
|
Diluted
|
$ 0.1484
|
|
$ 0.0969
|
|
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
(in thousands of Canadian dollars, unaudited)
|
March 31, 2014
|
|
March 31, 2013
|
|
Net income
|
$ 12,018
|
|
$ 5,742
|
|
The following items may be reclassified subsequently to profit or loss:
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
Effective portion of changes in fair value
|
(108)
|
|
-
|
|
Foreign currency translation
|
29,940
|
|
3,546
|
|
Total comprehensive income
|
$ 41,850
|
|
$ 9,288
|
|
Consolidated Statements of Changes in Equity
|
|
|
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2014
|
|
|
|
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, 2014
|
$1,117,785
|
$ 1,369
|
$ 8,889
|
$ 33,481
|
$ (220)
|
$ (23,771)
|
$1,137,533
|
|
Net income for the period
|
-
|
-
|
-
|
-
|
-
|
12,018
|
12,018
|
|
Foreign currency translation
|
-
|
-
|
-
|
29,940
|
-
|
-
|
29,940
|
|
Cash flow hedges
|
|
|
|
|
(108)
|
|
(108)
|
|
Share issuance
|
69
|
-
|
-
|
-
|
-
|
-
|
69
|
|
Equity component of convertible
|
|
|
|
|
|
|
|
|
debentures, net of tax
|
6
|
-
|
(6)
|
-
|
-
|
-
|
-
|
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
(25,837)
|
(25,837)
|
|
Stock options
|
-
|
38
|
-
|
-
|
-
|
-
|
38
|
|
Balance at March 31, 2014
|
$1,117,860
|
$ 1,407
|
$ 8,883
|
$ 63,421
|
$ (328)
|
$ (37,590)
|
$1,153,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2013
|
|
|
|
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, 2013
|
$ 672,853
|
$ 827
|
$ -
|
$ 5,884
|
$ -
|
$ 22,544
|
$ 702,108
|
|
Impact of transition to
|
|
|
|
|
|
|
|
|
IAS 19R
|
-
|
-
|
-
|
-
|
-
|
(385)
|
(385)
|
|
Net income for the period
|
-
|
-
|
-
|
-
|
-
|
5,742
|
5,742
|
|
Foreign currency translation
|
-
|
-
|
-
|
3,546
|
-
|
-
|
3,546
|
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
(18,955)
|
(18,955)
|
|
Stock options
|
-
|
111
|
-
|
-
|
-
|
-
|
111
|
|
Balance at March 31, 2013
|
$ 672,853
|
$ 938
|
$ -
|
$ 9,430
|
$ -
|
$ 8,946
|
$ 692,167
|
|
Consolidated Statements of Cash Flows
|
|
|
|
(in thousands of Canadian dollars, unaudited)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2014
|
March 31, 2013
|
|
Cash and cash equivalents provided by (used in):
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
Income from continuing operations
|
$ 12,864
|
$ 16,437
|
|
Adjustments for:
|
|
|
|
Depreciation of property, plant and equipment
|
3,775
|
1,936
|
|
Amortization of intangible assets
|
34,263
|
15,497
|
|
Fair value adjustment of derivative instruments
|
(204)
|
(107)
|
|
Interest expense
|
13,725
|
4,117
|
|
Amortization of deferred financing fees
|
565
|
354
|
|
Interest accretion expense
|
959
|
-
|
|
Income tax expense
|
3,053
|
5,480
|
|
Stock options
|
38
|
111
|
|
Income from investment in an associate, net of income tax
|
-
|
(130)
|
|
Gain on remeasurement of previously held equity interest
|
-
|
(1,587)
|
|
Changes in non-cash working capital items
|
4,972
|
(14,794)
|
|
Changes in other operating assets and liabilities
|
(7,782)
|
1,438
|
|
Cash flows used in discontinued operations
|
(818)
|
(4,731)
|
|
Cash generated from operating activities
|
65,410
|
24,021
|
|
Interest paid
|
(19,257)
|
(4,043)
|
|
Income taxes paid
|
(19,834)
|
(1,344)
|
|
Net cash from operating activities
|
26,319
|
18,634
|
|
FINANCING ACTIVITIES
|
|
|
|
Repayment of long-term indebtedness
|
(5,000)
|
(1,016)
|
|
Proceeds from long-term indebtedness
|
-
|
27,065
|
|
Dividends paid
|
(25,837)
|
(18,955)
|
|
Net cash from (used in) financing activities
|
(30,837)
|
7,094
|
|
INVESTING ACTIVITIES
|
|
|
|
Acquisition of property, plant and equipment
|
(2,183)
|
(1,923)
|
|
Acquisition of intangible assets
|
(9,210)
|
(4,363)
|
|
Acquisition of subsidiaries
|
-
|
(24,393)
|
|
Net cash used in investing activities
|
(11,393)
|
(30,679)
|
|
Decrease in cash and cash equivalents for the period
|
(15,911)
|
(4,951)
|
|
Cash and cash equivalents, beginning of period
|
32,398
|
5,719
|
|
Cash and cash equivalents, end of period
|
$ 16,487
|
$ 768
|
About D+H
D+H is a leading 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, 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.
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.
