Stock Exchange Symbol: DH
Website: www.dhltd.com
TORONTO, May 7, 2013 /CNW/ - Davis + Henderson Corporation ("D+H" or the "Corporation" or the "Company") today reported solid financial results for the three months ended March 31, 2013 that were consistent with its strategic agenda of becoming a leading financial technology ("FinTech") provider to the North American financial services marketplace.
"Year-over-year growth in revenues, EBITDA1 and Adjusted EBITDA1 in the first quarter reflected positive progress in building our customer base in the United States organically and through acquisitions and efficiently serving our Canadian customers with important enabling solutions," said Gerrard Schmid, Chief Executive Officer. "As anticipated, D+H continued to emphasize customer service, technology development and cost effectiveness in delivering these results."
"We continued to realize meaningful benefits from recent transformational and integration activities and are deploying savings to fund growth and innovation," said Brian Kyle, Chief Financial Officer. "We also took two important steps in the quarter to improve our FinTech standing. We acquired the remaining shares of Compushare Inc. on January 29th, giving D+H new cloud computing solutions for the FinTech marketplace and we reached an agreement to sell non-strategic assets on March 7th to sharpen our FinTech focus. This transaction is scheduled to close during the second quarter."
First Quarter Highlights
- Revenue from continuing operations was $171.7 million, an increase of $6.3 million, or 3.8%, compared to $165.3 million for the same quarter in 2012 and reflected U.S. Segment revenue growth driven by the inclusion of revenues from Compushare Inc. ("Compushare") and Avista Solutions, Inc. ("Avista") and organic growth in Point of Sale ("POS") Software as a Service ("SaaS") revenues.
- Income from continuing operations of $16.4 million ( $0.2775 per share) increased by $1.3 million, or 8.3%, compared to $15.2 million ( $0.2562 per share) for the same period in 2012.
- Net income of $5.7 million ( $0.0969 per share) decreased by $9.2 million, or, 61.6% compared to $14.9 million ( $0.2521 per share) for the same quarter in 2012, primarily due to loss from discontinued operations of $10.7 million, partially offset by a gain of $1.6 million related to the remeasurement to fair value of the previously held equity interest in Compushare, recognized upon the acquisition of the remaining outstanding shares in January 2013.
- EBITDA was $42.0 million (24.5% margin), compared to $40.2 million (24.3% margin) for the same quarter in 2012. EBITDA growth reflected the inclusion of Compushare and Avista, continued growth from other SaaS businesses and savings realized from integration and transformation initiatives.
- Adjusted EBITDA was $43.0 million (25.1% margin), an increase of $2.0 million, or 5.0%, compared to $41.0 million (24.8% margin) for the same period in 2012.
- Adjusted net income1 of $23.1 million increased by $1.3 million, or 5.9%, compared to the same period in 2012. On a per share basis, Adjusted net income increased to $0.3901 per share, from $0.3682 per share in the first quarter of 2012.
- During the first quarter of 2013, D+H paid a dividend of $0.32 per share to its shareholders. During the same period in 2012, D+H paid $0.31 per share.
- D+H was recently ranked 24th among the Top 250 Canadian Information and Communication Technology companies, as well as number one in the listing of Top 5 Canadian SaaS companies in the 2013 edition of the Branham300 rankings.
D+H's unaudited condensed interim consolidated financial statements for the first quarter of 2013, accompanying notes to the financial statements and management's discussion & analysis ("MD&A") along with the supplementary financial information will be available today at www.dhltd.com and tomorrow on www.sedar.com.
For a more detailed discussion of the results and management's outlook, please see the MD&A below.
1 | D+H's financial results are prepared in accordance with IFRS. D+H reports several non-IFRS financial measures, including EBITDA, Adjusted EBITDA and Adjusted net income used above. Adjusted EBITDA is calculated as EBITDA, adjusted to remove certain items of note such as acquisition-related and other charges, including transaction costs and retention expenses related to acquisitions, corporate development charges related to strategic acquisition initiatives, business integration charges, and expenses associated with cost-realignment initiatives ,all of which are not considered to be part of normal course of operations. Adjusted net income is calculated as net income, adjusted to remove certain non-cash items and certain items of note as described above, discontinued operations, gain on remeasurement of the previously held equity interest in Compushare, and the related tax effects of these adjustments including tax effects of acquisitions and corporate conversions. These items are excluded in calculating Adjusted EBITDA and Adjusted net income as they are not considered indicative of the underlying business performance for the period being reviewed and management believes that excluding these adjustments is more reflective of ongoing operating results. Any non-IFRS financial measures should be considered in context with the IFRS financial statement presentation and should not be considered in isolation or as a substitute for IFRS net income or cash flows. Further, D+H's measures may be calculated differently from similarly titled measures of other companies. See Non-IFRS Financial Measures for a more complete description of these terms. |
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This press release contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning D+H's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of D+H are forward-looking statements. The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of D+H to meet its revenue, "EBITDA", "Adjusted EBITDA" and "Adjusted net income" targets (see Non-IFRS Financial Measures for a more complete description of the terms EBITDA, Adjusted EBITDA and Adjusted net income); general industry and economic conditions; changes in D+H's relationship with its customers and suppliers; pricing pressures and other competitive factors; the anticipated effect of acquisitions on the financial performance of D+H; and the expected benefits arising as a result of acquisitions. D+H has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While D+H considers these factors and assumptions to be reasonable based on information currently available, there can be no assurance that actual results will be consistent with these forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause D+H's actual results, performance or achievements, or developments in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements.
Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of personal and business cheques; the Company's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Company's financial objective; stability and growth in the real estate, mortgage and lending markets; increased pricing pressures and increased competition which could lead to loss of contracts or reduced margins; as well as general market conditions, including economic and interest rate dynamics. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The documents incorporated by reference herein also identify additional factors that could affect the operating results and performance of the Company. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and D+H does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change except as required by applicable securities laws.
All of the forward-looking statements made in this press release and the documents incorporated by reference herein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company.
Conference Call
D+H will discuss its financial results for the three months ended March 31, 2013 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday, May 8, 2013. The number to use for this call is 647-427-7450 for Local / International callers or 1-888-231-8191 for US / Canada callers. The conference call will be hosted by Gerrard Schmid, Chief Executive Officer and by Brian Kyle, Chief Financial Officer. The conference call will also be available on the web by accessing CNW Group's website www.newswire.ca/en/webcast/detail/1140931/1245367. For anyone unable to listen to the scheduled call, the rebroadcast number will be: 416-849-0833 for Toronto area callers, or 1-855-859-2056 for all other callers, with Encore Password 33553731. The rebroadcast will be available until Wednesday May 22, 2013. An archive recording of the conference call will also be available at the above noted web address for one month following the call and a text version of the call will be available at www.dhltd.com.
ADDITIONAL INFORMATION
Additional information relating to the Company, including the Company's most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") of financial condition and results of operations has been prepared with an effective date of May 7, 2013 and should be read in conjunction with Davis + Henderson Corporation's (the "Corporation" or the "Company" or "Davis + Henderson" or "D+H" or the "Business" or "we" or "our") MD&A in the Annual Report for the year ended December 31, 2012, dated February 26, 2013, and the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2013. External economic and industry factors remain substantially unchanged from those described in the annual MD&A and the Corporation's most recently filed Annual Information Form, except as described herein.
NON-IFRS FINANCIAL MEASURES
The information presented within the tables in this MD&A include certain adjusted financial measures such as "EBITDA" (Income from continuing operations excluding interest, taxes, depreciation and amortization and fair value adjustments of interest-rate swaps which are directly related to interest expense, income from investment in an associate and gain on remeasurement of previously held equity interest in an associate), and adjusted financial measures such as "Adjusted EBITDA" (EBITDA adjusted to remove acquisition-related and other charges, including expenses incurred in connection with cost-realignment initiatives, corporate development expenses related to strategic acquisition initiatives, certain retention and incentive expenses, transaction costs and business integration costs incurred in connection with acquisitions, all of which are not considered to be incurred in the normal course of operations and are not indicative of the underlying business performance), "Adjusted net income" (net income before certain non-cash charges such as amortization of intangibles from acquisitions and fair value adjustments of interest-rate swaps and certain items of note such as acquisition-related and other charges, discontinued operations, including tax effects of these items and tax effects of acquisitions and corporate conversion), and "Adjusted net income per share", all of which are not defined terms under International Financial Reporting Standards ("IFRS").
These non-IFRS financial measures should be read in conjunction with the Consolidated Statements of Income. See the reconciliation of EBITDA, Adjusted EBITDA and Adjusted net income to the most directly comparable IFRS measure, "net income", in the "Operating Results" section of this MD&A.
Management believes these supplementary measures provide useful additional information related to the operating results of the Corporation. Management uses these subtotals as measures of financial performance and as a supplement to the Consolidated Statements of Income. Investors are cautioned that these measures should not be construed as an alternative to using net income as a measure of profitability or as an alternative to the IFRS Consolidated Statements of Income or other IFRS statements.
Further, these measures do not have any standardized meaning and D+H's method of calculating each balance may not be comparable to calculations used by other companies bearing the same description.
EBITDA
In addition to its use by management as an internal measure of financial performance, EBITDA (with adjustments) is used to measure compliance with certain financial covenants under the Company's credit facility and bonds. EBITDA is also used by D+H as a factor in assessing the performance and the value of a business. EBITDA has limitations as an analytical tool, and the reader should not consider it in isolation or as a substitute for analysis of results as reported under IFRS.
Adjusted EBITDA
Adjusted EBITDA is also used by D+H in assessing the performance of its businesses. Adjusted EBITDA excludes: (i) acquisition-related expenses such as transaction costs, business integration costs and certain retention and incentive costs incurred as part of acquisitions; and (ii) other charges such as corporate development costs related to strategic acquisition initiatives and costs incurred in connection with cost-realignment initiatives, all of which are not considered to be part of the normal course of operations. These items are excluded in calculating Adjusted EBITDA as they are not considered indicative of the underlying business performance for the period being reviewed and management believes that excluding these adjustments is more reflective of ongoing operating results.
Similar to EBITDA, Adjusted EBITDA also has limitations as an analytical tool, and the reader should not consider it in isolation or as a substitute for analysis of results as reported under IFRS.
Adjusted Net Income and Adjusted Net Income per Share
Adjusted net income is used as a measure of internal performance similar to net income, but is calculated after removing the impacts of certain items of note such as: acquisition-related and other charges, including transaction costs, retention and incentive expenses and business integration costs related to acquisitions; corporate development charges related to strategic acquisition initiatives and expenses associated with cost-realignment initiatives, all of which are not considered to be part of normal course of operations; discontinued operations; and, certain non-cash items such as amortization of intangibles from acquisitions, gain on remeasurement of the previously held equity interest in Compushare and fair value adjustments of interest-rate swaps. Also excluded from Adjusted net income are the tax effects of corporate conversion and acquisitions. These items are excluded in calculating Adjusted net income as they are not considered indicative of the financial performance of the Business for the periods being reviewed.
STRATEGY
D+H's goal is to be a leading financial technology ("FinTech") provider to the North American financial services marketplace. FinTech companies develop and deliver technology and technology-enabled products and services to banks, credit unions and other leading financial services customers who use these solutions to drive growth, improve customer convenience, streamline operations, reduce infrastructure costs and enhance compliance.
D+H's strategy is to establish market-leading positions within well-defined and growing service areas in the financial services marketplace, and to reinforce these positions with technology solutions that deliver increasing value to our customers and shareholders. We expect to advance this strategy through organic initiatives, by partnering with third parties and making selective acquisitions. By growing revenue organically and through strategic acquisitions and maintaining efficient operations, D+H intends to achieve its long-term financial objective of growing earnings.
Over the past several years, D+H has executed its strategy by evolving payment solutions, completing several acquisitions including Compushare in January 2013, enhancing our services and capabilities within all service areas and achieving new efficiencies.
D+H's advancements on the FinTech 100, a list of the top financial technology firms in the world (according to their FinTech revenues) prepared by American Banker, Bank Technology News and IDC Financial Insights and the Branham300 are a reflection of D+H's increasing technological capabilities and steps taken to provide a broad spectrum of financial technology products and services to its customers including ongoing innovation and growth to better serve the financial services industry.
Within our U.S. Segment, our strategic intent is to build a range of technology offerings, with an emphasis on SaaS offerings and cloud computing solutions, to better serve regional banks, community banks and credit unions. We expect to advance this strategy organically through adjacent offerings, such as our recent expansion into consumer loan origination technology, and through further U.S. acquisitions that will allow us to broaden our capabilities for banks and credit unions.
On a go-forward basis, consistent with its strategy, management is working to: (i) continue our organic growth initiatives in the U.S and Canada; (ii) evolve our payment solutions programs; (iii) enhance customer value and extend our technology-supported services related to mortgages, auto, personal, student, commercial lending and leasing markets; and (iv) identify appropriate acquisition targets to support the strategic direction of D+H.
For a detailed discussion of the results for the quarter ended March 31, 2013 and management's outlook, please see below.
ACCOUNTING PRINCIPLES AND FINANCIAL INFORMATION PRESENTATION
The Company's unaudited condensed interim consolidated financial statements have been prepared in accordance with IFRS, specifically IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB").
Results from continuing operations include the performance of acquired businesses from the respective dates of acquisition and exclude results from operations classified as discontinued operations.
Effective January 1, 2013, D+H reports its revenues under the following categories: (i) payment solutions; (ii) lending processing solutions (previously reported as loan servicing solutions and loan registration and recovery services) and; (iii) banking technology solutions (previously reported as lending technology services). For segment reporting purposes, payment solutions, lending processing solutions and the banking technology solutions which include banking technology solutions to the Canadian mortgage market and technology solutions in the commercial lending, small business lending and leasing areas are reported as part of the Canadian Segment. The U.S. Segment consists of banking technology solutions to the U.S. mortgage market, including results from SaaS POS and LOS as well as Compushare's cloud-based solutions.
Comparative periods have been conformed to the current period classification.
All amounts are in Canadian dollars, unless otherwise specified.
ACQUISITION
Compushare
On January 29, 2013, D+H announced that it has purchased the remaining outstanding shares of Santa Ana, California-based Compushare, a technology management and cloud computing provider to financial institutions. Building on its initial minority investment in the company announced on April 24, 2012, this transaction gives D+H 100% ownership of Compushare. Compushare offers a full suite of technology solutions, designed specifically for financial institutions that assist community banks, credit unions and other financial services providers with systems management, network security, and application solutions. The acquisition was financed from D+ H's existing credit facilities.
The results of Compushare have been presented as part of the U.S. Segment for segment reporting purposes. For additional information on the acquisition and the allocation of the purchase price, refer to note 4 of the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2013. The Corporation has not completed its assessment and valuation of the assets acquired and liabilities assumed for the acquisition and therefore, the purchase information disclosed is subject to change.
Upon acquisition of the remaining interest on January 29, 2013, a gain related to remeasurement of the previously held equity interest was recognized in accordance with IFRS standards.
DIVESTITURE
On March 7, 2013, D+H announced that it had entered into an agreement to divest its non-strategic business processing operations, comprised of credit card services, contact centre services, benefits and administration, coupon and rebate services and real estate services. These operations largely served customers comprised of retailers, real estate boards and packaged goods companies and provided services that are not considered part of D+H's strategic business of serving financial institutions as its long-term strategy. This transaction is scheduled to close during the second quarter of 2013 following receipt of customary regulatory and customer consents.
The results of operations of these components, which were included as part of business service solutions and loan servicing solutions in the Canadian Segment in prior periods, have now been classified as discontinued operations for all periods presented and the related assets and liabilities have been classified as assets and liabilities held for sale on the consolidated statement of financial position for the three months ended March 31, 2013 in accordance with IFRS. Refer to note 14 of the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2013 for further information related to the impact of these discontinued operations on the financial statements of the Corporation.
OPERATING RESULTS - FIRST QUARTER OF 2013
The following tables should be read in conjunction with the condensed interim consolidated statements of income for the three months ended March 31, 2013 and include non-IFRS financial measures. Management believes these supplementary disclosures provide useful additional information. See Non-IFRS Financial Measures section for a description of non-IFRS terms used.
The consolidated results include those of Compushare effective from the date of acquisition of January 29, 2013. Revenues and expenses relating to Compushare have been reported as part of the U.S. Segment.
Overview
Overall, D+H delivered solid operating performance in the first quarter of 2013 that was consistent with its strategic agenda of becoming a leading financial technology provider to the North American financial services marketplace. Year-over-year growth in revenues was attributable mainly to the U.S. Segment and reflected the inclusion of Compushare and Avista as well as organic growth in POS SaaS revenues. Both Canadian and U.S. Segments contributed to year-over-year growth in EBITDA and Adjusted EBITDA resulting from savings realized from cost-realignment initiatives in the Canadian Segment and acquisitions and organic growth in the U.S. Consolidated net income for the first quarter of 2013 was lower compared to the same period in 2012 primarily due to loss from discontinued operations related to the divestiture. Consolidated Adjusted net income, which excluded the loss from discontinued operations, was higher than the comparative period.
(in thousands of Canadian dollars, except per share amounts, unaudited) | |||||
Quarter ended March 31, | |||||
2013 | 2012 | ||||
Revenue | $ | 171,661 | $ | 165,321 | |
Expenses | 129,664 | 125,074 | |||
EBITDA 1 | 41,997 | 40,247 | |||
Depreciation of capital assets and amortization of | |||||
non-acquisition intangibles | 6,519 | 6,465 | |||
Amortization of intangibles from acquisitions | 10,914 | 10,395 | |||
Interest expense | 4,471 | 4,821 | |||
Income from investment in an associate, net of tax 2 | (130) | - | |||
Gain on remeasurement of previously-held equity interest 2 | (1,587) | - | |||
Fair value adjustment of derivative instruments 3 | (107) | (1,645) | |||
Income tax expense | 5,480 | 5,034 | |||
Income from continuing operations | 16,437 | 15,177 | |||
Loss from discontinued operations, net of tax4 | (10,675) | (243) | |||
Net income | $ | 5,742 | $ | 14,934 | |
Income from continuing operations per share, basic and diluted 5, 6 | $ | 0.2775 | $ | 0.2562 | |
Loss from discontinued operations, per share, basic and diluted, net of tax4,5,6 | $ | (0.1806) | $ | (0.0041) | |
Net income per share, basic and diluted 5, 6 | $ | 0.0969 | $ | 0.2521 |
1 | EBITDA is a non-IFRS term. See Non-IFRS Financial Measures for a more complete description of this term. |
2 | Income from investment in an associate consists of D+H's share of profit from Compushare, the minority investment purchased on April 24, 2012. Upon acquisition of the remaining interest in January 2013, a gain related to remeasurement of the previously held equity interest was recognized in accordance with IFRS standards. |
3 | Includes mark-to-market adjustments of interest-rate swaps that are not designated as hedges for hedge accounting purposes, and for which any change in the fair value of these contracts is recorded through the Consolidated Statements of Income. |
4 | On March 7, 2013 D+H announced that it had entered into an agreement to divest its non-strategic business processing operations. These operations were reported as part of business service solutions and loan servicing in prior periods and have now been classified as discontinued operations for both the current and comparative periods presented. |
5 | Diluted net income per share reflects the impacts of outstanding options. If the average market price during the period is below the option price plus the fair market value of the option, then the options are not included in the dilution calculation. |
6 | Weighted average number of shares outstanding during the first quarter of 2013 was 59,233,373 shares (Q1 2012 - 59,233,373 shares). |
(in thousands of Canadian dollars, unaudited) | |||||
Quarter ended March 31, | |||||
2013 | 2012 | ||||
Revenue | $ | 171,661 | $ | 165,321 | |
Expenses | 129,664 | 125,074 | |||
EBITDA 1 | 41,997 | 40,247 | |||
EBITDA Margin | 24.5% | 24.3% | |||
Adjustments: | |||||
Acquisition-related and other charges 2 | 1,028 | 737 | |||
Adjusted EBITDA 1 | $ | 43,025 | $ | 40,984 | |
Adjusted EBITDA Margin | 25.1% | 24.8% |
1 | EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms. |
2 | Acquisition-related and other charges for the first quarter of 2013 included transaction costs, certain retention and incentive costs in connection with the acquisitions of businesses and business integration costs . Acquisition-related and other charges for the same period in 2012 included certain retention and incentive costs related to the Mortgagebot and Avista acquisitions. |
Quarter ended March 31, 2013 vs. 2012 | |
% change | |
Revenue | 3.8% |
EBITDA1 | 4.3% |
Adjusted EBITDA1 | 5.0% |
1 EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms. |
(in thousands of Canadian dollars, except per share amounts, unaudited) | |||||||
Quarter ended March 31, | |||||||
2013 | 2012 | ||||||
Net income | $ | 5,742 | $ | 14,934 | |||
Adjustments: | |||||||
Non-cash items: | |||||||
Amortization of intangibles from acquisitions | 10,914 | 10,395 | |||||
Gain on remeasurement of previously-held equity interest 2 | (1,587) | - | |||||
Fair value adjustment of derivative instruments 3 | (107) | (1,645) | |||||
Other items of note: | |||||||
Acquisition-related and other charges 4 | 1,028 | 737 | |||||
Tax effect of above adjustments 6 | (3,578) | (2,854) | |||||
Loss from discontinued operations, net of tax 5 | 10,695 | 243 | |||||
Adjusted net income 1 | $ | 23,107 | $ | 21,810 | |||
Adjusted net income per share, basic and diluted 1, 7, 8 | $ | 0.3901 | $ | 0.3682 |
Quarter ended March 31,2013 vs. 2012 | |||||||||||||||||
% change | |||||||||||||||||
Adjusted net income per share, basic and diluted 1, 7, 8 | 5.9% |
1 | Adjusted net income and Adjusted net income per share are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms. | |
2 | Upon acquisition of the remaining interest in Compushare in January 2013, a gain related to remeasurement of the previously held equity interest was recognized in accordance with IFRS standards. | |
3 | Includes mark-to-market adjustments of interest-rate swaps that are not designated as hedges for hedge accounting purposes, and for which any change in the fair value of these contracts is recorded through the Consolidated Statement of Income. | |
4 | Acquisition-related and other charges for the first quarter of 2013 included transaction costs, certain retention and incentive costs and business integration costs pertaining to the acquisitions. | |
5 | On March 7, 2013 D+H announced that it had entered into an agreement to divest its non-strategic business processing operations. These operations were reported as part of business service solutions and loan servicing in prior periods and have now been classified as discontinued operations for both the current and comparative periods presented. | |
6 | The following adjustments to net income are tax effected at their respective tax rates: (i) amortization of acquisition intangibles; (ii) fair value adjustment of derivative instruments; and (iii) acquisition-related and other charges. | |
7 | Diluted Adjusted net income per share (non-IFRS term) reflects the impacts of outstanding options. If the average market price during the period is below the option price plus the fair market value of the option, then the options are not included in the dilution calculation. | |
8 | Weighted average number of shares outstanding during the first quarter of 2013 was 59,233,373 shares (Q1 2012 - 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 | |||||||||||||||||||||||||||||
|
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||||||||
Revenue | $ | 152,380 | $ | 153,730 | $ | 19,281 | $ | 11,591 | $ | - | $ | - | $ | 171,661 | $ | 165,321 | ||||||||||||||||
Expenses | 117,361 | 118,785 | 11,275 | 5,552 | 1,028 | 737 | 129,664 | 125,074 | ||||||||||||||||||||||||
EBITDA 1 | 35,019 | 34,945 | 8,006 | 6,039 | (1,028) | (737) | 41,997 | 40,247 | ||||||||||||||||||||||||
EBITDA Margin | 23.0% | 22.7% | 41.5% | 52.1% | - | - | 24.5% | 24.3% | ||||||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||||||
Acquisition-related and other charges 2 | - | - | - | - | 1,028 | 737 | 1,028 | 737 | ||||||||||||||||||||||||
Adjusted EBITDA 1 | $ | 35,019 | $ | 34,945 | $ | 8,006 | $ | 6,039 | $ | - | $ | - | $ | 43,025 | $ | 40,984 | ||||||||||||||||
Adjusted EBITDA Margin | 23.0% | 22.7% | 41.5% | 52.1% | - | - | 25.1% | 24.8% |
1 | EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms. |
2 | Acquisition-related and other charges for the first quarter of 2013 included transaction costs, certain retention and incentive costs in connection with the acquisitions of businesses and business integration costs . Acquisition-related and other charges for the same period in 2012 included certain retention and incentive costs related to the Mortgagebot and Avista acquisitions. |
Canadian | U.S. | |||||||||
Segment | Segment | Consolidated | ||||||||
2013 vs. 2012 | 2013 vs. 2012 | 2013 vs. 2012 | ||||||||
% change | % change | % change | ||||||||
Revenue | (0.9%) | 66.3% | 3.8% | |||||||
EBITDA 1 | 0.2% | 32.6% | 4.3% | |||||||
Adjusted EBITDA 1 | 0.2% | 32.6% | 5.0% |
1 | EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms. |
REVENUE
Revenue - Consolidated
(in thousands of Canadian dollars, unaudited) | ||||||||
Quarter ended March 31, | ||||||||
2013 | 2012 | |||||||
Payment solutions | $ | 73,679 | $ | 74,781 | ||||
Lending processing solutions 1 | 65,123 | 64,401 | ||||||
Banking technology solutions 2 | 32,859 | 26,139 | ||||||
$ | 171,661 | $ | 165,321 |
1 | Reported as loan servicing solutions and loan registration and recovery services in prior periods. |
2 | Reported as lending technology services in prior periods. |
Consolidated revenue for the first quarter of 2013 was $171.7 million, an increase of $6.3 million, or 3.8%, compared to the same period in 2012. The increase was primarily due to growth within the U.S. Segment as a result of the inclusion of Compushare effective from January 29, 2013, inclusion of Avista acquired on May 3, 2012 and ongoing organic growth in Mortgagebot.
Revenue - Canadian Segment
Total revenues in the Canadian Segment for the first quarter of 2013 of $152.4 million, decreased by $1.4 million, or 0.9%, compared to the same quarter in 2012.
(in thousands of Canadian dollars, unaudited) | ||||||||
Quarter ended March31, | ||||||||
2013 | 2012 | |||||||
Payment solutions | $ | 73,679 | $ | 74,781 | ||||
Lending processing solutions 1 | 65,123 | 64,401 | ||||||
Banking technology solutions 2 | 13,578 | 14,548 | ||||||
$ | 152,380 | $ | 153,730 |
1 | Reported as loan servicing solutions and loan registration and recovery services in prior periods. |
2 | Reported as lending technology services in prior periods. Excludes revenues from Mortgagebot, Avista and Compushare. |
Payment solutions
Payment solutions include: (i) the cheque supply program which serves the personal and small business account holders of our financial services customers; and (ii) various subscription fee-based enhancement services and other service offerings directed towards the chequing and credit card programs. These service offerings (excluding the component of enhancement and identity protection services that are integrated in the cheque order) currently represent a small component of revenues within this revenue category. Cheque order volumes are declining as consumers and small businesses choose other payment methods. These volume declines have been partially offset by increased average order values for cheques and growth in service enhancements to the chequing and credit card programs.
Revenue from payment solutions for the first quarter of 2013 was $73.7 million, a decrease of $1.1 million, or 1.5%, compared to the same quarter in 2012. For the first quarter of 2013, revenues from payments solutions reflected volume declines in cheque orders partially offset by the positive impact of higher average order values and product and service enhancements in the chequing and credit card programs. Revenues for the current quarter were also impacted as a result of having two fewer business days in first quarter of 2013 than the prior year. Management believes that the downward trend in cheque order volumes is in the low to mid-single digit range annually, and in recent periods, there has been more volatility in personal cheque order volumes, while the decline in business cheque order volumes continues to be in the low single digit range with comparatively minimal volatility. Management expects that these trends will continue through 2013. D+H continues to develop service enhancements to offset this impact and to generate future growth within this category.
Lending processing solutions
Lending processing solutions consist of two distinct customer solutions sets: loan registration and recovery and student loan administration services. Loan registration and recovery services, which is approximately 55% to 65% of the revenues within this category, support the personal and commercial lending activities of our financial services customers with the registration and management of data related to secured lending for both personal and real property loans as well as recovery services related to both secured and unsecured lending activities. Loans relating to vehicle purchases are a significant driver of activity and as such can be variable. In general, registration services are affected by both economic cyclicality and seasonality, while recovery services are, in general, counter-cyclical. Related services include mortgage discharge services and various search-related services, both of which we deliver on behalf of our financial institution customers.
In our student loan administration services area, which is approximately 35% to 45% of the revenues within this category, we manage a $20 billion student loan portfolio encompassing service to 1.7 million students on behalf of Canadian governments and lenders. Services include student enrollment, management of funds' disbursement, loan tracking, student support services, reporting and collections. In general, student loan servicing volumes have been stable and modestly growing on higher student loan balances and extended loan durations.
Lending processing revenues for the first quarter of 2013 was $65.1 million, an increase of $0.7 million, or 1.1%, compared to the same quarter in 2012. This increase was mainly due to higher transaction volumes in registration services reflecting a continuing recovery within the auto and auto lending markets, and an increase in automotive lending recovery services. These increases were partially offset by an expected reduction in fees from a previously announced consolidation and integration between two customers within the student loans program. Volumes in the student loan administration service area are expected to be relatively stable and modestly growing in the short term. We expect that the impact on revenue of consolidation and integration of the two customers discussed above will continue through the first half of 2013. Activities related to cost management and improving delivery efficiency are being directed towards lowering the impact of reduced pricing and fees related to the recent customer consolidation. The benefits from these cost management initiatives that we started to realize in 2012 will continue into 2013.
Banking Technology Solutions
Banking technology solutions included as part of the Canadian segment include services directed towards mortgage markets in Canada. As well, we offer technology products and services in both Canada and the U.S. directed towards leasing, commercial lending and small business lending. For segment reporting purposes, revenues from the lending technology services to the Canadian mortgage markets and the products and technology solutions for leasing, commercial lending and small business lending are reported as part of the Canadian Segment. Revenues related to mortgage markets currently represent approximately 75% to 85% of revenues within this category with approximately 35% to 45% attributable to transaction-based fees earned in connection with Canadian mortgage originations. Mortgage origination fees can be variable and are impacted by many factors including the economy, the housing market, interest rates and changes in government regulations among others.
Revenue from banking technology solutions related to the Canadian Segment for the first quarter of 2013 was $13.6 million, a decrease of $1.0 million, or 6.7%, compared to the same quarter in 2012. First quarter 2013 revenue was impacted by lower mortgage origination fees due to softening Canadian housing and mortgage market activity and price modifications compared to the same quarter in 2012. In general, due to new mortgage rules announced by the Department of Finance in 2012, industry analysts expect the recently observed reduction in Canadian housing market prices and sales volumes to continue in major urban areas throughout 2013. Revenues in future periods may continue to be impacted by price modifications, which are expected to be offset by potential revenue from the launch of new products in the Canadian lending market, including extension of our technology solutions across various areas in the lending value chain.
Revenue - U.S. Segment
(in thousands of Canadian dollars, unaudited) | ||||||
Quarter ended March 31, | ||||||
2013 | 2012 | |||||
Banking technology solutions | $ | 19,281 | $ | 11,591 | ||
$ | 19,281 | $ | 11,591 |
Revenues from the U.S. SaaS loan origination solutions related to Mortgagebot and Avista and Compushare's cloud-based services are reported as part of the U.S. Segment. Within U.S. revenues related to mortgage markets, 65% to 75% relate to recurring subscription fees and approximately 15% to 25% relate to transaction-based activity.
Revenue for the first quarter of 2013 was $19.3 million, an increase of $7.7 million, or 66.3%, compared to $11.6 million for the same period in 2012. The increase was due to the inclusion of Compushare since its acquisition of January 29, 2013 and Avista since its acquisition in May 2012 and organic growth in Mortgagebot related to the expansion of our client base.
EXPENSES
Expenses - Consolidated
(in thousands of Canadian dollars, unaudited) | ||||||
Quarter ended March 31, | ||||||
2013 | 2012 | |||||
Employee compensation and benefits 1 | $ | 47,047 | $ | 44,572 | ||
Non-compensation direct expenses 2 | 58,042 | 56,947 | ||||
Other operating expenses 3 | 24,575 | 23,555 | ||||
$ | 129,664 | $ | 125,074 |
1 | Employee compensation and benefits on a consolidated basis includes retention and incentive expenses related to acquisitions of businesses and are net of apprenticeship tax credits and amounts capitalized related to software product development. |
2 | Non-compensation direct expenses include materials, shipping, selling expenses and third party direct disbursements. |
3 | Other operating expenses include occupancy costs, communication costs, licensing fees, professional fees, contractor fees, transaction costs related to acquisitions of businesses and expenses not included in other categories. |
Consolidated expenses of $129.7 million for the first quarter of 2013 increased by $4.6 million, or 3.7%, compared to the same quarter in 2012, and included acquisition-related and other charges of $1.0 million which were considered as non-normal course expenses and recognized as part of Corporate. The inclusion of Compushare and Avista expenses also contributed to the increase in the first quarter of 2013.
Expenses - Canadian Segment
Total expenses for the Canadian Segment for the first quarter of 2013 were $117.4 million, a decrease of $1.4 million, or 1.2%, compared to the same quarter in 2012.
(in thousands of Canadian dollars, unaudited) | ||||||||
Quarter ended March 31, | ||||||||
2013 | 2012 | |||||||
Employee compensation and benefits 1 | $ | 39,523 | $ | 40,802 | ||||
Non-compensation direct expenses 2 | 57,469 | 56,690 | ||||||
Other operating expenses 3 | 20,369 | 21,293 | ||||||
$ | 117,361 | $ | 118,785 |
1 | Employee compensation and benefits are net of apprenticeship tax credits and amounts capitalized related to software product development. |
2 | Non-compensation direct expenses include materials, shipping, selling expenses and third party direct disbursements. |
3 | Other operating expenses include occupancy costs, communication costs, licensing fees, professional fees, contractor fees and expenses not included in other categories. Other operating expenses are net of inter-segment management fees received from the U.S. segment. |
Employee compensation and benefits costs of $39.5 million for the first quarter of 2013 for the Canadian Segment were lower by $1.3 million, or 3.1%, compared to the same quarter in 2012, primarily from savings realized as a result of cost-realignment initiatives executed in 2012.
Non-compensation direct expenses for the Canadian Segment were $57.5 million for the first quarter of 2013, an increase of $0.8 million, or 1.4%, compared to the same quarter in 2012. In general, these expenses directionally change with revenue changes. An increase in direct costs associated with the lending processing solutions service area, consistent with the increase in revenues, was partially offset by a decrease in direct costs associated with the payment solutions service area, also consistent with its revenues.
Other operating expenses of $20.4 million for the first quarter of 2013 were lower by $0.9 million, or 4.3%, compared to the same quarter in 2012, primarily due to savings realized from transformation and integration initiatives.
Expenses - U.S. Segment
Total expenses for the U.S. Segment for the first quarter of 2013 were $11.3 million, an increase of $5.7 million, or 103.1%, compared to the same quarter in 2012. This increase was primarily due to the inclusion of the Compushare and Avista cost base.
(in thousands of Canadian dollars, unaudited) | |||||||||
Quarter ended March 31, | |||||||||
2013 | 2012 | ||||||||
Employee compensation and benefits 2 | $ | 6,632 | $ | 3,147 | |||||
Non-compensation direct expenses | 573 | 257 | |||||||
Other operating expenses 1 | 4,070 | 2,148 | |||||||
$ | 11,275 | $ | 5,55 |
1 | Other operating expenses include inter-segment management fees, occupancy costs and expenses not included in other categories. |
2 | Employee compensation and benefits are net of amounts capitalized related to software product development. |
Employee compensation and benefits costs of $6.6 million for the first quarter of 2013 for the U.S. Segment were higher by $3.5 million, or 110.7%, compared to the same quarter in 2012. The increase in the first quarter of 2013 was primarily due to the inclusion of the Compushare and Avista cost base and increased costs related to the integration of Mortgagebot and Avista including alignment of employee benefits as a result of integration of the businesses.
Non-compensation direct expenses for the U.S. Segment of $0.6 million for the first quarter of 2013 were higher by $0.3 million compared to the same period in 2012 due to the inclusion of Compushare.
Other operating expenses of $4.1 million for the first quarter of 2013 were higher by $1.9 million, or 89.5%, compared to the same quarter in 2012 primarily attributable to the inclusion of Compushare and Avista expenses and expenses associated with cloud-based growth initiatives.
Expenses - Corporate
(in thousands of Canadian dollars, unaudited) | |||||||
Quarter ended March 31, | |||||||
2013 | 2012 | ||||||
Employee compensation and benefits | $ | 892 | $ | 623 | |||
Other operating expenses | 136 | 114 | |||||
$ | 1,028 | $ | 737 |
Employee compensation and benefits
Employee compensation and benefits expenses for the first quarter of 2013 and 2012 consisted of retention and incentive expenses incurred in connection with Avista and Mortgagebot acquisitions.
Other expenses
Other expenses for the first quarter of 2013 included transaction costs incurred in connection with the acquisition of Compushare and business integration costs. For the same period in 2012, the other operating expenses related to transaction costs incurred in connection with the acquisition of Avista.
EBITDA AND EBITDA MARGIN
Consolidated EBITDA during the first quarter of 2013 was $42.0 million, an increase of $1.8 million, or 4.3%, compared to $40.2 million for the same quarter in 2012. EBITDA margin of 24.5% on a consolidated basis for the first quarter of 2013 improved marginally from 24.3% for the same period in 2012. EBITDA growth in the U.S. Segment was partially offset by retention and incentive expenses and acquisition transaction costs in Corporate.
Canadian Segment
Canadian Segment EBITDA for the first quarter of 2013 of $35.0 million was consistent with the same period a year-ago. EBITDA margin of 23.0% for the first quarter of 2013 in the Canadian Segment was slightly higher than the first quarter of 2012 EBITDA margin of 22.7% primarily due to savings realized from cost-realignment initiatives as well as transformation and integration initiatives, partially offset by a decline in revenues in payment solutions and banking technology solutions service areas. Cost management initiatives continue to focus on enhancing operational efficiency within the Canadian Segment as markets mature and to offset expected economic challenges within the Canadian revenue areas.
U.S. Segment
U.S. Segment EBITDA for the first quarter of 2013 was $8.0 million, an increase of $2.0 million, compared to the same quarter in 2012, attributable to the inclusion of Compushare and Avista results and continued growth in the POS SaaS business. EBITDA margin of 41.5% for the first quarter of 2013 was lower than the 52.1% a year-ago primarily due to the inclusion of Compushare.
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
Consolidated Adjusted EBITDA during the first quarter of 2013 was $43.0 million, an increase of $2.0 million, or 5.0%, compared to the same quarter in 2012. Consolidated Adjusted EBITDA excluded acquisition-related and other charges of $1.0 million for the first quarter of 2013, consisting of $0.9 million related to certain retention and incentive expenses related to the acquisitions and $0.1 million related to transaction costs in connection with the Compushare acquisition. On a consolidated basis, Adjusted EBITDA margin for the first quarter of 2013 was 25.1%, up from 24.8% a year ago.
DEPRECIATION OF CAPITAL ASSETS AND AMORTIZATION OF NON-ACQUISITION INTANGIBLES
Consolidated depreciation of capital assets and amortization of non-acquisition intangible assets of $6.5 million in the first quarter of 2013 increased by $0.1 million, or 0.8%, compared to the same period in 2012. The increase was attributable to the amortization of projects completed in 2012.
AMORTIZATION OF INTANGIBLES FROM ACQUISITIONS
Consolidated amortization of acquisition intangibles for the first quarter of 2013 was $10.9 million, an increase of $0.5 million, compared to the same period in 2012. The increase was attributable to the amortization resulting from the acquisitions of Compushare in January 2013 and Avista in May 2012.
INTEREST EXPENSE
Interest expense for the first quarter of 2013 decreased by $0.4 million compared to the same quarter in 2012 as favourable pricing on the renewed credit facility, due to renegotiated terms, more than offset an increase in interest expense as a result of long-term, fixed-rate borrowings related to acquisitions.
INCOME FROM INVESTMENT IN AN ASSOCIATE
Consolidated net income for the first quarter of 2013 included D+H's share of income related to the minority interest held in Compushare up to January 28, 2013, after which, the results were consolidated upon obtaining 100% ownership on January 29, 2013.
Upon acquisition of the remaining outstanding shares of Compushare, a gain of $1.6 million was recognized on remeasurement of the previously held equity interest in accordance with IFRS.
FAIR VALUE ADJUSTMENT OF DERIVATIVE INSTRUMENTS
Interest-rate swaps
Compared to a net unrealized gain of $1.6 million in the first quarter of 2012, a net unrealized gain of $0.1 million on interest-rate swaps was recognized in the first quarter of 2013 reflecting fair value adjustments related to changes in market interest rates at March 31, 2013 compared to December 31, 2012.
INCOME TAX EXPENSE
An income tax expense of $5.5 million was recorded in the first quarter of 2013 compared to an income tax expense of $5.0 million for the same period in 2012 on increased income from continuing operations before income tax. For the first quarter of 2013, the current tax expense of $8.9 million was partially offset by a deferred tax recovery of $3.4 million. The gain on remeasurement of previously held equity interest was non-taxable. Only a deferred tax expense was recorded in the first quarter of 2012.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for the first quarter of 2013 was $16.4 million ( $0.2775 per share) compared to $15.2 million ($0.2562 per share) for the same period in 2012. The increase in the current period was attributable to higher EBITDA and the gain on remeasurement of the previously held equity interest relating to Compushare, partially offset by a lower unrealized gain on fair value changes related to interest-rate swaps.
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations of $10.7 million ( $0.1806 per share) for the first quarter of 2013 related to the divestiture of D+H's non-strategic business processing operations. See Divestiture section for more details. For the comparative period in 2012, the loss from discontinued operations was $0.2 million ( $0.0041 per share). The loss from discontinued operations for the first quarter of 2013 included a loss of $9.7 million related to measurement to fair value less estimated costs to sell the assets held for sale, net of taxes.
NET INCOME
Consolidated net income of $5.7 million ($0.0969 per share) for the first quarter of 2013 was lower by $9.2 million, or 61.6%, compared to consolidated net income of $14.9 million ( $0.2521 per share) for the same quarter in 2012, primarily due to the loss from discontinued operations of $10.7 million described above and fair value changes related to interest-rate swaps. These impacts were partially offset by an increase in EBITDA and a gain of $1.6 million related to the remeasurement to fair value of the previously held equity interest of Compushare, recognized upon the acquisition of the remaining outstanding shares in January 2013.
ADJUSTED NET INCOME
Consolidated Adjusted net income of $23.1 million ( $0.3901 per share) for the first quarter of 2013 was higher by $1.3 million compared to the $21.8 million ( $0.3682 per share) for the same period in 2012, mainly due to higher Adjusted EBITDA. Consolidated Adjusted net income excludes the after-tax impacts of the following items: (i) impacts of non-cash items such as amortization of intangibles from acquisitions, gains and losses related to fair value adjustment of derivative instruments and a gain on remeasurement of previously held equity interest in Compushare; (ii) other items of note such as acquisition-related and other charges described earlier as well as the loss on discontinued operations; and (iii) non-cash tax expense / recoveries relating to acquisitions.
CONSOLIDATED CASH FLOW AND LIQUIDITY
The following table is derived from, and should be read in conjunction with, the Consolidated Statements of Cash Flows. Management believes this disclosure provides useful additional information related to the cash flows of the Corporation, repayment of debt and other investing activities.
Consolidated Summary of Cash Flows
(in thousands of Canadian dollars, unaudited)
Quarter ended March 31, | ||||
2013 | 2012 | |||
Cash and cash equivalents provided by (used in): | ||||
OPERATING ACTIVITIES | ||||
Income from continuing operations | $ | 16,437 | $ | 15,177 |
Depreciation and amortization of assets | 17,433 | 16,860 | ||
Amortization and fair value adjustment of derivative instruments | (107) | (1,645) | ||
Income from investment in an associate, net of tax | (130) | - | ||
Gain on remeasurement of previously held equity interest | (1,587) | - | ||
Difference in interest expense and cash interest paid | 428 | 600 | ||
Non-cash income tax and options expenses | 4,247 | 6,952 | ||
36,721 | 37,944 | |||
Increase in non-cash working capital items | (15,148) | (14,640) | ||
Changes in other operating assets and liabilities | 1,792 | 683 | ||
Cash flows from (used in) discontinued operations | (4,731) | 586 | ||
Net cash from operating activities | 18,634 | 24,573 | ||
FINANCING ACTIVITIES | ||||
Net change in long-term indebtedness | 26,049 | 5,000 | ||
Dividends paid during the period | (18,955) | (18,362) | ||
Net cash from (used in) financing activities | 7,094 | (13,362) | ||
INVESTING ACTIVITIES | ||||
Capital expenditures | (6,286) | (10,536) | ||
Acquisition of subsidiary | (24,393) | - | ||
Net cash used in investing activities | (30,679) | (10,536) | ||
Increase (decrease) in cash and cash equivalents for the period | (4,951) | 675 | ||
Cash and cash equivalents, beginning of period | 5,719 | 2,213 | ||
Cash and cash equivalents, end of period | $ | 768 | $ | 2,888 |
As at March 31 2013, cash and cash equivalents totalled $0.8 million, compared to $5.7 million at December 31, 2012.
Operating Activities
Operating activities provided $18.6 million during the quarter ended March 31, 2013, compared to $24.6 million for the same period in 2012. The change in net cash from operating activities for the three-month period ended March 31, 2013 was primarily due to working capital changes as described below.
Changes in Non-Cash Working Capital and Other Items
(in thousands of Canadian dollars, unaudited) | ||||
Quarter ended March 31, | ||||
2013 | 2012 | |||
Increase in non-cash working capital | $ | (15,148) | $ | (14,640) |
Change in other operating assets and liabilities | 1,792 | 683 | ||
Discontinued operations | (4,731) | 586 | ||
Increase in non-cash working capital and other items | $ | (18,087) | $ | (13,371) |
The net increase in non-cash working capital in the first quarter of 2013 primarily related to an increase in trade receivables attributable to extended payment terms resulting from contractual negotiations for technology sales in Canada as well as moving to the more traditional collection terms and processes associated with the new product offerings. Also contributing to the increase in working capital was lower compensation related accruals due to timing of pay periods and payouts related to compensation arrangements during the first quarter of 2013.
Cash flows used in discontinued operations of $4.7 million reflects the segregation of cash related to discontinued operations from cash flows from operating activities related to continuing operations. Amount segregated for the current period included cash flows from operating activities during the period related to discontinued operations as well as cash on balance sheet as at March 31, 2013 related to discontinued operations. This is in accordance with IFRS 5,Non-current assets held for sale and discontinued operations, which requires the separation of assets and liabilities relating to assets held for sale on the balance sheet as at March 31, 2013. The corresponding $0.6 million as of March 31, 2012 relates to the segregation of cash flows from operating activities relating to discontinued operations.
Financing Activities
Net cash from financing activities was $7.1 million during the quarter ended March 31, 2013, compared to $13.4 million used for the same period in 2012. The net change during the quarter was primarily due to the funds drawn from our credit facilities to finance the Compushare acquisition in January 2013 and an increase in dividend payments following a dividend increase in the fourth quarter of 2012.
Dividends
During the first quarter of 2013, D+H paid a dividend of $0.32 per share to its shareholders, following an increase in the target annual dividend during the fourth quarter of 2012 from $1.24 per share to $1.28 per share annualized. For the same quarter in 2012, $0.31 per share was paid to shareholders.
Investing Activities
During the first quarter of 2013, $30.7 million was used by investing activities, by way of capital expenditures and acquisition of the remaining outstanding shares of Compushare, compared to $10.5 million for capital expenditures during the same period in 2012.
Capital Expenditures
Consolidated capital expenditures were $6.3 million for the first quarter of 2013, $4.3 million lower compared to the same period of 2012. Lower capital expenditures in the current quarter reflected timing of expenditures.
EIGHT QUARTER CONSOLIDATED STATEMENT OF INCOME - SUMMARY
(in thousands of Canadian dollars, except per share amounts, unaudited)
2013 | 2012 | 2011 | ||||||||||||||||
Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | |||||||||||
Revenue | $ | 171,661 | $ | 172,457 | $ | 176,689 | $ | 180,989 | $ | 165,321 | $ | 166,580 | $ | 169,334 | $ | 167,873 | ||
Expenses1 | 129,664 | 131,082 | 129,405 | 128,289 | 125,074 | 121,865 | 123,655 | 120,295 | ||||||||||
EBITDA 1, 3 | 41,997 | 41,375 | 47,284 | 52,700 | 40,247 | 44,715 | 45,679 | 47,578 | ||||||||||
Adjustments: | ||||||||||||||||||
Acquisition-related and other charges 1 | 1,028 | 6,558 | 3,265 | 4,378 | 737 | 637 | 610 | 707 | ||||||||||
Adjusted EBITDA 3 | $ | 43,025 | $ | 47,933 | $ | 50,549 | $ | 57,078 | $ | 40,984 | $ | 45,352 | $ | 46,289 | $ | 48,285 | ||
EBITDA 1, 3 | $ | 41,997 | $ | 41,375 | $ | 47,284 | $ | 52,700 | $ | 40,247 | $ | 44,715 | $ | 45,679 | $ | 47,578 | ||
Depreciation of capital assets and amortization of non-acquisition intangibles | 6,519 | 7,568 | 6,648 | 6,986 | 6,465 | 6,171 | 5,242 | 5,249 | ||||||||||
Amortization of intangibles from acquisitions | 10,914 | 11,292 | 10,597 | 10,706 | 10,395 | 10,465 | 10,496 | 10,046 | ||||||||||
Interest expense | 4,471 | 4,629 | 4,943 | 4,821 | 4,821 | 4,909 | 4,792 | 5,272 | ||||||||||
Loss (income) from investment in an associate, net of tax | (130) | 23 | (53) | (38) | - | - | - | - | ||||||||||
Gain on remeasurement of previously held equity interest 2 | (1,587) | - | - | - | - | - | - | - | ||||||||||
Amortization and fair value adjustment of derivative instruments4 | (107) | (542) | (445) | 616 | (1,645) | (145) | 3,991 | 1,227 | ||||||||||
Income tax expense | 5,480 | 4,165 | 5,987 | 8,345 | 5,034 | 7,758 | 5,685 | 1,887 | ||||||||||
Income from continuing operations | 16,437 | 14,240 | 19,607 | 21,264 | 15,177 | 15,557 | 15,473 | 23,897 | ||||||||||
Loss from discontinued operations, net of tax 5 | (10,695) | (529) | (2) | (377) | (243) | (188) | (413) | (433) | ||||||||||
Net income | $ | 5,742 | $ | 13,711 | $ | 19,605 | $ | 20,887 | $ | 14,934 | $ | 15,369 | $ | 15,060 | $ | 23,464 | ||
Adjustments: | ||||||||||||||||||
Non-cash items: | ||||||||||||||||||
Amortization of intangibles from acquisitions | $ | 10,914 | $ | 11,292 | $ | 10,597 | $ | 10,706 | $ | 10,395 | $ | 10,465 | $ | 10,496 | $ | 10,046 | ||
Gain on remeasurement of previously held equity interest 2 | (1,587) | - | - | - | - | - | - | - | ||||||||||
Amortization and fair value adjustment of derivative instruments 4 | (107) | (542) | (445) | 616 | (1,645) | (145) | 3,991 | 1,227 | ||||||||||
Other items of note: | ||||||||||||||||||
Acquisition-related and other charges 1 | 1,028 | 6,558 | 3,265 | 4,378 | 737 | 637 | 610 | 707 | ||||||||||
Tax effect of above adjustments 6 | (3,578) | (5,543) | (3,962) | (4,615) | (2,854) | (3,237) | (4,311) | (3,103) | ||||||||||
Loss from discontinued operations, net of tax 5 | 10,695 | 529 | 2 | 377 | 243 | 188 | 413 | 433 | ||||||||||
Tax effect of acquisitions 7 | - | - | (1,156) | - | - | 2,080 | - | (3,628) | ||||||||||
Adjusted net income3 | $ | 23,107 | $ | 26,005 | $ | 27,906 | $ | 32,349 | $ | 21,810 | $ | 25,357 | $ | 26,259 | $ | 29,146 | ||
Adjusted net income per share, basic and diluted 3, 8, 9 | $ | 0.3901 | $ | 0.4390 | $ | 0.4711 | $ | 0.5461 | $ | 0.3682 | $ | 0.4281 | $ | 0.4433 | $ | 0.4982 | ||
Income from continuing operations per share, basic and diluted 8,9 | $ | 0.2775 | $ | 0.2404 | $ | 0.3310 | $ | 0.3590 | $ | 0.2562 | $ | 0.2626 | $ | 0.2612 | $ | 0.4084 | ||
Loss from discontinued operations per share, basic and diluted 8,9 | $ | (0.1806) | $ | (0.0089) | $ | - | $ | (0.0064) | $ | (0.0041) | $ | (0.0032) | $ | (0.0070) | $ | (0.0074) | ||
Net income per share, basic and diluted 8,9 | $ | 0.0969 | $ | 0.2315 | $ | 0.3310 | $ | 0.3526 | $ | 0.2521 | $ | 0.2595 | $ | 0.2542 | $ | 0.4010 | ||
1 | Acquisition-related and other charges for the first quarter of 2013 included transaction costs, certain retention and incentive costs and business integration costs pertaining to the acquisitions. |
2 | Upon acquisition of the remaining interest in January 2013, a gain related to remeasurement of the previously held equity interest was recognized in accordance with IFRS standards. |
3 | EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms. |
4 | Includes mark-to-market adjustments of interest-rate swaps that are not designated as hedges for hedge accounting purposes, and for which any change in the fair value of these contracts is recorded through the Consolidated Statement of Income. |
5 | On March 7, 2013 D+H announced that it had entered into an agreement to divest its non-strategic business processing operations. These operations were reported as part of business service solutions and loan servicing in prior periods and have now been classified as discontinued operations for both the current and comparative periods presented. |
6 | The following adjustments to net income are tax effected at their respective tax rates: (i) amortization of acquisition intangibles; (ii) amortization and fair value adjustment of derivative instruments; and (iii) acquisition-related and other charges. |
7 | Adjustments for the third quarter of 2012 included a non-cash tax recovery related to liabilities recognized in connection with the acquisition of Mortgagebot. Adjustments for the second quarter of 2011 included non-cash income tax recoveries recorded in connection with the acquisitions. Adjustments for the fourth quarter of 2011 related to de-recognition of previously recognized tax attributes. |
8 | Diluted Adjusted net income per share (non-IFRS term) reflects the impacts of outstanding options. If the average market price during the period is below the option price plus the fair market value of the option, then the options are not included in the dilution calculation. |
9 | Weighted average number of shares outstanding during the first quarter of 2013 was 59,233,373 shares (Q1 2012 - 59,233,373 shares). |
D+H has generally reported quarterly revenues that are relatively stable and growing when measured on a year-over-year basis. More recent changes in the economic environment, specifically the housing and mortgage markets and the auto lending markets, have increased volatility. Also, there has been more volatility in personal cheque order volumes. Measured on a sequential quarter-to-quarter basis, revenues can also vary due to seasonality. Fees earned in connection with mortgage origination services and automobile loan registration services are typically stronger in the second and third quarters than in the first and fourth quarters. The acquisitions of Avista on May 3, 2012 and Compushare on January 29, 2013 increased revenues and expenses. EBITDA was impacted by acquisition-related and other charges during the quarters, including transaction costs, business integration costs and certain retention and incentive costs related to acquisitions as well as other charges attributable to cost-realignment initiatives and strategic acquisition initiatives that are not considered to be incurred in the normal course of operations. Adjusted EBITDA removes the impacts of these charges as these are not indicative of the underlying business performance and management believes that excluding these items is more reflective of ongoing operating results.
Per share amounts were also impacted by the issuance of 6,000,000 additional shares of Davis + Henderson Corporation in April 2011 to partially fund the acquisition of Mortgagebot.
Net income has been more variable as it has been affected by non-cash items such as fair value adjustments of interest-rate swaps, amortization of intangibles from acquisitions, acquisition-related and other charges, discontinued operations, gain on remeasurement of the equity-interest held in Compushare and changes in other non-cash tax items.
Common Shares Outstanding
As at March 31, 2013, and May 7, 2013, common shares outstanding were 59,233,373, the same as at December 31, 2012.
Normal Course Issuer Bid ("NCIB")
As of March 31, 2013 and May 7, 2013, no shares were purchased under the NCIB.
Financial Instruments
The Company utilizes interest-rate swaps to hedge interest rate exposure and foreign exchange forward contracts to hedge foreign currency.
Interest-rate swaps
In respect of interest-rate swap contracts with its lenders, as of March 31, 2013, the Company's borrowing rates on 47.8% of outstanding long-term indebtedness under the Seventh Amended and Restated Credit Agreement ("Credit Agreement") are effectively fixed at the interest rates and for the time periods ending as outlined in the following table:
(in thousands of Canadian dollars, unaudited)
Fair value of interest-rate swaps |
|||||||||
Maturity Date | Notional amount | Asset | Liability | Interest Rate ¹ | |||||
December 18, 2014 | $ | 25,000 | $ | - | $ | 617 | 2.720% | ||
March 18, 2015 | 25,000 | - | 800 | 2.940% | |||||
March 18, 2017 | 25,000 | - | 1,750 | 3.350% | |||||
March 20, 2017 | 20,000 | - | 1,412 | 3.366% | |||||
$ | 95,000 | $ | - | $ | 4,579 | ||||
1 | The listed interest rates exclude bankers' acceptance fees and prime-rate spreads currently in effect. Such fees and spreads could increase or decrease depending on the Company's financial leverage compared to certain levels specified in the Credit Agreement. Based on the financial leverage as at March 31, 2013, the Company's long-term bank indebtedness will be subject to bankers' acceptance fees of 1.50% over the applicable BA rate and prime rate spreads of 0.50% over the prime rate. |
Foreign exchange forward contracts
The Company had no foreign exchange forward contracts in place as at March 31, 2013.
Long-Term Indebtedness
Long-term indebtedness is recorded on the Consolidated Statement of Financial Position, net of unamortized deferred financing fees. Long-term indebtedness as at March 31, 2013, before deducting unamortized deferred finance fees of $5.4 million, was $374.8 million, compared to $346.3 million at December 31, 2012.
As at March 31, 2013, the Company had $531.0 million of committed funds consisting of $355.0 million under the credit facility (of which $198.8 million was drawn as at March 31, 2013) and $176.0 million drawn from bonds. The Company also had $282.6 million of additional uncommitted arrangements available, subject to prior approval of the relevant lenders with any fees, spreads and other additional terms to be negotiated at that time, of which $150.0 million was under the credit facility and $132.6 million from the bonds.
The Company has historically hedged against increases in market interest rates on certain of its debt by utilizing interest-rate swaps and by issuing fixed rate long-term bonds as described above. As at March 31, 2013, the average effective interest rate on the Corporation's total indebtedness was approximately 4.3%, compared to 4.5% as at December 31, 2012.
The MD&A included in the 2012 Annual Report contains further details on the credit facility, bonds and hedging policies.
BUSINESS RISKS
A comprehensive discussion of the risks that impact the Business can be found on the Corporation's most recently filed Annual Information Form and the most recently filed annual MD&A, available on SEDAR at www.sedar.com. Risks and uncertainties related to the Corporation have not changed since the filing of the 2012 Annual Information Form and the 2012 annual MD&A.
OUTLOOK
D+H's long-term financial objective is to deliver sustainable and growing earnings through continued organic revenue growth and by way of strategic acquisitions. Recent acquisitions continue to: (i) strengthen our ability to deliver on our goal of being a leading FinTech provider to the North American financial services industry; (ii) provide revenue diversification; (iii) deliver strong and sustainable cash flows to fund future growth and distributions; and (iv) support our long-term strategy.
Going forward, we will focus on executing our organic growth initiatives and continuing to diligently identify efficiency opportunities to better serve customers as our businesses evolve. Cost-realignment initiatives executed in 2012 continue to result in annualized savings benefitting both current and future periods, and will be used to offset an increase in expenses to support future growth. Beyond the immediate term, 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 by way of selective acquisitions. Our organic initiatives include: (i) continuing to expand our customer base of SaaS mortgage POS, LOS and cloud-based offerings in the U.S.; (ii) the ongoing advancement of payment solutions through growth in value-added consumer and business services to financial institution customers; (iii) expanding our current technology-enabled offerings within the mortgage, auto, personal, student lending, commercial and leasing markets; and (iv) selling and delivering our lending technology solutions to new customers.
Our acquisition strategy focuses on acquiring companies that extend or add to the services that we provide within the financial services marketplace, with a bias for companies that have strong SaaS cloud capabilities, defensible business models, growing revenues and strong cash flows, capable management and offer an extension to our existing businesses.
With the inclusion of several new service areas over the last several years, we expect to continue to experience some increase in variability in year-over-year quarterly revenues, earnings and cash flows, due to, among other items: (i) volatility in personal cheque order volume declines; (ii) competitive dynamics in the Canadian lending environment; (iii) volume variances within the mortgage origination and lien registration markets; (iv) timing differences and variability in professional services work; and (v) fees and expenses associated with acquisitions and related integration activities. Within the Canadian Segment, D+H believes that revenues from banking technology solutions in 2013 may be impacted by more moderate housing prices and lower real estate activity compared to the previous years and potential price adjustments, which are expected to be offset by potential revenue from the launch of new products in the Canadian lending market, including extension of our technology solutions across various areas in the lending value chain. In the U.S. Segment, a slight recovery in the U.S. housing market is expected to somewhat offset a reduction in refinancing activity in 2013.
For 2013, capital spending of approximately $35 million is currently anticipated, which may vary based on spending in support of new growth opportunities if and as they arise.
As described earlier, the Corporation does not expect to pay any significant cash taxes until after 2013.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This MD&A contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning D+H's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of D+H are forward-looking statements. The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of D+H to meet its revenue, "EBITDA", "Adjusted EBITDA" and "Adjusted net income" targets (see Non-IFRS Financial Measures for a more complete description of the terms EBITDA, Adjusted EBITDA and Adjusted net income); general industry and economic conditions; changes in D+H's relationship with its customers and suppliers; pricing pressures and other competitive factors; the anticipated effect of acquisitions on the financial performance of D+H; and the expected benefits arising as a result of acquisitions. D+H has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While D+H considers these factors and assumptions to be reasonable based on information currently available, there can be no assurance that actual results will be consistent with these forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause D+H's actual results, performance or achievements, or developments in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements.
Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of personal and business cheques; the Company's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Company's financial objective; stability and growth in the real estate, mortgage and lending markets; increased pricing pressures and increased competition which could lead to loss of contracts or reduced margins; as well as general market conditions, including economic and interest rate dynamics. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The documents incorporated by reference herein also identify additional factors that could affect the operating results and performance of the Company. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and D+H does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change except as required by applicable securities laws.
All of the forward-looking statements made in this MD&A and the documents incorporated by reference herein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company.
ADDITIONAL INFORMATION
Additional information relating to the Company, including the Company's most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.
Consolidated Statements of Financial Position | ||||||
(in thousands of Canadian dollars, unaudited) | ||||||
March 31, 2013 | December 31, 2012 | |||||
ASSETS | ||||||
Cash and cash equivalents | $ | 768 | $ | 5,719 | ||
Trade and other receivables | 74,556 | 84,996 | ||||
Prepayments | 11,853 | 14,104 | ||||
Inventories | 3,389 | 4,181 | ||||
Assets held for sale | 24,051 | - | ||||
Total current assets | 114,617 | 109,000 | ||||
Deferred tax assets | 28,805 | 28,095 | ||||
Property, plant and equipment | 27,660 | 30,201 | ||||
Investment in an associate | - | 10,145 | ||||
Intangible assets | 421,988 | 421,366 | ||||
Goodwill | 717,555 | 690,583 | ||||
Total non-current assets | 1,196,008 | 1,180,390 | ||||
Total assets | $ | 1,310,625 | $ | 1,289,390 | ||
LIABILITIES | ||||||
Trade payables, accrued and other liabilities | $ | 79,269 | $ | 99,910 | ||
Deferred revenue | 15,712 | 12,586 | ||||
Current tax liabilities | 7,953 | 697 | ||||
Liabilities held for sale | 11,795 | - | ||||
Total current liabilities | 114,729 | 113,193 | ||||
Deferred revenue | 9,113 | 9,419 | ||||
Derivative liabilities held for risk management | 4,579 | 4,686 | ||||
Loans and borrowings | 369,340 | 340,577 | ||||
Deferred tax liabilities | 112,758 | 113,291 | ||||
Other long-term liabilities | 7,939 | 6,116 | ||||
Total non-current liabilities | 503,729 | 474,089 | ||||
Total liabilities | 618,458 | 587,282 | ||||
EQUITY | ||||||
Capital | 673,791 | 673,680 | ||||
Retained earnings | 8,946 | 22,544 | ||||
Accumulated other comprehensive income | 9,430 | 5,884 | ||||
Total equity | 692,167 | 702,108 | ||||
Total liabilities and equity | $ | 1,310,625 | $ | 1,289,390 |
Consolidated Statements of Income | |||||||
(in thousands of Canadian dollars, except per share amounts, unaudited) | |||||||
Three months ended | |||||||
March 31, 2013 | March 31, 2012 | ||||||
Revenue | $ | 171,661 | $ | 165,321 | |||
Employee compensation and benefits | 47,047 | 44,572 | |||||
Other expenses | 82,617 | 80,502 | |||||
Income from operating activities before depreciation and amortization | 41,997 | 40,247 | |||||
Depreciation of property, plant and equipment | 1,936 | 1,893 | |||||
Amortization of intangible assets | 15,497 | 14,967 | |||||
Income from operating activities | 24,564 | 23,387 | |||||
Finance expenses: | |||||||
Fair value adjustment of derivative instruments | (107) | (1,645) | |||||
Interest expense | 4,471 | 4,821 | |||||
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 | 21,917 | 20,211 | |||||
Income tax expense | 5,480 | 5,034 | |||||
Income from continuing operations | 16,437 | 15,177 | |||||
Loss from discontinued operations, net of income tax | (10,695) | (243) | |||||
Net income | $ | 5,742 | $ | 14,934 | |||
Net income per share from continuing operations, basic and diluted | $ | 0.2775 | $ | 0.2562 | |||
Loss per share from discontinued operations, basic and diluted | $ | (0.1806) | $ | (0.0041) | |||
Net income per share, basic and diluted | $ | 0.0969 | $ | 0.2521 |
Consolidated Statements of Comprehensive Income | |||||||
(in thousands of Canadian dollars, unaudited) | |||||||
Three months ended | |||||||
March 31, 2013 | March 31, 2012 | ||||||
Net income | $ | 5,742 | $ | 14,934 | |||
The following items may be reclassified subsequently to profit or loss: | |||||||
Cash flow hedges: | |||||||
Effective portion of changes in fair value | - | 170 | |||||
Net amount transferred to profit or loss | - | (281) | |||||
Foreign currency translation | 3,546 | (2,937) | |||||
Total comprehensive income | $ | 9,288 | $ | 11,886 |
Consolidated Statements of Changes in Equity | ||||||||||
(in thousands of Canadian dollars, unaudited) | ||||||||||
Three months ended March 31, 2013 | ||||||||||
Accumulated other comprehensive income (loss) |
||||||||||
Share capital | Foreign currency translation reserve |
Hedging reserve |
Retained earnings |
Total equity | ||||||
Balance at January 1, 2013 | $ | 673,680 | $ | 5,884 | $ | - | $ | 22,544 | $ | 702,108 |
Impact of transition to IAS 19R | - | - | - | (385) | (385) | |||||
Net income for the period | - | - | - | 5,742 | 5,742 | |||||
Foreign currency translation | - | 3,546 | - | - | 3,546 | |||||
Dividends | - | - | - | (18,955) | (18,955) | |||||
Options | 111 | - | - | - | 111 | |||||
Balance at March 31, 2013 | $ | 673,791 | $ | 9,430 | $ | - | $ | 8,946 | $ | 692,167 |
Three months ended March 31, 2012 | |||||||||||
Accumulated other comprehensive income (loss) |
|||||||||||
Share capital | Foreign currency translation reserve |
Hedging reserve |
Retained earnings |
Total equity | |||||||
Balance at January 1, 2012 | $ | 673,163 | $ | 9,326 | $ | (240) | $ | 27,449 | $ | 709,698 | |
Net income for the period | - | - | - | 14,934 | 14,934 | ||||||
Cash flow hedges | - | - | (111) | - | (111) | ||||||
Foreign currency translation | - | (2,937) | - | - | (2,937) | ||||||
Dividends | - | - | - | (18,362) | (18,362) | ||||||
Options | 189 | - | - | - | 189 | ||||||
Balance at March 31, 2012 | $ | 673,352 | $ | 6,389 | $ | (351) | $ | 24,021 | $ | 703,411 |
Consolidated Statements of Cash Flows | |||||||
(in thousands of Canadian dollars, unaudited) | |||||||
Three months ended | |||||||
March 31, 2013 | March 31, 2012 | ||||||
Cash and cash equivalents provided by (used in): | |||||||
OPERATING ACTIVITIES | |||||||
Income from continuing operations | $ | 16,437 | $ | 15,177 | |||
Adjustments for: | |||||||
Depreciation of property, plant and equipment | 1,936 | 1,893 | |||||
Amortization of intangible assets | 15,497 | 14,967 | |||||
Fair value adjustment of derivative instruments | (107) | (1,645) | |||||
Interest expense | 4,471 | 4,821 | |||||
Income tax expense | 5,480 | 6,763 | |||||
Options expense | 111 | 189 | |||||
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 | (15,148) | (14,640) | |||||
Changes in other operating assets and liabilities | 1,792 | 683 | |||||
Cash flows from (used in) discontinued operations | (4,731) | 586 | |||||
Cash generated from operating activities | 24,021 | 28,794 | |||||
Interest paid | (4,043) | (4,221) | |||||
Income taxes paid | (1,344) | - | |||||
Net cash from operating activities | 18,634 | 24,573 | |||||
FINANCING ACTIVITIES | |||||||
Repayment of long-term indebtedness | (1,016) | (5,000) | |||||
Proceeds from long-term indebtedness | 27,065 | 10,000 | |||||
Dividends paid | (18,955) | (18,362) | |||||
Net cash from (used in) financing activities | 7,094 | (13,362) | |||||
INVESTING ACTIVITIES | |||||||
Acquisition of property, plant and equipment | (1,923) | (3,685) | |||||
Acquisition of intangible assets | (4,363) | (6,851) | |||||
Acquisition of subsidiary | (24,393) | - | |||||
Net cash used in investing activities | (30,679) | (10,536) | |||||
Increase (decrease) in cash and cash equivalents for the period | (4,951) | 675 | |||||
Cash and cash equivalents, beginning of period | 5,719 | 2,213 | |||||
Cash and cash equivalents, end of period | $ | 768 | $ | 2,888 |
About D+H
D+H is a leading provider of secure and reliable technology solutions to North American financial institutions. With a long history as a trusted partner to banks, credit unions and other financial services providers, D+H's solutions allow our customers to focus on serving their customers. And, as the financial services marketplace continues to evolve, so do we. D+H offers a wide spectrum of technologies and services that are designed to help financial institutions stay competitive by supporting specific areas of their business as well as overall operations. D+H's diverse and growing portfolio includes banking technology solutions, lending administration solutions, and payments solutions including cheque and value-added membership marketing programs. In 2012, D+H rose to 35th on the FinTech 100, a ranking of the top technology providers to the global financial services industry and is ranked 24th on the 2013 Branham300, a listing of the top Canadian ICT companies .
Davis + Henderson Corporation is listed on the Toronto Stock Exchange under the symbol DH. Further information can be found in the disclosure documents filed by Davis + Henderson Corporation with the securities regulatory authorities, available at www.sedar.com.
SOURCE: Davis + Henderson Corporation
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Brian Kyle, Executive Vice President and Chief Financial Officer, Davis + Henderson Corporation, (416) 696-7700, [email protected] or visit our website at www.dhltd.com.
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