D+H Announces Second Quarter 2016 Earnings and Realignment of Global Operations
TORONTO, July 26, 2016 /CNW/ - DH Corporation (TSX:DH) ("D+H" or the "Company"), a leading provider of technology solutions to domestic and global financial institutions, reported its financial results for the three and six months ended June 30, 2016.
"Our Q2 results reflected strength in most of our key business solutions, offset by the ongoing impact of lower LaserPro renewals in 2016. In the quarter we were pleased with the ongoing growth in our cash from operating activities, part of which we used to continue to repay debt. We also announced changes to how we are organizing ourselves to operate more effectively on a global scale. We expect these changes to enhance our go to market capabilities as well as to provide us with greater operating efficiencies," said Gerrard Schmid, "The global realignment is just one component of our strategy to streamline and improve the long term growth of our business. We are also focused on continuing to invest in, and optimize, our product portfolio while enhancing our risk posture."
Second Quarter 2016 Highlights
- Revenues increased 14% in the second quarter to $424 million compared with $372 million in the same quarter in the prior year. Adjusted revenues(1) totalled $425 million in the second quarter, an increase of $50 million or 13% over the same quarter in the prior year. The Revenues and Adjusted revenue increases include the impact of the Fundtech acquisition (operating as GTBS) on April 30, 2015, foreign exchange and organic growth.
- Organic growth in the quarter for the GTBS segment totalled 6.7% on a proforma constant currency basis; in the L&IC segment, the integrated core business organic growth totalled 8.5% in U.S. dollars, which was offset by a 7.5% decrease, in U.S. dollars in lending which is primarily due to the LaserPro renewal cycle. In the Canadian segment we realized organic growth of 5.5%.
- EBITDA(1) increased 10% to $95 million in the second quarter of 2016. The increase in EBITDA reflects the operating segment results including the GTBS acquisition offset by expenses related to the realignment of global operations totalling $22 million in the quarter.
- Adjusted EBITDA(1) increased 6% to $117 million (27.4% margin) in the second quarter, from $110 million (29.4% margin) in the same period in the prior year. Adjusted EBITDA removes the impact of acquisition-related and restructuring-related expenses and other items. The Adjusted EBITDA margin reflects the inclusion of the GTBS segment which historically has lower margins than the existing D+H business, the change in sales mix in both our L&IC and Canadian segments, and timing of other items.
- Consolidated net income of $5 million ($0.05 per share, basic and diluted) in the second quarter decreased as compared to $6 million ($0.06 per share, basic and diluted) in the prior year. The decrease is primarily due to the increase in amortization of intangible assets, partially offset by increases in EBITDA and income taxes recovery.
- Adjusted net income(1) decreased 1% to $59 million in the second quarter from $60 million in the same period in the prior year primarily reflecting an increase in EBITDA and income taxes recovery, offset by an increase in amortization on non-acquisition intangible assets. Adjusted net income per share(1) was $0.55 (106.8 million weighted average shares outstanding) in the second quarter compared to $0.60 (99.5 million weighted average shares outstanding) in the same period in the prior year as a result of higher shares outstanding and the decrease in Adjusted net income of $0.7 million.
- Net cash from operating activities increased by 7% in the second quarter, to $55 million from $52 million in the same period in prior year. Adjusted net cash from operating activities(1) increased by 12% in the second quarter, to $80 million from $71 million in the same period in prior year.
- Loans, borrowings and convertible debentures totalled $1.9 billion at June 30, 2016 as compared to $2.1 billion at December 31, 2015, and $2.0 billion at June 30, 2015.
- The Total Net Funded Debt to EBITDA(1) ratio was 2.998x at June 30, 2016, compared to 3.451x following the closing of the acquisition of Fundtech on April 30, 2015, and 3.185x at December 31, 2015. The Company repaid $10 million of debt during the second quarter of 2016 and a total of $80 million since the acquisition of Fundtech.
Strategic and Operating Realignment
D+H is evolving the organization of its business to pursue its long term vision and strategy to operate on a global scale in lending and payments including operating its key functions and business processes globally to benefit from standardization, scale and increased efficiencies.
The Company has realigned the organization, in which expected gross savings of approximately $53 million are offset by investments in new positions, for an estimated net savings of $25 million in annualized compensation and related cost savings. Net savings are expected starting in the middle of the third quarter. The restructuring-related expenses are estimated to be between $30 million and $32 million, and will be recognized primarily in 2016. Restructuring-related expenses totaling $22.0 million and $28.8 million have been recorded in the second quarter and year-to-date in 2016. These expenses include severance costs, consulting and professional fees, financial systems and other realignment costs. During 2016 the Company expects to achieve net savings of approximately $19 million of which 30% has been realized through the end of the second quarter.
The transition to the new operating model is underway. The Company will continue to manage and report financial results for GTBS, L&IC and Canada through the end of 2016. We will begin reporting under our new business segments commencing in the first quarter of 2017 with the comparable information for the first quarter of 2016. Refer to the MD&A for the three and six months ended June 30, 2016 for additional information.
Second Quarter and Year to Date 2016 Results
The selected financial information included in this press release is qualified in its entirety by, and should be read together with the unaudited condensed interim consolidated financial statements and the MD&A for the three and six months ended June 30, 2016, which can be found at dh.com and in the disclosure documents filed by the Company with the securities regulatory authorities at sedar.com.
| Selected Consolidated Financial Information 2 |
Three months ended June 30 |
Six months ended June 30 |
||||||||
| (C$ millions unless otherwise indicated, unaudited) |
2016 |
2015 |
2016 |
2015 |
||||||
| Revenues |
||||||||||
| Revenues |
$ |
424.2 |
$ |
372.4 |
$ |
836.3 |
$ |
667.4 |
||
| Add: Acquisition accounting adjustments |
1.2 |
2.8 |
3.2 |
4.3 |
||||||
| Adjusted revenues1 |
$ |
425.3 |
$ |
375.2 |
$ |
839.5 |
$ |
671.7 |
||
| EBITDA1 |
||||||||||
| EBITDA1 |
$ |
95.1 |
$ |
86.4 |
$ |
187.4 |
$ |
180.3 |
||
| Add: Acquisition accounting adjustments |
(0.7) |
0.2 |
(1.3) |
(0.7) |
||||||
| Add: Acquisition-related and other charges |
2.2 |
19.2 |
7.9 |
28.7 |
||||||
| Add: Realignment of global operations and related restructuring expenses |
22.0 |
— |
28.8 |
— |
||||||
| Add: Foreign exchange (gain) / loss |
(2.1) |
4.4 |
(3.2) |
(11.1) |
||||||
| Adjusted EBITDA1 |
$ |
116.5 |
$ |
110.2 |
$ |
219.5 |
$ |
197.1 |
||
| Adjusted EBITDA margin1 |
27.4% |
29.4% |
26.1% |
29.3% |
||||||
| Net Income |
||||||||||
| Net income |
$ |
5.4 |
$ |
6.0 |
$ |
10.2 |
$ |
40.0 |
||
| Add: Non-cash items |
52.7 |
57.1 |
109.5 |
73.6 |
||||||
| Add: Acquisition-related and other charges |
2.2 |
19.2 |
7.9 |
28.7 |
||||||
| Add: Realignment of global operations and related restructuring expenses, |
22.2 |
— |
28.9 |
— |
||||||
| Add: Tax effect of above adjustments |
(23.6) |
(22.7) |
(52.1) |
(35.3) |
||||||
| Adjusted net income1 |
$ |
58.9 |
$ |
59.6 |
$ |
104.4 |
$ |
107.0 |
||
| Net income per share, basic and diluted (C$) |
$ |
0.05 |
$ |
0.06 |
$ |
0.10 |
$ |
0.43 |
||
| Adjusted net income per share, basic1 (C$) |
$ |
0.55 |
$ |
0.60 |
$ |
0.98 |
$ |
1.15 |
||
| Liquidity |
||||||||||
| Net cash from operating activities |
$ |
55.4 |
$ |
51.9 |
$ |
110.1 |
$ |
61.7 |
||
| Add: Acquisition-related and other charges |
2.2 |
19.2 |
7.9 |
28.7 |
||||||
| Add: Realignment of global operations and related restructuring expenses |
22.0 |
— |
28.8 |
— |
||||||
| Adjusted net cash from operating activities1 |
$ |
79.6 |
$ |
71.1 |
$ |
146.8 |
$ |
90.4 |
||
| Uses of Adjusted net cash from operating activities1: |
||||||||||
| Capital expenditures |
(22.7) |
(17.2) |
(43.7) |
(44.8) |
||||||
| Dividends |
(32.6) |
(24.6) |
(57.4) |
(45.1) |
||||||
| Adjusted net cash from operating activities after capital expenditures and cash |
$ |
24.2 |
$ |
29.4 |
$ |
45.7 |
$ |
0.4 |
||
| Net debt repayment |
(10.0) |
— |
(30.0) |
— |
||||||
| Adjusted net cash from operating activities after capital expenditures, cash |
$ |
14.2 |
$ |
29.4 |
$ |
15.7 |
$ |
0.4 |
||
Revenues and Adjusted revenues by service area for the three and six months ended June 30, 2016.
| Revenues and Adjusted revenues by Service Area1,2 |
Three months ended June 30 |
Six months ended June 30 |
||||||||
| (C$ millions unaudited) |
2016 |
2015 |
2016 |
2015 |
||||||
| Revenues by service area |
||||||||||
| Lending solutions |
$ |
178.7 |
$ |
172.1 |
$ |
343.3 |
$ |
330.2 |
||
| Global transaction banking solutions |
90.4 |
55.1 |
184.5 |
55.1 |
||||||
| Payments solutions |
82.5 |
81.3 |
162.1 |
155.1 |
||||||
| Integrated core solutions |
72.6 |
63.9 |
146.3 |
127.1 |
||||||
| Total revenues |
$ |
424.2 |
$ |
372.4 |
$ |
836.3 |
$ |
667.4 |
||
| Adjusted revenues1 by service area |
||||||||||
| Lending solutions |
$ |
179.4 |
$ |
173.2 |
$ |
344.8 |
$ |
332.7 |
||
| Global transaction banking solutions |
90.7 |
56.6 |
185.9 |
56.6 |
||||||
| Payments solutions |
82.5 |
81.3 |
162.1 |
155.1 |
||||||
| Integrated core solutions |
72.7 |
64.0 |
146.6 |
127.4 |
||||||
| Total Adjusted revenues1 |
$ |
425.3 |
$ |
375.2 |
$ |
839.5 |
$ |
671.7 |
||
Results by segment for the three and six months ended June 30, 2016.
| Results by Segment 2 |
Three months ended June 30 |
|||||||||||||||||||
| (C$ millions unless |
GTBS |
L&IC |
Canada |
Corporate |
Consolidated |
|||||||||||||||
| 2016 |
2015 |
2016 |
2015 |
2016 |
2015 |
2016 |
2015 |
2016 |
2015 |
|||||||||||
| Revenues |
$ |
90.4 |
$ |
55.1 |
$ |
146.7 |
$ |
139.8 |
$ |
187.1 |
$ |
177.4 |
— |
— |
$ |
424.2 |
$ |
372.4 |
||
| Expenses |
70.8 |
43.9 |
100.2 |
94.0 |
135.9 |
124.5 |
$ |
22.1 |
$ |
23.7 |
329.1 |
286.0 |
||||||||
| EBITDA1 |
$ |
19.5 |
$ |
11.2 |
$ |
46.5 |
$ |
45.9 |
$ |
51.3 |
$ |
52.9 |
$ |
(22.1) |
$ |
(23.7) |
$ |
95.1 |
$ |
86.4 |
| EBITDA margin1 |
21.6% |
20.4% |
31.7% |
32.8% |
27.4% |
29.8% |
— |
— |
22.4% |
23.2% |
||||||||||
| Adjusted revenues1 |
$ |
90.7 |
$ |
56.6 |
$ |
147.5 |
$ |
141.2 |
$ |
187.1 |
$ |
177.4 |
— |
— |
$ |
425.3 |
$ |
375.2 |
||
| Adjusted EBITDA1 |
$ |
19.6 |
$ |
12.3 |
$ |
45.6 |
$ |
45.0 |
$ |
51.3 |
$ |
52.9 |
— |
— |
$ |
116.5 |
$ |
110.2 |
||
| Adjusted EBITDA margin1 |
21.6% |
21.7% |
30.9% |
31.9% |
27.4% |
29.8% |
— |
— |
27.4% |
29.4% |
||||||||||
| Results by Segment 2 |
Six months ended June 30 |
|||||||||||||||||||
| (C$ millions unless |
GTBS |
L&IC |
Canada |
Corporate |
Consolidated |
|||||||||||||||
| 2016 |
2015 |
2016 |
2015 |
2016 |
2015 |
2016 |
2015 |
2016 |
2015 |
|||||||||||
| Revenues |
$ |
184.5 |
$ |
55.1 |
$ |
295.3 |
$ |
277.6 |
$ |
356.5 |
$ |
334.7 |
— |
— |
$ |
836.3 |
$ |
667.4 |
||
| Expenses |
143.3 |
43.9 |
206.8 |
183.3 |
265.4 |
242.4 |
$ |
33.4 |
$ |
17.5 |
649.0 |
487.1 |
||||||||
| EBITDA1 |
$ |
41.2 |
$ |
11.2 |
$ |
88.5 |
$ |
94.3 |
$ |
91.0 |
$ |
92.4 |
$ |
(33.4) |
$ |
(17.5) |
$ |
187.4 |
$ |
180.3 |
| EBITDA margin1 |
22.3% |
20.4% |
30.0% |
34.0% |
25.5% |
27.6% |
— |
— |
22.4% |
27.0% |
||||||||||
| Adjusted revenues1 |
$ |
185.9 |
$ |
56.6 |
$ |
297.1 |
$ |
280.4 |
$ |
356.5 |
$ |
334.7 |
— |
— |
$ |
839.5 |
$ |
671.7 |
||
| Adjusted EBITDA1 |
$ |
41.7 |
$ |
12.3 |
$ |
86.8 |
$ |
92.5 |
$ |
91.0 |
$ |
92.4 |
— |
— |
$ |
219.5 |
$ |
197.1 |
||
| Adjusted EBITDA margin1 |
22.4% |
21.7% |
29.2% |
33.0% |
25.5% |
27.6% |
— |
— |
26.1% |
29.3% |
||||||||||
Segment results in U.S. dollars for the three and six months ended June 30, 2016.
| Revenues, Adjusted revenues1 and Adjusted EBITDA1 by Segment in U.S. dollars 2 |
Three months ended June 30 |
Six months ended June 30 |
||||||||
| (US$ millions except where noted, unaudited) |
2016 |
2015 |
2016 |
2015 |
||||||
| GTBS Segment Revenues, Adjusted revenues1 and Adjusted EBITDA1 |
||||||||||
| GTBS Segment revenues 3 |
$ |
70.1 |
$ |
44.8 |
$ |
139.1 |
$ |
44.8 |
||
| GTBS Segment Adjusted revenues 1,3 |
$ |
70.4 |
$ |
46.0 |
$ |
140.2 |
$ |
46.0 |
||
| GTBS Segment Adjusted EBITDA 1,3 |
$ |
15.2 |
$ |
10.0 |
$ |
31.7 |
$ |
10.0 |
||
| GTBS Segment Adjusted EBITDA margin 1,3 |
21.6% |
21.6% |
22.6% |
21.6% |
||||||
| L&IC Segment revenues |
||||||||||
| Lending solutions |
$ |
57.5 |
$ |
61.8 |
$ |
112.2 |
$ |
121.8 |
||
| Integrated core solutions |
56.4 |
52.0 |
110.1 |
102.9 |
||||||
| Total L&IC Segment revenues |
$ |
113.9 |
$ |
113.7 |
$ |
222.2 |
$ |
224.7 |
||
| L&IC Segment Adjusted revenues1 and Adjusted EBITDA1 |
||||||||||
| Lending solutions |
$ |
58.0 |
$ |
62.7 |
$ |
113.3 |
$ |
123.9 |
||
| Integrated core solutions |
56.5 |
52.1 |
110.3 |
103.1 |
||||||
| Total L&IC Segment Adjusted revenues1 |
$ |
114.5 |
$ |
114.8 |
$ |
223.6 |
$ |
227.0 |
||
| L&IC Segment Adjusted EBITDA 1 |
$ |
35.4 |
$ |
36.6 |
$ |
65.5 |
$ |
74.9 |
||
| L&IC Segment Adjusted EBITDA margin 1 |
30.9% |
31.9% |
29.3% |
33.0% |
||||||
| 1 |
Non-IFRS measure. See the "Use of Non-IFRS Financial Information" section of this press release for further details. |
| 2 |
Totals may not add due to rounding. |
| 3 |
Reported results for GTBS begin as of closing of the acquisition of Fundtech on April 30, 2015 and include the period from April 30, 2015 through June 30, 2015 |
Dividend
DH Corporation today announced that its Board of Directors has declared a quarterly dividend of $0.32 per common share payable on September 30, 2016 to shareholders of record at the close of business on September 16, 2016. The dividend is an eligible dividend for Canadian income tax purposes.
Outlook
In the second half of 2016, the Company intends to continue with the strategy outlined under Section 3.1 of the MD&A for the three and six months ended June 30, 2016. In addition, the Company will focus on the following initiatives:
- Disciplined and strategic focus on organic revenue growth;
- Enhancing capabilities in software engineering and product management, including employing agile development practices across our main product groups;
- Optimize our products by increasing investment in innovation and next generation financial technologies and rationalizing certain products;
- Evolving our business model and strategic capabilities to more effectively manage a global business;
- Reducing operating costs while increasing operating effectiveness;
- Continuing to strengthen our risk management practices and regulatory compliance capabilities; and
- Continuing to reduce leverage.
Although the Company continues to include acquisitions as part of its long-term growth and diversification strategy, the focus in the near term will be the implementation of the operating model to advance our global strategy, cross-selling, reduction of financial leverage and operating effectiveness.
In the second quarter the Company noted an increasing focus from global financial institutions on the macro economic conditions globally. In certain markets, financial institutions are also assessing the potential impact of the exit of the United Kingdom from the European Union as well as the implications of certain regulatory ring-fencing requirements. In the United States and Canada, while the economic outlook is mixed, we see no new changes that impact our current business in these markets. See below for further discussion on our outlook by segment.
For further information on management's outlook by segment for 2016, please refer to section 3 of the MD&A for the three and six months ended June 30, 2016.
MANAGEMENT CONFERENCE CALL AND WEBCAST
Teleconference:
A conference call to review these financial results, including a presentation, will take place at 10:00 a.m. (EDT) on Wednesday, July 27, 2016 hosted by Chief Executive Officer Gerrard Schmid and Chief Financial Officer Karen H. Weaver. To access the call, please dial 647-427-7450 (Local/Int'l) or 1-888-231-8191 (toll-free within North America). A replay of the call will also be available until August 3, 2016 by dialing 416-849-0833 (Local/Int'l) or 1-855-859-2056 (toll-free within North America), with Encore Password 46599410.
Webcast:
The conference call will also be webcast at http://event.on24.com/r.htm?e=1221708&s=1&k=85A5BBB8DBC0C4E4B442A952C9DC0A66 and will be archived for 90 days after the call. The link to the webcast and an accompanying slide presentation will be posted in the Investors section of the D+H website under Events and Presentations at http://www.dh.com/investors/events-and-presentations/conference-calls.
ABOUT D+H
D+H (TSX: DH) is a leading financial technology provider that the world's financial institutions rely on every day to help them grow and succeed. Our global payments, lending, and financial solutions are trusted by nearly 8,000 banks, specialty lenders, community banks, credit unions, governments and corporations. Headquartered in Toronto, Canada, D+H has more than 5,400 employees worldwide who are passionate about partnering with clients to create forward-thinking solutions that fit their needs. With annual revenues in excess of $1.5 billion, D+H is recognized as one of the world's top FinTech companies on IDC Financial Insights FinTech Rankings and American Banker's FinTech Forward rankings. For more information, visit dh.com
USE OF NON-IFRS FINANCIAL INFORMATION
D+H's financial results are prepared in accordance with International Financial Reporting Standards ("IFRS"). D+H reports several non-IFRS financial measures, including "Adjusted revenues", "Constant Currency", "Proforma Adjusted Revenues", "EBITDA", "EBITDA margin" (EBITDA divided by revenues), "Adjusted EBITDA", "Adjusted EBITDA margin" (Adjusted EBITDA divided by Adjusted revenues), "Adjusted net income", "Adjusted net income per share" and "Adjusted net cash from operating activities". D+H also reports "Debt to EBITDA ratio", which is also not a defined term under IFRS. See "Non-IFRS financial measures and key performance indicators" in D+H's MD&A for the three and six months ended June 30, 2016 for a more complete description of these terms and for reconciliations to their most directly comparable IFRS measure, where applicable. 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. Furthermore, D+H's financial measures may be calculated differently from similarly titled financial measures of other companies.
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, priorities, 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", "could", "should", "continue", "goal", "objective", 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.
A comprehensive discussion of the risks that impact D+H can be found on the Company's most recently filed Annual Information Form and the most recently filed annual MD&A for the year ended December 31, 2015, available on SEDAR at www.sedar.com. Risks and uncertainties related to the Company have not significantly changed since the filing of the 2015 Annual Information Form and the 2015 annual MD&A.
Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The documents referred to 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.
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 available at that time, 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.
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.
REGULATORY FILINGS AND ADDITIONAL INFORMATION
DH Corporation is listed on the Toronto Stock Exchange under the symbol DH. Further information can be found at dh.com and in the disclosure documents filed by DH Corporation with the securities regulatory authorities at sedar.com.
SOURCE DH Corporation
Karen H. Weaver, Executive Vice President and Chief Financial Officer, D+H, Anthony Gerstein, Head, Investor Relations, D+H [email protected] or visit our website at dh.com
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