ISC Reports Fourth Quarter and 2014 Financial Results

REGINA, March 17, 2015 /CNW/ - Information Services Corporation (TSX:ISV) ("ISC" or the "Company"), Saskatchewan's exclusive provider of key registry information services, today reported on the Company's financial results for the fourth quarter and year ended December 31, 2014. 

Fourth Quarter 2014 Highlights

• Revenue of $19.8 million
• EBITDA (earnings before interest, taxes, depreciation and amortization) of $7.0 million
• EBITDA margin of 35.6 per cent
• Net income of $4.0 million or $0.23 per share

Full-Year 2014 Highlights

• Revenue of  $80.5 million
• EBITDA of $30.2 million
• EBITDA margin of 37.6 per cent
• Net income of $18.4 million or $1.05 per share

Financial Position as at December 31, 2014

• Cash of $33.6 million
• Free cash flow of $23.9 million
• Total debt of $9.9 million

Commenting on the Company's annual results, Jeff Stusek, President and CEO stated, "I am very pleased with our performance in 2014, our first full fiscal year as a publicly traded company.  Despite the falttening of the markets towards the end of the year, ISC delivered a stable performance and maintained strong free cash flow while preserving balance sheet strength.  It is because of our prudent approach to managing our business that we were also able to sustain a competitive dividend payment to our shareholders.  As we move into 2015, this approach will continue to serve ISC well and deliver long-term value for our shareholders."

Management's Discussion of ISC's Summary of Fourth Quarter and Year End 2014 Financial Results

(Thousands of CAD dollars, except earnings per share and where  noted)		Three Months Ended  December 31,		Year Ended December 31,
		2014	2013	2014	2013
Revenue^1
	Land Titles Registry, Land Surveys Directory and Geomatics	$15,054	$15,688	$61,999	$61,141
	Personal Property Registry	$2,338	$2,358	$9,870	$9,787
	Corporate Registry	$2,017	$1,982	$ 8,235	$8,170
	Other	$350	$11	$355	$33
Total revenue^1		$ 19,759	$ 20,039	$ 80,459	$ 79,131
EBITDA^2		$ 7,035	$ 8,330	$ 30,240	$ 30,554
EBITDA margin^2 (% of Revenues)		35.6%	41.6%	37.6%	38.1%
Adjusted EBITDA^2		$ 7,035	$ 8,395	$ 30,240	$ 34,008
Adjusted EBITDA margin^2		35.6%	41.9%	37.6%	43.0%
Net income and total comprehensive income		$ 4,014	$ 4,743	$ 18,360	$ 76,981
Earnings per share^3		$0.23	$0.27	$1.05	$4.40
Free cash flow^2		$ 5,866	$ 7,652	$ 23,914	$ 27,862
Expenses		$14,059	$12,916	$55,308	$53,327

1. Revenues do not include the Vital Statistics Registry.
   
   
2. EBITDA, EBITDA Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow are not recognized as a measure under IFRS and do not have a standardized meaning prescribed by IFRS.  See section name "Non-IFRS Measures" in Management's Discussion & Analysis for the year ended December 31, 2014.
   
   
3. The calculation of earnings per share is based on net income after tax and the weighted average number of shares outstanding during the period.

• Revenue from the Land Registry (which includes the Land Titles Registry, Land Surveys Directory and Geomatics) was $62.0 million for the year ended December 31, 2014, an increase of $0.9 million, or 1.4 per cent, compared to the year ended December 31, 2013. Increases in volume and land values drove the increase in revenue.
  
  
• Revenue from the Personal Property Registry ("PPR") for the year ended December 31, 2014 was $9.9 million, which represents an increase of 0.8 per cent from the same period in 2013.
  
  
• Revenue for the Corporate Registry for the year ended December 31, 2014 was $8.2 million, nearly identical when compared to the year ended December 31, 2013. Maintenance service transactions accounted for 58.9 per cent of all transactions in the Corporate Registry. Search volume was the largest contributor to the increase in overall transaction volumes year-over-year. As the fee for a search is relatively low, the impact to revenue was small.
  
  
• Expenses for the year ended December 31, 2014 were $55.3 million, an increase of 3.7 per cent from $53.3 million for the same period in 2013. The increase was due to increases in wages and salaries, professional and consulting services,  information technology services costs, and additional expenses incurred to support the full fiscal year requirements of a publicly traded company.
  
  
• Depreciation and amortization was $5.1 million for the year ended December 31, 2014, a decrease of $0.4 million compared to the same period of 2013. The decline was due to certain projects reaching a fully amortized state in 2013 and only moderate capital expenditures in 2014.
  
  
• Capital expenditures for the year ended December 31, 2014 were flat at $3.7 million compared to the same period in 2013. Capital expenditures in 2014 were focused on sustaining initiatives such as the renewal and enhancement of technology hardware and the renewal and enhancement of technology supporting the Corporate Registry.
  
  Total capital expenditures for 2014, which were estimated to be between $5.0 million and $7.0 million were less than anticipated due to a change in timing of certain enhancements.
  
  
• ISC's cash position as at December 31, 2014 was $33.6 million compared to $27.6 million at the same time in 2013, which is an indication of the Company's ability to generate strong cash flow.  As at December 31, 2014, the Company had $9.9 million of long-term debt and no short-term borrowings. 

Outlook:

In 2015, ISC expects to continue to focus on delivering stable and predictable returns.

The MSA and related Registry Operating Agreements specify the maximum fees allowed to be charged to the public for particular Core Registry Services as per the MSA. The maximum fees are adjustable on a yearly basis and are based on a formula tied to inflation as measured by the Saskatchewan Consumer Price Index published by Statistics Canada. These adjustment provisions do not apply to any value-based fees. There are no restrictions on the fees ISC may charge for non-core Ancillary Services that use registry data. ISC expects to generally adjust prices as outlined in the MSA.

Given that adjustments to our prices are fixed as outlined above, and that the majority of our revenue is linked to economic conditions in Saskatchewan, the Company expects that revenue for 2015 will be impacted. This is based on the Saskatchewan economy entering 2015 during a period of some economic uncertainty, which is supported by a number of banks reforecasting their growth expectations downward for 2015 for the province.

For example, according to Bank of Montreal Capital Markets¹ most recent economic forecast for Saskatchewan, the provincial economy is expected to post real gross domestic product ("GDP") growth of 1.9 per cent in 2015, revised downward from 2.3 per cent at the end of November 2014.

The Company expects the housing market, which is a key driver of our Land Registry, to be impacted. Canada Mortgage and Housing Corporation Housing Market Outlook currently forecasts a decrease of 1.9 per cent in existing home sales volume in Saskatchewan for 2015. Average home resale prices are expected to increase by 1.4 per cent in 2015².

Saskatchewan housing starts for all of 2014 were down 1.4 per cent over 2013, while the number of completions was up 10.4 per cent³. This increase in completions has contributed to a buyers' market in certain parts of the province. The extra inventory may impact average sales prices negatively in 2015.

As well, the Land Titles Registry saw a large number of high value property registrations in 2014, which generate a high fee per transaction. High value property registrations in 2013 and 2014 were higher than our long-term average, however, we expect high value property registrations to drop to a more normalized level in 2015, which directly impacts revenue.

For the PPR, new vehicle sales are an indication of expected revenue. For all of 2014, the number of units of new vehicles sold decreased 1.2 per cent compared to the same period in 2013.⁴ Scotiabank revised earlier forecasts downward, expecting annual motor vehicle sales in Saskatchewan to be 55,000 in 2015, an expected decrease over 2014 volumes⁵.

There is risk that consumer behaviour will be affected depending on the duration of this climate of uncertainty. Inactivity could occur if consumers take a 'wait and see' approach to their larger purchases such as homes and vehicles. Businesses could scale back or ramp up their investments, depending on which sector they are in. Further changes to interest rates could also impact consumer behaviour. As provincial economic conditions change, the Company's revenue may be impacted.

Recent cuts in interest rates by the Bank of Canada, followed by the major banks, are intended to stimulate the economy. In addition, the outlook on potash prices is generally positive and the strengthening of the United States economy and the drop in the value of the Canadian dollar could positively impact Saskatchewan exports. These factors could positively impact ISC's registries.

ISC has also monitored the decline in the price of oil and the potential impact to the Company. While there is no clear link between the price of oil and the Company's revenue, oil and gas is one segment of the Saskatchewan economy, and therefore could have an impact on our overall registry business.

ISC's key drivers of expenses will continue to be wages and salaries and information technology costs as the Company continues to focus on efficiency and effectiveness, leveraging investment in systems and processes while maintaining a high level of customer service. However, inflationary impacts are expected to move these costs marginally higher in 2015

Management expects capital expenditures in 2015 to be in the range of $4.0 million to $6.0 million funded from operating cash flow. These expenditures are primarily expected to be sustaining capital expenditures which include general office improvements, enhancement and upgrades to core technology components and enterprise systems, and the continuation of the renewal and enhancement of the technology supporting the Corporate Registry.

As stated earlier, revenue in 2014 was higher than 2013, partly due to high value transactions. Typically, high value transactions have been approximately 4.9 per cent of total revenue. In 2014, high value transactions were 6.7 per cent of the Company's revenue, which directly affects EBITDA margins. Not considering these high value transactions, ISC would have achieved an EBITDA margin of 36.7 per cent in 2014. In 2015, given the uncertain economic conditions described above, ISC expects its EBITDA margin to remain in the range of 36.0 per cent to 37.0 per cent.

Note to Readers:

This news release provides a general summary of Information Services Corporation's results for the fourth quarters and years ended December 31, 2014 and 2013.  Readers are encouraged to download the Company's complete financial disclosures. Links to ISC's financial statements and related notes and Management's Discussion and Analysis for the period are available on ISC's website in the Investor section of the site at http://isc.investorroom.com/annual-reports.  All figures are in Canadian dollars unless otherwise noted.

Copies can also be obtained at www.sedar.com by searching Information Services Corporation's profile or by contacting Information Services Corporation at [email protected].

Conference Call And Webcast

The Company is hosting a conference call and webcast at 9:00 a.m. Saskatchewan Time; 11:00 a.m. Eastern Time on March 18, 2015 to discuss these results. Dial-in numbers for the conference call are:

1-416-764-8688 or toll-free at 1-888-390-0546.

A live audiocast of the conference call is available at the following link: http://isc.investorroom.com/events

The webcast will be available for replay 24 hours after the event until 11:59 p.m. EST on April 18, 2015 at http://isc.investorroom.com/events.   

About ISC

ISC is an experienced provider of registry and information services for government, individuals and private sector business.  As the exclusive provider of the land titles, surveys, personal property and corporate registries for Saskatchewan, the Company maintains and operates these registries, which are key supporters of economic activity in the province.

Cautionary Note Regarding Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable Canadian securities legislation, including management's expectations and certain assumptions with respect to the  registry services and products, its competitive landscape, the Saskatchewan economy, consumer confidence, interest rates, level of unemployment, inflation, real estate market in Saskatchewan, impact of prices for agricultural commodities, oil and potash,  claim liabilities, income taxes, our ability to attract and retain skilled staff, the compensation and benefits that will be paid or provided to employees and our level of customer service, as well as goodwill and intangibles are material factors in preparing forward-looking statements. In addition, the words ''may'', ''will'', ''would'', ''should'', ''could'', ''expect'', ''plan'', ''intend'', ''trend'', ''indicate'', ''anticipate'', ''believe'', ''estimate'', ''predict'', ''project'', ''targets'', ''strive'', ''strategy'', ''continue'', ''likely'' or ''potential'' or the negative or other variations of these words or other comparable words or phrases are intended to identify forward-looking statements. Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking information. Although ISC believes the forward-looking information contained in this release is based upon reasonable assumptions, readers are cautioned not to place undue reliance on forward-looking information as it is inherently uncertain and no assurance can be given that the expectations reflected in such information will prove to be correct. Many factors and risks could cause our actual results to differ materially from those expressed or implied by forward-looking information including those detailed in ISC's Annual Information Form, dated March 17, 2015, ISC's Consolidated Financial Statements and Notes and Management's Discussion and Analysis for the year ended December 31, 2014 as well as other documents filed by ISC with Canadian securities regulators through SEDAR at www.sedar.com from time to time. Investors and others should carefully consider the above-noted factors and risks and other uncertainties and potential events. The forward-looking information in this release is made as of the date hereof and, except as required under applicable securities legislation, ISC assumes no obligation to update or revise such information to reflect new events or circumstances.

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¹ BMO Capital Markets Economics – Provincial Economic Outlook – February 6, 2015 and November 28, 2014.

² CMHC Housing Market Outlook – Canadian Edition – First Quarter 2015.

³ Statistics Canada CANSIM Table 027-0001: Canada Mortgage and Housing Corporation, housing starts, under construction, and completions in centres 10,000 and over – February 23, 2015.

⁴ Statistics Canada CANSIM Table 079-0003: New motor vehicle sales, Canada, provinces and territories – January 26, 2014.

⁵ Scotiabank Global Economics – Global Forecast Update – February 3, 2015.

SOURCE Information Services Corporation

INVESTOR CONTACT: Pamela Keck, Toll Free: 1-855-341-8363 in North America or 1-306-798-1137, [email protected]

Related Links

www.isc.ca