Constellation Software Inc (CNSWF)

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Constellation Software, Inc. (CNSWF)

Q1 2017 Results Earnings Conference Call

April 28, 2017, 08:00 AM ET


Mark Leonard - President and Chairman of the Board

Jamal Baksh - Chief Financial Officer


Thanos Moschopoulos - BMO Capital Markets

Paul Steep - Scotia Capital

Stephanie Price - CIBC

Blair Abernethy - Industrial Alliance



Good morning, ladies and gentlemen. Welcome to Constellation Software, Inc. Q1 Results Conference Call.

I’d like to turn the meeting over to Mr. Mark Leonard. Please go ahead, Mr. Leonard.

Mark Leonard

Thank you, Donna. Good morning, everyone. Welcome to the Q1 call. As you know, we go directly to questions. So Donna is going to instruct you now on how line up for this.

Question-and-Answer Session


Thank you. We will not take questions from the telephone lines. [Operator Instructions] And the first question is from Thanos Moschopoulos from BMO Capital Markets. Please go ahead.

Thanos Moschopoulos

Hi, good morning. Mark, in the president's letter you talked about the increased competition from private equity and Constellation lookalikes. Yet despite that you've been reasonably successful with your capital deployment so far this year, at least I think relative to what many of us were expecting.

And so can you help us reconcile that. Is that perhaps reflective of the success you've had in expanding the universal employees they're involved in finding and sourcing M&A opportunities?

Mark Leonard

Yeah, believe so. I think that's the major reason, they are roughly double the amount of full time M&A people at this point in the year that they were at this point last year. And so that’s the primary reason.

Thanos Moschopoulos

Okay. Turning to the maintenance revenue, the maintenance revenue keeps increasing as a proportion of the overall mix, which of course isn't a surprise given that that's the revenue line that you're most focused on growing.

As you look across your business units is there a specific feeling you've encountered in terms of how hard that maintenance mix can become or does that feeling is very tremendously across the various verticals?

Mark Leonard

Yes, when I was writing about that in the president's letter Jamal sort of bridled and said, well, you know, what if you buy a company that's got high professional services, your mix is going to drop dramatically in that particular business unit at least for a while.

And so I think the issue comes down to the fact that big customers with big budgets would much rather have a custom solution that's tailored to their needs.

And so if you hated solely to those kind of clients you're going to have very high professional services and much lower maintenance, whereas if you have many small client you're much more likely to have a sense like model with very low PS or no PS and almost entirely recurring revenues.

So those are the two sorts of ends of the spectrum and obviously some of our business units are much more like the former and some are much more like the latter. So I would say it varies a lot and based on the client base you’re serving.

Thanos Moschopoulos

Okay. And finally a year ago you said that you're going to place more focus on public company investments. It doesn't seem like you've been terribly active on that front other than your involvement with Regni [ph]. Has that been due to a lack of opportunity in terms of public market valuations or are public company investments always going to be more of an ad-hoc and opportunistic endeavour?

Mark Leonard

I think the ad hoc slash opportunistic is the right way to view it. The announcement a year ago was just that we were getting back into the business after having been out of the business for a number of years.

It's an ancillary business for us. It's never going to dominate what we do. There will be points in time when markets aren't happy and there will be lots of investment opportunities. But the competing investment opportunities will be the chance to buy companies to long haul that are not public at the same time. And so it's - I don't think they’ll ever be a big part of our business. I just think it's a nice by-product business.

Thanos Moschopoulos

Great. Thanks, Mark. I’ll pass the line.


Thank you. The next question is from Paul Steep from Scotia Capital. Please go ahead.

Paul Steep

Great. Thanks, Mark, maybe you could talk just a bit about the cash growth and the pace of the cash growth and I guess the question that comes to mind is how much is too much you know, in terms of being able to fully deploy it. It obviously built at a rapid pace over the last few quarters. How should we think about that? I know you touched on it a little bit in the letter?

Mark Leonard

What do they call those first, well problems? Yes. You'd obviously like to be patient with your opportunities. And the issue is if it's sitting around doing nothing, isn’t earning returns for your shareholders then you could return it to them, but then invest it.

And so I think I've characterized it previously as the amount of embarrassment that the board is willing to put up with. As we sit on cash and people start clamouring for it to be distributed either via dividends or share buybacks. And I think you know my views on most share buybacks.

And so my preference would be to hang on to the cash. We seem to be ramping our M&A activities and to some extent it seems to be paying off. And so rather than returning it to shareholders, rather hang on to it at least for the time being and see if perhaps we can deploy it.

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