Constellation Software (TSX:CSU) Reports Q1 Earnings — Here are the Numbers
In the first quarter of 2024, Constellation Software Inc. (TSX:CSU) displayed strong revenue growth, mostly via strategic acquisitions. The company, renowned for its disciplined expansion and robust software solutions, has once again proven its ability to thrive in a complex market environment. Here are its results.
All figures are in USD.
Highlights from Q1 2024
Revenue Growth: Revenue soared to $2.353 billion, marking a 23% increase, with organic growth contributing 4% (3% when adjusted for currency fluctuations) and acquisitions driving the majority of the increase. The company’s aggressive acquisition strategy, which included $288 million in total cash consideration for new acquisitions, is a key component of its growth narrative.
Net Income Improvement: Net income for shareholders rose to $105 million, reflecting an increase from $94 million in the same quarter of the previous year.
Cash Flow Strength: Operational cash flows significantly increased by 16% to $737 million, highlighting efficient management and operational prowess.
Free cash flow available to shareholders (FCFA2S): This fell by $7 million to $446 million compared to last year’s $453 million.
Let’s Talk About FCFA2S
Constellation’s management emphasizes the importance of the Non-IFRS measure Free Cash Flow Available to Shareholders. This metric is crucial as it indicates the uncommitted cash flow available for strategic investments.
What exactly does this metric entail? According to the company, FCFA2S “refers to net cash flows from operating activities less interest paid on lease obligations, interest paid on other facilities, credit facility transaction costs, repayments of lease obligations, the IRGA / TSS membership liability revaluation charge, and property and equipment purchased, and includes interest and dividends received, and the proceeds from sale of interest rate caps. The portion of this amount applicable to non-controlling interests is then deducted.”
As you can see, this is a conservative measure of free cash flow, but it is a true one. There are other companies that add back expenses to arrive at a higher adjusted free cash flow, but CSU subtracts them. It’s a refreshing approach.
Management’s strategy to reinvest this free cash flow into acquisitions, rather than distributing it via dividends or share buybacks, highlights a long-term commitment to growth through expanding its vertical market software portfolio.
Its reinvestments have been paying off. Here’s a chart of its free cash flow per share over the years (in USD).
And here’s Constellation’s revenue over the years.
The Takeaway
With a solid start to 2024, Constellation Software is well-positioned to leverage its existing capabilities and explore new opportunities. The strategic focus on acquiring businesses with growth potential, managing them efficiently, and then building upon their successes has allowed Constellation to maintain its leadership in the vertical market software space.
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