ISC reports second quarter 2014 financial results

REGINA, Aug. 13, 2014 /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 second quarter ended June 30, 2014, and provided revised capital expenditure guidance for 2014. 

Highlights of ISC's Q2 2014 financial results

  • Total revenue was $22.0 million, an increase of $0.8 million or 3.9 per cent, compared to $21.2 million for the three months ended June 30, 2013.

  • EBITDA (earnings before interest, taxes, depreciation and amortization) for the second quarter of 2014 was $8.6 million compared to $8.1 million in the second quarter of 2013, an increase of 5.4 per cent. ISC's EBITDA margin for the second quarter of 2014 was 38.9 per cent compared to 37.4 per cent in the second quarter of 2013.

  • Adjusted EBITDA was $8.6 million for the quarter compared to $10.7 million in the same quarter last year, with ISC generating an Adjusted EBITDA margin of 38.9 per cent for the quarter compared to 50.3 per cent in the second quarter of 2013. The Adjusted EBITDA margin in the second quarter of 2013 was unusually high, reflecting adjustments for costs associated with the Initial Public Offering ("IPO") and discontinued operations.

  • Net income for the three months ended June 30, 2014 was $5.3 million, or $0.30 per share. In the second quarter last year, net income was $63.2 million, or $3.61 per share; however, for comparative purposes, it is important to note that ISC claimed an income tax recovery in the second quarter of 2013. Excluding the second quarter's tax implications and discontinued operations, ISC generated an increase in income over the second quarter of 2013 of $0.3 million, or 4.5 per cent. This translates to $0.42 per share for the quarter ended June 30, 2014 compared to $0.40 per share for the same period in 2013.

  • During the quarter, the Company finalized new five-year service agreements with its information technology service providers. Finalizing these agreements provides stability to the registries and the operations, while updated terms provide the Company with more flexibility in information technology cost management.

Management's Discussion of ISC's Summary Quarterly Financial Results

(Thousands of CAD dollars,

except earnings per share and where noted)

Three months ended June 30,

2014

2013




Revenue



Land Titles Registry, Land Survey and Geomatics

$ 17,310

$ 16,410

Personal Property Registry

$ 2,677

$ 2,702

Corporate Registry

$ 2,028

$ 2,058

Other

$ 1

$ 12

Total Revenue1

$ 22,016

$ 21,182




Operating, general and administrative expenses

$ 13,460

$ 12,694




EBITDA2

$ 8,556

$ 8,119

EBITDA Margin2 (% of Revenues)

38.9%

37.4%

Adjusted EBITDA2

$ 8,556

$ 10,653

Adjusted EBITDA Margin2

38.9%

50.3%

Net Income and total comprehensive income

$ 5,308

$ 63,190

Earnings per share, basic3

$ 0.30

$ 3.61

Earnings per share excluding tax, basic

$ 0.42

$ 0.40

Free cash flow2

$ 7,917

$ 7,395

 

  1. Revenue does not include the Vital Statistics Registry, which is reflected as a discontinued operation.
  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 "Non-IFRS Measures" in Management's Discussion & Analysis for the second quarter ended June 30, 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 for Land Titles Registry, Land Surveys Directory and Geomatics was $17.3 million for the three months ended June 30, 2014, an increase of $0.9 million, or 5.5 per cent, compared to the three months ended June 30, 2013. Revenue from the Land Titles Registry remained strong due to an increase in the average price of existing homes as well as a small increase in ownership transfer volumes.

  • Revenue for the Personal Property Registry (the "PPR") for the three months ended June 30, 2014 was $2.7 million, which represents a slight decrease of 0.9 per cent from the same period in 2013. Overall transaction volumes are up slightly by 1.4 per cent, however, the main driver of revenue for this registry – personal property security registration set-ups, where the price per registration is variable based on the nature and term of the security agreement – has shown a minor decrease in volume and revenue which has contributed to an overall decrease in revenue.

  • Revenue for the Corporate Registry for the three months ended June 30, 2014 was $2.0 million, a 1.5 per cent decrease compared to the $2.1 million for the three months ended June 30, 2013. Revenue from the incorporation of new businesses, included in registrations, declined by 5.7 per cent in the same period which accounts for the majority of the difference.

  • Operating, general and administrative expenses were $13.5 million for the three months ended June 30, 2014 compared to $12.7 million for the three months ended June 30, 2013, an increase of $0.8 million or 6.0 per cent. The overall increase was mainly due to an increase in wages and salaries, as well as costs related to being a publicly listed company. However, there were decreases in information technology costs and costs related to project initiatives.

  • Depreciation and amortization for the three months ended June 30, 2014 was $1.2 million, a decrease of  $0.2 million compared to the same period of 2013. The decline was due to certain projects reaching a fully amortized state in 2013 and less expenditure on capital to date in 2014.

  • Net income and total comprehensive income for the three months ended June 30, 2014 was $5.3 million, or $0.30 per share, compared to $63.2 million, or $3.61 per share for the same period in 2013. The unusual results in 2013 were due to an income tax recovery being recorded in the second quarter of 2013 with ISC becoming a taxable entity effective June 27, 2013.

    By way of comparison, net income, excluding income tax expense and discontinued operations for the three months ended June 30, 2014 was $7.3 million, or $0.42 per share, compared to $7.0 million, or $0.40 per share for the same period of 2013.

  • Adjusted EBITDA totalled $8.6 million for the three months ended June 30, 2014 compared to $10.7 million for the same period in 2013. The difference relates to adjustments made in 2013 for one-time expenses associated with the IPO and for the net loss from discontinued operations.

  • As of June 30, 2014, the Company held cash of $30.5 million, up from $24.7 million as at March 31, 2014, providing flexibility to meet any unanticipated cash requirement due to changes in working capital commitments or liquidity risk associated with financial instruments.

Outlook

The majority of our revenues are linked to economic conditions. The Saskatchewan economy continues to show solid economic performance for 2014, albeit at a slower rate of growth than originally projected. This has resulted in a number of analysts revising their economic forecasts down slightly.

According to Bank of Montreal ("BMO") Capital Markets'1 most recent economic forecast for Saskatchewan, the provincial economy is expected to post real gross domestic product  ("GDP") growth of 2.4 per cent growth in 2014, down from 2.5 per cent earlier in their April projection. Royal Bank of Canada's Economics Research2 projection for 2014 is currently 1.4 per cent, down from 2.0 per cent in March.

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1 BMO Capital Markets Economics – Provincial Economic Outlook – July 2014

Employment growth in Saskatchewan was up 3.4 per cent in 2013, but is expected to only reach 1.7 per cent in 2014.3 Average weekly earnings for the month of April in 2014 were up 4.3 per cent compared to April of 2013,4 while manufacturing sales rose 11 per cent for the first quarter of 2014 compared to the same period in 2013.5

The housing and mortgage markets are important components of our Land Titles Registry. Canada Mortgage and Housing Corporation ("CMHC") Housing Market Outlook currently forecasts a modest increase in existing home sales volumes in Saskatchewan for 2014, revised down slightly from their first quarter report.6 Average home resale prices are expected to increase by 3.0 per cent in 2014, revised from 2.4 per cent from the same report. While mortgage rates began increasing at the beginning of 2013, they then started to decline at the end of the third quarter but have since steadied, with some lenders offering below 3.0 per cent.

Saskatchewan housing starts for January to June of 2014 were up 12.1 per cent over the same period in 2013, while the number of completions is up 18.9 per cent.7 Despite this increase, the number of building permits issued from January to May of 2014 was down 15.9 per cent compared to the same period in 2013, while the value of building permits has declined by 12.5 per cent8. In addition, the new housing price index for Saskatchewan (as well as Regina and Saskatoon) has been trending up consistently since mid-2009, with an occasional minor month-over-month decline

While we continued to see a large number of high-value property registrations during the first six months of 2014 (which generate a high fee per transaction), we expect the volume and resulting revenue to subside somewhat for the remainder of 2014.

For the Personal Property Registry, retail trade and new vehicle sales can be a gauge for expected revenues in the PPR. For January to April 2014, retail sales increased by 6.5 per cent over the same period in 2013 in Saskatchewan.9 The number of units of new vehicles sold decreased by 2.2 per cent in the first four months of 2014 compared to the same period in 2013, although the total value of sales increased by 0.8 per cent.10 Despite this decline, Scotiabank is currently forecasting slight increases in annual motor vehicles sales for 2014 over 201311.

At the end of June, heavy rains resulted in severe flooding in a number of communities across Saskatchewan. Approximately 8.0 per cent of the land expected to produce crops12 and a number of highways were submerged, and damage claims continue to be filed with various insurers.13 While the long-term economic effect of this extreme weather event is unknown at this time, any change to the projected provincial growth could impact ISC's revenues.

___________________________________

2 RBC Economics Provincial Outlook – June 2014
3 CMHC Housing Market Outlook – Canadian Edition – Second Quarter 2014.
4 Statistics Canada CANSIM Table 281-0063: Employment and average weekly earnings including overtime (SEPH), seasonally adjusted, for all employees by industries classified using the NAICS, monthly (persons unless otherwise noted) – July 2014.
5 Statistics Canada CANSIM Table 304-0015: Manufacturing Sales by NAICS and Province – June 2014.
6 CMHC Housing Market Outlook – Canadian Edition – Second Quarter 2014.
7 Statistics Canada CANSIM Table 027-0001: Canada Mortgage and Housing Corporation, housing starts, under construction, and completions in centres 10,000 and over – July 2014.
8 Statistics Canada CANSIM Table 026-0001: Building permits, residential values and number of units, by type of dwelling – July 2014.
9 Statistics Canada CANSIM Table 080-0020: Retail trade, sales by NAICS – July 2014.
10 Statistics Canada CANSIM Table 079-0003: New motor vehicle sales, Canada, provinces and territories –July 2014.
11 Scotiabank Global Economics – Global Forecast Update – June 2014.
12 CBC News. "Up to 3 Million Saskatchewan Farm Acres Flooded." – July 2014.
13 The Star Phoenix: "Disaster Assistance Claims Pile Up." July 10, 2014.

Based on the moderate economic growth expectations for Saskatchewan, the Company continues to expect revenue to remain stable in 2014 and annual EBITDA margins to return to the normalized level of approximately 35 per cent. ISC also continues to anticipate a modest increase in operating, general and administrative expenses based on inflation as well as the costs associated with being a publicly traded company.

During the first six months of 2014, the Company focused more on operational initiatives than expected (some of which had been deferred from 2013 because of the IPO), as opposed to capital initiatives. As such, the Company has revised its expected capital expenditure spend for 2014 to be in the range of $5.0 million to $7.0 million, down from  the planned $8.0 million to $10.0 million.

Note to Readers:

This news release provides a general summary of Information Services Corporation's results for the second quarters ended June 30, 2013 and 2014.  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/index.php?s=63. 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 investor.relations@isc.ca

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 August 14, 2014 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://www.newswire.ca/en/webcast/detail/1388941/1541045

About ISC

ISC is a provider of registry and information services to the Province of Saskatchewan. The Company is the exclusive provider of the Land Titles Registry, Land Surveys Directory, Personal Property Registry and Corporate Registry in Saskatchewan, 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 certain assumptions with respect to the Saskatchewan economy, consumer confidence, interest rates, level of unemployment, inflation, real estate market in Saskatchewan, claim liabilities, income taxes, our ability to attract and retain skilled staff, employee future benefits, goodwill and intangibles are material factors in preparing forward-looking statements and management's expectations. 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 19, 2014, ISC's unaudited condensed Consolidated Financial Statements and Notes and Management's Discussion and Analysis for the quarter ended June 30, 2014 as well as other documents filed by ISC with Canadian securities regulators through SEDAR (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.

SOURCE Information Services Corporation

For further information: Pamela Keck, Manager, Investor Relations, Toll Free: 1-855-341-8363 in North America or 1-306-798-1137, investor.relations@isc.ca