REGINA, Nov. 13, 2013 /CNW/ - Information Services Corporation (TSX:ISV) ("ISC" or "the Company") today announced its third quarter and nine-months results for the period ending September 30, 2013, which reflected strong business performance in each of its three primary business registries. The continued robust economic activity in the Province of Saskatchewan coupled with ISC's focus on continuous improvement and business excellence were primary factors contributing to ISC's third quarter and year-to-date performance. Highlights of ISC's financial results for both periods include:
Third Quarter ended September 30, 2013
- Total revenues were $20.8 million for the three months ended September 30, 2013, an increase of $1.8 million or 9.5 per cent, compared to the $19.0 million for the three months ended September 30, 2012. Revenues, which exclude the Vital Statistics Registry revenue for the prior year's period, increased across all three registries in the third quarter as compared to the same quarter last year;
- EBITDA (earnings before interest, taxes, depreciation and amortization) for the third quarter of 2013 was $9.5 million compared to $8.1 million for the third quarter of 2012, up 17.6 per cent quarter over quarter. ISC's EBITDA margin for the quarter was 45.6 per cent (41.4 per cent in 2012);
- Adjusted EBITDA1 grew to $9.6 million for the quarter compared to $8.4 million for the same quarter last year, with ISC generating an Adjusted EBITDA margin of 45.9 per cent (43.9 per cent in 2012);
- Net income for the quarter was $62.5 million or $3.57 per share which included a $54.2 million income tax recovery; and
- Excluding the one-time income tax recovery, ISC's net income after the current period's income tax expense was $6.0 million or $0.34 per share. In the third quarter last year, net income was $5.7 million, however for comparative purposes, it is important to note that ISC was not subject to tax in 2012. Excluding this quarter's tax expense and recovery, ISC generated an increase in income over the third quarter of 2012 of 46.1 per cent.
1 Adjusted EBITDA is defined as EBITDA before fees related to our Initial Public Offering ("IPO) but including costs associated with being a public company and normalization adjustments relating to the transfer of the Province's Vital Statistics Registry back to the Government of Saskatchewan.
Nine Months ended September 30, 2013
- Total revenues increased to $59.1 million for the nine-month period ended September 30, 2013, an increase of $2.2 million, or 3.8 per cent, compared to $56.9 million for the nine-month period ended September 30, 2012. Revenues exclude the Vital Statistics Registry revenue which was treated as a discontinued operation.
- EBITDA for the first nine months of 2013 was $22.2 million, slightly ahead of the $22.1 million for the comparable period last year, with an EBITDA margin of 36.9 per cent (37.9 per cent -2012);
- Adjusted EBITDA rose to $25.6 million, a 10.4 per cent increase compared to the $23.2 million generated in the first nine months of 2012, with an Adjusted EBITDA margin of 43.3 per cent (40.7 per cent - 2012);
- Net income for the nine-month period ended September 30, 2013 was $72.2 million or $4.13 per share, which includes the $54.2 million income tax recovery; and
- Excluding the one-time tax recovery, ISC's net income after the current period income tax expense was $15.7 million or $0.90 per share. 2012's net income for the nine months ended September 2012 was $16.2 million however it is important to note that ISC was not subject to tax in 2012. Excluding the income tax expense and recovery, ISC's income rose $1.8 million or 11.2 per cent over the same period in 2012.
"The results we announced today reflect ISC's ability to generate strong cash flows and earnings while delivering essential services to Saskatchewan that support the continued economic prosperity of this Province," said Jeff Stusek, President and CEO. "We are focused on continuing to increase our value proposition to Saskatchewan residents and businesses by expanding our services and offerings. At the same time, we have the balance sheet strength to grow beyond our provincial borders and provide solid dividend returns to shareholders."
Management's Discussion of ISC's Summary Financial Results
- The 9.5 per cent increase in revenues for the third quarter of 2013 relative to the prior year's period reflects growth experienced across all three registries. These results exclude Vital Statistics contributions, which transferred back to the provincial government in mid-June, 2013.
- Revenues from Land (which includes the Land Registry, Land Survey and Geomatics) were $16.3 million for the three months ended September 30, 2013, an increase of $1.4 million, or 9.6 per cent compared to the three months ended September 30, 2012. Revenues were $45.5 million for the nine-month period ended September 30, 2013, an increase of $1.8 million, or 4.2 per cent compared to the nine-month period ended September 30, 2012. While registration volumes were down on a year-to-date basis compared to last year's first nine-months, the average price of homes continued to increase, supporting revenue growth for ISC. About 85 per cent of the revenue generated from the Land Registry is earned from fees that are based on the market value of property and land. The remainder of the revenue is generated through flat fees.
- Revenues from the Personal Property Registry for the three-month period ended September 30, 2013 totaled $2.6 million, an increase of 8.5 per cent from the $2.4 million generated in the three months ended September 30, 2012. The registry has experienced both volume and revenue growth in the third quarter. For the nine months ended September 30, 2013, revenues total $7.4 million, a 7.1 per cent increase compared to the $6.9 million in revenue generated for the same period in 2012. The implementation of The Enforcement of Money Judgments Act, which came into effect May 28, 2012, has been a primary factor in this increase.
- Revenues for the Corporate Registry for the third quarter ended September 30, 2013 were $1.9 million, an increase of 9.6 per cent over the third quarter of 2012. Volumes and revenues across all registry activities were higher relative to last year's third quarter. Annual returns led the way with a 13.6 per cent increase. For the first nine months of 2013, revenues from this registry were $6.2 million compared to $6.3 million a year earlier, a 2.5 per cent decline. As expected, The New West Partnership Trade Agreement continued to have a negative impact on revenues. However, a 3.4 per cent increase in annual returns revenue to the end of September 2013 helped to partially offset the impact to revenues.
- Operating, general and administration expenses for the third quarter were $11.3 million, up $0.6 million from the previous year's third quarter. This increase includes additional public company costs and higher information services costs reflecting more third party consulting services. These costs were partially offset by fewer employee costs associated with project work that was temporarily suspended as the Company focused on its new responsibilities as a publicly traded company.
- For 2013's first nine months, operating, general and administration expenses were $36.1 million compared to $33.7 million for same period in 2012, a 7 per cent increase. In addition to the one-time IPO costs incurred in the first half of the year, wages and salaries increased 2.2 per cent and information technology services increased 3.6 per cent. These cost increases were partially offset by a decline in occupancy costs and other costs (such as professional services, travel, advertising, and other business costs not related to the IPO) for the period.
- Adjusted EBITDA margins (Adjusted EBITDA as a percentage of revenue) for the three months ended September 30, 2013 were 45.9 per cent compared to 43.9 per cent for the same period of 2012.
- It is important to note that EBITDA margins for 2013 are unusually high. Expenses for the first nine months of 2013 (excluding one-time costs associated with our IPO) are significantly lower than normal because of ISC's focus on completing the IPO, which shifted resources and expenses away from operational initiatives that would be typical in the annual business cycle for ISC.
- For the 2013 nine-month period, the Adjusted EBITDA margin was 43.3 per cent compared to 40.7 per cent for the nine-months ended September 30, 2012.
- Management's view is that typical EBITDA margins are in the 35 per cent range. Management's objective is to achieve margin improvements of one-half to one percentage point per year over the next five years, primarily by executing on operational efficiencies.
- Depreciation and amortization for the third quarter of 2013 was $1.2 million, 49.2 per cent lower than the $2.4 million recorded in the third quarter last year. For the nine-month period, ISC's depreciation and amortization was $4.3 million compared to $6.0 million a year earlier. The significant decrease in the third quarter was due to certain intangible assets reaching a fully depreciated state in the second quarter of 2013, combined with less capitalized projects being recorded year-to-date.
- ISC is now a taxable entity. Prior to July 9, 2013, ISC was a Crown-owned entity and was exempt from federal and provincial income taxes. Upon becoming a public company, a new taxation year commenced and its assets were deemed to be disposed of at fair market value and reacquired at that amount. As a result, ISC can amortize and deduct the cost of depreciable tangible and intangible properties when computing its income for tax purposes. This is expected to reduce cash taxes payable for the first few years as a public company, which management anticipates will average approximately 15 per cent over the first five years. ISC estimates that its combined marginal tax rate in the future will be approximately 27 per cent.
- Capital expenditures to the end of September 2013 were $2.2 million compared to $5.7 million in the first nine months of 2012, well below typical annual capital expenditures. Management expects its annual sustaining capital expenditures to remain in the $8 to $10 million range for 2014. One of ISC's more significant expenditures looking forward is its modernization of the Corporate Registry. This initiative supports ISC's commitments to Saskatchewan consumers and it is management's belief that it will position the Company to offer an advanced service offering to other jurisdictions and customers in the future.
- ISC's cash position at September 2013 was $23.9 million compared to $21.1 million at the same time in 2012. ISC had no short-term borrowings at September 30, 2013, and $9.9 million of long-term debt on its balance sheet. This reflects a refinancing of $9.9 million in short-term debt that was previously in place and due to the Government of Saskatchewan in 2012.
The majority of ISC's current revenue base is tied to economic conditions in Saskatchewan. According to BMO Capital Markets' most recent economic forecast for Saskatchewan, the provincial economy is expected to post real gross domestic product (GDP) growth of 2.4 per cent this year and 2.8 per cent in 2014. BMO also projects the level of non-residential construction to remain firm.
CMHC Housing Market Outlook for the Third Quarter 2013 currently forecasts a slight decrease in existing home sales volumes in Saskatchewan for 2013. However, average home sales prices are expected to increase by 5 per cent in 2013. Mortgage rates are expected to remain favourable to the end of 2013.
For ISC's Personal Property Registry, patterns of retail trade and new vehicle sales provide a useful metric. Data on this economic activity trails actual results. In June 2013, retail trade in Saskatchewan grew 3.8 per cent over the same period in 2012 and up from the prior month. New vehicle sales were up 5.5 per cent from January to July 2013 over the same period in 2012. The value of vehicle sales was also up 11.7 per cent over the same period.
Commenting on ISC's outlook, Jeff Stusek said, "The majority of the economic indicators that we track continue to be positive. Our Land Registry, the largest in our portfolio, is well positioned to deliver strong results in 2013. For our Personal Property Registry we are seeing some strengthening in its key economic drivers and from a Corporate Registry perspective, results are consistent with our expectations to date. As I look forward to the remainder of the year, it is our expectation that results will be strong and consistent with what we have been able to deliver in the first nine months of 2013."
Stusek added, "We recognize that as a newly trading public company, we are positioned to grow and we are preparing and advancing our competencies to seek prudent growth prospects that leverage our unique competitive value proposition. I am confident that we will deliver on this mandate in a responsible, strategic manner that is consistent with the expectations of our entire stakeholder base."
Note to Readers:
This press release provides a general summary of Information Services Corporation's results for the periods ended September 30, 2013 and 2012. Readers are encouraged to download the company's complete financial disclosures. Links to ISC's financial statements, notes and Management's Discussion and Analysis for the period are available on ISC's website at www.isc.ca on the Investor site http://isc.investorroom.com/quarterly-reports.
Conference Call And Webcast
The Company is hosting a conference call and webcast at 4:00 p.m. CST; 5:00 pm EST on November 13, 2013 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/1251883/1379483
| Forward-looking Information: This release contains forward-looking information within the meaning of applicable Canadian securities legislation, including information with respect to anticipated levels of economic activity, the momentum in the real estate market across Saskatchewan, expected average home sales prices and land values in Saskatchewan, interest rates and expected retail sales (including new motor vehicle sales) in Saskatchewan. 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 Final Prospectus dated June 27, 2013, ISC's Unaudited Condensed Consolidated Financial Statements and Notes and Management's Discussion and Analysis for the nine months ended September 30, 2013 as well as other documents filed by ISC with Canadian securities regulators through SEDAR (www.sedar.com) from time to time. You are cautioned not to place undue reliance on forward-looking information of ISC. 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
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