Information Services Corporation (TSX:ISV) (“ISC” or the “Company”)
today reported on the Company’s financial results for the first
quarter ended March 31, 2023.
2023 First Quarter
Highlights
- Revenue was $49.1 million for the quarter, an
increase of $4.9 million or 11 per cent compared to the first
quarter of 2022 due to revenue from Registry Operations’ new
Ontario Property Tax Assessment Services division, following the
acquisition of Reamined Systems Inc. (“Reamined”) in June 2022.
Continued growth in transactions and customers in the Services
segment also contributed to the overall revenue increase over the
prior year. This was partially offset by a decrease in the
Saskatchewan Land Registry revenue as transaction volumes trended
toward pre-pandemic levels.
- Net income was $6.9 million or $0.39 per basic
and $0.38 per diluted share compared to $7.4 million or $0.42 per
basic share and $0.41 per diluted share in the first quarter of
2022. The decrease in net income results from higher amortization
related to intangible assets arising from acquisitions in 2022, as
well as higher net finance expense.
- EBITDA was $14.7 million compared to $13.8
million in the first quarter of 2022, primarily driven by increased
EBITDA in Registry Operations and Services and a decrease in
share-based compensation compared to the prior year quarter.
EBITDA margin was 29.9 per cent for the quarter
compared to 31.3 per cent in the first quarter of 2022. The change
in margin year-over-year was largely due to the return of the
Saskatchewan Land Registry volumes to pre-pandemic levels
accompanied by reduced EBITDA in Technology Solutions, as further
described below, partially offset by the decrease in share-based
compensation due to a decline in the Company’s share price during
the quarter.
- Adjusted EBITDA was $14.5 million for the
quarter compared to $14.6 million in 2022. Adjusted EBITDA
margin was 29.5 per cent compared to 33.0 per cent in the
first quarter of 2022. The change in margin year-over-year is
largely due to the return of the Saskatchewan Land Registry volumes
to pre-pandemic levels accompanied by reduced EBITDA in Technology
Solutions.
- Free cash flow for the quarter was $10.1
million, flat compared to the first quarter of 2022 due to slightly
higher cash provided by operating activities net of changes in
working capital, offset primarily by increased interest expense.
Commencing on January 1, 2023, following a review of comparative
financial information and practices by other publicly traded
companies, ISC elected to refine its definition of free cash flow
to present ISC’s free cash flow on a levered basis. ISC believes
this change will provide better information for management,
investors and potential investors regarding ISC’s liquidity and
financial strength. As such, free cash flow now includes interest
received and paid, interest paid on lease obligations and principal
repayments on lease obligations. The impact of this change to free
cash flow in the prior year period was a $0.9 million decrease to
the previously reported amount of $11.0 million.
- Late in the fourth quarter of 2022, ISC, through its wholly
owned subsidiary, Enterprise Registry Solutions Limited (“ERS”)
commenced the implementation of integrated registry platforms for
the Government of Cyprus (“Cyprus”), launched the States of
Guernsey online Register of Charities and Non-Profit Organisations
(“Guernsey”), and completed the development of corporate registry
technology for Bonaire, Sint-Eustatius and Saba — all of which run
on the RegSys solution.
- The Cyprus project will deploy the RegSys platform to a complex
and significant government department, the Department of Registrar
of Companies and Intellectual Property, and is expected to
revolutionize registry operations for the Government of Cyprus,
bringing significant productivity increases, regulatory compliance
and streamlined user experiences for individuals and companies who
interact with the DRCIP registries. The total value of the contract
(in partnership with another firm) is €10 million and ISC’s portion
of this contract over the life of the project is €5.7 million
(approximately $8.4 million).
- In late 2022, the States of Guernsey launched the first phase
of the online Register of Charities and Non-Profit Organisations to
the public, operating on the RegSys solution, and transforming the
way charities interact with the States of Guernsey. This first
phase of the project is an important milestone for Guernsey, as
RegSys will be used by Guernsey to demonstrate compliance during
the imminent MONEYVAL evaluation — an examination of measures taken
in the financial, regulatory and criminal justice sectors to combat
money laundering and terrorist financing in the European Union. The
second phase of the project began in the first quarter of 2023,
bringing the Corporate, Beneficial Ownership and Intellectual
Property Registers onto the new RegSys platform to provide an
integrated solution for the States of Guernsey. The total value of
the two-phased project (including implementation and support and
maintenance) is expected to be £7.7 million (approximately $12.9
million).
- Revenues for these projects will be
recognized as milestones are achieved. Costs to ramp up and begin
the projects have been recognized as incurred in the first quarter,
reducing adjusted EBITDA in Technology Solutions for the
quarter.
Financial Position as at March 31,
2023
- Cash of $24.2 million compared to
$34.5 million as of December 31, 2022.
- Total debt of $56.1 million
compared to $66.0 million as of December 31, 2022.
Commenting on ISC’s results, Shawn Peters,
President and CEO stated, “Our start to the year has been positive
and in-line with our expectations. The acquisitions we completed in
2022 have made a positive contribution to our performance, more
than offsetting the expected contraction in the Saskatchewan
market. Our Services business is well diversified and continues to
grow organically, even in the face of changing Ontario Business
Registry dynamics. I am also very pleased that our Technology
Solutions segment is benefiting from increased post-COVID
procurement activities as evidenced with the new contracts we’ve
announced.” Peters continued, “We continue to monitor economic
conditions and have factored that into our guidance, however, as we
have proven consistently over the last 10 years, ISC remains a
robust business and we are investing in our people and our
technology to scale for continued growth.”
Management’s Discussion of ISC’s Summary
of 2023 First Quarter Financial Results
(thousands of CAD dollars;except earnings
per shareand where noted) |
Three MonthsEnded March 31,
2023 |
|
Three MonthsEnded March 31,
2022 |
|
Revenue |
|
|
Registry Operations |
$22,782 |
|
$19,612 |
|
Services |
24,721 |
|
22,723 |
|
Technology SolutionsCorporate and other |
1,60912 |
|
1,8171 |
|
Consolidated revenue |
$49,124 |
|
$44,153 |
|
Consolidated expenses |
$38,565 |
|
$33,463 |
|
Consolidated EBITDA1 |
$14,687 |
|
$13,835 |
|
Consolidated EBITDA margin1(% of revenue) |
29.9% |
|
31.3% |
|
Consolidated adjusted EBITDA1 |
$14,516 |
|
$14,586 |
|
Consolidated adjusted EBITDA margin1 |
29.5% |
|
33.0% |
|
Consolidated net income |
$6,864 |
|
$7,407 |
|
Earnings per share (basic)1 |
$0.39 |
|
$0.42 |
|
Earnings per share (diluted)1 |
$0.38 |
|
$0.41 |
|
Free cash flow1,2 |
$10,054 |
|
$10,069 |
|
1 EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA
margin and free cash flow are not recognized as measures under IFRS
and do not have a standardized meaning prescribed by IFRS and,
therefore, they may not be comparable to similar measures reported
by other corporations. For more information, please refer to
section 8.8 “Non-IFRS Financial Measures”, section 6.1 “Cash Flow”
for a reconciliation of free cash flow and section 2 “Consolidated
Financial Analysis” for a reconciliation of EBITDA and adjusted
EBITDA to net income in Management’s Discussion and Analysis for
the quarter ended March 31, 2023. see below for a reconciliation of
these non-IFRS measures.2 Commencing on January 1, 2023, ISC
revised the definition of free cash flow which is a non-IFRS
measure to include interest received and paid as well as principal
repayments on lease obligations. This is further defined in section
8.8 “Non-IFRS financial measures” and the reconciliation and
rationale is provided in section 6.1 “Cash flow” in Management’s
Discussion and Analysis for the quarter ended March 31, 2023 . This
change in definition has also been reflected in the comparative
period.
2023 First Quarter Results of
Operations
- Total revenue
was $49.1 million, up 11 per cent compared to Q1 2022.
- Registry
Operations segment revenue was $22.8 million, up compared to $19.6
million in Q1 2022:
- Land Registry
revenue was $12.5 million, down compared to $13.9 million in Q1
2022.
- Personal
Property Registry was $2.8 million, up compared to $2.6 million in
Q1 2022.
- Corporate
Registry revenue was $3.3 million, up compared to $3.1 million in
Q1 2022.
- Property Tax
Assessment Services revenue in Registry Operations was $3.8 million
with no comparison to the prior year period as Reamined was
acquired in the second quarter of 2022.
- Services segment
revenue was $24.7 million, up compared to $22.7 million in Q1 2022:
- Regulatory
Solutions was $17.8 million up compared to $15.4 million in Q1
2022.
- Recovery
Solutions was $2.9 million, flat compared to the same prior year
period.
- Corporate
Solutions revenue was $4.0 million, down compared to $4.3 million
in Q1 2022.
- Technology
Solutions segment revenue from external parties was $1.6 million,
down from $1.8 million in Q1 2022.
- Consolidated
expenses (all segments) were $38.6 million, up $5.1 million
compared to $33.5 million in Q1 2022.
- Net income was
$6.9 million or $0.39 per basic share and $0.38 per diluted share,
down $0.5 million compared to $7.4 million or $0.42 per basic and
$0.41 per diluted share for Q1 2022.
OutlookThe following section
includes forward‐looking information, including statements related
to future results, including revenue, net income, EBITDA and
adjusted EBITDA, segment performance, the industries in which we
operate, economic activity, growth opportunities, investments,
expenses, completion of projects, ISO 27001 and business
development opportunities. Refer to “Caution Regarding
Forward‐Looking Information”.
While the Bank of Canada has kept its key
interest rate at 4.50 per cent since January 2023, we expect this
to be a factor that will impact parts of our business, most notably
the Saskatchewan Land Registry as Saskatchewan real estate activity
continues to trend towards pre‐pandemic levels. However, the
robustness and diversity of our business means we are
well‐positioned to deliver on our expectations for 2023.
For the Registry Operations segment in
Saskatchewan, the real estate sector has seen activity soften in
the first quarter of this year as consumers continue to adjust to
higher interest rates and higher costs of living driven by
inflation. We continue to monitor interest rates and other economic
conditions, which can impact real estate activity. However,
provincial market publications note that Saskatchewan continues to
fare better than many other regions in the country. Based on the
data we use to model our own trends and forecasts, we agree with
this view. The addition of the Ontario Property Tax Assessment
Services division, following the acquisition of Reamined in 2022,
also provides consistent revenue during the year. As such, the
Registry Operations segment is anticipated to remain as a strong
free cash flow contributor in 2023.
Services is expected to deliver new customer and
transaction growth in 2023 as we continue to implement technology
that provides additional value‐added product offerings. Following
the introduction of Recovery Complete in the latter half of 2022,
we expect to deliver similar integrated benefits for recovery
clients that our search and registration clients have experienced
after moving over to our Registry Complete platform. We continue to
expect that further changes to the Ontario Business Registry in
2023 will have an impact but believe that the benefits of Registry
Complete, our strong customer service and diversification will
mitigate potential loss of business from the anticipated further
opening of this registry to the public in the latter part of
2023.
In Technology Solutions, we are excited to be in
the early stages of delivery of two new contracts. We also continue
to complete and deliver solution implementation projects deferred
from 2022. As previously reported, jurisdictions are reactivating
procurement activities and we remain optimistic about our business
development pipeline for Technology Solutions. The key drivers of
expenses will continue to be wages and salaries, cost of goods
sold, information technology, and costs associated with the pursuit
of new business opportunities. We continue to progress towards
completion of ISO 27001 certification in 2023 — consistent with our
corporate strategy. This international certification will
demonstrate our adherence to controls in the management of
information security assets.
It is based on the foregoing that we continue to
expect revenue to be between $200.0 million and $205.0 million, net
income to be between $27.0 million and $32.0 million, adjusted
EBITDA1 to be between $65.0 million and $70.0 million and EBITDA1
to be between $58.0 million and $63.0 million in 2023. The expected
impact of the further opening of the Ontario Business Registry has
been considered in our guidance.
The diversification and growth of our business
remains a key part of our strategy. As such, we will continue to
look for efficiencies across the business, drive organic growth in
our Services and Technology Solutions segments by winning new
business, and explore appropriate business development
opportunities that complement or add value to our existing lines of
business.
1 EBITDA and Adjusted EBITDA are not
recognized as a measures under IFRS and does not have a
standardized meaning prescribed by IFRS and, therefore, it may not
be comparable to similar measures reported by other companies;
refer to section 8.8 “Non‐IFRS financial measures”. Refer to
section 2 “Consolidated Financial Analysis” for a reconciliation of
historical EBITDA to net income.
Note to ReadersThe Board of
Directors (“Board”) carries out its responsibility for review of
this disclosure primarily through the Audit Committee, which is
comprised exclusively of independent directors. The Audit Committee
reviews and approves the fiscal year-end Management’s Discussion
and Analysis (“MD&A”) and financial statements and recommends
both to the Board for approval. The interim financial statements
and MD&A are reviewed and approved by the Audit Committee.
This news release provides a general summary of
ISC’s results for the quarters ended March 31, 2023, and 2022.
Readers are encouraged to download the Company’s complete financial
disclosures. Links to ISC’s financial statements and related notes
and MD&A for the period are available on our website in the
Investor Relations section at www.company.isc.ca.
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
All figures are in Canadian dollars unless
otherwise noted.
Conference Call and WebcastWe
will hold an investor conference call on Thursday, May 4, 2023 at
11:00 a.m. ET to discuss the results. Those joining the call on a
listen-only basis are encouraged to join the live audio webcast
which will be available on our website at
www.company.isc.ca/investor-relations/events. Participants who wish
to ask a question on the live call may do so through the ISC
website or by registering through the following live call URL:
https://register.vevent.com/register/BIe54535f2442f41678c099c31dd2ef376
Once registered, participants will receive the
dial-in numbers and their unique PIN number. When dialing in,
participants will input their PIN and be placed into the call. The
audio file with a replay of the webcast will be available about 24
hours after the event on our website at the link above. We invite
media to attend on a listen-only basis.
About ISCHeadquartered in
Canada, ISC is a leading provider of registry and information
management services for public data and records. Throughout our
history, we have delivered value to our clients by providing
solutions to manage, secure and administer information through our
Registry Operations, Services and Technology Solutions segments.
ISC is focused on sustaining its core business while pursuing new
growth opportunities. The Class A Shares of ISC trade on the
Toronto Stock Exchange under the symbol ISV.
Cautionary Note Regarding
Forward-Looking InformationThis news release contains
forward-looking information within the meaning of applicable
Canadian securities laws including, without limitation, those
contained in the “Outlook” section hereof and statements related to
the industries in which we operate, growth opportunities and our
future financial position and results of operations.
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. Important factors that could cause
actual results to differ materially from the Company's plans or
expectations include risks relating to changes in the condition of
the economy, including those arising from public health concerns,
reliance on key customers and licences, dependence on key projects
and clients, securing new business and fixed-price contracts,
identification of viable growth opportunities, implementation of
our growth strategy, competition and other risks detailed from time
to time in the filings made by the Company including those detailed
in ISC’s Annual Information Form for the year ended December 31,
2022 and ISC’s unaudited Condensed Consolidated Interim Financial
Statements and Notes and Management’s Discussion and Analysis for
the first quarter ended March 31, 2023, copies of which are filed
on SEDAR at www.sedar.com.
The forward-looking information in this release
is made as of the date hereof and, except as required under
applicable securities laws, ISC assumes no obligation to update or
revise such information to reflect new events or circumstances.
Non-IFRS Performance
MeasuresIncluded within this news release is reference to
the following non-IFRS performance measures. These measures, which
are reconciled below are reviewed regularly by management and the
Board of Directors in assessing our performance and making
decisions regarding the ongoing operations of our business and its
ability to generate returns. These measures may also be used by
external parties in decision making related to ISC’s performance.
They are not recognized measures under IFRS and do not have a
standardized meaning under IFRS, so may not be reliable ways to
compare us to other companies.
Non-IFRS Performance Measure |
Why we use it |
How we calculate it |
Most comparable IFRS financial measure |
EBITDA EBITDA Margin |
- To evaluate performance and profitability of segments and
subsidiaries as well as the conversion of revenue.
- We believe that certain investors and analysts use EBITDA to
measure our ability to service debt and meet other performance
obligations.
- EBITDA is also used as a component of determining short-term
incentive compensation for employees.
|
EBITDA: Net income
add Depreciation and amortization, net finance expense, income
tax expense EBITDA Margin: EBITDA
divided by Total revenue |
Net income |
Adjusted EBITDAAdjusted EBITDA Margin |
- To evaluate performance and profitability of segments and
subsidiaries as well as the conversion of revenue while excluding
non-operational and share-based volatility.
- We believe that certain investors and analysts use Adjusted
EBITDA to measure our ability to service debt and meet other
performance obligations.
|
Adjusted EBITDA:EBITDA add (remove)Share-based compensation
expense, acquisition, integration and other costsAdjusted EBITDA
Margin:Adjusted EBITDA divided byTotal revenue |
Net income |
Free Cash Flow |
- To show cash available for debt repayment and reinvestment into
the Company on a levered basis.
- We believe that certain investors and analysts use this measure
to value a business and its underlying assets.
|
Net cash flow provided by operating activities deduct
(add)Net change in non-cash working capital, cash additions to
property, plant and equipment, cash additions to intangible assets,
interest received and paid as well as interest paid on lease
obligations and principal repayments on lease obligations |
Net cash flow provided by operating activities |
The following presents a reconciliation of net
income to EBITDA and adjusted EBITDA and a reconciliation of net
cash flow provided by operating activities to free cash flow:
Reconciliation of Net Income to EBITDA and adjusted
EBITDA
|
|
Three Months Ended March 31, |
|
(thousands of CAD) |
|
2023 |
|
2022 |
|
Net income |
|
$ |
6,864 |
|
$ |
7,407 |
|
Depreciation and amortization |
|
4,128 |
|
3,145 |
|
Net finance expense |
|
905 |
|
435 |
|
Income tax expense |
|
2,790 |
|
2,848 |
|
EBITDA |
|
$ |
14,687 |
|
$ |
13,835 |
|
Adjustments |
|
|
|
Share-based compensation expense |
|
(1,190 |
) |
122 |
|
Acquisition, integration and other costs |
|
1,019 |
|
629 |
|
Adjusted EBITDA |
|
$ |
14,516 |
|
$ |
14,586 |
|
EBITDA margin (% of revenue) |
|
29.9% |
|
31.3% |
|
Adjusted EBITDA margin (% of revenue) |
|
29.5% |
|
33.0% |
|
Reconciliation of Net Cash Flow Provided by Operating
Activities to Free Cash Flow
|
|
Three Months Ended March 31, |
|
(thousands of CAD) |
|
|
2023 |
|
|
20222 |
|
Net cash flow provided by
operating activities |
|
$ |
5,738 |
|
$ |
(2,279 |
) |
Net
change in non-cash working capital1 |
|
|
6,130 |
|
|
13,784 |
|
Cash provided by operating activities excluding working
capital |
|
|
11,868 |
|
|
11,505 |
|
Cash additions to property,
plant and equipment |
|
|
(15 |
) |
|
(90 |
) |
Cash additions to intangible
assets |
|
|
(269 |
) |
|
(430 |
) |
Interest received |
|
|
310 |
|
|
22 |
|
Interest paid |
|
|
(1,152 |
) |
|
(356 |
) |
Interest paid on lease
obligations |
|
|
(95 |
) |
|
(97 |
) |
Principal repayment on lease obligations |
|
|
(593 |
) |
|
(485 |
) |
Consolidated free cash flow |
|
$ |
10,054 |
|
$ |
10,069 |
|
1 Refer to Note 15 of the Financial Statements for
reconciliation.
2 Commencing on January 1, 2023, ISC revised the
definition of free cash flow which is a non-IFRS measure to include
interest received and paid as well as principal repayments on lease
obligations. This is further defined in Section 8.8 “Non-IFRS
financial measures” in Management’s Discussion and Analysis for the
quarter ended March 31, 2023 and reconciled above. This change in
definition has also been reflected in the comparative period.
Investor ContactJonathan HackshawSenior
Director, Investor Relations & Capital MarketsToll Free:
1-855-341-8363 in North America or
1-306-798-1137investor.relations@isc.ca
Media ContactJodi BosnjakExternal
Communications SpecialistToll Free: 1-855-341-8363 in North America
or 1-306-798-1137corp.communications@isc.ca
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