final transcript

Transcription

final transcript

FINAL TRANSCRIPT
Information Services Corporation
Second Quarter Results
Event Date/Time: August 14, 2014 11:00 a.m. E.T.
Length: 23 minutes
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
1
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Information Services Corporation Second Quarter Results
CORPORATE PARTICIPANTS
Jeff Stusek
President and Chief Executive Officer, Information Services Corporation
Kathy Hillman-Weir
Vice-President, Corporate Affairs & General Counsel and Chief Privacy Officer, Information Services
Corporation
Shawn W. Peters
Vice-President, Finance & Technology and Chief Financial Officer, Information Services Corporation
Jonathan Hackshaw
Director, Investor Relations & Corporate Communications, Information Services Corporation
CONFERENCE CALL PARTICIPANTS
Steve Arthur
Analyst, RBC Capital Markets
Stephanie Price
Analyst, CIBC
Michael Urlocker
Analyst, GMP Securities
2
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
PRESENTATION
Operator
Good morning, ladies and gentlemen, and welcome to Information Services Corporation’s
second quarter results conference call.
At this time, all lines are in a listen-only mode. Following the presentation, we will conduct
a question-and-answer session. Instructions are provided at that time for you to queue up for a
question. If anyone has any difficulties hearing the conference, please press *0 for operator
assistance at any time.
I would like to remind everyone that this call is being recorded on Thursday, August 14th,
2014 and would now like to turn the call over to your host, Jonathan Hackshaw. Please go ahead.
Jonathan Hackshaw – Director, Investor Relations & corporate Communications, Information
Services Corporation
Thank you, Operator, and good morning, ladies and gentlemen. Welcome to Information
Services Corporation’s conference call for the second quarter and six months ended June 30 th, 2014.
With me today are Jeff Stusek, President and CEO, and Shawn Peters, Vice President,
Finance and Technology and Chief Financial Officer. Also in attendance on the call is Kathy HillmanWeir, Vice President, Corporate Affairs and General Counsel.
3
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Before we begin, we would like to remind everyone that we’re only summarizing results
today. ICS’s unaudited condensed consolidated Financial Statements and Management’s Discussion
and Analysis for the period ended June 30th, 2014 have been filed on SEDAR and are also available in
the investors section of our website under financial information. We encourage you to review those
reports in their entirety.
I would also like to remind you that any statements made today that are not historical
facts are considered to be forward-looking statements within the meaning of applicable securities
laws. The statements may involve a number of risks and uncertainties that have been described in
detail in the Company’s filings, in particular in ICS’s Annual Information form dated March 19th, 2014
and in the Management’s Discussion and Analysis for the period ended June 30th, 2014.
Those risks and uncertainties may cause actual results to differ materially from those
stated. Today’s comments are made as of today’s date and will not be updated except as required
under applicable securities legislation.
This call will be recorded and will be available on our website within 48 hours.
I will now turn the call over to Jeff.
Jeff Stusek – President and Chief Executive Officer, Information Services Corporation
Thank you, Jonathan, and welcome, everyone.
4
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
I’m going to start by briefly reviewing the highlights for the quarter and I will then ask
Shawn Peters to provide an overview of our performance for the three months ended June 30th,
2014 as well as for the six months ended June 30th, 2014. I will then conclude the call with the Q&A
session where Shawn, Kathy and myself would be happy to answer any questions you may have.
First and foremost, I’m happy to report that yesterday our board of directors approved our
third quarterly cash dividend for 2014 in the amount of $0.20 per share. The dividend will be
payable on or about Wednesday, October 15th to holders of record of Class A limited shares as at
the close of business on Tuesday, September 30th.
Now let’s review how we did in the second quarter of 2014.
Total revenue was $22 million for the three months ended June 30th, 2014, an increase of
0.8 million, or 3.9 per cent, compared to 21.2 million for the three months ended June 30, 2013. The
increase was primarily due to an increase in revenue from the Land Titles Registry. Revenue
excluded the Vital Stats Registry, which is treated as a discontinued operation.
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
5
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
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 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’s 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.
Turning to the highlights for the six months ended June 30 th, 2014, total revenue was 39.4
million for the six months ended June 30th, 2014, an increase of 1.1 million, or 3 per cent compared
to 38.3 million for the same period in 2013. The increase was primarily due to an increase in
revenue from the Land Titles Registry. Again, I remind you that revenue excludes the Vital Stats
Registry which is treated as a discontinued operation.
EBITDA for the six months ended June 30th, 2014 was 13.5 million compared to 12.7 in the
six months ended June 30th, 2013, an increase of 6.4 per cent. ISC’s EBITDA margin for the six
months ended June 30th, 2014 was 34.3 per cent compared to 32.3 per cent in the six months ended
June 30th, 2013.
6
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Adjusted EBITDA was 13.5 million for the six months ended June 30 th, 2014 compared to
16 million in the same period last year with ISC generating an adjusted EBITDA margin of 34.3 per
cent for the six months ended June 30th, 2014 compared to 41.9 per cent in the same period of
2013. The adjusted EBITDA margin for the six months ended June 30 th, 2013 was unusually high,
reflecting adjustments for costs associated with last year’s IPO and discontinued operations.
Net income for the six months ended June 30th, 2014 was 8.1 million, or $0.46 per share.
For the six months ended June 30th, 2013 net income was 66.2, or $3.78 per share. However again,
for comparative purposes, it’s important to note that ISC claimed an income tax recovery in the
second quarter of 2013.
Excluding tax implication and discontinued operations ISC generated an increase in income
for the first six months of 2014 over the same period of 2013 of 0.8 million, or 7.6 per cent. This
translates to $0.64 per share for the six months ended June 30 th, 2014 compared to $0.59 per share
for the same period in 2013.
That concludes my opening remarks. I’d like to turn the call over to Shawn Peters to
provide more detail on the company’s operating and financial performance for the second quarter
of 2014 as well as for the six months ended June 30 th, 2014, beginning with our Land Registry
business.
7
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Shawn W. Peters – Vice-President, Finance & Technology and Chief Financial Officer, Information
Services Corporation
Thank you, Jeff.
For the Land Registry, which includes the Land Titles Registry, the Land Surveys Directory
and Geomatics, revenue for the second quarter of 2014 was 17.3 million, an increase of 5.5 per cent
compared to the prior year period. Revenue from the Land Titles Registry remained strong due to an
increase in average prices of existing homes as well as a small increase in ownership and transfer
volumes.
For the six months ended June 30th, 2014 revenue for the Land Registry was 30.3 million,
an increase of 4 per cent compared to the prior-year period.
Revenue from the Personal Property Registry for the second quarter this year 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, which is 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 overall slight decrease in revenue.
PPR revenue for the six months ended June 30 th, 2014 was 4.8 million, which represents a
small decrease of 0.5 per cent from the same period in 2013.
8
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Revenue for the Corporate Registry for the three months ended June 30 th, 2014 was 2
million, a 1.5-per-cent decrease compared to the 2.1 million for the three months ended June 30 th,
2013. Revenue from the incorporation of new businesses, which is included in registrations,
declined by 5.7 per cent in the same period, which accounts for the majority of the difference.
Revenue for the Corporate Registry for the six months ended June 30 th, 2014 remained stable at 4.3
million when compared to the same period last year.
On the expense side, operating, general and admin expenses for the second quarter were
13.5 million compared to 12.7 million in the same quarter last year. The overall increase was due
mainly to an increase in wages and salaries, as well as costs related to being a publicly-traded
company. However, these were partially offset by decreases in information technology costs and
costs related to project initiatives in the quarter.
For the six months ended June 30th, 2014 operating, general and administrative expenses
were 25.9 million, an increase of 4.2 per cent from the 24.8 million for the same period in 2013.
Depreciation and amortization was 1.2 million, a decrease of 0.2 million for the three
months ended June 30th, 2014 compared to the same period of 2013. This compares to expenses of
2.5 million for depreciation and amortization for the six months ended June 30 th, a decrease of 0.6
million compared to the same period of 2013. The decline was due to certain projects reaching a
fully amortized state in 2013 and less on capital expenditures to date in 2014.
9
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
As Jeff mentioned, we were not subject to income tax for most of the second quarter in
2013. However, for the second quarter of 2014, income tax expense was 2.1 million. This reflects
taxes at our corporate marginal rate of 27 per cent. Our cash taxes as represented by our income
taxes payable are significantly less as a result of our deferred tax asset, offsetting a large portion of
our current taxes.
Capital expenditures for the three months ended June 30 th, 2014 were stable at 0.7 million
compared to the same period in 2013 and for the six months ended June 30 th were 1.4 million
compared to 1.7 million for the same period in 2013.
During the first six months of 2014, the company focussed more on operational
expenditures and 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 to $7 million, down from the planned 8 to $10
million.
From a cash perspective, ISC had $30.5 million in cash on hand as at June 30th, 2014, up
from 24.7 million at March 31, 2014, continuing to provide flexibility to meet unanticipated cash
requirements due to changes in working capital or liquidity risk associated with financial
instruments.
Free cash flow for the three months ended June 30th, 2014 was 7.9 million compared to
7.4 million for the same period in 2013 and for the six months ended June 30 th was 12.1 million
10
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
compared to 11 million for the six months ended June 30 th, 2013. This increase is mainly due to less
cash directed to capital expenditures.
As at June 30th, 2014 ISC had long-term debt of approximately 9.9 million as well as a $10
million uncommitted revolving credit facility, both of which are provided by the Royal Bank of
Canada.
Finally, I am pleased to report that during the quarter we finalized new five-year service
agreements with our information technology service providers. Finalizing these agreements
provides stability to the Registry and the operations while updated terms provide us with more
flexibility in information technology cost management.
I’ll now turn the call back over to Jeff for some concluding remarks.
Jeff Stusek
Thanks, Shawn.
Overall we’re pleased with our second quarter 2014 results and they are in line with our
expectations. We continue to expect our revenue for the year to remain stable and annual EBITDA
margins to return to the normalized level of approximately 35 per cent based on moderate
economic growth expectations for Saskatchewan.
That concludes our formal remarks. I will now turn the call back over to Jonathan.
11
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Jonathan Hackshaw
Thanks, Jeff. With that, Operator, we’d like to begin the question-and-answer session.
Q&A
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.
Should you have a question, please press the * followed by the 1 on your touchtone phone. You will
hear a three-tone prompt acknowledging your request and your questions are polled in the order
they are received. Should you wish to decline from the polling process, please press the * followed
by the 2. If you are using a speakerphone, please lift the handset before pressing the keys.
One moment please for your first question. Your first question comes from Steve Arthur of
RBC Capital Markets. Please go ahead.
Steve Arthur – Analyst, RBC Capital Markets
Yes, great. Thank you. Just a couple of quick follow-up questions. Shawn, you mentioned
the new five-year IT agreement. I'm just trying to interpret what you mean there. Is this a lower-cost
agreement than what you had previously? I’m not quite sure what flexible means. Or can you
quantify how it might change over the next five-year period?
12
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Shawn W. Peters
Thanks, Steve, for the question. What we mean by flexibility is not necessarily a lower cost.
In fact, most of our costs were pretty reasonable to start with. What it does is it provides us
flexibility on a more of a per-use basis, so we’re now paying as opposed to sort of flat fixed fees.
There’s more flexibility in paying for what we’re actually consuming, whether that’s hardware and
infrastructure resources such as virtual servers or development staff.
Steve Arthur
Okay. No, that makes sense. I guess secondly just on capex, you did lower the expectation
for the full year, which wasn’t too much of a surprise. But still you’re at 1.4 million for the first six
months. Do you have specific programs in mind that maybe are underway now, like to reach that
five to seven million this year?
Shawn W. Peters
Yeah, so we do have a list of initiatives that we’ve been reviewing over the past probably
six to nine months. And we did focus more this year on operational initiatives which has delayed
some of those. And I guess the simple answer to the question is yes, we do have a list of initiatives.
We do expect them to start up more in August and September in this third quarter. And so that’s
where that target comes from.
13
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Steve Arthur
Okay. And I guess just bigger picture in terms of other growth initiatives, just any updated
thoughts in terms of new initiatives or programs that you’re pursuing or products within the
province and anything that you might have been pursuing outside of the province? Has there been
any kind of progress there that you can talk about?
Jeff Stusek
Steve, it’s Jeff here. You know, our intents are the same that we’re continuing to focus
both at opportunities within the province and external to the province. We continue to progress. No
announcements as of yet, but those files remain active for us for sure.
Steve Arthur
Maybe one final one. Just in terms of cash, the balance sheet is very strong right now, lots
of cash in the balance sheet and good cash flow. Any further thoughts on dividend policy? It’s a
relatively low payout ratio now and I do understand that the tax, the cash tax has moved up over
time. But whether the criteria you look at for increasing that dividend or other uses of cash,
whether it’s, you know, repaying that debt or special dividends or other things?
14
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Shawn W. Peters
Yes, Steve, it’s Shawn. It’s a good question. Obviously we are. We watch that cash very
closely. The dividend policy is really a board decision, and so I can’t speak directly to that. But as
we’ve communicated previously, it is our intention to increase that dividend over time; but also to
use that cash on the balance sheet for short-term growth initiatives.
But we are watching as you know that we do have the debt and whether it’s more efficient
to pay off that debt. And that’s something we’re seriously looking at – the optimal use of those cash
resources.
Steve Arthur
Okay, thank you for that. I’ll pass the line for now.
Operator
Thank you. Our next question is from Stephanie Price, of CIBC. Please go ahead.
Stephanie Price – Analyst, CIBC
Yes, good morning, gentlemen.
15
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Jeff Stusek
Good morning.
Shawn W. Peters
Hi, Stephanie.
Stephanie Price
Maybe just a follow up on Steve’s capex question. It sounds like maybe the 3 million delta
here, is that going to be potentially spent in 2015? Should we be thinking about it that way?
Jeff Stusek
I think, yeah, you know, our thoughts on capex remain the same. We think the 8 to 10 is
still a normalized spend. I think there’s a couple of things that have impacted that this year. The
first one which we referred to is the IPO. We spent, you know, six to nine months internally
significantly focused on IPO and post IPO. And that delayed some of our operational initiatives and
we’re really catching up on some of those. And that’s what’s made 2014 a little lower than
expected. So some of those are going to push out into 2015.
The other thing I’ll say is that as we look at our capital expenditure program and, you
know, we do have a significant information technology investment and we continue to run and
16
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
update those systems, however part of our look and when we renegotiated our IT service
agreement is that there are other options available to us, including more software as a service and
cloud- based offerings. So I think as we go forward, we’ll be reviewing our capex spend in light of
some of those other options as well. So some of those will get pushed out into 2015. Some of them
may change in nature.
Stephanie Price
Fair enough. And then on the PPR, the Personal Property Registration, can you just walk us
through that? So transaction volumes were up, but there’s a regulation or a regulatory set-up or
registry set-up. Can you just walk through what’s going on there?
Jeff Stusek
Sure, the number of transactions are up. There are a few things that happen in PPR.
Searches is one of them and search volume can be up. However the big driver of revenue is the
personal Property Security Registration set-up and those are down slightly overall. So even though
overall transactions are up, the real revenue generating set-up transactions are down slightly.
Stephanie Price
All right, fair enough. Thanks. I’ll pass the line.
17
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Operator
Thank you. Your next question comes from Michael Urlocker, of GMP Securities. Please go
ahead.
Michael Urlocker – Analyst, GMP Securities
Good morning. Thanks. The results look pretty straightforward and clear, so my questions
are fairly simple. Just two. So one on cash balance. You know, you guys have got a good healthy
balance sheet. You’ve been building cash. In terms of cash management of, you know, week-toweek operations for the firm, is there any clear number of how much cash you need on the balance
sheet to, you know, meet payables, etc.?
Shawn W. Peters
Mike, it’s Shawn. So that’s a review that we’ve been doing over the last couple of months
more seriously now. Clearly we have a fairly good history in terms of, you know, stability and what
we actually need. So part of our cash management strategy is to finalize that number and then, you
know, use the rest of our cash optimally, whether that means investing it short term, paying off the
debt or whatever that might be.
18
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Michael Urlocker
Um-hmm.
Shawn W. Peters
So that’s a review that’s under way.
Michael Urlocker
Okay, and then you know, you did say that cash taxes are significant, or considerably less
than the 27-per-cent rate that shows up on the income statement. What is your estimate of the
cash taxes as a tax rate for the past six or nine months?
Shawn W. Peters
It’s around 3 to 5 per cent.
Michael Urlocker
Okay. Okay, excellent. Thanks very much.
Shawn W. Peters
Thanks.
19
FINAL TRANSCRIPT
August 14, 2014 – 11:00 a.m. E.T.
Operator
Thank you. There are no further questions at this time. You may proceed.
Jonathan Hackshaw
Thank you, Operator. And so with that, thank you all for joining us on the call today. We
look forward to speaking with you again when we report our next quarter’s earnings during the
course of the fall.
Thank you and have a good day.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for
participating and we ask that you please disconnect your lines.
*****
20

final transcript

Transcription

Documents pareils