Stock Exchange Symbol: DH
Website: www.dhltd.com
TORONTO, May 8, 2012 /CNW/ – Davis + Henderson Corporation (“D+H”) today reported its financial results for the three months ended March 31, 2012 that were consistent with expectations in the context of our strategic agenda and reflected year-over-year growth in revenues and EBITDA1 primarily due to the inclusion of Mortgagebot LLC (“Mortgagebot”), acquired on April 12, 2011, partially offset by higher spending to benefit future periods.
First Quarter Highlights
Revenue was $181.6 million compared to $169.5 million for the same quarter in 2011.
EBITDA was $40.8 million compared to $37.5 million for the same quarter in 2011. EBITDA for the first quarter of 2012 was impacted by acquisition-related costs of $0.7 million compared to acquisition-related costs of $1.8 million for the same period in 2011.
Adjusted net income1 was $22.0 million ($0.3709 per share) for the first quarter of 2012 compared to $22.8 million ($0.4275 per share) for the same quarter in 2011. Adjusted net income per share for the first quarter of 2012 was impacted by the issuance of 6 million shares in April 2011 to partially fund the Mortgagebot acquisition.
Net income was $14.9 million ($0.2521 per share) compared to $36.0 million ($0.6769 per unit) for the same quarter in 2011. Net income for the first quarter of 2011 benefited from tax recoveries of $14.3 million compared to a tax expense of $4.9 million in the first quarter of 2012. Net income per share for the first quarter of 2012 was additionally impacted by the issuance of 6 million shares in April 2011.
On March 30, 2012, D+H paid a dividend of $0.31 per share to its shareholders of record on March 16, 2012. For the same period in 2011, D+H paid $0.3033 per share which comprised of a $0.1533 per unit distribution that was paid on January 31, 2011 (declared on December 31, 2010 when D+H was an income trust) and a $0.15 per share special dividend paid on March 31, 2011.
____________________________
1 D+H financial results are prepared in accordance with IFRS. D+H reports several non-IFRS financial measures, including EBITDA and Adjusted net income used above. Adjusted net income is calculated as net income, adjusted to remove certain non-cash items and certain items of note such as acquisition-related expenses and discontinued operations and the related tax effects of these adjustments including tax effects of corporate conversions. These items are excluded in calculating Adjusted net income as they are not considered indicative of the financial performance of D+H for the period being reviewed. Any non-IFRS financial measures should be considered in context with the IFRS financial statement presentation and should not be considered in isolation or as a substitute for IFRS net income or cash flows. Further, D+H’s measures may be calculated differently from similarly titled measures of other companies. See Non-IFRS Financial Measures for a more complete description of these terms.
D+H’s unaudited consolidated financial statements for the first quarter of 2012, accompanying notes to the financial statements and management’s discussion & analysis (MD&A) along with the supplementary financial information will be available tomorrow on www.sedar.com and at www.dhltd.com.
For a more detailed discussion of the results and management’s outlook, please see Management’s Discussion and Analysis below.
Caution Concerning Forward-Looking Statements
This press release contains certain statements that constitute forward-looking information within the meaning of applicable securities laws (“forward-looking statements”). Statements concerning D+H’s objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of D+H are forward-looking statements. The words “believe”, “expect”, “anticipate”, “estimate”, “intend”, “may”, “will”, “would” and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of D+H to meet its revenue, EBITDA and Adjusted net income targets; general industry and economic conditions; changes in D+H’s relationship with its customers and suppliers; pricing pressures and other competitive factors; the anticipated effect of acquisitions on the financial performance of D+H; and the expected benefits arising as a result of acquisitions. D+H has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While D+H considers these factors and assumptions to be reasonable based on information currently available, there can be no assurance that actual results will be consistent with these forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of D+H, or developments in D+H’s industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements.
Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of personal and business cheques; D+H’s dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet D+H’s financial objective; stability and growth in the real estate, mortgage and lending markets; as well as general market conditions, including economic and interest rate dynamics. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The documents incorporated by reference herein also identify additional factors that could affect the operating results and performance of D+H. Forward-looking statements are based on management’s current plans, estimates, projections, beliefs and opinions, and D+H does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change except as required by applicable securities laws.
All of the forward-looking statements made in this press release and the documents incorporated by reference herein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, D+H.
Conference Call
D+H will discuss its financial results for the three months ended March 31, 2012 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday, May 9, 2012. The number to use for this call is 647-427-7450 for Local / International callers or 1-888-231-8191 for US / Canada callers. The conference call will be hosted by Gerrard Schmid, Chief Executive Officer and by Brian Kyle, Chief Financial Officer. The conference call will also be available on the web by accessing CNW Group’s website www.newswire.ca/en/event. For anyone unable to listen to the scheduled call, the rebroadcast number will be: 416-849-0833 for Toronto area callers, or 1-855-859-2056 for all other callers, with Encore Password 75732471. The rebroadcast will be available until Wednesday, May 23, 2012. An archive recording of the conference call will also be available at the above noted web address for one month following the call and a text version of the call will be available at www.dhltd.com.
ADDITIONAL INFORMATION
Additional information relating to D+H, including D+H’s most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Discussion and Analysis (“MD&A”) for the first quarter of 2012 for Davis + Henderson Corporation (the “Company” or the “Corporation” or the “Business” or “Davis + Henderson” or “D+H” or “we” or “our”), which was formerly known as Davis + Henderson Income Fund (the “Fund”), has been prepared with an effective date of May 8, 2012 and should be read in conjunction with the MD&A in the Annual Report for the year ended December 31, 2011, dated March 6, 2012, and the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2012. External economic and industry factors remain substantially unchanged from those described in the annual MD&A and the Corporation’s most recently filed Annual Information Form, except as described herein.
NON-IFRS FINANCIAL MEASURES
The information presented within the tables in this MD&A include certain adjusted financial measures such as “EBITDA” (Earnings before interest, taxes, depreciation and amortization; EBITDA also excludes fair value adjustments of interest-rate swaps which are directly related to interest expense), “Adjusted net income” (net income before certain non-cash charges such as amortization of intangibles from acquisitions and fair value adjustments of interest-rate swaps and certain items of note such as acquisition-related expenses and discontinued operations), and “Adjusted net income per share”, all of which are not defined terms under IFRS. These non-IFRS financial measures should be read in conjunction with the Consolidated Statements of Income. See the reconciliation of EBITDA and Adjusted net income to the most directly comparable IFRS measure, “Net income”, in the “Operating Results” section of this MD&A.
Management believes these supplementary measures provide useful additional information related to the operating results of the Corporation. Management uses these subtotals as measures of financial performance and as a supplement to the Consolidated Statements of Income. Investors are cautioned that these measures should not be construed as an alternative to using net income as a measure of profitability or as an alternative to the IFRS Consolidated Statements of Income or other IFRS statements. Further, these measures do not have any standardized meaning and D+H’s method of calculating each balance may not be comparable to calculations used by other companies bearing the same description.
EBITDA
In addition to its use by management as an internal measure of financial performance, EBITDA is used to measure (with adjustments) compliance with certain financial covenants under the Company’s credit facility and bonds. EBITDA is also widely used by D+H in assessing performance and value of a business. EBITDA has limitations as an analytical tool, and the reader should not consider it in isolation or as a substitute for analysis of results as reported under IFRS.
Adjusted Net Income and Adjusted Net Income per Share
Effective January 1, 2011, as a result of the conversion from an income trust structure to a corporate structure, the Business commenced using Adjusted net income and Adjusted net income per share as a measure for evaluating its results. Periods prior to January 1, 2011, do not have a comparable measure.
Adjusted net income is used as a measure of internal performance similar to net income, but is calculated after removing the impacts of certain items such as acquisition-related expenses, discontinued operations and certain non-cash items such as amortization of intangibles from acquisitions and fair value adjustments of interest-rate swaps. Also excluded from Adjusted net income are the tax effects of corporate conversion and acquisitions. These items are excluded in calculating Adjusted net income as they are not considered indicative of the financial performance of the Business for the period being reviewed.
STRATEGY
D+H is a leading solutions provider to the financial services marketplace. We have several market-leading service offerings within Canada, including: payment solutions (reported as programs to chequing accounts in prior periods); the provision of registration, recovery and related services for secured loan products; the servicing of student loans; and the delivery of lending technology solutions. Additionally, through Mortgagebot LLC (“Mortgagebot”), D+H is a market-leading provider of Software-as-a-Solution (“SaaS”), point-of-sale mortgage and consumer loan solutions in the United States for over 1,070 banks and credit unions. In Canada, we also offer leading technology solutions in the commercial lending, small business lending and leasing area, as well as servicing solutions within the credit card market and in a number of other specialty areas.
D+H’s strategy is to establish market-leading positions within well defined and growing service areas in the financial services marketplace and to further expand our service offerings by enhancing the activities that we perform on behalf of our customers. We expect to advance this strategy through organic initiatives, as well as by partnering with third parties and by way of selective acquisitions. D+H’s long-term financial objective is to deliver sustainable and growing earnings through continued organic revenue growth and by way of strategic acquisitions.
Over the past several years, D+H has executed this strategy by evolving payment solutions, completing several acquisitions, including Resolve Business Outsourcing Income Fund (“Resolve”) in 2009, ASSET Inc. (“ASSET”) in January 2011, and Mortgagebot in April 2011, and by further enhancing our services and capabilities. As a result, we offer a diverse range of market-leading services.
Consistent with its strategy, on a go-forward basis, management is working to: (i) evolve and enhance the value of payment solutions (specifically chequing and credit card programs); (ii) extend our technology supported services related to personal, student and commercial lending and leasing markets; and (iii) grow in other areas within the financial services marketplace.
As well, on May 3, 2012, D+H announced the acquisition of 100% equity interest in Avista Solutions, Inc. (“Avista”) of Charleston, South Carolina, for a purchase price of approximately US$ 40 million. Avista is a leading provider of SaaS mortgage loan origination software for community and regional banks, credit unions and mortgage bankers in the United States. Additionally, on April 24, 2012, we announced the completion of a strategic minority investment in Santa Ana, California-based Compushare, Inc. (“Compushare”), a technology management and cloud computing provider to financial institutions, for US$ 9.8M. Both of these transactions strengthen our capability to deliver on our goal of being a leading solutions provider to the North American financial services industry.
For a detailed discussion of the results for the first quarter 2012 and management’s outlook, please see below. For a detailed discussion of risk factors, please refer to the most recent Annual Information Form and the 2011 Annual Report filed on SEDAR.
ACCOUNTING PRINCIPLES AND FINANCIAL INFORMATION PRESENTATION
The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). Prior to January 1, 2011, the consolidated financial statements were reported in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).
Results from continuing operations include the performance of acquired businesses from the respective dates of acquisition and exclude results from businesses classified as discontinued operations.
Comparative information presented for periods prior to January 1, 2011 relate to those of the Fund, and the results for the periods subsequent to January 1, 2011 are those of the Corporation. Consequently, throughout this MD&A, any references to distributions, unitholders, and per unit amounts relate to periods prior to January 1, 2011, and any references to dividends, shareholders and per share amounts relate to periods subsequent to January 1, 2011.
All amounts are in Canadian dollars, unless otherwise specified.
Segment Reporting
Commencing in the first quarter of 2012, D+H reports its results by its reportable segments based on its two strategic business units, the “Canadian Segment” and the “U.S. Segment”. Comparatives have been presented to conform to the current period disclosure.
The Canadian Segment includes payment solutions, loan registration and recovery services, loan servicing, technology solutions in commercial lending, small business lending and leasing area, lending technology services to the Canadian mortgage market and other business service solutions. The U.S. Segment consists of lending technology services to the U.S. mortgage market, including Mortgagebot, a leading SaaS provider of mortgage point-of-sale offerings in the United States and provider of a range of consumer direct, loan officer, branch and call centre mortgage and consumer loan origination solutions.
The results reported under each of these segments do not include certain items such as interest expense, income taxes and fair value adjustments related to derivative instruments, as these items are considered to be of a corporate nature and as such, have been reported as part of Corporate.
CONSOLIDATED OPERATING RESULTS – FIRST QUARTER OF 2012
Consolidated Operating Results – Overview
Growth in consolidated revenues and EBITDA in the first quarter of 2012, compared to the same period in 2011, was driven primarily by the inclusion of the Mortgagebot business acquired on April 12, 2011. The Business also experienced modest increases in three of its five service areas in the Canadian Segment as more fully described in the discussion of business results. Consolidated EBITDA for both quarters were additionally impacted by acquisition-related costs incurred in connection with the acquisitions of ASSET and Mortgagebot.
The following table is derived from, and should be read in conjunction with, the Consolidated Statements of Income and includes non-IFRS financial measures. Management believes this supplementary disclosure provides useful additional information. See Non-IFRS Financial Measures section for a description of non-IFRS terms used.
The consolidated results include those of ASSET, effective January 18, 2011, and Mortgagebot effective April 12, 2011. Operating results of ASSET have been included as part of the Canadian Segment and the operating results of Mortgagebot have been included as part of the U.S. segment.
Consolidated Operating and Financial Results1
(in thousands of Canadian dollars, except per share amounts, unaudited)
Quarter ended March 31,
2012
2011
Revenue
$ 181,613
$ 169,548
Expenses 2
140,780
132,045
EBITDA 2, 3
40,833
37,503
Depreciation of capital assets and amortization of non-acquisition intangibles
6,837
5,504
Amortization of intangibles from acquisitions
10,939
8,092
Interest expense
4,821
3,989
Amortization and fair value adjustment of derivative instruments4
(1,645)
(1,687)
Income tax expense (recovery)
4,947
(14,290)
Income from continuing operations
14,934
35,895
Income from discontinued operations, net of tax 5
-
140
Net income
14,934
36,035
Adjustments:
Non-cash items:
Amortization of intangibles from acquisitions
10,939
8,092
Amortization and fair value adjustment of derivative instruments 4
(1,645)
(1,687)
Other items of note:
Acquisition-related items2
737
1,799
Discontinued operations, net of tax 5
-
(140)
Tax effect of above adjustments (excluding discontinued operations) 6
(2,998)
(2,133)
Tax effect of corporate conversion 7
-
(19,209)
Adjusted net income3
$ 21,967
$ 22,757
Adjusted net income per share, basic and diluted 3, 8, 9
$ 0.3709
$ 0.4275
Income from continuing operations per share, basic and diluted 8, 9
$ 0.2521
$ 0.6743
Net income per share, basic and diluted 8, 9
$ 0.2521
$ 0.6769
Quarter ended March 31,
2012 vs. 2011
% change
Revenue
7.1%
EBITDA 2, 3
8.9%
Adjusted net income per share 3, 7, 8
(13.2%)
1 The consolidated results include those of ASSET and Mortgagebot, effective from the respective dates of acquisition of January 18, 2011 and April 12, 2011.
2 Consolidated expenses for the first quarter of 2011 include acquisition-related costs pertaining to certain transaction costs. Results for the first quarter of 2012 also include certain retention and incentive costs related to the acquisition of Mortgagebot.
3 EBITDA and Adjusted net income are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms.
4 Includes: (i) mark-to-market adjustments of interest-rate swaps that are not designated as hedges for hedge accounting purposes, and for which any change in the fair value of these contracts is recorded through the Consolidated Statement of Income; and (ii) amortization of the mark-to-market adjustment of interest-rate swaps relating to cumulative net gains and losses that were deferred prior to January 1, 2007 when hedge accounting was discontinued for these swaps.
5 The Business sold a non-strategic component of its contact centre business in October 2010 and entered into a transition agreement with the buyer which ended on April 1, 2011. The results of these operations are presented as discontinued operations in the comparative periods presented.
6 The following adjustments to net income are tax effected at their respective tax rates: (i) amortization of acquisition intangibles; (ii) amortization and fair value adjustment of derivative instruments; and, (iii) acquisition-related items.
7 Adjustments for first quarter of 2011 related to non-cash income tax recoveries recorded in connection with the conversion from an income trust structure to a corporation in January 2011. Compared to an adjustment of $13.5 million related to tax recoveries reported in the first quarter of 2011, Adjusted net income for the first quarter of 2011 has been amended to reflect the identification of a further one-time non-cash tax recovery of $5.7 million related to tax changes in connection with the corporate conversion in January 2011.
8 Diluted net income per share and Diluted Adjusted net income per share (non-IFRS term) reflect impacts of outstanding options. If the average market price during the period is below the option price plus the fair market value of the option, then the options are not included in the dilution calculation. The options outstanding were not dilutive for the periods presented.
9 Weighted average number of shares outstanding during the first quarter of 2012 was 59,233,373 shares (Q1 2011 – 53,233,373 shares).
Consolidated Revenue
Consolidated revenue for the first quarter of 2012 was $181.6 million, an increase of $12.1 million, or 7.1%, compared to the same period in 2011. This increase was primarily due to the inclusion of Mortgagebot, acquired on April 12, 2011, and to a lesser extent, organic growth in certain other service areas. Services delivered by the Business are subject to seasonality, including fees earned in connection with mortgage origination services and automobile loan registration services, which are typically stronger in the second and third quarters than in the first and fourth quarters. See Operating Results by Segment section for a more detailed discussion of revenue by service area.
The following table reflects the relative size of each of the major service areas as a percentage of consolidated revenue based on a rolling twelve-month period:
Rolling twelve-months ended March 31,
2012
2011
Revenue – Consolidated
Payment solutions 3
40%
44%
Loan registration and recovery services
22%
21%
Loan servicing
18%
20%
Lending technology services 1
15%
9%
Business service solutions 2
5%
6%
100%
100%
1 Includes revenue reported as part of the U.S. segment.
2 Previously reported as Other.
3 Previously reported as Programs to the chequing account.
Payment solutions include: (i) the cheque supply program which serves the personal and small business account holders of our financial services customers; and (ii) various other subscription fee based enhancement services and other service offerings directed towards account opening activities. These service offerings (excluding the component of enhancement and identity protection services that are integrated in the cheque order) currently represent a small component of revenues within this revenue category. In general, cheque order volumes in this area have historically been declining as consumers and small businesses choose other payment methods. Revenue related to payment solutions is reported as part of the Canadian Segment for segment reporting purposes.
Loan registration and recovery services support the personal and commercial lending activities of our financial services customers. Services include the registration and management of data related to secured lending for both personal and real property loans as well as recovery services related to both secured and unsecured lending activities. The largest service areas within this revenue category are search and registration services, which currently account for approximately 50% to 60% of revenue, and recovery services accounting for approximately 25% to 35% of revenue. In both instances, loans relating to vehicle purchases are a significant driver of activity and as such can be variable. In general, registration services are impacted by both economic cyclicality and seasonality, while recovery services are, in general, counter-cyclical. Other services within this revenue category include mortgage discharge services and various search-related services, both of which we deliver on behalf of our financial institution customers. Revenue related to the loan registration and recovery services are reported as part of the Canadian Segment for segment reporting purposes.
Loan servicing programs include student loans administration services offered to financial institutions and governments and credit card servicing offered to card issuers. The student loans administration services currently account for approximately 70% to 80% of revenues within this revenue category. In general, student loan servicing volumes have been stable and modestly growing as student loans balances have been increasing and the term of the loans extended. Recent integration of two lending portfolios into a single managed portfolio will reduce the fees we earn on a net basis. Volumes related to credit card servicing can be more variable and are primarily impacted by customer initiatives. Revenues related to the loan servicing programs are reported as part of the Canadian Segment for segment reporting purposes.
Lending technology services include services directed towards mortgage markets in both Canada and, recently with the acquisition of Mortgagebot in April 2011, the United States. As well, we offer technology products and services in both countries directed towards leasing, commercial lending and small business lending. Revenues related to the mortgage markets currently represent approximately 85% to 95% of revenues within this category, with approximately 50% to 60% attributable to transaction-based fees earned in connection with Canadian mortgage originations and 40% to 50% representing fees related to the U.S. SaaS loan origination services. Mortgage origination fees can be variable and are impacted by many factors including the economy, the housing market and interest rates, among others. For segment reporting purposes, revenues from the lending technology services to the Canadian mortgage markets and the products and technology solutions for leasing, commercial lending and small business lending offered in both Canada and U.S. are reported as part of the Canadian Segment. Revenues related to the U.S. SaaS loan origination services are reported as part of the U.S. Segment.
Business service solutions (previously reported as Other), include a number of smaller service offerings that are primarily outsourced activities we perform on behalf of a variety of customers including non-financial services customers. Revenues from these activities are reported as part of the Canadian Segment for segment reporting purposes.
Consolidated Expenses
Consolidated expenses of $140.8 million for the first quarter of 2012 increased by $8.7 million or, 6.6% compared to the same quarter in 2011. The increase primarily reflects the inclusion of Mortgagebot expenses within the U.S. Segment. The Canadian Segment also contributed to the increase in consolidated expenses as a result of costs associated with technology-related transformation and integration activities. On a consolidated basis, these increases were partially offset by lower acquisition-related expenses in the first quarter of 2012, compared to the same period in 2011. Consolidated expenses for the first quarter of 2012 included $0.7 million of acquisition-related costs ($1.8 million for the same period in 2011).
Consolidated EBITDA
Consolidated EBITDA during the first quarter of 2012 was $40.8 million, an increase of $3.3 million, or 8.9%, compared to the same quarter in 2011. The majority of the increase in the first quarter of 2012 was attributable to the acquisition of Mortgagebot as part of the U.S. Segment, partially offset by a decrease in EBITDA in the Canadian Segment. To a lesser degree, consolidated EBITDA for the first quarter of 2012 benefited from lower acquisition-related costs of $0.7 million in the current quarter, compared to $1.8 million for same period in 2011.
Consolidated Net Income
Consolidated net income of $14.9 million for the first quarter of 2012 decreased by $21.1 million, or 58.6%, compared to the same period in 2011. Net income for the first quarter of 2011 benefited from tax recoveries of $14.3 million which included tax recoveries of $19.2 million related to the changes in the tax status of the Business as a result of the conversion from an income trust to a corporation. This was compared to an income tax expense of $4.9 million for the first quarter of 2012. Net income for the first quarter of 2012 was additionally impacted by an increase in expenses related to integration initiatives in the Canadian Segment, partially offset by the positive contribution from the U.S. Segment as a result of the inclusion of the results from Mortgagebot.
Consolidated Adjusted Net Income
Adjusted net income for the first quarter of 2012 and for the same period in 2011 excluded: (i) non-cash impacts of items such as amortization of intangibles from acquisitions and gains and losses related to fair value adjustment of derivative instruments; and (ii) other items of note such as acquisition-related costs referred to below and tax recoveries related to the changes in the tax status of the Business as a result of the conversion from an income trust to a corporation. Net income is also adjusted for the tax impact of these adjustments to arrive at Adjusted net income.
For the first quarter of 2012, consolidated Adjusted net income was $22.0 million ($0.3709 per share), a decrease of $0.8 million, or 3.5%, compared to $22.8 million ($0.4275 per share) for the same period in 2011. Adjusted net income per share for the first quarter of 2012 was impacted by the issuance of 6 million shares in April 2011 to partially fund the Mortgagebot acquisition. Consolidated Adjusted net income excluded tax recoveries of $19.2 million ($0.3608 per share) related to the changes in the tax status of the Business as a result of the conversion from an income trust to a corporation. Compared to an adjustment of $13.5 million related to tax recoveries originally reported in the first quarter of 2011, Adjusted net income for the first quarter of 2011 has been amended to reflect the identification of a further one-time non-cash tax recovery of $5.7 million related to tax changes in connection with the corporate conversion in January 2011.
OPERATING RESULTS BY SEGMENT1
(in thousands of Canadian dollars, except per share amounts, unaudited)
Quarter ended March 31,
Canadian Segment
U.S. Segment
Corporate
Consolidated
2012
2011
2012
2011
2012
2011
2012
2011
Revenue
$ 170,022
$ 169,548
$ 11,591
$ -
$ -
$ -
$ 181,613
$ 169,548
Expenses 2
134,491
130,445
6,289
1,600
-
-
140,780
132,045
EBITDA 2, 3
35,531
39,103
5,302
(1,600)
-
-
40,833
37,503
Amortization of capital assets and non-acquisition intangibles
6,504
5,504
333
-
-
-
6,837
5,504
Amortization of intangibles from acquisitions
8,131
8,092
2,808
-
-
-
10,939
8,092
Interest expense
-
-
-
-
4,821
3,989
4,821
3,989
Amortization and fair value adjustment of derivative instruments4
-
-
-
-
(1,645)
(1,687)
(1,645)
(1,687)
Income tax expense (recovery)
-
-
-
-
4,947
(14,290)
4,947
(14,290)
Income (loss) from continuing operations
20,896
25,507
2,161
(1,600)
(8,123)
11,988
14,934
35,895
Income from discontinued operations, net of tax 5
-
140
-
-
-
-
-
140
Net income (loss)
$ 20,896
$ 25,647
$ 2,161
$ (1,600)
$ (8,123)
$ 11,988
$ 14,934
$ 36,035
1 The results include those of ASSET (included as part of the Canadian Segment) and Mortgagebot (included as part of the U.S. segment), effective from the dates of acquisition of January 18, 2011 and April 12, 2011, respectively.
2 Expenses include acquisition-related items such as transaction costs related to acquisitions and certain retention and incentive payments related to the Mortgagebot acquisition.
3 EBITDA is a non-IFRS term. See Non-IFRS Financial Measures for a more complete description of this term.
4 Includes: (i) mark-to-market adjustments of interest-rate swaps that are not designated as hedges for hedge accounting purposes, and for which any change in the fair value of these contracts is recorded through the Consolidated Statement of Income; and (ii) amortization of the mark-to-market adjustment of interest-rate swaps relating to cumulative net gains and losses that were deferred prior to January 1, 2007 when hedge accounting was discontinued for these swaps.
5 The Business sold a non-strategic component of its contact centre business in October 2010 and entered into a transition agreement with the buyer which ended on April 1, 2011. The results of these operations are presented as discontinued operations for the first quarter of 2011.
OPERATING RESULTS – CANADIAN SEGMENT
Operating results from the following service areas are included in the Canadian Segment: (i) payment solutions; (ii) loan registration and recovery services; (iii) loan servicing; (iv) lending technology services in Canada; and (v) business service solutions.
Overall, in the first quarter of 2012, revenue growth in certain service areas of the Canadian Segment was offset by decreases in revenue in other service areas combined with higher spending to benefit future periods. For a more detailed discussion on revenues and expenses in this segment, see the comments below.
Revenue
(in thousands of Canadian dollars, unaudited)
Quarter ended March 31,
2012
2011
Revenue – Canadian Segment
Payment solutions
$ 74,781
$ 74,211
Loan registration and recovery services 1
37,954
36,374
Loan servicing
34,111
33,272
Lending technology services 2
14,548
15,499
Business service solutions 3
8,628
10,192