chrispy Posted June 30, 2018 Share Posted June 30, 2018 Appreciate the good questions you've sent Liberty and the discussions they have created. Link to comment Share on other sites More sharing options...
Shooter MacGavin Posted July 2, 2018 Share Posted July 2, 2018 Additionally, aren't they are going out in the market anyway to purchase stock in the open market for the employee comp program? so arguably, by their own logic, they could still appear to use "insider information" to compensate employees to the detriment of other shareholders. My understanding is that it's the employees themselves that are buying and not the company, but I could be mistaken about that. They probably have a certain time window (buy within X months, must hold for Y years..?), but I don't know the details of the plan. so a quick search on the website clarifies this. This is from a 2011 annoucement. Toronto, Ontario, March 25, 2011 – Constellation Software Inc. (“Constellation” or the “Company”) (TSX: CSU) today announced that it has paid employee bonuses and director compensation in respect of the 2010 fiscal year and will commence purchasing shares on behalf of the employees and independent directors as stipulated in its various compensation plans. Consistent with previous years, and as outlined in the Company’s Annual Information Form dated March 25, 2011, Constellation requires certain of its employees and directors to reinvest portions of their annual compensation in common shares of the Company. For fiscal 2010, the total bonus paid to all employees was approximately US$51 million. The reinvestment obligations pursuant to the bonus plan, along with the payment of director’s fees, will require the purchase of approximately US$13 million worth of Constellation shares in the open market. No shares of the Company will be issued from treasury with respect to the above noted compensation plans. All purchases will be made through an independent third party purchasing agent. It is anticipated that the share purchases will be made over the course of several months. The purchasing agent will execute the trades in accordance with certain pre-established rules, which are intended to limit the impact on the Company’s share price. Constellation’s Annual Information Form is available at www.sedar.com Link to comment Share on other sites More sharing options...
Liberty Posted July 2, 2018 Author Share Posted July 2, 2018 Thanks, that makes sense. Link to comment Share on other sites More sharing options...
sane Posted July 10, 2018 Share Posted July 10, 2018 Any thoughts on Vista's rising size and public profile? (See for example today's long WSJ profile). Is their success purely negative for CSU? Or are there any silver linings - apart from a valuation fillip? Link to comment Share on other sites More sharing options...
Liberty Posted July 10, 2018 Author Share Posted July 10, 2018 Any thoughts on Vista's rising size and public profile? (See for example today's long WSJ profile). Is their success purely negative for CSU? Or are there any silver linings - apart from a valuation fillip? Seems like it's a negative, but mostly because of increased competition for larger VMSes. I don't think Vista is buying lots of $1-5m businesses the way CSI is. Link to comment Share on other sites More sharing options...
QuesnelCap Posted July 12, 2018 Share Posted July 12, 2018 Hey Guys, Been a lurker on here for quite a while. Anyway I did a short presentation on Outsiders/ML/Constellation. Check it out. Not sure if I'm adding much to the debate. I might be slightly more tepid on how I see equity holders doing over the next decade though. All feedback, counterarguments (esp. on why Constellation might do better than I am estimating) welcome. Attached PDF and see link https://securityinsecurities.com/2018/07/11/constellation-software/CSU_Presentation.pdf Link to comment Share on other sites More sharing options...
Liberty Posted July 12, 2018 Author Share Posted July 12, 2018 Hey, welcome to the board, QuesnelCap. It was nice meeting you in Toronto! Link to comment Share on other sites More sharing options...
chrispy Posted July 12, 2018 Share Posted July 12, 2018 I was not aware of the requirement for employees making more than a certain threshold to buy stock. It has been great for employees so far. One could estimate how many shares are required to be purchased a year and held for 5 years, right? Edit: and the magnitude of shares could be insignificant... Link to comment Share on other sites More sharing options...
Shooter MacGavin Posted July 12, 2018 Share Posted July 12, 2018 Can anyone who saw Cibc’s note today please summarize what stephanie’s price reason for raising her price target today was? Thank you Link to comment Share on other sites More sharing options...
Jerry Capital Posted July 12, 2018 Share Posted July 12, 2018 cheap versus TYL Link to comment Share on other sites More sharing options...
Shooter MacGavin Posted July 13, 2018 Share Posted July 13, 2018 cheap versus TYL Thanks. Wow. That’s it? Seems like faulty logic. Link to comment Share on other sites More sharing options...
Liberty Posted July 13, 2018 Author Share Posted July 13, 2018 cheap versus TYL Thanks. Wow. That’s it? Seems like faulty logic. Seems a bit simplistic, yeah. They play in some of the same verticals, but the operational model and future value drivers are pretty different. Link to comment Share on other sites More sharing options...
QuesnelCap Posted July 14, 2018 Share Posted July 14, 2018 @Liberty , Thanks, good meeting you too. Really sharp group of shareholders from the board and twitter. @chrispy , Not sure how one would go about doing that without access to information on the total number of employees in that share purchase requirement bucket, their bonuses, etc. Anyway the insider ownership filing is pretty extensive and you can probably get about 80% of the way there. See attachedCSU_Insider_Ownership.pdf Link to comment Share on other sites More sharing options...
QuesnelCap Posted July 17, 2018 Share Posted July 17, 2018 FWIW, got a response from Mark Leonard on my presentation (see link below). Posting with his permission. Basically beware of survivorship bias. Asked a couple other questions that should appear in the next Q&A. https://securityinsecurities.com/2018/07/15/what-do-billionaires-do-on-weekends/ Link to comment Share on other sites More sharing options...
Liberty Posted July 26, 2018 Author Share Posted July 26, 2018 My Q&A answers: http://www.csisoftware.com/wp-content/uploads/2018/07/QA-July-25-2018-Final.pdf They didn't answer my questions this time... :'( Link to comment Share on other sites More sharing options...
mwtorock Posted July 26, 2018 Share Posted July 26, 2018 The more i read about CSU or Mark L, the more i like the business. But i am not used to value software/high growth companies like CSU, so the price seems to be a bit high to me. Any comments about the valuation right now? and what yard sticks/framework you usually apply in valuing this type of businesses? Link to comment Share on other sites More sharing options...
Liberty Posted July 26, 2018 Author Share Posted July 26, 2018 Q2: http://www.csisoftware.com/wp-content/uploads/2018/07/CSI-Press-Release-Q2-2018.pdf http://www.csisoftware.com/wp-content/uploads/2018/07/Q2-2018-Shareholder-Report.pdf Link to comment Share on other sites More sharing options...
gary17 Posted July 27, 2018 Share Posted July 27, 2018 Seems like a slower quarter RBC reduced price target to $ 1150... Link to comment Share on other sites More sharing options...
Liberty Posted July 27, 2018 Author Share Posted July 27, 2018 Seems like a slower quarter RBC reduced price target to $ 1150... Yeah, after Q1's monster M&A, it's normal to see a hit to margins like this. It takes them a bit of time to bring the margins up. Still deployed a decent amount if you keep it in historical context and don't just compare to Q1. Usually when cashflows have lagged like this they caught up later, so I'm not too worried there, prob just timing. There's also so noise from FX, with almost 9m hit to ANI. Link to comment Share on other sites More sharing options...
sane Posted July 27, 2018 Share Posted July 27, 2018 Still deployed a decent amount if you keep it in historical context and don't just compare to Q1. Do you mean for Q2, or H1? Because I see this as the lowest quarter for acquisitions since Q3 '16. I am not too sensitive to one quarter given M&A lumpiness, especially given abnormal Q1 18, but just want to verify my quarterly data matches yours. Thanks. Link to comment Share on other sites More sharing options...
Liberty Posted July 27, 2018 Author Share Posted July 27, 2018 Do you mean for Q2, or H1? Because I see this as the lowest quarter for acquisitions since Q3 '16. I am not too sensitive to one quarter given M&A lumpiness, especially given abnormal Q1 18, but just want to verify my quarterly data matches yours. Thanks. That sounds right. I was looking over the past handful of years and to me this seemed like a decent amount. It's about the average run-rate of 2016. So if a slow Q now was an average Q two years ago, we're moving in the right direction. As you mention, M&A is inherently lumpy. I'm sure the market would've preferred them to have deployed 175m in Q1 and 175 in Q2, but that's not how the world works. Some day we'll likely wake up to them having bought something even bigger than Acceo and TSS, but who knows when? Link to comment Share on other sites More sharing options...
Liberty Posted July 27, 2018 Author Share Posted July 27, 2018 Twitter thread explaining what I was talking about on margin hit after a big M&A spike (like we saw in Q1): 1) My interpretation on the weaker than expected Q2 margins from $CSU. Staff costs make up approximately 66% of CSU’s operating costs. Staff costs on an annual basis have been around 50% of revenues for the last three years with unbelievable consistency. 2) Note that Q1 staff costs/revenues are typically a little higher (53%-54%) as year end bonuses are awarded while the other three quarters are typically around 49%. 3) However, yesterday the company reported staff costs that were 52% of revenues. Keep in mind that 1% of revenues equates to about $8m so this is material for a company with quarterly EBITDA of approximately $180m. Why did staff costs move upward? 4) The answer to this can be found by looking back at $CSU’s history. The last time this happened was in 2014, the year after Total Specific Solutions (TSS) was acquired. TSS was the largest acquisition made in $CSU history followed closely by ACCEO made earlier this year. 5) On the 2014 Q2 conference call $CSU CEO, Mark Leonard revealed that TSS had a much larger component of professional services but he hoped higher margin recurring revenues would grow over time. He also mentioned the ongoing restructuring that was occurring at TSS. 6) Over time clients were rationalized, severance costs stopped, back-end functions were consolidated and maintenance and recurring revenue sources grew leading to the stable operating margins that has been a defining factor of $CSU over the last four years. 7) With this in mind, I expect that margins will temporarily be weaker at $CSU while the integration of ACCEO continues. When companies deploy above average amounts of capital it is to be expected that margins will slip as companies work through rationalizing costs. 8 ) Even Mark Leonard, the Oracle of Ontario, can’t escape the reality of temporary additional expenses and lower margins due to a surge in capital deployment from a large acquisition. Link to comment Share on other sites More sharing options...
Liberty Posted August 2, 2018 Author Share Posted August 2, 2018 New acquisition at Volaris: https://globenewswire.com/news-release/2018/08/02/1546461/0/en/Volaris-Group-Expands-Position-in-Communications-Media-Vertical-with-Acquisition-of-Aleyant.html Volaris Group (“Volaris”) today announced that it has completed its eighth acquisition in the Communications and Media vertical with the acquisition of Aleyant Systems, LLC (“Aleyant”), a global web-to-print, estimation and production, and prepress automation workflow software provider to graphics and commercial print professionals. h/t @behrak on Twitter Link to comment Share on other sites More sharing options...
Liberty Posted August 6, 2018 Author Share Posted August 6, 2018 The company has released a new Q&A from shareholders: http://www.csisoftware.com/wp-content/uploads/2018/08/QA-August-2018-Final.pdf On recently lower margins: As mentioned in the MD&A the margin decline is primarily the result of lower margins on recently acquired businesses. If these businesses improve over time as expected, and we do not add a proportionate volume of low margin acquisitions, then overall margins of Constellation could move closer to historical levels. Keep in mind that we are also investing a lot more in M&A, so there could be an increase in our G&A expense as a percentage of revenue. Link to comment Share on other sites More sharing options...
chrispy Posted August 8, 2018 Share Posted August 8, 2018 It was quite the run up before this ~20% pullback. Is anyone adding at these levels or has it just come back down to reality? Leonard's comments were very much inline with the twitter thread Liberty posted. The temporary (potentially) decrease in margins is due to the acquisition and will benefit the company in the long run. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now