D+H Announces First Quarter 2017 Earnings

TORONTO, May 11, 2017 /CNW/ - DH Corporation (TSX:DH) ("D+H" or the "Company"), a leading provider of technology solutions to domestic and global financial institutions, reported its financial results for the three months ended March 31, 2017.

First Quarter 2017 Highlights:

  • Revenues decreased 3.5% in the first quarter to $397.9 million from $412.1 million in the same quarter in the prior year. Revenues decreased primarily due to the impact of foreign exchange rate changes and lower revenues in both our Financial Solutions ("FS") and Global Payments Solutions ("GPS") segments. These decreases were partially offset by higher revenues in our Global Lending Solutions segment ("GLS").

  • Adjusted revenues(1) in the first quarter decreased 3.8% to $398.5 million from $414.2 million in the prior year period. By segment, Adjusted revenues decreased 7.8%, to $76.0 million for GPS; increased 0.9%, to $166.9 million for GLS (U.S. lending solutions declined 1.9% while Canada lending solutions increased 3.3%), and; decreased 6.5%, to $155.6 million in FS.

  • Income from operating activities before depreciation and amortization ("EBITDA")(1) in the first quarter decreased 10.5%, to $82.6 million from $92.2 million in the prior year period. The decrease in EBITDA was primarily due to the impact of foreign exchange rates, lower revenues in FS (including a decrease in Canadian payments products/solutions as a result of volume declines in our retail solutions business), and lower revenues in GPS. Lower revenues were partially offset by lower expenses in the quarter.

  • Adjusted EBITDA(1) in the first quarter decreased 4.8% to $98.1 million (24.6% margin), from $103.0 million (24.9% margin) in the same prior year period. Adjusted EBITDA removes the impacts of acquisition-related and restructuring-related expenses, costs related to our global operations realignment, other costs, and costs related to the Proposed Transaction (see below). The decrease in Adjusted EBITDA margin primarily reflects the decline in Adjusted revenues and a change in our product mix.

  • Consolidated net loss of $2.7 million (loss of $0.03 per share, diluted) in the first quarter decreased from net income of $4.8 million ($0.04 per share, diluted) in the prior year period, primarily due to a decrease in EBITDA and a decrease in income tax recovery from the prior quarter. These decreases were partially offset by a decrease in amortization expense and finance expense.

  • Adjusted net income(1) decreased to $45.1 million in the first quarter from $45.4 million in the same period in the prior year.

  • Adjusted net income per share, diluted(1) was $0.42 in the first quarter compared to $0.43 in the same period in the prior year.

  • Net cash from operating activities increased by 24.3% in the first quarter, to $68.1 million from $54.8 million in the same period in prior year. Adjusted net cash from operating activities(1) increased by 23.3% in the first quarter, to $82.9 million from $67.2 million in the same prior year period.

  • Loans, borrowings and convertible debentures totalled $1.8 billion at March 31, 2017 compared to $1.9 billion at December 31, 2016. The Company repaid $9.4 million of debt during the first quarter of 2017.

  • The Total Net Funded Debt to EBITDA(1) ratio was 3.257x at March 31, 2017, compared to 3.276x at December 31, 2016.

Gerrard Schmid, Chief Executive Officer of DH Corporation said, "Our results were consistent with our planning assumptions for the quarter and reflect continued strength in our Lending business offset by weaker results in our Financial solutions. Global payments performed in line with expectations and we continue to see strong sales momentum pointing toward a strengthening environment."

He went on to add, "Overall, we performed better than the headline results would suggest, as more than half of the decrease in revenues was attributable to unfavorable changes of foreign exchange rates. Furthermore, we achieved these results while supporting the strategic review process initiated by the Board in December which required a significant amount of attention from several key individuals of our organization. In this context, I am particularly pleased with our results and the efforts of all our D+H employees."

First Quarter 2017 Results
The selected financial information included in this press release is qualified in its entirety by and should be read together with the unaudited condensed interim consolidated financial statements and the Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2017, which can be found at dh.com and in the disclosure documents filed by the Company with the securities regulatory authorities at sedar.com.

Selected Consolidated Financial Information 2

Three months ended March 31

(C$ millions unless otherwise indicated, unaudited)


2017


2016

Revenues





Revenues

$

397.9

$

412.1


Add: Acquisition accounting adjustments

0.6


2.0

Adjusted revenues1

$

398.5

$

414.2

EBITDA1





EBITDA1

$

82.6

$

92.2


Add: Acquisition accounting adjustments

(0.7)


(0.6)


Add: Acquisition-related and other charges

0.3


5.7


Add: Realignment of global operations and related restructuring expenses

2.8


6.8


Add: Costs related to Proposed Transaction

11.7



Add: Foreign exchange loss (gain)

1.4


(1.2)

Adjusted EBITDA1

$

98.1

$

103.0

Adjusted EBITDA margin1


24.6%


24.9%

Net (loss) income





Net (loss) income

$

(2.7)

$

4.8


Add: Non-cash items

56.0


56.7


Add: Acquisition-related and other charges

0.3


5.7



Add: Realignment of global operations and related restructuring
expenses, including depreciation and amortization

2.8


6.8


Add: Costs related to Proposed Transaction

11.7



Add: Tax effect of above adjustments

(23.0)


(28.5)

Adjusted net income1

$

45.1

$

45.4

Net (loss) income per share, diluted (C$)

$

(0.03)

$

0.04

Adjusted net income per share, diluted1 (C$)

$

0.42

$

0.43

Liquidity





Net cash from operating activities

$

68.1

$

54.8


Add: Acquisition-related and other charges

0.3


5.7


Add: Realignment of global operations and related restructuring expenses

2.8


6.8


Add: Costs related to Proposed Transaction

11.7


Adjusted net cash from operating activities1

$

82.9

$

67.2

Uses of Adjusted net cash from operating activities1:




Capital expenditures

(26.6)


(21.0)


Cash Dividends

(12.8)


(24.8)

Adjusted net cash from operating activities after capital expenditures and
cash dividends1

$

43.4

$

21.5


Net debt repayment

(9.4)


(20.0)

Adjusted net cash from (used in) operating activities after capital expenditures,
cash dividends and net debt repayment1

$

34.0

$

1.5

 

Adjusted revenue by type for the three months ended March 31, 2017 and 2016.

Adjusted revenues by type 1, 2










(In millions of dollars, unless otherwise noted)

Three months ended March 31



2017



2016


$ Change

% Change

SaaS

$

101.9

25%

$

103.8

25%

$

(1.9)

(1.8)%

License (Perpetual and Term)

36.7

8%


37.0

9%


(0.3)

(0.8)%

Maintenance

57.8

15%


60.7

15%


(2.9)

(4.8)%

Professional Services

39.5

10%


47.5

11%


(8.0)

(16.9)%

Transaction Processing Services

81.9

21%


78.3

19%


3.6

4.5%

Canadian Payments Products/Solutions

74.3

19%


79.6

19%


(5.3)

(6.6)%

Other 3

6.3

2%


7.2

2%


(0.9)

(12.4)%

Total

$

398.5

100%

$

414.2

100%

$

(15.7)

(3.8)%

1.

Non-IFRS measure: see Non-IFRS financial measures and key performance indicators in Section 10.1 for additional information and reconciliation to IFRS measures.

2.

The definitions of these revenue types can be found in Section 10.1.

3.

Other includes termination fee revenue, delivery income and hardware sales

 

Resegmentation of the operating segments
Commencing in the first quarter of 2017, the strategic infrastructure and operations of D+H that have historically been aligned with the business segments have been reorganized into three new strategic business units to drive global scale and operating effectiveness. The three strategic business segments are: GPS, GLS and Financial Solutions. In addition, the Company now has a Corporate segment which consists of the corporate overhead costs that are not allocated to operating segments. Further information regarding the resegmentation of business segments is provided in section 2 of the MD&A for the three months ended March 31, 2017.

Results by segment for the three months ended March 31, 2017 and 2016.

(In millions of dollars, unless otherwise noted)

Three months ended March 31, 2017








Global Payment
Solutions

Global Lending
Solutions

Financial
Solutions

Corporate

Consolidated

Revenues

$

76.0

$

166.5

$

155.4

$

$

397.9

Expenses


64.7


108.2


116.3


26.0


315.2

EBITDA 1

$

11.2

$

58.2

$

39.1

$

(26.0)

$

82.6

EBITDA margin 1


14.8%


35.0%


25.2%



20.7%












Adjusted revenues 1

$

76.0

$

166.9

$

155.6

$

$

398.5

Adjusted expenses 1

$

63.8

$

107.8

$

116.6

$

12.2

$

300.4

Adjusted EBITDA 1

$

12.2

$

59.1

$

39.0

$

(12.2)

$

98.1

Adjusted EBITDA margin 1


16.0%


35.4%


25.1%



24.6%







(In millions of dollars, unless otherwise noted)

Three months ended March 31, 2016








Global Payment
Solutions

Global Lending
Solutions

Financial
Solutions

Corporate

Consolidated

Revenues

$

81.3

$

164.6

$

166.2

$

$

412.1

Expenses


66.9


110.3


123.8


18.9


319.9

EBITDA 1

$

14.4

$

54.4

$

42.4

$

(18.9)

$

92.2

EBITDA margin 1


17.7%


33.0%


25.5%



22.4%












Adjusted revenues 1

$

82.4

$

165.4

$

166.4

$

$

414.2

Adjusted expenses 1

$

62.6

$

108.7

$

123.3

$

16.6

$

311.2

Adjusted EBITDA 1

$

19.7

$

56.7

$

43.2

$

(16.6)

$

103.0

Adjusted EBITDA margin 1


24.0%


34.3%


25.9%



24.9%

1.

Non-IFRS measure. See the "Use of Non-IFRS Financial Information" section of this press release for further details.

2.

Totals may not add due to rounding.

 

Definitive Agreement (Proposed Transaction) to be Acquired by Vista Equity Partners
On March 13, 2017, D+H and Vista Equity Partners ("Vista") announced that they had entered into a definitive arrangement agreement under which Vista will acquire all of the outstanding shares of D+H for $25.50 per share in cash including the assumption, repayment or redemption of all debt obligations, including the issued convertible debentures, for a total enterprise value of approximately $4.8 billion.

In the joint announcement with D+H, Vista announced that it intends to combine D+H with another of its portfolio companies, United Kingdom-based, Misys, a leading global software provider for retail and corporate banking, lending, treasury and capital markets, investment management and enterprise risk.

Proposed Transaction Update
The completion of the Proposed Transaction is subject to court approval and the approval of D+H's shareholders by more than 66 2/3% of the votes cast by the shareholders present in person or by proxy at the special meeting of shareholders to be held on May 16, 2017. The Proposed Transaction is subject to customary closing conditions, including receipt of all regulatory approvals.

The board of directors along with two leading independent proxy research and advisory firms, Institutional Shareholder Services, Inc. and Glass, Lewis & Co., both of whom have published reports, recommend that D+H shareholders vote for the Proposed Transaction.

Regulatory approval status as of May 11, 2017 is as follows: An affiliate of Vista Equity Partners (the "Purchaser") has received a no-action letter from the Competition Bureau of Canada in respect of the proposed arrangement (the "Arrangement") and that the applicable waiting periods under the Competition Act (Canada) have expired.  In addition, the waiting period applicable to the completion of the Arrangement under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 has expired.

Closing of the transaction remains subject to certain customary closing conditions including court approval, shareholder approval and the receipt of the remaining required regulatory approvals including approval under the Investment Canada Act.  Assuming the satisfaction of these closing conditions, the transaction is expected to close late in the second quarter or early in the third quarter of 2017.

In the event the Proposed Transaction does not proceed we will reevaluate the business opportunities and strategies outlined in prior quarters.

Dividend
DH also announced today a cash dividend of $0.12 cents per share, payable on June 30, 2017, to shareholders of record on June 16, 2017. The Proposed Transaction may close prior to the record date on June 16, 2017; as a result, there is no guarantee that public shareholders will receive this dividend.

Termination of Consent Order
Effective May 10, 2017, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) terminated the Consent Order entered into with two of D+H's subsidiaries, specifically Fundtech Corporation and BServ, Inc. ("Fundtech"), which D+H acquired as part of the acquisition of Fundtech in early 2015. Since the acquisition, D+H has made investments and improved practices in risk management in those businesses in order to meet the requirements of the Consent Order.

Outlook
Refer to section 3 of the MD&A for the three months ended March 31, 2017.

MANAGEMENT CONFERENCE CALL AND WEBCAST

Teleconference:
A conference call to review these financial results, including a presentation, will take place at 8:30 a.m. (EDT) on Friday, May 12, 2017 hosted by Chief Executive Officer Gerrard Schmid and Chief Financial Officer Karen H. Weaver. To access the call, please dial 647-427-7450 (Local/Int'l) or 1-888-231-8191 (toll-free within North America). A replay of the call will also be available until May  19, 2017 by dialing 416-849-0833 (Local/Int'l) or 1-855-859-2056 (toll-free within North America), with Encore Password 5556974.

Webcast:
The conference call will also be webcast at http://event.on24.com/r.htm?e=1405393&s=1&k=9C73058FC73F1CD6D74DB42A4E385AA9 and will be archived for 90 days after the call. The link to the webcast and an accompanying slide presentation will be posted in the Investors section of the D+H website under Events and Presentations at http://www.dh.com/investors/investor-events.

ABOUT D+H
D+H (TSX: DH) is a leading financial technology provider that the world's financial institutions rely on every day to help them grow and succeed. Our global payments, lending and financial solutions are trusted by nearly 8,000 banks, specialty lenders, community banks, credit unions, governments and corporations. Headquartered in Toronto, Canada, D+H has more than 5,500 employees worldwide who are passionate about partnering with clients to create forward-thinking solutions that fit their needs. With annual revenues in excess of $1.5 billion, D+H is recognized as one of the world's top FinTech companies on IDC Financial Insights FinTech Rankings and American Banker's FinTech Forward rankings. For more information, visit dh.com

USE OF NON-IFRS FINANCIAL INFORMATION
D+H's financial results are prepared in accordance with International Financial Reporting Standards ("IFRS"). D+H reports several non-IFRS financial measures, including "Adjusted revenues", "Bookings", "Adjusted expenses", "Constant Currency", "EBITDA", "EBITDA margin" (EBITDA divided by revenues), "Adjusted EBITDA", "Adjusted EBITDA margin" (Adjusted EBITDA divided by Adjusted revenues), "Adjusted net income", "Adjusted net income per share (diluted)" and "Adjusted net cash from operating activities". D+H also reports "Debt to EBITDA ratio", which is also not a defined term under IFRS. See "Non-IFRS financial measures and key performance indicators" in D+H's MD&A for the three months ended March 31, 2017 for a more complete description of these terms and for reconciliations to their most directly comparable IFRS measure, where applicable. 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 revenues, net income or cash flows. Furthermore, D+H's financial measures may be calculated differently from similarly titled financial measures of other companies.

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"), including without limitations, the statements contained in section entitled "Objectives, strategy and outlook". Statements concerning D+H's objectives, goals, strategies, priorities, 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", "could", "should", "continue", "goal", "objective", 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.

Certain material factors and assumptions were applied in providing these forward-looking statements. Forward-looking information involves numerous assumptions including projections, completion of bookings, successful project implementation, operating expense levels, volumes and values for products and transaction processing services in the Canadian segment and implementation of our global operating realignment. Projections maybe impacted by macroeconomic factors, changes in the value of the Canadian and U.S. dollar relative to other currencies, the timing of client decisioning on technology investments, the pace of implementation of technology by the customer, in addition to other factors not controllable by the Company. D+H has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. Management believes that the expectations reflected in forward-looking statements are based upon reasonable assumptions; however, Management can give no assurance that actual results will be consistent with these forward-looking statements. Not all factors which affect our forward-looking information are known, and actual results may vary from the projected results in a material respect, and may be above or below the forward-looking information presented in a material respect.

A comprehensive discussion of the risks that impact D+H can be found on the Company's most recently filed Annual Information Form and the most recently filed annual MD&A for the year ended December 31, 2016, available on SEDAR at www.sedar.com.

D+H does not undertake any obligation to update forward-looking statements should the factors and assumptions related its plans, estimates, projections, beliefs and opinions, including those listed above, change except as required by applicable securities laws.

All of the forward-looking statements made in this press release 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, the Company.

REGULATORY FILINGS AND ADDITIONAL INFORMATION
DH Corporation is listed on the Toronto Stock Exchange under the symbol DH. Further information can be found at dh.com and in the disclosure documents filed by DH Corporation with the securities regulatory authorities at sedar.com.

SOURCE DH Corporation