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ISC reports fourth quarter and 2013 financial results

REGINA, March 19, 2014 /CNW/ - Information Services Corporation (TSX: ISV) ("ISC" or "the Company") today reports on the Company's financial results for the fourth quarter and year ended December 31, 2013.

Highlights of ISC's financial results:

Fourth Quarter 2013

  • Total revenues were $20.0 million for the three months ended December 31, 2013, an increase of $1.7 million or 9.6 per cent, compared to the $18.3 million for the three months ended December 31, 2012.  Revenues increased across all three registries in the fourth quarter compared to the same quarter last year.  Revenues exclude the Vital Statistics Registry which is treated as a discontinued operation;

  • EBITDA (earnings before interest, taxes, depreciation and amortization) for the fourth quarter of 2013 was $8.3 million compared to $6.7 million for the fourth quarter of 2012, up 25.1 per cent quarter over quarter. ISC's 2013 fourth quarter EBITDA margin was 41.6 per cent (35.3 per cent in 2012);

  • Adjusted EBITDA grew to $8.4 million for the quarter as compared to $7.0 million for the same quarter last year, with an Adjusted EBITDA margin of 41.9 per cent (38.1 per cent in 2012); and

  • Net income for the three months ended December 31, 2013 was $4.7 million or $0.27 per share.  In the fourth quarter 2012, net income was $5.0 million, however for comparative purposes, it is important to note that ISC was not subject to tax in 2012. Excluding this quarter's tax expense and recovery, ISC generated an increase in income over the fourth quarter 2012 of $2.1 million, or 41.7 per cent.

Full-Year 2013

  • Total revenues increased to $79.1 million for the year ended December 31, 2013, an increase of $3.9 million, or 5.2 per cent, compared to $75.2 million for the year ended December 31, 2012. Revenues exclude the Vital Statistics Registry which is treated as a discontinued operation;

  • EBITDA for 2013 was $30.6 million, slightly ahead of the $28.8 million for 2012, with an EBITDA margin of 38.1 per cent (37.2 per cent in 2012);

  • Adjusted EBITDA rose to $34.0 million, a 12.7 per cent increase compared to the $30.2 million generated in 2012, with an Adjusted EBITDA margin of 43.0 per cent (40.1 per cent  in 2012); and

  • Net income for the year ended December 31, 2013 was $77.0 million or $4.40 per share.  In 2012 net income for was $21.2 million, however it is important to note that ISC was not subject to tax in 2012. Excluding the income tax expense and recovery, ISC generated an increase in income over 2012 of $3.9 million or 18.3 per cent.

Commenting on the Company's annual results, Jeff Stusek, President and CEO stated, "2013 was an important year for ISC.  The Company underwent significant changes as an organization, but, most importantly, we continued to serve our customers without interruption.  It is in this context that I would like to recognize the contributions of the entire team at ISC, who made our change appear seamless while ensuring the delivery of a solid financial performance."

"With privatization now behind us, our focus is to ensure that we continue to provide the same high levels of satisfaction to all our customers and maintain a strong balance sheet, while judiciously exploring opportunities to create added value for our existing and potential customers as well as value for shareholders."

Management's Discussion of ISC's Summary Quarterly and Annual Financial Results

(Thousands of CAD dollars,
except earnings per share and where
noted)
Three months ended
December 31,
Year ended
December 31,
2013 2012 2013 2012
         
Revenue1        
           Land Registry, Land
           Survey and Geomatics
$15,688 $14,311 $61,141 $57,920
           Personal Property
           Registry
$2,358 $2,148 $9,787 $9,083
           Corporate Registry $1,982 $1,811 $8,170 $8,157
           Other $11 $10 $33 $56
Total Revenue1 $20,039 $18,280 $79,131 $75,216
         
EBITDA2 $8,330 $6,659 $30,554 $28,794
EBITDA Margin2 (% of Revenues) 41.6% 35.3% 38.1% 37.2%
Adjusted EBITDA2 $8,395 $6,972 $34,008 $30,167
Adjusted EBITDA Margin2 41.9% 38.1% 43.0% 40.1%
Net Income and total
comprehensive income
$4,743 $5,028 $76,981 $21,240
Earnings per share3 $0.41 - $4.40 -
Free cash flow2 - - $23,208 $22,561
         
Operating, general and
administrative expenses
$11,709 $11,308 $47,822 $45,049
  1. Revenues do not include the Vital Statistics Registry.

  2. EBITDA, EBITDA Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow are not recognized as a measure under IFRS and do not have a standardized meaning prescribed by IFRS.  See "Non-IFRS Measures" in Management's Discussion & Analysis for the year ended December 31, 2013.

  3. The calculation of earnings per share is based on net income after tax and the weighted average number of shares outstanding during the period.
    • Revenues from the Land Registry (which includes the Land Titles Registry, Land Surveys Directory ("Land Surveys") and Geomatics) remained strong in 2013 due to the increases in average prices of existing homes, offsetting a decrease in volumes. Land transfer and mortgage registration volumes for the year were down, due in part to stricter mortgage rules implemented in 2012.  The Company also processed more high-value property registrations in 2013 than in 2012, which generate a high fee per transaction.

    • Revenue from the Personal Property Registry ("PPR") for the year ended December 31, 2013 was up 7.8 per cent from the year ended December 31, 2012.  The main driver of revenue for this registry, personal property security registrations set-ups, has increased 5.3 per cent in volume and 8.0 per cent in revenue. Strong employment growth, a high rate of net migration, increased retail sales and most importantly growth in in new motor vehicle sales in Saskatchewan all positively affected PPR revenue.

    • Revenue from the Corporate Registry for the year ended December 31, 2013 remained flat when compared to the same period in 2012.  As expected, The New West Partnership Trade Agreement had an impact on revenues year-over-year.  However, third and fourth quarter volumes and revenues showed positive growth with annual returns revenue up by 12.5 per cent for the second half of 2013.

    • Operating, general and administrative expenses for the year ended December 31, 2013 increased by $2.7 million, or 6.2 per cent compared to the year ended December 31, 2012. The increase was due to inflationary increases in wages and salaries, information technology services costs, and additional new expenses related to ISC becoming a public company.

    • Adjusted EBITDA for the year ended December 31, 2013 increased by $3.8 million, or 12.7 per cent over the same period in 2012. The increase is a result of revenues increasing at a rate of 5.2 per cent, which is greater than the increase of $2.7 million in operating, general and administrative expenses over 2012.

    • Depreciation and amortization decreased $2.1 million, or 27.9 per cent, to $5.5 million for the year ended December 31, 2013 over the same period last year. The significant decrease was due to certain intangible assets reaching a fully depreciated state, combined with less capitalized projects being recorded.

    • ISC's tax status was initially reported to have changed upon its listing on the TSX on July 9, 2013. However, subsequent review revealed that the actual loss of ISC's tax exempt status was deemed to occur on June 27, 2013 when ISC and CIC entered into an Underwriting Agreement with a syndicate of underwriters. As a result, the income tax recovery recorded in the third quarter should have been recorded in the second quarter. The quarterly results shown in Management's Discussion & Analysis for the year ended December 31, 2013 have been adjusted to reflect this change, and future reporting periods will be similarly adjusted.

    • Capital expenditures for the year ended December 31, 2013 were $3.7 million compared to $7.7 million for the year ended December 31, 2012. In 2013, capital expenditures were significantly lower both on an absolute basis and as a percentage of our revenues as the Company deferred a number of projects to focus efforts on the privatization and subsequent initial public offering ("IPO").  Maintenance capital expenditures were $2.4 million for the year ended December 31, 2013, which included work completed on continued development efforts under the New West Partnership, leasehold improvements to Customer Service Centres, the beginning of a technology hardware refresh and planning for the modernization of the Corporate Registry.  Growth capital expenditures were $1.3 million for the year ended December 31, 2013, which included work completed on the renewal of the survey plan processing system and a new services framework for Business Registrations Saskatchewan.

    • ISC's cash position as at December 31, 2013 was $27.6 million compared to $21.1 million at the same time in 2012.  As at December 31, 2013, the Company had $9.9 million of long-term debt and no short-term borrowings.

Outlook:

In 2014, ISC is focused on delivering stable returns through a focus on cost management while ensuring continuous compliance with the Master Service Agreement ("MSA") and publicly traded company requirements and investigating growth opportunities. ISC has demonstrated operational excellence for many years and it is an important objective to ensure this focus on strong operational and financial results continues.

As the majority of our revenues, including those related to the Land Titles Registry, Land Surveys, the PPR and the Corporate Registry, are tied to economic conditions, we use general forecast economic information to help predict our revenues. Key drivers of favorable macro-economic conditions in the province that support the growth of ISC revenue growth include the continuation of a low interest rate environment, which encourages new home purchases and resale transactions, strong consumption patterns and high levels of private capital investment.

In that regard, prevailing economic conditions in Saskatchewan are generally expected to continue in 2014 driving positive growth in gross domestic product ("GDP"). According to Bank of Montreal ("BMO") Capital Markets'1 most recent economic forecast for Saskatchewan, the provincial economy is expected to post real GDP growth of 2.4 per cent growth in 2014. Royal Bank of Canada ("RBC") Economics Research2 projection for 2014 is currently 2.1 per cent.

Business confidence in Saskatchewan remains at levels similar to the historical average over the past five years, around 68.4, according to The Canadian Federation of Independent Business ("CFIB")'s business barometer3 for the province. This level of optimism may encourage new businesses to form; however, this may be constrained by Saskatchewan's tight labour supply, which is cited as one of the greatest impediments to current sales and production growth.

Employment growth was up 3.5 per cent for the first eleven months, with 18,600 jobs being added. Weekly earnings rose 3.2 per cent in the first ten months of 2013 to $946.37. Manufacturing sales rose 6.4 percent to $12.8 billion in the first ten months of 2013. A record 38.4 million tonne crop was produced in 2013, resulting in exports of $27.2 billion from January to October.

___________________________________
1 BMO Capital Markets Economics - Provincial Economic Outlook - February 2014
2 RBC Economics Provincial Outlook - December 2013
3 CFIB Economics Business Barometer - Provincial Summary - December 2013

Despite these records, the economy has experienced some setbacks, which will likely dampen growth expectations somewhat in 2014. Crown land oil lease sales were down 40 per cent from the province's March estimates and may be an indication that activity in this sector will decline in 2014, which could result in slower growth across the province. Global commodities prices are declining and logistical challenges may make it more difficult to reach export markets, which could have a negative impact on different sectors of the Saskatchewan economy in 2014.

With respect to ISC's offerings, Canada Mortgage and Housing Corporation ("CMHC") Housing Market Outlook4 currently forecasts a slight increase in existing home sales volumes in Saskatchewan for 2014. Average home resale prices are expected to increase marginally in 2014 by 2.4 per cent. While mortgage rates have begun to increase modestly, they are forecast to remain favorable in 2014, all of which impacts our land registry revenues.

For ISC's PPR, patterns of retail trade and new vehicle sales provide a useful metric for expected revenues in the PPR.  From January to November 2013, retail trade5 in Saskatchewan grew 3.3 per cent over the same period in 2012.  New vehicle sales increased 5.3 per cent from January to November 2013 compared to the same period in 2012, while the value of vehicle sales grew 11.8 per cent over the same period.

To our flat fees, the MSA and related Registry Operating Agreements specify the maximum fees allowed to be charged to the public for particular Core Registry Services.  The maximum fees are adjustable on a yearly basis and are based on a formula tied to inflation as measured by the Saskatchewan Consumer Price Index published by Statistics Canada6. These adjustment provisions do not apply to any value-based fees.  There are no restrictions on the fees we may charge for non-core Ancillary Services that use registry data. ISC expects to generally adjust prices as outlined in the MSA.

The key drivers of our expenses will continue to be wages and salaries, information technology and project initiatives costs as we continue to focus on efficiency and effectiveness, leveraging investment in systems and processes while maintaining a high level of customer service. We expect our operating, general and administrative expenses to modestly increase based on inflation and in connection with becoming a publicly traded company and as we expand our business.

In 2013, EBITDA margins were unusually high as a result of our focus on the IPO and not on operational initiatives and project work.  Adjusted EBITDA margins in 2014 should return to more normal levels of approximately 35 per cent.  One of our objectives will be to grow margins by approximately 0.5 per cent per year over the next several years, primarily through operational efficiencies.

As a result of the above economic factors and potential fee adjustments, our revenues are expected to remain stable in 2014 and EBITDA margins are expected to return to the more normal level of 35 per cent.

___________________________________
4 CMHC Housing Market Outlook - Canadian Edition - First Quarter 2014
5 Statistics Canada (CANSIM Table 079-0003: New motor vehicle sales, Canada, provinces and territories),  Statistics Canada, (CANSIM, table 080-0020: Retail trade, by province and territory (Monthly- Seasonally Adjusted)
6 Statistics Canada, CANSIM, table 326-0021 and Catalogue nos. 62-001-X and 62-010-X

Capital investment will be aligned to our strategic priorities and will focus on initiatives that:

  • build or maintain corporate infrastructure;
  • contribute to compliance obligations;
  • produce process or technology improvement that increase revenues or reduce costs;
  • grow the business; and/or
  • generate an appropriate and acceptable return on investment.

Management expects its capital expenditures to be in the $8.0 to $10.0 million range in 2014.  As demonstrated by our automation of the survey plan processing system, we remain committed to increasing the level of automation in our work flows and developing new technologies that lower overall costs.

Looking forward into 2014 our capital expenditures are expected to include ongoing renewals of systems and technology hardware.  One of our more significant expenditures is expected to be the modernization of the Corporate Registry, and we now expect this initiative to extend beyond the end of 2014.

Note to Readers:

This news release provides a general summary of Information Services Corporation's results for the fourth quarters and years ended December 31, 2013 and 2012.  Readers are encouraged to download the Company's complete financial disclosures. Links to ISC's financial statements and related notes and Management's Discussion and Analysis for the period are available on ISC's website in the Investor section of the site at http://isc.investorroom.com/annual-reports   All figures are in Canadian dollars unless otherwise noted.

Copies can also be obtained at www.sedar.com by searching Information Services Corporation's profile or by contacting Information Services Corporation at [email protected]

Conference Call And Webcast

The Company is hosting a conference call and webcast at 9:00 a.m. Saskatchewan Time; 11:00 a.m. Eastern Time on March 20, 2014 to discuss these results.  Dial-in numbers for the conference call are:

1-416-764-8609 or toll-free at 1-888-390-0605.

A live audiocast of the conference call is available at the following link: http://www.newswire.ca/en/webcast/detail/1316261/1453381

A replay of the call will be available 24 hours after the event until 11:59 p.m. EST on April 24, 2014, at http://isc.investorroom.com/events. To access the archived conference call, please dial 1-888-390-0541 and enter passcode 941465.

About ISC

ISC is a provider of registry and information services to the Province of Saskatchewan. The Company is the exclusive provider of the Land Titles Registry, Land Surveys Directory, Personal Property Registry and Corporate Registry in Saskatchewan, which are key supporters of economic activity in the province.

Cautionary Note Regarding Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable Canadian securities legislation, including certain assumptions with respect to the Saskatchewan economy, consumer confidence, interest rates, level of unemployment, inflation, real estate market in Saskatchewan, claim liabilities, income taxes, our ability to attract and retain skilled staff, employee future benefits, goodwill and intangibles are material factors in preparing forward-looking statements and management's expectations. Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking information. Although ISC believes the forward-looking information contained in this release is based upon reasonable assumptions, readers are cautioned not to place undue reliance on forward-looking information as it is inherently uncertain and no assurance can be given that the expectations reflected in such information will prove to be correct. Many factors and risks could cause our actual results to differ materially from those expressed or implied by forward-looking information including those detailed in ISC's Annual Information Form, dated March 19, 2014, ISC's Consolidated Financial Statements and Notes and Management's Discussion and Analysis for the year-ended December 31, 2013 as well as other documents filed by ISC with Canadian securities regulators through SEDAR (www.sedar.com) from time to time. Investors and others should carefully consider the above-noted factors and risks and other uncertainties and potential events. The forward-looking information in this release is made as of the date hereof and, except as required under applicable securities legislation, ISC assumes no obligation to update or revise such information to reflect new events or circumstances.

SOURCE Information Services Corporation

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