Annual Report 2018
2018 Highlights
2018 Results and Progress
2019 Guidance
Revenue
Revenue
$119.1M
compared to $93.6M in 2017
Targeting between
$129.0M and $135.0M
EBITDA Margin
30.1%
compared to 32.1% in 2017
EBITDA
$35.9M
compared to $30.0M in 2017
Targeting between
24.0% and 27.0%
Targeting between
$31.0M and $35.0M
Consolidated
Revenue
ISC 5 Year Revenue
for the year ended December 31,
for the year ended December 31 (CAD$ millions)
( CAD$ millions)
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
.
5
0
8
2014
.
3
8
7
.
4
8
8
.
6
3
9
2015
2016
2017
1
.
9
1
1
2018
Consolidated EBITDA and
Adjusted Consolidated EBITDA
Consolidated EBITDA and Adjusted Consolidated EBITDA
for the year ended December 31,
for the year ended December 31 (CAD$ millions)
(CAD$ millions)
EBITDA
Adjusted EBITDA
37.9%
35.7%
28.0%
30.1%
38.8%
33.4%
36.2%
32.1%
39.2%
37.6%
.
2
0
3
6
.
1
3
.
4
8
2
.
4
0
3
.
5
9
2
.
5
3
3
.
0
0
3
.
4
3
3
.
9
5
3
.
3
3
3
2014
2015
2016
2017
2018
Percentages expressed represent the EBITDA and
* Percentages expressed represent the EBITDA and
adjusted EBITDA margin percentages, respectively.
adjusted EBITDA margin percentages, respectively.
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Revenue Distribution by Segment
for the year ended December 31,
Revenue Distribution by Segment
for the year ended December 31,
2018
Revenue 2017
for the year ended December 31,
2017
5%
4%
16%
Technology Solutions
Services
Registry Operations
36%
59%
80%
In 2018, ISC further
diversified with the
introduction of the
Technology Solutions
segment, which now
complements our
Registry Operations
and Services segments.
* Technology Solutions is net of Corporate and other revenue. The Technology Solutions segment was established
in 2018; as such, the 2017 chart has been restated for comparative purposes.
About Us
Headquartered in Canada,
ISC (TSX:ISV) is the leading
provider of registry and
information management
services for public data
and records.
2018 ISC® Annual Report
Throughout our history, we have delivered
value to our clients by providing solutions to
manage, secure and administer information
through our Registry Operations, Services and
Technology Solutions segments.
Our Business
We operate three segments defined by their
primary type of service offerings.
Registry Operations
Services
Technology Solutions
Delivery of registry services
on behalf of governments
and private sector
organizations.
Delivery of products and
services that utilize public
records and data to provide
value to customers in the
legal and financial sectors.
Development, delivery
and support of registry
(and related) technology
solutions.
Contents
About Us ............................................................ 1
Management’s Discussion and Analysis ............... 7
Letter From Our Chair ......................................... 2
Consolidated Financial Statements .................. 44
Letter From Our CEO .......................................... 3
Board of Directors and ISC Leadership .............. 81
Corporate Social Responsibility ............................ 5
Corporate Information ...................................... 82
1
Letter From Our Chair
Joel Teal
Chair, Board of Directors
Through diversification, ISC is stronger
today with three lines of business
instead of just one.
My past letters to you have included
discussions about delivering
shareholder value, strategic stewardship,
benchmarking of Board performance,
Board and management renewal as
well as overall Board, management
and company performance. In 2018,
supported by management, we took an
even harder look at ourselves as a Board,
as a company and as a business through a
review of our strategy.
For your Board, this review reinforced
that ISC is on the right path. Our Registry
Operations segment remains the
foundation of everything we do. It is a
consistent generator of free cash flow
and makes a healthy contribution to our
EBITDA. Without this segment, we would
not be where we are today.
That said, the diversification of our
business over the last three years – which
started with the acquisition of ESC
Corporate Services Ltd. in 2015 – has
been equally important to our success.
Without the evolution of our business
from just one line of business to three
distinct segments (Registry Operations,
Technology Solutions, and Services), the
impact of the economic downturn that
has affected Registry Operations in recent
years would have been more acute.
Through diversification, ISC is stronger
today with three lines of business instead
of just one.
Our diversification is one example of
how we can control the direction of our
business, trying to anticipate future needs
and opportunities. However, we cannot
control the stock market or the way our
share price is impacted by external forces.
The last three months of 2018 brought
a significant decline in the stock market,
which impacted not only ISC, but the rest
of the market as well. While recognizing
the broad-based decline may not
bring any comfort to our shareholders,
the strength of our strategy and the
fundamentals of our Company are
reasons to look forward with optimism.
Having a strategy is obviously important
to achieve growth and success, but
without a solid management team to
support the development and execution
of the strategy, we would not be as
prosperous. Our management team, ably
led by Jeff Stusek, is to be congratulated
on another successful year, which I do on
behalf of our Board of Directors.
As Chair, I would also like to thank my
fellow Board members for bringing the
benefit of their wisdom to the Board and
ensuring that we challenge and support
each other as we continue to shepherd
ISC forward.
In closing, I would like to reiterate our
commitment to our role as stewards of
the strategic evolution of ISC and our
focus on ensuring its long-term success.
In particular, I would like to thank our
shareholders for their support, something
I and the Board truly appreciate.
Yours sincerely,
Joel Teal
Chair, Board of Directors
2
2018 ISC® Annual Report Letter From Our CEO
Jeff Stusek
President and Chief Executive Officer
Together – with our employees and
communities – we have created a company
with tremendous potential and an ability
to deliver for all our stakeholders.
ISC entered 2018 with great
expectations, fuelled by the
Our Registry Operations segment
remains a key feature of our
expansion of our Services segment
Company’s profile. Although a
at the end of 2017. I am pleased to
number of economic factors –
report on a successful year of growth
most notably increases to interest
as 2018, on a consolidated basis,
rates and the introduction of new
delivered the strongest financial
mortgage rules – are affecting registry
performance in our five years as a
transactions, this segment still
publicly traded company.
delivers positive results and generates
Revenue of $119.1 million was up
27.3 per cent on a year-over-year
consistent free cash flow, which helps
to fund the dividend.
basis, while earnings before interest,
Much of our success in Registry
taxes, depreciation and amortization
Operations is driven by our people.
(EBITDA) increased 19.5 per cent
Our biennial customer service survey
year-over-year to $35.9 million. As
found that 81 per cent of customers
we outlined at the beginning of
ranked us 8 or higher on a scale of 1 to
the year, 2018 EBITDA margin and
10, which is an increase of 1 per cent
adjusted EBITDA margin declined from
from the 2016 survey. I am extremely
previous years, reflecting the addition
proud of the people and culture that
of new high revenue, lower margin
continues to elevate us in the eyes of
business – including AVS Systems Inc.
our customers. Our customers are our
(“AVS”), acquired late in 2017 – into
very reason for being, and I encourage
our performance. Nevertheless, 2018
them to keep challenging us to find
was a rewarding year for ISC financially
new and more efficient ways to serve
and strategically, as our diversification
them, providing value in everything
began to bear fruit.
we do.
2018 also brought an expansion of our
business lines, with the introduction of
the Technology Solutions segment to
complement our Registry Operations
and Services segments. The
diversification of our business over the
last three years has allowed us to offset
the economic impacts on our Registry
Operations to still deliver top- and
bottom-line growth.
The Services segment was the primary
driver of our growth in 2018, largely as
a result of the acquisition of AVS. With
the integration of AVS now complete,
we expect to continue to compete
effectively in the Know-Your-Customer
and collateral management services
space while increasing our overall
market share in 2019.
Each of our three segments makes
an important contribution to our
performance and our ability to serve
customers. We will continue to nurture
our strengths in each to ensure they
deliver meaningful contributions to
consolidated EBITDA as efficiently
as possible.
3
2018 ISC® Annual Report I would be remiss if I did not thank my
management team and colleagues from
across the Company. They have been
united in their steadfast support of our
strategic direction. I am also grateful for
the support of our Board of Directors,
which remains a valued source of
counsel for me and our Company as
a whole. It is this team of people that
collectively make ISC special and just
one of the reasons I remain optimistic
about our future.
Finally, I wish to thank our shareholders
and customers for their continuing
support. Together – with our employees
and communities – we have created a
company with tremendous potential
and an ability to deliver for all our
stakeholders. Without you, there would
be no ISC.
Yours sincerely,
Jeff Stusek
President and Chief Executive Officer
2018 ISC® Annual Report
Our ongoing evolution included a
leadership change, as Clare Colledge
took on the role of President of
our Services segment. Clare brings
extensive experience in this area and
succeeds Chris Valentine, who will stay
connected to ISC as a strategic advisor.
It is a plan that brings stability and
progress as we continue to evolve this
area of our business.
Our Technology Solutions segment
also enjoyed a successful year, with
a number of new business wins
announced in the first quarter of 2018.
The acquisition of ERS in early 2017 was
a strategic acquisition for us, particularly
as governments and private sector
organizations are exploring ways to
improve the delivery of their registry
services. Securing contracts in Nova
Scotia, Ireland, Missouri and Yukon
were important steps forward for this
segment and recognition that our
RegSys solution is becoming the choice
of government registries. Now that we
have completed the refinement of this
segment’s business model, we expect
to improve revenue generation and
profitability.
To ensure we can move quickly with
respect to any acquisition opportunities,
we amended our existing credit facility
in November 2018 and now have
access to up to $80 million. As I’ve said
in the past, we won’t do a deal for the
sake of doing deals, but when the right
opportunity comes along, we want
to be well positioned to execute. Our
balance sheet remains strong, in good
health and a point of focus for us as we
continue to grow ISC.
4
Corporate Social Responsibility
At ISC, we are committed to being
a socially responsible corporate
neighbour and a supportive
partner in our communities.
Century Family Farm Award recipients, The Hiduk Family from Jedburgh, Saskatchewan
ISC Century Family Farm Award
In 2018, ISC presented 193 families with a Century
Family Farm Award – celebrating family-owned
Saskatchewan farms that have been in continuous
operation for 100 years or more. Since 2007,
ISC has honoured nearly 4,300 families with
the award.
As part of the Century Family Farm Awards,
ISC presented a $10,000 donation to the Do
More Agriculture Foundation, a not-for-profit
organization focusing on mental health in
agriculture across Canada.
Each year, ISC and our employees support a number of
programs, causes and initiatives that make a difference to the
people and places we serve. In this section of the Annual Report,
we highlight our approach to corporate social responsibility.
Our community giving program is focused on preserving cultural
heritage, encouraging economic growth and celebrating life events.
In 2018, we gave back $283,790 to our communities, and supported
66 community organizations.
2018
Highlights
66
community
organizations
supported
$283,790
in community investment
193
families honoured
with an ISC Century
Family Farm Award
$25,740
employee
fundraising for
United Way
5
2018 ISC® Annual Report Local Community Giving
Employee Fundraising
We provide our colleagues, friends and
neighbours with a helping hand in their efforts
to better our communities.
Annually, our Saskatchewan Customer Service
Centres each receive $2,000 to donate to the
local charitable organization(s) of their choice –
from grassroots charities to the local chapters
of national non-profit organizations.
Examples:
• Royal Canadian Legion Branch #56
(Swift Current)
• Circle Drive Special Care Home (Saskatoon)
• Moose Jaw Diversified Services
• Prince Albert Community Services Centre
• Souls Harbour Rescue Mission (Regina)
A Partner in Education
ISC has a long-standing partnership with
Albert Community School in Regina.
In addition to a yearly donation by the
Company in support of student programs,
ISC employees volunteer to support the
Santa Store, an annual holiday event at
the school where students can choose
from donated items to give as gifts to their
families, free of charge, and which are
wrapped on site by ISC volunteers.
Annually, ISC employees rally together and fundraise in support of the United Way with the
Company pledging to match every dollar raised through office events and individual employee
contributions. In 2018, employees raised $25,740 for a total employer-matched United Way
campaign donation of $51,480.
ISC was also recognized by the United Way of Regina in 2018 with a Community Fundraiser
Award for significant fundraising contribution growth in the previous year.
Community Involvement
Our people are engaged and active members of their
community by representing ISC at events that support
important programs and bring awareness to important causes.
Examples:
• Walk a Mile in Her Shoes in support of Regina YWCA
• United Way Team Pull Challenge
• Jukebox Mania (Supporting Family Service Regina)
• University of Regina Hill Business Students’ Society Dinner
• Women Entrepreneurs of Saskatchewan Conference
Growing Our Culture of Community
As ISC has grown to include offices across Canada and in Dublin, Ireland, our spirt of community
support has national and international reach.
The Services team at our ESC office in Toronto
pledged to donate 10 per cent of all corporate
supply sales in the month of December to the
Salvation Army’s Holiday Kettle Campaign,
resulting in a $10,000 donation.
Our Technology Solutions team in Ireland held
an employee fundraiser in support of a Dublin-
based charity, GOAL, for its annual Jersey Day.
6
2018 ISC® Annual Report Management’s Discussion and Analysis
For the Fourth Quarter and Year Ended December 31, 2018
Table of Contents
1
Introduction ......................................................................................................................................................................................................................... 8
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Responsibility for Disclosure ........................................................................................................................................................................................ 8
Caution Regarding Forward-Looking Information ............................................................................................................................................ 8
Consolidated Highlights ................................................................................................................................................................................................. 9
Business Overview ..........................................................................................................................................................................................................12
Business Strategy .............................................................................................................................................................................................................16
Results of Operations .....................................................................................................................................................................................................16
Summary of Consolidated Quarterly Results .....................................................................................................................................................32
Financial Measures and Key Performance Indicators ....................................................................................................................................33
Outlook ................................................................................................................................................................................................................................34
Liquidity and Capital Resources ...............................................................................................................................................................................35
Share-Based Compensation Plan ............................................................................................................................................................................37
Commitments ..................................................................................................................................................................................................................38
Off-Balance Sheet Arrangements ...........................................................................................................................................................................38
Related Party Transactions .........................................................................................................................................................................................38
Critical Accounting Estimates ....................................................................................................................................................................................38
Changes in Accounting Policies ................................................................................................................................................................................39
Financial Instruments and Financial Risks .............................................................................................................................................................41
Business Risks and Risk Management ....................................................................................................................................................................41
Internal Controls over Financial Reporting ..........................................................................................................................................................43
Disclosure Controls and Procedures ......................................................................................................................................................................43
Non-IFRS Financial Measures ....................................................................................................................................................................................43
7
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 1 Introduction
This Management’s Discussion and Analysis (“MD&A”) for
Information Services Corporation (“ISC”) discusses our financial
and operating performance, business indicators and outlook
from management’s viewpoint.
This document should be read in its entirety and is intended
to complement and supplement ISC’s audited Consolidated
Financial Statements (“Financial Statements”) for the year ended
December 31, 2018, and 2017. Additional information, including
our Annual Information Form for the year ended December 31,
2018, is available on the Company’s website at www.company.
isc.ca and in the Company’s profile on SEDAR at www.sedar.com.
This MD&A contains information from our Financial Statements
for the years ended December 31, 2018, 2017, and 2016,
prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting
Standards (“IAS”) Board. The financial information that
appears throughout our MD&A is consistent with the Financial
Statements.
This MD&A also includes certain measures, which have not been
prepared in accordance with IFRS, such as EBITDA, EBITDA
margin, adjusted EBITDA, adjusted EBITDA margin and free
cash flow. Rather, these measures are provided as additional
information to complement those IFRS measures, refer to
section 22 “Non-IFRS Financial Measures”. Refer to section
9 “Financial Measures and Key Performance Indicators” for a
reconciliation of EBITDA and adjusted EBITDA to net income.
Unless otherwise noted, or unless the context indicates
otherwise, “ISC”, the “Company”, “we”, “us” and “our” refer
to Information Services Corporation, its subsidiaries and its
predecessors. Any statements in this MD&A made by, or on
behalf of, management are made in such persons’ capacities as
officers of ISC and not in their personal capacities.
ISC presents its Financial Statements in Canadian dollars (“CAD”).
In this MD&A, all references to “$” or “dollars” are to Canadian
dollars and amounts are stated in Canadian dollars unless
otherwise indicated.
This MD&A contains forward-looking information and should
be read in conjunction with the “Caution Regarding Forward-
Looking Information” section below.
This MD&A is current as of March 20, 2019.
2 Responsibility for Disclosure
The ISC Board of Directors (“Board”) carries out its responsibility
for review of this disclosure primarily through the Audit
Committee (“Audit Committee”) of the Board, which is
comprised exclusively of independent directors.
The Audit Committee reviews and approves the fiscal year-end
MD&A and recommends it to the Board for approval. Interim
MD&As are reviewed and approved by the Audit Committee.
Other key responsibilities of the Audit Committee include
reviewing our existing internal control procedures and planned
revisions to those procedures and advising the directors on
auditing matters and financial reporting issues.
3 Caution Regarding Forward-
Looking Information
Certain statements in this MD&A and certain information
incorporated by reference herein contain forward-looking
information within the meaning of applicable Canadian
securities legislation. The purpose of the forward-looking
information is to provide a description of management’s
expectations regarding future events or developments and may
not be appropriate for other purposes.
Forward-looking information which may be found in this MD&A
includes, without limitation, those contained in the “Outlook”
section hereof, and management’s expectations, intentions
and beliefs concerning the industries in which we operate,
business strategy and strategic direction, growth opportunities,
integration, contingent consideration, development and
completion of projects, the competitive landscape, seasonality,
our future financial position and results, capital and operating
expectations, projected costs, the impact of certain payments
to the Government of Saskatchewan, access to financing,
debt levels, free cash flow, expectations for meeting future
cash requirements, the economy and the real estate market,
reporting currency and currency fluctuations, dividend
expectations, and other plans and objectives of or involving
ISC. The words “may”, “will”, “would”, “should”, “could”, “expect”,
“plan”, “intend”, “trend”, “indicate”, “anticipate”, “believe”,
“estimate”, “predict”, “project”, “targets”, “strive”, “strategy”,
“continue”, “likely”, “potential” or the negative or other variations
of these words or other comparable words or phrases are
intended to identify forward-looking information.
Forward-looking information is based on estimates and
assumptions made by us in light of ISC’s experience and
perception of historical trends, current conditions and expected
future developments, as well as other factors that ISC believes
are appropriate and reasonable in the circumstances. There can
be no assurance that such estimates and assumptions will prove
to be correct. Certain assumptions with respect to our ability
to implement our business strategy, compete for business
(other than our exclusive service offerings to the Government of
Saskatchewan), market our technology assets and capabilities,
as well as business and economic conditions, availability
of financing, the value of the Canadian dollar, consumer
confidence, interest rates, level of unemployment, inflation, the
real estate market, liabilities, income taxes, our ability to attract
8
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 and retain skilled staff, the extent of any labour, equipment or
other disruptions, goodwill and intangibles are material factors
in preparing forward-looking information.
4 Consolidated Highlights
4.1 Fourth quarter consolidated highlights
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. Factors that
could cause our actual results or events to differ materially
from those expressed or implied by such forward-looking
information include, without limitation, the following:
changes to or loss of the MSA (as that term is defined
herein) and potential disagreements with the Government
of Saskatchewan; limitations on our ability to increase fees
under the MSA; reliance on key customers and licences;
dependence on key projects and clients, securing new business
and fixed-price contracts; changes in economic, market and
other conditions; reliance on information technology systems;
ability to realize growth opportunities, including the ability
to complete and integrate new acquisitions and to secure
contracts to provide new service offerings; ability to manage
our foreign operations; competition for service offerings (other
than our exclusive service offerings to the Government of
Saskatchewan); undisclosed liabilities acquired pursuant to
past or future acquisitions; ability to attract and retain qualified
personnel; ability to obtain future financing; failure to protect
our intellectual property rights; legislative changes; changes
in anticipated tax liabilities; risk of litigation; adequacy of our
insurance coverage; reliance on third-party suppliers or other
contractors; adverse changes in labour relations; liability to the
Government of Saskatchewan; any compromise to the integrity
or security of our information assets; any failure in our financial
reporting safeguards or internal controls; ownership restrictions
and director appointment rights and restrictions under The
Information Services Corporation Act (Saskatchewan); and
our ability to continue to pay dividends. You should consider
these factors carefully. We caution that the foregoing list is
not exhaustive. Other events or circumstances could cause
actual results to differ materially from those estimated or
projected and expressed in, or implied by, this forward-looking
information. See “Business Risks and Risk Management”.
Furthermore, unless otherwise stated, the forward-looking
information contained in this MD&A is made as of the date of
this MD&A. We have no intention and undertake no obligation
to update or revise any forward-looking information, whether as
a result of new information, future events or otherwise, except
as required by law. The forward-looking information contained
in this MD&A is expressly qualified by this cautionary statement.
You should not place undue reliance on forward-looking
information contained herein.
• Revenue was $31.0 million for the three months ended
December 31, 2018, an increase of $7.4 million or 31.5 per cent
from the fourth quarter of 2017. The increase was due to
strong growth in our Services segment, including new
revenue from our acquisition of AVS Systems Inc. (“AVS”).
• Net income for the three months ended December 31,
2018, was $3.2 million or $0.18 per basic and diluted share, a
decrease of $15.6 million compared to the fourth quarter of
2017 when net income was $18.8 million or $1.07 per basic
and diluted share. This decrease was mainly due to the gain
on the sale of our ownership interest in Dye and Durham
Corporation (“Dye & Durham”) in the fourth quarter of 2017.
Without the impact of the gain, net income, in the fourth
quarter of 2017, would have been $5.4 million or $0.31 per
basic and diluted share. Higher depreciation and income taxes
in the fourth quarter of 2018 as compared to 2017 account
for the balance of the difference.
• EBITDA (earnings before interest, taxes, depreciation and
amortization expense) for the fourth quarter of 2018 was $7.5
million compared to $7.8 million in the same quarter last year,
a slight decrease of $0.3 million or 4.1 per cent.
• The EBITDA margin for the fourth quarter of 2018 was 24.3
per cent compared to 33.2 per cent in the same quarter in
2017, down as expected as a result of the lower margin profile
of our collateral management product line following the
acquisition of AVS.
• Excluding stock-based compensation expense or income,
stock option expense, transactional gains and losses on
assets, and acquisition and integration costs, adjusted EBITDA
was $7.7 million for the quarter compared to $9.0 million in
the same quarter last year, with an adjusted EBITDA margin
of 24.8 per cent for the quarter compared to 38.0 per cent in
the fourth quarter of 2017. Adjusted EBITDA decreased due
to increased wages and salaries, cost of goods sold and the
change in contingent consideration related to our purchase
of AVS, partially offset by lower acquisition and integration
costs. The margin decreased in line with expectations due
to the high revenue, lower margin profile in our collateral
management product line.
• On November 6, 2018, our Board declared a quarterly cash
dividend of $0.20 per Class A Limited Voting Share (“Class A
Share”), paid on January 15, 2019, to shareholders of record as
of December 31, 2018.
• On November 6, 2018, the Company entered into an
amended and restated credit agreement in connection with
the secured credit facilities (collectively, the “Credit Facilities”)
provided by its lender. The aggregate amount available under
9
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 the Credit Facilities has been increased to $80.0 million, as
described in section 11 “Liquidity and Capital Resources”.
• During the quarter, the Company finalized a new five-year
service agreement with its information technology service
provider. Finalizing this agreement provides stability to our
operations, while updated terms provide the Company with
more flexibility in information technology cost management.
4.2 Year-end consolidated highlights
• Revenue was $119.1 million for the year ended December 31,
2018, an increase of $25.5 million or 27.3 per cent compared
to $93.6 million for the year ended December 31, 2017. The
increase was due to the higher revenue generated by our
Services segment.
• Net income for the year ended December 31, 2018, was $18.7
million or $1.07 per basic and $1.06 per diluted share. For the
year ended December 31, 2017, net income was $27.8 million
or $1.59 per basic and $1.58 per diluted share. The year-over-
year decrease was the result of the gain on the sale of our
ownership interest in Dye & Durham in 2017. Without the
impact of the gain, net income in 2017 would have been $14.4
million or $0.82 per basic and diluted share and as compared
to 2018, the increase in 2018 is due to higher revenue
from our Services segment and the change in contingent
consideration related to our AVS purchase.
• EBITDA for the year ended December 31, 2018, was $35.9
million compared to $30.0 million in the same period last year,
an increase of $5.9 million. The increase was due to results
from our collateral management product line following the
acquisition of AVS.
• The EBITDA margin for the year ended December 31,
2018, was 30.1 per cent compared to 32.1 per cent in the
same period in 2017. As expected, the decline in year-over-
year EBITDA margin was due to the addition of the AVS
collateral management to our Services segment, which is
a high revenue, low margin business and has changed our
consolidated EBITDA margin profile.
• Excluding stock-based compensation expense or income,
stock option expense, transactional gains and losses on
assets, and acquisition and integration costs, adjusted EBITDA
was $33.3 million for the year ended December 31, 2018,
compared to $33.4 million in the same period last year, with
an adjusted EBITDA margin of 28.0 per cent year-to-date
compared to 35.7 per cent for the year ended December
31, 2017. The margin has decreased in line with expectations
due to the high revenue, lower margin profile in our collateral
management product line.
• During the third quarter, the Company, through its wholly
owned subsidiary ESC (“ESC”), entered into an agreement
to amend the AVS Share Purchase Agreement to provide
for the conditional early settlement on November 15,
2018 of the AVS contingent consideration, for an amount
of $11.0 million. This resulted in a $3.6 million net gain on
contingent consideration on the consolidated statements of
comprehensive income.
4.3 Subsequent events
• On February 19, 2019, the Company announced that its
wholly owned subsidiary ESC, acquired substantially all of
the assets used in the business of Securefact Transaction
Services, Inc. for $6.8 million by way of an asset purchase
agreement.
• On March 20, 2019, our Board declared a quarterly cash
dividend of $0.20 per Class A Share, payable on or before
April 15, 2019, to shareholders of record as of March 31, 2019.
10
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 4.4 Select consolidated financial information
The select annual financial information set out for years ended December 31, 2018, 2017 and 2016, is derived from ISC’s Financial
Statements and has been prepared on a consistent basis. In the opinion of the Company’s management, such financial data reflects
all adjustments necessary for a fair presentation of the results for those periods.
(thousands of CAD dollars)
Revenue
Net income
EBITDA1, 2
Adjusted EBITDA1
EBITDA margin (% of revenue)1, 2
Adjusted EBITDA margin (% of revenue)1
Free cash flow1
Dividend declared per share
Earnings per share, basic3
Earnings per share, diluted3
Total assets
Total non-current liabilities
2018
$
119,131
18,671
$ 35,862
33,316
30.1%
28.0%
$ 25,150
0.80
$
1.07
1.06
2018
$ 161,962
$ 25,979
Year Ended December 31,
2016
2017
$ 93,592
27,789
$ 30,015
33,403
32.1%
35.7%
22,918
0.80
1.59
1.58
$
$
$ 88,375
15,503
$ 29,529
33,454
33.4%
37.9%
19,993
0.80
0.89
0.88
$
$
As at December 31,
2016
2017
171,825
$
$ 45,202
$
$
131,321
25,637
1 EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin and free cash flow are not recognized as measures under IFRS and do not have a standardized meaning
prescribed by IFRS and, therefore, they may not be comparable to similar measures reported by other corporations. Refer to section 22 “Non-IFRS Financial Measures”. Refer to
section 9 “Financial Measures and Key Performance Indicators” for a reconciliation of EBITDA and adjusted EBITDA to net income.
2 The 2018 EBITDA for the year ended December 31, 2018, includes a net adjustment in relation to the fair value estimate of the contingent consideration associated with our AVS
acquisition of $3.6 million.
3 The calculation of earnings per share was based on net income after tax and the weighted average number of shares outstanding during the period.
Overall, 2018 was a strong year for ISC. Revenue was up
27.3 per cent year-over-year, and the Company recognized
revenue of $119.1 million for the year compared to $93.6 million
in 2017. EBITDA was also up 19.5 per cent year-over year,
coming in at $35.9 million for 2018 compared to $30.0 million
in the prior period.
The primary driver of our growth in 2018 came from our
Services segment, largely through the acquisition of AVS
Systems Inc. at the end of 2017. With the integration of AVS
now complete, we expect to continue to compete effectively
in the Know-Your-Customer (“KYC”) and collateral management
Consolidated revenue
for the year ended December 31,
(CAD$ millions)
120.0
100.0
80.0
60.0
40.0
20.0
0.0
.
4
8
8
2016
.
6
3
9
2017
1
.
9
1
1
2018
40.0
30.0
20.0
10.0
0.0
Consolidated EBITDA1 and Consolidated Adjusted EBITDA1
for the year ended December 31,
(CAD$ millions)
37.9%
35.7%
33.4%
32.1%
EBITDA
Adjusted EBITDA
30.1%
28.0%
.
5
9
2
.
5
3
3
.
0
0
3
.
4
3
3
.
9
5
3
.
3
3
3
2016
2017
2018
1 EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are not
recognized as measures under IFRS and do not have a standardized meaning
prescribed by IFRS and, therefore, they may not be comparable to similar
measures by other corporations. Refer to section 22 “Non-IFRS Financial Measures”.
Percentages expressed represent the EBITDA and adjusted EBITDA margin
percentages, respectively.
11
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
services space while increasing our market share over the
course of 2019.
clients by providing solutions to manage, secure and administer
information.
EBITDA margin and adjusted EBITDA margin were down
year-over-year as expected as the acquisition of a high
revenue, lower margin business like AVS at the end of 2017
was anticipated to have an impact on our EBITDA margin going
forward. The diversification of our business over the last three
years has allowed us to offset the economic impact to our
Registry Operations segment and still deliver top and bottom
line growth.
As noted, while our Registry Operations segment has felt the
effects of the economy, notably increases in interest rates and
the introduction of new mortgage rules, it yet again delivered
strong results while generating strong free cash flow.
Consolidated free cash flow 1
for the year ended December 31,
(CAD$ millions)
30.0
25.0
20.0
15.0
10.0
5.0
0.0
.
0
0
2
2016
.
9
2
2
2017
1
.
5
2
2018
1 ISC changed the recognition of current income taxes within the definition of free cash
flow in 2017 to match the balance recognized on the statement of comprehensive
income. Comparative figures for 2016 have been updated accordingly. Free cash flow
is not recognized as a measure under IFRS and does not have a standardized meaning
prescribed by IFRS and, therefore, may not be comparable to similar measures by
other corporations. Refer to section 22 “Non-IFRS Financial Measures”.
At the start of 2018, we expanded our reporting from two
to three segments with the introduction of the Technology
Solutions segment, which now complements our Registry
Operations and Services segments.
Technology Solutions segment had a successful year with a
number of new business wins announced in the first quarter
of 2018. As this segment’s business model evolves, we expect
to realize additional revenue from this segment in 2019, with a
focus on profitability.
For our outlook and guidance for 2019, see section 10 “Outlook”.
5 Business Overview
Headquartered in Canada, ISC is the leading provider of registry
and information management services for public data and
records. Throughout our history, we have delivered value to our
12
We continue to examine and pursue growth initiatives in
Canada and internationally, including other potential strategic
acquisitions and opportunities to provide registry and other
services in additional jurisdictions.
5.1 Segment information
Operating segments are identified as components of a company
where separate discrete financial information is available for
evaluation by the chief operating decision maker regarding
allocation of resources and assessment of performance.
Effective January 1, 2018, we redefined our reportable segments
as a result of acquisitions made in 2017 and an increased
emphasis on technology solutions to complement existing
registry operations and services businesses, as well as how we
allocate resources among, and the general management of, our
reportable segments. As such, the results of our technology
solutions activities, including our subsidiary, Enterprise Registry
Solutions Limited (“ERS”), are presented within the Technology
Solutions segment. These results were previously reported
in Corporate. We have retrospectively restated our 2017
comparative segment results to account for this redefinition.
A functional summary of these three segments is as follows:
• Registry Operations delivers registry services on behalf of
governments and private sector organizations. Currently,
through this segment, ISC provides registry and information
services on behalf of the Province of Saskatchewan under
a 20-year Master Service Agreement (“MSA”), in effect
until 2033.
• Services delivers products and services that utilize public
records and data to provide value to customers in the
financial and legal sectors.
• Technology Solutions provides the development, delivery
and support of registry (and related) technology solutions.
The balance of our corporate activities and shared services
functions are reported as Corporate.
5.2 Registry Operations segment
Our Registry Operations segment involves the provision of
registry and information services to governments and private
sector organizations. We work with our clients to support
their policies and execute procedures to ensure the integrity
of the data, and manage the information technology, data
management and authentication processes.
Currently, ISC provides registry and information services on
behalf of the Province of Saskatchewan under the MSA and is
the exclusive full-service solution provider of the Saskatchewan
Land Registry, the Saskatchewan Personal Property Registry
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
and the Saskatchewan Corporate Registry (collectively, the
“Saskatchewan Registries”). Additional information about the
MSA is available in the Company’s Annual Information Form for
the year ended December 31, 2018, on the Company’s website
at www.company.isc.ca and in the Company’s profile on SEDAR
at www.sedar.com.
For all services in this segment, competitors include
infrastructure funds and private equity firms as well as
information services companies, registry software providers
and other such information-based companies that develop
and provide software platforms to manage registry and related
information services. These types of companies may compete
with ISC by acting as, or partnering with, businesses that can
provide other required processes, such as customer service
and delivery, in conjunction with software platforms to provide
full-service solutions.
Our Registry Operations segment experiences moderate
seasonality, primarily because land titles revenue fluctuates
in line with real estate transaction activity in Saskatchewan.
Typically, our second and third quarters generate higher
revenue during the fiscal year when real estate activity is
traditionally highest.
Saskatchewan Land Registry
The Saskatchewan Land Registry (“Land Registry”) includes
the Saskatchewan Land Titles Registry (“Land Titles Registry”),
Saskatchewan Land Surveys Directory (“Land Surveys”) and
Saskatchewan Geomatics services (“Geomatics”).
Saskatchewan Land Titles Registry
The Land Titles Registry issues titles to land and registers
transactions affecting titles, including changes of ownership
and the registration of interests in land, in the Province of
Saskatchewan. The Land Titles Registry provides access to
timely and reliable land ownership information to support
new and used home sales, land and home development
transfers and other value-added transactions. Its primary
users include law firms, financial institutions, developers and
resource companies.
Because the Land Titles Registry revenue is comprised of
both residential and non-residential activity, mortgage rates
and business lending rates may affect revenue. Changes in
land values, provincial population and mortgage qualifying
requirements also affect the housing market which, in turn,
influences changes of ownership and revenue.
Revenue for the Land Titles Registry is earned through
registration, search and maintenance fees. Registration fees
are either a flat fee or value-based, calculated as a percentage
of the value of the land and/or property being registered.
We typically charge a flat fee per transaction for search and
maintenance transactions. However, in certain instances,
we may charge a negotiated fee for a customized search or
maintenance transaction such as certain mineral certification
or bulk data requests.
Approximately 80.0 per cent of all Land Titles Registry
registration transactions were submitted online in 2018.
Saskatchewan Land Surveys and Geomatics
Land Surveys registers land survey plans and creates
a representation of Saskatchewan land parcels in the
cadastral parcel mapping system. Land survey plans define
the geographic boundaries of land parcels throughout
Saskatchewan, while the cadastral parcel mapping system
depicts the land survey system with surface and mineral
ownership parcel boundaries.
Our customers include surveyors, developers, resource
companies and other businesses that require our mapping
systems and survey plans to support their development plans.
Land Surveys services include registrations, searches and
related survey services. Revenue related to all services is earned
as a flat fee per transaction.
Geomatics manages geographic data related to the cadastral
parcel mapping system, which is integrated with the Land Titles
Registry and Land Surveys. Geomatics data is searchable by
the public and provides the cadastral and derived data used
to produce the Saskatchewan provincial base map for land-
related activities within the province. The services provided vary
considerably.
Geomatics customers include government departments
(provincial and municipal), resource companies, land developers,
utility, pipeline and transportation companies, and the public.
Unlike the other services offered within the Land Registry,
Geomatics generates revenue mainly through value-added
services. Fees for Geomatics services are typically negotiated
per transaction based on the type and nature of services
required. For example, ISC receives a service fee from the
Saskatchewan Ministry of Government Relations for hosting
the Saskatchewan Civic Address Registry, a province-wide
civic address registry and an online maintenance system, but
does not receive transaction-based fees related to the use of
the portal.
We also provide Geomatics services for land-related data
and applications. For example, ISC developed the Mineral
Administration Registry Saskatchewan (“MARS”) for the
Saskatchewan Ministry of the Economy, which provides an
online system for issuing and administering Crown land mineral
dispositions throughout Saskatchewan and eliminates the need
to physically stake Crown mineral claims. We have been hosting
and supporting MARS since 2015 in exchange for a service fee.
13
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 Saskatchewan Personal Property Registry
The Saskatchewan Personal Property Registry (“Personal
Property Registry”) is a notice-based public registry in which
security interests and other certain interests in personal
property (property other than land, buildings and other
property affixed to land) may be registered. The Personal
Property Registry enables lenders as well as buyers of personal
property, such as motor vehicles, to search for information such
as security interests registered against an individual, business
or personal property used as collateral. Buyers and lenders
search the Personal Property Registry to verify there are no
outstanding notices of third-party interests in personal property.
General provincial economic drivers, including automotive
sales, interest rates and the strength of commercial activity
across the province, influence the revenue in the Personal
Property Registry.
Our customers include third-party providers to the financial
industry, financial institutions, insurance companies, law firms,
equipment and auto dealers, and auctioneers.
Customers are charged flat fees per transaction and the
automated web-based system enables real-time completion of
search and registration services as well as minimizes operational
effort to deliver services.
Customers complete almost all searches in the registry online.
The high online usage is stable with minimal numbers of
end-use consumers needing staff assistance to complete
their transactions.
Saskatchewan Corporate Registry
The Saskatchewan Corporate Registry (“Corporate Registry”) is
a province-wide system for registering business corporations,
non-profit corporations, co-operatives, sole proprietorships,
partnerships and business names. Every corporation must be
registered in the Corporate Registry to maintain its legal status
and carry on business within Saskatchewan. Records on all
Saskatchewan businesses are maintained and made available to
the public through the Corporate Registry.
Our customers include law firms, financial institutions,
accountants, non-profit and co-operative associations
and entrepreneurs.
Services are billed as flat fees for each transaction. Unlike
other registries, the Company earns most of its fees in the
Corporate Registry in relation to maintenance services provided
to business entities that file annual returns or wish to make
changes to their structure or profile.
customers access to digitally verified registry documents
and options to self-manage staff access. Approximately 89.0
per cent of all registrations in the Corporate Registry were
submitted online in 2018. A number of permanent changes
to the services and fee structure were implemented with the
launch of the system.
5.3 Services segment
Our Services segment delivers solutions uniting public record
data, customer authentication, corporate legal services and
collateral management to support lending practices of clients
with business across Canada. These solutions are provided
through our wholly owned subsidiary, ESC Corporate Services
Ltd. (“ESC”).
This segment currently has two revenue components:
transactional fees and per unit charges. We earn revenue
through transaction fees for search and registration services,
as well as KYC services. All government fees associated with
the service are either embedded in the search fee or charged
in addition to the service transaction fee. Corporate supplies
are charged a per unit fee in the same manner as a product in a
retail transaction.
Effective January 1, 2018, we simplified the way in which
we classify and describe revenue for our Services segment.
Formerly, we reported revenue in three categories: search and
registration services, KYC services and corporate supplies. With
the addition of AVS, we have changed that to two revenue
categories, namely Legal Support Services and Financial
Support Services. This allows us to better reflect the business by
the industries and customers we serve. Legal Support Services
revenue consists of revenue from the corporate supplies
business, as well as search and registration services provided
to our legal customers. Financial Support Services consists of
search and registration, KYC and other services provided to
non-legal customers, such as financial institutions and auto and
equipment finance companies.
In our Services segment, our core legal and financial services
revenue is fairly diversified and has little seasonality; rather,
it fluctuates in line with the general economic drivers. Our
collateral management product line experiences seasonality
aligned to vehicle and equipment financing cycles, which are
generally stronger in the second and fourth quarters. Some
smaller categories of products or services can have some
seasonal variation, increasing slightly during the second and
fourth quarters.
Legal Support Services
In July 2016, the Corporate Registry began using the Company’s
RegSys platform, thereby providing customers with a more
convenient service to search, register and maintain corporate
entities in Saskatchewan. In addition, RegSys also offers
This category captures revenue from nationwide search and
registration services to legal professionals directly or indirectly.
We provide search services, including corporate, business
name, personal property, real property, corporate name
14
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 search reports (also known as NUANS1 reports), trademark
and Bank Act (Canada) searches. We also provide registration
and filing services such as personal property, trademark,
business incorporations, amendments and amalgamations to
legal professionals.
The Company has an online workflow platform to service legal
customers through a team of experienced law clerks in both
Ontario and Quebec. We hold an official service licence under
the Ontario Business Information System from the Government
of Ontario’s Ministry of Government and Consumer Services,
which is currently renewed until January 2021. ESC also holds
licences from the Government of Ontario to distribute and
register Personal Property Security Act searches and registrations,
as well as the Government of Quebec’s Corporate Registry and
Corporations Canada for registering corporations directly within
each of these two registry systems.
Our corporate supplies business helps companies to organize
and maintain their corporate legal documents and provides
customized corporate minute books, corporate seals, share
certificates, legal supplies and related ancillary accessories for
businesses and corporations. We also service the consumer
market through direct supply relationships with office
products providers.
Our competitors vary by market and geography. They primarily
include other intermediaries and suppliers to legal professionals
that provide value through convenience and intermediation
of various public registries. There is a small number of
competitors supplying the legal market with customized
products, while the consumer market is typically serviced by
big box office supply retailers.
Financial Support Services
We support financial and credit institutions’ due diligence
activities for compliance purposes and credit service solutions
through the verification, storage and retrieval of corporate
and business information compiled and obtained from public
registry sources such as corporate registry, personal property
registry, land registry, litigation, bankruptcy and Bank Act
(Canada) searches.
We use our proprietary platform for financial institutions
and companies in the financial services sector to on-board
new commercial accounts while remaining compliant with
Canadian KYC and Anti-Money Laundering regulations
captured under the Proceeds of Crime (Money Laundering) and
Terrorist Financing Act (Canada). The customer on-boarding
verification reports we generate leverage our search services
to provide our clients with a process and system to verify,
retrieve and store information about corporate clients to meet
these regulatory requirements.
In addition, we provide automation software technology
services to serve lending, leasing, and credit issuing businesses
and institutions in Canada. With the addition of AVS, we now
service the full credit-lending cycle and deliver proven credit
due diligence, protection and default solutions to the Canadian
financing industry.
In the financial support services marketplace, we compete
against a small number of distinctly different service
providers, all of whom offer additional services beyond our
KYC programs.
5.4 Technology Solutions segment
Our Technology Solutions segment provides the development,
delivery and support of registry (and related) technology
solutions.
We generate revenue through the following:
• Sale of software licences related to the technology platform;
• Provision of technology solution definition and
implementation services; and
• Provision of monthly hosting, support and
maintenance services.
Through our wholly owned subsidiary ERS, we offer RegSys –
a complete registry solution that provides a readily transferable
technology platform capable of serving a wide range of registry
needs. RegSys is a multi-register platform that delivers the
flexibility, scalability and features that enable public sector
organizations to deliver enhanced services to businesses
and citizens.
With a full suite of integrated modules which provide core
functionality for submission, enforcement and enquiry
processing, RegSys delivers solutions enabling the provision
of core services to citizens in a user-friendly, efficient manner
across multiple access points. The RegSys solution has also
been used to manage other legal registers such as intellectual
property, securities, licences, charities, Uniform Commercial
Code (“UCC”) and pension schemes.
Our customers include governments and regulatory
organizations, such as chambers of commerce, that have
responsibility to authorize, license, maintain and revoke the
function of a registry.
Competitors include other registry software providers that
develop and provide software platforms to manage registries.
On the technology services side, our competitors include all
1 NUANS (Newly Updated Automated Name Search) is a registered trademark of the Government of Canada and is a computerized search system that compares a proposed
corporate name or trademark with databases of existing corporate bodies and trademarks.
15
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 • Delivering value-add services utilizing public data and records.
ISC’s strategy is executed through effective operations,
reasonable growth and acquisitions, with strategic priorities
supporting the achievement of the core goal:
• To be the global leader in registry operations and solutions
and the Canadian leader in the provision of value-add services
utilizing public data and records;
• To deliver organic revenue growth with continued emphasis
on EBITDA growth, and increasing revenue from our
products, registry expertise and advisory services; and
• To provide an enhanced customer experience for those
interacting with ISC, registry systems and registry information.
technology services organizations that provide application
development, systems integration and/or application
management services. This includes large multinationals or local
niche players, both of which we partner with to complement
our offering depending on the clients’ needs.
6 Business Strategy
Strategic priorities
ISC’s core goal is to deliver value to shareholders through
the consistent performance of its existing business and the
execution of appropriate growth opportunities. The Company
developed a strategy that is focused on three key functions:
• Operating registries on behalf of governments;
•
Implementing and supporting registry and related technology
solutions; and
7 Results of Operations
Consolidated statements of comprehensive income
(thousands of CAD dollars)
Revenue
Expenses:
Wages and salaries
Cost of goods sold
Depreciation and amortization
Information technology services
Occupancy costs
Professional and consulting services
Financial services
Other
Total expenses
Net income before items noted below
Finance (expense) income
Interest income
Interest expense
Net finance expense
Share of profit in associate
Change in contingent consideration
Gain on sale of associate
Income before tax
Income tax expense
Net income
Other comprehensive income (loss)
Unrealized gain (loss) on translation of financial
statements of foreign operations
Change in fair value of marketable securities,
net of tax
Other comprehensive income (loss) for the period
Total comprehensive income
Three Months Ended December 31,
2017
2018
Year Ended December 31,
2017
2018
$ 31,016
$ 23,589
$
119,131
$ 93,592
10,255
7,033
2,678
2,339
1,419
962
585
705
25,976
5,040
117
(179)
(62)
–
(195)
–
4,783
(1,631)
3,152
248
(37)
211
3,363
$
$
7,913
1,378
1,792
2,365
1,295
1,421
683
692
17,539
6,050
172
(247)
(75)
–
–
15,438
21,414
(2,640)
18,774
37,842
25,084
9,867
8,479
5,626
4,785
2,302
2,718
96,703
22,428
416
(790)
(374)
–
3,567
–
25,621
(6,950)
18,671
$
32,802
4,141
7,507
10,852
5,293
6,303
2,400
2,396
71,694
21,898
369
(876)
(507)
610
–
15,438
37,439
(9,650)
27,789
$
(1)
232
429
(2)
(3)
18,771
(108)
124
18,795
$
(39)
390
28,179
$
$
$
16
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
7.1 Fourth Quarter Results
Consolidated revenue
Revenue was $31.0 million for the three months ended December 31, 2018, an increase of $7.4 million or 31.5 per cent compared
to the same period in 2017. The increase was due to additional revenue in our Services segment mainly due to our acquisition of
AVS in late 2017, offsetting lower revenue in our Registry Operations segment.
(thousands of CAD dollars)
Land Registry (Land Titles Registry,
Land Surveys, and Geomatics)
Personal Property Registry
Corporate Registry
Registry Operations revenue
Services revenue
Technology Solutions revenue
Corporate and other
Total revenue
Registry Operations
Overall
Three Months Ended December 31,
2017
2018
$
$
11,920
2,384
2,476
16,780
11,591
6,277
(3,632)
$ 31,016
$
$
13,762
2,294
2,468
18,524
4,035
4,821
(3,791)
$ 23,589
Revenue for our Registry Operations segment was $16.8 million for the three months ended December 31, 2018, a decline of
$1.7 million or 9.4 per cent compared to the fourth quarter of 2017. Overall fourth quarter revenue was lower due to decreased
revenue from the Land Titles Registry, which is explained further in the following section.
Saskatchewan Land Registry
Revenue for the Land Registry was $11.9 million for the quarter ended December 31, 2018, a decrease of 13.4 per cent compared to
the same period in 2017.
(i) Saskatchewan Land Titles Registry
Land Titles Registry revenue for the fourth quarter of 2018 was $11.0 million, a decline of $1.9 million or 14.6 per cent compared to
the fourth quarter of 2017. Most of the revenue in the Land Titles Registry is derived from value-based fees, and the decrease was
mainly due to lower transaction volumes along with lower high-value property registration revenue.
High-value property registration revenue was lower in the fourth quarter of 2018 when compared to a record revenue for this line
item in 2017. Each high-value registration generated revenue of $10,000 or more, and revenue from these types of registrations was
$1.1 million for the fourth quarter of 2018, down from $1.9 million in the same period in 2017.
Overall transaction volumes decreased by 13.1 per cent for the fourth quarter of 2018 compared to the same period last year. The
volume of regular land transfers, mortgage registrations and title searches declined by 10.6 per cent, 9.0 per cent and 10.4 per cent,
respectively, compared to the same period in 2017. Volume appears to continue to be impacted by the new mortgage qualification
guidelines, introduced in January 2018, along with increases in interest rates since July 2017.
17
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
The following graphs show the Land Titles Registry revenue by type of transaction and the overall transaction volume, respectively.
Seasonality remains consistent year-over-year with the fourth quarter typically generating less revenue than the third quarter. For
more information on seasonality, see section 8 “Summary of Consolidated Quarterly Results”.
Saskatchewan Land Titles Registry Revenue by Type
(CAD$ millions)
Registration
Search
15.0
10.0
5.0
0.0
250,000
220,000
190,000
160,000
130,000
100,000
14.0
2.0
12.0
13.5
1.7
11.7
12.9
1.8
11.1
10.9
1.9
8.9
10.9
1.8
9.1
12.7
1.9
10.8
11.9
1.7
10.3
11.0
1.6
9.4
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Note: Values may not add up due to rounding from minor maintenance transactions not displayed.
Saskatchewan Land Titles Registry Transaction Volume
(Number of transactions)
7
0
2
3
2
2
,
6
0
7
,
0
3
2
5
0
2
8
9
1
,
0
0
1
,
8
0
2
9
4
0
8
9
1
,
6
8
1
,
3
1
2
4
9
4
,
1
9
1
0
9
7
,
0
8
1
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
(ii) Saskatchewan Land Surveys and Geomatics
Jointly, the revenue from Land Surveys and Geomatics was $0.9 million for the fourth quarter of 2018, a slight rise of $39 thousand,
or 4.6 per cent, compared to last year.
Revenue from Land Surveys was up $69 thousand, compared to the same period in 2017, mainly due to an increase in registration
revenue. Overall transaction volumes grew for the fourth quarter, up 14.6 per cent on higher search volumes compared to the same
period in 2017.
The following graph shows the Land Surveys revenue by type of transaction.
Saskatchewan Land Surveys Revenue by Type
(CAD$ millions)
0.35
0.09
0.04
0.22
0.33
0.03
0.05
0.25
0.33
0.03
0.04
0.25
0.30
0.03
0.04
0.22
0.36
0.05
0.04
0.27
0.29
0.04
0.04
0.21
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Registration
Search
Services
0.34
0.03
0.05
0.26
0.37
0.04
0.05
0.27
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Note: Values may not add due to rounding.
18
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 Geomatics revenue was lower by 5.6 per cent, or $30 thousand, compared to the same quarter in 2017 due to lower requests for
geomatics services. The following graph illustrates Geomatics revenue by quarter.
Saskatchewan Geomatics Revenue
(CAD$ millions)
0.54
0.58
0.56
0.55
0.56
0.53
0.53
0.52
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Saskatchewan Personal Property Registry
Revenue for the Personal Property Registry for the fourth quarter of 2018 was $2.4 million, a rise of 3.9 per cent, or $90 thousand
compared with the same period in 2017. This was primarily due to higher search revenue due to pricing changes made to search
transactions in July 2018, offsetting declines in registration revenue.
Total registration revenue declined by 3.2 per cent mainly due to personal property security registration setups, which saw volumes
decline by 2.3 per cent and revenue decrease by 3.5 per cent compared to the same period in 2017. Revenue declined by a higher
rate than volume, illustrating that average registration term-length dropped slightly during this period.
The registration revenue decline was offset by higher search revenue and maintenance revenue, which grew 26.8 per cent and
7.7 per cent, respectively.
Revenue results for the fourth quarter are weaker compared to the third quarter, reflecting the typical pattern of seasonality.
The following graph depicts the Personal Property Registry revenue by type of transaction.
Saskatchewan Personal Property Revenue by Type
(CAD$ millions)
2.8
0.3
0.5
1.9
2.5
0.2
0.5
1.8
2.3
0.2
0.5
1.6
2.4
0.5
0.5
1.4
2.3
0.3
0.5
1.6
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Registration
Search
Maintenance
2.7
0.3
0.5
1.8
2.7
0.3
0.6
1.8
2.4
0.2
0.6
1.6
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Note: Values may not add due to rounding.
19
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 As shown by the following graph, overall transaction volumes for the fourth quarter of 2018 declined by 0.5 per cent compared to
the same period last year.
Saskatchewan Personal Property Registry Transaction Volume
(Number of transactions)
140,000
130,000
120,000
110,000
100,000
90,000
80,000
70,000
60,000
50,000
4
5
6
4
1
1
,
7
6
6
6
2
1
,
6
5
4
5
1
1
,
0
6
4
8
0
1
,
4
0
3
8
0
1
,
9
8
6
5
2
1
,
0
6
9
0
2
1
,
4
6
9
,
7
0
1
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
During the fourth quarter of 2018, registration volumes dropped by 1.4 per cent while search volumes shrunk by a modest
0.5 per cent. Maintenance transactions improved by 3.3 per cent.
Saskatchewan Corporate Registry
Revenue for the Corporate Registry for the quarter ended December 31, 2018, was $2.5 million, flat compared to the same
period in 2017.
Revenue from the filing of annual returns and renewals, included as part of maintenance revenue, decreased by 0.9 per cent in
the quarter compared to the same period in 2017, while revenue from the incorporation and registration of new business entities
increased by 0.9 per cent compared to the fourth quarter last year.
Registration and search revenue increased by 0.8 per cent and 2.0 per cent, respectively, compared to the fourth quarter in 2017.
These increases offset maintenance revenue, which was down a slight 0.3 per cent.
The following graph illustrates the Corporate Registry revenue by type of transaction. Quarterly revenue continues to mirror the
Corporate Registry’s typical pattern of seasonality.
Saskatchewan Corporate Registry Revenue by Type
(CAD$ millions)
2.8
2.6
1.8
0.4
0.7
1.6
0.4
0.7
2.2
1.3
0.3
0.6
2.5
1.5
0.3
0.6
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2.7
1.7
0.4
0.6
Registration
Search
Maintenance
2.5
1.5
0.4
0.6
2.3
1.4
0.3
0.6
2.5
1.5
0.3
0.6
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Note: Values may not add due to rounding.
20
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 The following graph shows the transaction volumes for the Corporate Registry by quarter.
Saskatchewan Corporate Registry Transaction Volume
(Number of transactions)
120,000
100,000
80,000
60,000
40,000
20,000
0
6
2
2
6
9
,
5
3
0
2
9
,
7
7
3
9
7
,
2
6
9
2
8
,
3
5
4
2
9
,
2
3
9
,
7
8
0
3
8
0
8
,
6
5
1
,
4
8
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Transaction volumes for the fourth quarter increased by 1.4 per cent compared to the same period last year. Specifically, search
volumes grew by 3.0 per cent, whereas registration and maintenance volumes declined by 1.2 per cent and 1.0 per cent, respectively,
compared to the same period in 2017.
As of December 31, 2018, there were approximately 74,447 active Saskatchewan Business Corporations registered with the
Corporate Registry compared to 72,913 as at December 31, 2017.
Services
Key drivers for this segment include increased regulatory and compliance requirements for financial institutions, as well as the
growing trend to outsource business processes and services to realize cost savings and focus on core business activities. Economic
activity can affect credit lending, mergers, acquisitions, incorporations and various new business startup activities, which also
impacts activity for our Services segment.
Following the acquisition of AVS in December 2017, our Services segment broadened its existing market share in collateral
management with the addition of large financial institutions and original equipment manufacturer (“OEM”) captives financing activity
across Canada. We now distinguish ourselves further from our competitors through a technology platform that provides a fully
automated workflow for our clients to handle their collateral management needs.
For the three months ended December 31, 2018, revenue in this segment was $11.6 million, an increase of $7.6 million compared to
the fourth quarter of 2017.
ESC has focused on enhancing its KYC services, which has aided in the on-boarding of new customers during the period. Revenue
was up as a result of an increasing uptake of services for financial services customers for KYC, due diligence and collateral security
registration. This combination of organic growth along with the ramping up of new customers contributed to the increase this
quarter. A significant driver of growth compared to the previous year was the new revenue from our collateral management product
line following the acquisition of AVS, as noted above.
Legal Support Services
Legal Support Services consists of revenue from nationwide search and registration services, as well as corporate supplies provided
to legal professionals. Revenue in the fourth quarter of 2018 was $2.3 million, an improvement of 5.3 per cent, or $114 thousand,
compared to the fourth quarter in 2017.
Financial Support Services
Revenue in the fourth quarter of 2018 for our Financial Support Services offering was $9.3 million compared to $1.9 million for the
same period of 2017, mainly due to additional revenue from our acquisition of AVS. On-boarding and ramping up of new customers
and organic growth also contributed.
21
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 Our Services revenue for the last eight quarters is shown in the following graph.
Services Revenue by Type
(CAD$ millions)
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2.3
9.2
8.9
2.3
6.6
3.8
2.3
1.4
3.6
2.1
1.4
3.6
2.0
1.6
4.0
2.1
1.9
Financial Support Services
11.5
Legal Support Services
11.6
2.3
9.3
10.4
2.0
8.5
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Note: Values may not add due to rounding.
Technology Solutions
We generate revenue from external third parties through the sale of software licences related to the technology platform and the
provision of technology solution definition and implementation services, and monthly hosting, support and maintenance services.
Our Technology Solutions segment also records revenue from internal related parties, such as our Registry Operations segment.
Revenue in our Technology Solutions segment was $6.3 million for the three months ended December 31, 2018, compared to
$4.8 million for the same period in 2017. Revenue for the three months ended December 31, 2018, increased due to the achievement
of initial contract milestones related to definition and implementation services to external third parties compared to the same period
in 2017.
Technology Solutions Revenue by Type
(CAD$ millions)
Internal Related Party
External Third Party
5.6
0.7
4.8
5.5
1.1
4.4
4.5
0.8
3.7
4.8
1.0
3.8
4.9
1.1
3.8
4.6
0.9
3.7
5.5
1.9
3.6
6.3
2.6
3.7
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Note: Values may not add due to rounding.
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
22
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 Consolidated expenses
For the three months ended December 31, 2018, consolidated expenses (all segments) were $26.0 million, an increase of
$8.4 million compared to $17.5 million for the same period in 2017, a significant portion of which is related to our acquisition of AVS in
our Services segment. A breakdown by category is provided in the table below, with significant variances explained thereafter.
As well, during the quarter, the Company changed the presentation of project initiative expenses to reclassify them according to
their nature as also shown in the table. Management believes the revised presentation aligns with management’s operation of the
business and provides more relevant information to users.
(thousands of CAD dollars)
Expenses
Wages and salaries
Cost of goods sold
Depreciation and amortization
Information technology services
Occupancy costs
Professional and consulting services
Financial services
Project initiatives
Other
Total expenses
2018
(as reported)
2017
Three Months Ended December 31,
2017
(as reclassified)
Reclassification
$
10,255
7,033
2,678
2,339
1,419
962
585
–
705
$ 25,976
$
$
7,913
1,378
1,792
2,093
1,295
711
683
1,005
669
17,539
$
$
–
–
–
271
–
711
–
(1,005)
23
–
$
$
7,913
1,378
1,792
2,364
1,295
1,422
683
–
692
17,539
A summary of changes in our expenses is as follows:
• Wages and salaries were $10.3 million, up $2.3 million, for the three months ended December 31, 2018, compared to the same
period in 2017. The increase was due to:
– annual wages and salary increases and standardization of salary and incentive programs across the business;
– additional wages and salaries in our Services segment following the acquisition of AVS in December 2017; and
– additional wages and salaries in our Technology Solutions segment following successful contract awards, partially offset by a
portion of wages and salaries capitalized for system development work that was completed in the fourth quarter of 2017.
• Cost of goods sold was $7.0 million for the fourth quarter of 2018, an increase of $5.7 million compared to the fourth quarter of
2017 due to the nature of our expanded collateral management product line in our Services segment which has a higher cost of
goods sold.
• Depreciation and amortization costs were $2.7 million for the three months ended December 31, 2018, compared to $1.8 million in
the same period in 2017, due to increased amortization in our Services segment related to the AVS acquisition at the end of 2017.
• Professional and consulting services were $1.0 million for the three months ended December 31, 2018, compared to $1.4 million in
the same period of 2017. The decrease in 2018 is mainly due to lower costs incurred for acquisition and integration activities.
Net finance expense
Net finance expense for the three months ended December 31, 2018, was flat compared to the three months ended
December 31, 2017.
Change in contingent consideration
In the fourth quarter, the Company, through its wholly owned subsidiary ESC, completed the early settlement of the AVS
contingent consideration and the finalization of the AVS Share Purchase Agreement adjustments, with a net result of $0.2 million.
The net impact of the change in contingent consideration was included in “change of contingent consideration” on the
consolidated financial statements of comprehensive income of the Financial Statements.
23
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
Net income and earnings per share
Net income for the three months ended December 31, 2018, was $3.2 million or $0.18 per basic and diluted share, a decrease of
$15.6 million compared to the fourth quarter of 2017 when net income was $18.8 million or $1.07 per basic and diluted share. The
decrease was mainly due to the gain on the sale of our ownership interest in Dye & Durham in the fourth quarter of 2017. Without
the impact of the gain, net income, in the fourth quarter of 2017, would have been $5.4 million or $0.31 per basic and diluted
share. The remaining difference is due to increased depreciation and taxes in the fourth quarter of 2018 as compared to 2017, as
well as additional staff costs from the acquisition of AVS.
Adjusted EBITDA
Adjusted EBITDA was $7.7 million, a 24.8 per cent margin, for the three months ended December 31, 2018, compared to
$9.0 million, a 38.0 per cent margin, for the same period in 2017. Adjusted EBITDA decreased due to increased wages and
salaries, cost of goods sold and the change in the contingent consideration related to our purchase of AVS, partially offset by
lower acquisition and integration costs. As expected, the decreased adjusted EBITDA margin compared to last year reflects the
lower margin profile of our collateral management product line following the acquisition of AVS.
7.2 Year-End results
Consolidated revenue
Revenue was $119.1 million for the year ended December 31, 2018, compared to $93.6 million in 2017, an increase of 27.3 per cent.
The increase was primarily due to additional revenue from our Services segment following the acquisition of AVS in 2017.
(thousands of CAD dollars)
Land Registry (Land Titles Registry,
Land Surveys, and Geomatics)
Personal Property Registry
Corporate Registry
Registry Operations revenue
Services revenue
Technology Solutions revenue
Corporate and other
Total revenue
Registry Operations
Overall
Revenue for our Registry Operations segment was
$70.3 million for the year ended December 31, 2018, a
decrease of $4.6 million, or 6.2 per cent, compared to 2017.
Compared to 2017, the results were lower due to decreased
revenue from the Land Registry, which is explained further in
the sections below.
The Company’s top five customers for the Registry
Operations segment represent 19.1 per cent of the total
segment revenue for the year ended December 31, 2018. Of
those customers, no single customer represented more than
10.0 per cent of total Registry Operations segment revenue.
Year-Ended December 31,
2017
2018
$ 50,031
10,190
10,038
$ 70,259
42,384
21,225
(14,737)
119,131
$
$ 54,792
9,953
10,143
$ 74,888
14,902
20,421
(16,619)
$ 93,592
Total Registry Operations Revenue
for the year ended December 31,
(CAD$ millions)
100.0
Land Titles Registry
Geomatics
Personal Property Registry
Land Surveys Directory
Corporate Registry
80.0
60.0
40.0
20.0
0.0
.
0
4
7
2016
.
9
4
7
2017
.
3
0
7
2018
24
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
Land Registry
Land Registry revenue was $50.0 million for the year ended December 31, 2018, a decrease of $4.8 million or 8.7 per cent
compared to 2017.
(i) Land Titles Registry
Land Titles Registry revenue for the year ended December 31, 2018, was $46.6 million, a decline of $4.7 million or 9.2 per cent
compared to 2017 revenue of $51.3 million, largely due to lower volumes for the year, down 8.9 per cent.
High-value property registration revenue was lower in 2018 when compared to a record revenue of $5.6 million in 2017. Each
high-value registration generated revenue of $10,000 or more, and revenue from these types of registrations was $3.9 million for
2018, down by $1.7 million versus 2017.
Saskatchewan Land Titles Registry Revenue by Type
for the year ended December 31,
(CAD$ millions)1
Saskatchewan Land Titles Registry Transaction Volume
for the year ended December 31,
(Number of transactions)
Registration
Search
1,000,000
51.2
7.5
51.3
7.5
46.6
7.0
43.7
43.8
39.6
2016
2017
2018
1 Values may not total due to rounding from Maintenance transactions that
were too small to display in chart.
900,000
800,000
700,000
600,000
500,000
9
7
7
,
8
8
8
2016
,
8
1
2
0
6
8
2017
,
9
1
5
3
8
7
2018
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Overall revenue-generating transactions in the Land Titles Registry fell 8.9 per cent in 2018, due to a slower real estate market in
Saskatchewan. The volume of regular land transfers, mortgage registrations and title searches declined by 4.9 per cent, 10.7 per cent
and 7.5 per cent, respectively, compared to 2017.
As discussed previously, new mortgage qualification guidelines introduced in January 2018, along with increases in interest rates
since July 2017, have impacted volume and revenue in 2018. We anticipate these factors will continue to influence the property
market in the near term, particularly if further increases to interest rates occur in 2019.
The primary customers of the Land Titles Registry are law firms, financial institutions, developers and resource companies. For the
year ended December 31, 2018, our top 20 Land Titles Registry customers represented about 40.2 per cent of revenue, and our top
100 Land Titles Registry customers represented 76.3 per cent of revenue.
In 2018, 80.0 per cent of all Land Titles Registry registration transactions were submitted online, an increase of 0.1 per cent
compared to 2017.
(ii) Land Surveys and Geomatics
Collectively, the revenue from Land Surveys and Geomatics was $3.5 million for the year ended December 31, 2018, a decrease
of $60 thousand, or 1.7 per cent, compared to 2017. The overall decrease was due to lower revenue from Geomatics, which saw
lower demand for its products and services.
In 2018, Land Surveys generated revenue of $1.3 million, up $42 thousand or 3.2 per cent for the year due to higher transaction
volumes, which were higher by 3.5 per cent year-over-year.
Land Surveys customers include surveyors, developers, resource companies, governments and other businesses that access our
mapping systems and survey plans to support their development plans. For the year ended December 31, 2018, our top 20 Land
Surveys customers represented 89.7 per cent of revenue and the top 100 customers accounted for 94.8 per cent.
For 2018, Geomatics revenue was $2.1 million, a decline of $0.1 million, or 4.6 per cent compared to $2.2 million in 2017.
25
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 Saskatchewan Land Surveys Revenue by Type
for the year ended December 31,
(CAD$ millions)1
Saskatchewan Land Surveys Transaction Volume
for the year ended December 31,
(Number of transactions)
Registration
Search
Services
40,000
1.5
0.3
0.2
1.1
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1.3
0.2
0.2
1.0
1.3
0.2
0.2
1.0
2016
2017
2018
1 Values may not total due to rounding.
Geomatics customers include government
departments (provincial and municipal), resource
companies, land developers, other businesses and
the general public. They also include utility, pipeline
and transportation companies. For the year ended
December 31, 2018, our top 20 Geomatics customers
comprised 87.5 per cent of revenue, while our top
100 customers represented 97.4 per cent of revenue.
30,000
20,000
10,000
0
2.5
2.0
1.5
1.0
0.5
0.0
7
2
6
3
3
,
2016
2
2
7
,
1
3
2017
8
4
8
2
3
,
2018
Saskatchewan Geomatics Revenue
for the year ended December 31,
(CAD$ millions)
2
2
.
2016
2
2
.
2017
1
.
2
2018
Personal Property Registry
Revenue for the Personal Property Registry for the year ended December 31, 2018, was $10.2 million, which represents an increase
of 2.4 per cent, or $0.2 million, from 2017.
Registration revenue for this registry decreased by 3.7 per cent in 2018, compared to 2017. This was offset by increased search and
maintenance revenue in 2018, up 12.3 per cent and 23.5 per cent respectively. This was primarily due to higher search revenue as a
result of pricing changes made to search transactions in July 2018.
Saskatchewan Personal Property Registry Revenue by Type
for the year ended December 31,
(CAD$ millions)1
Saskatchewan Personal Property Registry
Transaction Volume
for the year ended December 31,
(Number of transactions)
9.9
1.2
1.8
6.9
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Registration
10.0
1.1
Search
Maintenance
10.2
1.3
2.0
6.9
2.2
6.7
500,000
400,000
300,000
200,000
2016
2017
2018
1 Values may not total due to rounding.
9
6
9
5
5
4
,
2016
,
7
3
2
5
6
4
2017
,
7
1
9
2
6
4
2018
The graph above reflects year-over-year transaction volumes. Overall volumes declined by a modest 0.5 per cent in 2018. Registration
volume decreased 2.9 per cent and search volume declined 0.3 per cent, while maintenance volumes improved by 5.9 per cent.
26
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 Personal property security registration setup volumes decreased in 2018 by 3.9 per cent compared to 2017. Revenue for the same
transaction type decreased by 3.9 per cent in 2018 compared to 2017. This suggests that average registration term-length overall was
stable over the year.
Customers of the Personal Property Registry are primarily in the financial sector as well as law firms. The top 20 Personal
Property Registry customers generated 80.8 per cent of the revenue in 2018, while the top 100 customers represented
93.6 per cent of revenue.
Corporate Registry
Revenue for the Corporate Registry in 2018 was $10.0 million, down 1.0 per cent or $0.1 million compared to 2017. This is a result of
lower transaction volumes in 2018, down 1.5 per cent compared to 2017.
Saskatchewan Corporate Registry Revenue by Type
for the year ended December 31,
(CAD$ millions)1
Saskatchewan Corporate Registry Transaction Volume
for the year ended December 31,
(Number of transactions)
Registration
Search
400,000
12.0
10.0
8.0
6.0
4.0
2.0
0.0
9.1
1.1
2.2
5.8
Maintenance
10.1
1.4
2.6
6.2
10.0
1.4
2.5
6.1
2016
2017
2018
1 Values may not total due to rounding.
300,000
200,000
100,000
6
6
3
9
1
3
,
2016*
0
0
6
0
5
3
,
2017
,
1
7
3
5
4
3
2018
* As a result of the new fee schedule and Corporate Registry system
implementation in July 2016, the recording of volumes for fee generating
transactions has changed. Historical trending in the graph above has been
adjusted to approximate expected comparative volumes under the
current structure.
In 2018, registration, search and maintenance revenue declined by 2.5 per cent, 0.2 per cent and 0.6 per cent, respectively,
compared to 2017. This revenue decline was a product of lower transaction volumes. Registration, search and maintenance
volume declined by 1.8 per cent, 0.4 per cent and 3.5 per cent, respectively, compared to 2017. More specifically, revenue from
the filing of annual returns and renewals declined by 3.8 per cent in 2018 compared to 2017. Revenue from the incorporation and
registration of new business entities dropped by 2.3 per cent compared to 2017.
For the Corporate Registry, customers mainly include law firms, companies in the financial sector, as well as the Government
of Saskatchewan. They also include businesses such as corporations, non-profit corporations, co-operatives and sole
proprietorships that were, or will be, registered in the Corporate Registry. The top 20 Corporate Registry customers accounted
for nearly 31.6 per cent of revenue in 2018, and the top 100 customers made up about 49.2 per cent.
Services
For the year ended December 31, 2018, revenue in the Services segment was $42.4 million, an increase of $27.5 million compared to
$14.9 million in 2017.
Revenue improved as a result of new revenue of $26.4 million from our collateral management product line following the acquisition
of AVS, along with the organic growth within existing lines.
Legal Support Services
As a result of organic growth during the year, Legal Support Services revenue in 2018 was $8.8 million, a modest rise of 2.2 per cent,
or $190 thousand compared to 2017.
27
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 Financial Support Services
Revenue in 2018 for Financial Support Services was $33.6 million compared to $6.3 million in 2017. Again, this was primarily due to
additional revenue from our acquisition of AVS.
Services Revenue by Type
for the year ended December 31,
(CAD$ millions)1
Legal Support Services
Financial Support Services
13.6
8.9
4.7
2016
14.9
8.6
6.3
2017
1 Values may not add due to rounding.
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
42.4
8.8
33.6
2018
Services Revenue
for the year ended December 31, 2018
Legal Support Services
Financial Support Services
20.7%
79.3%
The top 20 customers of our Services segment comprised about 74.1 per cent of the revenue for 2018, while the top 100
customers made up nearly 86.5 per cent of revenue. No single customer accounted for more than 25.0 per cent of Services’
revenue in the same period.
Technology Solutions
Revenue in our Technology Solutions segment was $21.2 million for the year ended December 31, 2018, compared to
$20.4 million for the same period in 2017.
During the year, we announced the signing of solution delivery and implementation agreements with the Province of Nova
Scotia’s Registry of Joint Stock Companies, the Companies Registration Office in Ireland, the Government of Yukon and with
the Secretary of State of Missouri. Revenue from external third parties increased year-to-date due to the achievement of initial
contract milestones associated with the agreements entered into during the year. This revenue will continue to grow as the
Company achieves performance-related milestones identified in contracts.
Internal related party revenue provided year-to-date decreased due to a reduction in our costs to provide the services to our
internal customers as a result of the savings associated with the termination of our DXC Technology Company (“DXC”) contract in
2017 and increased efficiencies as a result of the implementation of RegSys.
Technology Solutions Revenue by Type
for the year ended December 31,
(CAD$ millions)1
Internal Related Party
External Third Party
20.4
3.7
16.7
21.2
6.4
14.8
Technology Solutions Revenue
for the year ended December 31, 2018
External Third Party
Internal Related Party
30.4%
69.6%
2017
2018
1 Values may not add due to rounding.
25.0
20.0
15.0
10.0
5.0
0.0
28
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 Consolidated expenses
For the year ended December 31, 2018, consolidated expenses (all segments) were $96.7 million, an increase of 34.9 per cent,
compared to $71.7 million for the same period in 2017. During the quarter, the Company changed the presentation of project
initiative expenses to reclassify them according to their nature – see table below. Management believes the revised presentation
aligns with management’s operation of the business and provides more relevant information to users.
(thousands of CAD dollars)
Expenses
Wages and salaries
Cost of goods sold
Depreciation and amortization
Information technology services
Occupancy costs
Professional and consulting services
Financial services
Project initiatives
Other
Total expenses
2018
(as reported)
2017
Year Ended December 31,
2017
(as reclassified)
Reclassification
$ 37,842
25,084
9,867
8,479
5,626
4,785
2,302
–
2,718
$ 96,703
$ 32,802
4,141
7,507
10,179
5,292
4,511
2,235
2,823
2,204
71,694
$
$
$
–
–
–
673
1
1,792
165
(2,823)
192
–
$ 32,802
4,141
7,507
10,852
5,293
6,303
2,400
–
2,396
71,694
$
A summary of changes in our expenses is as follows:
• Wages and salaries were $37.8 million, up $5.0 million, for the year ended December 31, 2018, compared to the same period
in 2017. The increase was primarily due to:
– annual wages and salary increases and standardization of salary and incentive programs across the business;
– additional wages and salaries in our Services segment following the acquisition of AVS in December 2017; and
– additional wages and salaries in our Technology Solutions segment following successful contract awards.
• Cost of goods sold was $25.1 million for the year ended 2018, an increase of $20.9 million compared to 2017 due to the nature of
our expanded collateral management product line in our Services segment which has a higher cost of goods sold.
• Depreciation and amortization costs were $9.9 million for the year ended December 31, 2018, compared to $7.5 million in the
same period in 2017. The increase is due to increased amortization in our Services segment related to the AVS acquisition in 2017,
somewhat offset by lower depreciation in our Registry Operations segment due to certain assets being fully depreciated.
•
Information technology services costs were $8.5 million, down $2.4 million compared to 2017. The decrease in 2018 reflects
savings associated with the termination of our technology services contract with DXC and bringing those resources in-house.
• Professional and consulting services decreased for the year ended December 31, 2018, to $4.8 million compared to $6.3 million
(after the reclassification) in 2017. The decrease was due to less cost incurred for acquisition and integration activities in 2018.
Net finance expense
Net finance expense for the year ended December 31, 2018, was nearly flat at $0.4 million compared to $0.5 million for the same
period in 2017.
Change in contingent consideration
During the year, the Company, through its wholly owned subsidiary ESC, adjusted the fair value and paid the early settlement
of the AVS contingent consideration and finalized the Purchase Price Accounting adjustments. The net result of $3.6 million
was included in “change of contingent consideration” on the consolidated financial statements of comprehensive income of the
Financial Statements.
29
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
Gain on sale of associate
In 2015, through its wholly owned subsidiary, ISC Enterprises Inc., the Company invested $3.3 million in OneMove Technologies
Inc. (now Dye & Durham), acquiring 30.0 per cent of the issued and outstanding voting common shares.
On March 27, 2017, the Company contributed additional capital of $2.4 million representing its pro rata share of an equity raise by
Dye & Durham. Subsequently, on March 28, 2017, the Company contributed additional capital of $0.1 million, raising its ownership
interest to 30.1 per cent.
ISC’s 30.1 per cent ownership level and related rights gave the Company significant influence over Dye & Durham, but did not
represent control and, as a result, the Company has accounted for this investment using the equity method. The Company
recorded its pro rata share of the net income (loss) on its consolidated statements of comprehensive income.
On October 5, 2017, the Company sold its 30.1 per cent ownership interest in Dye & Durham for $25.0 million and recorded a gain
before tax of $15.4 million (after tax of $13.4 million).
Tax provision
The Company is subject to federal and provincial income taxes at an estimated combined statutory rate of 27.0 per cent
(2017 – 26.75 per cent). Income tax expense varies from the amounts that would be computed by applying the statutory
income tax rate to earnings before taxes for the following reasons:
(thousands of CAD dollars)
Net income before tax
Combined statutory income tax rate
Expected income tax expense
Increase (decrease) in income tax resulting from:
Non-taxable items
Non-deductible expenses
Foreign income tax rate differential
Scientific research and experimental development reassessment
Adjustment to prior year’s deferred tax assets
Impact of change in tax rate
Unrecognized tax asset1
Other
Income tax expense
Year Ended December 31,
2017
2018
$ 25,621
27.00%
6,918
(963)
429
447
–
(235)
(5)
350
9
$ 6,950
$ 37,439
26.75%
10,015
(2,228)
539
336
324
266
109
114
175
$ 9,650
1 No deferred tax asset has been recognized in respect of $3.0 million of tax losses in 2018 related to ERS (2017 – $0.9 million).
In assessing the recovery of deferred income tax assets, management considers whether it is more likely than not that
the deferred income tax assets will be realized. The recognition and measurement of the current and deferred tax assets
and liabilities involves dealing with uncertainties in the application of complex tax regulations and in the assessment of the
recoverability of the deferred tax assets. The ultimate realization of deferred income tax assets is dependent upon the generation
of future taxable income during the periods in which the temporary differences are deductible.
30
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
Net income and earnings per share
Net income for the year ended December 31, 2018, was $18.7 million, or $1.07 per basic and $1.06 per diluted share, compared to
$27.8 million, or $1.59 per basic and $1.58 per diluted share, for the same period in 2017. The decrease in net income and earnings per
share was principally due to the gain on the sale of our ownership interest in Dye & Durham in 2017. Without the gain, net income
last year would have been $14.4 million, or $0.82 per basic and diluted share and as compared to 2018, the increase in 2018 is due to
higher revenue from our Services segment and the change in contingent consideration related to our AVS purchase.
The calculation of earnings per share is based on net income after tax and the weighted average number of shares outstanding
during the period. Details of the earnings per share are set out below:
(thousands of CAD dollars, except number of shares and earnings per share)
Net income
Weighted average number of shares, basic
Potential dilutive shares resulting from stock options
Weighted average number of shares, diluted
Earnings per share ($ per share)
Total, basic
Total, diluted
Adjusted EBITDA
Year Ended December 31,
2017
2018
$
18,671
17,500,000
42,455
17,542,455
$
27,789
17,500,000
95,648
17,595,648
$
$
1.07
1.06
$
$
1.59
1.58
Adjusted EBITDA was $33.3 million for the year ended December 31, 2018, compared to $33.4 million in the same period last
year, with ISC generating an adjusted EBITDA margin of 28.0 per cent for the period compared to 35.7 per cent in the year ended
December 31, 2017. As expected, the decreased adjusted EBITDA margin compared to last year reflects the lower margin profile of
our collateral management product line following the acquisition of AVS.
31
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
8 Summary of Consolidated Quarterly Results
The following table sets out select quarterly results for the past eight quarters. Our Registry Operations segment experiences
moderate seasonality, primarily because Land Titles revenue fluctuates in line with real estate transaction activity in
Saskatchewan. Typically, our second and third quarters generate higher revenue during the fiscal year when real estate activity
is traditionally highest.
In our Services segment, our core legal and financial services revenue is fairly diversified and has little seasonality; rather, it fluctuates
in line with the general economic drivers. Our collateral management product line experiences seasonality aligned to vehicle and
equipment financing cycles, which are generally stronger in the second and fourth quarters. Some smaller categories of products or
services can have some seasonal variation, increasing slightly during the second and fourth quarters.
Our Technology Solutions segment does not experience seasonality but can fluctuate due to the timing of project-related revenue.
The balance of our corporate activities and shared services functions do not experience seasonality. Expenses are generally
consistent from quarter to quarter but can fluctuate due to the timing of project-related or acquisition activities.
As a result, our EBITDA margin fluctuates in line with the above factors. It should be noted that, in 2018, the EBITDA margin
profile for the Company changed compared to previous years, following the acquisition of AVS, which has a high revenue, lower
margin profile.
(thousands of CAD dollars)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2018
2017
Revenue
Expenses
Net income before items
noted below
Net finance income (expense)
Share of profit (loss) in associate
Gain on sale of associate
Change in contingent
consideration
Income before tax
Income tax expense
Net income
Other comprehensive
$ 31,016 $ 30,186
23,775
25,976
$ 31,058
24,316
$ 26,872 $ 23,589 $ 23,862 $ 24,646 $ 21,496
17,583
22,636
18,406
17,539
18,168
5,040
(62)
–
–
6,411
520
–
–
6,742
(424)
–
–
4,236
(409)
–
–
6,050
(75)
–
15,438
5,694
(215)
200
–
6,240
(105)
587
–
3,913
(112)
(177)
–
(195)
4,783
(1,631)
$ 3,152 $
2,762
9,693
(1,921)
7,772
1,000
7,318
(2,156)
$ 5,162
–
3,827
(1,242)
–
21,414
(2,640)
$ 2,585 $ 18,774 $
–
–
–
3,624
6,722
5,679
(3,823)
(1,198)
(1,989)
1,856 $ 4,733 $ 2,426
income (loss)
211
Total comprehensive income
EBITDA margin (% of revenue) 1,2
Adjusted EBITDA margin
$ 3,363 $
24.3%
(159)
7,613
38.4%
(265)
$ 4,897
32.6%
337
$ 2,922 $
24.7%
(3)
18,771 $
(57)
1,799 $
33.2%
31.8%
546
(96)
5,279 $ 2,330
26.8%
35.8%
(% of revenue) 1
Earnings per share, basic3
Earnings per share, diluted3
24.8%
$ 0.18 $
$ 0.18 $
30.4%
0.45
0.44
30.5%
$ 0.29
$ 0.29
25.9%
$
$
0.15 $
0.15 $
38.0%
36.4%
38.8%
1.07 $
1.07 $
0.11 $
0.11 $
0.27 $
0.27 $
28.9%
0.14
0.14
1 EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are not recognized as measures under IFRS and do not have a standardized meaning prescribed by IFRS
and, therefore, they may not be comparable to similar measures reported by other corporations. Refer to section 22 “Non-IFRS Financial Measures”. Refer to section 9 “Financial
Measures and Key Performance Indicators” for a reconciliation of EBITDA and adjusted EBITDA to net income.
2 The 2018 EBITDA for the three months and year ended December 31, 2018, includes a net adjustment in relation to the fair value estimate of the contingent consideration
associated with our AVS acquisition of $0.2 million and $3.6 million, respectively.
3 The calculation of earnings per share was based on net income after tax and the weighted average number of shares outstanding during the period.
32
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
9 Financial Measures and Key Performance Indicators
Revenue, expenses and net income are key performance indicators the Company uses to manage its business and evaluate its
financial results and operating performance. In addition to these results, which are reported in accordance with IFRS, certain non-
IFRS measures are supplemental indicators of operating performance and financial position as well as for internal planning purposes.
The Company evaluates its performance against these metrics by comparing actual results to management budgets, forecasts and
prior period results. These non-IFRS financial measures include EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin
and free cash flow. Refer to section 22 “Non-IFRS Financial Measures”.
Consolidated earnings before interest, taxes, depreciation and amortization
(thousands of CAD dollars)
Net income
Depreciation and amortization
Net finance expense
Income tax expense
Gain on sale of associate
EBITDA
Adjustments
Stock-based compensation expense (income)
Stock option expense
Acquisition and integration costs1
Gain on disposal of property, plant and
equipment assets
Adjusted EBITDA
EBITDA margin (% of revenue)
Adjusted EBITDA margin (% of revenue)
Three Months Ended December 31,
2017
2018
Year Ended December 31,
2017
2018
$
3,152
2,678
62
1,631
–
7,523
(55)
166
44
$
18,774
1,792
75
2,640
(15,438)
7,842
67
120
925
$
18,671
9,867
374
6,950
–
35,862
157
617
(3,402)
$
27,789
7,507
507
9,650
(15,438)
30,015
327
471
2,591
$
27
7,705
24.3%
24.8%
$
–
8,954
33.2%
38.0%
82
$ 33,316
30.1%
28.0%
(1)
$ 33,403
32.1%
35.7%
1 Acquisition and integration costs for the three months and year ended December 31, 2018, include a net adjustment in relation to the fair value estimate of the contingent
consideration associated with our AVS acquisition of $0.2 million and $3.6 million, respectively.
Earnings before interest, taxes, depreciation and amortization by segment
(thousands of CAD dollars)
Registry Operations
Services
Technology Solutions
Corporate and other
Consolidated EBITDA
Three Months Ended December 31,
2017
2018
Year Ended December 31,
2017
2018
$
$
6,726
1,497
(49)
(651)
7,523
$
$
9,289
39
471
(1,957)
7,842
$ 31,242
9,686
(115)
(4,951)
$ 35,862
$
35,631
1,706
538
(7,860)
$ 30,015
EBITDA for our Registry Operations segment for the fourth quarter of 2018 was $6.7 million compared to $9.3 million for the same
period last year and for the year ended December 31, 2018, was $31.2 million compared to $35.6 million last year. The decreases are a
result of the overall decline in revenue from the Saskatchewan registries.
EBITDA for our Services segment increased $1.5 million for the three months ended December 31, 2018, compared to the same
period last year and was $9.7 million compared to $1.6 million for the year ended December 31, 2018, and 2017, respectively. The
increase is due to the growth in our collateral management product line since the acquisition of AVS as well as continued organic
growth in the segment.
EBITDA for our Technology Solutions segment for the three months and year ended December 31, 2018, was lower compared
to 2017 due to more development work being capitalized and higher contract liabilities recorded in 2017. Costs increased in 2018,
including wages and salaries, due to increased staffing to deliver on new contract awards and the annual wages and salary increases
and standardization of salary and incentive programs across the business, including in our ERS subsidiary.
EBITDA for Corporate and other for the three months and year ended December 31, 2018, improved in comparison to 2017 mainly
due to less acquisition and integration costs in 2018.
33
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
Consolidated free cash flow
(thousands of CAD dollars)
Net cash flow provided by operating activities
Net change in non-cash working capital1
Cash provided by operating activities
excluding working capital
Cash additions to property, plant and equipment
Cash additions to intangible assets
Consolidated free cash flow2
1 Refer to Note 27 of the Financial Statements for reconciliation.
Three Months Ended December 31,
2017
2018
Year Ended December 31,
2017
2018
$
7,828
(1,336)
$
8,401
(3,879)
$ 27,707
217
$ 32,924
(7,871)
6,492
(332)
(793)
5,367
$
4,522
(289)
(1,429)
2,804
$
27,924
(547)
(2,227)
$ 25,150
25,053
(448)
(1,686)
22,919
$
2 Free cash flow is not recognized as a measure under IFRS and does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar
measures reported by other corporations. Refer to section 22 “Non-IFRS Financial Measures”.
Consolidated free cash flow for the three months ended December 31, 2018, was $5.4 million compared to $2.8 million for the
same period of 2017 and was $25.2 million for the year ended December 31, 2018, compared to $22.9 million for the same period
last year. The increase in 2018 is due to higher results in our Services segment and lower costs associated with acquisition and
integration activities.
10 Outlook
The following section includes forward-looking information, including statements related to the industries in which we operate,
growth opportunities and our future financial position and results, including expected revenue, EBITDA, EBITDA margin and capital
expenditures. Refer to section 3 “Caution Regarding Forward-Looking Information”.
The diversification of our business remains a key part of our strategy driven by the positive impact our Services segment is having
on the business overall. In 2019, ISC will continue to look for efficiencies across the business, drive the organic growth of all our
segments by winning new business and exploring appropriate acquisition targets which are complementary to, or add value to, our
existing lines of business.
ISC anticipates consolidated revenue growth in 2019 to be driven by its Services segment through the continuing expansion of
our collateral management product line, including further automation of the fulfillment of these services, thereby reducing our
cost of delivery.
The Registry Operations segment is expected to remain a strong free cash flow contributor and a direct beneficiary of any future
upswing in economic conditions in Saskatchewan. ISC will continue to monitor economic conditions while always looking for greater
operational efficiencies. Should there be further increases to interest rates in 2019, this could place further downward pressure on
transaction volumes.
In Technology Solutions, as projects for contracts the Company signed in 2018 continue to move into implementation in 2019, ISC
expects to begin to recognize increased revenue from those contracts.
The key drivers of expenses will continue to be wages and salaries, cost of goods sold and information technology costs, as well as
costs associated with the pursuit of new business opportunities. We also expect to spend between $2.0 million and $4.0 million on
business-as-usual capital expenditures.
Taking the preceding outlook for 2019 into account, the Company expects revenue of between $129.0 million and $135.0 million,
EBITDA to be between $31.0 million and $35.0 million and an EBITDA margin between 24.0 per cent and 27.0 per cent.
34
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
11 Liquidity and Capital Resources
11.1 Cash flow
Our primary source of operating cash flow is generated from revenue related to the Registry Operations and Services segments. Our
primary uses of funds are operational expenses, capital expenditures and dividends.
Historically, ISC has financed its operations and met its capital and finance expenditure requirements through cash provided from
operating activities. Most recently, the Company has also utilized borrowing to supplement cash generated from operations to
finance acquisition activities. The Company believes that internally generated cash flow, supplemented by additional borrowing that
may be available to us (refer to Note 17 of the Financial Statements for our existing Credit Facilities), will be sufficient to meet cash
requirements, capital expenditures and anticipated dividend payments.
Liquidity risk is managed based on financial forecasts and anticipated cash flow. The majority of cash is held with Canadian chartered
banks and the risk of loss is believed to be minimal. As at December 31, 2018, the Company held $28.7 million in cash compared to
$31.3 million as at December 31, 2017, a decrease of $2.6 million.
The Company expects to be able to meet its cash requirements, including being able to settle current liabilities of $26.6 million
(December 31, 2017 – $22.7 million) and meet any unanticipated cash requirements due to changes in working capital commitments.
Such changes that would affect our liquidity may arise from, among other factors, general economic conditions and the failure
of one or more customers to pay their obligations. Deficiencies arising from short-term working capital requirements and capital
expenditures may be financed on a short-term basis with bank indebtedness or on a permanent basis with offerings of securities.
The following table summarizes our sources and uses of funds for the three months and years ended December 31, 2018, and 2017:
(thousands of CAD dollars)
Net cash flow provided by operating activities
Net cash flow used in investing activities
Net cash flow used in financing activities
Effects of exchange rate changes on cash
held in foreign currencies
Decrease in cash
Cash, beginning of period
Cash, end of period
Three Months Ended December 31,
2017
2018
Year Ended December 31,
2017
2018
$
7,828
(12,338)
(4,148)
6
(8,652)
$ 37,303
$ 28,651
$
8,401
(1,146)
(14,542)
(19)
(7,306)
38,571
31,265
$
$
$ 27,707
(13,939)
(16,367)
(15)
(2,614)
$ 31,265
$ 28,651
$ 32,924
(18,426)
(16,758)
(8)
(2,268)
33,533
31,265
$
$
Net cash flow provided by operating activities
Net cash flow provided by operating activities for the three months ended December 31, 2018, was $7.8 million compared to
$8.4 million for the same period in 2017 and was $27.7 million for the year ended December 31, 2018, compared to $32.9 million
for the same period last year. The decrease in 2018 compared to last year is principally due to changes in working capital driven by
increased receivables as the result of higher sales, higher taxes due to increased results and the full utilization of loss- carryforwards,
and increased contract assets related to our Technology Solutions segment.
Net cash flow used in investing activities
Net cash flow used in investing activities for the three months ended December 31, 2018, was $12.3 million, a decrease of $11.2 million
compared to the same period last year and for the year ended December 31, 2018, was $13.9 million compared to $18.4 million in
2017. The decrease in 2018 is due to the purchase of our subsidiary AVS in 2017, partially offset by the gain on sale of our share in Dye
& Durham also in 2017.
Net cash flow used in financing activities
Net cash flow used in financing activities for the three months ended December 31, 2018, was $4.1 million compared to $14.5 million
for the three months ended December 31, 2017, and for the year ended December 31, 2018, was $16.4 million, a decrease of $0.4
million compared to the same period in 2017. The decrease in the quarter was due to the repayment of the operating loan in the
fourth quarter of 2017, while the year-to-date decrease was due to a change in timing of long-term debt repayments as a result of
the new amended and restated credit agreement.
35
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
11.2 Capital expenditures
Capital expenditures for the three months ended December 31, 2018, were $1.1 million compared to $1.7 million for the same period
in 2017. For the year ended December 31, 2018, capital expenditures were $2.8 million compared to $2.0 million for the same period
in 2017. The decrease in the quarter is primarily due to the timing of development work recognized in the fourth quarter last year.
The increase for the year ended December 31, 2018, compared to 2017 is due to focus on system development work across our
segments and ongoing enhancements to the systems supporting our Corporate area.
(thousands of CAD dollars)
Registry Operations
Services
Technology Solutions
Corporate and other
Total capital expenditures
11.3 Debt
Three Months Ended December 31,
2017
2018
Year Ended December 31,
2017
2018
$
$
192
86
352
495
1,125
$
$
41
360
1,126
191
1,718
$
$
451
411
1,428
485
2,775
$
$
41
427
1,278
297
2,043
Debt for the three months ended December 31, 2018, was $20.0 million compared to $21.6 million at December 31, 2017.
On November 6, 2018, the Company entered into a new amended and restated credit agreement (“Credit Facilities”). The aggregate
amount available under the Credit Facilities is now $80.0 million, comprised of (i) a $10.0 million committed revolving operating
facility (“Facility 1”) for general corporate purposes and (ii) a $70.0 million delayed draw term loan facility (“Facility 2”), $20.0 million of
which was used to refinance the previous credit facilities under the original agreement with the balance available to the Company for
future growth opportunities.
Facility 1 will mature on November 6, 2021, unless renewed prior to that time and is repayable by ISC upon demand by the lender
and the lender may terminate at any time. Facility 2 is repayable by ISC through quarterly payments, commencing January 2019 and
matures on November 6, 2021, unless renewed prior to that time. At December 31, 2018, the Company had nil cash drawings on the
operating facility (2017 – nil). At December 31, 2018, non-cash drawings, consisting of letters of credit and similar, were approximately
$0.2 million (2017 – nil).
Facility 2 is subject to quarterly instalments at 2.5 per cent of original drawings (currently $0.5 million per quarter) with borrowings
repayable in full on November 6, 2021.
The Company was in compliance with all covenants throughout the year. The amount of borrowing costs capitalized during 2018
and 2017 was nil.
36
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
11.4 Total assets
Total assets were $162.0 million at December 31, 2018, compared to $171.8 million at December 31, 2017. The decrease was primarily
due to the amortization of intangible assets.
(thousands of CAD dollars)
Total assets excluding intangibles,
goodwill and cash
Intangibles
Goodwill
Cash
Total assets
(thousands of CAD dollars)
Total assets excluding intangibles,
goodwill and cash
Intangibles
Goodwill
Cash
Total assets
11.5 Working capital
Registry
Operations
$
$
25,074
4,054
5,800
–
34,928
Registry
Operations
$
$
27,133
5,516
5,800
–
38,449
Services
$
7,611
30,815
34,198
–
$ 72,624
Services
5,340
$
36,488
34,513
–
76,341
$
Technology
Solutions
Corporate As at December 31,
and Other
2018
$
$
3,170
5,418
4,312
–
12,900
$
$
12,442
417
–
28,651
41,510
$ 48,297
40,704
44,310
28,651
$ 161,962
Technology
Solutions
Corporate
and Other
As at December 31,
2017
$
$
1,572
4,992
4,160
–
10,724
$
$
15,020
26
–
31,265
46,311
$ 49,065
47,022
44,473
31,265
171,825
$
As at December 31, 2018, working capital was $15.0 million compared to $18.3 million at December 31, 2017. The decrease in
working capital is the result of the contingent liability related to our ERS subsidiary moving from a non-current to a current liability
and increased contract liabilities within our Technology Solutions segment. The higher current liabilities are somewhat offset by
the contract assets associated with our Technology Solutions segment and increased trade and other receivables in our Services
segment related to new customer accounts.
(thousands of CAD dollars)
Current assets
Current liabilities
Working capital
11.6 Outstanding share data
As at December 31,
2018
As at December 31,
2017
$ 41,573
(26,600)
14,973
$
$ 40,989
(22,652)
18,337
$
The number of basic issued and outstanding Class A Shares as at December 31, 2018, was 17.5 million and the number of fully diluted
shares was 17.5 million. On November 6, 2018, the Board declared a quarterly cash dividend of $0.20 per Class A Share, to be paid on
or before January 15, 2019, to shareholders of record as of December 31, 2018.
12 Share-Based Compensation Plan
12.1 Deferred share unit plan
The Company has established a Deferred Share Unit (“DSU”)
plan to provide directors and senior officers of ISC with the
opportunity to participate in the long-term success of ISC
and to promote a greater alignment of interests between our
directors, senior officers and shareholders. Refer to Note 16
of the Financial Statements for information pertaining to the
share-based compensation plan.
Share-based compensation recovery of expense for the three
months ended December 31, 2018, totalled $55 thousand
(2017 – $66 thousand expense) and for the year
ended December 31, 2018, totalled $157 thousand
(2017 – $327 thousand). The total carrying amount of the
liability arising from the DSUs as of December 31, 2018,
totalled $1.1 million (December 31, 2017 – $1.1 million).
As at December 31, 2018, the DSU plan balance was 72,114.15
(December 31, 2017 – 52,610.60) with a weighted average
award price of $17.44 per DSU.
37
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
12.2 Stock option plan
The Company established a stock option plan that was
approved by shareholders in 2014 and subsequently amended
and restated with the approval of shareholders on May 17, 2017.
Refer to Note 16 of the Financial Statements for information
pertaining to the share-based compensation plan.
Compensation expense is recognized in proportion to the
amount of stock options vested. Share-based compensation
related to the stock option plan for the three months ended
December 31, 2018, totalled $166 thousand (2017 – $120
thousand) and for the year ended December 31, 2018, totalled
$617 thousand (2017 – $471 thousand). The total carrying
amount of the equity settled employee benefit reserve arising
from these stock options as at December 31, 2018, totalled
$1.7 million (December 31, 2017 – $1.1 million).
As at December 31, 2018, a total of 1,548,247 (December 31, 2017
– 1,076,600) stock options had been granted. The outstanding
share options at the end of the period had a weighted average
exercise price of $17.27 (December 31, 2017 – $17.01). The number
of options exercisable at the end of the period was 587,851
(December 31, 2017 – 318,700) and had a weighted average
exercise price of $16.50 (December 31, 2017 – $16.08) based on a
range of exercise prices from $15.04 to $18.85.
13 Commitments
The Company is subject to contractual obligations such as leasing office space, an information technology service agreement
with Information Systems Management Canada Corporation (“ISM”), other management services contracts and the MSA with the
Government of Saskatchewan. The following table summarizes our commitments as of December 31, 2018:
(thousands of CAD dollars)
2019
2020
2021
2022
2023
Thereafter
Total
Office leases 1
Information Technology2 and
other service agreements
Master Service Agreement3
Total
$ 3,440
$ 3,412
$ 3,471
$ 2,725
$ 2,509
$ 6,287
$ 21,844
5,038
500
$ 8,978
3,161
500
$ 7,073
2,669
500
$ 6,640
2,610
500
$ 5,835
2,562
500
$ 5,571
–
5,000
$ 11,287
16,040
7,500
$ 45,384
1 The Company leases all of its office space through operating leases. Operating leases related to office spaces have lease terms of between two and ten years, with various options
to extend. The Company does not have an option to purchase the leased assets at the expiry of the lease period.
2 ISM provides hardware management services and support services for software and hardware infrastructure pursuant to a service agreement, which was renewed for a five-year
term on December 31, 2018.
3 The MSA requires the Company to pay the Government of Saskatchewan and to manage and operate the Saskatchewan Land Titles Registry, Saskatchewan Land Surveys
Directory, Saskatchewan Personal Property Registry, Saskatchewan Corporate Registry, Common Business Identifier Program and Business Registration Saskatchewan Program
on behalf of the Government of Saskatchewan for a 20-year period expiring on May 30, 2033.
14 Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as at December 31, 2018.
15 Related Party Transactions
Routine operating transactions with related parties are settled at agreed upon exchange amounts under normal trade terms. Refer
to Note 23 of our Financial Statements for information pertaining to transactions with related parties.
16 Critical Accounting Estimates
ISC’s critical accounting estimates are contained in Note 2 of the Financial Statements under the summary of use of estimates and
judgments and include references to:
• the carrying value, impairment and estimated useful lives of property, plant and equipment;
• the carrying value, impairment and estimated useful lives of intangible assets and goodwill;
• the recoverability of deferred tax assets; and
• the amount and timing of revenue from contracts from customers and the associated carrying value of assets recognized from
the costs incurred to fulfill the contracts.
38
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
The preparation of the Financial Statements, in conformity with IFRS, requires management to make estimates and underlying
assumptions and judgments that affect the accounting policies and reported amounts of assets, liabilities, revenue and expenses.
Estimates and underlying assumptions are reviewed on an ongoing basis. Actual results may differ from these estimates.
Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future
periods affected.
17 Changes in Accounting Policies
The Company has adopted the following new and revised standards, along with any consequential amendments, effective
January 1, 2018, or on such date as they became applicable. These changes were made in accordance with the applicable
transitional provisions. Refer to Note 2 of the Financial Statements for further information pertaining to the adoption and
changes in these policies.
Standard
Description
Amendment to
IFRS 2 – Share-based
Payment
IFRS 9 – Financial
Instruments
IFRS 15 – Revenue
from Contracts with
Customers
The amendments provide requirements on the accounting for the effects of vesting
and non-vesting conditions on the measurement of cash-settled share-based
payments; share-based payment transactions with a net settlement feature for
withholding tax obligations; and a modification to the terms and conditions of a share-
based payment that changes the classification of the transaction from cash-settled to
equity settled. The adoption of the new standard did not have a material impact on the
Financial Statements of the Company.
The new standard replaces the current multiple classification and measurement models
for financial assets and liabilities with a single model that has only two classifications:
amortized cost and fair value. Under IFRS 9, where the fair value option is applied to
financial liabilities, any change in fair value resulting from an entity’s own credit risk is
recorded through other comprehensive income (loss) rather than net income (loss). The
new standard also introduces a credit loss model for evaluating impairment of financial
assets. The adoption of the new standard did not require any adjustments to the values
recorded in the Company’s Financial Statements in the period of initial application
(January 1, 2018). However, the Company has adjusted its disclosure. See Note 3 and
Note 21 of the Financial Statements.
The standard provides for a single model that applies to contracts with customers as
well as two revenue recognition approaches: at a point in time or over time. The model
features a contract-based, five-step analysis of transactions to determine whether,
when and how much revenue is recognized. The new standard applies to contracts with
customers. It does not apply to insurance contracts, financial instruments or leases, which
are within the scope of other IFRS standards. The new revenue standard permits either
a full retrospective method of adoption with restatement of all prior periods presented,
or a modified retrospective method with the cumulative effect of applying the new
standard recognized as an adjustment to opening retained earnings in the period of
adoption. The Company has decided to adopt the new revenue standard using the
modified retrospective method, with no impact to opening retained earnings. See Note 3,
Note 7, Note 15 and Note 22 of the Financial Statements for disclosures relating to this
new standard.
The IAS Board and International Financial Reporting Interpretations Committee (“IFRIC”) issued the following new standards and
amendments to standards and interpretations, which become effective for future periods.
39
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 Effective Date
January 1,
2019
Proposed Standard Description
IFRS 16 – Leases
Effective January 1, 2019, the Company will adopt IFRS 16 – Leases. The Company’s first
quarter 2019 interim financial statements will be its first financial statements issued
in accordance with IFRS 16. IFRS 16 supersedes the current accounting standards for
leases, including IAS 17 – Leases and IFRIC 4 – Determining Whether an Arrangement
Contains a Lease.
IFRS 16 provides a single lessee accounting model, requiring the recognition of assets and
liabilities for all leases, unless the lease term is twelve months or less or the underlying
asset has a low value. The standard provides recognition exceptions for low value and
short-term leases. A lessee will be required to recognize, on its statement of financial
position, a right-of-use asset, representing its right to use the underlying leased asset,
and a lease liability, representing its obligation to make lease payments. As a result of
adopting IFRS 16, we will recognize a significant increase to both assets and liabilities on
our consolidated statements of financial position, as well as a decrease to operating costs
(and therefore an increase to EBITDA) to remove lease rent, an increase to depreciation
and amortization (due to depreciation of the right-of-use asset), and an increase to
finance costs (due to accretion of the lease liability). ISC will apply IFRS 16 using the full
retrospective approach and, therefore, the comparative information will be restated
and reported under the new accounting standard IFRS 16, effective January 1, 2019. ISC
will recognize leases on the statement of financial position as at January 1, 2019, and will
adjust the opening balance of each affected component of equity for the prior period
presented as if the new accounting policy had already been applied.
The following table sets out the expected impact on the most significantly impacted
items in the statement of financial position and statement of comprehensive income:
Excerpt – Statement of Financial Position
(thousands of CAD dollars)
2018
(as reported)
Impact of IFRS 16
Jan. 1, 2019
Total current assets
Total non-current assets
Total assets
Total current liabilities
Total non-current liabilities
Total liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
Excerpt – Statement of Comprehensive Income
(thousands of CAD dollars)
Revenue
Total expenses (excluding depreciation and amortization)
Depreciation and amortization
Total expenses
Operating profit
Net finance expense
Change in contingent consideration
Income before tax
Income tax expense
Net income
40
$
41,573
120,389
$ 161,962
$ 26,600
25,979
$ 52,579
109,383
$ 161,962
2018
$
$
$
$
$
–
11,720
11,720
1,778
10,441
12,219
(499)
11,720
$
41,573
132,109
$ 173,682
$ 28,378
36,420
$ 64,798
108,884
$ 173,682
2018
(as reported)
Impact of IFRS 16 (as revised for IFRS 16)
$
119,131
86,836
9,867
96,703
22,428
(374)
3,567
25,621
(6,950)
18,671
$
$
$
–
(2,262)
1,908
(354)
354
(399)
–
(45)
11
(34)
$
119,131
84,574
11,775
96,349
22,782
(773)
3,567
25,576
(6,939)
18,637
$
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018
18 Financial Instruments and
Financial Risks
Financial instruments held in the normal course of business,
included in our consolidated statements of financial position as
at December 31, 2018, consist of cash, short-term investments,
trade and other receivables, accounts payable and accrued
liabilities, long-term debt and other long-term liabilities.
The Company does not currently use any form of derivative
financial instruments to manage our exposure to credit risk,
interest rate risk, market risk or foreign currency exchange
risk. Refer to Note 21 of the Financial Statements for
information pertaining to financial instruments and related
risk management.
18.1 Fair value of financial instruments
The carrying values of cash, trade and other receivables,
accounts payable and accrued liabilities approximate fair value
due to their immediate or relatively short-term maturity. With
long-term debt, ISC has amended and restated its borrowings
under the Credit Facilities, which is managed with prime loans,
short-term bankers’ acceptance, letter of credit or letter of
guarantee. These borrowings will bear interest at a base rate
of prime plus applicable margin varying between 0.45 per cent
and 2.25 per cent per annum. The Company is not exposed to
significant interest rate risk because interest bearing financial
instruments are at a low level relative to total assets and equity.
The deferred share unit liability’s fair value is calculated taking
into consideration the market price, expected volatility and the
risk-free interest rate. This liability is classified as Level 2, but the
risk remains low due to the materiality.
18.2 Credit risk
Credit risk is the risk that one party to a transaction will fail to
discharge an obligation and cause the other party to incur a
financial loss. The Company extends credit to its customers
in the normal course of business and is exposed to credit risk
in the event of non-performance by customers, but does
not anticipate such non-performance would be material.
The Company monitors the credit risk and credit rating of
customers on a regular basis. The Company has significant
concentration of credit risk among government sectors. Its
customers are predominantly provincial, federal and municipal
government ministries and agencies, and its private sector
customers are diverse.
The majority of cash is held with Canadian chartered banks
and the Company believes the risk of loss to be minimal. The
maximum exposure to credit risk at December 31, 2018, is
$38.1 million (December 31, 2017 – $39.1 million) equal to the
carrying value of the Company’s financial assets, those being
cash at $28.7 million (December 31, 2017 – $31.2 million),
short-term nvestments at $0.4 million (December 31,
2017 – $0.3 million) and trade receivables at $9.0 million
(December 31, 2017 – $7.5 million). Quarterly reviews of the
aged receivables are completed. The Company expects to
fully collect the carrying value on all outstanding receivables.
Therefore, the risk to the Company is considered to be low.
18.3 Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Company’s
cash resources are managed based on financial forecasts and
anticipated cash flow.
18.4 Market risk
The Company’s exposure to market risk is limited to the DSU
liability whose fair value is affected by equity prices.
18.5 Interest rate risk
Interest rate risk is the risk arising from the effect of changes in
prevailing interest rates on the Company’s financial instruments.
The Company is not exposed to significant interest rate risk.
18.6 Foreign currency exchange risk
The Company operates internationally and is exposed to
fluctuations in various currencies with the euro being the most
material. Movements in foreign currencies against the Canadian
dollar may impact revenue, the value of assets and liabilities, and
affect the Company’s profit and loss. The Company’s exposure
to other currencies is negligible at the end of the period.
19 Business Risks and Risk
Management
All companies are exposed to risk and are required to mitigate
risks on a daily and long-term basis. A key component of
creating strong and sustainable corporate performance is to
balance risk and reward.
ISC considers risks that may affect the Company’s ability
to achieve its goals and objectives on an ongoing basis,
and implements processes to manage those risks. ISC is
continuously monitoring numerous existing and emerging risks.
Our corporate strategies and plans are designed to implement
effective risk mitigation or management approaches on an
ongoing basis.
The Board oversees ISC’s Enterprise Risk Management
(“ERM”) framework. This includes ensuring appropriate
management systems are in place to ensure ISC’s risks are
prudently managed.
41
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 The leadership team is accountable for providing executive oversight of ISC’s ERM activities, including the ongoing identification and
assessment of risks and the development of mitigation strategies to manage the corporate risks facing the Company.
A complete list of risk factors is contained in the Company’s Annual Information Form available on the Company’s website at
www.company.isc.ca and in the Company’s profile on SEDAR at www.sedar.com.
The following are high-level descriptions of primary business risks:
Compliance with Customer
Contracts
Inability to comply with the requirements in customer contracts, including the Master Service
Agreement with the Government of Saskatchewan, could result in the loss/termination of
customer contracts as well as impacting ISC’s reputation and future growth strategies.
Misalignment of Registry Service
Delivery
There is a risk that activities, investments, etc. enabling the successful and profitable
evolution of registry services are not supported by the Government of Saskatchewan.
Revenue Diversification
There is a risk that ISC’s current revenue sources are not significantly diversified to
withstand economic challenges or downturns connected to common revenue drivers.
Information Technology
Cybersecurity
Acquisitions
Our operations rely on information technology systems. There is a risk that we do not
have the information technology systems in place to effectively facilitate current and
future requirements to support our business needs and the achievement of our strategic
goals. There is also a risk of potential service disruptions or service delays. We also rely on
third-party service providers for aspects of our IT infrastructure and the provision of critical
IT-related services.
There is a risk that ISC could experience unplanned outages, unauthorized access, or
unplanned disclosure of confidential information due to a cybersecurity incident.
There is a risk that acquisitions could occur with insufficient due diligence, leadership
and cultural differences, over-valuation, imprudent financing, ineffective post-acquisition
integration or could be misaligned with ISC’s overall strategy.
Cost/Efficiency/Profitability
There is a risk that ISC’s business model and resourcing mix will not allow ISC to achieve cost
efficiencies in new or existing product lines or be sufficiently nimble to take advantage of
business development opportunities or adapt to volume changes within its business.
Competition
ISC may be ineffective in its ability to compete against current or future competitors, in
some cases given others’ potential advantage having greater longevity in the market, access
to low cost capital, private ownership, etc. or as a result of ISC’s potential requirement to
receive service or other approvals from the Office of Public Registry Administration (“OPRA”)
or other regulators.
Human and Organizational
Capital
ISC may not have the required competencies, skills and knowledge to execute on strategic
priorities as a growing publicly traded company.
Reputational
ISC’s reputation could be negatively impacted, thereby damaging ISC’s credibility, future
revenue and/or business opportunities. Events that could impact ISC’s reputation include
the integrity and security of information, failure to protect our intellectual property rights,
inability to successfully implement on growth strategies or failure to comply with rules,
regulations and disclosures.
42
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 20 Internal Controls over
Financial Reporting
The Company’s management, including the President and
Chief Executive Officer and the Executive Vice-President
and Chief Financial Officer, is responsible for establishing
and maintaining appropriate internal controls over financial
reporting. Internal controls over financial reporting have
been designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements in accordance with IFRS. The design and
effectiveness of ISC’s internal controls over financial reporting
in accordance with National Instrument 52-109 Certification of
Disclosure in Issuers’ Annual and Interim Filings as at December
31, 2018, was evaluated by management. The Internal Control –
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) was
used to evaluate the effectiveness of our internal controls over
financial reporting. Based on this evaluation, the President and
Chief Executive Officer and the Executive Vice-President and
Chief Financial Officer concluded that our internal controls over
financial reporting were effective as at December 31, 2018.
No changes in our internal controls over financial reporting that
have occurred during the period have materially affected or are
reasonably likely to materially affect our internal controls over
financial reporting.
It should be noted that all internal control systems, no matter
how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only
reasonable assurance with respect to financial statement
preparation and presentation.
21 Disclosure Controls and
Procedures
The Company’s management, including the President and Chief
Executive Officer and the Executive Vice-President and Chief
Financial Officer, is responsible for establishing and maintaining
appropriate disclosure controls and procedures. Disclosure
controls and procedures are designed to provide reasonable
assurance that relevant information is gathered and reported
to senior management, including the President and Chief
Executive Officer and the Executive Vice-President and Chief
Financial Officer, on a timely basis so that appropriate decisions
can be made regarding public disclosures.
22 Non-IFRS Financial Measures
22.1 Non-IFRS financial measures
This MD&A includes certain measures, which have not been
prepared in accordance with IFRS, such as EBITDA, EBITDA
margin, adjusted EBITDA, adjusted EBITDA margin and free
cash flow. Rather, these measures are provided as additional
information to complement those IFRS measures by providing
further understanding of our results of operations from
management’s perspective, to provide investors with
supplemental measures of our operating performance
and, thus, highlight trends in our core business that may
not otherwise be apparent when relying solely on IFRS
financial measures.
Management also uses non-IFRS measures to facilitate
operating performance comparisons from period to period,
prepare annual operating budgets and assess our ability to
meet our future capital expenditure and working capital
requirements.
Accordingly, these non-IFRS measures should not be
considered in isolation or as a substitute for analysis of our
financial information reported under IFRS. Such measures
do not have any standardized meaning prescribed by IFRS
and, therefore, may not be comparable to similar measures
presented by other corporations.
22.2 Non-IFRS financial measures definition
EBITDA is defined as earnings before interest, taxes,
depreciation and amortization expense. Adjusted EBITDA
adjusts EBITDA for stock-based compensation expense or
income, stock option expense, transactional gains or losses
on assets, asset impairment charges, and acquisition and
integration costs. These measures, in addition to net income
and income from operations, measure business performance
and cash flow generation because it removes cash flow
fluctuations caused by the above adjustments. Furthermore,
we use adjusted EBITDA for business planning purposes and
to evaluate and price potential acquisitions. In addition to use
by management, we also believe these measures are widely
used by securities analysts, investors and others to evaluate
the financial performance of our Company and for comparing
our results with those of other companies. EBITDA margin
and adjusted EBITDA margin are calculated as a percentage of
overall revenue.
Free cash flow is used as a financial measure in our evaluation
of liquidity and financial strength. Adjusting for the swings
in non-cash working capital items due to seasonality or
other timing issues and cash additions to property, plant and
equipment and intangible assets, free cash flow assists in the
long-term assessment of liquidity and financial strength. This
measurement is useful as an indicator of our ability to service
our debt, meet other payment obligations and make strategic
investments. Free cash flow does not represent residual cash
flow available for discretionary expenditures.
43
2018 ISC® Annual Report | Management’s Discussion and Analysis For the Fourth Quarter and Year Ended December 31, 2018 2018 Consolidated Financial Statements
For the Year Ended December 31, 2018
Table of Contents
Management’s Responsibility ..........................................................................................................................................................................................................45
Independent Auditor’s Report .......................................................................................................................................................................................................46
Consolidated Statements of Financial Position ......................................................................................................................................................................48
Consolidated Statements of Comprehensive Income ....................................................................................................................................................... 49
Consolidated Statements of Changes in Equity .....................................................................................................................................................................50
Consolidated Statements of Cash Flows ...................................................................................................................................................................................51
Notes to the Consolidated Financial Statements
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Nature of the Business ........................................................................................................................................................................................................52
Basis of Presentation ............................................................................................................................................................................................................52
Summary of Significant Accounting Policies ............................................................................................................................................................ 54
Cash ..............................................................................................................................................................................................................................................61
Short-Term Investments .....................................................................................................................................................................................................61
Trade and Other Receivables ...........................................................................................................................................................................................61
Contract Assets.......................................................................................................................................................................................................................61
Seasonality ................................................................................................................................................................................................................................61
Property, Plant and Equipment ...................................................................................................................................................................................... 62
Intangible Assets ................................................................................................................................................................................................................... 63
Goodwill .....................................................................................................................................................................................................................................64
Investment in Associate .....................................................................................................................................................................................................64
Accounts Payable and Accrued Liabilities .................................................................................................................................................................64
Tax Provision ............................................................................................................................................................................................................................64
Contract Liabilities .................................................................................................................................................................................................................66
16
Share-Based Compensation Plan ..................................................................................................................................................................................66
17
18
19
20
21
22
23
24
25
26
27
Debt .............................................................................................................................................................................................................................................68
Liabilities Arising from Financing Activities ................................................................................................................................................................69
Earnings Per Share ................................................................................................................................................................................................................69
Equity and Capital Management ...................................................................................................................................................................................69
Financial Instruments and Related Risk Management .........................................................................................................................................70
Revenue .....................................................................................................................................................................................................................................73
Related Party Transactions ................................................................................................................................................................................................74
Compensation of Key Management Personnel ......................................................................................................................................................74
Segment Information ...........................................................................................................................................................................................................74
Acquisitions ...............................................................................................................................................................................................................................76
Net Change in Non-Cash Working Capital ..................................................................................................................................................................78
28
Commitments and Contingencies .................................................................................................................................................................................78
Pension Expense ................................................................................................................................................................................................................... 79
Reclassifications .....................................................................................................................................................................................................................80
Subsequent Events ..............................................................................................................................................................................................................80
29
30
31
44
2018 ISC® Annual Report | Consolidated Financial Statements Management’s Responsibility
Management’s Report on Consolidated Financial Statements
The accompanying consolidated financial statements of Information Services Corporation were prepared by management, which
is responsible for the integrity and fairness of the information presented, including the many amounts that must, of necessity,
be based on estimates and judgments. These consolidated financial statements were prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Financial information appearing
throughout our management’s discussion and analysis is consistent with these consolidated financial statements.
In discharging our responsibility for the integrity and fairness of the consolidated financial statements and for the accounting
systems from which they are derived, we maintain the necessary system of internal controls designed to ensure that transactions
are authorized, assets are safeguarded and proper records are maintained. These controls include quality standards in hiring
employees, policies and procedure manuals, a corporate code of conduct, and accountability for performance within appropriate
and well-defined areas of responsibility.
The Board of Directors oversees management’s responsibilities for financial reporting through an Audit Committee, which is
composed entirely of directors who are neither officers nor employees of Information Services Corporation. This Committee reviews
our consolidated financial statements and recommends them to the Board of Directors for approval. Other key responsibilities of the
Audit Committee include reviewing our existing internal control procedures and planned revisions to those procedures, and advising
the directors on auditing matters and financial reporting issues.
Deloitte LLP, who was appointed by the shareholders of Information Services Corporation upon the recommendation of the Audit
Committee and the Board of Directors’ approval, has performed an independent audit of the consolidated financial statements and
that report follows. The auditor has full and unrestricted access to the Audit Committee to discuss the audit and related findings.
Jeff Stusek
President and Chief Executive Officer
Shawn B. Peters, CPA, CA, ICD.D
Executive Vice-President and Chief Financial Officer
March 20, 2019
45
2018 ISC® Annual Report | Consolidated Financial Statements Independent Auditor’s Report
To the Shareholders of Information Services Corporation:
Opinion
We have audited the consolidated financial statements of Information Services Corporation (the “Company”), which comprise the
consolidated statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of comprehensive
income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a
summary of significant accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company
as at December 31, 2018 and 2017, and its financial performance and its cash flow for the years then ended in accordance with
International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of
our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
• The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of
assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have
performed on this other information, we conclude that there is a material misstatement of this other information, we are required to
report that fact in this auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform
on this other information, we conclude that there is a material misstatement of this other information, we are required to report that
fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for
such internal control as management determines is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
46
2018 ISC® Annual Report | Consolidated Financial Statements As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism
throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Leigh Derksen.
Chartered Professional Accountants
Licensed Professional Accountants
Regina, Saskatchewan
March 20, 2019
47
2018 ISC® Annual Report | Consolidated Financial Statements Consolidated Statements of Financial Position
(thousands of CAD dollars)
Assets
Current assets
Cash
Short-term investments
Trade and other receivables
Contract assets
Income tax recoverable
Prepaid expenses
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Goodwill
Deferred tax asset
Total non-current assets
Total assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Long-term debt – current portion
Income tax payable
Contract liabilities
Contingent consideration – current portion
Total current liabilities
Non-current liabilities
Contingent consideration
Deferred tax liability
Long-term debt
Total non-current liabilities
Shareholders’ equity
Share capital
Equity settled employee benefit reserve
Accumulated other comprehensive income
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Note 28 for Commitments and Contingencies
See accompanying Notes
Note
As at December 31,
2018
As at December 31,
2017
4
5
6
7
9
10
11
14
13
17
14
15
26
26
14
17
20
16
$
$
$
$
28,651
448
8,964
1,414
5
2,091
41,573
3,795
40,704
44,310
31,580
120,389
161,962
17,118
2,000
2,561
2,599
2,322
26,600
–
7,979
18,000
25,979
19,955
1,687
514
87,227
109,383
161,962
$
$
$
$
31,265
301
7,510
–
–
1,913
40,989
4,504
47,022
44,473
34,837
130,836
171,825
16,522
1,500
3,223
1,407
–
22,652
15,723
9,419
20,060
45,202
19,955
1,070
390
82,556
103,971
171,825
APPROVED BY THE BOARD OF DIRECTORS ON MARCH 20, 2019:
Joel Teal
Director
48
Tony Guglielmin
Director
2018 ISC® Annual Report | Consolidated Financial Statements
Consolidated Statements of Comprehensive Income
Note
22
9, 10
(thousands of CAD dollars)
Revenue
Expenses
Wages and salaries
Cost of goods sold
Depreciation and amortization
Information technology services
Occupancy costs
Professional and consulting services
Financial services
Other
Total expenses
Net income before items noted below
Finance income (expense)
Interest income
Interest expense
Net finance (expense)
Share of profit in associate
Change in contingent consideration
Gain on sale of associate
Income before tax
Income tax expense
Net income
Other comprehensive income (loss)
Items that may be subsequently reclassified to net income
Unrealized gain on translation of financial statements
of foreign operations
Change in fair value of marketable securities, net of tax
Other comprehensive income for the period
Total comprehensive income
Earnings per share ($ per share)
Total, basic
Total, diluted
4
26
26
12
14
19
19
See accompanying Notes
Year Ended December 31,
2018
Year Ended December 31,
2017
$
119,131
$
93,592
37,842
25,084
9,867
8,479
5,626
4,785
2,302
2,718
96,703
22,428
416
(790)
(374)
–
3,567
–
25,621
(6,950)
18,671
232
(108)
124
18,795
1.07
1.06
$
$
$
$
32,802
4,141
7,507
10,852
5,293
6,303
2,400
2,396
71,694
21,898
369
(876)
(507)
610
–
15,438
37,439
(9,650)
27,789
429
(39)
390
28,179
1.59
1.58
$
$
$
$
49
2018 ISC® Annual Report | Consolidated Financial Statements
Consolidated Statements of Changes in Equity
$
Accumulated Other
Comprehensive
Income
–
–
390
–
–
390
$
Share
Capital
19,955
–
–
–
–
19,955
19,955
–
–
–
–
19,955
$
$
390
–
124
–
–
514
Equity
Reserve
599
–
–
471
–
1,070
1,070
–
–
617
–
1,687
$
$
$
$
Total
$ 89,321
27,789
390
471
(14,000)
103,971
$
$ 103,971
18,671
124
617
(14,000)
$ 109,383
(thousands of CAD dollars)
Balance at January 1, 2017
Net income
Other comprehensive income
Stock option expense
Dividend declared
Balance at December 31, 2017
Balance at January 1, 2018
Net income
Other comprehensive income
Stock option expense
Dividend declared
Balance at December 31, 2018
See accompanying Notes
Note
16
16
Retained
Earnings
$ 68,767
27,789
–
–
(14,000)
82,556
$
$ 82,556
18,671
–
–
(14,000)
$ 87,227
$
$
$
$
50
2018 ISC® Annual Report | Consolidated Financial Statements
Consolidated Statements of Cash Flows
(thousands of CAD dollars)
Operating
Net income
Add: Charges not affecting cash
Depreciation
Amortization
Foreign exchange loss (gain)
Deferred tax expense recognized in net income
Loss (gain) on disposal of property, plant and equipment
Recovery of MARS* project expenses
Net finance expense
Stock option expense
Share of profit in associate
Change in contingent consideration
Gain on sale of associate
Net change in non-cash working capital
Net cash flow provided by operating activities
Investing
Interest received
Cash received on disposal of property, plant and equipment
Short-term investments
Additions to property, plant and equipment
Additions to intangible assets
Net cash outflow on acquisition in subsidiary
Net cash outflow on investment in associate
Net proceeds from sale of associate
Net cash flow used in investing activities
Financing
Interest paid
Repayment of long-term debt
Repayment of operating loan
Drawdown of operating loan
Dividend paid
Net cash flow used in financing activities
Effects of exchange rate changes on cash held in foreign currencies
Decrease in cash
Cash, beginning of year
Cash, end of year
* Mineral Administration Registry Saskatchewan
See accompanying Notes
Year Ended December 31, Year Ended December 31,
2017
2018
Note
$
18,671
$
27,789
9
10
10
16
26
27
26
12
12
1,182
8,685
58
1,803
82
19
374
617
–
(3,567)
–
(217)
27,707
416
–
(250)
(548)
(2,227)
(11,330)
–
–
(13,939)
(807)
(1,560)
–
–
(14,000)
(16,367)
(15)
(2,614)
31,265
28,651
$
1,446
6,061
(8)
4,604
(1)
232
507
471
(610)
–
(15,438)
7,871
32,924
369
3
–
(448)
(1,686)
(38,724)
(2,451)
24,511
(18,426)
(883)
(1,875)
(10,000)
10,000
(14,000)
(16,758)
(8)
(2,268)
33,533
31,265
$
51
2018 ISC® Annual Report | Consolidated Financial Statements
1 Nature of the Business
Information Services Corporation is the parent company of its
subsidiary group (collectively, the “Company”, or “ISC”) and is
a Canadian corporation with its Class A Limited Voting Shares
(“Class A Shares”) listed on the Toronto Stock Exchange (“TSX”)
under the symbol ISV. The head and registered office of the
Company is 300 - 10 Research Drive, Regina, Saskatchewan,
S4S 7J7. The Company is a provider of registry and information
management services for public data and records. The
Company has seven regional service centres in Saskatchewan
and has offices in Regina, SK, Toronto, ON, Montreal, QC,
Vernon, BC, and Dublin, Ireland. As of January 1, 2018, ISC has
three reportable segments: Registry Operations, Services and
Technology Solutions. A functional summary of these segments
is as follows:
• Registry Operations delivers registry services on behalf of
governments and private sector organizations. Currently,
through this segment, ISC provides registry and information
services on behalf of the Province of Saskatchewan under
a 20-year Master Service Agreement (“MSA”), in effect
until 2033.
• Services delivers products and services that utilize public
records and data to provide value to customers in the
financial and legal sectors.
• Technology Solutions provides the development, delivery
and support of registry (and related) technology solutions.
The balance of our corporate activities and shared services
functions are reported as Corporate and other.
As at December 31, 2018, ISC’s principal revenue generating
segments were Registry Operations and Services.
2 Basis Of Presentation
Statement of compliance
These consolidated financial statements have been prepared
in accordance with International Financial Reporting Standards
(“IFRS”), as issued by the International Accounting Standards
Board (“IAS Board”).
The Company’s Board of Directors (the “Board”) authorized the
consolidated financial statements for the year ended December
31, 2018, for issue on March 20, 2019.
Basis of measurement
The consolidated financial statements have been prepared on
a going concern basis using the historical cost basis except for
financial instruments that are measured at fair values at the
end of each reporting period, as explained in the accounting
policies below.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of
whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of
an asset or a liability, the Company takes into account the
characteristics of the asset or liability if market participants
would take those characteristics into account when pricing
the asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in these consolidated
financial statements is determined on such a basis, except for
share-based payment transactions that are within the scope of
IFRS 2 – Share-based Payment and measurements that have
some similarities to fair value but are not fair value, such as net
realizable value in International Accounting Standards (“IAS”) 2 –
Inventories or value in use in IAS 36 – Impairment of Assets.
In addition, for financial reporting purposes, fair value
measurements are categorized into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the entity can
access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
Functional and presentation currency
These consolidated financial statements are presented in
Canadian dollars (“CAD”), which is the functional currency of
the parent company.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of Information Services Corporation and its wholly
owned significant operating subsidiaries: ISC Saskatchewan
Inc. (“ISC Sask”), ISC Enterprises Inc. (“ISC Ent”), ESC Corporate
Services Ltd. (“ESC”) and Enterprise Registry Solutions Limited
(“ERS”). All intragroup assets and liabilities, equity, income,
expenses and cash flows are eliminated in full on consolidation.
Use of estimates and judgments
The preparation of these consolidated financial statements, in
conformity with IFRS, requires management to make estimates
and underlying assumptions and judgments that affect the
52
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements accounting policies and reported amounts of assets, liabilities,
revenue and expenses.
• the carrying value, impairment and estimated useful lives of
intangible assets (Note 10) and goodwill (Note 11);
Estimates and underlying assumptions are reviewed on an
ongoing basis. Actual results may differ from these estimates.
Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods
affected. Critical accounting estimates and judgments are those
that have a significant risk of causing material adjustment.
Management believes that the following are the significant
accounting estimates and judgments used in the preparation of
the consolidated financial statements.
• the recoverability of deferred tax assets (Note 14); and
• the amount and timing of revenue from contracts from
customers (Note 22) and the associated carrying value
of assets recognized from the costs incurred to fulfil the
contracts (Note 7).
The relevant accounting policies in Note 3 contain further
details on the use of these estimates and assumptions.
Changes in accounting policies
Significant items subject to estimates and underlying
assumptions include:
• the carrying value, impairment and estimated useful lives of
property, plant and equipment (Note 9);
The Company has adopted the following new and revised
standards, along with any consequential amendments, effective
January 1, 2018, or on such date as they became applicable.
These changes were made in accordance with the applicable
transitional provisions.
Standard
Description
Amendment to
IFRS 2 – Share-based
Payment
The amendments provide requirements on the accounting for the effects of vesting and non-vesting
conditions on the measurement of cash-settled share-based payments; share-based payment
transactions with a net settlement feature for withholding tax obligations; and a modification to the
terms and conditions of a share-based payment that changes the classification of the transaction from
cash-settled to equity settled. The adoption of the new standard did not have a material impact on the
Financial Statements of the Company.
IFRS 9 – Financial
Instruments
IFRS 15 – Revenue
from Contracts with
Customers
The new standard replaces the current multiple classification and measurement models for financial
assets and liabilities with a single model that has only two classifications: amortized cost and fair value.
Under IFRS 9, where the fair value option is applied to financial liabilities, any change in fair value resulting
from an entity’s own credit risk is recorded through other comprehensive income (loss) rather than net
income (loss). The new standard also introduces a credit loss model for evaluating impairment of financial
assets. The adoption of the new standard did not require any adjustments to the values recorded in the
Company’s consolidated financial statements in the period of initial application (January 1, 2018). However,
the Company has adjusted its disclosure. See Note 3 and Note 21.
The standard provides for a single model that applies to contracts with customers as well as two
revenue recognition approaches: at a point in time or over time. The model features a contract-based,
five-step analysis of transactions to determine whether, when and how much revenue is recognized.
The new standard applies to contracts with customers. It does not apply to insurance contracts, financial
instruments or leases, which are within the scope of other IFRS standards. The new revenue standard
permits either a full retrospective method of adoption with restatement of all prior periods presented, or
a modified retrospective method with the cumulative effect of applying the new standard recognized as
an adjustment to opening retained earnings in the period of adoption. The Company has decided to adopt
the new revenue standard using the modified retrospective method, with no impact to opening retained
earnings. See Note 3, Note 7, Note 15 and Note 22 for disclosures relating to this new standard.
53
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements 3 Summary of Significant Accounting Policies
Property, plant and equipment
Property, plant and equipment are recorded at cost less
accumulated depreciation and any provisions for impairment.
Cost includes expenditures that are directly attributable
to the acquisition of the asset. The cost of self-developed
assets includes materials, services, direct labour and directly
attributable overhead. Interest costs associated with major
capital and development projects are capitalized during the
development period. Depreciation of assets under development
will commence once they are operational and available for use.
The costs of maintenance, repairs, renewals or replacements
which do not extend productive life of an asset are charged
to operations when incurred. The costs of replacements and
improvements which extend productive life are capitalized.
The cost of replacing part of an item of property, plant and
equipment is recognized in the carrying amount of the item
if it is probable that the future economic benefits embodied
within the part will flow to the Company and its cost can be
measured reliably. The carrying amount of the replaced part
is derecognized.
Depreciation is recorded on property, plant and equipment
on the straight-line basis, which is the cost of the asset less its
residual value over the estimated productive life of each asset.
The useful life of each asset is as follows:
Leasehold improvements
Office furniture
Office equipment
Hardware
Term of lease
2-10 years
2-10 years
3 years
The estimated useful life and depreciation methods are reviewed
at the end of each annual reporting period, with the effect of
any changes in estimate being accounted for on a prospective
basis. Gains or losses arising from the disposition or retirement
of an item of property, plant and equipment are measured at the
difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the consolidated
statements of comprehensive income.
Intangible assets
Intangible assets consist of acquired and internally developed
internal-use software and business solutions. It also includes
externally acquired customer contracts, customer and partner
relationships, brand, non-competes, other intangible assets, and
assets under development.
Intangible assets acquired
Internal-use software and business solutions acquired are carried
at cost less accumulated amortization and any accumulated
impairment losses. Internal-use software, business solutions,
customer and partner relationships, brand, non-competes, and
other intangible assets acquired through business combinations
are initially recorded at their fair value based on the present value
of expected future cash flows, which involves estimates about
the future cash flows and discount rates.
Internally generated intangible assets
Research expenditures are expensed while expenditures
for internal-use software developed internally and business
solutions developed internally and marketed externally are
capitalized only when they meet the recognition criteria
for internally generated intangible assets as provided under
IFRS. An internally generated intangible asset arising from
development is recognized if, and only if, all of the following
have been demonstrated:
• the technical feasibility of completing the intangible asset so
that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
• the ability to use or sell the intangible asset;
• how the intangible asset will generate probable future
economic benefits;
• the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset; and
• the ability to measure reliably the expenditure attributable to
the intangible asset during its development.
The amount initially recognized for an internally generated
intangible asset is the sum of the expenditures incurred
from the date when the intangible asset first meets the
recognition criteria. If no internally generated intangible asset
can be recognized, development expenditures are charged to
operations in the period in which they are incurred. Subsequent
to initial recognition, an internally generated intangible asset is
reported at cost less accumulated amortization and accumulated
impairment losses, on the same basis as an intangible asset
acquired separately.
Amortization of intangible assets
Amortization is recorded on intangible assets using the straight-
line method over the corresponding estimated useful life of the
applicable assets. The estimated useful life and amortization
methods are reviewed at the end of each annual reporting
period, with the effect of any changes in estimate being
accounted for on a prospective basis. Gains or losses arising
from derecognition of an intangible asset are measured at the
difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statements of
comprehensive income.
54
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements Internal-use software
Business solutions
Contracts
Customer and partner relationships
Brand, non-competes and other
Assets under development
3-15 years
3-7 years
Term of contract
5-15 years
1-15 years
N/A (not ready for use)
Impairment of tangible and intangible assets
At each statement of financial position date, ISC reviews
the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where
it is not possible to estimate the recoverable amount of an
individual asset, ISC estimates the recoverable amount of
the cash-generating unit (“CGU”) to which the asset belongs.
Where a reasonable and consistent basis of allocation can be
identified, corporate assets are also allocated to individual CGUs;
otherwise, they are allocated to the smallest group of CGUs
for which a reasonable and consistent allocation basis can be
identified. Intangible assets not yet available for use are tested
for impairment annually in December and whenever there is an
indication that the asset may be impaired.
The recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted. If the
recoverable amount of an asset (or CGU) is estimated to be less
than its carrying amount, the carrying amount of the asset (or
CGU) is reduced to its recoverable amount. An impairment loss is
recognized immediately in comprehensive income.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognized for
the asset (or CGU) in prior years. A reversal of an impairment loss
is recognized immediately in comprehensive income.
Goodwill
Goodwill arising on the acquisition of a business represents
the excess of the purchase price over the net fair value of
the identifiable assets, liabilities and contingent liabilities of
the acquired business recognized at the date of acquisition.
Goodwill is initially recognized as an asset at cost and is
subsequently measured at cost less any accumulated
impairment losses.
Impairment of goodwill
For the purpose of impairment testing, goodwill is allocated
to the CGUs expected to benefit from the synergies of the
combination. CGUs are tested for impairment annually or more
frequently if events indicate that the units may be impaired. The
Company’s reporting segments that correspond to the CGUs for
impairment testing are disclosed in Note 11.
When the recoverable amount of the CGU is less than the
carrying amount of the CGU, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated
to the unit and then to the other assets of the CGU on a pro
rata basis. An impairment loss recognized for goodwill is not
reversed in a subsequent year. The Company performs its
annual review of goodwill in December each year.
Business acquisition
Business acquisitions are accounted for using the acquisition
method. The consideration transferred in a business
combination is measured at fair value, which is calculated at the
date of acquisition as the sum of the fair values of the assets
transferred by the Company and the liabilities incurred by the
Company to the former owners of the acquiree in exchange for
the control of the acquiree. Acquisition costs are recognized in
profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the
liabilities assumed are recognized at their fair value, except the
deferred tax assets and liabilities are recognized and measured
in accordance with IAS 12 – Income Taxes.
Goodwill is measured as the excess of the sum of the
consideration transferred, the amount of any non-controlling
interests in the acquiree and the fair value of the acquirer’s
previously held equity interest in the acquiree, if applicable,
over the net of the identifiable assets acquired and the liabilities
assumed at date of acquisition.
When the consideration transferred by the Company in a
business combination includes assets or liabilities resulting
from a contingent consideration arrangement, the contingent
consideration is measured at its acquisition-date fair value and
included as part of the consideration transferred in a business
combination. Changes in the fair value of the contingent
consideration that qualify as measurement period adjustments
are adjusted retrospectively, with corresponding adjustments
against goodwill. Measurement period adjustments are
adjustments that arise from additional information obtained
during the “measurement period” (which cannot exceed one
year from the acquisition date) about facts and circumstances
that existed at the acquisition date.
The subsequent accounting for changes in fair value of the
contingent consideration that do not qualify as a measurement
period adjustment depends on how the contingent
55
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
consideration is classified. Contingent consideration that is
classified as equity is not measured at subsequent reporting
dates and its subsequent settlement is accounted for within
equity. Contingent consideration that is classified as an asset
or a liability is remeasured at subsequent reporting dates in
accordance with IAS 39 – Financial Instruments, Recognition and
Measurement, or IAS 37 – Provisions, Contingent Liabilities and
Contingent Assets, as appropriate, with the corresponding gain
or loss recognized in net earnings or loss.
Leases
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards of
ownership to the Company. ISC has determined that all leases
entered into by the Company are classified as operating leases,
as the risks and rewards of ownership have not been transferred
to the Company.
Operating lease payments are recognized as an expense on the
straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
In the event that lease incentives are received to enter into
operating leases, such incentives are recognized as a liability. The
aggregate benefit of incentives is recognized as a reduction of
rental expense on the straight-line basis, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
Revenue
On January 1, 2018, the Company adopted IFRS 15 – Revenue
from Contracts with Customers (“IFRS 15”) using the modified
retrospective method, with no impact to opening retained
earnings. IFRS 15 supersedes previous accounting standards for
revenue, including IAS 18 – Revenue.
IFRS 15 introduced a single model for recognizing revenue
from contracts with customers. This standard applies to all
contracts with customers, with only some exceptions, including
certain contracts accounted for under other IFRS. The standard
requires revenue to be recognized in a manner that depicts the
transfer of promised goods or services to a customer and at an
amount that reflects the consideration expected to be received
in exchange for transferring those goods or services.
This is achieved by applying the following five steps:
1. identify the contract with a customer;
2. identify the performance obligations in the contract;
3. determine the transaction price;
4. allocate the transaction price to the performance obligations
in the contract; and
5. recognize revenue when (or as) the entity satisfies a
performance obligation.
IFRS 15 also provides guidance relating to the treatment of
contract acquisition and contract fulfilment costs.
The application of this new standard does not have a significant
impact on our results as our revenue is primarily fee-for-
service based with a relatively small portion of overall revenue
associated with the transfer of goods related to the delivery of
the service.
The Company recognizes revenue at either a point in time
or over time as determined by an analysis of the terms
and performance conditions of each individual customer
contract on a contract-by-contract basis. The individual
contract terms determine whether, when and the amount of
the revenue recognized.
The Company considers and assesses enforceability,
collectability, contract combinations and modifications as part of
the revenue recognition process.
The revenue recognition policies associated with each of the
Company’s revenue streams are as follows:
Registry Operations revenue
Our Registry Operations segment delivers registry services to
governments and private sector organizations. Our revenue
is generated by providing registry and information services to
end-users on behalf of the Province of Saskatchewan under
the MSA. The majority of revenue is generated by earning
fees from end-use customers through registrations, searches,
maintenance transactions and value-added services.
The majority of the associated transaction fees are based on
a flat or value-based, stand-alone selling price for each distinct
service which is recognized at a point of time. There is a smaller
amount of fees generated under the MSA related to programs
and other registries whereby the Company earns an annual
operating fee or hosting and management fees versus revenue
per transaction. Revenue from annual operating fees and
hosting and management contracts is recognized over time on
a monthly basis.
A smaller portion of revenue in the Saskatchewan Land
Registry is value-added services and relates to our Geomatics
business. Geomatics revenue is contract dependent, based on
the distinct good or service promised to the customer, and is
either recognized at a point in time or over time for support and
maintenance contracts.
Amounts received from customers in advance of the
satisfaction of our performance obligations are recorded as
“contract liabilities” on our consolidated statements of financial
position. Amounts in “contract liabilities” are recognized into
revenue as we render services to our customers.
56
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements Services revenue
Our Services segment delivers solutions uniting public record
data, customer authentication, corporate legal services and
collateral management services to support lending practices
to clients with business across Canada. We classify revenue in
two categories, namely Legal Support Services and Financial
Support Services.
Legal Support Services captures revenue related to services
provided to legal professionals directly or indirectly from
nationwide search and registration services and through the
sale of supplies to help companies organize and maintain their
corporate legal documents. Revenue for Legal Support Services
is recognized at a point in time when services are rendered or
goods are delivered.
Financial Support Services captures revenue related to services
provided to financial and credit institutions to support their due
diligence activities for compliance and credit granting services,
including collateral management services. Revenue for Financial
Support Services is recognized at a point in time when services
are rendered.
Most of our Services revenue involves interacting with
government registries to access public records to provide
services to our customers. For this access, our Services segment
usually pays a fee to the government. Where we provide simple
searches to our customers, government fees are not included in
our revenue (record government fees on a net basis). Where our
services include a number of collateral management services,
government fees are a key input to these services and are
recorded in revenue (record government fees on a gross basis).
Technology Solutions revenue
Our Technology Solutions segment provides the development,
delivery and support of registry (and related) technology
solutions. We generate revenue through the following:
• Sale of software licences related to the technology platform;
• Provision of technology solution definition and
implementation services; and
• Provision of monthly hosting, support and maintenance
services.
Licencing revenue is determined by assessing each individual
contract to determine whether the licence obligation is distinct
from the other performance obligations within the contract.
The Company may have various types of licence obligations
depending on the contract:
•
If the licence obligation is distinct, the Company determines
if the licence should be recognized at a point in time (“right
to use”) or over time (“right to access”) throughout the
licence period.
– For contracts that provide the customer a right to use the
Company’s intellectual property (“IP”) at a point in time,
licence revenue is recognized once the technology is
available for use and the control over the right to use the IP
is transferred to the customer.
– For contracts that provide the customer a right to access
the Company’s IP over time, licence revenue is recognized
over the licence period.
• For those contracts where the licence obligation is
determined not to be distinct from other performance
obligations, the licence revenue is allocated to the associated
performance obligations and recognized upon achievement
of the milestones applicable to those obligations.
The Company is currently allocating the majority of its licence
revenue along with the associated performance obligations and
recognizing it upon achievement of the milestones applicable to
those obligations.
Solution definition and implementation services revenue is
recognized either at a point in time or over time using the
output method, based on an assessment of the contract’s
stand-alone selling price allocated to the performance
milestones within the contract.
Hosting, support and maintenance revenue is recognized
according to the delivery of the performance obligations in
the contract and the stand-alone selling price allocated to the
obligations. These services may be provided through either
fixed price, deliverable-based contracts or fee-for-service
contracts. Hosting contracts generally result in linear monthly
revenue recognition over the term of the contract. Service
revenue from fixed-price contracts to provide services is
recognized by reference to the stage of completion as defined
in the contract when the outcome of the contract can be
estimated reliably. Service revenue from time and material
contracts is recognized at the contractual rates as labour hours
are delivered and direct expenses are incurred.
Amounts received from customers in advance of the
satisfaction of our performance obligations are recorded as
“contract liabilities” on our consolidated statements of financial
position. Amounts in “contract liabilities” are recognized
into revenue as we render services or achieve performance
milestones. Costs the Company incurs related to the
fulfilment of a contract but prior to reaching a performance
milestone are recorded as a “contract asset” on the consolidated
statements of financial position. Once the milestone is achieved,
these costs are recorded in the consolidated statements of
comprehensive income.
Employee benefits
The Company provides pension plans for all eligible employees.
Saskatchewan employees make contributions to the
Public Employees Pension Plan, a defined contribution
57
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements plan. The Company’s obligations are limited to making regular payments to the plans for current services. These contributions
are expensed.
ESC and ERS employees have an option to make contributions to a defined contribution plan. The Company’s obligations are limited
to matching employee contributions up to a maximum of 5.0 per cent. These contributions are expensed.
Financial instruments
Effective January 1, 2018, we adopted IFRS 9 – Financial Instruments (“IFRS 9”) which supersedes IAS 39 – Financial Instruments:
recognition and measurement (“IAS 39”). The new standard replaces the current multiple classification and measurement models for
financial assets and liabilities with a single model that has only two classifications: amortized cost and fair value. Under IFRS 9, where
the fair value option is applied to financial liabilities, any change in fair value resulting from an entity’s own credit risk is recorded
through other comprehensive income (loss) rather than net income (loss). The new standard also introduces a credit loss model for
evaluating impairment of financial assets. There is no significant effect on the carrying value of our other financial instruments under
IFRS 9 related to this new requirement.
Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the
characteristics of their contractual cash flows. IFRS 9 contains three primary measurement categories for financial assets: measured
at amortized cost (“AC”), fair value through other comprehensive income (“FVTOCI”), and fair value through profit and loss (“FVTPL”).
The IFRS 9 accounting model for financial liabilities is broadly the same as that in IAS 39, meaning that most financial liabilities will
continue to be measured at amortized cost.
IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-looking “expected credit loss” model for determining impairment
or recognition of credit losses on financial assets measured at AC or FVTOCI. There is no impact to ISC as credit losses are historically
low as most customers with credit are governments, banking institutions, and legal firms with strong credit.
Below is a summary showing the classification and measurement bases of our financial instruments as at January 1, 2018, as a result
of adopting IFRS 9 (along with a comparison to IAS 39).
Financial Instrument
IAS 39
IFRS 9
Classification
Measurement
Classification
Measurement
Assets
Cash
Short-term
investments (GICs)
Short-term
investments –
marketable securities
Receivables
FVTPL
FVTPL
Fair value
Fair value
AC
AC
AC
AC
Available-for-sale
Fair value
FVTOCI
FVTOCI
Loans and
receivables
Amortized cost using
effective interest rate
method
AC
AC
Liabilities
Accounts payable and
accrued liabilities
Other financial
liabilities
Amortized cost using
effective interest rate
method
Amortized cost
method
Amortized cost
using effective interest
rate method
Contingent
consideration1
Long-term debt
< 1 year
Long-term debt
FVTPL
Fair value
FVTPL
FVTPL
Other financial
liabilities
Other financial
liabilities
Amortized cost using
effective interest rate
method
Amortized cost using
effective interest rate
method
Amortized cost
method
Amortized cost
method
Amortized cost
using effective interest
rate method
Amortized cost
using effective interest
rate method
1 Contingent consideration related to the AVS Systems Inc. acquisition – see Note 26
58
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
Borrowing costs
Borrowing costs directly attributable to the purchase,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale.
Investment income earned on the temporary investment of
specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for
capitalization.
All other borrowing costs are recognized in profit or loss in the
period in which they are incurred.
Provisions
Provisions are recognized when the Company has a present
obligation (legal or constructive) as a result of a past event,
it is probable that the Company will be required to settle the
obligation and a reliable estimate can be made of the amount
of the obligation. The amount recognized as a provision is the
best estimate of the consideration required to settle the present
obligation at the end of the reporting period, taking into account
the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle
the present obligation, its carrying amount is the present value
of those cash flows.
When some or all of the economic benefits required to settle
a provision are expected to be recovered from a third party,
the receivable is recognized as an asset if it is virtually certain
that reimbursement will be received and the amount of the
receivable can be measured reliably.
Share-based compensation plan
A deferred share unit (“DSU”) plan has been approved by
the Board, which is described in Note 16. The Company has
recognized an obligation at an estimated amount based on the
fair value of the DSUs as of the grant date using the market
value of the Company’s Class A Shares on the TSX. At the
end of each reporting period, the estimates are reassessed
based on the fair value of the DSUs as of the reporting period.
Compensation expense is recognized in proportion to the
amount of DSUs vested. The DSUs can be settled in cash or
shares that are purchased from the open market by a broker.
As a result, at the end of each reporting period, the estimates
are reassessed based on the fair value of the DSUs with any
change in estimate recognized in the obligation and expense.
A stock option plan has been approved by the Board and
shareholders, which is described in Note 16. The Company
has recognized an obligation at an estimated amount based
on the fair value of the stock options as of the grant date
using the Black-Scholes option pricing model. The share-
based compensation expense is recognized in proportion
to the amount of stock options vested. This expense for the
reporting period also represents the total carrying amount of
the equity settled employee benefit reserve arising from these
stock options.
Investment in associate
The Company has recorded its investment in associate using
the equity method. The carrying amount of the investment
in associate is calculated at cost plus the entity’s subsequent
share of the associate’s comprehensive income. If, at the end
of a reporting period, there is an indication that an investment
may be impaired, the entire carrying amount of the investment
is tested for impairment. If the carrying amount of the
investment is found to be less than its recoverable amount, the
carrying amount is reduced to its recoverable amount and an
impairment loss is immediately recognized in profit or loss.
Foreign currency
The individual financial statements of each subsidiary entity
are presented in the currency of the primary economic
environment in which the entity operates (its functional
currency). For the purpose of the consolidated financial
statements, the results and financial position of each subsidiary
entity are presented in Canadian dollars, which is the functional
currency of the parent company and the presentation currency
for the financial statements.
In preparing the financial statements of the individual
subsidiaries, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recognized at the
rates of exchange prevailing at the dates of the transactions. At
the end of each reporting period, monetary items denominated
in foreign currencies are translated at the rates prevailing at
that date. Exchange differences are recognized in earnings in
the period in which they arise. Non-monetary items that are
measured in terms of historical cost in a foreign currency are
not translated.
For the purpose of presenting consolidated financial
statements, the assets and liabilities of the Company’s foreign
operations are expressed in Canadian dollars using exchange
rates prevailing at the end of the reporting period. Income and
expense items are translated at the average exchange rates for
the period. Foreign currency gains and losses are recognized
in other comprehensive income. The relevant amount in
the cumulative foreign currency translation adjustment is
reclassified into earnings upon disposition or partial disposition
of a foreign operation and attributed to non-controlling interests
as appropriate.
59
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements Recent accounting pronouncements
The IAS Board and International Financial Reporting Interpretations Committee issued the following new standards and amendments
to standards and interpretations, which become effective for future periods.
Proposed Standard Description
IFRS 16 – Leases
Effective January 1, 2019, the Company will adopt IFRS 16 – Leases. The Company’s first
quarter 2019 interim financial statements will be its first financial statements issued in
accordance with IFRS 16. IFRS 16 supersedes the current accounting standards for leases,
including IAS 17 – Leases and IFRIC 4 – Determining Whether an Arrangement Contains a Lease.
Effective Date
January 1,
2019
IFRS 16 provides a single lessee accounting model, requiring the recognition of assets and
liabilities for all leases, unless the lease term is twelve months or less or the underlying asset
has a low value. The standard provides recognition exceptions for low value and short-term
leases. A lessee will be required to recognize, on its statement of financial position, a right-
of-use asset, representing its right to use the underlying leased asset, and a lease liability,
representing its obligation to make future minimum lease payments. As a result of adopting
IFRS 16, we will recognize an increase to both assets and liabilities on our consolidated
statements of financial position, as well as a decrease to operating costs (and therefore an
increase to earnings before Interest, taxes, depreciation and amortization (“EBITDA”)) to
remove lease expense, an increase to depreciation and amortization (due to depreciation of
the right-of-use asset), and an increase to finance costs (due to accretion of the lease liability).
ISC will apply IFRS 16 using the full retrospective approach and, therefore, the comparative
information will be restated and reported under the new accounting standard IFRS 16,
effective January 1, 2019. ISC will recognize leases on the statement of financial position as at
January 1, 2019, and will adjust the opening balance of each affected component of equity for
the prior period presented as if the new accounting policy had already been applied.
The table below sets out the expected impact on the most significantly impacted items in the
statement of financial position and statement of comprehensive income:
Excerpt – Statement of Financial Position
(thousands of CAD dollars)
2018
(as reported)
Impact of IFRS 16
Jan. 1, 2019
Total current assets
Total non-current assets
Total assets
Total current liabilities
Total non-current liabilities
Total liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
Excerpt – Statement of Comprehensive Income
(thousands of CAD dollars)
Revenue
Total expenses (excluding depreciation and amortization)
Depreciation and amortization
Total expenses
Net finance expense
Change in contingent consideration
Income before tax
Income tax expense
Net income
60
$
41,573
120,389
$ 161,962
$ 26,600
25,979
$ 52,579
109,383
$ 161,962
$
$
$
$
$
–
11,720
11,720
1,778
10,441
12,219
(499)
11,720
$
41,573
132,109
$ 173,682
$ 28,378
36,420
$ 64,798
108,884
$ 173,682
2018
(as reported)
2018
Impact of IFRS 16 (as revised for IFRS 16)
$
119,131
86,836
9,867
96,703
22,428
(374)
3,567
25,621
(6,950)
18,671
$
$
$
–
(2,262)
1,908
(354)
354
(399)
–
(45)
11
(34)
119,131
$
84,574
11,775
96,349
22,782
(773)
3,567
25,576
(6,939)
18,637
$
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
4 Cash
Cash is held on deposit and certain accounts earn interest at a range of 0.50 per cent to prime less 1.95 per cent in 2018 and 2017.
Interest income earned in 2018 is $416 thousand (2017 – $369 thousand).
5 Short-Term Investments
The components of short-term investments are as follows:
(thousands of CAD dollars)
Guaranteed investment certificates (GICs)
Marketable securities at fair value
Total short-term investments
$
December 31,
2018
400
48
448
$
$
December 31,
2017
150
151
301
$
GICs consist of one-year certificates issued by and held as collateral by a Canadian chartered bank at an interest rate of 0.50 per
cent per annum with maturity dates occurring in January 2019, June 2019 and September 2019. Marketable securities consist of
an investment in less than 5.0 per cent of the issued and outstanding shares of a company listed on the Australian Stock Exchange,
which was acquired as part of the ERS acquisition in 2017.
6 Trade and Other Receivables
The components of trade and other receivables are as follows:
(thousands of CAD dollars)
December 31,
2018
December 31,
2017
$ 7,884
Trade receivables
353
GST/HST/VAT receivables
Other
727
Total trade and other receivables $ 8,964
$ 6,497
383
630
$ 7,510
7 Contract Assets
The components of contract assets are as follows:
(thousands of CAD dollars)
Unbilled revenue
Contract fulfilment costs
Total contract assets
December 31,
2018
December 31,
2017
$ 636
778
$ 1,414
$
$
–
–
–
The Company adopted IFRS 15 – Revenue from Contracts with
Customers on January 1, 2018, using the modified retrospective
method and began to record contract assets in 2018.
Unbilled revenue is uninvoiced amounts due from customers
under Technology Solutions contracts that arise when the
Company meets performance-related milestones. At the point
the Company invoices the amounts, they are reclassified into
trade receivables.
Contract fulfilment costs are costs the Company incurs related
to the fulfilment of Technology Solutions contracts but prior
to reaching a performance milestone. Once the performance
milestone is achieved, these costs, along with the associated
revenue, will be recognized in the consolidated statements of
comprehensive income.
The Company does not have any contract acquisition costs
at the end of the reporting period and did not recognize any
amortization of contract acquisition costs during the period.
There were no impairment losses recognized on any contract
asset during the reporting period.
8 Seasonality
Our Registry Operations segment experiences moderate
seasonality, primarily because Saskatchewan Land Titles
revenue fluctuates in line with real estate transaction activity in
Saskatchewan. Typically, our second and third quarters generate
higher revenue during the fiscal year when real estate activity
is traditionally highest. In our Services segment, our core legal
and financial services revenue is fairly diversified and has little
seasonality; rather, it fluctuates in line with the general economic
drivers. Our collateral management product line experiences
seasonality aligned to vehicle and equipment financing cycles,
which are generally stronger in the second and fourth quarters.
Some smaller categories of products or services can have some
seasonal variation, increasing slightly during the second and
fourth quarters. Our Technology Solutions segment does not
experience seasonality but can fluctuate due to the timing of
project related revenue. The balance of our corporate activities
and shared services functions, reported under Corporate, do
not experience seasonality. Expenses are generally consistent
from quarter to quarter, but can fluctuate due to the timing of
project-related or acquisition activities.
61
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
9 Property, Plant And Equipment
(thousands of CAD dollars)
Cost
Balance at December 31, 2016
Acquired assets
Additions
Disposals
Transfers
Foreign exchange adjustments
Balance at December 31, 2017
Additions
Disposals
Transfers
Foreign exchange adjustments
Balance at December 31, 2018
Accumulated depreciation
Balance at December 31, 2016
Depreciation
Disposals
Foreign exchange adjustments
Balance at December 31, 2017
Depreciation
Disposals
Foreign exchange adjustments
Balance at December 31, 2018
Carrying value
At December 31, 2017
At December 31, 2018
Leasehold
Improvements
Office
Furniture
Office
Equipment
Hardware
Assets Under
Development
Total
$ 10,680
51
44
–
53
–
$ 10,828
24
(616)
134
–
$ 10,370
$ 6,504
794
–
–
$ 7,298
786
(536)
–
$ 7,548
$ 3,203
19
18
(26)
–
–
$ 3,214
69
(2)
–
1
$ 3,282
$ 2,509
254
(24)
–
$ 2,739
148
(1)
–
$ 2,886
$ 3,530
$ 2,822
$
$
475
396
$
$
$
$
$
$
$
$
193
–
2
–
–
–
195
4
(6)
4
–
197
110
26
–
–
136
21
(7)
–
150
$ 2,485
47
252
(158)
–
2
$ 2,628
217
(188)
162
6
$ 2,825
$ 2,036
372
(156)
1
$ 2,253
227
(187)
2
$ 2,295
59
47
$
$
375
530
$
$
$
$
$
$
$
$
–
–
118
–
(53)
–
65
234
–
(300)
1
–
–
–
–
–
–
–
–
–
–
65
–
$ 16,561
117
434
(184)
–
2
$ 16,930
548
(812)
–
8
$ 16,674
$
11,159
1,446
(180)
1
$ 12,426
1,182
(731)
2
$ 12,879
$ 4,504
$ 3,795
62
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
10 Intangible Assets
(thousands of CAD dollars)
Cost
Balance at December 31, 2016
Acquired assets
Additions
Disposals
Transfers
Foreign exchange adjustments
Balance at December 31, 2017
Internal Use
Internal Use Software –
Internally
Software –
Developed
Acquired
Business
Solutions –
Acquired
Business
Solutions –
Internally
Developed
Contracts,
Brand, Non- Customer
Compete,
& Partner
Other
Assets
Under
Relationships Development
Total
$ 15,996 $ 77,433 $
9,728
84
(15)
–
–
–
277
(364)
–
–
$ 25,793 $ 77,346 $
$
–
1,997
–
–
–
116
2,113 $
1,333 $ 12,854 $
1,627 $
–
–
–
240
–
1,867
891
–
–
–
33
14,417
–
–
–
41
$ 2,257 $ 27,312
$
–
Additions
(209)
Disposals
–
Transfers
Foreign exchange adjustments
–
Balance at December 31, 2018 $ 25,835 $ 77,137 $ 2,190 $ 4,243 $ 2,279 $ 27,339 $
–
–
2,317
59
325
(283)
–
–
–
–
–
22
–
–
–
77
–
–
–
27
Accumulated Depreciation
Balance at December 31, 2016
Amortization
Disposals
Recovery of MARS* expenses
Foreign exchange adjustments
Balance at December 31, 2017
$ 7,597 $ 75,378 $
2,786
(15)
–
–
1,227
(364)
–
–
$ 10,368 $ 76,241 $
$
–
281
–
–
7
288 $
1,286 $
80
–
232
–
1,598 $
219 $
332
–
–
3
554
1,140 $
1,355
–
–
2
$ 2,497 $
Amortization
Disposals
Recovery of MARS* expenses
Foreign exchange adjustments
Balance at December 31, 2018 $ 14,216 $ 76,508 $
476
(209)
–
–
4,131
(283)
–
–
319
–
–
17
455
–
19
2
631
–
–
9
2,673
–
–
5
624 $ 2,074 $
1,194 $ 5,175 $
Carrying Value
At December 31, 2017
At December 31, 2018
1,703 $ 24,815 $
$ 15,425 $
$ 11,619 $ 629 $ 1,566 $ 2,169 $ 1,085 $ 22,164 $
1,825 $
1,105 $
269 $
* Mineral Administration Registry Saskatchewan
872 $
–
1,248
–
(240)
–
1,880
110,115
27,033
1,609
(379)
–
190
$ 138,568
1,902
–
(2,317)
7
2,227
(492)
–
192
1,472 $ 140,495
–
–
–
–
–
–
$ 85,620
6,061
(379)
232
12
$ 91,546
–
8,685
–
(492)
–
19
33
–
– $ 99,791
1,880 $ 47,022
1,472 $ 40,704
63
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
11 Goodwill
12 Investment in Associate
The components of goodwill are as follows:
(thousands of CAD dollars)
December 31,
2018
December 31,
2017
Balance, beginning of the period
Additions
Purchase price adjustment relating
to AVS acquisition (Note 26)
Foreign exchange adjustment
Balance, end of year
$ 44,473
–
$
13,141
31,105
(315)
152
$ 44,310
–
227
$ 44,473
For the purposes of the annual impairment testing, goodwill
is allocated to the following CGUs which are the groups of
units expected to benefit from the synergies of the business
combinations:
(thousands of CAD dollars)
December 31,
2018
December 31,
2017
In 2015, through its wholly owned subsidiary ISC Ent, the
Company invested $3.3 million in OneMove Technologies Inc.
(now Dye & Durham), acquiring 30.0 per cent of the issued
and outstanding voting common shares.
On March 27, 2017, the Company contributed additional capital
of $2.4 million representing its pro rata share of an equity
raise by Dye & Durham. Subsequently, on March 28, 2017, the
Company contributed additional capital of $0.1 million, raising
its ownership interest to 30.1 per cent.
ISC’s 30.1 per cent ownership level and related rights gave the
Company significant influence over Dye & Durham, but did not
represent control and, as a result, the Company has accounted
for this investment using the equity method. The Company
recorded its pro rata share of the net income (loss) on its
consolidated statements of comprehensive income.
ISC
ESC
ERS
Balance at December 31, 2018
$ 5,800
34,198
4,312
$ 44,310
$ 5,800
34,513
4,160
$ 44,473
On October 5, 2017, the Company sold its 30.1 per cent
ownership stake in Dye & Durham for $25.0 million and
recorded a gain before tax of $15.4 million (after tax of
$13.4 million).
The Company performs a goodwill impairment test annually
on December 31 and whenever there is an indication of
impairment. No impairment of goodwill was identified as a
result of the Company’s most recent annual impairment test.
13 Accounts Payable and Accrued Liabilities
The components of accounts payable and accrued liabilities are
as follows:
The Company has used the value in use method to evaluate
the carrying amount of goodwill for the ESC and ERS
CGUs and the market capitalization approach for ISC. Key
assumptions include an estimate of current cash flow, taxes, a
perpetual growth rate of 2.0 per cent (2017 – 2.0 per cent) and
discount rates ranging from 14.3 to 15.6 per cent (2017 – 15.0 to
15.1 per cent).
Recoverable amounts
Management’s past experience and future expectations of
the business performance are used to make a best estimate
of the expected revenue, earnings before interest, taxes, and
depreciation and amortization and operating cash flows for a
three-year period.
Perpetual growth rate
The perpetual growth rate is based on management’s current
assessment of the long-term growth prospect of the Company
in the jurisdictions in which it operates.
Working capital and capital investment
The Company’s valuation model also takes account of working
capital and capital investments to maintain the condition of the
assets of each CGU group.
December 31,
2018
December 31,
2017
$
1,349
8,506
3,763
3,500
$
1,437
7,489
4,096
3,500
$
17,118
$ 16,522
(thousands of CAD dollars)
Trade payables
Accrued liabilities
Customer deposits
Dividend payable
Total accounts payable and
accrued liabilities
14 Tax Provision
The Company is subject to federal and provincial income taxes
at an estimated combined statutory rate of 27.0 per cent
(2017 – 26.75 per cent).
(thousands of CAD dollars)
Current tax expense
Deferred tax expense
Income tax expense
December 31,
2018
December 31,
2017
$
5,147
1,803
$ 6,950
$ 5,046
4,604
$ 9,650
Income tax expense varies from the amounts that would be
computed by applying the statutory income tax rate to earnings
before taxes for the following reasons:
64
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
(thousands of CAD dollars)
Net income before tax
Combined statutory income tax rate
Expected income tax expense
Increase (decrease) in income tax resulting from:
Non-taxable items
Non-deductible expenses
Foreign income tax differential
Scientific research and experimental development reassessment
Adjustment to prior years’ deferred tax assets
Impact of change in tax rate
Unrecognized tax asset1
Other
Income tax expense
Year Ended December 31,
2017
2018
$ 25,621
27.00%
6,918
(963)
429
447
–
(235)
(5)
350
9
$ 6,950
$
37,439
26.75%
10,015
(2,228)
539
336
324
266
109
114
175
9,650
$
1 No deferred tax asset has been recognized in respect of $3.0 million of tax losses in 2018 related to ERS (2017 – $0.9 million).
Income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are
as follows:
(thousands of CAD dollars)
Property, plant and equipment
Intangible assets
Investment in associate
Non-capital losses
Other assets
Net deferred tax assets
Acquisitions Movement
Net Balance
January 1,
2018
Recognized
in Profit
or Loss
$
201
23,552
–
1,372
293
$
(12) $
(285)
–
(1,372)
(134)
$
Net Balance
Foreign
Exchange December 31, Deferred
Tax Asset
2018
171
$
31,153
–
–
256
186
23,255
–
–
160
(3) $
(12)
–
–
1
Deferred
Tax Liability
15
$
(7,898)
–
–
(96)
–
–
–
–
–
–
(liabilities)
$ 25,418
$ (1,803) $
$
(14) $ 23,601
$ 31,580 $ (7,979)
(thousands of CAD dollars)
Property, plant and equipment
Intangible assets
Investment in associate
Non-capital losses
Other assets
Net deferred tax assets (liabilities)
Net Balance
January 1,
2017
$
254
30,632
(232)
5,750
385
$ 36,789
Recognized
in Profit
or Loss
Acquisitions
$
(43) $
(323)
232
(4,378)
(92)
$ (4,604) $
(10) $
(6,741)
–
–
–
(6,751) $
Net Balance
December 31,
2017
Foreign
Exchange
Movement
-
(16)
–
–
–
$
201
23,552
–
1,372
293
(16) $ 25,418
Deferred
Tax Asset
$
180
32,992
–
1,372
293
$ 34,837
Deferred
Tax Liability
$
21
(9,440)
–
–
–
(9,419)
$
The increase in tax bases of certain of the Company’s assets upon the change in tax status related to the Company’s Initial Public
Offering created a deferred tax asset. Upon acquisition of ERS, Alliance Online Ltd. (“Alliance”) and AVS Systems Inc. (“AVS”), the value
of the acquired assets was greater on an accounting basis than on a tax basis, resulting in a deferred tax liability.
In assessing the recovery of deferred income tax assets, management considers whether it is more likely than not that the deferred
income tax assets will be realized. The recognition and measurement of the current and deferred tax assets and liabilities involves
dealing with uncertainties in the application of complex tax regulations and in the assessment of the recoverability of the deferred
tax assets. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during
the periods in which the temporary differences are deductible.
65
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
Actual income taxes could vary from these estimates as a result of future events, including changes in income tax laws or the
outcome of tax reviews by tax authorities and related appeals. To the extent the final outcome is different from the amounts
initially recorded, such differences, which could be significant, will impact the tax provision in the period in which the outcome
is determined.
No deferred tax has been recognized in respect of temporary differences associated with investments in the Company’s subsidiaries
where the Company is in a position to control the timing and reversal of the temporary differences and it is probable that such
differences will not reverse in the foreseeable future.
No deferred tax has been recognized in respect of tax losses related to ERS. At December 31, 2018, the aggregate unrecognized
losses are $3.9 million, which, if recognized, equates to $0.5 million (2017 – $0.1 million). The tax asset will be recognized as sufficient
future taxable profits are earned. These losses do not expire.
15 Contract Liabilities
The components of contract liabilities are as follows:
(thousands of CAD dollars)
Amounts received in advance of Registry Operations transaction,
maintenance and support contracts (i)
Amounts received in advance of Technology Solutions support and delivery contracts (ii)
Total contract liabilities
December 31,
2018
December 31,
2017
$
$
322
2,277
2,599
$
$
243
1,164
1,407
(i) Revenue that relates to Registry Operations transactions is recognized at a point in time. Revenue that relates to Registry Operations maintenance and support contracts is
recognized over time. A contract liability is recognized for payments received from end-use customers in advance of services being provided and is recognized into revenue
either at the point in time the service is rendered or over the service period.
(ii) Revenue that relates to Technology Solutions contracts is recognized over time as the performance obligations in the contract are achieved. These obligations may be based
on a time period or on performance-based milestones identified in the contract. A contract liability is recognized for payments received from customers in advance and is
recognized into revenue either over the service period or when performance milestones are achieved.
Revenue recognized in 2018 that was included in the contract liability balance at December 31, 2017:
(thousands of CAD dollars)
Registry Operations transaction, maintenance and support contracts
Technology Solutions support and delivery contracts
Total revenue recognized that was included in the balance at the beginning of the period
Year Ended December 31,
2018
243
665
908
$
$
The Company has elected to apply the practical expedient as per IFRS 15 B16 and does not disclose the value of unsatisfied
performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the
Company recognizes revenue at the amount to which it has the right to invoice for services performed.
16 Share-Based Compensation Plan
Deferred share unit (“DSU”) plan
The Company has established a DSU plan to provide directors and senior officers of ISC with the opportunity to participate in the
long-term success of ISC and to promote a greater alignment of interests between its directors, senior officers and shareholders.
The ISC Board may award DSUs at its discretion from time to time in accordance with the plan and upon such other terms and
conditions as the Board may prescribe. DSU awards vest immediately, unless an alternate vesting schedule is specified by the Board
at the time of the award.
DSUs earn dividend equivalent units in the form of additional DSUs at the same rate as dividends on Class A Shares. The participant
is not allowed to convert the DSUs until termination of employment/directorship or death. The cash value of the DSUs is equivalent
to the market value of the Class A Shares when redemption takes place.
66
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
On each applicable redemption date, the Company delivers to each participant a cash payment equal to the redemption value of the
DSUs, or an equivalent number of Class A Shares purchased on the TSX. A summary of the status of the DSU plan and the changes
within the period ended December 31, 2018, are as follows:
Balance at December 31, 2017
DSUs granted May 16, 2018
DSUs redeemed August 15, 2018
Total notional dividend equivalents declared to date
Balance at December 31, 2018
Units
52,610.60
17,706.00
(6,905.45)
8,703.00
72,114.15
Weighted Average
Award Price
17.37
$
17.85
17.50
16.87
17.44
$
The Company has recognized an obligation at an estimated amount based on the fair value of the DSUs as of the grant date.
Compensation expense is recognized in proportion to the amount of DSUs vested. At the end of each reporting period, the
estimates are reassessed based on the fair value of the DSUs as of the reporting period. Any change in estimate is recognized as a
liability and an expense at the end of the reporting period.
Share-based compensation expense for the twelve months ended December 31, 2018, totalled $157 thousand
(2017 – $327 thousand). The total carrying amount of the liability arising from the DSUs as of December 31, 2018, totalled
$1.1 million (December 31, 2017 – $1.1 million). The liability amount is included within accounts payable and accrued liabilities
on the consolidated statements of financial position.
The fair value of the DSUs at December 31, 2018, has been calculated using the market value of the Company’s Class A Shares on
the TSX.
Stock option plan
The Company established a stock option plan that was approved by shareholders in 2014 and subsequently amended and restated
with the approval of shareholders on May 17, 2017. The exercise price of options issued under the stock option plan is determined by
the Board at the time of the grant, but shall not be less than the closing price for the Class A Shares on the TSX on the trading day
immediately preceding the date of the grant.
Unless the Board determines otherwise, options granted will vest and become exercisable in equal tranches over the four years
following the date of the grant. Once vested, options may be exercised at any time within eight years of the date of the grant, after
which they expire and terminate.
A summary of the status of the stock option plan and the changes within the twelve months ended December 31, 2018, are as follows:
Balance at December 31, 2017
Stock options granted May 16, 2018
Balance at December 31, 2018
Units
1,076,600
471,647
1,548,247
Average
Exercise Price
17.01
$
17.85
17.27
$
The outstanding share options at the end of the period had a weighted average exercise price of $17.27 (December 31, 2017
– $17.01). The number of options exercisable at the end of the period was 587,851 (December 31, 2017 – 318,700) and had a
weighted average exercise price of $16.50 (December 31, 2017 – $16.08) based on a range of exercise prices from $15.04 to $18.85
(December 31, 2017 – $15.04 to $18.80).
The Company has recognized an equity reserve at an estimated amount based on the fair value of the stock options using the Black-
Scholes option pricing model as of the following grant dates based on the following inputs:
May 16, 2018
May 17, 2017
August 15, 2016
August 12, 2015
May 13, 2014
Spot price
Expected volatility
Risk-free interest rate
Dividend yield
Expected life (days)
Fair value
$
$
17.85
19.93%
2.00%
4.83%
2,920
1.73
$
$
18.85
19.33%
1.60%
4.73%
2,920
1.66
$
$
17.40
17.77%
1.30%
4.48%
2,920
1.35
$
15.04
18.97%
2.00%
4.54%
2,920
1.45
$
18.80
$
22.50%
2.50%
4.20%
2,920
2.74
$
67
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
The Company included the following variables:
• the expected volatility, which is based on a three-year standard deviation of ISC’s stock price;
• the risk-free rate, which is estimated based on a 10-year Canada bond rate; and
• the maximum option term, which is the maximum duration before expiry.
Compensation expense is recognized in proportion to the amount of stock options vested. Share-based compensation related to
the stock option plan for the twelve months ended December 31, 2018, totalled $617 thousand (2017 – $471 thousand). The total
carrying amount of the equity settled employee benefit reserve arising from these stock options as of December 31, 2018, totalled
$1.7 million (December 31, 2017 – $1.1 million).
17 Debt
On November 6, 2018, the Company entered into a new amended and restated credit agreement (the “Credit Facilities”). The
aggregate amount available under the Credit Facilities is now $80.0 million, comprised of (i) a $10.0 million committed revolving
operating facility (“Facility 1”) for general corporate purposes and (ii) a $70.0 million delayed draw term loan facility (“Facility 2”),
$20.0 million of which was used to refinance the previous credit facilities under the original agreement, with the balance available
to the Company for future growth opportunities.
Facility 1 will mature on November 6, 2021, unless renewed prior to that time and is repayable by ISC upon demand by the lender
and the lender may terminate at any time. Facility 2 is repayable by ISC through quarterly payments, commencing January 2019,
and matures on November 6, 2021, unless renewed prior to that time. At December 31, 2018, the Company had nil cash drawings
on the operating facility (2017 – nil). At December 31, 2018, non-cash drawings, consisting of letters of credit and similar, were
approximately $0.2 million (2017 – nil).
Facility 2 is subject to quarterly instalments at 2.5 per cent of original drawings (currently $0.5 million per quarter) with
borrowings repayable in full on November 6, 2021.
Borrowings under the Credit Facilities will bear interest at a base rate of prime, bankers’ acceptance, letter of credit or letter of
guarantee fee (determined in accordance with the terms of the Credit Facilities), plus a margin varying between 0.45 per cent
and 2.25 per cent per annum depending on the type of advance and the Company’s leverage ratio. The Company is also required
to pay a commitment fee quarterly in arrears, at the rate between 0.29 per cent and 0.40 per cent per annum, depending on the
Company’s leverage ratio and the unutilized and uncancelled portions of the Credit Facilities.
(thousands of CAD dollars)
Term loans
Revolving facility
Term loan facility
Current portion
Long-term portion
Total long-term debt
December 31,
2018
December 31,
2017
$
–
$
9,935
2,000
18,000
$ 20,000
1,500
10,125
$ 21,560
The Credit Facilities contain financial covenants, positive covenants, negative covenants, events of default, representations and
warranties customary for credit facilities of this nature. The Company was in compliance with all covenants throughout the year.
The indebtedness under the Credit Facilities is secured by a first ranking security interest in all of the personal property and
floating charge on all real property of the Company, a pledge of all shares of ISC Sask and ESC, an unlimited guarantee and
postponement of claim from ISC Sask and ESC guaranteeing all of ISC’s indebtedness and obligations to the Lender, a second
ranking security interest (subject to the security of the Government of Saskatchewan under a debenture) in all of the personal
property and floating charge over all property of ISC Sask and a first ranking security interest in all of the personal property and
floating charge on all real property of ESC and a deed of movable hypothec in the amount of $17.25 million registered in the
province of Quebec.
The amount of borrowing costs capitalized during 2018 and 2017 was nil.
68
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
18 Liabilities Arising from Financing Activities
The tables below provide the reconciliation of movements of liabilities to cash flows arising from financing activities.
(thousands of CAD dollars)
Financing activities
Interest paid (a)
Repayment of long-term debt (b)
Repayment of operating loan (c)
Drawdown of operating loan (c)
Dividends paid (d)
Net cash flow used in financing activities
Year Ended December 31,
2017
2018
$
(807)
(1,560)
–
–
(14,000)
$ (16,367)
$
(883)
(1,875)
(10,000)
10,000
(14,000)
(16,758)
$
(thousands of CAD dollars)
Interest payable
Long-term debt including
current portion
Dividends payable
(thousands of CAD dollars)
Interest payable
Long-term debt including
current portion
Operating loan
Dividends payable
As at December 31,
2017
Cash Flows
Non-cash Changes
As at December 31,
2018
Dividends Declared
Other
$
–
$
(807) (a)
$
–
$
807
$
–
21,560
3,500
$ 25,060
(1,560) (b)
(14,000) (d)
(16,367)
$
$
–
14,000
14,000
$
–
–
807
20,000
3,500
23,500
$
As at December 31,
2016
Cash Flows
Non-cash Changes
As at December 31,
2017
Dividends Declared
Other
$
–
$
(883) (a)
$
–
$
883
$
–
23,435
–
3,500
$ 26,935
(1,875) (b)
(c)
–
(14,000) (d)
(16,758)
$
$
–
–
14,000
14,000
$
–
–
–
883
21,560
–
3,500
25,060
$
19 Earnings Per Share
The calculation of earnings per share is based on net income after tax and the weighted average number of shares outstanding
during the period. Details of the earnings per share are set out below:
(thousands of CAD dollars, except number of shares and earnings per share)
Net income
Weighted average number of shares, basic
Potential dilutive shares resulting from stock options
Weighted average number of shares, diluted
Earnings per share ($ per share)
Total, basic
Total, diluted
20 Equity and Capital Management
Year Ended December 31,
2017
2018
$
18,671
17,500,000
42,455
17,542,455
$
27,789
17,500,000
95,648
17,595,648
$
$
1.07
1.06
$
$
1.59
1.58
The Company’s authorized share capital consists of an unlimited number of Class A Shares, one Class B Golden Share (the
“Golden Share”) and an unlimited number of Preferred Shares, issuable in series. The Company currently has 17,500,000 Class A
Shares issued and outstanding, one Golden Share issued and outstanding and no Preferred Shares issued or outstanding. Class A
69
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
Shares are entitled to one vote per share. The Golden Share, held by the Government of Saskatchewan, has certain voting rights
with respect to the location of the head office and the sale of all or substantially all of the assets of the Company. The Golden
Share has no pre-emptive, redemption, purchase or conversion rights and is not eligible to receive dividends declared by the
Company. The Preferred Shares can be issuable at any time and may include voting rights.
(thousands of CAD dollars, except number of shares)
Balance at January 1, 2017
No movement
Balance at December 31, 2017
Balance at January 1, 2018
No movement
Balance at December 31, 2018
Capital management
Class A
Class B
Number
of Shares
17,500,000
–
17,500,000
17,500,000
–
17,500,000
Share Capital
19,955
$
–
19,955
19,955
–
19,955
$
Number
of Shares
1
–
1
1
–
1
$
Share Capital
–
$
–
–
–
–
–
$
The Company’s objective in managing capital is to ensure that adequate resources are available to fund organic growth and to
enable it to undertake future growth opportunities while continuing as a going concern. The Company’s capital is composed of
debt and shareholders’ equity.
Operating cash flows are used to provide sustainable cash dividends to shareholders and fund capital expenditures in support of
organic growth. In addition, operating cash flows, supplemented throughout the year with the operating facility if necessary, are
used to fund working capital requirements.
Equity and the available but undrawn portion of the term facility will assist in financing future growth opportunities.
The Company’s capital at December 31, 2018, consists of long-term debt, share capital, employee benefit reserve, accumulated
other comprehensive income and retained earnings (comprising total shareholders’ equity).
(thousands of CAD dollars)
Long-term debt
Share capital
Accumulated other comprehensive income
Equity settled employee benefit reserve
Retained earnings
Capitalization
December 31,
2018
$ 20,000
19,955
514
1,687
87,227
$ 129,383
December 31,
2017
$ 21,560
19,955
390
1,070
82,556
125,531
$
21 Financial Instruments and Related Risk Management
The Company does not currently use any form of derivative financial instruments to manage its exposure to credit risk, interest rate
risk, market risk or foreign currency exchange risk.
Credit risk
Credit risk is the risk that one party to a transaction will fail to discharge an obligation and cause the other party to incur a financial
loss. The Company extends credit to its customers in the normal course of business and is exposed to credit risk in the event
of non-performance by customers, but does not anticipate such non-performance would be material. The Company monitors
the credit risk and credit rating of customers on a regular basis. The Company has significant concentration of credit risk among
government sectors. Its customers are predominantly provincial, federal and municipal government ministries and agencies, and
its private sector customers are diverse.
The majority of cash is held with Canadian chartered banks and the Company believes the risk of loss to be minimal. The
maximum exposure to credit risk at December 31, 2018, is $38.1 million (December 31, 2017 – $39.1 million) equal to the carrying
value of the Company’s financial assets, which are itemized in the table below. Quarterly reviews of the aged receivables are
completed. The Company expects to fully collect the carrying value on all outstanding receivables. Therefore, the risk to the
Company is considered to be low.
70
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
The following table sets out details of cash and aging of receivables:
(thousands of CAD dollars)
Cash
Short-term investments
Trade and other receivables:
- current
- up to three months past due date
- greater than three months past due date
Total credit risk
Interest rate risk
December 31,
2018
$ 28,651
448
6,287
2,171
506
$ 38,063
December 31,
2017
31,265
301
$
5,903
1,282
325
$ 39,076
Interest rate risk is the risk arising from the effect of changes in prevailing interest rates on the Company’s financial instruments.
The Company is subject to interest rate risks on its debt (Note 17). This debt bears interest at rates that float, which can vary in
accordance with changes in prime borrowing rates. The Company manages interest rate risk by monitoring its balance sheet, cash
flows and the effect of market changes in interest rates. The Company has the option of using short-term bankers’ acceptance notes
to lock in rates at any time.
The following table presents a sensitivity analysis to changes in market interest rates and their potential impact on the Company for
the periods ended December 31, 2018, and 2017. As the sensitivity is hypothetical, it should be used with caution. The Company is
not exposed to significant interest rate risk.
(thousands of CAD dollars)
December 31, 2018
December 31, 2017
+ 100 bps*
– 100 bps
+ 100 bps
– 100 bps
Increase (decrease) in interest expense
Decrease (increase) in net income before tax
Decrease (increase) in total comprehensive income
$ 209
$ 209
154
$
$ (209)
$ (209)
(154)
$
$
$
$
125
125
92
$
$
$
(125)
(125)
(92)
* bps = basis point spread
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s cash
resources are managed based on financial forecasts and anticipated cash flows.
The following summarizes the contractual maturities for the Company’s financial liabilities at December 31, 2018:
(thousands of CAD dollars)
Long-term debt
Accounts payable and accrued liabilities
Total liabilities
Carrying
Amount
$ 20,000
17,118
37,118
$
$
Contractual
Cash Flows
22,214
17,118
$ 39,332
0-6
months
1,415
17,118
18,533
$
$
7-12
months
1,411
–
1,411
$
$
$
12+
months
19,388
–
$ 19,388
Contractual cash flows for long-term debt includes principal and interest.
71
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
Market risk
The carrying amount and fair value of the financial assets and financial liabilities are as follows:
(thousands of CAD dollars)
Financial assets
Cash
Short-term investments
GICs
Marketable securities
Trade and other receivables
Financial liabilities
Accounts payable and
accrued liabilities
Contingent consideration1
Long-term debt
Classification
Level
December 31, 2018
December 31, 2017
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
AC
AC
FVTOCI
AC
AC
FVTPL
AC
L2
L2
L1
L2
L2
L2
L2
$ 28,651
$ 28,651
$
31,265
$
31,265
400
48
8,964
400
48
8,964
150
151
7,510
150
151
7,510
17,118
–
20,000
17,118
–
20,000
16,522
14,762
21,560
16,522
14,762
21,560
1 Contingent consideration related to the AVS Systems Inc. acquisition – see Note 26.
Fair value of financial instruments
IFRS require fair value measurements to be categorized into levels within a fair value hierarchy based on the nature of inputs
used in the valuation.
• Level 1 – Quoted prices are readily available from an active market.
• Level 2 – Inputs, other than quoted prices included in Level 1 that are observable either directly or indirectly.
• Level 3 – Inputs are not based on observable market data.
The carrying values of cash, trade and other receivables, accounts payable and accrued liabilities approximate fair value due to
their immediate or relatively short-term maturity. With long-term debt, ISC has amended and restated its borrowings under the
Credit Facilities, which is managed with prime loans, short-term bankers’ acceptance, letter of credit or letter of guarantee. These
borrowings will bear interest at a base rate of prime plus applicable margin varying between 0.45 per cent and 2.25 per cent per
annum. The Company is not exposed to significant interest rate risk because interest bearing financial instruments are at a low
level relative to total assets and equity.
The deferred share unit liability’s fair value is calculated taking into consideration the market price, expected volatility and the risk-
free interest rate. This liability is classified as Level 2, but the risk remains low due to the materiality.
Foreign currency exchange risk
The Company operates internationally and is exposed to fluctuations in various currencies with the euro being the most material.
Movements in foreign currencies against the Canadian dollar may impact revenue, the value of assets and liabilities and affect the
Company’s profit and loss.
Based on the balance of foreign net monetary assets and net assets carried on the consolidated statements of financial position,
the impact of an increase (decrease) of 10.0 per cent in the euro relative to the Canadian dollar as at December 31, 2018, on
net monetary assets was a decrease (increase) of $23 thousand (December 31, 2017 – $63 thousand) and on net assets was an
increase (decrease) of $743 thousand (December 31, 2017 – $736 thousand). The Company’s exposure to other currencies is
negligible at the end of the period.
72
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
22 Revenue
The Company derives its revenue from the transfer of goods or services at either a point in time or over time. This is consistent
with the revenue from third parties’ information that is disclosed for each reportable segment under IFRS 8 – Operating
Segments (see Note 25). The following table presents our revenue disaggregated by revenue type. Sales and usage tax are
excluded from revenue.
Segment revenue
(thousands of CAD dollars)
Registry Operations
Land Registry (Land Titles Registry, Land Surveys, and Geomatics)
Personal Property Registry
Corporate Registry
Services
Technology Solutions
Corporate and other
Total revenue
The following table presents our revenue disaggregated by timing of revenue recognition:
Timing of revenue recognition
(thousands of CAD dollars)
At a point in time
Registry Operations revenue
Land Registry (Land Titles Registry, Land Surveys, and Geomatics)
Personal Property Registry
Corporate Registry
Services revenue
Corporate and other
Over time
Registry Operations revenue
Land Registry (Land Titles Registry, Land Surveys, and Geomatics)
Corporate Registry
Technology Solutions revenue
Total revenue
Year Ended December 31,
2017
2018
$ 50,031
10,190
10,038
42,360
6,442
70
119,131
$
$ 54,792
9,953
10,143
14,902
3,724
78
$ 93,592
Year Ended December 31,
2017
2018
$ 48,137
10,190
9,198
42,360
70
$ 109,955
$ 52,834
9,953
9,314
14,902
78
$ 87,081
1,894
840
6,442
9,176
119,131
$
$
1,958
829
3,724
6,511
$
$ 93,592
In the “Over time” category, the Land Registry and Corporate Registry contracts primarily result in linear revenue recognition over the
life of the contract. Likewise, the support and maintenance portion of contracts related to Technology Solutions revenue primarily
results in linear revenue recognition over the life of the contract. Conversely, revenue recognition associated with the licence
and solution delivery portion of contracts is dependent on milestone achievement. In 2018, the portion of Technology Solutions
contract revenue recognized that was dependent on milestone achievement versus total revenue recognized was 55.0 per cent.
At December 31, 2018, the Company has contracts where the milestone is either in progress or is expected to be satisfied in the
near term. For the unsatisfied portion of milestone-based contracts, the Company expects that 98.0 per cent of the total will be
recognized in 2019, with the remainder recognized in 2020.
73
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
23 Related Party Transactions
25 Segment Information
Included in these consolidated financial statements are
transactions with various Saskatchewan Crown corporations,
ministries, agencies, boards and commissions related to the
Company by virtue of common control by the Government of
Saskatchewan and non-Crown corporations and enterprises
subject to joint control and significant influence by the
Government of Saskatchewan (collectively referred to as
“related parties”). The Company has elected to take the
exemption under IAS 24 – Related Party Disclosures which
allows government-related entities to limit the extent of
disclosures about related party transactions with government
or other government-related entities.
Routine operating transactions with related parties are settled
at agreed upon exchange amounts under normal trade terms.
In addition, the Company pays provincial sales tax to the
Saskatchewan Ministry of Finance on all its taxable purchases.
Taxes paid are recorded as part of the cost of those purchases.
Other amounts and transactions due to and from related
parties and the terms of settlement are described separately
in these consolidated financial statements and the notes
thereto.
24 Compensation of Key Management
Personnel
Key management personnel includes the directors, the
President and Chief Executive Officer, Chief Financial Officer,
Executive Vice-Presidents, Vice Presidents and President, ESC.
The compensation of the key management team during the
period was as follows:
(thousands of CAD dollars)
Year Ended December 31,
2017
2018
Wages, salaries and short-term benefits $ 3,811
774
Share-based compensation
205
Defined contribution plan
$ 4,790
Total compensation
$ 3,065
722
147
$ 3,934
The compensation of directors and the President and
Chief Executive Officer is determined by the Board upon
recommendation of its Compensation Committee having
regard to the performance of individuals and market trends.
Operating segments are identified as components of a company
where separate discrete financial information is available for
evaluation by the chief operating decision maker regarding
allocation of resources and assessment of performance. The
Company uses EBITDA and earnings before interest and taxes
(“EBIT”) as key measures of profit for the purpose of assessing
performance of each segment and to make decisions about the
allocation of resources. EBITDA is calculated as income before
depreciation and amortization, net finance expense, and income
tax expense. EBIT is calculated as income after depreciation
and amortization expense but before gain or loss on disposition
of property, plant and equipment, net finance expense, and
income tax expense.
Effective January 1, 2018, ISC has three reportable segments
– Registry Operations, Services, and Technology Solutions
compared to two – Registries and Services in previous
reporting periods. A functional summary of these three
segments is as follows:
• Registry Operations delivers registry services on behalf of
governments and private sector organizations.
• Services delivers products and services that utilize public
records and data to provide value to customers in the
financial and legal sectors.
• Technology Solutions provides the development, delivery
and support of registry (and related) technology solutions.
Corporate includes our corporate activities and shared services
functions, share of profit (loss) in associate not included in
operating segments, and eliminations of inter-segment revenue
and costs. The Registry Operations and Services segments
operate substantially in Canada. The Technology Solutions
segment operates both in Canada and Ireland.
We have restated our 2017 comparative segment results to
account for the new segments.
Segment results include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis. We
account for transactions between reportable segments in the
same way we account for transactions with external parties;
however, we eliminate them on consolidation.
74
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
Revenue and EBIT
For the year ended December 31, 2018
(thousands of CAD dollars)
Revenue from third parties
Plus: inter–segment revenue
Total revenue
Expenses excluding depreciation
and amortization
Change in contingent consideration
EBITDA
Depreciation and amortization
EBIT
Net finance (expense)
Income tax expense
Net income
Additions to non–current assets
Registry
Operations
$ 70,259
–
70,259
(39,017)
–
31,242
(1,750)
$ 29,492
Services
$ 42,360
24
42,384
(36,265)
3,567
9,686
(6,069)
3,617
$
Technology
Solutions
$ 6,442
14,783
21,225
(21,340)
–
(115)
(1,032)
(1,147)
$
$
Corporate
and other
70
(14,807)
(14,737)
$
Consolidated
Total
119,131
–
119,131
9,786
–
(4,951)
(1,016)
(5,967)
$
(86,836)
3,567
35,862
(9,867)
$ 25,995
(374)
(6,950)
18,671
$
including acquisitions
$
451
$
96
$
1,428
$
485
$ 2,460
For the year ended December 31, 2017
(thousands of CAD dollars)
Revenue from third parties
Plus: inter–segment revenue
Total revenue
Expenses excluding depreciation
and amortization
Share of profit in associate
EBITDA
Depreciation and amortization
EBIT
Net finance (expense)
Gain on sale of associate
Income tax expense
Net income
Additions to non–current assets
including acquisitions
Registry
Operations
$ 74,888
–
74,888
(39,257)
–
35,631
(2,723)
$ 32,908
Services
14,902
–
14,902
(13,196)
–
1,706
(2,943)
(1,237)
$
$
$
Technology
Solutions
3,724
16,697
20,421
(19,883)
–
538
(572)
(34)
$
$
Corporate
and other
78
(16,697)
(16,619)
8,149
610
(7,860)
(1,269)
(9,129)
$
Consolidated
Total
$ 93,592
–
93,592
(64,187)
610
30,015
(7,507)
$ 22,508
(507)
15,438
(9,650)
27,789
$
$
5,841
$ 45,628
$
8,532
$
2,748
$ 62,749
Inter–segment revenues are charged among segments at arm’s–length rates, based on rates charged to third parties. Total
consolidated revenue is attributed to customers within Ireland and Canada. For the twelve months ended December 31, 2018,
revenue within Ireland was $5.2 million (2017 – $3.0 million) and the remainder was in Canada. No single customer represented more
than 10.0 per cent of the total consolidated revenue.
75
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
Assets and liabilities
As at December 31, 2018
(thousands of CAD dollars)
Assets
Total assets, excluding intangibles,
goodwill and cash
Intangibles
Goodwill
Cash
Total assets
Liabilities
As at December 31, 2017
(thousands of CAD dollars)
Assets
Total assets, excluding intangibles,
goodwill and cash
Intangibles
Goodwill
Cash
Total Assets
Liabilities
Registry
Operations
Services
Technology
Solutions
Corporate
and other
Consolidated
Total
$
$
$
$
$
$
25,074
4,054
5,800
–
34,928
5,019
$
7,611
30,815
34,198
–
$ 72,624
$ 10,662
$
3,170
5,418
4,312
–
$ 12,900
7,399
$
$
12,442
417
–
28,651
$ 41,510
$ 29,499
$
$
$
48,297
40,704
44,310
28,651
161,962
52,579
Registry
Operations
Services
Technology
Solutions
Corporate
and other
Consolidated
Total
27,133
5,516
5,800
–
38,449
7,306
5,340
$
36,488
34,513
–
76,341
27,091
$
$
$
$
$
1,572
4,992
4,160
–
10,724
3,523
$
15,020
26
–
31,265
$
46,311
$ 29,934
$
$
$
49,065
47,022
44,473
31,265
171,825
67,854
Non–current assets are held in Canada and Ireland. At December 31, 2018, non–current assets held in Ireland were $9.1 million
(December 31, 2017 – $8.2 million) while the remainder were held in Canada.
26 Acquisitions
During 2017, the Company completed the acquisition of three entities: ERS, Alliance and AVS. The acquisitions completed included
provisional fair values at December 31, 2017 for the AVS acquisition due to the proximity of the acquisition to the year end. The
review of the fair value of assets and liabilities acquired was completed within twelve months of the acquisition date and the final
consideration was adjusted by $213 thousand. This has resulted in the value of the net assets acquired increasing by $102 thousand
and goodwill decreasing by $315 thousand.
A table outlining the net cash flow related to these acquisitions is provided below, followed by a table providing the preliminary
allocation of the net purchase price for accounting purposes as reported in the Company’s 2017 consolidated financial statements
and the subsequent adjustments to finalize the purchase price allocation within the twelve months of the acquisition date. All
subsequent adjustments relate to the AVS acquisition.
Net cash outflow related to the acquisition
(thousands of CAD dollars)
Total consideration
ERS acquired Jan. 23, 2017
Alliance acquired Jun. 1, 2017
AVS acquired Dec. 21, 2017
Add (deduct) items not yet paid in cash at Dec. 31, 2017
Working capital
Contingent consideration
Consideration paid in cash
Less: cash balance acquired
Total net cash flow related to the acquisitions
76
Preliminary
Adjustments
Final
$
14,145
1,127
40,231
$ 55,503
(348)
(14,762)
40,393
(1,669)
$ 38,724
$
$
$
$
–
14,145
–
1,127
40,018
(213)
(213) $ 55,290
18
195
–
–
–
(330)
(14,567)
40,393
(1,669)
$ 38,724
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
The table below presents the final allocation of the net purchase price for accounting purposes for all acquisitions in the prior year
as reported in the Company’s 2017 consolidated financial statements and subsequent adjustments to finalize the purchase price
allocation within the measurement period.
(thousands of CAD dollars)
Assets
Cash
Short–term investments
Trade and other receivables
Income tax recoverable
Prepaid expenses
Property, plant and equipment
Intangible assets
Liabilities
Accounts payable and accrued liabilities
Deferred revenue
Income tax payable
Deferred tax liability
Net assets acquired
Goodwill arising on acquisition
Total consideration allocated
Net assets acquired
Total goodwill arising on acquisition
Contingent consideration
Preliminary
Adjustments
Final
$
1,669
183
3,637
15
328
117
27,033
32,982
1,024
99
710
6,751
8,584
$ 24,398
55,503
24,398
31,105
$
$
$
$
–
–
–
–
(17)
–
–
(17)
$
1,669
183
3,637
15
311
117
27,033
32,965
(25)
–
(94)
–
(119)
102
999
99
616
6,751
8,465
$ 24,500
(213)
55,290
24,500
102
(315) $ 30,790
As part of the ERS acquisition, the Company agreed to pay up to €5.0 million in consideration contingent upon the retention of
existing leadership and the award and realization of future business over a 30-month period. For accounting purposes, the retention
portion of the contingent consideration is classified as post acquisition remuneration and is not included as part of the related
acquisition consideration.
As part of the AVS acquisition, the Company agreed to pay up to $20.0 million in additional consideration contingent on the
realization of future business with financial institutions and auto and equipment finance companies across Canada over a period
of 13 months ending January 31, 2019. During the year, the Company, through its wholly owned subsidiary ESC, entered into an
agreement to amend the AVS Share Purchase Agreement to provide for the early settlement of the AVS contingent consideration
on November 15, 2018, for an amount of $11.0 million paid in cash.
77
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
A continuity of contingent consideration related to the ERS and AVS acquisitions is presented below:
(thousands of CAD dollars)
Balance, beginning of the period
AVS acquisition
Remuneration expense through wages and salaries
Accretion recognized in interest expense
Change in AVS contingent consideration
Early settlement of AVS contingent consideration
Foreign exchange adjustment
Balance, end of the period
Current portion
Long–term portion
December 31,
2018
December 31,
2017
$
15,723
–
1,290
6
(3,567)
(11,000)
(130)
2,322
$
$
$
2,322
–
2,322
$
$
$
$
–
14,762
914
9
–
–
38
15,723
–
15,723
15,723
The following table summarizes relevant information pertaining to the contingent consideration:
(thousands of CAD dollars)
ERS – retention
ERS – future business realization1
Total contingent consideration
Carrying
Amount
Estimated Future
Payments
0–6 Months
7–12 Months
$
$
2,322
–
2,322
$
$
3,128
–
3,128
$
$
–
–
–
$
$
3,128
–
3,128
1 Under the ERS acquisition, the upper limit of this contingent payment is €3.0 million. As of December 31, 2018, the Company’s estimated future payment is $ nil.
27 Net Change in Non-Cash Working Capital
28 Commitments and Contingencies
The net change during the period comprised the following:
Leasing arrangements
(thousands of CAD dollars)
Trade and other receivables
Prepaid expenses
Contract assets
Accounts payable
and accrued liabilities
Contract liabilities
Contingent liability
Income taxes
Net change in non-cash
working capital
Year Ended December 31,
2017
2018
$ (1,583)
(195)
(1,414)
$
1,067
283
–
The Company leases all of its office space through operating
leases. Operating leases related to office spaces have lease
terms of between two and ten years, with various options to
extend. The Company does not have an option to purchase
the leased assets at the expiry of the lease period.
1,108
1,150
1,290
(573)
670
845
961
4,045
The Company leases certain office equipment through
operating leases. Operating leases related to photocopiers
have lease terms of three years. The Company does not have
an option to purchase the leased assets at the expiry of the
lease period.
$
(217)
$
7,871
Master Service Agreement
Income taxes paid, net of refunds received, for the twelve
months ended December 31, 2018, totalled $5.7 million
(2017 – $1.0 million).
Pursuant to the MSA with the Government of Saskatchewan
dated May 30, 2013, the Company was appointed, on an
exclusive basis, to manage and operate the Saskatchewan
Land Titles Registry, Saskatchewan Land Surveys Directory,
Saskatchewan Personal Property Registry and Saskatchewan
Corporate Registry on behalf of the Government of
Saskatchewan for a 20-year term expiring on May 30, 2033. The
MSA was amended, effective December 1, 2015, appointing ISC
78
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
to continue to manage and operate the Common Business Identifier Program and the Business Registration Saskatchewan Program
for the same term as the MSA. The MSA requires the Company to pay to the Government of Saskatchewan the sum of $0.5 million
annually, in a single instalment payable on or before March 1, in each calendar year of the term commencing with an initial payment
which was due on March 1, 2014.
Commitments
As of December 31, 2018, the Company has commitments over the next five years that include future minimum payments for
leasing of office space, an information technology (“IT”) service agreement with Information Systems Management Canada
Corporation, other management services contracts and a commitment to the Government of Saskatchewan under the MSA:
(thousands of CAD dollars)
2019
2020
2021
2022
2023
Thereafter
Total commitments
$
Office
Leases
3,440
3,412
3,471
2,725
2,509
6,287
$ 21,844
IT and Other
Service
Agreements
5,038
$
3,161
2,669
2,610
2,562
-
$ 16,040
$
Master Service
Agreement
500
500
500
500
500
5,000
7,500
$
$
Total
8,978
7,073
6,640
5,835
5,571
11,287
$ 45,384
Contingencies
Management’s estimate of liability for claims and legal actions that may be made by customers pursuant to the assurance
provision and the MSA is based upon claims submitted. As at December 31, 2018, the liability was nil (December 31, 2017 – nil).
Through the normal course of operations, the Company has entered into an indemnity agreement with a surety company to
provide a surety bond required under a contract with a customer. In the event that the Company fails to perform under the
contract and the surety company incurs a cost on the surety bond, the Company is obligated to repay the costs incurred in relation
to the claim up to the value of the bond. The Company’s obligation under the bond issued by the surety company expires on
completion of obligations under the customer contract to which the bond relates. The term of the surety bond is from February
2018 to September 2019.
At December 31, 2018, the outstanding surety bond totalled $1.7 million (December 31, 2017 – nil). The Company has not
recorded any liability related to this bond, as management believes that no material events of default exist under the contract
with its customer.
29 Pension Expense
The total pension costs under the Company’s defined contribution plans for the year were $1.7 million (2017 – $1.6 million).
79
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
30 Reclassifications
During the year, the Company changed the presentation of project initiative expenses to reclassify them to their nature.
Management believes the revised presentation aligns with management’s operation of the business and provides more relevant
information to users.
Expenses
(thousands of CAD dollars)
Wages and salaries
Cost of goods sold
Depreciation and amortization
Information technology services
Occupancy costs
Professional and consulting services
Financial services
Project initiatives
Other
Total expenses
31 Subsequent Events
2017
(as reported)
$ 32,802
4,141
7,507
10,179
5,292
4,511
2,235
2,823
2,204
71,694
$
$
Reclassification
–
–
–
673
1
1,792
165
(2,823)
192
–
$
2017
(as reclassified)
$ 32,802
4,141
7,507
10,852
5,293
6,303
2,400
–
2,396
71,694
$
On February 19, 2019, the Company announced that its wholly owned subsidiary ESC Corporate Services Ltd. (“ESC”), acquired
substantially all of the assets used in the business of Securefact Transaction Services, Inc. for $6.8 million by way of an asset
purchase agreement.
On March 20, 2019, the Board declared a quarterly cash dividend of $0.20 per Class A Share, payable on or before April 15, 2019,
to shareholders of record as of March 31, 2019.
80
2018 ISC® Annual Report | Notes to the Consolidated Financial Statements
Board of Directors
Joel Teal
Saskatoon, Saskatchewan
Director since: 2013
Chair of the Board of Directors
Karyn Brooks
Calgary, Alberta
Director since: 2016
Member of the Audit Committee
Tom Christiansen
Swift Current, Saskatchewan
Director since: 2009
Member of the Compensation Committee
Doug Emsley
Regina, Saskatchewan
Director since: 2013
Chair of the Compensation Committee
Tony Guglielmin
Vancouver, British Columbia
Director since: 2013
Chair of the Audit Committee
2018 ISC® Annual Report
Scott Musgrave
Lloydminster, Alberta
Director since: 2010
Member of the Audit Committee
Iraj Pourian
Vancouver, British Columbia
Director since: 2016
Member of the Governance and Nominating Committee
Laurie Powers
Regina, Saskatchewan
Director since: 2018
Member of the Compensation Committee
Heather Ross
Toronto, Ontario
Director since: 2018
Member of the Governance and Nominating Committee
Dion E. Tchorzewski
Regina, Saskatchewan
Director since: 2013
Chair of the Governance and Nominating Committee
ISC Leadership
Jeff Stusek
President and Chief Executive Officer
Laurel Garven
Vice-President, Business Strategy
Shawn B. Peters, CPA, CA
Executive Vice-President and Chief Financial Officer
Catherine McLean
Vice-President, People and Culture
Kathy E. Hillman-Weir, Q.C.
Executive Vice-President, Chief Corporate Officer,
General Counsel and Corporate Secretary
Ken Budzak
Executive Vice-President, Registry Operations
Loren Cisyk
Executive Vice-President, Technology Solutions
Dennis White
Vice-President, Marketing and Business Development
Clare Colledge
President, ESC Corporate Services Ltd.
More information on our directors and officers can be found in our most recent Annual Information Form or Management Information
Circular, which are available on our website at www.company.isc.ca, or through the System for Electronic Document Analysis and
Retrieval (SEDAR) at www.sedar.com.
81
Corporate Information
Head Office
Ownership
Suite 300 – 10 Research Drive
Regina, Saskatchewan S4S 7J7 Canada
Stock Exchange Listing & Symbol
Toronto Stock Exchange: ISV
Share Capital
Authorized – the Company’s authorized share capital consists
of an unlimited number of Class A Shares, one Class B Golden
Share and an unlimited number of Preferred Shares.
As at March 20, 2019, the Board and management are not
aware of any shareholder who directly or indirectly owns or
exercises, or directs control over, more than 10.0 per cent of our
Class A Shares, other than:
(a) Crown Investments Corporation of Saskatchewan which
holds 5,425,000 Class A Shares representing 31.0 per cent
of the issued and outstanding Class A Shares; and
(b) CI Investments, Inc. which holds 2,605,210 Class A Shares
representing approximately 14.9 per cent of the issued and
outstanding Class A Shares.
Class A Limited Voting Shares
Auditor
Issued and outstanding – 17,500,000 Class A Shares as at
December 31, 2018.
The Company’s articles and the ISC Act limit ownership of
Class A Shares, including joint ownership, to no more than
15.0 per cent of the Class A Shares issued and outstanding.
Class B Golden Share
Issued and outstanding – 1 Class B Golden Share (“Golden
Share”) as at December 31, 2018.
The Golden Share held by the Government of Saskatchewan
has certain voting rights with respect to the location of the
head office and the sale of all or substantially all of the assets
of the Company.
Deloitte LLP
Suite 900 – 2103 11th Avenue
Regina, Saskatchewan S4P 3Z8 Canada
Transfer Agent
AST Trust Company (Canada)
For inquiries related to shares, dividends,
changes of address:
1 (800) 387-0825
Toll-free in North America:
www.astfinancial.com
inquiries@astfinancial.com
Regulatory Filings
The Golden Share has no pre-emptive, redemption, purchase
or conversion rights and is not eligible to receive dividends
declared by the Company.
The Company’s filings are available through the System
for Electronic Document Analysis and Retrieval (SEDAR)
at www.sedar.com.
Preferred Shares
Issued and outstanding – Nil as at December 31, 2018.
Preferred Shares are issuable at any time and may include
voting rights.
Investor Contact Information
Jonathan Hackshaw
Director, Investor Relations & Capital Markets
Toll-free in North America:
Outside North America:
investor.relations@isc.ca
1 (855) 341-8363
1 (306) 798-1137
Annual General Meeting
The annual general meeting of shareholders will be held
at 9:00 a.m. (Saskatchewan time, MDT) on Wednesday
May 15, 2019, at Innovation Place, 6 Research Drive,
Regina, Saskatchewan.
82
2018 ISC® Annual Report Dividends on Class A Shares
On August 12, 2013, ISC’s Board established a policy of paying an annual dividend of $0.80 per Class A Share to be payable on a
quarterly basis. The payment of dividends is not guaranteed, and the amount and timing of any dividends payable by the Company
will be at the discretion of the Board and will be established on the basis of our cash available for distribution, financial requirements,
any restrictions imposed by our Credit Facilities, the requirements of any future financings and other factors existing at the time.
Year
2018
Type
Quarterly
2017
Quarterly
2016
Quarterly
2015
Quarterly
2014
Quarterly
2013
Quarterly
Ex-Dividend Date
Dec 28, 2018
Sep 28, 2018
Jun 28, 2018
Mar 28, 2018
Dec 28, 2017
Sep 28, 2017
Jun 28, 2017
Mar 29, 2017
Dec 29, 2016
Sep 28, 2016
Jun 26, 2016
Mar 27, 2016
Dec 29, 2015
Sep 28, 2015
Jun 26, 2015
Mar 27, 2015
Dec 29, 2014
Sep 26, 2014
Jun 26, 2014
Mar 27, 2014
Dec 27, 2013
Sep 26, 2013
Record Date
Dec 31, 2018
Sep 30, 2018
Jun 30, 2018
Mar 31, 2018
Dec 31, 2017
Sep 30, 2017
Jun 30, 2017
Mar 31, 2017
Dec 31, 2016
Sep 30, 2016
Jun 30, 2016
Mar 31, 2016
Dec 31, 2015
Sep 30, 2015
Jun 30, 2015
Mar 31, 2015
Dec 31, 2014
Sep 30, 2014
Jun 30, 2014
Mar 31, 2014
Dec 31, 2013
Sep 30, 2013
Payable Date
Amount
Jan 15, 2019
Oct 15, 2018
Jul 15, 2018
Apr 15, 2018
Jan 15, 2018
Oct 15, 2017
Jul 15, 2017
Apr 15, 2017
Jan 15, 2017
Oct 15, 2016
Jul 15, 2016
Apr 15, 2016
Jan 15, 2016
Oct 15, 2015
Jul 15, 2015
Apr 15, 2015
Jan 15, 2015
Oct 15, 2014
Jul 15, 2014
Apr 15, 2014
Jan 15, 2014
Oct 15, 2013
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.18*
* This dividend represents a partial dividend for the period July 9, 2013 (the closing date of the Company’s Initial Public Offering on July 9, 2013) to September 30, 2013.
Dividends are eligible dividends pursuant to the Income Tax Act (Canada) as amended. An eligible dividend paid to a Canadian
resident is entitled to the enhanced dividend tax credit. For further information on tax implications, please consult a tax advisor.
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2018 ISC® Annual Report
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2018 ISC® Annual Report company.isc.ca
TSX:ISV
Information Services Corporation
300 - 10 Research Drive
Regina, Saskatchewan S4S 7J7 Canada
1 (306) 787-8179