Response adjusted net income is a metric that is

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Response Adjusted net income is a metric that is intended to be a proxy for the cash generated in a period that’s available to Constellation’s shareholders. Our calculation of Adjusted net income excludes the 33.29% non-controlling interest in the Adjusted net income of TSS. Question About adjusted earnings. In my (long) experience, when items are added back to adjust earnings, it is almost always done on a tax-affected basis to reflect that the added back expense reduced GAAP if not cash taxes. Constellation does not appear to tax -affect the adjustments. That seems less conservative to me. Please explain. My guess is that it is because Constellation is trying to calculate some measure of cash and not adjusted earnings? I have been an owner of Constellation off and (mostly) on for over seven years and have read its reports and letters closely all these years. I greatly respect the success and openess of the company. I have had the greatest respect for Mark Leonard for many years but I am growing concerned that the adjusted earnings figure seems aggressive. Am I wrong? Response Adjusted net income is a metric that is intended to be a proxy for the cash generated in a period that’s available to shareholders. The largest add-back in the ANI number is the amortization of intangibles associated with acquisitions. Our contention, is that this is non-economic amortization, and that the intangible value of our underlying assets is actually increasing and hence the full amount of the amortization should be added to ANI. Question Tyler technologies says the public sector software market is growing at 6%-7% per annum and their own organic growth has been in the 10%-12% range. Why are your public sector businesses growing at substantially below market growth rates at 2%-3%? Response One of the main contributors to the lower growth is our exposure to the US healthcare market which rolls up into our “Public Sector” reporting segment . Question You regularly talk about how decentralized CSI is and how you prefer to break up bigger teams into smaller teams rather than attempt economies of scale by aggregating teams together. Would this apply to the operating groups and how would you think about this? Would you ever break up an operating group into two because it too large, or are things decentralized enough within the groups to allow them to become quite a bit larger than they are now? How did the company arrive at the current number of operating groups and why is that the right number at this time? Is the bottleneck for more groups down the line the number of executives capable of running a group, or something else? Response We break up business units to enhance their customer focus. The operating groups are now essentially mini Constellations. The same way Constellation’s head office pushed down responsibility as we grew, the operating groups are pushing down responsibility to the layer beneath them (the group we refer to as portfolio managers).

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