Thank you, Ruth. Good morning, everyone.

As you know we go directly to questions. So please, Ruth, if you could tee up the calls.

Mark, I know you generally don't like talking about individual business units but just given the size of the acquisition, is there any color or commentary you can offer around QuadraMed with respect to the health of the asset when you acquired it, whether it's a fixer-upper or a business that was strong to begin with, what the growth trajectory looked like? Any color would be helpful.

As you say, we don't usually comment. I guess the one observation is we're organizing business into 4 separate business units that will have distinct strategies and we're really excited by the quality of management and the businesses that we acquired.

Okay, fair enough. Generally speaking, how would you characterize the pipeline for larger opportunities at this point?

We as a rule don't have a whole lot of larger opportunities because we don't play in the multi-hundred million dollar range. The pipeline as we reviewed it yesterday for the Board was a bit on the sparse side in general, whether big or small.

That -- we tend to look at the higher probability, closer-to-closing type acquisitions at the Board level. If we go further up the funnel, what you'll find is lots and lots of activity and then the issue is just sort of how much of it translates into acquisitions at the end of the day and those processes, those pursuits, can last a very long time.

So very hard to predict, Thanos.

Yes, I think we've heard that comment before, based on having followed your company for some time. But -- so I guess overall, you'd say on a near-term basis, where you have a bit more visibility, your comment is, is that pipeline is a little smaller than usual?

Yes, I would say there are less opportunities in the pipeline than usual.

Okay. And we saw organic growth looked pretty good this quarter.

Anything that you would highlight there? I mean, is that just a function of an improving macro environment or -- what's driving that?

Can you provide any color?

As you know, we are the sum of our parts and there are 137, I think, of those parts this quarter. So it's very hard to sort of make a commentary over 137 separate business units with 137 separate strategies, business unit managers and sets of competitors.

The economy does appear a wee bit better but, as I've also said before, we tend to be a lagging indicator on the economy. And so I wouldn't read a whole lot into that if you're thinking about other businesses.

Okay, fair enough. Okay, then this will be the last one for me.

If the economy is feeling a little bit better, any change in the deal pricing environments or not appreciably so from your perspective? It seems like you're still getting bid rates -- you're paying good valuation for your acquisitions, based on my math, at any rate.

Yes, I don't find that the values of businesses, the intrinsic values of businesses vary hugely from quarter-to-quarter. It's the discounted present value of the future cash flows to infinity and what happens this quarter or next doesn't hugely swing that number except perhaps in the market size.

And so we don't see pricing, at least the pricing that we offer, change a lot.

Just on the -- again, on the large deals. Just -- I'd be interested in your comments of really what brings these type of assets to market and makes them available for you?

Are they typically private equity-owned assets that are either at the end of their life or have become orphaned within a portfolio? Just any comments there would be useful.

I'm not sure there is a typical, Scott. I think it's atypical, the larger transactions that we do.

In this particular case it was a private equity firm, they had put together a number of assets to create QuadraMed and one in particular was sought by a competitor. They sold off that piece of the business and we bought the remaining business units and so they had an opportunistic sale of a piece of their business at a very high price and I think that was why they were selling off the remainder of the business.

But that's atypical. I can't say I've ever seen that before and I don't really expect to see it again.

The next topic, just on the acquisitions. We can see with a calculator or a ruler that this pace of investment is unsustainable on the current capital structure.

I guess the question is, do you feel any closure to securing the type of capital that you want? And is this becoming more of a limiting factor in what you can look at or the hurdle rates that you're applying on acquisitions?

Yes, so we haven't yet jacked up the hurdle rates to control the amount of capital being deployed and we are seeking capital, as I mentioned in the President's Letter. We are toying with sweetening the dividend reinvestment program so that we get higher participation in that program and exploring how we can do that, and we're also exploring a preferred share issue with a number of the investment bankers.

So those are the 2 avenues that right now appeal most to the Board and we'll see how they turn out.

And just lastly for me is, entering the first quarter, not too long ago, relative to the guidance at that time of 14% to 18% EBITDA margins, just wondering if you could get help put this quarter's 19% in a bit of context? For instance, have the margins on some of these European deals come up as quickly as you had expected or more quickly or are you doing more or less deals in Europe or any other factors related to why the increase over the past couple of quarters?

So we do tend to get a seasonal bump from Q1 to Q2. It relates to some payroll taxes and also, I suspect, the revenues in Q1 on the professional services side tend to be down a little bit in a seasonal pattern.

In addition to that, we saw pretty good organic growth, much better than we had in previous years in Q2, which was pleasing. In terms of Europe, no massive improvement quarter-to-quarter.

It's a sort of a gradual process and it's more gradual in Europe than it tends to be in North American when we buy new assets. So I wouldn't say that there have been either happy or particularly sad surprises in Europe.

It's just work as usual.

Just to actually to go back to that, Mark, on European situation, on integration. Any thoughts on timeline as to bring those margins sort of on plan?

I think the -- just trying to sort of clear through a little bit of noise in the quarter. It looks like they popped, to Scott's question, but it looks like there might have been timing.

So where do we sort of end up?

Yes, I don't really know, haven't done as much in Europe previously and have never generated as good margins in Europe as we have in North America. We don't see a whole lot of structural reasons why that should be the case but others have told me that Europe is harder.

So stick to the original comments out of Q1, where you sort of brought the Street back down a little bit in terms of thoughts on margin there?

We were talking about Q1 in Q1. We weren't talking about perpetuity.

Fair enough, okay. The one other question I'd have is just around the healthcare segment.

Maybe you could position that for us a little bit in terms of how we should think about what you're doing in healthcare post QuadraMed? You had other pieces of healthcare sort of scattered around the business groups, you brought that together.

What's the future look like in terms of a focus on healthcare?

Yes, I wouldn't say there is a focus on the healthcare. We will do healthcare.

We see the healthcare segment as having lots of sophisticated, competent competitors and that is a good and a bad thing. The good news is that they tend to be rational in terms of their investing in R&D, sales and marketing and competing for market share.

The bad news is that they tend to be rational and hence you have a harder time finding little pockets within the industry where you can generate superior rates of return on capital employed. So it's a -- it'll be opportunistic, Paul.

Obviously anything close to any of our existing businesses we will focus on. So any of the segments that we're already in inside of healthcare will be where we look most but we'll look more broadly, as well.

We'd love to have more healthcare assets in Canada but there are a couple of competitors who are voraciously consuming such assets right now.

It is fair to think, though, in healthcare Mark, given the historic valuations, at least on the software side for these companies, certainly would be well above I think what you would have considered or paid or would have met your hurdle rates, that you'd be more tempted towards more of a processing type model when thinking about where you go down that path?

Processing has its pros and cons and we're learning about sort of that business. It isn't our mainstream and I believe it'll be years before we are as good at processing type business as we are at vertical market software, enterprise, capture every seat in the house-type businesses.

So I wouldn't see us jumping with both feet into processing at this stage.

And then the last one for me, just to wrap and sort of go back to the original point Scott brought up about capital structure. How should we think timeline on sort of a decision out of this?

Is this next quarter or 2 or is this next year before we sort of get resolved on where the capital structure's at?

It's one of those things that you work away at constantly. I find that very rarely do capital structures swing enormously unless you go out trying to make very, very large acquisitions and that's not our forte.

And so I anticipate we'll just sort of nibble away at things, Paul. There will be a little bit here and a little bit there and there won't be dramatic shifts.

So Mark and Jamal, it looks like if I look at my math, it looks like 2013 acquisitions contributed about $35 million in terms of revenue. Does that sound right in the ballpark?

And should we expect a similar sort of contribution for the rest of the year or is there anything special in Q2?

We haven't done that math and we usually don't do that math for you. We're only really good at adding here.

We sort of add up the 137 business units once a quarter so -- that would require dividing.

Okay, and then just on the 4 separate business units. I was wondering if you can maybe provide some more color on that in terms of what that might entail for your priorities in terms of deploying capital for acquisitions versus internal initiatives?

Does that change your approach overall or how should we think about that?

We encourage our managers to look at the 2 as competing activities. You can either deploy capital on acquisitions or you can deploy capital on initiatives and you should seek to get equally high rates of return on both, taking into account all of the factors.

And we have no particular preference. We think that internal initiatives are very, very hard, require a degree of vision that isn't required for acquisitions and hence we'd love to be really good at the internal initiatives.

We're getting better and we think we do it far better than most software businesses. If I can see all the capital going to that and generate similar returns to acquisitions, I would be delighted.

I think you end up with a stronger business when you get to choose what products you add to the portfolio and how you can sort of fill out the needs of the customers as opposed to when you do an acquisition, which tends to be more opportunistic and tends to leave some holes in the portfolio. So I'd love it to be initiatives but my guess is the bulk of the capital that we invest will go into acquisitions.

Right, right. And just one last one for me before I pass the line here.

So we're about a month into Q3 right now and I was just wondering what your take was on public sector versus private sector so far for Q3 and how that kind of stacks up against Q2?

I have no sense of that at all. Increasingly our public and private sector are becoming less public and less private.

We have within Trapeze now a number of businesses that are private sector even though we categorize -- excuse me, Volaris, even though we characterize Volaris as public sector when we're totting [ph] up the numbers. So it's a distinction that I think is becoming less relevant and we're actually thinking of eliminating it going forward in the reporting.

Mark, could you provide some historical perspective? Since the inception of the company have you raised or lowered your hurdle rate for acquisitions?

Yes, we have.

And have you -- is it raised or lowered?

I think we've done both.

And so reason -- I think you sound like you've kept it constant. Is that a safe assumption?

We have, although we've sort of introduced a quality modifier in that, if you come pitching an acquisition that is just a lovely company, no customer dependence, literally thousands of clients, low attrition, obviously that goes into the math when you do the multiple scenario look that we do when we're acquiring these businesses. But it's also influenced by hurdle rate a bit.

We're probably willing to take a few points of the hurdle rates for a lovely business.

Have you revised your hurdle rate in relation to your cost of capital in anyway?

No, no.

And what are your thoughts on keeping those 2 decisions or 2 metrics independent?

That's a really good question. So historically we felt that we wouldn't run with leverage for any length of time.

We'd basically go into the bank line, pay it down, et cetera. And so it was really a return on equity kind of question and we felt that, if you wanted to have high returns on equity and you were a perpetual shareholder, as a shareholder you couldn't get a rate of return that exceeded our return on equity inside the corporation unless you were buying and selling and we weren't looking for those kinds of shareholders.

And so we kept our ROE targets really high and didn't vary a whole lot, except if we had sort of an oversupply of cash at the head office. As we're starting to contemplate using the capital markets, we've started to rethink that and it's certainly going through our minds.

Particularly when it comes to large, leveraged transactions. I talked a little bit about that in the President's letter.

There are some lovely larger businesses that we can't compete on based on the prices at which they transact unless we use a weighted average cost of capital that includes some debt and so we're poking away that issue. I wouldn't anticipate that we'll do anything imminently but it's something we're thinking about.

Thank you, that's very informative. Just one small, minor item that I noticed in your DRIP [ph] filing and I hope you can comment on it.

It indicated that you maybe able to require the shares on the open market or issue them from treasury. Now you've never really been fond of issuing shares from treasury in the past, for example the bonus plan.

So does that also reflect a change in your view or am I reading too much into that filing?

No, good for you, I'm glad you spotted it. So I've always felt that, as insiders, as managers and directors, we have a temptation to prey upon shareholders and I think that is the case in all companies.

We've got massive amounts of information as insiders, which your outside shareholders don't have. And one of the ways to avoid that is to never issue nor buy back shares.

And I also have the problem that I'm not particularly good at valuing what the market perceives to be the value of a business and so I don't know at what price to issue equity. What's the right price?

So the easy way to still participate in markets, to still buy back shares or issue shares, is to do it with your own shareholders and to do it in tiny amounts. And so the DRIP [ph] and issuing from treasury doesn't feel like it has the conflict of trying to bang out a $100 million common share issue at a maximum price or a reasonable price or whatever price you choose to bang out a common share issue.

So it sort of gets around the conflict for me, particularly if you do it over multiple quarters. So the idea of issuing from treasury under the DRIP [ph], it feels like we can access markets that way.

Thank you, that's very informative. I'll pass the line.

Yes, I'm not sure it was informative and it may not be that clear but it's sort of how I'm thinking about it.

Mark, if you look the, sort of your big challenges this year versus last year, can you give us maybe a sense of what the sort of the top 2 or 3 would be? It sounds like capital constraint is an issue now but you've talked in the past about management attrition, organic growth and I guess the competitive landscape for acquisitions.

And so what are sort of the top issues you're facing and has that changed over the past 12 months from, I guess, a challenge perspective?

I don't think we see the challenges change a lot, Richard. The toughest challenge in software is investments in R&D and sales and marketing that will pay off 5 to 10 years down the road.

We are involved in ground-up rewrites of a number of our packages and they tend to take 3 or 4 years of R&D effort and then, as you sell them back into your installed base, you're looking at a 5- or 10-year process of getting people onto the new platform. So it's an incredibly long process and the ability to look forward and figure out how quickly people will adopt; how much money, and we're talking multiple millions of dollars when we do rewrite; how much money do invest upfront; what tools to base it on?

Incredibly difficult, challenging issue that requires internal knowledge of the vertical and of the tools that you have. So that's your #1 challenge in all of software.

Now some people dodge that particular issue by just buying businesses and milking them out and nothing wrong with that. There -- someone needs to do that for some businesses that would otherwise just sort of stutter along but it's not what we try to do.

We try to own businesses that will continue to prosper, that will take share, modestly, and that will grow for decades to come. And so that's our single biggest challenge.

Having the people who can exercise that ability, that vision, do it in an incredibly disciplined fashion, is tough. And so keeping those folks is a very important part of what we do.

And then having money to spend on acquisitions, that's just nice to have. It's sort of a byproduct of what we do.

If we generate lots of capital and we don't consume much for internal growth because we're not an asset-intensive business, we have some leftovers, which we can either pay out as dividends or spend on acquisitions. Our guys obviously love acquiring businesses and then taking them and nurturing them the same way that they have their own businesses and so I'd love to see that continue but if tomorrow the world told us we couldn't do any more acquisitions, that wold be fine, too.

I think we'd continue to build a wonderful business.

Okay. You and I have talked about SaaS models in the past and, as I look at your base, it doesn't -- and maybe you'll sort of enlighten me.

It doesn't really look like your base has kind of shifted in that direction, or maybe I'm wrong. What has changed or is it just, for some reason, the verticals you're in or the solutions you have are not conducive to that?

And I know you're preparing for it at some level but maybe give us a sense of what's happening on that side?

We started tracking all of those slightly unconventional or newer economic and technology models inside of Constellation and we're hoping to be able to break them out for you in -- next year, Jamal? So you'll get a better view of that, Richard.

For the time being, let's just say I don't think it's a particularly good element for the software industry and I'm not particularly sure it's good for clients but it's happening. It's got a tremendous amount of buzz and so you have no choice but to respond and so we are responding.

We view SaaS models for literally decades for add-on products, it tends to be a nice model both economically and technologically for add-on products, for taking a core enterprise system and allowing your customers' customers to interact with that system. And now we're increasingly converting our enterprise systems to SaaS, as well.

Thank you, Ruth. Thank you for joining in the Q2 call, look forward to speaking with you all on the Q3 call.

Bye-bye now.