Thank you, Melanie. Good morning, everyone.

Welcome to the Q4 call. As you know, we go directly to questions.

So Melanie's going to handle that now for us.

Maybe a question for Mark to begin. So very strong margins, Mark, this quarter.

How do you see that margin profile over the next few years, Mark?

I hope it goes down. Fundamentally, what we'd like to be seeing is people in our business units investing in organic growth and finding lots of opportunities to do so.

And if they do that, at least for a few years, we would see a depression in margins. Ultimately, organic growth in a vertical market software business is a sign of health and tends to be a very attractive economic proposition.

You've got to track the IRRs on those things and follow them closely because they can slip, but we hope that we'll be able to build a healthy portfolio of initiatives over time for every one of our businesses.

So for this Q4, was there any onetime that contributed to the stronger-than-expected margins?

Jamal?

Yes, a $3.2 million Redknee break fee was in there. So that was [indiscernible].

But if you exclude that, we're still pretty much in line with what happened last year, so.

All right. And Jamal, maybe for you on the MD&A had an organic growth for 2016, excluding hardware.

Do you have an organic growth for 2015, if you exclude hardware?

I mean, I'll calculate that, sorry. Not off the top of my head, no.

Okay, I'll follow up with you. And then I saw the press release on Volaris, this acquisition this morning.

Has there been any other acquisitions that closed after quarter end?

Not above $10 million, no.

But we've closed several small ones.

Mark, maybe you could talk a little bit, and I guess my presumption on this question going in is that the business units heads would have been the ones leading either Bond, ServiceMaster and Redknee. Can you talk about the organizational investments you made to train other employees?

Because obviously, the pace and the profile of deals kept up through the quarter. And I know you talked about that in the President's letter.

So maybe the progress was made over '16 on training up that broader staff?

We just had our meeting yesterday. And there's obviously a lot more staff spending, a lot more time on M&A.

I don't have any good quantifiable numbers that I can give you, Paul. They're sort of being gathered up as we speak.

Okay, fair enough. Maybe the other fact of that and since you're still gathering the numbers might not work so well, but do you have any view -- because I know a year ago we talked about wanted to build up a brother pipeline of deals in terms of what have you seen in terms of the trend of deals you've been closing in terms of ones you've sought out or versus being approached by brokered and unbrokered?

And then maybe also talk a little bit about if you've seen any change in terms of how long it's taking to get deals consummated? Or any other notable changes in the M&A environment?

So I've got a little bit of data. We haven't done the brokered, unbrokered analysis in about a year, that I know of.

And when we last did it, it was roughly 2/3 unbrokered. As to -- trying to think if you have any new data on any of the other issues you raised.

What do we have? Why don't we move on during the call and I'll try and see if anything springs to mind.

No problem. And the last one from me.

Maybe just be talking about what you heard back from our groups heads in terms of maintenance revenue? How they're thinking about sort of the annual price increases across the group, if there's any view that you're hitting sort of sticking point in some of the older products?

Or if it's at a point where, no, it's fine just moving forward at CPI?

I'm trying to discourage people from focusing on price increases. I know it's something that the people in the hedge fund industry kind of focus on in particular.

And Burford talks about it and a number of other folks. Well, maybe that...

Does that mean that's a large deal just got closed?

Maybe you could mute your phone if there's a background noise. I don't think it was at this end.

Okay. So, sorry, in terms of the price increases, not -- less of an issue?

Yes. Well, no.

Let me continue. I'm trying to discourage people to think about it as price.

I think really what we should be thinking about is delivering more value to clients. And specifically, whether you get that value paid for in a price increase off the base products where you bundled in more value or because you sell ancillary services or products or add-ons, doesn't really matter.

It's just how you're paying for what you're receiving. But hopefully, what we're doing is delivering more to the clients all the time.

And being able to get from them their payment for those increased value adds that we create for them. Before you go on, Melanie, we did have a bit of data that Paul was asking about on the time that it was taking for us to close transactions from beginning of a relationship to an ultimate close.

And last year, it went down from almost 4 years to, I think it was 42 months. And I think that's probably because we were working more aggressively to get new companies into the funnel.

And some of those happened to close earlier than the ones that were -- had been in the funnel for a long, long time.

You guys gave some additional disclosures on the license and professional service organic growth this year. So if we look at that, it looks like license revenues shrank 10% year-over-year organically.

So just wondering if you guys could give any color on that. Is it just getting replaced with organic maintenance revenue growth as your customers switch to SaaS products?

There's some, but I'm not sure that we have it quantified, Howard. The way we look at licenses is it's the last bucket.

You want to get fair payment for maintenance or annual licenses or SaaS, however you design that particular payment mechanism. You want to get fair payment for services, because nearly always, you end up selling more services.

So you don't want to discount services, otherwise customers develop the expectation of discounted services. And so if you're going to discount anywhere, you discount licenses.

And so yes, it tends to be a very volatile number.

Right. So I guess in the past couple years license revenue -- it's not been declining at really that rate necessarily?

I really don't focus on it because, like I said, it's the last bucket. And I don't think it's a high value-added bucket.

I tend to focus instead on what's happening with the maintenance bucket.

Sounds good, sounds good. So you guys also disclosed additionally this year net revenues, just a calculation of that.

And it looks like they're approximately about 85% of total revenues even for the acquired companies. Is that kind of the usual trend where companies that you acquire and within your business as well, about 15% of the revenues are kind of flow throughs?

I mean, the metric I put in that calculation is exactly what's happened. I never really compared acquired net revenue versus grows versus our historic ones, but if that's what the numbers show, then I guess it is.

The reason we don't really focus on flow throughs is that you can easily bulk up revenues with third-party products that you just sort of sell-through at very low margins. And we want to look at something that's as close to our value add as possible.

And then look at our expense as a proportion of that net revenue. So we don't even talk about gross revenues internally.

The bonuses are paid off net revenues -- growth in net revenues.

Just wanted to focus on margins again. Could you comment on the range in margins that you may see between the different operating groups?

And then what do you see as the primary driver between the profitability of those operating groups?

So there are large variations, Paul. And I would say revenue mix is a very big component of that.

If you have very, very high recurring revenues whether they be maintenance, SaaS or otherwise, then you're more likely to have higher margins.

[indiscernible]

Yes, that's probably a good one, too. The low-ticket market tends to be more driven by economies of scale.

And if you've got high share in low ticket, you can do extremely well. But if you have low share in low ticket, it can be gruesome and can lead to high attrition and, hence, very high sales cost as a percentage of overall revenues.

A really good professional services group in a vertical market is a wonderful thing, and can contribute hugely to the bottom line, but it's really hard to run those things consistently at high margins. But we certainly have some businesses where that is the case.

From a best practice point of view and a strategy point of view, is it -- are the -- all the operating groups looking to move their margins in line with those or emulate the strategies of the operating groups of higher margins?

So we have an explicit and very obvious trade-off between growth and profitability, that's how we graph what -- the position of all of our companies. And so if you're generating high organic growth and low margin, we can be ecstatic with your performance, even 0 margin and vice versa.

In regards to compensating for organic growth, and your first comment on pushing for higher organic growth, have you made any changes to the compensation structure to help promote a high level of investments in organic growth?

That's a good question. We have not.

And so it's a moral suasion argument. And what we're, in essence, asking our managers to do is make the same trade-offs that shareholders make.

We're asking them to take smaller bonuses in the short term for bigger bonuses in the long term, when they run at lower margins in the short term, but hopefully end up with bigger margins and bigger profits and higher returns on the capital in the long term.

And are there any indications that they're willing to take that trade-off?

Some of our shareholders appear to be willing to that trade-off, I'd certainly hope that some of the our managers are.

So just in regards to your managers, I think you spent a lot of time in the last year or so meeting with some of the business unit managers. What's your sense from the feedback you're getting in terms of their enthusiasm, in terms of deploying capital on acquisitions?

And how do you compare that versus the enthusiasm from the operating group managers?

So the operating group managers used to be BU managers, business unit managers. And then they started managing ever larger groups of business units over time.

And like the business unit managers of today, they start off running a business. And then as the capital starts to pile up and they have a depth of talent inside their business unit, they start to have an interest in and capability for doing acquisitions.

And I'd say that as we talk to business unit managers, and you said I spent a lot of time talking to them, I spent some time talking with them. I would say that the enthusiasm for the prospect of doing that is growing amongst some of them.

There are some of them that don't feel as comfortable with that, and are most comfortable running a wonderful business, and growing that business and providing better jobs and better compensation for their team. And that's their comfort zone.

And we need to have hundreds of those kinds of people inside the organization. But for those who also want to go the next step of deploying capital, we're here to support them, and the operating group managers are here to support them, and the portfolio managers are here to support them.

And we're hoping that they'll be able to make that transition.

Okay. Just one last one from me, and perhaps a little bit more speculative.

But what are your thoughts on potentially lower corporate tax rates in the U.S.? And how do you see that potentially impacting M&A in the U.S.?

I think it's a good thing. And it would make the IRRs slightly more attractive from our perspective in the U.S.

than they are in the other places.

Do you think valuations would increase to partially offset that?

I suspect.

The depreciation expense was up quite sharply relative to last quarter. Were there any one-time items in there?

Or is that just reflective of the recent acquisitions?

There was a $1 million write-off of a -- leasehold improvement that went through there. And that's -- yes, nothing else onetime.

Okay. And from a seasonal perspective, I know that you have a margin hit at the start of every year related to the payroll taxes and the bonuses.

Last year, they fell into Q1; the year before they'd been spread out through Q1 and Q2. What should we expect this year, will that be primarily a Q1 impact?

Should be, yes, if I can get the files and get the bonus share buying done in time, then yes, should be in Q1.

Okay. You mentioned the break fee for Redknee.

Were there any significant offsetting external costs related to that?

I'm sure we paid lawyers something.

Yes, there were some legal fees. Not to completely offset it, but yes.

Okay. And finally, Mark, you recently announced the Japanese joint venture.

Can you provide some color in terms of maybe any early observations you have with respect to the opportunities you see in that market? And whether this is the structure that you might look to replicate in other regions?

Well, to some extent, it's similar to what we have in the Netherlands, in that we have a minority shareholder helping us pursue a local market where there are some language and cultural differences. And it's sure nice to have someone helping you in a place like Japan where otherwise I would be very much at sea.

And it's way too early to tell whether it's going to develop into anything of substance, but that's certainly my hope.

Could you comment on the takeaways from the Redknee experience? And any thoughts on competing for larger deals at this point?

It's not much different than our past experience. I think we were involved as shareholders with, I think it's been 20 public companies now.

And I think 16 of them ultimately got taken over. And we managed to acquire 1 of them.

So I think our hit rate is holding.

Okay, great. And then in terms of SaaS, could you talk about -- I think in the past you provided a percentage of maintenance revenue, and maybe you could give us a bit of an update on your thinking there?

Our thinking hasn't changed, but the -- we haven't collected that data recently. And it tends to be a bit arbitrary, because what is SaaS?

Is it an economic model? Is it a technology model?

Is it somewhere in between? If you use a legacy application and host it, is that SaaS and -- as many people do?

And so it just seemed to be pandering to the analyst community when we provided it, as opposed to doing something that was both useful and informative.

Mark, I was wondering if you can give us some commentary on the relative opportunities globally. Are there some regions that are more active than others?

Are valuations more attractive in certain regions than others? It seems like you've kind of focused a bit more outside of the U.S.

and Canada. I just want to give some perspective on that.

When I look through sales force, and I look at the additions to our database in sales force, I'm constantly amazed by the number of companies we add both in Canada and in the U.S. Obviously, we're increasingly working outside of those geographies, but the lesson from Canada is, when it's close to home, you tend to find a lot more things.

And since we went into the States next after Canada, we're again seeing that phenomena. And so I suspect that when you're looking for lots and lots of little software businesses, there's just sort of a keep digging approach to things.

And more names keep turning up incrementally. So I think these markets are fairly deep.

And we haven't seen the end in Canada and the U.S. And I suspect in other markets it will take many, many years before we start sort of feeling that we've found everything that we'd ever want or hope to own.

I was just wondering if you could tell us a little bit about organic growth, and how you plan to get that on track.

It's not a question of on track. I think there's a sort of ideal range for organic growth.

I think if you're taking market share, you invite competitive response, if it's obvious and painful to the competitors. But if you have a dominant competitor with major market share and you're just nibbling away a percentage or 2 a year and you're small, well then you undergo enormous organic growth.

And it doesn't come back to bite you. But if you're the large player and you take even a tiny share out of mouths of the small fry around you, they're going to starve and they're going to react and you're going to kickoff a competitive response.

And in our business, it's really easy to turn new name sales and new customer acquisition into a bloodbath for all of the industry participants. And I would say that in the vast majority of cases, that's what happens.

When you occasionally find a market where that isn't the case, then that's nirvana, and the last thing you want to do is drive for organic growth and decimate the profits on new name sales. So it's a very difficult judgment call on how hard you drive for growth.

Obviously, within your own installed base, share of wallet is something you always want to be looking for and that's a customer intimacy driven activity. And you can add tremendous value to clients.

It requires high levels of trust and lots of co-development. And trying to gauge what the opportunities are is very, very difficult for me from my seat.

Only the business unit managers, the people who are out calling on their clients and understanding their clients' needs can have any way of assessing that. So it's -- this isn't a leadership decision that happens at this level, it's a leadership decision that happens at the 200 business units.

But maybe just to help understand more of the specifics. What was is it that drove organic growth in the quarter?

And what specifically do you think will be different going forward?

Well, there are 200 business units, so there are 200 answers to your question. And I have no idea is the answer to the second part.

The organic growth disclosure was really helpful. I'm curious it's with the negative impact of currency.

Jamaal, is this an exercise where I'm sure it was a bit challenging and that can be done to exclude the currency impact from the revenue line items?

Yes, I actually do it internally. It was just how complicated I wanted to make that model.

I would say the FX impact by line item is not materially different, and so adding that additional column I don't think was going to add much to shareholders. But I can look at, maybe, if it makes sense to do it, I'll do it.

But if not, I think we'll [indiscernible].

Okay. Since currency was roughly a 200 basis point headwind in the quarter, at the very simplistic level, we could always just add 200 basis points to each number in the quarterly organic growth column?

Exactly. And on maintenance, it was exactly that.

And that's sort of the key one. That's why I didn't think it was necessary to break it out further.

Yes. But obviously, also indicates that organic license growth grew in the fourth quarter, which is a better trajectory at the end of the year than throughout the entire year, correct?

That'd be correct, yes.

Yes, okay. And the other thing that stood out right, and this again very helpful disclosure, I appreciate it.

Your acquisition multiples on an EV to sales bases remains fantastic, right? Because that should be comparing the adjusted net revenue acquired against the '15 cost, for example.

So the $238 million of net revenue relative to the $248 million you spent to acquire that revenue in 2015, correct?

You can't -- the disclosure we give you, you can't do that simple math. Because, I mean, the numbers included in that pro forma adjustment include acquisitions made in '15 and '16.

I mean I can go over this with you off the call, but yes, it's not so simple to take that number and compare it to dollars deployed in '15.

Okay, fair enough. And then on the...

[indiscernible] the organic growth on license thing, Matt, as I mentioned before, licenses are a -- there's the last bucket when you're making a sale. That's the place where all your discounting goes if you're doing it right.

And I know that there are companies -- software companies who like to discount services and maintenance instead of licenses so they can recognize licenses upfront. But for us, we always do it the other way around because we focus so much on recurring revenue, licenses are going to be wildly volatile.

Yes. That makes a lot -- especially if you're building a long-term relationship with a client that you can have add-on module sales for, I mean it makes a lot of logical sense.

Right, exactly.

I appreciate that point. On the capital you were able to deploy in '16, can you give us an understanding of how much was TSS' capital deployment relative to what we'll call the North American focused business units?

I don't know if we disclose that, but they've been very successful and very professional, and are doing a great job.

Thank you, Melanie. Look forward to speaking with you all at the end of April, when we report Q1.

And when we hold our AGM, I hope a number of you will be able to attend that event. It tends to be one where you get to meet many of the managers who -- and employee shareholders.

And I would recommend it. It may be a bit of a slog to come to Toronto, if you're coming from the States or from out of town.

But the opportunity to see the people who are running the operating groups and some of the business units and to get their perspective, they're the people who build the value of Constellation and are really, really key to what we do. So I hope you'll be able to attend.

Thank you now.