Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

September 03, 2009 17:39 ET

Enghouse Releases Third Quarter Results

MARKHAM, ONTARIO--(Marketwire - Sept. 3, 2009) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter financial results for the period ended July 31, 2009.

Third quarter revenue was $23.4 million, compared to $14.7 million reported in the same period last year, an increase of approximately 59%. Net income for the third quarter was $2.4 million or $0.10 per share on a diluted basis compared to the prior year's third quarter net income of $1.6 million or $0.06 per share. The increase in revenue was the result of increased license and services revenue in the Company's traditional Syntellect Division operations as well as incremental revenue from recent acquisitions, Trio Enterprise AB ("Trio"), acquired April 1, 2009 and Envox, acquired on October 20, 2008 and the favourable impact of foreign exchange on the conversion of U.S. dollar revenue into Canadian dollars.

Operating expenses increased to $10.6 million from $6.2 million in the prior year's third quarter and include incremental operating costs related to acquisitions and the impact of foreign exchange on U.S. dollar denominated operating expenses converted to Canadian dollars. Non-cash amortization charges were $1.8 million compared to $1.6 million in the prior year's third quarter and includes amortization charges for acquired software and other intangibles from acquired operations including Envox and Trio.

The Company generated cash flows from operations of $7.2 million in the third quarter compared to $2.3 million in the prior year's third quarter, closing the quarter with $91.8 million in cash and short-term investments compared to $94.4 million at October 31, 2008. The Company continues to have no long-term debt. Since October 2008, the Company has spent $7.4 million on acquisitions and $2.0 million on dividend payments. In addition, the Company remains active in its normal course issuer buyback, re-purchasing 44,100 common shares in the quarter at an average cost of $5.89 per share for a total cost of $0.3 million. On a year to date basis the Company has repurchased 936,924 common shares for a total cost of $4.5 million or $4.78 per share. Total cash spent on acquisitions, share buybacks and dividends to shareholders since October 31, 2008 was $13.9 million.

About Enghouse

Enghouse Systems Limited is a leading global provider of enterprise software solutions serving a variety of distinct vertical markets. Its strategy is to build a larger and more diverse software company through strategic acquisitions and managed growth. Enghouse shares are listed on the Toronto Stock Exchange under the symbol "ESL". Further information about Enghouse may be obtained from the Company's web site at www.enghouse.com.



Enghouse Systems Limited
Consolidated Balance Sheets
(in thousands of Canadian dollars)
(Unaudited)

July 31, October 31,
2009 2008
----------------------------------------------------------------------------
Assets
Current
Cash $ 32,235 $ 12,331
Short-term investments 59,532 82,099
Accounts receivable, net 16,078 17,515
Future income taxes 779 1,895
Prepaid expenses and other assets 2,899 2,947
--------------- -------------

111,523 116,787
--------------- -------------

Property and equipment, net 1,839 2,471
Acquired software and other intangibles, net 24,621 27,373
Goodwill 20,360 21,953
Future income taxes 3,705 3,228
--------------- -------------

$ 162,048 $ 171,812
--------------- -------------
--------------- -------------
Liabilities
Current
Accounts payable and accrued liabilities $ 17,157 $ 16,490
Income taxes payable 1,394 4,958
Dividend payable 746 636
Deferred revenue 18,029 18,585
--------------- -------------
37,326 40,669

Future income taxes 7,360 7,945
Long-term income taxes payable 1,043 1,321
Deferred revenue 218 686
--------------- -------------

45,947 50,621
Shareholders' Equity
Share capital 49,734 50,568
Contributed surplus 1,996 1,827
Retained earnings 71,375 72,015
Accumulated other comprehensive loss (7,004) (3,219)
--------------- -------------
116,101 121,191

$ 162,048 $ 171,812
--------------- -------------
--------------- -------------


Enghouse Systems Limited
Consolidated Statements of Operations and Retained Earnings
(in thousands of Canadian dollars except per share amounts)
(Unaudited)

Three months ended July 31 Nine months ended July 31
----------------------------------------------------------------------------
2009 2008 2009 2008
----------------------------------------------------------------------------
Revenue
Software licenses $ 7,889 $ 3,517 $ 17,450 $ 7,819
Services 13,747 10,742 37,810 29,359
Hardware 1,717 434 3,155 1,183
---------------------------------------------------

23,353 14,693 58,415 38,361
---------------------------------------------------
Cost of sales
Software licenses 1,517 995 3,029 2,013
Services 4,883 4,370 14,751 11,643
Hardware 1,238 353 2,518 964
---------------------------------------------------
7,638 5,718 20,298 14,620

Gross margin 15,715 8,975 38,117 23,741

Operating expenses
Selling, general and
administrative 7,118 3,767 17,649 10,728
Research and development 3,152 2,195 9,117 5,931
Amortization of property
and equipment 320 263 979 691
---------------------------------------------------
10,590 6,225 27,745 17,350
---------------------------------------------------

Income before the
undernoted 5,125 2,750 10,372 6,391

Amortization of acquired
software and other
intangibles (1,840) (1,570) (5,505) (4,512)
Foreign exchange (loss)
gain 107 104 182 405
Interest income, net 228 723 1,175 2,641
Other income 24 441 24 768
---------------------------------------------------

Income before income taxes 3,644 2,448 6,248 5,693

Provision for income taxes
Current 373 937 1,419 2,408
Future 840 (73) 666 (384)
---------------------------------------------------
Net income for the
period $ 2,431 $ 1,584 $ 4,163 $ 3,669
---------------------------------------------------
---------------------------------------------------

Retained earnings,
beginning of period $ 69,865 $ 69,548 $ 72,015 $ 69,931

Dividends (746) (637) (2,115) (1,901)
Purchase and
cancellation
of common shares (175) (166) (2,688) (1,370)
---------------------------------------------------
Retained earnings, end
of period $ 71,375 $ 70,329 $ 71,375 $ 70,329
---------------------------------------------------
---------------------------------------------------

Earnings per share
Basic $ 0.10 $ 0.06 $ 0.17 $ 0.15
Diluted $ 0.10 $ 0.06 $ 0.17 $ 0.14
Weighted average shares
outstanding during
period (millions)
- basic 24.9 25.2 25.0 25.3
- diluted 25.2 25.8 25.1 25.9



Enghouse Systems Limited
Consolidated Statements of Comprehensive Income and Accumulated Other
Comprehensive Loss
(in thousands of Canadian dollars)
(Unaudited)

Three months ended July 31 Nine months ended July 31
----------------------------------------------------------------------------
2009 2008 2009 2008
----------------------------------------------------------------------------

Net income for the period $ 2,431 $ 1,584 $ 4,163 $ 3,669

Other comprehensive (loss)
income:
Unrealized (loss) gain on
translating financial
statements of self
sustaining foreign
operations (2,891) 955 (3,839) 3,579
Transfer to net income of
realized gains on
available for sale
investments, net of
tax of $8
(nine months - $88) (16) - (172) (209)
Unrealized gain (loss) on
available for sale
investments, net of tax of
($220) (nine months - ($259)) 429 (122) (505) 244
Unrealized foreign currency
translation gain on
available for sale
investments, net of tax of
$36 (nine months - $376) 71 55 731 25
-------------------------------------------------

Other comprehensive (loss)
income $ (2,407) $ 888 $ (3,785) $ 3,639
-------------------------------------------------
-------------------------------------------------

Comprehensive income $ 24 $ 2,472 $ 378 $ 7,308
-------------------------------------------------
-------------------------------------------------

Accumulated other
comprehensive loss,
beginning of period $ (4,597) $ (10,112) $ (3,219) $ (12,863)

Other comprehensive (loss)
income (2,407) 888 (3,785) 3,639
-------------------------------------------------

Accumulated other
comprehensive loss, end
of period $ (7,004) $ (9,224) $ (7,004) $ (9,224)
-------------------------------------------------
-------------------------------------------------

----------------------------------------------------------------------------



Enghouse Systems Limited
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)

For the For the
three months nine months ended
ended July 31 July 31
----------------------------------------------------------------------------
2009 2008 2009 2008
----------------------------------------------------------------------------
Cash flows from operating
activities
Net income for the period $ 2,431 $ 1,584 $ 4,163 $ 3,669

Add (deduct) items not involving
cash
Amortization of property and
equipment 320 263 979 691
Amortization of acquired
software and other intangibles 1,840 1,570 5,505 4,512
Stock-based compensation
expense 88 75 169 217
Gain on sale of short-term
investments (24) - (24) (327)
Gain on sale of patents - (441) - (441)
Future income taxes 840 (73) 666 (384)
-------------------------------------------
Cash flows before changes in
operating assets and liabilities 5,495 2,978 11,458 7,937

Changes in operating assets and
liabilities

(Increase) decrease in accounts
receivable, net (1,144) (171) 3,126 1,140
Decrease (increase) in prepaid
expenses and other assets 353 (36) 269 (438)
Increase (decrease) in accounts
payable and accrued liabilities 4,103 355 1,622 (246)
Increase (decrease) in current
income taxes payable 133 657 (2,377) (1,980)
(Decrease) increase in deferred
revenue (1,932) (818) (60) 271
Unrealized foreign exchange
loss (gain) 164 (654) (144) (365)
-------------------------------------------
Cash flows from operating
activities 7,172 2,311 13,894 6,319
-------------------------------------------

Cash flows from investing
activities
Purchase of property and
equipment, net (98) (356) (354) (796)
Acquisitions, net of cash
acquired (75) (2,467) (6,935) (4,742)
Proceeds from sale of patents - 441 - 441
Proceeds (purchase) of
short-term investments 888 (4,229) 21,168 (3,919)
-------------------------------------------
715 (6,611) 13,879 (9,016)
-------------------------------------------

Cash flows from financing
activities
Issuance of share capital 5 1,076 955 2,285
Payment of cash dividend (748) (629) (2,005) (1,893)
Purchase and cancellation of
common shares (259) (242) (4,477) (1,959)
-------------------------------------------
(1,002) 205 (5,527) (1,567)
-------------------------------------------

Effect of foreign exchange rate
changes on cash (1,952) 141 (2,342) 843
-------------------------------------------

Net increase (decrease) in cash
during the period 4,933 (3,954) 19,904 (3,421)
Cash - beginning of period 27,302 11,854 12,331 11,321
-------------------------------------------
Cash - end of period $ 32,235 $ 7,900 $ 32,235 $ 7,900
-------------------------------------------
-------------------------------------------

Supplementary cash flow
information:

Cash paid during the period for
income taxes $ 289 $ 195 $ 1,665 $ 3,485

Note: Cash excludes short-term investments



Enghouse Systems Limited
Selected Segment Reporting Information
(in thousands of Canadian dollars)
(Unaudited)

Three Months ended Nine Months ended
----------------------------------------------------------------------------
July July July July
31, 2009 31, 2008 31, 2009 31, 2008
------------------------------------------------
Revenue:
Asset Management Division $ 2,481 $ 2,836 $ 7,221 $ 7,047
Syntellect Division 20,872 11,857 51,194 31,314
------------------------------------------------
Total $ 23,353 $ 14,693 $ 58,415 $ 38,361
------------------------------------------------
------------------------------------------------

Segment Profit (EBIT):
Asset Management Division $ (89) $ 136 $ (440) $ (413)
Syntellect Division 4,070 1,561 7,131 3,904
Corporate (696) (517) (1,824) (1,612)
Foreign Exchange 107 104 182 405
Interest and other income 252 1,164 1,199 3,409
------------------------------------------------
------------------------------------------------
Total $ 3,644 $ 2,448 $ 6,248 $ 5,693
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