Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

March 09, 2011 17:05 ET

Enghouse Releases First Quarter Results and Announces 25% Increase in Its Dividend

MARKHAM, ONTARIO--(Marketwire - March 9, 2011) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited first quarter financial results for the period ended January 31, 2011.

First quarter revenue was $28.6 million, compared to $19.5 million reported in the same period last year, an increase of 46%. Operating income for the quarter was $6.9 million compared to $3.7 million in the prior year's first quarter, an increase of 85%. Net income for the first quarter was $3.1 million or $0.12 per share on a diluted basis compared to the prior year's first quarter net income of $1.9 million or $0.08 per share. The increase in revenue was primarily a result of increased license sales in the quarter and contributions from acquisitions. As has become the norm, revenue and operating costs are impacted by the volatility of foreign exchange as outlined in the MD&A.

Operating expenses increased to $13.2 million from $9.5 million in the prior year's first quarter and include incremental operating costs related to the Mettoni and Telrex acquisitions, not included in the prior year's first quarter results. Non-cash amortization charges were $2.4 million compared to $1.8 million in the prior year's first quarter and include amortization charges for acquired software and other intangibles from acquired operations, including Mettoni and Telrex.

The Company generated cash flows from operations of $9.5 million in the first quarter compared to $2.1 million in the prior year's first quarter. Enghouse closed the quarter with $83.4 million in cash and short-term investments, after payment of approximately $2.5 million related to the final holdbacks on the Mettoni and Telrex acquisitions, compared to $78.3 million at October 31, 2010. The Company continues to have no long-term debt and did not repurchase any shares in the quarter.

The Board of Directors today authorized a 25% increase to the eligible quarterly dividend to $0.05 per common share, payable on May 31, 2011 to shareholders of record at the close of business on May 17, 2011. The Company remains committed to its strategy of seeking further acquisitions to continue to diversify its revenue stream and expand its market presence.

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.

Operating income is not a measure recognized by generally accepted accounting principles ("GAAP") and does not have standardized meaning in accordance with such principles. Therefore, operating income may not be comparable to similar measures presented by other issuers. Operating income is calculated as net income before amortization of acquired software and other intangibles, net interest income, other income, foreign exchange gains and losses and the provision for income taxes. This is denoted as "Income before the undernoted" on the Consolidated Statements of Operations and Retained Earnings of the Company. Management uses operating income to evaluate performance as it excludes amortization of software and intangibles and foreign exchange gains and losses.

Enghouse Systems Limited
Consolidated Balance Sheets
(in thousands of Canadian dollars)
(Unaudited)
 
  January 31,
2011
    October 31,
2010
 
   
Assets  
Current              
Cash $ 64,247     $ 46,640  
Short-term investments   19,196       31,627  
Accounts receivable, net   27,956       24,500  
Income tax receivable   -       591  
Future income taxes   438       447  
Prepaid expenses and other assets   3,531       3,360  
               
    115,368       107,165  
               
Property and equipment, net   1,740       1,844  
Acquired software and other intangibles, net   31,630       34,330  
Goodwill   34,168       35,137  
Future income taxes   2,680       2,951  
               
  $ 185,586     $ 181,427  
               
Liabilities  
Current              
Accounts payable and accrued liabilities   17,429       20,115  
Income taxes payable   508       -  
Dividend payable   1,007       1,007  
Deferred revenue   31,591       26,040  
    50,535       47,162  
               
Future income taxes   11,910       12,571  
Long-term income taxes payable   522       522  
Deferred revenue   674       790  
               
    63,641       61,045  
Shareholders' Equity  
               
Share capital   50,705       50,705  
Contributed surplus   2,540       2,429  
Retained earnings   81,711       79,606  
Accumulated other comprehensive loss   (13,011 )     (12,358 )
    121,945       120,382  
               
               
  $ 185,586     $ 181,427  
               
 
Enghouse Systems Limited
Consolidated Statements of Operations and Retained Earnings
For the three months ended January 31
(in thousands of Canadian dollars except per share amounts)
(Unaudited)
     
  2011     2010  
Revenue              
Software licenses $ 10,623     $ 5,989  
Services   17,224       12,778  
Hardware   722       769  
               
    28,569       19,536  
Cost of sales              
Software licenses   1,557       936  
Services   6,314       4,887  
Hardware   560       466  
    8,431       6,289  
               
Gross margin   20,138       13,247  
               
Operating expenses              
Selling, general and administrative   9,071       6,249  
Research and development   3,863       2,969  
Amortization of property and equipment   275       300  
    13,209       9,518  
               
Income before the undernoted   6,929       3,729  
               
Amortization of acquired software and other intangibles   (2,440 )     (1,801 )
Foreign exchange (loss) gain   (329 )     82  
Other income   3       564  
Interest income, net   129       151  
               
Income before income taxes $ 4,292     $ 2,725  
               
Provision for income taxes              
  Current   1,305       797  
  Future   (125 )     25  
               
Net income for the period $ 3,112     $ 1,903  
               
Retained earnings, beginning of period   79,606       73,142  
               
Dividends   (1,007 )     (754 )
Retained earnings, end of period $ 81,711     $ 74,291  
               
Earnings per share              
  Basic $ 0.12     $ 0.08  
  Diluted $ 0.12     $ 0.08  
  Weighted average shares outstanding during period (millions)              
    - basic   25.2       24.9  
    - diluted   25.5       25.1  
 
Enghouse Systems Limited
Consolidated Statements of Comprehensive Income and Accumulated Other Comprehensive Loss
For the three months ended January 31
 (in thousands of Canadian dollars)
 (Unaudited)
     
  2011     2010  
               
Net income for the period $ 3,112     $ 1,903  
               
Other comprehensive income:              
Unrealized loss on translating financial statements of self-sustaining foreign operations   (650 )     (1,364 )
Transfer to net income of realized gains on available for sale investments, net of tax of ($1) (Q1/10 ($170))   (2 )     (394 )
Unrealized gain on available for sale investments, net of tax of $4 (Q1/10 – $290)   20       670  
Unrealized foreign currency translation loss on available for sale investments, net of tax of ($4) (Q1/10 – ($21))   (21 )     (49 )
               
Other comprehensive loss $ (653 )   $ (1,137 )
               
Comprehensive income $ 2,459     $ 766  
               
Accumulated other comprehensive loss, beginning of period $ (12,358 )   $ (8,759 )
               
Other comprehensive loss   (653 )     (1,137 )
               
Accumulated other comprehensive loss, end of period $ (13,011 )   $ (9,896 )
               
               
 
Enghouse Systems Limited
 Consolidated Statements of Cash Flows
 For the three months ended January 31
 (in thousands of Canadian dollars)
 (Unaudited)
     
  2011     2010  
Cash flows from operating activities              
Net income for the period $ 3,112     $ 1,903  
               
Add (deduct) items not involving cash              
  Amortization of property and equipment   275       300  
  Amortization of acquired software and other intangibles   2,440       1,801  
  Gain on sale of short-term investments   (3 )     (564 )
  Stock-based compensation expense   111       50  
  Future income taxes   (125 )     25  
Cash flows before changes in operating assets and liabilities   5,810       3,515  
               
Changes in operating assets and liabilities              
               
  Increase in accounts receivable, net   (3,830 )     (927 )
  Increase in prepaid expenses and other assets   (217 )     (306 )
  Increase (decrease) in accounts payable and accrued liabilities   788       (3,712 )
  Increase (decrease) in current income taxes payable   1,105       (732 )
  Increase in deferred revenue   5,860       4,165  
  Unrealized foreign exchange loss   18       87  
Cash flows from operating activities   9,534       2,090  
               
Cash flows from investing activities              
Purchase of property and equipment, net   (176 )     (224 )
Acquisitions, net of cash acquired   (2,450 )     (5,529 )
Proceeds from sale (purchase) of short-term investments   12,443       (1,014 )
    9,817       (6,767 )
               
Cash flows from financing activities              
Issuance of share capital   -       737  
Payment of cash dividend   (1,007 )     (746 )
    (1,007 )     (9 )
               
Effect of foreign exchange rate changes on cash   (737 )     (297 )
               
Net increase (decrease) in cash during the period   17,607       (4,983 )
Cash – beginning of period   46,640       39,276  
Cash – end of period $ 64,247     $ 34,293  

Supplementary cash flow information:
             
               
    Cash paid during the period for income taxes $ 326     $ 1,580  
                   
Note: Cash excludes short-term investments              
 
Enghouse Systems Limited
Selected Segment Reporting Information
(in thousands of Canadian dollars)
(Unaudited)
     
  For the three months ended January 31  
  2011     2010  
               
Revenue:              
  Asset Management Group $ 3,069     $ 2,862  
  Interaction Management Group   25,500       16,674  
Total $ 28,569     $ 19,536  
               
               
Segment Profit (EBIT):              
  Asset Management Group $ 643     $ 26  
  Interaction Management Group   4,696       2,441  
  Corporate expenses   (850 )     (539 )
  Foreign exchange   (329 )     82  
  Interest and other income   132       715  
Total $ 4,292     $ 2,725  
               

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