Enghouse Systems Limited

TSX : ESL


Enghouse Systems Limited

March 04, 2014 17:00 ET

Enghouse Releases First Quarter Results and Increases Quarterly Dividend

MARKHAM, ONTARIO--(Marketwired - March 4, 2014) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited first quarter financial results for the period ended January 31, 2014.

First quarter revenue was $47.5 million, an increase of 13% over revenue of $42.0 million in the first quarter last year. The increase in revenue was primarily the result of incremental revenue contributions from acquisitions. Revenue reflects hosted and maintenance services contributions of $25.0 million in the quarter, an increase of 22% over last year. Adjusted EBITDA for the quarter was $12.2 million or $0.45 per diluted share compared to $9.6 million or $0.36 per diluted share in last year's first quarter. Results from operating activities for the quarter were $11.5 million compared to $7.3 million in the prior year's first quarter, an increase of 57% over the prior year. Net income for the quarter was $6.2 million or $0.23 per diluted share compared to the prior year's first quarter net income of $3.4 million or $0.13 per share.

Operating expenses before special charges related to restructuring of acquired operations were $21.9 million compared to $21.2 million in the prior year's first quarter and reflect incremental costs of acquired operations. Of note, as a percentage of revenue, operating expenses before special charges decreased from 50.6% to 46.2% in the quarter. Non-cash amortization charges in the quarter were $3.9 million and include amortization charges for acquired software and customer relationships from acquired operations.

Enghouse closed the quarter with $100.1 million in cash, cash equivalents and short-term investments, compared to $90.3 million at October 31, 2013. This is after cash paid of $2.2 million for acquisitions completed in the quarter and cash dividends of $2.1 million paid in the quarter. The Company continues to have no long-term debt.

Effective March 3, 2014 the Company completed the acquisition of IT Sonix AG ("IT Sonix"). IT Sonix is a software provider specializing in the outbound contact center solutions with offices in Germany, Italy and the UK. IT Sonix's products are installed in 10 of the 30 largest German contact centers and can be deployed as an on-premise, hosted offering or SAAS solution.

The Board of Directors also approved a 25% increase in its eligible quarterly dividend to $0.10 per common share, payable on May 30, 2014 to shareholders of record at the close of business on May 16, 2014. Enghouse has increased its dividend in each of the past six years.

Enghouse remains committed to diversifying its revenue stream and accelerating its expansion into new markets such as Germany and continues to seek accretive acquisitions to grow its market share.

A conference call to discuss the results will be held on Wednesday, March 5, 2014 at 8:45 a.m. EST. To participate, please call 1-416-850-9144 or North American Toll-Free 1-866-400-3310. No PIN is required.

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.

Non-GAAP Measures

The Company uses non-GAAP measures to assess its operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than GAAP do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation. The Company uses Adjusted EBITDA as a measure of operating performance. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Adjusted EBITDA is calculated as income before income taxes adjusted for depreciation of property, plant and equipment, amortization of acquired software and customer relationships, finance income, finance expenses, other income, and special charges for acquisition related restructuring costs. Management uses Adjusted EBITDA to evaluate operating performance as it excludes amortization of software and intangibles (which is an accounting allocation of the cost of software and intangible assets arising on acquisition), any impact of finance and tax related activities, asset depreciation, other income and restructuring costs primarily related to acquisitions.

Adjusted EBITDA:

The table below reconciles Adjusted EBITDA to income before income taxes:

Three Months ended
January 31,
2014
January 31,
2013
Total Revenue $ 47,492 $ 41,957
Income before income taxes 7,702 4,348
Depreciation of property, plant and equipment 529 468
Amortization of acquired software and customer relationships 3,910 3,584
Finance income (143 ) (333 )
Finance expenses 58 81
Other income (7 ) (361 )
Special charges 112 1,815
Adjusted EBITDA $ 12,161 $ 9,602
Adjusted EBITDA margin 26 % 23 %
Adjusted EBITDA per diluted share $ 0.45 $ 0.36
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)
January 31,
2014
October 31,
2013
Assets
Current assets:
Cash and cash equivalents $ 76,997 $ 70,109
Short-term investments 23,084 20,188
Accounts receivable, net 43,103 36,444
Prepaid expenses and other assets 7,321 5,839
150,505 132,580
Non-current assets:
Property, plant and equipment 3,921 3,599
Intangible assets 138,912 132,358
Deferred income tax assets 10,339 9,419
Total assets $ 303,677 $ 277,956
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 32,397 $ 32,659
Income taxes payable 2,468 1,555
Dividends payable 2,087 2,083
Accrued provisions 3,020 3,427
Deferred revenue 49,408 39,325
89,380 79,049
Non-current liabilities:
Deferred income tax liabilities 15,389 14,482
Deferred revenue 1,937 1,797
Total liabilities 106,706 95,328
Shareholders' Equity
Share capital 58,994 58,514
Contributed surplus 3,215 3,175
Retained earnings 119,885 115,800
Accumulated other comprehensive income 14,877 5,139
Total shareholders' equity 196,971 182,628
Total liabilities and shareholders' equity $ 303,677 $ 277,956
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Operations and Comprehensive Income
(in thousands of Canadian dollars, except per share amounts)
(Unaudited)
Three months ended
January 31,
2014 2013
Revenue
Software licenses $ 15,763 $ 15,064
Hosted and maintenance services 25,014 20,563
Professional services 5,132 5,491
Hardware 1,583 839
47,492 41,957
Direct costs
Software licenses 1,200 1,429
Services 11,716 9,584
Hardware 1,019 593
13,935 11,606
Revenue, net of direct costs 33,557 30,351
Operating expenses
Selling, general and administrative 12,676 13,406
Research and development 8,720 7,343
Depreciation of property, plant and equipment 529 468
Special charges 112 1,815
22,037 23,032
Results from operating activities 11,520 7,319
Amortization of acquired software and customer relationships (3,910 ) (3,584 )
Finance income 143 333
Finance expenses (58 ) (81 )
Other income 7 361
Income before income taxes 7,702 4,348
Provision for income taxes 1,530 913
Net income for the period $ 6,172 $ 3,435
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation gain from foreign operations 9,770 861
Transfer to net income of realized gains on available for sale investments (20 ) (425 )
Unrealized (loss) gain on available for sale investments (17 ) 782
Deferred income tax recovery (expense) 5 (47 )
Other comprehensive income 9,738 1,171
Comprehensive income $ 15,910 $ 4,606
Earnings per share
Basic $ 0.24 $ 0.13
Diluted $ 0.23 $ 0.13
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Changes in Equity
(in thousands of Canadian dollars)
(Unaudited)



Share
Capital
-number



Share
capital
$



Contributed
surplus
$

Accumulated
other
comprehensive
income (loss)
$



Retained
earnings
$




Total
$
Balance - November 1, 2013
26,042,962 58,514 3,175 5,139 115,800 182,628
Net income - - - - 6,172 6,172
Other Comprehensive Income:
Cumulative Translation Adjustment - - - 9,770 - 9,770
Transfer to net income of realized gains on available-for-sale investments
-

-

-

(20
)
-

(20
)
Unrealized loss on available-for-sale investments - - - (17 ) - (17 )
Deferred income tax recovery - - - 5 - 5
Comprehensive income for the period - - - 9,738 6,172 15,910
Employee share options:
Value of services recognized 159 - - 159
Proceeds on issuing shares 44,000 480 (119 ) - - 361
Dividends - - - - (2,087 ) (2,087 )
Balance - January 31, 2014 26,086,962 58,994 3,215 14,877 119,885 196,971
Balance - November 1, 2012 25,780,562 55,751 2,847 (29 ) 99,371 157,940
Net income - - - - 3,435 3,435
Other Comprehensive Income:
Cumulative Translation Adjustment - - - 861 - 861
Transfer to net income of realized gains on available-for-sale investments - - -
(425
) -
(425
)
Unrealized gain on available-for-sale investments - - - 782 - 782
Deferred income tax expense - - - (47 ) - (47 )
Comprehensive income for the period - - - 1,171 3,435 4,606
Employee share options:
Value of services recognized - - 137 - - 137
Proceeds on issuing shares 70,400 709 (184 ) - - 525
Dividends - - - - (1,680 ) (1,680 )
Balance - January 31, 2013 25,850,962 56,460 2,800 1,142 101,126 161,528
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)
Three months ended
January 31,
2014 2013
Cash flows from operating activities
Net income for the period $ 6,172 $ 3,435
Adjustments for:
Depreciation of property, plant and equipment 529 468
Amortization of acquired software and customer relationships 3,910 3,584
Stock-based compensation expense 159 137
Income tax expense 1,530 913
Finance expenses and other income 51 (280 )
12,351 8,257
Changes in non-cash operating working capital (1,660 ) 71
Income tax paid (787 ) (2,185 )
Net cash flows from operating activities 9,904 6,143
Cash flows from investing activities
Purchase of property, plant and equipment, net (657 ) (294 )
Acquisitions, net of cash acquired of $334 (2013 - $196) (1,778 ) (9,985 )
Purchase consideration for prior period acquisitions (382 ) -
Net purchase of short-term investments (1,615 ) (4,028 )
Net cash flows used in investing activities (4,432 ) (14,307 )
Cash flows from financing activities
Issuance of share capital 361 525
Payment of cash dividend (2,083 ) (1,676 )
Net cash flows used in financing activities (1,722 ) (1,151 )
Effect of currency translation adjustments on cash and cash equivalents 3,138 306
Net increase (decrease) in cash and cash equivalents during the period 6,888 (9,009 )
Cash and cash equivalents- beginning of period 70,109 59,544
Cash and cash equivalents - end of period $ 76,997 $ 50,535
Enghouse Systems Limited
Selected Segment Reporting Information
(in thousands of Canadian dollars)
(Unaudited)
For the three months
ended January 31
2014 2013
Revenue:
Asset Management Group $ 9,692 $ 5,245
Interactive Management Group 37,800 36,712
Total $ 47,492 $ 41,957
Segment Profit
Asset Management Group $ 2,206 $ 1,108
Interactive Management Group 10,606 7,077
Corporate expenses (1,292 ) (866 )
Amortization of acquired software and customer relationships (3,910 ) (3,584 )
Finance income 143 333
Finance expenses (58 ) (81 )
Other income 7 361
Total $ 7,702 $ 4,348

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