Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

March 05, 2015 16:30 ET

Enghouse Releases First Quarter Results

MARKHAM, ONTARIO--(Marketwired - March 5, 2015) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited first quarter financial results for the period ended January 31, 2015.

First quarter revenue was $63.0 million, an increase of 33% over revenue of $47.5 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 $32.3 million in the quarter, an increase of 29% over last year. Adjusted EBITDA for the quarter was $16.2 million or $0.60 per diluted share compared to $12.2 million or $0.45 per diluted share in last year's first quarter. Results from operating activities for the quarter were $15.6 million compared to $11.5 million in the prior year's first quarter, an increase of 35% over the prior year. Net income for the quarter was $2.5 million or $0.09 per diluted share compared to the prior year's first quarter net income of $6.2 million or $0.23 per diluted share. The decrease in net income in the quarter reflects an adjustment of $8.8 million ($5.0 million net of tax) to the provision for contract litigation matters which were finalized after quarter end.

Operating expenses before special charges related to restructuring of acquired operations were $27.6 million compared to $21.9 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 46.2% to 43.8% in the quarter largely as a result of foreign exchange gains booked to selling, general and administrative expenses. Non-cash amortization charges in the quarter were $5.4 million and include amortization charges for acquired software and customer relationships from acquired operations.

Enghouse generated cash flows from operations of $17.6 million and closed the quarter with $101.8 million in cash, cash equivalents and short-term investments, compared to $84.9 million at October 31, 2014. This is after cash paid of $0.4 million related to acquisition hold backs in the quarter and cash dividends of $2.6 million. The Company continues to have no debt.

Effective March 2, 2015 the Company acquired 100% of the issued and outstanding common shares of CDRator A/S of Denmark for a purchase price of approximately $23.0 million, net of cash acquired. CDRator had annual revenues of $20.0 million in fiscal 2014 and provides market leading solutions that automate billing and customer care functions for mobile networks operators and MVNO/E's (mobile virtual network operators and enablers). This acquisition will further balance the revenue split between our two business segments which as of the first quarter is approximately 70% and 30% respectively for the Interactive and Asset Management Groups.

The Board of Directors also approved a 20% increase in its eligible quarterly dividend to $0.12 per common share, payable on May 29, 2015 to shareholders of record at the close of business on May 15, 2015. Enghouse has increased its dividend in each of the past six years.

Building on Enghouse's presence in Germany established with the acquisitions of CosmoCom and Andtek, the Company added IT Sonix in March 2014 and Voxtron in October 2014 to expand its market reach within Germany and beyond to Italy and Belgium. Enghouse is now one of the more significant contact center solutions providers in the important German market. As the Company continues to grow outside of North America, the foreign exchange risk dependency on any one currency is lessened. Enghouse remains committed to diversifying its revenue stream and accelerating its expansion as it continues to seek accretive acquisitions to grow its market share.

A conference call to discuss the results will be held on Friday, March 5, 2015 at 8:45 a.m. EST. To participate, please call 416-640-5947 or North American Toll-Free 1-866-233-4606. No PIN 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, profitable and more diverse software company through strategic acquisitions targeting the Contact Center, Networks (OSS/BSS) and Transportation/Public Safety sectors. Enghouse shares are listed on the Toronto Stock Exchange under the symbol "ESL". Further information about Enghouse may be obtained from the Company's website 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, litigation settlements 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:
(In thousands of Canadian dollars)
(Unaudited)

Three Months ended
January 31, 2015 January 31, 2014
Total Revenue $ 63,019 $ 47,492
Income before income taxes 1,460 7,702
Depreciation of property, plant and equipment 592 529
Amortization of acquired software and customer relationships 5,354 3,910
Finance income (113) (143)
Finance expenses 117 58
Other income (17) (7)
Litigation settlements 8,774 -
Special charges 24 112
Adjusted EBITDA $ 16,191 $ 12,161
Adjusted EBITDA margin 26% 26%
Adjusted EBITDA per diluted share $0.60 $0.45

Enghouse Systems Limited
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
(Unaudited)

January 31, 2015 October 31, 2014
Assets
Current assets
Cash and cash equivalents $ 86,891 $ 72,780
Short-term investments 14,956 12,084
Accounts receivable, net 56,994 54,341
Prepaid expenses and other assets 8,123 7,571
166,964 146,776
Non-current assets
Property, plant and equipment 4,799 4,020
Intangible assets 169,590 166,548
Deferred income tax assets 13,275 10,427
Total assets $ 354,628 $ 327,771
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 38,289 $ 41,297
Income taxes payable 1,803 2,644
Dividends payable 2,620 2,616
Provisions 13,619 3,407
Deferred revenue 58,006 47,745
114,337 97,709
Non-current liabilities
Deferred income tax liabilities 19,988 19,930
Deferred revenue 1,990 1,877
Total liabilities 136,315 119,516
Shareholders' Equity
Share capital 60,081 59,746
Contributed surplus 4,017 3,782
Retained earnings 135,473 135,554
Accumulated other comprehensive income 18,742 9,173
Total shareholders' equity 218,313 208,255
Total liabilities and shareholders' equity $ 354,628 $ 327,771

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,
2015 2014
Revenue
Software licenses $ 19,612 $ 15,763
Hosted and maintenance services 32,259 25,014
Professional services 8,921 5,132
Hardware 2,227 1,583
63,019 47,492
Direct costs
Software licenses 1,677 1,200
Services 16,784 11,716
Hardware 1,333 1,019
19,794 13,935
Revenue, net of direct costs 43,225 33,557
Operating expenses
Selling, general and administrative 17,144 12,676
Research and development 9,890 8,720
Depreciation of property, plant and equipment 592 529
Special charges 24 112
27,650 22,037
Results from operating activities 15,575 11,520
Litigation settlements (8,774) -
Amortization of acquired software and customer relationships (5,354) (3,910)
Finance income 113 143
Finance expenses (117) (58)
Other income 17 7
Income before income taxes 1,460 7,702
(Recovery of) provision for income taxes (1,079) 1,530
Net income for the period $ 2,539 $ 6,172
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation gain from foreign operations 9,406 9,770
Transfer to net income of realized gains on available for sale investments - (20)
Unrealized gain (loss) on available for sale investments 188 (17)
Deferred income tax (expense) recovery (25) 5
Other comprehensive income 9,569 9,738
Comprehensive income $ 12,108 $ 15,910
Earnings per share
Basic $ 0.10 $ 0.24
Diluted $ 0.09 $ 0.23

Enghouse Systems Limited
Condensed Consolidated Interim Statements of Changes in Equity
(In thousands of Canadian dollars)
(Unaudited)




Share
Capital-
number



Share
capital
$



Contri-
buted
surplus
$
Accum-
ulated
other
compre-
hensive
income
(loss)
$



Retained
earnings
$




Total
$
Balance - November 1, 2014 26,163,962 59,746 3,782 9,173 135,554 208,255
Net income - - - - 2,539 2,539
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment - - - 9,406 - 9,406
Unrealized gain on available-for-sale investments - - - 188 - 188
Deferred income tax expense - - - (25) - (25)
Comprehensive income for the period - - - 9,569 2,539 12,108
Employee share options:
Value of services recognized - - 305 - - 305
Proceeds on issuing shares 38,500 335 (70) - - 265
Dividends - - - - (2,620) (2,620)
Balance - January 31, 2015 26,202,462 60,081 4,017 18,742 135,473 218,313
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 (net of tax):
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

Enghouse Systems Limited
Condensed Consolidated Interim Statements of Cash Flows
(In thousands of Canadian dollars)
(Unaudited)

Three months ended January 31,
2015 2014
Cash flows from operating activities
Net income for the period $ 2,539 $ 6,172
Adjustments for:
Depreciation of property, plant and equipment 592 529
Amortization of acquired software and customer relationships 5,354 3,910
Stock-based compensation expense 305 159
(Recovery of) provision for income taxes (1,079) 1,530
Finance expenses and other income 100 51
7,811 12,351
Changes in non-cash operating working capital 11,806 (1,660)
Income tax paid (1,975) (787)
Net cash flows from operating activities 17,642 9,904
Cash flows from investing activities
Purchase of property, plant and equipment, net (1,062) (657)
Acquisitions, net of cash acquired (2014 - $334) - (1,778)
Purchase consideration for prior period acquisitions (412) (382)
Net purchase of short-term investments (2,075) (1,615)
Net cash flows used in investing activities (3,549) (4,432)
Cash flows from financing activities
Issuance of share capital 265 361
Payment of cash dividend (2,616) (2,083)
Net cash flows used in financing activities (2,351) (1,722)
Effect of currency translation adjustments on cash and cash equivalents 2,369 3,138
Net increase in cash and cash equivalents during the period
14,111 6,888
Cash and cash equivalents- beginning of period 72,780 70,109
Cash and cash equivalents - end of period $ 86,891 $ 76,997

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

Three months ended January 31
2015 2014
Revenue
Asset Management Group $ 19,267 $ 9,692
Interactive Management Group 43,752 37,800
Total $ 63,019 $ 47,492
Segment Profit
Asset Management Group $ 5,060 $ 2,206
Interactive Management Group 12,298 10,606
Corporate expenses (1,783) (1,292)
Amortization of acquired software and customer relationships (5,354) (3,910)
Finance income 113 143
Finance expenses (117) (58)
Other income 17 7
Litigation settlements (8,774) -
Total $ 1,460 $ 7,702

Contact Information

  • Sam Anidjar
    Vice President, Corporate Development
    Enghouse Systems Limited
    Tel: (905) 946-3200
    Email: investor@enghouse.com