Enghouse Releases First Quarter Results

MARKHAM, ONTARIO--(Marketwired - March 9, 2016) - Enghouse Systems Limited (TSX:ESL) today announced its first quarter (unaudited) financial results for the period ended January 31, 2016.

First quarter revenue increased by 18.0% to $74.4 million, compared to revenue of $63.0 million in the first quarter of the prior year. Increased revenue in the quarter reflects incremental revenue from acquisitions and the favourable impact of foreign exchange. Income from operating activities was $17.8 million compared to $15.6 million in prior year's first quarter, an increase of 14.6%. Net income for the quarter was $8.5 million or $0.31 per diluted share compared to $2.5 million or $0.09 per diluted share in the prior year's first quarter, which reflected the final settlement of a litigation matter. Adjusted EBITDA for the first quarter was $19.1 million or $0.70 per diluted share compared to $16.2 million or $0.60 per diluted share last year, an increase of 17.8%.

Operating expenses before special charges related to restructuring of acquired operations were $32.4 million compared to $27.6 million in the prior year's first quarter and reflect incremental operating costs related to acquisitions and the negative impact of foreign exchange. Non-cash amortization charges in the quarter were $6.8 million compared to $5.4 million in the prior year's first quarter and include amortization charges for acquired software and customer relationships from acquired operations. Operating expenses in the quarter also include $11.4 million or 15.3% of revenue in research and development related expenses compared to $9.9 million or 15.7% in prior year's first quarter. The Company's continued investment in research and development was recently recognized with two product awards from industry analysts.

Enghouse closed the quarter with $80.0 million in cash, cash equivalents and short-term investments, compared to $98.4 million at October 31, 2015. The cash balance was achieved after payment of $26.0 million (net of cash acquired) for CTI Group (Holdings) Inc., acquired on December 7, 2015 and cash dividends of $3.2 million. The Company continues to have no long-term debt.

The Board of Directors also approved a 17% increase in its eligible quarterly dividend to $0.14 per common share, payable on May 31, 2016 to shareholders of record at the close of business on May 17, 2016. Enghouse has now increased its dividend in each of the past eight years.

On March 4, 2016, Enghouse announced the acquisition of CellVision AS ("CellVision"). CellVision expands the Asset Management Group's footprint in the Nordic region and extends its product offerings aimed at the telecommunications service provider market. Enghouse continues to seek acquisitions that will augment its operations in the networks, transportation and call center markets and further diversify its revenue stream.

A conference call to discuss the results will be held on Thursday March 10, 2016 at 8:45 a.m. EST. To participate, please call 416-640-5946 or North American Toll-Free 1-866-233-4585. 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 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 results from operating activities adjusted for depreciation of property, plant and equipment, 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 the most directly comparable IFRS measure, Results from operating activities:

		Three Months ended
		January 31, 2016			January 31, 2015
Total Revenue		$	74,370		$	63,019
Results from operating activities			17,843			15,575
Depreciation of property, plant and equipment			826			592
Special charges			407			24
Adjusted EBITDA		$	19,076		$	16,191
Adjusted EBITDA margin			25.7%			25.7%
Adjusted EBITDA per diluted share		$	0.70		$	0.60

Enghouse Systems Limited
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)

			January 31, 2016			October 31, 2015
Assets
Current assets:
	Cash and cash equivalents		$	74,314		$	94,131
	Short-term investments			5,694			4,306
	Accounts receivable, net			73,674			60,765
	Prepaid expenses and other assets			10,387			8,330
				164,069			167,532
Non-current assets:
	Property, plant and equipment			6,247			5,039
	Intangible assets			85,608			68,976
	Goodwill			143,997			123,868
	Deferred income tax assets			9,945			10,600
Total assets			$	409,866		$	376,015
Liabilities
Current liabilities:
	Accounts payable and accrued liabilities		$	50,985		$	51,284
	Income taxes payable			2,146			2,680
	Dividends payable			3,217			3,190
	Provisions			4,398			3,335
	Deferred revenue			59,586			48,694
				120,332			109,183
Non-current liabilities:
	Deferred income tax liabilities			25,227			20,022
	Deferred revenue			4,223			3,458
Total liabilities				149,782			132,663
Shareholders' Equity
Share capital				67,286			64,203
Contributed surplus				3,768			4,029
Retained earnings				160,110			154,866
Accumulated other comprehensive income				28,920			20,254
Total shareholders' equity				260,084			243,352
Total liabilities and shareholders' equity			$	409,866		$	376,015

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,
			2016			2015
Revenue
	Software licenses		$	20,770		$	19,612
	Hosted and maintenance services			37,806			32,259
	Professional services			14,435			8,921
	Hardware			1,359			2,227
				74,370			63,019
Direct costs
	Software licenses			1,157			1,677
	Services			21,790			16,784
	Hardware			805			1,333
				23,752			19,794
Revenue, net of direct costs				50,618			43,225
Operating expenses
	Selling, general and administrative			20,141			17,144
	Research and development			11,401			9,890
	Depreciation of property, plant and equipment			826			592
	Special charges			407			24
				32,775			27,650
Results from operating activities				17,843			15,575
	Amortization of acquired software and customer relationships			(6,840)			(5,354)
	Litigation settlements			-			(8,774)
	Finance income			33			113
	Finance expenses			(81)			(117)
	Other income			33			17
Income before income taxes				10,988			1,460
Provision for (recovery of) income taxes				2,527			(1,079)
Net income for the period			$	8,461		$	2,539
Items that are or may be reclassified subsequently to profit or loss:
	Foreign currency translation gain from foreign operations			8,799			9,406
	Transfer to net income of realized gains on available for sale investments			(14)			-
	Unrealized (loss) gain on available for sale investments			(139)			188
	Deferred income tax recovery (expense)			20			(25)
Other comprehensive income				8,666			9,569
Comprehensive income			$	17,127		$	12,108
Earnings per share
Basic			$	0.32		$	0.10
Diluted			$	0.31		$	0.09

Enghouse Systems Limited
Consolidated 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, 2015			26,587,262		64,203		4,029		20,254		154,866		243,352
Net income			-		-		-				8,461		8,461
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment			-		-		-		8,799		-		8,799
Transfer to net income of realized gains on available for- sale investments			-		-		-		(14)		-		(14)
Unrealized loss on available-for-sale investments			-		-		-		(139)		-		(139)
Deferred income tax recovery			-		-		-		20		-		20
Comprehensive income for the period			-		-		-		8,666		8,461		17,127
Employee share options:
	Value of services recognized		-		-		325		-		-		325
	Proceeds on issuing shares		224,200		3,083		(586)		-		-		2,497
Dividends			-		-		-		-		(3,217)		(3,217)
Balance - January 31, 2016			26,811,462		67,286		3,768		28,920		160,110		260,084
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

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

			Three months ended January 31,
			2016			2015
Cash flows from operating activities
Net income for the period			$	8,461		$	2,539
Adjustments for:
	Depreciation of property, plant and equipment			826			592
	Amortization of acquired software and customer relationships			6,840			5,354
	Stock-based compensation expense			325			305
	Provision for (recovery of) income tax			2,527			(1,079)
	Finance expenses and other income			48			100
				19,027			7,811
Changes in non-cash operating working capital				(10,623)			11,806
Income tax paid				(1,497)			(1,975)
Net cash flows from operating activities				6,907			17,642
Cash flows from investing activities
Purchase of property, plant and equipment, net				(1,318)			(1,062)
Purchase of other software				(134)			-
Acquisitions, net of cash acquired of $1,723 (2015 $Nil)				(26,019)			-
Purchase consideration for prior period acquisitions				(690)			(412)
Net purchase of short-term investments				(1,045)			(2,075)
Net cash flows used in investing activities				(29,206)			(3,549)
Cash flows from financing activities
Issuance of share capital				2,497			265
Payment of cash dividend				(3,190)			(2,616)
Net cash flows used in financing activities				(693)			(2,351)
Effect of currency translation adjustments on cash and cash equivalents				3,175			2,369
Net (decrease) increase in cash and cash equivalents during the period				(19,817)			14,111
Cash and cash equivalents - beginning of period				94,131			72,780
Cash and cash equivalents - end of period			$	74,314		$	86,891

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

				For the three months ended January 31
				2016			2015
Revenue:
Asset Management Group				$	25,758		$	19,457
Interactive Management Group					48,612			43,752
Total				$	74,370		$	63,019
	Asset Management Group:
		- Segment profit before special charges		$	5,889		$	5,084
		- Special charges			(225)			(24)
	Asset Management Group profit			$	5,664		$	5,060
	Interactive Management Group:
		- Segment profit before special charges		$	14,741		$	12,298
		- Special charges			(182)			-
	Interactive Management Group profit			$	14,559		$	12,298
	Corporate expenses				(2,380)			(1,783)
Results from operating activities				$	17,843		$	15,575
	Amortization of acquired software and customer relationships				(6,840)			(5,354)
	Litigation settlements				-			(8,774)
	Finance income				33			113
	Finance expenses				(81)			(117)
	Other income				33			17
Income before income taxes				$	10,988		$	1,460