Enghouse Systems Limited
TSX : ENGH

Enghouse Systems Limited

December 15, 2016 17:00 ET

Enghouse Releases Fourth Quarter and Year End Results, Completing Another Strong Year

MARKHAM, ONTARIO--(Marketwired - Dec. 15, 2016) - Enghouse Systems Limited (TSX:ENGH) today announced its fourth quarter (unaudited) and year-end financial results for the period ended October 31, 2016.

Revenue increased by 10.3% to $308.0 million for the fiscal year, compared to revenue of $279.3 million in the previous fiscal year, resulting in another record year for the Company. Income from operating activities was $81.9 million compared to $67.3 million last year, an increase of 21.8%. Net income for the fiscal year was $47.3 million or $1.74 per diluted share compared to $31.4 million or $1.17 per diluted share in the prior year. Adjusted EBITDA for the fiscal year was $86.7 million or $3.19 per diluted share compared to $71.9 million or $2.69 per diluted share last year, an increase of 20.6%.

Operating expenses before special charges related to restructuring of acquired operations were $127.8 million for the fiscal year or 41.5% of revenue compared to $121.4 million (43.4%) in the prior fiscal year as a result of efficiency improvements realized and favourable foreign exchange gains recorded during the fiscal year.

Fourth quarter revenue was $78.7 million, an increase of 3.1% over revenue of $76.3 million in the fourth quarter last year. Revenue in the quarter reflects incremental revenue contributions from acquisitions as well as the unfavourable impact of foreign exchange, largely on the decline in the Pound Sterling post-Brexit. Adjusted EBITDA for the quarter was $26.7 million or $0.99 per diluted share compared to $21.1 million or $0.78 per diluted share in last year's fourth quarter, an increase of 26.5%.

Operating expenses before special charges related to restructuring of acquired operations were $28.9 million compared to $32.9 million in the prior year's fourth quarter and primarily include incremental operating costs related to acquisitions and the favourable impact of foreign exchange gains of $4.2 million booked in the quarter on translation of foreign currency denominated monetary assets and liabilities. Non-cash amortization charges in the quarter were $7.2 million compared to $6.1 million in the prior year's fourth quarter and include amortization charges for acquired software and customer relationships from acquired operations.

Results from operating activities for the quarter were $25.4 million compared to $20.0 million in the prior year's fourth quarter, an increase of 27.2% over the prior year. Net income for the quarter was $19.9 million or $0.73 per diluted share compared to the prior year's fourth quarter net income of $13.2 million or $0.49 per diluted share.

Enghouse generated cash flows from operations of $15.8 million in the quarter compared to $11.3 million in the prior year's fourth quarter. Cash flows generated from operations for the fiscal year were $59.7 million compared to $50.5 million in the prior fiscal year. Enghouse closed the year with $85.9 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 $51.3 million for acquisitions (net of cash acquired), $4.5 million to finalize prior year acquisitions and dividends of $13.9 million.

Shortly before year end on October 28, 2016, Enghouse acquired Presence Technology, S.L. for a purchase price of $19.0 million, net of cash acquired. The Company inherited Presence's pre-existing long-term debt but does not otherwise have any long-term debt. Only the opening balance sheet on acquisition was included in the results for fiscal 2016 as results between the acquisition date and October 31, 2016 were not material.

The Board of Directors has approved an eligible quarterly dividend of $0.14 per common share, payable on February 28, 2017 to shareholders of record at the close of business on February 14, 2017.

A conference call to discuss the results will be held on Friday December 16, 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 "ENGH". 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 Year ended
October 31, 2016 October 31, 2015 October 31, 2016 October 31, 2015
Total Revenue $ 78,726 $ 76,329 $ 307,983 $ 279,313
Results from operating activities 25,398 19,967 81,938 67,263
Depreciation of property, plant and equipment 991 767 3,438 2,688
Special charges 360 328 1,330 1,989
Adjusted EBITDA $ 26,749 $ 21,062 $ 86,706 $ 71,940
Adjusted EBITDA margin 34.0% 27.6% 28.2% 25.8%
Adjusted EBITDA per diluted share $ 0.99 $ 0.78 $ 3.19 $ 2.69
Enghouse Systems Limited
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
As at October 31, 2016 As at October 31, 2015
Assets
Current assets
Cash and cash equivalents $ 78,436 $ 94,131
Short-term investments 7,423 4,306
Accounts receivable, net 73,588 60,765
Prepaid expenses and other assets 9,720 8,330
169,167 167,532
Non-current assets
Long-term deposits and accounts receivable, net 1,357 -
Property, plant and equipment 5,696 5,039
Intangible assets 86,632 68,976
Goodwill 144,578 123,8686
Deferred income tax assets 11,765 10,600
Total assets $ 419,195 $ 376,015
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 55,440 $ 51,284
Income taxes payable 5,139 2,680
Dividends payable 3,767 3,190
Provisions 2,111 3,335
Deferred revenue 54,300 48,694
120,757 109,183
Non-current liabilities
Deferred income tax liabilities 21,053 20,022
Deferred revenue 4,788 3,458
Long-term loans 4,049 -
Total liabilities
150,647

132,663
Shareholders' Equity
Share capital 69,555 64,203
Contributed surplus 3,875 4,029
Retained earnings 187,649 154,866
Accumulated other comprehensive income 7,469 20,254
Total shareholders' equity 268,548 243,352
Total liabilities and shareholders' equity $ 419,195 $ 376,015
Enghouse Systems Limited
Consolidated Interim Statements of Operations and Comprehensive Income
(in thousands of Canadian dollars, except per share amounts)
(Unaudited) (Unaudited)
Three months ended October 31 Year ended October 31
2016 2015 2016 2015
Revenue
Software licenses $ 24,261 $ 23,771 $ 93,411 $ 86,311
Hosted and maintenance services 38,383 36,071 152,368 135,768
Professional services 15,415 15,278 57,842 50,104
Hardware 667 1,209 4,362 7,130
78,726 76,329 307,983 279,313
Direct costs
Software licenses 1,399 1,383 5,477 6,984
Services 21,813 20,712 88,210 76,707
Hardware 847 1,007 3,180 5,013
24,059 23,102 96,867 88,704
Revenue, net of direct costs 54,667 53,227 211,116 190,609
Operating expenses
Selling, general and administrative 17,504 21,509 79,693 77,628
Research and development 10,414 10,656 44,717 41,041
Depreciation of property, plant and equipment 991 767 3,438 2,688
Special charges 360 328 1,330 1,989
29,269 33,260 129,178 123,346
Results from operating activities 25,398 19,967 81,938 67,263
Amortization of acquired software and customer relationships (7,185) (6,086) (28,042) (22,869)
Litigation settlements - - - (8,774)
Finance income 50 40 123 251
Finance expenses (136) 13 (350) (480)
Other income 733 26 797 112
Income before income taxes 18,860 13,960 54,466 35,503
(Recovery of) provision for income taxes
Current income tax expense 5,088 6,506 14,033 8,275
Deferred income tax recovery (6,140) (5,775) (6,843) (4,202)
(1,052) 731 7,190 4,073
Net income for the period $ 19,912 $ 13,229 $ 47,276 $ 31,430
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations (2,102) (779) (12,737) 10,863
Transfer to net income of realized gains on available for sale investments - - (14) (74)
Unrealized gain (loss) on available for sale investments 766 (17) (42) 325
Deferred income tax (expense) recovery (101) 3 8 (33)
Other comprehensive (loss) income (1,437) (793) (12,785) 11,081
Comprehensive income $ 18,475 $ 12,436 $ 34,491 $ 42,511
Earnings per share
Basic $ 0.74 $ 0.50 $ 1.76 $ 1.20
Diluted $ 0.73 $ 0.49 $ 1.74 $ 1.17
Enghouse Systems Limited
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars)



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 - - - - 47,276 47,276
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment - - - (12,737) - (12,737)
Transfer to net income of realized gains on available-for-sale investments
-

-

-

(14)

-

(14)
Unrealized losses on available-for-sale investments - - - (42) - (42)
Deferred income tax recovery - - - 8 - 8
Comprehensive income for the year - - - (12,785) 47,276 34,491
Employee share options:
Value of services recognized - - 892 - - 892
Proceeds on issuing shares 319,700 5,352 (1,046) - - 4,306
Dividends - - - - (14,493) (14,493)
Balance - October 31, 2016 26,906,962 69,555 3,875 7,469 187,649 268,548
Balance - November 1, 2014 26,163,962 59,746 3,782 9,173 135,554 208,255
Net income - - - - 31,430 31,430
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment - - - 10,863 - 10,863
Transfer to net income of realized gains on available-for-sale investments
-

-

-

(74)

-

(74)
Unrealized gain on available-for-sale investments - - - 325 - 325
Deferred income tax expense - - - (33) - (33)
Comprehensive income for the year - - - 11,081 31,430 42,511
Employee share options:
Value of services recognized - - 1,187 - 1,187
Proceeds on issuing shares 423,300 4,457 (940) - 3,517
Dividends - - - (12,118) (12,118)
Balance - October 31, 2015 26,587,262 64,203 4,029 20,254 154,866 243,352
Enghouse Systems Limited
Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited) (Unaudited)

Three months ended October 31

Year ended October 31
2016 2015 2016 2015
Cash flows from operating activities
Net income $ 19,912 $ 13,229 $ 47,276 $ 31,430
Adjustments for:
Depreciation of property, plant and equipment 991 767 3,438 2,688
Amortization of acquired software and customer relationships 7,185 6,086 28,042 22,869
Stock-based compensation expense 144 250 892 1,187
Income tax (recovery) expense (1,052) 731 7,190 4,073
Finance expenses and other income (597) (39) (447) 368
26,583 21,024 86,391 62,615
Changes in non-cash operating working capital (6,751) (8,632) (16,508) (6,631)
Income tax paid (4,047) (1,091) (10,148) (5,495)
Net cash flows from operating activities 15,785 11,301 59,735 50,489
Cash flows from investing activities
Purchase of property, plant and equipment, net (769) (805) (3,372) (2,902)
Purchase of other software (559) (105) (1,764) (356)
Acquisitions, net of cash acquired of $5,230 ($5,475 - 2015) (15,083) (2,402) (51,264) (27,562)
Purchase consideration for prior period acquisitions (387) (264) (4,476) (2,403)
Net proceeds from sale of short-term investments (2,360) 5,547 (2,880) 8,933
Net cash flows used in investing activities (19,158) 1,971 (63,756) (24,290)
Cash flows from financing activities
Issuance of share capital 1,624 2,579 4,306 3,517
Payment of cash dividend (3,755) (3,154) (13,917) (11,545)
Net cash flows used in financing activities (2,131) (575) (9,611) (8,028)
Effect of currency translation adjustments on cash and cash equivalents
(1,574)

(30)

(2,063)

3,180
Net (decrease) increase in cash and cash equivalents during the period (7,078) 12,667 (15,695) 21,351
Cash and cash equivalents- beginning of period 85,514 81,464 94,131 72,780
Cash and cash equivalents - end of period $ 78,436 $ 94,131 $ 78,436 $ 94,131
Enghouse Systems Limited
Selected Segment Reporting Information
(In thousands of Canadian dollars)
(Unaudited)
For the three months ended
October 31
Year ended October 31

2016

2015

2016

2015
Revenue:
Asset Management Group $ 30,450 $ 24,795 $ 115,766 $ 91,077
Interactive Management Group 48,276 51,534 192,217 188,236
Total $ 78,726 $ 76,329 $ 307,983 $ 279,313
Asset Management Group:
- Segment profit before special charges $ 9,967 $ 6,973 $ 31,650 $ 23,153
- Special charges (186) (114) (804) (360)
Asset Management Group profit $ 9,781 $ 6,859 $ 30,846 $ 22,793
Interactive Management Group:
- Segment profit before special charges $ 18,718 $ 15,794 $ 60,895 $ 53,391
- Special charges (174) (214) (526) (1,629)
Interactive Management Group profit $ 18,544 $ 15,580 $ 60,369 $ 51,762
Corporate expenses (2,927) (2,472) (9,277) (7,292)
Results from operating activities $ 25,398 $ 19,967 $ 81,938 $ 67,263
Amortization of acquired software and customer relationships (7,185) (6,086) (28,042) (22,869)
Finance income 50 40 123 251
Finance expenses (136) 13 (350) (480)
Other income 733 26 797 112
Litigation settlements - - - (8,774)
Income before income taxes $ 18,860 $ 13,960 $ 54,466 $ 35,503

Contact Information

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