Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

December 14, 2006 17:56 ET

Enghouse Releases Fourth Quarter and Year-End Results

MARKHAM, ONTARIO--(CCNMatthews - Dec. 14, 2006) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited fourth quarter and year-end financial results for the period ended October 31, 2006.

Fourth quarter revenue was $15.8 million, compared to $11.5 million reported in the same period last year, a 38% increase in revenue, mainly attributable to the incremental contributions of Apropos Technology, Inc. ("Apropos"), which was acquired on November 28, 2005. Net income for the fourth quarter was $2.81 million or $0.11 per share on a diluted basis compared to the prior year's fourth quarter net income of $1.85 million or $0.07 per share, a 52% increase over the prior year. For the fiscal year just ended revenue was $62.5 million compared to $48.4 million in the prior year, while net income was $11.0 million compared to $5.9 million in the prior fiscal year, an 86% increase.

Operating expenses increased to $7.6 million from $6.1 million in the prior year's fourth quarter and were $30.4 million for the fiscal year compared to $25.3 million in the prior year as a result of the inclusion of the operating costs of Apropos. Also included in the operating expenses are non-cash amortization charges of $1.5 million compared to $1.0 million in the prior year's fourth quarter which are related to the amortization of software and intangibles including those recorded as part of the Apropos acquisition. For the fiscal year just ended, amortization expense was $5.7 million compared to $3.7 million in the prior year. Non-cash compensation expense related to stock options was $0.1 million in each of the comparative fourth quarters and was $0.5 million for the fiscal year. Operating income for the fourth quarter was $3.3 million, an increase of 140% over the fourth quarter of fiscal 2005 and was $13.7 million for the year ended October 31, 2006 compared to $5.9 million in the prior year.

The Company generated cash flows from operations of $3.1 million in the quarter compared to $0.9 million in the prior year's fourth quarter. For the fiscal year, the Company generated operating cash flows of $19.9 million compared to $8.4 million in the prior year, closing the year with $98.9 million in cash and short-term investments and no long-term debt. This is after funding the acquisition of Apropos as well as the re-purchase of 179,600 common shares for $1.4 million under the Company's Normal Course Issuer Bid.

The Company remains committed to its acquisition strategy and continues to pursue and investigate acquisition opportunities to further diversify its revenue streams 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.



Enghouse Systems Limited
Consolidated Balance Sheets
(in thousands of Canadian dollars)
(Unaudited)

October 31, October 31,
2006 2005
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Assets
Current
Cash $ 5,602 $ 5,262
Short-term investments 93,249 92,461
Accounts receivable, net 15,253 8,798
Future income taxes 3,253 1,212
Prepaid expenses and other assets 2,074 1,680
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119,431 109,413
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Property, plant and equipment 1,667 2,234
Acquired software and other intangibles 21,370 13,885
Goodwill 13,929 9,637
Long-term future income taxes 3,761 1,551
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$ 160,158 $ 136,720
---------- ----------
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Liabilities
Current
Accounts payable and accrued
liabilities $ 12,688 $ 8,756
Income taxes payable 7,629 4,672
Deferred revenue 16,143 12,633
---------- ----------

36,460 26,061

Future income taxes 10,227 6,303
Deferred revenue 64 264
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46,751 32,628
Shareholders' Equity

Share capital 49,047 48,486
Contributed surplus 262 820
Retained earnings 69,549 58,546
Cumulative translation adjustment (5,451) (3,760)
---------- ----------

113,407 104,092

$ 160,158 $ 136,720
---------- ----------
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Enghouse Systems Limited
Consolidated Statements of Operations and Retained Earnings
(in thousands of Canadian dollars except per share amounts)
(Unaudited)

Three months Twelve months
ended Oct 31 ended Oct 31
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2006 2005 2006 2005
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Revenue
Software licenses $ 4,517 $ 2,503 $ 17,984 $ 10,089
Services 10,781 8,628 42,990 36,198
Hardware 551 405 1,508 2,143
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15,849 11,536 62,482 48,430
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Cost of Sales
Software licenses 499 419 2,126 2,122
Services 3,958 3,382 14,946 13,542
Hardware 503 251 1,298 1,605
----------------- ------------------
4,960 4,052 18,370 17,269

Gross Margin 10,889 7,484 44,112 31,161

Operating expenses
Selling, general and administrative 3,851 3,040 15,005 13,263
Research and development 1,907 1,678 7,991 6,614
Stock-based compensation 142 140 530 461
Amortization of property, plant
and equipment 219 301 1,184 1,199
Amortization of acquired software
and other intangibles 1,472 952 5,660 3,733

----------------- ------------------
7,591 6,111 30,370 25,270
----------------- ------------------

Income before the undernoted 3,298 1,373 13,742 5,891

Interest income, net 1,044 632 3,313 2,134
Other income 51 836 87 1,081
----------------- ------------------

Net income before income taxes 4,393 2,841 17,142 9,106

Provision for income taxes 1,580 996 6,139 3,193
----------------- ------------------

Net income for the period $ 2,813 $ 1,845 $ 11,003 $ 5,913
----------------- ------------------
----------------- ------------------

----------------- ------------------
Retained Earnings, beginning
of period $ 66,736 $ 56,701 $ 58,546 $ 52,633

Retained Earnings, end of period $ 69,549 $ 58,546 $ 69,549 $ 58,546
----------------- ------------------
----------------- ------------------

Earnings per share
Basic $ 0.11 $ 0.07 $ 0.43 $ 0.23
Diluted $ 0.11 $ 0.07 $ 0.42 $ 0.22
Weighted average shares outstanding
during period (millions)
- basic 25.5 25.5 25.4 25.4
- diluted 26.4 26.4 26.4 26.4




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

For the For the
three months twelve months
ended Oct 31 ended Oct 31
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2006 2005 2006 2005
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Cash flows from operating
activities:
Net income for the period $ 2,813 $ 1,845 $11,003 $ 5,913

Add (deduct) items not
involving cash:
Amortization of property, plant
and equipment 219 301 1,184 1,199
Amortization of acquired software
and other intangibles 1,472 952 5,660 3,733
Stock-based compensation expense 142 140 530 461
Gain on sale of short-term
investments (51) (836) (87) (1,081)
Future income taxes (413) (20) 1,645 1,517
------------------- ------------------
Cash flows before changes in
operating assets and liabilities 4,182 2,382 19,935 11,742

Changes in operating assets and
liabilities

(Increase) decrease in accounts
receivable, net (979) (699) (3,887) 1,064
(Increase) decrease in prepaid
expenses and other assets (134) 225 (92) (318)
Decrease in accounts payable and
accrued liabilities (111) (1,093) (418) (3,354)
Increase in current income taxes
payable 1,144 644 3,032 271
(Decrease) increase in deferred
revenue (2,148) (595) 898 (1,008)
Unrealized foreign exchange gain
(loss) 1,181 11 418 (13)
------------------- ------------------
Cash flows from operating activities 3,135 875 19,886 8,384
------------------- ------------------

Cash flows from investing activities
Net purchase of property, plant
and equipment (291) (57) (560) (1,084)
Acquisitions, net of cash acquired - - (38,202) (1,157)
Net (purchase) sale of short-term
investments (4,903) (817) 20,088 (11,751)
------------------- ------------------
(5,194) (874) (18,674) (13,992)
------------------- ------------------

Cash flows from financing
activities
Issuance of share capital 31 246 903 316
Purchase and cancellation of
common shares - - (1,430) (124)
------------------- ------------------
31 246 (527) 192

Effect of foreign exchange rate
changes on cash (39) (191) (345) (128)
------------------- ------------------

Net (decrease) increase in cash
during the period (2,067) 56 340 (5,544)
Cash - Beginning of period 7,669 5,206 5,262 10,806
------------------- ------------------
Cash - End of period $ 5,602 $ 5,262 $ 5,602 $ 5,262
------------------- ------------------
------------------- ------------------

Supplementary Cash Flow
Information:
Cash paid during the year for
Interest - - - -
Income Taxes 690 266 1,186 1,165

Note: Cash excludes short-term investments


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

Three Months ended Year ended
October 31, October 31, October 31, October 31,
2006 2005 2006 2005
---------------------------------------------------------------------------

Revenue:
Asset Management
Division $ 2,552 $ 3,425 $ 14,945 $ 13,262
Syntellect Division 13,297 8,111 47,537 35,168
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Total $ 15,849 $ 11,536 $ 62,482 $ 48,430
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Segment Profit (EBIT):

Asset Management Division $ 192 $ 1,180 $ 6,400 $ 5,084

Syntellect Division 3,807 733 9,887 2,789

Corporate (701) (540) (2,545) (1,982)
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Total $ 3,298 $ 1,373 $ 13,742 $ 5,891
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