Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

December 15, 2010 17:00 ET

Enghouse Releases Fourth Quarter Results and Announces Dividend

MARKHAM, ONTARIO--(Marketwire - Dec. 15, 2010) - Enghouse Systems Limited (TSX:ESL) today announced its fourth quarter (unaudited) and year end financial results for the period ended October 31, 2010.

Fourth quarter revenue was $27.4 million compared to $20.0 million reported in the fourth quarter of last year, an increase of 37%. Operating income was $6.2 million compared to $5.2 million in the prior year's fourth quarter, an increase of 20%. Net income for the fourth quarter was $3.4 million or $0.13 per diluted share compared to $2.6 million or $0.10 per diluted share in the fourth quarter of fiscal 2009.

For the fiscal year, revenue was $94.2 million compared to $78.4 million in the prior year, an increase of 20%, while operating income was $20.0 million compared to $15.6 million in the prior year, an increase of 28%. Net income for the fiscal year was $10.2 million or $0.40 per diluted share compared to $6.7 million or $0.27 per diluted share in the prior year. The increase in revenue in the quarter and fiscal year is attributable to stronger revenue and contributions from acquired operations, Telrex, Mettoni and Pulse Voice. Operating expenses increased to $45.6 million for the year compared to $36.8 million in the prior year as a result of incremental costs related to acquired operations. As has become the norm, revenue and operating costs were also impacted by the continued volatility of foreign exchange as outlined in the Management's Discussion and Analysis ("MD&A") as filed on SEDAR.

The Company recorded non-cash amortization charges of $2.5 million in the quarter compared to $1.8 million in the prior year's fourth quarter. For the fiscal year, the Company reported amortization charges of $8.5 million compared to $7.3 million.

The Company generated operating cash flows of $18.6 million in the fiscal year, compared to $15.8 million in the prior fiscal year and closed the year with $78.3 million in cash and short-term investments. The Company was not active during the year in its normal course issuer buyback. The Company has spent $30.1 million in the fiscal year on acquisitions and $3.5 million on dividends. Enghouse continues to have no long-term debt.

Stephen Sadler, Chairman and Chief Executive Officer said "We are pleased with our progress in the year, expanding our presence in Europe, integrating and aligning our product offering and growing our revenue while remaining focused on generating strong operating cash flows."

At its meeting held today, the Board of Directors authorized the payment of an eligible quarterly dividend of $0.04 per common share payable on February 28, 2011 to shareholders of record as at the close of business on February 14, 2011.

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.

Operating income is not a measure recognized by generally accepted accounting principles ("GAAP") and does not have standardized meaning in accordance with such principles. Therefore, operating income may not be comparable to similar measures presented by other issuers. Operating income is calculated as net income before amortization of acquired software and other intangibles, net interest income, other income, foreign exchange gains and losses and the provision for income taxes. This is denoted as "Income before the undernoted" on the Consolidated Statements of Operations and Retained Earnings of the Company. Management uses operating income to evaluate performance as it excludes amortization of software and intangibles and foreign exchange gains and losses.

Enghouse Systems Limited
Consolidated Balance Sheets
(in thousands of Canadian dollars)
(Unaudited)
  October 31, 2010     October 31, 2009  
   
Assets  
Current              
Cash $ 46,640     $ 39,276  
Short-term investments   31,627       53,876  
Accounts receivable, net   24,500       17,017  
Income tax receivable   591       -  
Future income taxes   447       973  
Prepaid expenses and other assets   3,360       2,434  
               
    107,165       113,576  
               
Property and equipment, net   1,844       1,576  
Acquired software and other intangibles, net   34,330       22,934  
Goodwill   35,137       19,965  
Future income taxes   2,951       3,183  
               
  $ 181,427     $ 161,234  
               
Liabilities  
Current              
Accounts payable and accrued liabilities $ 20,115     $ 17,107  
Income taxes payable   -       1,473  
Dividend payable   1,007       746  
Deferred revenue   26,040       15,765  
    47,162       35,091  
               
Future income taxes   12,571       8,693  
Long-term income taxes payable   522       1,043  
Deferred revenue   790       197  
               
    61,045       45,024  
Shareholders' Equity  
               
Share capital   50,705       49,780  
Contributed surplus   2,429       2,047  
Retained earnings   79,606       73,142  
Accumulated other comprehensive loss   (12,358 )     (8,759 )
    120,382       116,210  
               
               
  $ 181,427     $ 161,234  
 
 
Enghouse Systems Limited
Consolidated Statements of Operations and Retained Earnings
(in thousands of Canadian dollars except per share amounts)
(Unaudited)
  Three months ended
October 31
  Twelve months ended
October 31
 
  2010   2009   2010   2009  
Revenue                        
Software licenses $ 8,794   $ 5,683   $ 30,198   $ 23,133  
Services   17,903     13,737     61,304     51,547  
Hardware   681     583     2,706     3,738  
                         
    27,378     20,003     94,208     78,418  
Cost of sales                        
Software licenses   920     744     4,363     3,773  
Services   6,492     4,512     22,429     19,263  
Hardware   459     519     1,845     3,037  
    7,871     5,775     28,637     26,073  
                         
Gross margin   19,507     14,228     65,571     52,345  
                         
Operating expenses                        
Selling, general and administrative   9,442     5,903     31,807     23,552  
Research and development   3,487     2,834     12,477     11,951  
Amortization of property and equipment   356     296     1,331     1,275  
    13,285     9,033     45,615     36,778  
                         
Income before the undernoted   6,222     5,195     19,956     15,567  
                         
Amortization of acquired software and other intangibles   (2,475 )   (1,826 )   (8,458 )   (7,331 )
Interest income, net   92     134     387     1,309  
Other income, net   203     212     1,145     236  
Foreign exchange gain   90     12     238     194  
                         
Income before income taxes   4,132     3,727     13,268     9,975  
                         
Provision for income taxes                        
  Current   (1,504 )   (317 )   635     1,102  
  Future   2,210     1,473     2,395     2,139  
                         
Net income for the period $ 3,426   $ 2,571   $ 10,238   $ 6,734  
                         
                         
Retained earnings, beginning of period $ 77,186   $ 71,375   $ 73,142   $ 72,015  
                         
Dividends   (1,006 )   (746 )   (3,774 )   (2,861 )
Purchase and cancellation of common shares   -     (58 )   -     (2,746 )
Retained earnings, end of period $ 79,606   $ 73,142   $ 79.606   $ 73,142  
                         
Earnings per share                        
  Basic $ 0.14   $ 0.10   $ 0.41   $ 0.27  
  Diluted $ 0.13   $ 0.10   $ 0.40   $ 0.27  
  Weighted average shares outstanding during period (millions)                        
    - basic   25.2     24.9     25.1     24.9  
    - diluted   25.4     25.2     25.3     25.1  
 
 
Enghouse Systems Limited
Consolidated Statements of Comprehensive Income and Accumulated Other Comprehensive Loss
(in thousands of Canadian dollars)
(Unaudited)
  Three months ended
October 31
  Twelve months ended
October 31
 
  2010   2009   2010   2009  
                         
Net income for the period $ 3,426   $ 2,571   $ 10,238   $ 6,734  
                         
Other comprehensive loss:                        
Unrealized (loss) gain on translating financial statements of self-sustaining foreign operations   (1,171 )   (1,836 )   (4,044 )   (5,675 )
Transfer to net income of realized gains on available for sale investments, net of tax of ($121) (year to date – ($244))   (646 )   (140 )   (1,303 )   (312 )
Unrealized gain on available for sale investments, net of tax of $87 (year to date – $352)   465     1,225     1,881     720  
Unrealized foreign currency translation loss on available for sale investments, net of tax of ($4) (year to date – ($25))   (22 )   (1,004 )   (133 )   (273 )
                         
Other comprehensive loss $ (1,374 ) $ (1,755 ) $ (3,599 ) $ (5,540 )
                         
Comprehensive income $ 2,052   $ 816   $ 6,639   $ 1,194  
                         
Accumulated other comprehensive loss, beginning of period $ (10,984 ) $ (7,004 ) $ (8,759 ) $ ( 3,219 )
                         
Other comprehensive loss   (1,374 )   (1,755 )   (3,599 )   (5,540 )
                         
Accumulated other comprehensive loss, end of period $ (12,358 ) $ (8,759 ) $ ( 12,358 ) $ ( 8,759 )
                         
 
 
Enghouse Systems Limited
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)
  For the three months
ended October 31
  For the twelve months
ended October 31
 
  2010   2009   2010   2009  
Cash flows from operating activities                        
Net income for the period $ 3,426   $ 2,571   $ 10,238   $ 6,734  
                         
Add (deduct) items not involving cash                        
  Amortization of property and equipment   356     296     1,331     1,275  
  Amortization of acquired software and other intangibles   2,475     1,826     8,458     7,331  
  Stock-based compensation expense   111     71     382     240  
  Gain on sale of short-term investments   (605 )   (212 )   (1,547 )   (236 )
  Future income taxes   2,210     1,473     2,395     2,139  
Cash flows before changes in operating assets and liabilities   7,973     6,025     21,257     17,483  
                         
Changes in operating assets and liabilities                        
                         
  (Increase) decrease in accounts receivable, net   (1,443 )   (967 )   151     2,159  
  Decrease in prepaid expenses and other assets   640     464     194     733  
  (Decrease) increase in accounts payable and accrued liabilities   (1,023 )   (142 )   (5,587 )   1,480  
  Decrease in current income taxes payable   (2,379 )   (1,221 )   (3,240 )   (3,598 )
  (Decrease) increase in deferred revenue   (2,350 )   (2,235 )   6,329     (2,295 )
  Unrealized foreign exchange loss (gain)   954     28     (474 )   (116 )
Cash flows from operating activities   2,372     1,952     18,630     15,846  
                         
Cash flows from investing activities                        
Purchase of property and equipment, net   (278 )   (20 )   (887 )   (374 )
Acquisitions, net of cash acquired   -     -     (30,131 )   (6,935 )
Proceeds from sale of short-term investments   (1,623 )   5,931     23,664     27,099  
    (1,901 )   5,911     (7,354 )   19,790  
                         
Cash flows from financing activities                        
Issuance of share capital   20     51     925     1,006  
Payment of cash dividends   (1,007 )   (746 )   (3,514 )   (2,751 )
Purchase and cancellation of common shares   -     (83 )   -     (4,560 )
    (987 )   (778 )   (2,589 )   (6,305 )
                         
Effect of foreign exchange rate changes on cash   (303 )   (44 )   (1,323 )   (2,386 )
                         
Net (decrease) increase in cash during the period   (819 )   7,041     7,364     26,945  
Cash – beginning of period   47,459     32,235     39,276     12,331  
Cash – end of period $ 46,640   $ 39,276   $ 46,640   $ 39,276  
  Supplementary cash flow information:                        
                         
    Cash paid during the period for income taxes $ 91   $ -   $ 2,509   $ 1,665  
                         
  Note: Cash excludes short-term investments
 
 
Enghouse Systems Limited
Selected Segment Reporting Information
(in thousands of Canadian dollars)
(Unaudited)
  Three Months ended   Twelve Months ended  
  October 31, 2010   October 31, 2009   October 31, 2010   October 31, 2009  
                         
                         
Revenue:                        
  Asset Management Group $ 3,499   $ 2,306   $ 13,503   $ 9,527  
  Interaction Management Group   23,879     17,697     80,705     68,891  
Total $ 27,378   $ 20,003   $ 94,208   $ 78,418  
                         
                         
Segment Profit (EBIT):                        
  Asset Management Group $ 843   $ 209   $ 2,910   $ (231 )
  Interaction Management Group   3,738     3,798     11,287     10,929  
  Corporate   (834 )   (638 )   (2,699 )   (2,462 )
  Foreign Exchange   90     12     238     194  
  Interest and other income   295     346     1,532     1,545  
Total $ 4,132   $ 3,727   $ 13,268   $ 9,975  
                         

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