Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

December 17, 2007 17:13 ET

Enghouse Releases Fourth Quarter Results and Announces Dividend

MARKHAM, ONTARIO--(Marketwire - Dec. 17, 2007) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited fourth quarter and year end financial results for the period ended October 31, 2007.

Fourth quarter revenue was $12.9 million, compared to $15.8 million reported in the same period last year. Net loss for the fourth quarter was $0.7 million or $0.03 per diluted share compared to the prior year's fourth quarter net income of $2.8 million or $0.11 per diluted share. For the fiscal year, revenue was $55.2 million compared to $62.5 million in the prior year, while net income was $5.5 million compared to $11.0 million in the prior fiscal year, or $0.21 and $0.42 per diluted share respectively. The decrease in revenue and net income for the quarter and fiscal year reflects the impact of reduced license revenue and maintenance support revenue from one customer as well as the impact of foreign exchange translation on the Company's predominantly U.S. dollar denominated revenue stream. In the fourth quarter the Company also recorded a goodwill impairment charge of $1.9 million related to its Moore operations and did not record any tax benefits thereon.

Operating expenses of $7.8 million include foreign exchange losses of $0.6 million in the quarter and incremental costs related to Ontira Communications Inc. ("Ontira"), acquired on March 31, 2007. Also included in the operating expenses are non-cash amortization charges of $1.5 million in both year's fourth quarters related to the amortization of software and intangibles including those recorded as part of the Ontira acquisition in the current year.

The Company used cash flows from operations of $1.0 million in the fourth quarter compared to cash flows generated of $3.1 million in the prior year's fourth quarter. For the fiscal year, the Company generated cash flows from operating activities of $13.0 million compared to $19.9 million in the prior year, closing the year with $100.5 million in cash and short-term investments. The Company did not have any positions in asset backed commercial paper at October 31, 2007 and continues to have no long-term debt.

During the quarter Enghouse paid an eligible cash dividend of $0.025 per share and on November 30, 2007, a further eligible cash dividend of $0.025 was paid. At its meeting held today, the Board of Directors authorized the payment of an eligible quarterly dividend of $0.025 per share payable on February 29, 2008 to shareholders of record at the close of business on February 14, 2008.

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,
2007 2006
---------------------------------------------------------------------------
Assets
Current Assets:
Cash $ 11,321 $ 5,602
Short-term investments 89,184 92,621
Accounts receivable, net 10,376 15,253
Future income taxes 1,359 3,480
Prepaid expenses and other assets 1,488 2,074
----------------------------------

113,728 119,030
----------------------------------

Property and equipment 1,930 1,667
Acquired software and other intangibles 15,819 21,370
Goodwill 10,652 13,929
Future income taxes 4,128 3,761
----------------------------------

$ 146,257 $ 159,757
----------------------------------
----------------------------------

Liabilities
Current Liabilities:
Accounts payable and accrued liabilities $ 9,258 $ 12,688
Income taxes payable 7,342 7,629
Dividend payable 629 -
Deferred revenue 12,602 16,143
----------------------------------
29,831 36,460

Future income taxes 7,964 10,227
Deferred revenue 953 64
----------------------------------

38,748 46,751

Shareholders' Equity
Share capital 48,670 49,177
Contributed surplus 1,771 1,314
Retained earnings 69,931 68,367
Accumulated other comprehensive loss (12,863) (5,852)
----------------------------------
107,509 113,006
----------------------------------

$ 146,257 $ 159,757
----------------------------------
----------------------------------



Enghouse Systems Limited
Consolidated Statements of Operations and Retained Earnings
(in thousands of Canadian dollars except per share amounts)
(Unaudited)

Three months ended Twelve months ended
October 31 October 31
---------------------------------------------------------------------------
2007 2006 2007 2006
---------------------------------------------------------------------------
Revenue
Software licenses $ 2,413 $ 4,517 $ 11,386 $ 17,984
Services 10,115 10,781 41,997 42,990
Hardware 379 551 1,818 1,508
-------------------------------------------

12,907 15,849 55,201 62,482
-------------------------------------------

Cost of Sales
Software licenses 558 499 2,112 2,126
Services 3,646 3,958 14,663 14,946
Hardware 327 503 1,428 1,298
-------------------------------------------
4,531 4,960 18,203 18,370

Gross Margin 8,376 10,889 36,998 44,112

Operating expenses
Selling, general and
administrative 3,976 3,851 15,522 15,005
Research and development 1,985 1,907 8,105 7,991
Stock based compensation 140 142 472 530
Amortization of property and
equipment 240 219 852 1,184
Amortization of acquired
software and other intangibles 1,501 1,472 5,931 5,660
-------------------------------------------
7,842 7,591 30,882 30,370
-------------------------------------------

Income before the undernoted 534 3,298 6,116 13,742

Interest income, net 1,097 1,044 4,315 3,313
Other income 462 51 1,272 87
Goodwill impairment (1,942) - (1,942) -
-------------------------------------------

Income before income taxes 151 4,393 9,761 17,142

Provision for income taxes 806 1,580 4,251 6,139
-------------------------------------------

Net income for the period $ (655) $ 2,813 $ 5,510 $ 11,003
-------------------------------------------

Retained Earnings, beginning
of period $ 71,844 $ 65,554 $ 68,367 $ 58,452
Dividends (1,258) - (1,895) -
Purchase and cancellation of
common shares - (2,051) (1,088)
-------------------------------------------
-------------------------------------------
Retained Earnings, end of
period $ 69,931 $ 68,367 $ 69,931 $ 68,367
-------------------------------------------
-------------------------------------------

Earnings per share
Basic $ (0.03) $ 0.11 $ 0.22 $ 0.43
Diluted $ (0.03) $ 0.11 $ 0.21 $ 0.42
Weighted average shares
outstanding during period
(millions)
- basic 25.2 25.5 25.4 25.5
- diluted 25.2 26.4 26.2 26.5



Enghouse Systems Limited
Consolidated Statements of Comprehensive Income (Loss) and Accumulated
Other Comprehensive Loss
(in thousands of Canadian dollars)
(Unaudited)

Three months ended Twelve months ended
October 31 October 31
---------------------------------------------------------------------------
2007 2006 2007 2006
---------------------------------------------------------------------------

Net income for the period $ (655) $ 2,813 $ 5,510 $ 11,003

Other comprehensive loss:

Unrealized loss on translating
financial statements of self
sustaining foreign operations (5,939) (705) (7,298) (1,691)
Transfer to net income of
realized gains on available
for sale investments, net
of tax of $292 - - (518) -
Unrealized gain on available
for sale investments, net of
tax of $45 (year-to-date -
$578) 80 - 1,022 -
Unrealized foreign currency
translation loss on available
for sale investments, net of
tax of $91 (year-to-date - $122) (161) - (217) -
-------------------------------------------

Other comprehensive loss (6,020) (705) (7,011) (1,691)
-------------------------------------------

Comprehensive (loss) income $ (6,675) $ 2,108 $ (1,501) $ 9,312
-------------------------------------------
-------------------------------------------

Accumulated other comprehensive
loss, beginning of period $ (6,843) $ (4,746) $ (5,852) $ (3,760)
Unrealized loss on available
for sale investments, net of
tax of $227 - (401) - (401)
Other comprehensive loss (6,020) (705) (7,011) (1,691)
-------------------------------------------

Accumulated other
comprehensive loss, end of
period $ (12,863) $ (5,852) $ (12,863) $ (5,852)
-------------------------------------------
-------------------------------------------



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

For the three months For the twelve months
ended October 31 ended October 31
---------------------------------------------------------------------------
2007 2006 2007 2006
---------------------------------------------------------------------------
Cash flows from operating
activities
Net income for the period $ (655) $ 2,813 $ 5,510 $ 11,003

Add (deduct) items not
involving cash
Amortization of property
and equipment 240 219 852 1,184
Amortization of acquired
software and other
intangibles 1,501 1,472 5,931 5,660
Stock-based compensation
expense 140 142 472 530
Goodwill impairment 1,942 - 1,942 -
Gain on sale of short-term
investments - (51) (810) (87)
Gain on sale of patents (462) - (462) -
Future income taxes (380) (413) (177) 1,645
----------------------------------------------
2,326 4,182 13,258 19,935

Changes in operating assets
and liabilities

(Increase) decrease in
accounts receivable, net (1,066) (979) 3,850 (3,887)
Decrease (increase) in
prepaid expenses and
other assets 255 (134) 356 (92)
Decrease in accounts payable
and accrued liabilities (833) (111) (2,840) (418)
Increase in current income
taxes payable 1,384 1,144 83 3,032
(Decrease) increase in
deferred revenue (1,988) (2,148) (711) 898
Unrealized foreign exchange
(loss) gain (1,076) 1,181 (1,040) 418
----------------------------------------------
Cash flows from operating
activities (998) 3,135 12,956 19,886
----------------------------------------------

Cash flows from investing
activities
Purchase of property and
equipment, net (273) (291) (1,245) (560)
Acquisitions, net of cash
acquired 206 - (2,004) (38,202)
Proceeds from sale of
patents 462 - 462 -
Net sale (purchase) of
short-term investments 329 (4,903) 1,507 20,088
----------------------------------------------
724 (5,194) (1,280) (18,674)
----------------------------------------------

Cash flows from financing
activities
Issuance of share capital - 31 151 903
Payment of cash dividend (629) - (1,266) -
Purchase and cancellation of
common shares - - (2,724) (1,430)
----------------------------------------------
(629) 31 (3,839) (527)
----------------------------------------------

Effect of foreign exchange
rate changes on cash (1,339) (39) (2,118) (345)

----------------------------------------------
Net (decrease) increase in
cash during the period (2,242) (2,067) 5,719 340
Cash - beginning of period 13,563 7,669 5,602 5,262
----------------------------------------------
Cash - end of period $ 11,321 $ 5,602 $ 11,321 $ 5,602
----------------------------------------------
----------------------------------------------

Supplementary cash flow
information:
Cash paid during the year
for income taxes 762 690 5,386 1,186

Cash excludes short-term investments



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

For the three months For the twelve months
ended October 31 ended October 31
---------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------

Revenue:
Asset Management Division $ 2,290 $ 2,552 $ 9,325 $ 14,945
Syntellect Division 10,617 13,297 45,876 47,537
-------------------------------------------------
Total $ 12,907 $ 15,849 $ 55,201 $ 62,482
-------------------------------------------------
-------------------------------------------------

Segment Profit (EBIT):
Asset Management Division $ (29) $ 390 $ 534 $ 6,834
Less: Goodwill impairment (1,942) - (1,942) -
-------------------------------------------------
Asset Management Division (1,971) 390 (1,408) 6,834

Syntellect Division 1,507 3,807 8,235 9,887
Corporate (391) (701) (2,018) (2,545)
Foreign Exchange (553) (198) (635) (434)
-------------------------------------------------
Total $ (1,408) $ 3,298 $ 4,174 $ 13,742
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