Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

December 16, 2008 17:10 ET

Enghouse Releases Fourth Quarter Results and Announces Dividend

MARKHAM, ONTARIO--(Marketwire - Dec. 16, 2008) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited fourth quarter and year end financial results for the period ended October 31, 2008.

Fourth quarter revenue was $14.6 million, compared to $12.9 million reported in the same period last year. Net income for the fourth quarter was $2.3 million or $0.09 per diluted share compared to the prior year's fourth quarter net loss of ($0.7) million or ($0.03) per diluted share. For the fiscal year, revenue was $53.0 million compared to $55.2 million in the prior year, while net income was $6.0 million compared to $5.5 million in the prior fiscal year, or $0.24 and $0.21 per diluted share respectively. The increase in revenue and net income for the quarter is the result of stronger license and maintenance revenue in the quarter, contributions from recent acquisitions and foreign exchange gains. The results of the fourth quarter of the prior year included a goodwill impairment charge of $1.9 million.

Operating expenses were $6.5 million compared to $7.8 million in the prior year's fourth quarter and include foreign exchange gains of $1.5 million realized on converting U.S. dollar cash balances into Canadian dollars and translating the Company's balance sheet at the fiscal year end exchange rate of $1.2165. The prior year's fourth quarter included exchange losses of $0.6 million. Also included in the operating expenses are non-cash amortization charges of $1.7 million compared to $1.5 million in the prior year's fourth quarter related to the amortization of software and intangibles including those recorded for acquisitions in the current year.

On October 20, 2008 the Company completed the acquisition of the business and assets of Envox Group AB for a purchase price of US$14 million to complement its existing product portfolio in the Interactive Voice Response and Contact Center markets. Results of operations have been included from that date in the Company's Syntellect Division.

The Company generated cash flows from operations of $2.9 million in the fourth quarter compared to cash flows used of $1.0 million in the prior year's fourth quarter. For the fiscal year, the Company generated cash flows from operating activities of $9.2 million compared to $13.0 million in the prior year, closing the year with over $94 million in cash and short-term investments, after payment of US$11.5 million on closing of the Envox acquisition. The Company continues to have no long-term debt.

After the quarter the Company paid an eligible cash dividend of $0.025 per share on November 28, 2008. 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 27, 2009 to shareholders of record at the close of business on February 13, 2009.

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,
2008 2007
----------------------------------------------------------------------------
Assets
Current Assets:
Cash $ 12,331 $ 11,321
Short-term investments 82,099 89,184
Accounts receivable, net 17,515 10,376
Future income taxes 1,895 1,359
Prepaid expenses and other assets 2,947 1,488
---------- ----------

116,787 113,728
---------- ----------

Property and equipment 2,471 1,930
Acquired software and other intangibles 27,373 15,819
Goodwill 21,953 10,652
Future income taxes 3,228 2,791
---------- ----------

$ 171,812 $ 144,920
---------- ----------
---------- ----------

Liabilities
Current Liabilities:
Accounts payable and accrued
liabilities $ 16,490 $ 9,258
Income taxes payable 4,958 7,342
Dividend payable 636 629
Deferred revenue 18,585 12,602
---------- ----------
40,669 29,831

Future income taxes 7,945 6,627
Long term income taxes payable 1,321 -
Deferred revenue 686 953
---------- ----------

50,621 37,411

Shareholders' Equity

Share capital 50,568 48,670
Contributed surplus 1,827 1,771
Retained earnings 72,015 69,931
Accumulated other
comprehensive loss (3,219) (12,863)
---------- ----------
121,191 107,509
---------- ----------

$ 171,812 $ 144,920
---------- ----------
---------- ----------



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
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Revenue
Software licenses $ 3,166 $ 2,413 $ 10,985 $ 11,386
Services 11,329 10,115 40,688 41,997
Hardware 153 379 1,336 1,818
------------------- --------------------

14,648 12,907 53,009 55,201
------------------- --------------------

Cost of Sales
Software licenses 475 558 2,488 2,112
Services 4,469 3,646 16,112 14,663
Hardware 166 327 1,130 1,428
------------------- --------------------
5,110 4,531 19,730 18,203

Gross Margin 9,538 8,376 33,279 36,998

Operating expenses
Selling, general and administrative 2,660 4,116 12,985 15,994
Research and development 1,928 1,985 7,857 8,105
Amortization of property and
equipment 250 240 941 852
Amortization of acquired software
and other intangibles 1,696 1,501 6,208 5,931
------------------- --------------------
6,534 7,842 27,991 30,882
------------------- --------------------

Income before the undernoted 3,004 534 5,288 6,116

Interest income, net 615 1,097 3,256 4,315
Other income - 462 768 1,272
Goodwill impairment - (1,942) - (1,942)
------------------- --------------------

Income before income taxes 3,619 151 9,312 9,761

Provision for income taxes 1,286 806 3,310 4,251
------------------- --------------------

Net income for the period $ 2,333 $ (655) $ 6,002 $ 5,510
------------------- --------------------

Retained Earnings, beginning
of period $ 70,329 $ 71,844 $ 69,931 $ 68,367
Dividends (636) (1,258) (2,537) (1,895)
Purchase and cancellation of
common shares (11) - (1,381) (2,051)
------------------- --------------------
------------------- --------------------
Retained Earnings, end of period $ 72,015 $ 69,931 $ 72,015 $ 69,931
------------------- --------------------
------------------- --------------------

Earnings per share
Basic $ 0.09 $ (0.03) $ 0.25 $ 0.22
Diluted $ 0.09 $ (0.03) $ 0.24 $ 0.21
Weighted average shares
outstanding during period
(millions) - basic 25.5 25.2 24.3 25.4
- diluted 25.8 25.2 24.6 26.2



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
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------

Net income (loss) for the period $ 2,333 $ (655) $ 6,002 $ 5,510

Other comprehensive income (loss):

Unrealized gain (loss) on
translating financial statements
of self-sustaining foreign
operations 6,293 (5,939) 9,871 (7,298)
Transfer to net income of realized
gains on available for sale
investments, net of tax of $107 - - (209) (518)
Unrealized (loss) gain on
available for sale investments,
net of tax of $323 (year-to-date
- $196) (628) 80 (383) 1,022
Unrealized foreign currency
translation gain (loss) on
available for sale investments,
net of tax of $175 (year-to-date
- $187) 340 (161) 365 (217)
------------------------------------------

Other comprehensive income (loss) 6,005 (6,020) 9,644 (7,011)
------------------------------------------

Comprehensive income (loss) $ 8,338 $ (6,675) $ 15,646 $ (1,501)
------------------------------------------
------------------------------------------

Accumulated other comprehensive
loss, beginning of period $ (9,224) $ (6,843) $(12,863) $ (5,852)

Other comprehensive income (loss) 6,005 (6,020) 9,644 (7,011)
------------------------------------------

Accumulated other comprehensive
loss, end of period $ (3,219) $(12,863) $ (3,219) $(12,863)
------------------------------------------
------------------------------------------



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
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Cash flows from operating
activities
Net income for the period $ 2,333 $ (655) $ 6,002 $ 5,510

Add (deduct) items not
involving cash
Amortization of property
and equipment 250 240 941 852
Amortization of acquired
software and other intangibles 1,696 1,501 6,208 5,931
Stock-based compensation expense 51 140 268 472
Goodwill impairment - 1,942 - 1,942
Gain on sale of short-term
investments - - (327) (810)
Gain on sale of patents - (462) (441) (462)
Future income taxes 2,529 (380) 1,149 (177)
-------------------- ---------------------
6,859 2,326 13,800 13,258

Changes in operating assets and
liabilities

Decrease (increase) in accounts
receivable, net 65 (1,066) 1,205 3,850
Decrease (increase) in prepaid
expenses and other assets 214 255 (224) 356
Increase (decrease) in accounts
payable and accrued liabilities 1,032 (833) 786 (2,840)
(Decrease) increase in income
taxes payable (1,675) 1,384 (2,659) 83
Decrease in deferred revenue (1,505) (1,988) (1,234) (711)
Unrealized foreign exchange loss (2,091) (1,076) (2,456) (1,040)
-------------------- ---------------------
Cash flows from operating
activities 2,899 (998) 9,218 12,956
-------------------- ---------------------

Cash flows from investing
activities
Purchase of property and
equipment, net (85) (273) (881) (1,245)
Acquisitions, net of cash acquired (15,504) 206 (20,246) (2,004)
Proceeds from sale of patents - 462 441 462
Proceeds from sale of short-term
investments 16,502 329 12,583 1,507
-------------------- ---------------------
913 724 (8,103) (1,280)
-------------------- ---------------------

Cash flows from financing
activities
Issuance of share capital - - 2,285 151
Payment of cash dividend (638) (629) (2,531) (1,266)
Purchase and cancellation of
common shares (21) - (1,980) (2,724)
-------------------- ---------------------
(659) (629) (2,226) (3,839)
-------------------- ---------------------

Effect of foreign exchange rate
changes on cash 1,278 (1,339) 2,121 (2,118)

-------------------- ---------------------
Net increase (decrease) in cash
during the period 4,431 (2,242) 1,010 5,719
Cash - beginning of period 7,900 13,563 11,321 5,602
-------------------- ---------------------
Cash - end of period $ 12,331 $ 11,321 $ 12,331 $ 11,321
-------------------- ---------------------
-------------------- ---------------------

Supplementary cash flow
information:
Cash paid during the period for
income taxes 143 762 3,628 5,386

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 October 31
----------------------------------------------------------------------------
2008 2007 2008 2007
------------------------------------------

Revenue:
Asset Management Division $ 2,769 $ 2,290 $ 9,816 $ 9,325
Syntellect Division 11,879 10,617 43,193 45,876
------------------------------------------
Total $ 14,648 $ 12,907 $ 53,009 $ 55,201
------------------------------------------
------------------------------------------

Segment Profit (EBIT):
Asset Management Division $ 502 $ (29) $ 89 $ 534
Syntellect Division 1,536 1,507 5,440 8,235
Corporate (565) (391) (2,177) (2,018)
Foreign Exchange 1,531 (553) 1,936 (635)
------------------------------------------
Total $ 3,004 $ 534 $ 5,288 $ 6,116
------------------------------------------
------------------------------------------


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