Enghouse Releases Fourth Quarter Results, Completing Another Record Year

MARKHAM, ONTARIO--(Marketwired - Dec. 18, 2014) - Enghouse Systems Limited (TSX:ESL) today announced its fourth quarter (unaudited) and year-end financial results for the period ended October 31, 2014.

Revenue increased by 22% to $220.0 million for the fiscal year, compared to revenue of $179.9 million in the previous fiscal year, resulting in another record year for the Company. Income from operating activities was $52.1 million compared to $40.7 million last year, an increase of 28%. Net income for the fiscal year was $29.7 million or $1.11 per diluted share compared to $24.3 million or $0.92 per diluted share in the prior year. Adjusted EBITDA for the fiscal year was $56.0 million or $2.09 per diluted share compared to $44.9 million or $1.69 per diluted share last year, an increase of 24%.

Revenue for the fourth quarter was $62.1 million, an increase of 32% over last year's fourth quarter revenue of $47.2 million. Income from operating activities for the quarter was $14.6 million compared to $12.0 million last year, an increase of 22%. Net income for the quarter was $9.7 million or $0.36 per diluted share compared to $9.7 million or $0.36 per diluted share last year. Adjusted EBITDA for the quarter was $15.6 million or $0.58 per diluted share compared to $12.4 million or $0.46 per diluted share last year, an increase of 25%.

Increased revenue in the quarter reflects incremental revenue from acquisitions, including Voxtron NV, acquired October 3, 2014, Jinny Software Limited, acquired August 5, 2014 and the favourable impact of foreign exchange. Revenue includes license revenue of $19.1 million, an increase of 27% over last year and $32.2 million from hosted and maintenance services, an increase of 33%. For the fiscal year, license revenue was $71.9 million compared to $58.9 million, while hosted and maintenance services revenue grew by 25% to $115.0 million.

Operating expenses increased to $28.3 million for the quarter and $102.6 million for the fiscal year compared to $21.5 million and $88.1 million respectively last year as a result of the incremental cost of acquired operations and the negative impact of foreign exchange. This also includes research and development costs of $10.7 million for the quarter and $37.7 million for the year, reflecting the Company's continued investment in product development. Foreign exchange continues to impact both the revenue and operating expenses denominated in currencies other than the Canadian dollar. Non-cash amortization charges for the year were $17.6 million compared to $15.6 million in the prior fiscal year and relate to incremental amortization charges for acquired software and customer relationship intangibles recorded on the current year's acquisitions.

The Company closed the year with $84.9 million in cash, cash equivalents and short-term investments, after the payment of approximately $45.0 million related to acquisitions and $9.4 million to dividends. The Company generated cash flows from operating activities of $47.6 million in the year compared to $32.4 million in 2013, an increase of 47%.

Enghouse completed five acquisitions during the fiscal year, expanded the scale and product portfolio of its Asset Management Group, entered new geographic regions and strengthened its presence in key markets. The Company generated strong cash flows and has a healthy balance sheet with no debt. Enghouse remains committed to seeking accretive acquisitions to continue to grow its market share and increase shareholder value.

The Board of Directors has approved an eligible quarterly dividend of $0.10 per common share, payable on February 27, 2015 to shareholders of record at the close of business on February 13, 2015.

A conference call to discuss the results will be held on Friday, December 19, 2014 at 8:45 a.m. EST. To participate, please call 416-640-5947 or North American Toll-Free 1-866-233-4606. 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 larger and more diverse software company through strategic acquisitions and profitable 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.

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 income before income taxes adjusted for depreciation of property, plant and equipment, amortization of acquired software and customer relationships, finance income, finance expenses, other income, 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 income before income taxes:

	Three Months ended						Year ended
	October 31, 2014			October 31, 2013			October 31, 2014			October 31, 2013
Total Revenue	$	62,056		$	47,171		$	219,987		$	179,886
Income before income taxes	$	9,371		$	8,441		$	34,624		$	27,047
Depreciation of property, plant and equipment		643			440			2,315			1,743
Amortization of acquired software and customer relationships		5,195			4,083			17,609			15,568
Finance income		(106	)		(124	)		(492	)		(641	)
Finance expenses		178			55			410			313
Other income		(44	)		(466	)		(87	)		(1,582	)
Special charges		360			-			1,616			2,491
Adjusted EBITDA	$	15,597		$	12,429		$	55,995		$	44,939
Adjusted EBITDA margin		25	%		26	%		25	%		25	%
Adjusted EBITDA per diluted share	$	0.58		$	0.46		$	2.09		$	1.69

Enghouse Systems Limited

Consolidated Statements of Financial Position

(in thousands of Canadian dollars)

		October 31, 2014		October 31, 2013
Assets
Current assets:
	Cash and cash equivalents	$	72,780	$	70,109
	Short-term investments		12,084		20,188
	Accounts receivable, net		54,341		36,444
	Prepaid expenses and other assets		7,571		5,839
			146,776		132,580
Non-current assets:
	Property, plant and equipment		4,020		3,599
	Intangible assets		166,548		132,358
	Deferred income tax assets		10,427		9,419
Total assets		$	327,771	$	277,956
Liabilities
Current liabilities:
	Accounts payable and accrued liabilities	$	41,297	$	32,659
	Income taxes payable		2,644		1,555
	Dividends payable		2,616		2,083
	Accrued provisions		3,407		3,427
	Deferred revenue		47,745		39,325
			97,709		79,049
Non-current liabilities:
	Deferred income tax liabilities		19,930		14,482
	Deferred revenue		1,877		1,797
Total liabilities			119,516		95,328
Shareholders' Equity
Share capital			59,746		58,514
Contributed surplus			3,782		3,175
Retained earnings			135,554		115,800
Accumulated other comprehensive income			9,173		5,139
Total equity			208,255		182,628
Total liabilities and equity		$	327,771	$	277,956

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
			2014			2013			2014			2013
Revenue
	Software licenses		$	19,119		$	15,010		$	71,926		$	58,887
	Hosted and maintenance services			32,221			24,262			115,004			91,762
	Professional services			8,859			6,350			26,708			23,931
	Hardware			1,857			1,549			6,349			5,306
				62,056			47,171			219,987			179,886
Direct costs
	Software licenses			1,454			1,145			5,480			4,336
	Services			16,379			11,471			55,543			43,190
	Hardware			1,346			1,054			4,281			3,592
				19,179			13,670			65,304			51,118
Revenue, net of direct costs				42,877			33,501			154,683			128,768
	Operating expenses
		Selling, general and administrative		16,573			13,145			60,965			53,366
		Research and development		10,707			7,927			37,723			30,463
		Depreciation of property, plant and equipment		643			440			2,315			1,743
		Special charges		360			-			1,616			2,491
				28,283			21,512			102,619			88,063
Results from operating activities				14,594			11,989			52,064			40,705
Amortization of acquired software and customer relationships				(5,195	)		(4,083	)		(17,609	)		(15,568	)
Finance income				106			124			492			641
Finance expenses				(178	)		(55	)		(410	)		(313	)
Other income				44			466			87			1,582
Income before income taxes				9,371			8,441			34,624			27,047
(Recovery of) provision for income taxes
	Current income tax expense			2,844			2,373			6,110			4,519
	Deferred income tax recovery			(3,212	)		(3,644	)		(1,170	)		(1,819	)
				(368	)		(1,271	)		4,940			2,700
Net income for the period			$	9,739		$	9,712		$	29,684		$	24,347
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation (loss) gain from foreign operations				(1,925	)		5,354			4,220			5,575
Transfer to net income of realized gains on available for sale investments				(18	)		(668	)		(74	)		(2,869	)
Unrealized (loss) gain on available for sale investments				(84	)		126			(147	)		2,393
Deferred income tax recovery				20			78			35			69
Other comprehensive (loss) income				(2,007	)		4,890			4,034			5,168
Comprehensive income			$	7,732		$	14,602		$	33,718		$	29,515
Earnings per share
Basic			$	0.37		$	0.37		$	1.14		$	0.94
Diluted			$	0.36		$	0.36		$	1.11		$	0.92

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, 2013		26,042,962		58,514		3,175		5,139		115,800		182,628
Net income		-		-		-		-		29,684		29,684
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment		-		-		-		4,220		-		4,220
Transfer to net income of realized gains on available-for-sale investments		-		-		-		(74	)	-		(74	)
Unrealized loss on available-for-sale investments		-		-		-		(147	)	-		(147	)
Deferred income tax recovery		-		-		-		35		-		35
Comprehensive income for the year		-		-		-		4,034		29,684		33,718
Employee share options:
	Value of services recognized	-		-		877		-		-		877
	Proceeds on issuing shares	121,000		1,232		(270	)	-		-		962
Dividends		-		-		-		-		(9,930	)	(9,930	)
Balance - October 31, 2014		26,163,962		59,746		3,782		9,173		135,554		208,255
Balance - November 1, 2012		25,780,562		55,751		2,847		(29	)	99,371		157,940
Net income		-		-		-		-		24,347		24,347
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment		-		-		-		5,575		-		5,575
Transfer to net income of realized gains on available-for-sale investments		-		-		-		(2,869	)	-		(2,869	)
Unrealized gain on available-for-sale investments		-		-		-		2,393		-		2,393
Deferred income tax recovery		-		-		-		69		-		69
Comprehensive income for the year		-		-		-		5,168		24,347		29,515
Employee share options:
	Value of services recognized	-		-		1,016		-		-		1,016
	Proceeds on issuing shares	262,400		2,763		(688	)	-		-		2,075
Dividends		-		-		-		-		(7,918	)	(7,918	)
Balance - October 31, 2013		26,042,962		58,514		3,175		5,139		115,800		182,628

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
		2014			2013			2014			2013
Cash flows from operating activities
Net income		$	9,739		$	9,712		$	29,684		$	24,347
Adjustments for:
	Depreciation of property, plant and equipment		643			440			2,315			1,743
	Amortization of acquired software and customer relationships		5,195			4,083			17,609			15,568
	Stock-based compensation expense		201			312			877			1,016
	Income tax (recovery) expense		(368	)		(1,271	)		4,940			2,700
	Finance expenses		178			55			410			313
	Other income		(44	)		(466	)		(87	)		(1,582	)
			15,544			12,865			55,748			44,105
Changes in non-cash operating working capital			(7,399	)		(10,020	)		(2,539	)		(7,545	)
Income tax paid			(1,251	)		(693	)		(5,568	)		(4,203	)
Net cash flows from operating activities			6,894			2,152			47,641			32,357
Cash flows from investing activities
Purchase of property, plant and equipment			(11	)		(238	)		(1,324	)		(1,403	)
Acquisitions, net of cash acquired of $4,361 (2013 - $6,004)			(22,466	)		(5,221	)		(40,287	)		(22,433	)
Purchase consideration for prior period acquisitions			(1,016	)		-			(4,725	)		(2,593	)
Net proceeds from sale of short-term investments			7,138			14,006			8,429			7,948
Net cash flows (used in) from investing activities			(16,355	)		8,547			(37,907	)		(18,481	)
Cash flows from financing activities
Issuance of share capital			144			491			962			2,075
Payment of cash dividend			(2,614	)		(2,079	)		(9,397	)		(7,511	)
Net cash flows used in financing activities			(2,470	)		(1,588	)		(8,435	)		(5,436	)
Effect of currency translation adjustments on cash and cash equivalents			(620	)		2,206			1,372			2,125
Net (decrease) increase in cash and cash equivalents during the period			(12,551	)		11,317			2,671			10,565
Cash and cash equivalents - beginning of period			85,331			58,792			70,109			59,544
Cash and cash equivalents - end of period		$	72,780		$	70,109		$	72,780		$	70,109

Enghouse Systems Limited

Selected Segment Reporting Information

(in thousands of Canadian dollars)

(Unaudited)

		For the three months ended October 31						For the year ended October 31
		2014			2013			2014			2013
Revenue:
	Asset Management Group	$	19,457		$	10,332		$	51,094		$	33,804
	Interactive Management Group		42,599			36,839			168,893			146,082
Total		$	62,056		$	47,171		$	219,987		$	179,886
Segment Profit
	Asset Management Group	$	3,971		$	2,794		$	11,427		$	7,365
	Interactive Management Group		12,106			10,377			46,286			37,688
	Corporate expenses		(1,483	)		(1,182	)		(5,649	)		(4,348	)
	Amortization of acquired software and customer relationships		(5,195	)		(4,083	)		(17,609	)		(15,568	)
	Finance income		106			124			492			641
	Finance expenses		(178	)		(55	)		(410	)		(313	)
	Other income		44			466			87			1,582
Total		$	9,371		$	8,441		$	34,624		$	27,047