Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

December 18, 2014 17:00 ET

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

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