Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

December 16, 2015 17:00 ET

Enghouse Releases Fourth Quarter Results, Completing Another Strong Year

MARKHAM, ONTARIO--(Marketwired - Dec. 16, 2015) - Enghouse Systems Limited (TSX:ESL) today announced its fourth quarter (unaudited) and year-end financial results for the period ended October 31, 2015.

Revenue increased by 27.0% to $279.3 million for the fiscal year, compared to revenue of $220.0 million in the previous fiscal year, resulting in a record year for the Company. Income from operating activities was $67.3 million compared to $52.1 million last year, an increase of 29.1%. Net income for the fiscal year was $31.4 million or $1.17 per diluted share compared to $29.7 million or $1.11 per diluted share in the prior year. Adjusted EBITDA for the fiscal year was $71.9 million or $2.69 per diluted share compared to $56.0 million or $2.09 per diluted share last year, an increase of 28.7%.

Fourth quarter revenue was $76.3 million, an increase of 23.0% over revenue of $62.1 million in the fourth quarter last year. Increased revenue in the quarter reflects incremental revenue from acquisitions and the favorable impact of foreign exchange. Adjusted EBITDA for the quarter was $21.1 million or $0.78 per diluted share compared to $15.6 million or $0.58 per diluted share in last year's fourth quarter.

Results from operating activities for the quarter were $20.0 million compared to $14.6 million in the prior year's fourth quarter, an increase of 36.8% over the prior year. Net income for the quarter was $13.2 million or $0.49 per diluted share compared to the prior year's fourth quarter net income of $9.7 million or $0.36 per diluted share.

Operating expenses before special charges related to restructuring of acquired operations were $32.9 million compared to $27.9 million in the prior year's fourth quarter and primarily include incremental operating costs related to acquisitions and the negative impact of foreign exchange. Non-cash amortization charges in the quarter were $6.1 million compared to $5.2 million in the prior year's fourth quarter and include amortization charges for acquired software and customer relationships from acquired operations. Operating expenses in the fourth quarter also include $10.7 million, or 14.0% of revenue in research and development related expenses compared to $10.7 million or 17.3% in fiscal 2014. As expected, research and development expenses declined as a percentage of revenue as the Company grows its revenue base.

Operating expenses before special charges related to restructuring of acquired operations were $121.4 million for the fiscal year or 43.4% of revenue compared to $101.0 million in the prior fiscal year or 45.9% as a result of efficiency improvements undertaken during the fiscal year.

Enghouse generated cash flows from operations of $11.3 million in the quarter compared to $6.9 million in the prior year's fourth quarter. Cash flows generated from operations for the fiscal year were $50.5 million compared to $47.6 million in the prior fiscal year. Enghouse closed the quarter with $98.4 million in cash, cash equivalents and short-term investments, compared to $84.9 million at October 31, 2014. The cash balance was achieved after payment of $27.6 million for acquisitions (net of cash acquired), $2.4 million to finalize prior year acquisitions, $11.8 million to settle litigation matters and dividends of $11.5 million. The Company continues to have no long-term debt.

The Board of Directors has approved an eligible quarterly dividend of $0.12 per common share, payable on February 29, 2016 to shareholders of record at the close of business on February 15, 2016.

Subsequent to year end, Enghouse completed the previously announced acquisition of CTI Group (Holdings) Inc. ("CTI") on December 7, 2015. Headquartered in Indianapolis, Indiana with operations in the UK, CTI's telecommunications software products include carrier grade billing analytics, self-care, invoice presentment, multi-channel customer interaction recording and call accounting solutions. The products are deployed as on-premise licensed, multi-tenant hosted, SaaS or managed services offerings.

A conference call to discuss the results will be held on Thursday December 17, 2015 at 8:45 a.m. EST. To participate, please call 416-640-5946 or North American Toll-Free 1-866-233-4585. 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 diverse software company through strategic acquisitions targeting the Contact Center, Networks (OSS/BSS) and Transportation/Public Safety sectors. Enghouse shares are listed on the Toronto Stock Exchange under the symbol "ESL". Further information about Enghouse may be obtained from the Company's website 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 results from operating activities adjusted for depreciation of property, plant and equipment, 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 the most directly comparable IFRS measure, Results from operating activities:

Three Months ended Year ended
October 31,
2015
October 31,
2014
October 31,
2015
October 31,
2014
Total Revenue $ 76,329 $ 62,056 $ 279,313 $ 219,987
Results from operating activities 19,967 14,594 67,263 52,064
Depreciation of property, plant and equipment 767 643 2,688 2,315
Special charges 328 360 1,989 1,616
Adjusted EBITDA $ 21,062 $ 15,597 $ 71,940 $ 55,995
Adjusted EBITDA margin 27.6 % 25.1 % 25.8 % 25.5 %
Adjusted EBITDA per diluted share $ 0.78 $ 0.58 $ 2.69 $ 2.09
Enghouse Systems Limited
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
As at
October 31,
2015
As at
October 31,
2014
Assets
Current assets
Cash and cash equivalents $ 94,131 $ 72,780
Short-term investments 4,306 12,084
Accounts receivable, net 60,765 54,341
Prepaid expenses and other assets 8,330 7,571
167,532 146,776
Non-current assets
Property, plant and equipment 5,039 4,020
Intangible assets 68,976 68,014
Goodwill 123,868 98,534
Deferred income tax assets 10,600 10,427
Total assets $ 376,015 $ 327,771
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 51,284 $ 41,297
Income taxes payable 2,680 2,644
Dividends payable 3,190 2,616
Provisions 3,335 3,407
Deferred revenue 48,694 46,434
109,183 96,398
Non-current liabilities
Deferred income tax liabilities 20,022 19,930
Deferred revenue 3,458 3,188
Total liabilities
132,663

119,516
Shareholders' Equity
Share capital 64,203 59,746
Contributed surplus 4,029 3,782
Retained earnings 154,866 135,554
Accumulated other comprehensive income 20,254 9,173
Total shareholders' equity 243,352 208,255
Total liabilities and shareholders' equity $ 376,015 $ 327,771
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
2015 2014 2015 2014
Revenue
Software licenses $ 23,771 $ 19,119 $ 86,311 $ 71,926
Hosted and maintenance services 36,071 32,221 135,768 115,004
Professional services 15,278 8,859 50,104 26,708
Hardware 1,209 1,857 7,130 6,349
76,329 62,056 279,313 219,987
Direct costs
Software licenses 1,383 1,454 6,984 5,480
Services 20,712 16,379 76,707 55,543
Hardware 1,007 1,346 5,013 4,281
23,102 19,179 88,704 65,304
Revenue, net of direct costs 53,227 42,877 190,609 154,683
Operating expenses
Selling, general and administrative 21,509 16,573 77,628 60,965
Research and development 10,656 10,707 41,041 37,723
Depreciation of property, plant and equipment 767 643 2,688 2,315
Special charges 328 360 1,989 1,616
33,260 28,283 123,346 102,619
Results from operating activities 19,967 14,594 67,263 52,064
Amortization of acquired software and customer relationships (6,086 ) (5,195 ) (22,869 ) (17,609 )
Litigation settlements - - (8,774 ) -
Finance income 40 106 251 492
Finance expenses 13 (178 ) (480 ) (410 )
Other income 26 44 112 87
Income before income taxes 13,960 9,371 35,503 34,624
Provision for income taxes
Current income tax expense 6,506 2,844 8,275 6,110
Deferred income tax recovery (5,775 ) (3,212 ) (4,202 ) (1,170 )
731 (368 ) 4,073 4,940
Net income for the period $ 13,229 $ 9,739 $ 31,430 $ 29,684
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations (779 ) (1,925 ) 10,863 4,220
Transfer to net income of realized gains on available for sale investments - (18 ) (74 ) (74 )
Unrealized gain (loss) on available for sale investments (17 ) (84 ) 325 (147 )
Deferred income tax (expense) recovery 3 20 (33 ) 35
Other comprehensive (loss) income (793 ) (2,007 ) 11,081 4,034
Comprehensive income $ 12,436 $ 7,732 $ 42,511 $ 33,718
Earnings per share
Basic $ 0.50 $ 0.37 $ 1.20 $ 1.14
Diluted $ 0.49 $ 0.36 $ 1.17 $ 1.11
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, 2014 26,163,962 59,746 3,782 9,173 135,554 208,255
Net income - - - - 31,430 31,430
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment - - - 10,863 - 10,863
Transfer to net income of realized gains on available-for-sale investments - - - (74 ) - (74 )
Unrealized gain on available-for-sale investments - - - 325 - 325
Deferred income tax expense - - - (33 ) - (33 )
Comprehensive income for the year - - - 11,081 31,430 42,511
Employee share options:
Value of services recognized - - 1,187 - 1,187
Proceeds on issuing shares 423,300 4,457 (940 ) - 3,517
Dividends - - - (12,118 ) (12,118 )
Balance - October 31, 2015 26,587,262 64,203 4,029 20,254 154,866 243,352
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
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
2015 2014 2015 2014
Cash flows from operating activities
Net income $ 13,229 $ 9,739 $ 31,430 $ 29,684
Adjustments for:
Depreciation of property, plant and equipment 767 643 2,688 2,315
Amortization of acquired software and customer relationships 6,086 5,195 22,869 17,609
Stock-based compensation expense 250 201 1,187 877
Income tax expense/(recovery) 731 (368 ) 4,073 4,940
Finance expenses and other income (39 ) 134 368 323
21,024 15,544 62,615 55,748
Changes in non-cash operating working capital (8,632 ) (7,399 ) (6,631 ) (2,539 )
Income tax paid (1,091 ) (1,251 ) (5,495 ) (5,568 )
Net cash flows from operating activities 11,301 6,894 50,489 47,641
Cash flows from investing activities
Purchase of property, plant and equipment, net (805 ) (11 ) (2,902 ) (1,324 )
Purchase of other software (105 ) - (356 ) -
Acquisitions, net of cash acquired of $5,475 ($4,361 - 2014) (2,402 ) (22,466 ) (27,562 ) (40,287 )
Purchase consideration for prior period acquisitions (264 ) (1,016 ) (2,403 ) (4,725 )
Net proceeds from sale of short-term investments 5,547 7,138 8,933 8,429
Net cash flows used in investing activities 1,971 (16,355 ) (24,290 ) (37,907 )
Cash flows from financing activities
Issuance of share capital 2,579 144 3,517 962
Payment of cash dividend (3,154 ) (2,614 ) (11,545 ) (9,397 )
Net cash flows used in financing activities (575 ) (2,470 ) (8,028 ) (8,435 )
Effect of currency translation adjustments on cash and cash equivalents (30 ) (620 ) 3,180 1,372
Net increase (decrease) in cash and cash equivalents during the period 12,667 (12,551 ) 21,351 2,671
Cash and cash equivalents - beginning of period 81,464 85,331 72,780 70,109
Cash and cash equivalents - end of period $ 94,131 $ 72,780 $ 94,131 $ 72,780
Enghouse Systems Limited
Selected Segment Reporting Information
(In thousands of Canadian dollars)
(Unaudited)
For the three
months ended
October 31
Year ended
October 31

2015

2014

2015

2014
Revenue:
Asset Management Group $ 24,795 $ 19,457 $ 91,077 $ 51,094
Interactive Management Group 51,534 42,599 188,236 168,893
Total $ 76,329 $ 62,056 $ 279,313 $ 219,987
Asset Management Group:
- Segment profit before special charges $ 6,973 $ 4,176 $ 23,153 $ 11,966
- Special charges (114 ) (205 ) (360 ) (539 )
Asset Management Group profit 6,859 3,971 22,793 11,427
Interactive Management Group:
- Segment profit before special charges 15,794 12,261 53,391 47,363
- Special charges (214 ) (155 ) (1,629 ) (1,077 )
Interactive Management Group profit 15,580 12,106 51,762 46,286
Corporate expenses (2,472 ) (1,483 ) (7,292 ) (5,649 )
Results from operating activities $ 19,967 $ 14,594 $ 67,263 $ 52,064
Amortization of acquired software and customer relationships (6,086 ) (5,195 ) (22,869 ) (17,609 )
Finance income 40 106 251 492
Finance expenses 13 (178 ) (480 ) (410 )
Other income 26 44 112 87
Litigation settlements - - (8,774 ) -
Income before income taxes $ 13,960 $ 9,371 $ 35,503 $ 34,624

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