Enghouse Systems Limited

TSX : ESL


Enghouse Systems Limited

December 17, 2013 17:00 ET

Enghouse Releases Fourth Quarter Results

MARKHAM, ONTARIO--(Marketwired - Dec. 17, 2013) - Enghouse Systems Limited (TSX:ESL) today announced its fourth quarter (unaudited) and year-end financial results for the period ended October 31, 2013.

Revenue increased by 32% to $179.9 million for the fiscal year, compared to revenue of $136.4 million in the previous fiscal year, culminating in another record year as the Company continues to execute its acquisition strategy. Income from operating activities was $40.7 million compared to $33.2 million last year, an increase of 23%. Net income for the fiscal year was $24.3 million or $0.92 per diluted share compared to $20.9 million or $0.80 per diluted share in the prior year. Adjusted EBITDA for the fiscal year was $44.9 million or $1.69 per diluted share compared to $35.1 million or $1.35 per diluted share last year.

Revenue for the fourth quarter was $47.2 million, an increase of 21% over last year's fourth quarter revenue of $39.0 million. Income from operating activities for the quarter was $12.0 million compared to $9.7 million last year, an increase of 23%. Net income for the quarter was $9.7 million or $0.36 per diluted share compared to $8.3 million or $0.32 per diluted share last year. Adjusted EBITDA for the quarter was $12.4 million or $0.46 per diluted share compared to $10.2 million or $0.39 per diluted share last year.

Increased revenue in the quarter reflects incremental revenue from acquisitions including nominal contributions from recent acquisitions, Safeharbor Knowledge Solutions, acquired September 6, 2013 and Andtek GmbH, acquired October 7, 2013. Revenue also includes hosted and maintenance services revenue of $24.3 million in the quarter, an increase of 21% over last year's fourth quarter. In fiscal 2013, hosted and services revenue was $91.8 million compared to $71.6 million in fiscal 2012 and is attributable to contributions from recent acquisitions and an increase in organic hosted and maintenance services revenue. Software license revenue was $58.9 million compared to $45.1 million, an increase of 31% over fiscal 2012.

Operating expenses were $21.5 million for the quarter and $88.1 million for the fiscal year compared to $18.4 million and $66.5 million respectively last year as a result of the incremental cost of acquired operations. This also includes research and development costs of $7.9 million and $30.5 million in the quarter and year, respectively, consistent with the Company's continued investment in software development. Non-cash amortization charges for the year were $15.6 million compared to $11.0 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 $90.3 million in cash, cash equivalents and short-term investments, after the payment of approximately $25.0 million related to acquisitions and $7.5 million to dividends for the year. The Company generated operating cash flows before non-cash working capital items of $44.1 million in the year compared to $36.2 million in 2012. Enghouse continues to have no long-term debt.

As previously announced, on November 4, 2013 the Company acquired 100% of the issued and outstanding common shares of Information Access Technologies Inc. ("IAT"). IAT is a dynamic company specializing in innovative communication technology which enables companies to design, execute and measure customer communication campaigns for a variety of marketing, customer care and payment processing markets. IAT solutions add premise and hosted products and services for both outbound dialing and broadcast messaging and will be included in the Interactive Management Group results in fiscal 2014. The Company continues to seek further acquisitions to continue to grow its market share globally.

The Board of Directors also announced today an eligible quarterly dividend of $0.08 per common share, payable on February 28, 2014 to shareholders of record at the close of business on February 14, 2014.

A conference call to discuss the results will be held on Wednesday, December 18, 2013 at 8:45 a.m. EST. To participate, please call 416-216-4169 (PIN 8836 010#) or North American Toll-Free 1-866-229-4144 (PIN 8836 610#).

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.

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 measures 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,
2013
October 31,
2012
October 31,
2013
October 31,
2012
Total Revenue $ 47,171 $ 38,952 $ 179,886 $ 136,368
Income before income taxes $ 8,441 $ 6,706 $ 27,047 $ 23,107
Depreciation of property, plant and equipment
440

444

1,743

1,386
Amortization of acquired software and customer relationships
4,083

3,204

15,568

10,974
Finance income (124 ) (289 ) (641 ) (987 )
Finance expenses 55 86 313 269
Other income (466 ) 23 (1,582 ) (145 )
Special charges - 53 2,491 544
Adjusted EBITDA $ 12,429 $ 10,227 $ 44,939 $ 35,148
Adjusted EBITDA margin 26 % 26 % 25 % 26 %
Adjusted EBITDA per diluted share $ 0.46 $ 0.39 $ 1.69 $ 1.35
Enghouse Systems Limited
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
October 31,
2013
October 31,
2012
Assets
Current assets:
Cash and cash equivalents $ 70,109 $ 59,544
Short-term investments 20,188 24,108
Accounts receivable, net 36,444 31,368
Prepaid expenses and other assets 5,839 3,853
132,580 118,873
Non-current assets:
Property, plant and equipment 3,599 3,365
Intangible assets 132,358 106,995
Deferred income tax assets 9,419 10,477
Total assets $ 277,956 $ 239,710
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 32,659 $ 26,053
Income taxes payable 1,555 2,008
Dividends payable 2,083 1,676
Accrued provisions 3,427 1,621
Deferred revenue 39,325 35,935
79,049 67,293
Non-current liabilities:
Deferred income tax liabilities 14,482 13,241
Deferred revenue 1,797 1,236
Total liabilities 95,328 81,770
Shareholders' Equity
Share capital 58,514 55,751
Contributed surplus 3,175 2,847
Retained earnings 115,800 99,371
Accumulated other comprehensive income (loss) 5,139 (29 )
Total equity 182,628 157,940
Total liabilities and equity $ 277,956 $ 239,710
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
2013 2012 2013 2012
Revenue
Software licenses $ 15,010 $ 13,107 $ 58,887 $ 45,108
Hosted and maintenance services 24,262 20,114 91,762 71,608
Professional services 6,350 5,210 23,931 18,083
Hardware 1,549 521 5,306 1,569
47,171 38,952 179,886 136,368
Direct costs
Software licenses 1,145 1,532 4,336 4,115
Services 11,471 8,861 43,190 31,410
Hardware 1,054 408 3,592 1,134
13,670 10,801 51,118 36,659
Revenue, net of direct costs 33,501 28,151 128,768 99,709
Operating expenses
Selling, general and administrative 13,145 11,977 53,366 43,069
Research and development 7,927 5,947 30,463 21,492
Depreciation of property, plant and equipment 440 444 1,743 1,386
Special charges - 53 2,491 544
21,512 18,421 88,063 66,491
Results from operating activities 11,989 9,730 40,705 33,218
Amortization of acquired software and customer relationships (4,083 ) (3,204 ) (15,568 ) (10,974 )
Finance income 124 289 641 987
Finance expenses (55 ) (86 ) (313 ) (269 )
Other income 466 (23 ) 1,582 145
Income before income taxes 8,441 6,706 27,047 23,107
(Recovery of) provision for income taxes (1,271 ) (1,639 ) 2,700 2,234
Net income for the period $ 9,712 $ 8,345 $ 24,347 $ 20,873
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation gain (loss) from foreign operations 5,354 1,652 5,575 (12 )
Transfer to net income of realized gains on available for sale investments
(668
)
-

(2,869
)
(156
)
Unrealized gain (loss) on available for sale investments 126 (42 ) 2,393 (1,111 )
Deferred income tax recovery 78 5 69 215
Other comprehensive income (loss) 4,890 1,615 5,168 (1,064 )
Comprehensive income $ 14,602 $ 9,960 $ 29,515 $ 19,809
Earnings per share
Basic $ 0.37 $ 0.32 $ 0.94 $ 0.82
Diluted $ 0.36 $ 0.32 $ 0.92 $ 0.80
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, 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
Balance - November 1, 2011 25,337,262 52,134 2,970 1,035 84,782 140,921
Net income - - - - 20,873 20,873
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment - - - (12 ) - (12 )
Transfer to net income of realized gains on available-for-sale investments
-

-

-

(156
)
-

(156
)
Unrealized loss on available-for-sale investments - - - (1,111 ) - (1,111 )
Deferred income tax recovery - - - 215 - 215
Comprehensive (loss) income for the year - - - (1,064 ) 20,873 19,809
Employee share options:
Value of services recognized - - 621 - - 621
Proceeds on issuing shares 443,300 3,617 (744 ) - - 2,873
Dividends - - - - (6,284 ) (6,284 )
Balance - October 31, 2012 25,780,562 55,751 2,847 (29 ) 99,371 157,940
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
2013 2012 2013 2012
Cash flows from operating activities
Net income $ 9,712 $ 8,345 $ 24,347 $ 20,873
Adjustments for:
Depreciation of property, plant and equipment 440 444 1,743 1,386
Amortization of acquired software and customer relationships 4,083 3,204 15,568 10,974
Stock-based compensation expense 312 119 1,016 621
Income tax (recovery) expense (1,271 ) (1,639 ) 2,700 2,234
Finance expenses and other income (411 ) 109 (1,269 ) 124
12,865 10,582 44,105 36,212
Changes in non-cash operating working capital (10,020 ) (4,769 ) (7,545 ) (8,245 )
Income tax paid (693 ) (1,304 ) (4,203 ) (4,492 )
Net cash flows from operating activities 2,152 4,509 32,357 23,475
Cash flows from investing activities
Purchase of property, plant and equipment, net (238 ) (402 ) (1,403 ) (2,295 )
Acquisitions, net of cash acquired of $6,004 (2012 - $810) (5,221 ) - (22,433 ) (32,453 )
Purchase consideration for prior period acquisitions - - (2,593 ) -
Net proceeds from sale of short-term investments 14,006 17,396 7,948 8,704
Net cash flows from (used in) investing activities 8,547 16,994 (18,481 ) (26,044 )
Cash flows from financing activities
Issuance of share capital 491 556 2,075 2,873
Payment of cash dividend (2,079 ) (1,669 ) (7,511 ) (5,875 )
Net cash flows used in financing activities (1,588 ) (1,113 ) (5,436 ) (3,002 )
Effect of currency translation adjustments on cash and cash equivalents 2,206 (709 ) 2,125 (509 )
Net increase (decrease) in cash and cash equivalents during the period
11,317

19,681

10,565

(6,080
)
Cash and cash equivalents - beginning of period 58,792 39,863 59,544 65,624
Cash and cash equivalents - end of period $ 70,109 $ 59,544 $ 70,109 $ 59,544
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
2013 2012 2013 2012
Revenue:
Asset Management Group $ 10,332 $ 5,789 $ 33,804 $ 17,308
Interactive Management Group 36,839 33,163 146,082 119,060
Total $ 47,171 $ 38,952 $ 179,886 $ 136,368
Segment Profit
Asset Management Group $ 2,082 $ 1,910 $ 5,039 $ 3,828
Interactive Management Group 7,006 5,472 24,446 21,902
Corporate expenses (1,182 ) (856 ) (4,348 ) (3,486 )
Finance income 124 289 641 987
Finance expenses (55 ) (86 ) (313 ) (269 )
Other income 466 (23 ) 1,582 145
Total $ 8,441 $ 6,706 $ 27,047 $ 23,107

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