Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

June 09, 2016 17:00 ET

Enghouse Releases Second Quarter Results

MARKHAM, ONTARIO--(Marketwired - June 9, 2016) - Enghouse Systems Limited (TSX:ESL) today announced its second quarter (unaudited) financial results for the period ended April 30, 2016.

Second quarter revenue was $78.5 million, an increase of 14.3% over revenue of $68.7 million in the second quarter last year. On a year to date basis, revenue was $152.9 million compared to $131.7 million last year, an increase of 16.1%. The revenue increase primarily reflects incremental revenue contributions from acquisitions and the favorable impact of foreign exchange compared to last year. Hosted and maintenance services revenue was $38.3 million in the quarter, an increase of 13.7% over the same period last year.

Adjusted EBITDA for the quarter was $19.3 million ($0.71 per diluted share) compared to $16.2 million ($0.60 per diluted share) in last year's second quarter. Adjusted EBITDA for the year to date was $38.4 million ($1.41 per diluted share) compared to $32.4 million ($1.20 per diluted share) last year, an increase of 18.4%.

Net income for the quarter was $8.5 million ($0.31 per diluted share) compared to the prior year's second quarter net income of $7.6 million ($0.28 per diluted share). Results from operating activities for the quarter were $18.1 million compared to $15.5 million in the prior year's second quarter, an increase of 16.9% over the prior year.

Operating expenses before special charges related to restructuring of acquired operations were $35.2 million compared to $31.0 million in the prior year's second quarter and reflect incremental operating costs related to acquisitions. Non-cash amortization charges in the quarter were $7.0 million compared to $5.7 million in the prior year's second quarter and include amortization charges for acquired software and customer relationships from acquired operations. Operating expenses in the quarter also include $11.5 million, or 14.6% of revenue in research and development related expenses compared to $10.8 million or 15.7% in prior year's second quarter.

Enghouse generated cash flows from operations of $20.7 million in the quarter and closed the quarter with $85.1 million in cash, cash equivalents and short-term investments, compared to $98.4 million at October 31, 2015. The cash balance was achieved after year-to-date payments comprised of $26.0 million (net of cash acquired) for CTI Group (Holdings) Inc. acquired on December 7, 2015, $3.3 million (net of cash acquired and holdbacks) for CellVision AS acquired on March 4, 2016, $3.4 million for prior period acquisitions and $6.4 million in dividends paid. The Company continues to have no debt.

The Board of Directors has approved an eligible quarterly dividend of $0.14 per common share, payable on August 31, 2016 to shareholders of record at the close of business on August 17, 2016.

Subsequent to quarter end, Enghouse acquired the assets of NetBoss Technologies, Inc. ("NetBoss") for a purchase price of approximately $9.3 million subject to certain price adjustments. Headquartered in Sebastian, Florida, NetBoss provides an integrated Service Assurance platform encompassing fault and performance management, service correlation and customer analytics and will be integrated into the Asset Management Group. Enghouse remains committed to its acquisition strategy and continues to see accretive acquisitions.

A conference call to discuss the results will be held on Friday June 10, 2016 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 Six Months ended
April 30,
2016
April 30,
2015
April 30,
2016
April 30,
2015
Total Revenue $ 78,537 $ 68,701 $ 152,907 $ 131,720
Results from operating activities 18,116 15,500 35,959 31,075
Depreciation of property, plant and equipment 791 682 1,617 1,274
Special charges 412 55 819 79
Adjusted EBITDA $ 19,319 $ 16,237 $ 38,395 $ 32,428
Adjusted EBITDA margin 24.6 % 23.6 % 25.1 % 24.6 %
Adjusted EBITDA per diluted share $ 0.71 $ 0.60 $ 1.41 $ 1.20
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)
April 30,
2016
October 31,
2015
Assets
Current assets
Cash and cash equivalents $ 80,128 $ 94,131
Short-term investments 5,011 4,306
Accounts receivable, net 76,392 60,765
Prepaid expenses and other assets 9,446 8,330
170,977 167,532
Non-current assets
Property, plant and equipment 6,052 5,039
Intangible assets 75,982 68,976
Goodwill 134,748 123,868
Deferred income tax assets 7,413 10,600
Total assets $ 395,172 $ 376,015
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 49,268 $ 51,284
Income taxes payable 1,769 2,680
Dividends payable 3,754 3,190
Provisions 4,179 3,335
Deferred revenue 60,516 48,694
119,486 109,183
Non-current liabilities
Deferred income tax liabilities 22,563 20,022
Deferred revenue 6,319 3,458
Total liabilities
148,368

132,663
Shareholders' Equity
Share capital 67,301 64,203
Contributed surplus 4,015 4,029
Retained earnings 164,876 154,866
Accumulated other comprehensive income 10,612 20,254
Total shareholders' equity 246,804 243,352
Total liabilities and shareholders' equity $ 395,172 $ 376,015
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Operations and Comprehensive Income
(in thousands of Canadian dollars, except per share amounts)
(Unaudited)
Three months ended April 30 Six months ended April 30
2016 2015 2016 2015
Revenue
Software licenses $ 24,444 $ 21,084 $ 45,214 $ 40,696
Hosted and maintenance services 38,300 33,687 76,106 65,946
Professional services 14,482 12,412 28,917 21,333
Hardware 1,311 1,518 2,670 3,745
78,537 68,701 152,907 131,720
Direct costs
Software licenses 1,203 1,966 2,360 3,643
Services 22,698 19,131 44,488 35,915
Hardware 925 1,082 1,730 2,415
24,826 22,179 48,578 41,973
Revenue, net of direct costs 53,711 46,522 104,329 89,747
Operating expenses
Selling, general and administrative 22,915 19,493 43,056 36,637
Research and development 11,477 10,792 22,878 20,682
Depreciation of property, plant and equipment 791 682 1,617 1,274
Special charges 412 55 819 79
35,595 31,022 68,370 58,672
Results from operating activities 18,116 15,500 35,959 31,075
Litigation settlements - - - (8,774 )
Amortization of acquired software and customer relationships (7,008 ) (5,734 ) (13,848 ) (11,088 )
Finance income 21 51 54 164
Finance expenses (87 ) (170 ) (168 ) (287 )
Other income 22 58 55 75
Income before income taxes 11,064 9,705 22,052 11,165
Provision for income taxes 2,544 2,137 5,071 1,058
Net income for the period $ 8,520 $ 7,568 $ 16,981 $ 10,107
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations (18,240 ) (9,501 ) (9,457 ) (95 )
Transfer to net income of realized gains on available for sale investments - (74 ) (14 ) (74 )
Unrealized (loss) gain on available for sale investments (60 ) (6 ) (199 ) 182
Deferred income tax recovery (expense) 8 11 28 (14 )
Other comprehensive (loss) income (18,292 ) (9,570 ) (9,642 ) (1 )
Comprehensive (loss) income $ (9,772 ) $ (2,002 ) $ 7,339 $ 10,106
Earnings per share
Basic $ 0.32 $ 0.29 $ 0.63 $ 0.39
Diluted $ 0.31 $ 0.28 $ 0.62 $ 0.37
Enghouse Systems Limited
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars)
(Unaudited)
Share
Capital
-number
Share
capital
$
Contributed
surplus
$
Accumulated
other
comprehensive
income (loss)
$
Retained
earnings
$
Total
$
Balance - November 1, 2015 26,587,262 64,203 4,029 20,254 154,866 243,352
Net income - - - - 16,981 16,981
Other Comprehensive Income:
Cumulative Translation Adjustment - - - (9,457 ) - (9,457 )
Transfer to net income of realized gains on available-for-sale investments
-

-

-

(14
)
-

(14
)
Unrealized gain on available-for-sale investments - - - (199 ) - (199 )
Deferred income tax recovery - - - 28 - 28
Comprehensive income for the period - - - (9,642 ) 16,981 7,339
Employee share options:
Value of services recognized - - 576 - - 576
Proceeds on issuing shares 225,700 3,098 (590 ) - - 2,508
Dividends - - - - (6,971 ) (6,971 )
Balance - April 30, 2016 26,812,962 67,301 4,015 10,612 164,876 246,804
Balance - November 1, 2014 26,163,962 59,746 3,782 9,173 135,554 208,255
Net income - - - - 10,107 10,107
Other Comprehensive Income:
Cumulative Translation Adjustment - - - (95 ) - (95 )
Transfer to net income of realized gains on available-for-sale investments
-

-

-

(74
)
-

(74
)
Unrealized gain on available-for-sale investments - - - 182 - 182
Deferred income tax expense - - - (14 ) - (14 )
Comprehensive income for the period - - - (1 ) 10,107 10,106
Employee share options:
Value of services recognized - - 622 - 622
Proceeds on issuing shares 121,500 1,178 (240 ) - 938
Dividends - - - - (5,774 ) (5,774 )
Balance - April 30, 2015 26,285,462 60,924 4,164 9,172 139,887 214,147
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)
Three months ended
April 30
Six months ended
April 30
2016 2015 2016 2015
Cash flows from operating activities
Net income $ 8,520 $ 7,568 $ 16,981 $ 10,107
Adjustments for:
Depreciation of property, plant and equipment 791 682 1,617 1,274
Amortization of acquired software and customer relationships 7,008 5,734 13,848 11,088
Stock-based compensation expense 251 317 576 622
Provision for income taxes 2,544 2,137 5,071 1,058
Finance expenses and other income 65 112 113 212
19,179 16,550 38,206 24,361
Changes in non-cash operating working capital 4,122 (2,250 ) (6,502 ) 9,556
Income tax paid (2,608 ) (2,093 ) (4,105 ) (4,068 )
Net cash flows from operating activities 20,693 12,207 27,599 29,849
Cash flows from investing activities
Purchase of property, plant and equipment, net (1,001 ) (395 ) (2,319 ) (1,457 )
Purchase of other software (485 ) - (619 ) -
Acquisitions, net of cash acquired of $2,202 ($4,015 - 2015) (3,334 ) (19,818 ) (29,353 ) (19,818 )
Purchase consideration for prior period acquisitions (2,753 ) (271 ) (3,443 ) (683 )
Net sale of short-term investments 350 4,422 (695 ) 2,347
Net cash flows used in investing activities (7,223 ) (16,062 ) (36,429 ) (19,611 )
Cash flows from financing activities
Issuance of share capital 11 673 2,508 938
Payment of cash dividend (3,218 ) (2,621 ) (6,408 ) (5,237 )
Net cash flows used in financing activities (3,207 ) (1,948 ) (3,900 ) (4,299 )
Effect of currency translation adjustments on cash and cash equivalents (4,449 ) (2,625 ) (1,273 ) (256 )
Net (decrease) increase in cash and cash equivalents during the period 5,814 (8,428 ) (14,003 ) 5,683
Cash and cash equivalents - beginning of period 74,314 86,891 94,131 72,780
Cash and cash equivalents - end of period $ 80,128 $ 78,463 $ 80,128 $ 78,463
Enghouse Systems Limited
Selected Segment Reporting Information
(In thousands of Canadian dollars)
(Unaudited)
For the three months
ended April 30
For the six months
ended April 30
2016 2015 2016 2015
Revenue:
Asset Management Group $ 29,849 $ 23,820 $ 55,607 $ 43,087
Interactive Management Group 48,688 44,881 97,300 88,633
Total $ 78,537 $ 68,701 $ 152,907 $ 131,720
Asset Management Group:
- Segment profit before special charges $ 7,321 $ 5,467 $ 13,228 $ 10,527
- Special charges (288 ) - (513 ) -
Asset Management Group profit $ 7,033 $ 5,467 $ 12,715 $ 10,527
Interactive Management Group:
- Segment profit before special charges $ 12,906 $ 11,535 $ 27,629 $ 23,857
- Special charges (124 ) (55 ) (306 ) (79 )
Interactive Management Group profit $ 12,782 $ 11,480 $ 27,323 $ 23,778
Corporate expenses (1,699 ) (1,447 ) (4,079 ) (3,230 )
Results from operating activities $ 18,116 $ 15,500 $ 35,959 $ 31,075
Amortization of acquired software and customer relationships (7,008 ) (5,734 ) (13,848 ) (8,774 )
Litigation settlements - - - (11,088 )
Finance income 21 51 54 164
Finance expenses (87 ) (170 ) (168 ) (287 )
Other income 22 58 55 75
Income before income taxes $ 11,064 $ 9,705 $ 22,052 $ 11,165

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