Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

June 10, 2015 16:30 ET

Enghouse Releases Second Quarter Results

MARKHAM, ONTARIO--(Marketwired - June 10, 2015) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited second quarter financial results for the period ended April 30, 2015.

Second quarter revenue was $68.7 million, an increase of 25% over revenue of $55.0 million in the second quarter last year. On a year to date basis, revenue was $131.7 million compared to $102.4 million last year, an increase of 29%. The revenue increase primarily reflects incremental revenue contributions from acquisitions. Hosted and maintenance services revenue was $33.7 million in the quarter, an increase of 19% over the same period last year.

Adjusted EBITDA for the quarter was $16.2 million ($0.60 per diluted share) compared to $13.9 million ($0.52 per diluted share) in last year's second quarter. Adjusted EBITDA for the year to date was $32.4 million ($1.20 per diluted share) compared to $26.0 million ($0.97 per diluted share) last year, an increase of 25%.

Net income for the quarter was $7.6 million ($0.28 per diluted share) compared to the prior year's second quarter net income of $6.6 million ($0.24 per diluted share). Results from operating activities for the quarter were $15.5 million compared to $12.5 million in the prior year's second quarter, an increase of 24% over the prior year.

Operating expenses before special charges related to restructuring of acquired operations were $31.0 million compared to $25.5 million in the prior year's second quarter and primarily includes incremental operating costs related to acquisitions. Non-cash amortization charges in the quarter were $5.7 million compared to $4.2 million in the prior year's second quarter and include amortization charges for acquired software and customer relationships from acquired operations.

Enghouse generated cash flows from operations of $12.2 million in the quarter and closed the quarter with $88.5 million in cash, cash equivalents and short-term investments, compared to $84.9 million at October 31, 2014. The cash balance was achieved after net cash paid of $19.8 million for the acquisition of CDRator A/S, completed March 3, 2015 and dividends of $5.2 million paid year to date. The Company continues to have no debt.

The Board of Directors has approved an eligible quarterly dividend of $0.12 per common share, payable on August 28, 2015 to shareholders of record at the close of business on August 14, 2015.

Subsequent to quarter end, Enghouse completed the acquisition of Reitek S.p.A, a leading provider of omni-channel contact center solutions for enterprises, expanding the Company's footprint in Italy. Enghouse remains committed to diversifying its revenue stream and continues to seek accretive acquisitions to grow its market share.

A conference call to discuss the results will be held on Thursday, June 11, 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 larger, profitable and more 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 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, litigation settlements 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:

(In thousands of Canadian dollars)

(Unaudited)

Three Months ended Six Months ended
April 30, 2015 April 30, 2014 April 30, 2015 April 30, 2014
Total Revenue $ 68,701 $ 54,951 $ 131,720 $ 102,443
Income before income taxes 9,705 8,301 11,165 16,003
Depreciation of property, plant and equipment 682 566 1,274 1,095
Amortization of acquired software and customer relationships 5,734 4,231 11,088 8,141
Finance income (51 ) (124 ) (164 ) (267 )
Finance expenses 170 75 287 133
Other income (58 ) (1 ) (75 ) (8 )
Litigation settlements - - 8,774 -
Special charges 55 810 79 922
Adjusted EBITDA $ 16,237 $ 13,858 $ 32,428 $ 26,019
Adjusted EBITDA margin 24 % 25 % 25 % 25 %
Adjusted EBITDA per diluted share $ 0.60 $ 0.52 $ 1.20 $ 0.97
Enghouse Systems Limited
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
(Unaudited)
April 30,
2015
October 31,
2014
Assets
Current assets
Cash and cash equivalents $ 78,463 $ 72,780
Short-term investments 10,078 12,084
Accounts receivable, net 59,969 54,341
Prepaid expenses and other assets 8,377 7,571
156,887 146,776
Non-current assets
Property, plant and equipment 4,469 4,020
Intangible assets 180,730 166,548
Deferred income tax assets 10,828 10,427
Total assets $ 352,914 $ 327,771
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 42,623 $ 41,297
Income taxes payable 107 2,644
Dividends payable 3,154 2,616
Provisions 13,330 3,407
Deferred revenue 56,990 47,745
116,204 97,709
Non-current liabilities
Deferred income tax liabilities 20,853 19,930
Deferred revenue 1,710 1,877
Total liabilities 138,767 119,516
Shareholders' Equity
Share capital 60,924 59,746
Contributed surplus 4,164 3,782
Retained earnings 139,887 135,554
Accumulated other comprehensive income 9,172 9,173
Total shareholders' equity 214,147 208,255
Total liabilities and shareholders' equity $ 352,914 $ 327,771
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
2015 2014 2015 2014
Revenue
Software licenses $ 21,084 $ 18,872 $ 40,696 $ 34,635
Hosted and maintenance services 33,687 28,345 65,946 53,359
Professional services 12,412 6,100 21,333 11,232
Hardware 1,518 1,634 3,745 3,217
68,701 54,951 131,720 102,443
Direct costs
Software licenses 1,966 1,684 3,643 2,884
Services 19,131 13,377 35,915 25,093
Hardware 1,082 1,078 2,415 2,097
22,179 16,139 41,973 30,074
Revenue, net of direct costs 46,522 38,812 89,747 72,369
Operating expenses
Selling, general and administrative 19,493 15,514 36,637 28,190
Research and development 10,792 9,440 20,682 18,160
Depreciation of property, plant and equipment 682 566 1,274 1,095
Special charges 55 810 79 922
31,022 26,330 58,672 48,367
Results from operating activities 15,500 12,482 31,075 24,002
Litigation settlements - - (8,774 ) -
Amortization of acquired software and customer relationships (5,734 ) (4,231 ) (11,088 ) (8,141 )
Finance income 51 124 164 267
Finance expenses (170 ) (75 ) (287 ) (133 )
Other income 58 1 75 8
Income before income taxes 9,705 8,301 11,165 16,003
Provision for income taxes 2,137 1,743 1,058 3,273
Net income for the period $ 7,568 $ 6,558 $ 10,107 $ 12,730
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations (9,501 ) 751 (95 ) 10,521
Transfer to net income of realized gains on available for sale investments (74 ) (17 ) (74 ) (37 )
Unrealized (loss) gain on available for sale investments (6 ) (40 ) 182 (57 )
Deferred income tax recovery (expense) 11 7 (14 ) 12
Other comprehensive (loss) income (9,570 ) 701 (1 ) 10,439
Comprehensive (loss) income $ (2,002 ) $ 7,259 $ 10,106 $ 23,169
Earnings per share
Basic $ 0.29 $ 0.25 $ 0.39 $ 0.49
Diluted $ 0.28 $ 0.24 $ 0.37 $ 0.47
Enghouse Systems Limited
Condensed Consolidated Interim 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, 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
Balance - November 1, 2013 26,042,962 58,514 3,175 5,139 115,800 182,628
Net income - - - - 12,730 12,730
Other Comprehensive Income:
Cumulative Translation Adjustment - - - 10,521 - 10,521
Transfer to net income of realized gains on available-for-sale investments
-

-

-

(37
)
-

(37
)
Unrealized loss on available-for-sale investments - - - (57 ) - (57 )
Deferred income tax recovery - - - 12 - 12
Comprehensive income for the period - - - 10,439 12,730 23,169
Employee share options:
Value of services recognized - - 364 - - 364
Proceeds on issuing shares 83,500 922 (207 ) - - 715
Dividends - - - - (4,700 ) (4,700 )
Balance - April 30, 2014 26,126,462 59,436 3,332 15,578 123,830 202,176
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
2015 2014 2015 2014
Cash flows from operating activities
Net income $ 7,568 $ 6,558 $ 10,107 $ 12,730
Adjustments for:
Depreciation of property, plant and equipment 682 566 1,274 1,095
Amortization of acquired software and customer relationships 5,734 4,231 11,088 8,141
Stock-based compensation expense 317 205 622 364
Provision for income taxes 2,137 1,743 1,058 3,273
Finance expenses and other income 112 74 212 125
16,550 13,377 24,361 25,728
Changes in non-cash operating working capital (2,250 ) 2,874 9,556 1,214
Income tax paid (2,093 ) (2,385 ) (4,068 ) (3,172 )
Net cash flows from operating activities 12,207 13,866 29,849 23,770
Cash flows from investing activities
Purchase of property, plant and equipment, net (395 ) (131 ) (1,457 ) (788 )
Acquisitions, net of cash acquired of $4,015 ($969 - 2014) (19,818 ) (8,282 ) (19,818 ) (10,060 )
Purchase consideration for prior period acquisitions (271 ) (3,040 ) (683 ) (3,422 )
Net sale of short-term investments 4,442 4,861 2,347 3,246
Net cash flows used in investing activities (16,062 ) (6,592 ) (19,611 ) (11,024 )
Cash flows from financing activities
Issuance of share capital 673 354 938 715
Payment of cash dividend (2,621 ) (2,087 ) (5,237 ) (4,170 )
Net cash flows used in financing activities (1,948 ) (1,733 ) (4,299 ) (3,455 )
Effect of currency translation adjustments on cash and cash equivalents (2,625 ) 264 (256 ) 3,402
Net (decrease) increase in cash and cash equivalents during the period (8,428 ) 5,805 5,683 12,693
Cash and cash equivalents - beginning of period 86,891 76,997 72,780 70,109
Cash and cash equivalents - end of period $ 78,463 $ 82,802 $ 78,463 $ 82,802
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

2015

2014

2015

2014
Revenue:
Asset Management Group $ 23,820 $ 11,054 $ 43,087 $ 20,746
Interactive Management Group 44,881 43,897 88,633 81,697
Total $ 68,701 $ 54,951 $ 131,720 $ 102,443
Segment Profit:
Asset Management Group $ 5,467 $ 2,748 $ 10,527 $ 4,955
Interactive Management Group 11,480 11,100 23,778 21,705
Corporate expenses (1,447 ) (1,366 ) (3,230 ) (2,658 )
Amortization of acquired software and customer relationships (5,734 ) (4,231 ) (11,088 ) (8,141 )
Finance income 51 124 164 267
Finance expenses (170 ) (75 ) (287 ) (133 )
Other income 58 1 75 8
Litigation settlements - - (8,774 ) -
Total $ 9,705 $ 8,301 $ 11,165 $ 16,003

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