Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

June 02, 2005 17:00 ET

Enghouse Releases Second Quarter Results

MARKHAM, ONTARIO--(CCNMatthews - June 2, 2005) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited second quarter financial results for the quarter ended April 30, 2005.

Second quarter revenue was $12.0 million, compared to $15.0 million reported in the same period last year. On a year to date basis, revenue was $23.9 million compared to $27.9 million in fiscal 2004. Net income for the second quarter was $1.2 million or $0.04 per share on a diluted basis compared to the prior year's second quarter net income of $2.9 million or $0.11 per share. On a year to date basis, net income was $2.7 million or $0.10 per share compared to $5.2 million or $0.20 per share in the prior year. The revenue decline was attributable to a number of factors including foreign currency exchange, as well as lower revenue from a major customer who recently renewed their maintenance agreement for a further two years, as announced on March 21, 2005.

Operating expenses decreased to $6.5 million in the second quarter from $6.8 million in the prior year's second quarter. Both quarters include $1.3 million in non-cash amortization charges as well as $0.1 million in non-cash compensation expense related to stock options. On a year to date basis, operating expenses were $12.6 million compared to $13.0 million in the prior year. Operating income for the second quarter was $1.1 million, compared to $3.6 million in the prior year's second quarter and was $3.0 million on a year to date basis compared to $6.3 million in the prior year.

The Company generated cash flows from operations of $5.5 million in the second quarter compared to $4.8 million in the prior year's second quarter as a result of positive cash flows from operations and the renewal and payment of the IBM Japan Ltd. annual maintenance contract. Enghouse closed the quarter with $96.3 million in cash and short-term investments and continues to have no long-term debt. Deferred revenue was $16.2 million compared to $13.8 million in the prior quarter and $13.2 million at October 31, 2004.

During the quarter Enghouse acquired technology and certain net assets specifically designed for the transit industry to augment the Company's suite of asset management solutions through its wholly owned subsidiary, TransSched Systems Limited. The operations of TranSched have been included in the Asset Management Division and, as anticipated, reflect an incremental loss before taxes of approximately $0.5 million in the quarter.

Stephen J. Sadler, Chairman and Chief Executive Officer said "As planned, additional investment in TranSched is necessary in the fiscal year to integrate the operations into the Asset Management Division and focus development efforts before this acquisition will be accretive to earnings. The Company remains committed to its strategy of growth through a combination of acquisition and organic means. We believe we are well positioned to seek further acquisitions, with over $96 million in cash."

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 http://www.enghouse.com.



Enghouse Systems Limited
Consolidated Balance Sheets
(in thousands of Canadian dollars)
(Unaudited)

April 30, October 31,
2005 2004
---------------------------------------------------------------------

Assets

Current
Cash $ 5,348 $ 10,806
Short-term investments 90,947 79,810
Accounts receivable, net 8,054 9,827
Future income taxes 27 58
Prepaid expenses and other assets 1,967 1,404
-----------------------------

106,343 101,905
-----------------------------

Property, plant and equipment 2,344 2,319
Acquired software and other intangibles 15,902 16,005
Goodwill 11,100 9,434
Long-term future income taxes 3,644 3,856
-----------------------------

$ 139,333 $ 133,519
-----------------------------
-----------------------------

Liabilities

Current
Accounts payable and accrued liabilities $ 10,304 $ 11,339
Income taxes payable 4,828 4,409
Deferred revenue 15,800 12,706
-----------------------------

30,932 28,454

Deferred income tax credit - 678
Future income taxes 6,777 5,868
Deferred revenue 416 479
-----------------------------

38,125 35,479

Shareholder's Equity

Share capital 48,117 48,201
Contributed surplus 666 452
Retained earnings 55,338 52,633
Cumulative translation adjustment (2,913) (3,246)
-----------------------------

101,208 98,040

$ 139,333 $ 133,519
-----------------------------
-----------------------------

The accompanying notes form an integral part of these consolidated
financial statements.


Enghouse Systems Limited
Consolidated Statements of Operations and Retained Earnings
(in thousands of Canadian dollars except per share amounts)
(Unaudited)

Three months ended Six months ended
April 30 April 30
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------
Revenue
Software licenses $ 1,960 $ 4,253 $ 3,811 $ 7,770
Services 9,529 10,238 18,926 19,103
Hardware 539 521 1,134 1,028
-----------------------------------------

12,028 15,012 23,871 27,901
-----------------------------------------

Cost of Sales
Software licenses 235 762 702 1,227
Services 3,734 3,531 6,788 6,549
Hardware 374 385 852 751
-----------------------------------------
4,343 4,678 8,342 8,527

Gross Margin 7,685 10,334 15,529 19,374

Operating expenses
Selling, general
and administrative 3,401 3,590 6,740 7,004
Research and development 1,788 1,794 3,185 3,407
Stock-based compensation 107 88 214 160
Amortization of property,
plant and equipment 297 420 589 816
Amortization of acquired
software and other
intangibles 955 888 1,824 1,660
-----------------------------------------
6,548 6,780 12,552 13,047
-----------------------------------------
Income before the
undernoted 1,137 3,554 2,977 6,327

Interest income, net 492 439 953 1,018
Other income 138 307 236 369
-----------------------------------------

Net income before income
taxes 1,767 4,300 4,166 7,714

Provision for income taxes 617 1,375 1,461 2,528
-----------------------------------------

Net income for the period $ 1,150 $ 2,925 $ 2,705 $ 5,186
-----------------------------------------
-----------------------------------------

Retained Earnings,
beginning of period $ 54,188 $ 43,767 $ 53,085 $ 41,434
Prior period adjustment
for stock compensation
expense (Note 3) - (188) (452) (116)
-----------------------------------------
Retained Earnings as
restated, beginning
of period $ 54,188 $ 43,579 $ 52,633 $ 41,318

Retained Earnings,
end of period $ 55,338 $ 46,504 $ 55,338 $ 46,504
-----------------------------------------
-----------------------------------------

Earnings per share
Basic $ 0.05 $ 0.12 $ 0.11 $ 0.21
Diluted $ 0.04 $ 0.11 $ 0.10 $ 0.20

Weighted average shares
outstanding during period
(millions) - basic 25.4 25.3 25.4 25.3
- diluted 26.5 26.6 26.5 26.4

The accompanying notes form an integral part of these consolidated
financial statements.


Enghouse Systems Limited
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)

Three months ended Six months ended
April 30 April 30
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------
Cash flows from operating
activities:
Net income for the period $ 1,150 $ 2,925 $ 2,705 $ 5,186

Add (deduct) items not
involving cash:
Amortization of property,
plant and equipment 297 420 589 816
Amortization of acquired
software and other
intangibles 955 888 1,824 1,660
Stock-based compensation
expense 107 88 214 160
Gain on sale of short-term
investments (138) (307) (236) (369)
Future income taxes 276 672 107 1,022
---------------------------------------
Cash flows before changes in
operating assets and
liabilities 2,647 4,686 5,203 8,475

Changes in operating assets
and liabilities

Decrease in accounts
receivable, net 3,370 2,475 2,230 845
Increase in prepaid
expenses and other assets (156) (10) (497) (164)
Decrease in accounts payable
and accrued liabilities (1,187) (871) (2,242) (3,201)
(Decrease) increase in
current income taxes payable (400) 109 361 387
Increase (decrease) in
deferred revenue 1,242 (1,488) 1,697 (410)
Unrealized foreign
exchange gain (35) (64) (123) (82)
---------------------------------------
Cash flows from
operating activities 5,481 4,837 6,629 5,850
---------------------------------------

Cash flows from investing
activities
Net purchase of property,
plant and equipment (182) (115) (383) (199)
Acquisitions, net of
cash acquired (1,157) - (1,157) (1,741)
Net (purchase) sale of
short-term investments (5,753) 20,558 (10,667) 23,545
---------------------------------------
(7,092) 20,443 (12,207) 21,605
---------------------------------------

Cash flows from financing
activities
Issuance of share capital 40 123 40 348
Purchase and cancellation
of common shares (124) - (124) -
---------------------------------------
(84) 123 (84) 348

Effect of foreign exchange
rate changes on cash 90 221 204 281
---------------------------------------

Net (decrease) increase in
cash during the period (1,605) 25,624 (5,458) 28,084
Cash - Beginning of period 6,953 9,150 10,806 6,690
---------------------------------------
Cash - End of period $ 5,348 $ 34,774 $ 5,348 $ 34,774
---------------------------------------
---------------------------------------

Supplementary Cash Flow
Information:
Cash paid during the year for
Interest - - - -
Income Taxes 640 535 820 961


Note: Cash excludes short-term investments

The accompanying notes form an integral part of these consolidated
financial statements.


Enghouse Systems Limited
Selected Segment Reporting Information
(in thousands of Canadian dollars)
(Unaudited)

Three Months ended Six Months ended
---------------------------------------------------------------------
April 30, April 30, April 30, April 30,
2005 2004 2005 2004
--------------------------------------------------------
Revenue:
Asset Management
Division $ 3,058 $ 4,579 $ 6,276 $ 8,579
Syntellect
Division 8,970 10,433 17,595 19,322
--------------------------------------------------------
Total $ 12,028 $ 15,012 $ 23,871 $ 27,901
--------------------------------------------------------
--------------------------------------------------------

Segment Profit (EBIT):
Asset Management
Division $ 294 $ 2,845 $ 1,794 $ 5,072
Syntellect
Division 843 709 1,183 1,255
--------------------------------------------------------
Total $ 1,137 $ 3,554 $ 2,977 $ 6,327
--------------------------------------------------------
--------------------------------------------------------
---------------------------------------------------------------------


Contact Information