Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

September 06, 2012 17:00 ET

Enghouse Releases Third Quarter Results

MARKHAM, ONTARIO--(Marketwire - Sept. 6, 2012) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter financial results for the period ended July 31, 2012.

Third quarter revenue was $35.4 million, compared to $31.8 million in the corresponding quarter last year. Results from operating activities for the quarter were $8.3 million compared to $8.5 million in the prior year's third quarter. Net income for the third quarter was $4.3 million or $0.16 per diluted share compared to the prior year's third quarter net income of $4.6 million or $0.18 per diluted share. Adjusted EBITDA for the quarter was $9.2 million or $0.35 per diluted share compared to $8.8 million or $0.34 per diluted share last year. On a year to date basis Adjusted EBITDA was $24.9 million or $0.96 per diluted share compared to $22.6 million or $0.89 per diluted share last year.

The increase in revenue continues to reflect incremental revenue contributions from acquisitions, including recently acquired Zeacom Group Limited ("Zeacom"), which closed on June 1, 2012. Revenue also reflects improved hosted and maintenance services contributions of $19.4 million in the quarter, an increase of 28% over last year, largely as a result of incremental hosted revenue contributions from recently acquired CustomCall Data Systems Inc. ("CustomCall"). Hosted and maintenance revenue accounted for 55% of the Company's total revenue in the quarter. On a year to date basis, revenue was $97.4 million up from $90.7 million, while net income increased to $12.5 million or $0.48 per diluted share from $9.7 million or $0.38 per diluted share in the prior year.

Operating expenses increased to $17.5 million from $15.4 million in the prior year's third quarter and include operating and acquisition related restructuring charges of $0.5 million related to recently acquired Zeacom and a full quarter's operating costs related to CustomCall. Research and development costs increased to $5.3 million from $3.7 million in the prior year's third quarter as the Company increased its software investment. Non-cash amortization charges were $2.9 million compared to $2.7 million last year and include amortization of acquired software and customer relationships from acquisitions.

The Company closed the quarter with $79.7 million in cash, cash equivalents and short-term investments, which is after the payment of approximately $26.7 million related to the acquisitions. Enghouse continues to have no long-term debt and did not repurchase any shares in the quarter.

The Board of Directors also announced today an eligible quarterly dividend of $0.065 per common share, payable on November 30, 2012 to shareholders of record at the close of business on November 16, 2012.

The Company continues to seek further acquisitions to continue to grow its market share globally.

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-IFRS Measures

The Company uses non-IFRS measures to assess its operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than IFRS 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 results from operating activities and Adjusted EBITDA as a measure of operating performance. Therefore, results from operating activities and Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Results from operating activities are calculated as net income before amortization of acquired software and customer relationships, finance income, finance expenses, other income, and the provision for income taxes. Results from Adjusted EBITDA are calculated as net income before depreciation of property, plant and equipment, amortization of acquired software and customer relationships, finance income, finance expenses, other income, the provision of income tax and special charges for acquisition related restructuring and transaction costs. Management uses results from operating activities and Adjusted EBITDA to evaluate operating performance as they exclude 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.

The table below reconciles Adjusted EBITDA to net income:

Three Months ended Nine Months ended
July 31, 2012 July 31, 2011 July 31, 2012 July 31, 2011
Total Revenue $ 35,427 $ 31,820 $ 97,416 $ 90,723
Net income for the period 4,288 4,577 12,528 9,720
Provision for income taxes 1,244 1,625 3,873 3,309
Depreciation of property, plant and equipment 377 261 942 817
Amortization of acquired software and customer relationships 2,949 2,670 7,770 7,604
Finance income (194 ) (150 ) (698 ) (414 )
Finance expenses 72 54 183 152
Other income (13 ) (256 ) (168 ) (327 )
Special charges 491 - 491 1,775
Adjusted EBITDA $ 9,214 $ 8,781 $ 24,921 $ 22,636
Adjusted EBITDA margin 26 % 27 % 26 % 25 %
Adjusted EBITDA per diluted share $ 0.35 $ 0.34 $ 0.96 $ 0.89
Enghouse Systems Limited
Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)
July 31,
2012
October 31,
2011
November 1,
2010
Assets
Current assets:
Cash and cash equivalents $ 39,863 $ 65,624 $ 46,640
Short-term investments 39,837 33,967 31,627
Accounts receivable, net 31,573 23,006 24,500
Income tax receivable - - 591
Prepaid expenses and other assets 4,111 3,479 3,360
115,384 126,076 106,718
Non-current assets:
Property, plant and equipment 3,562 1,543 1,588
Acquired software and customer relationships 45,654 29,709 34,330
Goodwill 62,933 43,734 35,137
Deferred income taxes 11,041 11,138 3,478
Total assets $ 238,574 $ 212,200 $ 181,251
Liabilities
Current liabilities:
Trade payables $ 25,478 $ 22,686 $ 18,808
Income taxes payable 3,330 2,878 -
Dividends payable 1,669 1,267 1,007
Accrued provisions 1,887 2,442 1,307
Deferred revenue 40,977 28,933 26,040
73,341 58,206 47,162
Non-current liabilities:
Deferred income tax liabilities 14,476 10,743 12,571
Long-term income taxes payable 56 420 522
Deferred revenue 1,214 1,404 790
Total liabilities 89,087 70,773 61,045
Shareholders' Equity
Share capital 55,085 52,134 50,705
Contributed surplus 2,838 2,970 2,653
Retained earnings 93,208 85,288 66,546
Accumulated other comprehensive (loss) gain (1,644 ) 1,035 302
Total equity 149,487 141,427 120,206
Total liabilities and equity $ 238,574 $ 212,200 $ 181,251
Enghouse Systems Limited
Consolidated Interim Statements of Operations and Comprehensive Income
(in thousands of Canadian dollars, except per share amounts)
(Unaudited)
Three months ended July 31 Nine months ended July 31
2012 2011 2012 2011
Revenue
Software licenses $ 10,853 $ 11,842 $ 32,001 $ 34,305
Hosted and maintenance services 19,475 15,190 51,494 42,344
Professional services 4,727 4,272 12,873 11,685
Hardware 372 516 1,048 2,389
35,427 31,820 97,416 90,723
Direct costs
Software licenses 808 909 2,583 4,439
Services 8,567 6,684 22,549 19,764
Hardware 242 317 726 1,729
9,617 7,910 25,858 25,932
Revenue, net of direct costs 25,810 23,910 71,558 64,791
Operating expenses
Selling, general and administrative 11,255 11,403 31,092 30,690
Research and development 5,341 3,726 15,545 11,465
Depreciation of property, plant and equipment 377 261 942 817
Special charges 491 - 491 1,775
17,464 15,390 48,070 44,747
Results from operating activities 8,346 8,520 23,488 20,044
Amortization of acquired software and customer relationships (2,949 ) (2,670 ) (7,770 ) (7,604 )
Finance income 194 150 698 414
Finance expenses (72 ) (54 ) (183 ) (152 )
Other income 13 256 168 327
Income before income taxes 5,532 6,202 16,401 13,029
Provision for income taxes 1,244 1,625 3,873 3,309
Net income for the period $ 4,288 $ 4,577 $ 12,528 $ 9,720
Foreign currency translation differences from foreign operations (373 ) (409 ) (1,664 ) (3,563 )
Transfer to net income of realized gains on available for sale investments, net of tax of ($nil); nine months - ($24)
-

(51
)
(132
)
(142
)
Unrealized (loss) gain on available for sale investments, net of tax of ($54); nine months - ($166)
(291
)
254

(891
)
735
Unrealized foreign currency translation gain (loss) on available for sale investments, net of tax of $nil; nine months - $1
-

4

8

(69
)
Other comprehensive loss (664 ) (202 ) (2,679 ) (3,039 )
Comprehensive income $ 3,624 $ 4,375 $ 9,849 $ 6,681
Earnings per share
Basic $ 0.17 $ 0.18 $ 0.49 $ 0.39
Diluted $ 0.16 $ 0.18 $ 0.48 $ 0.38
Enghouse Systems Limited
Consolidated Interim Statements of Changes in Equity
(in thousands of Canadian dollars)
(Unaudited)



Share
Capital
-number



Share capital
$



Contributed surplus
$

Accumulated other comprehensive income
$



Retained earnings
$




Total
$
Balance - November 1, 2011 25,337,262 52,134 2,970 1,035 85,288 141,427
Net income - - - - 12,528 12,528
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment - - - (1,664 ) - (1,664 )
Transfer to net income of realized gains on available-for-sale investments, net of tax
-

-

-

(132
)
-

(132
)
Unrealized gain (loss) on available-for-sale investments, net of tax
-

-

-

(891
)
-

(891
)
Unrealized foreign currency translation gain (loss) on available-for-sale investments, net of tax
-

-

-

8

-

8
Comprehensive income (loss) for the period - - - (2,679 ) 12,528 9,849
Employee share options:
Value of services recognized - - 502 - - 502
Proceeds on issuing shares 332,300 2,951 (634 ) - - 2,317
Purchase and cancellation of common shares - - -
Dividends - - - - (4,608 ) (4,608 )
Balance - July 31, 2012 25,669,562 55,085 2,838 (1,644 ) 93,208 149,487
Balance - November 1, 2010 25,171,662 50,705 2,653 302 66,546 120,206
Net income - - - - 9,720 9,720
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment - - - (3,563 ) - (3,563 )
Transfer to net income of realized gains on available-for-sale investments, net of tax
-

-

-

(142
)
-

(142
)
Unrealized gain (loss) on available-for-sale investments, net of tax
-

-

-

735

-

735
Unrealized foreign currency translation gain (loss) on available-for-sale investments, net of tax
-

-

-

(69
)
-

(69
)
Comprehensive income (loss) for the period - - - (3,039 ) 9,720 6,681
Employee share options:
Value of services recognized - - 493 - - 493
Proceeds on issuing shares 75,400 565 (101 ) - - 464
Purchase and cancellation of common shares (4,800 ) (10 ) - - (33 ) (43 )
Dividends - - - - (3,529 ) (3,529 )
Balance - July 31, 2011 25,242,262 51,260 3,045 (2,737 ) 72,704 124,272
Enghouse Systems Limited
Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)
Three months ended July 31 Nine months ended July 31
2012 2011 2012 2011
Cash flows from operating activities
Net income $ 4,288 $ 4,577 $ 12,528 $ 9,720
Adjustments for:
Depreciation of property, plant and equipment 377 261 942 817
Amortization of acquired software and customer relationships 2,949 2,670 7,770 7,604
Stock-based compensation expense 216 168 502 493
Deferred income tax expense (1,128 ) 62 (832 ) (110 )
Finance expenses and other income 59 (202 ) 15 (175 )
Income tax paid (1,360 ) (150 ) (3,188 ) (1,093 )
5,401 7,386 17,737 17,256
Changes in non-cash operating working capital 3,362 5,813 1,229 15,737
Net cash flows from operating activities 8,763 13,199 18,966 32,993
Cash flows from investing activities
Purchase of property, plant and equipment, net (224 ) (190 ) (1,893 ) (630 )
Finance income (194 ) (150 ) (698 ) (414 )
Acquisitions, net of cash acquired (26,651 ) (32,453 ) (16,648 )
Net proceeds (purchase) from sale of short-term investments 2,565 (14,363 ) (7,994 ) (3,711 )
Net cash flows used in investing activities (24,504 ) (14,703 ) (43,038 ) (21,403 )
Cash flows from financing activities
Issuance of share capital 441 324 2,317 464
Payment of cash dividend (1,664 ) (1,260 ) (4,206 ) (3,274 )
Purchase and cancellation of common shares - - - (43 )
Net cash flows used in financing activities (1,223 ) (936 ) (1,889 ) (2,853 )
Effect of currency translation adjustments on cash and cash equivalents
440

206

200

(3,105
)
Net (decrease) increase in cash and cash equivalents during the period
(16,524
)
(2,234
)
(25,761
)
5,632
Cash and cash equivalents- beginning of period 56,387 54,506 65,624 46,640
Cash and cash equivalents - end of period $ 39,863 $ 52,272 $ 39,863 $ 52,272
Enghouse Systems Limited
Selected Segment Reporting Information
(in thousands of Canadian dollars)
(Unaudited)
For the three months ended July 31 For the nine months ended July 31
2012 2011 2012 2011
Revenue:
Asset Management Group $ 4,725 $ 3,178 $ 11,519 $ 9,767
Interactive Management Group 30,702 28,642 85,897 80,956
Total $ 35,427 $ 31,820 $ 97,416 $ 90,723
Segment Profit (EBIT):
Asset Management Group $ 1,016 $ 934 $ 1,918 $ 1,936
Interactive Management Group 5,383 5,685 16,430 12,900
Corporate expenses (1,002 ) (769 ) (2,630 ) (2,396 )
Finance income 194 150 698 414
Finance expenses (72 ) (54 ) (183 ) (152 )
Other income 13 256 168 327
Total $ 5,532 $ 6,202 $ 16,401 $ 13,029

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