Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

September 10, 2007 18:14 ET

Enghouse Releases Third Quarter Results and Announces Dividend

MARKHAM, ONTARIO--(Marketwire - Sept. 10, 2007) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter financial results for the period ended July 31, 2007.

Third quarter revenue was $13.8 million, compared to $14.8 million reported in the same period last year. Net income for the third quarter was $2.04 million or $0.08 per diluted share compared to the prior year's third quarter net income of $2.67 million or $0.10 per diluted share. On a year-to-date basis, revenue was $42.3 million compared to $46.6 million in the prior year, while net income was $6.17 million compared to $8.19 million in the prior fiscal year. The decrease in revenue and net income on a quarter and year-to-date basis continues to reflect the impact of license revenue and maintenance support revenue from one customer.

Operating expenses increased to $7.5 million from $7.0 million in the prior year's third quarter primarily as a result of the inclusion of incremental costs associated with the acquisition of Ontira Communications Inc. ("Ontira") completed on March 31, 2007. Also included in the operating expenses are non-cash amortization charges of $1.5 million compared to $1.4 million in the prior year's third quarter related to the amortization of software and intangibles including those recorded as part of the Ontira acquisition.

The Company generated cash flows from operations of $4.3 million in the third quarter compared to $3.3 million in the prior year's third quarter. On a year-to-date basis, the Company generated cash flows of $14.0 million compared to $16.8 million in the prior year, closing the quarter with $105.3 million in cash and short-term investments. The Company continues to have no long-term debt.

During the quarter Enghouse spent $2.4 million to repurchase 314,100 of its common shares under the Company's buyback program and paid an eligible cash dividend of $0.025 per share. After the quarter, on August 31, 2007, a further eligible cash dividend of $0.025 was paid. At its meeting held today, the Board of Directors authorized the payment of an eligible quarterly dividend of $0.025 per share payable on November 30, 2007 to shareholders of record at the close of business on November 14, 2007.

Stephen Sadler, the Chairman of Enghouse said "The Company has a strong financial base and operating cash flows for its regular dividend program, its share buyback program and to seek accretive acquisitions to increase shareholder value."

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.



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

July 31, October 31,
2007 2006
---------------------------------------------------------------------------
Assets
Current Assets:
Cash $ 13,563 $ 5,602
Short-term investments 91,758 92,621
Accounts receivable, net 10,339 15,253
Future income taxes 3,147 3,480
Prepaid expenses and other
assets 1,900 2,074
--------- ----------

120,707 119,030
--------- ----------

Property and equipment 2,058 1,667
Acquired software and other
intangibles 17,773 21,370
Goodwill 14,007 13,929
Future income taxes 2,677 3,761
--------- ----------

$ 157,222 $ 159,757
--------- ----------
--------- ----------

Liabilities
Current Liabilities:
Accounts payable and accrued
liabilities $ 9,773 $ 12,688
Income taxes payable 6,320 7,629
Deferred revenue 16,000 16,143
--------- ----------
32,093 36,460


Future income taxes 8,883 10,227
Deferred revenue 944 64
--------- ----------

41,920 46,751

Shareholders' Equity
Share capital 48,671 49,177
Contributed surplus 1,630 1,314
Retained earnings 71,844 68,367
Accumulated other comprehensive
loss (6,843) (5,852)
--------- ----------

115,302 113,006

$ 157,222 $ 159,757
--------- ----------
--------- ----------



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

Three months ended July 31 Nine months ended July 31
---------------------------------------------------------------------------
2007 2006 2007 2006
---------------------------------------------------------------------------
Revenue
Software licenses $ 3,133 $ 3,604 $ 8,973 $ 13,467
Services 10,249 10,793 31,882 32,209
Hardware 448 451 1,439 957
-------------------------- -------------------------

13,830 14,848 42,294 46,633
-------------------------- -------------------------

Cost of Sales
Software licenses 387 486 1,554 1,627
Services 3,712 3,799 11,017 10,988
Hardware 312 374 1,101 795
-------------------------- -------------------------
4,411 4,659 13,672 13,410

Gross Margin 9,419 10,189 28,622 33,223

Operating expenses
Selling, general and
administrative 3,710 3,264 11,546 11,154
Research and
development 2,005 1,864 6,120 6,084
Stock based
compensation 112 145 332 388
Amortization of
property and
equipment 180 295 612 965
Amortization of
acquired software
and other intangibles 1,483 1,440 4,430 4,188
-------------------------- -------------------------
7,490 7,008 23,040 22,779
-------------------------- -------------------------

Income before the
undernoted 1,929 3,181 5,582 10,444

Interest income, net 1,240 909 3,218 2,269
Other income - 36 810 36
-------------------------- -------------------------

Income before income
taxes 3,169 4,126 9,610 12,749

Provision for income
taxes 1,134 1,460 3,445 4,559
-------------------------- -------------------------

Net income for the
period $ 2,035 $ 2,666 $ 6,165 $ 8,190
-------------------------- -------------------------

Retained Earnings,
beginning of period $ 72,270 $ 63,814 $ 68,367 $ 58,452

Dividends (637) - (637) -
Purchase and
cancellation of
common shares (1,824) (926) (2,051) (1,088)
-------------------------- -------------------------
-------------------------- -------------------------
Retained Earnings, end
of period $ 71,844 $ 65,554 $ 71,844 $ 65,554
-------------------------- -------------------------
-------------------------- -------------------------

Earnings per share
Basic $ 0.08 $ 0.10 $ 0.24 $ 0.32
Diluted $ 0.08 $ 0.10 $ 0.23 $ 0.31
Weighted average
shares outstanding
during period
(millions) - basic 25.4 25.6 25.4 25.6
- diluted 26.3 26.6 26.3 26.6



Enghouse Systems Limited
Consolidated Statements of Comprehensive Income (Loss)
(in thousands of Canadian dollars)
(Unaudited)

Three months ended Nine months ended
July 31 July 31
---------------------------------------------------------------------------
2007 2006 2007 2006
---------------------------------------------------------------------------

Net income for the period $ 2,035 $ 2,666 $ 6,165 $ 8,190

Other comprehensive income (loss):

Unrealized (loss) gain on
translating financial statements
of self-sustaining foreign
operations (547) 408 (1,358) (986)
Transfer to net income of realized
gains on available for sale
investments, net of tax of $292 - - (518) -
Unrealized gain on available for
sale investments, net of
tax of $6 (year-to-date - $532) 11 - 941 -
Unrealized foreign currency
translation loss on available
for sale investments, net
of tax of $37
(year-to-date - $32) (66) - (56) -
---------------------------------------

Other comprehensive (loss) income $ (602) $ 408 $ (991) $ (986)
---------------------------------------

Comprehensive income $ 1,433 $ 3,074 $ 5,174 $ 7,204
---------------------------------------
---------------------------------------

Accumulated other comprehensive
loss, beginning of period $ (6,241) $ (5,154) $ (5,852) $ (3,760)

Other comprehensive (loss) income (602) 408 (991) (986)
---------------------------------------

Accumulated other comprehensive
loss, end of period $ (6,843) $ (4,746) $ (6,843) $ (4,746)
---------------------------------------
---------------------------------------



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

For the three months For the nine months
ended July 31 ended July 31
---------------------------------------------------------------------------
2007 2006 2007 2006
---------------------------------------------------------------------------
Cash flows from operating
activities:
Net income for the period $ 2,035 $ 2,666 $ 6,165 $ 8,190

Add (deduct) items not
involving cash:
Amortization of property
and equipment 180 295 612 965
Amortization of acquired
software and other intangibles 1,483 1,440 4,430 4,188
Stock-based compensation expense 112 145 332 388
Gain on sale of short-term
investments - (36) (810) (36)
Future income taxes 199 259 203 2,058
------------------------------------------
4,009 4,769 10,932 15,753

Changes in operating assets and
Liabilities

Decrease (increase) in accounts
receivable, net 546 (950) 4,916 (2,908)
Decrease in prepaid expenses and
other assets 159 - 101 42
Decrease in accounts payable and
accrued liabilities (202) (741) (2,007) (307)
(Decrease) increase in current
income taxes payable (47) 1,087 (1,301) 1,888
(Decrease) increase in deferred
revenue (306) (1,147) 1,277 3,046
Unrealized foreign exchange gain
(loss) 135 284 36 (763)
-----------------------------------------
Cash flows from operating
activities 4,294 3,302 13,954 16,751
-----------------------------------------

Cash flows from investing
activities
Purchase of property and
equipment (699) (100) (972) (269)
Acquisitions, net of cash
acquired (Note 4) - - (2,210) (38,203)
Net (purchase) sale of
short-term investments (330) (1,607) 1,178 24,991
------------------------------------------
(1,029) (1,707) (2,004) (13,481)
------------------------------------------

Cash flows from financing
activities
Issuance of share capital 110 39 151 872
Payment of cash dividend (637) - (637) -
Purchase and cancellation of
common shares (2,423) (1,218) (2,724) (1,430)
------------------------------------------
(2,950) (1,179) (3,210) (558)

Effect of foreign exchange rate
changes on cash (467) 66 (779) (305)
------------------------------------------

Net (decrease) increase in cash
during the period (152) 482 7,961 2,407
Cash - Beginning of period 13,715 7,187 5,602 5,262
------------------------------------------
Cash - End of period $ 13,563 $ 7,669 $13,563 $ 7,669
------------------------------------------
------------------------------------------

Supplementary Cash Flow
Information:
Cash paid during the year for
Interest - - - -
Income Taxes $ 738 $ 59 $ 4,624 $ 496

Cash excludes short-term investments



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

Three Months ended Nine Months ended
---------------------------------------------------------------------------
July 31, 2007 July 31, 2006 July 31, 2007 July 31, 2006
---------------------------------------------------------------------------

Revenue:
Asset
Management
Division $ 2,398 $ 3,096 $ 7,035 $ 12,393
Syntellect
Division 11,432 11,752 35,259 34,240
------------------------------------------------------------
Total $ 13,830 $ 14,848 $ 42,294 $ 46,633
------------------------------------------------------------
------------------------------------------------------------

Segment Profit (EBIT):
Asset
Management
Division $ 42 $ 1,102 $ 563 $ 6,419
Syntellect
Division 2,364 2,596 6,728 6,080
Corporate (492) (586) (1,627) (1,843)
Foreign Exchange 15 69 (82) (212)
------------------------------------------------------------
Total $ 1,929 $ 3,181 $ 5,582 $ 10,444
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