Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

September 09, 2008 17:11 ET

Enghouse Releases Third Quarter Results and Announces Dividend

MARKHAM, ONTARIO--(Marketwire - Sept. 9, 2008) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter results for the period ended July 31, 2008.

Third quarter revenue was $14.7 million, compared to $13.8 million reported in the same period last year. Net income for the third quarter was $1.58 million or $0.06 per diluted share compared to the prior year's third quarter net income of $2.04 million or $0.08 per diluted share. On a year-to-date basis, revenue was $38.4 million compared to $42.3 million in the prior year, while net income was $3.67 million compared to $6.17 million in the prior fiscal year.

Operating expenses increased to $7.7 million from $7.5 million in the prior year's third quarter primarily as a result of the inclusion of incremental costs associated with the acquisitions of Gamma Projects Limited ("Gamma") completed on March 31, 2008 and Fluency Voice Technology Limited ("Fluency") completed on May 31, 2008. Also included in the operating expenses are non-cash amortization charges of $1.6 million compared to $1.5 million in the prior year's third quarter related to the amortization of software and intangibles including those recorded as part of the Gamma and Fluency acquisitions.

The Company generated cash flows from operations of $2.3 million in the third quarter compared to $4.3 million in the prior year's third quarter. On a year-to-date basis, the Company generated cash flows of $6.3 million, closing the quarter with $103.2 million in cash and short-term investments. The Company continues to have no long-term debt.

During the quarter Enghouse spent $0.2 million to repurchase 39,900 of its common shares under the Company's buyback program at an average cost of $6.06 per share and paid an eligible cash dividend of $0.025 per share on August 29, 2008. 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 28, 2008 to shareholders of record at the close of business on November 14, 2008.

On May 31, 2008 the Company completed the acquisition of Fluency to expand its presence in the U.K. During the quarter the Fluency business was combined with Syntellect's operations.

The Company continues to have 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,
2008 2007
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Assets
Current Assets:
Cash $ 7,900 $ 11,321
Short-term investments 95,330 89,184
Accounts receivable, net 12,551 10,376
Future income taxes 1,785 1,359
Prepaid expenses and other assets 2,263 1,488
---------- ----------

119,829 113,728
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Property and equipment 2,245 1,930
Acquired software and other intangibles 14,435 15,819
Goodwill 14,746 10,652
Future income taxes 6,574 4,128
---------- ----------

$ 157,829 $ 146,257
---------- ----------
---------- ----------
Liabilities
Current Liabilities:
Accounts payable and accrued liabilities $ 11,729 $ 9,258
Income taxes payable 6,523 7,342
Dividend payable 637 629
Deferred revenue 16,006 12,602
---------- ----------
34,895 29,831

Future income taxes 8,794 7,964
Deferred revenue 683 953
---------- ----------

44,372 38,748
Shareholders' Equity
Share capital 50,366 48,670
Contributed surplus 1,986 1,771
Retained earnings 70,329 69,931
Accumulated other comprehensive loss (9,224) (12,863)
---------- ----------
113,457 107,509


$ 157,829 $ 146,257
---------- ----------
---------- ----------



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


Three months Nine months
ended July 31 ended July 31
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2008 2007 2008 2007
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Revenue
Software licenses $ 3,517 $ 3,133 $ 7,819 $ 8,973
Services 10,742 10,249 29,359 31,882
Hardware 434 448 1,183 1,439
------------------ -------------------

14,693 13,830 38,361 42,294
------------------ -------------------

Cost of Sales
Software licenses 995 387 2,013 1,554
Services 4,370 3,712 11,643 11,017
Hardware 353 312 964 1,101
------------------ -------------------
5,718 4,411 14,620 13,672

Gross Margin 8,975 9,419 23,741 28,622

Operating expenses
Selling, general and administrative 3,588 3,710 10,108 11,546
Research and development 2,195 2,005 5,929 6,120
Stock based compensation 75 112 217 332
Amortization of property and
equipment 263 180 691 612
Amortization of acquired software
and other intangibles 1,570 1,483 4,512 4,430
------------------ -------------------
7,691 7,490 21,457 23,040
------------------ -------------------

Income before the undernoted 1,284 1,929 2,284 5,582

Interest income, net 723 1,240 2,641 3,218
Other income 441 - 768 810
------------------ -------------------

Income before income taxes 2,448 3,169 5,693 9,610

Provision for income taxes 864 1,134 2,024 3,445
------------------ -------------------

Net income for the period $ 1,584 $ 2,035 $ 3,669 $ 6,165
------------------ -------------------


Retained Earnings, beginning of
period $ 69,548 $ 71,633 $ 69,931 $ 68,367
Dividends (637) (629) (1,901) (1,266)
Purchase and cancellation of common
shares (166) (1,824) (1,370) (2,051)
------------------ -------------------
------------------ -------------------
Retained Earnings, end of period $ 70,329 $ 71,215 $ 70,329 $ 71,215
------------------ -------------------
------------------ -------------------

Earnings per share
Basic $ 0.06 $ 0.08 $ 0.15 $ 0.24
Diluted $ 0.06 $ 0.08 $ 0.14 $ 0.23
Weighted average shares outstanding
during period (millions) - basic 25.2 25.4 25.3 25.4

- diluted 25.8 26.3 25.9 26.3



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
---------------------------------------------------------------------------
2008 2007 2008 2007
---------------------------------------------------------------------------

Net income for the period $ 1,584 $ 2,035 $ 3,669 $ 6,165

Other comprehensive income (loss):

Unrealized gain (loss) on
translating financial statements
of self-sustaining foreign
operations 955 (547) 3,579 (1,358)
Transfer to net income of realized
gains on available for
sale investments, net of tax of nil
(year-to-date $118) - - (209) (518)
Unrealized (loss) gain on available
for sale investments,
net of tax of ($69) (year-to-date -
$138) (122) 11 244 941
Unrealized foreign currency
translation gain (loss) on
available for sale investments, net
of tax of $31 (year-to-date - $14) 55 (66) 25 (56)
---------------------------------------

Other comprehensive income (loss) $ 888 $ (602) $ 3,639 $ (991)
---------------------------------------

Comprehensive income $ 2,472 $ 1,433 $ 7,308 $ 5,174
---------------------------------------
---------------------------------------

Accumulated other comprehensive
loss, beginning of period $(10,112) $ (6,241) $(12,863) $ (5,852)

Other comprehensive income (loss) 888 (602) 3,639 (991)
---------------------------------------

Accumulated other comprehensive
loss, end of period $ (9,224) $ (6,843) $ (9,224) $ (6,843)
---------------------------------------
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Enghouse Systems Limited
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)


For the three For the nine
months ended months ended
July 31 July 31
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Cash flows from operating activities:
Net income for the period $ 1,584 $ 2,035 $ 3,669 $ 6,165

Add (deduct) items not involving cash:
Amortization of property and equipment 263 180 691 612
Amortization of acquired software and
other intangibles 1,570 1,483 4,512 4,430
Stock-based compensation expense 75 112 217 332
Gain on sale of short-term investments - - (327) (810)
Gain on sale of patents (441) - (441) -
Future income taxes (18) 199 (1,380) 203
----------------- -----------------
3,033 4,009 6,941 10,932

Changes in operating assets and
liabilities

(Increase) decrease in accounts
receivable, net (171) 546 1,140 4,916
(Increase) decrease in prepaid
expenses and other assets (36) 159 (438) 101
Increase (decrease) in accounts
payable and accrued liabilities 355 (202) (246) (2,007)
Increase (decrease) in current income
taxes payable 602 (47) (984) (1,301)
(Decrease) increase in deferred
revenue (818) (306) 271 1,277
Unrealized foreign exchange (loss)
gain (654) 135 (365) 36
----------------- -----------------
Cash flows from operating activities 2,311 4,294 6,319 13,954
----------------- -----------------

Cash flows from investing activities
Purchase of property and equipment (356) (699) (796) (972)
Acquisitions, net of cash acquired (2,467) - (4,742) (2,210)
Proceeds from sale of patents 441 - 441 -
Net (purchase) sale of short-term
investments (4,229) (330) (3,919) 1,178
----------------- -----------------
(6,611) (1,029) (9,016) (2,004)
----------------- -----------------

Cash flows from financing activities
Issuance of share capital 1,076 110 2,285 151
Payment of cash dividend (629) (637) (1,893) (637)
Purchase and cancellation of common
shares (242) (2,423) (1,959) (2,724)
----------------- -----------------
205 (2,950) (1,567) (3,210)

Effect of foreign exchange rate
changes on cash 141 (467) 843 (779)
----------------- -----------------

Net (decrease) increase in cash during
the period (3,954) (152) (3,421) 7,961
Cash - Beginning of period 11,854 13,715 11,321 5,602
----------------- -----------------
Cash - End of period $ 7,900 $ 13,563 $ 7,900 $13,563
----------------- -----------------
----------------- -----------------

Supplementary Cash Flow Information:
Cash paid during the year for
Income taxes $ 195 $ 738 $ 3,485 $ 4,624


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 July 31
--------------------------------------------------------------------------
2008 2007 2008 2007
--------------------------------------------------------------------------


Revenue:
Asset Management Division $ 2,836 $ 2,398 $ 7,047 $ 7,035
Syntellect Division 11,857 11,432 31,314 35,259
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Total $ 14,693 $ 13,830 $ 38,361 $ 42,294
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Segment Profit (EBIT):
Asset Management Division $ 136 $ 42 $ (413) $ 563
Syntellect Division 1,561 2,364 3,904 6,728
Corporate (517) (492) (1,612) (1,627)
Foreign Exchange 104 15 405 (82)
----------------------------------------------
Total $ 1,284 $ 1,929 $ 2,284 $ 5,582
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