Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

September 02, 2010 17:00 ET

Enghouse Releases Third Quarter Results

MARKHAM, ONTARIO--(Marketwire - Sept. 2, 2010) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter financial results for the period ended July 31, 2010.

Third quarter revenue was $26.0 million, compared to $23.4 million reported in the same period last year, an increase of approximately 11%. Net income for the third quarter was $3.2 million or $0.13 per share on a diluted basis compared to the prior year's third quarter net income of $2.4 million or $0.10 per share. The increase in revenue was the result of increased license and services revenue attributable to recent acquisitions Pulse Voice Inc. ("Pulse") acquired November 1, 2009, Mettoni Ltd. ("Mettoni") acquired April 6, 2010 and Telrex LLC ("Telrex") acquired June 1, 2010. As has become the norm, revenue and operating costs are impacted by the continued volatility of foreign exchange as outlined in the MD&A.

Operating expenses increased to $12.5 million from $10.6 million in the prior year's third quarter and include incremental operating costs related to acquisitions and the impact of foreign exchange on U.S. dollar denominated operating expenses converted to Canadian dollars. Non-cash amortization charges were $2.4 million compared to $1.8 million in the prior year's third quarter and include amortization charges for acquired software and other intangibles from recently acquired operations which added $0.8 million to amortization expense in the quarter.

The Company generated cash flows from operations of $9.1 million in the third quarter compared to $7.2 million in the prior year's third quarter, closing the quarter with $77.1 million in cash and short-term investments compared to $93.2 million at October 31, 2009, which is after payment of Mettoni acquisition costs of approximately $22.3 million, $4.6 million for Pulse and $3.5 million for the Telrex acquisition. The Company continues to have no long-term debt.

The Board of Directors today authorized an eligible quarterly dividend of $0.04 per common share, payable on November 30, 2010 to shareholders of record at the close of business on November 16, 2010. The Company remains committed to its strategy of seeking further acquisitions to continue to diversify its revenue stream and expand its market presence.

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, 2010   October 31, 2009  
   
Assets  
Current            
Cash $ 47,459   $ 39,276  
Short-term investments   29,681     53,876  
Accounts receivable, net   23,293     17,017  
Future income taxes   1,245     973  
Prepaid expenses and other assets   4,022     2,434  
             
    105,700     113,576  
             
Property and equipment, net   2,006     1,576  
Acquired software and other intangibles, net   36,550     22,934  
Goodwill   36,051     19,965  
Future income taxes   3,725     3,183  
             
  $ 184,032   $ 161,234  
             
Liabilities  
Current            
Accounts payable and accrued liabilities   19,777     17,107  
Income taxes payable   1,540     1,473  
Dividends payable   1,007     746  
Deferred revenue   28,771     15,765  
    51,095     35,091  
             
Future income taxes   12,528     8,693  
Long-term income taxes payable   588     1,043  
Deferred revenue   616     197  
    64,827     45,024  
             
Shareholders' Equity  
             
Share capital   50,685     49,780  
Contributed surplus   2,318     2,047  
Retained earnings   77,186     73,142  
Accumulated other comprehensive loss   (10,984 )   (8,759 )
    119,205     116,210  
             
             
  $ 184,032   $ 161,234  
 
 
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  
  2010   2009   2010   2009  
Revenue                        
Software licenses $ 8,387   $ 7,889   $ 21,404   $ 17,450  
Services   16,929     13,747     43,401     37,810  
Hardware   715     1,717     2,025     3,155  
                         
    26,031     23,353     66,830     58,415  
Cost of sales                        
Software licenses   1,272     1,517     3,443     3,029  
Services   5,992     4,883     15,937     14,751  
Hardware   542     1,238     1,386     2,518  
    7,806     7,638     20,766     20,298  
                         
Gross margin   18,225     15,715     46,064     38,117  
                         
Operating expenses                        
Selling, general and administrative   9,173     7,118     22,365     17,649  
Research and development   2,922     3,152     8,990     9,117  
Amortization of property and equipment   369     320     975     979  
    12,464     10,590     32,330     27,745  
                         
Income before the undernoted   5,761     5,125     13,734     10,372  
                         
Amortization of acquired software and other intangibles   (2,417 )   (1,840 )   (5,983 )   (5,505 )
Foreign exchange gain   207     107     148     182  
Interest income, net   68     228     295     1,175  
Other income   378     24     942     24  
                         
Income before income taxes   3,997     3,644     9,136     6,248  
                         
Provision for income taxes                        
  Current   1,057     373     2,139     1,419  
  Future   (262 )   840     185     666  
                         
Net income for the period $ 3,202   $ 2,431   $ 6,812   $ 4,163  
                         
                         
Retained earnings, beginning of period $ 74,991   $ 69,865   $ 73,142   $ 72,015  
                         
Dividends   (1,007 )   (746 )   (2,768 )   (2,115 )
Purchase and cancellation of common shares   -     (175 )   -     (2,688 )
Retained earnings, end of period $ 77,186   $ 71,375   $ 77,186   $ 71,375  
                         
Earnings per share                        
  Basic $ 0.13   $ 0.10   $ 0.27   $ 0.17  
  Diluted $ 0.13   $ 0.10   $ 0.27   $ 0.17  
  Weighted average shares outstanding during period (millions)                        
    - basic   25.2     24.9     25.1     25.0  
    - diluted   25.4     25.2     25.3     25.1  
 
 
Enghouse Systems Limited
Consolidated Statements of Comprehensive Income and Accumulated Other Comprehensive Loss
(in thousands of Canadian dollars)
(Unaudited)
 
  Three months ended July 31   Nine months ended July 31  
  2010   2009   2010   2009  
                 
Net income for the period $ 3,202   $ 2,431   $ 6,812   $ 4,163  
                         
Other comprehensive income (loss):                        
Unrealized gain (loss) on translating financial statements of self-sustaining foreign operations   1,747     (2,891 )   (2,873 )   (3,839 )
Transfer to net income of realized gains on available for sale investments, net of tax of ($114) (nine months – ($284))   (263 )   (16 )   (657 )   (172 )
Unrealized gain (loss) on available for sale investments, net of tax of $195 (nine months – $613)   451     429     1,416     (505 )
Unrealized foreign currency translation gain (loss) on available for sale investments, net of tax of $18 (nine months – ($48))   41     71     (111 )   731  
                         
Other comprehensive income (loss) $ 1,976   $ (2,407 ) $ (2,225 ) $ (3,785 )
                         
Comprehensive income $ 5,178   $ 24   $ 4,587   $ 378  
                         
Accumulated other comprehensive loss, beginning of period $ (12,960 ) $ (4,597 ) $ (8,759 ) $ (3,219 )
                         
Other comprehensive income (loss)   1,976     (2,407 )   (2,225 )   (3,785 )
                         
Accumulated other comprehensive loss, end of period $ (10,984 ) $ (7,004 ) $ (10,984 ) $ (7,004 )
                         
                         
 
 
Enghouse Systems Limited
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)
 
  For the three months ended July 31   For the nine months ended July 31  
  2010   2009   2010   2009  
Cash flows from operating activities                        
Net income for the period $ 3,202   $ 2,431   $ 6,812   $ 4,163  
                         
Add (deduct) items not involving cash                        
  Amortization of property and equipment   369     320     975     979  
  Amortization of acquired software and other intangibles   2,417     1,840     5,983     5,505  
  Stock-based compensation expense   111     88     271     169  
  Gain on sale of short-term investments   (378 )   (24 )   (942 )   (24 )
  Future income taxes   (262 )   840     185     666  
Cash flows before changes in operating assets and liabilities   5,459     5,495     13,284     11,458  
                         
Changes in operating assets and liabilities                        
                         
  Decrease (increase) in accounts receivable, net   1,894     (1,144 )   1,594     3,126  
  Decrease (increase) in prepaid expenses and other assets   589     353     (446 )   269  
  Increase (decrease) in accounts payable and accrued liabilities   1,281     4,103     (4,564 )   1,622  
  Increase (decrease) in current income taxes payable   537     133     (861 )   (2,377 )
  Increase (decrease) in deferred revenue   1,041     (1,932 )   8,679     (60 )
  Unrealized foreign exchange (gain) loss   (1,691 )   164     (1,428 )   (144 )
Cash flows from operating activities   9,110     7,172     16,258     13,894  
                         
Cash flows from investing activities                        
Purchase of property and equipment, net   (51 )   (98 )   (609 )   (354 )
Acquisitions, net of cash acquired   (4,804 )   (75 )   (30,131 )   (6,935 )
Proceeds from sale of short-term investments   2,583     888     25,287     21,168  
    (2,272 )   715     (5,453 )   13,879  
                         
Cash flows from financing activities                        
Issuance of share capital   -     5     905     955  
Payment of cash dividend   (1,007 )   (748 )   (2,507 )   (2,005 )
Purchase and cancellation of common shares   -     (259 )   -     (4,477 )
    (1,007 )   (1,002 )   (1,602 )   (5,527 )
                         
Effect of foreign exchange rate changes on cash   602     (1,952 )   (1,020 )   (2,342 )
                         
Net increase in cash during the period   6,433     4,933     8,183     19,904  
Cash – beginning of period   41,026     27,302     39,276     12,331  
Cash – end of period $ 47,459   $ 32,235   $ 47,459   $ 32,235  
Supplementary cash flow information:                        
                         
  Cash paid during the period for income taxes $ 333   $ 289   $ 2,418   $ 1,665  
                           
      Note: 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, 2010   July 31, 2009   July 31, 2010   July 31, 2009  
                 
                 
Revenue:                        
  Asset Management Division $ 3,629   $ 2,481   $ 10,004   $ 7,221  
  Syntellect Division   22,402     20,872     56,826     51,194  
Total $ 26,031   $ 23,353   $ 66,830   $ 58,415  
                         
                         
Segment Profit (EBIT):                        
  Asset Management Division $ 1,268   $ (89 ) $ 2,067   $ (440 )
  Syntellect Division   2,650     4,070     7,549     7,131  
  Corporate   (574 )   (696 )   (1,865 )   (1,824 )
  Foreign Exchange   207     107     148     182  
  Interest and other income   446     252     1,237     1,199  
Total $ 3,997   $ 3,644   $ 9,136   $ 6,248  
                         

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