Enghouse Releases Third Quarter Results

MARKHAM, ONTARIO--(Marketwired - Sept. 10, 2014) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter financial results for the period ended July 31, 2014.

Third quarter revenue was $55.5 million, an increase of 20% over revenue of $46.2 million in the third quarter last year. The increase in revenue reflects a combination of contributions from acquisitions, the positive impact of foreign exchange and organic growth. Revenue includes hosted and maintenance services contributions of $29.4 million in the quarter, an increase of 25% over last year. Adjusted EBITDA for the quarter was $14.4 million or $0.53 per diluted share compared to $12.2 million or $0.46 per diluted share in last year's third quarter. Results from operating activities for the quarter were $13.5 million compared to $11.7 million in the prior year's third quarter, an increase of 15% over the prior year. Net income for the quarter was $7.2 million or $0.27 per diluted share compared to the prior year's third quarter net income of $6.3 million or $0.24 per share.

On a year to date basis, revenue was $157.9 million compared to $132.7 million last year, an increase of 19%, while net income was $19.9 million or $0.74 per diluted share compared to $14.6 million or $0.55 per diluted share, an increase of 36%. Adjusted EBITDA was $40.4 million or $1.50 per diluted share compared to $32.5 million or $1.23 per diluted share last year.

Operating expenses increased to $26.0 million from $21.2 million in the prior year's third quarter and include incremental operating costs related to acquisitions, foreign exchange and special charges of $0.3 million related to restructuring of acquired operations. Non-cash amortization charges in the quarter were $4.3 million compared to $4.0 million in the prior year's third quarter and include amortization charges for acquired software and customer relationships including acquisitions completed in the current year.

Enghouse generated cash flows from operating activities of $17.0 million in the quarter and $40.7 million year to date compared to $14.8 million in the prior year's third quarter and $30.3 million in fiscal 2013. The Company closed the quarter with $105.0 million in cash, cash equivalents and short-term investments, compared to $90.3 million at October 31, 2013. This is after net cash paid of $7.5 million for the acquisition of Basset AB, completed July 1, 2014, $8.3 million for IT Sonix AG, completed March 3, 2014, $1.8 million for Information Access Technology Inc., acquired November 4, 2013 and final payments of $4.0 million made on previous acquisitions. Dividends of $6.8 million have also been paid year to date. The Company continues to have no debt.

The Board of Directors has approved an eligible quarterly dividend of $0.10 per common share, payable on November 28, 2014 to shareholders of record at the close of business on November 14, 2014.

Shortly after quarter end, the Company completed the acquisition of Jinny Software Limited ("Jinny") for a purchase price of approximately $19.3 million. Combined with the acquisition of Basset AB on July 1, 2014, the Company has significantly expanded the scale of its Asset Management Group. Jinny has operations in Latin America, Africa and the Middle East, while Basset is based in Sweden and has operations in Europe and the Middle East. Enghouse remains committed to further diversifying its revenue stream and continues to seek accretive acquisitions to grow its market share.

A conference call to discuss the results will be held on Thursday, September 11, 2014 at 8:45 a.m. EST. To participate, please call 1-416-640-5946 or North American Toll-Free 1-866-233-4585. No PIN is required.

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-GAAP Measures

The Company uses non-GAAP measures to assess its operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than GAAP 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 Adjusted EBITDA as a measure of operating performance. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Adjusted EBITDA is calculated as income before income taxes adjusted for depreciation of property, plant and equipment, amortization of acquired software and customer relationships, finance income, finance expenses, other income, and special charges for acquisition related restructuring costs. Management uses Adjusted EBITDA to evaluate operating performance as it excludes 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.

Adjusted EBITDA:

The table below reconciles Adjusted EBITDA to income before income taxes:

	Three Months ended						Nine Months ended
	July 31, 2014			July 31, 2013			July 31, 2014			July 31, 2013
Total Revenue	$	55,488		$	46,247		$	157,931		$	132,715
Income before income taxes		9,250			8,020			25,253			18,606
Depreciation of property, plant and equipment		577			425			1,672			1,303
Amortization of acquired software and customer relationships		4,273			4,025			12,414			11,485
Finance income		(119	)		(90	)		(386	)		(517	)
Finance expenses		99			81			232			258
Other income		(35	)		(307	)		(43	)		(1,116	)
Special charges		334			77			1,256			2,491
Adjusted EBITDA	$	14,379		$	12,231		$	40,398		$	32,510
Adjusted EBITDA margin		26	%		26	%		26	%		24	%
Adjusted EBITDA per diluted share	$	0.53		$	0.46		$	1.50		$	1.23

Enghouse Systems Limited

Condensed Consolidated Interim Statements of Financial Position

(in thousands of Canadian dollars)

(Unaudited)

		July 31, 2014		October 31, 2013
Assets
Current assets:
	Cash and cash equivalents	$	85,331	$	70,109
	Short-term investments		19,627		20,188
	Accounts receivable, net		39,134		36,444
	Income tax receivable		203		-
	Prepaid expenses and other assets		7,651		5,839
			151,946		132,580
Non-current assets:
Property, plant and equipment			3,783		3,599
Intangible assets			150,203		132,358
Deferred income tax assets			7,137		9,419
Total assets		$	313,069	$	277,956
Liabilities
Current liabilities:
	Accounts payable and accrued liabilities	$	35,752	$	32,659
	Income taxes payable		-		1,555
	Dividends payable		2,614		2,083
	Accrued provisions		3,601		3,427
	Deferred revenue		48,380		39,325
			90,347		79,049
Non-current liabilities:
Deferred income tax liabilities			17,693		14,482
Deferred revenue			2,235		1,797
Total liabilities			110,275		95,328
Shareholders' Equity
Share capital			59,567		58,514
Contributed surplus			3,616		3,175
Retained earnings			128,431		115,800
Accumulated other comprehensive income			11,180		5,139
Total shareholders' equity			202,794		182,628
Total liabilities and shareholders' equity		$	313,069	$	277,956

Enghouse Systems Limited

Condensed 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
		2014			2013			2014			2013
Revenue
	Software licenses	$	18,172		$	15,189		$	52,807		$	43,877
	Hosted and maintenance services		29,424			23,543			82,783			67,500
	Professional services		6,617			6,013			17,849			17,581
	Hardware		1,275			1,502			4,492			3,757
			55,488			46,247			157,931			132,715
Direct costs
	Software licenses		1,142			1,113			4,026			3,191
	Services		14,071			11,243			39,164			31,719
	Hardware		838			941			2,935			2,538
			16,051			13,297			46,125			37,448
Revenue, net of direct costs			39,437			32,950			111,806			95,267
Operating expenses
	Selling, general and administrative		16,202			13,298			44,392			40,221
	Research and development		8,856			7,421			27,016			22,536
	Depreciation of property, plant and equipment		577			425			1,672			1,303
	Special charges		334			77			1,256			2,491
			25,969			21,221			74,336			66,551
Results from operating activities			13,468			11,729			37,470			28,716
Amortization of acquired software and customer relationships			(4,273	)		(4,025	)		(12,414	)		(11,485	)
Finance income			119			90			386			517
Finance expenses			(99	)		(81	)		(232	)		(258	)
Other income			35			307			43			1,116
Income before income taxes			9,250			8,020			25,253			18,606
Provision for income taxes			2,035			1,723			5,308			3,971
Net income for the period		$	7,215		$	6,297		$	19,945		$	14,635
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations			(4,376	)		(162	)		6,145			221
Transfer to net income of realized gains on available for sale investments			(19	)		(1,333	)		(56	)		(2,201	)
Unrealized (loss) gain on available for sale investments			(6	)		1,275			(64	)		2,267
Deferred income tax recovery (expense)			3			8			16			(9	)
Other comprehensive income (loss)			(4,398	)		(212	)		6,041			278
Comprehensive income		$	2,817		$	6,085		$	25,986		$	14,913
Earnings per share
Basic		$	0.28		$	0.24		$	0.76		$	0.57
Diluted		$	0.27		$	0.24		$	0.74		$	0.55

Enghouse Systems Limited

Condensed Consolidated Interim Statements of Changes in Equity

(in thousands of Canadian dollars)

(Unaudited)

		Share Capital -number	Share Capital $	Contributed surplus $		Accumulated other comprehensive income (loss) $		Retained earnings $		Total $
Balance - November 1, 2013		26,042,962	58,514	3,175		5,139		115,800		182,628
Net income		-	-	-		-		19,945		19,945
Other Comprehensive Income:
Cumulative Translation Adjustment		-	-	-		6,145		-		6,145
Transfer to net income of realized gains on available-for-sale investments		-	-	-		(56) (64	)	-		(56) (64	)
Unrealized loss on available-for-sale investments		-	-	-				-
Deferred income tax recovery		-	-	-		16		-		16
Comprehensive income for the period		-	-	-		6,041		19,945		25,986
Employee share options:
	Value of services recognized			676		-		-		676
	Proceeds on issuing shares	98,500	1,053	(235	)	-		-		818
Dividends		-	-	-				(7,314	)	(7,314	)
Balance - July 31, 2014		26,141,462	59,567	3,616		11,180		128,431		202,794
Balance - November 1, 2012		25,780,562	55,751	2,847		(29	)	99,371		157,940
Net income		-	-	-		-		14,635		14,635
Other Comprehensive Income:
Cumulative Translation Adjustment		-	-	-		221		-		221
Transfer to net income of realized gains on available-for-sale investments		-	-	-		(2,201	)	-		(2,201	)
Unrealized loss on available-for-sale investments		-	-	-		2,267		-		2,267
Deferred income tax expense		-	-	-		(9	)	-		(9	)
Comprehensive income for the period		-	-	-		278		14,635		14,913
Employee share options:
	Value of services recognized	-	-	704		-		-		704
	Proceeds on issuing shares	207,400	2,128	(544	)	-		-		1,584
Dividends		-	-	-		-		(5,835	)	(5,835	)
Balance - July 31, 2013		25,987,962	57,879	3,007		249		108,171		169,306

Enghouse Systems Limited

Condensed Consolidated Interim Statements of Cash Flows

(in thousands of Canadian dollars)

(Unaudited)

		Three months ended July 31						Nine months ended July 31
		2014			2013			2014			2013
Cash flows from operating activities
Net income		$	7,215		$	6,297		$	19,945		$	14,635
Adjustments for:
	Depreciation of property, plant and equipment		577			425			1,672			1,303
	Amortization of acquired software and customer relationships		4,273			4,025			12,414			11,485
	Stock-based compensation expense		312			281			676			704
	Income tax expense		2,035			1,723			5,308			3,971
	Finance expenses and other income		64			(226	)		189			(858	)
			14,476			12,525			40,204			31,240
Changes in non-cash operating working capital			3,646			3,029			4,860			2,556
	Income tax paid		(1,145	)		(724	)		(4,317	)		(3,510	)
Net cash flows from operating activities			16,977			14,830			40,747			30,286
Cash flows from investing activities
Purchase of property, plant and equipment, net			(525	)		(194	)		(1,313	)		(1,165	)
Acquisitions, net of cash acquired of $969 ($3,617 - 2013)			(7,469	)		(381	)		(17,529	)		(17,212	)
Purchase consideration for prior period acquisitions			(579	)		(2,593	)		(4,001	)		(2,593	)
Net sale of short-term investments			(1,955	)		(10,881	)		1,291			(6,078	)
Net cash flows used in investing activities			(10,528	)		(14,049	)		(21,552	)		(27,048	)
Cash flows from financing activities
Issuance of share capital			103			209			818			1,584
Payment of cash dividend			(2,613	)		(2,076	)		(6,783	)		(5,432	)
Net cash flows used in financing activities			(2,510	)		(1,867	)		(5,965	)		(3,848	)
Effect of currency translation adjustments on cash and cash equivalents			(1,410	)		(181	)		1,992			(142	)
Net increase (decrease) in cash and cash equivalents during the period			2,529			(1,267	)		15,222			(752	)
Cash and cash equivalents- beginning of period			82,802			60,059			70,109			59,544
Cash and cash equivalents - end of period		$	85,331		$	58,792		$	85,331		$	58,792

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
		2014			2013			2014			2013
Revenue:
	Asset Management Group	$	10,891		$	9,983		$	31,637		$	23,472
	Interactive Management Group		44,597			36,264			126,294			109,243
Total		$	55,488		$	46,247		$	157,931		$	132,715
Segment Profit:
	Asset Management Group	$	2,501		$	2,714		$	7,455		$	4,571
	Interactive Management Group		12,475			10,273			34,181			27,311
	Corporate expenses		(1,508	)		(1,258	)		(4,166	)		(3,166	)
	Amortization of acquired software and customer relationships		(4,273	)		(4,025	)		(12,414	)		(11,485	)
	Finance income		119			90			386			517
	Finance expenses		(99	)		(81	)		(232	)		(258	)
	Other income		35			307			43			1,116
Total		$	9,250		$	8,020		$	25,253		$	18,606