Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

September 10, 2014 17:00 ET

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

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