Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

September 10, 2015 17:00 ET

Enghouse Releases Third Quarter Results

MARKHAM, ONTARIO--(Marketwired - Sept. 10, 2015) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter financial results for the period ended July 31, 2015.

Third quarter revenue was $71.3 million, an increase of 28.4% over revenue of $55.5 million in the third quarter last year. On a year to date basis, revenue was $203.0 million compared to $157.9 million last year, an increase of 28.5%. Hosted and maintenance services revenue was $33.8 million in the quarter, an increase of 14.7% over the same period last year.

Adjusted EBITDA for the quarter was $18.5 million ($0.68 per diluted share) compared to $14.4 million ($0.53 per diluted share) in last year's third quarter. Adjusted EBITDA for the year to date was $50.9 million ($1.88 per diluted share) compared to $40.4 million ($1.50 per diluted share) last year, an increase of 25.9%.

Net income for the quarter was $8.1 million ($0.30 per diluted share) compared to the prior year's third quarter net income of $7.2 million ($0.27 per diluted share). Results from operating activities for the quarter were $16.2 million compared to $13.5 million in the prior year's third quarter, an increase of 20.4% over the prior year and include special charges related to acquisitions of $1.6 million.

Operating expenses before special charges related to restructuring of acquired operations were $29.8 million compared to $25.6 million in the prior year's third quarter and primarily includes incremental operating costs related to acquisitions. Non-cash amortization charges in the quarter were $5.7 million compared to $4.3 million in the prior year's third quarter and include amortization charges for acquired software and customer relationships from acquired operations.

Enghouse generated cash flows from operations of $9.3 million in the quarter after payment of $11.8 million to settle litigation matters during the quarter. Excluding litigation payments, cash flow from operations would have been $21.1 million and $50.4 million in the quarter and year to date respectively. Enghouse closed the quarter with $91.3 million in cash, cash equivalents and short-term investments, compared to $84.9 million at October 31, 2014. The cash balance was achieved after payments of $27.3 million for acquisitions (net of cash acquired) and dividends of $8.4 million year to date. The Company continues to have no long-term debt.

The Board of Directors has approved an eligible quarterly dividend of $0.12 per common share, payable on November 30, 2015 to shareholders of record at the close of business on November 16, 2015.

On June 19, 2015 Enghouse was added to the S&P/TSX Composite Index and Composite Dividend Index which should increase the Company's profile on the TSX and generate awareness of Enghouse to a broader range of investors.

Subsequent to quarter end, Enghouse completed the acquisition of Aktavara AB ("Aktavara") on September 9, 2015. Headquartered in Stockholm, Sweden, Aktavara provides innovative software solutions for telecommunications service providers. Enghouse remains committed to 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 Friday September 11, 2015 at 8:45 a.m. EST. To participate, please call 416-640-5946 or North American Toll-Free 1-866-233-4585. No PIN 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, profitable and more diverse software company through strategic acquisitions targeting the Contact Center, Networks (OSS/BSS) and Transportation/Public Safety sectors. Enghouse shares are listed on the Toronto Stock Exchange under the symbol "ESL". Further information about Enghouse may be obtained from the Company's website 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 results from operating activities adjusted for depreciation of property, plant and equipment, 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 the most directly comparable IFRS measure, Results from operating activities:

Three Months ended Nine Months ended
July 31,
2015
July 31,
2014
July 31,
2015
July 31,
2014
Total Revenue $ 71,264 $ 55,488 $ 202,984 $ 157,931
Results from operating activities 16,221 13,468 47,296 37,470
Depreciation of property, plant and equipment 647 577 1,921 1,672
Special charges 1,582 334 1,661 1,256
Adjusted EBITDA $ 18,450 $ 14,379 $ 50,878 $ 40,398
Adjusted EBITDA margin 25.9 % 25.9 % 25.1 % 25.6 %
Adjusted EBITDA per diluted share $ 0.68 $ 0.53 $ 1.88 $ 1.50
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)
July 31,
2015
October 31,
2014
Assets
Current assets
Cash and cash equivalents $ 81,464 $ 72,780
Short-term investments 9,824 12,084
Accounts receivable, net 60,915 54,341
Income tax receivable 1,243 -
Prepaid expenses and other assets 9,385 7,571
162,831 146,776
Non-current assets
Property, plant and equipment 5,155 4,020
Intangible assets 73,181 68,014
Goodwill 122,151 98,534
Deferred income tax assets 6,599 10,427
Total assets $ 369,917 $ 327,771
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 51,420 $ 41,297
Income taxes payable - 2,644
Dividends payable 3,154 2,616
Provisions 3,317 3,407
Deferred revenue 56,705 47,745
$ 114,596 97,709
Non-current liabilities
Deferred income tax liabilities 21,440 19,930
Deferred revenue 2,604 1,877
Total liabilities
138,640

119,516
Shareholders' Equity
Share capital 60,924 59,746
Contributed surplus 4,479 3,782
Retained earnings 144,827 135,554
Accumulated other comprehensive income 21,047 9,173
Total shareholders' equity 231,277 208,255
Total liabilities and shareholders' equity $ 369,917 $ 327,771
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
2015 2014 2015 2014
Revenue
Software licenses $ 21,844 $ 18,172 $ 62,540 $ 52,807
Hosted and maintenance services 33,751 29,424 99,697 82,783
Professional services 13,493 6,617 34,826 17,849
Hardware 2,176 1,275 5,921 4,492
71,264 55,488 202,984 157,931
Direct costs
Software licenses 1,958 1,142 5,601 4,026
Services 20,080 14,071 55,995 39,164
Hardware 1,591 838 4,006 2,935
23,629 16,051 65,602 46,125
Revenue, net of direct costs 47,635 39,437 137,382 111,806
Operating expenses
Selling, general and administrative 19,482 16,202 56,119 44,392
Research and development 9,703 8,856 30,385 27,016
Depreciation of property, plant and equipment 647 577 1,921 1,672
Special charges 1,582 334 1,661 1,256
31,414 25,969 90,086 74,336
Results from operating activities 16,221 13,468 47,296 37,470
Litigation settlements - - (8,774 ) -
Amortization of acquired software and customer relationships (5,695 ) (4,273 ) (16,783 ) (12,414 )
Finance income 47 119 211 386
Finance expenses (206 ) (99 ) (493 ) (232 )
Other income 11 35 86 43
Income before income taxes 10,378 9,250 21,543 25,253
Provision for income taxes 2,284 2,035 3,342 5,308
Net income for the period $ 8,094 $ 7,215 $ 18,201 $ 19,945
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations 11,737 (4,376 ) 11,642 6,145
Transfer to net income of realized gains on available for sale investments - (19 ) (74 ) (56 )
Unrealized gain (loss) on available for sale investments 159 (6 ) 342 (64 )
Deferred income tax (expense) recovery (21 ) 3 (36 ) 16
Other comprehensive income (loss) 11,875 (4,398 ) 11,874 6,041
Comprehensive income $ 19,969 $ 2,817 $ 30,075 $ 25,986
Earnings per share
Basic $ 0.31 $ 0.28 $ 0.69 $ 0.76
Diluted $ 0.30 $ 0.27 $ 0.67 $ 0.74
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, 2014 26,163,962 59,746 3,782 9,173 135,554 208,255
Net income - - - - 18,201 18,201
Other Comprehensive Income:
Cumulative Translation Adjustment - - - 11,642 - 11,642
Transfer to net income of realized gains on available-for-sale investments - - - (74 ) - (74 )
Unrealized gain on available-for-sale investments - - - 342 - 342
Deferred income tax expense - - - (36 ) - (36 )
Comprehensive income for the period - - - 11,874 18,201 30,075
Employee share options:
Value of services recognized - - 937 - 937
Proceeds on issuing shares 121,500 1,178 (240 ) - 938
Dividends - - - (8,928 ) (8,928 )
Balance - July 31, 2015 26,285,462 60,924 4,479 21,047 144,827 231,277
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 )
-
(56 )
Unrealized loss on available-for-sale investments - - - (64 ) - (64 )
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
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
2015 2014 2015 2014
Cash flows from operating activities
Net income $ 8,094 $ 7,215 $ 18,201 $ 19,945
Adjustments for:
Depreciation of property, plant and equipment 647 577 1,921 1,672
Amortization of acquired software and customer relationships 5,695 4,273 16,783 12,414
Stock-based compensation expense 315 312 937 676
Provision for income taxes 2,284 2,035 3,342 5,308
Finance expenses and other income 195 64 407 189
17,230 14,476 41,591 40,204
Changes in non-cash operating working capital 4,230 3,646 13,163 4,860
Cash paid on settlement of litigation (11,785 ) - (11,162 ) -
Income tax paid (336 ) (1,145 ) (4,404 ) (4,317 )
Net cash flows from operating activities 9,339 16,977 39,188 40,747
Cash flows from investing activities
Purchase of property, plant and equipment, net (640 ) (525 ) (2,097 ) (1,313 )
Purchase of other software (251 ) - (251 ) -
Acquisitions, net of cash acquired of $4,864 ($4,361 - 2014) (5,342 ) (7,469 ) (25,160 ) (17,529 )
Purchase consideration for prior period acquisitions (1,456 ) (579 ) (2,139 ) (4,001 )
Net sale (purchase) of short-term investments 1,039 (1,955 ) 3,386 1,291
Net cash flows used in investing activities (6,650 ) (10,528 ) (26,261 ) (21,552 )
Cash flows from financing activities
Issuance of share capital - 103 938 818
Payment of cash dividend (3,154 ) (2,613 ) (8,391 ) (6,783 )
Net cash flows used in financing activities (3,154 ) (2,510 ) (7,453 ) (5,965 )
Effect of currency translation adjustments on cash and cash equivalents
3,466

(1,410
)
3,210

1,992
Net increase in cash and cash equivalents during the period 3,001 2,529 8,684 15,222
Cash and cash equivalents - beginning of period 78,463 82,802 72,780 70,109
Cash and cash equivalents - end of period $ 81,464 $ 85,331 $ 81,464 $ 85,331
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

2015

2014

2015

2014
Revenue:
Asset Management Group $ 23,195 $ 10,891 $ 66,282 $ 31,637
Interactive Management Group 48,069 44,597 136,702 126,294
Total $ 71,264 $ 55,488 $ 202,984 $ 157,931
Asset Management Group:
- Segment profit before special charges $ 5,653 $ 2,835 $ 16,180 $ 7,789
- Special charges (264 ) (334 ) (246 ) (334 )
Asset Management Segment profit 5,389 2,501 15,934 7,455
Interactive Management Group:
- Segment profit before special charges 13,740 12,475 37,597 35,103
- Special charges (1,318 ) - (1,415 ) (922 )
Interactive Management Group Segment profit 12,422 12,475 36,182 34,181
Corporate expenses (1,590 ) (1,508 ) (4,820 ) (4,166 )
Results from operating activities $ 16,221 $ 13,468 $ 47,296 $ 37,470
Amortization of acquired software and customer relationships (5,695 ) (4,273 ) (16,783 ) (12,414 )
Finance income 47 119 211 386
Finance expenses (206 ) (99 ) (493 ) (232 )
Other income 11 35 86 43
Litigation settlements - - (8,774 ) -
Income before income taxes $ 10,378 $ 9,250 $ 21,543 $ 25,253

Contact Information