Enghouse Systems Limited
TSX : ESL

Enghouse Systems Limited

September 01, 2005 17:06 ET

Enghouse Releases Third Quarter Results

MARKHAM, ONTARIO--(CCNMatthews - Sept. 1, 2005) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter financial results for the quarter ended July 31, 2005.

Third quarter revenue was $13.0 million, compared to $16.5 million reported in the same period last year. On a year to date basis, revenue was $36.9 million compared to $44.4 million in fiscal 2004. Net income for the third quarter was $1.4 million or $0.05 per share on a diluted basis compared to the prior year's third quarter net income of $3.1 million or $0.12 per share. On a year to date basis, net income was $4.1 million or $0.15 per share compared to $8.3 million or $0.32 per share in the prior year.

Operating expenses decreased to $6.6 million in the third quarter from $7.2 million in the prior year's third quarter. The third quarter results include $1.0 million in non-cash amortization charges compared to $0.9 million in the third quarter of fiscal 2004 as a result of additional software amortization charges related to the acquisition of TranSched Systems Limited in February 2005. Both quarters include $0.1 million in non-cash compensation expense related to stock options. On a year to date basis, operating expenses were $19.2 million compared to $20.3 million in the prior year. Operating income for the third quarter was $1.5 million, compared to $4.5 million in the prior year's third quarter and was $4.5 million on a year to date basis compared to $10.8 million in the prior year.

The Company generated cash flows from operations of $7.5 million on a year to date basis compared to $6.7 million in the prior year. Enghouse closed the quarter with $96.3 million in cash and short-term investments and continues to have no long-term debt. Deferred revenue was $13.9 million compared to $13.2 million at October 31, 2004.

As the majority of the Company's revenues are earned in U.S. dollars, the continued weakness of the U.S. dollar compared to the Canadian dollar has negatively impacted the reported revenue as compared to the same quarter last year. The third quarter's results reflect more normalized operating results than in the prior year's third quarter, which reflected significant software license and maintenance contributions from a major customer. During the quarter the Company continued the integration of the operations of TranSched. Enghouse continues to invest in TranSched, and their improving revenue has resulted in a reduced loss when compared to the prior quarter.

Enghouse continues to remain cash flow positive and has retained its substantial cash balance to position the Company to pursue acquisitions which will add to 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,
2005 2004
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Assets
Current
Cash $ 5,206 $ 10,806
Short-term investments 91,073 79,810
Accounts receivable, net 8,346 9,827
Future income taxes - 58
Prepaid expenses and other assets 1,970 1,404
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106,595 101,905
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Property, plant and equipment 2,577 2,319
Acquired software and other intangibles 14,922 16,005
Goodwill 10,370 9,434
Long-term future income taxes 2,720 3,856
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$ 137,184 $ 133,519
----------- ------------
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Liabilities
Current
Accounts payable and accrued liabilities $ 10,262 $ 11,339
Income taxes payable 4,018 4,409
Future income taxes 301 -
Deferred revenue 13,555 12,706
----------- ------------

28,136 28,454

Deferred income tax credit - 678
Future income taxes 6,220 5,868
Deferred revenue 298 479
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34,654 35,479
Shareholder's Equity

Share capital 48,147 48,201
Contributed surplus 773 452
Retained earnings 56,701 52,633
Cumulative translation adjustment (3,091) (3,246)
----------- ------------

102,530 98,040

$ 137,184 $ 133,519
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Enghouse Systems Limited
Consolidated Statements of Operations and Retained Earnings
(in thousands of Canadian dollars except per share amounts)
(Unaudited)
Three months ended Nine months ended
July 31 July 31
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2005 2004 2005 2004
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Revenue
Software licenses $ 3,775 $ 4,725 $ 7,586 $ 12,495
Services 8,644 10,668 27,570 29,771
Hardware 604 1,102 1,738 2,130
------------------ ------------------

13,023 16,495 36,894 44,396
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Cost of Sales
Software licenses 1,001 415 1,703 1,642
Services 3,372 3,645 10,160 10,194
Hardware 502 739 1,354 1,490
------------------ ------------------
4,875 4,799 13,217 13,326

Gross Margin 8,148 11,696 23,677 31,070

Operating expenses
Selling, general and
administrative 3,483 4,124 10,223 11,128
Research and development 1,751 1,742 4,936 5,149
Stock-based compensation 107 88 321 248
Amortization of property, plant
and equipment 309 373 898 1,189
Amortization of acquired
software and other intangibles 957 883 2,781 2,543
------------------ ------------------
6,607 7,210 19,159 20,257
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Income before the undernoted 1,541 4,486 4,518 10,813

Interest income, net 549 455 1,502 1,473
Other income 9 20 245 389
------------------ ------------------

Net income before income taxes 2,099 4,961 6,265 12,675

Provision for income taxes 736 1,848 2,197 4,376
------------------ ------------------

Net income for the period $ 1,363 $ 3,113 $ 4,068 $ 8,299
------------------ ------------------
------------------ ------------------

Retained Earnings, beginning of
period 55,338 46,780 53,085 41,434
Prior period adjustment for
stock compensation expense - (276) (452) (116)
------------------ ------------------
Retained Earnings as restated,
beginning of period 55,338 46,504 52,633 41,318

Retained Earnings, end of
period $ 56,701 $ 49,617 $ 56,701 $ 49,617
------------------ ------------------
------------------ ------------------

Earnings per share
Basic $ 0.05 $ 0.13 $ 0.16 $ 0.34
Diluted $ 0.05 $ 0.12 $ 0.15 $ 0.32
Weighted average shares
outstanding during
period (millions) - basic 25.4 25.4 25.4 25.4
- diluted 26.4 26.6 26.4 26.4



Enghouse Systems Limited
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)

For the three months For the nine months
ended July 31 ended July 31
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2005 2004 2005 2004
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Cash flows from operating
activities:
Net income for the period $ 1,363 $ 3,113 $ 4,068 $ 8,299

Add (deduct) items not
involving cash:
Amortization of property,
plant and equipment 309 373 898 1,189
Amortization of acquired
software and other
intangibles 957 883 2,781 2,543
Stock-based compensation
expense 107 88 321 248
Gain on sale of
short-term investments (9) (20) (245) (389)
Future income taxes 1,429 (566) 1,536 456
------------------ ------------------
Cash flows before changes in
operating assets and
liabilities 4,156 3,871 9,359 12,346

Changes in operating assets
and liabilities

(Increase) decrease in
accounts receivable, net (467) (2,018) 1,763 (1,173)
(Increase) decrease in
prepaid expenses and
other assets (46) 158 (543) (6)
(Decrease) increase in
accounts payable and
accrued liabilities (18) 312 (2,260) (2,889)
(Decrease) increase in
current income taxes payable (734) 2,402 (373) 2,789
Decrease in deferred revenue (2,110) (3,832) (413) (4,242)
Unrealized foreign exchange
loss (gain) 99 (48) (24) (130)
------------------ ------------------
Cash flows from operating
activities 880 845 7,509 6,695
------------------ ------------------

Cash flows from investing
activities
Net purchase of property,
plant and equipment (644) (596) (1,027) (795)
Acquisitions, net of cash
acquired - - (1,157) (1,741)
Net purchase of short-term
investments (267) (3,319) (10,934) 20,226
------------------ ------------------
(911) (3,915) (13,118) 17,690
------------------ ------------------

Cash flows from financing
activities
Issuance of share capital 30 393 70 741
Purchase and cancellation of
common shares - - (124) -
------------------ ------------------
30 393 (54) 741

Effect of foreign exchange
rate changes on cash (141) (145) 63 136
------------------ ------------------

Net (decrease) increase in
cash during the period (142) (2,822) (5,600) 25,262
Cash - Beginning of period 5,348 34,774 10,806 6,690
------------------ ------------------
Cash - End of period $ 5,206 $ 31,952 $ 5,206 $ 31,952
------------------ ------------------
------------------ ------------------
Supplementary Cash Flow
Information:
Cash paid during the year for
Interest - - - -
Income Taxes 79 276 899 1,237


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
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July 31, 2005 July 31, 2004 July 31, 2005 July 31, 2004
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Revenue:
Asset
Management
Division $ 3,561 $ 4,974 $ 9,838 $ 13,553
Syntellect
Division 9,462 11,521 27,056 30,843
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Total $ 13,023 $ 16,495 $ 36,894 $ 44,396
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Segment Profit
(EBIT):
Asset
Management
Division $ 668 $ 2,848 $ 2,462 $ 7,147
Syntellect
Division 873 1,638 2,056 3,666
-----------------------------------------------------------
Total $ 1,541 $ 4,486 $ 4,518 $ 10,813
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