Enghouse Releases Third Quarter Results

MARKHAM, ONTARIO–(Marketwired – Sept. 8, 2016) – Enghouse Systems Limited (TSX:ESL) today announced its third quarter (unaudited) financial results for the period ended July 31, 2016.
Third quarter revenue was $76.4 million, an increase of 7.1% over revenue of $71.3 million in the third quarter last year. On a year to date basis, revenue was $229.3 million compared to $203.0 million last year, an increase of 12.9%. The revenue increase primarily reflects incremental revenue contributions from acquisitions and the favorable impact of foreign exchange compared to last year. Hosted and maintenance services revenue was $37.9 million in the quarter, an increase of 12.2% over the same period last year.
Adjusted EBITDA for the quarter was $21.6 million ($0.79 per diluted share) compared to $18.5 million ($0.68 per diluted share) in last year’s third quarter. Adjusted EBITDA for the year to date was $60.0 million ($2.20 per diluted share) compared to $50.9 million ($1.88 per diluted share) last year, an increase of 17.8%.
Net income for the quarter was $10.4 million ($0.38 per diluted share) compared to the prior year’s third quarter net income of $8.1 million ($0.30 per diluted share). Results from operating activities for the quarter were $20.6 million compared to $16.2 million in the prior year’s third quarter, an increase of 26.9% over the prior year.
Operating expenses before special charges related to restructuring of acquired operations were $31.4 million compared to $29.8 million in the prior year’s third quarter and reflect incremental operating costs related to acquisitions and the impact of favourable foreign exchange gains. Non-cash amortization charges in the quarter were $7.0 million compared to $5.7 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 $16.4 million in the quarter and closed the quarter with $90.7 million in cash, cash equivalents and short-term investments, compared to $98.4 million at October 31, 2015. The cash balance was achieved after year-to-date payments related to acquisitions comprised of $36.2 million (net of cash acquired and holdbacks) for CTI Group (Holdings) Inc. acquired on December 7, 2015, CellVision AS acquired on March 4, 2016 and NetBoss Technologies acquired May 27, 2016. The Company paid $4.1 million for prior period acquisition holdbacks and $10.2 million in dividends. The Company continues to have no debt.
The Board of Directors has approved an eligible quarterly dividend of $0.14 per common share, payable on November 30, 2016 to shareholders of record at the close of business on November 16, 2016. Enghouse remains committed to its acquisition strategy and continues to seek accretive acquisitions.
A conference call to discuss the results will be held on Friday September 9, 2016 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 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, 2016			July 31, 2015			July 31, 2016			July 31, 2015
Total Revenue	$	76,350		$	71,264		$	229,257		$	202,984
Results from operating activities		20,581			16,221			56,540			47,296
Depreciation of property, plant and equipment		830			647			2,447			1,921
Special charges		151			1,582			970			1,661
Adjusted EBITDA	$	21,562		$	18,450		$	59,957		$	50,878
Adjusted EBITDA margin		28.2	%		25.9	%		26.2	%		25.1	%
Adjusted EBITDA per diluted share	$	0.79		$	0.68		$	2.20		$	1.88

Enghouse Systems Limited

Condensed Consolidated Interim Statements of Financial Position

(in thousands of Canadian dollars)

(Unaudited)

		July 31, 2016		October 31, 2015
Assets
Current assets
	Cash and cash equivalents	$	85,514	$	94,131
	Short-term investments		5,155		4,306
	Accounts receivable, net		67,708		60,765
	Prepaid expenses and other assets		9,689		8,330
			168,066		167,532
Non-current assets
Property, plant and equipment			5,727		5,039
Intangible assets			78,504		68,976
Goodwill			137,205		123,868
Deferred income tax assets			5,787		10,600
Total assets		$	395,289	$	376,015
Liabilities
Current liabilities
	Accounts payable and accrued liabilities	$	49,497	$	51,284
	Income taxes payable		4,289		2,680
	Dividends payable		3,755		3,190
	Provisions		4,074		3,335
	Deferred revenue		56,065		48,694
			117,680		109,183
Non-current liabilities
Deferred income tax liabilities			18,503		20,022
Deferred revenue			7,034		3,458
Total liabilities			143,217		132,663
Shareholders’ Equity
Share capital			67,523		64,203
Contributed surplus			4,139		4,029
Retained earnings			171,504		154,866
Accumulated other comprehensive income			8,906		20,254
Total shareholders’ equity			252,072		243,352
Total liabilities and shareholders’ equity		$	395,289	$	376,015

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
		2016			2015			2016			2015
Revenue
	Software licenses	$	23,936		$	21,844		$	69,150		$	62,540
	Hosted and maintenance services		37,879			33,751			113,985			99,697
	Professional services		13,510			13,493			42,427			34,826
	Hardware		1,025			2,176			3,695			5,921
			76,350			71,264			229,257			202,984
Direct costs
	Software licenses		1,718			1,958			4,078			5,601
	Services		21,909			20,080			66,397			55,995
	Hardware		603			1,591			2,333			4,006
			24,230			23,629			72,808			65,602
Revenue, net of direct costs			52,120			47,635			156,449			137,382
Operating expenses
	Selling, general and administrative		19,133			19,482			62,189			56,119
	Research and development		11,425			9,703			34,303			30,385
	Depreciation of property, plant and equipment		830			647			2,447			1,921
	Special charges		151			1,582			970			1,661
			31,539			31,414			99,909			90,086
Results from operating activities			20,581			16,221			56,540			47,296
Litigation settlements			–			–			–			(8,774	)
Amortization of acquired software and customer relationships			(7,009	)		(5,695	)		(20,857	)		(16,783	)
Finance income			19			47			73			211
Finance expenses			(46	)		(206	)		(214	)		(493	)
Other income			9			11			64			86
Income before income taxes			13,554			10,378			35,606			21,543
Provision for income taxes			3,171			2,284			8,242			3,342
Net income for the period		$	10,383		$	8,094		$	27,364		$	18,201
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations			(1,178	)		11,737			(10,635	)		11,642
Transfer to net income of realized gains on available for sale investments			–			–			(14	)		(74	)
Unrealized (loss) gain on available for sale investments			(609	)		159			(808	)		342
Deferred income tax recovery (expense)			81			(21	)		109			(36	)
Other comprehensive (loss) income			(1,706	)		11,875			(11,348	)		11,874
Comprehensive income		$	8,677		$	19,969		$	16,016		$	30,075
Earnings per share
Basic		$	0.39		$	0.31		$	1.02		$	0.69
Diluted		$	0.38		$	0.30		$	1.01		$	0.67

Enghouse Systems Limited

Consolidated 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, 2015		26,587,262		64,203		4,029		20,254		154,866		243,352
Net income		–		–		–		–		27,364		27,364
Other Comprehensive Income:
Cumulative Translation Adjustment		–		–		–		(10,635	)	–		(10,635	)
Transfer to net income of realized gains on available-for-sale investments		–		–		–		(14	)	–		(14	)
Unrealized loss on available-for-sale investments		–		–		–		(808	)	–		(808	)
Deferred income tax recovery		–		–		–		109		–		109
Comprehensive income for the period		–		–		–		(11,348	)	27,364		16,016
Employee share options:
	Value of services recognized	–		–		748		–		–		748
	Proceeds on issuing shares	237,700		3,320		(638	)	–		–		2,682
Dividends		–		–		–		–		(10,726	)	(10,726	)
Balance – July 31, 2016		26,824,962		67,523		4,139		8,906		171,504		252,072
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

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
		2016			2015			2016			2015
Cash flows from operating activities
Net income		$	10,383		$	8,094		$	27,364		$	18,201
Adjustments for:
	Depreciation of property, plant and equipment		830			647			2,447			1,921
	Amortization of acquired software and customer relationships		7,009			5,695			20,857			16,783
	Stock-based compensation expense		172			315			748			937
	Provision for income taxes		3,171			2,284			8,242			3,342
	Finance expenses and other income		37			195			150			407
			21,602			17,230			59,808			41,591
Changes in non-cash operating working capital			(3,255	)		(7,555	)		(9,757	)		2,001
	Income tax paid		(1,996	)		(336	)		(6,101	)		(4,404	)
Net cash flows from operating activities			16,351			9,339			43,950			39,188
Cash flows from investing activities
Purchase of property, plant and equipment, net			(284	)		(640	)		(2,603	)		(2,097	)
Purchase of other software			(586	)		(251	)		(1,205	)		(251	)
Acquisitions, net of cash acquired of $2,362 ($5,475 – 2015)			(6,828	)		(5,342	)		(36,181	)		(25,160	)
Purchase consideration for prior period acquisitions			(646	)		(1,456	)		(4,089	)		(2,139	)
Net sale of short-term investments			175			1,039			(520	)		3,386
Net cash flows used in investing activities			(8,169	)		(6,650	)		(44,598	)		(26,261	)
Cash flows from financing activities
Issuance of share capital			174			–			2,682			938
Payment of cash dividend			(3,754	)		(3,154	)		(10,162	)		(8,391	)
Net cash flows used in financing activities			(3,580	)		(3,154	)		(7,480	)		(7,453	)
Effect of currency translation adjustments on cash and cash equivalents			784			3,466			(489	)		3,210
Net increase (decrease) in cash and cash equivalents during the period			5,386			3,001			(8,617	)		8,684
Cash and cash equivalents – beginning of period			80,128			78,463			94,131			72,780
Cash and cash equivalents – end of period		$	85,514		$	81,464		$	85,514		$	81,464

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
			2016			2015			2016			2015
Revenue:
	Asset Management Group		$	29,709		$	23,195		$	85,316		$	66,282
	Interactive Management Group			46,641			48,069			143,941			136,702
Total			$	76,350		$	71,264		$	229,257		$	202,984
	Asset Management Group:
		– Segment profit before special charges	$	8,455		$	5,653		$	21,683		$	16,180
		– Special charges		(105	)		(264	)		(618	)		(246	)
	Asset Management Group profit		$	8,350		$	5,389		$	21,065		$	15,934
	Interactive Management Group:
		– Segment profit before special charges	$	14,548		$	13,740		$	42,177		$	37,597
		– Special charges		(46	)		(1,318	)		(352	)		(1,415	)
	Interactive Management Group profit		$	14,502		$	12,422		$	41,825		$	36,182
	Corporate expenses			(2,271	)		(1,590	)		(6,350	)		(4,820	)
Results from operating activities			$	20,581		$	16,221		$	56,540		$	47,296
	Litigation settlements			–			–			–			(8,774	)
	Amortization of acquired software and customer relationships			(7,009	)		(5,695	)		(20,857	)		(16,783	)
	Finance income			19			47			73			211
	Finance expenses			(46	)		(206	)		(214	)		(493	)
	Other income			9			11			64			86
Income before income taxes			$	13,554		$	10,378		$	35,606		$	21,543