Enghouse Releases Fourth Quarter Results

MARKHAM, ONTARIO--(Marketwired - Dec. 17, 2013) - Enghouse Systems Limited (TSX:ESL) today announced its fourth quarter (unaudited) and year-end financial results for the period ended October 31, 2013.

Revenue increased by 32% to $179.9 million for the fiscal year, compared to revenue of $136.4 million in the previous fiscal year, culminating in another record year as the Company continues to execute its acquisition strategy. Income from operating activities was $40.7 million compared to $33.2 million last year, an increase of 23%. Net income for the fiscal year was $24.3 million or $0.92 per diluted share compared to $20.9 million or $0.80 per diluted share in the prior year. Adjusted EBITDA for the fiscal year was $44.9 million or $1.69 per diluted share compared to $35.1 million or $1.35 per diluted share last year.

Revenue for the fourth quarter was $47.2 million, an increase of 21% over last year's fourth quarter revenue of $39.0 million. Income from operating activities for the quarter was $12.0 million compared to $9.7 million last year, an increase of 23%. Net income for the quarter was $9.7 million or $0.36 per diluted share compared to $8.3 million or $0.32 per diluted share last year. Adjusted EBITDA for the quarter was $12.4 million or $0.46 per diluted share compared to $10.2 million or $0.39 per diluted share last year.

Increased revenue in the quarter reflects incremental revenue from acquisitions including nominal contributions from recent acquisitions, Safeharbor Knowledge Solutions, acquired September 6, 2013 and Andtek GmbH, acquired October 7, 2013. Revenue also includes hosted and maintenance services revenue of $24.3 million in the quarter, an increase of 21% over last year's fourth quarter. In fiscal 2013, hosted and services revenue was $91.8 million compared to $71.6 million in fiscal 2012 and is attributable to contributions from recent acquisitions and an increase in organic hosted and maintenance services revenue. Software license revenue was $58.9 million compared to $45.1 million, an increase of 31% over fiscal 2012.

Operating expenses were $21.5 million for the quarter and $88.1 million for the fiscal year compared to $18.4 million and $66.5 million respectively last year as a result of the incremental cost of acquired operations. This also includes research and development costs of $7.9 million and $30.5 million in the quarter and year, respectively, consistent with the Company's continued investment in software development. Non-cash amortization charges for the year were $15.6 million compared to $11.0 million in the prior fiscal year and relate to incremental amortization charges for acquired software and customer relationship intangibles recorded on the current year's acquisitions.

The Company closed the year with $90.3 million in cash, cash equivalents and short-term investments, after the payment of approximately $25.0 million related to acquisitions and $7.5 million to dividends for the year. The Company generated operating cash flows before non-cash working capital items of $44.1 million in the year compared to $36.2 million in 2012. Enghouse continues to have no long-term debt.

As previously announced, on November 4, 2013 the Company acquired 100% of the issued and outstanding common shares of Information Access Technologies Inc. ("IAT"). IAT is a dynamic company specializing in innovative communication technology which enables companies to design, execute and measure customer communication campaigns for a variety of marketing, customer care and payment processing markets. IAT solutions add premise and hosted products and services for both outbound dialing and broadcast messaging and will be included in the Interactive Management Group results in fiscal 2014. The Company continues to seek further acquisitions to continue to grow its market share globally.

The Board of Directors also announced today an eligible quarterly dividend of $0.08 per common share, payable on February 28, 2014 to shareholders of record at the close of business on February 14, 2014. 

A conference call to discuss the results will be held on Wednesday, December 18, 2013 at 8:45 a.m. EST. To participate, please call 416-216-4169 (PIN 8836 010#) or North American Toll-Free 1-866-229-4144 (PIN 8836 610#).

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 measures 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						Year ended
	October 31, 2013			October 31, 2012			October 31, 2013			October 31, 2012
Total Revenue	$	47,171		$	38,952		$	179,886		$	136,368
Income before income taxes	$	8,441		$	6,706		$	27,047		$	23,107
Depreciation of property, plant and equipment		440			444			1,743			1,386
Amortization of acquired software and customer relationships		4,083			3,204			15,568			10,974
Finance income		(124	)		(289	)		(641	)		(987	)
Finance expenses		55			86			313			269
Other income		(466	)		23			(1,582	)		(145	)
Special charges		-			53			2,491			544
Adjusted EBITDA	$	12,429		$	10,227		$	44,939		$	35,148
Adjusted EBITDA margin		26	%		26	%		25	%		26	%
Adjusted EBITDA per diluted share	$	0.46		$	0.39		$	1.69		$	1.35

Enghouse Systems Limited

Consolidated Statements of Financial Position

(in thousands of Canadian dollars)

		October 31, 2013		October 31, 2012
Assets
Current assets:
	Cash and cash equivalents	$	70,109	$	59,544
	Short-term investments		20,188		24,108
	Accounts receivable, net		36,444		31,368
	Prepaid expenses and other assets		5,839		3,853
			132,580		118,873
Non-current assets:
	Property, plant and equipment		3,599		3,365
	Intangible assets		132,358		106,995
	Deferred income tax assets		9,419		10,477
Total assets		$	277,956	$	239,710
Liabilities
Current liabilities:
	Accounts payable and accrued liabilities	$	32,659	$	26,053
	Income taxes payable		1,555		2,008
	Dividends payable		2,083		1,676
	Accrued provisions		3,427		1,621
	Deferred revenue		39,325		35,935
			79,049		67,293
Non-current liabilities:
	Deferred income tax liabilities		14,482		13,241
	Deferred revenue		1,797		1,236
Total liabilities			95,328		81,770
Shareholders' Equity
Share capital			58,514		55,751
Contributed surplus			3,175		2,847
Retained earnings			115,800		99,371
Accumulated other comprehensive income (loss)			5,139		(29	)
Total equity			182,628		157,940
Total liabilities and equity		$	277,956	$	239,710

Enghouse Systems Limited

Consolidated Interim Statements of Operations and Comprehensive Income

(in thousands of Canadian dollars, except per share amounts)

		(Unaudited)			(Unaudited)
		Three months ended October 31						Year ended October 31
		2013			2012			2013			2012
Revenue
	Software licenses	$	15,010		$	13,107		$	58,887		$	45,108
	Hosted and maintenance services		24,262			20,114			91,762			71,608
	Professional services		6,350			5,210			23,931			18,083
	Hardware		1,549			521			5,306			1,569
			47,171			38,952			179,886			136,368
Direct costs
	Software licenses		1,145			1,532			4,336			4,115
	Services		11,471			8,861			43,190			31,410
	Hardware		1,054			408			3,592			1,134
			13,670			10,801			51,118			36,659
Revenue, net of direct costs			33,501			28,151			128,768			99,709
Operating expenses
	Selling, general and administrative		13,145			11,977			53,366			43,069
	Research and development		7,927			5,947			30,463			21,492
	Depreciation of property, plant and equipment		440			444			1,743			1,386
	Special charges		-			53			2,491			544
			21,512			18,421			88,063			66,491
Results from operating activities			11,989			9,730			40,705			33,218
Amortization of acquired software and customer relationships			(4,083	)		(3,204	)		(15,568	)		(10,974	)
Finance income			124			289			641			987
Finance expenses			(55	)		(86	)		(313	)		(269	)
Other income			466			(23	)		1,582			145
Income before income taxes			8,441			6,706			27,047			23,107
(Recovery of) provision for income taxes			(1,271	)		(1,639	)		2,700			2,234
Net income for the period		$	9,712		$	8,345		$	24,347		$	20,873
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation gain (loss) from foreign operations			5,354			1,652			5,575			(12	)
Transfer to net income of realized gains on available for sale investments			(668	)		-			(2,869	)		(156	)
Unrealized gain (loss) on available for sale investments			126			(42	)		2,393			(1,111	)
Deferred income tax recovery			78			5			69			215
Other comprehensive income (loss)			4,890			1,615			5,168			(1,064	)
Comprehensive income		$	14,602		$	9,960		$	29,515		$	19,809
Earnings per share
Basic		$	0.37		$	0.32		$	0.94		$	0.82
Diluted		$	0.36		$	0.32		$	0.92		$	0.80

Enghouse Systems Limited

Consolidated Statements of Changes in Equity

(in thousands of Canadian dollars)

		Share Capital -number		Share capital $		Contributed surplus $		Accumulated other comprehensive income (loss) $		Retained earnings $		Total $
Balance - November 1, 2012		25,780,562		55,751		2,847		(29	)	99,371		157,940
Net income		-		-		-		-		24,347		24,347
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment		-		-		-		5,575		-		5,575
Transfer to net income of realized gains on available-for-sale investments		-		-		-		(2,869	)	-		(2,869	)
Unrealized gain on available-for-sale investments		-		-		-		2,393		-		2,393
Deferred income tax recovery		-		-		-		69		-		69
Comprehensive income for the year		-		-		-		5,168		24,347		29,515
Employee share options:
	Value of services recognized					1,016		-		-		1,016
	Proceeds on issuing shares	262,400		2,763		(688	)	-		-		2,075
Dividends		-		-		-		-		(7,918	)	(7,918	)
Balance - October 31, 2013		26,042,962		58,514		3,175		5,139		115,800		182,628
Balance - November 1, 2011		25,337,262		52,134		2,970		1,035		84,782		140,921
Net income		-		-		-		-		20,873		20,873
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment		-		-		-		(12	)	-		(12	)
Transfer to net income of realized gains on available-for-sale investments		-		-		-		(156	)	-		(156	)
Unrealized loss on available-for-sale investments		-		-		-		(1,111	)	-		(1,111	)
Deferred income tax recovery		-		-		-		215		-		215
Comprehensive (loss) income for the year		-		-		-		(1,064	)	20,873		19,809
Employee share options:
	Value of services recognized	-		-		621		-		-		621
	Proceeds on issuing shares	443,300		3,617		(744	)	-		-		2,873
Dividends		-		-		-		-		(6,284	)	(6,284	)
Balance - October 31, 2012		25,780,562		55,751		2,847		(29	)	99,371		157,940

Enghouse Systems Limited

Consolidated Interim Statements of Cash Flows

(in thousands of Canadian dollars)

		(Unaudited)			(Unaudited)
		Three months ended October 31						Year ended October 31
		2013			2012			2013			2012
Cash flows from operating activities
Net income		$	9,712		$	8,345		$	24,347		$	20,873
Adjustments for:
	Depreciation of property, plant and equipment		440			444			1,743			1,386
	Amortization of acquired software and customer relationships		4,083			3,204			15,568			10,974
	Stock-based compensation expense		312			119			1,016			621
	Income tax (recovery) expense		(1,271	)		(1,639	)		2,700			2,234
	Finance expenses and other income		(411	)		109			(1,269	)		124
			12,865			10,582			44,105			36,212
Changes in non-cash operating working capital			(10,020	)		(4,769	)		(7,545	)		(8,245	)
Income tax paid			(693	)		(1,304	)		(4,203	)		(4,492	)
Net cash flows from operating activities			2,152			4,509			32,357			23,475
Cash flows from investing activities
Purchase of property, plant and equipment, net			(238	)		(402	)		(1,403	)		(2,295	)
Acquisitions, net of cash acquired of $6,004 (2012 - $810)			(5,221	)		-			(22,433	)		(32,453	)
Purchase consideration for prior period acquisitions			-			-			(2,593	)		-
Net proceeds from sale of short-term investments			14,006			17,396			7,948			8,704
Net cash flows from (used in) investing activities			8,547			16,994			(18,481	)		(26,044	)
Cash flows from financing activities
Issuance of share capital			491			556			2,075			2,873
Payment of cash dividend			(2,079	)		(1,669	)		(7,511	)		(5,875	)
Net cash flows used in financing activities			(1,588	)		(1,113	)		(5,436	)		(3,002	)
Effect of currency translation adjustments on cash and cash equivalents			2,206			(709	)		2,125			(509	)
Net increase (decrease) in cash and cash equivalents during the period			11,317			19,681			10,565			(6,080	)
Cash and cash equivalents - beginning of period			58,792			39,863			59,544			65,624
Cash and cash equivalents - end of period		$	70,109		$	59,544		$	70,109		$	59,544

Enghouse Systems Limited

Selected Segment Reporting Information

(in thousands of Canadian dollars)

(Unaudited)

		For the three months ended October 31						For the year ended October 31
		2013			2012			2013			2012
Revenue:
	Asset Management Group	$	10,332		$	5,789		$	33,804		$	17,308
	Interactive Management Group		36,839			33,163			146,082			119,060
Total		$	47,171		$	38,952		$	179,886		$	136,368
Segment Profit
	Asset Management Group	$	2,082		$	1,910		$	5,039		$	3,828
	Interactive Management Group		7,006			5,472			24,446			21,902
	Corporate expenses		(1,182	)		(856	)		(4,348	)		(3,486	)
	Finance income		124			289			641			987
	Finance expenses		(55	)		(86	)		(313	)		(269	)
	Other income		466			(23	)		1,582			145
Total		$	8,441		$	6,706		$	27,047		$	23,107