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