Enghouse Releases Second Quarter Results

MARKHAM, ONTARIO--(Marketwired - Jun 8, 2017) - Enghouse Systems Limited (ENGH.TO) today announced its second quarter (unaudited) financial results for the period ended April 30, 2017.

Second quarter revenue was $79.5 million, an increase of 1.3% over revenue of $78.5 million in the second quarter last year. On a year to date basis, revenue was $158.4 million compared to $152.9 million last year, an increase of 3.6%. The revenue increase primarily reflects incremental revenue contributions from acquisitions but is mitigated by the unfavorable impact of foreign exchange compared to last year which negatively impacted revenue by an estimated $3.3 million in the quarter and $8.0 million year to date. Hosted and maintenance services revenue was $39.9 million in the quarter, an increase of 4.2% over the same period last year and includes the estimated negative impact of foreign exchange of $1.65 million.

Adjusted EBITDA for the quarter was $20.5 million ($0.75 per diluted share) compared to $19.3 million ($0.71 per diluted share) in last year's second quarter and includes the net negative impact of $2.1 million related to foreign exchange losses compared to last year. Adjusted EBITDA for the year to date was $43.6 million ($1.60 per diluted share) compared to $38.4 million ($1.41 per diluted share) last year, an increase of 13.6%. This includes the net negative impact of $4.4 million related to foreign exchange losses on a year to date basis compared to last year, which would have resulted in a 26.7% increase compared to the prior year excluding foreign exchange losses.

Net income for the quarter was $9.0 million ($0.33 per diluted share) compared to the prior year's second quarter net income of $8.5 million ($0.31 per diluted share). Results from operating activities for the quarter were $19.5 million compared to $18.1 million in the prior year's second quarter, an increase of 7.5% over the prior year.

Operating expenses before special charges related to restructuring of acquired operations were $35.0 million compared to $35.2 million in the prior year's second quarter and include incremental operating costs related to acquired operations, net of the favourable impact of foreign exchange. Non-cash amortization charges in the quarter were $7.5 million compared to $7.0 million in the prior year's second quarter and include amortization charges for acquired software and customer relationships from acquired operations. On a year to date basis operating expenses before special charges were $65.9 million compared to $67.6 million and include incremental operating costs related to acquired operations, net of the favourable impact of foreign exchange compared to last year.

Enghouse generated cash flows from operations of $18.4 million in the quarter and closed the quarter with $87.6 million in cash, cash equivalents and short-term investments, compared to $85.9 million at October 31, 2016. The cash balance was achieved after year-to-date payments comprised of $16.2 million (net of cash acquired and holdbacks) for Tollgrade Communications Inc. (acquired April 12, 2017), $1.7 million to partially settle loans inherited from the Presence Technology, S.L. acquisition (completed October 28, 2016), $0.4 million for prior period acquisitions, and $7.5 million in dividends paid.

The Board of Directors has approved an eligible quarterly dividend of $0.16 per common share, payable on August 31, 2017 to shareholders of record at the close of business on August 17, 2017.

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 June 9, 2017 at 8:45 a.m. EST. To participate, please call +1-416-640-5946 or North American Toll-Free +1-866-233-4606. No PIN is 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 "ENGH". 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				Six Months ended
	April 30, 2017		April 30, 2016		April 30, 2017		April 30, 2016
Total Revenue	$	79,543	$	78,537	$	158,383	$	152,907
Results from operating activities		19,483		18,116		41,931		35,959
Depreciation of property, plant and equipment		595		791		1,209		1,617
Special charges		383		412		481		819
Adjusted EBITDA	$	20,461	$	19,319	$	43,621	$	38,395
Adjusted EBITDA margin		25.7%		24.6%		27.5%		25.1%
Adjusted EBITDA per diluted share	$	0.75	$	0.71	$	1.60	$	1.41

Enghouse Systems Limited
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)
		April 30 2017		October 31 2016
Assets
Current assets:
	Cash and cash equivalents	$	80,904	$	78,436
	Short-term investments		6,667		7,423
	Accounts receivable, net		90,989		73,588
	Prepaid expenses and other assets		10,485		9,720
			189,045		169,167
Non-current assets:
	Long-term deposits and accounts receivable, net		1,131		1,357
	Property, plant and equipment		5,710		5,696
	Intangible assets		92,058		86,632
	Goodwill		156,265		144,578
	Deferred income tax assets		9,881		11,765
Total assets		$	454,090	$	419,195
Liabilities
Current liabilities:
	Accounts payable and accrued liabilities	$	59,350	$	55,440
	Income taxes payable		1,920		5,139
	Dividends payable		4,312		3,767
	Provisions		856		2,111
	Deferred revenue		63,936		54,300
	Current portion of long-term loans		395		-
			130,769		120,757
Non-current liabilities:
	Deferred income tax liabilities		24,252		21,053
	Deferred revenue		6,245		4,788
	Net employee defined benefit obligation		2,357		-
	Long-term loans		2,272		4,049
Total liabilities			165,895		150,647
Shareholders' Equity
Share capital			70,271		69,555
Contributed surplus			4,272		3,875
Retained earnings			200,326		187,649
Accumulated other comprehensive income			13,326		7,469
Total shareholders' equity			288,195		268,548
Total liabilities and shareholders' equity		$	454,090	$	419,195

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 April 30						Six months ended April 30
		2017			2016			2017			2016
Revenue
	Software licenses	$	23,781		$	24,444		$	47,989		$	45,214
	Hosted and maintenance services		39,910			38,300			79,076			76,106
	Professional services		14,852			14,482			28,820			28,917
	Hardware		1,000			1,311			2,498			2,670
			79,543			78,537			158,383			152,907
Direct costs
	Software licenses		1,453			1,203			3,562			2,360
	Services		22,606			22,698			44,849			44,488
	Hardware		625			925			1,626			1,730
			24,684			24,826			50,037			48,578
Revenue, net of direct costs			54,859			53,711			108,346			104,329
Operating expenses
	Selling, general and administrative		23,327			22,915			42,818			43,056
	Research and development		11,071			11,477			21,907			22,878
	Depreciation of property, plant and equipment		595			791			1,209			1,617
	Special charges		383			412			481			819
			35,376			35,595			66,415			68,370
Results from operating activities			19,483			18,116			41,931			35,959
Amortization of acquired software and customer relationships			(7,511	)		(7,008	)		(14,968	)		(13,848	)
Finance income			60			21			99			54
Finance expenses			(142	)		(87	)		(249	)		(168	)
Other (expense) income			(19	)		22			151			55
Income before income taxes			11,871			11,064			26,964			22,052
Provision for income taxes			2,844			2,544			6,204			5,071
Net income for the period		$	9,027		$	8,520		$	20,760		$	16,981
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations			14,667			(18,240	)		7,978			(9,457	)
Transfer to net income of realized gains on available for sale investments			-			-			-			(14	)
Unrealized loss on available for sale investments			(2,352	)		(60	)		(2,445	)		(199	)
Deferred income tax recovery			312			8			324			28
Other comprehensive income (loss)			12,627			(18,292	)		5,857			(9,642	)
Comprehensive income (loss)		$	21,654		$	(9,772	)	$	26,617		$	7,339
Earnings per share
Basic		$	0.34		$	0.32		$	0.77		$	0.63
Diluted		$	0.33		$	0.31		$	0.76		$	0.62

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, 2016		26,906,962	69,555	3,875		7,469		187,649		268,548
Net income		-	-	-		-		20,760		20,760
Other Comprehensive Income:
	Cumulative Translation Adjustment	-	-	-		7,978		-		7,978
	Transfer to net income of realized gains on available for-sale investments	-	-	-		-		-		-
	Unrealized loss on available-for-sale investments	-	-	-		(2,445	)	-		(2,445	)
	Deferred income tax recovery	-	-	-		324		-		324
Comprehensive income for the period		-	-	-		5,857		20,760		26,617
Employee share options:
	Value of services recognized	-	-	544		-		-		544
	Proceeds on issuing shares	45,500	716	(147	)	-		-		569
Dividends		-	-	-		-		(8,083	)	(8,083	)
Balance - April 30, 2017		26,952,462	70,271	4,272		13,326		200,326		288,195
Balance - November 1, 2015		26,587,262	64,203	4,029		20,254		154,866		243,352
Net income		-	-	-		-		16,981		16,981
Other Comprehensive Income:
	Cumulative Translation Adjustment	-	-	-		(9,457	)	-		(9,457	)
	Transfer to net income of realized gains on available- for-sale investments	-	-	-		(14	)	-		(14	)
	Unrealized loss on available-for-sale investments	-	-	-		(199	)	-		(199	)
	Deferred income tax recovery	-	-	-		28		-		28
Comprehensive income for the period		-	-	-		(9,642	)	16,981		7,339
Employee share options:
	Value of services recognized	-	-	576		-		-		576
	Proceeds on issuing shares	225,700	3,098	(590	)	-		-		2,508
Dividends		-	-	-		-		(6,971	)	(6,971	)
Balance - April 30, 2016		26,812,962	67,301	4,015		10,612		164,876		246,804

Enghouse Systems Limited
Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)
		Three months ended April 30						Six months ended April 30
		2017			2016			2017			2016
Cash flows from operating activities
Net income		$	9,027		$	8,520		$	20,760		$	16,981
Adjustments for:
	Depreciation of property, plant and equipment		595			791			1,209			1,617
	Amortization of acquired software and customer relationships		7,511			7,008			14,968			13,848
	Stock-based compensation expense		356			251			544			576
	Provision for income taxes		2,844			2,544			6,204			5,071
	Finance expenses and other expense/income		161			65			98			113
			20,494			19,179			43,783			38,206
Changes in non-cash operating working capital			956			4,122			(7,062	)		(6,502	)
	Income taxes paid		(3,090	)		(2,608	)		(7,686	)		(4,105	)
Net cash flows from operating activities			18,360			20,693			29,035			27,599
Cash flows from investing activities
Purchase of property, plant and equipment, net			(354	)		(1,001	)		(919	)		(2,319	)
Purchase of other software			(731	)		(485	)		(1,220	)		(619	)
Acquisitions, net of cash acquired of $3,637 (2016 - $2,202)			(16,170	)		(3,334	)		(16,170	)		(29,353	)
Purchase consideration for prior period acquisitions			(51	)		(2,753	)		(444	)		(3,443	)
Net (purchase) sale of short-term investments			(722	)		350			(1,330	)		(695	)
Net cash flows used in investing activities			(18,028	)		(7,223	)		(20,083	)		(36,429	)
Cash flows from financing activities
Issuance of share capital			205			11			569			2,508
Repayment of loans			-			-			(1,667	)		-
Payment of cash dividend			(3,771	)		(3,218	)		(7,538	)		(6,408	)
Net cash flows used in financing activities			(3,566	)		(3,207	)		(8,636	)		(3,900	)
Effect of currency translation adjustments on cash and cash equivalents			3,494			(4,449	)		2,152			(1,273	)
Net increase (decrease) in cash and cash equivalents during the period			260			5,814			2,468			(14,003	)
Cash and cash equivalents - beginning of period			80,644			74,314			78,436			94,131
Cash and cash equivalents - end of period		$	80,904		$	80,128		$	80,904		$	80,128

Enghouse Systems Limited
Selected Segment Reporting Information
(In thousands of Canadian dollars)
(Unaudited)
			For the three months ended April 30						For the six months ended April 30
			2017			2016			2017			2016
Revenue:
	Asset Management Group		$	32,466		$	29,849		$	63,752		$	55,607
	Interactive Management Group			47,077			48,688			94,631			97,300
Total			$	79,543		$	78,537		$	158,383		$	152,907
	Asset Management Group:
		- Segment profit before special charges	$	8,760		$	7,321		$	17,285		$	13,228
		- Special charges		(440	)		(288	)		(344	)		(513	)
	Asset Management Group profit		$	8,320		$	7,033		$	16,941		$	12,715
	Interactive Management Group:
		- Segment profit before special charges	$	12,760		$	12,906		$	28,528		$	27,629
		- Special charges		57			(124	)		(137	)		(306	)
	Interactive Management Group profit		$	12,817		$	12,782		$	28,391		$	27,323
	Corporate expenses			(1,654	)		(1,699	)		(3,401	)		(4,079	)
Results from operating activities			$	19,483		$	18,116		$	41,931		$	35,959
	Amortization of acquired software and customer relationships			(7,511	)		(7,008	)		(14,968	)		(13,848	)
	Finance income			60			21			99			54
	Finance expenses			(142	)		(87	)		(249	)		(168	)
	Other (expense) income			(19	)		22			151			55
Income before income taxes			$	11,871		$	11,064		$	26,964		$	22,052