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Enghouse Releases Third Quarter Results

MARKHAM, ON, Sept. 12, 2019 /CNW/ - Enghouse Systems Limited (TSX:ENGH.TO - News) today announced its third quarter (unaudited) and financial results for the period ended July 31, 2019.

Third quarter revenue was $101.3 million, a 16.8% increase compared to revenue of $86.7 million in the third quarter of the prior year. The revenue increase primarily reflects contributions from acquisitions. Results from operating activities were $27.0 million compared to $26.7 million in the prior year's third quarter, which reflects the impact of changes in product mix on gross margins and, as expected, lower operating margin contributions from acquisitions in their initial period after acquisition. Net income for the quarter was $14.7 million or $0.27 per diluted share with increased amortization and a foreign exchange loss.

Adjusted EBITDA for the third quarter was $28.1 million or $0.51 per diluted share, compared to $27.4 million or $0.50 per diluted share last year, with the increase being attributable to incremental revenue contributions from acquisitions.

On a year-to-date basis, revenue was $276.5 million, compared to revenue of $257.0 million in the prior year.  Results from operating activities were $79.4 million compared to $75.9 million in the prior year-to-date, an increase of 4.7%. On a year-to-date basis Adjusted EBITDA was $81.6 million or $1.48 per diluted share compared to $78.1 million or $1.43 per diluted share last year.

Operating expenses before special charges related to restructuring of acquired operations were $42.0 million compared to $34.1 million in the prior year's third quarter and reflect incremental operating costs related to recent acquisitions. Non-cash amortization charges on acquired software and customer relationships from acquired operations were $8.5 million for the quarter compared to $7.2 million in the prior year's third quarter. 

The Company generated cash flows from operating activities of $13.9 million compared to $29.3 million in the third quarter of fiscal 2018. On a year to date basis, cash flows from operating activities was $59.6 million. This relates to unfavorable working capital adjustments from new acquisitions which, when acquired, had severance obligations and significant payable balances that have since been settled. Enghouse closed the quarter with $141.3 million in cash, cash equivalents and short-term investments, compared to $193.9 million at October 31, 2018. The cash balance was achieved after payments of $15.8 million for cash dividends and $94.2 million (net of cash acquired) for acquisitions concluded in the current fiscal year and $1.1 million for acquisitions closed in prior years.

During the quarter, Enghouse completed the acquisitions of Vidyo Inc. and Espial Group Inc. for an aggregate purchase price of $68.7 million, net of cash acquired. These acquisitions reported revenue consistent with expectations and were accretive to earnings in the quarter.

Today, the Board of Directors approved the Company's eligible quarterly dividend of $0.11 per common share, payable on November 29, 2019 to shareholders of record at the close of business on November 15, 2019.

A conference call to discuss the results will be held on Friday, September 13, 2019 at 8:45 a.m. EST. To participate, please call +1-647-792-1278 or North American Toll-Free +1-888-504-7961. Confirmation code: 7941353.

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, foreign exchange gains and losses, 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, property plant and equipment depreciation, foreign exchange gains and losses, 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, 2019

July 31, 2018

July 31, 2019

July 31, 2018






Total Revenue

$

101,274

$

86,743

$

276,522

$

257,023






Results from operating activities

27,017

26,724

79,433

75,901

Depreciation of property, plant and equipment

570

540

1,599

1,869

Special charges

470

152

526

333

Adjusted EBITDA

$

28,057

$

27,416

$

81,558

$

78,103

Adjusted EBITDA margin

27.7%

31.6%

29.5%

30.4%

Adjusted EBITDA per diluted share

$

0.51

$

0.50

$

1.48

$

1.43

 

Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)


July 31
 2019

October 31
2018



Assets



Current assets:



Cash and cash equivalents

$

133,422

$

187,551

Short-term investments

7,912

6,386

Accounts receivable, net

81,048

62,085

Prepaid expenses and other assets

11,224

8,951


233,606

264,973

Non-current assets:



Property, plant and equipment, net

6,225

5,279

Intangible assets, net

122,489

59,895

Goodwill

203,562

155,419

Deferred income tax assets

9,202

9,634




Total assets

$

575,084

$

495,200



Liabilities



Current liabilities:



Accounts payable and accrued liabilities

$

53,588

$

44,271

Income taxes payable

9,740

4,904

Dividends payable

6,016

4,912

Provisions

6,617

268

Deferred revenue

87,693

64,020

Current portion of long-term loans

-

122


163,654

118,497

Non-current liabilities:



Non-current portion of income taxes payable

5,079

7,466

Deferred income tax liabilities

20,952

13,115

Deferred revenue

2,270

2,169

Net employee defined benefit obligation

2,354

2,354

Long-term loans

738

1,475




Total liabilities

195,047

145,076




Shareholders' Equity






Share capital

80,645

78,997

Contributed surplus

6,289

4,866

Retained earnings

290,533

260,506

Accumulated other comprehensive income

2,570

5,755

Total shareholders' equity

380,037

350,124

Total liabilities and shareholders' equity

$

575,084

$

495,200

 

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


2019

2018

2019

2018

Revenue





Software licenses

$

22,081

$

22,410

$

62,328

$

65,422

Hosted and maintenance services

58,416

48,586

158,699

142,621

Professional services

15,281

14,123

43,927

42,972

Hardware

5,496

1,624

11,568

6,008


101,274

86,743

276,522

257,023

Direct costs





Software licenses

1,327

1,740

4,058

5,467

Services

26,399

22,990

74,125

69,335

Hardware

4,023

1,058

8,238

3,727


31,749

25,788

86,421

78,529






Revenue, net of direct costs

69,525

60,955

190,101

178,494






Operating expenses





Selling, general and administrative

24,890

21,884

66,786

64,432

Research and development

16,578

11,655

41,757

35,959

Depreciation of property, plant and equipment

570

540

1,599

1,869

Special charges

470

152

526

333


42,508

34,231

110,668

102,593






Results from operating activities

27,017

26,724

79,433

75,901






Amortization of acquired software and customer relationships

(8,453)

(7,245)

(22,453)

(21,763)

Foreign exchange (losses) and gains

(131)

659

433

(465)

Finance income

469

90

1,474

278

Finance expenses

(11)

(50)

(66)

(134)

Other (expenses) income

(64)

504

411

1,940






Income before income taxes

18,827

20,682

59,232

55,757






Provision for income taxes

4,166

4,620

13,070

17,564






Net income for the period

$

14,661

$

16,062

$

46,162

$

38,193






Items that are or may be reclassified subsequently to profit or loss:





Foreign currency translation (loss) gain from foreign operations

(9,947)

(3,929)

(3,966)

1,331

Unrealized gain on investments in equity securities designated at
FVOCI

-

625

-

851

Deferred income tax expense

-

(83)

-

(113)






Other comprehensive (loss) income

(9,947)

(3,387)

(3,966)

2,069






Comprehensive income

$

4,714

$

12,675

$

42,196

$

40,262

Earnings per share





Basic

$

0.27

$

0.30

$

0.84

$

0.71

Diluted

$

0.27

$

0.29

$

0.84

$

0.70

 

Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
(in thousands of Canadian dollars)
(Unaudited)


Share

capital

# **

Share
capital

$

Contributed
surplus

$

Accumulated
other
comprehensive
(loss) income
$

Retained
earnings

$

 

Total

$








As at November 1, 2018 as previously
presented

54,580,024

78,997

4,866

5,755

260,506

350,124

IFRS 9 transition adjustment

-

-

-

781

(781)

-

IFRS 15 transition adjustment

-

-

-

-

1,590

1,590

Adjusted balance as at November 1, 2018

54,580,024

78,997

4,866

6,536

261,315

351,714








Net income for the period

-

-

-

-

46,162

46,162

Other comprehensive income (net of tax):







Cumulative translation adjustment

-

-

-

(3,966)

-

(3,966)

Comprehensive income for the period

-

-

-

(3,966)

46,162

42,196

Employee share options:







Value of services recognized

-

-

1,723

-

-

1,723

Proceeds on issuing shares

113,500

1,648

(300)

-

-

1,348

Dividends declared

-

-

-

-

(16,944)

(16,944)

As at July 31, 2019

54,693,524

80,645

6,289

2,570

290,533

380,037















As at November 1, 2017

53,986,424

71,422

4,715

8,487

221,775

306,399








Net income for the period

-

-

-

-

38,193

38,193

Other comprehensive income (net of tax):







Cumulative translation adjustment

-

-

-

1,331

-

1,331

Unrealized gain on investments in equity
securities designated at FVOCI*

-

-

-

851

-

851

Deferred income tax expense

-

-

-

(113)

-

(113)

Comprehensive income for the period

-

-

-

2,069

38,193

40,262

Employee share options:







Value of services recognized

-

-

1,171

-

-

1,171

Proceeds on issuing shares

445,000

5,890

(1,063)

-

-

4,827

Dividends declared

-

-

-

-

(14,102)

(14,102)

As at July 31, 2018

54,431,424

77,312

4,823

10,556

245,866

338,557



* Unrealized loss on investments in equity securities designated at FVOCI was originally referred to as available-for-sale investments in the 2018 consolidated financial statements.


** On January 25, 2019, the Company completed a share split whereby each issued and outstanding common share has been effectively doubled.  All references to capital stock, options and per share data have been adjusted retrospectively to reflect the Company's two-for-one share split for the periods ended July 31, 2019 and 2018.

 

Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)


Three months ended

July 31

Nine months ended

July 31


2019

2018

2019

2018

Cash flows from operating activities





Net income for the period

$

14,661

$

16,062

$

46,162

$

38,193






Adjustments for:





Depreciation of property, plant and equipment

570

540

1,599

1,869

Amortization of acquired software and customer relationships

8,453

7,245

22,453

21,763

Stock-based compensation expense

606

236

1,723

1,171

Provision for income taxes

4,166

4,620

13,070

17,564

Finance expenses and other expenses (income)

75

(454)

(345)

(1,806)


28,531

28,249

84,662

78,754






Changes in non-cash operating working capital

(10,174)

6,041

(10,801)

6,608

Income taxes paid

(4,495)

(5,016)

(14,215)

(11,141)

Net cash flows from operating activities

13,862

29,274

59,646

74,221






Cash flows from investing activities





Purchase of property, plant and equipment, net

(559)

(607)

(1,340)

(1,538)

Acquisitions, net of cash acquired of $27,683 (Q3/18 - $Nil),

YTD 2019 - $33,965 (2018 - $1,235)

 

(68,667)

 

-

 

(94,233)

 

(9,675)

Purchase consideration for prior period acquisitions

-

(1,866)

(1,105)

(6,945)

Net sale (purchase) of short-term investments

743

1,754

(1,110)

2,486

Net cash flows used in investing activities

(68,483)

(719)

(97,788)

(15,672)






Cash flows from financing activities





Issuance of share capital

563

2,699

1,348

4,827

Repayment of loans

-

(334)

(957)

(735)

Payment of cash dividend

(6,011)

(4,880)

(15,840)

(13,523)

Net cash flows used in financing activities

(5,448)

(2,515)

(15,449)

(9,431)






Effect of currency translation adjustments on cash and cash
equivalents

(3,393)

(1,890)

(538)

39






Net (decrease) increase in cash and cash equivalents during
the period

(63,462)

24,150

(54,129)

49,157

Cash and cash equivalents - beginning of period

196,884

145,615

187,551

120,608






Cash and cash equivalents - end of period

$

133,422

$

169,765

$

133,422

$

169,765

 

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


2019

2018

2019

2018






Revenue:





Asset Management Group

$

44,405

$

39,194

$

131,659

$

113,525

Interactive Management Group

56,869

47,549

144,863

143,498

Total

$

101,274

$

86,743

$

276,522

$

257,023
















Asset Management Group:





- Segment profit before special charges

$

11,726

$

14,114

$

43,343

$

38,670

- Special charges

(159)

(152)

(159)

(333)

Asset Management Group profit

$

11,567

$

13,962

$

43,184

$

38,337






Interactive Management Group:





- Segment profit before special charges

$

18,727

$

15,724

$

45,026

$

45,921

- Special charges

(311)

-

(367)

-

Interactive Management Group profit

$

18,416

$

15,724

$

44,659

$

45,921






Corporate expenses

(2,966)

(2,962)

(8,410)

(8,357)

Results from operating activities

$

27,017

$

26,724

$

79,433

$

84,258






Amortization of acquired software and customer 
relationships

(8,453)

(7,245)

(22,453)

(21,765)

Foreign exchange (loss) gain

(131)

659

433

(465)

Finance income

469

90

1,474

278

Finance expenses

(11)

(50)

(66)

(134)

Other (expenses) income

(64)

504

411

1,940










Income before income taxes

$

18,827

$

20,682

$

59,232

$

55,757

 

SOURCE Enghouse Systems Limited


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