Enghouse Releases Fourth Quarter and Year End Results, Completing Another Strong Year

MARKHAM, ON, Dec. 14, 2017 /CNW/ - Enghouse Systems Limited (TSX:ENGH) today announced its fourth quarter (unaudited) and year-end financial results for the period ended October 31, 2017.

Revenue increased to $325.4 million for the fiscal year, compared to revenue of $308.0 million in the previous fiscal year, resulting in another record year for the Company. Revenue includes $165.8 million from hosted and maintenance services, an increase of 7.4%. For the fiscal year, foreign exchange negatively impacted revenue by approximately $9.5 million compared to the prior year.

Operating expenses were $137.6 million for the fiscal year compared to $129.5 million in the prior fiscal year as a result of incremental costs related to acquired operations. Results from operating activities were $87.4 million compared to $81.7 million last year, an increase of 7.0%. The stronger Canadian dollar combined with the impact of revaluation of foreign currency denominated balance sheet positions negatively impacted results from operating activities by $15.7 million compared to the prior year.

Net income for the fiscal year was $50.8 million or $1.87 per diluted share compared to $47.3 million or $1.74 per diluted share in the prior year. Adjusted EBITDA for the fiscal year was $90.8 million or $3.33 per diluted share compared to $86.4 million or $3.18 per diluted share last year, an increase of 5.0%.

Fourth quarter revenue was $84.2 million, an increase of 7.0% over revenue of $78.7 million in the fourth quarter last year. Revenue in the quarter reflects incremental contributions from acquisitions, mitigated by the unfavourable impact of foreign exchange of approximately $1.3 million.

Operating expenses were $35.1 million compared to $29.4 million in the prior year's fourth quarter, and include incremental operating costs related to acquisitions. Non-cash amortization charges related to acquired software and customer relationships in the quarter were $7.0 million compared to $7.2 million in the prior year's fourth quarter. Results from operating activities for the quarter were $23.8 million compared to $25.3 million in the prior year's fourth quarter. On a net basis, foreign exchange for the current quarter, measured on the same basis as noted above, negatively impacted results from operating activities by $4.7 million compared to the prior year's fourth quarter.

Net income before tax for the quarter was $19.9 million compared to $18.9 million in the prior year's fourth quarter. Income tax expense was $1.0 million in the current quarter versus an income tax recovery of $1.1 million recorded in the comparative quarter last year. As a result, net income for the quarter was $18.9 million or $0.69 per diluted share, compared to the prior year's fourth quarter net income of $19.9 million, or $0.73 per diluted share. Adjusted EBITDA for the quarter was $24.8 million or $0.91 per diluted share compared to $26.6 million or $0.98 per diluted share in last year's fourth quarter.

Enghouse generated cash flows from operations of $29.1 million in the quarter compared to $15.8 million in the prior year's fourth quarter, which was attributable to operating results and strong cash collections. Cash flows generated from operations for the fiscal year were $83.2 million compared to $59.7 million in the prior fiscal year, an increase of 39.4%. Enghouse closed the year with a record $130.3 million in cash, cash equivalents and short-term investments, compared to $85.9 million at October 31, 2016. The cash balance was achieved after payment of $21.3 million for acquisitions (net of cash acquired), $16.2 million for dividends and includes $2.2 million received from the sale of an equity investment at year end.

Today, the Board of Directors approved an eligible quarterly dividend of $0.16 per common share, payable on February 28, 2018 to shareholders of record at the close of business on February 14, 2018.

A conference call to discuss the results will be held on Friday December 15, 2017 at 8:45 a.m. EST. To participate, please call 416-640-5946 or North American Toll-Free 1-866-233-4606. 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 "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				Year ended
	October 31, 2017		October 31, 2016		October 31, 2017		October 31, 2016
Total Revenue	$	84,229	$	78,726	$	325,368	$	307,983
Results from operating activities	$	23,803	$	25,284	$	87,373	$	81,666
Depreciation of property, plant and equipment	609		991		2,437		3,438
Special charges	370		360		984		1,330
Adjusted EBITDA	$	24,782	$	26,635	$	90,794	$	86,434
Adjusted EBITDA margin	29.4%		33.8%		27.9%		28.1%
Adjusted EBITDA per diluted share	$	0.91	$	0.98	$	3.33	$	3.18

Enghouse Systems Limited
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)

						As at October 31,  2017		As At October  31,  2016
Assets
Current assets:
					Cash and cash equivalents	$	120,608	$	78,436
					Short-term investments	9,737		7,423
					Accounts receivable, net	71,894		73,588
					Prepaid expenses and other assets	8,528		9,720
						210,767		169,167
Non-current assets:
					Long-term deposits and accounts receivable, net	1,002		1,357
					Property, plant and equipment	5,322		5,696
					Intangible assets	79,714		86,632
					Goodwill	150,687		144,578
					Deferred income tax assets	14,345		11,765
Total assets						$	461,837	$	419,195
Liabilities
Current liabilities:
					Accounts payable and accrued liabilities	$	54,656	$	55,440
					Income taxes payable	6,018		5,139
					Dividends payable	4,319		3,767
					Provisions	1,521		2,111
					Deferred revenue	59,104		54,300
					Current portion of long-term loans	468		-
						126,086		120,757
Non-current liabilities:
					Deferred income tax liabilities	21,449		21,053
					Deferred revenue	3,337		4,788
					Net employee defined benefit obligation	2,328		-
					Long-term loans	2,238		4,049
Total liabilities						155,438		150,647
Shareholders' Equity
Share capital						71,422		69,555
Contributed surplus						4,715		3,875
Retained earnings						221,775		187,649
Accumulated other comprehensive income						8,487		7,469
Total shareholders' equity						306,399		268,548
Total liabilities and shareholders' equity						$	461,837	$	419,195

Enghouse Systems Limited
Consolidated Interim Statements of Operations and Comprehensive Income
(in thousands of Canadian dollars, except per share amounts)                                                                         

		Three months ended October 31				Year ended October  31
		2017 (Unaudited)		2016 (Unaudited)		2017		2016
Revenue
	Software licenses	$	24,746	$	24,261	$	97,215	$	93,411
	Hosted and maintenance services	43,315		38,383		165,802		152,368
	Professional services	14,193		15,415		55,992		57,842
	Hardware	1,975		667		6,359		4,362
		84,229		78,726		325,368		307,983
Direct costs
	Software licenses	1,597		1,399		6,908		5,477
	Services	22,458		21,813		89,518		88,210
	Hardware	1,268		847		3,921		3,180
		25,323		24,059		100,347		96,867
Revenue, net of direct costs		58,906		54,667		225,021		211,116
Operating expenses
	Selling, general and administrative	22,991		17,618		89,662		79,965
	Research and development	11,133		10,414		44,565		44,717
	Depreciation of property, plant and equipment	609		991		2,437		3,438
	Special charges	370		360		984		1,330
		35,103		29,383		137,648		129,450
Results from operating activities		23,803		25,284		87,373		81,666
Amortization of acquired software and customer relationships		(7,040)		(7,185)		(29,405)		(28,042)
Finance income		121		50		252		123
Finance expenses		(48)		(22)		(185)		(78)
Other income		3,085		733		3,186		797
Income before income taxes		19,921		18,860		61,221		54,466
(Recovery of) provision for income taxes
	Current income tax expense	7,630		5,088		16,809		14,033
	Deferred income tax recovery	(6,609)		(6,140)		(6,430)		(6,843)
		1,021		(1,052)		10,379		7,190
Net income for the period		$	18,900	$	19,912	$	50,842	$	47,276
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations		5,464		(2,102)		1,345		(12,737)
Transfer to net income of realized gains on available for sale investments		-		-		-		(14)
Unrealized gain (loss) on available for sale investments		2,064		766		(376)		(42)
Deferred income tax (expense) recovery		(274)		(101)		49		8
Other comprehensive (loss) income		7,254		(1,437)		1,018		(12,785)
Comprehensive income		$	26,154	$	18,475	$	51,860	$	34,491
Earnings per share
Basic		$	0.70	$	0.74	$	1.89	$	1.76
Diluted		$	0.69	$	0.73	$	1.87	$	1.74

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, 2016		26,906,962	69,555	3,875	7,469	187,649	268,548
Net income		-	-	-	-	50,842	50,842
Other Comprehensive Income (net of tax):							-
Cumulative Translation Adjustment		-	-	-	1,345	-	1,345
Transfer to net income of realized gains on available-for-sale investments		-	-	-	-	-	-
Unrealized losses on available-for-sale investments		-	-	-	(376)	-	(376)
Deferred income tax recovery		-	-	-	49	-	49
Comprehensive income for the year		-	-	-	8,487	238,491	320,408
Employee share options:
	Value of services recognized			1,148	-	-	1,148
	Proceeds on issuing shares	86,250	1,867	(308)	-	-	1,559
Dividends		-	-	-	-	(16,716)	(16,716)
Balance – October 31, 2017		26,993,212	71,422	4,715	8,487	221,775	306,399
Balance – November 1, 2015		26,587,262	64,203	4,029	20,254	154,866	243,352
Net income		-	-	-	-	47,276	47,276
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment		-	-	-	(12,737)	-	(12,737)
Transfer to net income of realized gains on available-for-sale investments		-	-	-	(14)	-	(14)
Unrealized losses on available-for-sale investments		-	-	-	(42)	-	(42)
Deferred income tax recovery		-	-	-	8	-	8
Comprehensive income for the year		-	-	-	(12,785)	47,276	34,491
Employee share options:
	Value of services recognized	-	-	892	-	-	892
	Proceeds on issuing shares	319,700	5,352	(1,046)	-	-	4,306
Dividends		-	-	-	-	(14,493)	(14,493)
Balance – October 31, 2016		26,906,962	69,555	3,875	7,469	187,649	268,548

Enghouse Systems Limited 
Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)

		Three months ended October 31				Year ended October 31
		2017 (Unaudited)		2016 (Unaudited)		2017		2016
Cash flows from operating activities
Net income		$	18,900	$	19,912	$	50,842	$	47,276
Adjustments for:
	Depreciation of property, plant and equipment	609		991		2,437		3,438
	Amortization of acquired software and customer relationships	7,040		7,185		29,405		28,042
	Stock-based compensation expense	339		144		1,148		892
	Income tax expense (recovery)	1,021		(711)		10,379		7,190
	Finance expenses and other income	(3,037)		(597)		(3,001)		(719)
		24,872		26,469		91,210		86,119
Changes in  non-cash operating working capital		7,064		(6,638)		4,774		(16,237)
Income tax paid		(2,838)		(4,047)		(12,742)		(10,148)
Net cash flows from operating activities		29,098		15,785		83,242		59,735
Cash flows from investing activities
Purchase of property, plant and equipment, net		(664)		(769)		(1,689)		(3,372)
Purchase of other software		-		(559)		(1,475)		(1,764)
Acquisitions, net of cash acquired of $3,876 ($5,230 -  2016)		(2,520)		(15,083)		(18,690)		(51,264)
Purchase consideration for prior period acquisitions		(1,596)		(387)		(2,619)		(4,476)
Proceeds from sale of equity investment		2,188		-		2,188		-
Net proceeds from sale of short-term investments		(1,344)		(2,360)		(2,870)		(2,880)
Net cash flows used in investing activities		(3,936)		(19,158)		(25,155)		(63,756)
Cash flows from financing activities
Issuance of share capital		746		1,624		1,559		4,306
Repayment of loans		-		-		(1,667)		-
Payment of cash dividend		(4,314)		(3,755)		(16,164)		(13,917)
Net cash flows used in financing activities		(3,568)		(2,131)		(16,272)		(9,611)
Effect of currency translation adjustments on cash and cash equivalents		1,776		(1,574)		357		(2,063)
Net increase (decrease) in cash and cash equivalents during the period		23,370		(7,078)		42,172		(15,695)
Cash and cash equivalents - beginning of period		97,238		85,514		78,436		94,131
Cash and cash equivalents - end of period		$	120,608	$	78,436	$	120,608	$	78,436

  

Enghouse Systems Limited
Selected Segment Reporting Information
(In thousands of Canadian dollars)
(Unaudited)

			For the three months ended October 31				Year ended October 31
			2017		2016		2017		2016
Revenue:
	Asset Management Group		$	34,999	$	30,450	$	134,700	$	115,766
	Interactive Management Group		49,230		48,276		190,668		192,217
Total			$	84,229	$	78,726	$	325,368	$	307,983
	Asset Management Group:
		- Segment profit before special charges	$	10,760	$	9,853	$	38,499	$	31,378
		- Special charges	(336)		(186)		(813)		(804)
	Asset Management Group profit		$	10,424	$	9,667	$	37,686	$	30,574
	Interactive Management Group:
		- Segment profit before special charges	$	16,593	$	18,718	$	58,572	$	60,895
		- Special charges	(34)		(174)		(171)		(526)
	Interactive Management Group profit		$	16,559	$	18,544	$	58,401	$	60,369
	Corporate expenses		(3,180)		(2,927)		(8,714)		(9,277)
Results from operating activities			$	23,803	$	25,284	$	87,373	$	81,666
	Amortization of acquired software and customer relationships		(7,040)		(7,185)		(29,405)		(28,042)
	Finance income		121		50		252		123
	Finance expenses		(48)		(22)		(185)		(78)
	Other income		3,085		733		3,186		797
Income before income taxes			$	19,921	$	18,860	$	61,221	$	54,466

SOURCE Enghouse Systems Limited

Sam Anidjar, Vice President, Corporate Development, Enghouse Systems Limited, Tel: [phone], Email: [e-mail]