Enghouse Releases Fourth Quarter and Year End Results

MARKHAM, ON, Dec. 15, 2022 /CNW/ - Enghouse Systems Limited (TSX: ENGH) today announced its fourth quarter (unaudited) and year-end financial results for period ended October 31, 2022. All the financial information is in Canadian dollars unless otherwise indicated.

Financial and operational highlights for the three and twelve months ended October 31, 2022, compared to the three and twelve months ended October 31, 2021 are as follows:

• Revenue achieved was $108.1 and $427.6 million, respectively, compared to revenue of $113.1 and $467.2 million;
• Results from operating activities was $33.1 and $129.7 million, respectively, compared to $39.1 and $155.2 million;
• Net income was $36.9 and $94.5 million, respectively, compared to $30.2 and $92.8 million;
• Adjusted EBITDA was $35.8 and $140.6 million, respectively, compared to $42.1 and $168.5 million while Adjusted EBITDA margins were 33.1% and 32.9%, respectively, compared to 37.2% and 36.1%;
• Cash flows from operating activities excluding changes in working capital was $37.7 and $145.1 million, respectively, compared to $42.4 and $167.8 million;
• Cash, cash equivalents and short-term investments were $228.1 million as at October 31, 2022 compared to $198.8 million at the end of the prior year.

Turbulent global markets, rising interest rates, high inflation and aggressive competition in the technology sector, particularly from vendors offering software-as-a-service ("SaaS"), highlight the environment in which we operated during fiscal 2022. Despite these factors, consistent with our operating approach and strategy, we continued to manage our business with financial discipline once again generating positive operating income and cash flows while increasing quarterly distributions to shareholders for the fourteenth consecutive year. During fiscal 2022 we invested $72.3 million in research and development activities aimed at on-going product improvements and innovation. We continue with our strategy of offering customers and partners choice, providing various deployment options of private cloud, multi-tenanted cloud or on-premise solutions. We believe offering choice differentiates us in the vertically- focused enterprise-software markets in which we operate and addresses the varying needs of our customers.

In fiscal 2022, we achieved Adjusted EBITDA of $140.6 million or 32.9% of revenue and cash flows from operations, excluding changes in working capital, of $145.1 million, closing the year with $228.1 million in cash, cash equivalents and short-term investments with no external debt. Our capital allocation focused on deploying $20.2 million for acquisitions, repurchasing $9.3 million of Enghouse common stock and paying dividends to our shareholders of $38.3 million.

Revenue for the year was $427.6 million, compared to $467.2 million in the prior year. Revenue was negatively impacted by the decline in our Vidyo revenue (post-COVID), in addition to $15.7 million of unfavourable foreign exchange and the growing shift from on-premise solutions to SaaS. Consistent with our strategy of offering choice, we continued to expand the availability of our SaaS offerings globally, primarily for our customer experience and contact center technologies where demand for SaaS is rapidly growing. Operating Income for the year was $129.7 million compared to $155.2 million in the prior year resulting from lower revenue levels. Net income for the year increased to $94.5 million compared to $92.8 million in fiscal 2021 as a result of lower non-operating expenses and taxes.

During the year we completed the acquisitions of Competella, NTW and VoicePort broadening our geographic reach and product portfolio, including SaaS offerings. We continue to expand our acquisition pipeline and actively pursue acquisition opportunities. Valuations are generally decreasing in the enterprise software market that we believe are the result of higher debt servicing costs, reduced ability to raise capital and a broader focus on profitability and cash flow in response to economic uncertainty. We are closely monitoring acquisition opportunities as valuations become more aligned with our financial and operating criteria.

We have consistently demonstrated, even during adverse economic conditions, that we can generate positive operating cash flows and augment our cash reserves to be deployed for acquisitions and further investment in our business. We believe that our financial discipline, product approach and commitment to customers, partners and employees will continue to drive long-term shareholder value.

Quarterly dividends:
Today, the Board of Directors approved the Company's eligible quarterly dividend of $0.185 per common share payable on February 28, 2023 to shareholders of record at the close of business on February 14, 2023.

Enghouse Systems Limited
Financial Highlights
(unaudited, in thousands of Canadian dollars) 

For the period ended October 31	Three months							Twelve months
		2022		2021	Var ($)	Var (%)			2022		2021	Var ($)	Var (%)
Revenue	$	108,060	$	113,099	(5,039)	(4.5)		$	427,585	$	467,177	(39,592)	(8.5)
Direct costs		32,340		31,149	1,191	3.8			130,097		129,627	470	0.4
Revenue, net of direct costs	$	75,720	$	81,950	(6,230)	(7.6)		$	297,488	$	337,550	(40,062)	(11.9)
As a % of revenue		70.1 %		72.5 %					69.6 %		72.3 %
Operating expenses		42,448		42,784	(336)	(0.8)			167,418		181,413	(13,995)	(7.7)
Special charges		123		31	92	296.8			403		904	(501)	(55.4)
Results from operating activities	$	33,149	$	39,135	(5,986)	(15.3)		$	129,667	$	155,233	(25,566)	(16.5)
As a % of revenue		30.7 %		34.6 %					30.3 %		33.2 %
Amortization of acquired software and customer relationships		(8,826)		(10,438)	1,612	15.4			(36,174)		(42,421)	6,247	14.7
Foreign exchange gains (losses)		931		(62)	993	n/a			1,954		(2,038)	3,992	195.9
Interest expense – lease obligations		(164)		(218)	54	24.8			(735)		(1,036)	301	29.1
Finance income		651		52	599	n/a			1,192		214	978	457.0
Finance expenses		(27)		(10)	(17)	(170.0)			(89)		(86)	( 3)	(3.5)
Other (expense) income		(507)		(486)	(21)	(4.3)			423		(2,448)	2,871	117.3
Income before income taxes	$	25,207	$	27,973	(2,766)	(9.9)		$	96,238	$	107,418	(11,180)	(10.4)
(Recovery of) provision for income taxes		(11,742)		(2,213)	(9,529)	(430.6)			1,740		14,624	(12,884)	(88.1)
Net Income for the period	$	36,949	$	30,186	6,763	22.4		$	94,498	$	92,794	1,704	1.8
Basic earnings per share		0.67		0.54	0.13	24.1			1.70		1.67	0.03	1.8
Diluted earnings per share		0.67		0.54	0.13	24.1			1.70		1.66	0.04	2.4
Operating cash flows		18,539		25,206	(6,667)	(26.5)			103,181		118,460	(15,279)	(12.9)
Operating cash flows excluding changes in          working capital		37,740		42,385	(4,645)	(11.0)			145,074		167,807	(22,733)	(13.5)
Adjusted EBITDA
Results from operating activities		33,149		39,135	(5,986)	(15.3)			129,667		155,233	(25,566)	(16.5)
Depreciation		709		791	(82)	(10.4)			2,799		3,003	(204)	(6.8)
Depreciation of right-of-use assets		1,824		2,168	(344)	(15.9)			7,754		9,369	(1,615)	(17.2)
Special charges		123		31	92	296.8			403		904	(501)	(55.4)
Adjusted EBITDA	$	35,805	$	42,125	(6,320)	(15.0)		$	140,623	$	168,509	(27,886)	(16.5)
Adjusted EBITDA margin		33.1 %		37.2 %					32.9 %		36.1 %
Adjusted EBITDA per diluted share	$	0.65	$	0.75	(0.11)	(14.7)		$	2.53	$	3.02	(0.49)	(16.2)

Consolidated Statements of Financial Position
(in thousands of Canadian dollars)		As at October 31,2022		As at October 31, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	225,104	$	195,890
Short-term investments			2,950		2,944
Accounts receivable			93,104		89,374
Prepaid expenses and other assets			12,848		13,322
Income taxes recoverable			492		2,130
			334,498		303,660
Non-current assets:
Property and equipment			4,186		6,246
Right-of-use assets			20,063		25,943
Intangible assets			85,902		101,822
Goodwill			230,002		223,021
Deferred income tax assets			30,347		13,932
			370,500		370,964
		$	704,998	$	674,624
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	60,525	$	71,506
Dividends payable			10,221		8,889
Provisions			3,183		5,588
Deferred revenue			83,122		80,614
Lease obligations			6,822		7,941
			163,873		174,538
Non-current liabilities:
Income taxes payable			2,576		2,949
Deferred income tax liabilities			12,038		13,392
Deferred revenue			3,470		9,111
Net employee defined benefit obligation			1,821		2,663
Lease obligations			13,055		17,660
			32,960		45,775
			196,833		220,313
Shareholders' equity
Share capital			107,007		106,470
Contributed surplus			8,882		7,406
Retained earnings			401,247		355,019
Accumulated other comprehensive loss			(8,971)		(14,584)
			508,165		454,311
		$	704,998	$	674,624

Consolidated Statement of Operations and Comprehensive Income
(in thousands of Canadian dollars, except per share amounts)
		Three months		Twelve months
Periods ended October 31		2022 (unaudited)	2021 (Unaudited)	2022	2021
Revenue
Software licenses		$  25,588	$  24,798	$  90,602	$  105,072
SaaS and maintenance services		64,575	67,917	258,277	278,981
Professional services		16,066	18,121	68,648	71,197
Hardware		1,831	2,263	10,058	11,927
		108,060	113,099	427,585	467,177
Direct costs
Software licenses		704	535	4,340	4,555
Services		30,594	29,422	119,762	117,670
Hardware		1,042	1,192	5,995	7,402
		32,340	31,149	130,097	129,627
Revenue, net of direct costs		75,720	81,950	297,488	337,550
Operating expenses
Selling, general and administrative		21,727	22,959	84,603	91,844
Research and development		18,188	16,866	72,262	77,197
Depreciation		709	791	2,799	3,003
Depreciation of right-of-use assets		1,824	2,168	7,754	9,369
Special charges		123	31	403	904
		42,571	42,815	167,821	182,317
Results from operating activities		33,149	39,135	129,667	155,233
Amortization of acquired software and customer relationships		(8,826)	(10,438)	(36,174)	(42,421)
Foreign exchange gains (losses)		931	(62)	1,954	(2,038)
Interest expense – lease obligations		(164)	(218)	(735)	(1,036)
Finance income		651	52	1,192	214
Finance expenses		(27)	(10)	(89)	(86)
Other (expense) income		(507)	(486)	423	(2,448)
Income before income taxes		25,207	27,973	96,238	107,418
(Recovery of) provision for income taxes		(11,742)	(2,213)	1,740	14,624
Net income for the period		$  36,949	$  30,186	$  94,498	$  92,794
Items that may be subsequently reclassified to income:
Cumulative translation adjustment		17,883	(6,352)	5,613	(25,541)
Other comprehensive income (loss)		17,883	(6,352)	5,613	(25,541)
Comprehensive income		$     54,832	$  23,834	$  100,111	$   67,253
Earnings per share
Basic		$         0.67	$      0.54	$       1.70	$       1.67
Diluted		$         0.67	$      0.54	$       1.70	$       1.66

Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)		Three months		Twelve months
Periods ended October 31		2022 (Unaudited)	2021 (Unaudited)	2022	2021
OPERATING ACTIVITIES
Net income for the period		$     36,949	$     30,186	$     94,498	$     92,794
Adjustments for non-cash items
Depreciation		709	791	2,799	3,003
Depreciation of right-of-use assets		1,824	2,168	7,754	9,369
Interest expense – lease obligations		164	218	735	1,036
Amortization of acquired software and customer relationships		8,826	10,438	36,174	42,421
Stock-based compensation expense		476	301	1,708	2,026
Provision for income taxes		(11,742)	(2,213)	1,740	14,624
Finance expenses and other (expense) income		534	496	(334)	2,534
		37,740	42,385	145,074	167,807
Changes in non-cash operating working capital		(14,467)	(11,814)	(26,139)	(21,671)
Income taxes paid		(4,734)	(5,365)	(15,754)	(27,676)
Net cash provided by operating activities		18,539	25,206	103,181	118,460
INVESTING ACTIVITIES
Purchase of property and equipment, net		(321)	(1,484)	(919)	(3,333)
Acquisitions, net of cash acquired*		(14,139)	661	(20,231)	(35,476)
Recovery (payment) of purchase consideration for prior-year acquisitions		528	-	120	(158)
(Purchase) sale of short-term investments		-	(218)	(60)	1,352
Net cash used in investing activities		(13,932)	(1,041)	(21,090)	(37,615)
FINANCING ACTIVITIES
Issuance of share capital		-	1,016	971	5,862
Normal course issuer bid share repurchases		(367)	-	(9,318)	-
Repayment of lease obligations		(2,010)	(2,314)	(8,235)	(9,633)
Dividends paid		(10,224)	(8,883)	(38,286)	(115,736)
Net cash used in financing activities		(12,601)	(10,181)	(54,868)	(119,507)
Impact of foreign exchange on cash and cash equivalents		7,152	(2,523)	1,991	(10,240)
Increase (decrease) in cash and cash equivalents		(842)	11,461	29,214	(48,902)
Cash and cash equivalents - beginning of period		225,946	184,429	195,890	244,792
Cash and cash equivalents - end of period		$  225,104	$  195,890	$  225,104	$  195,890

* Acquisitions are net of cash acquired of nil and $3,647 for the quarter and year ended October 31, 2022, respectively and nil and $3,613 for the quarter and year ended October 31, 2021, respectively.

Enghouse Systems Limited
Segment Reporting Information
(in thousands of Canadian dollars)

For the period ended October 31, 2022		Three months							Twelve months
		IMG		AMG		Total			IMG	AMG		Total
Revenue	$		61,759	$	46,301	$	108,060	$	235,925	$	191,660	$	427,585
Direct costs			(15,815)		(16,525)		(32,340)		(62,079)		(68,018)		(130,097)
Revenue, net of direct costs			45,944		29,776		75,720		173,846		123,642		297,488
Operating expenses excluding special charges			(18,394)		(11,859)		(30,253)		(75,272)		(45,816)		(121,088)
Depreciation			(583)		(126)		(709)		(2,336)		(463)		(2,799)
Depreciation of right-of-use assets			(1,112)		(712)		(1,824)		(4,742)		(3,012)		(7,754)
Segment profit	$		25,855	$	17,079	$	42,934	$	91,496	$	74,351	$	165,847
Special charges							(123)						(403)
Corporate and shared service expenses							(9,662)						(35,777)
Results from operating activities						$	33,149					$	129,667

For the period ended October 31, 2021		Three months							Twelve months
		IMG		AMG		Total			IMG	AMG		Total
Revenue	$		66,846	$	46,253	$	113,099	$	268,584	$	198,593	$	467,177
Direct costs			(15,281)		(15,868)		(31,149)		(64,941)		(64,686)		(129,627)
Revenue, net of direct costs			51,565		30,385		81,950		203,643		133,907		337,550
Operating expenses excluding special charges			(19,505)		(13,249)		(32,754)		(88,064)		(49,306)		(137,370)
Depreciation			(668)		(123)		(791)		(2,570)		(433)		(3,003)
Depreciation of right-of-use assets			(1,213)		(955)		(2,168)		(5,900)		(3,469)		(9,369)
Segment profit	$		30,179	$	16,058	$	46,237	$	107,109	$	80,699	$	187,808
Special charges							(31)						(904)
Corporate and shared service expenses							(7,071)						(31,671)
Results from operating activities						$	39,135					$	155,233

About Enghouse
Enghouse is a Canadian publicly traded company (TSX:ENGH) that provides enterprise software solutions focusing on contact centers, video communications, virtual healthcare, telecommunications networks, public safety and the transit market. The Company's two-pronged growth strategy to grow earnings focuses on internal growth and acquisitions, which, to date, have been funded through operating cash flows. The Company has no outstanding external debt financing and is organized around two business segments: the Interactive Management Group and the Asset Management Group. Further information about Enghouse may be obtained from the Company's website at www.enghouse.com. 

Conference Call and Webcast
A conference call to discuss the results will be held on Friday, December 16, 2022 at 8:45 a.m. EST. To participate, please call [phone] or North American Toll-Free [phone]. Confirmation code: 89712281 A webcast is also available at: www.enghouse.com/investors.php.

The Company uses non-IFRS measures to assess its operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than IFRS 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, Adjusted EBITDA margin and Adjusted EBITDA per diluted share as measures of operating performance. Therefore, these collective Adjusted EBITDA measures may not be comparable to similar measures presented by other issuers. Adjusted EBITDA is calculated based on results from operating activities adjusted for depreciation of property and equipment and right-of-use assets 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, foreign exchange gains and losses, other income and restructuring costs primarily related to acquisitions.

SOURCE Enghouse Systems Limited

Sam Anidjar, Vice President, Corporate Development, Tel: [phone], Email: [email protected]