Enghouse Releases First Quarter Results

MARKHAM, ON, March 5, 2020 /CNW/ - Enghouse Systems Limited (TSX:ENGH) today announced its first quarter (unaudited) financial results for the period ended January 31, 2020.  All of the financial information is in Canadian dollars unless otherwise indicated.

Revenue for the first quarter was $110.7 million, a 28.6% increase compared to revenue of $86.0 million in the first quarter of the prior year primarily as a result of incremental contributions from acquisitions. Results from operating activities were $30.8 million compared to $25.8 million in the prior year's first quarter and reflect the impact of changes in product mix on gross margins. Operating expenses of $47.3 million reflect incremental operating costs related to newly acquired operations and increased non-cash amortization charges.

Net income for the quarter was $16.1 million or $0.29 per diluted share and includes $1.6 million in special charges and approximately $3.0 million in incremental amortization charges related to acquisitions.

Adjusted EBITDA for the first quarter was $35.3 million or $0.64 per diluted share, compared to $26.3 million or $0.48 per diluted share last year, with the increase being attributable to incremental revenue contributions from acquisitions as well as the impact of depreciation of right-of-use assets, as now required under the new lease accounting standard (IFRS 16).

Cash flows from operating activities excluding changes in working capital were $35.2 million compared to $27.1 million last quarter, an increase of 29.7%. As a result, Enghouse closed the quarter with $116.3 million in cash, cash equivalents and short-term investments, compared to $150.3 million at October 31, 2019. The cash balance was achieved after payments of $6.0 million for cash dividends and $48.9 million (net of cash acquired) for acquisitions concluded in the current quarter and $0.5 million for acquisitions closed in prior years.

On December 31, 2019, Enghouse completed the acquisition of Dialogic and commenced integration into its Asset Management and Interactive segments. Dialogic reported revenue consistent with expectations, which is typically lower in January, and was not accretive to earnings in their first month following acquisition. Restructuring initiatives have been implemented that should improve operating performance in the coming quarters.

Quarterly Dividend

Today, the Board of Directors approved a 22.7% increase to the Company's eligible quarterly dividend from $0.11 per common share to $0.135 per common share, payable on May 29, 2020 to shareholders of record at the close of business on May 15, 2020.  Enghouse has now increased its dividend in each of the past twelve years, by over 10% each year.

Conference Call

A conference call to discuss the results will be held on Friday, March 6, 2020 at 8:45 a.m. EST. To participate, please call [phone] or North American Toll-Free [phone]. Confirmation code: 2744315.

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.

Adjusted EBITDA

The table below reconciles Adjusted EBITDA to the most directly comparable IFRS measure, Results from operating activities for the three months ended January 31, 2020:

(in thousands of Canadian dollars except per share amounts)

For the period ended January 31	Three months
	2020 $	2019 $	Variance $
Total revenue	110,656	86,045	24,611
Results from operating activities	30,843	25,795	5,048
Depreciation	887	530	357
Depreciation – right-of-use asset	2,023	-	2,023
Special charges	1,576	-	1,576
Adjusted EBITDA	35,329	26,325	9,004
Adjusted EBITDA margin	31.9%	30.6%
Adjusted EBITDA per diluted share	0.64	0.48	0.16

Non-IFRS Measures
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 as a measure of operating performance. Therefore, Adjusted EBITDA 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.

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

			As at January 31,		As at  October 31,
			2020		2019
Assets
Current assets:
Cash and cash equivalents			$	111,451	$	144,764
Short-term investments			4,878		5,505
Accounts receivable			117,007		84,982
Prepaid expenses and other assets			15,197		11,147
			248,533		246,398
Non-current assets:
Property and equipment			6,552		6,280
Right-of-use assets			40,713		-
Intangible assets			154,896		121,885
Goodwill			218,016		203,298
Deferred income tax assets			22,846		12,739
Total assets			$	691,556	$	590,600
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable and accrued liabilities			65,003		$	62,813
Income taxes payable			8,863		6,953
Dividends payable			6,047		6,021
Provisions			7,537		6,536
Deferred revenue			103,078		78,405
Lease obligations			7,993		-
Current portion of long-term loans			249		249
			198,770		160,977
Non-current liabilities:
Non-current portion of income taxes payable			3,805		4,434
Deferred income tax liabilities			26,089		16,197
Deferred revenue			8,447		3,665
Net employee defined benefit obligation			2,654		2,380
Lease obligations			30,983		-
Long-term loans			810		874
Total liabilities			271,558		188,527
Shareholders' Equity
Share capital			87,242		81,576
Contributed surplus			6,527		6,677
Retained earnings			319,287		309,198
Accumulated other comprehensive income			6,942		4,622
Total shareholders' equity			419,998		402,073
Total liabilities and shareholders' equity			$	691,556	$	590,600

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 January 31
	2020		2019
Revenue
Software licenses	$	28,400	$	18,728
Hosted and maintenance services	64,353		50,813
Professional services	15,183		13,501
Hardware	2,720		3,003
	110,656		86,045
Direct costs
Software licenses	2,450		1,361
Services	28,346		23,545
Hardware	1,681		2,306
	32,477		27,212
Revenue, net of direct costs	78,179		58,833
Operating expenses
Selling, general and administrative	24,682		20,456
Research and development	18,168		12,052
Depreciation	887		530
Depreciation – right-of-use assets	2,023		-
Special charges	1,576		-
	47,336		33,038
Results from operating activities	30,843		25,795
Amortization of acquired software and customer relationships	(10,080)		(7,116)
Foreign exchange gains (losses)	347		(110)
Interest expense – lease obligations	(262)		-
Finance income	351		498
Finance expenses	(18)		(31)
Other (expense) income	(414)		28
Income before income taxes	20,767		19,064
Provision for income taxes	4,631		4,100
Net income for the period	$	16,136	$	14,964
Items that are or may be reclassified subsequently to net income:
Cumulative translation adjustment	2,320		2,887
Other comprehensive income	2,320		2,887
Comprehensive income	$	18,456	$	17,851
Earnings per share
Basic	$	0.29	$	0.27
Diluted	$	0.29	$	0.27

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

	Share capital* #	Share capital $	Contributed surplus $	Accumulated other comprehensive income $	Retained earnings $	Total $
As at November 1, 2019	54,737,424	81,576	6,677	4,622	309,198	402,073
Net income	-	-	-	-	16,136	16,136
Cumulative translation adjustment	-	-	-	2,320	-	2,320
Comprehensive income	-	-	-	2,320	16,136	18,456
Employee share options:
Value of services recognized	-	-	732	-	-	732
Proceeds on issuing shares	239,500	5,666	(882)	-	-	4,784
Dividends declared	-	-	-	-	(6,047)	(6,047)
As at January 31, 2020	54,976,924	87,242	6,527	6,942	319,287	419,998
As at November 1, 2018, as previously presented	54,580,024	78,997	4,866	5,755	260,506	350,124
IFRS 9 Transitional adjustment	-	-	-	781	(781)	-
IFRS 15 Transitional 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	-	-	-	-	14,964	14,964
Cumulative translation adjustment	-	-	-	2,887	-	2,887
Comprehensive income	-	-	-	2,887	14,964	17,851
Employee share options:
Value of services recognized	-	-	408	-	-	408
Proceeds on issuing shares	58,000	855	(136)	-	-	719
Dividends declared	-	-	-	-	(4,917)	(4,917)
As at January 31, 2019	54,638,024	79,852	5,138	9,423	271,362	365,775

* 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 period ended January 31, 2019.

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

	Three months ended January 31
	2020		2019
Cash flows from operating activities
Net income	$	16,136	$	14,964
Adjustments for:
Depreciation	887		530
Depreciation of right-of-use assets	2,023		-
Interest expense on lease obligations	262		-
Amortization of acquired software and customer relationships	10,080		7,116
Stock-based compensation expense	732		408
Provision for income taxes	4,631		4,100
Finance expenses and other expense (income)	432		3
	35,183		27,121
Changes in non-cash operating working capital	(10,300)		1,423
Income taxes paid	(4,950)		(4,390)
Net cash flows from operating activities	19,933		24,154
Cash flows from investing activities
Purchase of property and equipment	(439)		(209)
Acquisitions, net of cash acquired of $6,905 (2019–$6,139)	(48,899)		(22,396)
Purchase consideration for prior year acquisitions	(546)		(1,105)
Purchase of short-term investments	(7)		(6,108)
Net cash flows used in investing activities	(49,891)		(29,818)
Cash flows from financing activities
Interest paid on lease obligations	(262)		-
Issuance of share capital	4,784		719
Repayment of loans	(62)		(957)
Repayment of lease obligations	(2,604)		-
Dividends paid	(6,021)		(4,912)
Net cash flows used in financing activities	(4,165)		(5,150)
Effect of currency translation adjustments on cash and cash equivalents	810		1,264
Net decrease in cash and cash equivalents during the period	(33,313)		(9,550)
Cash and cash equivalents - beginning of period	144,764		187,551
Cash and cash equivalents - end of period	$	111,451	$	178,001

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

Three months ended January 31, 2020	IMG		AMG		Total
Revenue	$	62,873	$	47,783	$	110,656
Direct costs	(15,214)		(17,263)		(32,477)
Revenue net of direct costs	47,659		30,520		78,179
Operating expenses excluding special charges	(21,219)		(12,668)		(33,887)
Depreciation of property and equipment	(455)		(432)		(887)
Depreciation of right-of-use assets	(1,058)		(965)		(2,023)
Segment profit	$	24,927	$	16,455	$	41,382
Special charges					(1,576)
Corporate and shared service expenses					(8,963)
Results from operating activities					$	30,843

Three months ended January 31, 2019	IMG		AMG		Total
Revenue	$	43,464	$	42,581	$	86,045
Direct costs	(11,275)		(15,937)		(27,212)
Revenue net of direct costs	32,189		26,644		58,833
Operating expenses excluding special charges	(15,062)		(10,829)		(25,891)
Depreciation of property and equipment	(403)		(127)		(530)
Segment profit	$	16,724	$	15,688	$	32,412
Special charges					-
Corporate and shared service expenses					(6,617)
Results from operating activities					$	25,795

SOURCE Enghouse Systems Limited

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