Enghouse Releases Second Quarter Results Highlighting Significant Internal Revenue Growth

MARKHAM, ON, June 4, 2020 /CNW/ - Enghouse Systems Limited (TSX:ENGH) today announced its second quarter (unaudited) financial results for the period ended April 30, 2020.  All of the financial information is in Canadian dollars unless otherwise indicated.

Key financial and operational highlights for the three months ended April 30, 2020 (compared to the three months ended April 30, 2019) are as follows:

• Revenue grew 58.0% to $140.9 million;
  
  
• Results from operating activities increased 73.8% to $46.3 million;
  
  
• Net income increased 63.8% to $27.1 million or $0.49 per diluted share;
  
  
• Adjusted EBITDA increased 81.3% to $49.3 million;
  
  
• Cash flows from operating activities excluding changes in working capital increased 72.5% to $50.0 million;
  
  
• Cash, cash equivalents and short-term investments were $168.1 million, an increase from $150.3 million at October 31, 2019 despite making payments of $12.1 million for dividends and $48.2 million for acquisitions;
  
  
• The Company has no long-term debt other than a nominal amount that is non-interest bearing;

In the quarter, the Company experienced growth from both internal sources and from the acquisitions of Vidyo and Espial (both acquired in Q3/2019) and Dialogic (acquired in Q1/2020). Internal growth includes the expansion of the acquired businesses, particularly Vidyo and Dialogic, since acquisition.

To date, COVID-19 has had an overall positive financial impact on Enghouse as sales of solutions that support remote work, including working from home, increased to meet heightened demand. Sales of Vidyo, our remote conferencing and telehealth/financial services video platform, and our remote computing solutions were particularly strong this quarter. Although the overall impact to revenues so far has been positive, sales of hardware, professional services and certain business units have been tempered as a result of procurement delays, deferral of on-site installations and customers postponing upgrades and implementations.

While the pandemic continues to have a significant impact on the economy, our team has reacted quickly and successfully transitioned to a remote work environment. We are pleased that our team has remained safe, productive and is continuing to deliver high quality results. Critical to this success has been our previous investment in upgrading our financial systems combined with the internal deployment of Enghouse products such as Vidyo that support remote work.

During the quarter we substantially completed the integration of Dialogic, which was EBITDA positive as expected following acquisition on December 31, 2019. Dialogic was accretive to both earnings and margins  due to a significant perpetual license deal recognized in the quarter, which allowed the customer to respond to increased demand resulting from COVID-19.

Quarterly Dividend:
Today, the Board of Directors approved the Company's eligible quarterly dividend of $0.135 per common share, payable on August 31, 2020 to shareholders of record at the close of business on August 17, 2020.

Financial Highlights

For the period ended April 30	Three months				Six months
	2020 $	2019 $	Variance		2020 $	2019 $	Variance
			$	%			$	%
Revenue	140,900	89,203	51,697	58.0	251,556	175,248	76,308	43.5
Direct costs	39,699	27,460	12,239	44.6	72,176	54,672	17,504	32.0
Revenue, net of direct costs	101,201	61,743	39,458	63.9	179,380	120,576	58,804	48.8
As a % of revenue	71.8%	69.2%			71.3%	68.8%
Operating expenses	55,046	35,066	19,980	57.0	100,806	68,104	32,702	48.0
Special charges	(121)	56	(177)	(316.1)	1,455	56	1,399	n/a
Results from operating activities	46,276	26,621	19,655	73.8	77,119	52,416	24,703	47.1
As a % of revenue	32.8%	29.8%			30.7%	29.9%
Amortization of acquired software and customer relationships	(11,600)	(6,884)	(4,716)	(68.5)	(21,680)	(14,000)	(7,680)	(54.9)
Foreign exchange (losses) gains	(393)	674	(1,067)	(158.3)	(46)	564	(610)	(108.2)
Interest expense – lease obligations	(300)	-	(300)	-	(562)	-	(562)	-
Finance income	131	507	(376)	(74.2)	482	1,005	(523)	(52.0)
Finance expenses	(16)	(24)	8	33.3	(34)	(55)	21	38.2
Other income	811	447	364	81.4	397	475	(78)	(16.4)
Income before income taxes	34,909	21,341	13,568	63.6	55,676	40,405	15,271	37.8
Provision for income taxes	7,820	4,804	3,016	62.8	12,451	8,904	3,547	39.8
Net Income for the period	27,089	16,537	10,552	63.8	43,225	31,501	11,724	37.2
Basic earnings per share	0.49	0.30	0.19	63.3	0.79	0.58	0.21	36.2
Diluted earnings per share	0.49	0.30	0.19	63.3	0.78	0.57	0.21	36.8
Operating cash flows	57,533	21,630	35,903	166.0	77,466	45,784	31,682	69.2
Operating cash flows excluding changes in working capital	50,033	29,010	21,023	72.5	85,216	56,131	29,085	51.8
Adjusted EBITDA
Results from operating activities	46,276	26,621	19,655	73.8	77,119	52,416	24,703	47.1
Depreciation	758	499	259	51.9	1,645	1,029	616	59.9
Depreciation – right-of-use asset	2,368	-	2,368	-	4,391	-	4,391	-
Special charges	(121)	56	(177)	(316.1)	1,455	56	1,399	n/a
Adjusted EBITDA	49,281	27,176	22,105	81.3	84,610	53,501	31,109	58.1
Adjusted EBITDA margin	35.0%	30.5%			33.6%	30.5%
Adjusted EBITDA per diluted share	0.89	0.49	0.40	81.6	1.53	0.97	0.56	57.7

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

			As at April 30, 2020		As at October 31,  2019
Assets
Current assets:
Cash and cash equivalents			$	162,330	$	144,764
Short-term investments			5,759		5,505
Accounts receivable			125,071		84,982
Prepaid expenses and other assets			16,768		11,147
			309,928		246,398
Non-current assets:
Property and equipment			6,930		6,280
Right-of-use assets			39,080		-
Intangible assets			148,322		121,885
Goodwill			223,140		203,298
Deferred income tax assets			15,681		12,739
Total assets			$	743,081	$	590,600
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable and accrued liabilities			$	73,327	$	62,813
Income taxes payable			13,393		6,953
Dividends payable			7,427		6,021
Provisions			6,941		6,536
Deferred revenue			119,978		78,405
Lease obligations			8,208		-
Current portion of long-term loans			258		249
			229,532		160,977
Non-current liabilities:
Non-current portion of income taxes payable			3,999		4,434
Deferred income tax liabilities			18,356		16,197
Deferred revenue			6,614		3,665
Net employee defined benefit obligation			2,764		2,380
Lease obligations			29,496		-
Long-term loans			839		874
Total liabilities			291,600		188,527
Shareholders' Equity
Share capital			88,201		81,576
Contributed surplus			7,249		6,677
Retained earnings			338,949		309,198
Accumulated other comprehensive income			17,082		4,622
Total shareholders' equity			451,481		402,073
Total liabilities and shareholders' equity			$	743,081	$	590,600

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

	Three months ended  April 30,				Six months ended  April 30,
	2020		2019		2020		2019
Revenue
Software licenses	$	48,791	$	21,519	$	77,191	$	40,247
Hosted and maintenance services	72,024		49,470		136,377		100,283
Professional services	16,087		15,145		31,270		28,646
Hardware	3,998		3,069		6,718		6,072
	140,900		89,203		251,556		175,248
Direct costs
Software licenses	3,937		1,370		6,387		2,731
Services	33,080		24,181		61,426		47,726
Hardware	2,682		1,909		4,363		4,215
	39,699		27,460		72,176		54,672
Revenue, net of direct costs	101,201		61,743		179,380		120,576
Operating expenses
Selling, general and administrative	29,612		21,440		54,294		41,896
Research and development	22,308		13,127		40,476		25,179
Depreciation	758		499		1,645		1,029
Depreciation of right-of-use assets	2,368		-		4,391		-
Special charges	(121)		56		1,455		56
	54,925		35,122		102,261		68,160
Results from operating activities	46,276		26,621		77,119		52,416
Amortization of acquired software and customer	(11,600)		(6,884)		(21,680)		(14,000)
relationships
Foreign exchange (losses) gains	(393)		674		(46)		564
Interest expense – lease obligations	(300)		-		(562)		-
Finance income	131		507		482		1,005
Finance expenses	(16)		(24)		(34)		(55)
Other income	811		447		397		475
Income before income taxes	34,909		21,341		55,676		40,405
Provision for income taxes	7,820		4,804		12,451		8,904
Net income for the period	$	27,089	$	16,537	$	43,225	$	31,501
Items that are or may be reclassified subsequently to net income:
Cumulative translation adjustment	10,140		3,094		12,460		5,981
Other comprehensive income	10,140		3,094		12,460		5,981
Comprehensive income	$	37,229	$	19,631	$	55,685	$	37,482
Earnings per share
Basic	$	0.49	$	0.30	$	0.79	$	0.58
Diluted	$	0.49	$	0.30	$	0.78	$	0.57

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

	Three months ended April 30,				Six months ended April 30,
	2020		2019		2020		2019
Cash flows from operating activities
Net income for the period	$	27,089	$	16,537	$	43,225	$	31,501
Adjustments for:
Depreciation	758		499		1,645		1,029
Depreciation of right-of-use assets	2,368		-		4,391		-
Interest expense – lease obligations	300		-		562		-
Amortization of acquired software and customer	11,600		6,884		21,680		14,000
relationships
Stock-based compensation expense	893		709		1,625		1,117
Provision for income taxes	7,820		4,804		12,451		8,904
Finance expense and other income	(795)		(423)		(363)		(420)
	50,033		29,010		85,216		56,131
Changes in non-cash operating working capital	10,836		(2,050)		536		(627)
Income taxes paid	(3,336)		(5,330)		(8,286)		(9,720)
Net cash flows from operating activities	57,533		21,630		77,466		45,784
Cash flows from (used in) investing activities
Purchase of property and equipment	(1,005)		(572)		(1,444)		(781)
Acquisitions, net of cash acquired*	1,235		(3,170)		(47,664)		(25,566)
Purchase consideration for prior year acquisitions	-		-		(546)		(1,105)
Purchase of short-term investments	(1,795)		4,255		(1,802)		(1,853)
Net cash flows from (used in) investing activities	(1,565)		513		(51,456)		(29,305)
Cash flows from (used in) financing activities
Interest paid on lease obligations	(300)		-		(562)		-
Issuance of share capital	788		66		5,572		785
Repayment of loans	-		-		(62)		(957)
Repayment of lease obligations	(1,286)		-		(3,890)		-
Dividends paid	(6,048)		(4,917)		(12,069)		(9,829)
Net cash flows used in financing activities	(6,846)		(4,851)		(11,011)		(10,001)
Effect of currency translation adjustments on cash and cash equivalents	1,757		1,591		2,567		2,855
Net increase in cash and cash equivalents during the period	50,879		18,883		17,566		9,333
Cash and cash equivalents - beginning of period	111,451		178,001		144,764		187,551
Cash and cash equivalents - end of period	$	162,330	$	196,884	$	162,330	$	196,884

* Acquisitions are net of cash acquired of nil and $6,906 for the three and six months ended April 30, 2020, respectively, and $143 and $6,282 for the three and six months ended April 30, 2019, respectively.

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

Three months ended April 30, 2020	IMG		AMG		Total
Revenue	$	89,925	$	50,975	$	140,900
Direct costs		(20,874)		(18,825)		(39,699)
Revenue, net of direct costs		69,051		32,150	101,201
Operating expenses excluding special charges		(25,632)		(15,412)		(41,044)
Depreciation of property and equipment		(518)		(240)		(758)
Depreciation of right-of-use assets		(1,386)		(982)		(2,368)
Segment profit	$	41,515	$	15,516	$	57,031
Special charges						121
Corporate and shared service expenses						(10,876)
Results from operating activities					$	46,276

Three months ended April 30, 2019	IMG		AMG		Total
Revenue	$	44,530	$	44,673	$	89,203
Direct costs		(11,764)		(15,696)		(27,460)
Revenue, net of direct costs		32,766		28,977		61,743
Operating expenses excluding special charges		(16,417)		(11,028)		(27,445)
Depreciation of property and equipment		(377)		(122)		(499)
Segment profit	$	15,972	$	17,827	$	33,799
Special charges						(56)
Corporate and shared service expenses						(7,122)
Results from operating activities					$	26,621

Six months ended April 30, 2020	IMG		AMG		Total
Revenue	$	152,798	$	98,758	$	251,556
Direct costs		(36,088)		(36,088)		(72,176)
Revenue, net of direct costs		116,710		62,670		179,380
Operating expenses excluding special charges		(46,851)		(28,080)		(74,931)
Depreciation of property and equipment		(973)		(672)		(1,645)
Depreciation of right-of-use assets		(2,444)		(1,947)		(4,391)
Segment profit	$	66,442	$	31,971	$	98,413
Special charges						(1,455)
Corporate and shared service expenses						(19,839)
Results from operating activities					$	77,119

Six months ended April 30, 2019	IMG		AMG		Total
Revenue	$	87,994	$	87,254	$	175,248
Direct costs		(23,039)		(31,633)		(54,672)
Revenue, net of direct costs		64,955		55,621		120,576
Operating expenses excluding special charges		(31,479)		(21,857)		(53,336)
Depreciation of property and equipment		(780)		(249)		(1,029)
Segment profit	$	32,696	$	33,515	$	66,211
Special charges						(56)
Corporate and shared service expenses						(13,739)
Results from operating activities					$	52,416

About Enghouse

Enghouse is a Canadian publicly traded company (TSX:ENGH) that provides enterprise software solutions focusing on remote work, visual computing and communications for next generation software defined networks. The Company's two-pronged growth strategy focuses on internal growth and acquisitions, which, to date, have been funded through operating cash flows. The Company is well capitalized, has nominal long-term debt 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, June 5, 2020 at 8:45 a.m. EST. To participate, please call [phone] or North American Toll-Free [phone]. Confirmation code: 7403087. A webcast is also available at: https://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 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.

SOURCE Enghouse Systems Limited

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