Enghouse Releases Third Quarter Results

MARKHAM, ON, Sept. 10, 2020 /CNW/ - Enghouse Systems Limited (TSX: ENGH) today announced its third quarter (unaudited) financial results for the period ended July 31, 2020.  All of the financial information is in Canadian dollars unless otherwise indicated.

Key financial and operational highlights for the three months ended July 31, 2020 (compared to the same period in 2019) are as follows:

• Revenue grew 29.7% to $131.3 million;
• Results from operating activities increased 56.2% to $42.2 million;
• Net income increased 77.3% to $26.0 million or $0.46 per diluted share;
• Adjusted EBITDA increased 62.4% to $45.6 million;
• Cash flows from operating activities excluding changes in working capital increased 58.8% to $45.3 million;
• Cash, cash equivalents and short-term investments were $228.9 million, an increase from $150.3 million at October 31, 2019, which was achieved after making payments of $19.5 million for dividends and $43.9 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 acquisitions. Internal growth includes the expansion of the acquired businesses, particularly Vidyo, since acquisition.

To date, COVID-19 continues to have an overall positive impact on revenue. Although the initial surge of customers requiring immediate remote-work and visual computing solutions upon the initial outbreak of the pandemic was primarily served in the second quarter of 2020, demand for these solutions remains above historic averages.

The pandemic has tested Enghouse's ability and capacity to respond to significantly altered circumstances. Enghouse's results continue to demonstrate the resiliency of its business model, which is based on significant recurring revenue streams, positive operating cash flows, large cash reserves with nominal debt and a disciplined cost management and value for money philosophy.

Quarterly Dividend:
Today, the Board of Directors approved the Company's eligible quarterly dividend of $0.135 per common share, payable on November 30, 2020 to shareholders of record at the close of business on November 16, 2020.

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

For the period ended July 31	Three months				Nine months
	2020 $	2019 $	Variance		2020 $	2019 $	Variance
			$	%			$	%
Revenue	131,324	101,274	30,050	29.7	382,880	276,522	106,358	38.5
Direct costs	39,740	31,749	7,991	25.2	111,916	86,421	25,495	29.5
Revenue, net of direct costs	91,584	69,525	22,059	31.7	270,964	190,101	80,863	42.5
As a % of revenue	69.7%	68.7%			70.8%	68.7%
Operating expenses	49,351	42,038	7,313	17.4	150,157	110,142	40,015	36.3
Special charges	35	470	(435)	(92.6)	1,490	526	964	183.3
Results from operating activities	42,198	27,017	15,181	56.2	119,317	79,433	39,884	50.2
As a % of revenue	32.1%	26.7%			31.2%	28.7%
Amortization of acquired software and customer relationships	(11,502)	(8,453)	(3,049)	(36.1)	(33,182)	(22,453)	(10,729)	(47.8)
Foreign exchange (losses) gains	(1,102)	( 131)	(971)	(741.2)	(1,148)	433	(1,581)	(365.1)
Interest expense – lease obligations	(302)	-	(302)	-	(864)	-	(864)	-
Finance income	209	469	(260)	(55.4)	691	1,474	(783)	(53.1)
Finance expenses	(5)	(11)	6	54.5	(39)	(66)	27	40.9
Other income	3,827	(  64)	3,891	6079.7	4,224	411	3,813	927.7
Income before income taxes	33,323	18,827	14,496	77.0	88,999	59,232	29,767	50.3
Provision for income taxes	7,330	4,166	3,164	75.9	19,781	13,070	6,711	51.3
Net Income for the period	25,993	14,661	11,332	77.3	69,218	46,162	23,056	49.9
Basic earnings per share	0.47	0.27	0.20	74.1	1.26	0.84	0.42	50.0
Diluted earnings per share	0.46	0.27	0.19	70.4	1.25	0.84	0.41	48.8
Operating cash flows	55,690	13,862	41,828	301.7	133,156	59,646	73,510	123.2
Operating cash flows excluding changes in working capital	45,294	28,531	16,763	58.8	130,510	84,662	45,848	54.2
Adjusted EBITDA
Results from operating activities	42,198	27,017	15,181	56.2	119,317	79,433	39,884	50.2
Depreciation	801	570	231	40.5	2,446	1,599	847	53.0
Depreciation of right-of-use asset	2,534	-	2,534	-	6,925	-	6,925	-
Special charges	35	470	(435)	(92.6)	1,490	526	964	183.3
Adjusted EBITDA	45,568	28,057	17,511	62.4	130,178	81,558	48,620	59.6
Adjusted EBITDA margin	34.7%	27.7%			34.0%	29.5%
Adjusted EBITDA per diluted share	0.81	0.51	0.30	58.8	2.35	1.48	0.87	58.8

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

		As at July 31, 2020		As at October 31, 2019
ASSETS
Current assets:
Cash and cash equivalents		$	219,423	$	144,764
Short-term investments			9,515		5,505
Accounts receivable			98,360		84,982
Prepaid expenses and other assets			12,346		11,147
			339,644		246,398
Non-current assets:
Property and equipment			6,554		6,280
Right-of-use assets			38,457		-
Intangible assets			135,831		121,885
Goodwill			221,540		203,298
Deferred income tax assets			16,073		12,739
			418,455		344,202
		$	758,099	$	590,600
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	74,288	$	62,813
Income taxes payable			15,459		6,953
Dividends payable			7,463		6,021
Provisions			6,139		6,536
Deferred revenue			106,033		78,405
Lease obligations			8,370		-
Current portion of long-term loans			269		249
			218,021		160,977
Non-current liabilities:
Non-current portion of income taxes payable			3,854		4,434
Deferred income tax liabilities			15,868		16,197
Deferred revenue			6,304		3,665
Net employee defined benefit obligation			2,896		2,380
Lease obligations			28,969		-
Long-term loans			875		874
			58,766		27,550
			276,787		188,527
Shareholders' equity
Share capital			98,527		81,576
Contributed surplus			5,366		6,677
Retained earnings			357,478		309,198
Accumulated other comprehensive income			19,941		4,622
			481,312		402,073
		$	758,099	$	590,600

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

		Three months		Nine months
Periods ended July 31		2020	2019	2020	2019
Revenue
Software licenses		$  29,438	$  22,081	$  106,629	$  62,328
Hosted and maintenance services		77,356	58,416	213,733	158,699
Professional services		16,059	15,281	47,329	43,927
Hardware		8,471	5,496	15,189	11,568
		131,324	101,274	382,880	276,522
Direct costs
Software licenses		2,058	1,327	8,445	4,058
Services		30,417	26,399	91,843	74,125
Hardware		7,265	4,023	11,628	8,238
		39,740	31,749	111,916	86,421
Revenue, net of direct costs		91,584	69,525	270,964	190,101
Operating expenses
Selling, general and administrative		25,812	24,890	80,106	66,786
Research and development		20,204	16,578	60,680	41,757
Depreciation		801	570	2,446	1,599
Depreciation of right-of-use assets		2,534	-	6,925	-
Special charges		35	470	1,490	526
		49,386	42,508	151,647	110,668
Results from operating activities		42,198	27,017	119,317	79,433
Amortization of acquired software and customer    relationships		(11,502)	(8,453)	(33,182)	(22,453)
Foreign exchange (losses) gains		(1,102)	(131)	(1,148)	433
Interest expense – lease obligations		(302)	-	(864)	-
Finance income		209	469	691	1,474
Finance expenses		(5)	(11)	(39)	(66)
Other income (expense)		3,827	(64)	4,224	411
Income before income taxes		33,323	18,827	88,999	59,232
Provision for income taxes		7,330	4,166	19,781	13,070
Net income for the period		$  25,993	$  14,661	$  69,218	$  46,162
Items that may be subsequently reclassified to income:
Cumulative translation adjustment		2,868	(9,947)	15,319	(3,966)
Other comprehensive income (loss)		2,868	(9,947)	15,319	(3,966)
Comprehensive income		$  28,861	$  4,714	$  84,537	$  42,196
Earnings per share
Basic		$      0.47	$      0.27	$      1.26	$      0.84
Diluted		$      0.46	$      0.27	$      1.25	$      0.84

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

	Three months		Nine months
Periods ended July 31	2020	2019	2020	2019
OPERATING ACTIVITIES
Net income for the period	$    25,993	$    14,661	$    69,218	$    46,162
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	801	570	2,446	1,599
Depreciation of right-of-use assets	2,534	-	6,925	-
Interest expense – lease obligations	302	-	864	-
Amortization of acquired software and customer       relationships	11,502	8,453	33,182	22,453
Stock-based compensation expense	654	606	2,279	1,723
Provision for income taxes	7,330	4,166	19,781	13,070
Finance expenses and other (income) expenses	(3,822)	75	(4,185)	(345)
	45,294	28,531	130,510	84,662
Changes in non-cash operating working capital	17,614	(10,174)	18,150	(10,801)
Income taxes paid	(7,218)	(4,495)	(15,504)	(14,215)
Net cash provided by operating activities	55,690	13,862	133,156	59,646
INVESTING ACTIVITIES
Purchase of property and equipment	(458)	(559)	(1,902)	(1,340)
Acquisitions, net of cash acquired*	1,103	(68,667)	(46,561)	(94,233)
Purchase consideration for prior-year acquisitions	3,201	-	2,655	(1,105)
Purchase of short-term investments	233	743	(1,569)	(1,110)
Net cash provided by (used in) investing activities	4,079	(68,483)	(47,377)	(97,788)
FINANCING ACTIVITIES
Interest paid on lease obligations	(302)	-	(864)	-
Issuance of share capital	7,789	563	13,361	1,348
Repayment of loans	-	-	(62)	(957)
Repayment of lease obligations	(2,181)	-	(6,071)	-
Dividends paid	(7,427)	(6,011)	(19,496)	(15,840)
Net cash used in financing activities	(2,121)	(5,448)	(13,132)	(15,449)
Effect of currency translation adjustments on cash and cash equivalents	(555)	(3,393)	2,012	(538)
Increase (decrease) in cash and cash equivalents	57,093	(63,462)	74,659	(54,129)
Cash and cash equivalents - beginning of period	162,330	196,884	144,764	187,551
Cash and cash equivalents - end of period	$  219,423	$  133,422	$  219,423	$  133,422

* Acquisitions are net of cash acquired of nil and $6,906 for the three and nine months ended July 31, 2020, respectively, and $27,683 and $33,965 for the three and nine months ended July 31, 2019, respectively.

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

Three months ended July 31, 2020	IMG		AMG		Total
Revenue	$	75,151	$	56,173	$	131,324
Direct costs		(18,152)		(21,588)		(39,740)
Revenue, net of direct costs		56,999		34,585		91,584
Operating expenses excluding special charges		(22,871)		(12,735)		(35,606)
Depreciation of property and equipment		(646)		(155)		(801)
Depreciation of right-of-use assets		(1,447)		(1,087)		(2,534)
Segment profit	$	32,035	$	20,608	$	52,643
Special charges						(35)
Corporate and shared service expenses						(10,410)
Results from operating activities					$	42,198

Three months ended July 31, 2019	IMG		AMG		Total
Revenue	$	56,869	$	44,405	$	101,274
Direct costs		(14,838)		(16,911)		(31,749)
Revenue, net of direct costs		42,031		27,494		69,525
Operating expenses excluding special charges		(20,163)		(12,506)		(32,669)
Depreciation of property and equipment		(404)		(166)		(570)
Segment profit	$	21,464	$	14,822	$	36,286
Special charges						(470)
Corporate and shared service expenses						(8,799)
Results from operating activities					$	27,017

Nine months ended July 31, 2020	IMG		AMG		Total
Revenue	$	227,949	$	154,931	$	382,880
Direct costs		(54,240)		(57,676)		(111,916)
Revenue, net of direct costs		173,709		97,255		270,964
Operating expenses excluding special charges		(69,722)		(40,815)		(110,537)
Depreciation of property and equipment		(1,619)		(827)		(2,446)
Depreciation of right-of-use assets		(3,891)		(3,034)		(6,925)
Segment profit	$	98,477	$	52,579	$	151,056
Special charges						(1,490)
Corporate and shared service expenses						(30,249)
Results from operating activities					$	119,317

Nine months ended July 31, 2019	IMG		AMG		Total
Revenue	$	144,863	$	131,659	$	276,522
Direct costs		(37,877)		(48,544)		(86,421)
Revenue, net of direct costs		106,986		83,115		190,101
Operating expenses excluding special charges		(51,642)		(34,363)		(86,005)
Depreciation of property and equipment		(1,184)		(415)		(1,599)
Segment profit	$	54,160	$	48,337	$	102,497
Special charges						(526)
Corporate and shared service expenses						(22,538)
Results from operating activities					$	79,433

About Enghouse

Enghouse is a Canadian publicly traded company (TSX:ENGH), which 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, September 11, 2020 at 8:45 a.m. EST. To participate, please call [phone] or North American Toll-Free [phone]. Confirmation code: 9567603. 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]