Enghouse Releases Third Quarter Results

MARKHAM, ON, Sept. 7, 2023 /CNW/ - Enghouse Systems Limited (TSX: ENGH) announces its financial performance for the third quarter and unaudited financial results for the period ended July 31, 2023. All figures are denominated in Canadian dollars unless otherwise indicated.

Highlights for the Third Quarter ended July 31, 2023:

• Revenue increased 8.7%, notably, while expanding our recurring revenue 13.8% to $72.3 million compared to the same period in the prior year. 
• Operating profits improved, with a 30.1% EBITDA margin.
• Operating cash flows increased as a result of improved operating profits and cash collections.

Financial highlights for the three and nine months ended July 31, 2023 compared to the three and nine months ended July 31, 2022 are as follows:

• Revenue increased to $111.0 and $330.9 million, respectively, compared to revenue of $102.1 and $319.5 million;
• Results from operating activities were $30.9 and $86.4 million, respectively, compared to $29.8 and $96.5 million;
• Net income was $17.6 and $47.1 million, respectively, compared to $18.1 and $57.5 million;
• Adjusted EBITDA was $33.4 and $95.9 million, respectively, compared to $32.5 and $104.8 million;
• Cash flow from operating activities, excluding changes in working capital, was $35.5 and $97.0 million, respectively, compared to $34.1 and $107.3 million. 

These achievements are largely attributable to the strategic investments channeled into various facets of the business. These include acquisitions, investing in product enhancements, bolstering our SaaS offering, refining our go-to-market capabilities, optimizing internal systems and growing our acquisition team.

Increased revenue, operating profits and cash flows ultimately culminated in our quarter-end holdings of cash, cash equivalents, and short-term investments of $249.7 million, representing a near return to the January 31, 2023 cash balance of $250.7 million even after disbursing $22.4 million in shareholder dividends and $29.0 million for acquisitions subsequent to January 31^st.

Subsequent to quarter end, on August 1, 2023, Enghouse completed the acquisition of substantially all the assets of Lifesize Inc., a cloud communications company. The acquisition was completed for a purchase price of approximately USD $20.7 million, bringing our total capital deployed on acquisitions in the year to over $56.0 million as of August 1, 2023. The macroeconomic environment of increasing interest rates and a more difficult funding environment for technology companies continues to generate more acquisition opportunities for Enghouse that meet our financial and operational criteria. 

Quarterly dividends:

Today, the Board of Directors approved the Company's eligible quarterly dividend of $0.22 per common share, payable on November 30, 2023 to shareholders of record at the close of business on November 16, 2023.

Enghouse Systems Limited

Financial Highlights
(unaudited, in thousands of Canadian dollars)

For the period ended July 31	Three months							Nine months
		2023		2022	Var ($)	Var (%)			2023		2022	Var ($)	Var (%)
Revenue	$	110,997	$	102,111	8,886	8.7		$	330,893	$	319,525	11,368	3.6
Direct costs		35,872		31,348	4,524	14.4			108,786		97,757	11,029	11.3
Revenue, net of direct costs	$	75,125	$	70,763	4,362	6.2		$	222,107	$	221,768	339	0.2
As a % of revenue		67.7 %		69.3 %					67.1 %		69.4 %
Operating expenses		43,901		40,790	3,111	7.6			133,323		124,970	8,353	6.7
Special charges		331		216	115	53.2			2,360		280	2,080	742.9
Results from operating activities	$	30,893	$	29,757	1,136	3.8		$	86,424	$	96,518	(10,094)	(10.5)
As a % of revenue		27.8 %		29.1 %					26.1 %		30.2 %
Amortization of acquired software and         customer relationships		(9,730)		(8,484)	(1,246)	(14.7)			(28,400)		(27,348)	(1,052)	(3.8)
Foreign exchange (losses) gains		356		1,045	(689)	(65.9)			(1,487)		1,023	(2,510)	(245.4)
Interest expense – lease obligations		(172)		(173)	1	0.6			(531)		(571)	40	7.0
Finance income		1,701		290	1,411	486.6			3,683		541	3,142	580.8
Finance expenses		(5)		(18)	13	72.2			(136)		(62)	(74)	(119.4)
Other (expenses) income		(1,312)		(9 3)	(1,219)	(1310.8)			(1,967)		930	(2,897)	(311.5)
Income before income taxes	$	21,731	$	22,324	(593)	(2.7)		$	57,586	$	71,031	(13,445)	(18.9)
Provision for income taxes		4,164		4,243	(79)	(1.9)			10,460		13,482	(3,022)	(22.4)
Net Income for the period	$	17,567	$	18,081	(514)	(2.8)		$	47,126	$	57,549	(10,423)	(18.1)
Basic earnings per share		0.32		0.33	(0.01)	(3.0)			0.85		1.04	(0.19)	(18.3)
Diluted earnings per share		0.32		0.33	(0.01)	(3.0)			0.85		1.03	(0.18)	(17.5)
Operating cash flows		39,020		29,158	9,862	33.8			86,980		84,642	2,338	2.8
Operating cash flows excluding changes    in working capital		35,481		34,081	1,400	4.1			96,988		107,334	(10,346)	(9.6)
Adjusted EBITDA
Results from operating activities		30,893		29,757	1,136	3.8			86,424		96,518	(10,094)	(10.5)
Depreciation		585		665	(80)	12.0			1,824		2,090	(266)	12.7
Depreciation of right-of-use assets		1,606		1,849	(243)	13.1			5,273		5,930	(657)	11.1
Special charges		331		216	115	(53.2)			2,360		280	2,080	(742.9)
Adjusted EBITDA	$	33,415	$	32,487	928	2.9		$	95,881	$	104,818	(8,937)	(8.5)
Adjusted EBITDA margin		30.1 %		31.8 %					29.0 %		32.8 %
Adjusted EBITDA per diluted share	$	0.60	$	0.59	0.01	1.7		$	1.73	$	1.88	(0.15)	(8.0)

Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars) (unaudited)		As at July 31, 2023		As at October 31, 2022
ASSETS
Current assets:
Cash and cash equivalents		$	248,784	$	225,104
Short-term investments			892		2,950
Accounts receivable			91,724		93,104
Prepaid expenses and other assets			14,590		12,848
Income taxes recoverable			-		492
			355,990		334,498
Non-current assets:
Property and equipment			3,384		4,186
Right-of-use assets			13,408		20,063
Intangible assets			89,644		85,902
Goodwill			252,257		230,002
Deferred income tax assets			31,290		30,347
			389,983		370,500
		$	745,973	$	704,998
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	60,632	$	60,525
Income taxes payable			1,893		-
Dividends payable			12,159		10,221
Provisions			1,999		3,183
Deferred revenue			102,018		83,122
Lease obligations			6,304		6,822
			185,005		163,873
Non-current liabilities:
Income taxes payable			1,266		2,576
Deferred income tax liabilities			15,560		12,038
Deferred revenue			5,095		3,470
Net employee defined-benefit obligation			1,972		1,821
Lease obligations			7,047		13,055
			30,940		32,960
			215,945		196,833
Shareholders' equity:
Share capital			107,728		107,007
Contributed surplus			10,036		8,882
Retained earnings			413,829		401,247
Accumulated other comprehensive loss			(1,565)		(8,971)
			530,028		508,165
		$	745,973	$	704,998

Condensed Consolidated Interim Statements of Operations and Comprehensive Income
(in thousands of Canadian dollars, except per share amounts)
(unaudited)		Three months		Nine months
Periods ended July 31		2023	2022	2023	2022
Revenue      Software licenses		$  19,836	$  19,816	$  62,587	$  65,014
SaaS and maintenance services		72,302	63,530	210,439	193,702
Professional services		15,904	16,751	50,790	52,582
Hardware		2,955	2,014	7,077	8,227
		110,997	102,111	330,893	319,525
Direct costs
Software licenses		720	1,023	2,288	3,636
Services		33,476	29,014	102,694	89,168
Hardware		1,676	1,311	3,804	4,953
		35,872	31,348	108,786	97,757
Revenue, net of direct costs		75,125	70,763	222,107	221,768
Operating expenses
Selling, general and administrative		22,454	20,572	67,187	62,876
Research and development		19,256	17,704	59,039	54,074
Depreciation		585	665	1,824	2,090
Depreciation of right-of-use assets		1,606	1,849	5,273	5,930
Special charges		331	216	2,360	280
		44,232	41,006	135,683	125,250
Results from operating activities		30,893	29,757	86,424	96,518
Amortization of acquired software and customer relationships		(9,730)	(8,484)	(28,400)	(27,348)
Foreign exchange gains (losses)		356	1,045	(1,487)	1,023
Interest expense – lease obligations		(172)	(173)	(531)	(571)
Finance income		1,701	290	3,683	541
Finance expenses		(5)	(18)	(136)	(62)
Other (expenses) income		(1,312)	(93)	(1,967)	930
Income before income taxes		21,731	22,324	57,586	71,031
Provision for income taxes		4,164	4,243	10,460	13,482
Net income for the period		17,567	18,081	47,126	57,549
Item that may be subsequently reclassified to income:
Cumulative translation adjustment		(13,632)	(7,194)	7,406	(12,266)
Other comprehensive (loss) income		(13,632)	(7,194)	7,406	(12,266)
Comprehensive income		$    3,935	$    10,887	$  54,532	$  45,283
Earnings per share
Basic		$       0.32	$      0.33	$      0.85	$      1.04
Diluted		$       0.32	$      0.33	$      0.85	$      1.03

Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)		Three months		Nine months
Periods ended July 31		2023	2022	2023	2022
OPERATING ACTIVITIES
Net income for the period		$    17,567	$    18,081	$    47,126	$    57,549
Adjustments for non-cash items
Depreciation		585	665	1,824	2,090
Depreciation of right-of-use assets		1,606	1,849	5,273	5,930
Interest expense – lease obligations		172	173	531	571
Amortization of acquired software and customer relationships		9,730	8,484	28,400	27,348
Stock-based compensation expense		340	475	1,271	1,232
Provision for income taxes		4,164	4,243	10,460	13,482
Finance and other expenses (income)		1,317	111	2,103	(868)
		35,481	34,081	96,988	107,334
Changes in non-cash operating working capital		4,367	(1,983)	380	(11,672)
Income taxes paid		(828)	(2,940)	(10,388)	(11,020)
Net cash provided by operating activities		39,020	29,158	86,980	84,642
INVESTING ACTIVITIES
Net purchase of property and equipment		(436)	(240)	(607)	(598)
Acquisitions, net of cash acquired*		(2,361)	(6,092)	(27,978)	(6,092)
Purchase consideration for prior-year acquisition		(1,245)	-	(1,012)	(408)
Purchase of short-term investments		-	-	(69)	(60)
Net cash used in investing activities		(4,042)	(6,332)	(29,666)	(7,158)
FINANCING ACTIVITIES
Issuance of share capital		-	-	604	970
Normal course issuer bid repurchases		-	(8,950)	-	(8,950)
Repayment of lease obligations		(1,474)	(1,984)	(5,754)	(6,225)
Dividends paid		(12,160)	(10,284)	(32,606)	(28,062)
Net cash used in financing activities		(13,634)	(21,218)	(37,756)	(42,267)
Impact of foreign exchange on cash and cash equivalents		(4,711)	(3,039)	4,122	(5,161)
Increase (decrease) in cash and cash equivalents		16,633	(1,431)	23,680	30,056
Cash and cash equivalents - beginning of period		232,151	227,377	225,104	195,890
Cash and cash equivalents - end of period		$  248,784	$  225,946	$  248,784	$  225,946

* Acquisitions are net of cash acquired of nil and $2,088 for the three and nine months ended July 31, 2023, respectively, and $3,647 for both the three and nine months ended July 31, 2022.

Enghouse Systems Limited

Segment Reporting Information
(in thousands of Canadian dollars)

Three months ended July 31		2023							2022
		IMG		AMG		Total			IMG	AMG		Total
Revenue	$		64,302	$	46,695	$	110,997	$	55,077	$	47,034	$	102,111
Direct costs			(18,884)		(16,988)		(35,872)		(15,508)		(15,840)		(31,348)
Revenue, net of direct costs			45,418		29,707		75,125		39,569		31,194		70,763
Operating expenses excluding special charges			(20,401)		(10,803)		(31,204)		(17,916)		(11,683)		(29,599)
Depreciation			(403)		(182)		(585)		(557)		(108)		(665)
Depreciation of right-of-use assets			(1,239)		(367)		(1,606)		(1,111)		(738)		(1,849)
Segment profit	$		23,375	$	18,355	$	41,730	$	19,985	$	18,665	$	38,650
Special charges							( 331)						(216)
Corporate and shared service expenses							(10,506)						(8,677)
Results from operating activities						$	30,893					$	29,757

Nine months ended July 31		2023						2022
		IMG		AMG		Total		IMG	AMG		Total
Revenue	$	186,733	$	144,160	$	330,893	$	174,166	$	145,359	$	319,525
Direct costs		(54,451)		(54,335)		(108,786)		(46,264)		(51,493)		(97,757)
Revenue, net of direct costs		132,282		89,825		222,107		127,902		93,866		221,768
Operating expenses excluding special charges		(62,686)		(34,719)		(97,405)		(56,878)		(33,957)		(90,835)
Depreciation		(1,484)		(340)		(1,824)		(1,753)		(337)		(2,090)
Depreciation of right-of-use assets		(3,280)		(1,993)		(5,273)		(3,630)		(2,300)		(5,930)
Segment profit	$	64,832	$	52,773	$	117,605	$	65,641	$	57,272	$	122,913
Special charges						(2,360)						(280)
Corporate and shared service expenses						(28,821)						(26,115)
Results from operating activities					$	86,424					$	96,518

About Enghouse

Enghouse is a Canadian publicly traded company (TSX:ENGH) that provides vertical enterprise software solutions focused on contact centers, video communications, healthcare, telecommunications networks, public safety and the transit market. The Company's two-pronged 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, September 8, 2023 at 8:45 a.m. EST. To participate, please call [phone] or North American Toll-Free [phone]. Confirmation code: 06869377. 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, [phone], [email protected]