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Press release from Marketwire

Enghouse Releases Third Quarter Results

Tuesday, September 10, 2013

Enghouse Releases Third Quarter Results

17:00 EDT Tuesday, September 10, 2013

MARKHAM, ONTARIO--(Marketwired - Sept. 10, 2013) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter financial results for the period ended July 31, 2013.

Third quarter revenue was $46.3 million, an increase of 31% over revenue of $35.4 million in the third quarter last year, with incremental revenue coming primarily from acquisitions. Revenue includes recurring hosted and maintenance services contributions of $23.5 million in the quarter, an increase of 21% over last year's revenue of $19.5 million. Adjusted EBITDA for the quarter was $12.2 million or $0.46 per diluted share compared to $9.2 million or $0.35 per diluted share in last year's third quarter. Results from operating activities for the quarter were $11.7 million compared to $8.3 million in the prior year's third quarter and include special charges booked on acquisitions of $0.1 million in the quarter. Net income for the third quarter was $6.3 million or $0.24 per diluted share compared to the prior year's third quarter net income of $4.3 million or $0.16 per share. On a year to date basis, revenue was $132.7 million compared to $97.4 million, an increase of 36%. Adjusted EBITDA for the year to date was $32.5 million or $1.23 per diluted share compared to $24.9 million or $0.96 per share.

Operating expenses increased to $21.2 million from $17.5 million in the prior year's third quarter and include incremental operating costs related to acquisitions as well as special charges related to restructuring of acquired operations. Non-cash amortization charges in the quarter were $4.0 million compared to $2.9 million in the prior year's third quarter and includes amortization charges for acquired software and customer relationships including operations acquired in the current year.

Enghouse closed the quarter with $92.0 million in cash, cash equivalents and short-term investments, compared to $80.9 million at April 30, 2013 and $83.7 million at October 31, 2012. This reflects cash paid in the quarter of approximately $3.0 million related to holdbacks for the acquisitions of Zeacom and Locus. It also reflects a cash dividend of $2.1 million paid in June 2013. The Company continues to have no long-term debt.

During the quarter, the corporate management team was strengthened with the additions of Craig Wallace as Chief Operations Officer and Geoff Bartle as Corporate Vice President, Information Systems. The additional corporate management was needed to take the Company to the next level of its development.

On September 6, 2013, the Company acquired Safeharbor Knowledge Systems, LLC. Based in Satsop (Seattle), Washington, Safeharbor delivers a SaaS based, unified knowledge base and community forum platform with proven scalability, augmenting the Company's Interactive Management solutions portfolio.

The Board of Directors has approved an eligible quarterly dividend of $0.08 per common share, payable on November 29, 2013 to shareholders of record at the close of business on November 15, 2013.

Enghouse continues to seek further acquisitions to grow its market share.

A conference call to discuss the results will be held on Wednesday, September 11, 2013 at 8:45 a.m. EST. To participate, please call 416-849-8296 (PIN 89681544#) in Toronto or North American Toll-Free 1-866-551-3680 (PIN 89681544#).

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 larger and more diverse software company through strategic acquisitions and managed growth. Enghouse shares are listed on the Toronto Stock Exchange under the symbol "ESL". Further information about Enghouse may be obtained from the Company's web site at www.enghouse.com.

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 results from operating activities and Adjusted EBITDA as a measure of operating performance. Therefore, results from operating activities and Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Results from operating activities are calculated as net income before amortization of acquired software and customer relationships, finance income, finance expenses, other income, and the provision for income taxes. Results from Adjusted EBITDA are calculated as net income before depreciation of property, plant and equipment, amortization of acquired software and customer relationships, finance income, finance expenses, other income, the provision of income tax and special charges for acquisition related restructuring and transaction costs. Management uses results from operating activities and Adjusted EBITDA to evaluate operating performance as they exclude 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, other income and restructuring costs primarily related to acquisitions.

Adjusted EBITDA:

The table below reconciles Adjusted EBITDA to net income:

Three Months ended Nine Months ended
July 31, 2013 July 31, 2012 July 31, 2013 July 31, 2012
Total Revenue $ 46,247 $ 35,427 $ 132,715 $ 97,416
Net income for the period 6,297 4,288 14,635 12,528
Provision for income taxes 1,723 1,244 3,971 3,873
Depreciation of property, plant and equipment 425 377 1,303 942
Amortization of acquired software and customer relationships 4,025 2,949 11,485 7,770
Finance income (90 ) (194 ) (517 ) (698 )
Finance expenses 81 72 258 183
Other income (307 ) (13 ) (1,116 ) (168 )
Special charges 77 491 2,491 491
Adjusted EBITDA $ 12,231 $ 9,214 $ 32,510 $ 24,921
Adjusted EBITDA margin 26 % 26 % 24 % 26 %
Adjusted EBITDA per diluted share $ 0.46 $ 0.35 $ 1.23 $ 0.96
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)
July 31, 2013 October 31, 2012
Assets
Current assets:
Cash and cash equivalents $ 58,792 $ 59,544
Short-term investments 33,245 24,108
Accounts receivable, net 30,971 31,368
Prepaid expenses and other assets 5,593 3,853
128,601 118,873
Non-current assets:
Property, plant and equipment 3,651 3,365
Intangibles 121,696 106,995
Deferred income tax assets 7,637 10,477
Total assets $ 261,585 $ 239,710
Liabilities
Current liabilities:
Trade payables $ 29,556 $ 26,053
Income taxes payable 303 2,008
Dividends payable 2,079 1,676
Accrued provisions 3,292 1,621
Deferred revenue 41,797 35,935
77,027 67,293
Non-current liabilities:
Deferred income tax liabilities 13,502 13,241
Deferred revenue 1,750 1,236
Total liabilities 92,279 81,770
Shareholders' Equity
Share capital 57,879 55,751
Contributed surplus 3,007 2,847
Retained earnings 108,171 99,371
Accumulated other comprehensive gain (loss) 249 (29 )
Total shareholders' equity 169,306 157,940
Total liabilities and shareholders' equity $ 261,585 $ 239,710
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 July 31 Nine months ended July 31
2013 2012 2013 2012
Revenue
Software licenses $ 15,189 $ 10,853 $ 43,877 $ 32,001
Hosted and maintenance services 23,543 19,475 67,500 51,494
Professional services 6,013 4,727 17,581 12,873
Hardware 1,502 372 3,757 1,048
46,247 35,427 132,715 97,416
Direct costs
Software licenses 1,113 808 3,191 2,583
Services 11,243 8,567 31,719 22,549
Hardware 941 242 2,538 726
13,297 9,617 37,448 25,858
Revenue, net of direct costs 32,950 25,810 95,267 71,558
Operating expenses
Selling, general and administrative 13,298 11,255 40,221 31,092
Research and development 7,421 5,341 22,536 15,545
Depreciation of property, plant and equipment 425 377 1,303 942
Special charges 77 491 2,491 491
21,221 17,464 66,551 48,070
Results from operating activities 11,729 8,346 28,716 23,488
Amortization of acquired software and customer relationships (4,025 ) (2,949 ) (11,485 ) (7,770 )
Finance income 90 194 517 698
Finance expenses (81 ) (72 ) (258 ) (183 )
Other income 307 13 1,116 168
Income before income taxes 8,020 5,532 18,606 16,401
Provision for income taxes 1,723 1,244 3,971 3,873
Net income for the period $ 6,297 $ 4,288 $ 14,635 $ 12,528
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences from foreign operations (162 ) (373 ) 221 (1,664 )
Transfer to net income of realized gains on available for sale investments, net of tax of ($177); nine months - ($291)
(1,156
)
-

(1,910
)
(132
)
Unrealized gain (loss) on available for sale investments, net of tax of $169; nine months-$300
1,106

(291
)
1,967

(883
)
Other comprehensive (loss) income (212 ) (664 ) 278 (2,679 )
Comprehensive income $ 6,085 $ 3,624 $ 14,913 $ 9,849
Earnings per share
Basic $ 0.24 $ 0.17 $ 0.57 $ 0.49
Diluted $ 0.24 $ 0.16 $ 0.55 $ 0.48
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Changes in Equity
(in thousands of Canadian dollars)
(Unaudited)



Number of common shares



Share capital
$



Contributed surplus
$

Accumulated other comprehensive income (loss)
$



Retained earnings
$




Total
$
Balance - November 1, 2012 25,780,562 55,751 2,847 (29 ) 99,371 157,940
Net income - - - - 14,635 14,635
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment - - - 221 - 221
Transfer to net income of realized gains on available-for-sale investments, net of tax
-

-

-

(1,910
)
-

(1,910
)
Unrealized gain on available-for-sale investments, net of tax
-

-

-

1,967

-

1,967
Comprehensive income (loss) for the period - - - 278 14,635 14,913
Employee share options:
Value of services recognized - - 704 - - 704
Proceeds on issuing shares 207,400 2,128 (544 ) - - 1,584
Dividends - - - - (5,835 ) (5,835 )
Balance - July 31, 2013 25,987,962 57,879 3,007 249 108,171 169,306
Balance - November 1, 2011 25,337,262 52,134 2,970 1,035 84,782 140,921
Net income - - - - 12,528 12,528
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment - - - (1,664 ) - (1,664 )
Transfer to net income of realized gain on available-for-sale investments, net of tax
-

-

-

(132
)
-

(132
)
Unrealized (loss) on available-for-sale investments, net of tax - - - (883 ) - (883 )
Comprehensive income (loss) for the period - - - (2,679 ) 12,528 9,849
Employee share options:
Value of services recognized - - 502 - - 502
Proceeds on issuing shares 332,300 2,951 (634 ) - - 2,317
Dividends - - - - (4,608 ) (4,608 )
Balance - July 31, 2012 25,669,562 55,085 2,838 (1,644 ) 92,702 148,981
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)
Three months ended July 31 Nine months ended July 31
2013 2012 2013 2012
Cash flows from operating activities
Net income $ 6,297 $ 4,288 $ 14,635 $ 12,528
Adjustments for:
Depreciation of property, plant and equipment 425 377 1,303 942
Amortization of acquired software and customer relationships 4,025 2,949 11,485 7,770
Stock-based compensation expense 281 216 704 502
Income tax expense 1,723 1,244 3,971 3,873
Finance expenses and other income (226 ) 59 (858 ) 15
12,525 9,133 31,240 25,630
Changes in non-cash operating working capital 2,725 990 2,475 (3,476 )
Income tax paid (724 ) (1,360 ) (3,510 ) (3,188 )
Net cash flows from operating activities 14,526 8,763 30,205 18,966
Cash flows from investing activities
Purchase of property, plant and equipment, net (194 ) (224 ) (1,165 ) (1,893 )
Acquisitions, net of cash acquired of $3,617 (2,974 ) (26,651 ) (19,805 ) (32,453 )
Net (purchase) sale of short-term investments (10,773 ) 2,371 (6,058 ) (8,692 )
Net cash flows used in investing activities (13,941 ) (24,504 ) (27,028 ) (43,038 )
Cash flows from financing activities
Issuance of share capital 209 441 1,584 2,317
Payment of cash dividend (2,076 ) (1,664 ) (5,432 ) (4,206 )
Net cash flows used in financing activities (1,867 ) (1,223 ) (3,848 ) (1,889 )
Effect of currency translation adjustments on cash and cash equivalents
15

440

(81
)
200
Net decrease in cash and cash equivalents during the period
(1,267
)
(16,524
)
(752
)
(25,761
)
Cash and cash equivalents- beginning of period 60,059 56,387 59,544 65,624
Cash and cash equivalents - end of period $ 58,792 $ 39,863 $ 58,792 $ 39,863
Enghouse Systems Limited
Selected Segment Reporting Information
(in thousands of Canadian dollars)
(Unaudited)
For the three months ended July 31 For the nine months ended July 31
2013 2012 2013 2012
Revenue:
Asset Management Group $ 9,983 $ 4,725 $ 23,472 $ 11,519
Interactive Management Group 36,264 30,702 109,243 85,897
Total $ 46,247 $ 35,427 $ 132,715 $ 97,416
Segment Profit (EBIT):
Asset Management Group $ 2,001 $ 1,016 $ 2,957 $ 1,918
Interactive Management Group 6,961 5,383 17,440 16,430
Corporate expenses (1,258 ) (1,002 ) (3,166 ) (2,630 )
Finance income 90 194 517 698
Finance expenses (81 ) (72 ) (258 ) (183 )
Other income 307 13 1,116 168
Total $ 8,020 $ 5,532 $ 18,606 $ 16,401

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Enghouse Systems Limited
Stephen Sadler
Chief Executive Officer
(905) 946-3236
investor@enghouse.com
www.enghouse.com

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