Enghouse Releases Third Quarter Results

MARKHAM, ONTARIO--(Marketwire - Sept. 6, 2012) - Enghouse Systems Limited (TSX:ESL) today announced its unaudited third quarter financial results for the period ended July 31, 2012.

Third quarter revenue was $35.4 million, compared to $31.8 million in the corresponding quarter last year. Results from operating activities for the quarter were $8.3 million compared to $8.5 million in the prior year's third quarter. Net income for the third quarter was $4.3 million or $0.16 per diluted share compared to the prior year's third quarter net income of $4.6 million or $0.18 per diluted share. Adjusted EBITDA for the quarter was $9.2 million or $0.35 per diluted share compared to $8.8 million or $0.34 per diluted share last year. On a year to date basis Adjusted EBITDA was $24.9 million or $0.96 per diluted share compared to $22.6 million or $0.89 per diluted share last year.

The increase in revenue continues to reflect incremental revenue contributions from acquisitions, including recently acquired Zeacom Group Limited ("Zeacom"), which closed on June 1, 2012. Revenue also reflects improved hosted and maintenance services contributions of $19.4 million in the quarter, an increase of 28% over last year, largely as a result of incremental hosted revenue contributions from recently acquired CustomCall Data Systems Inc. ("CustomCall"). Hosted and maintenance revenue accounted for 55% of the Company's total revenue in the quarter. On a year to date basis, revenue was $97.4 million up from $90.7 million, while net income increased to $12.5 million or $0.48 per diluted share from $9.7 million or $0.38 per diluted share in the prior year.

Operating expenses increased to $17.5 million from $15.4 million in the prior year's third quarter and include operating and acquisition related restructuring charges of $0.5 million related to recently acquired Zeacom and a full quarter's operating costs related to CustomCall. Research and development costs increased to $5.3 million from $3.7 million in the prior year's third quarter as the Company increased its software investment. Non-cash amortization charges were $2.9 million compared to $2.7 million last year and include amortization of acquired software and customer relationships from acquisitions.

The Company closed the quarter with $79.7 million in cash, cash equivalents and short-term investments, which is after the payment of approximately $26.7 million related to the acquisitions. Enghouse continues to have no long-term debt and did not repurchase any shares in the quarter.

The Board of Directors also announced today an eligible quarterly dividend of $0.065 per common share, payable on November 30, 2012 to shareholders of record at the close of business on November 16, 2012.

The Company continues to seek further acquisitions to continue to grow its market share globally.

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.

The table below reconciles Adjusted EBITDA to net income:

	Three Months ended								Nine Months ended
	July 31, 2012				July 31, 2011				July 31, 2012				July 31, 2011
Total Revenue	$	35,427			$	31,820			$	97,416			$	90,723
Net income for the period		4,288				4,577				12,528				9,720
Provision for income taxes		1,244				1,625				3,873				3,309
Depreciation of property, plant and equipment		377				261				942				817
Amortization of acquired software and customer relationships		2,949				2,670				7,770				7,604
Finance income		(194	)			(150	)			(698	)			(414	)
Finance expenses		72				54				183				152
Other income		(13	)			(256	)			(168	)			(327	)
Special charges		491				-				491				1,775
Adjusted EBITDA	$	9,214			$	8,781			$	24,921			$	22,636
Adjusted EBITDA margin		26	%			27	%			26	%			25	%
Adjusted EBITDA per diluted share	$	0.35			$	0.34			$	0.96			$	0.89

Enghouse Systems Limited
Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)
		July 31, 2012				October 31, 2011			November 1, 2010
Assets
Current assets:
	Cash and cash equivalents	$	39,863			$	65,624		$	46,640
	Short-term investments		39,837				33,967			31,627
	Accounts receivable, net		31,573				23,006			24,500
	Income tax receivable		-				-			591
	Prepaid expenses and other assets		4,111				3,479			3,360
			115,384				126,076			106,718
Non-current assets:
	Property, plant and equipment		3,562				1,543			1,588
	Acquired software and customer relationships		45,654				29,709			34,330
	Goodwill		62,933				43,734			35,137
	Deferred income taxes		11,041				11,138			3,478
Total assets		$	238,574			$	212,200		$	181,251
Liabilities
Current liabilities:
	Trade payables	$	25,478			$	22,686		$	18,808
	Income taxes payable		3,330				2,878			-
	Dividends payable		1,669				1,267			1,007
	Accrued provisions		1,887				2,442			1,307
	Deferred revenue		40,977				28,933			26,040
			73,341				58,206			47,162
Non-current liabilities:
	Deferred income tax liabilities		14,476				10,743			12,571
	Long-term income taxes payable		56				420			522
	Deferred revenue		1,214				1,404			790
Total liabilities			89,087				70,773			61,045
Shareholders' Equity
Share capital			55,085				52,134			50,705
Contributed surplus			2,838				2,970			2,653
Retained earnings			93,208				85,288			66,546
Accumulated other comprehensive (loss) gain			(1,644	)			1,035			302
Total equity			149,487				141,427			120,206
Total liabilities and equity		$	238,574			$	212,200		$	181,251

Enghouse Systems Limited
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
		2012				2011				2012				2011
Revenue
	Software licenses	$	10,853			$	11,842			$	32,001			$	34,305
	Hosted and maintenance services		19,475				15,190				51,494				42,344
	Professional services		4,727				4,272				12,873				11,685
	Hardware		372				516				1,048				2,389
			35,427				31,820				97,416				90,723
Direct costs
	Software licenses		808				909				2,583				4,439
	Services		8,567				6,684				22,549				19,764
	Hardware		242				317				726				1,729
			9,617				7,910				25,858				25,932
Revenue, net of direct costs			25,810				23,910				71,558				64,791
Operating expenses
	Selling, general and administrative		11,255				11,403				31,092				30,690
	Research and development		5,341				3,726				15,545				11,465
	Depreciation of property, plant and equipment		377				261				942				817
	Special charges		491				-				491				1,775
			17,464				15,390				48,070				44,747
Results from operating activities			8,346				8,520				23,488				20,044
Amortization of acquired software and customer relationships			(2,949	)			(2,670	)			(7,770	)			(7,604	)
Finance income			194				150				698				414
Finance expenses			(72	)			(54	)			(183	)			(152	)
Other income			13				256				168				327
Income before income taxes			5,532				6,202				16,401				13,029
Provision for income taxes			1,244				1,625				3,873				3,309
Net income for the period		$	4,288			$	4,577			$	12,528			$	9,720
Foreign currency translation differences from foreign operations			(373	)			(409	)			(1,664	)			(3,563	)
Transfer to net income of realized gains on available for sale investments, net of tax of ($nil); nine months - ($24)			-				(51	)			(132	)			(142	)
Unrealized (loss) gain on available for sale investments, net of tax of ($54); nine months - ($166)			(291	)			254				(891	)			735
Unrealized foreign currency translation gain (loss) on available for sale investments, net of tax of $nil; nine months - $1			-				4				8				(69	)
Other comprehensive loss			(664	)			(202	)			(2,679	)			(3,039	)
Comprehensive income		$	3,624			$	4,375			$	9,849			$	6,681
Earnings per share
Basic		$	0.17			$	0.18			$	0.49			$	0.39
Diluted		$	0.16			$	0.18			$	0.48			$	0.38

Enghouse Systems Limited
Consolidated Interim Statements of Changes in Equity
(in thousands of Canadian dollars)
(Unaudited)
		Share Capital -number			Share capital $			Contributed surplus $		Accumulated other comprehensive income $			Retained earnings $			Total $
Balance - November 1, 2011		25,337,262			52,134			2,970		1,035			85,288			141,427
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 gains on available-for-sale investments, net of tax		-			-			-		(132	)		-			(132	)
Unrealized gain (loss) on available-for-sale investments, net of tax		-			-			-		(891	)		-			(891	)
Unrealized foreign currency translation gain (loss) on available-for-sale investments, net of tax		-			-			-		8			-			8
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
Purchase and cancellation of common shares										-			-			-
Dividends		-			-			-		-			(4,608	)		(4,608	)
Balance - July 31, 2012		25,669,562			55,085			2,838		(1,644	)		93,208			149,487
Balance - November 1, 2010		25,171,662			50,705			2,653		302			66,546			120,206
Net income		-			-			-		-			9,720			9,720
Other Comprehensive Income (net of tax):
Cumulative Translation Adjustment		-			-			-		(3,563	)		-			(3,563	)
Transfer to net income of realized gains on available-for-sale investments, net of tax		-			-			-		(142	)		-			(142	)
Unrealized gain (loss) on available-for-sale investments, net of tax		-			-			-		735			-			735
Unrealized foreign currency translation gain (loss) on available-for-sale investments, net of tax		-			-			-		(69	)		-			(69	)
Comprehensive income (loss) for the period		-			-			-		(3,039	)		9,720			6,681
Employee share options:
	Value of services recognized	-			-			493		-			-			493
	Proceeds on issuing shares	75,400			565			(101	)	-			-			464
Purchase and cancellation of common shares		(4,800	)		(10	)		-		-			(33	)		(43	)
Dividends		-			-			-		-			(3,529	)		(3,529	)
Balance - July 31, 2011		25,242,262			51,260			3,045		(2,737	)		72,704			124,272

Enghouse Systems Limited
Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)
	Three months ended July 31								Nine months ended July 31
	2012				2011				2012				2011
Cash flows from operating activities
Net income	$	4,288			$	4,577			$	12,528			$	9,720
Adjustments for:
Depreciation of property, plant and equipment		377				261				942				817
Amortization of acquired software and customer relationships		2,949				2,670				7,770				7,604
Stock-based compensation expense		216				168				502				493
Deferred income tax expense		(1,128	)			62				(832	)			(110	)
Finance expenses and other income		59				(202	)			15				(175	)
Income tax paid		(1,360	)			(150	)			(3,188	)			(1,093	)
		5,401				7,386				17,737				17,256
Changes in non-cash operating working capital		3,362				5,813				1,229				15,737
Net cash flows from operating activities		8,763				13,199				18,966				32,993
Cash flows from investing activities
Purchase of property, plant and equipment, net		(224	)			(190	)			(1,893	)			(630	)
Finance income		(194	)			(150	)			(698	)			(414	)
Acquisitions, net of cash acquired		(26,651	)							(32,453	)			(16,648	)
Net proceeds (purchase) from sale of short-term investments		2,565				(14,363	)			(7,994	)			(3,711	)
Net cash flows used in investing activities		(24,504	)			(14,703	)			(43,038	)			(21,403	)
Cash flows from financing activities
Issuance of share capital		441				324				2,317				464
Payment of cash dividend		(1,664	)			(1,260	)			(4,206	)			(3,274	)
Purchase and cancellation of common shares		-				-				-				(43	)
Net cash flows used in financing activities		(1,223	)			(936	)			(1,889	)			(2,853	)
Effect of currency translation adjustments on cash and cash equivalents		440				206				200				(3,105	)
Net (decrease) increase in cash and cash equivalents during the period		(16,524	)			(2,234	)			(25,761	)			5,632
Cash and cash equivalents- beginning of period		56,387				54,506				65,624				46,640
Cash and cash equivalents - end of period	$	39,863			$	52,272			$	39,863			$	52,272

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
			2012				2011				2012				2011
Revenue:
	Asset Management Group		$	4,725			$	3,178			$	11,519			$	9,767
	Interactive Management Group			30,702				28,642				85,897				80,956
Total			$	35,427			$	31,820			$	97,416			$	90,723
Segment Profit (EBIT):
	Asset Management Group		$	1,016			$	934			$	1,918			$	1,936
	Interactive Management Group			5,383				5,685				16,430				12,900
	Corporate expenses			(1,002	)			(769	)			(2,630	)			(2,396	)
	Finance income			194				150				698				414
	Finance expenses			(72	)			(54	)			(183	)			(152	)
	Other income			13				256				168				327
Total			$	5,532			$	6,202			$	16,401			$	13,029