Subject: ERN
Enghouse Releases Fourth Quarter and Year-end Results
MARKHAM, ON, Dec. 12, 2019 /CNW/ - Enghouse Systems Limited (TSX:ENGH) today announced its fourth quarter (unaudited) and year-end financial results for the period ended October 31, 2019. All of the financial information is in Canadian dollars unless otherwise indicated.
Revenue increased to $385.9 million for the fiscal year, compared to revenue of $342.8 million in the previous fiscal year, resulting in another record year for the Company. Revenue includes $219.6 million from hosted and maintenance services, an increase of 14.9%.
Operating expenses were $155.1 million for the year compared to $136.2 million in the prior year as the savings related to operating cost synergies were offset by the incremental costs related to acquired operations. Results from operating activities were $112.0 million compared to $103.2 million last year, a 13.9% increase. Operating expenses include special charges of $1.2 million compared to $0.4 million last year and reflect the costs related to acquisition restructuring.
Net income for the year was $70.8 million or $1.29 per diluted share compared to $57.7 million or $1.06 per diluted share in the prior year, an increase of 22.7%. Adjusted EBITDA for the year was $115.6 million or $2.10 per diluted share compared to $106.0 million or $1.94 per diluted share last year, an increase of 9.0%.
Fourth quarter revenue was $109.3 million, a 27.4% increase compared to revenue of $85.8 million in the fourth quarter of the prior year. The revenue increase primarily reflects contributions from acquisitions. Results from operating activities were $32.5 million compared to $27.3 million in the prior year's fourth quarter, which reflects the impact due to changes in product mix on gross margins and strong operating margin contributions from acquisitions. Net income for the quarter was $24.7 million or $0.45 per diluted share, an increase of 26.3% from $19.6 million or $0.36 per diluted share last year.
Adjusted EBITDA for the fourth quarter was $34.0 million or $0.62 per diluted share, compared to $27.9 million or $0.51 per diluted share last year, with the increase being primarily attributable to incremental revenue contributions from acquisitions.
Operating expenses before special charges related to restructuring of acquired operations were $43.7 million compared to $33.5 million in the prior year's fourth quarter and reflect incremental operating costs related to acquisitions. Non-cash amortization charges on acquired software and customer relationships from acquired operations were $9.2 million for the quarter compared to $6.4 million in the prior year's fourth quarter.
Enghouse generated cash flows from operating activities of $21.7 million compared to $24.0 million in the fourth quarter of the prior year and $81.4 million for the year compared to $98.3 million in the prior year. Cash flows from operating activities excluding changes in working capital was $33.9 million compared to $29.5 million in the fourth quarter of 2019, an increase of 14.9%. For the year, cash flows from operating activities excluding changes in working capital increased 9.5% to $118.5 million. Working capital adjustments reduced operating cash flows by $12.1 million in the quarter and $37.1 million annually largely as a result of settling liabilities assumed from acquisitions.
Enghouse closed the year with $150.3 million in cash, cash equivalents and short-term investments, compared to $193.9 million at October 31, 2018. The cash balance was achieved after payments of $21.9 million for cash dividends, an increase of 19% from the prior year, as the Company increased its dividend for the eleventh consecutive year. The cash balance is also after the completion of six acquisitions in the year at a cost of $101.2 million, net of cash acquired. These complementary acquisitions increased revenue while expanding Enghouse's product portfolio and local presence in new countries.
Late in the fourth quarter Enghouse completed the acquisition of Eptica S.A., which further expanded the Company's footprint in France and added customer engagement software solutions powered by AI to the Company's Interactive portfolio.
Quarterly Dividend
Today, the Board of Directors approved the Company's eligible quarterly dividend of $0.11 per common share, payable on February 28, 2020 to shareholders of record at the close of business on February 14, 2020.
Conference Call
A conference call to discuss the results will be held on Friday, December 13, 2019 at 8:45 a.m. EST. To participate, please call +1-647-792-1278 or North American Toll-Free +1-888-504-7961. Confirmation code: 9069095.
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 diverse software company through strategic acquisitions targeting the Contact Center, Networks (OSS/BSS) and Transportation/Public Safety sectors. Enghouse shares are listed on the Toronto Stock Exchange under the symbol "ENGH". Further information about Enghouse may be obtained from the Company's website at www.enghouse.com.
Adjusted EBITDA
The table below reconciles Adjusted EBITDA to the most directly comparable IFRS measure, Results from operating activities:
For the periods ended October 31 | Three months | Twelve months | |||||
2019 $ | 2018 $ | Variance $ | 2019 $ | 2018 $ | Variance $ | ||
Total revenue | 109,331 | 85,822 | 23,509 | 385,853 | 342,845 | 43,008 | |
Results from operating activities | 32,541 | 27,344 | 5,197 | 111,974 | 103,245 | 8,729 | |
Depreciation | 804 | 542 | 262 | 2,403 | 2,411 | ( 8) | |
Special charges | 677 | 57 | 620 | 1,203 | 390 | 813 | |
Adjusted EBITDA | 34,022 | 27,943 | 6,079 | 115,580 | 106,046 | 9,534 | |
Adjusted EBITDA margin | 31.1% | 32.6% | 30.0% | 30.9% | |||
Adjusted EBITDA per diluted share | 0.62 | 0.51 | 0.11 | 2.10 | 1.94 | 0.16 | |
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 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 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.
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
As at October 31, | As at October 31, | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ 144,764 | $ 187,551 | ||||
Short-term investments | 5,505 | 6,386 | ||||
Accounts receivable | 84,982 | 62,085 | ||||
Prepaid expenses and other assets | 11,147 | 8,951 | ||||
246,398 | 264,973 | |||||
Non-current assets: | ||||||
Property and equipment | 6,280 | 5,279 | ||||
Intangible assets | 121,885 | 59,895 | ||||
Goodwill | 203,298 | 155,419 | ||||
Deferred income tax assets | 12,739 | 9,634 | ||||
Total assets | $ 590,600 | $ 495,200 | ||||
Liabilities | ||||||
Current liabilities: | ||||||
Accounts payable and accrued liabilities | $ 62,813 | $ 44,271 | ||||
Income taxes payable | 6,953 | 4,904 | ||||
Dividends payable | 6,021 | 4,912 | ||||
Provisions | 6,536 | 268 | ||||
Deferred revenue | 78,405 | 64,020 | ||||
Current portion of long-term loans | 249 | 122 | ||||
160,977 | 118,497 | |||||
Non-current liabilities: | ||||||
Non-current portion of income taxes payable | 4,434 | 7,466 | ||||
Deferred income tax liabilities | 16,197 | 13,115 | ||||
Deferred revenue | 3,665 | 2,169 | ||||
Net employee defined benefit obligation | 2,380 | 2,354 | ||||
Long-term loans | 874 | 1,475 | ||||
Total liabilities | 188,527 | 145,076 | ||||
Shareholders' Equity | ||||||
Share capital | 81,576 | 78,997 | ||||
Contributed surplus | 6,677 | 4,866 | ||||
Retained earnings | 309,198 | 260,506 | ||||
Accumulated other comprehensive income | 4,622 | 5,755 | ||||
Total shareholders' equity | 402,073 | 350,124 | ||||
Total liabilities and shareholders' equity | $ 590,600 | $ 495,200 | ||||
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Operations and Comprehensive Income
(in thousands of Canadian dollars, except per share amounts)
Three months ended | Year ended | |||
2019 (Unaudited) | 2018 (Unaudited) | 2019 | 2018 | |
Revenue | ||||
Software licenses | $ 26,765 | $ 20,260 | $ 89,093 | $ 85,682 |
Hosted and maintenance services | 60,931 | 48,459 | 219,630 | 191,080 |
Professional services | 16,962 | 15,294 | 60,889 | 58,266 |
Hardware | 4,673 | 1,809 | 16,241 | 7,817 |
109,331 | 85,822 | 385,853 | 342,845 | |
Direct costs | ||||
Software licenses | 1,403 | 1,396 | 5,461 | 6,863 |
Services | 27,156 | 22,431 | 101,281 | 91,766 |
Hardware | 3,823 | 1,066 | 12,061 | 4,793 |
32,382 | 24,893 | 118,803 | 103,422 | |
Revenue, net of direct costs | 76,949 | 60,929 | 267,050 | 239,423 |
Operating expenses | ||||
Selling, general and administrative | 25,635 | 21,777 | 92,421 | 86,209 |
Research and development | 17,292 | 11,209 | 59,049 | 47,168 |
Depreciation | 804 | 542 | 2,403 | 2,411 |
Special charges | 677 | 57 | 1,203 | 390 |
44,408 | 33,585 | 155,076 | 136,178 | |
Results from operating activities | 32,541 | 27,344 | 111,974 | 103,245 |
Amortization of acquired software and customer relationships | (9,244) | (6,386) | (31,697) | (28,149) |
Foreign exchange (loss) gains | (367) | 1,064 | 66 | 599 |
Finance income | 331 | 198 | 1,805 | 476 |
Finance expenses | (10) | (79) | (76) | (213) |
Other income | 1,765 | 136 | 2,176 | 2,076 |
Income before income taxes | 25,016 | 22,277 | 84,248 | 78,034 |
Provision for income taxes | 329 | 2,725 | 13,399 | 20,289 |
Net income for the period | $ 24,687 | $ 19,552 | $ 70,849 | $ 57,745 |
Items that are or may be reclassified subsequently to profit or loss: | ||||
Cumulative translation adjustment | 2,171 | (3,350) | (1,795) | (2,019) |
Unrealized loss on investments in equity securities designated at FVOCI | - | (1,673) | - | (822) |
Deferred income tax (expense) recovery | (119) | 222 | (119) | 109 |
Other comprehensive income (loss) | 2,052 | (4,801) | (1,914) | (2,732) |
Comprehensive income | $ 26,739 | $ 14,751 | $ 68,935 | $ 55,013 |
Earnings per share | ||||
Basic | $ 0.45 | $ 0.36 | $ 1.30 | $ 1.06 |
Diluted | $ 0.45 | $ 0.36 | $ 1.29 | $ 1.06 |
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
(in thousands of Canadian dollars)
Share capital # * | Share $ | Contributed $ | Accumulated | Retained $ | Total $ | |
As at November 1, 2018 as previously presented | 54,580,024 | 78,997 | 4,866 | 5,755 | 260,506 | 350,124 |
IFRS 9 transition adjustment | - | - | - | 781 | (781) | - |
IFRS 15 transition adjustment | - | - | - | - | 1,590 | 1,590 |
Adjusted balance as at November 1, 2018 | 54,580,024 | 78,997 | 4,866 | 6,536 | 261,315 | 351,714 |
Net income for the year | - | - | - | - | 70,849 | 70,849 |
Cumulative translation adjustment | - | - | - | (1,795) | - | (1,795) |
Deferred income tax expense | - | - | - | ( 119) | - | ( 119) |
Comprehensive income for the year | - | - | - | (1,914) | 70,849 | 68,935 |
Employee share options: | ||||||
Value of services recognized | - | - | 2,268 | - | - | 2,268 |
Proceeds on issuing shares | 157,400 | 2,579 | (457) | - | - | 2,122 |
Dividends declared | - | - | - | - | (22,966) | (22,966) |
As at October 31, 2019 | 54,737,424 | 81,576 | 6,677 | 4,622 | 309,198 | 402,073 |
As at November 1, 2017 | 53,986,424 | 71,422 | 4,715 | 8,487 | 221,775 | 306,399 |
Net income for the year | - | - | - | - | 57,745 | 57,745 |
Cumulative translation adjustment | - | - | - | (2,019) | - | (2,019) |
Unrealized losses on investments in equity securities designated at FVOCI | - | - | - | (822) | - | (822) |
Deferred income tax recovery | - | - | - | 109 | - | 109 |
Comprehensive income for the year | - | - | - | (2,732) | 57,745 | 55,013 |
Employee share options: | ||||||
Value of services recognized | - | - | 1,545 | - | - | 1,545 |
Proceeds on issuing shares | 593,600 | 7,575 | (1,394) | - | - | 6,181 |
Dividends declared | - | - | - | - | (19,014) | (19,014) |
As at October 31, 2018 | 54,580,024 | 78,997 | 4,866 | 5,755 | 260,506 | 350,124 |
* | On January 25, 2019, the Company completed a share split whereby each issued and outstanding common share has been doubled. All references to capital stock, options and per share data have been adjusted retrospectively to reflect the Company's two-for-one share split for the years ended October 31, 2019 and 2018. |
Enghouse Systems Limited
Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
Three months ended October 31 | Year ended October 31 | |||
2019 (Unaudited) | 2018 (Unaudited) | 2019 | 2018 | |
Cash flows from operating activities | ||||
Net income for the period | $ 24,687 | $ 19,552 | $ 70,849 | $ 57,745 |
Adjustments for: | ||||
Depreciation of property, plant and equipment | 804 | 542 | 2,403 | 2,411 |
Amortization of acquired software and customer relationships | 9,244 | 6,386 | 31,697 | 28,149 |
Stock-based compensation expense | 545 | 374 | 2,268 | 1,545 |
Provision for income taxes | 329 | 2,725 | 13,399 | 20,289 |
Finance expenses and other income | (1,755) | (57) | (2,100) | (1,863) |
33,854 | 29,522 | 118,516 | 108,276 | |
Changes in non-cash operating working capital | (4,931) | (295) | (15,732) | 6,313 |
Income taxes paid | (7,194) | (5,193) | (21,409) | (16,334) |
Net cash flows from operating activities | 21,729 | 24,034 | 81,375 | 98,255 |
Cash flows from investing activities | ||||
Purchase of property, plant and equipment | (815) | (706) | (2,155) | (2,244) |
Acquisitions, net of cash acquired of $2,743 (Q4/18 - $Nil), YTD 2019 - $36,708 (2018 - $1,235) |
(6,986) |
- | (101,219) | (9,675) |
Purchase consideration for prior period acquisitions | - | (192) | (1,105) | (7,137) |
Sale of short-term investments | 2,819 | 711 | 1,709 | 3,197 |
Net cash flows used in investing activities | (4,982) | (187) | (102,770) | (15,859) |
Cash flows from financing activities | ||||
Issuance of share capital | 774 | 1,354 | 2,122 | 6,181 |
Repayment of loans | (495) | (437) | (1,452) | (1,172) |
Payment of cash dividend | (6,017) | (4,899) | (21,857) | (18,422) |
Net cash flows used in financing activities | (5,738) | (3,982) | (21,187) | (13,413) |
Effect of currency translation adjustments on cash and cash equivalents | 333 | (2,079) | (205) | (2,040) |
Net increase (decrease) in cash and cash equivalents during the period | 11,342 | 17,786 | (42,787) | 66,943 |
Cash and cash equivalents - beginning of period | 133,422 | 169,765 | 187,551 | 120,608 |
Cash and cash equivalents - end of period | $ 144,764 | $ 187,551 | $ 144,764 | $ 187,551 |
Enghouse Systems Limited
Selected Segment Reporting Information
(In thousands of Canadian dollars)
For the three months ended | For the year ended | |||
2019 (Unaudited) | 2018 (Unaudited) | 2019 | 2018 | |
Revenue: | ||||
Asset Management Group | $ 49,295 | $ 40,034 | $ 180,954 | $ 153,559 |
Interactive Management Group | 60,036 | 45,788 | 204,899 | 189,286 |
Total | $ 109,331 | $ 85,822 | $ 385,853 | $ 342,845 |
Asset Management Group: | ||||
- Segment profit before special charges | $ 16,985 | $ 15,831 | $ 60,327 | $ 54,501 |
- Special charges | (452) | (57) | (611) | (390) |
Asset Management Group profit | $ 16,533 | $ 15,774 | $ 59,716 | $ 54,111 |
Interactive Management Group: | ||||
- Segment profit before special charges | $ 20,082 | $ 14,861 | $ 65,109 | $ 60,782 |
- Special charges | (225) | - | (592) | - |
Interactive Management Group profit | $ 19,857 | $ 14,861 | $ 64,517 | $ 60,782 |
Corporate expenses | (3,849) | (3,291) | (12,259) | (11,648) |
Results from operating activities | $ 32,541 | $ 27,344 | $ 111,974 | $ 103,245 |
Amortization of acquired software and customer relationships | (9,244) | (6,386) | (31,697) | (28,149) |
Foreign exchange (loss) gain | (367) | 1,064 | 66 | 599 |
Finance income | 331 | 198 | 1,805 | 476 |
Finance expenses | (10) | (79) | (76) | (213) |
Other income | 1,765 | 136 | 2,176 | 2,076 |
Income before income taxes | $ 25,016 | $ 22,277 | $ 84,248 | $ 78,034 |
SOURCE Enghouse Systems Limited
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