Enghouse Releases Third Quarter Results

MARKHAM, ON, Sept. 5, 2024 /CNW/ - Enghouse Systems Limited (TSX: ENGH) announces third quarter (unaudited) financial results for the period ended July 31, 2024. All figures are denominated in Canadian dollars unless otherwise indicated.

Third Quarter Financial Highlights:

Revenue increased 17.6% to $130.5 million from $111.0 million in Q3 2023 and 13.9% for the nine-month period to $376.8 million from $330.9 million last year;
Recurring revenue, which includes SaaS and maintenance services, grew 22.8% to $88.8 million compared to $72.3 million in Q3 2023, and represents 68.1% of total revenue. For the nine-month period, recurring revenue increased to $258.4 million from $210.4 million in the prior period, an increase of 22.8%, as we continue to prioritize this revenue stream;
Results from operating activities increased to $34.3 million compared to $30.9 million in Q3 2023 and increased for the nine-month period to $100.4 million, from $86.4 million in the prior period;
Net income was $20.6 million compared to $17.6 million in Q3 2023 and $58.7 million year to date compared to $47.1 million last year, as we grow our business with a focus on profitability;
Adjusted EBITDA increased to $37.7 million compared to $33.4 million, growing by 12.9%, while achieving a 28.9% margin. Year to date Adjusted EBITDA was $108.2 million compared to $95.9 million in the prior year, an increase of 12.8%;
Cash flow from operating activities, excluding changes in working capital, was $37.4 million compared to $35.5 million in the prior quarter and $111.5 million year to date compared to $97.0 million in the comparable period. Cash, cash equivalents and short-term investments reached near record highs at $258.7 million as at July 31, 2024.

Our third quarter operating performance continued its upward trend with revenue, profitability and operating cash flow, all exhibiting positive growth. Our commitment to operational efficiency, alongside our capability in executing and integrating acquisitions continues to deliver positive results. This quarter we completed the acquisition of SeaChange, expanding our IPTV market presence, a growing sector for Enghouse. We have effectively integrated SeaChange into our Asset Management Group, achieving profitability in its first quarter, post-acquisition, although not yet at our standard levels.

Our strategic direction remains steadfast as we continue to expand our business profitably. Offering both SaaS and on-premise solutions positions us uniquely in the marketplace. Operational enhancements across our existing businesses and recent acquisitions are driving positive outcomes, enabling us to maintain robust cash reserves while simultaneously increasing annual dividends, repurchasing shares and pursuing acquisitions.

Quarterly dividends:

Today, the Board of Directors approved the Company's eligible quarterly dividend of $0.26 per common share, payable on November 29, 2024 to shareholders of record at the close of business on November 15, 2024.

Enghouse Systems Limited

Financial Highlights

(unaudited, in thousands of Canadian dollars)

For the period ended July 31	Three months						Nine months
For the period ended July 31		2024		2023	Var ($)	Var (%)		2024		2023	Var ($)	Var (%)
Revenue	$	130,501	$	110,997	19,504	17.6	$	376,803	$	330,893	45,910	13.9

Direct costs		45,836		35,872	9,964	27.8		130,619		108,786	21,833	20.1
Revenue, net of direct costs	$	84,665	$	75,125	9,540	12.7	$	246,184	$	222,107	24,077	10.8
As a % of revenue		64.9 %		67.7 %				65.3 %		67.1 %

Operating expenses		49,120		43,901	5,219	11.9		144,331		133,323	11,008	8.3
Special charges		1,243		331	912	275.5		1,440		2,360	(920)	(39.0)
Results from operating activities	$	34,302	$	30,893	3,409	11.0	$	100,413	$	86,424	13,989	16.2
As a % of revenue		26.3 %		27.8 %				26.6 %		26.1 %

Amortization of acquired software and customer relationships		(9,663)		(9,730)	67	0.7		(31,183)		(28,400)	(2,783)	(9.8)
Foreign exchange (losses) gains		(1,747)		356	(2,103)	(590.7)		(3,550)		(1,487)	(2,063)	(138.7)
Interest expense – lease obligations		(132)		(172)	40	23.3		(430)		(531)	101	19.0
Finance income		2,333		1,701	632	37.2		7,296		3,683	3,613	98.1
Finance expenses		(29)		(5)	(24)	(480.0)		(41)		(136)	95	69.9
Other income (expenses)		407		(1,312)	1,719	131.0		513		(1,967)	2,480	126.1
Income before income taxes	$	25,471	$	21,731	3,740	17.2	$	73,018	$	57,586	15,432	26.8
Provision for income taxes		4,891		4,164	727	17.5		14,331		10,460	3,871	37.0
Net Income for the period	$	20,580	$	17,567	3,013	17.2	$	58,687	$	47,126	11,561	24.5

Basic earnings per share		0.37		0.32	0.05	15.6		1.06		0.85	0.21	24.7
Diluted earnings per share		0.37		0.32	0.05	15.6		1.06		0.85	0.21	24.7

Operating cash flows		40,333		39,020	1,313	3.4		100,488		86,980	13,508	15.5
Operating cash flows excluding changes in working capital		37,363		35,481	1,882	5.3		111,533		96,988	14,545	15.0

Adjusted EBITDA
Results from operating activities		34,302		30,893	3,409	11.0		100,413		86,424	13,989	16.2

Depreciation		647		585	62	(10.6)		1,692		1,824	(132)	7.2
Depreciation of right-of-use assets		1,530		1,606	(76)	4.7		4,606		5,273	(667)	12.6
Special charges		1,243		331	912	(275.5)		1,440		2,360	(920)	39.0
Adjusted EBITDA	$	37,722	$	33,415	4,307	12.9	$	108,151	$	95,881	12,270	12.8

Adjusted EBITDA margin		28.9 %		30.1 %				28.7 %		29.0 %

Adjusted EBITDA per diluted share	$	0.68	$	0.60	0.08	13.3	$	1.95	$	1.73	0.22	12.7

Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars) (unaudited)	As at July 31, 2024		As at October 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	257,713	$	239,532
Short-term investments		980		827
Accounts receivable		108,543		93,383
Prepaid expenses and other assets		16,445		15,515
Income taxes recoverable		-		114
		383,681		349,371
Non-current assets:
Property and equipment		4,305		3,273
Right-of-use assets		13,963		12,242
Intangible assets		106,878		109,659
Goodwill		307,291		280,241
Deferred income tax assets		24,719		28,884
		457,156		434,299
	$	840,837	$	783,670

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	71,652	$	67,769
Income tax payable		2,645		-
Dividends payable		14,397		12,156
Provisions		1,974		2,238
Deferred revenue		131,405		109,019
Lease obligations		5,330		6,322
		227,403		197,504
Non-current liabilities:
Income taxes payable		-		1,333
Deferred income tax liabilities		11,135		13,340
Deferred revenue		7,630		8,170
Net employee defined-benefit obligation		1,960		1,912
Lease obligations		8,042		6,080
		28,767		30,835
		256,170		228,339
Shareholders' equity:
Share capital		114,812		107,701
Contributed surplus		10,268		10,404
Retained earnings		441,391		426,397
Accumulated other comprehensive income		18,196		10,829
		584,667		555,331
	$	840,837	$	783,670

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	2024	2023	2024	2023

Revenue Software licenses	$ 19,579	$ 19,836	$ 57,046	$ 62,587
SaaS and maintenance services	88,812	72,302	258,383	210,439
Professional services	18,231	15,904	51,577	50,790
Hardware	3,879	2,955	9,797	7,077
	130,501	110,997	376,803	330,893
Direct costs
Software licenses	1,689	720	3,104	2,288
Services	41,696	33,476	122,178	102,694
Hardware	2,451	1,676	5,337	3,804
	45,836	35,872	130,619	108,786
Revenue, net of direct costs	84,665	75,125	246,184	222,107

Operating expenses
Selling, general and administrative	23,980	22,454	71,661	67,187
Research and development	22,963	19,256	66,372	59,039
Depreciation	647	585	1,692	1,824
Depreciation of right-of-use assets	1,530	1,606	4,606	5,273
Special charges	1,243	331	1,440	2,360
	50,363	44,232	145,771	135,683

Results from operating activities	34,302	30,893	100,413	86,424

Amortization of acquired software and customer relationships	(9,663)	(9,730)	(31,183)	(28,400)
Foreign exchange (losses) gains	(1,747)	356	(3,550)	(1,487)
Interest expense – lease obligations	(132)	(172)	(430)	(531)
Finance income	2,333	1,701	7,296	3,683
Finance expenses	(29)	(5)	(41)	(136)
Other income (expenses)	407	(1,312)	513	(1,967)
Income before income taxes	25,471	21,731	73,018	57,586

Provision for income taxes	4,891	4,164	14,331	10,460

Net income for the period	20,580	17,567	58,687	47,126
Item that may be subsequently reclassified to income:
Cumulative translation adjustment	5,929	(13,632)	7,367	7,406

Other comprehensive income (loss)	5,929	(13,632)	7,367	7,406

Comprehensive income	$ 26,509	$ 3,935	$ 66,054	$ 54,532
Earnings per share
Basic	$ 0.37	$ 0.32	$ 1.06	$ 0.85
Diluted	$ 0.37	$ 0.32	$ 1.06	$ 0.85

Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)	Three months		Nine months
Periods ended July 31	2024	2023	2024	2023
OPERATING ACTIVITIES
Net income for the period	$ 20,580	$ 17,567	$ 58,687	$ 47,126
Adjustments for non-cash items
Adjustments for non-cash items
Depreciation	647	585	1,692	1,824
Depreciation of right-of-use assets	1,530	1,606	4,606	5,273
Interest expense – lease obligations	132	172	430	531
Amortization of acquired software and customer relationships	9,663	9,730	31,183	28,400
Stock-based compensation expense	298	340	1,076	1,271
Provision for income taxes	4,891	4,164	14,331	10,460
Finance expenses and other (income) expenses	(378)	1,317	(472)	2,103
	37,363	35,481	111,533	96,988

Changes in non-cash operating working capital	6,243	4,367	(246)	380
Income taxes paid	(3,273)	(828)	(10,799)	(10,388)
Net cash provided by operating activities	40,333	39,020	100,488	86,980

INVESTING ACTIVITIES
Net purchase of property and equipment	(683)	(436)	(1,461)	(607)
Acquisitions, net of cash acquired*	(30,854)	(2,361)	(43,448)	(27,978)
Purchase consideration for prior-year acquisition	-	(1,245)	171	(1,012)
Purchase of short-term investments	-	-	-	(69)
Net cash used in investing activities	(31,537)	(4,042)	(44,738)	(29,666)

FINANCING ACTIVITIES
Issuance of share capital	1,412	-	6,095	604
Normal course issuer bid share repurchases	(1,759)	-	(2,906)
Repayment of lease obligations	(2,347)	(1,474)	(5,747)	(5,754)
Dividends paid	(14,398)	(12,160)	(38,742)	(32,606)
Net cash used in financing activities	(17,092)	(13,634)	(41,300)	(37,756)
Impact of foreign exchange on cash and cash equivalents	3,091	(4,711)	3,731	4,122

(Decrease) increase in cash and cash equivalents	(5,205)	16,633	18,181	23,680
Cash and cash equivalents - beginning of period	262,918	232,151	239,532	225,104
Cash and cash equivalents - end of period	$ 257,713	$ 248,784	$ 257,713	$ 248,784

* Acquisitions are net of cash acquired of $245 and $742 for the three and nine months ended July 31, 2024, and nil and $2,088 for the three and nine months ended July 31, 2023, respectively.

Enghouse Systems Limited

Segment Reporting Information

(in thousands of Canadian dollars)

Three months ended July 31		2024							2023
Three months ended July 31		IMG		AMG		Total			IMG	AMG		Total
Revenue	$		77,522	$	52,979	$	130,501	$	64,302	$	46,695	$	110,997
Direct costs			(27,981)		(17,855)		(45,836)		(18,884)		(16,988)		(35,872)
Revenue, net of direct costs			49,541		35,124		84,665		45,418		29,707		75,125
Operating expenses excluding special charges			(21,257)		(14,190)		(35,447)		(20,401)		(10,803)		(31,204)
Depreciation			(389)		(258)		(647)		(403)		(182)		(585)
Depreciation of right-of-use assets			(997)		(533)		(1,530)		(1,239)		(367)		(1,606)
Segment profit	$		26,898	$	20,143	$	47,041	$	23,375	$	18,355	$	41,730
Special charges							(1,243)						(331)
Corporate and shared service expenses							(11,496)						(10,506)
Results from operating activities						$	34,302					$	30,893

Nine months ended July 31		2024							2023
Nine months ended July 31		IMG		AMG		Total			IMG	AMG		Total
Revenue	$		234,189	$	142,614	$	376,803	$	186,733	$	144,160	$	330,893
Direct costs			(79,960)		(50,659)		(130,619)		(54,451)		(54,335)		(108,786)
Revenue, net of direct costs			154,229		91,955		246,184		132,282		89,825		222,107
Operating expenses excluding special charges			(66,166)		(37,637)		(103,803)		(62,686)		(34,719)		(97,405)
Depreciation			(1,158)		(534)		(1,692)		(1,484)		(340)		(1,824)
Depreciation of right-of-use assets			(2,930)		(1,676)		(4,606)		(3,280)		(1,993)		(5,273)
Segment profit	$		83,975	$	52,108	$	136,083	$	64,832	$	52,773	$	117,605
Special charges							(1,440)						(2,360)
Corporate and shared service expenses							(34,230)						(28,821)
Results from operating activities						$	100,413					$	86,424

About Enghouse

Enghouse is a Canadian publicly traded company (TSX:ENGH) that provides mission critical vertically focused enterprise software solutions. Our core technologies are used for contact centers, video communications, virtual healthcare, telecommunications networks, public safety and the transit market. The Company's two-pronged growth strategy to grow earnings focuses on organic growth and acquisitions, which, to date, have been funded only through operating cash flows as the Company has no outstanding external debt financing. The Company is organized around two business segments, the Interactive Management Group ("IMG") and the Asset Management Group ("AMG") due to their unique customer segments and technology offerings. 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 6, 2024 at 8:45 a.m. EST. To participate, please call +1-289-514-5100 or North American Toll-Free +1-800-717-1738. Confirmation code: 59337. 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

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