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Enghouse Releases Second Quarter Results

MARKHAM, ONTARIO -- (Marketwired) -- 06/10/14 -- Enghouse Systems Limited (TSX: ESL) today announced its unaudited second quarter financial results for the period ended April 30, 2014.

Second quarter revenue was $55.0 million, an increase of 23% over revenue of $44.5 million in the second quarter last year. The increase in revenue reflects a combination of contributions from acquisitions, the positive impact of foreign exchange and organic growth. Revenue includes hosted and maintenance services contributions of $28.3 million in the quarter, an increase of 21% over last year. Adjusted EBITDA for the quarter was $13.9 million or $0.52 per diluted share compared to $10.7 million or $0.40 per diluted share in last year's second quarter. Results from operating activities for the quarter were $12.5 million compared to $9.7 million in the prior year's second quarter, an increase of 29% over the prior year. Net income for the quarter was $6.6 million or $0.24 per diluted share compared to the prior year's second quarter net income of $4.9 million or $0.19 per share.

On a year to date basis, revenue was $102.4 million for the year compared to $86.5 million last year, an increase of 18%, while net income was $12.7 million or $0.47 per diluted share compared to $8.3 million or $0.32 per diluted share, an increase of 53%. Adjusted EBITDA was $26.0 million or $0.97 per diluted share compared to $20.3 million or $0.77 per diluted share last year.

Operating expenses increased to $26.3 million from $22.3 million in the prior year's second quarter and include incremental operating costs related to acquisitions, foreign exchange and special charges of $0.8 million related to restructuring of acquired operations. Non-cash amortization charges in the quarter were $4.2 million compared to $3.9 million in the prior year's second quarter and include amortization charges for acquired software and customer relationships including acquisitions completed in the current year.

Enghouse closed the quarter with $101.0 million in cash, cash equivalents and short-term investments, compared to $90.3 million at October 31, 2013. This is after net cash paid of $8.2 million for the acquisition of IT Sonix AG, completed March 3, 2014, $1.8 million for Information Access Technology Inc., acquired November 4, 2013, final payments of $3.4 million made on previous acquisitions and dividends of $4.2 million paid year to date. The Company continues to have no long-term debt.

The Board of Directors has approved an eligible quarterly dividend of $0.10 per common share, payable on August 29, 2014 to shareholders of record at the close of business on August 15, 2014.

Enghouse remains committed to diversifying its revenue stream and continues to seek accretive acquisitions to grow its market share.

A conference call to discuss the results will be held on Wednesday, June 11, 2014 at 8:45 a.m. EST. To participate, please call 1-416-850-9144 or North American Toll-Free 1-866-400-3310. No PIN is required.

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-GAAP Measures

The Company uses non-GAAP measures to assess its operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than GAAP 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 as income before income taxes adjusted for depreciation of property, plant and equipment, amortization of acquired software and customer relationships, finance income, finance expenses, other income, 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, other income and restructuring costs primarily related to acquisitions.


Adjusted EBITDA

The table below reconciles Adjusted EBITDA to income before income taxes:

                               Three Months ended       Six Months ended
                               April 30,   April 30,   April 30,   April 30,
                                    2014        2013        2014        2013

Total Revenue                   $ 54,951    $ 44,511   $ 102,443    $ 86,486

Income before income taxes         8,301       6,238      16,003      10,586
Depreciation of property,
 plant and equipment                 566         410       1,095         878
Amortization of acquired
 software and customer
 relationships                     4,231       3,876       8,141       7,460
Finance income                     (124)        (94)       (267)       (427)
Finance expenses                      75          96         133         177
Other income                         (1)       (448)         (8)       (809)
Special charges                      810         599         922       2,414
Adjusted EBITDA                 $ 13,858    $ 10,677    $ 26,019    $ 20,279
Adjusted EBITDA margin               25%         24%         25%         23%
Adjusted EBITDA per diluted
 share                            $ 0.52      $ 0.40      $ 0.97      $ 0.77


Enghouse Systems Limited
Condensed Consolidated Interim Statements of Financial Position
(in thousands of Canadian dollars)
(Unaudited)

                                                       April 30, October 31,
                                                            2014        2013

                       Assets
Current assets:
  Cash and cash equivalents                             $ 82,802    $ 70,109
  Short-term investments                                  18,212      20,188
  Accounts receivable, net                                44,454      36,444
  Prepaid expenses and other assets                        7,766       5,839
                                                    ------------------------
                                                         153,234     132,580
Non-current assets:
Property, plant and equipment                              3,944       3,599
Intangible assets                                        145,228     132,358
Deferred income tax assets                                 9,718       9,419
                                                    ------------------------

Total assets                                           $ 312,124   $ 277,956
                                                    ------------------------
                                                    ------------------------

                     Liabilities
Current liabilities:
  Accounts payable and accrued liabilities              $ 31,956    $ 32,659
  Income taxes payable                                       506       1,555
  Dividends payable                                        2,613       2,083
  Accrued provisions                                       3,576       3,427
  Deferred revenue                                        50,992      39,325
                                                    ------------------------
                                                          89,643      79,049
Non-current liabilities:
Deferred income tax liabilities                           17,948      14,482
Deferred revenue                                           2,357       1,797
                                                    ------------------------
Total liabilities                                        109,948      95,328
                                                    ------------------------
                Shareholders' Equity

Share capital                                             59,436      58,514
Contributed surplus                                        3,332       3,175
Retained earnings                                        123,830     115,800
Accumulated other comprehensive income                    15,578       5,139
                                                    ------------------------
Total shareholders' equity                               202,176     182,628
                                                    ------------------------
Total liabilities and shareholders' equity             $ 312,124   $ 277,956
                                                    ------------------------
                                                    ------------------------


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 April  Six months ended April
                                                  30                      30
                                    2014        2013        2014        2013
Revenue
  Software licenses             $ 18,872    $ 13,624    $ 34,635    $ 28,688
  Hosted and maintenance
   services                       28,345      23,394      53,359      43,957
  Professional services            6,100       6,077      11,232      11,568
  Hardware                         1,634       1,416       3,217       2,255
                            ------------------------------------------------
                                  54,951      44,511     102,443      86,468
                            ------------------------------------------------
Direct costs
  Software licenses                1,684         649       2,884       2,078
  Services                        13,377      10,892      25,093      20,476
  Hardware                         1,078       1,004       2,097       1,597
                            ------------------------------------------------
                                  16,139      12,545      30,074      24,151
                            ------------------------------------------------

Revenue, net of direct costs      38,812      31,966      72,369      62,317

Operating expenses
  Selling, general and
   administrative                 15,514      13,517      28,190      26,923
  Research and development         9,440       7,772      18,160      15,115
  Depreciation of property,
   plant and equipment               566         410       1,095         878
  Special charges                    810         599         922       2,414
                            ------------------------------------------------
                                  26,330      22,298      48,367      45,330
                            ------------------------------------------------

Results from operating
 activities                       12,482       9,668      24,002      16,987

Amortization of acquired
 software and customer
 relationships                   (4,231)     (3,876)     (8,141)     (7,460)
Finance income                       124          94         267         427
Finance expenses                    (75)        (96)       (133)       (177)
Other income                           1         448           8         809
                            ------------------------------------------------

Income before income taxes         8,301       6,238      16,003      10,586

Provision for income taxes         1,743       1,335       3,273       2,248
                            ------------------------------------------------

Net income for the period        $ 6,558     $ 4,903    $ 12,730     $ 8,338
                            ------------------------------------------------
                            ------------------------------------------------

Items that are or may be
 reclassified subsequently
 to profit or loss:
----------------------------
Foreign currency translation
 differences from foreign
 operations                          751       (478)      10,521         383
Transfer to net income of
 realized gains on available
 for sale investments               (17)       (443)        (37)       (868)
Unrealized (loss) gain on
 available for sale
 investments                        (40)         210        (57)       1,097
Deferred income tax recovery
 (expense)                             7          30          12       (122)
                            ------------------------------------------------

Other comprehensive income
 (loss)                              701       (681)      10,439         490
                            ------------------------------------------------

Comprehensive income             $ 7,259     $ 4,222    $ 23,169     $ 8,828
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share
Basic                             $ 0.25      $ 0.19      $ 0.49      $ 0.32
Diluted                           $ 0.24      $ 0.19      $ 0.47      $ 0.32
----------------------------------------------------------------------------


Enghouse Systems Limited
Condensed Consolidated Interim Statements of Changes in Equity
(in thousands of Canadian dollars)
(Unaudited)

                                                 Accumu-
                                                   lated
                                                   other
                                                 compre-
                                        Contri-  hensive
                         Share    Share   buted   income  Retained
                       Capital  capital surplus   (loss)  earnings     Total
                       -number        $       $        $         $         $

Balance - November
 1, 2013            26,042,962   58,514   3,175    5,139   115,800   182,628

Net income                   -        -       -        -    12,730    12,730
Other Comprehensive
 Income:
Cumulative
 Translation
 Adjustment                  -        -       -   10,521         -    10,521
Transfer to net
 income of realized
 gains on
 available-for-sale
 investments                 -        -       -     (37)         -      (37)
Unrealized loss on
 available-for-sale
 investments                 -        -       -     (57)         -      (57)
Deferred income tax
 recovery                    -        -       -       12         -        12
                   ---------------------------------------------------------
Comprehensive
 income for the
 period                      -        -       -   10,439    12,730    23,169
                   ---------------------------------------------------------
                   ---------------------------------------------------------
Employee share
 options:
  Value of services
   recognized                -        -     364        -         -       364
  Proceeds on
   issuing shares       83,500      922   (207)        -         -       715
Dividends                    -        -       -        -   (4,700)   (4,700)
                   ---------------------------------------------------------
Balance - April 30,
 2014               26,126,462   59,436   3,332   15,578   123,830   202,176
                   ---------------------------------------------------------
                   ---------------------------------------------------------


Balance - November
 1, 2012            25,780,562   55,751   2,847     (29)    99,371   157,940

Net income                   -        -       -        -     8,338     8,338
Other Comprehensive
 Income:
Cumulative
 Translation
 Adjustment                  -        -       -      383         -       383
Transfer to net
 income of realized
 gains on
 available-for-sale
 investments                 -        -       -    (868)         -     (868)
Unrealized gain on
 available-for-sale
 investments                 -        -       -    1,097         -     1,097
Deferred income tax
 expense                     -        -       -    (122)         -     (122)
                   ---------------------------------------------------------
Comprehensive
 income for the
 period                      -        -       -      490     8,338     8,828
                   ---------------------------------------------------------
                   ---------------------------------------------------------
Employee share
 options:
  Value of services
   recognized                -        -     423        -         -       423
  Proceeds on
   issuing shares      172,400    1,864   (489)        -         -     1,375
 Dividends                   -        -       -        -   (3,756)   (3,756)
                   ---------------------------------------------------------
Balance - April 30,
 2013               25,952,962   57,615   2,781      461   103,953   164,810
                   ---------------------------------------------------------
                   ---------------------------------------------------------


Enghouse Systems Limited
Condensed Consolidated Interim Statements of Cash Flows
(in thousands of Canadian dollars)
(Unaudited)

                            Three months ended April  Six months ended April
                                                  30                      30
                                    2014        2013        2014        2013
Cash flows from operating
 activities
Net income                       $ 6,558     $ 4,903    $ 12,730     $ 8,338

Adjustments for:
  Depreciation of property,
   plant and equipment               566         410       1,095         878
  Amortization of acquired
   software and customer
   relationships                   4,231       3,876       8,141       7,460
  Stock-based compensation
   expense                           205         286         364         423
  Income tax expense               1,743       1,335       3,273       2,248
  Finance expenses and other
   income                             74       (352)         125       (632)
                            ------------------------------------------------
                                  13,377      10,458      25,728      18,715

Changes in non-cash
 operating working capital         2,874       (544)       1,214       (473)
  Income tax paid                (2,385)       (601)     (3,172)     (2,786)
----------------------------------------------------------------------------
Net cash flows from
 operating activities             13,866       9,313      23,770      15,456

Cash flows from investing
 activities
Purchase of property, plant
 and equipment, net                (131)       (677)       (788)       (971)
Acquisitions, net of cash
 acquired of $969 ($3,617 -
 2013)                           (8,282)     (6,846)    (10,060)    (16,831)
Purchase consideration for
 prior period acquisitions       (3,040)           -     (3,422)           -
Net sale of short-term
 investments                       4,861       8,831       3,246       4,803
----------------------------------------------------------------------------
Net cash flows used in
 investing activities            (6,592)       1,308    (11,024)    (12,999)

Cash flows from financing
 activities
Issuance of share capital            354         850         715       1,375
Payment of cash dividend         (2,087)     (1,680)     (4,170)     (3,356)
----------------------------------------------------------------------------
Net cash flows used in
 financing activities            (1,733)       (830)     (3,455)     (1,981)


Effect of currency
 translation adjustments on
 cash and cash equivalents           264       (267)       3,402          39
----------------------------------------------------------------------------

Net increase in cash and
 cash equivalents during the
 period                            5,805       9,524      12,693         515
Cash and cash equivalents-
 beginning of period              76,997      50,535      70,109      59,544

Cash and cash equivalents -
 end of period                  $ 82,802    $ 60,059    $ 82,802    $ 60,059
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Enghouse Systems Limited
Selected Segment Reporting Information
(in thousands of Canadian dollars)
(Unaudited)

                              For the three months
                                      ended         For the six months ended
                                    April 30                April 30
                            ------------------------------------------------

                                    2014        2013        2014        2013
                            ------------------------------------------------

Revenue:
  Asset Management Group        $ 11,054     $ 8,243    $ 20,746    $ 13,489
  Interactive Management
   Group                          43,897      36,268      81,697      72,979
                            ------------------------------------------------
Total                           $ 54,951    $ 44,511   $ 102,443    $ 86,468
                            ------------------------------------------------
                            ------------------------------------------------


Segment Profit:
  Asset Management Group         $ 2,748       $ 747     $ 4,955     $ 1,856
  Interactive Management
   Group                          11,100       9,963      21,705      17,039
  Corporate expenses             (1,366)     (1,042)     (2,658)     (1,908)
  Amortization of acquired
   software and customer
   relationships                 (4,231)     (3,876)     (8,141)     (7,460)
  Finance income                     124          94         267         427
  Finance expenses                  (75)        (96)       (133)       (177)
  Other income                         1         448           8         809
                            ------------------------------------------------
                            ------------------------------------------------
Total                            $ 8,301     $ 6,238    $ 16,003    $ 10,586
                            ------------------------------------------------
                            ------------------------------------------------

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