Enghouse Systems Limited

Good morning, everybody. I'm here today with Ron Medved, Chief Financial Officer; and Todd May, VP, Legal Counsel.

Before we begin, I'll let Todd read our forward disclaimer.

Certain statements made may be forward-looking. By their nature, such forward-looking statements are subject to various risks and uncertainties, including those in Enghouse's continuous disclosure filings, such as its AIF, which could cause the company's actual results and experience to differ materially from anticipated results or other expectations.

Undue reliance should not be placed on forward-looking information, and the company has no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

Thanks, Todd. Rob will now give an overview of the financial and business results.

Thanks, Steve. Good morning, and welcome, everyone.

As we present our Q3 results, we acknowledge the persistent uncertainty in the global economy. Geopolitical tensions, inflation and currency volatility continue to impact enterprise spending.

Despite these challenges, Enghouse remains resilient, supported by our recurring revenue base and disciplined execution. Revenue for the quarter was $125.6 million, lower year-over-year but slightly increasing from Q2.

Recurring revenue was $87.8 million or 69.9% of total revenue. Adjusted EBITDA was $32.3 million, achieving a margin of 25.7%.

Net income was $17.2 million or $0.31 per diluted share. During the quarter, we undertook a strategic restructuring, including our recent acquisitions to align costs with revenue, incurring $3 million of special charges, which are reflected in net income.

We expect these actions to yield ongoing benefits and improved profitability. Operating cash flow, excluding working capital and income taxes paid, was $30.9 million.

We ended the quarter with $271.6 million in cash and no external debt. We returned $16.5 million to shareholders through dividends, reflecting an increase from $0.26 to $0.30 per share, and we repurchased $1.6 million in shares.

We completed the integration of Trafi at the end of Q3 into our asset management group. This acquisition strengthens our transportation portfolio and supports our vertical SaaS strategy.

We continue to evaluate acquisition opportunities. We entered Q4 with a leaner cost structure and strong balance sheet.

Despite ongoing macroeconomic and geopolitical risks, we remain focused on accretive acquisitions, profitability and positive cash flows. Yesterday, the Board approved a quarterly dividend of $0.30 per common share payable on November 28, 2025, to shareholders of record as of November 14, 2025.

In closing, Enghouse continues to demonstrate resilience. Our recurring revenue model, disciplined execution and strong financial position enable us to navigate uncertainty and deliver long-term value in a difficult business environment.

Thank you for your continued support, and I will turn the call over to Mr. Sadler.

Thanks, Rob. Our new business unit structure established January 1, 2025, is working well and the challenges in our IMG and AMG business units are being addressed.

In a short time frame, there has been good progress. In our Q3, as Rob mentioned, we completed the integration of Trafi and Margento into our AMG business segment.

But in addition, we did a further rightsizing of the overall business at the end of the quarter. Both the Trafi and Margento acquisitions contributed to revenue and operating income in the quarter, but further operating income improvement is anticipated in our final quarter of 2025.

AI continues to be used in our operations for cost efficiencies, but difficult to monetize from a revenue viewpoint. AI continues to be an interesting learning experience.

As noted last quarter, we continue to see substantial acquisition opportunities, which will provide a return on our investment, but uncertainty continues to lay in completion of our backlog of these opportunities. As you know from our financial results, we have no debt and the financial resources to continue our capital deployment as well as investing in our operations for improvement.

A strong financial position is proving to be very important in the current financial environment of our markets. Larger competitors seem to be having serious financial challenges with their strategy of unprofitable growth.

I would now like to turn the call over for questions.

Maybe I'll just start with a question on the restructuring there. Could you provide some additional color in terms of where the cost cuts we're focused and then whether that restructuring was fully completed in the quarter or if you expect to see any additional charges -- special charges in Q4?

I don't think there'll be any significant charges in Q4 to answer that part of the question. The restructuring was generally done through operations.

You noticed the, for example, the professional services as you go to the cloud is -- tends to be harder to get because they don't customize things and the clients don't customize things as much as we used to, which goes to professional services. We did a little bit in R&D where we didn't do restructuring is the sales side.

So we kept the sales side generally as it was and restructured the other areas. A little bit of restructuring was in accounting as well as an example, and administration areas.

That's helpful. And then maybe if I can just switch gears here to the IMG division.

It appears the revenue declines there continued to accelerate in the quarter. Could you maybe elaborate on just what's been driving that?

Is that still some churn from Lifesize? Or how should we think about that?

Again, we try for profitable revenue. And if you look at the industry overall, it's struggled.

So we are doing quite well, again trying to get profitable growth, not just growth at any cost. A little bit came somewhat from Lifesize, but Lifesize is going to be our go-forward product.

So we're ready to start bringing that product into the marketplace. We had to fix a lot of things there.

Video is still a problem. I mean we did a lot of video acquisitions, and so it's still in decline, if you look in the market as more and more companies are telling their employees to go back to work.

Of course, that reduces video because a lot of it is done by video when you're not in the office. So again, it's a tougher market.

We're strong in the market, and it should in many ways, help our acquisition process, even some larger acquisitions are interesting and being looked at by us these days.

In terms of the $3 million charge, can you give us a sense of what the recurring benefit is as a result of that charge and how it kind of sequences over the course of this year and into next?

Yes, as a rough estimate, okay, because most of it was really people of that charge. It wasn't premises or anything else.

It should improve the bottom line by everything staying the same, change staying the same, revenues, everything else staying the same, probably by $2 million to $2.5 million a quarter.

That's very helpful. And then I think you referenced and you continue to reference, and executing pretty well on kind of AI as you're kind of learning.

Any kind of relative to just expectations, anything to call out either internally or what your clients are asking for, just as we kind of get a little bit kind of deeper into the kind of AI opportunities that you're seeing out there?

Most of the AI we'd be doing, and we've been doing it for a while, like many years, we just don't call it out as the biggest factor has been to improve internal operations. I mean a lot of companies say they're doing reductions these days because of AI.

The restructuring we did was not because of AI. So let's make that clear.

It was just restructuring that we needed to do to tie to our revenue, which has come down a bit. So we did that restructuring for that reason.

We are going to look at setting up a couple of specialized AI groups in both our divisions, see IMG Group and the AMG. We're going to start that probably in the next year in the budgeting process.

So we're going to put a little bit more focus on it. But most of it is internal as we go out to customers, like many, you hear a lot of talk about it, individuals using it, but I do not see enterprises actually selling it other than the people who just do the AI on their own platform guys and NVIDIA does well selling chips to the big platform guys.

So from a revenue side, I don't see a huge impact from AI. From the cost side, we're continuing to take on projects that actually do make money as many projects, if you do reading on this subject, do not make money.

It's great out there. There's more promotion than actual savings or money being made from AI at this time.

But you do have to be in it because, of course, over time, it should improve.

Just a question on customer churn and then new bookings. Can you just speak to the trend of both, how churn has been trending and how bookings of new cloud offerings has been trending?

From a trend point of view, the churn has been pretty steady, but unfortunately, there is churn, okay? As people are changing, looking at things, the environment for us in the small business area seems to be more difficult than you read in a general market i.e., there's a lot of small business companies struggling.

And so we see more of that than the Magnificent 7. We let you believe the overall indexes on the market.

So there is certainly some churn that we go through. From a bookings point of view, again, for profitable growth, I would say, it's about as it has been over the last year or so, which is slow, okay?

So again, to get more bookings and get more revenue, you have to lose money. We're not prepared to do that.

So we would have profitable growth. We think that's the right way to do.

And if you notice, some of our major competitors, Avaya, $2.5 billion can't get back out or having some trouble. Mitel went into receivership, major competitors, especially in the small business side.

Genesis, a good competitor, but now said they don't want to sell anything for 250 seats and less. So the market is going through a lot of turnover right now.

And again, we're strong in that market, and we expect over time, that will be helpful, but it takes to go through those challenging events.

That's helpful to understand. The MD&A mentioned a focus on cash activities, including diligence on deal quality and then customer creditworthiness.

Can you just elaborate on what that's referring to?

Well, I think it reads what it says. It is challenging when we're trying to do deals.

There's a lot of people just from an acquisition side, remember a year ago when things were much higher. The whole industry has come down, including us, but we're very strong in the industry.

Everyone sort of gets painted with the same brush. Others are having more financial issues than certainly we have, which I would say we don't have any.

We're doing pretty good. We've got cash flow.

We've got cash, and in a struggling market, we have an M&A group who do deals in that environment. So I think it's just a matter of time, and the time is a little longer than I would like, but we're progressing forward with it right now.

And then in terms of M&A, and you touched on it, but could you be more explicit? In light of this environment, are you considering lowered peak out multiples on acquisitions, or just being more prudence around some of the assumptions in acquisitions just given the lower visibility here?

I think the values are coming down into our range, but we're not changing our criteria, i.e., not making it more difficult because we would like to deploy some of our cash. Look, our cash is good but that might be bad because we haven't deployed enough on acquisitions.

So we've got to focus a little bit more and get some more things done. That's our intention.

But again, we're not going to do it for the sake of doing acquisitions. We want to make sure we get the usual return that we've done over the years, which we have on our website to try and get a payback in 5 or 6 years, and we're going to stick to that.

Well, thank you, everybody. Enghouse is well positioned to operate profitably and acquire business assets, which will provide a good return on our capital deployed.

Thank you for attending the call, and I look forward to providing our year-end update in December.