Earnings call transcript: Enghouse Q2 2025 results fall short, stock dips 1.72%

Enghouse Systems Ltd reported its second-quarter earnings for 2025, revealing a notable shortfall in both earnings and revenue compared to forecasts. The company posted an EPS of $0.24, missing the consensus forecast of $0.3757. Revenue reached $124.8 million, falling short of the anticipated $129.64 million. Following the release, Enghouse’s stock declined by 1.72%, closing at $26.3. According to InvestingPro data, two analysts have recently revised their earnings estimates downward for the upcoming period, while the company maintains a "GOOD" overall financial health score of 2.89 out of 5.

Key Takeaways

• Enghouse missed both EPS and revenue forecasts significantly.
• The stock price dropped 1.72% in response to the earnings miss.
• The company maintains a strong cash position with no external debt.
• Strategic acquisitions are expected to bolster future growth.
• Global economic and geopolitical challenges are impacting performance.

Company Performance

Enghouse’s Q2 performance reflected a challenging environment, with revenue declining by 0.8% year-over-year. Despite this, the company reported a 1% increase in year-to-date revenue, indicating some resilience. The focus on recurring revenue streams, which constituted 69.1% of total revenue, underscores a shift towards more stable income sources. The transportation division’s profitability is a positive sign amid broader market challenges. InvestingPro data shows the company has maintained impressive revenue growth of 8.11% over the last twelve months, with a strong dividend track record spanning 19 consecutive years.

Financial Highlights

• Revenue: $124.8 million, a 0.8% decline year-over-year
• Earnings per share: $0.24, below the forecast of $0.3757
• Adjusted EBITDA: $28.6 million, representing a 22.9% margin
• Net Income: $13.5 million
• Cash Position: $263.5 million, with no external debt

Earnings vs. Forecast

Enghouse’s actual EPS of $0.24 was significantly below the forecasted $0.3757, reflecting a major miss. Revenue similarly fell short, with actual figures at $124.8 million compared to the $129.64 million forecast. This deviation suggests potential challenges in market conditions and operational execution.

Market Reaction

The market reacted negatively to Enghouse’s earnings miss, with the stock price dropping by 1.72% post-announcement. The stock remains within its 52-week range but is trending towards the lower end. This movement is consistent with broader market volatility and investor concerns over the earnings shortfall. InvestingPro analysis indicates the stock is currently undervalued, trading at a P/E ratio of 17.16 and offering an attractive dividend yield of 4.56%. Discover more valuable insights about Enghouse and 1,400+ other stocks through comprehensive Pro Research Reports available on InvestingPro.

Outlook & Guidance

Looking forward, Enghouse remains cautiously optimistic about its strategic acquisition strategy and the potential of AI and SaaS opportunities. The company announced a quarterly dividend of $0.30 per share and anticipates improved performance in its transportation segment. However, it remains vigilant of the volatile global economic landscape. The company’s strong financial position is evidenced by its current ratio of 1.76 and robust free cash flow yield, according to InvestingPro data, suggesting ample resources for future growth initiatives and continued dividend payments.

Executive Commentary

CEO Steven Sadler emphasized the challenges in monetizing AI benefits, stating, "AI continues to be promoted in discussions, but there’s great difficulty in monetizing its benefits." CFO Rob Bevitt highlighted the company’s strategic position, noting, "We believe that periods of uncertainty often create opportunities for well-capitalized disciplined companies like Enghouse to strengthen their market position."

Risks and Challenges

• Slow decision-making in enterprise markets could hinder growth.
• Geopolitical instability and foreign exchange volatility pose significant risks.
• The global economic environment remains unpredictable, affecting investment climates.
• Transitioning from 4G to 5G technology presents operational challenges.
• Competitors struggling with profitability could impact market dynamics.

Q&A

During the earnings call, analysts queried the challenges Enghouse faces in the 4G to 5G transition and ongoing churn in video services. The company’s capital allocation strategy, balancing mergers and acquisitions against share buybacks, was also a focal point of discussion.

Full transcript - Enghouse Systems Ltd (ENGH) Q2 2025:

Conference Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Enghouse’s Q2 twenty twenty five Conference Call. Please press 0 for the operator. This call is being recorded today, Friday, 06/06/2025.

I would now like to turn the conference over to mister Steven Sadler, chairman and CEO. Mister Sadler, please go ahead.

Steven Sadler, Chairman and CEO, Enghouse: Good morning, I’m here today with Rob Bevitt, Chief Financial Officer and Todd May, VP Legal Counsel. Before we begin, I will have 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 Enchos’ 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. Under 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.

Rob Bevitt, Chief Financial Officer, Enghouse: Thank you, Steve. Good morning, everyone, and thanks for joining us. As we present our second quarter results, it’s important to acknowledge the broader environment in which we’re operating. The global economy remains volatile, shaped by geopolitical instability, shifting trade policies, and persistent inflationary pressures. These factors are contributing to a more cautious investment climate, where customers are taking longer to make purchasing decisions.

Foreign exchange volatility has also intensified with significant movements in the U. S. Dollar, euro and pound, impacting both revenue and expenses. Despite these headwinds, we remain focused on what we can control, disciplined execution, operational efficiency and long term value creation. Revenue for the quarter was 124,800,000 a modest decline of 0.8% year over year.

On a year to date basis, revenue increased 1% to $248,800,000 for the six month period. Recurring revenue, which includes SaaS and maintenance services increased to 86,200,000.0 representing 69.1% of total revenue. This is up from 67.5% in the same quarter last year and underscores our strategic focus on increasing predictable long term revenue streams. Adjusted EBITDA was 28,600,000 with a margin of 22.9% compared to $35,700,000 and a 28.4% margin in Q2 twenty twenty four. Year to date adjusted EBITDA was $61,700,000 compared to $70,400,000 in the prior year.

Net income for the quarter was $13,500,000 or $0.24 per diluted share compared to $20,000,000 or $0.36 per diluted share last year. The decline reflects increased operating costs as a result of incremental services costs attributable to the shift towards SaaS revenue, overlap of costs related to recent acquisitions as they are completed and integrated as well as special charges of $1,400,000 We generated $25,500,000 in net cash provided by operating activities excluding changes in working capital and income taxes paid this quarter. We ended the quarter with $263,500,000 in cash, cash equivalents and short term investments and we continue to operate with no external debt. During the quarter, we returned $14,300,000 to shareholders through dividends and invested $26,800,000 in acquisitions. Our strong balance sheet provides the flexibility to continue investing in innovation and growth even in uncertain times.

Acquisitions remain a core pillar of our growth strategy. In Q2, we purchased and completed the integration of Magento, a scalable mobility as a service platform. We also acquired Trafi, a Lithuania based mobility as a service provider. These additions enhance our transportation portfolio within the asset management group and align with our broader mobility strategy. We continue to evaluate opportunities that align with our strategic direction and long term vision.

While we’ve seen some demand side hesitancy and delays in capital investment decisions, our global diversification and recurring revenue base provide a degree of insulation. We are actively optimizing costs and aligning resources to support margin expansion and long term growth. Looking ahead, we remain focused on execution. We believe that periods of uncertainty often create opportunities for well capitalized disciplined companies like Enghouse to strengthen their market position. Yesterday, our Board of Directors approved a quarterly dividend of $0.30 per common share payable on 08/29/2025 to shareholders of record as of 08/15/2025.

In closing, while the macroeconomic environment remains complex, our strategy is clear. We are committed to delivering long term value through operational discipline, strategic acquisitions and a focus on recurring revenue. Thank you for your continued support. I’ll now turn the call over to Mr. Sadler.

Steven Sadler, Chairman and CEO, Enghouse: Thanks, Rob. We continue to refine our new business unit structure, working as a team approach to challenge the marketplace. This, as you remember from last quarter, we just started early January.

Rob Bevitt, Chief Financial Officer, Enghouse: In the

Steven Sadler, Chairman and CEO, Enghouse: AMG segment, four gs to five gs continues, but at a pace that is slower than expected. AI continues to be promoted in discussions, but there’s great difficulty in monetizing its benefits. Customers seem to be taking a wait and see approach. With respect to acquisitions, partway through the quarter, as Rob mentioned, we acquired Magento, and at the end of the quarter, acquired Traffy. They are being integrated into our AMG segment in transportation.

For the quarter, they added about $1,500,000 of revenue and operated basically on a breakeven basis. We expect both acquisitions to add further to revenue and operating income next quarter. We continue to see substantial capital allocation opportunities in our industry sectors, but there’s a lot of uncertainty delaying completion of opportunities. As Rob mentioned, Enshouse is financially strong, generating positive cash flow and having a substantial cash balance to implement changes needed in the business and continue our capital deployment without the need for external financing. I would now like to open the call for questions.

Conference Operator: If you’re using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, you may press followed by the number 2. Once again, please press 1 to ask a question. And with that, our first question comes from the line of Stephanie Price with CIBC. Please go ahead.

Stephanie Price, Analyst, CIBC: Steve, I was hoping you could talk a little bit about the parts of the business that are seeing the biggest impact from the from the demand environment that you that you kind of laid out there. Are you seeing it across the board? Are there certain divisions that are seeing more of a headwind here?

Steven Sadler, Chairman and CEO, Enghouse: We already saw some tough markets. And again, as I said, the four gs to five gs, as you can see it from some of the telecom companies, they rarely lay off staff. And yet you’ve heard some layoffs recently by some of the largest ones, even in Canada. So again, that’s slowing it down. It doesn’t change what we do, because although it might be slow going to four gs to five gs, they’re going to be a six gs, and they’re all going to have to go to five gs and then to six gs.

So the future is still good, but it’s a little slow today. In the IMG group, which is networks, contact center, it seems to be a little bit on hold. If you notice our competition generally doesn’t make money. They generally have debt, so they’re struggling a little bit. Although they’ve got some sales growth over the last couple of years taking on what we would say is opportunities at a loss.

We don’t do that. But again, going forward, AI seems to slow things down. Everyone talks about it, but monetizing it, especially in enterprises, seems quite difficult. We’re seeing the difficulty, so is our competition, although we all do some of it in some form. So again, I think there’s generally struggles in those areas.

In transportation, we’re continuing to finish those major contracts. There’s two that we announced three years ago, we’re still trying to finish them in Norway. And they should improve profitability as we go forward. There’s no risk of trying for new revenue there. Revenue, again, just from those two contracts will help going forward, but profitability will help even more.

They actually turned profitable in the quarter after losing substantially last year, but not at our levels that we expect or that we should see from those as it goes as they put more units on, and they actually start using the system a little bit more. It’ll take a little bit of time, but we’re right at the end of this now. I mean, in the next six months, three months, six months, as they keep accepting more and more units going on, that also without risk should improve profitability and maintain our revenue in that area. So again, think all the years were in a little bit tough. So from the operations side, that’s challenging, especially as we reorganize into business units.

But it also should be a great opportunity to do capital allocation. It’s a little slower now even there, because they don’t know what tariffs, etcetera, might do to many of the customers who might use a contact center as an example. That’s generally where it would be impacted. But pretty positive one going forward, and there’s lots of opportunities at better pricing right now from an acquisition point of view.

Stephanie Price, Analyst, CIBC: Okay. You mentioned profitability there. Maybe you can talk a little bit about the puts and takes in the quarter outside of the Transportation Division. Should we think about it as the mix shift to SaaS? Like how do you think about margins moving back up to kind of the historical range and the timeline there?

Steven Sadler, Chairman and CEO, Enghouse: A mix. A little bit is revenue basically declined. Because we restructured in early January, we’re still going through a little bit of teething with that restructuring. So we probably didn’t move as quickly as we usually do on taking out costs, but that will be solved in the next quarter.

Conference Operator: Okay. Thank you very much. And your next question comes from the line of Paul Tiber with RBC. Please go ahead.

Paul Tiber, Analyst, RBC: Thanks very much, and good morning. Just a question on life size. I think last quarter, called out there’s some, I guess, churn that occurred. The has the has the revenue stabilized on a sequential basis, or is there still some incremental sequential churn at Lifesize?

Steven Sadler, Chairman and CEO, Enghouse: Churn on Lifesize, but in general, there’s still a little churn on video. And that partly came with the life-sized acquisition, and partly we bought separately as well, a couple of businesses in that area. So there’s still some churn in those two areas. Yes, still some churn, but if I was going back to my math, would say the second derivative looks okay. I like the churn is getting less, and it’s looking a little better going forward.

But there’s still a little bit of churn in that area, yes.

Paul Tiber, Analyst, RBC: Okay, that’s helpful. And then turning to the SaaS business or the shift to SaaS, you did mention that it’s a more challenging environment for new wins. But how does your pipeline look for SaaS? Are you encouraged in terms of what you’re hearing from customers in terms of their evaluation of SaaS products at the company?

Steven Sadler, Chairman and CEO, Enghouse: From our point of view, it’s a little tougher right now, because as I said, you really have to use AI properly. It’s generally done on the SaaS type model. And so again, a lot of holding back, because there’s lots of discussion. There’s lots of enthusiasm on AI, but not much happening, actually, other than for the platform guys and for Nvidia, of course. But for enterprises, it really hasn’t taken hold.

People are still trying it out. There’s a lot of caution around it, but people are hopeful that it will improve productivity in the future of agents. It won’t eliminate agents. It will improve their productivity. We’re well prepared to do that.

There’s always more work to do, because we’re in the first or second inning. But it depends where it goes. I would say it’s encouraging what we see on the life size side. Part of life size, we had a product called CX Exchange, which is which we will say is our new contact center, better front end, looks better. But we have some third party products in there that we have to eliminate, because they hurt margin.

That’s virtually being done. We’ve been working on it for over a year. It’ll be done in this next quarter as well. And so once that’s improved, then we could be more aggressive in our selling. There’s no sense going to sell something and telling people that they got to change it just after they bought it.

So again, there’s a little bit of things that are slowing us down a little bit, but we’re doing the right things for the future.

Paul Tiber, Analyst, RBC: And then just lastly for me, just a question on capital allocation. You’ve done a little bit of buybacks over the last year, but nothing this quarter. What’s your thoughts on buybacks, share buybacks, versus deploying capital on M and A at this point?

Steven Sadler, Chairman and CEO, Enghouse: M and A actually is better. It expands the base, expands the company. Buying back our own shares, to me, is less risky, Okay, if you can get it at the right price. So we have done some buyback. You can’t do well, unless you set it up, you can’t do buybacks when you’re in a blackout, which we’ve been in probably for the last six weeks or so.

I still like doing buybacks, and if the pricing is such that we believe it will give us a good return, we will do more buybacks. It’s not something that we generally have favored in the last fifteen or twenty years, but today it looks like a reasonable use of our cash. And we have a lot of cash, so we will look at it. But it’s not too companies do it to aggressively impact their stock price. We do it basically because it makes sense, and protects, and gives us a good investment on that capital deployment.

So we will do some there, yes.

Paul Tiber, Analyst, RBC: Okay, thanks for taking the questions.

Conference Operator: Your next question comes from the line of Bruno Warnick with UBS. Please go ahead.

Bruno Warnick, Analyst, UBS: Hi. Good morning, everyone. If I could just help us to understand, please, how did effects impact both revenue and EBITDA, and how did that compare to your, to what you expected? Thank you.

Steven Sadler, Chairman and CEO, Enghouse: So it affects a couple of ways. I must tell you, FX even confused me in this quarter. So that’s maybe somebody says it’s not hard to do, but it’s usually pretty hard to do. We had quite a large write off on FX related to the balance sheet, just under $4,000,000 And that’s because right at the end of the quarter, the dollar dropped, The US. We held funds in US dollars, so you’ll see there’s an FX hit on the balance sheet of just under $4,000,000 From an income statement point of view, it actually helped us in revenue.

So our revenue was a little bit lower than what’s shown there, because FX was a help. But it also helped the cost be higher. So the profit side, when you net the two, there is an impact. But I wouldn’t say it’s that significant. It’s more of it did help revenue, but it also helped costs.

And when I say help, I mean negatively helped costs. So the impact of profitability was a little bit. But when comes to EBITDA, of course, that’s based on the profit over the revenue. When revenue’s a little higher, and your costs didn’t go down, and it’s higher because of exchange, it lowers the EBITDA percentage, which again, we will fix, because we didn’t move on our cost fast enough as we should have in the quarter.

Bruno Warnick, Analyst, UBS: Perfect. Super helpful. Thank you.

Conference Operator: And we have no further questions at this time. I would like to turn it back to Mr. Sadler for closing remarks.

Steven Sadler, Chairman and CEO, Enghouse: Thank you, everyone, for attending the call. In this uncertain and challenging market, Enghouse is well positioned to operate profitably and acquire business assets to provide a good investment return on its capital deployment.

Conference Operator: Thank you presenters. And ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now disconnect.

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