Earnings call transcript: Enghouse Systems Q3 2025 sees stock drop after earnings miss

Enghouse Systems Ltd reported its Q3 2025 earnings, revealing a significant miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.31, falling short of the expected $0.3665, marking a negative surprise of 15.42%. Revenue came in at $80.17 million, well below the forecasted $129.52 million, resulting in a 38.1% shortfall. Following the announcement, Enghouse’s stock declined by 8.32% in after-hours trading, closing at $22.84. According to InvestingPro analysis, the stock is currently trading near its 52-week low, with metrics suggesting it may be undervalued based on its Fair Value assessment.

Key Takeaways

• Enghouse’s Q3 EPS and revenue both missed analysts’ expectations significantly.
• The stock experienced an 8.32% drop in after-hours trading.
• The company maintains a strong cash position with no external debt.
• Strategic restructuring is expected to yield cost savings in future quarters.
• The company is focusing on profitable growth and disciplined acquisitions.

Company Performance

Enghouse Systems reported a year-over-year decrease in revenue for Q3 2025, with total revenue amounting to $125.6 million. Recurring revenue represented 69.9% of the total, highlighting the company’s focus on stable income streams. Despite the revenue decline, Enghouse maintains a robust cash position of $271.6 million and has no external debt, which provides financial flexibility amid challenging market conditions. InvestingPro data reveals strong financial health with a current ratio of 1.72 and minimal debt-to-equity of 0.02, supporting the company’s solid balance sheet position. The company has also maintained dividend payments for 19 consecutive years, currently offering a 5.25% yield.

Financial Highlights

• Revenue: $125.6 million (year-over-year decrease)
• Recurring Revenue: $87.8 million (69.9% of total revenue)
• Adjusted EBITDA: $32.3 million (25.7% margin)
• Net Income: $17.2 million ($0.31 per diluted share)
• Dividends Paid: $16.5 million (increase from $0.26 to $0.30 per share)

Earnings vs. Forecast

Enghouse reported an EPS of $0.31, which was below the forecasted $0.3665, resulting in a negative surprise of 15.42%. The company’s revenue of $80.17 million also fell short of the $129.52 million forecast, marking a 38.1% miss. This significant deviation from expectations reflects challenges in the current economic and competitive landscape.

Market Reaction

Following the earnings announcement, Enghouse’s stock price dropped by 8.32% in after-hours trading, closing at $22.84. This decline positions the stock closer to its 52-week low of $20.44, indicating a cautious market sentiment. The stock movement aligns with broader market trends, where companies facing earnings misses have seen similar reactions. Despite recent pressure, InvestingPro analysis indicates a compelling valuation with a P/E ratio of 14.76 and a strong free cash flow yield of 9%. For deeper insights into Enghouse’s valuation and 8 additional ProTips, subscribers can access the comprehensive Pro Research Report.

Outlook & Guidance

Enghouse is focusing on accretive acquisitions and profitability, with a quarterly dividend of $0.30 per share approved. The company anticipates operating income improvement in 2025 and continues to evaluate acquisition opportunities. Strategic restructuring is expected to yield cost savings of $2 million to $2.5 million per quarter.

Executive Commentary

Rob Medved, CFO, emphasized the company’s resilience despite the challenging environment. CEO Steve Sadler noted, "From a revenue side, I do not see a huge impact from AI," highlighting a cautious approach to AI monetization. Sadler also stressed the importance of profitable growth over aggressive expansion.

Risks and Challenges

• Global economic uncertainty and geopolitical tensions may impact enterprise spending.
• The small business environment remains challenging, affecting customer churn.
• The video market is declining as companies return to office settings.
• Competitive pressures from struggling rivals like Avaya and Mitel.
• The need for careful integration of recent acquisitions to achieve expected synergies.

Q&A

During the earnings call, analysts focused on the restructuring efforts, with management confirming no significant additional charges are expected in Q4. Questions also addressed the steady but challenging churn in the small business segment and the company’s cautious approach to AI monetization. Enghouse reiterated its commitment to maintaining strict acquisition criteria.

Full transcript - Enghouse Systems Ltd (ENGH) Q3 2025:

Conference Operator: Also note that this call is being recorded on Friday, 09/05/2025. I would now like to turn the conference over to Steve Sadler.

Please go ahead, sir.

Steve Sadler, Company Leader/Moderator, Enghouse: Good morning, everybody. I’m here today with Ron Medved, Chief Financial Officer and Todd May, VP, Legal Counsel. Before we begin, I’ll talk to about 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 Enshouse’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.

Rob Medved, Chief Financial Officer, Enghouse: 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 $125,600,000 lower year over year, but slightly increasing from Q2. Recurring revenue was $87,800,000 or 69.9% of total revenue. Adjusted EBITDA was $32,300,000 achieving a margin of 25.7%. Net income was $17,200,000 or $0.31 per diluted share. During the quarter, we undertook a strategic restructuring, including our recent acquisitions to align costs with revenue, incurring $3,000,000 in special charges, which are reflected in net income.

We expect these actions to yield ongoing benefits and improve profitability. Operating cash flow, excluding working capital and income taxes paid was $30,900,000 We ended the quarter with $271,600,000 in cash and no external debt. We returned $16,500,000 to shareholders through dividends, reflecting an increase from $0.26 to $0.30 per share, and we repurchased $1,600,000 in shares. We completed the integration of Traffy 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 11/28/2025 to shareholders of record as of 11/14/2025. 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.

Steve Sadler, Company Leader/Moderator, Enghouse: Thanks, Rob. Our new business unit structure established 01/01/2025, 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 Trappi and Magento 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 Traffy and Magento acquisitions contributed to revenue and operating income in the quarter, but further operating income improvement is anticipated in our 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 delaying completion of our backlog of these opportunities. As you know from our financial results, we have no debt and financial and the financial reserves 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.

Conference Operator: Thank you, sir.

Kevin McVeigh, Analyst, UBS Securities: Sir.

Conference Operator: First, we will hear from Erin Kyle at CIBC. Please go ahead, Erin.

Erin Kyle, Analyst, CIBC: Hi, good morning. 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 were 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?

Steve Sadler, Company Leader/Moderator, Enghouse: 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 notice 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. The clients don’t customize things as much they used to, which goes to professional services. We did a little bit in R and 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.

Erin Kyle, Analyst, CIBC: Okay. Thank you, Steve. That’s helpful. And then maybe if I just switch gears here to the IMG division. It appears the revenue declines there continue to accelerate in the quarter.

Could you maybe elaborate on just what’s been driving that? Is that still in churn from life size? Or how should we think about that?

Steve Sadler, Company Leader/Moderator, Enghouse: Again, we try for profitable revenue. And if you look at the industry overall, it’s struggled. So we’re doing quite well, again, to get profitable growth, not just growth at any cost. A little bit came somewhat from LifeSci, but LifeSci is going to be our go forward product. So we’re ready to start bringing that product into the marketplace with the pixel lot of things there.

Video is still a problem. I mean, 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’s 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.

Erin Kyle, Analyst, CIBC: Next

Conference Operator: question will be from Kevin McVeigh at UBS Securities.

Kevin McVeigh, Analyst, UBS Securities: Great. Thanks so much. In terms of the $3,000,000 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?

Steve Sadler, Company Leader/Moderator, Enghouse: Yeah. It’s as a rough estimate, okay, because most of it was really people 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 2,000,000 to $2,500,000 a quarter.

Kevin McVeigh, Analyst, UBS Securities: Got it. That’s very helpful. And then I think you’d referenced and 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 to call out either internally or what your clients are asking for just as as we kind of get a little little bit kind of deeper into the the kind of AI opportunities that you’re seeing out there?

Steve Sadler, Company Leader/Moderator, Enghouse: Most of the AI we’ve been 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, lot of companies say they’re doing reductions these days because of AI. The 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, the IMG group and the AMG. We’re going to start that probably the next year in the budgeting process. So we’re going to put a little bit more focus on it.

But most of it’s 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 or the platform guys. Mean, 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.

Conference Operator: Next, we will hear from Paul Faber at RBC Capital Markets. Just

Paul Faber, Analyst, RBC Capital Markets: 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?

Steve Sadler, Company Leader/Moderator, Enghouse: Okay. From a trend point of view, the churn has been pretty steady, but unfortunately, it 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 the general market. I think there’s a lot of small business companies struggling and so we see more of that than the Magnificent Seven we let you believe or 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 want to have profitable growth. We think that’s the right way to do. And if you notice, some of our major competitors Avaya two point five 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 two fifty 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 time to go through those challenging events.

Paul Faber, Analyst, RBC Capital Markets: Okay, that’s helpful to understand. The MD and A mentioned a focus on cash activities, including diligence on deal quality and then customer credit worthiness. Can you just elaborate on what that’s referring to?

Steve Sadler, Company Leader/Moderator, Enghouse: Well, I think it means 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 got cash flow. We got cash.

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

Paul Faber, Analyst, RBC Capital Markets: And then in terms of M and A and you touched on it, but I don’t know if you could be more explicit. In

Erin Kyle, Analyst, CIBC: light

Paul Faber, Analyst, RBC Capital Markets: of this environment, are you considering lower takeout multiples in acquisitions or just being more prudence around some of the assumptions in acquisitions, just given the lower visibility here?

Steve Sadler, Company Leader/Moderator, Enghouse: I think the values are coming down into our range, but we’re not changing our criteria, I. E. Not making more difficult because we would like to deploy some of our cash. So 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. We try and get a payback in five or six years, and we’re just taking to that.

Rob Medved, Chief Financial Officer, Enghouse: And

Conference Operator: at this time, Mr. Sadler, it appears we have no other questions registered. Please proceed.

Steve Sadler, Company Leader/Moderator, Enghouse: Well, thank you, everybody. Eng House 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.

Conference Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.

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