Q2 2021 Enghouse Systems Ltd Earnings Call
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Yes.
Good day, and thank you for standing by and welcome from me.
Second quarter 2021 conference call.
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The conference over to your speaker today.
As chairman and CEO. Please go ahead.
Good morning, everybody I'm here today with Vince Mitsui.
Doug Bryson VP finance Todd May.
<unk> VP legal counsel and Sam manager VP corporate development before we begin I will 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 national <unk> continuous disclosure filings such as its AI assets could cause the company's actual results and experience with different materially Hispanic results or other expectations undue reliance should not be placed on forward looking statements.
And the information.
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 Doug will now give an overview of the financial results.
Thanks, Steve Yeah.
Yesterday, <unk> announced its second quarter unaudited financial results for the period ended April 32021, all the financial information is in Canadian dollars unless otherwise indicated.
The financial and operational highlights for the 3 and 6 months ended April 30 of 2021 compared to the 3 and 6 months ended April 32020 are as follows revenue achieved was $117.3 million and $236.4 million, respectively compared to the record revenue of $140.9 million in the second quarter of last year.
And $251.6 million year to date last year.
Results from operating activities were $36.9 million and $77.6 million respectively.
Compared to $46.3 million and $77.1 million.
Net income was $20.7 million and $41.
$4 million, respectively, compared to $27.1 million and $43.2 million adjusted EBITDA was $40.2 million in force and $84.7 million, respectively, compared to $49.3 million and $84.6 million.
Cash flows from operating activities, excluding changes in working capital was $42.6 million and $84.3 million, respectively, compared to $50 million and $85.2 million.
Although revenue for the quarter achieved was $117.3 million compared to record revenue of $140.9 million in the.
Same periods in the prior year and shows continues to generate positive cash flow operating income and profitability. The decline in revenue was driven primarily by the prior years significant increase in our video business that has now returned to levels more consistent with pre COVID-19 volumes.
And shows continues to expand its cloud offerings and has implemented new initiatives aimed at increasing sales of cloud based products.
Free choice to its customers by per.
Providing multi tenant cloud private cloud and on premise solutions to the market.
Previously announced on April 28, and 29 million dollar multi year agreement with the Norwegian government to update its national Emergency fire services technology system. The 8 year agreement builds on the success of the Norwegian market with the $55 million 12 year agreement with the Norwegian healthcare announced in October 2002.
'twenty.
The company closed the quarter with $169.6 million in cash cash equivalents and short term investments and no debt.
After paying $90.5 million in dividends during the quarter as always and just per truck prioritizes, its long term growth strategy or quarter to quarter results investing in products, while ensuring continued profitability and maximizing operating cash flows as a result, <unk> replenished its acquisition capital, while returning $83.2 million in special dividends to share.
Our holders.
Yesterday, the board of directors approved the company's eligible quarterly dividend of <unk> 16 cents per common share payable on August 31, 2021 to shareholders of record at the close of business on August 17.2021.
I'll now turn the call back to Mr. Sadler Steve.
Thanks, Doug Vince will now give some operational highlights for the quarter.
Thank you, Steve and welcome everyone to our Q2.2021 conference call.
As Dan mentioned <unk> had another strong earnings quarter with adjusted EBITDA of $40.2 million.
<unk> 34, 3% of sales and strong cash flow from operations.
Before working capital of $42.6 million.
This represents our fifth consecutive quarters of exceeding $40 million of EBITDA.
The strong earnings and cash flow performance was achieved despite lower demand in our video business, which we believe speaks to our company's ability to manage costs.
And ensure they are in line with revenue.
Ultimately, providing long term sustainability to our business business benefiting our shareholders employees customers and.
Fliers.
During the quarter, we did experienced a spike in demand for our professional services with our highest quarterly revenue achieved of $18.5 million and I'll speak later to what is driving the demand in each of our vertical businesses.
1 of the advantages we have at the company is the diversity in terms of the verticals and geographic graphic markets, we operate in enabling us to perform well when demand per BTB enterprise software shift between markets and verticals.
Our video business experienced a massive ryzen volume and demand at the start of Covid in Q2.2020.
All by a fall that we've seen over the last few quarters.
Demand for our video platform as a solution that technology companies integrate into their software and hardware products continues to be good and an important part of our business.
Video room hardware demand and its related hardware support which is used primarily by enterprise customers has declined significantly since the start of Covid. We believe demand for video rooms hardware will continue to be low until businesses decide on their final mix of employees working from home or in the office are over.
Raul view on videos that we have now returned to more normal levels of volumes and are through the.
Lids related fluctuation.
For the contact center business, our differentiation continues to be focused around offering choice for our customers.
Being 1 of the only companies in the market that provides multi tenant cloud private cloud and on Prem.
Currently we are seeing more interest in demand for our cloud offering in particular, a multi tenant cloud that we recently began to offer directly to the market as well as continued to provide through our network of service provider partners is experiencing more demand we.
We believe this is the result of the overall contact center market accelerating its moved to the cloud as agents in many parts of the world continue to work from home.
1 of the other trends, we're seeing in the contact center business is more demand for our professional services as customers request our assistance in migrating to the to the cloud and move their move to M. N. S teams as they're ucas platform from Skype and other premise based communication platforms.
Q2 was our first full quarter of post acquisition of altitude.
The acquisition is progressing well and we're particularly happy with the engineering team that we inherited in Portugal.
We will we were able to leverage this strong talented team and some of these engineers have been quickly able to contribute positively to our product roadmap of other inch health cloud products.
Turning now to a few highlights in the asset management group.
Doug mentioned at the end of the quarter on April 28, we announced the signing of another large public safety deal with the Norwegian government to update its national Emergency fire service and technology. This.
This 29 million dollar deals another great win earned by our public safety team and this this deal was in addition to the October 2020 announcement.
The large $55 million deal to deliver medical emergency services.
Are these projects represent a considerable amount of revenue backlog in our public safety business is only a nominal amount of revenue has previously been recognized.
Our telecom business is experiencing normal demand for Oss infrastructure solutions, and some positive demand for B S that IP television and professional services. The growth is B S. S is driven by the emergence partly by the emergence of mobile virtual network operators that are looking to leverage their large customer basis.
As an example.
In the quarter, we added a new customer in the insurance industry that are providing mobile offerings to their customers to drive more revenue.
Added professional services demand is also being driven by our telecom customers transitioning.
Our ngl's on Prem be assessed solutions to the cloud.
On the transit market ridership continues to be down significantly compared to pre COVID-19.
However, our primary transit product offering is auto is our automated fair collection product, enabling cashless contactless payments.
And we view this as an area in the transit market that will continue to have demand given its public safety benefits.
We continue to build out our transit product suite, adding ENV mobile ticketing and Iot features to expand this business into new geographic markets.
Let me turn the call now over to Mr. Steve Sadler.
Thanks fifth Vince.
As Doug and Vince noted our operations remain financially strong with good cash flow and a strong balance sheet.
We completed the acquisition of altitude December 20th in Q2 was the first full quarter that this acquisition was included in our financial results.
It operated as anticipated in terms of revenue and profitability. In fact, the operating income was a little better than expected. We expect this business to be operating at our normal EBITDA percentage next quarter earlier than normal earlier than our normal time frame from a per acquisitions.
After the quarter, we announced the completion of a small tuck in acquisition.
In the survey and community marketplace, which is being combined with our served box business in the U S. No financial results were included from this operating issues in the quarter.
We continue to focus on capital deployment during our doing our due diligence remotely the acquisition pipeline is strong which is positive although blue although the company values looking to be acquired have increased with strong public markets low interest rates and stimulus.
It makes it a little tougher to do deals within our financial parameters, but opportunities are not getting done at these higher levels in our marketplace. As a result opportunities are taking a little longer to be successfully completed.
We continue to maintain our financial discipline, when reviewing acquisition opportunities, we believe higher global taxes, and the possibility of increasing interest rates will provide significant opportunities within our financial parameters I would now like to open the call for questions.
At this time, we'd like to take any questions you may have for us today.
Please press star 1 on your telephone keypad.
Our first question is from Daniel Chan from TD.
Securities. Your line is open hi.
Hi, good morning, guys.
So you're still pushing on the cloud it sounds like there's still a lot of demand for your cloud solutions, how far along would you say your products are to satisfying your customers cloud means just trying to get a sense of whether you're seeing any risk of these customers turning over to a cloud native competitor.
Hey, Danielle this is Vince yeah. So our product is quite mature it's been in the market through our service providers for many many years we have.
Literally thousands and thousands of agents on the honor Intel's cloud product.
The only new thing as we stood up our own cloud.
Few quarters ago, so where when customers are existing customers that we deal directly with want a cloud solution, we offer them the choice of going to our cloud offering so that the products fully functional it's been in the market for many years and it's fully featured competitive with other cloud multi tenant cloud vendors.
The market.
Okay. Thanks, that's helpful.
And then just on that point, where you said.
They want their own cloud rather than through the service provider is there any risk that you're competing with some of these telcos that are offering contact center as a service and if there is how do you how do you kind of carve out the market relative to what they are addressing.
Yes, so most of the service providers that offer that actually use in house. So we had.
A lot of the world's leading service providers that white label, our product and offer it as a contact center as a service and the way we segment the market as we we work closely.
Closely with our partners and we go by vertical So we'll go directly in some verticals and they'll go directly in other verticals. So we we work closely with them in and minimized channel conflict that way.
Great. Thank you.
Your next question is from Stephanie price with <unk>.
RBC Your line is open.
Good morning.
If you could talk a little bit about the hosted and maintenance revenue line for the press release, you mentioned video as an impact but it also had a comment about customers adjusted their software environment.
Could you stand on that day.
Yeah, just just as a comment as Vincent said before the euro or maintenance for example in the video part where we had video rooms, it's down quite a bit. So it's it's caused that line to go down in our on our financial results, we expect as things open up and we go.
Back to premises that will come back up we also had a couple of let's say large.
Clients that were hanging on in the transportation area in the retail area.
And when the third wave hit they basically stopped or.
Went out of business in 1 and the other 1 they just stopped using the services because it was an airline and it wasn't really having much business. So the numbers down but our future is still fine.
Okay sounds good and then can you talk a little bit about the Nevada infrastructure contracts that you signed and I'm just wondering about any other opportunities in that region.
Jason.
Sure.
Okay, Yeah. So.
As we mentioned these 2 deals are fairly large so there's a lot of the revenue backlog to deliver in the near future. So the focus is currently on.
Delivering that those 2 large projects.
The other area of transit that we're looking to geographically expand is the automated fare collection market and that's the product suite that we are focused on selling in many markets in the world currently.
Yeah.
Yeah, the 1 item.
We should mention and clarify the numbers. We provided you is the contract that we won we were already getting additional revenue from changes. They want made to what was originally proposed so it's not all in its a matter of if this is the contract for delivering what they.
Put out originally but we're already getting additional revenue and services requests to do additional work.
Okay. That's helpful. Thanks, and just finally from me on the margin IMG Division I think normalized margin per or how do you feel about the margin profile.
This quarter that maybe going forward.
On the IMG, it's pretty steady so they're probably pretty normal I would say it always depends on our revenue mix, although more license.
Or software that we do direct has higher margins of course and again. It also depends on maintenance the SaaS side generally have little bit lower margins could sits right now is quite a competitive market with pricing being still tough in that area. So it just depends on the mix, but you can.
Probably use the margin number is pretty normal.
Great. Thank you very much.
Your next question is from policies with Scotia capital. Your line is open.
Great Good morning.
Just T on similar topics, we've talked about in the past on cloud I know, you're agnostic and just wanted to deliver to clients, but could you give us a sense of how much. The business is maybe move to the cloud I M. G. M. G, where you think that maybe goes over the next couple of years.
I'll give a brief 1 and let it led.
Can you talk maybe a little more detail on it.
On the <unk>.
M G very little goes to the cloud they are generally direct it's generally our Oss BSS type systems that we sell so really not much cloud there some.
Competitors are trying to go to the cloud, but they are having difficulty getting a market there an IMG is moving to the cloud.
Again, we offer both whatever the customers want.
My comment would be that I think we've got to learn how to sell more.
<unk> 2 into the cloud.
All.
In the past, we did a lot through channels and on premise type systems.
We've hired the direct sales were going more direct in the cloud.
But it takes a little time to ramp that up last year, we were basically ready to go and put some.
Of the pieces in place and in the Covid hit zone.
So that gets tough to do so we've sort of got the 80 year, but I still feel pretty confident.
That we're ready it just a matter of getting out there and executing it is that we have the software we have the products.
We just got to get more into execution on the sales and marketing side.
And just to add to Steve's comment so the video product we sell out of that in the cloud we get a lot of requests for video a multi tenant cloud and <unk>.
Which I touched on last quarter, that's pretty much all cloud centric so it.
It is moving in the area of contact center as a service unified communication as a service is moving more aggressively to the cloud.
Yes, just another comment in the pandemic when youre not going on site and people are running on their own premises. The cloud is a little easier. So you could see that revenue in that area really hasn't been impacted very much.
But on Prem has which we've done more of and our position is we can sell either we have products that do both.
That makes sense.
On the 1 comment you said there Steven.
The answer, but we're hearing you articulated.
In terms of building up that direct cloud sales force, unlike others, I assume youre going to be pretty measured in going after that.
We shouldn't expect the IMG margins.
Take a big hit if you upfront vast I'm, assuming that's the only if you are seeing.
Significant demand.
Just to clarify.
I like those questions, where you asked me the question and then you give me the answer.
Yes, Yes, you are right [laughter].
[laughter] just checking alright.
Actually the last 1 for Vince here.
Public safety.
The opportunity of whats unique in those contracts in the Scandinavian countries that could maybe take to other markets or are they unique requirements just to to those geographies.
Yes.
Our unique advantage there as we have a lot of credibility in that market, we have a track record and the way our solution is designed.
These systems are quite complex, so they've got to integrate with a lot of systems. So.
Think about.
Integrating with your book geared light so that you can max optimize the routes to the emergency situations Europe, you're integrating 2 databases around People's health et cetera. So we're really good at.
Having a very open system that has lots of Apis to connect into multiple systems.
And so that's kind of part of the reason, we won plus our credibility in the market.
Great. Thanks, guys.
If you'd like to ask a question. Please press star 1 on your telephone keypad. Your next question is from Paul Trussell with RBC capital markets. Your line is open.
Oh, thanks, very much and good morning, just wanted to focus on the PDL for a couple of questions here.
Well you know with the hardware vs.
Subscription or the services business that video could you you mentioned the total revenue.
Go back to pre Covid levels can you speak to.
How it goes.
2 different moving parts there.
What impact that had over the last year hardware versus services.
Sorry, the subscription business.
Yes, so the hardware business.
Like I mentioned has gone down dramatically almost down to nothing we had hardware we were selling hardware rooms to enterprises, along with the support that you need for their hardware rooms, so that just as as the COVID-19 sort of.
Continued people just didn't renew those.
Support contracts and stop buying hardware rooms per their enterprise.
In the video business, where we're strong on the subscription side is in telehealth.
So what happened there is there was a buying surge.
A lot of the hospitals that use us bought tons of capacity not known.
Where that where it was going to land so they sort of bought in anticipation of.
Massive amounts of video calls with doctors and then as it sort of leveled out they just renewed according to the volumes they needed. So that's sort of what happened. So that you had this kind of lift massive lift and then normalization over 4 quarters.
And just to put some numbers.
Quantify that that kind of like how large was the hardware business pre COVID-19 and then when you look at the telehealth business.
Has that grown versus pre COVID-19 levels.
Yeah. So on the telehealth business is up on the subscription side relative to pre Covid. It is up slightly at the hardware is just down dramatically.
Okay, and what I mean.
You paid 2 years adult per video you paid $40 million. When you look at the free cash flow that video has generated over the last 2 years have you gotten to the breakeven point, yet on that acquisition or looking at it. Another way you know how is the IRR tracking on that acquisition relative to when you bought it in your expectations when you bought it.
Yes.
Very well on that I.
I guess, that's the good news out of the pandemic for US we we basically got all our money back already so we go to a 5 or 6 year payback that 1 was probably.
Well, maybe 1 more quarter, but it was just over a year for a payback.
Okay, that's great to hear.
If it wasn't for me just on the expense side looking at SG&A and R&D on a sequential basis.
SG&A declined slightly sequentially, but R&D increase can you explain some of the moving parts there.
Yes part of the R&D remember, what Vince said, we bought altitude on December 30, and they had quite a large R&D group and normally we would rationalize that but they had what we thought was talented people. So we actually took a lot of their team and redeployed it in.
<unk>.
Groups for now so that covered or any openings or a lot of the openings, we had and give us some additional staff to move our products that had a little bit faster. So it moved up mainly because of the acquisition. It's not like we're adding in most places. It's just we filled openings faster a lot of people are having difficulty finding technical staff.
The altitude gave us quite a few additional staff that we deploy not only in helping in the IMG group with the should they did but also in other groups as well. So that's why that went up.
A little bit more than the other items.
Okay. Thank you that's helpful.
We have no further questions at this time I turn the call back to presenters for closing remarks.
Well. Thank you everybody and <unk> continues to have a strong financial position to execute our capital allocation and business strategy, even after paying out over 90 million of dividends in the most recent quarter, we continued to build on our journey.
Thank you for attending the call and your continued support.
This concludes today's conference you may now disconnect.
Okay.
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