Q2 2022 Enghouse Systems Ltd Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Inc. Houses Q2 2022 conference call.
At this time all lines are in listen only mode.
Following the presentation, we will conduct a question and answer session.
At any time during this call you require immediate assistance. Please press star zero for the operator.
This call is being recorded on Wednesday June eight 2022, I would now like to turn the conference call over to Mr. Stephen Sadler. Please go ahead.
Good morning, everybody I'm here today with Vince mixed global President Robert Byrd bid VP Finance Todd may be.
Legal counsel and Sam ended your VP corporate development before we will begin I'll 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.
Putting those in <unk> continuous disclosure filings such as the ice which could cause the company's actual results.
<unk> 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 results. Thank.
Thank you Steve Good morning, everyone I will be discussing the financial and operational highlights for the three and six months ended April 32022, compared to the three and six months ended April 32021 as follows revenue achieved was $106 three and 217.
4 million, respectively, compared to revenue of $117, three and $2 $36 4 million <unk>.
Results from operating activities were 31 point, whiten, and $66 8 million, respectively, compared to $36 nine and $77 6 million net.
Net income was $17 nine and $39 5 million, respectively, compared to 27% and $41 4 million. Adjusted EBITDA was 33, eight and $72 3 million, respectively, compared to 40.2 and $84 7 million cash.
Cash flows from operating activities, excluding changes in working capital was $34, five and $73 3 million respectively.
To $42, six and $84 3 million.
Revenue for the second quarter of 2022 was $106 3 million with results from operating activities of $31 1 million in cash flows from operating activities. Excluding changes in working capital of $34 5 million as a result, we closed the quarter with $231.
$2 million in cash cash equivalents and short term investments with no external debt. We remain focused on operating a profitable cash flow positive business that generates the necessary capital to fund our acquisition strategy without the need for financing revs.
Revenue for the second quarter of 2022 was down from $117 3 million in the same period of the prior year and was negatively impacted by $3 7 million as a result of unfavorable foreign exchange as European currencies have come under pressure with the recent conflict in Ukraine.
Excluding the impact of foreign exchange, our asset management group had comparable revenues for the second quarter of 2021, our interactive management group is experiencing increased competition from cloud solutions providers as the market shifts towards the cloud as more businesses adopt work from home operating models.
While we differentiate ourselves from our competitors by providing customers choice between on premise solutions private cloud and multi tenant cloud offerings. We are augmenting our existing channel partner model with additional focus on our direct go to market approach for our cloud solution that is still in the early stages of its global rollout.
Net income for the quarter was $17 9 million or 32 cents per diluted share compared to $20 7 million or <unk> 37 per diluted share last year. The decrease in net income as a result of higher revenue in the comparative period, despite lower operating expenses in the current period.
Adjusted EBITDA was $33 8 million or 61 cents per diluted share compared to $40 2 million or <unk> 72 per diluted share in the second quarter of 2021.
<unk> closed the quarter with $231 2 million in cash cash equivalents and short term investments compared to $198 8 million as at October 31, 2021 with no external debt. The cash balance was achieved after making payments of $17 8 million for dividends in the first.
Six months of 2022 and.
<unk> remains focused on its long term growth strategy investing in products, while ensuring profitability and maximizing operating cash flows as a result, npls continues to replenish its acquisition capital while annually increasing its eligible quarterly dividend.
Yesterday, the board of directors approved the company's eligible quarterly dividend of $18.05 per common share payable on August 31, 2022 to shareholders of record at the close of business on August 17, 2022. This payment represents an increase of 16% compared to the.
Prior year.
I will now hand, the call back to Mr. Sadler.
Our bids will now give some operational highlights of the quarter. Thank.
Thank you Steve.
As Rob has communicated we continue to generate positive operating income and cash flows.
This quarter's EBITDA was $33 eight.
Million.
Representing 31, 8% of sales and we closed the quarter with $231 million in cash with no debt.
This leaves us in a very good position to fund future acquisitions.
Gross margins in the quarter were 68, 4%.
We added a number of new staff to our team in Q2 to deliver the next phases of our large public safety projects, which take about 90 days to be fully productive.
Our revenue in Q2 was one.
$6 2 million.
Lower than Q2 of 2021 of 117.
<unk> three.
This decline comes from our interactive division and foreign exchange.
Foreign exchange continue continued to have quite a negative impact on our revenue.
Foreign exchange decreased revenue by $3 7 million compared to prior year Q2 2021 and.
And $8 1 million on a year to date.
Mrs.
The overall contact center market is growing and the shift to the cloud is accelerating.
The accelerated shift was primarily driven by Covid, resulting in contact center employees working from home.
Now many companies adopting some new form of working from home program.
However, the overall need for companies to improve their customer experience to retain customers is only increasing.
And technologies like us that help improve these experiences are growing in significance.
Charles has made several investments in our go to market strategy.
To address the growing.
Cloud shift over the last 12 to 18 months.
We added some new senior management with cloud go to market experience.
Including our recent hire of a new global ahead of demand Gen in Q2.
Our newly created role for us.
Our sales teams are more focused on selling direct to augment our channel programs with telcos.
And we've stood up for cloud nodes globally. So we can now provide software as a service directly to our customers in the United States Canada.
Europe and Asia Pac.
These initiatives and efforts have resulted in a 65% growth.
In our contact center.
Cloud type sales pipeline this quarter compared to Q1 2022.
And 40% of our total pipeline are now SaaS deals.
We are.
Still relatively early in the direct selling of our multi tenant and Chelsea cast product and our private cloud offerings.
Our direct selling approaches vertically focused.
Rather than take a horizontal approach to the market, which drives up customer acquisition costs and doesn't serve customers well.
We focus on what we call micro vertical segments, where we have good customer reference reference ability.
And unique product advantages compared to generic horizontal offerings.
We also sell and service customers with local teams and local languages and time zones across Europe . The U S Americas Asia.
Which provides an added level of comfort for customers, which is really important when it comes to mission critical software.
And chose <unk>.
Cash.
Is a comprehensive cloud contact center product.
<unk> has the ability to scale up and down.
We have customers with as few as 10 agents on the platform and as high as 2500 concurrent agents.
Which allows us to service about 80% plus of the addressable market.
Our product handles any customer interaction point, including phone website chats.
Have over 20 social.
Platform plug ins, we handle email video.
We have embedded AI, including chat bots quality management.
Comprehensive CRM integrations extensive <unk> reporting et cetera.
We are also very cost effective given our rapid speed of deployment and out of the box capabilities.
From a product perspective, we have an impressive offering and at this point our goal.
Just to get in front of more direct cloud deals.
Giving given we're not as well known in the market as a cloud provider because our historical indirect approach to the market.
On the competitive front.
What we are seeing our cloud contact center in the cloud contact center market or some competitors.
Operating their businesses at a significant loss.
Spending on sales and marketing to win market share.
However, this is not our business model our approach.
We continue to be disciplined about running a sustainable profitable business and we maintain it for all parts of bench house, including our cloud.
Business.
Our video business has evolved quite significantly since the start of the Covid pandemic.
At the start of the pandemic, we experienced a massive spike in peer to peer video, calling between a doctor and a patient.
It was our primary use case.
This was then followed by continued volume declines and more price competitiveness for this initial use case, which continued into this quarter.
Now we are seeing health care demands evolve further beyond just doctor patient calling.
Awards enhanced workflows.
And video patient monitoring.
We've expanded our video telehealth products.
Spiritual center as an example of a new product, which is a patient monitoring tool that allows for.
From a single screen, a medical professional to monitor multiple patients.
Patient portal another new product.
It's very complex Doctor patient video communication workflows visa.
These offerings, which we launched over the last year are now being sold into the health care market and building momentum and we see these products and use cases as a potential catalyst.
Offsetting the decline in peer to peer calling.
On a constant currency basis.
Our asset management Division has improved again this quarter compared to Q1 2022, which was also up from Q4 2021.
This division on a year to date basis.
On a constant currency basis, it was up compared to 2021 also.
Overall, the division has delivered very consistent performance.
<unk> continues to not experience any significant increase in demand for cloud solutions.
We are investing ahead of the potential future cloud demand.
And have implemented a cloud readiness initiative for our key telecom products too.
To ensure they can be deployed in the cloud should the market move in this direction at some point in the future.
I P. T V, which is our multi tenant SaaS offering continues to see good demand signing new logos again. This cut this quarter. We now have 12, new IP TV customers and nine have recently gone live in the last six months.
Our large public safety projects are in full execution mode and.
And we added a number of people to the team in Q2 due to deliver the next phases of these projects.
The transit automated fair collection payments business is also picking up momentum and we're rolling out our E. M V solution across a number of our European customers and started actively selling and building our pipeline into the Americas market leveraging the signing of a master framework agreement with the California State Department of.
<unk>.
We are pleased pleased with the performance of our asset management Division and the initiatives. We are taking in our interactive division to improve organic growth.
While maintaining our business model of profitability.
Let me turn the call over to Mr. Steve Sadler.
Thanks, Vince in terms of acquisitions, the actionable pipeline continues to improve as previously noted with rapidly increasing interest rates declining.
Declining public tech values and the possibility of rising taxes valuations are becoming more with more realistic in terms of meeting our financial criteria.
It is true that we have not completed any acquisitions for about a year, but we have maintained our financial discipline, which seems to have been the right strategy considering the substantial recent decline in tech valuations are growing cash balance no financial debt put us in a very good position for the future.
Sure.
Time, just best to be patient deploy one's cash to get the best long term return for shareholders I would now like to open the call for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press the star followed by the one and you touched on phones.
You will then hear three Tom prompt acknowledging your request and your question will be Paul in the order that they are received.
Should you wish to decline from the polling process. Please press the star followed by the Q.
And if you are using a speaker phone please lift the handset before pressing any Keith one moment. Please for your first question.
Your first question comes from Stephanie price from CIBC. Please go ahead.
Hi, good morning.
I wanted to circle back on that on the direct sales force for the cloud contact Center solutions can you talk a bit more about whether the team is fully staffed and unproductive and how we should kind of think about the rollout of the direct sales question here.
Yeah, I would characterize it as.
We're never fully staffed, but we're well staffed and our direct there's been a lot of training as well on.
Selling cloud contact center and SaaS. So that training is largely behind us and we're building pipeline as I mentioned, so the pipeline has grown quite a bit and continues to grow so that's where we are.
Okay, Thanks, and in the past you've talked about 70% of your contact center revenue from on premise is that still the number we should be thinking about and how do you think that number evolves over time.
Yeah, I you know definitely I think it's about the same it might be a lower total, but I think the percentage is still about the same today, 70%, although we're moving more into the cloud and now that we've set up these platforms in various regions, which we didn't have before.
Okay. Thanks, and just finally for me in terms of the partnerships you mentioned the telcos and the cloud solutions. Just curious how you think about partnerships and how how those relationships are evolving as you look at the market today.
Yeah. So we maintained the telco partners.
Because it's a lot of them have invested heavily and have stood up.
Our platform in our white labeling it so that continues that program.
And the standing up of our own SaaS is just augmenting that.
On the on Prem side.
You know given that theres less demand for on Prem contact center in general resellers play at a much smaller part and in SaaS deals, they're more like consider them more like lead generation, rather than delivering hardware and services. So they play a lesser role in the SaaS world than they do on.
Non prem basis and.
And less like our telcos, they stand up their own cloud and go to market directly.
Okay, Stephanie just to add something to just add something to that we're pretty strong with the telcos, but not in the U S. We don't have a big telco, we really had telus in Canada, but really don't have full coverage in Canada, we had nothing in Australia. So in Vince batches we.
Set up road platforms, it's in basically areas, where we didn't have telcos.
To do what we need to be done on the SaaS side. So it's bit of an expansion as well into areas, where we didn't have a telco partner and therefore, we've set up our own.
Platform to go at those markets.
Okay. Thank you for the color.
Thank you.
Ladies and gentlemen, just as a reminder, if you do have a question. Please press star then the number one.
Your next question comes from Paul.
<unk> <unk> from RBC. Please go ahead.
Thanks, very much and good morning.
Regards to the decline in I am G. On a constant currency basis can you clarify how much of the decline is related to video and how much is related to the rest of IMG.
Yeah, Yeah. Good questions substantial portion of the decline won't give an exact number is video.
I think it's a material portion of the decline.
And foreign exchange those are the two factors.
Driving the decline in interactive.
Okay. That's helpful and then zooming in and sorry.
The video.
Yes.
When you look at the acquisition in its entirety, you had the sort of the boom out of the gate what would you say the IRR and the acquisition overall is it above what you anticipated when you when you initially made the acquisition.
I would think so.
We're now back to that volume, but in the FERC after the pandemic hit we.
We made substantial gains all the revenue went up as people ordered more.
More seats et cetera, and that's why we paid out the 85 million special dividend.
That dividend was really profit we'd made into both the first let's say 15 months.
And rather than go forward, we tried to explain that it was an unusually bad. Therefore, we took an unusual action and provided an unusual dividend.
We've since gone back to a more normal level. It is profitable, but it has lowered the profit or loss because during that period.
You know, we made $85 million, we paid 40, and we made the 85, probably in 15 16 months. So the return was pretty good.
And.
Looking at the remainder of IMG and I imagine just given that the headwinds over the last couple of years of the cloud maybe renewal rates have gone down a little bit.
When you look at overall like the returns in that segment.
What's your enthusiasm to continue to make acquisitions in IMG or has the underlying.
Market.
Yeah structure economics change, where it's less attractive to make acquisitions in that segment.
It's it's not as attractive to buy SaaS companies in that segment, because they tend to grow and lose more money as they grow. So we tend not to buy goes however, it does put pressure on some of the other players who are good customer bases. Good software like when we bought altitude and the REIT.
Turn on investment is actually quite high for us because others are not interested because the market all what's SAS, but SaaS.
SaaS actually doesn't give as good a return other than.
And the stock market than from what we actually get a return on cash from buying those companies and if you look at the market today several of those returns who they were pretty frothy at the time.
Favorite of course is five nine who has gone from about $200 to under 100.
Such a good return so we avoided those types of returns and we bought an altitude. It really doesn't have much growth shrinking a little bit but has a very good return compared to what we paid.
Two what they added in value for us in terms of profitability and cash flow.
And just a.
Last question for me.
I mean, just in terms of the IMD just excluding video for a segment the segment continues to trend down.
I mean, obviously the long term organic growth is stability in that business would have a significant impact on the IRR on acquisitions.
Or do you see this.
Ultimately that that business stabilizing.
In the past you said low single digits positive organic growth do you think thats still the reasonable long term outlook for that segment.
Yes, I think that is the reasonable all medium term outlook for that segment versus long term and I also think there should be more opportunities for us to do acquisitions as some of those are our competitors are feeling the same pressure from a five nine for example.
So that is growing okay, but not doing so well in terms of making money.
So again from that side there is pressure in the marketplace from people trying to get market share versus profitability and that impacts a lot of people in the market. So I'm, hoping it also will show up in some acquisition opportunities for us as well.
And we've all we still invest a lot in it.
In our R&D and again, we're still investing in building that business forward, it's a big market.
And we feel quite comfortable with our returns in that market, even today, even with lower revenue.
Okay. Thank you I'll pass the line.
Thank you.
And there are no further questions at this time Mr. Sandler you May proceed your conference.
Okay and shows a very strong financial position to execute our capital allocation and business strategy.
I wanted to inform you we have recently increased our acquisition team in anticipation of more opportunities to deploy capital in the next couple of years.
Also as Vince outlined we continue to invest in our operations to improve internal growth.
We want to thank you for your patience and we look forward to talking to you again next quarter.
Ladies and gentlemen, this concludes your conference call for today, we thank you very much for participating and ask that you. Please disconnect your lines have a great day.
Yes.