Q3 2024 Enghouse Systems Ltd Earnings Call

September 6, 2024

Speaker Change: Good morning, ladies and gentlemen. Welcome to the Edge House's Q3 2020 Work on Friends Call.

Unknown Executive: 33, 2024 conference call. At this time, online sereneless in only mode.

Unknown Executive: Following the presentation, we welcome back a question-and-answer session. If at any time during this call, your required immediate assistance, please press star zero for the operator.

Speaker Change: At this time, all minds are in a listen, only mode. Following the presentation, we will come back a question and answer session.

Speaker Change: But any time during this college require immediate assistance, please press a star zero for the operator. This college being recorded on Friday, September 6, 2024. And now, like to turn the conference over to Stephen Sadler, Chairman and CEO, please go ahead.

Unknown Executive: This call is being recorded on Friday, September 6, 2024.

Stephen Sadler: I'd now like to turn the conference over to Stephen Sadler, Chairman and CEO. Please go ahead. Good morning, everybody. I'm here today with Vincent Mifsud, Global President, Rob Medved, V.D.

Stephen Sadler: Good morning everybody. I'm here today with Vince Mifsud, Global President, Rob Medved, VB Finance and Todd May, VP Legal Council. Before we begin, I'll have Todd Reed, our forward disclaimer.

Unknown Executive: Finance, and Todd May, V.T. Legal Council.

Todd Reed: Certain statements may be forward-looking by their nature, such forward-looking statements are subject to various risks and uncertainties, including those in enters as continuous disclosure planning such as AIS, which could cause the company's actual results and experience to differ materially from anticipated results or other expectations.

Todd May: 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 other ones.

Todd Reed: 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 it has a result of new information, future advanced forward-other works.

Robert Medved: Rob will now give an overview of the financial results. Thanks, Steve. I'll take us through the third quarter financial highlights. Revenue increased 17.6% to 130.5 million in the quarter from 111 million in Q3 2023, and for the nine-month period increased 13.9% to 376.8 million from 330.9 million last year. Recurring revenue, which includes SaaS and maintenance services, grew 22.8% to 88.8 million compared to 72.3 million in Q3 2023, and now represents 68.1% of total revenue. For the nine-month period, recurring revenue increased to 258.4 million from 210.4 million in the prior period, also an increase of 22.8% as we continue to prioritize this revenue stream.

Todd Reed: Thanks, Todd. Rob will now give an overview of the financial results.

Rob: Thanks, Steve. I'll take us through the third quarter of financial highlights.

Rob: Revenue increased 17.6% to 130.5 million in the quarter from 111 million in Q3, 2023.

Rob: and for the 9 month period increased 13.9% to 376.8 million from 330.9 million last year.

Speaker Change: Recurring revenue, which includes SaaS and maintenance services, grew 22.8% to 88.8 million, compared to 72.3 million in Q3, 2020, and now represent 68.1% of total revenue.

Speaker Change: For the 9 month period, recurring revenue increased to 258.4 million from 210.4 million in the prior period, also an increase of 22.8 percent as we continue to prioritize this revenue stream.

Robert Medved: Results from operating activities increased to 34.3 million from 30.9 million in Q3 2023, and has increased for the nine-month period to 100.4 million from 86.4 million in the prior period. Net income was 20.6 million compared to 17.6 million in Q3 2023, and 58.7 million to date compared to 47.1 million last year as we grow our business with focus on profitability. Adjusted EBITDA increased to 37.7 million from 33.4 million, growing by 12.9%, while achieving a 28.9% margin. Your-to-date adjusted EBITDA was 108.2 million compared to 95.9 million in the prior year, an increase of 12.8%. Cash flow from operating activities, excluding changes in working capital, was 37.4 million compared to 35.5 million in the prior quarter, and 111.5 million year-to-date compared to 97 million in the comparable period.

Speaker Change: Results from operating activities increased to 34.3 million from 30.9 million in Q3 2020 and has increased for the 9 month period to 100.4 million from 86.4 million in the prior period.

Speaker Change: Net income was 20.6 million, compared to 17.6 million in 23, 2020, and 58.7 million to date compared to 47.1 million last year as we grow our business with focus on profitability.

Speaker Change: I just said he would die increased to 37.7 million from 33.4 million, growing by 12.9%. While achieving a 28.9% margin,

Speaker Change: Dear today, I just did a bit dumb, was 108.2 million, compared to 95.9 million in the prior year, an increase of 12.8 percent.

Speaker Change: Cashflow from operating activities, excluding changes in working capital, was 37.4 million compared to 35.5 million in the prior quarter, and 111.5 million year to date compared to 97 million in the comparable period.

Robert Medved: Cash equivalents and short-term investments reached new record highs at 258.7 million as at July 31st, 2024.

Speaker Change: Cash, Cash Quillants, and short-term investments reach near record highs at 258.7 million as at July 31st, 2024.

Robert Medved: Our third quarter operating performance continues its upward trend, with revenue, profitability, and operating cash flow all exhibiting positive growth. Our commitment to operational efficiency, alongside our capability in executing and integrating acquisitions, continues to deliver positive results. This quarter, we completed the acquisition of C-Change, expanding our IPTV market presence, a growing sector for Enchhouse. We have effectively integrated C-Change into our asset management group, achieving profitability in its first quarter post acquisition, although not yet at our standard levels. Our strategic direction remains steadfast as we continue to expand our business profitability, offering both SaaS and on-premise solutions, positions us uniquely in the marketplace. Operational enhancements across our existing businesses and recent acquisitions are driving positive outcomes, enabling us to maintain robust cash reserves, while simultaneously increasing annual dividends, repurchasing shares, and pursuing acquisitions.

Speaker Change: Our third quarter operating performance continues its upward trend with revenue profitability and operating cash flow, all exhibiting positive growth. Our commitment to operational efficiency alongside our capability in executing and integrating acquisitions continues to deliver positive results.

Speaker Change: This quarter, we completed the acquisition of C-change, expanding our IPTV market presence, a growing sector for end-shows. We have effectively integrated C-change into our asset management group, achieving profitability in this first quarter post-acquisition, although not yet at our standard levels.

Speaker Change: Our Strategic Direction remains steadfast as we continue to expand our business profitability.

Speaker Change: Offering both sats and on-premise solutions positions us uniquely in the marketplace.

Speaker Change: Operational enhancements across our existing businesses and recent acquisitions are driving positive outcomes, enabling us to maintain robust cash reserves while simultaneously increasing annual dividends, repurchasing shares and pursuing acquisitions.

Robert Medved: Yesterday, the Board of Directors approved the company's eligible quarterly dividend of 26 cents per common share, payable on November 29, 2024, to shareholders of record at the close of business on November 15, 2024.

Speaker Change: Yesterday, the Board of Directors approved the company's eligible quarterly dividend of 26 cents per common share. Payable on November 29, 2024, to shareholders of record at the close of business on November 15, 2024.

Stephen Sadler: I will now turn the call back to Mr. Sadler. Thanks, Rob.

Vincent Mifsud: This will now give some operational highlights of the quarter. Thank you, Steve. We are pleased to announce another quarter of double-digit growth across all our key financial indicators, including total revenue, recurring revenue, and operating profits. This marks our fourth consecutive quarter of double-digit growth in both total and recurring revenue. It's been a particularly good quarter, delivering one of our strongest top-line performances in our company's history and achieving our highest revenue quarter since 2020. Sequential revenue for Q3 2024, in comparison to Q2 2024, is especially positive; that historically, this quarter has seen a seasonal dip in organic revenue due primarily to our customer's summer cycles.

Speaker Change: I will now turn the call back to Mr. Sadler.

Mr. Sadler: Thanks for all. This will now give some operational highlights of the quarter.

Mr. Sadler: Thank you Steve.

Mr. Sadler: We are pleased to announce another quarter of double digit growth across all our key financial indicators, including total revenue, recurring revenue and operating profits.

Speaker Change: This marks our fourth consecutive quarter of double digit girls in both totals and recurring gravity.

Speaker Change: It's been a particularly good quarter delivering one of our stop-strongest top-line performances in our company's history and achieving our highest revenue quarter since 2020.

Speaker Change: Sequential revenue for Q3 2024 in comparison to Q2 2024 is especially positive that historically this quarter has seen seasonal dip in organic revenue to primarily to our customers' summer cycles.

Vincent Mifsud: However, this year, we effectively mitigated that trend, maintaining total organic revenue in line with Q2 2024. We attribute our financial performance to three factors: our team's execution, acquisitions and our ability to integrate them, and our unique market position as one of the few companies offering true customer choice. I would like to highlight several examples of how we have enhanced our business execution. Our business delivered good performance across several key areas, including our go-to-market sales teams, demand generation, product and engineering, operations, cost management, and collection efforts. Several of our sales regions achieve sequential improvement against the trend of a historically Software Q3.

Speaker Change: However, this year we effectively mitigated that trend, maintaining total organic revenue, in line with 2224.

Speaker Change: We attribute our financial performance to three factors, our team's execution.

Speaker Change: Acquisitions in our ability to integrate them and our unique market position as one of the few companies offering true customer choice.

Speaker Change: I would like to highlight several examples of how we have enhanced our business execution.

Speaker Change: Our business delivers good performance across several key areas, including our go-to-market sail teams, demand generation, product engineering, operations, cost management, and collection efforts.

Speaker Change: Several of our sales regions achieved sequential improvement against the trend of a historically software Q3.

Vincent Mifsud: This quarter also marked one of our strongest performances in new order bookings, and key successes include expanding our partnership with a leading global telecom provider for our Enchhouse Cloud Contact Center product, securing additional deals in the Middle East, growing our transit business in Europe, and increasing the adoption of our video products into the government and pharmaceutical sector.

Speaker Change: This quarter also marked one of our strongest performances in new order bookings, and key successes include expanding our partnership with a leading global telecom provider for our and Shows Cloud Context Center product.

Speaker Change: Securing additional deals in the Middle East, growing our transit business in Europe, and increasing the adoption of our video products into the government and pharmaceutical sectors.

Vincent Mifsud: Partners. Our customer experience and renewal team also performed well, helping to drive recurring revenue and improved customer retention. This team is focused on enhancing customer retention and expanding recurring revenue, and a key achievement discord with securing our largest ever three-year multi-million dollar SaaS renewal, which will contribute to revenue over the next 36 months. Our demand generation team also achieved one of their best quarters of inbound leads, optimized with the use of AI tools. They made substantial progress in our organic SEO, securing first page rankings for over 50 industry terms, which is a significant improvement over 12 months ago, and it's leading to cost-effective lead generation.

Speaker Change: Our customer experience and renewal team also performed well, helping to drive recurring revenue and improved customer retention.

Speaker Change: This team is focused on enhancing customer retention and expanding recurring revenue and a key achievement this quarter was securing our largest ever, three year multi-million dollar SaaS renewal, which will contribute to revenue over the next 36 months.

Speaker Change: Our Demand Generation team also achieved one of the best quarters of inbound leads, optimized with the use of AI tools.

Speaker Change: We made substantial progress in our organic SEO securing first page rankings for over 50 industry terms, which is a significant improvement over 12 months ago, and it's leading to cost-effective lead generation.

Vincent Mifsud: From a million dollars in professional services, an increase of 14 percent from last year, marking one of our highest professional service revenue quarters, while at the same time improving professional services growth margins. Our product and engineering teams also delivered a strong quarter. This team started to leverage AI tools to accelerate engineering velocity, and we began using these tools in our contact center group and are now expanding them across all the engineering teams. We also completed the cloud up list for our strategic networks products and introduced a new transit product for the America's markets. Another key aspect of execution came from our finance team, which maintained a strong focus on cash collections, an important effort during a high interest rate environment where customers tend to hold on to their cash more tightly.

Speaker Change: From an operation standpoint, we achieved $18 million in professional services and increased of 14% from last year, marking one of our highest professional service revenue quarters, while at the same time improving professional services growth margins.

Speaker Change: Our product and engineering teams also delivered us from quarter. This team started to leverage AI tools to accelerate engineering velocity and we began using these tools in our contact center group and are now expanding them across all the engineering teams.

Speaker Change: We also completed the cloud uplift for our strategic networks products and introduced a new transit product for the America's market.

Speaker Change: Another key aspect of execution came from our finance team, which maintained a strong focus on cash collections, and important effort during a high interest rate environment were customers tend to hold on to their cash more tightly.

Vincent Mifsud: We ended the quarter with a strong cash balance of $259 million after spending $30.8 million on the acquisition of C-change, $14.4 million on dividends, and $1.8 million on share buybacks. This reflects our finance team's effectiveness in cash collections and treasury management. Additionally, our 11 percent operating profit growth highlights our continued focus on cash management. Regarding our acquisitions, we've deployed $43.4 million on acquisition so far in fiscal 2024, which includes the most recent acquisition of IPTV provider C-Change that we completed at the start of C-3. IPTV is an important growth area for end-chose, and this acquisition has elevated its importance.

Speaker Change: We ended the court with a strong cash balance of 259 million after spending 30.8 million on the acquisition of C change, 14.4 million on dividends and 1.8 million on share by-backs.

Speaker Change: This reflects our finance team's effectiveness in cast collections and treasury management.

Speaker Change: Additionally, our 11% operating profit growth highlights our continued focus on catch management.

Speaker Change: Regarding our acquisitions, we deployed 43.4 million on acquisition so far in fiscal 2024, which includes the most recent acquisition of IPTV provider's exchange that we completed at the start of Q3.

Speaker Change: IPTV is an important growth area for NGOs, and this act position has elevated its importance.

Vincent Mifsud: Since we launched our IPTV product, we have consistently added new customers in North America and grown our business quarterly. The purchase of C-change enhances our IPTV offering by expanding our presence into Europe and the Latin market, as well as entering into a new IPTV market, enabling us to deliver video streaming solutions directly to content creators such as top media and sports organizations. This introduces a new market segment for us, complementing our existing market through operators. C-change contributed positive operating income, as Rob mentioned, started immediately in Q3, although not in line with our normal profit margins yet, given it's the first quarter post-doc was in the market.

Speaker Change: Since we launched our ITTB product, we have consistently added new customers in North America and grown our business quarterly.

Speaker Change: The purchase of each of these changes are IPTV offering by expanding our presence into Europe and the Latin market as well as entering into a new IPTV market, enabling us to deliver video streaming solutions.

Speaker Change: Directly to content creators such as top media and sports organizations.

Speaker Change: This introduces a new market segment for us, complementary or existing market to operators.

Speaker Change: C change contributed positive operating income, as Rob mentioned, started immediately in 23, although not in line with our normal profit margins yet, given it's the first quarter post-acquisition.

Vincent Mifsud: Our choice offering has proven to be an effective business strategy, significantly aiding and customer retention. Choice allows our customers to migrate to SaaS at their own pace, when and if they desire to do so. The expansion of our recurring revenue in the quarter is driven primarily by the growth in SaaS revenue. We viewed choice as a key competitive advantage, which is helping build loyalty with our customers, ultimately driving recurring revenue growth. In summary, while we recognize there's always lots of room for improvement, we are pleased with the quarter's results driven by our team's execution across organic and acquisitions, and we remain confident that our choice strategy is well aligned with the needs of the customers and the markets we are in.

Speaker Change: Our choice offering has proven to be an effective business strategy, significantly aiding in customer retention.

Speaker Change: Choice allows our customers to migrate to Sadler.

Speaker Change: At their own pace, wind and if they desire to do so, the expansion of our recurring revenue in the quarter is driven primarily by the growth in South-Revy.

Speaker Change: We view choice as a key competitive advantage, which is helping build loyalty with our customers, ultimately driving recurring revenue growth.

Speaker Change: in summary.

Speaker Change: While we recognize there's always lots of room for improvement.

Speaker Change: We are pleased with the quarters results driven by our team's execution across organic and acquisitions.

Speaker Change: and we remain confident that our choice strategy.

Speaker Change: is well aligned with the needs of the customers and the markets we are in.

Stephen Sadler: Let me turn the call over to Mr. Steve Sadler. Thanks, Vince.

Speaker Change: Let me turn the call over the Mr. Steve Sadler.

Stephen Sadler: With respect to acquisitions, as both Rob and Vince have mentioned, we completed the acquisition of the assets of C-Change in the quarter, early in the quarter, but not for a full quarter. The acquisition has been integrated into our Asset Management business group. For the quarter, the business of profitability was not at our historic levels, as Vince has said.

Steve Sadler: Thanks, Vincent.

Steve Sadler: With respect to acquisitions, as both Rob and Vincent have mentioned, we completed the acquisition of the assets of C change.

Steve Sadler: In the quarter, early in the quarter, but not for a full quarter. The acquisition has been integrated into our asset management business group.

Speaker Change: For the quarter, the business of profitability was not at our historic levels, as Vincent said. It was profitable in the first quarter.

Stephen Sadler: It was profitable in the first quarter, which is a little unusual because usually the first quarter of an acquisition has a negative impact on EBITDAW profitability. It was slightly profitable, but we expect to improve profitability in the next quarter and thereafter.

Speaker Change: which is a little unusual because usually the first quarter of an acquisition has a negative impact on EBITDA profitability. It was slightly profitable, but we expect to approve profitability.

Stephen Sadler: We continue to see substantial opportunities in our industry sectors, with some larger organizations having debt problems, staff reductions, and interest costs which are not supported by their slowing growth operations.

Speaker Change: in the next quarter and thereafter.

Speaker Change: We continue to see substantial opportunities in our industry sectors, with some larger organizations having debt problems, staff reductions, and interest costs which are not supported by their slowing growth operations. I would now like to open the call for questions.

Unknown Executive: I would now like to open the call for questions. Thank you, and ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you are using a speaker phone, please speak up your handset before pressing any keys. Then we draw your question. Please press a star followed by the number two. Once again, please press a star one to join the queue.

Speaker Change: Thank you, and ladies and gentlemen, we will not begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you're using a speaker phone, you speak up your handset before pressing any keys.

Daniel Chan: And your first question comes from the line of Daniel Chan with TD Coin. Please go ahead. Hi, good morning. Your MD&A states that the client software licenses revenue is due to a decrease in demand for on-prem software. Can you just provide any details on the major drivers behind that? I just want to know if there's any churn or here. Sorry, Daniel. Can you repeat that last part, Daniel? Yeah, just on the software licenses, what are the major drivers of the decrease in demand there? I know, like, SaaS may be part of it, but just wanted if there's any churn or prayer.

Speaker Change: And your first question comes from the line of Daniel Chan with T.D. Cohen, please go ahead.

Daniel Chan: Hi, good morning. Your MD and A state that the clients offered license is revenues due to a decrease in demand for on-prem software, can't just provide any details on the major drivers behind that. Just one of those in each turn.

Speaker Change: I'm going to hear the last part, so you Daniel, can you repeat good? That last part, Daniel?

Daniel Chan: Yeah, just on the software licenses, what are the major drivers of the decrease in demand there? I know, like, SaaS may be part of it, but just one if there's any churn or prior.

Stephen Sadler: Yeah, it's, as I mentioned in my earlier discussion, it's mainly driven by our choice strategy and offering customers the ability to stand up a SaaS, either their own SaaS or use our SaaS platform. So that's basically the dealt with it. here.

Speaker Change: Yeah, it's...

Speaker Change: As I mentioned in my...

Speaker Change: Earlier discussion, it's mainly driven by our choice strategy and offering customers the ability to stand up a sat, either their own sat or use our sat platform. So that's basically the delta there.

Stephen Sadler: Okay, so just to be clear, there's no doubt that you'll notice that our amount of SaaS or recurred revenue as a percentage of total revenue increased a fair bit in the quarter. So some of the prep are moving there. I will say SaaS is not as profitable for most of our competitors or even us. So we've got to work to make some get worse efficiencies there. I believe investors may like it, but it does slow down profitability, cash flow. At least at this stage, is everyone's fighting for basically new customers. If you look at our competitors, you'll find they are struggling.

Speaker Change: Okay, it's just to be clear there's you will know to understand you'll that

Speaker Change: You'll notice that our amount of sass are required for you as percentage of total revenue increased a fair bit in the quarter. So some of the primary moving there, I will say sass is not as profitable for most of our competitors or even us.

Speaker Change: So we've got to work to make some of the get more efficiencies there. I believe investors may like it but it does slow down profitability, cash flow.

Speaker Change: At least at this stage is everyone's fighting for.

Speaker Change: Basically, new customers. If you look at our competitors, you'll find they are struggling.

Daniel Chan: I struggling being debt interest, which is often not covered and their growth is slowing in that area. Okay, thanks for that.

Speaker Change: I struggle in being deaf.

Speaker Change: Interest, which is often not covered, and their growth is slowing in that area.

Stephen Sadler: Just to be clear, is there any impact from increased churn or any pricing pressure that's impacting that? I would say churn is about as it always has been. You know, with some churn, total churn out and some churn goes from maintenance to SaaS or licenses going to SaaS. As pricing pressure, yeah. The other for us, it's not too bad because we've always looked for profitable growth and profitable sales. Some of our customers are struggling. And then you just add to that, if you look at our recurring revenue, you can see it's expanding and growing quite a bit.

Speaker Change: Okay, thanks for that. Just to be clear, is there any impact from increased churn or any pricing pressure that's impacting that?

Speaker Change: I would say, churn is about as it always has been, you know, we're some churn total churn out and some churn goes from maintenance.

Speaker Change: Justice, or Licenses going to SAS. As pricing pressure, yeah, the other for us, it's not too bad, just we've always looked for profitable growth and profitable sales. Some of our competitors are starting to suffer. And again, if you analyze that, you'll see what I mean.

Speaker Change: And then you're just to add to that if you look at our recurring revenue, you can see it's expanding and growing quite a bit. And that talks through our retention rate, our retention rates.

Daniel Chan: And that talks to our retention rate or retention. That's also being positive. Yeah, that's great. Thank you.

Statiab: The Statiab, the Statiab Statiab Statiab Statiab.

Stephen Sadler: Maybe on the R&D, again, in the filing of the States, it's up because of acquisition SaaS and AI. Are you able to quantify how much of that increased R&D as a result of the latter two, the SaaS and the AI part? The increase is probably more than you think us without the SaaS and AI. When I say SaaS, you've got sea change in there now, too. I would think that that ratio would have been lower. So it adds to it. It takes a little bit of time when you do an acquisition, especially in the R&D area, to get the costs out because you've got to finish off projects that you're already doing.

Speaker Change: Yeah, that's great, thank you. Maybe on the R&D, again, in the following states, it's up because of acquisition SaaS and AI. Are you able to quantify how much of that increased R&D is a result of the latter to the SaaS and the AI part?

Speaker Change: The increase is probably more.

Speaker Change: Then you think us without the SaaS and AI, when I say SaaS, you've got sea change in there now too. I would think that that ratio would have been lower.

Speaker Change: So it adds to it, it takes a little bit of time when you do an acquisition, especially in the R&D area, to get the costs out, because you've got a finish off, folks you have to get that you're already doing. So that's an area that likes a little bit in.

Stephen Sadler: So that's an area that lags a little bit in any streamlining we might do. And Daniel, I had also touched on; we did a fairly big initiative to make our networks products cloud-enabled. And we completed all the strategic ones by the end of Q3. So that investment we got done. Yeah, I think the important thing, again, I'm not sure we focused enough on what you're saying. We spend a fair bit on R&D. Some would say more than we should, but in spite of that spending, we still have a good EBITDAW that we believe will grow as we bring in the Sea Change acquisition, which was profitable the quarter, but barely.

Speaker Change: and any streamlining we might do.

Speaker Change: Daniel, I also touched on, we did a fairly big initiative to make our networks products cloud enabled, and we completed all the strategic ones by the end of the Q3, so that investment. We got done.

Daniel Chan: Yeah, I think you're part and thing, again, I'm not sure we focus enough on what you're saying.

Speaker Change: and we spend a fair bit on R&D.

Speaker Change: Sam was saying more than we should.

Sam: But in spite of that spending, we still have a good EBITDA that we believe will grow as we.

Speaker Change: You know, bringing this C change acquisition, which was, you know, profitable to court, but barely.

Daniel Chan: Usually, we have a loss in the first quarter of an acquisition. So we do expect EBITDAW profitability will improve in future quarters, as some of the things we get into quarter will impact future quarters. That's helpful. Thank you.

Speaker Change: Usually we have a loss in the first quarter of an acquisition, so we do expect.

Unknown Executive: I'll pass the line.

Speaker Change: That's also, thank you for your past life.

Erin Kyle: And your next question comes from the line of Erin Kyle with CABC. Please go ahead.

Speaker Change: and your next question comes from the line of Erin Kyle with CABC please go ahead.

Erin Kyle: Hi, good morning. Maybe just starting with a question on M&A integration, and you sort of touched on it there with your last comment, but just on the integration of the assets of C change this quarter. You mentioned in the prepared remarks that it was profitable in Q3 slightly and such as not quite at standard levels. So when do you think you'll have it operating at standard levels, and what levers do you have to pull to achieve this? It's a complicated question. I'm usually on every call for about 10 years. I've said in the first quarter of acquisition, it's generally negative.

Erin Kyle: Hi, good morning. Maybe just starting with a question on M&A integration and you sort of touched on it there with your last comment. But just on the integration of the assets of C change this quarter.

Speaker Change: and you mentioned in the prepared remarks that it was profitable in Q3, slightly and it's just not quite at standard levels, so when do you think you'll have it operating at standard levels and what levers do you have to pull to achieve this?

Speaker Change: It's a complicated question. I'm usually on every call.

Speaker Change: for both 10 years.

Stephen Sadler: The second quarter, you generally are flat. Third quarter is halfway to our normal margins, and by the fourth quarter, you're in normal margins. We've been tending to beat that a little bit, especially when you do an asset deal because you don't take on some of the costs. But we did take on a lot of the R&D, and in some countries, in this case, Poland, you've got to scale the reductions. If you're doing it, for example, in R&D, it can't just do it all once; there's regulations against it.

Speaker Change: I've said in the first quarter of acquisition that's generally negative, the second quarter you generally are flat, third quarter is halfway to our normal margins and by the fourth quarter you're in normal margins.

Speaker Change: We've been attending to beat that a little bit, especially when you're doing acid deal, because you don't take on some of the costs.

Speaker Change: But we did take on a lot of the R&D and in some countries, in this case, Poland, you've got to scale the...

Speaker Change: Reductions, if you're doing it, for example, and R&D, you can't just do it all once there's regulations against it, so it does take about, I would say, two to three quarters to get to the full, even dumb margin level.

Erin Kyle: So it does take about, I would say, two to three quarters to get to the full, even done margin level. Okay, thank you. That's helpful on C change.

Unknown Executive: 33,2024 conference call. At this time, online certainly listen only mode. Following the presentation, we welcome back a question and answer session.

Unknown Executive: 33, 2024 conference call.

Unknown Executive: At this time, online sereneless in only mode. Following the presentation, we welcome back a question-and-answer session.

Unknown Executive: If at any time during the school, your required immediate assistance, please press star zero for the operator. The school is being recorded on Friday, September 6, 2024.

Unknown Executive: If at any time during this call, your required immediate assistance, please press star zero for the operator.

Speaker Change: [inaudible]

Stephen Sadler: I mean, if I can actually switch gears to media site last quarter, you mentioned some difficulties in integrating that business, given it went into bankruptcy post acquisition. So my question is, how these difficulties mostly been resolved now, and is media site operating at your standard levels? Media site is operating close to it, and it's not the fourth quarter. So it's not quite at the full operational level, but it's close to it, and most of the issues there. Have been resolved. There's a few left. The majority hasn't been resolved yet. Thank you. I'll pass the line.

Speaker Change: Okay, thank you, that was helpful on C change.

Speaker Change: and maybe if I can actually switch gears to media site, last quarter you've mentioned some difficulties and integrating that business given a way to bankrupt the post acquisition. So my question is how these difficulties mostly been resolved now and as a media site operating at your standard levels.

Unknown Executive: This call is being recorded on Friday, September 6, 2024.

Stephen Sadler: I'd now like to turn the conference over to Stephen Sadler, Chairman and CEO, please go ahead. Good morning, everybody. I'm here today with Vincent Mifsud, Global President, Rob Medved, the Defineants and Todd May, VT Legal Council.

Speaker Change: Medvedside is operating close to it and it's not the fourth quarter, so it's not the fourth quarter, so it's not the fourth of the full operational level, but it's close to it and most of the issues there.

Todd May: Before we 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 those in interest as continuous disclosure planning, such as this AIF, which could cause the company's actual results and adherence to different material 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 other ones.

Todd May: Before we 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 those in interest as continuous disclosure planning, such as this AIF, which could cause the company's actual results and experience to differ materially from anticipated results or other expectations.

Speaker Change: Till have be resolved. There's a few left.

Speaker Change: The majority of them have to resolve, yeah.

Speaker Change: Thank you, all past the line.

Unknown Executive: And once again, if you would like to ask a question, please press the store one.

Speaker Change: And once again, if you would like to ask a question.

Todd May: 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 other ones. Thanks, Todd.

Speaker Change: To the Expressest Star one.

Paul Driver: Your next question comes from the line of Paul Driver with RBC Capital Markets. Please go ahead. Oh, thanks very much this morning to see in the prepared remarks that the tone on the organic business, you know, does sound more positive, you know, probably said I've heard over the last couple of years. Is that a fair characterization? And then, you know, what is driving that? Is that like, are you seeing an improvement in the external environment? Or is it more that you know, it reflects traction from some of the changes in the investments you've made across the years?

Speaker Change: Your next question comes from the line, the Paul Triver with RBC Capital Market, T-Scohead.

Paul Triver: Oh, thanks so much for the morning to see the in the prepared remarks that the tone on the organic business, you know, does sound.

Paul Triver: More positive, you know, probably said I've heard over the last couple years, is that a fair characterization in them?

Speaker Change: What is driving that, is that like are you seeing an improvement in the external environment? Or is it more that weight reflects traction from some of the changes in the investments that you've made across careers?

Stephen Sadler: Well, I'll give a brief, and let Vince speak to it. I think the improvement is just some of the execution we're doing. So yes, I do see some improvement. It's not like spectacular, but it's going in the right direction. And of course, having stopped the video major decline, that looks like improvement; everything else. So part of it's for that. The other side, I'll say, if you look at the industry, it's not because of the industry. Our competitors are having issues. They're having issues because they took. at Unprofitable Revenue, and used debt to do it, and now they're struggling with their debt positions.

Speaker Change: Well, I'll give a brief and then I'd like to let Vince speak to it.

Speaker Change: and I thank you.

Vince: The improvement is just some of the execution we're doing

Robert Medved: For the nine-month period, recurring revenue increased to 258.4 million from 210.4 million in the prior period, also an increase of 22.8% as we continue to prioritize this revenue stream. Results from operating activities increased to 34.3 million from 30.9 million in Q3 2023, and has increased for the nine-month period to 100.4 million from 86.4 million in the prior period. Net income was 20.6 million compared to 17.6 million in Q3 2023, and 58.7 million to date compared to 47.1 million last year as we grow our business with focus on profitability.

Vince: So, yes, I do see some improvement, it's not.

Vince: Like Spectacular, but it's going in the right direction and of course having stopped the video major decline that looks like improvement everything else.

Vince: So a part of it's for that. The other side, I'll say if you look at the industry, it's not because of the industry. Our competitors.

Vince: are having issues, they're having issues because they took.

Vince: Unprofitable revenue.

Stephen Sadler: And I mean, it started with Avaya about a year and a half ago when they went into receivership, but other major competitors are having pretty significant financial difficulties right now.

Vince: and use debt to do it and now they're struggling with their debt positions. And I mean, it started with a via about a year and a half ago when they went into receivership, but other major competitors are having pretty significant financial difficulties right now.

Vincent Mifsud: Maybe Vincent Mifsud. Yeah, I mean, I agree with what Steve said; it's partly due to execution. Although I always say it sounds trivial, this choice or choice strategy, it takes time to, first of all, be able to offer choice, get all the products ready for SaaS and private cloud, and all of that. And then the train up everybody on the whole choice strategy in the go-to-market and get the message out there to the market. So all that takes time, and that's showing positive outcomes. So, you know, as an example, some of the major competitors that we've talked about in the past that will identify them particularly early now, you're now hearing great growth of the past are now laying off staff.

Robert Medved: Adjusted EBITDA increased to 37.7 million from 33.4 million growing by 12.9% while achieving a 28.9% margin. Your to date adjusted EBITDA was 108.2 million compared to 95.9 million in the prior year, an increase of 12.8%. Cash flow from operating activities, excluding changes in working capital, was 37.4 million compared to 35.5 million in the prior quarter, and 111.5 million year to date compared to 97 million in the comparable period. Cash equivalents and short-term investments reached near record highs at 258.7 million as at July 31st, 2024.

Vince: Thank you, Vincent Mifsud, yeah, I mean...

Speaker Change: I agree with what Steve said, it's partly due to execution.

Speaker Change: The whole, although I would say it sounds trivial, the choice, our choice strategy.

Vincent Mifsud: It takes time to, first of all, be able to offer choice, get all the products ready for fast and private cloud and all of that, and then to train up everybody on the whole choice strategy and in the go-to market and get the message out there to the market. So all that takes time, and that's showing positive.

Paul Zelfeld: Paul Zelfeld comes up.

Speaker Change: You know, a couple of just as an example, some of the major competitors that we've talked about the past, I will.

Robert Medved: Cash equivalents and short-term investments reached new record highs at 258.7 million as at July 31st, 2024.

Speaker Change: A deadline for kick-learly now, you're now hearing great growth of the past are now laying off staff. That's usually an indicator of what they see in their future.

Robert Medved: Our third quarter operating performance continues its upward trend with revenue profitability and operating cash flow, all exhibiting positive growth, our commitment to operationally efficiency alongside our capability in executing and integrating acquisitions continues to deliver positive results.

Robert Medved: Our third quarter operating performance continues its upward trend, with revenue, profitability, and operating cashflow all exhibiting positive growth. Our commitment to operational efficiency, alongside our capability in executing and integrating acquisitions, continues to deliver positive results. This quarter, we completed the acquisition of C-Change, expanding our IPTV market presence, a growing sector for Enchhouse. We have effectively integrated C-Change into our asset management group, achieving profitability in its first quarter post acquisition, although not yet at our standard levels. Our strategic direction remains steadfast as we continue to expand our business profitability, offering both SaaS and on-premise solutions, positions us uniquely in the marketplace. Operational enhancements across our existing businesses and recent acquisitions are driving positive outcomes, enabling us to maintain robust cash reserves, while simultaneously increasing annual dividends, repurchasing shares, and pursuing acquisitions.

Vincent Mifsud: That's usually an indicator of what they see in their future. And again, they're not making money, so they have to do things like that. That should be good for us. We never took that approach. We actually heard our revenue a little bit by saying, we're not going to do unprofitable revenue. So, that strategy is now starting to pay dividends for us, and it's starting to show up in our competitors as an issue which they have to address. And they really have a culture of that, trying to get growth at a loss. And how do you fix that, especially in a high-interest environment, and you already have a lot of debt with banks not really willing to lend as easily as they have in the past.

Speaker Change: and again they're not making money so they have to do things like that. That should be good for us. We never took that approach. We actually heard our revenue a little bit by saying we're not going to do unprofitable revenue.

Robert Medved: This quarter we completed the acquisition of SeaChange, expanding our IPTV market presence, a growing sector for Enchhouse. We have effectively integrated SeaChange into our asset management group, achieving profitability in its first quarter post acquisition, although not yet at our standard levels.

Speaker Change: So that strategy is now starting to pay dividends for us.

Speaker Change: and it's starting to show up in our competitors as an issue which they have to address.

Speaker Change: and they really have a culture of that trying to get growth at a loss and how do you fix that especially in a high interest environment and you already have a lot of death with banks not really willing to lend as easily as they have in the past.

Robert Medved: Our strategic direction remains steadfast as we continue to expand our business profitability, offering both SaaS and on-premise solutions positioned thus uniquely in the marketplace. Operational enhancements across our existing businesses and recent acquisitions are driving positive outcomes, enabling us to maintain robust cash reserves while simultaneously increasing annual dividends, repurchasing shares, and pursuing acquisitions.

Vincent Mifsud: And just one other thing maybe to add is we do also hear our competitors that don't offer choice upsetting their customers a lot. So, we get some of that; we get some of that spillover effect. You know, if somebody doesn't want to necessarily go to a multi-tenant cloud product or have a particular cloud preference because we work cloud agnostic, we work with all the leading cloud providers. And that choice sometimes helps us win some business from other competitors that are forcing their customers on a timeline that they may not want to stick to. So, that helps us.

Speaker Change: And just one other thing we can add is we do also hear our competitors.

Speaker Change: That Don't Offer Choice

Speaker Change: Upsetting their customers a lot, so we get some of that, we get some of that spillover effect, you know, somebody doesn't want to necessarily go to a multi-tenant cloud product or have a particular cloud preference because we were clouded in Austin, so we worked with all the leading cloud providers.

Speaker Change: and that choice sometimes helps us win some business from other competitors that are forcing.

Stephen Sadler: I will now turn the call back to Mr. Sadler. Thanks, Rob.

Speaker Change: We're seeing their customers on a timeline that they may not want to.

Vincent Mifsud: Based on that, I'll give some operational highlights of the quarter. Thank you, Steve. We are pleased to announce another quarter of double-digit growth across all our key financial indicators, including total revenue, recurring revenue and operating profits. This marks our fourth consecutive quarter of double-digit growth in both total and recurring revenue. It's been a particularly good quarter delivering one of our strongest top-line performances in our company's history and achieving our highest revenue quarter since 2020.

Victor: Victor So, that helps us.

Vincent Mifsud: And on the choice strategy across all your product lines, like is it fully implemented across all your product lines, or is it still you have some work to do in some of the product lines? So, sometimes when we buy a company, they didn't have this kind of choice mantra, and they've locked themselves into cloud vendors or offered only one way of taking their product. So, we have to do some R&D efforts to enable the choice on acquisitions. So, other than that, our products that we've had for, let's say, 12, 18 months yet, their choice is in it.

Victor So: In on the choice strategy across all your product lines, like is it fully implemented across all your product lines or is it still, you have some work to do in some of the product lines?

Speaker Change: So, sometimes when we will be by a company.

Speaker Change: They didn't have this kind of choice mantra and they've locked themselves into crowd vendors or offered only one way of taking their product. So we have to do some R&D efforts to enable the choice on acquisitions.

Vincent Mifsud: The sequential revenue for Q3 2024 in comparison to Q2 2024 is especially positive that historically this quarter has seen seasonal dip in organic revenue due primarily to our customer's summer cycles. However, this year we effectively mitigated that trend maintaining total organic revenue in line with Q2 2024.

Speaker Change: So other than that, our products that we've had for let's say 12, 18 months yet, they're choice enabled.

Paul Driver: Thanks for that, Tia.

Stephen Sadler: Switching gears to capital allocations, so you have a lot of cash. The stock's trading at a multi-ur low evaluation. You've gone back a little bit of stock, but why not more aggressively put some of your cash into share buybacks here? That might be a good idea. Okay, can you elaborate a bit more on that just in terms of how you look at the return? Well, I think we've always looked at it at a certain price. It's better to buy back your stock. Some people buy back their stock even when it's really high. That's not such a bright idea.

Vincent Mifsud: However, this year, we effectively mitigated that trend, maintaining total organic revenue in line with Q2 2024.

Speaker Change: and thanks for that tea.

Speaker Change: Switching gears and capital allocations, so you have a lot of cash, the stock's trading at a multi-year low-envaluation, you bump back a little bit of stock, but why not more aggressively put some of your cash into share by-lapse here?

Vincent Mifsud: We attribute our financial performance to three factors. Our team's execution, acquisitions and our ability to integrate them and our unique market position as one of the few companies offering true customer choice. I would like to highlight several examples of how we have enhanced our business execution. Our business delivered good performance across several key areas, including our go-to-market sales teams, demand generation, product and engineering, operations, cost management and collection efforts. Several of our sales regions achieve sequential improvement against the trend of a historically softer Q3.

Vincent Mifsud: We attribute our financial performance to three factors: our team's execution, acquisitions and our ability to integrate them, and our unique market position as one of the few companies offering true customer choice. I would like to highlight several examples of how we have enhanced our business execution. Our business delivered good performance across several key areas, including our go-to-market sales teams, demand generation, product and engineering, operations, cost management, and collection efforts. Several of our sales regions achieve sequential improvement against the trend of a historically Software Q3. This quarter also marked one of our strongest performances in new order bookings, and key successes include expanding our partnership with a leading global telecom provider for our Enchhouse Cloud Contact Center product, securing additional deals in the Middle East, growing our transit business in Europe, and increasing the adoption of our video products into the government and pharmaceutical sector.

Speaker Change: That might be a good idea.

Speaker Change: Look at you, can you elaborate a bit more on that just in terms of...

Speaker Change: of like how you look at the return. Well, I think at a certain point, we've always looked at it as certain price.

Speaker Change: It's better to buy back your stock. Some people buy back their stock even when it's really high. That's not such a bright idea. It'd be the better allocation for the capital. We do have a lot of opportunities. We've got, of course, execute, get it done.

Stephen Sadler: If you have a better allocation for the capital, we do have a lot of opportunities. We've got, of course, execute, get them done. But, as you pointed out, we're at a low price in our stock, and I think there's probably an opportunity to take advantage of that. Currently, yes, and we also have blackout periods where you're not, you can't do it by regulation. So I suspect in the next little while we may, if the stock stays where it is, we'll be bonding back some stock. And in the other half of the question is what do you do mention?

Speaker Change: As you pointed out, we're a low price in our stock, and I think there's probably an opportunity to take advantage of that.

Speaker Change: Currently, yes, and we always have blackout periods where you're not, you can't do it by regulation. So, I suspect in the next little while we may, if the stock stays where it is, we'll be bonding back some stock.

Speaker Change: it

Stephen Sadler: And you've been mentioning for a while now, there's a lot of opportunities out there. You've closed some, but I think there's still quite a gap versus the cash that you're generating. What are you seeing? Or why do you think that the deals that are out there aren't closing? And there's still valuation expectations are high from sellers. Is there anything else where they're getting financing from? Yeah, I think the valuations are still a little above where we'd like to see them. That's one. But I also think the problem is that some of these companies have a lot of debt.

Speaker Change: and in the other half of that question is what I'm in, and you do mention, and you'd be mentioned for a while now, there's a lot of opportunities out there, you close some, but I think they're still quite a gap versus a cash if you're generating.

Vincent Mifsud: This team is focused on enhancing customer retention and expanding recurring revenue, and a key achievement this quarter was securing our largest ever three-year multi-million-dollar SaaS renewal, which will contribute to revenue over the next 36 months. Our demand generation team also achieved one of their best quarters of inbound leads, optimized with the use of AI tools. They made substantial progress in our organic SEO, securing first page rankings for over 50 industry terms, which is a significant improvement over 12 months ago, and it's leading to cost-effective lead generation.

Speaker Change: What are you saying or why do you think that the deals that are out there aren't closing in? There's still a valuation expectations are high from sellers, there aren't anything else where they're maybe they're getting financing from.

Speaker Change: Yeah, I take the valuations are still a little bubble we'd like to see them, that's one. But I also think the problem is some of these companies have a lot of debt. We're not really keen to taking on their debt and paying off the problems the day create for themselves.

Stephen Sadler: We're not really keen to taking on their debt and paying off the problems that they create for themselves. So it takes a little bit longer. There's not a lot of interest; there's less interest in the space because of AI. AI is supposed to have many contact centers, which is not happening. It's actually helping contact centers service their customers more. And that's how we see it. But yeah, it's always a challenge.

Speaker Change: So, it takes a little bit longer. There's not a lot of interest. It's less interest in the space because of AI. You know, AI is supposed to eliminate contact centers, which is not happening. It's actually helping contact centers service their customers more. And that's how we see it. But, um...

Vincent Mifsud: From an operations standpoint, we achieved $18 million in professional services, an increase of 14 percent from last year, marking one of our highest professional service revenue quarters, while at the same time improving professional services growth margins. Our product and engineering teams also delivered a strong quarter. This team started to leverage AI tools to accelerate engineering velocity, and we began using these tools in our contact center group and are now expanding them across all the engineering teams.

Stephen Sadler: You always got to get the right value, and you've got to have two people who agree on that value and want to do a deal.

Speaker Change: Yeah, it's always a challenge. You always got to get the right value and you've got to have two people who agree on that value and want to do a deal.

Vincent Mifsud: Our product and engineering teams also delivered a strong quarter. This team started to leverage AI tools to accelerate engineering velocity, and we began using these tools in our contact center group and are now expanding them across all the engineering teams. We also completed the cloud up list for our strategic networks products and introduced a new transit product for the America's markets. Another key aspect of execution came from our finance team, which maintained a strong focus on cash collections, an important effort during a high interest rate environment where customers tend to hold on to their cash more tightly.

Unknown Executive: Okay, thanks for taking the questions. Thank you.

Vincent Mifsud: We also completed the cloud up list for our strategic networks products and introduced a new transit product for the America's markets. Another key aspect of execution came from our finance team, which maintained a strong focus on cash collections, an important effort during a high interest rate environment where customers tend to hold on to their cash more tightly. We ended the quarter with a strong cash balance of $259 million after spending $30.8 million on the acquisition of fee change, $14.4 million on dividends, and $1.8 million on share buybacks. This reflects our finance teams effectiveness in cash collections and treasury management. Additionally, our 11 percent operating profit growth highlights our continued focus on cash management.

Speaker Change: Okay, thanks for taking the questions.

Unknown Executive: And there are no further questions at this time.

Stephen Sadler: I'd like to turn it back to Steven Sandler for closing remarks. Well, thank you, everyone, for attending the call. Enchels is in a very strong financial position with growth, no financial debt, and substantial opportunities for deployment of capital. We are financially positioned to continue to enhance our products with new features, including AI technologies, to improve internal revenue growth attainment and cost efficiencies for ourselves. AI technologies also assist in improving the quality of customer interactions.

Speaker Change: Thank you, and there are no further questions at this time. I'd like to turn it back to Stephen Sadler for closing remarks.

Speaker Change: Well, thank you everyone for attending the call, and Chels is in us very strong financial position with growth, no financial debt, and substantial opportunities for deployment of capital.

Speaker Change: We are financially positioned to continue to enhance our products with new features, including AI technologies, to improve internal revenue growth attainment and cost efficiencies for ourselves. AI technologies also assist in improving the quality of customer interactions.

Stephen Sadler: We look forward to providing a full-year update at the end of our next quarter.

Speaker Change: We look forward to providing our full year update at the end of our next quarter.

Unknown Executive: Thank you, presenters and ladies and gentlemen. This concludes today's conference call.

Speaker Change: Thank you, presenters and ladies and gentlemen, this concludes today's conference call. Thank you all for participating in me now.

Unknown Executive: Thank you all for participating in me now. This is Connor.

Vincent Mifsud: Regarding our acquisitions, we've deployed $43.4 million on acquisition so far in fiscal 2024, which includes the most recent acquisition of IPTV provider C-Change that we completed at the start of C-3. IPTV is an important growth area for end-chose, and this acquisition has elevated its importance. Since we launched our IPTV product, we have consistently added new customers in North America and grown our business quarterly. The purchase of C-change enhances our IPTV offering by expanding our presence into Europe and the Latin market, as well as entering into a new IPTV market, enabling us to deliver video streaming solutions directly to content creators such as top media and sports organizations.

Vincent Mifsud: Starting our acquisitions, we've deployed $43.4 million on acquisition so far in fiscal 2024, which includes the most recent acquisition of IPTV provider sea change that we completed at the start of Q3. IPTV is an important growth area for end-shows, and this acquisition has elevated its importance. Since we launched our IPTV product, we have consistently added new customers in North America and grown our business quarterly.

Vincent Mifsud: The purchase of each of fee change enhances our IPTV offering by expanding our presence into Europe and the Latin market as well as entering into a new IPTV market, enabling us to deliver video streaming solutions directly to content creators such as top media and sports organizations. This introduces a new market segment for us, complementing our existing market through operators. Sea change contributed positive operating income, as Rob mentioned, started immediately in Q3, although not in line with our normal profit margins yet, given it's the first quarter post-accus- Our choice offering has proven to be an effective business strategy, significantly aiding and customer retention.

Vincent Mifsud: This introduces a new market segment for us, complementing our existing market through operators. C-change contributed positive operating income, as Rob mentioned, started immediately in Q3, although not in line with our normal profit margins yet, given it's the first quarter post-doc was in the market.

Vincent Mifsud: Choice allows our customers to migrate to SaaS, add their own pace when and if they desire to do so. The expansion of our recurring revenue in the core is driven primarily by the growth in SaaS revenue. We view choice as a key competitive advantage which is helping build loyalty with our customers ultimately driving recurring revenue growth.

Vincent Mifsud: In summary, while we recognize there's always lots of room for improvement, we are pleased with the quarter's results driven by our team's execution across organic and acquisitions, and we remain confident that our choice strategy is well aligned with the needs of the customers and the markets we are in.

Vincent Mifsud: In summary, while we recognize there's always lots of room for improvement, we are pleased with the quarter's results driven by our team's execution across organic and acquisitions and we remain confident that our choice strategy is well aligned with the needs of the customers and the markets we are in.

Stephen Sadler: Let me turn the call over to Mr. Steve Sadler. Thanks, Vince. With respect to acquisitions, as both Rob and Vince have mentioned, we completed the acquisition of the assets of C-Change in the quarter, early in the quarter, but not for a full quarter. The acquisition has been integrated into our Asset Management business group. For the quarter, the business of profitability was not at our historic levels, as Vince has said. It was profitable in the first quarter, which is a little unusual because usually the first quarter of an acquisition has a negative impact on EBITDAW profitability.

Stephen Sadler: Let me turn the call over to Mr. Steve Sadler. Thanks, Vince. With respect to acquisitions, as both Rob and Vince have mentioned, we completed the acquisition of the assets of C-Change in the quarter, early in the quarter, but not for a full quarter. The acquisition has been integrated into our asset management business group. For the quarter, the business of profitability was not at our historic levels as Vince has said. It was profitable in the first quarter, which is a little unusual because usually the first quarter of an acquisition has a negative impact on EBITDAW profitability.

Stephen Sadler: It was slightly profitable, but we expect to improve profitability in the next quarter and thereafter. We continue to see substantial opportunities in our industry sectors with some larger organizations having debt problems, staff reductions and interest costs which are not supported by their slow growth operations.

Stephen Sadler: It was slightly profitable, but we expect to improve profitability in the next quarter and thereafter. We continue to see substantial opportunities in our industry sectors, with some larger organizations having debt problems, staff reductions, and interest costs which are not supported by their slowing growth operations.

Stephen Sadler: I would now like to open the call for questions.

Unknown Executive: Thank you, and ladies and gentlemen, we will not begin the question in answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you are using a speaker phone, please speak up your handset before pressing any keys. Then we draw your question, please press a star followed by the number two. Once again, please press a star one to join the queue.

Daniel Chan: And your first question comes from the line of Daniel Chan with TD Coin. Please go ahead. Hi, good morning. Your MD&A states that the client software licenses revenue is due to a decrease in demand for on-prem software. Can you just provide any details on the major drivers behind that? Just wondering if there's any churn or here in the last part. Sorry, Daniel, can you repeat that last part, Daniel? Yeah, just on the software licenses, what are the major drivers of the decrease in demand there?

Daniel Chan: I know, like, SaaS may be a part of it, but just wondering if there's any churn or prayer. As I mentioned in my earlier discussion, it's mainly driven by our choice strategy and offering customers the ability to stand up either their own SaaS or use our SaaS platform.

Stephen Sadler: So that's basically There. Okay, so just to be clear, there's no doubt that you'll notice that our amount of SaaS or recurred revenue as percentage of total revenue increased a fair bit in the quarter. So some of the print are moving there. I will say SaaS is not as profitable for most of our competitors or even us. So we've got to work to make some get worse efficiencies there. I believe investors may like it, but it does slow down profitability, cash flow, at least at this stage is everyone's fighting for basically new customers.

Stephen Sadler: If you look at our competitors, you'll find they are struggling. I struggling being debt interest, which is often not covered, and their growth is slowing in that area. Okay, thanks for that. Just to be clear, is there any impact from increased churn or any pricing pressure that's impacting that? I would say churn is about as it always has been. You know, with some churn, total churn out and some churn goes from maintenance to SaaS or licenses going to SaaS.

Stephen Sadler: I struggling being debt interest, which is often not covered and their growth is slowing in that area. Okay, thanks for that.

Stephen Sadler: As pricing pressure, yeah, the other for us, it's not too bad because we've always looked for profitable growth and profitable sales. Some of our competitors are starting to suffer. And again, if you analyze that, you'll see what I mean. And then you just add to that, if you look at our recurring revenue, you can see it's expanding and growing quite a bit. And that talks to our retention, right? Our retention is positive. Yeah, that's also positive. Yeah, that's great.

Unknown Executive: Thank you.

Stephen Sadler: And that talks to our retention rate or retention. That's also being positive. Yeah, that's great. Thank you.

Stephen Sadler: Maybe on the R&D, again, in the filing, the states it's up because of acquisition, SaaS and AI, are you able to quantify how much of that increased R&D as a result of the latter two, the SaaS and AI part? Yeah, the increase is probably more than you think is without the SaaS and AI. When I say SaaS, you've got sea change in there now, too. I would think that that ratio would have been lower.

Stephen Sadler: So it adds to it. It takes a little bit of time when you do an acquisition, especially in the R&D area, to get the costs out, because you've got to finish off projects that you're already doing. So that's an area that lags a little bit in any streamlining we might do. And Daniel, I also touched on, we did a fairly big initiative to make our networks products cloud-enabled. And we completed all the strategic ones by the end of Q3, so that investment we got done.

Stephen Sadler: So that's an area that lags a little bit in any streamlining we might do. And Daniel, I had also touched on, we did a fairly big initiative to make our networks products cloud-enabled. And we completed all the strategic ones by the end of Q3. So that investment we got done. Yeah, I think the important thing, again, I'm not sure we focused enough on what you're saying. We spend a fair bit on R&D. Some would say more than we should, but in spite of that spending, we still have a good EBITDAW that we believe will grow as we bring in the Sea Change acquisition, which was profitable the quarter, but barely.

Stephen Sadler: Yeah, I think the important thing, again, I'm not sure we focused enough on what you're saying. We spend a fair bit on R&D. Some was saying more than we should. But in spite of that spending, we still have a good EBITDA that we believe will grow as we bring in the sea change acquisition, which was profitable in the quarter, but barely. Usually we have a loss in the first quarter of an acquisition. So we do expect EBITDA profitability will improve in future quarters, as some of the things we get into quarter will impact future quarters. That's helpful.

Unknown Executive: Thank you.

Stephen Sadler: Usually, we have a loss in the first quarter of an acquisition. So we do expect EBITDAW profitability will improve in future quarters, as some of the things we get into quarter will impact future quarters. That's helpful. Thank you.

Erin Kyle: I'll pass the line. And your next question comes from the line of Erin Kyle with CABC. Please go ahead.

Unknown Executive: I'll pass the line.

Erin Kyle: And your next question comes from the line of Erin Kyle with CABC. Please go ahead. Hi, good morning. Maybe just starting with a question on M&A integration, and you sort of touched on it there with your last comment, but just on the integration of the assets of C change this quarter. You mentioned in the prepared remarks that it was profitable in Q3 slightly and such as not quite at standard levels. So when do you think you'll have it operating at standard levels, and what levers do you have to pull to achieve this? It's a complicated question.

Stephen Sadler: Hi, good morning. Maybe just starting with a question on M&A integration and you sort of touched on it there with your last comment. But just on the integration of the assets of C change, this quarter, you mentioned in the prepared remarks that it was profitable in Q3 slightly and just not quite at standard levels. So when do you think you'll have it operating at standard levels and what levers do you have to pull to achieve this?

Stephen Sadler: It's a complicated question. I'm usually on every call for about 10 years. I've said in the first quarter of acquisition, it's generally negative. The second quarter, you generally are flat. Third quarter is halfway to our normal margins and by the fourth quarter, you're in normal margins. We've been tending to beat that a little bit, especially when you do an asset deal because you don't take on some of the costs. But we did take on a lot of the R&D and in some countries, in this case, Poland, you've got to scale the reductions if you're doing it, for example, in R&D. It can't just do it all once there's regulations against it. So it does take about, I would say, two to three quarters to get to the full EBITDA margin level.

Stephen Sadler: Okay, thank you. That was helpful on C change.

Stephen Sadler: I'm usually on every call for about 10 years. I've said in the first quarter of acquisition, it's generally negative. The second quarter, you generally are flat. Third quarter is halfway to our normal margins, and by the fourth quarter, you're in normal margins. We've been tending to beat that a little bit, especially when you do an asset deal because you don't take on some of the costs. But we did take on a lot of the R&D, and in some countries, in this case, Poland, you've got to scale the reductions. If you're doing it, for example, in R&D, it can't just do it all once; there's regulations against it.

Stephen Sadler: So it does take about, I would say, two to three quarters to get to the full, even done margin level. Okay, thank you.

Stephen Sadler: That's helpful on C change. I mean, if I can actually switch gears to media site last quarter, you mentioned some difficulties in integrating that business, given it went into bankruptcy post acquisition. So my question is, how these difficulties mostly been resolved now, and is media site operating at your standard levels? Media site is operating close to it, and it's not the fourth quarter. So it's not quite at the full operational level, but it's close to it, and most of the issues there. Have been resolved. There's a few left. The majority hasn't been resolved yet. Thank you.

Stephen Sadler: And maybe if I can actually switch gears to media site, last quarter, you mentioned some difficulties in integrating that business, given it went into bankruptcy post acquisition. So my question is, have these difficulties mostly been resolved now and as media site operating at your standard levels? Media site is operating close to it and it's not the fourth quarter. So it's not quite at the full operational level, but it's close to it and most of the issues there still have been resolved. There's a few left. The majority of them have been resolved, yeah.

Unknown Executive: Thank you.

Unknown Executive: I'll pass the line.

Unknown Executive: And once again, if you would like to ask a question, please press the star one.

Paul Driver: And once again, if you would like to ask a question, please press the store one. Your next question comes from the line of Paul Driver with RBC Capital Markets. Please go ahead. Oh, thanks very much this morning to see in the prepared remarks that the tone on the organic business, you know, does sound more positive, you know, probably said I've heard over the last couple of years. Is that a fair characterization? And then, you know, what is driving that? Is that like, are you seeing an improvement in the external environment? Or is it more that you know, it reflects traction from some of the changes in the investments you've made across the years?

Paul Treiber: Your next question comes from the line, a poll driver with RBC capital markets, please go ahead. Oh, thanks very much. Good morning. Just say, in the prepared remarks, the tone on the organic business does sound more positive, probably said I've heard over the last couple of years. Is that a fair characterization? And then, what is driving that? Are you seeing an improvement in the external environment, or is it more that we reflect traction from some of the changes in the investments that you've made across the years?

Stephen Sadler: Well, I'll give a brief, and let Vince speak to it. I think the improvement is just some of the execution we're doing. So yes, I do see some improvement. It's not like spectacular, but it's going in the right direction. And of course, having stopped the video major decline, that looks like improvement; everything else. So part of it's for that. The other side, I'll say, if you look at the industry, it's not because of the industry. Our competitors are having issues. They're having issues because they took. at unprofitable revenue, and used debt to do it, and now they're struggling with their debt positions.

Paul Treiber: Well, I'll give a brief and let Vince speak to it. I think the improvement is just some of the execution we're doing. So yes, I do see some improvement. It's not like spectacular, but it's going in the right direction. And of course, having stopped the video major decline that looks like improvement, everything else. So a part of it's for that. The other side, I'll say, if you look at the industry, it's not because of the industry.

Paul Treiber: Our competitors are having issues. They're having issues because they took Public Unprofitable Revenue, and used debt to do it, and now they're struggling with their debt positions. And I mean, it started with Avaya about a year and a half ago when they went into receivership, but other major competitors are having pretty significant financial difficulties right now.

Vincent Mifsud: Maybe Vincent Mifsud. Yeah, I mean, I agree with what Steve said, it's partly due to execution. Although I always say it sounds trivial, this choice, our choice strategy, it takes time to, first of all, be able to offer choice, get all the products ready for SaaS and private cloud and all of that, and then to train up everybody on the whole choice strategy in the go-to-market, and get the message out there to the market.

Vincent Mifsud: So all that takes time, and that's showing positive outcomes. You know, as an example, some of the major competitors that we've talked about in the past that we'll identify them particularly early now, you're now hearing great growth of the past are now laying off staff. That's usually an indicator of what they see in their future. And again, they're not making money, so they have to do things like that. That should be good for us.

Vincent Mifsud: That's usually an indicator of what they see in their future. And again, they're not making money, so they have to do things like that. That should be good for us. We never took that approach. We actually heard our revenue a little bit by saying, we're not going to do unprofitable revenue. So, that strategy is now starting to pay dividends for us, and it's starting to show up in our competitors as an issue which they have to address. And they really have a culture of that, trying to get growth at a loss. And how do you fix that, especially in a high-interest environment, and you already have a lot of debt, with banks not really willing to lend as easily as they have in the past.

Vincent Mifsud: We never took that approach. We actually heard our revenue a little bit by saying, we're not going to do unprofitable revenue. So, that strategy is now starting to pay dividends for us, and it's starting to show up in our competitors as an issue which they have to address. And they really have a culture of that trying to get growth at a loss, and how do you fix that, especially in a high-interest environment, and you already have a lot of debt with banks not really willing to lend as easily as they have in the past.

Vincent Mifsud: And just one other thing maybe to add is we do also hear our competitors that don't offer choice upsetting their customers a lot. So we get some of that, we get some of that spillover effect, you know, if somebody doesn't want to necessarily go to a multi-tenant cloud product or have a particular cloud preference because we work cloud agnophics that we work with all the leading cloud providers, and that choice sometimes helps us win some business from other competitors that are forcing their customers on a timeline that they may not want to stick to, so that helps us.

Vincent Mifsud: And on the choice strategy across all your product lines, like is it fully implemented across all your product lines, or is it still you have some work to do in some of the product lines? So sometimes when we buy a company they didn't have this kind of choice mantra, and they've locked themselves into cloud vendors or offered only one way of taking their product. So we have to do some R&D efforts to enable the choice on acquisitions. So other than that, our products that we've had for, let's say, 12, 18 months yet, their choice enabled. Okay.

Unknown Executive: Thanks for that, Tia.

Paul Driver: Thanks for that, Tia.

Unknown Executive: Switching gears to capital allocations, so you have a lot of cash. The stock's trading at a multi or low evaluation.

Stephen Sadler: You've gone back a little bit of stock, but why not more aggressively put some of your cash into share buybacks here? That might be a good idea. Okay, can you elaborate a bit more on that just in terms of how you look at the return? Well, I think in a certain price, it's better to buy back your stock. Some people buy back their stock even when it's really high. That's not such a bright idea if you have a better allocation for the capital.

Stephen Sadler: We do have a lot of opportunities. We've got to, of course, execute, get them done. But as you pointed out, we're a low price in our stock, and I think there's probably an opportunity to take advantage of that currently. Yes, and we also have blackout periods where you're not, you can't do it by regulation. So I suspect in the next little while we may, if the stock stays where it is, we'll be bonding back some stock.

Stephen Sadler: In the other half of questions, let him and he did mention, and you've been mentioned for a while now, there's a lot of opportunities out there. You've closed some, but I think there's still quite a gap versus the cash that you're generating. What are you saying, or why do you think that the deals that are out there aren't closing, and there's still evaluation expectations are high from sellers, is there anything else where they're getting financing from?

Stephen Sadler: Yeah, I think the evaluations are still a little above, or we'd like to see them, that's one. But I also think the problem is some of these companies have a lot of debt. We're not really keen to taking on their debt and paying off the problems that they create for themselves. So it takes a little bit longer. There's not a lot of interest, there's less interest in the space because of AI, AI is supposed to eliminate contact centers, which is not happening.

Stephen Sadler: It's actually helping contact centers service their customers more, and that's how we see it. But yeah, it's always a challenge. You always got to get the right value, and you've got to have two people who agree on that value and want to do a deal.

Unknown Executive: Okay, thanks for taking the questions. Thank you, and there are no further questions at this time.

Unknown Executive: Okay, thanks for taking the questions. Thank you.

Stephen Sadler: And there are no further questions at this time.

Unknown Executive: We look forward to providing a full year update at the end of our next quarter. Thank you, presenters and ladies and gentlemen, this concludes today's conference call.

Unknown Executive: We look forward to providing a full-year update at the end of our next quarter. Thank you, presenters and ladies and gentlemen. This concludes today's conference call.

Unknown Executive: Thank you all for participating in me now, this is Connor.

Unknown Executive: Thank you all for participating in me now. This is Connor.

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