Q1 2025 Enghouse Systems Ltd Earnings Call
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Operator: Good morning, ladies and gentlemen, and welcome to Enghouse's first quarter 2025 conference call. At this time, all lines are in a listen-only mode.
Good morning, ladies and gentlemen, and welcome.
First quarter 2025 conference call.
At this time all lines are in a listen only mode.
Operator: Following the presentation, we will conduct a questioning-answer session. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time.
Following the presentation, we will conduct a question and answer session. If anyone has any difficulties hearing the conference. Please press star zero for operator assistance at any time.
Operator: I would now like to turn the conference call over to Mr. Stephen Sadler. Please go ahead.
Speaker Change: I would now like to turn the conference call emerge can stir Stephen Sadler. Please go ahead.
Stephen Sadler: Good morning, everybody.
Speaker Change: Good morning, everybody I'm here today, with Rob that bid Chief Financial Officer, and Todd May VP legal counsel before we begin I'll have Todd read our forward disclaimer.
Stephen Sadler: I'm here today with Rob Medved, Chief Financial Officer and Todd May, VP Legal Counsel.
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 NHS's continuous disclosure filing, such as its AIF, which could cause the company's actual results and experience to differ materially from anticipated results or other expectations.
Speaker Change: Certain statements made may be forward looking by their nature such forward looking statements are subject to various risks and uncertainties, including nursing home services.
Speaker Change: Disclosure filings such as its Aif, which could cause the companys actual results and experience to differ materially from the anticipated results or other expectations undue reliance should not be placed on forward looking information and currently has no obligation to update or revise any forward looking information, whether as a result of new information future events or otherwise.
Todd May: 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.
Speaker Change: Yeah.
Speaker Change: Thanks, Todd Rob will now give an overview of the financial results. Thank.
Stephen Sadler: Rob will now give an overview of the financial results. Thank you, Steve.
Speaker Change: Thank you Steve I'll now take us through the first quarter financial highlights revenue increased two 9% to $124 million from $125 million in Q1 2020 for recurring revenue, which includes SaaS and maintenance services grew 4% to $87 9 million compared to $84.
Robert Medved: I will now take us through the first quarter financial highlights. Revenue increased 2.9% to $124 million from $120.5 million in Q1 2024. Recurring revenue, which includes SAS and maintenance services, grew 4% to $87.9 million compared to $84.6 million in Q1 2024, and represents 70.9% of total revenue as we continue to prioritize this revenue stream.
Speaker Change: $6 million in Q1, 2024 and represents 79% of total revenue as we continue to prioritize this revenue stream results from operating activities decreased to $31 million compared to $32 6 million in Q1 2024.
Robert Medved: Results from operating activities decreased to $31 million compared to $32.6 million in Q1 2024. Net income was $21.9 million compared to $18.1 million in Q1 2024 as we grow our business with a focus on profitability. Adjusted EBITDA decreased to $33.1 million compared to $34.7 million while achieving a 26.7% margin. Cash flow from operating activities excluding changes in working capital was $37.7 million compared to $35.6 million in the comparable period.
Speaker Change: Net income was $21 9 million compared to $18 1 million in Q1 2024, as we grow our business with a focus on profitability.
Speaker Change: Adjusted EBITDA decreased to $33 1 million compared to $34 7 million, while achieving a 26, 7% margin.
Speaker Change: Cash flow from operating activities, excluding changes in working capital was $37 7 million compared to $35 6 million in the comparable period.
Robert Medved: Cash, cash equivalents, and short-term investments were $271.1 million as at January 31, 2025.
Speaker Change: Cash cash equivalents and short term investments were $271 1 million as at January 31, 2025.
Robert Medved: The most recent quarter has brought about events that have created a great deal of uncertainty across the globe. There are new questions around trade flows, interest rates, commodity prices, and other factors which point to increased instability. Throughout this period, our first quarter operating performance continued its consistent positive trend and reflects our steady and disciplined approach to the business. In the quarter we achieved revenue of $124 million, a 2.9% increase compared to the prior year, while net income increased to $21.9 million, or $0.40 per diluted share, from $18.1 million, or $0.33 per diluted share, in the comparative quarter.
Speaker Change: Our most recent quarter has brought about events that has created a great deal of uncertainty across the globe. There are new questions around trade flows interest rates commodity prices and other factors, which point to increased instability throughout this period, our first quarter operating performance continued its consistent positive trend and reflects our steady and disciplined.
Speaker Change: The approach to the business.
Speaker Change: In the quarter, we achieved revenue of 124 million, a two 9% increase compared to the prior year. While net income net income increased to $21 9 million or <unk> 40 per diluted share from $18 1 million or <unk> 33 per diluted share in the comparative quarter.
Robert Medved: We remain focused on predictable recurring revenue streams, with SAS and maintenance services revenue increasing by 4% in the quarter.
Speaker Change: We remain focused on predictable recurring revenue streams with SaaS and maintenance services revenue, increasing by 4% in the quarter, while transitioning from exclusively offering traditional on premise solutions. We are strategically committed to offering customers a choice between on premise and cloud solutions, which is a law.
Robert Medved: While transitioning from exclusively offering traditional on-premise solutions, we are strategically committed to offering customers a choice between on-premise and cloud solutions, which has allowed us to preserve both one-time and recurring revenue streams. In turn, this has ensured that we keep an eye on the bottom line when many of our competitors face operating losses in their cloud operations. This focus on profitability ensures that we continue to augment our cash reserves while keeping our years-long streak of reporting quarterly net income. Our focus on profitability is reaffirmed by our ability to generate cash. Cash flows from operating activities, excluding changes in working capital, were $37.7 million compared to $35.6 million in the prior year.
Speaker Change: US to preserve both onetime and recurring revenue streams in turn this has ensured that we keep an eye on the bottom line when many of our competitors face operating losses in their cloud operations. This focus on profitability ensures that we continue to augment our cash reserves, while keeping our ears long streak of reporting quarterly.
Speaker Change: Net incomes.
Speaker Change: Our focus on profitability is reaffirmed by our ability to generate cash cash flows from operating activities. Excluding changes in working capital were $37 7 million compared to $35 6 million in the prior year. During the first quarter, we returned $14 4 million to shareholders through dividends and repurchased $6 million of our.
Robert Medved: During the first quarter, we returned $14.4 million to shareholders through dividends and repurchased $6 million of our common shares.
Speaker Change: Common shares in.
Robert Medved: In addition, on December 16, 2024, Enghouse completed the acquisition of Acculab PLC. Acculab offers a cutting-edge suite of solutions designed to elevate communication and security experiences. These include communications platform as a service and state-of-the-art AI-driven answering machine detection, advanced voice and face biometrics technology, which will be added to our product offering. These products are sold directly to enterprises and indirectly through some of the leading healthcare and emergency management systems integrators in the U.S. and Europe.
Speaker Change: In addition on December 16th 2024, and shows completed the acquisition of Accu Lab plc.
Speaker Change: Lab offers a cutting edge suite of solutions designed to elevate communication and security experiences. These include communications platform as a service and state of the art AI, driven enhancing machine detection advanced voice and face biometric technology, which will be added to our product offering these products are.
Speaker Change: <unk> directly to enterprises and indirectly through some of the leading health care and emergency management systems integrators in the U S and Europe.
Robert Medved: Acculab has been integrated into our Enghouse Interactive Management Group. Even with these outflows, Enghouse closed the quarter with $271.1 million in cash-cash equivalents and short-term investments, down only marginally from our record of $274.7 million at October 31, 2024. We continue to have no outstanding external debt financing.
Speaker Change: <unk> has been integrated into our Ngl's Interactive management group.
Speaker Change: Even with these outflows and chose closed the quarter with $271 1 million in cash cash equivalents in short term investments down only marginally from a record of $2 $74 7 million at October 31, 2024, we continue to have no outstanding external debt financing.
Robert Medved: We are also pleased that on March 4th, 2025, Enghouse acquired Margento R&D TOO, a European provider of transit fare collection, count-based ticketing, automatic vehicle tracking, and payment solutions based in Slovenia. Margento expands our European fare collection business and has a scalable and easy-to-deploy mobility-as-a-service platform, providing a unique user-centric mobile transit experience that will fit well within the asset management group.
Speaker Change: We are also pleased that on March four 2025, <unk> acquired more gentle R&D T O a European provider of transit fare collection count base ticketing automatic yield tracked vehicle tracking and payment solutions based in Slovenia Argento expands our European fare collection.
Speaker Change: The business and has a scalable and easy to deploy mobility as a service platform, providing a unique user centric mobile trends that experience that will fit well within the asset management group.
Robert Medved: Our strategic direction remains consistent and focused on long-term profitability and sustainability. We will continue to balance market demand by offering both SaaS and on-premise solutions and will not sacrifice profitability for revenue growth, which is reaffirmed by our ability to generate positive cash flows.
Speaker Change: Our strategic director interaction remains consistent and focused our long term profitability and sustainability, we will continue to balance market demand by offering both SaaS and on premise solutions and will not sacrifice profitability for revenue growth, which is reaffirmed by our ability to generate positive cash flows by robust because cash.
Robert Medved: Our robust cash position continues to allow us to capitalize on strategic acquisitions that meet our thresholds and provide continued returns to our shareholders, enabling us to increase our annual dividend for the 17th consecutive year. Yesterday, the Board of Directors approved an increase of 15.4% in the company's eligible quarterly dividend to $0.30 per common share, payable on May 30, 2025, to shareholders of record at the close of business on May 16, 2025.
Speaker Change: Position continues to allow us to capitalize on strategic acquisitions that meet our thresholds and provide continued returns to our shareholders, enabling us to increase our annual dividend for the 17th consecutive year.
Speaker Change: Yesterday, the board of directors approved an increase of 15, 4% and the company's eligible quarterly dividend to <unk> 30 cents per common share payable on may 32025 to shareholders of record at the close of business on May 15th 2025.
Stephen Sadler: I will now hand the call over to Mr. Sadler. Thanks, Rob. Just to add a little bit, we, as you probably know from our last call, our new business unit strategy, which was implemented January 1, 2025, with functional global departments is working well with a team approach to the business. With respect to acquisitions, in the quarter, we acquired AccuLab, which was integrated into our IMG business group. Revenue was approximately $1 million, and the business was EBITDA positive for the six weeks that it was included in our overall results. of below historic profitability percentages. We expect improvement in profitability at future quarters.
Speaker Change: I'll now hand, the call over to Mr. Sadler.
Sadler: Thanks, Rob.
Sadler: Just to add a little bit we as you probably know from our last call our new business unit strategy, which was implemented January one 2025, well with functional global departments is working well with a team approach to the business.
Sadler: With respect to acquisitions in the quarter, we acquired <unk>, which is integrated into our IMG business group's revenue was approximately $1 million in that business was EBITDA positive for the six weeks that it was included in our overall results.
Sadler: Although below historic profitability percentages, we expect improvement in profitability in future quarters.
Stephen Sadler: After the quarter in early March, as Rob indicated, we acquired Magento, which will be integrated into our transportation segment within our asset management group. We continue to see substantial capital allocation opportunities in our industry sectors. Enghouse is financially strong with resources to enhance its cloud and on-prem products with new features, including using AI to improve efficiencies in a practical manner.
Sadler: After the quarter in early March as Tommy as Rob indicated, we acquired but gentle which will be integrated into our transportation segment within our asset management group.
Sadler: Continued to see substantial capital allocation opportunities in our industry sectors.
Sadler: Hey, Joseph financially strong with resources to enhance its cloud and on Prem products with new features including using AI to improve efficiencies and a practical manner I would now like to open the call for questions.
Stephen Sadler: I would now like to open the call for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on you touched on balance should you wish to cancel the I'll request. Please press the star followed by the table, if you're using a speaker phone. Please lift the handset before pressing mek.
Operator: Should you have a question, please press the star followed by the one on your touchtone brown. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. Once again, that is star one, should you wish to ask a question.
Sadler: Yes.
Sadler: Once again that is star one should you wish to ask a question.
Erin Kyle: Your first question is from Erin Kyle from CIBC. Your line is now open.
Speaker Change: Your first question is from Eric <unk> from CIBC. Your line is now open.
Stephen Sadler: Hi, good morning, Steve and team. My first question, I want to start on recent M&A. So you discussed the acquisition of Margento and the AMG group. Is there any additional detail you can share there around the size of the acquisition, the process? And then is the revenue there primarily sales and maintenance with a bit of hardware? In the transportation sector, they like, as they say, one throat to choke, so there is hardware that will be going in there as well. It's around $10 million plus in revenue, and I think that's all we're prepared to say right now.
Eric: Hi, Good morning, Steve and team My first question I wanted to start on recently.
Eric: Recent M&A you discussed the acquisition margin Tony AMG group is there any additional detail you can share there around the size of the acquisition.
Eric: The process and then if the revenue there, primarily but also maintenance with a bit of hardware.
Eric: In the transportation sector they'd like as they say one throat to choke. So there is hardware that would be going in there as well.
It's it's around $10 million plus in revenue.
Eric: And I think that's all we're prepared to say right now.
Stephen Sadler: Okay, thank you. Other than it wasn't in the quarter, there's no financial results in the quarter that we just announced. Right, thank you.
Eric: Okay. Thank you.
Eric: Other than it was anything other.
Eric: Other than it wasn't in the quarter actually there's no no financial results.
Eric: In the quarter that we just announced.
Eric: Alright, thank you.
Stephen Sadler: And then I just wanted to turn to maybe the IMG division. So we saw revenue decline there again in that in that segment. Was that decline related to the ongoing turn at life size? Or is there other other factors? I think there's a lot of factors there. That whole industry is kind of tough right now, if you look at the competition. We're holding our own. And again, we focus on profitability, not getting revenue at a loss. So it's going okay. I think compared to Q4, you'll notice professional services is down a bit. That's generally because Christmas is just the time of year.
Speaker Change: And then I just wanted to turn to maybe the IMG Division.
Speaker Change: Revenue decline there again, they're not in that segment was that decline related to an ongoing trend that lifesize or are there other factors there.
Speaker Change: I think theres a lot of factors there.
Speaker Change: The whole industry is kind of tough right now if you look at the competition.
Speaker Change: We're holding our own.
Speaker Change: Again, we focus on profitability not getting revenue.
Ross: Ross So it's going Okay, I think compared to Q4, you'll notice professional services is down a bit.
Ross: Germany, because Christmas is just the time of year. There is uncertainty in the market that probably impacted it a little bit as well and then our overall results our hardware, it's down a little bit and that can be lumpy it can be up or down in the quarter. So it's pretty steady.
Stephen Sadler: There's uncertainty in the market. That's probably impacted it a little bit as well. And, you know, overall results are hard work's down a little bit. And that can be lumpy. It can be up and down the quarter. So it's pretty steady. I would call it steady.
Ross: Call it steady.
Stephen Sadler: Okay, and so then the churn at life size, is that stabilized in the quarter compared to the prior quarter then? you know, nicely profitable and with getting us some third party content from that product. We haven't pushed it yet, but that's going to begin next quarter. So we're hoping to see improvements there and expect life size, which you've asked about. We hope that product that's in that group will increase its increased revenue, not not decline it anymore.
Ross: Okay, and so then the churn that lifecycle that stabilized in the quarter compared to the prior quarter.
Ross: Yes.
Ross: I would say its pretty well.
It was down a little bit not very much but more importantly, the product. There we are still trying to get out some third party products to make them more profitable.
Ross: And then that's there'll be a product going forward, mainly in the IMG group. So it is a.
Ross: We were front and it's quite a good product and we're going to be actually promoting that war, but until we get it.
Ross: You know nicely profitable and with getting us Some third party.
Ross: Content.
Ross: From that product, we haven't pushed it yet, but that's going to begin next quarter. So we are hoping to see improvements there and expect lifesize, which you've asked about we hope that product that didn't that group will increase.
Ross: Increased revenue uptick.
Ross: Not declining.
Ross: Okay.
Stephen Sadler: Okay, thank you. That's helpful. Thank you.
Ross: Okay. Thank you that's helpful.
Speaker Change: Thank you. Your next question is from Kevin Mcveigh from UBS. Your line is now open.
Kevin Mcveigh: Your next question is from Kevin McVeigh from UPS. Your line is now open.
Kevin Mcveigh: Great, thanks so much.
Kevin Mcveigh: Great. Thanks, so much and good morning.
Stephen Sadler: And good morning. Hey, I think in the press release, you'd highlighted kind of, you know, global uncertainty from trade, obviously, interest rates, commodity prices, things like that. Um, have you started to see that yet in the business? Or is that something you're kind of positioning for? And does that factor into kind of, you know, kind of the pacing of the current M&A? Just any thoughts around that? Just, it seems like the uncertainty may maybe create some opportunity, but it feels a little subdued in terms of M&A relative to history. So just any thoughts around that?
Speaker Change: I think in the press release, you had highlighted kind of global uncertainty from trade, obviously interest rates commodity prices things like that.
Speaker Change: You started to see that yet in the business or is that something youre kind of positioning for and does that factor into kind of you know kind of the pacing of the current M&A just any thoughts around that just it seems like the insurance maybe create some opportunity, but it feels a little subdued in terms of M&A relative to his.
Speaker Change: So just any thoughts around that and I guess, you know with our federal government and I guess, maybe triangulate any comments around that as well if he could.
Stephen Sadler: And I guess, you know, with our federal government, I guess, maybe triangulate any comments around that as well, if you could.
Stephen Sadler: Yeah, I don't really want to talk about our federal government.
Speaker Change: Yes, I don't really want to talk about our federal GAAP related update other than I think we're going to have an election coming up.
Stephen Sadler: I mean, other than I think we're going to have an election coming up if you're in Canada, and in the US, you know, just listen to what we say and you'll make your own opinion. Okay, but, but in general, I think, from our point of view, if you look at our industry, especially contact center, it's slowed a little bit because everyone's trying to figure out what AI means to us. Some people think it's going to eliminate contact centers. Others think it's going to have no impact. We think it's going to make the contact centers more important, get people to speak faster and use AI to help answer or help answering questions as they come in.
Speaker Change: Here in Canada and in the U S.
Speaker Change: Listen where youll, each day and you'll make your own opinions.
Speaker Change: Sure.
Speaker Change: But in general I think from our point of view, if you look at our industry expect especially contact center, it's slowed a little bit.
Speaker Change: Because everyone's trying to figure out what it means to us some people think it's going to eliminate contact centers, others say, it's going to have no impact we think it's going to make the contact centers more important.
Speaker Change: Give people up to speed faster and use AI to help answer or help answering questions as they come in so it's a little bit of a hole now it's slowed a little bit.
Stephen Sadler: So, it's a little bit of a hole now. It's slowed a little bit again, because of AI. I don't think it's because of any of the other things we talked about. That could have an impact, but we haven't seen that yet. That might still, that still could come in the future.
Speaker Change: Because of AI I don't think it's because so many of the other things you talked about.
Speaker Change: That could have an impact, but we haven't seen that yet that might still that's still could come in the future.
So thats the <unk> side the network side <unk> is growing a little slower from the telcos point of view they are not getting the returns the expected provide G. So they slowed a little bit down some of their.
Stephen Sadler: So, that's the IMG side. The network side, 4G to 5G is going a little slower from the telcos point of view. They're not getting the return they expected from 5G, so they slowed a little bit down some of their spending. And again, that slowed things down a little bit there too. So the environment, again, a little slower than we hoped for, but we also see improvements potentially coming as these things sort out. It is not our business causing it, it's sort of the environment we're in that's causing it.
Speaker Change: Spending and again that slowed things down a little bit there too.
Speaker Change: So the environment again, a little slower.
Speaker Change: We hope for but we also see improvements potentially coming as these things sort out it is not our business, causing it at sort of the environment, we're in it's causing it.
Speaker Change: That's very helpful.
Robert Medved: Unknown Speaker, Robert Medved, Vincent Mifsud, Daniel Chan, Erin Kyle, Enghouse Systems Limited Yeah, we, we basically look at our cash flow and look at what we expect to do in the next year. It is actually after the first quarter. So we've got some visibility, not total, and we believe what we think an increase in cash flow could be. We try and add some of that into dividends and of course, some into a capital allocation. So we look at both. Again, if you look at from a stock point of view, it looks like a higher dividend.
Speaker Change: And then I'll get back in the queue.
Speaker Change: You've already got a pretty enviable dividend yield and it was good to see the increase but I guess, what drove that particularly given I think indicated yield is almost four points to 75% so pretty high just any thoughts around that.
Speaker Change: The dividend and what drove that increase it was already pretty pretty impressive.
Speaker Change: Yes.
Speaker Change: We basically look at our cash flow and look at what we expect to do in the next year. It is actually after the first quarter. So we've got some visibility not total and we believe what we think an increase in cash flow can be we try and add some of that is the dividends and of course some into capital.
Speaker Change: So when you look at both.
Speaker Change: Again, if you look at us stock point of view it looks like a higher dividend just maybe because it starts to low.
Stephen Sadler: That's just maybe because the stock's too low. It's not because of what we're doing internally, which means. You'd have to ask investors, not us wise to ask the case. Understood.
Speaker Change: Because of what we're doing internally, which means yes.
Speaker Change: Ask investors not us why that's the case.
Kevin Mcveigh: Thank you.
Speaker Change: Understood. Thank you.
Speaker Change: Once again, please press star one should you wish to ask a question.
Paul Treiber: Please press star 1 should you wish to ask a question. Your next question is from Paul Treiber from RBC Capital Markets. Your line is now open.
Speaker Change: Next question is from Paul Treiber from RBC capital markets. Your line is now open.
Paul Treiber: Oh, thanks very much.
Paul Treiber: Hello, Thanks, very much and good morning, just a question on deferred revenue deferred revenue.
Robert Medved: And good morning. Just a question on deferred revenue, deferred revenue. fairly steadily increasing. I think this quarter it's an all time high. Is there anything unusual that that has been lifting deferred revenue or any change in terms? Or is it is it just a normal course? I think it's probably normal course increasing. You've got acquisitions that come in, they add to the deferred revenue. Q1, at this time of year, it's really the highest or it has tended to be the highest because a lot of renewals come in in January. So you don't expect that to go up every quarter unless, of course, we do other capital allocation acquisitions which would add to it.
Paul Treiber: It's been fairly steadily increasing.
Paul Treiber: This quarter, it's an all time high is there anything unusual that that has been the lifting deferred revenue you're in any change in terms.
Paul Treiber: Or is it is it just normal course sites increasing here.
Paul Treiber: I think it's probably normal course, increasing.
Paul Treiber: Got acquisitions to come in and they add to the deferred revenue Q1 at this time of year. It's really the highest power has tended to be the highest because a lot of renewals come in in January.
Paul Treiber: So you don't expect that to go up every quarter unless of course, we do other capital allocation acquisitions, which would add to it. So it's pretty normal we don't see anything unusual there.
Robert Medved: So it's pretty normal. We don't see anything unusual there. A little bit of exchange helps that too. You've got U.S. dollar where we have about 40% of the revenue that we need to get the revenue in and it's deferred revenue. It improves the deferred revenue a little bit as well. But nothing significant there, Paul.
Paul Treiber: A little bit of exchange helps that too right.
Paul Treiber: <unk> got U S dollar, where we have about 40% of the revenue.
Paul Treiber: That is.
Paul Treiber: When you get the revenue when its deferred revenue.
Paul Treiber: These deferred revenue a little bit as well.
Paul Treiber: But nothing significant there Paul.
Robert Medved: In terms of renewal rates, been seeing a shift to the cloud. Are cloud renewal rates similar to what you've seen on on-premise or maintenance? Cloud renewal rates are better. The reason why is because people are shifting from on-prem to cloud. So the renewal rates on the on-prem are down. Some of that moves to the cloud, some of it moves elsewhere. But the cloud's renewal rates are a little bit better.
Paul Treiber: And in terms of renewal rates I mean, you've been you've been.
Paul Treiber: We're seeing a shift to the cloud our cloud renewal rates similar to what you've seen on on premise or or maintenance.
Paul Treiber: Cloud renewal rates are better.
Paul Treiber: The reason why is because people are shifting from on Prem to cloud. So the renewal rates on the on Prem or down some that moved to the cloud some of moves elsewhere.
Paul Treiber: But the clouds, the renewal rates are a little bit better, but I will point out and again.
Robert Medved: But I will point out, and again, you know, I know investors like in the cloud and renewals and processes there, cloud business is not as profitable as on-prem business. It's just not the platform guys are taking a big chunk of the revenue and their cost in doing the cloud and we're generally in the public cloud. So although you see consistent and you'll see that we're over 70% now in recurring revenue. The cloud revenue is not as profitable as on-prem, which generally is paid up front and cloud is paid as you go. So you'll find that with a lot of people, I mean, a lot of companies, it's not just us.
Paul Treiber: I know investors like.
Paul Treiber: In the cloud and renewables and processes their cloud business is not as profitable as on Prem business.
Paul Treiber: It's just not the platform guys are taking a big chunk of the.
Paul Treiber: Revenue in their cost in doing the cloud and we're generally in the public cloud so although you see the.
Paul Treiber: Consistent and Youll see that were over 70% now in recurring revenue.
Paul Treiber: Cloud revenue is not as profitable as on Prem, which generally is paid upfront and cloud is pay as you go.
Speaker Change: So, yes, I think thats, all I met with a lot of people.
Paul Treiber: A lot of companies, it's not just us.
Robert Medved: It is on well on on service margins. They have been trending down as you mentioned.
Speaker Change: It is Sean well on service margins have been trending down as you mentioned with the cloud going up is this strategy to drive up margins there primarily through taking out some third party software.
Robert Medved: Robert Treiber, Stephen Sadler, Daniel Chan, Erin Kyle, Enghouse Systems Limited You're right. When you buy companies that, and like Lifesize, for example, they had a lot, a high cost. They still have a high cost of their cloud business. As I said, we're trying to take a third party software there and prove that. That's a big factor in the cloud. You've got a lot more impact by third party software and how they're charged out by especially the public cloud guys. So, it takes a little longer to get to our profitability level we like, but we're working on that and it's coming soon because we're just about there right now.
Speaker Change: You are right when you buy companies that likewise lifesize.
Speaker Change: For example, they had a lot of high cost a still have a high cost of their cloud business.
Speaker Change: I said, we're trying to take a third party software there.
Speaker Change: Improve that that's a big factor in the cloud you have got a lot more impact by third party software.
Speaker Change: And how they are charged off by especially the public cloud guys. So it takes a little longer to get through our profitability level, we like.
Speaker Change: We're working on that.
Speaker Change: And its coming soon because we're just about there right now so we're hoping the future that will be better. It also helps revenue because you don't want to sell a product that has those third party costs that app yourselves to some details on how you got to take some stuff out so it slowed us down a little bit in our revenue as well.
Robert Medved: So, we're hoping the future that will be better. It also helps revenue because you don't want to sell a product that has those third party costs and after you sell it to somebody, tell them now you've got to take some stuff out. So, it's slowed us down a little bit in our revenue as well.
Robert Medved: But in general, we've got to get the products more efficient because the market is still tough. Margins are tight. A lot of our competitors are struggling and they just can't afford to lose any revenue. So, they tend to, in a way, sell below cost to make sure they keep the revenue. We don't like to do that.
Speaker Change: But in general we got to get the products more efficient.
Speaker Change: Because the market is still tough large user tight a lot of our competitors are struggling and they.
Speaker Change: They just can't afford to lose any revenue so they tend to weigh sell below cost to make sure. They keep the revenue we don't like to do that.
Speaker Change: Yeah.
Paul Treiber: And then just lastly, on capital allocation, share buybacks continue to tick up.
Speaker Change: And then just lastly on capital allocation share buybacks continue to tick up is this a sustainable run rate do you see more room for share buybacks too to increase here.
Robert Medved: Is this a sustainable run rate? Do you see more room for for share buybacks to to You know what, we do a share buyback not for the sake of doing it or for any financial engineering. We do it when we think the price is a good buy. Because we have alternative uses of the capital being acquisitions, etc. So again, if the shares stay at a good buying price, compared to our alternatives, then we would do share buyback. Yes.
Speaker Change: You know, we do a share buyback not for the sake of doing it or for any financial engineering, we do it.
Speaker Change: When we think the prices are good buck because.
Speaker Change: Because we have alternative uses of the capital of big acquisitions et cetera. So again, if the <unk>.
Speaker Change: Sure stay at a good buying price compared to our alternatives then we would do share buyback yes.
Speaker Change: Okay. Thanks for taking the questions.
Paul Treiber: Thanks for taking the question. Thank you.
Speaker Change: Thank you there are no further questions at this time. Please proceed.
Operator: There are no further questions at this time.
Stephen Sadler: Please proceed. Well, thank you, everyone, for attending the call and your continued support. Enghouse continues to operate profitably while deploying capital to grow its business without any dilution to shareholders.
Speaker Change: Well. Thank you everyone for attending the call and your continued support.
Speaker Change: <unk> continues to operate profitably, while deploying capital to grow this business without any dilution to shareholders see you next quarter.
Stephen Sadler: See you next quarter. Thank you.
Speaker Change: Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect your lines.
Operator: Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines. Thank you.
Speaker Change: Thank you.