Q3 2026 Enghouse Systems Ltd Earnings Call

September 11, 2026

Speaker #1: Men and welcome to the EngHouse Q3 2026 conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Speaker #1: If at any time during this call you require me did assistance, please press star 0 for the operator. This call is being recorded on Friday, September 11, 2026.

Speaker #1: I would now like to turn the conference over to Stephen Sattler. Please go ahead.

Speaker #2: Good morning, everybody. I'm here today with Todd May, VP Legal Counsel, then Lynn, VP Finance and Accounting, and Rob Medved, Chief Financial Officer, is also on the call, but he is actually in Croatia.

Speaker #2: This will be Rob's last conference call for EngHouse as he moves to a new adventure. Before we begin, I'll have Todd read our forward disclaimer.

Speaker #3: Certain statements made may be forward-looking; by their nature, such forward-looking statements are subject to various risks and uncertainties, including those in EngHouse's continuous disclosure filings.

Speaker #3: Such as its AIF, which could cause the company's actual results and experience to differ materially from anticipated results or other expectations. Underreliance should not be placed on forward-looking information, and the company has no obligation to update or revise any forward-looking information.

Speaker #3: Whether as a result of new information, future events, or otherwise.

Speaker #2: Thanks, Todd. Rob will now give an overview of the financial and business results.

Speaker #4: Thank you, Steve. Good morning, everyone, and thank you for joining us today. I'll begin with a review of our third-quarter results, and then provide some additional context around our operating performance.

Speaker #4: The third quarter reflected many of the trends we have discussed over the past several quarters. While the global business environment remains uncertain due to ongoing geopolitical tensions, evolving trade dynamics, and broader economic caution, we continue to focus on the factors within our control.

Speaker #4: Serving our customers, improving operation efficiency, managing costs prudently, and generating strong cash flow. Revenue for the quarter was $117.6 million, compared to $114.3 million in Q2, and $125.6 million in the prior year period.

Speaker #4: While revenue remains below last year's level, we were encouraged by the sequential improvement from Q2, which was driven by stronger software sales, favorable foreign exchange, and the timing of certain transactions.

Speaker #4: Recurring revenue remained stable, at approximately $69.5% of total revenue, continuing to provide a strong foundation for the business. One point I would emphasize this quarter is that while revenue growth remains important, our primary focus has been on profitability and operating discipline.

Speaker #4: Over the last several quarters, we have taken steps to better align our cost structure with current business activity. And we are beginning to see the benefits of those actions reflected in our financial results.

Speaker #4: Operating expenses, excluding special charges, declined to $45.7 million, compared to $49.9 million in the prior year. While adjusted EBITDA increased to $30.8 million, up from the $26.5 million in Q2.

Speaker #4: EBITDA margin improved to $26.2%, compared to $23.2% in Q2, and $25.7% in the prior year quarter. These results demonstrate that our profitability initiatives are having a favorable impact on the business, despite continued revenue pressure in certain areas.

Speaker #1: Good morning, ladies and gentlemen, and welcome to the Enghouse Q3 2026 conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Speaker #4: Results from operating activities were $24.5 million, compared to $23.6 million in Q2, despite recording $4.6 million restructuring charge during the quarter. These restructuring activities were the most significant we have undertaken this fiscal year, and were done late in the quarter, so there will be further phasing of benefits.

Speaker #1: If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, September 11, 2026.

Speaker #1: I would now like to turn the conference over to Steven Sattler. Please go ahead.

Speaker #2: Good morning, everybody. I'm here today with Todd May, VP Legal Counsel, Vinh in Accounting, and Rob Medved, Chief Financial Officer, who is also on the call but actually in Croatia.

Speaker #4: Within the asset management group, revenue was $53 million, compared to $51.4 million in Q2 and $55.9 million in the prior year quarter. Sequential improvement was driven by stronger maintenance, SaaS, and professional services revenue, along with contributions from the Six-Bell acquisition.

Speaker #2: This will be Rob's last conference call for Enghouse as he moves on to a new adventure. Before we begin, I'll have Todd read our forward disclaimer.

Speaker #4: Professional services activity improved, as several delayed projects moved forward during the quarter. Segment profit increased to approximately $18.5 million from $15.3 million in Q2, reflecting both improved revenue and continued cost discipline.

Speaker #3: Certain statements made may be forward-looking by their nature. Such forward-looking statements are subject to various risks and uncertainties, including those in Enghouse's continuous disclosure filings.

Speaker #4: Within the interactive management group, revenue was $64.6 million, compared to $62.8 million in Q2. Software sales improved from the prior quarter, and recurring revenue was stable.

Speaker #3: Such as its AIF, which could cause the company's actual results and experience to differ materially from anticipated results or other expectations. Undue reliance should not be placed on forward-looking information, and the company has no obligation to update or revise any forward-looking information.

Speaker #4: Maintenance revenue remained below prior year levels. However, churn moderated during the quarter, and renewal performance improved. Life size and QMOO continued to experience declines, but the magnitude of these declines has reduced compared to prior periods.

Speaker #3: Whether as a result of new information, future events, or otherwise.

Speaker #2: Thanks, Todd. Rob will now give an overview of the financial and business results.

Speaker #4: Thank you, Steve. Good morning, everyone, and thank you for joining us today. I'll begin with a review of our third quarter results, and then provide some additional context around our operating performance.

Speaker #4: Segment profit increased to approximately $21.5 million compared to $18.5 million in Q2. Cost reductions—particularly within R&D—helped offset ongoing pressure from recurring revenue attrition. EngHouse.

Speaker #4: We generated $28.4 million of operating cash flow before changes in working capital and income taxes paid, and ended the quarter with $267.8 million in cash, cash equivalents, and short-term investments, while continuing to carry no external debt.

Speaker #4: Revenue for the quarter was $117.6 million, compared to $114.3 million in Q2 and $125.6 million in the prior year period. While revenue remains below last year's level, we were encouraged by the sequential improvement from Q2, which was driven by stronger software sales, favorable foreign exchange, and the timing of certain transactions.

Speaker #4: During the quarter, we returned capital to shareholders through $16.9 million of dividends, and $7.5 million of share repurchases, reflecting our confidence in the long-term value of the company and the strength of our balance sheet.

Speaker #4: Subsequent to quarter-end, our board declared a quarterly dividend of $31 per common share payable on November 27, 2026, to shareholders of record at the close of business on November 13, 2026.

Speaker #4: Recurring revenue remained stable, at approximately 69.5% of total revenue, continuing to provide a strong foundation for the business. One point I would emphasize this quarter is that while revenue growth remains important, our primary focus has been on profitability and operating discipline.

Speaker #4: This continues our long-standing commitment to returning capital to shareholders while maintaining the financial flexibility to invest in the business and pursue acquisition opportunities. Before concluding, I'll briefly touch on AI.

Speaker #4: Over the last several quarters, we have taken steps to better align our cost structure with current business activity, and we are beginning to see the benefits of those actions reflected in our financial results.

Speaker #4: Across both IMG and AMG, our approach remains practical and customer-focused. We continue to see customer interest in AI-enabled solutions, and recorded growth in AI-related activity during the quarter.

Speaker #4: Operating expenses, excluding special charges, declined to $45.7 million, compared to $49.9 million in the prior year. Meanwhile, adjusted EBITDA increased to $30.8 million, up from $26.5 million in Q2.

Speaker #4: Internally, we are also leveraging AI to improve productivity, accelerate development efforts, and support operationally efficiency. As always, our focus is on solutions that provide measurable value to customers rather than pursuing technology for its own sake.

Speaker #4: EBITDA margin improved to 26.2%, compared to 23.2% in Q2 and 25.7% in the prior year quarter. These results demonstrate that our profitability initiatives are having a favorable impact on the business, despite continued revenue pressure in certain areas.

Speaker #4: In summary, revenue improved sequentially during the quarter and, importantly, our focus on cost management and operational efficiency is beginning to translate into stronger profitability.

Speaker #4: While the external environment remains uncertain and customers continue to make purchasing decisions cautiously, EngHouse remains financially strong, highly cash-generative, and disciplined in its execution.

Speaker #4: Results from operating activities were $24.5 million, compared to $23.6 million in Q2, despite recording a $4.6 million restructuring charge during the quarter. These restructuring activities were the most significant we have undertaken this fiscal year and were done late in the quarter, so there will be further phasing of benefits.

Speaker #4: We believe these characteristics continue to position the company well regardless of broader market conditions. Before I hand the call back, before I hand the call back, I want to thank Steve, the board, and the entire EngHouse team for the many opportunities I've been given during my time here.

Speaker #4: Within the Asset Management group, revenue was $53 million, compared to $51.4 million in Q2 and $55.9 million in the prior-year quarter. Sequential improvement was driven by stronger maintenance, SaaS, and professional services revenue, along with contributions from the Six-Bell acquisition.

Speaker #4: It has been a privilege to be part of the company and I wish everyone at EngHouse continued success in the future. With that, I'll turn the call over to Steve.

Speaker #4: Professional services activity improved as several delayed projects moved forward during the quarter. Segment profit increased to approximately $18.5 million from $15.3 million in Q2, reflecting both improved revenue and continued cost discipline.

Speaker #4: Within the Interactive Management Group, revenue was $64.6 million, compared to $62.8 million in Q2. Software sales improved from the prior quarter, and recurring revenue was stable.

Speaker #4: Maintenance revenue remained below prior year levels. However, churn moderated during the quarter, and renewal performance improved. Lifesize and Kumu continue to experience declines, but the magnitude of these declines has reduced compared to prior periods.

Speaker #4: Segment profit increased to approximately $21.5 million, compared to $18.5 million in Q2. Cost reductions, particularly within R&D, helped offset ongoing pressure from recurring revenue attrition.

Speaker #2: I need to speak to the moderator.

Speaker #4: Cash generation remains a key strength of Enghouse. We generated $28.4 million of operating cash flow before changes in working capital and income taxes paid, and ended the quarter with $267.8 million in cash, cash equivalents, and short-term investments, while continuing to carry no external debt.

Speaker #4: You want that hang up and go back in?

Speaker #4: During the quarter, we returned capital to shareholders through $16.9 million of dividends and $7.5 million of share repurchases, reflecting our confidence in the long-term value of the company and the strength of our balance sheet.

Speaker #2: Yeah. I think we need to.

Speaker #4: End of day, you say?

Speaker #2: She's trying to find our moderator.

Speaker #4: There are folks here. You're back.

Speaker #4: Subsequent to quarter-end, our Board declared a quarterly dividend of $0.31 per common share, payable on November 27, 2026, to shareholders of record at the close of business on November 13, 2026.

Speaker #5: I think.

Speaker #3: Are we back?

Speaker #4: Yes, you are, Steve. Looks like we had a bit of technical difficulties.

Speaker #5: That's good.

Speaker #3: Okay. I think Rob was just going to hand it over to me.

Speaker #4: Correct, Steve. I did.

Speaker #3: Okay. Well, thanks, Rob. At least we know there was not anything from Russia or something over there in Croatia doing damage to us, because we still hear you.

Speaker #4: Across both IMG and AMG, our approach remains practical and customer-focused. We continue to see customer interest in AI-enabled solutions and recorded growth in AI-related activity during the quarter.

Speaker #3: So that's good. As noted in our last conference call, the markets which we operate in continue to be challenging. With respect to AI, which Rob mentioned, although there's a lot of interest and promotion by major AI players, it continues to be difficult to monetize AI investment in our markets.

Speaker #4: Internally, we are also leveraging AI to improve productivity, accelerate development efforts, and support operational efficiency. As always, our focus is on solutions that provide measurable value to customers, rather than pursuing technology for its own sake.

Speaker #3: We continue to explore and use AI leading models for internal productivity and building practical solutions, which provide a return on our investments. Monetizing AI with customers like the many solutions noted in our last quarterly call continue to improve to benefit both ourselves and our customers.

Speaker #4: While the external environment remains uncertain, and customers continue to make purchasing decisions cautiously, Enghouse remains financially strong, highly cash-generative, and disciplined in its execution.

Speaker #3: With respect to capital deployment, there has not been much change since the last quarter. We continue to investigate a lot of opportunities in the private and public markets in our business sectors, and continue to find the private market valuations are smaller but also at a premium to public market valuations.

Speaker #4: We believe these characteristics continue to position the company well, regardless of broader market conditions. Before I hand the call back—before I hand the call back—I want to thank Steve, the Board, and the entire Enghouse team.

Speaker #4: For the many opportunities I've been given during my time here, it has been a privilege to be part of the company, and I wish everyone at Enghouse continued success in the future.

Speaker #3: Although we investigated a number of opportunities, no new acquisitions were completed in the quarter. We continue to purchase our own EngHouse shares using our internal generated funds, under the TSX-defined normal course issuer bid.

Speaker #4: With that, I'll turn the call over to Steve.

Speaker #3: We believe the purchase of our own shares is a good use of our funds and better value in many cases than the acquisition opportunities that we are seeing, especially in the private markets.

Speaker #3: I would now like to open the call to questions.

Speaker #6: Ladies and gentlemen, we will now begin a question and answer session. If you would like to ask phone questions, you will need to press star 1 on your telephone keypad.

Speaker #6: Again, that will be star then the number 1 on your telephone keypad. And if you would like to withdraw your question, just press star then the number 2.

Speaker #6: We have your first question comes from Erin Kahn from CIBC. Please go ahead.

Speaker #2: Hi, good morning. Thanks for taking the questions. Maybe just to start with the demand environment, SaaS and maintenance revenue increased sequentially this quarter, which was good to see.

Speaker #2: And we've talked about cautious customer spending for a few cycles now. I'm just wondering if you're starting to see any signs there of normalization or stabilization.

Speaker #2: I need to speak to the moderator.

Speaker #2: I believe Rob mentioned some churn moderated in the quarter. Some renewals improved. So maybe if you can just expand on what you've been seeing there.

Speaker #3: Yeah, I would say, Erin, it's about the same as it has been in the past. Our quarters can vary a little bit up or down.

Speaker #5: If I hang up and go back in?

Speaker #3: So I don't really see any big improvement at this stage in the marketplace. It is like it has been for the last few quarters.

Speaker #2: I think we need to.

Speaker #5: End of day, you say?

Speaker #2: She's trying to find our moderator.

Speaker #5: There are folks here. You're back.

Speaker #2: Okay, thanks, Steve. And then maybe just on the profitability side, good to see the EBITDA margin in the quarter as well. You've been taking cost actions for several quarters now.

Speaker #6: Are we back?

Speaker #5: Yes, you are, Steve. It looks like we had a bit of technical difficulty.

Speaker #2: So just on that, do you think there's still meaningful efficiency opportunities remaining, or are we starting to approach a point where future margin gains will require revenue growth to achieve them?

Speaker #6: That's good. Okay. I think Rob was just going to hand it over to me.

Speaker #5: Correct, Steve. I did.

Speaker #6: Okay. Well, thanks, Rob. At least we know there wasn't anything from Russia or something over there in Croatia doing damage to us, because we still hear you.

Speaker #3: Yeah, I'm not sure the revenue growth is the answer for margin gains because it's a tough market. And as you probably know, some of our major competitors are in a difficult financial situation.

Speaker #6: So that's good. As noted in our last conference call, the markets in which we operate continue to be challenging. With respect to AI, which Rob mentioned, although there's a lot of interest and promotion by major AI players, it continues to be difficult to monetize AI investment in our markets.

Speaker #3: So they're keeping margins down, trying to get some revenue basically to survive. And these are pretty large competitors with a billion-plus in revenue. So I don't see the cost reductions improving margins that way.

Speaker #6: We continue to explore and use AI-leading models for internal productivity and building practical solutions, which provide a return on our investments. Monetizing AI with customers, like the many solutions noted in our last quarterly call, continues to improve to benefit both ourselves and our customers.

Speaker #3: Internally, as Rob mentioned, we did some of the restructuring that you see in the quarter. Right at the end of the quarter. So that will benefit future quarters.

Speaker #3: It didn't really benefit this quarter. And it takes time because you give notice periods and then you talk to people. So unfortunate that we have to do market is today.

Speaker #3: And we match cost to revenue. So we continue to do so.

Speaker #6: With respect to capital deployment, there has not been much change since the last quarter. We continue to investigate a lot of opportunities in the private and public markets in our business sectors, and continue to find that private market valuations are smaller, but also at a premium to public market valuations.

Speaker #2: Thank you. That's helpful. Maybe just one last one on the leadership changes then. And congratulations to Rob and Vin on the promotion here. Just on authority and changes, any changes regarding acquisition evaluation, financial oversight, how are you thinking about Vin's promotion here to VP Finance and the M&A evaluation team?

Speaker #6: Although we investigated a number of opportunities, no new acquisitions were completed in the quarter. We continue to purchase our own Enghouse shares using our internally generated funds, under the TSX-defined normal course issuer bid.

Speaker #3: Yeah, the acquisition teams are both the same. They're working hard on many opportunities. But the environment's quite difficult. One, because there's a lot of risk.

Speaker #6: We believe the purchase of our own shares is a good use of our funds and provides better value in many cases than the acquisition opportunities we are seeing, especially in the private markets.

Speaker #3: So you got to be careful in what you buy, so you don't buy something that's not going to produce the return that we've committed for shareholders on our website and elsewhere.

Speaker #3: We have a high return on investment. Generally, at 20% or higher. We're continuing to do that. We're not trying to rush to make the revenue look better by buying things that won't give us the return that we need.

Speaker #6: I would now like to open the call to questions.

Speaker #7: Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question by phone, you will need to press star one (*) on your telephone keypad.

Speaker #3: But there are a lot of opportunities out there. It is probably a more difficult environment than people understand, especially for the medium and smaller-sized companies.

Speaker #7: Again, that will be star, then the number 1 on your telephone keypad. And if you would like to withdraw your question, just press star, then the number 2.

Speaker #3: And larger companies are having difficulties as well. And they're showing up somewhat in their marketplace, but they're very large, which increases the risk. You don't want to do a large error.

Speaker #7: Our first question comes from Erin Kahn at CIBC. Please go ahead.

Speaker #2: Hi, good morning. Thanks for taking the questions. Maybe just to start with the demand environment—SaaS and maintenance revenue increased sequentially this quarter, which was good to see.

Speaker #3: You'd like to do at least a medium or a smaller error. So we're very conscious of that. We try to avoid mistakes, shall we say.

Speaker #2: And we've talked about cautious customer spending for a few cycles now. I'm just wondering if you're starting to see any signs there of normalization or stabilization.

Speaker #2: Thanks, Steve. I'll pass the line.

Speaker #2: I believe Rob mentioned some churn moderated in the quarter. Some renewals improved. So maybe, if you can, just expand on what you've been seeing there.

Speaker #6: Your next question comes from Kevin McPhee from UBS. Please go ahead.

Speaker #5: Great. Thanks so much. And good morning. Hey, good to see some of the cost adjustment. Good morning. Hey, good to see the cost adjustments.

Speaker #6: Yeah, I would say, Erin, it's about the same as it has been in the past. Our quarters can vary a little bit, up or down.

Speaker #5: I wonder can you help us understand where are you in that journey? And is there any way to think about what the business's size for from a revenue perspective in terms of is the adjustment factor a new normal or just, I guess, how are you thinking about those cost adjustments and should we see some more?

Speaker #6: So I don't really see any big improvement at this stage in the marketplace. It is like it has been for the last few quarters.

Speaker #2: Okay, thanks, Steve. And then, maybe just on the profitability side—good to see the EBITDA margin in the quarter as well. You've been taking cost actions for several quarters now.

Speaker #3: You know, we really always have taken the approach we match cost to revenue. Unfortunately, as you noted, our revenue over several quarters, those happens to be up this quarter over last quarter.

Speaker #2: So, just on that—do you think there are still meaningful efficiency opportunities remaining, or are we starting to approach a point where future margin gains will require revenue growth to achieve them?

Speaker #3: But we had projected before that we still our margin dropped last quarter, and we had to get it back to what we see as more normal, which is at like 25% EBITDA level.

Speaker #6: Yeah, I'm not sure revenue growth is the answer for margin gains, because it's a tough market. And as you probably know, some of our major competitors are in a difficult financial situation.

Speaker #3: So yeah, to answer your question, it depends what's happened in the marketplace. We do match cost to revenue. And hopefully, the revenue has stabilized and can grow.

Speaker #6: So they're keeping margins down, trying to get some revenue, basically to survive. And these are pretty large competitors, with $1 billion-plus in revenue. So I don't see the cost reductions improving margins that way.

Speaker #3: But it may not have. It's a difficult market for us right now in all the markets. The contact center market is generally difficult. And again, some think it's AI.

Speaker #3: It's really not AI causing a lot of it. What's causing it is major, I mean, billion-dollar contact center solution providers get receivership or being taken over by creditors.

Speaker #6: Internally, as Rob mentioned, we did some of the restructuring that you see in the quarter—right at the end of the quarter. So, that will benefit future quarters.

Speaker #6: It didn't really benefit this quarter. It takes time, because you give notice periods and then you talk to people. So, it's unfortunate that we have to do that.

Speaker #3: So they're pretty desperate. And that makes it tough in a market to compete against because they have to get the revenue to keep going.

Speaker #3: And they probably are doing it still at a loss. We are profitable. We tend not to jump into that game just to get the revenue higher and lose or have less profitability.

Speaker #6: But that's just the way the market is today. We match costs to revenue, and we continue to do so.

Speaker #3: So we manage to profitability, not to revenue.

Speaker #2: Thank you, that's helpful. Maybe just one last one on the leadership changes then—congratulations to Rob and Vin on the promotions here. Just on authority and changes: any changes regarding acquisition evaluation, financial oversight—how are you thinking about Vin's promotion here to VP Finance and the M&A evaluation team?

Speaker #5: That's helpful. And Steve, I wonder, could you give us a sense AI is a percentage of revenue, and one of the things we're kind of focused on is, right, we're more than one year into this AI journey and the clients haven't changed the behavior and will likely probably aren't going to change nearly as much as what the sector's discounting.

Speaker #5: But if you think about that thought process, is there anything from a client perspective that gives you more confidence? Because I haven't agreed with you that I don't think it's going to be nearly as meaningful as what the stocks are discounting.

Speaker #6: Yeah, the acquisition team's about the same. They're working hard on many opportunities, but the environment's quite difficult—one, because there's a lot of risk.

Speaker #6: So you have to be careful what you buy, so you don't purchase something that's not going to produce the return that we've committed for shareholders—on our website and elsewhere.

Speaker #5: But any thoughts as to goalposts you can point to, whether it's renewals or just, again, as these competitors go through the adjustment process on the receivership, any sense of when we start to come out of this malaise, I guess, for lack of a better word?

Speaker #6: We have a high return on investment—generally at 20% or higher—and we're continuing to do that. We're not trying to rush to make the revenue look better by buying things that won't give us the return that we need.

Speaker #6: But there are a lot of opportunities out there. It is probably a more difficult environment than people understand, especially for the medium- and smaller-sized companies.

Speaker #3: You know, I think there's lots that. I might have a contribute to some of the others because there's a lot of promotion of AI, but not a lot of results, except for the platforms where everyone's experimenting, doing proof of concepts.

Speaker #6: And larger companies are having difficulty as well. And they're showing up somewhat in the marketplace, but they're very large, which increases the risk. You don't want to make a large error.

Speaker #3: Studies that I've seen show these proof of concepts rarely provide a return. On investment, the number I've saw from an MIT study was 95% do not add any value.

Speaker #6: You'd like to do at least a medium or a smaller error, so we're very conscious of that. We try to avoid mistakes, shall we say.

Speaker #3: At this point in time, what we're new in the game. So you've got to be in the game. You've got to play. You've got to keep trying things because you never know when you've hit a very good one.

Speaker #2: Thanks, Steve. I'll pass the line.

Speaker #7: Your next question comes from Kevin McPhee from UBS. Please go ahead.

Speaker #3: But right now, AI is just like all technology in the past. It used to be in the cloud. It was a technology. Technology is a history of coming out with new things, and it takes some time for them to produce results.

Speaker #5: Great, thanks so much. And good morning. Hey, good to see some of the cost adjustment. Good morning. Hey, good to see the cost adjustments.

Speaker #5: I wonder, can you help us understand where you are in that journey? And is there any way to think about the business’s size from a revenue perspective? In terms of the adjustment factor, is this a new normal, or just— I guess, how are you thinking about those cost adjustments, and should we expect to see some more?

Speaker #3: And you've got to keep experimenting a little bit until you find the right path forward. So right now, internally, we're using it. It's providing some help in getting our costs down, for sure.

Speaker #3: I'm sure that's the same with customers. But putting in a product that a customer buys, not so much. We don't see that yet. We still experiment with it.

Speaker #6: You know, we really have always taken the approach that we match cost to revenue. Unfortunately, as you noted, our revenue over several quarters—though it happens to be up this quarter over last quarter—has been...

Speaker #3: But customers generally will do their own or try their own. And again, most of them aren't producing results in enterprises. It's quite different in different markets.

Speaker #3: If you're in the film industry and you can do use AI to automate images, etc., that's probably quite good. If you're in retail, it's probably quite good.

Speaker #6: But we had projected before that, while our margin dropped last quarter, we had to get it back to what we see as more normal, which is at around 25% EBITDA level.

Speaker #3: But in the areas that we're in, it's still a challenging, but there's potential there, and therefore we've got to keep up with it.

Speaker #6: So, yeah, to answer your question, it depends on what has happened in the marketplace. We do match cost to revenue, and hopefully, the revenue has stabilized and can grow.

Speaker #5: That makes a lot of sense. One more for me, if I could. It was great to see that the previously delayed professional services reengage as we think about that as a proxy for future revenue.

Speaker #6: But it may not have. It's a difficult market for us right now in all the markets. The contact center market is generally difficult. And again, some think it's AI.

Speaker #5: Where does that surface on the income statement in terms of larger revenues that professional services starts to obviously, it sounds like it's that occurred in the quarter.

Speaker #6: It's really not AI causing a lot of it. What's causing it is major— I mean, billion-dollar contact center solution providers hitting receivership or being taken over by creditors.

Speaker #5: Where will we see the transition to other parts of the revenue stream?

Speaker #6: So they're pretty desperate, and that makes it tough in a market to compete against them, because they have to get the revenue to keep going.

Speaker #3: You know, it's interesting. The professional services can be seasonal. We have a fair bit of our business in Europe. They take a lot of time off in the summer, a lot more than the Americans do.

Speaker #6: And they probably are doing it still at a loss. We are profitable. We tend not to jump into that game just to get the revenue higher and lose, or have less profitability.

Speaker #3: So professional services drop sometimes down a little bit then. But on the other hand, as you go to SaaS and you go to in the cloud, it's more of a standard system.

Speaker #6: So, we manage to profitability, not to revenue.

Speaker #5: That's helpful. And Steve, I wonder, could you give us a sense of AI as a percentage of revenue? One of the things we're kind of focused on is that we're more than one year into this AI journey, and the clients haven't changed their behavior.

Speaker #3: You're not customizing as much as when it was on-prem for a particular customer. So professional services generally in a cloud environment will decline. So we've gone through a lot of that already because we have about 70% of our just under 70% of our Thanks.

Speaker #5: And I’ll likely, probably aren’t going to change nearly as much as what the sector’s discounting. But if you think about that thought process, is there anything from a client perspective that gives you more confidence?

Speaker #5: Because I haven’t agreed with you, I don’t think it’s going to be nearly as meaningful as what the stocks are discounting. But any thoughts as to goalposts you can point to—whether it’s renewals or, just again, as these competitors go through the adjustment process on the receivership—any sense of when we start to come out of this malaise, I guess, for lack of a better word?

Speaker #6: You know, I think there are lots of different views on that. I might want to contribute to some of the others because there's a lot of promotion of AI, but not a lot of results, except for the platforms where everyone's experimenting and doing proof of concepts.

Speaker #6: Studies that I've seen show these proof of concepts rarely provide a return on investment. The number I saw from an MIT study was that 95% do not add any value.

Speaker #6: At this point in time, we're new in the game. So you've got to be in the game, you've got to play, you've got to keep trying things, because you never know when you've hit a very good one.

Speaker #6: But right now, AI is just like all technology in the past. It used to be that the cloud was a technology. Technology has a history of coming up with new things, and it takes some time for them to produce results.

Speaker #6: And you've got to keep experimenting a little bit until you find the right path forward. So right now, internally, we're using it. It's providing some help in getting our costs down, for sure.

Speaker #6: I'm sure that's the same with customers. But putting it in a product that a customer buys, not so much. We don't see that yet. We are still experimenting with it.

Speaker #6: But customers generally will do their own or try their own. And again, most of them aren't producing results in enterprises. It's quite different in different markets.

Speaker #6: If you're in the film industry and you can use AI to automate images, etc., that's probably quite good. If you're in retail, it's probably quite good as well.

Speaker #6: But in the areas that we're in, it's still challenging, but there's potential there. Therefore, we've got to keep up with it.

Speaker #5: That makes a lot of sense. One more from me, if I could. It was great to see that the previously delayed professional services have reengaged.

Speaker #5: As we think about that as a proxy for future revenue, where does that surface on the income statement in terms of larger revenues that professional services start to—obviously, it sounds like that occurred in a quarter.

Speaker #5: Where will we see the transition to other parts of the revenue stream?

Speaker #6: You know, it's interesting. The professional services can be seasonal. We have a fair bit of our business in Europe. They take a lot of time off in the summer—a lot more than the Americans do.

Speaker #6: So, professional services sometimes drop down a little bit. But, on the other hand, as you move to SaaS and move to the cloud, it's more of a standard system.

Speaker #2: Hello, presenters who have now connected.

Speaker #6: Hello. Are we back?

Speaker #5: Yes.

Speaker #6: Okay.

Speaker #6: You're not customizing as much as when it was on-prem for a particular customer, so professional services generally, in a cloud environment, will decline. So we've gone through a lot of that already because we have about 70%—just under 70%—of our... Thanks.

Speaker #3: Well, technology is interesting. Let's go back to the questions. I guess that's why you've got to be careful on all automated technology taking over everything because sometimes it doesn't work very well.

Speaker #3: Question?

Speaker #2: Your next question comes from Steven Lin. Please go ahead.

Speaker #7: Hi. Good morning. Could you hear me okay?

Speaker #3: Yep. You're good. I hope we stay good.

Speaker #7: Okay. Perfect. Thank you very much. Thanks for taking the questions. Maybe start off with, could you help us unpack the churn picture a bit?

Speaker #7: How much of churn is still coming from acquired business like life-size versus your existing customer base? And then are you seeing any signs of stabilization in either bucket?

Speaker #7: And then a quick one on AI front. You guys just set up dedicated AI groups in both IMG and AMG earlier this year. I was wondering how are the conversations going, how customer engagement is tracking, and then whether some AI offering in the pipeline coming up.

Speaker #3: Yeah. I think you've asked too many questions for me to remember them all. But churn in general, it is still an issue. Again, some of it comes from acquisitions.

Speaker #3: Some of it's just general in the marketplace. Remember what I said is major competitors like billion-dollar revenue, especially in the IMG market, which is our contact center market, are in difficulty.

Speaker #3: And think of a retail store that gets in difficulty. They start lowering all prices. And that attracts some customers. But it also there's risk involved in going with a company like that.

Speaker #3: But it gets them to think about what they're doing. So churn is continuing. It's still there. It's a little lower. When you say from the acquisitions, we're mostly built by acquisitions.

Speaker #3: So everything sort of was an acquisition at one time, for the last 10 years. But again, some of it, especially voice, not voice, video, is still part of our IMG group.

Speaker #3: And it's a tough market right now. So it continues like it was. It's a little bit better, but I wouldn't say it's improved drastically.

Speaker #1: Big billion-dollar companies are in financial difficulty, and so they're hustling to do something. Again, it's hard to get money because investors are not investing in that, because of the promotion and image that AI may take it all over.

Speaker #7: All right. I appreciate the color on that. And then just the second part to the question will be on the AI front. Just how are conversations happening with customers and how is customer engagement tracking?

Speaker #1: We don't see that, but one never knows. You've got to make sure you're prepared for anything that can come up when technology is at stake, because it changes quickly and you've got to be ready for it.

Speaker #3: So we have two groups. One in AMG and one in IMG that do AI. We've got some projects. We had an interesting one that we've gotten in the quarter, but it's all small.

Speaker #2: Do you think that getting margins back into the high 20s is realistic, or are you kind of targeting something around the current levels in the mid-20s?

Speaker #3: It's nowhere near the promotion that you see in the marketplace. Like they They are it's hard to get a return. And the token costs are going up quite or have gone up, or the usage of it has gone up.

Speaker #3: And they're eating through their budgets pretty quick, doing some of these proofs of concepts. So we find it interesting. We find it helps internally for us because we try and do practical solutions.

Speaker #3: But we don't see a huge uptake in our customer base. That could be the areas we're in. Doesn't mean it isn't happening in films or in other places.

Speaker #1: Hello, presenters. You are now connected.

Speaker #3: But in our products, we don't see a huge update. That could change in the future. So you have to be in the game, and you have to understand how to do it so you can react to things as they change.

Speaker #2: Hello, are we back?

Speaker #3: Yes.

Speaker #2: Okay, well, technology is interesting. Let's go back to the questions. I guess that's why you have to be careful with all automated technology taking over everything, because sometimes it doesn't work very well.

Speaker #3: Like every day, I everyone's going to be eliminated totally in two years. I just don't see it. Maybe I'm missing something, but I heard that about driverless cars 10 years ago when I still am looking out the window right now.

Speaker #3: I don't see any on the road. There are some somewhere, but they're not on the road here. In Toronto, where I am. Maybe they're in on the road in Croatia where Rob is.

Speaker #2: Question?

Speaker #1: Your next question comes from Steven Lin. Please go ahead.

Speaker #3: I have no idea. But it's something you're going to be in. Everyone's talking about it. But monetizing it, unless you're a platform or a chip maker, is still difficult as far as we can tell.

Speaker #4: Hi, good morning. Can you hear me okay?

Speaker #2: Yep, you're good. I hope we stay good.

Speaker #4: Okay, perfect. Thank you very much. Thanks for taking the questions. Maybe to start off, could you help us unpack the churn picture a bit?

Speaker #3: In the areas that we're in.

Speaker #7: I appreciate the color. And I guess switching gears a little bit, besides the private market valuations at a premium to public factor that you mentioned earlier, wondering any other constraint on the pace of deals.

Speaker #4: How much of the churn is still coming from acquired businesses, like Lifesize, versus your existing customer base? And are you seeing any signs of stabilization in either bucket?

Speaker #4: And then a quick one on the AI front: you guys just set up dedicated AI groups in both IMG and AMG earlier this year. I was wondering how the conversation is going, how customer engagement is tracking, and whether there's some AI offering in the pipeline coming up.

Speaker #7: And then how would you characterize the current kind of M&A pipeline?

Speaker #3: You know, the M&A pipeline is quite large. We have a lot of activity going on. We do take risk into consideration. And just think of all what you said on AI.

Speaker #3: Are they going to be disruptive in some of the areas that we're looking at? So it takes a little more thinking and a little more due diligence to make sure we don't do a bad deal.

Speaker #2: Yeah, I think you've asked too many questions for me to remember them all.

Speaker #4: Okay.

Speaker #2: But churn in general is still an issue. Again, some of it comes from acquisitions. Some of it is just general in the marketplace. Remember what I said: major competitors, like billion-dollar revenue—especially in the IMG markets, which is our contact center market—are in difficulty.

Speaker #3: We've always been take pride in the fact we've generally done good deals. And since got a return for our investors. So it's there's actually more opportunities than usual but there's more risk for all the reasons that we've talked about on the call today than usual as well.

Speaker #2: And think of a retail store that gets into difficulty. They start lowering all prices, and that attracts some customers. But it also—there's risk involved in going with a company like that.

Speaker #3: So we're trying to avoid a mistake. But there's lots of opportunities. We should be doing more. The private companies are smaller, which less risk when you're smaller.

Speaker #3: You can make a mistake. It isn't a huge one. The public companies are huge and bigger. But they're having trouble. Mainly because of the public markets and no one is willing to put new money if you're not making money.

Speaker #2: acquisitions,

Speaker #3: And you have debt to get new money in the markets we're in is very difficult. So we're in quite a good position because of our financial resources.

Speaker #3: But it makes the market tough to get new business because others who are more desperate will lower prices because they have to get some revenue in.

Speaker #3: To support the costs that they have. We tend to take the other approach of rather than rushing to take revenue, they'll hurt us maybe in the long run.

Speaker #3: We've taken our costs down to match to the revenue that we have and are going to have.

Speaker #7: Thank you. And then just final one from me. On the restructuring charges gets to a fairly sizable 4.6 million this quarter. It seems like toward the end of the quarter, maybe it could give us some color like a more detail on where the cost cuts are being made.

Speaker #7: And then whether from a margin perspective, there's room to further improve and right size and then put the margin funding.

Speaker #3: Okay. They're made in various areas. Of course, as our customer support and our revenue drops, we match to it. So we generally have not taken out much cost in sales.

Speaker #3: Because we're trying to improve that area. Where we've taken out more costs in that number is in R&D. We have some older products where we're trying to concentrate more in our go-forward products versus our regional products that we've had for quite a time.

Speaker #3: And they're good products. They still work. But we're not going to have to develop a lot of things new there. Because the customers are happy with what they have.

Speaker #3: So in the last reduction, which was done towards the end of July, you'll find our R&D, which is nearly 20% of our revenue, that's quite high for the industry.

Speaker #3: So we're did some reductions in that area. That was the majority of where the cost reduction came from. I could say, like many others, AI, hey, we're using it.

Speaker #3: It's not true, though. So I don't do that. It's generally we had to fine-tune that looking at putting more emphasis on our go-forward products and the product our more regional products that we've had for some time.

Speaker #3: We still want to make sure we give good service to the customers. But we're not doing a lot of new things in them except for new products that we're tying to the platforms.

Speaker #3: That we have.

Speaker #7: Thank you very much. I'll pass the mic.

Speaker #1: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question from David Kwan from TD Cohen.

Speaker #1: Please go ahead.

Speaker #2: Thanks. So Steve, you mentioned I think Rob did too mentioned that the restructuring happened late in the quarter. So there was modest benefit to margins.

Speaker #2: This in Q3, so should we expect margins to improve from these levels in Q4 and into 2027?

Speaker #3: You know, when you talk about margins, I think about it differently. There's a cost of revenue. We're working to improve that to make that better.

Speaker #3: A lot of people who've gone into the cloud use a lot of third-party products and have a high cost of revenue. Much higher than when it was on-prem.

Speaker #3: So we've worked on that side. That's what we see as margin. And then below, to get the EBITDA, you have all your costs of professional services.

Speaker #3: You've got your costs of sales. You've got financial costs, etc. We trimmed those back, again, to match to the revenue that we have. We constantly look at doing this.

Speaker #3: Although you'd say there's costs at the end of the quarter, we still have people who especially in Europe have to work out their notice period.

Speaker #3: So again, it takes a little bit of time. So you'll see some of the savings this quarter and next quarter because some notice periods are quite long.

Speaker #3: So we don't just take all that cost and do it right away. We finish off projects we're working on, especially in R&D. So again, we hope to see some savings.

Speaker #3: And hopefully, our revenue doesn't go down to cause more issues in that area. But it is a tough environment. And again, if you look at if you knew some of the major if you look at, let's say, the IMG side, contact center side, big billion-dollar companies are in financial difficulty.

Speaker #3: And so they're hustling to do something. And again, it's hard to get money because investors are not investing in that because of the promotion and image that AI may take it all over.

Speaker #3: We don't see that. But one never knows. You got to make sure you're prepared for anything that can come up when in technologies at stake.

Speaker #3: Because it changes quickly and you got to be ready for it.

Speaker #2: Do you think that getting margins back into the high 20s is realistic? Or are you kind of targeting something around the current levels in the mid-20s?

Speaker #3: I would say mid-20s is more realistic now. Again, for the very comments I just made, the competition are being active because they need to they have issues.

Speaker #3: And they are issues is they can't really get more financial resources easily. The marketplace is not rewarding the area. So if you have debt and you're not making money, you got a problem.

Speaker #3: Fortunately, we have cash and we make money. So we don't have that problem. But I don't want to have that problem. In other words, we got to keep watching and matching our costs to revenue.

Speaker #3: But it's still a tough market. There's no doubt about it.

Speaker #2: Tough one. Do you expect any more material restructuring in Q4? Or is what would happen at the end of July kind of the big restructuring work for now?

Speaker #3: We're hoping that July one as helped us going forward and has done what we need to do. But again, it depends on the market, the revenue, and all the things that are happening out there these days.

Speaker #3: We match costs to revenue. I'm hoping that's done. But if it isn't done, we may have to look at some more. But we've done a we don't try and keep doing it.

Speaker #3: In other words, we tried to do it once and again, a lot of it was in the R&D side, which we hadn't done for quite a while.

Speaker #3: If you look at the competition, you'll see they can run around 12, 13% of revenue for their R&D expense. We're closer to 20, 19.

Speaker #3: So we're a little high. Some of that we should be a little higher because we have different model or different solutions in different geographical regions.

Speaker #3: But we're a little bit too high. And so we've started to say, okay, it's time to fix some of that. And again, obviously spending that extra money wasn't getting us the extra revenue.

Speaker #3: So it's a matching of costs and revenue. And no one likes to do it. But that's what we have to do. And we don't want to be in the position of some of our major suppliers.

Speaker #3: You know, you can talk about you can talk Mitel. They all have some difficulties. And you know, we've seen quite a few more, even 200, 300 million dollar companies, especially in the contact center market.

Speaker #3: For whatever reason, it's more mature market. But also if you look at the telcos, that's our IMG or networks area. Think of Bell. Think of Telus.

Speaker #3: Look how they're doing. That's pretty standard we're seeing in that market as well. So we've got a bit of a perfect storm against us.

Speaker #3: We have to manage for that. And we expect we'll come out ahead of the game time.

Speaker #2: Tough one. Just two more questions. One I think the last quarter you alluded to some deals that might have been delayed there. So did this quarter benefit from some of those slip deals and maybe help lead to that sequential improvement in revenue?

Speaker #3: I usually don't talk about slip deals because then I find they slip forever. Okay, in other words, they slip but then they come in and new ones slip.

Speaker #3: So I really think we've done pretty well on the revenue, growing over last quarter. I'm not sure where that goes forward because again, the competition have difficulties and they're making how much margin decline do you want to take to get revenue versus make money on the bottom line?

Speaker #3: That's something we have to deal with every day.

Speaker #2: Thanks. And then one last question. Just on capital allocation in the balance sheet. So I was wondering how much cash do you think is enough to fund the business and provide enough flexibility to fund acquisitions should things kind of turn around here?

I would say mid-20s is more realistic. Now again, for the very comments I just made, the competition are being active because they need to.

Speaker #2: I'm just trying to get a better sense of when you might look to redeploy your cash in a more significant way, like a special dividend or an SIP given the tougher M&A environment.

Speaker #2: And just looking back, I think it was like roughly five years ago, when you paid the special dividend, you had less cash and you have right now.

Speaker #2: So why not maybe pay a special dividend or maybe do an SIP, especially given where the valuation is right now, kind of multi-year lows?

The issue they have is that they can't really get more financial resources easily. The marketplace is not rewarding that area. So, if you have debt and you're not making money, you've got a problem. Fortunately, we have cash and we make money, so we don't have that problem—but I don't want to have that problem, in other words. So we've got to keep watching and matching our costs to revenue. But it's still a tough market, there's no doubt about it.

Speaker #3: Our dividends actually quite high right now. Not because of the absolute dollar of the dividend, but because our stock price went down. Okay, so we're at 7%.

Telephone, do you expect any more material restructuring in Q4, or is what happened at the end of July kind of the big, uh, big restructuring work for now?

Speaker #3: What other tech companies out there are paying 7, 8% dividends? So I'm hoping that we can improve the stock price. I don't think we have to improve really the dividend.

Speaker #3: We actually put a smaller dividend increase in this year to do buybacks instead. Because quite frankly, our stock price in our opinion is a good investment right now.

Speaker #3: Probably better there. And it hasn't been like this for 10 years plus. Probably better than some of because we're in the public markets. But it's probably better than some of the acquisitions we're looking at currently.

Speaker #3: But these things change pretty quickly. If there's any there's lots of criticisms you can do. But I criticize that we aren't doing enough deals.

We're hoping that July 1 as uh as helped us going forward and is done what we need, uh, to do. Um, but again, it depends on the market, the revenue and all the things that are happening out there, these days, we match costs to revenue. Um, I'm hoping that's done, um, but if it isn't done, we may have to look at some more. Um, but we we've done a we we don't try and keep doing it. In other words, we tried to do it once. And again, a lot of was in the R&D side which we hadn't done for quite a while, if you look at the competition you'll see they can run around 12 13% of revenue for their R&D.

Speaker #3: I think there are deals out there that are good value. And it comes down to if they're larger ones, do I want to accept that risk?

Speaker #3: It's tough in this market. Everyone thinks contact centers are going to be eliminated. I've heard in one year. Well, that didn't happen because they said that a year ago.

Expense. We're closer to 20 19. So we're a little high. Uh, some of that we should be a little higher because we have different models or or different solutions in different, geographical regions, but we're a little bit too high. Um, and so we we've started to say, okay,

Speaker #3: Then I've heard, well, three years, five years. I think AI in particular helps make the contact centers more productive and more responsive. But you're going to need both.

It's time to fix some of that. Uh, and again, obviously, spending that extra money wasn't getting us the extra revenue, so it's a matching of costs and revenue.

Speaker #3: You're going to need humans and you're going to need better technology to help do contact centers. Remember, contact centers are not inbound. It's also outbound.

Speaker #3: We do both. We actually call it internally communication centers. Because we do both in and outbound. But there's challenges there for sure. Some of it is theoretical challenges and some of it are real and some times you can't tell the difference what's theoretical and could become real or is it really real?

And no 1 likes to do it, but that's, we have to do and we don't want to be in the position of some of our major suppliers. You know, you can talk about, you can talk my tell you, they all have some difficulties and, you know, we've seen quite a few more, even 200, 300 million dollar companies especially in the um, contact center Market. Um, for whatever reason, it's more mature Market, but also

Speaker #3: Is it really happening? I think more and more people seeing AI and always has been technology has helped do better things and give better service.

Speaker #3: That's how we see it. We see AI with humans, I guess you'll say, working together to provide better service to customers. And that's how we're approaching it right now.

Speaker #2: That's right. Thanks. And good luck, Rob.

Speaker #1: Thank you.

Speaker #4: Third note for the questions. I'll turn the call back over to Steven.

Speaker #3: Well, thank you, everybody. I know these are interesting times to say the least. Sorry for the interruptions. Again, with technology, sometimes you get them with calls.

Speaker #3: But thank you for attending the call and your continued support. We understand a little bit of patience is hard to do sometimes. But we're hopefully we'll prove to be the right thing for you to do.

Speaker #3: And Chelsea is a good positive cash flow and overall a strong debt-free financial position. This is very good in this marketplace. We just need a little more visibility and certainty of where it's all going.

Speaker #3: We look forward to our year-end conference call in December. Thank you for attending.

Speaker #1: Sometimes you can't tell the difference—what's theoretical and could become real, or is it really real, is it really happening? I think more and more people are seeing AI, and technology always has been something that helps to make things better and provide better service.

And sometimes you can't tell the difference—what's theoretical and could become real, or is it really real? Is it really happening? I think more and more people see AI not always as being just technology to do better things and provide better service. That's how we see it—we see AI with humans, I guess you'd say, working together to provide better service to customers, and that's how we're approaching it right now.

That's right. Thanks, and good luck, Rob.

Thank you.

All right. Now for the questions, I'll turn the call back over to Stephen.

Well, thank you, everybody. I know these are interesting times, to say the least. Um, sorry for the interruption again with technology—sometimes you get them with calls. But thank you for attending the call and for your continued support. We understand that a little bit of patience is hard to muster sometimes, but we're hopeful we'll prove it was the right thing for you to do. And Chelsea is a good, positive cash flow and overall, a strong, debt-free financial position. This is very good in this marketplace. We just need a little more visibility and certainty of where it's all going. We look forward to our year-end conference call in December. Thank you for attending.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.