Enghouse Systems (TSE:ENGH) reported third-quarter revenue of CAD 117.6 million, up from CAD 114.3 million in the second quarter but below CAD 125.6 million a year earlier, as the software company continued to navigate cautious customer spending and competitive pressure in its markets.
Chief Financial Officer Rob Medved said the sequential revenue improvement reflected stronger software sales, favorable foreign exchange and the timing of certain transactions. Recurring revenue represented approximately 69.5% of total revenue during the quarter.
Profitability Improves as Costs Decline
Adjusted EBITDA rose to CAD 30.8 million from CAD 26.5 million in the prior quarter. The company’s EBITDA margin improved to 26.2%, compared with 23.2% in the second quarter and 25.7% in the prior-year period.
Operating expenses excluding special charges declined to CAD 45.7 million from CAD 49.9 million a year earlier. Results from operating activities were CAD 24.5 million, compared with CAD 23.6 million in the second quarter, despite a CAD 4.6 million restructuring charge recorded during the quarter.
Medved said the restructuring actions were the company’s most significant of the fiscal year and were undertaken late in the quarter, meaning more benefits are expected to phase into future periods. Chairman and CEO Stephen Sadler said the majority of the reductions were in research and development, where Enghouse is focusing development spending on products viewed as more strategic going forward.
Sadler said the company generally aims to match costs with revenue and characterized a mid-20% EBITDA margin as more realistic in the current market than a return to the high 20% range. He said Enghouse faces competition from larger contact-center providers that are under financial pressure and may be willing to lower prices to pursue revenue.
Segment Results
Revenue in the Asset Management Group was CAD 53 million, up from CAD 51.4 million in the second quarter but down from CAD 55.9 million a year earlier. The sequential gain was driven by maintenance, software-as-a-service and professional-services revenue, as well as contributions from the Sixbell acquisition.
Professional-services activity improved as several delayed projects advanced during the quarter. Asset Management Group segment profit increased to approximately CAD 18.5 million from CAD 15.3 million in the second quarter.
The Interactive Management Group generated CAD 64.6 million in revenue, compared with CAD 62.8 million in the prior quarter. Software sales improved sequentially and recurring revenue was stable, although maintenance revenue remained below year-earlier levels.
Medved said churn moderated and renewal performance improved during the period. Lifesize and Qumu continued to decline, though the magnitude of those declines was lower than in earlier periods. Interactive Management Group segment profit rose to approximately CAD 21.5 million from CAD 18.5 million in the second quarter, aided by cost reductions, particularly in R&D.
During the question-and-answer session, Sadler said he did not see a major improvement in the overall demand environment despite the quarter’s sequential gains. He said churn had improved somewhat but had not “improved drastically,” citing a difficult environment in video and contact-center markets.
Cash Position, Buybacks and Dividend
Enghouse generated CAD 28.4 million in operating cash flow before changes in working capital and income taxes paid. It ended the quarter with CAD 267.8 million in cash equivalents and short-term investments and no external debt.
The company returned CAD 16.9 million to shareholders through dividends and spent CAD 7.5 million on share repurchases during the quarter. Subsequent to quarter-end, the board declared a quarterly dividend of CAD 0.31 per common share, payable Nov. 27, 2026, to shareholders of record on Nov. 13, 2026.
Sadler said Enghouse did not complete any acquisitions in the quarter, despite evaluating numerous private- and public-market opportunities. He said private-market valuations remain at a premium to public-market valuations and that the company is prioritizing transactions capable of meeting its return requirements, which he said are generally 20% or higher.
He added that the company views repurchases under its normal course issuer bid as an attractive use of internally generated funds, in some instances offering better value than acquisition opportunities currently available.
AI Adoption Remains Early
Management said it continues to see customer interest in artificial intelligence-enabled solutions and recorded growth in AI-related activity during the quarter. Enghouse has AI groups in both its Interactive Management and Asset Management businesses and is using AI internally to support productivity, development and operating efficiency.
However, Sadler said customer monetization remains limited in the company’s markets. He said customers are experimenting with AI and proof-of-concept projects, but Enghouse has not seen a significant uptake in customers purchasing AI-based products.
“We continue to explore and use AI leading models for internal productivity and building practical solutions which provide a return on our investments,” Sadler said.
Medved said this was his final Enghouse conference call as CFO before moving to a new opportunity. Sadler closed the call by emphasizing the company’s positive cash flow and debt-free balance sheet amid what he described as an uncertain market environment.
About Enghouse Systems (TSE:ENGH)
Enghouse Systems Limited is a Canadian publicly traded company (TSX: ENGH) that provides mission-critical vertically focused enterprise software solutions. Our core technologies are used for contact centers, video communications, virtual healthcare, education, telecommunications, networks, IPTV, public safety and transit. The Company’s two-pronged strategy to grow earnings focuses on both organic growth and acquisitions, which, to date, have been funded through net cash provided by operating activities as the Company has no external debt financing.
