Enghouse Systems Ltd (EGHSF) (Q3 2026) Earnings Call Highlights: Margin Expansion and Cost …

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• Revenue: $117.6 million in Q3 2026, up from $114.3 million in Q2 but down from $125.6 million in the prior year period.

• Recurring Revenue: Approximately 69.5% of total revenue, stable.

• Operating Expenses (excluding special charges): $45.7 million, down from $49.9 million in the prior year.

• Adjusted EBITDA: $30.8 million, up from $26.5 million in Q2.

• EBITDA Margin: 26.2%, up from 23.2% in Q2 and 25.7% in the prior year quarter.

• Results from Operating Activities: $24.5 million, up from $23.6 million in Q2, despite a $4.6 million restructuring charge.

• Asset Management Group Revenue: $53 million, up from $51.4 million in Q2 but down from $55.9 million in the prior year quarter.

• Asset Management Group Segment Profit: Approximately $18.5 million, up from $15.3 million in Q2.

• Interactive Management Group Revenue: $64.6 million, up from $62.8 million in Q2.

• Interactive Management Group Segment Profit: Approximately $21.5 million, up from $18.5 million in Q2.

• Operating Cash Flow (before working capital changes and income taxes paid): $28.4 million.

• Cash, Cash Equivalents, and Short-Term Investments: $267.8 million, with no external debt.

• Dividends: $16.9 million returned to shareholders during the quarter; subsequent to quarter end, a quarterly dividend of $0.31 per common share was declared.

• Share Repurchases: $7.5 million during the quarter.

Release Date: September 11, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Revenue improved sequentially to $117.6 million in Q3 2026 from $114.3 million in Q2 2026, driven by stronger software sales, favorable foreign exchange, and the timing of certain transactions.

• Recurring revenue remained stable at approximately 69.5% of total revenue, providing a strong foundation for the business.

• Adjusted EBITDA increased to $30.8 million in Q3 2026 from $26.5 million in Q2 2026, with EBITDA margin improving to 26.2% from 23.2% in Q2 2026.

• Operating expenses, excluding special charges, declined to $45.7 million from $49.9 million in the prior year, reflecting successful cost management initiatives.

• Enghouse Systems Ltd (EGHSF) 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 carrying no external debt.

• The company returned capital to shareholders through $16.9 million of dividends and $7.5 million of share repurchases, and declared a quarterly dividend of $0.31 per common share.

• Segment profit in the Asset Management Group increased to approximately $18.5 million from $15.3 million in Q2 2026, and in the Interactive Management Group increased to approximately $21.5 million from $18.5 million in Q2 2026.

• Churn moderated during the quarter and renewal performance improved, with declines in Lifesize and Qumu reducing in magnitude compared to prior periods.

Negative Points

• Revenue for Q3 2026 was $117.6 million, down from $125.6 million in the prior year period, reflecting continued revenue pressure.

• The global business environment remains uncertain due to ongoing geopolitical tensions, evolving trade dynamics, and broader economic caution, which continues to impact customer spending.

• The company recorded a $4.6 million restructuring charge during the quarter, the most significant this fiscal year, with benefits expected to phase in over future quarters.

• Maintenance revenue remained below prior year levels, and Lifesize and Qumu continued to experience declines, though the magnitude has reduced.

• Monetizing AI investments remains difficult in Enghouse Systems Ltd (EGHSF)’s markets, with customer interest not yet translating into significant revenue uptake.

• The contact center market is challenging, with major competitors in financial difficulty keeping margins down and engaging in aggressive pricing to survive.

• No new acquisitions were completed in the quarter, and private market valuations remain at a premium to public market valuations, limiting M&A opportunities.

• The company expects mid-20s EBITDA margins to be more realistic in the current environment, rather than the high 20s, due to competitive pressures and market conditions.

Q & A Highlights

Q: Erin Kyle of CIBC asked about the demand environment, noting that SaaS and maintenance revenue increased sequentially and that churn moderated with renewals improving. She wondered whether the company is seeing signs of normalization or stabilization after several cycles of cautious customer spending.A: CEO Stephen Sadler said conditions are about the same as they have been in past quarters. Results can vary slightly up or down, but he does not see any big improvement in the marketplace at this stage. It remains like it has been for the last few quarters.

Q: Erin Kyle of CIBC asked about profitability, noting the improved EBITDA margin and several quarters of cost actions. She asked whether meaningful efficiency opportunities remain or whether future margin gains will require revenue growth.A: CEO Stephen Sadler said revenue growth is not necessarily the answer for margin gains because the market is tough. Some major competitors with over $1 billion in revenue are in difficult financial situations and are keeping margins down to win revenue and survive. He does not see cost reductions improving margins that way. The restructuring done right at the end of the quarter will benefit future quarters but did not help this quarter due to notice periods. The company matches cost to revenue and will continue to do so.

Q: Kevin McVeigh of UBS asked where the company is in its cost adjustment journey and whether the business is now sized for current revenue levels, or whether further cost adjustments should be expected.A: CEO Stephen Sadler said the company has always matched costs to revenue. After margins dropped last quarter, they had to get back to what they see as a more normal 25% EBITDA level. Whether more adjustments are needed depends on the marketplace. The contact center market is generally difficult, not really because of AI, but because billion-dollar contact center solution providers have hit receivership or been taken over by creditors and are competing desperately, sometimes at a loss. Enghouse manages to profitability, not to revenue.

Q: Kevin McVeigh of UBS asked about AI as a percentage of revenue and whether there are any goalposts, such as renewals or competitor adjustments, that could signal when the market malaise ends.A: CEO Stephen Sadler said there are many views on AI, but there is a lot of promotion and not a lot of results. He cited an MIT study showing 95% of AI proof of concepts do not add value at this point. Internally, AI is helping reduce costs, but embedding it in products customers buy is not yet showing meaningful uptake. He compared it to past technologies like the cloud, which took time to produce results. The company must stay in the game and keep experimenting, but monetizing AI remains difficult in its markets.

Q: Kevin McVeigh of UBS asked about the re-engagement of previously delayed professional services projects and where that surfaces in the income statement as a proxy for future revenue.A: CEO Stephen Sadler said professional services can be seasonal, especially in Europe where summer vacations are longer. As the business moves to SaaS and cloud, systems are more standardized and require less customization than on-premise deployments, so professional services generally decline in a cloud environment. The company has already gone through much of that transition, with just under 70% of revenue now recurring.

Q: An unidentified participant asked for more detail on the churn picture, including how much churn comes from acquired businesses like Lifesize versus the existing customer base, and whether either bucket is stabilizing.A: CEO Stephen Sadler said churn in general is still an issue, with some coming from acquisitions and some from the broader marketplace. Major competitors, especially in the IMG contact center market, are in difficulty and are lowering prices to attract customers, which creates risk for buyers. Churn is a little lower but has not improved drastically. Since the company is mostly built by acquisitions, nearly everything was an acquisition at some point over the last 10 years, and video remains a tough market within IMG.

Q: An unidentified participant asked how customer conversations and engagement are tracking on the AI front, given the dedicated AI groups set up in both IMG and Asset Management Group earlier in the year, and whether any AI offerings are in the pipeline.A: CEO Stephen Sadler said both groups have projects, including an interesting one won in the quarter, but all are small and nowhere near the level of marketplace promotion. Customers are not rushing in, returns are hard to achieve, and token costs are eating through proof-of-concept budgets quickly. AI helps internally with practical solutions, but there is no huge uptake in the customer base. He noted predictions that everyone will be eliminated in two years are hard to believe, similar to past predictions about driverless cars.

Q: An unidentified participant asked about constraints on the pace of M&A deals beyond private market valuations being at a premium to public markets, and how the current M&A pipeline looks.A: CEO Stephen Sadler said the M&A pipeline is quite large with a lot of activity. The company takes risk into consideration, including potential AI disruption in target areas, so more thinking and due diligence are required to avoid bad deals. There are more opportunities than usual but also more risk. Private companies are smaller and less risky, while public companies are larger but struggling because public markets are unwilling to put in new money. Enghouse is in a good position due to its financial resources, but the market is tough because desperate competitors lower prices to generate revenue.

Q: An unidentified participant asked for more detail on the $4.6 million restructuring charge taken late in the quarter, including where cost cuts were made and whether there is room for further margin improvement.A: CEO Stephen Sadler said cuts were made in various areas. Customer support costs are matched to declining revenue, and sales costs were largely protected to try to improve that area. The majority of reductions came from R&D, where the company is concentrating on go-forward products versus older regional products that customers are happy with. R&D was nearly 20% of revenue, which is high for the industry, and the reductions were done toward the end of July.

Q: David Kwan of TD Cowen asked whether margins should improve from current levels in Q4 and into 2027, given that the restructuring happened late in the quarter with only modest benefit in Q3.A: CEO Stephen Sadler said he thinks about margins differently, including cost of revenue, which the company is working to improve because cloud deployments often carry higher third-party costs than on-premise. Below that, costs of professional services, sales, and financial costs are trimmed to match revenue. Some savings will

For the complete transcript of the earnings call, please refer to the full earnings call transcript.