Enghouse Systems Stock

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.

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 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. whether as a result of new information, future events or otherwise.

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

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.

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, serving our customers, improving operational 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. 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.

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.

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. 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.

The 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.

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.

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.

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.

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. Maintenance Revenue remained below prior year levels. However, churn moderated during the quarter and renewal performance has improved.

Lifesize and Qumu continued to experience declines, but the magnitude of these declines has reduced compared to prior periods. Segment profit increased to approximately $21.5 million compared to $18.5 million in Q2. Cost reductions, particularly within R&D, helped to offset ongoing pressure from recurring revenue attrition.

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.

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. 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. 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. 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. 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. 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. 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. We believe these characteristics continue to position the company well regardless of broader market conditions.

Before I hand the call back, I want to thank Steve, the Board and the entire Enghouse team for the many opportunities that have been given during my time here. It has been a privilege to be part of the company, and I wish everyone at Enghouse's continued success in the future.

With that, I'll turn the call over to Steve.

[Technical Difficulty]

Okay. I think Rob was just going to hand it over to me.

Correct, Steve. I did.

Okay. Well, thanks, Rob. At least we know there was not anything from rush or something over there in [Caraci ] doing damage to us because we still hear you. 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. 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.

With respect to capital deployment, there's 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. Although we investigated a number of opportunities, no new acquisitions were completed in the quarter.

We continued to purchase our own chose shares using our internal generated funds under the TSX defined normal course issuer bid. 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. I would now like to open the call to questions.

[Operator Instructions] We have your first question comes from Erin Kyle from CIBC.

Good morning. Maybe just to start with the demand environment. SaaS and maintenance revenue increased sequentially this quarter, which was good to see. And we've talked about cautious customer spending for a few cycles now. Just wondering if you're starting to see any signs there of normalization or stabilization. I believe Rob mentioned some churn moderated in the quarter and some renewals improved. So maybe if you can just expand on what you've been seeing there?

Yes. 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. 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.

Okay. 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. 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?

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

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. It did really benefit this quarter. And it takes time because you give notice periods and then you've talked to people. So I'm fortunate that we have to do that, but that's just the way the market is today, and we match cost to revenue. So we continue to do so...

That's helpful. Maybe just one last one on the leadership changes then and congratulations to Rob and in on the promotion here. Just on authority and the changes -- any changes regarding acquisition evaluation, financial oversight. How are you thinking about Vince promotion here to VP Finance and the M&A valuation team.

Yes. The acquisition teams are both the same. They're working hard on many opportunities. but the environment is quite difficult, one, because there's a lot of risk, so you got to be careful what you buy, so you don't buy something that not going to produce the return that we've committed for shareholders on our website and elsewhere. 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. 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. and larger companies are having difficulties as well.

And they're -- it's showing up somewhat in their marketplace, but they're very large, which increases the risk. You don't want to do a large year, you'd like to do at least a medium or a smaller air. So we're very conscious of that. We try to avoid mistakes, shall we say.

Your next question comes from Kevin McVeigh from UBS.

Good to see the cost adjustments. I wonder -- can you help us understand where are you in that journey? And is there any way to think about what the business is sized 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?

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. 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 like 25% EBITDA level.

So yes, to answer your question, it depends on what happens in the marketplace. We do match cost to revenue, and hopefully, the revenue has stabilized and could grow, 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, something gets AI.

It's really not AI causing a lot of it. What's causing it is major. I mean, billion-dollar contact center solution providers hit recedorship or being taken over by creditors. So they're pretty desperate and that makes it tough in the market to compete against because they have to get the revenue to keep going, 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. So we manage the profitability not to revenue.

That's helpful. And Steve, I wonder, could you give us a sense -- AI as a percentage of revenue. And 1 of the things we're kind of focused on is, right, we're more than 1 year into this AI journey and the clients haven't changed the behavior and like we probably aren't going to change nearly as much as what the sector is discounting. 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. But -- any thoughts as to go post you can point to, whether it's renewals or just again, as these competitors go through the investment process on the receivership, any sense of when we start to come out of this malaise, I guess, for lack of a better word.

I think there's lots of different views on that. I might have 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 is experimenting, doing proof of concepts, 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 95% do not add any value. at this point in time. But 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 had a very good one. But right now, I is just like all technology in the past used to be in the cloud was a technology.

It's technology is a history of coming out with new things and it takes some time for them to produce results. and you've got to keep experimenting a little bit until you find the right path forward. So right now, we -- internally, we're using it. It's providing some help in getting our costs down for sure. 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've still experiment with it. But customers generally will do their old or try their own. And again, most of them aren't producing results in enterprises. -- is quite different in different markets. If you're in the film industry and you can use AI to automate images, et cetera, that's probably quite good. If you're a retail it's probably quite good. But in the areas that we're in, it's still challenging, but there's potential there, and therefore, we got to keep up with it.

That makes a lot of sense. One more for me, if I could. It was great to see the previously delayed professional services reengage. As we think about that as a proxy for future revenue, where does that surface on the income statement in terms of long of revenues that professional services starts to -- obviously, it sounds like it's that occurred in the quarter, where will we see the transition to other parts of the revenue stream?

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. So professional services dropped 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. 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 revenue [Technical Difficulty] Hello, are we back?

Yes.

Okay. Most technology is interesting. Let's go back to the questions. I guess that's why you got to be careful on all automated technology taking over everything because sometimes it doesn't work very well. Question?

Your next question comes from Stephen Lynn.

Could you hear me okay?

You're good. I hope we stay good.

Okay. Perfect. Maybe start off with can you help us unpack the churn picture a bit how much of churn still coming from acquired business like Life size versus your existing customer base? And then are you seeing any sign of stabilization in either bucket? And then quick one on AI front. You guys did set up that groups in both IMG and AMG earlier this year. Just wondering how are the conversations going, how customer engagement is tracking and then whether some AI offering in the pipeline coming up?

I think you've asked too many questions for me to remember them all. But churn is still an issue. Again, some of it comes from acquisitions. Some of it is just general in the marketplace. Remember, what I said is major competitors, like $1 billion revenue, especially in the IMG market, which is our contact center market are in difficulty. And it's -- 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.

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

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 our conversation is happening with customers, some house customer engagement tracking.

So we have two groups, one in AMG and one in IMG, that do AI. we've got some projects. We had an interesting 1 that we've gotten in the quarter, but it's all small. It's nowhere near the promotion that you see in the marketplace. Like they aren't all rushing to it. They are -- it's hard to get a return and the token costs are going up quite -- have gone up or the usage of it has gone up, and they're eating through their budgets pretty quick doing some of these proof of concepts. So we find it interesting.

We find it helps internally for us because we try and do practical solutions. But we don't see a huge uptake in our customer base. That could be the areas we're in. It doesn't mean it doesn't happen in films or in other places. 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.

Like every day, I heard somewhere today that everyone is going to be eliminated totally in 2 years, like I just don't see it. Maybe I'm missing something, but I heard that about rubles cars 10 years ago when I still looking out the window right now. 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 on the road in Caracara it, I have no idea. But it's something you're going to be in. Everyone's talking about it. But monetizing a lesser a platform or a chip maker is still difficult as far as we can tell in the areas that we're in.

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 deal, and then how would you characterize the current kind of M&A pipeline?

The M&A pipeline is quite large. We have a lot of activity going on. We do take risks into consideration. And just think of all what you said on AI, 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.

We've always been -- take pride in the fact that we've generally done good deals and since got a return for our investors. So it's -- there's a lot -- 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. 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, 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 and you have debt to get new money in the markets where it is very difficult.

So we're in quite a good position because of our financial resources, 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 to support the cost that they have. We tend to take the other approach of rather than rushing to take revenue that will hurt us maybe in the long run, we've taken our costs down to match to the revenue that we have and are going to have.

And then just a final one from me. on the restructuring charges, gets to a very sizable $4.6 million this quarter. It seems like toward the end of the quarter. Maybe you could give us some color, more detail on where the cost cuts are being made. And then whether from a margin perspective, there's room to further improve and right size and then put the margins...

Okay. There are 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 because we're trying to improve that area. Where we've taken out more cost 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. And they're good products. They still work, but we don't have to develop a lot of things new there because the customers are happy with what they have. 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. So we're some reductions in that area.

That was the majority of where the cost reduction came from. I could say like many others, AI, A, we are using it a safe it's not true. 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 -- or more regional products that we've had for some time, we still want to make sure we get 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 that we have.

[Operator Instructions] Your next question from David Kwan from TD Cowen.

So Steve, you mentioned -- I think Rob you mentioned that the restructuring happened late in the quarter, so there was a modest benefit to margins. this in Q3. So should we expect margins to improve from these levels in Q4 and into 2027?

When you talk about margins, I think about it differently. There's a cost of revenue. We are working to improve that to make that better. 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. So we've worked on that side. That's what we see as margin. And then below to get to EBITDA, you have all your costs of professional services, you've got your cost of sales, you've got financial costs, et cetera.

We trim those back again to match to the revenue that we have. we constantly look at doing this. Although you'd say there's cost at the end of the quarter, we still have people who, especially in Europe, have to work out their notice period. So again, it takes a little bit of time. So you won't -- you'll see some of the savings this quarter and next quarter because some notice periods are quite long, 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. 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. 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. We don't see that but one never knows you got to make sure you're prepared for anything that can come up in an technologies at stake because it changes quickly and you got to be ready for.

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

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. And their issues as 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. 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 cost to revenue. But it's still a tough market. There's no doubt about it.

That's helpful. And do you expect any more material restructuring in Q4? Or what would happen at the end of July, kind of the big restructuring work for now?

We're hoping the July 1 has 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. We match cost 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. 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. 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%. 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, 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. So it's a matching of cost 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.

You can talk by, you can talk my tell you, they all have some difficulties. And we've seen quite a few more even $20 million, $30 million companies, especially in the contact center market for whatever reason. It's a more mature market. But also, if you look at the telcos, that's our IMG or networks area. Think of Dell, think of Telus, 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. we have to manage for that, and we expect we'll come out ahead of the game, but it will take a little bit of time.

That's helpful. Just two more questions. One, I think last quarter, you alluded to some deals that might have been delayed there. So did this quarter benefit from some of those slipped deals and maybe help lead to that sequential improvement in revenue?

I usually don't talk about slip deals because I find they slip forever, okay? In other words, they slip, but then they come in and new and slip. 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. That's something we have to deal with every day.

And then one last question. Just on capital allocation in the balance sheet. So I was wondering like 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'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 SAP given the tougher M&A environment? And just looking back, what I think it was roughly 5 years ago, when you paid the special dividend, you have less cash than you have right now. So why not maybe pay a special dividend or maybe do an SAB especially given where the valuation is right now, kind of multiyear lows.

Our dividend is 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%. 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. 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, probably better than -- 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.

But these things change pretty quickly. If there's any -- there's lots of criticisms you can do, but I careersize that we aren't doing enough deals. I think there are deals out there that are good value, and it comes down to if there are larger ones, do I want to accept that risk. It's tough in this market. Everyone thinks contact centers that are going to be eliminated, I've heard in 1 year. Well, that didn't happen because they said that a year ago.

Then I've heard, well, 3 years, 5 years. I think AI, in particular, helps make the contact centers more productive and more responsive, but you're going to need both. You're going to need humans and you're going to need better technology to help do contact centers Remember, contact center is not inbound. It's also outbound. 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 sometimes you can't tell them a difference what theoretical and could become real? Or is it really real? Is it really happening? I think more and more people seeing AI and always as being technology is help do better things and give better service. 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.

There are no further questions. I'll turn the call back over to Stephen.

Well, thank you, everybody. I know these are interesting times to say the least. Sorry for the interruption, again, the technology. Sometimes you get them with calls. 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 will prove to be the right thing for you to do. Enghouse 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.

Good morning, ladies and gentlemen, and welcome to Enghouse's Q2 2026 Quarterly Results Call.

[Operator Instructions] I would now like to turn the conference over to Mr. Stephen Sadler. Please go ahead.

Good morning, everybody. I'm here today with Rob Medved, Chief Financial Officer; and Todd May, VP, Legal Counsel. Before we begin, I'll have Todd read our forward disclaimer.

[indiscernible] disclosure filings 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, whether as a result of new information, future events or otherwise.

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

Thank you, Steve. Good morning, everyone, and thank you for joining us today. I'll begin with a high-level overview of our second quarter results for fiscal 2026. Overall, the quarter reflected continued market caution and the variability that we have been managing across our business. Customer decision-making remains measured in some areas with certain larger or discretionary projects delayed rather than lost. Despite these headwinds, our results demonstrate ongoing profitability, disciplined cost management and strong cash generation.

Revenue for the second quarter was $114.3 million compared to $124.8 million in the same period last year. The year-over-year decline of about 8% was primarily driven by continued churn in parts of our recurring revenue base, particularly within the Interactive Management Group, including some expected runoff from prior acquisitions, along with lower software license and professional services revenue as customers paced purchases and projects started cautiously.

The Asset Management Group delivered relatively stable performance with acquisitions contributing incremental revenue that helped offset softness in certain areas and the timing of onetime product transactions. Sequentially, revenue was down around 4.8% from Q1, which was $120.1 million, reflecting reduced software sales and continued pressure in recurring revenue streams. This sequential change also reflects the timing of deals and the inherent variability in customer purchasing patterns as well as ongoing transitions in our business model.

Recurring revenue, which includes our SaaS and maintenance streams, was approximately $79 million in Q2, representing about 69% of total revenue. This is roughly in line with the prior year's level, although slightly lower year-over-year. Our recurring revenue remains a significant and stable part of our business, helping to underpin the predictability of our results. Maintaining and supporting this base of recurring revenue continues to be a core focus as we navigate the current environment.

From a profitability perspective, our bottom line remains solid despite lower revenues. Adjusted EBITDA was $26.5 million, representing a 23.2% margin, marginally higher than the same period last year. Operating income was $23.6 million and net income was $16.3 million or $0.30 per diluted share, up from the $13.5 million or $0.24 per share in Q2 of last year. These profit results reflect our continued emphasis on cost discipline and operational efficiency across the organization. We have proactively aligned our cost structure with the current revenue trajectory, taking further cost actions, including targeted restructuring expenses in the quarter to manage expenses.

Operating expenses were reduced by about 13.5% year-over-year, highlighting the progress of these efforts. Importantly, these cost alignment initiatives helped mitigate the impact of the revenue decline on margins, and we expect to benefit further as they fully annualize over the coming quarters. We remain focused on maintaining healthy margins while preserving flexibility to support key investments in our products and customers.

Cash generation remains a core strength for Enghouse. Net cash provided by operating activities, excluding working capital changes and income taxes paid, was $28.7 million in Q2, an increase from $25.5 million in the same period last year. We closed the quarter with a robust $269.7 million in cash, cash equivalents and short-term investments, and we carry no external debt.

During the quarter, we returned capital to shareholders by paying $16.4 million in dividends and repurchasing $2 million of our shares, reflecting our ongoing commitment to shareholder returns while balancing investments in growth. Our strong balance sheet and consistent cash flow continue to provide ample flexibility to support internal initiatives, consider acquisitions with our disciplined approach and maintain our dividend and share buyback programs. Yesterday, the Board of Directors approved an eligible quarterly dividend of $0.31 per common share payable on August 28, 2026, to shareholders of record on August 14, 2026.

Looking at our performance by business segment, results were mixed but continue to demonstrate the value of our diversified portfolio. In the Asset Management Group, revenue was $51.4 million, a slight increase over the same quarter last year. This reflects steady core performance with acquisitions contributing to growth. Some variability in AMG results was due to the timing of a few larger onetime transactions, which underscores the inherent seasonality and elements of this segment.

In the Interactive Management Group, revenue was $62.8 million, lower than the same quarter last year and down from Q1, primarily due to declines in recurring revenue as we experienced churn in portions of the portfolio. Part of this was expected attrition from certain prior acquisitions we made in recent years, coupled with what we believe is a continued transition of customers towards cloud and SaaS models. Additionally, software license and professional services activity in the IMG segment were softer this quarter, reflecting ongoing customer caution and the evolving mix of our business. Importantly, we have adjusted costs in both segments to align with these revenue trends, and each group remains profitable and focused on serving its customer base.

Turning briefly to technology and operations. We continue to see growing customer interest in AI-powered capabilities, particularly around solutions that can enhance efficiency, automation and analytics in our products. In practice, many of the industries we serve tend to adopt new technologies in a measured use case-driven way. Our approach remains disciplined and focused on practical AI innovations that provide clear value within our software offerings rather than pursuing AI as an isolated initiative. Internally, we are also leveraging AI selectively to improve productivity and reduce costs in functions like development and operations, further supporting our efficiency initiatives.

In summary, the second quarter demonstrated Enghouse's ability to deliver solid financial results in a dynamic market environment. Revenue declined as expected given market conditions and known churn factors, but profitability remains strong, supported by proactive cost management. Our high recurring revenue base continues to be a stabilizing factor for our performance and our balance sheet and cash flow provide a foundation for resilience and strategic flexibility. We are operating with discipline in cost and capital allocation, focusing on margins, cash generation and delivering value to our customers and shareholders.

The fundamentals of our business remain sound, and we are well positioned to navigate the current environment while pursuing opportunities for long-term growth in a prudent manner.

With that, I'll now turn the call over to Steve for his remarks.

Thanks, Rob. As noted on our last call, the market in which we -- the markets in which we operate continue to be challenging. With respect to AI, although there's a lot of interest and promotion by major AI players, it continues to be difficult to monetize enterprise AI investment in our markets. We continue to explore and use AI's leading models for internal productivity and building practical solutions, which provide a return on our investment. Monetizing AI with customers like the many items and solutions noted on our last quarterly call, we continue to improve to benefit ourselves internally and our customers.

With respect to capital deployment, we continue to see a lot of opportunities in the private and public markets in our business sectors. But it's a little unusual as we are finding private market valuations are higher than the public market valuations. We did not complete any acquisitions in the quarter other than to continue to purchase Enghouse shares using our internally generated funds under the TSX-defined normal course issuer bid. We continue to believe the purchase of our own shares is a good use of our funds and better value than many of our acquisition opportunities that we're seeing, especially in the private markets.

I would now like to open the call for questions.

[Operator Instructions] First question comes from Erin Kyle from CIBC Capital Markets.

I wanted to just dig into the hosted and maintenance revenue in the quarter. It was down 8% year-over-year this quarter. The decline is larger than what we had been expecting, and it's an acceleration from Q1. So maybe can you dig into what's driving that? Is the pace of churn accelerating here? Is there anything onetime in the Q2 numbers that we should be aware of? Or just how do we think about the pace of revenue decline in the recurring revenue base at this point?

Yes. The decline is a little larger than what we would have thought but we're still hitting decline for some of the acquisitions. It takes time for people to move off. We have a pretty sticky solution, and we keep mentioning the Lifesize, which we said before. So there's still some decline there. There's also a decline generally in the marketplace. We're not in the large language model or the big accounts. We're generally in that medium-sized accounts or small business accounts. And they're struggling more in this market. I don't think it's well promoted in the marketplace, but they talked about, is Canada or the world even in a recession. And a lot of people are holding back a little bit because there's a lot of uncertainties in many areas, including with the wars going on, et cetera. It's not affecting us in the sense of us as a company, but it does affect our customers.

So yes, it's down a little more than we thought. That's something we have to work on to improve.

Okay. Maybe just a follow-up for that, Steve. What do you think needs to happen then for that organic growth to reaccelerate for your customer base here? Like do you expect the pace of decline to continue at this rate at this point in the current environment? Or what do you need to see to see that come back?

It's a little baffling to me that we aren't doing better because a lot of our major competitors are having financial difficulty. In the market, that means they can't afford to lose any revenue. So they're cutting their pricing, trying to keep their revenue up. And when I mean financial difficulty, I'm talking went into receivership, several -- and I'm talking billion dollars, especially in the IMG area. So we do have that dynamic in the marketplace where all the deals we do are tougher to do because they're trying to survive. We're not in that position. And again, it will only go so far in looking at that. Some of the maintenance revenue we talked about is some of our customers are having financial difficulties as well in that small business market.

And everyone talks about the large businesses. They all talk and ETFs example, a lot of people are investing there. They're all generally large companies. But in that medium and small business area, it's much tougher right now, and we're seeing some of that, especially in Europe, but also in the United States.

Okay. That's helpful. And then maybe last one for me. Just on the profitability side, the gross margins contracted year-over-year and we're also below what we had been expecting in the quarter. I expect that's due to the churn and host and maintenance and some of the factors you called out on professional services as well. But how should we think about gross margins going forward? Is 61% a new run rate here? Can you get back to the 63% from last quarter? Yes, how should we think about that?

It's another area that we'd like to get back to where we were, which might even be higher than 63%. But the market as such, remember what I just said about our competitors, they're all -- all the big ones are facing pretty serious financial problems right now. I would say it's a general market problem. It's not because of although we could say it is, but it isn't. It's generally because the market is a little bit more in a recession is sort of hidden by the big magnificent 6 plus 1, the one being NVIDIA, who ships to the magnificent 6 who are, again, raising prices and making it more difficult, especially in a cloud or SaaS model to make money. So there's good news and bad news.

The good news is that it makes the environment should be better for acquisitions. The bad news is it seems investors don't think contact centers are going to be around, for example, in 5 years. We disagree, but it makes it difficult to deploy money in that area when investors won't give any credit for doing so. So again, that impacts some of the acquisitions, which are generally at all-time lows right now. But then what do you do, especially when it's in the public markets and they're bigger, do you bet the farm on that when you're investors, shareholders. That's why we do this for all our stakeholders, one of which is shareholders.

Do we do something in that area when they're really telling you don't. So we're watching it closely. We have the cash to do things. Our cash is accumulating. So it's a little easier to do larger deals without getting any financing, including bank financing. But it is a tricky market right now, and we're just trying to sort through it and make sure that we stay resilient. And I would just say to everyone, even when you're looking at the platforms, I've watched more the cash flow than the EBITDA. Be careful because as you capitalize things, it doesn't go into EBITDA, we're very much into cash flow. So it's a little tougher right now. But it's okay. We're one of the best in our industry, which is good in a bad industry, which is bad.

Your next question comes from Kevin McVeigh from UBS Financial.

I wonder -- one of your comments was that you think some of the revenue has been delayed as opposed to lost. Can you help understand what gives you that level of confidence?

Generally, I'm not sure I said it's delayed or lost. I think Rob mentioned that. I'm not sure that is the case. We don't know if that's true. What we're basically looking at is it's a tough market. And what will change that is some of those larger players. I'm talking $1 billion and if you go to contact center customers that are having financial difficulty, that only lasts so long until they get even more serious financial difficulty, which would help us. We're one of the few that have good cash flow and make money and have money and no debt. So from that side, I think that's an advantage, but it's relatively new, I would say, 2026, -- and again, it's something we have to sort through. We don't have all the answers. We just watch everything very carefully and can react very carefully or quickly when we see what's happening in the market.

Right now, it's a tough market with, again, competition many times our size, especially in IMG having difficulty. In AMG, which is our network side, it's pretty steady. It's okay. But even that, it's a little slower because 4G to 5G has not been as -- the uptake hasn't been as good by network companies. And you can look at TELUS in Canada or you can look at BCE, you can see their stocks are down. So they slowed a little bit their purchasing as well because everyone is trying to get through these uncertain times and aren't sure where it's heading.

That's helpful. Yes, understood. And that was actually my next question. With some of the difficulty of the larger players, do you wait -- do you need to see the bankruptcy before you start to see share shift? Or do clients -- are they more proactive to the extent some of the competition is -- there's real solvency fears? Or I guess, is there -- I wonder why you're not picking up more share already?

That's what I ask my team every day, why aren't we picking up more share in some of these areas? I think it takes time to move to a new area. I also think some of the problem is not just our competitors having financial difficulties in the small business market, customers and our clients are having financial difficulty, i.e., some of them are going out of business. I know the markets look great, and they're all up, but it isn't the market we're in. We're in that middle and lower-end market. They're struggling and trying to survive through this period right now. The high end, especially the platform guys who are doing very well, but they're doing very well charging more to the middle guys and the big guys. And if you look at the industry, and I'm sure the analysts do that, there's a lot of larger companies and especially ones who are doing AI, where they haven't monetized it. So it's a cost with no revenue.

So there's a lot of things going on right now in the marketplace, and we're trying to manage all that. And right now, it's more let's see where it goes before we start taking a position one way or another. So it takes some time, but we've done that in the past. We did in 208. We've done it in the past. We think that's the right thing to do. And again, if you go at some of our competitors in the contact center space, even in the network space or the AMG space, as we call it, it's tougher out there than the public markets are telling you. And the public markets in some ways are down. The privates are much higher because they don't have to sell today.

So investors are moving to the big platform. They're all spending on maybe saving their money for the big IPOs that are coming up. But the funds aren't really going into that mid-market sector, and they're all basically looking at where is it going from here. I think investors are trying to sort it out as well right now.

A lot of sense. My last question, and then I'll get back in the queue. Are you seeing clients' behavior change at all as they start to kind of get their bills, if you would, right? In terms of as token costs are really starting to rise? Are they starting to kind of recalibrate thoughts as to what the AI is really going to mean from an adoption perspective internally? Or is it still too early?

I think it's probably too early. What we see generally is the tokens, they're buying a lot of them, a lot of spending money and the executive who read the press are saying, "Hey, we got to get more in this area. And the staff doing the work are saying, there's no payback. And they're having a difficulty getting a payback on it right now. It doesn't mean you shouldn't be doing it because you've got to be in the area. The platform guys are doing well because they make their money, whether there's a payback or not because you're just processing on their servers, et cetera. They're all spending a lot of money.

Therefore, I -- we watch cash flow. I would be a little scary of some of the cash that's going out from some of those. It better work or they could have problems. And I don't know how much more they're going to get from the mid-market, maybe the big guys will all those EFTs that I'm talking about in the public market, maybe they'll spend enough that will make all this work.

The concern I would have going forward is AI going to be more expensive for everybody when it all ends up because they got -- somehow they got a good return on all the data centers that they're spending money on today. I don't know the reaction to that but I know the magnificent 6, and I'll say plus NVIDIA. I know they're doing pretty well because they're charging more on the captive audience like us for some part of our business where we use their services.

So it is an interesting dynamic right now. We got to make sure we keep our cash flow. I would say watch cash flow. It's very more important now than ever. Accounting can fool you sometimes. Remember, EBITDA, you don't count the D&A, okay? You don't count the capital, you've got to subtract it off. I'm sure you all know that. But we're very careful. We don't know where all this is heading. We've seen it before. At least I've seen it before because I'm old. So that's the reason why I can do that.

But on 208, you saw a lot of -- it can blow up. And therefore, you have to be in the game because it could also be very good. So we set up 2 small groups to do AI and a lot of our people are trained on it. So it's pretty good to -- we're pretty well positioned on that. But right now, the monetization isn't really coming from selling solutions, but there is some for cost reduction, making people more efficient in using that technology, like happens with every technology over the last 50 years, you get some efficiencies by using it.

So we certainly are using it, and we're certainly out there looking to see if we see that application that can be a real winner for us. We haven't seen it yet. And that's especially true as some of our contact centers, the bigger ones, that laid off stop because of AI, they're hiring them back because there's also a people aspect of do you want to talk to a machine. So we're trying to figure out where all that goes, but you've got to stay in all the games because -- we're not at the bleeding edge, but we like to be in the game. So we're waiting, and we've got the resources to handle it. A lot of our competition, especially in contact center are struggling and no one is giving them money. That's the good and bad news, okay? They're not getting money. So if they don't start making money and they'll have an issue. And the only way they're going to make money is raise prices because their costs aren't changing that much, especially if they're using one of the major hyperscaler platforms.

Next question comes from David Kwan from TD Cowen.

I was wondering just trying to dig into the churn and kind of the source of that, like how much of that is coming from customers renewing for, say, a lower ACV for whatever reason? I know you've talked about financial challenges of the SMB customers. How that compares versus potential competitive losses or maybe the customers developing their solutions in-house using kind of the Gen AI tools like Quadcode, Codex, Cursor and the like?

We don't see many in our space, remember, smaller customers. We don't have the big contact centers. We have that middle to smaller end. We don't see many of them developing in-house solutions that would compete with what we do or what our competitors do. And you know the competitors, so Mitel, they were doing well, they get trouble. There's a lot of that in the industry, especially in that smaller area. The big guys tend to do okay. That's really -- although we have some large customers, it's really not our market. We do have large ones like British Telecom, for example, that they use our contact center system to sell to their customer base. So that helps, but their customers aren't necessarily big. They are people that use their -- the telco, which might be smaller. So they are using it generally for their customers that works.

Right now, it's a confusing unsettled market. That's making it tough for M&A and also the capital market activity in general. So again, we have good cash. We have good cash flow. We like it that way, and we got to make sure we deploy it effectively for our shareholders.

Like are you seeing when customer contracts come up for renewal, are they renewing for -- whether it's less for seat-based pricing or just lower ACVs because maybe there's -- they see lower cost to develop these solutions, they expect that value to be passed along to them.

I think customers are always looking for the best deal. And so we have what they call upsells and downsells. We think generally, the upsells beat the downsells. That's not the problem. It's the ones that hit trouble and can't pay, okay? They generally are -- that's in the industry in general. I think the general economy is not quite as good as it's made out to be. The larger big players, which dominate the index, et cetera, are doing fine. In the market we're in, the mid-market, it's tougher.

I'll give you an example. One of our competitors -- I'll let the analysts go through and tell you which ones, one of our competitors won't sell any contact centers below 250 anymore. They're saying no, not doing the small end. Some of our competitors are saying, you aren't going to do anything on-prem. It's got to be in the cloud. In particular, a supplier doing that, they're doing that because they think investors, you guys on the phone probably will pay more for in the cloud, and you have been doing that. But now that's coming up to a bit of a challenge with AI as well. But what they're doing is saying we're not doing on-prem and they have a base. We will do both, and we will sell on-prem or we will sell in the cloud if it makes sense.

So we're giving our customers some options that might be good, but it might cause confusion to some degree as well. So we're trying to get through that whole dynamic in this marketplace. And I'm talking a lot about contact center because it's a big -- it's the majority of our revenue, but it's not as big as it used to be because a lot of the declines there. And our other business, our transportation business and our networks business are doing fine. They're not seeing the same issues because they're bigger customers, if you're in networks, you're doing the telcos. It's 4G to 5G is sort of the issue there, where they spend their money because they spend a lot going to 4G to 5G, and it may not have worked out like they thought.

Transportation, which was a problem a year ago, 18 months ago, it's profitable now and growing. We have 2 large contracts that are being rolled out, especially in the Nordics. So that part is okay. I emphasize the 2 areas that are tough. Video, still an issue as people are mandated back to the office, which actually does take down video revenue. Not as much for us anymore because ours is pretty steady, but -- and we're in the health care and a little more stickier video than some of the others.

And also then the contact center, which -- I'm just going to give my view, which, let's say, 3, 4 months ago, contact centers are going to be eliminated. Maybe a lot of people think that's still the case. But if you'll notice, there's been a pivot because it hasn't been happening. What the pivot is to is that all software is going to be eliminated. You won't need to have programmers anywhere and lots of layoffs in that area. I'm not sure the layoffs are because of AI or for what I just said. I think they just had to get lower staff because they hired too many during the pandemic, and they're now rightsizing what they have to do. There's a term they call AI washing. I think you see some of that in the marketplace.

And I'll say what I said last time, if you're in one of those situations and a customer or a software person is saying, we're eliminating because we're using more AI, as to, what AI. What AI system did you put in place that allows you to reduce that many staff. you might get an interesting answer. We keep asking people. We don't get a good answer. They're saying, well, it's coming, but you're letting people go now. If it isn't here now, it isn't because of AI. It might be because of the hope of AI, that could be true. So you've got to keep on top of it. It does help software programmers program faster.

You still look at around to how do you keep it up? How do you change it in the future, if someone changes their platform, you got to rewrite it again. A lot of that is a little easier if you know how it was written in the first place. And with AI, you really don't. You put it in and a machine writes it for you, but you still have to keep that software up. So we're seeing a lot of that. We're seeing especially for new companies doing new software, it helps. We're certainly using it. We're certainly trained our staff and know how to do it. But there's a lot of other I would call small issues for investors, big issues for companies that still haven't been resolved, including what about cyber. If cyber gets into that system somehow, what are you going to do? How are you going to solve that problem as you put it through your -- all your systems.

So there's a lot of things going on. We certainly keep up on them. We're certainly aware of them. We don't have a strong direction right now in that regard. We're just trying to wait and see what happens, and we're happy to be slightly behind the leading or bleeding edge and you can catch up pretty quickly once you know what you're trying to do because the one thing that is true, things can be developed faster. And so that's what we're trying to do. It might be a different strategy. It does it impact our revenue to some degree a little bit, but there's a lot of factors that go in that.

I won't -- I can't blame AI for our revenue decline. It's a bit on execution on our part. We're just not executing well enough in some areas. And by the way, I'm not sure you know this, we hired a new head, business leader for our IMG side, which is our contact center side. We've also just hired a new person to run our transportation side, where we didn't have some before because it didn't with our networks group, but I wanted to spend a little more time now that we've got it back to profitability. We think we can grow a little bit in that area as well. But time will tell. I mean, I always say that and I get disappointed. So we'll have to see how it goes.

I appreciate the color. Just a couple more questions. On M&A, so just given, I guess, the negative investor sentiment, particularly as it relates to the contact center market, are you predominantly focused on AMG opportunities?

Right now, we're focused on everything, okay, IMG and AMG. When it comes to closing IMG, then we get really more focused. So the opportunities come. A lot of them think they're still worth more than they are, especially in the private marketplace. The publics, they're pretty attractive, but they're big. So now you're betting the shop that AI won't disrupt it totally in 5 to 10 years. And I'm not there yet. So I worry about the risk because if AI works, then I shouldn't be doing a big deal in that area.

So we're watching it. We don't see others really doing it. We have seen a couple of larger companies in that sector in the U.S. And they're basically hit trouble and going out of business. And the people who buy them have -- they call it, there's a name for it, but they've got very high revenue multiples and they're using stock to put them together. That could end up being a big problem, but it might work. So again, we're just watching everything. We're a little bit staying in the course right now, but watching everything. It doesn't mean staying the course that we're not watching what's happening out there because we do have to improve what we're doing.

And how big of a deal would you be willing to take on at this point?

In terms of size?

Yes, in terms of size.

I think we have. I would say we can do a fairly large deal and are looking at doing such, but I don't want the risk. I'm not going to bet 20 years of hard work and making what we have good cash flow and good cash and betting it on something that shareholders do not appreciate today. They might in the future, but right now, they don't. So we got to make sure we pick the right ones. And generally, if you pick bigger, like you're asking, you're taking on that big risk. I think that's too tough to do. I do, and I've had recent conversations with our shareholders, both at CIBC and Summit, TD. And generally, they're very nervous. If I ask them, should I do something in contact center, I got a good deal at a good price, they would say, no, and there are shareholders, you've got to listen to your shareholders.

So we're not saying we won't do one, but we're very cautious, and I don't want to do a big one. Therefore, how big a one we can do, we can get a lot -- the banks want to lend us money. Money is not a problem. We got over nearly $270 million cash and no debt. So we have the capability of doing something bigger. The key is it isn't a matter of being cheaper. It's where is all this going, and we need a little more time to see that, I think, before we take -- it's the risk is the problem, not the value.

That's great. Just one last question on capital allocation. Just given where the balance sheet is, free cash flow generation and where the shares are trading, why not be more aggressive with the buyback, including maybe doing an SIB?

Well, we are. We're doing what they call normal course issuer bid. I'm sure you know what that is, where you're limited to a certain number of shares. But we're also have blackout periods. For example, while we're going through the whole quarter, we could not buy any shares. As of tomorrow, we can and we probably will. So we are still buying what they allow under the normal course issuer bid. We don't find it's necessary. And why? Not because of any other reason that it's a better buy than some of the opportunities we're seeing out there, i.e., when I say better buy, it's value and risk.

We know where we're at. We've already gotten punished because our revenue hasn't grown. We get that. We're working on how to fix that, but our risk is out of the thing. I mean, look at our cash as part of our value. We're in pretty good shape in a market that really likes cash. I mean a lot of people talk to us because they love our systems? No. They love our cash and they love our cash flow. And a lot of people -- I mean talk about that. I mean talk about spending billions on data centers and all these things instead. I think that concern could come up if one of those blow up. But right now, we've always been a look at cash, and we're trying to match our cost of revenue and continue to be resilient and generate cash so that when the right time comes, we can deploy that cash in a prudent manner. But it takes time.

So I would hope that we could have done more things, especially in the network side because that was pretty stable and the customers are all big. So they'll be good, okay? They're not little. Network telcos aren't little. They're all big. In the IMG side, there's more middle and small size for us. So I got to be more careful there. If things get worse and blow up and you hit a big recession, some of those guys won't make it, okay? So we've got to make sure that we stand strong. And a lot of our competitors, again, you can do the analysis, you can find out who they are.

They're having difficulty right now and have had starting -- maybe started earlier, but certainly, you see it now. I mean, difficult to the point where they hit receivership in some cases, some of them smaller ones, we bought that way, but the big ones are having some issues that way, too. And they're changing around. Some of the big -- one of the biggest ones is saying, we want to do all cloud, not on-prem. Well, that's good for us. But the questions earlier, I'm baffled by why am I not selling more than on-prem. They're going out. I'm about last man standing. I can do on-prem or in the cloud. So I can do both.

Why am I not doing better if people are going out of that business. And they have some good customers and some of the regulated industries won't go in the public cloud for sure. They might do a private cloud, but they also like understand that being on-prem and having your own system is actually less expensive over time. Magnificent 7 aren't magnificent. Magnificent 7 don't have that capability because they're giving away their services at a low price. And they have it pretty captive. So you got to be careful when they come up with increases, what they want to do, tie you into longer contracts.

So again, we've got to watch that. But that's the rule of the game, and we want to do what our customers want and need, both on-prem or in the cloud, be it a local contact center that they do or be it in one of the public -- using one of the public suppliers. But they do well. Yes, they do well because they are in a good spot. They've got people tied in. What's not so good is in our marketplace we're in, a lot of customers that use that are struggling. And that hurts us. We don't want to be in that category. We want to make sure we do okay. We're trying our best to do that.

There are no further questions. Presenters, please continue.

Well, thank you, everybody, for attending the call and your continued support. Enghouse has a good positive cash flow and overall a strong debt-free financial position. We're careful in how we're deploying our money, and we want to make sure we have a long, good future in a business that's changing or people believe it will change over the next 5 to 10 years. We'll just have to see. It never actually works out quite -- the hype generally exceeds the results.

I have a phrase I use, I'll throw it out. AI, sometimes our eye is better, which is real intelligence. And we've got to watch it because it isn't just finding things that everyone puts out there and adding them and saying that's what we should do for the future. Sometimes the future is a little different than the past. But we're strong. We want to keep strong for our shareholders. We do have to improve, and we're looking at ways to do that because what we're doing now isn't good enough, but we don't want to end up making it worse. We want to make sure we take things in the right direction.

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

Good morning, ladies and gentlemen, and welcome to the Enghouse Q1 2026 Conference Call. [Operator Instructions] This call is being recorded on Friday, March 13, 2026.

I would now like to turn the conference over to Mr. Stephen Sadler, Chairman and CEO. Please go ahead.

Good morning, everybody. I'm here today with Rob Medved, Chief Financial Officer; and Todd May, VP, Legal Counsel. Before we begin, I will 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 Enghouse's continuous disclosure filings 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, whether as a result of new information, future events or otherwise.

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

Thank you, Steve. Good morning, everyone, and thank you for joining us today. I'll begin with a brief overview of our first quarter results for fiscal 2026.

Overall, the first quarter reflects a continuation of the operating environment we've seen over the past several quarters. Customer decision-making remains somewhat cautious in certain markets, and activity levels continue to vary throughout the business. Against that backdrop, our results reflect stable operations, continued profitability and strong cash generation.

Revenue for the first quarter was $120.1 million compared to $124 million in the same quarter last year. The year-over-year change reflects a combination of factors within our operations, including the timing of product and services activity and normal variability in customer purchasing patterns across our customer base. Maintenance services revenue was lower year-over-year, reflecting expected levels of churn within portions of the installed base, which is characteristic of this type of revenue and something we continue to manage over time.

Looking sequentially, revenue was also lower than in Q4. That primarily reflects the timing and inherent variability of hardware-related transactions, which can be uneven from quarter-to-quarter, as well as softer professional services activity as some customers deferred or delayed project starts. We continue to see a degree of customer caution in certain markets, particularly around the timing of larger or more discretionary services engagements, and visibility remains somewhat limited.

Recurring revenue, which includes SaaS and maintenance, was $84.6 million and represented 70.4% of total revenue for the quarter. While modestly lower than the prior year, recurring revenue continues to represent a substantial and an important portion of our overall business. It contributes meaningfully to the predictability and stability of our results and remains a key focus as we manage the business through the current environment.

From a profitability perspective, adjusted EBITDA was $31.1 million, representing a margin of 25.9%. Operating income was $28.3 million and net income for the quarter was $17.5 million. These results reflect continued attention to cost management and operating efficiency across the organization, while maintaining the flexibility needed to support our various product lines and customer bases.

During the quarter, we also continued with targeted alignment and efficiency initiatives in specific areas of the business. These actions are consistent with our long-standing operating model and are intended to ensure that our cost structure remains aligned with current activity levels, while preserving the ability to respond as conditions change. We remain focused on maintaining margins and supporting our recurring revenue base across the portfolio.

Cash generation remains a consistent strength of Enghouse. Net cash provided by operating activities, excluding changes in working capital and income taxes, was $31.4 million in the quarter, and we ended the period with $260.2 million in cash, cash equivalents and short-term investments. This level of cash generation and balance sheet strength supports our ongoing capital return activities, including dividends and share repurchases, while also providing flexibility to fund internal initiatives and evaluate acquisition opportunities as they arise.

Reflecting the strength in cash generation, yesterday, the Board approved a 3.3% increase in the company's eligible quarterly dividend to $0.31 per common share payable on May 29, 2026, to shareholders of record at the close of business on May 15, 2026. This represents the 18th consecutive year in which the company has increased its dividend.

It's also helpful to consider the business mix when looking at quarterly results. Enghouse operates across a range of software markets and solution areas, and performance naturally varies by product and customer group from quarter-to-quarter. In the Asset Management Group, revenue was $52.8 million for the quarter compared to $50.8 million in the same quarter last year, reflecting steady performance and the inclusion of Sixbell, which was acquired during the quarter. Elsewhere in the portfolio, activity levels were mixed, reflecting normal variability in license sales, professional services timing and recurring revenue across a broad installed base. Overall, this mix continues to contribute balance to the consolidated results.

Turning briefly to technology trends, including AI. This continues to be an area of active discussion with customers. We are increasingly seeing customers ask how AI-enabled functionality might be applied within their existing systems to improve efficiency, automation or insight. At the same time, many of the environments we serve are operationally complex or regulated, and adoption tends to be gradual and use case driven. In parallel, we are also using AI internally in targeted ways to support efficiency and decision-making across parts of the organization. Our focus remains on identifying practical applications of AI within our platforms, where there is clear customer value and a path to monetization, rather than treating AI as a stand-alone offering.

In summary, we are continuing to operate the business with a focus on stability, profitability and cash generation, while remaining disciplined in how we invest and allocate capital. The fundamentals of the business remain sound, and we believe we are well positioned to manage through the current environment.

With that, I'll now turn the call over to Steve.

Thanks, Rob. The markets in which we operate today continue to be difficult as our customers try to understand the impact of changing tariffs, the impact of the global conflicts and how to best implement AI to monetize their substantial investment.

We use AI in a hybrid strategy model, leveraging industry-leading external models for immediate productivity, while building solutions on targeted investment. We continue to implement practical AI, like Rob said, and we've done this for years when new technology comes out. We -- our recently established AI teams have started to implement applications to improve efficiency and many internal solutions, which are now being called AI software that we have developed over the years, again, using technology.

When looking at AI, you've got to ask when someone says they've laid off staff or done something, which AI solution allowed this to happen, as many are just attributing AI to all things, the cost reductions, revenue, et cetera. So I thought I'd give a few of the ones we've used over the years and are continuing to use in some form.

Virtual agents, which can be monitored, measured and reported on, just like human agents. This is an early activity for us as AI still does not provide the accurate answers in all cases. Agent assist, which is designed to make human agent handling conversations more efficiently, and we use the Google technology for this aspect. Quality management system, which connects our own transcription service to translate voice, e-mails and chat, which allows for analysis of every conversation and will handle the analysis of virtual communications as well.

SmartQuality, which enables communication [ that our ] supervisors to analyze how each call is handled and to listen on problematic calls, for example, when a customer or someone raised their voice, it routes it to the supervisor, who then can listen to the call. And of course, the one that's in the news a lot today, R&D development and quality assurance of programming code continues to -- we continue to develop using new AI tools, sometimes with different platforms. For example, Claude recently came out, and is proving to be a little better in developing code than some of the prior AI platforms.

On our video features, they also include summarization of videos and automatic multilingual subtitles. This also is a continuing development of our AI usage, again, only to improve profitability and increase productivity and efficiency. We don't do it for fun, we do it because it may -- gives us results.

But back to capital deployment. With respect to capital deployment, we are purchasing Enghouse shares using our internally generated funds and our substantial funds on hand. We believe our -- purchasing our company's shares is a good use of our funds. As noted, we have only increased our dividend very slightly this year, reallocating the historical dividend increase to repurchase of our shares. We believe that purchasing our own Enghouse shares seems to be a good allocation of our capital currently.

But we continue to see acquisition opportunities, which will have a good return on our investment as well, but the completion of such opportunities requires further risk-based due diligence to ensure our ROI will be achieved and the business of the opportunity will not be seriously disrupted.

I would now like to open the call for questions.

[Operator Instructions] Your first question comes from Erin Kyle with CIBC.

I just wanted to start right there on capital deployment and M&A, Steve. So maybe if you can expand a bit further on just what you're seeing from an acquisition perspective? Are targets still expecting higher multiples in this environment? Are you seeing owners holding off on hopes of market recovery? Just how should we think about the pace of deployment for M&A here?

You've got a lot of questions there, but I'll see if I can cover them off. First of all, in the public markets, software, as you can tell, is getting beaten up, firstly, everywhere. Initially, when AI came out, it said contact centers would go to 0 where you wouldn't need people. A lot of -- not our clients, but a lot of contact centers who tried that are now hiring back the staff because it doesn't really work as well yet that they believe it to be. And they -- the applications seem to be more promotional than actual reality. However, how does that impact? Of course, acquisitions or capital deployment, a public company software are reasonably priced, i.e., we believe there's an opportunity there, but they're larger acquisitions, and that's why we tend to hold our funds.

In the private market, they still are looking back a year to 18 months. They just still believe that the value is right. And so they're waiting for higher values, but they also haven't really done a lot of work to understand how AI could disrupt their business. So it's taking us a little bit longer to, again, examine and do better due diligence because we don't want to make a mistake. Our commitment is, if we do acquisitions, they'll add to shareholder value, and we want to make sure we do the right ones, but there's quite a few to look at today. It just takes time. It takes a little longer to go through them.

Okay. So fair to say they're -- kind of in summary, the acquisition environment does remain attractive, just the due diligence process that you're undertaking in evaluating acquisitions is a bit longer in this environment?

It might even be better than attractive, okay, only because everyone's believing AI is going to take over everything, okay? And the promotion exceeds the reality in our view. So that impacts the market. But it will have some impact. So we've got to analyze that impact when we're looking at acquisitions, which adds another flavor to it because as you also know, AI is changing rapidly every day. So it's not a matter of what it's doing today. We've got to sort of make some assessment what will it do to a business tomorrow.

Okay. That's helpful. And then I just wanted to switch gears just on some of the churn that you called out in the MD&A. Churn from Lifesize, it was mentioned again as a headwind this quarter. Churn there just seemed to be a bit persistent. Is there anything specific to call out there? You did acquire that acquisition a couple of years ago now at this point. So I just want to see if there's anything else to call out?

It's flattening out, on the Lifesize part. And again, a lot of people are trying to assess, should you buy today or wait to see when all this noise clears. There's a lot of noise in the marketplace. But there's nothing really different than before. It's just more of the same, and people are getting more nervous and they just don't know where the future is going. So they're being more careful with their dollars as are we.

Your next question comes from David Kwan with TD Cowen.

I was wondering just on the decision for the dividend increase this year, obviously being less than the 10% plus that we've seen historically. So it sounds like it's more being driven by some allocation that you guys are focusing on the share buybacks, obviously, given how the share price has performed. But is the right way to think about it is that maybe -- is there like a fixed amount that you kind of want to allocate to dividends and share buybacks versus M&A?

Not really. I mean how we looked at the dividend part, we usually increase the dividend, as you pointed out, for 10 years by 10% to 20%, 15% to 20% usually. When we look at things today -- and we didn't do a lot of buybacks. I generally don't believe in the buybacks because what I do is I'd rather use that for M&A or dividends rather than just buy back our own stock.

However, looking at where our stock price is today, we always assess where we should deploy the capital, and we concluded that our current stock price is better than a lot of the acquisitions. The value of it is better than a lot of the acquisitions we're seeing, especially in the private market. So we believe it is better to put more to the buyback program, which, again, we haven't done much of, but we're doing more of now. And where to take that from, we decided it was better not to take it from acquisitions, but take it from the dividend part where we've always had substantial increases.

We still want to increase the dividend a little bit, which we did. The reason why is because we have a commitment to shareholders that we've increased our dividend every year for over 10 years. So we didn't want to change that because I think they expect some increase. We just lowered the amount so we could apply more to buybacks rather than to the dividend.

Just went through an analysis of where we best -- where we can best apply our capital. And we believe our own shares is better, in some ways, better than some acquisitions we're seeing and better than paying more out in a dividend, which is really high because our stock has come down and makes it look very high. It is really more in dollar value than we paid, let's say, last year, but it's high now. So we just use -- we're going to use our cash in a different form, which we always look at. It just so happens -- this year, it's now changed to say the buyback is better than doing any more dividends, but we have a commitment that will increase every year. So we did increase a little bit. And M&A, our own stock seems to be a better buy than some of the acquisitions we're seeing, which is unusual.

No, that's helpful, Steve. So I guess it sounds like you're kind of holding some ammo back for M&A as well versus reallocating it to the dividend?

Yes, that's right. The other thing, I think if you look at the marketplace, some of our very large competitors are having trouble, okay? Their stocks are down quite a lot. But more so, you have a company like Mitel, a competitor, went into bankruptcy a couple of months ago. You have a buyer that tries to get out, which is a $2 billion contact center type company, can't really get out in the market these days. You've got many of them going out of the small business area that we're in because they can't make it profitable.

Well, we're making it profitable, and we're running things well to do all those things, although it's tough. You can't pick on -- you can't take on any business just to make yourself look like you're growing at a loss. So we are careful in that area. We continue to be. But when it comes it down to our capital allocation, but we believe more should be as a result in repurchasing our shares than are adding to our dividend. We aren't taking the dividend down, we just aren't adding like we have in the past, and we still want to keep our powder dry for acquisitions.

And there are some pretty large ones out there that are reasonable value for us, but you've got to convince people to sell at that value because although it might look like a good value on the market, often they say they're worth more than where they are just like we do. That's why we're buying back our own shares.

No, that's great. I guess in that vein, just kind of looking at the buybacks versus M&A versus dividends and just the opportunities I see to deploy more capital on the buyback side, would you not consider then a substantial issuer bid?

We always look at substantial issuer bid, but then I give up a lot of my cash. And as I just said, there's some larger opportunities that I might need that cash for. They're not here. You can never depend on them. But if you look in the market, there is opportunity to do larger deals. The question is what benefit you're going to get if everyone believes contact centers are going to be eliminated, which we do not. We do not see that. We see that changing actually. As I said, we -- the AI has moved on from contact centers because now after staying there for so long and it's not happening, they got to come up with a new thing and now it's all software is going to be eliminated. Well, we'll see. I don't see that happening either.

We see AI as another tool that helps us do things better, both software development makes the contact center better, makes our agent answer the customers better. We see it as a valuable resource in a hybrid model with the other things that we do. So we're seeing it a little differently, but we don't see -- the market is treating like it's going to be -- it's going to eliminate contact centers as an example. We don't believe that will happen.

It's like the driverless cars today. I'm looking out the window right now, I don't see very many, but I see a lot of cars where there's digital features, looking in your blind spot, stopping automatically when you're backing up and someone's behind you. There's a lot of things that has enhanced over the last 10 years as they talked about having driverless cars, and we'll all be sitting in the backseat while cars drive us around. That may happen in the future. You have to be in the game, but it takes a lot longer than the market thinks. And it -- sometimes it doesn't happen.

You look at electric vehicles. They were all be all and end all. And as I was coming in this morning, I heard again of another company, I think it was Honda or something, writing off billions of dollars again because their EV isn't quite working because in all these systems and software, people are involved. Sometimes people want to talk to a person, not a machine when they go into a contact center, unless it's a very easy question because they want to explain it and get the proper answer back, and that still is a little ways off.

But we're working towards it. We have to be in it. It's an important thing to be involved in. It's an important thing to look at. And we are certainly doing all those things to keep up with the technology. But in a practical way, not a promotional or -- I'll call it [ hype ] way, where the promotion far exceeds the reality today. But that doesn't mean that won't change in the next couple of years. And we, therefore, have groups that do AI. We have people learning AI. So it changes, we can catch up quickly and be involved.

That's great color. And then just last question for me. How much, I guess, of the targeted $2 million to $2.5 million in cost savings from the restructuring did you realize this quarter? And how should we think about margins playing out for the balance of the year?

We still have -- we were still -- it's interesting. When we do restructuring because we are in many countries, sometimes it takes 6 months, you've got to keep the people fun and pay them. And again, you'll see some restructuring we're continuing to look at and do. Some have -- you have to have consultations with them, and that can take a month or 2 to do, so it delays some of it. So again, that's another item that we've got to look at. So we're approaching it, again, like everything we do. We try and approach it in a practical manner, and it's continuing to do. We still have some more restructuring still to do going forward.

We match cost and revenue. If revenues get tougher or something happens, we have to match the cost of that revenue, and we look through all our businesses. We measure everything. We're like a baseball team. We don't know how many times they're up, how many we hit for, how many times do they walk. We measure everything in our business, and we always look at it to see where we could make further efficiencies improvement.

The other thing I'll say is turnover is minimal in this market now, at least for us, I hear write-offs of everyone else that they claim to be AI is why they're doing those layoffs. What I would say to you, which is an interesting question. When they say that, you should ask what software solution that they actually do in AI that allowed the layoffs. You might find that AI wasn't the cause of the layoffs in many cases. But that's a good question to ask. You did some AI. What's that solution that caused Amazon to lay off 30,000 people? I mean tell us what it was, if the cause of the layoffs were AI. We find AI is doing it, but not those type of numbers, unless they just were overstaffed and they're fixing a problem. We get that.

Your next question comes from Kevin McVeigh with UBS.

I wonder -- obviously, AI has been in the market. And obviously, there's a lot of questions on it, but just from a different perspective, from a funding perspective and from a budget perspective, are the clients deploying it in parallel with your solutions? Just in terms of any shifts in behavior you'd call out because I happen to agree with you that it's going to be an enabler as opposed to wholesale displacement. But are you seeing in terms of running parallel with you folks? Or any specific behaviors you'd call out?

Yes. I'll give you -- this is an odd thing to say, but I'm going to -- I'll tell you anyway because we're pretty open. The applications are hard to see how to monetize AI. So we set up these 2 consulting groups, and we believe if we work with customers, maybe we'll see an AI application that works. There's a study done by 55 major companies. And we're in the small business, lower end of the market. So it's harder for us to do, where 95% of the proof of concepts didn't work. At least today, it's improving every day, and it didn't work.

So we believe if we do work for customers, we might come up with a terrific application that we can take to all our customers because maybe we're not smart enough to see it, but maybe there's somebody there who could point us in the right direction. So part of that is why we set up the 2 AI professional services groups to work with their customers to help them with proof of concept because we have the talent to do it, and we want to learn AI. And from that, maybe we'll pick up some good ideas. It's always good to get good ideas from others. You just don't know where they come from, but we find if we do those services, we might find some that we could use throughout the whole business. So that's why we did that.

On our own, we're having difficulty seeing today how that works, seeing the virtual agent. People are getting frustrated and after about 3 times of asking things, they actually hit a button, get me to a human being who I'll talk to about this. So there's still some of that. That can change because it's growing rapidly. We understand that, and we're trying to take a practical approach to it. So that's why we're doing it the way we're doing it.

That makes a lot of sense. And then just as you think about, kind of when -- obviously another change in the industry a long time ago, shift from voice to some software, right? Has it been at the same pace in terms of how you're recognizing the revenue? Or I guess, more so just, I guess, the cost and what you're able to charge for kind of the -- because obviously, that almost feels like a more dramatic shift when you went from live agent to software. Just any thoughts on -- just some perspective because I was trying to understand what's happened in the past to try to parallel what could potentially happen with AI.

Yes. The good news is, at least for our management group, there's got a lot of changes over the years. I mean it used to be called a help desk where you phoned in and got a help. Now it's -- we have many things. It could come SMS messaging, it could come in as an e-mail or they could call in. And in fact, when they do call in, we -- I'll give you a little example.

We use software that translates that voice into digital so we compare everything together to see how an agent is doing. We don't want to miss out on that part of it. Now in doing that, we started using Google to do that translation. Too expensive. We couldn't do it. So we wrote in about 3 months, our own system, which does the translation. Costs went down by 80%, 8-0 percent, not 8%, 80%. So there's a lot of things we're trying to learn by doing this and how to get efficient in doing it. Some of it, we use the platform people because they're very good at it. But some areas, it's too expensive to do.

So we are looking at all those aspects, how to analyze better. Like when we have a virtual agent, you've got to -- you're going to charge more for a virtual agent than you are for one that isn't because you're taking -- they're taking advantage of not having a person there. But you got to be careful, the virtual agent has to be reasonably good or else they'll say, what am I doing here? So we're developing that over time. That's a very early stage on that virtual agent for us because we're still trying to get the software to do that properly.

And remember, you've got to tie that to, say, a large language model. We actually use a small language model because our customers are smaller. We don't have giant contact centers of thousands of people. They generally average between 50 and 250 agents. So it's a smaller base on which to deliver. So -- and therefore, we're a smaller time frame. You don't want to keep history for 10 years. We can do something like an agent monitor them for a month or 2 and do an analysis on how well they answer calls. Even the virtual agent, how many times did it actually answer or did it move you over to a real person.

So we're still -- it's still new. We're trying it all. You have to be there. We're learning a lot by doing it, but there's a lot of moving parts right now. And it takes some time. And in doing that, you're doing that while still marketing and still trying to add revenue and value with what you've got today.

Again, I think 70% of our revenue is recurring, but some of that is older revenue on-prem. And there are some customers who are going back on-prem. The latest thing for AI is they don't think SaaS is going to work getting more. You got to read all the stuff. I'm reading it, trying to learn as I go. And there's a lot of different views out there right now. And the true answer is they don't know. And we don't know. So we're trying to keep our finger in all the games. So we're there when a trend sees is really working, we want to be there to get on it quickly. So that's what we're trying to do rather than just spend a lot of money trying to experiment with stuff. We're more like to make money, and we'll be there a little late, but we'll get there quickly because we're still involved in the game.

Very helpful, and congratulations on the execution.

[Operator Instructions] Your next question comes from Paul Treiber with RBC Capital Markets.

Just had a question on -- you mentioned earlier that you're expanding the due diligence on acquisitions just regarding AI. Can you share some thoughts around what your checklist is or evaluation criteria to assess AI risk or AI resiliency for acquisitions?

To get that, Paul, you're going to have to give me an acquisition and be involved in it because it's not a little list. And again, it's not just doing AI. We're looking at all aspects of the business, but we've got to sort of see what's the risk of the it, the business being disrupted by AI. That's a lot of things to look at. So that also means you got to know what AI can do and what it can't do right now. But what's that going to be like in a month? What's that like going to be in a year? So we're taking it a little slower on that when we're looking at some of the deals. And some of them aren't in -- even AI, we don't think will change much there. And maybe we're wrong. So we got to assess that and looking at the risk of any deals now.

Another factor you have to look at -- one of the key things they do in valuations, they always say, well, what's the terminal value? And that could be at 5 or 10 years out. If you do a valuation, there's always a terminal value. It's pretty hard to tell what that is today. And therefore, we're probably a little risk adverse, that may be positive, but it may be a negative because it means we should be a little -- if we took a little more risk, we might get more done. Investors might like that, shareholders might like that, but I have to live with it. They don't have to fix it if it doesn't work.

So we're careful. And maybe that slowed us down more than it should. But opportunities are actually greater because everyone's worried. Remember, the promotion by everyone out there is contact centers, as an example, are going to be eliminated. That's not going to happen, okay? Like cars aren't eliminated -- driverless cars, they haven't taken over. And that's 10 years when they've told me that initially because as an old guy, I go through all that stuff and remember it.

So there is -- there's a lot of work, still more work to be done to say -- and if you do, do it as -- our investors are going to say what they spend their money on that for, keep the cash because we don't think in 5 years, it's going to be worth anything. So we got to assess all those things, and we do it the best we can, and it changes very rapidly every day.

The second question is just on the AMG side of the business. I think a lot of the talk has been on IMG and the dynamics there with AI. In terms of AMG, what have you been seeing in terms of customer interest in AI and either uptake or delays regarding new software deployments just related to AI uncertainty?

Yes. Certainly, and I should mentioned this too, we always talk a lot about contact center because it seems to be the thing in the market. Our contact center revenue is down quite a bit in the sense of our total revenue these days because with the other revenue from our transportation, our new deals that we did and our networks have been increasing, while the contact center has been going down because of Lifesize and things that we bought in that space that we're trying to fix up.

So we -- our contact center is a little bit smaller. But your question about, let's say, networks or AMG. AMG is really networks and transportation. There's less of an issue there right now, but there's a lot. They want to have a system, AI that goes through and maybe guesses if a person is going to go off the system. But you're talking, let's say, a person renewing their Internet or even their phone, $30 a month. That's what they -- so it's not as big to really apply to know that 1 or 2 customers go off. So you've got to do it slightly differently.

There's less comments from our other areas on AI, but it still impacts them. They still wonder where it's going. The big one in networks is how do you detect fraud? How do you detect cyber? How can AI do that? That's the plus. The negative is how is AI going to change that, so you've got more risk on cyber, et cetera, because the bad guys are going to use AI as well to disrupt your organization. So if you use more of it, they might be able to implant it somewhere and get it.

So all these factors are still talked about, a lot of thinking going on them. We look at it, we did -- we've set up groups in both AMG and IMG to do AI, small groups, 4 to 5 that we want to do. We have people who've been doing it internally. So we're just going to focus their knowledge a little bit more and go out to customers and say, look, we have a group who knows this stuff. We're not as expensive as the California teams who are out selling this service for them. It costs millions. So we can help you with your projects, and maybe we learn something by it. We may get an application from it. And we're on top of the direction of where a lot of people are going.

So we have -- we did it by having this service that we just set up in January. It's starting to show a little bit of traction, but it's very new. But it's really done to help us learn more and help us come up with good projects that customers want that we can apply AI to and maybe take to other customers that we have as we learn from work we're doing with customers. And the good news for me is they actually pay for it. So that's good, too. I don't -- it's a big cost to do the AI like many are doing and spending money on. We actually at least cover our costs in doing that type of a professional services business.

And then just one last question for me. Just on Lifesize, I believe you had a new updated version of Lifesize coming out early this year. Could you speak to the customer interest and feedback and maybe pipeline for that new offering?

Sure. I think -- look Lifesize, it was an interesting project. We made our payback very quickly on that one because if you remember, we bought it out of bankruptcy. We didn't take on liabilities. And even though the revenues dropped, we're still doing quite well.

The new product, their product was a good start that we had for that business. But as we get into it, they have some third-party products incorporated. They're taking a little longer to get out so we can get better margin on that product. So we're still doing that. It's still got some work to do. And again, then we got to introduce the sales staff how to sell this new type of product.

All that's going on. It all takes a little longer than everyone thinks. We're trying to build some AI into it. It's just taking a little bit longer, but that's still our plan. We're very close to doing better there, and hopefully, we'll get better traction from our revenue side from it because virtually right now, we haven't done that much because you don't want to put it out there in a customer with third-party products that cost a lot and then tell the customer you want to take those out and put a new one in. They are not so happy with those types of changes. So in some ways, it's slowed down as we make those changes and get the product better before we start putting it in customers. But we are starting to do that now. Hopefully, we'll show some traction on that, but there hasn't been much on it yet.

There are no further questions at this time. I will now turn the call over to Mr. Stephen Sadler for closing remarks.

Well, I want to thank you all for attending the call and your continued support. It's a very interesting technology environment today, and we're handling it in the usual manner, trying to practically do it, not at the bleeding edge, but we're certainly in the game, and we certainly are positioning for the future as well as for the present.

And again, you can see that being with the platforms. Three weeks ago, Copilot was good, Gemini was good, and now it's Claude. Like if you start picking on one and putting it on your systems and they change that, what are you going to do? Go change all your systems? It's still a new area, and we certainly believe that it will help. We believe it will improve efficiency. You got to find the right application to do it. And you can't die in the process, which, again, many of our competitors are having some trouble. They're all doing AI because they believe that's what -- and what investors want to hear. We're trying to say, live through it, do the AI, but let's at least make our cash flow from what we're doing.

So it's a little different approach, maybe not as fancy as the others, but steady. And if it all blows up, we'll be last man standing. So that's what we're -- want to make sure that we're going to be there no matter what. And if it takes off, we're going to get there quickly because we are spending time and money trying to get paid a little bit for by the professional services group. We're spending time and money trying to at least keep up with the technology, which is going very quickly.

So we'll have to see where it all goes. But I think as another company said in one of their calls, we're in inning 1 and not at the end of inning 1. We're at the start of inning 1, and we've got to see how it all fares out and where the -- where you can use technology like we have in the past to make the investment. This time, that technology is called AI. In the past, it's been called other things. For example, we had to go to the cloud with SaaS, now they're saying SaaS will be eliminated. Yes, I'm not so sure. We just built that area up, so that'd be a little unfortunate, but we are still trying to figure out how best to use it to add value for shareholders, and it's not easy, and it's in a very fast-changing environment.

So that's sort of where we're at on. It's an honest view. But we're not being left behind. And I haven't said much in the past because I don't want to promote something that I'm really experimenting with in many ways right now.

So thank you, everybody. And again, I look forward to seeing you in the future.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Ladies and gentlemen, welcome to the Annual General Meeting of Enghouse Systems Limited. Please note, the meeting will be recorded.

I would like to introduce Mr. Todd May, VP and General Counsel of Enghouse Systems. Mr. May, the floor is yours.

Ladies and gentlemen, I would like to welcome all of you. I will be acting as Chairman of the meeting. I would ask that the meeting come to order.

Rob Medved, Chief Financial Officer of the corporation, shall act as Secretary of the meeting. We are pleased to host the meeting through the virtual meeting platform accessible to all our shareholders regardless of physical location. We will only present the formal business of the corporation at the meeting and will provide an operational update on the first quarter during the conference call tomorrow.

The first item of business will be the appointment of scrutineers for this meeting. With the consent of the meeting, I hereby appoint Rosa Garofalo of TSX Trust Company, the corporation's transfer agent and registrar, to act as scrutineer for purposes of this meeting. Would the Secretary please report on the mailing of the notice calling this meeting?

Mr. Chairman, I table the declaration made by TSX Trust Company to the effect that on February 6, 2026, a notice and access notice and a proxy were mailed to all registered shareholders of record at the close of business on January 30, 2026, and that those documents and certain other proxy-related materials, including the information circular for this meeting, were posted on SEDAR+ and on the website of TSX Trust Company.

Would the Secretary of the meeting please report whether there is a quorum present?

I have been provided with a preliminary scrutineer's report indicating that a quorum is present. As such, I declare that this meeting has been duly convened and constituted. When the formal report of the scrutineer is available, it will be kept with the minutes of the meeting.

As the requisite quorum of shareholders is present, I declare this meeting to be regularly called and properly constituted for the transaction of business. Questions regarding a motion can be submitted by a registered shareholder or a duly appointed proxy holder using the Ask a Question button of the virtual platform. Only those questions relevant to the formal business of the meeting will be brought forth at today's meeting.

The voting polls are now open for all matters to be voted on. This will allow you to choose to vote on each item of business immediately or to wait until each motion has been made prior to casting your vote.

Voting will be conducted by online ballot. Any shareholder or proxy holder who has not yet voted may do so using the voting buttons on the web portal. When you are asked to vote, click the Vote button on the top left portion of your screen to register your votes.

I now present to the meeting the 2025 annual report, including the audited consolidated financial statements of the corporation for the year ended October 31, 2025, together with the auditor's report of the shareholders thereon. Copies of such documents have been filed on SEDAR+ and posted on the websites of the corporation and TSX Trust Company. Shareholders do not need to take any action regarding the financial statements, but we'd be pleased to deal with any questions in the operational update conference call tomorrow.

We will now proceed with the election of directors. I now declare the meeting open for nomination of 5 directors to be elected by shareholders to hold office until the close of business of the next Annual Meeting of Shareholders or until their successors are duly elected or appointed. Management nominates Stephen Sadler, Pierre Lassonde, Vivian Leung, Jane Mowat and Paul Stoyan for election as directors until the close the business at the next Annual Meeting of Shareholders or until their successors are duly elected or appointed.

Each nominee has confirmed that he or she is willing to stand for nomination and has provided the corporation with satisfactory evidence that he or she satisfies the eligibility requirements to act as a director. I will now ask for a formal motion for the nomination of the directors.

Mr. Chairman, I nominate each of the 5 nominees listed in the Management Information Circular as directors.

Mr. Chairman, I second the nominations.

I will now pause a moment to give shareholders an opportunity to raise questions or comments with respect to the election of the directors of the company, including nominating additional nominees. However, we note that proxies directing the holder to vote in favor of the 5 directors identified have been received in sufficient numbers to pass by a wide margin. Secretary, have we received any questions?

We have not received any questions with respect to the election of the directors of the company.

Please cast your vote on this matter, and we will move on to the next matter to be voted on.

[Voting]

The next item of business for which this meeting has been called is the appointment of auditors for the current fiscal year. May I have a motion for a resolution in favor of the reappointment of Ernst & Young LLP Chartered Accountants as auditors of the corporation?

I move that Ernst & Young LLP Chartered Accountants be reappointed as auditors of the corporation to hold office until the close of the next Annual Meeting of Shareholders of the corporation at a compensation to be fixed by the Board of Directors of the corporation.

Will someone second the motion?

So seconded.

I will now pause a moment to give shareholders an opportunity to raise questions or comments with respect to the appointment of the auditors. Secretary, have we received any questions?

We have not received any questions with respect to the election of the auditors of the company.

Please cast your votes on this matter, and we will move on to the next matter to be voted on.

[Voting]

It is now in order to consider the advisory resolution on the approach to executive compensation described in the information circular relating to this meeting. While this say-on-pay vote is nonbinding and does not diminish the role and responsibilities of the Board, it gives shareholders an opportunity to provide important input to the Board. May I ask for a motion for a vote on the say-on-pay resolution?

So moved. Will someone second the motion?

I second the motion.

I will now pause a moment to give shareholders an opportunity to raise questions with respect to the say-on-pay advisory resolution.

We have not received any questions with respect to the election of directors of the company.

Please cast your vote on this matter.

[Voting]

Ladies and gentlemen, the polls will remain open for a brief moment. We will pause for 10 seconds for any further voting.

[Voting]

Now that everyone has had the opportunity to vote, I declare the polls to be closed. Based on the preliminary scrutineer's report, I can confirm that all items of business have been carried.

We have now completed the formal part of the meeting. If there is no further business, the meeting is hereby terminated.

On behalf of the management and the Board of Directors, I would like to thank you for attending today, and we look forward to the operational update conference call tomorrow.

Thank you all for attending today's meeting.

Good morning, ladies and gentlemen, and welcome to Enghouse's Q4 2025 Conference Call. [Operator Instructions] This call is being recorded on Tuesday, December 16, 2025.

I would now like to turn the conference over to Mr. Sadler, Chairman and CEO. Please go ahead.

Good morning, everybody. I'm here today with Rob Medved, Chief Financial Officer; and Todd May, VP, Legal Counsel. Before we begin, I will 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 Enghouse's continuous disclosure filings 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, whether as a result of new information, future events or otherwise.

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

Thank you, Steve. Good morning, everybody. Thank you for joining us today to discuss our results for the fourth quarter and fiscal year ended October 31, 2025. Fiscal '25 was shaped by considerable economic, technological and geopolitical changes from the fast-paced evolution of AI to increase global uncertainty caused by tariffs and international events. Many organizations contended with negative operating margins escalating costs and unpredictable demand.

Amidst these challenges, Enghouse remained resilient, delivering steady results and advancing our strategic objectives. Thanks to our diversified business model and disciplined execution, we sustained stability and profitability in a market where many others have struggled.

In the fourth quarter, revenue reached $124.5 million compared to $125.7 million in Q4 last year. For the full year, revenue totaled $498.9 million just slightly down from $502.5 million in fiscal '24. Our recurring revenue, comprised of SaaS and maintenance streams, made up over 69% of total revenue for both Q4 and the year, ensuring greater predictability and a buffer against wider market fluctuations.

Adjusted EBITDA for Q4 was $33.7 million, representing a margin of 27%. For the year, adjusted EBITDA stood at $127.6 million with a margin of 25.6%. Net income for Q4 was $21.1 million, while for the full year, net income was $73.7 million or $1.34 per diluted share.

We closed the year with $269.1 million in cash and no external debt, preserving the financial flexibility that defines Enghouse. Our Asset Management Group, or AMG, which includes our transportation business was a particular highlight this year. Q4 AMG revenue reached $55.7 million, a 9.3% increase from $51 million in Q4 last year and nearly matched Q3's $56 million.

For the year, AMG revenue grew to $213.1 million, up more than 10% year-over-year. This growth was largely fueled by our acquisitions of Margento and Trafi, both completed in 2025, which expanded our offerings with scalable mobility-as-a-service platforms, advanced transit fare collection and account-based ticketing solutions.

With these additions, our Transport division now provides a complete suite for transit agencies and operators from e-ticketing and automated fare collection to fleet routing and MaaS platforms.

Turning to our Interactive Management Group, or IMG. Q4 revenue was $68.8 million, compared to $74.7 million in Q4 last year and $69.6 million in Q3 just passed. For the full year, IMG revenue totaled $285.8 million. While this was a year-over-year decline, it reflects expected churn in maintenance and SaaS streams as well as our ongoing transition to SaaS-based licensing models.

The acquisition of Aculab this year has strengthened IMG introducing advanced communications and AI-driven technologies, such as voice and face biometrics and high-performance media processing. A key driver of our performance this year, particularly in Q4 was our proactive approach to cost management.

In the second half of the year, we undertook a series of restructuring and cost-cutting initiatives across the organization, including streamlining operations, aligning our cost structure with current revenues and reducing operating costs, especially in areas affected by acquisition, integration and market shifts. Though these decisions were challenging, they were essential to keeping Enghouse agile and profitable.

The benefits of these initiatives began to show in Q4, driving improvements in both adjusted EBITDA and net income. We anticipate these efficiency gains will continue into fiscal '26. We continue to look for opportunities to strengthen and diversify our business. Shortly after year-end, we acquired the Telecommunications division of Sixbell, expanding our presence in the Latin American market. This acquisition aligns with our strategy of disciplined, accretive growth and positions us to serve new customers and markets. At the same time, we remain committed to returning value to our shareholders. In 2025, we returned $61.8 million through dividends and a 16% increase over last year and repurchased $14.7 million of our shares.

Yesterday, our Board approved an eligible quarterly dividend of $0.30 per common share payable on February 27, 2026 to shareholders of record at the close of business on February 13, 2026. These actions reflect our confidence in Enghouse's long-term prospects and our commitment to steady, reliable returns for our investors.

In closing, I want to thank our employees for their dedication, our customers for their trust and our shareholders for their continued support.

I will now hand the call over to Mr. Sadler.

Thanks, Rob. We continue to make progress with our new 2025 business unit structure. As Rob indicated, we maintain our strong financial position with a reasonable and improving adjusted EBITDA percentage to revenue. This was achieved in difficult enterprise business markets as customers attempt to understand how to best implement AI to monetize such -- their investment. We have found most of our customers are struggling to implement AI effectively to improve their return on investment.

As we have been implementing in a practical manner using a small language model, SLM concept, we're setting up a group of our R&D and service staff in both our IMG and AMG segments to focus on AI professional services to our customers current and new.

This is a new area that we are getting into, but we have done a lot in AI, much of which are being called AI now, but which is really being things we've done to improve our efficiencies over the years. And we believe taking this to our customers is a viable business opportunity.

With respect to capital deployment, we are purchasing Enghouse stock using our NCBI, Normal Course Issuer Bid, and continuing our acquisition strategy with Sixbell's Telco division being acquired just after our fiscal year-end.

As noted last quarter, we continue to see substantial acquisition opportunities, which will provide a return on our investment. We're looking to increase our acquisition team to increase our focus on capital deployment.

I would now like to open the call for questions.

[Operator Instructions] with that, our first question comes from Erin Kyle with CIBC.

Maybe I can start with whether you can give us an update on the progress of the LifeSci solution from a go-to-market perspective. Now that, that solution has been revamped. So how have new bookings been trending there?

It just has gotten revamped, we're now taking it out, let's say, January 1. We had to eliminate some third-party products, which are making the cost too high. You'll see that as people go to SaaS sometimes the cost, especially if you're using the Magnificent Six and then plus NVIDIA because they do charge a fair bit for their services, and you got to be careful what products you put in there. So we just finished that now and look like we're going to be taking that forward starting in January. So that hasn't started yet, but we're optimistic on what improvements can be made with that system.

Okay. That's helpful context there. And then I just wanted to ask -- so I recognizing the challenging environment for organic growth over the past several quarters. I was wondering if you could discuss how you're evaluating for future growth here and whether divestitures of any noncore assets or old acquisitions have ever been considered as a potential lever to enhance focus and improve the organic growth profile of the business here?

Sure about improving organic growth by divesting of assets because all our assets are pretty much similar type businesses, but we do see the opportunity in this environment for greater capital allocation and some of the things we're looking at doing with the new IMG software that we just talked about, we're hoping that will improve internal growth a little bit. But again, it's basically -- we're basically a capital allocator. We're basically not trying to get a lot of growth in a market that isn't growing, that would just cost us a lot of money. We emphasize the bottom line a lot, and we don't do things that detract from our bottom line.

Fair enough. Maybe I'll just squeeze one more in here. Just on the Sixbell acquisition that you closed post quarter end. Maybe you can just give us any additional color on the size of that acquisition and any progress on integration so far.

It's a small acquisition. It's in an area where we're already in, in South America, and the integration is ongoing right now. Again, we just started it in early November. So we're continuing to make progress. We think it'll be like our acquisitions of the past and add to a little bit to revenue and certainly to EBITDA to give us the return that we expect.

And the next question comes from David Kwan with TD.

This is Salman Rana on behalf of David Kwan. So the commentary on your results, it mentions that you expect further efficiency gains going forward. So without making in any additional M&A, could this imply that margins could be higher versus the 27% you delivered this quarter?

Yes.

Okay. And on the restructuring that you undertook last quarter, did you realize the full $2 million, $2.5 million benefit in Q4 from that? Was that fully baked in?

No. I don't know what extra color you need, but I just -- sorry to be brief.

That's fine. And as a follow-up to that, on the subsequent restructuring that you also announced on the call and in your results, how much of that was reflected in Q4? And how much of that is expected to save you guys going forward?

A lot was in Q4, but in some countries, you've got to give a lot of notice and you've got to go through procedures. And so there were several -- some of the expenses have -- weren't even in Q4, okay? So they're still coming a little bit. And we're also reassessing some of our areas and there could be future reductions as well to streamline operations, especially in the IMG group. We match cost to revenue. We do it all every day. So we're still looking at that to see if we can improve the bottom line further.

That's great color. And on M&A, again, you mentioned there are substantial M&A opportunities out there. Where -- in your pipeline, do you think you still have a lot of transformational assets because you've spoken about them over the last couple of years. So curious to get some color on that.

Yes. I mean it's a good pipeline. Of course, you've got to get deals done. We want to make sure that they're going to add to our EBITDA profitability. So we're very careful. There's a lot of companies struggling, as Tom -- as Rob said, I get all the names mixed up. As Rob said, based on the environment out there today, they don't know where tariffs are going. It doesn't impact us, but it impacts our customers, which impacts us. So that's still an issue. And I think, it will continue for a while.

Understood. And if I could just squeeze one more in. As part of your M&A pipeline, would AI acquisitions be something you'd be interested in? I think that would also augment what you're doing internally. So any thoughts on that? What kind of multiples you could potentially pay out there for those assets?

So the answer is that would be a potential acquisition. Aculab was basically doing acquisitions. The trouble is we can't really find any that make money. They actually can't monetize their AI investments. That's a real struggle for a lot of companies. That's why we're setting up these 2 professional services groups because we've done a lot of it ourselves for ourselves. So we think we can take some of that expertise through the professional services area to take it to our customers, because it doesn't tie in general sense to everybody. Everything has to tie into their models or their data and that's why we set up a small language model because we're generally in that mid-market. We don't do the real big guys who go to large language models. So we've done that. We've got the expertise in-house we thought, why not see if we can monetize it in a different way. So we are starting that in January. We've got the group set up. The Aculab person, who is running Aculab, she teaches AI at the University in the U.K. So we've got some good expertise in the area. Let's see if we can monetize it in a slightly different way.

And the next question comes from Kevin McVeigh with UBS.

Great. Congratulations on the continued execution. I wonder, could you give us a sense of, I guess, a couple of things, could you continue to execute really well. Any sense of -- and it may be a little hard to dimensionalize, but how should we think about inorganic versus organic contribution over the course of '26? And any sense of when you would expect an inflection point in the revenue? And just tied into that, are you seeing a little bit more certainty amongst clients, as they're reacting to kind of Gen AI or any shift at the margin just given Obviously, it feels like some of the euphoria is coming out of the broader Gen AI. Just are clients seeing any bit of just more certainty that allows you to react to that?

First of all, we have several areas, and it's interesting. Everyone talks about contact center and AI, but our networks business and revenue is just about the same as our contact center now, okay? So that's not discussed very much. They're bigger customers, and we can do some Gen AI there. And that's why we also set up a group separately for them versus our contact center as of in January for AI, that's first of all.

Second of all, in our customers why we're doing that is because none of them seem to be successful in using AI at this stage. You've got to learn it. It's early innings, but we've learned a lot doing it for ourselves, so we want to bring some of that expertise to our customers. Remember, they're not the real large customers who are spending tons of money in some ways, bleeding themselves to that. We have middle-range customers who are more careful with their spending. So we think we can bring a practical approach to it. That's why we're setting up these 2 groups with the expertise that we have and we use ourselves.

So we have people who could do it. So why not use it to help our customers do a little bit better. So that's how we see it as for the internal growth side, we're in tough markets. There's no doubt about it. I would think 2026 fiscal year will be a good, stable year. It should be a better year because we got a two-pronged approach. So with this tough markets with limited internal growth, it's good markets for acquisition growth. So we intend to get back to redeployment of our cash on acquisitions to a greater degree, and we're hiring some extra staff to do that, which we're in the process of doing now, but are not hired yet, expect also in January to expand that group a little bit to handle some of the many opportunities that are out there right now, again, because of the same markets. I just talked about where it's really what Rob mentioned, which is very difficult right now in many ways, people are uncertain to spend because of all those rates. It's not because of any particular, but tariffs what's going to happen down the road and they're quite uncertain in the market, all that does is freeze spending a little bit.

So I'm not really pushing very hard on the internal growth for fiscal '26. We'll take what we have. We've got good products. Our new product is ready to go. It's been developed. We've taken out a lot of the third-party costs, which makes it great to sell, but if the third-party costs are high, you don't make money. So we want to make money. So we had to do that first before we go out there and put in a lot of places to lose money. So that's what we virtually have finished. And again, January should be interesting because there's a lot of things starting from the work that was done this year.

It's very, very helpful. And then just one quick one, and I'll get back in the queue. In terms of terrific pacing of the dividend, should we expect the same percentage or absolute dollar amount, well, not the dollar amount, but cents increase in the dividend in '26? And how are we thinking about that just relative to the capital allocation on the M&A?

So it's an interesting question. Of course, it's up to the Board of Directors to decide, and we usually look at that at the AGM in -- yes, in March. My guess would be and what I was considering and recommending to the Board is to still increase the dividend, but very slightly and spend more on buying back our own stock. We think that is a better opportunity for our capital deployment, doing acquisitions and repurchasing our stock. So we're in a normal course issuer bid. We'll continue in a very organized manner to protect our stock in any way because the environment is uncertain, and it could get worse, not necessarily for us, but in general.

So I would think you should expect less of an increase in the dividend, and more of our capital allocation going to acquisitions and our current stock, which we think is a reasonable investment right now.

[Operator Instructions] The next question comes from Paul Treiber with RBC Capital Markets.

Just a question on the 2 groups, the professional services groups you're setting up. Is that primarily to generate professional services revenue? Or do you expect that there will be a longer-term attach in addition to professional services with potentially higher software revenue, both in IMG and AMG?

So what we are going to do, and again, it's a bit of a new area, we are going to use it even with new sales to offer new customers, who purchased our software that we will give them some AI expertise, probably at a very good price. As we learn more, what all our customers are looking at. And from that, we could develop software that we might sell. But I don't think you'll see that in 2026. I think that's a setup year to go forward from there and depends on how that works out. As you probably know, a lot of people are trying AI. It isn't -- it's hard to monetize people are having difficulty. They understand it personally to get some productivity, but how do you do it into software has been a very challenging event for -- especially for enterprises.

Enterprises have a hard time doing AI. And there's a lot -- let's just say, we believe there's a lot more promotion of AI into the actual results being achieved from it in enterprises. But we think the professional services will help our customers with the expertise we have and will also lead us to believe which are the best applications that we can monetize going forward. Because right now, it's difficult to see it in all our business units, transportation, networks and contact center.

So we want to get a little bit more on what everyone is thinking about and a little bit, let's say, getting paid for trying out some different things for our customers to help them and also to give us a bit more knowledge on proof of concepts, et cetera, which might be able to work. Right now, it's hard to see how you can make it work other than selling the services in the markets we're in. Remember, we're in a small business, smaller-sized contact centers. The large telcos are doing their own thing, and we see how we can help them. And transportation, again, we're finishing off our major projects we had in the Netherlands.

And so we're going to see some additional profitability from those going forward in '26. So we're pretty well positioned, but as slow as she goes, it's no home runs there. There's just as steady she goes, continuous progress, and we see the same in '26.

And then what do you see is that the gap or the challenge with enterprises deploying AI? And then how do you hope to help your customers address that?

That's a tough one. That's what I'm trying to find out. All I know is it isn't working anywhere. I don't see -- if you look at any real studies, not promotional studies, they'll tell you, I think 95% of CEOs see no return from the AI work they're doing. There's something there. We've got to figure it out. The best way to do it is, let's do it with our customers, and see if we can monetize it a little bit as we go forward with that. Set up a group to do it. We have many solutions internally that we use. They're very exciting, but they're all based on, let's say, the SLM, small language model, like you only have your data for a week or two and to analyze an agent, for example, to analyze who you think customers might leave.

There's a lot of stuff that we've done that we think others can use. They call it AI. Some of it is using the AI software. Some of it is just things that we've been doing for a while, but people are now calling AI anyway. It's like they say translation of voice from one language to another really now for 10 years, but now that's AI. So we're trying to sort it out, and we're going to try and sort out with our customers, and we believe this is a way to do it to help them, help us understand and maybe -- if I understand, I'll be able to answer your question better in the future. But right now, it's very difficult to see enterprises monetizing AI, although the potential to do so in the future is there.

And I'm showing no further questions at this time. I would like to turn it back to Mr. Sadler for closing remarks.

[indiscernible] is well positioned for the future to add shareholder value. Thank you for attending the call and your continued support. Have a Merry Christmas and a happy holiday season.

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

Good morning, ladies and gentlemen, and welcome to the Enghouse Q3 2025 Earnings Results Conference Call.

[Operator Instructions]

Also note that this call is being recorded on Friday, September 5, 2025. I would now like to turn the conference over to Steve Sadler. Please go ahead, sir.

Good morning, everybody. I'm here today with Ron Medved, Chief Financial Officer; and Todd May, VP, Legal Counsel. Before we begin, I'll let 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 Enghouse's continuous disclosure filings, 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, whether as a result of new information, future events or otherwise.

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

Thanks, Steve. Good morning, and welcome, everyone. As we present our Q3 results, we acknowledge the persistent uncertainty in the global economy. Geopolitical tensions, inflation and currency volatility continue to impact enterprise spending. Despite these challenges, Enghouse remains resilient, supported by our recurring revenue base and disciplined execution. Revenue for the quarter was $125.6 million, lower year-over-year but slightly increasing from Q2. Recurring revenue was $87.8 million or 69.9% of total revenue. Adjusted EBITDA was $32.3 million, achieving a margin of 25.7%. Net income was $17.2 million or $0.31 per diluted share.

During the quarter, we undertook a strategic restructuring, including our recent acquisitions to align costs with revenue, incurring $3 million of special charges, which are reflected in net income. We expect these actions to yield ongoing benefits and improved profitability. Operating cash flow, excluding working capital and income taxes paid, was $30.9 million. We ended the quarter with $271.6 million in cash and no external debt. We returned $16.5 million to shareholders through dividends, reflecting an increase from $0.26 to $0.30 per share, and we repurchased $1.6 million in shares. We completed the integration of Trafi at the end of Q3 into our asset management group. This acquisition strengthens our transportation portfolio and supports our vertical SaaS strategy. We continue to evaluate acquisition opportunities. We entered Q4 with a leaner cost structure and strong balance sheet.

Despite ongoing macroeconomic and geopolitical risks, we remain focused on accretive acquisitions, profitability and positive cash flows. Yesterday, the Board approved a quarterly dividend of $0.30 per common share payable on November 28, 2025, to shareholders of record as of November 14, 2025.

In closing, Enghouse continues to demonstrate resilience. Our recurring revenue model, disciplined execution and strong financial position enable us to navigate uncertainty and deliver long-term value in a difficult business environment. Thank you for your continued support, and I will turn the call over to Mr. Sadler.

Thanks, Rob. Our new business unit structure established January 1, 2025, is working well and the challenges in our IMG and AMG business units are being addressed. In a short time frame, there has been good progress. In our Q3, as Rob mentioned, we completed the integration of Trafi and Margento into our AMG business segment. But in addition, we did a further rightsizing of the overall business at the end of the quarter.

Both the Trafi and Margento acquisitions contributed to revenue and operating income in the quarter, but further operating income improvement is anticipated in our final quarter of 2025. AI continues to be used in our operations for cost efficiencies, but difficult to monetize from a revenue viewpoint. AI continues to be an interesting learning experience. As noted last quarter, we continue to see substantial acquisition opportunities, which will provide a return on our investment, but uncertainty continues to lay in completion of our backlog of these opportunities. As you know from our financial results, we have no debt and the financial resources to continue our capital deployment as well as investing in our operations for improvement.

A strong financial position is proving to be very important in the current financial environment of our markets. Larger competitors seem to be having serious financial challenges with their strategy of unprofitable growth. I would now like to turn the call over for questions.

[Operator Instructions]

First, we will hear from Erin Kyle at CIBC.

Maybe I'll just start with a question on the restructuring there. Could you provide some additional color in terms of where the cost cuts we're focused and then whether that restructuring was fully completed in the quarter or if you expect to see any additional charges -- special charges in Q4?

I don't think there'll be any significant charges in Q4 to answer that part of the question. The restructuring was generally done through operations. You noticed the, for example, the professional services as you go to the cloud is -- tends to be harder to get because they don't customize things and the clients don't customize things as much as we used to, which goes to professional services. We did a little bit in R&D where we didn't do restructuring is the sales side. So we kept the sales side generally as it was and restructured the other areas. A little bit of restructuring was in accounting as well as an example, and administration areas.

That's helpful. And then maybe if I can just switch gears here to the IMG division. It appears the revenue declines there continued to accelerate in the quarter. Could you maybe elaborate on just what's been driving that? Is that still some churn from Lifesize? Or how should we think about that?

Again, we try for profitable revenue. And if you look at the industry overall, it's struggled. So we are doing quite well, again trying to get profitable growth, not just growth at any cost. A little bit came somewhat from Lifesize, but Lifesize is going to be our go-forward product. So we're ready to start bringing that product into the marketplace. We had to fix a lot of things there. Video is still a problem. I mean we did a lot of video acquisitions, and so it's still in decline, if you look in the market as more and more companies are telling their employees to go back to work. Of course, that reduces video because a lot of it is done by video when you're not in the office.

So again, it's a tougher market. We're strong in the market, and it should in many ways, help our acquisition process, even some larger acquisitions are interesting and being looked at by us these days.

Next question will be from Kevin McVeigh at UBS Securities.

In terms of the $3 million charge, can you give us a sense of what the recurring benefit is as a result of that charge and how it kind of sequences over the course of this year and into next?

Yes, as a rough estimate, okay, because most of it was really people of that charge. It wasn't premises or anything else. It should improve the bottom line by everything staying the same, change staying the same, revenues, everything else staying the same, probably by $2 million to $2.5 million a quarter.

That's very helpful. And then I think you referenced and you continue to reference, and executing pretty well on kind of AI as you're kind of learning. Any kind of relative to just expectations, anything to call out either internally or what your clients are asking for, just as we kind of get a little bit kind of deeper into the kind of AI opportunities that you're seeing out there?

Most of the AI we'd be doing, and we've been doing it for a while, like many years, we just don't call it out as the biggest factor has been to improve internal operations. I mean a lot of companies say they're doing reductions these days because of AI. The restructuring we did was not because of AI. So let's make that clear. It was just restructuring that we needed to do to tie to our revenue, which has come down a bit. So we did that restructuring for that reason.

We are going to look at setting up a couple of specialized AI groups in both our divisions, see IMG Group and the AMG. We're going to start that probably in the next year in the budgeting process. So we're going to put a little bit more focus on it. But most of it is internal as we go out to customers, like many, you hear a lot of talk about it, individuals using it, but I do not see enterprises actually selling it other than the people who just do the AI on their own platform guys and NVIDIA does well selling chips to the big platform guys. So from a revenue side, I don't see a huge impact from AI.

From the cost side, we're continuing to take on projects that actually do make money as many projects, if you do reading on this subject, do not make money. It's great out there. There's more promotion than actual savings or money being made from AI at this time. But you do have to be in it because, of course, over time, it should improve.

[Operator Instructions]

Next, we will hear from Paul Treiber at RBC Capital Markets.

Just a question on customer churn and then new bookings. Can you just speak to the trend of both, how churn has been trending and how bookings of new cloud offerings has been trending?

From a trend point of view, the churn has been pretty steady, but unfortunately, there is churn, okay? As people are changing, looking at things, the environment for us in the small business area seems to be more difficult than you read in a general market i.e., there's a lot of small business companies struggling. And so we see more of that than the Magnificent 7. We let you believe the overall indexes on the market. So there is certainly some churn that we go through.

From a bookings point of view, again, for profitable growth, I would say, it's about as it has been over the last year or so, which is slow, okay? So again, to get more bookings and get more revenue, you have to lose money. We're not prepared to do that. So we would have profitable growth. We think that's the right way to do. And if you notice, some of our major competitors, Avaya, $2.5 billion can't get back out or having some trouble. Mitel went into receivership, major competitors, especially in the small business side. Genesis, a good competitor, but now said they don't want to sell anything for 250 seats and less. So the market is going through a lot of turnover right now.

And again, we're strong in that market, and we expect over time, that will be helpful, but it takes to go through those challenging events.

That's helpful to understand. The MD&A mentioned a focus on cash activities, including diligence on deal quality and then customer creditworthiness. Can you just elaborate on what that's referring to?

Well, I think it reads what it says. It is challenging when we're trying to do deals. There's a lot of people just from an acquisition side, remember a year ago when things were much higher. The whole industry has come down, including us, but we're very strong in the industry. Everyone sort of gets painted with the same brush. Others are having more financial issues than certainly we have, which I would say we don't have any.

We're doing pretty good. We've got cash flow. We've got cash, and in a struggling market, we have an M&A group who do deals in that environment. So I think it's just a matter of time, and the time is a little longer than I would like, but we're progressing forward with it right now.

And then in terms of M&A, and you touched on it, but could you be more explicit? In light of this environment, are you considering lowered peak out multiples on acquisitions, or just being more prudence around some of the assumptions in acquisitions just given the lower visibility here?

I think the values are coming down into our range, but we're not changing our criteria, i.e., not making it more difficult because we would like to deploy some of our cash. Look, our cash is good but that might be bad because we haven't deployed enough on acquisitions. So we've got to focus a little bit more and get some more things done. That's our intention. But again, we're not going to do it for the sake of doing acquisitions. We want to make sure we get the usual return that we've done over the years, which we have on our website to try and get a payback in 5 or 6 years, and we're going to stick to that.

And at this time, Mr. Sadler, it appears we have no other questions registered. Please proceed.

Well, thank you, everybody. Enghouse is well positioned to operate profitably and acquire business assets, which will provide a good return on our capital deployed. Thank you for attending the call, and I look forward to providing our year-end update in December.

Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.