Enghouse Systems Ltd
TSX:ENGH

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Earnings Call Transcript

Earnings Call Transcript
2022-Q1

from 0
Operator

Good day, and

thank you for standing by. Welcome to Enghouse's

First

Quarter

2022

Conference

Call.

At

this

time,

all

participants

are

in

listen-only

mode.

After

the

speakers'

presentation,

there

will

be

a

question-and-answer

session.

[Operator Instructions]



Thank

you.

I

would

now

like

to

hand

the

conference

over

to

your

speaker

today,

Mr.

Stephen

Sadler,

Chairman

and

CEO.

Please

go

ahead.

S
Stephen J. Sadler

Good

morning,

everybody.

I'm

here

today

with

Vince

Mifsud,

Global

President;

Doug

Bryson,

VP, Finance;

Todd

May,

VP, Legal

Counsel;

and

Sam

Anidjar,

VP, Corporate

Development.

Before

we

begin,

I'll

have

Todd

read

our

forward

disclaimer.

T
Todd M. May

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.

S
Stephen J. Sadler

Thank

you,

Todd.

Doug

will

now

give

an

overview

of

the

financial

results.

D
Douglas C. Bryson

Thanks,

Steve.

Financial

and

operational

highlights

in

Canadian

dollars

for

the

three

months

ended

January

31,

2022,

compared

to

the

three

months

ended

January 31, 2021

are

as

follows:

Revenue

achieved

was

CAD 111.1

million

compared

to

revenue

of

CAD 119.1

million.

Results

from

operating

activities

was

CAD 35.7

million

compared

to

CAD

40.7

million.

Net

income

increased

to

CAD 21.6

million

compared

to

CAD

20.6

million.

Adjusted

EBITDA

was

CAD 38.6

million compared

to CAD

44.5

million.

Cash

flows

from

operating

activities,

excluding

changes

in

working

capital,

was CAD

38.7

million

compared to

CAD

41.7

million.

Revenue

for

the

first

quarter

of 2022

was

CAD 111.1

million

compared

to

revenue

of CAD

119.1

million

in

the

prior

year.

While

revenue

for

the

first

quarter

of

the

comparative

year

had

mostly

returned

to

pre-COVID

volumes,

it

represents

the

tail

end

of

a

period

positively

impacted

by

an

influx

of

COVID-related

demand

for

our remote

work

and

visual

computing

solutions.

Revenue

for

the

quarter

was

also

negatively

impacted

by

CAD

4.4

million

as

a result

of

foreign

exchange

compared

to

the

prior

year.

We

also

continue

to

experience

a

shift

toward

cloud

offerings,

particularly

in

the

cloud

– in

the

contact

center

market.

Net

income

for

the

quarter

was

CAD 21.6

million

or

CAD

0.39

per

diluted

share, compared

to

CAD

20.6

million

or

CAD

0.37

per

diluted

share

last

year.

The

increase

in

net

income

is

a

result

of

lower

costs

and

higher

other

income

despite

lower

revenues

relative

to

the

comparative

period.

Adjusted

EBITDA

was

CAD 38.6

million

or

CAD

0.69

per

diluted

share,

compared

to

CAD

44.5

million

or

CAD

0.80

per

diluted

share

in

the

first

quarter

of

2021.

Enghouse

closed

the

quarter

with

CAD

214.8

million

in

cash,

cash

equivalents

and

short-term

investments,

compared

to CAD

198.8

million

at

October

31, 2021

with

no

external

debt.

The

cash

balance

was

achieved

after

making

payments

of

CAD 8.9

million

for

dividends

in

the

first

quarter.

Enghouse

remains

focused

on

its

long-term

growth

strategy,

investing

in

products

while

ensuring

profitability

and

maximizing

operating

cash

flows.

As

a

result,

Enghouse

continues

to

replenish

its

acquisition

capital

while

annually

increasing

its

eligible

quarterly

dividend.

Yesterday,

the

Board

of

Directors

approved

the

company's

eligible

quarterly

dividend

of

CAD

0.185

per

common

share,

an

increase

of

16%

over

the

prior

dividend,

payable

on

May

31, 2022

to

shareholders

of

record

at

the

close

of

business

on

May

17, 2022.

This

represents

the

14th

consecutive

year

in

which

the

company

has

increased

its

dividend

by

over

10%.

I'll

now

turn

the

call

back

to

Mr.

Sadler.

Steve?

S
Stephen J. Sadler

Vince

will

now

give

some

operational

highlights

of

the

quarter.

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Thank

you,

Steve,

and

I

appreciate

those

of

you

that

are

making

the

time

to

listen

in

to

our

Q1

conference

call.

As

Doug

has

communicated,

we

continue

to

generate

good

operating

income

and

positive

cash

flows.

This

quarter's

EBITDA

was

CAD 38.6

million,

34.7%

of

sales.

And

we've

been

consistently

around

the

35%

EBITDA

mark

now

for

more

than

two

years.

Gross

margins

were

once

again

above

70%,

and

our

revenue

in

Q1

was

consistent

with

Q4

with

overall

revenue

being

CAD

111.1

million,

which

was

negatively

impacted

by

just

over CAD

1.1

million

due

to

foreign

exchange

compared

to

Q4,

and

we

were

negatively

impacted

by

CAD

4.4

million

compared

to

Q1

of

last

year.

During

the

previous

quarterly

conference

calls,

I

already

covered

the

growing

shift

to

the

cloud

when

it

comes

to

the

contact

center

market.

This

shift

is

clearly

occurring,

and

we

do

expect

this

to

continue

into

the

foreseeable

future.

And

although

we

have

responded

to

this

move

to

the

cloud

by

making

several

investments

in

product

and

engineering,

we

remain

committed

to

our

strategy

of

growing

a

highly

profitable

business

by

running

a

lean

and

nimble

sales

and

demand gen

organization,

focusing

on

high-margin

business

and

managing

our

cost

to

be

in

line

with

revenue.

This

outcome

generates

positive

cash

flows

from

operations

that

can

be

deployed

on

acquisitions.

A

key

differentiator

for

us

in

the

market

stems

around

providing

our

customers

choice.

Enghouse

remains

one

of

the

only

companies

in

the

contact

center

market

[ph]



and

video

(06:08) market

that

offers

choice

between

private

SaaS,

multi-tenant

SaaS

and

on-prem.

This

offers

our

existing

customers

the

opportunity to

upgrade

the

cloud

when

they're

ready

and

is

also

attracted

to

certain

segments

of

enterprise

customers.

We

are

seeing

growing

orders

being

signed

for

our

SaaS

cloud

offering

for

contact

center.

In

Q1,

we

signed

CAD 3.5

million

of

SaaS

contact

center

orders,

which

was

one

of

our

largest

orders

in

terms

of

orders

signed

in

the

contact

center

space.

Revenue

of

these

deals

are

recorded

over

the

term

of

the

SaaS

agreement,

and

therefore,

all

this

revenue is

deferred

into

future

periods.

[ph]

Vidyo

(06:52) remains

an

important

part

of

our

business

and continues

to

be

focused

on

the

telehealth

and

enterprise

verticals

that

are

looking

for

security

such

as

defense,

courts,

legal

and

finance.

Our

[ph]



video

(07:05) engineering

group

has

recently

developed

three

new

products,

including

Unified

Communication

as

a

Service,

our

Cloud

PBX

and

[ph]



video

(07:13) patient

monitoring.

With

these

new

developments

and

the

growing

intersection

of

Contact

Center as

a

Service

and

Unified

Communication

as

a

Service,

we

believe

the

outlook

for

[ph]



Vidyo

looks

positive.

Vidyo (07:24)

product

revenue

was

down

from

Q1

2021

due

to

the

remaining

orders

driven

by

COVID,

but

was

consistent

with

Q4 2022.

This

quarter,

the

Asset

Management

division

improved

relative

to

Q4,

increasing

revenue

from

CAD 46

million

to

CAD 49

million,

which

was

up

6%,

and

this

group

continues

to

focus

on

telecom,

government

and

transit

companies.

And

these

sectors

are

not

experiencing

a

significant

increase

in

demand

for

cloud

or

SaaS.

However,

we

do

expect

that

this

cloud

shift

could

occur

in

the

future.

So

we've

made

investments

in

preparing

our

software

for

cloud

adoption

in

anticipation

of

the

shift.

And

a

number

of

our

SaaS

applications

have

completed

their

cloud

readiness

requirements

over

the

last

12

months.

IPTV

is

one

example

that

we've

done –

we've

already

done

the

cloud

lift

and

we've

been

selling

it

for

several

quarters.

And

now

have

signed

over

CAD

3.2

million

in

SaaS IPTV

orders,

which are –

will

be

recognized

in

future

quarters.

Our

transit

business

has

started

its

expansion

into

the

Americas

market,

and

during

Q1,

we

signed

a

Master

Framework

Agreement

with

the

California

State

Department

of

Transportation,

which

provides

us

access

to

300-plus

transit

operators,

and

they

now

have

the

ability

to

purchase

our

automated

fare

collection

solution

under

the

terms

of

the

Framework

Agreement.

We

hope

this

will

materialize

into

revenue

for

us

in

the

automated

fare

collection

market,

and

spark

further

expansions

into

other

states.

Just

on

a

final

few

points.

Q1

represents

over

100

consecutive

quarters

of

positive

operating

income

and

cash

flows

for

Enghouse.

We

have

a

track

record

that

demonstrates

our

ability

to

adapt

to

continually

changing

market

trends,

product

life

cycles

and

economic

conditions,

while

remaining

profitable.

As

we

have

announced,

Doug

Bryson

has

decided

to

retire

from

Enghouse.

He

has

been

here

for

93

of

these

100-plus

quarters,

which

is

an

amazing

accomplishment,

and

I

wanted

to

thank

Doug

for

all

that

he's done

for

the

company.

It's

been

great

working

with

Doug

over

the

last

four

years

since

I've

been

here

at

Enghouse,

and

I

wish

him

well

in

the

future.

[ph]

D
Douglas C. Bryson

Thanks, Vince (09:49).

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Let

me

turn

the

call

over

to

Mr.

Steve

Sandler.

S
Stephen J. Sadler

Thanks,

Vince.

A

little

bit

on

acquisitions.

We

are

actively

reviewing

opportunities

and

continue

to

search

the

marketplace

for

opportunities

that

meet

our

financial

criteria.

We

continue

to

focus

on

capital

deployment

during

our

due

diligence

remotely.

The

acquisition

pipeline

continues

to

improve

and

with

the

decline

in

tech

values

in

the

public

markets,

we

are

seeing

more

opportunities

that

meet

our

financial

payback

criteria.

As

interest

rates

increase,

taxes

rise

and

government

stimulus

is

eliminated,

our

ability

to

deploy

capital

is

expected

to

improve. We

remain

committed

to

executing

our

historic

strategic

business

model

and

discipline,

which

we

believe

will

add

shareholder

value.

I

would

now

like

to

open

the

call

for

questions.

Operator

Thank

you,

speakers.

[Operator Instructions]



Your

first

question

is

from

the

line

of

Daniel

Chan

of

TD

Securities.

Your

line

is

open.

D
Daniel Chan
Analyst, TD Securities, Inc.

Oh,

hi.

Good

morning.

I

just

want

to dig

into

the

IMG

segment

a

little

bit.

Revenue

this

quarter

is

now

below

what it

was

pre-pandemic

in

Q1

fiscal

2020.

And I think

you

had

a

number

of

acquisitions

over

the

last

two

years

as

well.

So

can

you just

provide

some

color

on

whether

organic

growth

in

IMG

is

declining

relative

to

your

pre-pandemic

levels?

And

if

so,

what

may

be

causing

that?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Okay.

I'll

start

there,

Daniel.

It's

primarily

related

still

to

[ph]



Vidyo.

Vidyo

(11:37) in

Q1

of

last

year

still

had

some

COVID-related

orders.

So

most

of

the

decline

is

in

– on

the

[ph]



Vidyo (11:48)

side.

D
Daniel Chan
Analyst, TD Securities, Inc.

What

about

when you

compare

it

to

two

years

ago

before

the

pandemic

started,

before

you

got

that

bump?

It's

still

below –

like

IMG

in

general,

still

below

that

level?

S
Stephen J. Sadler

You

also

have,

I

guess,

on

top

of

that,

what

Vince

has

talked

about

moving

to

SaaS,

which

means

rather

than

take

your

revenue

upfront,

you're

spreading

it

over

three

years.

So

we are

basically

in

that

second

year

of

that.

So

that

also

adds

to

it.

Another

major

factor

is

the

exchange.

US

dollar

and

Canadian

dollar

has

moved

a

lot

and

the

euro

as

well.

So

you

got

to factor

in

exchange.

I

think

last

year,

that

was

CAD

13 million

impact

on

our

revenue

line.

So

there's

a

lot

of

factors

going

into

it.

I

think

the

IMG

side,

certainly,

we are

looking

to

improve

it.

But

right

now,

there's

a

lot

of

factors

that

are

showing

up

in

the

numbers.

D
Daniel Chan
Analyst, TD Securities, Inc.

Okay.

Thanks

for that,

Steve.

And

then

if

we

dig

into

the

hosted

and

maintenance

revenue,

you

mentioned

in

your

filings

that

you're

continuing

to see

some

attrition

in

your

existing

customer

base,

particularly

around

[ph]



Vidyo (13:01)

as

they

continue

to right-size.

As

discussions

now

move

towards

reopening

and

moving

back

into

the

office,

how

are

your

discussions

with

customers

going?

Is

there

a

line

of

sight

to

where

this

levels

out?

S
Stephen J. Sadler

That's

a

hard

question

and to

know

what's

going

to

happen

and

what's

the

reaction

after

people

don't

totally

work

from

home,

come

back

to

the

office.

So

it's

difficult

to

say

where

that

is.

Again,

there's

a

lot

of

factors

that

go

into

it.

I

think

right

now,

one

of the

factors

is

we

still

do

on-prem,

as

Vince

talked

about,

as

well

in

the

cloud,

and

the

cloud

picked

up

during

the

pandemic

because

people

aren't

going

into

offices.

You're

not

going

in to

set

up

the

systems.

Is

on-prem

going

to

come

back

a

little

bit

because

it

is,

in

many

ways,

more

economical?

There are

several

factors

there.

So

I

– we're

preparing

for

whatever

happens

because

we

do

both.

So

we'll

just

have

to

wait

and

see.

I

had

no

good

forecast

for

you

on

that.

D
Daniel Chan
Analyst, TD Securities, Inc.

Okay.

That's

fair.

And

then

good

to

see

that

you're

getting

traction

on

the

cloud.

You

mentioned

you had the

strongest

bookings

in

the

most

recent

quarter.

Can you just

remind

us

what

is

the

uplift

in

revenue

per

seat

we

would

see

as

customers

migrate

from

an

on-prem

maintenance

license

to

a

SaaS subscription?

I

recognize

that

license

revenue

will

decline,

but

just

wondering

what

we

could

see

in

the

hosted

and

maintenance

segment

as

you

make

that

migration.

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Yeah.

Like,

as

you

mentioned,

Daniel,

so

when

we

sign

an

on-prem

deal,

you

get

the

software

recognition

upfront

and

then

you

get

a

bunch

of

services

revenue

to

implement

and

integrate

it.

D
Daniel Chan
Analyst, TD Securities, Inc.

Yeah.

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

When

it

comes

to

SaaS,

it's

the

other

way

around.

We

implement,

do

all

the

integrations

and

then

the

SaaS

revenue

kicks

in

on

a

per

user

per

month

basis.

So

that's

the

way

the

rev rec

happens.

And

you

end

up

with

more

long-term

revenue

under

SaaS.

Margins

are

around the

kind

of

70%

range.

So

we

can

keep

our

margins

at

that

target

level.

We're

at

the

high

60s

at

this

point.

So

that's

essentially

how

it works

relative

to

on-prem.

D
Daniel Chan
Analyst, TD Securities, Inc.

Okay.

Thanks.

Operator

Your

next

question

is

from

the

line

of

Paul

Steep

of

Scotia

Capital.

Your

line

is

open.

P
Paul Steep
Analyst, Scotia Capital, Inc.

Hey,

morning,

folks.

Vince,

maybe

just

to continue

where

you

were

going

there.

Just

remind

us

on

the

contact

center

side,

are

you

typically

signing

three-year

contracts

with

the

clients?

Because

I

just –

I

guess

I'm

looking

at

the

deferred

revenue

and

you

called

out

a

couple

of places

in

contact

center

and

in, I

think,

in

networks

signing

some

cloud –

or

sorry,

yeah,

IPTV,

some

cloud-based

deals.

Just

trying

to

see

how

that's

being

recognized

maybe

into

deferred,

so

we

can

sort

of

get

a

vibe

of

the

transition

of

the

business

over

time?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Yeah.

Sure.

So

we

normally

do

sign

three-year

deals

for

our

SaaS,

whether it's

IPTV

SaaS

or

contact

center

SaaS,

and

it's

normally

billed

annually

in

advance.

The

billing

typically

starts

when

we

finish

the

implementation

and

integration

work.

And

then

we

bill

for

the

year

annually

in

advance.

And

then

when

it

comes

on

anniversary

[ph]



bill,

we

bill

(16:33) it

again

for

the

next

year

and

the

year

after.

So

you

don't

get

three

years

of

deferred,

you

get

one-year

and

then

it

renews

again

in

the

following

years.

Does

that

answer that?

P
Paul Steep
Analyst, Scotia Capital, Inc.

Yeah. No,

that

does.

I

was

just

looking

to

sort of

get

a

sense

of

– we

know

we

get

RPOs

from

other

people

and

wanting

to

see

how

that

was

sort

of

building

or

how

we

should

start

thinking

about

that

over

time.

It

sounds

like

still

early

days,

but

the

comments

help

us

sort

of figure

that

out.

S
Stephen J. Sadler

Yeah.

P
Paul Steep
Analyst, Scotia Capital, Inc.

Maybe

the

other

point there is on content

– sorry.

Go

ahead.

S
Stephen J. Sadler

The

other

side

is

you

got

to

realize,

it

doesn't

show

up

necessarily

always

in

deferred

revenue.

Sometimes

it's

quarterly,

sometimes

in

advance,

sometimes

afterwards,

but

you

really

can't

tie

it

to

deferred

revenue

that

well.

P
Paul Steep
Analyst, Scotia Capital, Inc.

Perfect.

And

then

maybe

on

the

cloud

transition,

do

we

have

a

sense,

and

I

know

you

tried

to

answer it

with

Daniel,

but

maybe

we

try

it

a different

way.

If

we

think

about

that

cloud

transition,

how

have

you

thought

about

sort

of

modeling

out

your

base

maybe

shifting

over

the

next

five

years?

In

five

years,

should

we

think

that

you've

made

the

full

move

to

cloud?

Or

no,

we're

going to

let –

we're

going to be sort

of

[ph]



be more

coded

than

that (17:48)?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Yeah.

Like

I

mentioned,

so

we

offer

three

solutions

to

the

customer.

So

you

can

purchase

from

us

a

private

cloud,

which

is

dedicated

for

one

company.

We

have

multi-tenant

cloud.

We've

stood

up

for

cloud

nodes

around

the

world

and

then

on-prem.

So

when

it

comes

to

how

the

whole

customer

base

will

transition,

we'll

see.

But

we're

seeing

definitely

more

opportunities

for

both

multi-tenant

and

private

cloud

relative

to

on-prem.

So

our

opportunity

pipeline

is

now

heavier

weighted –

getting

much

heavier

weighted

towards

cloud

for

the

contact

center

business

relative

to

on-prem.

And

then

we

have

a

fairly

big

existing

customer

base,

and

for

them,

we

have

a

program

where

we

can

migrate

them

to

the

cloud.

So

they

can

use

the

same –

if

they

want

the

same

products

they're

using

today

with

us,

just

in

the

cloud.

So

we

do

have

a

cloud

migration

program

for

existing

customers

or

they

can

move

to

our

multi-tenant

cloud

products.

So

we

give

all

this

optionality,

which

is

fairly

unique.

It

sounds

like

it's

kind

of

a

trivial

differentiation,

but

it's

actually

quite

important

to

customers

to

give

them

this

choice.

How

it

ends

up

at

the

end,

I

guess

we'll

see,

but

we're

offering

all

three

at

this

point.

P
Paul Steep
Analyst, Scotia Capital, Inc.

Okay.

[ph]

That helps (19:19).

S
Stephen J. Sadler

The

other

impact

you

have

with

people,

if

you

look

at

competition,

et cetera,

is

a

lot

of

the cloud

players

are

trying

to,

call

it,

a

land

grab.

In

other

words,

they

don't

actually

make

much

money.

So

again,

that's

another

thing

to

factor

in

why

people

are

moving

more

to the

cloud

right

now.

Will

that

be the

same in

five

years? Or will

they – prices

be

going

up

after

they

got

their

land

grab

and

then it

changes

the

dynamics

a

little

bit?

Right

now,

it's

pretty

good

for

customers

in

the

cloud

and

the

SaaS

type

model,

but

over

time,

it

may

not

be

the

case

because

to

be

good

for

customers,

how

long

can

companies

lose

money

and

do

that

as

they

try

and

do

that

land

grab.

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Yeah,

and

we

don't

do

that.

So

our

approach

is

unless

our

deals

are

good

economically,

we

don't

take

them.

So

we

don't

do

the

land

grab

and

lose

money

model.

P
Paul Steep
Analyst, Scotia Capital, Inc.

Got

it.

Actually,

maybe

to

take

the

next

one,

that

would

be

directly

for

Steve

on

the

M&A

side.

Steve,

where

are

you

standing

these

days

in

terms

of

– we've

seen

other

folks

who

might

have

more

traditionally

just

bought

on-prem.

Is

there

a

shift

or

a

focus

on

your

side?

Is

there

a

bias

maybe

now

to

just

buy

more

recurring

revenue

cloud

operations?

Or no

open

for

business

as

always

on

both

sides?

S
Stephen J. Sadler

We

tend

to

look

for

both

sides.

The

major

factor

for

us

is

getting

a

return

on

investment

for

our

shareholders

over

time.

Right

now,

you

can

guess

on-prem

is

probably

better.

And

if

we

can

buy

on-prem

and

convert

them

over,

that's

a

pretty

successful

model.

So

again,

we

look

at

both.

Some

of

the

–

in

the

cloud

and

SaaS

type

opportunities,

they

have

been

crazy,

i.e.,

and

you

see

them

coming

down.

You

look

at

companies

like

Five9,

you

look

at

Zoom,

they're

all

in

half,

and

they

still

aren't

making

money.

So

as

long

as

they

can

get

financing

for

the

losses,

it

makes

it

tough.

But

I

always

find

that

day

of

reckoning

comes.

So

we

do

both.

But

we're

looking

for

opportunities

in

both

areas,

and

we

always

compare

what's

the

value

for

money

we're

getting

for

the

price

we

pay.

And

then

we

also –

if

we

get

customers

on-prem,

as

Vince

talked

about,

we

can

move

them

over

to

the

cloud

when

they

want to

move

there.

So

it's

two

factors

when

you

do

acquisitions,

price

you

pay

as

well as

the

business

you're

getting,

and

we

have

to

always

look

at

both.

P
Paul Steep
Analyst, Scotia Capital, Inc.

Last

one.

I

think

I

know

the

answer,

but

I'll

ask

it

anyway.

Steve,

is

there

any

thought

to

maybe

lowering

the

hurdle

rates

to

strategically

pick

up

more

SaaS

business

versus

what you'd

look

at

for

a

hurdle

rate

on

on-prem?

Or

I

think

I

know

what

that

answer

is

going to

be,

but

I'll

leave

it

there.

Thanks.

S
Stephen J. Sadler

It

really

doesn't

matter.

I

mean

if

SaaS

is

going to

make

some

money,

over

a

period

of

time,

you

discount it

back,

discounted

cash

flow.

You

guys

do

this

all

the time.

And

if it

makes

sense,

we

do

SaaS.

If

it's

prem,

we

do

prem

and then

we

figure

out

how

we

can

add

value

on

top

of

that.

So

we're

not

going to

pay

up

for

SaaS.

It

doesn't

make

sense.

We

are

seeing

SaaS

companies,

smaller

ones

that

do

meet

our

financial

criteria

because

it's

not

quite

as

hefty

as

it

was,

let's

say,

six

months

ago.

So

yes,

we

look

at

both.

Are

we

going to

pay

up?

It's

just

a

matter

of

getting

our

return.

As

long

as

the

profits

and

our

cash

flow

are

up,

we'll

pay

up.

If

they

aren't,

we

won't.

Again,

over

time.

P
Paul Steep
Analyst, Scotia Capital, Inc.

Fair

enough.

Thanks,

guys.

Operator

Your

next

question

is

from

Scott

Fletcher

of

CIBC.

Your

line

is

open.

S
Scott Fletcher
Analyst, CIBC World Markets, Inc.

Hi.

Good

morning.

I

want to

ask

about

the

pace

of

M&A.

With

your

comments

that the

pipeline

seems

to

be

expanding

and

some

valuations

coming

down,

is

there

a

desire

to

sort

of

really

accelerate

M&A

and

to

maybe

– or

would

you

prefer

to sort

of

avoid

multiple

concurrent

integrations?

S
Stephen J. Sadler

Based

on

what

we've

done,

I

would

say

we

want

to

accelerate

M&A

because

we

haven't

done

as

much

as

I

would

like,

but

we

want

to do

them

at

the

right

return

to

shareholders

over

time.

We're

not going

to

rush

to

do

it.

We

don't

have

a

mandate

to

spend

a

certain

amount

of

M&A

due

to

M&A

in

a

year.

What

we

try

and

do

is

do

the

right

deals.

And

over

time,

we

found

that

it

works

out.

But

we

have

added

some

resources

to

our

M&A

group.

And

certainly,

we

would

like

to

see

more

M&A

or

capital

allocation

done

to

add

value

for

shareholders,

which

we're

working

on

doing.

S
Scott Fletcher
Analyst, CIBC World Markets, Inc.

Okay, thanks

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Scott,

just

on your

question

in

terms

of

doing

multiple

integrations.

If

we

get

two

deals

done,

we

have

the

ability

to

do

that.

We

have

invested

a

lot

in

systems

and

integration

approaches.

So

we

can

handle.

S
Scott Fletcher
Analyst, CIBC World Markets, Inc.

Okay.

That

helps.

And

my

second

question...

[indiscernible]

(24:47)

S
Stephen J. Sadler

...just

to

add,

the

way to add

that – to

answer

that

is

a

lot

of

financial

work is

done

on

M&A,

and

we

do

a

financial

team

separate

ones

in

Europe,

North

America

and

APAC.

So –

and

they've

all

now

done

a

deal.

So

they

know

how

to

do

this.

It's

not

like

the

first

one

they're

doing.

So

we've

got

a

bit

of

experience

to

do

the

integration.

If

we

get

a

bunch

in

one

area,

we

just

have

to

manage

that.

And

you

can

spread

it

out.

You

can

have

closing

dates

that

are

different,

et cetera.

I

don't

see

that

as

the

problem. I

see

getting

more

good

deals

done

as

both

an

opportunity

and

a

challenge.

It

has

been

a

challenge,

and

I

think

it's

going to

be

quite

an

opportunity.

S
Scott Fletcher
Analyst, CIBC World Markets, Inc.

Okay.

That's

good

to

know.

Just

another,

maybe

more

minor

question.

Sales

and

marketing

costs

as

a

percentage

of

revenue

have

sort

of

been

around

20%

for

a

few

quarters

now.

Should

we

be

expecting

a

ramp-up

as

economies

open

up

and

you

can

sort

of start

doing

more

in-person

selling

activity?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

So

I

mean,

I'm

not

sure

where

you

got the

20%

from.

I

think

you

got

SG&A

in

there.

So

that's

not

just...

S
Scott Fletcher
Analyst, CIBC World Markets, Inc.

Okay.

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

...sales

engine.

So

it's

all

of

that.

And

then

on

your

question,

is

there

more

face-to-face

meetings

happening,

there

is

a

bit

more

happening.

It

happened. It

started

in

this

quarter

a

bit.

So

there

are

more

face-to-face

meetings.

So

there

is

a

bit

more

travel

costs,

but

it's

not

significant

yet.

S
Scott Fletcher
Analyst, CIBC World Markets, Inc.

Okay.

Thanks.

S
Stephen J. Sadler

And just

to

add

to

that,

as

we

said

on

the

last

call,

we

expect

any

increase

in

costs

for

travel,

et cetera,

again,

in

that

line

that

SG&A,

we

think

a

reduction

in

premise

costs

will

offset

it.

So

I

wouldn't

expect

you'll

see

costs

going

up. I

think

with

the

change

in

premise,

we're

going

still

a

hybrid

work from

home.

I

think

you'll

see

savings

there

offset

any

extra

costs

in

sales

and

marketing.

Operator

Thank

you,

presenters.

[Operator Instructions]



You

have

a

next

question

from

the

line

of

Paul

Treiber

of

RBC

Capital

Markets.

Your

line

is

open.

P
Paul Treiber
Analyst, RBC Capital Markets

Thanks so

much,

and

good

morning.

Just

in

terms

of

the

product

portfolio

in

contact

center,

are

you

now

at

the

point

where

you

basically

have

100%

parity

with

the

features

and

offerings

in

the

cloud

versus

your

on-premise

offering?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Yeah.

So

there's

two

answers

to

that

one,

Paul.

So

we

can

take

your

existing

on-prem

product

that

you're

using.

And

we

made

a

lot

of

investments

in

the

last

12, 18

months

to

be

able

to

move

that

to

the

cloud.

So

you're

at

exact

feature

parity.

You're

using

the

exact

product.

If

you

were

an

agent,

you

wouldn't

see

any

change

other

than

using

it

through

a

browser.

So

that's

one

model.

If

you

go

to

our

multi-tenant

cloud

product,

depending

on

what

you're

using,

the

features

may

not

be

exactly

the

same.

They

might

be

stronger

in

some

areas

or

others.

But

we

have

a

whole

team

getting

our

multi-tenant

cloud

product

much

further

ahead.

So

you

can

at

least

keep

future

parity,

but

it

depends

on

which

products

you're

currently

using,

whether

you're

at

parity

or

not.

P
Paul Treiber
Analyst, RBC Capital Markets

Okay. Thanks.

That's

helpful.

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

That

makes sense?

P
Paul Treiber
Analyst, RBC Capital Markets

Yeah,

yeah, yeah. I

think

I

was

referring

to

the

multi-tenant

offering.

Do

you

see

– and

you

mentioned

a whole

team

getting

the

product

ahead.

Do

you

see

eventually

in

time,

the

multi-tenant

version

being

the

one

where

you

lead

with

new

features

and

becoming

the

more

innovative

offering

over

time?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Yeah.

So

the

way

we're

organized

on

our

engineering

group

is

around

building

components, cloud-based

components

that

all

the

products

can

use.

So

you

don't

end

up

with

a

component

like

an

AI

component

as

an

example,

that's

different

in

the

on-prem

product

versus

the

multi-tenant

product

versus

the

private

cloud.

So

we

have

these

shareable

components

that

we're

sharing

across

all

the

products

and

having

the

engineering

teams

more

kind

of

in

parallel, working

in

parallel.

P
Paul Treiber
Analyst, RBC Capital Markets

Okay.

Makes

sense.

Just

a

couple

of

finance

questions

around

the

impact

of

cloud.

And

just

starting

there,

the –

you

called

out

the

CAD

3.5

million

in

new

cloud

orders.

Is

that

equivalent

to

new

RPO?

And

then

if

you

did

disclose

RPO,

what's

sort

of the

cumulative

cloud

backlog

or

RPO

that

you

currently

have?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

So

the CAD

3.5

million

was

signed

orders

just

in

the

contact

center,

SaaS

piece.

So

it

didn't

include

SaaS

orders

in

other

areas

like

in

our

[ph]



Vidyo (30:03),

for

example.

In

terms

of –

that's

the

value

of

this –

of

the

contracts

that

are

typically,

like

I

said,

somewhere

between

one

and

three

years

in

duration.

So

that's

the

contract

value. Does

that answer

that

question

or...?

P
Paul Treiber
Analyst, RBC Capital Markets

Yeah.

And

then

if

you

look

at

cumulatively

over

– like

since

you

launched

in

contact

center,

how...

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Yeah.

P
Paul Treiber
Analyst, RBC Capital Markets

...- what's

the

cumulative

orders

that

you've

seen?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

I

haven't

disclosed

that

number.

But

it

is...

P
Paul Treiber
Analyst, RBC Capital Markets

Okay. But

the CAD

3.5

million

is

a

record

high

and you

expect

that

trajectory

to

continue,

is

that

a

fair

point?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Yeah,

that's

a

quarterly

record

high,

yeah,

exactly,

for

the

contact

center

side.

P
Paul Treiber
Analyst, RBC Capital Markets

Okay. And

then

just

lastly,

just

a

question

on

Ukraine

and

Russia.

I

think

there was

a

disclosure,

one

of

the

acquisitions that

you

made

that

there

was

–

you

might have

had

an

office

in

the

region.

Can

you

just

provide

an

update

on

that

region

if

you

have

any

still

employees

there,

any

revenue,

any

transactions?

V
Vincent D. Mifsud
President, Enghouse Systems Ltd.

Yeah.

So

in

the

Ukraine,

we

have

57

engineers

that

are

external

contractors.

So

they don't

work –

they're

not

employees.

They're

working

for

a large

systems

integrator

that

we

partner

with,

focused

primarily

on

engineering. All

of

them

are

safe.

Some

of

them

are

no

longer

in

the

Ukraine,

and

we

wish

their

families

well,

obviously.

In

Russia,

we

have

a

very

small

amount

of

business

in

Russia.

P
Paul Treiber
Analyst, RBC Capital Markets

Okay.

Thank

you

for

that,

and

I

will

pass the

line.

Operator

Thank

you.

Speakers,

I'm

no

longer

seeing

any

other

questions

on

the

queue.

You

may continue.

S
Stephen J. Sadler

Okay.

Enghouse

continues

to

have

a

very

strong

financial

position,

as

Doug

has

outlined,

to

execute

both

our

capital

allocation

strategy

and

our

internal

growth

business

strategy.

I

want

to thank

you

for

your

patience,

and

we

look

forward

to

talking

to

you

next

quarter.

Operator

Thank

you,

presenters.

Ladies

and

gentlemen,

this

concludes

today's

conference

call.

Thank

you

all

for

joining. You

may

now

disconnect.