Enghouse Systems (TSE:ENGH) reported first-quarter fiscal 2026 results that management characterized as stable and profitable amid a cautious customer spending environment and uneven activity across its portfolio. On the company’s earnings call, executives highlighted strong cash generation, ongoing cost alignment efforts, and an increased emphasis on share repurchases alongside continued interest in acquisitions, while also discussing how the company and its customers are approaching artificial intelligence in a “practical” way.
Q1 revenue dipped as customers remained cautious
Chief Financial Officer Rob Medved said revenue for the quarter was CAD 120.1 million, down from CAD 124.0 million in the prior-year period. He attributed the year-over-year change to timing of product and services activity and “normal variability” in customer purchasing patterns.
Recurring revenue (SaaS and maintenance) totaled CAD 84.6 million, representing 70.4% of total revenue. While modestly lower year over year, Medved emphasized recurring revenue remains a “substantial and important” part of the business and contributes to predictability and stability.
Profitability and cash generation remained key themes
On profitability, Medved reported Adjusted EBITDA of CAD 31.1 million, for a margin of 25.9%. Operating income was CAD 28.3 million and net income was CAD 17.5 million. He said results reflected continued cost management and operating efficiency while maintaining flexibility across product lines and customer bases.
The company also continued “targeted alignment and efficiency initiatives” during the quarter, which Medved said were intended to keep the cost structure aligned with current activity levels while preserving the ability to respond as conditions change.
Cash generation was again highlighted as a strength. Medved said net cash provided by operating activities, excluding changes in working capital and income taxes, was CAD 31.4 million. Enghouse ended the quarter with CAD 260.2 million in cash equivalents and short-term investments, which management said supports dividends, share repurchases, internal initiatives, and potential acquisitions.
Dividend raised modestly as buybacks take more focus
Management said the board approved a 3.3% increase in the company’s eligible quarterly dividend to CAD 0.31 per common share, payable May 29, 2026, to shareholders of record as of May 15, 2026. Medved noted it marked the 18th consecutive year the company has increased its dividend.
During the Q&A, CEO Stephen Sadler explained why the dividend increase was smaller than historical increases. Sadler said Enghouse typically raised the dividend by 10% to 20% in past years, but with the current share price, management concluded buying back shares represented a better use of capital than increasing dividends further or pursuing some private-market acquisitions at valuations sellers still expect from “a year to 18 months” ago.
Sadler added that Enghouse still wanted to increase the dividend to maintain its annual increase track record, but chose to reallocate some capital that would have gone to dividend growth toward repurchases, while keeping flexibility for acquisitions.
Business mix: Asset Management Group showed growth, Sixbell added
Medved said results varied across Enghouse’s product and customer groups. In the Asset Management Group, revenue was CAD 52.8 million, up from CAD 50.8 million a year earlier, reflecting “steady performance” and the inclusion of Sixbell, which the company acquired during the quarter.
Sadler also noted that while the market discussion often centers on contact centers, Enghouse’s contact center revenue has become a smaller portion of total revenue as other areas—he cited networks and transportation—have increased, while contact center has faced pressure related to Lifesize and other assets in that space.
AI: pragmatic adoption, internal efficiency, and customer uncertainty
AI was a central topic throughout the call. Medved said customers are increasingly asking how AI-enabled functionality could be applied within existing systems to improve efficiency, automation, or insight. However, he said many of the environments Enghouse serves are complex or regulated, and adoption tends to be gradual and “use case driven.”
Sadler described Enghouse’s approach as a “hybrid strategy,” using external models for productivity while building targeted solutions internally. He also cautioned against attributing broad cost reductions to AI without identifying which specific AI solutions enabled them.
Sadler outlined examples of AI-related capabilities and initiatives discussed on the call, including:
- Virtual agents, which he said are still early for the company because AI does not provide accurate answers in all cases.
- Agent Assist, where Sadler said the company uses Google technology to help human agents handle conversations more efficiently.
- A quality management system connecting Enghouse’s transcription service to analyze voice, email, and chat interactions.
- “Smart Quality” tools to flag and route potentially problematic calls to supervisors (such as when a caller raises their voice).
- Use of AI tools in R&D and quality assurance for code development, with Sadler citing “Claude” as having shown improvement in code development versus some prior platforms.
- Video features including summarization and automatic multilingual subtitles.
On customer behavior, Sadler said monetizing AI can be difficult today and cited a study he referenced in which 95% of proof-of-concepts did not work “at least today.” He said Enghouse established two AI professional services groups to work with customers on proof-of-concepts both to help customers and to learn what applications may be scalable across its customer base. He said a benefit is that customers pay for this work, allowing the company to at least cover costs.
Sadler also discussed building internal capabilities when third-party tools are too expensive, giving an example where Enghouse replaced a Google-based translation approach with an in-house system developed in about three months, which he said reduced cost by 80%.
On M&A, Sadler said public software valuations have been “beaten up,” potentially creating opportunity, though larger deals require careful capital planning. In private markets, he said sellers often still expect higher values and may not have fully assessed how AI could disrupt their businesses, prompting Enghouse to extend due diligence and take a more risk-aware approach, including evaluating how AI could affect terminal value assumptions.
Management also addressed churn at Lifesize, with Sadler saying it was “flattening out,” and attributing persistence largely to customer caution and marketplace “noise.” He said the company is working on a new Lifesize product and removing certain third-party components to improve margins, but acknowledged progress has taken longer than expected and traction has been limited so far as the product is improved before broader deployments.
Closing the call, Sadler said the technology environment is moving quickly and that Enghouse intends to stay involved without chasing hype, prioritizing cash flow and durability while building the ability to move quickly as use cases mature.
About Enghouse Systems (TSE:ENGH)
Enghouse Systems Limited is a Canadian publicly traded company (TSX: ENGH) that provides mission-critical vertically focused enterprise software solutions. Our core technologies are used for contact centers, video communications, virtual healthcare, education, telecommunications, networks, IPTV, public safety and transit. The Company’s two-pronged strategy to grow earnings focuses on both organic growth and acquisitions, which, to date, have been funded through net cash provided by operating activities as the Company has no external debt financing.
