Bullboard - Stock Discussion Forum Enghouse Systems Ltd EGHSF

Primary Symbol: T.ENGH

Enghouse Systems Limited provides vertical enterprise software solutions. The Company has two segments: Interactive Management Group (IMG) and Asset Management Group (AMG). The IMG segment specializes in customer interaction software and services. Its products include contact center, video collaboration, video health monitoring, video room systems, interactive voice response, artificial... see more

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TSX:ENGH - Post Discussion

Enghouse Systems Ltd > RBC

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Post by retiredcf on Dec 18, 2020 9:05am

RBC

December 17, 2020

Enghouse Systems Limited

Q4 First Glance: A mixed quarter

Impact:

Neutral: Revenue below expectations, though profitability much higher

First impression

Q4 mixed. Q4 revenue rose 11% Y/Y to $121MM, below our estimate for $135MM and consensus at $134MM. Due to higher gross margins and lower opex, adj. EBITDA increased 37% Y/Y to $46.6MM (38.6% margin), above our estimate for $46.0MM and consensus at $45.2MM. Excluding unusuals ($0.9MM FX gain, $0.6MM other income), EPS was $0.50 vs. RBC at $0.49 and consensus at $0.46.
Revenue shortfall puzzling, given positive “internal” growth. Enghouse disclosed that “internal growth” was positive. It is likely that constant currency organic growth was below our estimate for 6% and down from 8% last quarter, but above 0%. Assuming 1% constant currency organic growth still implies a $5MM revenue shortfall vs. our estimates. We believe the Dialogic acquisition, which is not reflected in organic growth (only closed January 2) likely saw a lower revenue run-rate compared to our previous estimates. We expect more details on Enghouse’s Q4 conference call tomorrow morning.
License and hosted/maintenance revenue declines sequentially. Hosted/maintenance revenue declined 6% Q/Q to $73.0MM, missing RBC at $77.7MM. The sequential drop in hosted/maintenance revenue is the largest in nearly 10 years, which is unusual. AMG revenue fell 11% Q/Q, which suggests to us that the Dialogic acquisition saw a reduced revenue run-rate. Other revenue lines were also soft. License revenue dropped 6% Q/Q to $27.7MM (3% Y/Y), below RBC at $31.1MM. Professional services rose 5% Q/Q to $16.9MM, though was still short of RBC at $21.0MM.
$1.50/share special dividend. Enghouse announced a $1.50/share special dividend, which consumes $84MM out of Enghouse’s current $245MM cash balance. Management indicated that it expects to continue to make accretive acquisitions and the company has necessary funding available to finance potential acquisitions, given expected healthy FCF, low interest rates and the ability to tap additional funding if needed.
Key questions for the call include: 1) What explains the large sequential decrease in hosted/maintenance revenue? 2) How is “internal” growth positive despite the sequential decrease in total revenue? 3) What caused the large decrease in AMG revenue this quarter? 4) Did revenues at Dialogic decline from previous quarters? 5) How sustainable are adj. EBITDA margins in the high 30% range? 6) How is the company’s M&A pipeline?
Conference call Friday, December 18, at 8:45 a.m. EST. Dial-in: 1-647-792-1278 or 1-800-504-7961.