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Jun 8, 2022

Enghouse shares sink as higher cloud competition dents sales

Darren Sissons discusses Enghouse System

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Shares of Enghouse Systems Ltd. sank on Wednesday as higher competition in cloud services hurt the company’s second-quarter revenue.

Enghouse reported revenue for the three-month period that ended Apr. 30 fell to $106.3 million, from $117.3 million the same time last year. Meanwhile, adjusted profit came in at $33.8 million in its second quarter compared to $40.2 million last year. Both metrics missed analyst estimates.

The stock closed down 19.78 per cent at $27.14 per share Wednesday.

The software-and-services provider said its contact centre management software business was impacted by higher cloud competition.

“Our Interactive Management Group is experiencing increased competition from cloud solutions providers as the market shifts towards the cloud as more businesses adopt work from home operating models,” the company said in a statement Tuesday.

The company also said its bottom line was hit by unfavourable foreign exchange transfers as European currencies came under pressure during the quarter.

Daniel Chan, an analyst at TD Securities, said Enghouse’s lower license sales and maintenance renewals point to signs that customers might be choosing competing cloud products over the company’s current offerings.

“We believe that the pandemic spurred strong demand for cloud solutions, particularly in contact centre software, where Enghouse is still relatively new to the market with its multi-tenant cloud solution and direct go-to-market channel,” Chan wrote in a note to clients on Wednesday.

“What is not clear is whether customers are migrating to Enghouse or a competitor's cloud solution. Given that Hosted revenue continued to decline, we believe customers are migrating to competitors.”

He said license revenue declined 14.9 per cent year-over-year, while hosted and maintenance revenue fell by 9.5 per cent.

Chan still has a buy recommendation on the stock and a 12-month price target of $50.00.