Core Insights - Sangoma Technologies Corporation reported a quarterly loss of $0.06 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.04, marking a 50% earnings surprise [1] - The company generated revenues of $50.82 million for the quarter ended September 2025, exceeding the Zacks Consensus Estimate by 1.13%, but down from $60.15 million a year ago [2] - The stock has underperformed significantly, losing approximately 30.7% year-to-date compared to the S&P 500's gain of 14.4% [3] Financial Performance - Over the last four quarters, Sangoma has surpassed consensus EPS estimates only once [2] - The current consensus EPS estimate for the upcoming quarter is -$0.02 on revenues of $50.61 million, and -$0.07 on revenues of $205.16 million for the current fiscal year [7] Market Outlook - The company's earnings outlook is critical for assessing future stock performance, with recent estimate revisions trending unfavorably, resulting in a Zacks Rank 4 (Sell) [6] - The Internet - Software industry, where Sangoma operates, is currently ranked in the top 28% of over 250 Zacks industries, indicating a relatively strong industry performance [8]

Financial Data and Key Metrics Changes - In Q1 2026, the company reported revenue of $50.8 million, adjusted EBITDA of $8.3 million with a margin of 16%, and free cash flow of $3.2 million [6][22][24] - Revenue decreased by $8.5 million from Q4, primarily due to the divestiture of the third-party hardware resale business, VoIP Supply [22] - Year-over-year revenue declined by $1.7 million, or 3%, excluding VoIP Supply revenue [22] - Gross profit was $36.8 million, with a gross margin of 72%, compared to 67% in Q4 [23][24] Business Line Data and Key Metrics Changes - Core revenue, which accounted for 74% of total revenue, decreased by 6% year-over-year, while adjacent revenue increased by 6% [23] - Services now account for 92% of total revenue, reinforcing the company's transformation to a predominantly MRR-driven model [23][25] - Monthly Recurring Revenue (MRR) bookings grew by 2.4% sequentially and 6.4% year-over-year [9] Market Data and Key Metrics Changes - The overall size of the pipeline remained steady, but new pipeline creation increased by 39% quarter-over-quarter [8][14] - The company saw a pickup in its higher-velocity volumetric business, which now represents 62% of the 90-day forward pipeline [8] - Retention remains strong, with blended churn holding near 1% [9] Company Strategy and Development Direction - The company is transitioning to a higher-margin recurring revenue model, which now represents over 90% of total revenue [6] - Investments of approximately $2 million in incremental SG&A are planned to accelerate customer acquisition and partner enablement [11][21] - The company is exploring selective AI-driven software acquisitions to strengthen its vertical focus in healthcare, hospitality, retail, and education [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting fiscal FY26 guidance, expecting sequential growth in Q2 and year-over-year growth in Q3 and Q4 [12][26] - The broader SMB market conditions may influence deal timing, but early Q2 activity is encouraging [12] - Management highlighted the importance of larger deal sizes and growing recurring revenue as indicators of entering a new phase of sustainable, profitable growth [12] Other Important Information - The company retired an additional $5.2 million in debt during Q1, ending with total debt of $42.8 million [20] - The capital allocation strategy focuses on leveraging strong cash generation to accelerate organic growth while maintaining flexibility for selective M&A [20][21] Q&A Session Summary Question: Growth investments and timelines for returns - Management indicated that the $2 million investment will focus on increasing field capacity and marketing to enhance brand coverage [30] Question: Pipeline tied to new partner relationships - Management noted a 6% increase in pipeline over the last six weeks and a 39% increase in new pipeline creation [33] Question: Decline in services and future expectations - Management acknowledged the decline in services but expects sequential growth starting in Q2 as older customer contracts complete [37] Question: Optimizations for targeting larger customers - Management highlighted improvements in product roadmap and a disciplined approach to pursuing large opportunities [45] Question: Average revenue per customer growth - Management attributed the 19% year-over-year increase in average revenue per customer to upselling and the effectiveness of the bundling strategy [58] Question: Gross margin expectations - Management indicated that gross margin was impacted by a higher mix of product revenue but expects improvement moving forward [61] Question: Backlog growth - Management stated that backlog was consistent quarter-over-quarter, with expectations for growth in upcoming quarters [69] Question: Large MRR opportunities - Management clarified that large MRR opportunities include both wholesale and bundled solutions, with significant deals already closed [74][75] Question: Total Addressable Market (TAM) expansion - Management confirmed that the new wholesale channel opens up significant TAM opportunities beyond traditional markets [80][81]

Financial Data and Key Metrics Changes - In Q1 2026, the company reported revenue of $50.8 million, adjusted EBITDA of $8.3 million with a margin of 16%, and free cash flow of $3.2 million [6][22][24] - Revenue decreased by $8.5 million from Q4, primarily due to the divestiture of the third-party hardware resale business, VoIP Supply [22] - Year-over-year revenue declined by $1.7 million, or 3%, excluding $7.6 million from VoIP Supply [22] - Gross profit was $36.8 million, with a gross margin of 72%, compared to 67% in the previous quarter [23][24] Business Line Data and Key Metrics Changes - Core revenue, which accounted for 74% of total revenue, decreased by 6% year-over-year, while adjacent revenue increased by 6% [23] - Monthly Recurring Revenue (MRR) bookings grew by 2.4% sequentially and 6.4% year-over-year [9] - Larger strategic opportunities saw a 39% sequential increase in deals over $10,000 of MRR, which are 72% above the FY25 quarterly average [9] Market Data and Key Metrics Changes - The overall size of the pipeline remained steady, but new pipeline creation increased by 39% quarter-over-quarter [8] - The volumetric business now represents 62% of the 90-day forward pipeline, up from 55% in Q4 [8] - The company’s prem business grew over 60% year-over-year, benefiting from larger players exiting the segment [10] Company Strategy and Development Direction - The company is transitioning to a higher-margin recurring revenue model, which now represents over 90% of total revenue [6] - A new segment structure has been introduced, dividing revenue into core and adjacent categories to provide greater transparency [10] - The company plans to invest approximately $2 million in incremental SG&A to accelerate customer acquisition and partner enablement [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting fiscal FY26 guidance, expecting sequential growth in Q2 and year-over-year growth in Q3 and Q4 [12][26] - The management highlighted the importance of larger deal sizes and growing recurring revenue as indicators of entering a new phase of sustainable, profitable growth [12] - The company is exploring selective AI-driven software acquisitions to strengthen its vertical focus in various sectors [10] Other Important Information - The company continues to generate strong cash flow while strategically reinvesting in growth initiatives [10] - The capital allocation strategy includes paying down debt, reducing leverage, and returning value to shareholders through share repurchases [20][21] Q&A Session Summary Question: Growth investments and timing - Management indicated that the $2 million incremental growth spending will focus on increasing field capacity and marketing efforts to enhance brand coverage [28][30] Question: Pipeline tied to new partner relationships - Management reported a 6% increase in pipeline over the last six weeks and a 39% increase in new pipeline creation, indicating significant growth from new paths to market [32][33] Question: Decline in services revenue - Management acknowledged the decline in services revenue due to longer sales cycles but expects sequential growth starting in Q2 as older contracts complete [36][37] Question: Targeting larger customers - Management highlighted improvements in sales cycles and implementation timelines due to a disciplined approach and enhanced product offerings [44][46] Question: Average revenue per customer growth - The increase in average revenue per customer by 19% year-over-year was attributed to upselling and the effectiveness of the bundling strategy [58] Question: Gross margin expectations - Management noted that gross margin was impacted by a higher mix of product revenue but expects improvements as the year progresses [61][62] Question: Backlog growth - Management indicated that backlog remained consistent quarter-over-quarter, with expectations for growth in upcoming quarters [69][70] Question: Large MRR opportunities - Management clarified that large MRR opportunities include both wholesale solutions and bundled offerings, with significant deals already closed [73][74]

Financial Data and Key Metrics Changes - Revenue for Q1 2026 was $50.8 million, a decrease of $8.5 million from Q4 2025, primarily due to the divestiture of the third-party hardware resale business [19] - Adjusted EBITDA was $8.3 million, representing a margin of 16%, with a temporary negative impact on free cash flow of $3.2 million due to working capital changes [5][18] - Free cash flow for the quarter was $3.2 million, or $0.10 per diluted share, with a net cash from operating activities of $4.9 million [17][18] - Total debt decreased to $42.8 million from $69.1 million year-over-year, with $5.2 million in debt retired during the quarter [18] Business Line Data and Key Metrics Changes - Core revenue, which accounted for 74% of total revenue, decreased by 6% year-over-year, while adjacent revenue increased by 6% [20] - Monthly Recurring Revenue (MRR) bookings grew 2.4% sequentially and 6.4% year-over-year, with larger deals over $10,000 MRR increasing by 39% sequentially [7][8] - Average revenue per customer increased by 19% year-over-year, driven by the bundling strategy [15][52] Market Data and Key Metrics Changes - The overall size of the pipeline remained steady, with new pipeline creation increasing by 39% quarter-over-quarter [6][12] - The blended churn rate held near 1%, indicating stability in the recurring revenue base [8] Company Strategy and Development Direction - The company is transitioning to a higher-margin recurring revenue model, which now represents over 90% of total revenue [5] - Investments of approximately $2 million in SG&A are planned to accelerate customer acquisition and partner enablement [10][19] - The introduction of a clearer performance view through two segments: core and adjacent, aims to enhance transparency in revenue mix evolution [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting fiscal FY26 guidance of $200 million to $210 million in revenue, with expectations for sequential growth in Q2 and year-over-year growth in Q3 and Q4 [24] - The company is optimistic about the growth potential in the wholesale channel and AI-driven software acquisitions to strengthen vertical focus [9][10] Other Important Information - The company continues to generate strong cash flow while strategically reinvesting in growth initiatives and expanding partner ecosystems [9] - R&D investment remained consistent at $11.3 million, with 90% of R&D spend directed towards new product capabilities [23] Q&A Session Summary Question: Update on growth investments and timelines for returns - The $2 million investment will focus on increasing field capacity and marketing efforts to enhance brand coverage and partner recruitment [26][27] Question: Pipeline generation from new partner relationships - The pipeline has increased by 6% in the last six weeks, with significant growth in bookings and a balanced mix of business types [29][30] Question: Decline in services and expectations for sequential growth - The decline was anticipated due to the completion of contracts with smaller customers, with expectations for sequential growth starting in Q2 [33][35] Question: Optimizations for targeting larger customers - The company has improved its product roadmap and established a disciplined approach to pursuing larger opportunities, enhancing efficiency in deal execution [40][41] Question: Changes in the partner ecosystem and ongoing success metrics - The partner program has been realigned to focus on strategic partners, with ongoing training and support to drive growth [46][47]

Revenue Performance - Revenue for the three-month period ended September 30, 2025, was $50,818,000, a decrease of 15.5% compared to $60,150,000 in the same period of 2024[4] - For the three-month period ended September 30, 2025, total revenues were $50,818,000, a decrease of 15.5% from $60,150,000 in the same period of 2024[70] - Product revenues were $3,940,000, down 62.3% from $10,457,000 in the prior year, while service revenues decreased by 5.5% to $46,878,000 from $49,693,000[70] - Revenue from the USA was $48,338,000, a decline of 15% compared to $56,753,000 in the previous year, while revenues from other regions fell to $2,480,000 from $3,397,000[71] Profitability and Loss - Gross profit for the same period was $36,805,000, down from $41,181,000, reflecting a gross margin of 72.3%[4] - Net loss for the three months ended September 30, 2025, was $2,337,000, compared to a net loss of $1,910,000 in 2024, indicating a 22.3% increase in losses year-over-year[4] - The company reported a loss before income tax of $2,863 for the three-month period ended September 30, 2025, compared to a loss of $2,253 in 2024[35] - Basic and diluted loss per share was $0.07 for the three-month period ended September 30, 2025, compared to $0.06 in the prior year[66] Cash Flow and Liquidity - Cash and cash equivalents increased to $15,683,000 as of September 30, 2025, from $13,494,000 at the end of June 2025, representing a 16.3% increase[3] - Operating cash flow for the three months ended September 30, 2025, was $4,938,000, significantly lower than $12,127,000 in the same period of 2024, a decline of 59.3%[7] - Total accounts payable and accrued liabilities amounted to $17,350 as of September 30, 2025, with significant liquidity maintained through stringent cash flow management[25] Assets and Liabilities - Total assets decreased to $336,833,000 as of September 30, 2025, down from $346,545,000 at the end of June 2025, a decline of 2.8%[3] - Total liabilities decreased to $134,446,000 as of September 30, 2025, compared to $141,826,000 at the end of June 2025, a reduction of 5.3%[3] - Shareholders' equity as of September 30, 2025, was $251,439,000, down from $254,195,000 at the end of June 2025, a decrease of 1.1%[3] Shareholder Information - The weighted average number of shares outstanding decreased to 33,243,223 for the three months ended September 30, 2025, from 33,402,422 in the same period of 2024[5] - The total number of shares outstanding at the end of the period was 33,329,755, a decrease from 33,537,684 in the same period of 2024[48] - Share-based compensation expense for the three-month period was $529,000, down from $728,000 in the same period of 2024[58] - The company did not grant any stock options during the three-month periods ended September 30, 2025, and 2024[59] - As of September 30, 2025, the company had 363,071 stock options outstanding, with a weighted average exercise price of $15.55[60] Cost Management - The company reported a restructuring and business integration cost of $563,000 for the three-month period ended September 30, 2025[4] - The company's interest expense (net) for the three months ended September 30, 2025, was $649, a decrease from $1,378 in the same period of 2024, showing a reduction of about 53.0%[19] - The interest costs incurred to service borrowing facilities for the three-month period ended September 30, 2025, were $739, down from $1,306 in 2024[39] - The company recorded a depreciation expense of $887 for the three months ended September 30, 2025, compared to $1,085 in the same period of 2024, reflecting a decrease of approximately 18.2%[30] - For the three-month period ended September 30, 2025, the amortization expense of intangible assets was $8,172, slightly down from $8,198 in the same period of 2024[33] Strategic Initiatives - The company initiated plans for the disposal of substantially all assets and liabilities from VoIP Supply LLC as part of its strategic realignment[72] - The company completed the sale of VoIP Supply LLC to PVG Technology Holdings for a total purchase price of $4,500[74] - The transaction was recorded as a receivable on June 30, 2025, and collected during the three months ended September 30, 2025[74] - The company entered into an automatic share purchase plan (ASPP) to facilitate share repurchases during blackout periods, recording a liability of $988,000 as of September 30, 2025[53] Credit and Risk Management - The expected credit loss provision decreased to $457 as of September 30, 2025, down from $496 as of June 30, 2025, indicating improved credit risk management[22] - The company's maximum exposure to credit risk for trade receivables was $13,516 as of September 30, 2025, with a notable portion of receivables aging over 90 days[22] - A 10% fluctuation in foreign currencies would have resulted in an approximate $42 impact on total comprehensive loss as of September 30, 2025[26] Other Financial Metrics - The company's lease obligations decreased to $7,845 as of September 30, 2025, from $8,208 as of June 30, 2025, indicating effective management of lease liabilities[32] - The fair value of interest rate swap assets as of September 30, 2025, was $204, down from $295 as of June 30, 2025[44] - The net inventory carrying value decreased to $7,550 as of September 30, 2025, from $8,227 as of June 30, 2025, reflecting a reduction of approximately 8.2%[29] - The net capitalized development costs as of September 30, 2025, were $8,441, compared to $8,438 as of June 30, 2025[34]

Core Insights - Sangoma Technologies Corporation reported solid first quarter results for Fiscal 2026, demonstrating the strength of its recurring revenue model and reaffirming its guidance for the fiscal year [2][4]. Financial Performance - Total revenue for the first quarter was $50.8 million, with a sequential growth expected in Q2. Excluding $7.6 million from VoIP Supply, LLC, revenue decreased by 3% year-over-year on a like-for-like basis [5]. - Average revenue per customer increased by 19% year-over-year, and bookings rose by 6%, supporting the growth outlook for the remainder of the year [5]. - Gross profit was $36.8 million, representing 72% of total revenue, an increase from 67% in the previous quarter, driven by a shift towards higher-margin recurring services [5]. - Operating expenses decreased by 9% year-over-year to $38.5 million, reflecting efficiency gains from transformation activities [5]. - The company reported a net loss of $2.3 million, compared to a net loss of $1.9 million in the same quarter last year [5]. - Adjusted EBITDA was $8.3 million, representing 16% of total revenue, consistent with historical seasonal patterns [5]. Guidance and Strategic Direction - Sangoma reaffirmed its guidance for Fiscal 2026, expecting total revenue in the range of $200 - $210 million, compared to $209 million in Fiscal 2025, excluding the contribution from VoIP Supply [4]. - The company is focused on expanding its software and services portfolio and deepening relationships with its global customer and partner base [2]. Shareholder Value and Capital Management - Free cash flow for the first quarter was $3.2 million, with net cash provided by operating activities at $4.9 million, representing 60% of Adjusted EBITDA [5]. - The company has repurchased over 700,000 shares under its Normal Course Issuer Bid, including 195,949 shares repurchased after the end of the first quarter [5].

Core Points - Sangoma Technologies Corporation, a leader in Communications as a Service solutions, will release its first quarter fiscal year 2026 results on November 10, 2025 [1] - A conference call is scheduled for the same day at 5:30 PM Eastern Time [1]

Sangoma (NasdaqGS:SANG) 2025 Conference Summary Company Overview - **Company**: Sangoma Technologies Corporation - **Market Cap**: Approximately $250 million - **Industry**: Telecommunications and Unified Communications as a Service (UCaaS) Key Points and Arguments Leadership and Strategy - **CEO Background**: Charles, the new CEO, has extensive experience in leading large P&Ls at major companies like Bell Canada, Hewlett Packard, and Infosys, focusing on enterprise modernization and cloud migration [3][4] - **Transformation Focus**: The CEO joined Sangoma to integrate its various acquisitions and unlock value, as the company had previously acquired 11 companies but struggled with integration [9][10] Market Dynamics - **Mid-Market Growth**: The mid-market segment is identified as the fastest-growing cohort in global IT spending, accounting for 44% of total IT expenditure. This segment is increasingly seeking integrated solutions to avoid vendor sprawl [6][7] - **Ransomware Threats**: There has been a 67% increase in ransomware attacks targeting the mid-market, highlighting the need for comprehensive security solutions [5] Product Offering - **Integrated Solutions**: Sangoma offers a complete suite of essential components for businesses, including voice, data, video, security, and hardware, all proprietary and high-margin [11][19] - **Bundling Strategy**: The company is moving towards bundling its services to provide a single vendor solution, which reduces total cost of ownership (TCO) for customers [16][19] Financial Performance - **Debt and Cash Flow**: The company reduced its debt from approximately $110 million to around $40 million and increased cash flow from $19 million to nearly $33 million [11] - **EBITDA Growth**: Sangoma's EBITDA margin has improved to between 17% and 19% [11][12] Partner Ecosystem - **Pinnacle Partner Program**: Sangoma has restructured its partner channel from 5,000 partners to a more focused group of 1,000 strategic partners, enhancing support and incentivizing sales through recurring revenue models [22][24] - **Competitive Advantage**: The company differentiates itself by providing superior support and service compared to competitors, many of whom are struggling with component-based offerings [26][28] Future Growth and Acquisitions - **Growth Phase**: Sangoma is transitioning into a growth phase, focusing on increasing bookings and revenue through larger, multi-year contracts [30][31] - **Acquisition Strategy**: The company is looking to acquire AI-enabled SaaS companies and expand geographically, particularly in Canada and the UK, to enhance its integrated offerings [39][40] Operational Improvements - **Cost Management**: The CEO highlighted that labor costs are a significant variable cost, which will decrease as the company integrates its operations and implements AI technology for automation [37][38] Additional Important Insights - **Customer Support**: Emphasis on high-quality customer support is crucial for retaining clients, especially in the face of increasing competition and service outages in the industry [27][29] - **Market Positioning**: Sangoma aims to position itself as a mini system integrator, providing comprehensive communication solutions rather than just individual components [19][26] This summary encapsulates the key insights from the Sangoma conference, highlighting the company's strategic direction, market opportunities, and operational improvements.

Group 1 - The founder of Korwell Capital identifies as a value investor, focusing on stock opportunities with a tangible margin of safety or significant discounts to long-term earning power [1] - The investment strategy emphasizes a granular understanding of business models and their positions in the industry's capital cycle to identify tail risks [1] - Preference is given to companies with sustainable competitive advantages and management alignment with shareholders, while also considering cyclical or turnaround situations with downside protection [1] Group 2 - The analyst has a beneficial long position in the shares of SANG, indicating a personal investment interest in the company [2] - The article expresses personal opinions and is not influenced by compensation or business relationships with mentioned companies [2]

Core Insights - Sangoma Technologies Corporation reported quarterly earnings of $0.02 per share, exceeding the Zacks Consensus Estimate of $0.01 per share, compared to a loss of $0.05 per share a year ago, indicating a 100.00% earnings surprise [1] - The company generated revenues of $59.36 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.83%, although this represents a decline from year-ago revenues of $60.93 million [2] - The stock has underperformed, losing approximately 17.6% since the beginning of the year, while the S&P 500 has gained 12.3% [3] Earnings Outlook - The future performance of Sangoma Technologies Corporation's stock will largely depend on management's commentary during the earnings call and the revisions of earnings estimates [3][4] - The current consensus EPS estimate for the upcoming quarter is -$0.03 on revenues of $58.19 million, and for the current fiscal year, it is $0.09 on revenues of $239.27 million [7] Industry Context - The Internet - Software industry, to which Sangoma belongs, is currently ranked in the top 29% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8] - Another company in the same industry, Paychex, is expected to report quarterly earnings of $1.21 per share, reflecting a year-over-year increase of 4.3%, with revenues projected at $1.54 billion, up 16.6% from the previous year [9]