Sangoma Technologies (SANG) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sangoma reported Q4 revenues of $59.4 million, an increase of $1.3 million or 2% sequentially from Q3, driven primarily by strong prem-based product sales [21][23] - Adjusted EBITDA for Q4 was $11.4 million, representing 19% of revenue, which is an increase from 17% in Q3, marking the highest margin delivered over the past eight quarters [24][26] - Free cash flow for Q4 was $4.8 million, or $0.14 per diluted share, while for the full fiscal year, free cash flow reached $32.9 million, consistent with the previous year [22][26] Business Line Data and Key Metrics Changes - The company has shifted its focus towards software-led recurring revenue services, which now represent over 90% of revenue mix, up from 79% two years ago [6][24] - Core services, which include high-margin SaaS products, now account for approximately 75% of revenue, while adjacent services account for about 25% [15][25] - The prem-based product line saw an 18% sequential growth in Q4 over Q3, indicating strong demand and market share gains [61] Market Data and Key Metrics Changes - The company is experiencing a 16% rise in pipeline demand from the healthcare sector, indicating strong growth potential in this vertical [9] - The international market has seen larger declines compared to the U.S., primarily due to a focus on North America and a product mix heavily oriented towards hardware [80][81] Company Strategy and Development Direction - Sangoma's strategy includes delivering organic growth through investments in people, products, and partners, while also pursuing inorganic opportunities that create strategic value [8][25] - The company plans to broaden its presence in key verticals such as healthcare, education, and distributed enterprise, leveraging strategic partnerships to deliver tailored solutions [9][10] - A deliberate shift towards categorizing results into core and adjacent services aims to provide greater transparency and focus on high-margin growth areas [7][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, expecting sequential growth to begin in Q2 and continue through fiscal 2026 [11][25] - The company is optimistic about the momentum and opportunities in its core business, despite longer sales cycles for larger enterprise deals [11][32] - Management noted that churn is well under control, with predictions of continued decline in churn rates due to improved customer engagement and upselling strategies [49] Other Important Information - The sale of VoIP Supply for $4.5 million was a strategic move to streamline the portfolio and focus on higher-margin growth [24][25] - The company ended Q4 with $47.9 million in total debt, significantly below its original target, and has been actively repurchasing shares as a way to return capital to shareholders [22][26] Q&A Session Summary Question: Incremental go-to-market investments focus - Investments are being made in field coverage and marketing to enhance brand awareness and partner recruitment, with a cautious approach to ensure returns [30] Question: Changes in macro or competitive landscape - No major competitive pressures noted, but longer sales and implementation cycles for larger deals are expected [32] Question: VoIP Supply's product mix - VoIP Supply primarily sold third-party products, with less than 10% being Sangoma proprietary products [34] Question: M&A strategy and appetite - The company is actively looking for acquisition opportunities, particularly in high-growth areas like SD-WAN and security, with a robust funnel of targets [36][39] Question: Visibility into Q2 sequential growth - Growth is expected from both existing bookings and new deals with shorter sales cycles, providing confidence in the forecast [43][44] Question: Customer churn management - Churn is under control, with advanced AI tools being deployed to further mitigate churn and improve retention [49] Question: Revenue by geography and international focus - The company is prioritizing North America but plans to expand its international presence, particularly in English-speaking markets [80][81]