Sangoma Technologies Balances Growth, Headwinds in Earnings Call

Sangoma Technologies ((TSE:STC)) has held its Q3 earnings call. Read on for the main highlights of the call.

Sangoma Technologies’ latest earnings call struck a cautious but constructive tone. Management highlighted healthy growth in its infrastructure businesses, solid profitability, and strong cash generation, yet acknowledged near‑term headwinds from softer applications revenue, international disruptions, and lumpy deployment timing that forced a trim to full‑year revenue guidance.

Infrastructure-Led Growth Fuels Core Momentum

Sangoma’s data networking revenue grew about 9% year over year, while voice networking and infrastructure posted high‑teens growth, with management citing roughly 17%–19%. Executives framed infrastructure as the company’s main growth engine as AI‑driven agent and machine traffic boosts demand for secure, reliable communications layers.

Recurring Revenue and Customer Expansion Underpin Stability

The company showcased several examples of customers expanding over time, including a large retail client whose monthly recurring revenue rose from $150,000 to $200,000 after new bookings. A national clinic account reached 675 locations and $144,000 in MRR with more locations to add, while another healthcare customer scaled to $22,000 in MRR through phased rollouts, and the MSP business grew about 9% year over year.

Profitability Anchored by Solid Adjusted EBITDA

For the quarter, Sangoma delivered adjusted EBITDA of $7.5 million, equal to 15% of revenue, signaling disciplined cost control despite revenue pressure. Management reaffirmed a full‑year adjusted EBITDA margin target of 15%–16%, underlining a continued focus on maintaining healthy profitability while reallocating spending toward higher‑growth opportunities.

Robust Cash Generation and Conversion Support Flexibility

Net cash from operating activities reached $6.0 million in Q3, representing roughly 80% conversion of adjusted EBITDA for the quarter and 87% year to date. Free cash flow came in at $3.6 million, or $0.11 per diluted share, giving Sangoma meaningful financial flexibility to invest in growth, reduce leverage, and return capital even amid a softer top‑line outlook.

Deleveraging and Active Capital Returns

Sangoma repaid about $15.5 million of term debt over the first three quarters of fiscal 2026, ending Q3 with total debt of $32.5 million and cash of $15.2 million. The company also remained active under its normal course issuer bid, repurchasing roughly 196,000 shares in Q3 and about 271,000 shares year to date, and it renewed the program as part of its capital allocation toolkit.

Move Upmarket to Integrated, Longer-Term Deployments

Management described a strategic shift toward larger, multi‑product deals that bundle network, voice, security, and applications over three‑ to five‑year terms. These integrated deployments are typically rolled out in stages and tend to expand over time, leading to higher lifetime value, stronger retention, and greater customer stickiness, even though they can make near‑term revenue more uneven.

Operational Gains in Retention and Customer Experience

Churn improved to about 0.79% in the quarter, better than the company’s historical level near 1%, reflecting progress in customer service and support. Management credited enhancements in satisfaction and loyalty metrics, plus early AI‑driven service tools, for the improved retention trends that help stabilize the recurring revenue base.

Revenue Guidance Trim Reflects Near-Term Pressure

Sangoma reduced its fiscal 2026 revenue outlook to a range of $204 million to $205 million, citing weaker trends in certain software and UCaaS segments along with external disruptions. Q3 revenue landed at $51.0 million, and executives warned that the combination of macro challenges, pricing pressure, and deployment timing could keep visibility constrained over the next few quarters.

Applications and UCaaS Face Commoditization and Pricing Pressure

Applications, including UCaaS, CX, and CPaaS, account for around 60% of total revenue but have declined at a low single‑digit rate so far this year. Management highlighted persistent commoditization and pricing pressure in these software and UCaaS offerings, which are weighing on growth and prompting a strategic pivot toward higher‑value infrastructure and AI‑enabled services.

International Headwinds and Supply Chain Disruptions Bite

Revenue from outside the U.S. fell by about $300,000 sequentially and roughly $660,000 year over year, with management pointing to geopolitical issues, costlier shipping, and supply chain friction. The company also cited canceled customer events and delayed projects in certain regions, which have reduced or postponed orders and added another layer of uncertainty to the revenue outlook.

Gross Margin Compression from Mix and Fulfillment Costs

Gross margin slipped to 71% in Q3 from 74% in Q2, a roughly three‑percentage‑point drop driven by business mix and regional cost factors. A larger contribution from infrastructure services, which carry different economics, plus higher fulfillment expenses in some international markets, combined to pressure margins even as the company maintained solid EBITDA levels.

Lumpy Revenue from Staged Integrated Deployments

Management and analysts acknowledged that large integrated deals, which often deploy over six to twelve months, are creating lumpiness in services revenue. In Q3, slower‑than‑expected rollout timing from some of these complex bundles contributed to a notable services revenue shortfall versus expectations, illustrating the trade‑off between higher‑quality contracts and near‑term predictability.

Strategic Review Adds Uncertainty but Potential Upside

The board has launched a structured strategic review after receiving increased inbound interest, exploring options that could include transactions or portfolio changes. While management framed this as an effort to unlock shareholder value, the process introduces uncertainty about the company’s longer‑term strategic path until outcomes and decisions are finalized.

Guidance and Outlook Emphasize Discipline Amid Transition

Looking ahead, Sangoma forecasts fiscal 2026 revenue of $204 million to $205 million and an adjusted EBITDA margin of 15%–16%, reflecting a more cautious top‑line view but continued margin discipline. Management plans to reallocate roughly $2 million of annualized spending toward infrastructure and AI capabilities while managing the revenue timing effects of multi‑year, staged deployments and navigating ongoing international headwinds.

Sangoma’s earnings call painted a picture of a company in transition, leaning on infrastructure growth, recurring revenue, and strong cash generation to offset pressure in its applications portfolio. For investors, the story now centers on whether strategic refocusing, disciplined capital allocation, and the board’s review can convert today’s volatility into durable, higher‑quality growth over the coming years.