Sangoma Technologies ((TSE:STC)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Sangoma Technologies’ recent earnings call paints a picture of a company on the rise, despite some challenges. The sentiment expressed during the call was largely positive, highlighting significant achievements in recurring revenue growth and strategic opportunities. However, the company also faces hurdles such as a decline in core revenue and temporary cash flow impacts. Overall, Sangoma appears to be on a positive trajectory with a balanced outlook.
Strong Start to Fiscal 2026
Fiscal 2026 has begun on a high note for Sangoma Technologies, with the first quarter surpassing consensus analyst expectations. The company’s recurring revenue model now accounts for over 90% of total revenue, providing a robust foundation for sequential growth in the second quarter and further improvements in the latter half of the year.
Increase in MRR Bookings and Strategic Opportunities
Sangoma reported a 2.4% sequential growth and a 6.4% year-over-year increase in monthly recurring revenue (MRR) bookings. Notably, deals exceeding $10,000 in MRR saw a 39% sequential increase, standing 72% above the fiscal year 2025 quarterly average, indicating strong strategic opportunity capture.
Growth in Pipeline and Booking Momentum
The company experienced a 39% quarter-over-quarter increase in new pipeline creation, with the overall pipeline size increasing by 6% over the last six weeks. This growth instills confidence in continued momentum through the second quarter and beyond.
Strong Cash Flow and Debt Reduction
Sangoma generated $4.9 million in net cash from operating activities, achieving a 60% conversion rate from adjusted EBITDA. Additionally, the company retired $5.2 million in debt during the first quarter, reflecting strong financial management.
Decline in Core Revenue
Despite the positive trends, core revenue, which makes up 74% of total revenue, decreased by 6% year-over-year. This decline is attributed to longer sales cycles on larger MRR deals, posing a challenge for the company.
Temporary Impact on Free Cash Flow
The company faced a temporary setback in free cash flow due to a $3.2 million negative change in working capital, primarily caused by a technical issue during the transition to a new payment processor.
Gross Margin Lower Than Expected
Sangoma’s gross margin was 72% of revenue, down from the previous quarter’s 76%. This decrease was primarily due to a higher attachment of product to recurring revenue offerings, excluding VoIP Supply.
Forward-Looking Guidance
Looking ahead, Sangoma Technologies maintains a positive outlook for fiscal year 2026. The company reported $50.8 million in revenue and $8.3 million in adjusted EBITDA with a 16% margin for the first quarter. Despite a temporary working capital issue, Sangoma’s recurring revenue model positions it for sequential growth in Q2 and year-over-year growth in Q3 and Q4. The company reaffirmed its fiscal year 2026 guidance of $200 million to $210 million in revenue and an adjusted EBITDA margin of 17% to 19%, emphasizing sustainable, profitable growth.
In conclusion, Sangoma Technologies’ earnings call reflects a company poised for growth, with strong recurring revenue and strategic opportunities paving the way. While challenges such as core revenue decline and cash flow impacts exist, the overall sentiment remains positive, with a focus on sustainable and profitable growth in the coming quarters.