Sangoma Technologies’ Earnings Call Highlights Strategic Growth

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

Sangoma Technologies’ recent earnings call painted a largely positive picture, highlighting strong financial performance and strategic achievements. While the company faced some challenges, such as a slight revenue dip and volatility in the hardware resale business, its focus on debt reduction and cash flow generation positions it well for future growth.

Strong Financial Performance

Sangoma reported robust financial results for Q3, with revenue reaching $58.1 million. The company achieved an impressive adjusted EBITDA margin of 17% and an operating cash flow conversion from adjusted EBITDA exceeding 100%. These figures underscore Sangoma’s solid financial health and operational efficiency.

Completion of Project Diamond

The completion of Project Diamond marks a significant transformation for Sangoma, providing a strong financial foundation and operational structures that are expected to drive future growth. This strategic milestone is a testament to the company’s commitment to enhancing its operational capabilities.

ERP System Implementation

Sangoma’s new ERP system is now online and is anticipated to generate savings of approximately $5 million over the next three years. This implementation is a critical component of Sangoma’s strategy to streamline operations and improve efficiency.

Improvement in Customer Metrics

The company reported significant improvements in customer satisfaction and Net Promoter Scores (NPS), with NPS scores up nearly 300% and client satisfaction scores increasing by 23%. Customer churn remains industry-leading at below 1%, highlighting Sangoma’s strong customer retention.

Debt Reduction Ahead of Schedule

Sangoma has successfully reduced its gross debt to $53 million, surpassing its target range of $55-$60 million. Net debt now stands at $35.8 million, demonstrating the company’s effective debt management strategy.

Strong Free Cash Flow

The company generated $10.6 million in net cash from operating activities in Q3, with free cash flow per share at $0.25 in Q3 and $0.84 over the first three quarters. This strong cash flow performance highlights Sangoma’s ability to generate liquidity and support its growth initiatives.

Launch of Normal Course Issuer Bid (NCIB)

With debt levels lower than planned, Sangoma has launched a Normal Course Issuer Bid (NCIB), reinforcing its belief in the company’s intrinsic value and commitment to returning value to shareholders.

Slight Revenue Dip

A strategic shift away from lower-margin hardware reselling led to a slight revenue dip in Q3. However, this move resulted in a sequential improvement in gross margins, aligning with Sangoma’s focus on higher-margin communications software.

Third-party Hardware Resale Volatility

The third-party hardware resale business experienced volatility due to macroeconomic factors such as tariffs, leading to its classification as held-for-sale assets. This decision reflects Sangoma’s strategic pivot towards more stable and profitable business segments.

Guidance Adjustment

Sangoma adjusted its revenue guidance for fiscal 2025 to a range of $235 million to $238 million, slightly narrowing the previous range. The company reaffirmed its adjusted EBITDA guidance at $40 million to $42 million, indicating confidence in its financial outlook.

In summary, Sangoma Technologies’ earnings call highlighted a positive sentiment, driven by strong financial performance and strategic initiatives. The company’s focus on debt reduction, customer satisfaction, and operational efficiency positions it well for future growth, despite facing some challenges in the hardware resale segment.