Sangoma Technologies Ramps Bookings and Tightens Guidance

Sangoma Technologies ((TSE:STC)) has held its Q2 earnings call. Read on for the main highlights of the call.

Sangoma Technologies’ latest earnings call struck a cautiously optimistic tone, with management emphasizing clear operational progress despite modest headline growth. Sequential revenue expansion, robust adjusted EBITDA, strong cash conversion, and accelerating subscription bookings underpinned a generally positive sentiment. At the same time, executives acknowledged softer organic revenue on a year-over-year basis and near-term cost pressure as they invest to convert a much larger pipeline and backlog into recurring revenue. Overall, the call framed Sangoma as a company transitioning from stabilizing its base to monetizing a growing portfolio of larger, multi-site strategic deals.

Sequential Revenue Growth Signals Early Turn in Momentum

Sangoma reported Q2 revenue of $51.5 million, up 1.2% from the prior quarter, a modest but important step given the company’s focus on recurring services. Services revenue, which now represents about 92% of the total, grew 1% sequentially, suggesting that the strong bookings seen in recent quarters are beginning to translate into recurring monthly revenue. While not yet delivering strong year-over-year organic growth, the sequential uptick is a key proof point that the business is stabilizing and starting to benefit from its focus on higher-quality, subscription-based contracts.

Strong Adjusted EBITDA and Cash Conversion Underpin the Story

Profitability and cash generation were clear bright spots. Adjusted EBITDA came in at $8.3 million, maintaining a solid 16% margin—roughly in line with Q1—demonstrating disciplined cost control even as Sangoma invests in sales and delivery. Importantly, adjusted EBITDA converted into net cash from operations at more than 120% in Q2, with operating cash flow reaching $10.1 million. Year-to-date, that conversion sits at about 91%, reinforcing the quality of earnings and the company’s ability to translate accounting profit into real cash, a key metric for investors tracking balance sheet resilience and capital allocation capacity.

Free Cash Flow Growth Fuels Shareholder Returns

Free cash flow strengthened to $8.0 million in the quarter, or $0.24 per diluted share, an improvement versus the prior period and a central pillar of the investment case Sangoma laid out. Management is putting this cash to work for shareholders: the company repurchased approximately 196,000 shares in Q2 and has retired more than 700,000 shares—about 2.1% of the float—since launching its normal course issuer bid. These buybacks, combined with deleveraging, highlight a balanced capital allocation strategy focused on both strengthening the balance sheet and enhancing per-share value.

MRR Bookings Surge on Large Strategic Deals

The most striking operational highlight was the surge in monthly recurring revenue (MRR) bookings, which jumped 67% quarter-over-quarter and 60% year-over-year. Growth was driven by several sizable strategic, multi-site wins, including one contract exceeding $150,000 in MRR covering more than 350 locations, an $18,000 MRR multi-location retail deal, and a healthcare-focused wholesale win serving two hospitals and nine urgent care facilities. These wins demonstrate Sangoma’s growing relevance in larger, more complex deployments and suggest a step-change in the scale of deals flowing into its book of business, even if the revenue recognition will lag as deployments roll out.

Backlog and Pipeline Point to Building Revenue Visibility

The company’s starting backlog for Q3 was up approximately 125% compared with the start of Q2, a concrete signal that momentum in bookings is translating into future contracted revenue. Management also reported a steady overall pipeline, improving close rates, and growing traction across vertical markets and wholesale channels. This combination of a larger starting backlog and better sales execution gives Sangoma greater visibility into upcoming quarters, reinforcing the narrative that revenue growth should accelerate as these contracts ramp into service.

Gross Margin Expansion and Recurring Mix Strengthen Economics

Gross profit reached $38.2 million with gross margin improving to 74%, up from 72% in Q1 and 68% a year earlier. Management attributed this expansion primarily to a more favorable revenue mix, with a greater share coming from higher-margin recurring services. As Sangoma continues to tilt the business toward subscription and software-based offerings, this structural margin improvement supports higher profitability potential over time and provides additional room to absorb temporary cost pressures in go-to-market and delivery.

Customer Retention and Low Churn Support the Base

Customer metrics were another area of strength. Blended churn improved sequentially and held just under 1%, at roughly 0.96%, underscoring the stability of Sangoma’s recurring revenue base and validating efforts to enhance customer experience and service delivery. Management has set an internal churn target of about 0.85%, indicating there is still room for improvement, but the current levels already compare favorably to many communications and SaaS peers. Low churn is especially important as Sangoma layers on new large contracts; it ensures that net growth is not undermined by losses from the legacy base.

Deleveraging Continues, Bolstering Balance Sheet Flexibility

Sangoma continued to strengthen its balance sheet, reducing total debt to $37.6 million at quarter-end, down from $60.4 million a year earlier. The company retired an additional $5.2 million of debt during the quarter. Cash on hand ended at $17.1 million, up 27% since June 30, reflecting strong cash generation and prudent financial management. This deleveraging trajectory gives Sangoma more optionality for future strategic moves while reducing interest burden and risk, a notable positive in a higher-rate environment.

Product and Channel Momentum Across UC and Carrier Services

Beyond the financials, Sangoma highlighted encouraging trends in specific product lines and channels. Hardware and premises-based unified communications channel revenue grew about 4% year-over-year, showing that legacy elements of the portfolio remain resilient. Meanwhile, carrier voice and SIP trunking activity climbed more than 10% year-over-year, aided by a contract with Commio to deliver nationwide cloud voice and messaging. This diversified product and channel performance suggests Sangoma is benefiting from both traditional and cloud-native communications demand, helping to offset macro and competitive pressures.

Organic Revenue Still a Work in Progress

Despite the positive momentum indicators, management was candid that organic growth has not yet fully materialized in reported revenue. Excluding the $6.4 million in revenue from the strategic sale of VoIP Supply, revenue was 2% lower on a like-for-like basis year-over-year. This highlights that the company is still moving through a transition phase, where the impact of divestitures and legacy headwinds is masking the early benefits of new bookings. Investors will likely focus on how quickly the growing backlog and MRR bookings translate into a sustained return to positive organic growth.

Execution and Timing Risks in Multi-Site Rollouts

A key nuance in the growth narrative is timing. Many of Sangoma’s recent wins are complex, multi-site deployments that typically ramp over 8–10 months before fully contributing to revenue. Management acknowledged that this elongated rollout cycle introduces potential timing volatility and execution risk in the near term—revenue may not follow bookings in a straight line quarter to quarter. Successfully managing implementation schedules, customer onboarding, and activation across hundreds of locations will be critical for converting the strong bookings into recognized revenue on the pace implied by guidance.

Higher Commissions and Near-Term Expense Pressure

The company’s investment in growth is already visible in operating expenses. Q2 included higher commissions tied to large new contracts and incremental go-to-market spending, with management calling out roughly $2 million of additional SG&A commitments. While these costs can pressure margins until the newly signed contracts are fully live and billing, they are also a direct consequence of the large-deal strategy that is driving the bookings surge. Investors will watch whether expanding gross margin and growing revenue can outpace these expenses and support the targeted EBITDA margin improvement in the back half of the year.

Churn Progress Leaves Room for Further Gains

Management noted that some less ideal customers churned in prior periods as the company refined its customer base, which has contributed to the current sub-1% churn level. Even so, with an explicit goal of pushing churn closer to 0.85%, Sangoma sees incremental upside from retention improvements and better customer selection. Continued progress here would enhance lifetime value, reduce sales efficiency drag from replacing churned accounts, and increase the payoff from new MRR bookings—especially critical as larger, enterprise-scale relationships become a bigger part of the portfolio.

Market Conditions Present Both Risk and M&A Opportunity

On the industry backdrop, management acknowledged broader headwinds in the software and communications sectors, including valuation compression and commoditization pressures in some product categories. While these trends can weigh on overall market sentiment and potentially on customers’ spending behavior, Sangoma also sees them as an opportunity to pursue disciplined M&A at more attractive prices. The strengthened balance sheet and improving cash profile position the company to act if compelling inorganic opportunities emerge, although the team also indicated caution given the uncertain macro and industry environment.

Transitional Items Still Affect Quarter-to-Quarter Comparability

The company reminded investors that certain one-time or transitional items may still affect comparability across quarters. For example, an ERP implementation last quarter impacted the timing of trade receivables. While Q2 showed a return to more historical patterns, these kinds of changes can create noise in short-term metrics. Management’s message was that the underlying trajectory—stronger bookings, expanding margins, and improving cash—is more important than any single quarter’s anomalies as the company normalizes operations after system upgrades and strategic portfolios changes.

Guidance Tightened as Confidence in Growth Pipeline Builds

Sangoma tightened its FY 2026 guidance to revenue of $205–$208 million and an adjusted EBITDA margin of 17%–18%. This outlook assumes sequential revenue growth in Q3 and a return to year-over-year organic revenue growth once the divested VoIP Supply contribution is excluded from comparisons. Management also expects adjusted EBITDA margins to improve in the second half as revenue builds on the back of the current backlog and MRR momentum, allowing the business to absorb higher commissions and SG&A investments. The guidance is anchored by Q2 results—$51.5 million in revenue, $8.3 million in adjusted EBITDA, more than 120% EBITDA-to-operating-cash conversion, $8.0 million in free cash flow, and a starting Q3 backlog that is roughly 125% higher than at the beginning of Q2—coupled with a stronger balance sheet featuring $17.1 million in cash and reduced net debt.

Sangoma’s earnings call painted the picture of a company that has moved beyond stabilization and is now focused on converting a rapidly expanding bookings base into durable, higher-margin recurring revenue. While near-term organic growth remains subdued and execution around multi-site rollouts and elevated expenses bears watching, the combination of improving margins, strong cash generation, a growing backlog, and ongoing deleveraging sets a constructive backdrop. For investors tracking the stock, the coming quarters will be about proof of execution—demonstrating that the robust MRR bookings and tightened guidance translate into tangible, accelerating top-line growth and expanding profitability.