(free) $STC.T/$SANG earnings overview
A quick update on yesterday's write-up.
Sangoma Technologies' earnings have come out! I’m sharing this before seeing the market’s reaction, as that shouldn’t influence investing decisions.
First, check out my write-up I sent out yesterday:
Key financial metrics:
Revenue: $58.1 million (a slight decline from the previous quarter)
Adjusted EBITDA: $9.8 million (17% of revenue)
Free Cash Flow: $8.4 million ($0.25 per diluted share)
Gross Margin: 69% (up from 68%)
Net debt: Reduced from $43.3M to $35.8M
Quarterly results were in line with expectations. Over the past six months, the company has generated over 12% of its market cap in operating cash flow.
MOST IMPORTANT HIGHLIGHTS:
Large deal pipeline up 90%
24% increase in 90-day forward pipeline
2x increase in prem UcaaS pipeline (from the bankruptcies mentioned)
They have been maxing out the share repurchases
NPS score is now up 4x YOY, and client satisfaction scores are up 23% -> critical for organic growth I talked about in the writeup
The CEO doesn't seem to be in a hurry to make acquisitions (good), but still admits it's an essential part of the strategy (though promises they won't dilute at all)
Expects gross margins to get to 75-80% by FY 2026 H2
All this signals a clear trend towards higher organic growth, a key factor for a multiple re-rate.
OTHER HIGHLIGHTS:
The ERP system will save around $5M over the next 3 years, and the costs to set it up were realised entirely this quarter.
The management continued to signal the move away from non-core non-recurring products into the high profitability recurring ones (the loss of the non-recurring products led to a small expected decrease in revenue)
Churn decreased again, now at 0.9% compared to 0.95% last quarter
No tariffs impact on the business (they mitigated the risks they saw)
Their competition is crumbling as the industry faces margin erosion. Sangoma Tech is very well positioned to take the market share left by the bankrupt companies.
Balance mentions assets "held for sale" -> they are indicating the divestitures to be happening soon (mostly a hardware products company)
Continuing to expand their offering.
All in all, I can only reaffirm my thesis, which I laid out yesterday in my write-up. However, I now realise that the return of organic growth will be an even more critical part of the story. The numbers show a great future ahead—let's see if they can deliver.
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