SANG — Sangoma Technologies Corporation

Sangoma Q1 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Revenue: $50.8 million, down $8.5 million from Q4, primarily due to the divestiture of the third-party hardware resale business (VoIP Supply LLC).
• Adjusted EBITDA: $8.3 million (16% margin); excluding ERP implementation costs, it would have been $8.7 million (17% margin).
• Free Cash Flow: $3.2 million, impacted by a $3.2 million negative change in working capital, which has since been largely reversed.
• Net Cash from Operating Activities: $4.9 million, representing a 60% conversion rate from adjusted EBITDA.
• Debt: Reduced to $42.8 million from $69.1 million year-over-year.
• Churn Rate: Blended churn held near 1%, indicating strong customer retention.

2. Strategic Updates and Business Highlights

• Transition to a higher-margin recurring revenue model, now representing over 90% of total revenue.
• New pipeline creation increased by 39% quarter-over-quarter, with a healthy balance between volumetric business and larger strategic deals.
• Significant growth in MRR bookings: up 2.4% sequentially and 6.4% year-over-year; larger deals over $10,000 MRR increased by 39% sequentially.
• Introduction of a two-segment reporting structure: Core (SaaS-led services) and Adjacent (cash-generative technologies).
• Investments of $2 million in SG&A aimed at customer acquisition and partner enablement, alongside ongoing debt reduction and share repurchase initiatives.

3. Forward Guidance and Outlook

• Sangoma reaffirms its fiscal 2026 guidance of $200 million to $210 million in revenue, with adjusted EBITDA margins expected between 17% to 19%.
• Anticipates sequential growth in Q2 and year-over-year growth in Q3 and Q4 as bookings convert into revenue.
• Early Q2 activity is encouraging and aligns with growth expectations.

4. Bad News, Challenges, or Points of Concern

• Revenue decline of $1.7 million year-over-year, primarily due to the VoIP Supply divestiture and longer sales cycles for larger MRR deals.
• Core revenue decreased by 6% year-over-year, indicating potential headwinds in converting bookings to revenue in the short term.
• A temporary negative change in working capital due to a technical issue with a new payment processor, although this has been resolved.

5. Notable Q&A Insights

• Management emphasized the importance of their transformation efforts, including improved sales processes and team caliber, to capture larger strategic deals.
• The wholesale channel has emerged as a new opportunity, with expectations for significant growth beyond traditional CLEC partnerships.
• Concerns regarding the services line were acknowledged, with management expecting improvements in churn and service revenue as older, smaller contracts expire.
• The team highlighted the importance of their new CRM and ERP systems in facilitating bundled sales and enhancing partner engagement, which is expected to drive future growth.

Overall, Sangoma reported a solid start to fiscal 2026, with strategic initiatives aimed at enhancing growth and profitability, despite facing some challenges in revenue transition and longer sales cycles.