• Revenue: $247.3 million for FY 2024, within the guided range of $246.5 million to $248.5 million.

• Adjusted EBITDA: $42.6 million, above the midpoint of the guided range of $41.5 million to $43.5 million.

• Adjusted EBITDA Margin: 17%.

• Net Cash from Operating Activities: $44.2 million, representing a cash conversion from adjusted EBITDA of 104%.

• Q4 Revenue: $60.9 million, a decline of 4% year-over-year.

• Q4 Services Revenue: $49.9 million, a decline of 0.6% year-over-year, representing 82% of total revenue.

• Q4 Product Revenue: $11 million, a decline of 18% year-over-year.

• Q4 Gross Margin: 69%, up 3% compared to the prior-year period.

• Q4 Adjusted EBITDA: $11.1 million, representing 18% of revenue.

• Net Loss for Q4: $1.7 million, or $0.05 per fully diluted share.

• Total Debt Repayments for FY 2024: $23 million.

• Cash Balances at End of Q4: $16.2 million.

• FY 2025 Revenue Guidance: $250 million to $260 million.

• FY 2025 Adjusted EBITDA Guidance: $42 million to $46 million.

• Q1 FY 2025 Revenue Guidance: $61 million to $62 million.

• Q1 FY 2025 Adjusted EBITDA Guidance: $9 million to $10 million.

• Warning! GuruFocus has detected 4 Warning Signs with SANG.

Release Date: September 18, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Sangoma Technologies Corp (NASDAQ:SANG) reported revenues of $247.3 million for FY24, within their guided range.

• Adjusted EBITDA of $42.6 million exceeded the midpoint of their guided range, with a margin of 17%.

• Net cash generated by operating activities was $44.2 million, representing a cash conversion from adjusted EBITDA of 104%.

• The company has maintained churn rates below 1%, indicating strong customer retention.

• Sangoma Technologies Corp (NASDAQ:SANG) has a robust pipeline of initiatives for FY25, positioning them for sequential growth.

Negative Points

• Product revenue declined by 18% year-over-year in Q4, indicating challenges in this segment.

• Overall revenue for Q4 was $60.9 million, a decline of 4% from the prior-year period.

• The company is facing increased ERP implementation costs, impacting short-term profitability.

• Economic conditions have impacted CapEx spend across the industry, affecting product revenue.

• Despite improvements, there are still internal projects like ERP and automation that need completion.

Q & A Highlights

Q: Can you provide a sneak preview of the pipeline, including overall size, deal sizes, and win rates? A: We are seeing larger deals in our pipeline, although the sales cycle for MRR business remains long. We will provide more detailed metrics in Q2 to show how we plan to grow quarter over quarter and meet our guidance. (Charles Salameh, CEO)

Q: What feedback are you getting from target partners regarding the redesigned partner program and product bundles? A: Feedback has been very positive. We are more precise and clear about our core offerings and how we execute with partners. By focusing on our top 400 partners, we can tailor our go-to-market strategies to specific verticals or horizontals, which has been well received. (Charles Salameh, CEO)

Q: What is driving the modest revenue increase and EBITDA decrease in the Q1 guidance? A: The sequential growth is driven by product versus services revenue mix and increased ERP costs, which are higher in Q1 than they will be for the rest of the year. Additionally, Q1 traditionally has some expenses that impact EBITDA. (Larry Stock, CFO)

Q: Can you provide more color on the pipeline, particularly regarding small business versus mid-market and demand for specific services? A: We are seeing larger deal sizes across our solutions, including UCaaS and contact-center-as-a-service platforms. There is also momentum in some of our MRR product lines. We are prioritizing these with our top 400 partners, which is showing up in larger deal sizes. (Jeremy Wubs, COO)

Q: How will the upgraded ERP system help with sales cycles and overall efficiency? A: The ERP system will help with cross-sell and upsell opportunities, integrating acquisitions faster, reducing costs, and improving customer experience with single billing and invoicing models. It will also boost employee morale by streamlining processes. (Charles Salameh, CEO)

Q: Are the larger deal sizes reflective of going after larger customers or industry-specific bundles? A: It is a combination of both. We are bundling products like UCaaS and contact-center-as-a-service and pushing into larger deals with the right partners. We have also added robust deal pursuit processes for larger opportunities. (Jeremy Wubs, COO)

Q: Should we expect EBITDA margins to remain around 18% over the next couple of years, or is there more cost optimization work to be done? A: We will continue to look for optimization opportunities. The ERP system will help streamline processes and improve margins. We expect margins to be in the range of 17% to 18% or higher as we drive operational efficiencies. (Larry Stock, CFO)

Q: How does the focus on MRR business and ERP implementation impact future growth and margins? A: We are focusing on high-margin MRR business and leveraging the ERP system for cross-sell and upsell opportunities. This will drive higher MRR and margins. We are also constantly seeking cost improvements and efficiency gains to support growth. (Charles Salameh, CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.