Sangoma Quick Update - $STC.to
Quick update after fiscal Q3 2024
*Disclosure: I own shares in STC. I am not a professional. Please do your own due diligence.
Price: $6.12 CAD / $4.37 USD
MC: 145 million USD
EV: 214 million USD
1 year performance:
Sangoma reported Wednesday after the close and held a call. Results were in line of my expectations and the stock was up 8% at the time of writing.
*All results are in USD unless stated otherwise
Quarter Recap
Revenue was 61 million vs 62.3 million last year.
Services revenue was essentially flat. Product revenue was off 1.5 million.
EBITDA was 11.1 million vs 12.2 last year.
Services were 82% of total revenue.
They narrowed the prior guidance that was issued earlier in the year.
Revenue guidance went from 245-250 million to 246.5-248.5.
EBITDA went from 41-44 million to 41.5-43.5.
Call Notes
There was continued talk regarding bundling and executing a better sales model.
They are still going to provide products, but focus on increasing the value add to the customer via services.
They were quite positive that the business has stabilized.
Capital allocation priority is to pay down debt. They were not at a point to discuss potential leverage ratios for M&A purposes.
Valuation
Given the updated guidance they are trading at about 3.3x EBITDA and 5x EV/EBITDA. I have them at about 7.5x EV/FCF. It should be noted the income and cash flow statements are quite noisy.
Closing Thoughts
At some point the product revenue troughs out and they get some services growth with the shift in sales model. Having said that, I have tempered my organic growth expectations. I think margins stay here or trend (slightly) higher.
With some deleveraging and even a small increase in valuation we get a decent return.
Thanks for reading.
Dean
* long STC.to