Sangoma Technologies Q1 2025 Update - STC.to

Quick update after fiscal Q1 2025

*Disclosure: I own shares in STC.to. I am not a professional. Please do your own due diligence.

Price: $8.85 CAD/6.27 USD

MC: 295 CAD/209 USD

EV: 370 CAD/260 USD

1 year performance: +108%

STC reported yesterday after the close and held a call. Results were roughly in line with of my expectations and the stock is up today to $8.83 (+3%).

*all numbers in USD unless stated otherwise

Quarter Recap

• Revenue came in at 60.2 million vs 63 million last year.

  • This is a bit below guidance of 61-62 million.

  • There was some order delays to the tune of 629k and they were affected by the storms and hurricane.

  • Down 5% year over year.

• EBITDA of 9.8 vs 9.9 last year.

  • This was at the top end of the 9-10 million guidance.

• They reaffirmed full year guidance of 250-260 million in revenue and 42-46 million EBITDA.

• Services revenue was 50 million vs 51.2 million last year.

• Product revenue was 10.5 million vs 11.9 million last year.

Call Notes

• The CEO sounded confident that they have stabilized the business.

• They went over their growth strategy from here:

  • Organic market expansion

  • Channel expansion

  • Inorganic growth

• Organic growth has 3 areas of focus:

  • Account expansion or increase share of wallet

    • They seen a 6% increase year over year in number of customers with 10k MR.

  • New logos

    • They have invested in generating new leads to focus here. In Q1 42% of new bookings came from new customers compared to 36% in Q4.

  • Strategic deals - these are multiyear TCV transactions with greater than 10k in MRR

    • 28% increase in large UCaaS opportunities in sales funnel.

• There was discussion of NEC exiting the on premises business. Though it’s gradual, it provides some opportunity for STC on the product side. As well some customers want a mix of on prem and cloud which is something STC offers.

  • NEC was the 3rd or 4th largest player in on prem.

  • The on prem business has about a 2 million dollar TAM but declined about 6% over the last year.

Valuation

I have STC at 5.7-6.2x EV/2025 EBITDA and about 1x EV/2025 revenue based on their guidance.

Closing Thoughts

Though the quarter was fine, in order to meet the guidance for the rest of the year STC will now need to show year over year growth. That hasn’t happened for them in 4-5 quarters. Given the focus on services and the nature of the product business, I am not sure we have seen the bottom in revenue for products. And services revenue continues to tick down (although very slowly). Having said all that the CEO has made some pretty big moves and leading indicators provided look positive. Service sales take a long time to land and even longer to show up in a material way in the financials. I was happy to see the improvement in working capital, I had suspected this was an area of opportunity for the business.

The market is responding well to the last couple of quarters. How much of that is just extremely low expectations vs business execution I’m not sure. At this valuation I don’t think attempting to delineate between the two matters.

If the company meets guidance and we layer on some M&A, things get really interesting for Sangoma.

I continue to hold my STC position.

Thanks for reading.

Dean

* long STC.to