Sangoma Technologies Quick Update - $STC.to & $SANG
Update after fiscal Q3 2023 (end of March)
I have been a (bag)holder of STC longer than I care to mention at BBQs. The company’s shares are still down over 80% from the very peak. They have stabilized here between $4.65-$5.20 for the last 3 quarters.
Fiscal Q3 2023
Revenue, gross profit and adj ebitda were up 18%, 19% and 17% yoy. Product sales have yet to bounce back and the company mentioned that customers are being cautious with their capital budgets (where they would purchase product from STC) at the moment given all the recession fears. Most importantly STC kept the low end of guidance and brought the top in a hair. I think this demonstrates the visibility in the business even with such uncertainty in the broader economy. Having the majority of their revenue from services is the key for this.
Notes from the Call
The tone on the call was reasonable. Not overly optimistic, but confident in the guidance laid out and keeping margins stable. The interim CEO mentioned that the focus of the business will be integrating the acquisitions, optimizing the now very large service offering and growing organically. He felt they can keep expenses here (or close to here) as they grow. STC is one of the only tech/software cos that has been adj ebitda positive for many years. I’ll leave the reader decide if that is worth anything.
Closing Thoughts
It was a bit of a surprise when the company announced the senior management change in Q4 2022. However the business has performed fine in the meantime. I will leave the reader to decide whether the interim CEO from Star2Star is executing well. I’ve never run any company let alone one of this size so I can’t really provide any judgement. I was happy to hear them state on the call that they would focus on organic growth and maintaining margins. I think there are still a few small companies that are expecting to revert right back to the growth (and dilute) at all costs. Those days are gone. All things are finite. Let it go and move on. I think the market will appreciate the fundamentals for the next little while. Things like buybacks, dividends, ROIC, per share growth, and maybe small tuck in acquisitions.
STC is trading around 4x ev/guided ebitda. I did add a slug of shares when they dipped below $5. I continue to hold.
Thanks,
Dean