Sangoma Technologies Quick Update - STC.to

Quick update after fiscal Q2 2024

Price: $5.16 CAD

MC: 171 million CAD

EV: 283 million

1 year performance: +8%

That 5 year chart looks awful.

STC reported last week. I was on a ski trip with my oldest son, so I am a few days behind. Results were a bit ahead of my expectations and the outlook was not awful or unclear. This helped the stock and it was up 18% the next day.

Quarter Recap

• Rev of 62.3 mil

  • essentially flat from last year

• Gross margin of 71%

  • up from 69% last year

• Adj EBITDA was 10.4 mil

  • down 1% yoy

• Services revenue was 81% of total or 50.7 million

  • down a hair sequentially

• Product revenue was 11.6 mil

  • down from 11.9 last q and 12.6 last year

• Inventory and receivable down yoy

• They managed to pay down over 6 million in debt this q

Call Notes

• The company issued guidance for the full year of fiscal 2024

  • Revenue of 245 to 250 million

  • Adj Ebitda of 41 to 44 million

• The new CEO talked more about his first full quarter at STC

  • Changes to management including some key hires

  • Forward-looking go to market strategy

  • Restructuring the business to streamline functions and align leadership

    • should save 9 million on an annualized basis

• Churn was 0.9%

• They are going to disclose some more operating metrics next fiscal year

• They are going to discuss their capital allocation strategy in the next couple quarters

Closing Thoughts

I thought the call was positive. I like the plans the new CEO has put in place around finding their sweet spot in the marketplace. I was a bit surprised by the slight down tick in services revenue. The guidance seems very conservative given the services revenue mix and low churn. Product revenue looks to be guiding even lower than last years’ numbers. Having said that, they look to be laying a strong foundation for 2025 and beyond.

I am going to assume that they beat guidance due to it being a new management team and not wanting to disappoint. They have removed one of their warts by sorting out the S2S quarterly share dilution. I will be looking for some or all of the following in order for the company to re-rate: Chairman to stop selling shares (even if it’s for tax purposes), organic growth in services revenue, maintaining or increasing ebitda margins from here, and a solid plan for cash that the business generates.

Trading around 5x EV/EBITDA here.

I added a bit after the q.

Thanks for reading.

Dean

* long STC.to