Sangoma Technologies Corporation (STC:CA) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reveal a strong financial performance with significant MRR bookings growth, improved churn rate, and debt reduction. The company shows strategic focus on partnerships, AI-driven acquisitions, and a solid outlook on revenue and margins. Despite some management ambiguity, the overall sentiment is positive, suggesting a likely stock price increase.
Key Financial Performance
Revenue $51.5 million, up 1.2% sequentially. Service revenue grew 1% sequentially. The increase reflects the early impact of improving bookings momentum translating into recurring revenue growth.
Adjusted EBITDA $8.3 million with 16% margins. Conversion of adjusted EBITDA to operating cash flow was more than 120%. This reflects quality, consistency, and discipline of the earnings model.
Free Cash Flow $8 million or $0.24 per fully diluted share, improved sequentially. This improvement is attributed to strong conversion of adjusted EBITDA to operating cash flow.
MRR Bookings Grew 67% sequentially and 60% year-over-year. This growth is due to engaging with larger, more complex mid-market opportunities, leading to higher long-term value and stronger recurring revenue.
Churn Rate Blended churn rate held just under 1%, showing sequential improvement. This reflects the stability of the recurring revenue base and progress in customer experience, service delivery, and platform stability.
Net Cash from Operating Activities $10.1 million, representing a 122% conversion rate from adjusted EBITDA. This reflects positive working capital movements as trade receivables returned to historical levels.
Debt Reduction Reduced by $5.2 million during the quarter, ending at $37.6 million of total debt compared to $60.4 million in the prior year. This reduction is part of the ongoing deleveraging strategy.
Gross Margin 74%, improved from 72% in the first quarter and 68% in the prior year period. The improvement is due to a more favorable revenue mix and continued strength in recurring services.
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Operating Highlights
Essential Communications Platform: The platform, combined with focused solution bundles, deeper vertical alignment, and a strengthening partner ecosystem, is enabling Sangoma to compete more effectively for larger multisite and strategic mid-market opportunities.
Hardware Products: Products such as prem UC products, phones, and gateways continue to contribute to product revenue, with channel revenue up 4% year-over-year.
Carrier Voice and Trunking Solutions: Strong momentum observed, with a 10% increase in trunking infrastructure revenue compared to the same quarter last year.
Mid-Market Strategy: Sangoma is seeing sustained progress in its mid-market strategy, with growing traction across verticals and wholesale motions. MRR bookings grew 67% sequentially and 60% year-over-year.
Strategic Large Deals: Closed $7.5 million of $14.8 million in new large strategic deal TCV identified last quarter, bringing total large strategic TCV bookings to $10.8 million for the first half of fiscal 2026.
Healthcare and Retail Wins: Closed deals with a large healthcare organization ($12,000 MRR) and a multi-location retail customer ($18,000 MRR).
Revenue Growth: Revenue for Q2 was $51.5 million, up 1.2% sequentially. Service revenue grew 1% sequentially, reflecting improving bookings momentum.
Adjusted EBITDA: Delivered $8.3 million in adjusted EBITDA with 16% margins. Conversion of adjusted EBITDA to operating cash flow was over 120%.
Free Cash Flow: Improved sequentially to $8 million or $0.24 per fully diluted share.
Debt Reduction: Reduced debt by $5.2 million during Q2, ending with $37.6 million of total debt compared to $60.4 million in Q2 of last year.
Go-to-Market Investments: Invested $2 million in incremental SG&A to accelerate pipeline development, customer acquisitions, and partner enablement.
Capital Allocation: Continued to reduce debt, repurchase shares, and maintain flexibility for strategic and selective accretive M&A opportunities.
Customer Buying Trends: Shift towards fewer vendors and more integrated solutions, emphasizing the importance of scale for stronger economics and deeper customer relationships.
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Risk or Challenges
Market Conditions: Potential quarterly volatility in mid-market opportunities due to the shift towards larger, more complex deals, which may impact revenue predictability.
Strategic Execution Risks: The company is investing $2 million in incremental SG&A to accelerate pipeline development and partner enablement, which could strain financial resources if not managed effectively.
Economic Uncertainties: The company’s reliance on recurring revenue and large strategic deals may expose it to risks if economic conditions deteriorate, affecting customer spending.
Competitive Pressures: The shift towards fewer vendors and more integrated solutions in the mid-market increases competition, requiring Sangoma to maintain its platform effectiveness and scalability.
Regulatory Hurdles: No explicit regulatory risks were mentioned in the transcript.
Supply Chain Disruptions: No explicit supply chain risks were mentioned in the transcript.
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Guidance & Outlook
Revenue Expectations: Revenue for fiscal 2026 is expected to be in the range of $205 million to $208 million, with sequential revenue growth anticipated in Q3. The company expects to return to year-over-year organic growth once adjusted for the divestiture of VoIP Supply.
Adjusted EBITDA Margin: Adjusted EBITDA margin is projected to be in the range of 17% to 18% for fiscal 2026, with margins expected to improve in the second half of the fiscal year due to revenue growth and operating leverage.
Bookings and Backlog: Bookings momentum in Q2 has resulted in a starting backlog for Q3 that is up approximately 125% compared to the start of Q2, providing strong visibility into the second half of the year.
Capital Allocation: The company plans to continue reducing debt, return capital to shareholders through share repurchases, and evaluate strategic M&A opportunities. Approximately $5.2 million in debt was retired in Q2, and 196,000 shares were repurchased.
Market Trends and Strategic Focus: The company is focusing on mid-market opportunities, emphasizing fewer vendors, integrated solutions, and dependable service. This strategy is expected to drive scale, stronger economics, and deeper customer relationships.
Go-to-Market Strategy: Investments of approximately $2 million in SG&A are being deployed to accelerate pipeline development, customer acquisitions, and partner enablement. The company is targeting larger, more complex mid-market opportunities with higher long-term value and stronger recurring revenue.
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Shareholder Return Plan
Share Repurchase Program: During the second quarter, Sangoma repurchased approximately 196,000 shares as part of its normal course issuer bid. Since the program's launch in April, the company has retired more than 700,000 shares, representing 2.1% of shares outstanding. This reflects Sangoma's capital discipline and confidence in the long-term value of the business.
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Key Q&A
Q:What are the key drivers behind the 67% quarter-over-quarter growth in MRR bookings?
A:The growth is driven by larger strategic deals, a healthy new partner program, and larger logos being secured. These deals were developed in Q3 and Q4 of the previous year and are now coming to fruition, with a continued trend expected.
Q:Is the 67% quarter-over-quarter growth in bookings sustainable or seasonal?
A:The growth is part of a transition from a transformational phase to a growth phase. The company is focusing on integrating essential communications for the mid-market, which is driving larger deals. This growth is expected to continue as the strategy proves successful.
Q:What is the opportunity in the wholesale and white-label channels?
A:The wholesale channel targets large ecosystem partners like carriers and healthcare systems. These partners monetize their ecosystems by offering standardized bundles at wholesale prices. The company is also leveraging its platform to attract customers transitioning from older business models.
Q:How many new prospects are interested in bundled solutions, and how is the company driving upsell momentum?
A:The company sees momentum in full-stack bundled solutions and has reorganized its go-to-market strategy to focus on integrated propositions. They are using AI tools to analyze existing customers for cross-sell and upsell opportunities, expecting significant increases in this area.
Q:Has the partner network reached maturity, and what is the strategy for partner enablement?
A:The partner network is growing within its existing ecosystem and expanding into four verticals: healthcare, education, retail, and hospitality. The company is also partnering with software vendors in these verticals to enhance precision and effectiveness.
Q:What is the outlook on churn rates?
A:Churn rates are slightly below 1%, with room for improvement. The company is using AI tools to target customers with higher churn propensity and is investing in churn reduction strategies, aiming for a target of 0.85%.
Q:Will revenue grow year-over-year excluding VoIP Supply, and will gross margins remain stable?
A:Yes, revenue is expected to grow year-over-year and sequentially. Gross margins are expected to remain stable despite changes in revenue mix due to larger strategic deals.
Q:What are the growth investments in sales, marketing, and G&A?
A:Increased commissions and tax-related items contributed to higher expenses. The company expects these trends to continue, aligning with its growth investments.
Q:What is the company seeing in the M&A market?
A:The company sees opportunities across the spectrum, including software companies, MSPs, and security players. Valuations have come down, making it an opportune time for acquisitions.
Q:What is the contribution of the partner ecosystem to bookings growth?
A:The bulk of revenue comes from partners, with new strategic partners contributing to bookings growth. The company tracks partner engagement and performance metrics to ensure alignment with its value proposition.
Q:How is the on-prem component of the pipeline trending?
A:The on-prem UC business has shown year-over-year growth for several quarters, with momentum in small and medium businesses, particularly from Avaya and Mitel customers.
Q:How does the company view the conversion of bookings to revenue?
A:Larger deals take time to roll out, but the company has a disciplined project management process to convert bookings to revenue efficiently. Revenue from deals typically drops into quarters within 8-10 months of signing.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact timeline for revenue conversion from bookings and the precise impact of growth investments on future financials.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CLEC win
Chief Technology
Commio SIP
Customer expectation
FY priority
Instructions conference
KPIs progress
MRR deal
MRR vendor
Ms press
Officer Wubs
Officer update
TCV
ability scale
approach
booking momentum
breadth
care
creation
discipline
effectiveness
environment
improvement
location
market booking
market engine
opportunity deal
partner ecosystem
quality
repeatability support
scalability repeatability
shift
stability
traction
voice
volumetric opportunity
win MRR
year
SANG Transcript
Sangoma Technologies Corporation (STC:CA) Q3 2026 Earnings Call Transcript
Unknown5-13
The earnings call presents a mixed picture: revenue and EBITDA growth are positive, but a slight gross margin decline due to supply chain issues is a concern. The Q&A section didn't provide additional insights or address potential risks. The financial performance suggests stability, but the lack of strategic or operational updates limits the potential for strong positive sentiment. Without significant market cap data, the neutral rating reflects a balanced view of the current financial health and market conditions.
Sangoma Technologies Corporation (STC:CA) Q2 2026 Earnings Call Transcript
Positive2-4
The earnings call summary and Q&A reveal a strong financial performance with significant MRR bookings growth, improved churn rate, and debt reduction. The company shows strategic focus on partnerships, AI-driven acquisitions, and a solid outlook on revenue and margins. Despite some management ambiguity, the overall sentiment is positive, suggesting a likely stock price increase.
Sangoma Technologies Corporation (STC:CA) Q1 2026 Earnings Call Transcript
Positive11-10
The earnings call highlights several positive aspects: improved margins, strong pipeline growth, and significant R&D investment. The Q&A session confirms robust new pipeline creation and strategic channel expansion, despite some declines in services due to contract completions. Management's optimistic guidance and emphasis on innovation, alongside strategic partnerships and market expansion, suggest a positive outlook. Although gross margins were temporarily lower, they are expected to improve, aligning with the overall positive sentiment. The lack of major organizational changes and stable structure further supports a positive stock price reaction.
Sangoma Technologies Corporation (STC:CA) Q4 2025 Earnings Call Transcript
Positive9-18
The earnings call highlights strong financial health with debt reduction and robust free cash flow. Product sales show consistent growth, and the company is strategically focused on M&A and market expansion. The Q&A section indicates confidence in sequential revenue growth and controlled customer churn, with a focus on both organic and inorganic growth. Despite some management opacity, the overall sentiment is positive, supported by optimistic guidance and strategic initiatives.
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