NASDAQ:SANG Sangoma Technologies Q1 2025 Earnings Report $5.69 +0.16 (+2.89%) As of 04/25/2025 04:00 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings History Sangoma Technologies EPS ResultsActual EPS-$0.06Consensus EPS -$0.05Beat/MissMissed by -$0.01One Year Ago EPS-$0.07Sangoma Technologies Revenue ResultsActual Revenue$60.15 millionExpected Revenue$61.45 millionBeat/MissMissed by -$1.30 millionYoY Revenue GrowthN/ASangoma Technologies Announcement DetailsQuarterQ1 2025Date11/6/2024TimeAfter Market ClosesConference Call DateWednesday, November 6, 2024Conference Call Time5:30PM ETUpcoming EarningsSangoma Technologies' Q3 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled on Wednesday, May 7, 2025 at 5:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptInterim ReportEarnings HistoryCompany ProfilePowered by Sangoma Technologies Q1 2025 Earnings Call TranscriptProvided by QuartrNovember 6, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good day, ladies and gentlemen, and welcome to the Sangoma First Quarter Fiscal 2025 Results Conference Call. I would now like to turn the meeting over to Samantha Reburn, Chief Legal and Administrative Officer. Please go ahead. Speaker 100:00:17Thank you, operator. Hello, everyone, and welcome to Sangoma's Q1 fiscal year 2025 investor call. We are recording the call and we will make it available on our Web site for anyone who is unable to join us live. I'm here today with Charles Salome, Sangoma's Chief Executive Officer Jeremy Wuggs, Chief Operating and Marketing Officer and Larry Stock, Chief Financial Officer, to take you through the results of the Q1 of fiscal year 2025, which ended on September 30, 2025. We will discuss the press release that was distributed earlier today, together with the company's financial statements and MD and A, which are available on SEDAR Plus, EDGAR and our website. Speaker 100:00:56As a reminder, Sangoma reports under International Financial Reporting Standards, IFRS. And during the call, we may refer to terms such as adjusted EBITDA, which is a non IFRS measure that is defined in our MD and A. Before we start, I'd like to remind you that the statements made during the course of this call that are not purely historical are forward looking statements regarding the company or management's intentions, estimates, plans, expectations and strategies for the future. Because such statements deal with future events, they are subject to various risks and uncertainties and actual results may differ materially from those projected in the forward looking statements. Important factors that could cause actual results to differ materially from those in the forward looking statements are discussed in the accompanying MD and A, our annual information form and the company's annual audited financial statements posted on SEDAR Plus, EDGAR and our website. Speaker 100:01:47With that, I'll hand the call over to Charles. Speaker 200:01:51Thank you, Sam, and good afternoon to everyone on the call. Greatly appreciate you taking the time to join us today and for your support and interest in Sangoma. I want to focus my remarks today on our strategic priorities for fiscal 2025, and why I'm truly excited about our direction. We entered this fiscal year as a completely different company from the one I first joined in fiscal 2024 back in September. For the first time since I joined, we are on very firm ground this quarter. Speaker 200:02:20This is a result of some remarkable efforts and focus by our management team. The necessary transformational work we completed in fiscal 2024 was focused completely inward and we had to. We assembled a top tier of enterprise class leaders, streamlined our operations, modernized our information systems and strengthened our processes. Additionally, we worked tirelessly to enhance our culture and reestablish our corporate identity and brand. We simultaneously ran a separate parallel track where Larry and the team did an outstanding job improving our financial health. Speaker 200:02:56We stabilized our revenue base, enhanced our operating cash flow and substantially reduced our debt. We now have the financial flexibility to expand Sangamo's reach with the groundwork now set for the next phase of our transformation, now however, with more of an external focus. As I mentioned in our Q4 call, fiscal 2025 was all about the pivot to growth. And we had 3 paths to achieve this: organic, market expansion, channel expansion and inorganic growth. Transformations are challenging and hard work. Speaker 200:03:32It's not the sexiest part of the job, but the essential to get done to provide a sustainable long term growth for the company. The reinvigoration of our organic growth engine is rooted in our go to market strategy. This work began in earnest when Monica Walton joined as Chief Revenue Officer in May. And our go to market framework is built on 3 pillars. The first is account expansion or as the industry calls it share of wallet strategies. Speaker 200:03:59The second, new local acquisition. And the third pillar is what we call base building or strategic deals. These are deals multi year TCV transactions greater than $10,000 in MRR. With fiscal Q1 now complete, we now have our 1st full quarter under our belt and a number of our new go to market programs are in place. We are still in the early stages, but we are seeing progress across several key indicators, and this is giving us confidence that we remain on track towards our FY 2025 plans. Speaker 200:04:31Let's start with account expansion per share of wallet. During the Q1, we saw a 6% increase year over year with the number of customers at over $10,000 in monthly revenue. I use this as a gauge to determine customer relevance. Our success stems from expanding the product core offerings for each of our customers, while building our upsell and cross sell capabilities. Over the past 6 months, our net promoter scores has improved significantly. Speaker 200:04:57This is a testament to our investment in customer service and account management and the great work done by our Chief Client Officer, Phil Coppens. The next is new logos. To further support our expanding pipeline and growth ambitions, we have enhanced and invested in new demand generation efforts, targeting 40 to 50 new leads per week. One of our KPIs is the percentage of bookings from new customers. In the Q1, we saw a strong quarter over quarter increase of 42% of our bookings coming from new customers compared to 36% of our bookings in the 4th quarter fiscal 2024. Speaker 200:05:36The 3rd pillar in our go to market is base building or strategic deals. In the Q1, we saw a 28% year over year increase in the number of large UCaaS opportunities in our sales funnel with greater than $10,000 in MRI. These deals are great to build a recurring base and given their size partners love them too. I'm very excited about what I'm beginning to see in the marketplace as customers are starting to adopt essential communications as part of their integrated bundle of solutions. 2 notable examples in the Q1 was a $250,000 TCV deal that we signed with a property management company and an exciting $470,000 TCB deal we signed with a large restaurant chain. Speaker 200:06:18These are exactly the kind of deals that I've been thinking about in the last few quarters. The second vector in our growth strategy is investing and expanding in new markets and channels. We completed our partner segmentation and relaunched the Pinnacle Partner Program, focusing our efforts on our top 400 strategic partners. Additionally, we've implemented a national MDF or market development fund program to support the execution and co selling with these partners. We have over 150 partner events planned for this year. Speaker 200:06:49Through these initiatives, we've stepped up our own business with our top partners, including large scale distributors to revitalize our premise based business. From these efforts, just over the last several weeks, we've seen a significant volume of customers adopting to Anglo Premises after the NEC exit of this market. This is a unique opportunity the team jumped into inside of the quarter. Now on to our 3rd vector of growth, which is inorganic. This strategic approach has been integral to our long term vision from the outset. Speaker 200:07:21Exelaria and its team is exceptionally well in strengthening our balance sheet. We're now in prime position to execute this strategy with confidence and precision. Our new ERP system remains on track for completion in early calendar 2025. The work that we have done to improve our systems, our tools and processes will allow us to actively engage under a proven inorganic strategic methodology. More integrated and streamlined your systems are, the faster you reap the benefits of innovation. Speaker 200:07:52Our decision to focus on paying down debt has been perfectly timed. As macroeconomic issues begin to subside and the cost of capital starts to decrease, Sangoma is now in an ideal position to deploy capital from non dilutive sources. This is due to our strong cash flow generation and ample debt capacity. Work is underway to build a pipeline of potential targets. As we work to align and improve our go to market, we'll continue to refine, optimize and potentially pull back on some of our portfolio investments to advance our long term position as a purified communication platform company. Speaker 200:08:28In summary, I believe fiscal 2025 will be a pivotal year for SunRail. The transformation that we're completing in fiscal 2024 has paved the way for the strategic initiatives that will drive long term sustained growth and value creation. While it's still early, based on everything we've seen, including our progress in Q1, I feel confident to remain steadfast on our guidance for fiscal 2025. I'll turn it over to Larry to speak on the financial highlights. Larry, over to you, Kyle. Speaker 300:08:58Thank you, Charles, and welcome, everyone. We appreciate you joining us for today's call. In a similar vein to the approach Charles has described for tracking our growth and go to market initiatives, we've continued our laser focus on managing a dashboard of key metrics related to our financial health. These metrics support the strategic optionality we have created as a company and a management team. They include net cash provided by operating activities, inventory and accounts receivable which drives working capital and return cash conversion, net debt, revenue, consistent gross profit and gross profit margin, and adjusted EBITDA. Speaker 300:09:37I'm pleased with how all of these metrics have tracked. We're generally on plan or ahead on each. Revenue for the Q1 was slightly below our guidance range, but we are well on track to recouping the difference. Despite the lower revenue, we managed the P and L well and delivered adjusted EBITDA at the high end of our guidance range. During the Q1, our cash performance of the business remains a key highlight. Speaker 300:10:01We generated $12,100,000 in net cash from operating activities, a 55% increase over the prior year period. The efficiency of our business remains high as we have continued to manage our working capital effectively, converting 124 percent of our adjusted EBITDA of $9,800,000 into cash flow. Our strong cash conversion stems from approximately $3,000,000 in net positive changes to working capital during the Q1. This includes $2,300,000 from collecting trade and other receivables and nearly $1,000,000 from inventory. One of our priorities is to reduce existing inventories while conservatively managing new purchases as we anticipate a long term shift towards a higher service product mix. Speaker 300:10:46These working capital cash inflows were partially offset by a $2,700,000 decrease in accounts payable and accrued liabilities. Strong cash flow performance in the Q1 allowed us to further accelerate our debt repayments. We retired an additional $4,300,000 and reduced our total debt by $8,700,000 in the Q1. With $16,700,000 in cash and $69,100,000 in total debt at the end of the Q1, our net debt to trailing 12 months adjusted EBITDA ratio is approximately 1.2 times. Not only on track, but ahead of schedule in reducing our total debt to our stated target of $55,000,000 to $60,000,000 by fiscal year end. Speaker 300:11:30More importantly, by deleveraging the balance sheet, we've created financial flexibility to fund the 3 growth vectors Charles has outlined. Now moving on to the P and L. Revenue for the Q1 of fiscal 'twenty four was $60,200,000 and slightly below our guidance range of $61,000,000 to $62,000,000 Let me explain why. Near the end of the quarter, we had a delay in signing 3 large deals that shifted approximately $629,000 of product business out of Q1 and into Q2. We also experienced disruptions from hurricanes Helene and Milton, which impacted our employees, partners, and customers during the lead up to and aftermath of the storms. Speaker 300:12:10We believe the hurricane impacts led to a slowdown in product volumetric growth at the end of the quarter, particularly around our Switchvox product affecting both non recurring revenue or NRM and monthly recurring revenue MRM. Lastly, in the Q1, we experienced slightly higher churn from legacy contracts at just over 1% for the quarter. The churn was amplified by recent state level minimum wage decisions and macroeconomic factors that have impacted California's retail sector. However, we expect our churn rates to return to our historical levels below 1% in fiscal Q2. The combined impact of these three factors resulted in Q1 revenue coming in slightly below our guidance. Speaker 300:12:54We believe we're on track in recapturing this revenue and we remain committed to achieving our fiscal 2025 targets. Moving on to gross profit and gross margin, our first quarter gross profit was 41,200,000 dollars representing 68 percent of revenue consistent with the preceding quarter. Our first quarter adjusted EBITDA was at the high end of our guidance range at $9,800,000 representing 16% of revenue. The strong adjusted EBITDA performance stems from net cost savings achieved in sales, marketing, and G and A over the past year. Importantly, we've been able to reinvest some of these savings into ERP as well as R and D. Speaker 300:13:34These investments continue to be focused on enhanced portfolio integration, cybersecurity and AI. We're confident that these ongoing investments will pay off as we strengthen our technology platform to bolster our go to market strategies. Lastly, on guidance, this one is easy. For fiscal 2025, we are maintaining our revenue in the range of $250,000,000 to $260,000,000 and adjusted EBITDA in the range of 42,000,000 dollars to $46,000,000 With Q1 tracking largely to plan, we remain committed to delivering sequential revenue growth as we progress through the fiscal year. I share the confidence that Charles has in our current position and excitement over the potential that lies ahead. Speaker 300:14:16We look forward to updating you on our progress of our go to market initiatives and financial performance when we present our fiscal Q2 results in February. That concludes our prepared remarks. Operator, let's open the call up for some Q and A. Operator00:14:31Thank you. We will now take questions from the telephone lines. The first question is from Gavin Fairweather from Cormark. Please go Speaker 400:15:01ahead. Maybe just to kick it off, you referenced the NEC kind of exit from the prem business. Can you just remind us like how big were they? How does the competitive landscape look now? Were you already dealing with a lot of their partners? Speaker 400:15:18And how meaningful could this be for Sangrema? Speaker 500:15:22I'll let Jeremy kind of give you some detail on it. Let me give you a little bit of color commentary. So the trend business is a traditional legacy business for those who really want their voice communications on their premises, as you know. NSE was a very large player in that marketplace. They exited that market because there is a downturn, I think, globally in the prem business as more and more clients adopt cloud based solutions. Speaker 500:15:49However, there is a lot of smaller companies, particularly the midsized market where we play that NSE is not interested in playing in, but still desire the prem type solutions. I'll give an example of one like a hospital, for example. It's mission critical for them to have voice communication during a power outage. So they really can't afford to have their voice be going into a cloud based environment if there was a power outage in the environment. So prem solutions remain a primary requirement for them. Speaker 500:16:16School systems would be another one. Municipal office is another one. And so there is a chunk of market that NEC used to serve, but didn't want to serve any longer because the larger players in the PEM space started exiting and therefore they exited to follow the larger money. So don't know the exact number on the size of the market opportunity. What we are seeing is there's a tremendous number of resellers in our partner community that have sold NEC that have a lot of smaller midsized customers that we play that require that prem solution still, and they needed someone to fill that gap. Speaker 500:16:48We stepped in and filled that gap and are starting to see the benefits of doing so. One final comment, one of the advantages we have is that we're one of the very few companies that can offer the full stack solution of the cloud based, sorry, the voice communication services as well as the hardware and telephony equipment which we manufacture as well. Jeremy, you want to add anything to that? Speaker 600:17:09Yes, I'd add to comment that when you think about the market, it's big. It's still about a $2,000,000,000 market globally. It's declining at about 6%. But that's still a big market. So when you take arguably a 3rd or 4th player out of the market, I mean, you think of buy and the Mitel to some of the bigger ones in the market. Speaker 600:17:28When another player sort of drops out, that opens up a space for people to go after. We're particularly well suited for that space. We have a lot of relationships with the partners that NEC did as well. So we were able to kind of slide right in there pretty quickly. We could have ramped up all our training and support to get those partners enabled quickly and we think there's a lot of potential there and kind of to Charles' point, sometimes those service stem opportunities and they'll evolve through a cloud solution. Speaker 600:18:01So it actually not only does it support kind of growing our NRI business from a prem perspective, we've seen scenarios where we started with an engagement. We thought it looked prem, it felt prem, but it actually shifted to cloud. So you sort of get a 2 for 1 out of those opportunities. Speaker 400:18:16That's very helpful. Maybe just checking in on the macro environment, I mean, some kind of other players have called out election uncertainty in the September December quarters. I'm curious if you saw anything like that down in the U. S. And also curious whether you think the shift in political landscape going forward could drive an improved business environment and demand environment? Speaker 400:18:39We Speaker 500:18:39didn't really see much of an impact. In fact, we saw a bit of a positive lift on that because we have a stiff trunking business that actually helped a lot of the packs reach their constituents in trying to sway voters one way or the other. They use up bandwidth and capacity, we saw a little bit of a lift in that capacity and I think continuing to do so. But as far as sort of major impacts as we go to the election, if that's your question, it didn't really affect us that much. The storms and the hurricanes, that talked about, don't forget, we have offices right here in Sarasota. Speaker 500:19:09Our main office is here in Sarasota. So we had a lot of disruption leading up to these two storms coming in back to back with each other. But as far as elections go, no. As far as macro view of the industry, certainly, the stability, I think, that the markets are feeling today that the results came in, that there is stability now in the political arena in the U. S. Speaker 500:19:34Is going to help us help us a little bit today, certainly with the stock opened this morning. And I think it will continue to the stability will continue to be a positive environment for a company like us to grow in. And I only see more tailwinds than I see headwinds as a result of any political issues in the country. Speaker 400:19:53Okay. And then just lastly for me on the Pinnacle partner for earnings, big part of this effort I'm sure is on the changing partners' behaviors and working on kind of larger, more complex deals. So maybe you can just provide us with a bit of an update on how that partner behavior is shifting, what you're seeing there and also how perceptions of Sangoma are changing as a result? Yes. I mean, a couple Speaker 600:20:16of things I'd say. Our program officially launches on the 12th. But we already started, as Charles mentioned earlier, really to segment our partners. We really focus on the top 400 of them. And that focus for us has really been on helping them understand how we've come out of this transformation that we went through last year. Speaker 600:20:35And we're very focused on that integrated portfolio, the bundled solutions and being able to offer customers just unblock our suite of essential communications under that banner of enterprise capabilities at an affordable price. I'd say that the partners have responded well. I mean, we've seen, as Jocelyn said, an increase in a number of our metrics, some of the volumes from a large deal perspective. We've seen more new logos, 43% of our wins this quarter versus 36% last quarter are coming from new logos. So we're seeing the momentum with the partners. Speaker 600:21:09It always takes some time to build the momentum, but in both the partner program and the activities that we've taken to really drive that channel focus on our top 400, we're starting to see that momentum and we're excited about what it's going to offer us for the next couple of quarters. Speaker 400:21:27Great. That's it for me. Thanks so much. Thanks, Kevin. Operator00:21:30Thank you. Our next question is from Mike Latimore from Northland Capital Markets. Please go ahead. Speaker 400:21:41Hi, Mike. Hi, this is Vijay Deva for Mike Latimore. Speaker 700:21:48So yes, a couple of questions quickly. And the first one would be on, do you see the mix of product versus service changing in Speaker 400:21:57the second Speaker 700:21:58half? And what could be the likely mix for the full year? Well, Speaker 500:22:09the product business and our focus has been on the services business. We continue to stay focused on the services side. Product business is an important part of our portfolio. We've been generally eighty-twenty in that range, 80% services, 20% product. Actually, as we put more and more focus on the services side, you're starting to see the services mix going up to 83% this quarter versus 17% product. Speaker 500:22:33I think the product business can it has a seasonality to it. So there could be some quarters where there's a high demand for product in the quarter and then it will drop back. And we feel that demand and follows ebbs and flows. But generally speaking, you're going to stay in that roughly eighty-twenty rule, I think, for the rest of this quarter sorry, the rest of this year into the second half. But our focus will be maintained on driving higher MRR deals on the services side of our business. Speaker 600:23:01I think the short answer really though is it takes it just takes longer to ramp the services than it does in our business. So coming out of our transformation, we're aggressively focused on go to market building and establishing building existing relationships, establishing new partnerships. And in the short term, it's kind of easier to push on the product sales knowing that it takes a little bit longer to build that momentum and that scale with MRR business with our partners. So what you saw at certain points in time will favor a little bit of the product business because it just takes a little longer to scale MRR. Speaker 500:23:37It's one of the luxuries that we have in Sangoma, which is one of the assets that we talk about is that we have we manufacture our own products. So our own product sales are actually pretty good margin business for us. It's not like a resell of somebody else's. There is a part of our business that is a resell business for sure, but we have a big chunk of our business that is our own product. So we can push the accelerator on either one without being too dilutive to margins. Speaker 500:23:59But our real focus is long term MRR and our service side of business, which takes time to ramp, as Speaker 200:24:07Jeremy said. Speaker 700:24:07Got it. And another question would be, we have said the sequential growth each quarter or some ups and downs in the 3rd or second quarter? How do you look at it in terms of reaching out towards the end of the year? Speaker 500:24:23So as we stated back in Q4, how we started the year off, that there would be the MRR growth business of the company will be sequential quarter over quarter as we go out come out of the internal transformational focus that ended in June of well, continues but really ended in June of 2024. We started the go to market transformation, ramping that up at each quarter as we go through the quarter to get to our guidance of $250,000,000 to $260,000,000 as we stated. So we will see continued growth in the quarter as we execute on the go to market transformational activities, certainly what we're seeing in our pipeline. And in Q2, we'll begin to see more solidified metrics more than what you heard this quarter on how that go to market is performing relative to our ability to execute on the $250,000,000 to $260,000,000 guidance we're giving you. Speaker 700:25:15Great. I think that's it for me. All the best color on the SEC. Thank you. Thank you. Operator00:25:21Thank you. Our next question is from Robert Young from Canaccord Genuity. Please go ahead. Speaker 400:25:30Hi, good evening. First question around the working capital benefits. I assume that's one time and I guess that probably influenced the decision to pay the extra debt down. So I was curious about that. And then maybe if you could remind us on your plans after you get to those debts targets, how the behavior will change? Speaker 300:25:54Sure, Rob. So we've enjoyed solid operating cash flow for several quarters, and we anticipate that to continue. So while I highlighted that in the prepared remarks, I expect to continue to see really nice operating cash flow and allow us to continue to pay down that debt on an accelerated basis. As you noted, dollars 4,300,000 paid this quarter, dollars $5,300,000 paid this quarter, dollars 4,300,000 in prior quarter, and we'll accelerate that to get to that $55,000,000 to $60,000,000 range. And really, as we do that, that gives us these options that Charles keeps talking about, these vectors of growth and how we'll invest that moving forward and have the ability to do both from a cash and debt capacity perspective once we get there. Speaker 300:26:39So I don't expect to see decreases. And while certainly any point in time from another time is one time, I expect to see that continue throughout the fiscal year and continue to accelerate our ability to pay down debt and have cash for other options as we move throughout the year. Speaker 400:26:57Your second part of your question, Speaker 500:26:58what will we do with the debt, with the cash once we get to the debt level? Was that your question, Robert? Speaker 400:27:04Yes. I'm just curious what the how you expect the your behavior to change once you get to that target? Speaker 500:27:09Well, as I said in Q4, actually going into Q1, we had 3 ways to grow the company. The optionality methodology was something that I believed in. Organic growth, which you heard me talk about today through account expansion, new local acquisition and base building and inorganic growth. And that's really as a result of servicing our debt, getting it down properly timed to, I think, good tailwinds from cost of capital going forward. What I would borrow $100,000,000 for last year, it's going to cost me a lot less if I try to borrow the same amount a year from now. Speaker 500:27:45So we've got lots of opportunity now to begin to look at the inorganic methodology. And when we get the debt level to the point where we're comfortable with them, we also have the opportunity, obviously, to look at our portfolio of assets in the company. I spoke about the deposition of assets that would allow us to accelerate debt repayment even further and then potentially allow the inorganic engine to fire off even a lot faster. So these are the levers that we have now at our avail. Now that the transformational year is behind us, as we pivot towards growth, particularly from this quarter, as I told the Board, this is one of the first times, I think, that I've been here after the 4 quarters. Speaker 500:28:25I feel like the company is absolutely on solid ground now. And that allows us the opportunity to begin to execute some of these other elements of growth beyond the organic engine that you've been hearing about that's starting to ramp up sequentially quarter over quarter. We are now going to look at firing off the inorganic activities, looking at how we're going to handle our debt repayment, what other things could we do in the company to accelerate debt repayment that would help to accelerate potentially the inorganic engine. So we're in a really good position right now, I think, to be able to execute on all of these elements. And that's sort of our intention is what we told you in Q4 that this growth of this company will be predicated on a couple of different ways to grow the company operating simultaneously. Speaker 400:29:10Okay. And then part of the question was about the abnormally high cash flow conversion from EBITDA. I understand the cash flow is going to remain strong, but do you have additional levers like is there additional benefit in inventory efficiency or I think you said there's trade payables, like is there more to pull out of that or was this very high conversion? Is that a one time item? Speaker 300:29:32No, I don't view it as well. I mean, at that level perhaps, but I view it in a range that's anywhere from 90 to 100 moving forward, Rob. Okay. That's great. Speaker 400:29:44Second question, on the NEC, just continuing Gavin. Sorry if I'm retracing part of his question. I missed part of what he said. But that's ending, I think, the end of life. But I mean, its support goes to 2,030 and they're shipping through 2025. Speaker 400:30:00And so that seems as though that's a long drawn out process. I mean, is this a large opportunity for you over a long period of time? Or is this like a point in time opportunity? Yes. It's a Speaker 600:30:13good question. I think it's ongoing, right? I mean, I mentioned it's a the premise business is still like globally about a $2,000,000,000 business. It may be declining at 6%, 7%, somewhere around there if you look at sort of the major analyst reports. But there's an entire ecosystem that's built around building reselling PBXs and wrapping managed services around it. Speaker 600:30:34We have lots of partners to do that. That's the business model. Speaker 200:30:37They'll sell a little bit Speaker 600:30:38of cloud, but they're continuing to resell those PBXs. So that whole opportunity that NUCs walked away from, any new sales that are still occurring, they're not on that platform. So we're getting our way into that opportunity and picking up the business. So it's not temporary. It will go ongoing for quarters and quarters. Speaker 400:31:03And are there others of that size out there that you think could possibly end the life or just walk away from the business, anything you see out there in the market that maybe we might not see? Speaker 600:31:15I wouldn't say we see other signs of others doing that. I think you're in a difficult spot if you're a company that only does that. And so we're in a very favorable position in that we kind of have three flavors of our unified communications and premise systems. We have a fully cloud based system for those clients that just want to go pure cloud, like the attribute to cloud and the business model, those who want this kind of high reliability environment that is very advantageous to get some of the cloud features, like some of the premise model, we have a kind of hybrid system, we're very unique in the market around this hybrid model, high penetration in healthcare, manufacturing, retail, other verticals that need that sort of in building high reliability. And then the 3rd piece is having this premise system that we just talked about in NDT exiting. Speaker 600:32:08So with our partners, we're able to say, hey, as a communications platform company, we give you the optionality to to your end customers about all three scenarios. And if they pivot one way or the other way or they want to change that model over time, they are premise one day, cloud the other, and we give our partners the opportunity to kind of take their clients on that journey with a single provider. So we see tremendous benefit not only in just picking up and attacking some of the Zendesk business, but also connecting it to a broader hybrid and full cloud strategy. And it's resonated very well with our Speaker 400:32:43Deb. In the disclosure, you named a number of channel relationships, I think 1, 2, 3, 4, 5, Speaker 700:32:506 of them, I think, in Speaker 400:32:51the MD and A, Telarus, Avant, AppDirect and Telesys Gen, ScanSource. Like, are there any specific about those ones that are relatively important? Are they just the largest, most important ones in the Yes. Yes, they tend to be the largest. Speaker 600:33:06Those are some of the larger partnerships, relationships we have. They're in our top 400 list, but more towards the sort of north side or top side of that. But we're yes, Speaker 500:33:16I mean, we've got a lot Speaker 600:33:18of partners and again, depending on kind of which kind of product lines or flavors sort of support the business model, we kind of inject our product lines kind of based on their business model. If they're managed for service provider that could be certain pieces themselves, they might like more of the prem solution and hybrid solution in a wholesale model. We're fortunate enough to have such a wealth of assets that we can position them into different channel partners to suit their business model and gives them the opportunity to make extra money that they might not make with other partners as well. Speaker 400:33:54Okay. And maybe last question. You highlighted that you're seeing a higher level of new leads per week after the go to market shift and changes. But how does that change in the pipeline? Maybe you can just remind us or remind me on the sales cycle and how these leads move through the pipe and where the new lead activity is likely to benefit revenue? Speaker 400:34:18And I'll pass on. Yes. I mean, the bigger portion of Speaker 600:34:22our new leads are coming in from the kind of the MRR side, the cloud side, which is exciting and very much aligns with our strategy. I mean, the thing that I'd say, and I think Charles commented earlier on in his remarks, from a new logos perspective, last quarter, about 36% of our business was new logos this quarter, this past quarter, 43% through new logos. So that sort of gives you just a sense of these new leads coming in, which are mostly net new customers. Obviously, we know our base, so the new leads are tied to new, real new. So that's where we're seeing the opportunity of leads converting. Speaker 600:34:56So to get to go from 36% to 43 percent in 1 quarter, just as the momentum we're seeing, the new leads are coming in are helping to drive that kind of drive that growth as we want in the MRR business. Speaker 500:35:09And just to get maybe to give you some sense on the sales cycle question that you had, I'll just interject here, right? So what as I've always said, one of the reasons why I love this company when I joined it was that it had such a broad set of assets unlike any other company that I've experienced in the small tech area. And one of the assets obviously is our product business, which we manufacture our own products and services. So our product business and our platform services, UCaaS services, have generally lower sales cycle. We can get them in booked and the revenue is dropping really quickly. Speaker 500:35:43On the access side of our business, where we have multiple locations, less users, but lots of locations spread all over the country, those have a little longer sales cycles and a lot longer to implement. Maybe look more like 6 to 12 months, but at the time you actually begin the conversation with the customer, at the time you're actually seeing revenue come in. So you've got this dynamic between fast rotating revenue that comes in 30 days, you're going to get it to start getting a provision over a 3 month period inside of a quarter, you can pretty much do a deal if it's a pure UCaaS or a pure product. Get into access and networking and that type of thing, longer sales cycles for 6 to 12 months in duration because you've got multiple locations. So it's a we have to manage the pipeline and the revenue calls based on what we're seeing in the pipe on both the short term revenue, the slow sales cycles with the longer term revenue that's more base building, larger those are larger deals and they take a little longer to drop in the quarter that upcoming as you go through implementation and transition. Speaker 500:36:43Does that help, Robert? Speaker 400:36:45That's really helpful. Thanks a lot for taking the questions. I'll pass Operator00:36:53There are no further questions registered at this time. So please, your call has now ended. Please disconnect your lines at this time and we thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSangoma Technologies Q1 202500:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsInterim report Sangoma Technologies Earnings HeadlinesSangoma to Present at the Planet MicroCap Showcase Las Vegas April 23-24, 2025April 4, 2025 | finance.yahoo.comSangoma Exceeds FY25 Debt Reduction Targets Ahead of Plan and Launches Normal Course Issuer BidMarch 25, 2025 | businesswire.comHere’s How to Claim Your Stake in Elon’s Private Company, xAII predict this single breakthrough could make Elon the world’s first trillionaire — and mint more new millionaires than any tech advance in history. And for a limited time, you have the chance to claim a stake in this project, even though it’s housed inside Elon’s private company, xAI.April 26, 2025 | Brownstone Research (Ad)Sangoma Technologies Q2: There Are Reasons To Remain Positive Despite A Weak QuarterFebruary 18, 2025 | seekingalpha.comSangoma Lowers FY Revenue Outlook Amid Strategy ShiftFebruary 5, 2025 | marketwatch.comSangoma Technologies adjusts FY25 revenue guidance to $235M-$240M while focusing on high-margin recurring revenueFebruary 5, 2025 | msn.comSee More Sangoma Technologies Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Sangoma Technologies? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Sangoma Technologies and other key companies, straight to your email. Email Address About Sangoma TechnologiesSangoma Technologies (NASDAQ:SANG) develops, manufactures, distributes, and supports voice and data connectivity components for software-based communication applications worldwide. The company offers Switchvox, a voice over internet protocol phone system; Switchvox Cloud, a unified communications solution, as well as provides cloud communication solutions. It offers SIP Trunking, a telephone service for one or multiple locations; PBXact Cloud, a centralized internet based solution; Asterisk and FreePBX, an open source IP PBX software; and FAXStation, a fax-over-IP solution. In addition, the company provides desk phone, DECT phones, and headset related products. Further, it offers VoIP gateways, session border controllers, telephony card, and managed service provider services. 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There are 8 speakers on the call. Operator00:00:00Good day, ladies and gentlemen, and welcome to the Sangoma First Quarter Fiscal 2025 Results Conference Call. I would now like to turn the meeting over to Samantha Reburn, Chief Legal and Administrative Officer. Please go ahead. Speaker 100:00:17Thank you, operator. Hello, everyone, and welcome to Sangoma's Q1 fiscal year 2025 investor call. We are recording the call and we will make it available on our Web site for anyone who is unable to join us live. I'm here today with Charles Salome, Sangoma's Chief Executive Officer Jeremy Wuggs, Chief Operating and Marketing Officer and Larry Stock, Chief Financial Officer, to take you through the results of the Q1 of fiscal year 2025, which ended on September 30, 2025. We will discuss the press release that was distributed earlier today, together with the company's financial statements and MD and A, which are available on SEDAR Plus, EDGAR and our website. Speaker 100:00:56As a reminder, Sangoma reports under International Financial Reporting Standards, IFRS. And during the call, we may refer to terms such as adjusted EBITDA, which is a non IFRS measure that is defined in our MD and A. Before we start, I'd like to remind you that the statements made during the course of this call that are not purely historical are forward looking statements regarding the company or management's intentions, estimates, plans, expectations and strategies for the future. Because such statements deal with future events, they are subject to various risks and uncertainties and actual results may differ materially from those projected in the forward looking statements. Important factors that could cause actual results to differ materially from those in the forward looking statements are discussed in the accompanying MD and A, our annual information form and the company's annual audited financial statements posted on SEDAR Plus, EDGAR and our website. Speaker 100:01:47With that, I'll hand the call over to Charles. Speaker 200:01:51Thank you, Sam, and good afternoon to everyone on the call. Greatly appreciate you taking the time to join us today and for your support and interest in Sangoma. I want to focus my remarks today on our strategic priorities for fiscal 2025, and why I'm truly excited about our direction. We entered this fiscal year as a completely different company from the one I first joined in fiscal 2024 back in September. For the first time since I joined, we are on very firm ground this quarter. Speaker 200:02:20This is a result of some remarkable efforts and focus by our management team. The necessary transformational work we completed in fiscal 2024 was focused completely inward and we had to. We assembled a top tier of enterprise class leaders, streamlined our operations, modernized our information systems and strengthened our processes. Additionally, we worked tirelessly to enhance our culture and reestablish our corporate identity and brand. We simultaneously ran a separate parallel track where Larry and the team did an outstanding job improving our financial health. Speaker 200:02:56We stabilized our revenue base, enhanced our operating cash flow and substantially reduced our debt. We now have the financial flexibility to expand Sangamo's reach with the groundwork now set for the next phase of our transformation, now however, with more of an external focus. As I mentioned in our Q4 call, fiscal 2025 was all about the pivot to growth. And we had 3 paths to achieve this: organic, market expansion, channel expansion and inorganic growth. Transformations are challenging and hard work. Speaker 200:03:32It's not the sexiest part of the job, but the essential to get done to provide a sustainable long term growth for the company. The reinvigoration of our organic growth engine is rooted in our go to market strategy. This work began in earnest when Monica Walton joined as Chief Revenue Officer in May. And our go to market framework is built on 3 pillars. The first is account expansion or as the industry calls it share of wallet strategies. Speaker 200:03:59The second, new local acquisition. And the third pillar is what we call base building or strategic deals. These are deals multi year TCV transactions greater than $10,000 in MRR. With fiscal Q1 now complete, we now have our 1st full quarter under our belt and a number of our new go to market programs are in place. We are still in the early stages, but we are seeing progress across several key indicators, and this is giving us confidence that we remain on track towards our FY 2025 plans. Speaker 200:04:31Let's start with account expansion per share of wallet. During the Q1, we saw a 6% increase year over year with the number of customers at over $10,000 in monthly revenue. I use this as a gauge to determine customer relevance. Our success stems from expanding the product core offerings for each of our customers, while building our upsell and cross sell capabilities. Over the past 6 months, our net promoter scores has improved significantly. Speaker 200:04:57This is a testament to our investment in customer service and account management and the great work done by our Chief Client Officer, Phil Coppens. The next is new logos. To further support our expanding pipeline and growth ambitions, we have enhanced and invested in new demand generation efforts, targeting 40 to 50 new leads per week. One of our KPIs is the percentage of bookings from new customers. In the Q1, we saw a strong quarter over quarter increase of 42% of our bookings coming from new customers compared to 36% of our bookings in the 4th quarter fiscal 2024. Speaker 200:05:36The 3rd pillar in our go to market is base building or strategic deals. In the Q1, we saw a 28% year over year increase in the number of large UCaaS opportunities in our sales funnel with greater than $10,000 in MRI. These deals are great to build a recurring base and given their size partners love them too. I'm very excited about what I'm beginning to see in the marketplace as customers are starting to adopt essential communications as part of their integrated bundle of solutions. 2 notable examples in the Q1 was a $250,000 TCV deal that we signed with a property management company and an exciting $470,000 TCB deal we signed with a large restaurant chain. Speaker 200:06:18These are exactly the kind of deals that I've been thinking about in the last few quarters. The second vector in our growth strategy is investing and expanding in new markets and channels. We completed our partner segmentation and relaunched the Pinnacle Partner Program, focusing our efforts on our top 400 strategic partners. Additionally, we've implemented a national MDF or market development fund program to support the execution and co selling with these partners. We have over 150 partner events planned for this year. Speaker 200:06:49Through these initiatives, we've stepped up our own business with our top partners, including large scale distributors to revitalize our premise based business. From these efforts, just over the last several weeks, we've seen a significant volume of customers adopting to Anglo Premises after the NEC exit of this market. This is a unique opportunity the team jumped into inside of the quarter. Now on to our 3rd vector of growth, which is inorganic. This strategic approach has been integral to our long term vision from the outset. Speaker 200:07:21Exelaria and its team is exceptionally well in strengthening our balance sheet. We're now in prime position to execute this strategy with confidence and precision. Our new ERP system remains on track for completion in early calendar 2025. The work that we have done to improve our systems, our tools and processes will allow us to actively engage under a proven inorganic strategic methodology. More integrated and streamlined your systems are, the faster you reap the benefits of innovation. Speaker 200:07:52Our decision to focus on paying down debt has been perfectly timed. As macroeconomic issues begin to subside and the cost of capital starts to decrease, Sangoma is now in an ideal position to deploy capital from non dilutive sources. This is due to our strong cash flow generation and ample debt capacity. Work is underway to build a pipeline of potential targets. As we work to align and improve our go to market, we'll continue to refine, optimize and potentially pull back on some of our portfolio investments to advance our long term position as a purified communication platform company. Speaker 200:08:28In summary, I believe fiscal 2025 will be a pivotal year for SunRail. The transformation that we're completing in fiscal 2024 has paved the way for the strategic initiatives that will drive long term sustained growth and value creation. While it's still early, based on everything we've seen, including our progress in Q1, I feel confident to remain steadfast on our guidance for fiscal 2025. I'll turn it over to Larry to speak on the financial highlights. Larry, over to you, Kyle. Speaker 300:08:58Thank you, Charles, and welcome, everyone. We appreciate you joining us for today's call. In a similar vein to the approach Charles has described for tracking our growth and go to market initiatives, we've continued our laser focus on managing a dashboard of key metrics related to our financial health. These metrics support the strategic optionality we have created as a company and a management team. They include net cash provided by operating activities, inventory and accounts receivable which drives working capital and return cash conversion, net debt, revenue, consistent gross profit and gross profit margin, and adjusted EBITDA. Speaker 300:09:37I'm pleased with how all of these metrics have tracked. We're generally on plan or ahead on each. Revenue for the Q1 was slightly below our guidance range, but we are well on track to recouping the difference. Despite the lower revenue, we managed the P and L well and delivered adjusted EBITDA at the high end of our guidance range. During the Q1, our cash performance of the business remains a key highlight. Speaker 300:10:01We generated $12,100,000 in net cash from operating activities, a 55% increase over the prior year period. The efficiency of our business remains high as we have continued to manage our working capital effectively, converting 124 percent of our adjusted EBITDA of $9,800,000 into cash flow. Our strong cash conversion stems from approximately $3,000,000 in net positive changes to working capital during the Q1. This includes $2,300,000 from collecting trade and other receivables and nearly $1,000,000 from inventory. One of our priorities is to reduce existing inventories while conservatively managing new purchases as we anticipate a long term shift towards a higher service product mix. Speaker 300:10:46These working capital cash inflows were partially offset by a $2,700,000 decrease in accounts payable and accrued liabilities. Strong cash flow performance in the Q1 allowed us to further accelerate our debt repayments. We retired an additional $4,300,000 and reduced our total debt by $8,700,000 in the Q1. With $16,700,000 in cash and $69,100,000 in total debt at the end of the Q1, our net debt to trailing 12 months adjusted EBITDA ratio is approximately 1.2 times. Not only on track, but ahead of schedule in reducing our total debt to our stated target of $55,000,000 to $60,000,000 by fiscal year end. Speaker 300:11:30More importantly, by deleveraging the balance sheet, we've created financial flexibility to fund the 3 growth vectors Charles has outlined. Now moving on to the P and L. Revenue for the Q1 of fiscal 'twenty four was $60,200,000 and slightly below our guidance range of $61,000,000 to $62,000,000 Let me explain why. Near the end of the quarter, we had a delay in signing 3 large deals that shifted approximately $629,000 of product business out of Q1 and into Q2. We also experienced disruptions from hurricanes Helene and Milton, which impacted our employees, partners, and customers during the lead up to and aftermath of the storms. Speaker 300:12:10We believe the hurricane impacts led to a slowdown in product volumetric growth at the end of the quarter, particularly around our Switchvox product affecting both non recurring revenue or NRM and monthly recurring revenue MRM. Lastly, in the Q1, we experienced slightly higher churn from legacy contracts at just over 1% for the quarter. The churn was amplified by recent state level minimum wage decisions and macroeconomic factors that have impacted California's retail sector. However, we expect our churn rates to return to our historical levels below 1% in fiscal Q2. The combined impact of these three factors resulted in Q1 revenue coming in slightly below our guidance. Speaker 300:12:54We believe we're on track in recapturing this revenue and we remain committed to achieving our fiscal 2025 targets. Moving on to gross profit and gross margin, our first quarter gross profit was 41,200,000 dollars representing 68 percent of revenue consistent with the preceding quarter. Our first quarter adjusted EBITDA was at the high end of our guidance range at $9,800,000 representing 16% of revenue. The strong adjusted EBITDA performance stems from net cost savings achieved in sales, marketing, and G and A over the past year. Importantly, we've been able to reinvest some of these savings into ERP as well as R and D. Speaker 300:13:34These investments continue to be focused on enhanced portfolio integration, cybersecurity and AI. We're confident that these ongoing investments will pay off as we strengthen our technology platform to bolster our go to market strategies. Lastly, on guidance, this one is easy. For fiscal 2025, we are maintaining our revenue in the range of $250,000,000 to $260,000,000 and adjusted EBITDA in the range of 42,000,000 dollars to $46,000,000 With Q1 tracking largely to plan, we remain committed to delivering sequential revenue growth as we progress through the fiscal year. I share the confidence that Charles has in our current position and excitement over the potential that lies ahead. Speaker 300:14:16We look forward to updating you on our progress of our go to market initiatives and financial performance when we present our fiscal Q2 results in February. That concludes our prepared remarks. Operator, let's open the call up for some Q and A. Operator00:14:31Thank you. We will now take questions from the telephone lines. The first question is from Gavin Fairweather from Cormark. Please go Speaker 400:15:01ahead. Maybe just to kick it off, you referenced the NEC kind of exit from the prem business. Can you just remind us like how big were they? How does the competitive landscape look now? Were you already dealing with a lot of their partners? Speaker 400:15:18And how meaningful could this be for Sangrema? Speaker 500:15:22I'll let Jeremy kind of give you some detail on it. Let me give you a little bit of color commentary. So the trend business is a traditional legacy business for those who really want their voice communications on their premises, as you know. NSE was a very large player in that marketplace. They exited that market because there is a downturn, I think, globally in the prem business as more and more clients adopt cloud based solutions. Speaker 500:15:49However, there is a lot of smaller companies, particularly the midsized market where we play that NSE is not interested in playing in, but still desire the prem type solutions. I'll give an example of one like a hospital, for example. It's mission critical for them to have voice communication during a power outage. So they really can't afford to have their voice be going into a cloud based environment if there was a power outage in the environment. So prem solutions remain a primary requirement for them. Speaker 500:16:16School systems would be another one. Municipal office is another one. And so there is a chunk of market that NEC used to serve, but didn't want to serve any longer because the larger players in the PEM space started exiting and therefore they exited to follow the larger money. So don't know the exact number on the size of the market opportunity. What we are seeing is there's a tremendous number of resellers in our partner community that have sold NEC that have a lot of smaller midsized customers that we play that require that prem solution still, and they needed someone to fill that gap. Speaker 500:16:48We stepped in and filled that gap and are starting to see the benefits of doing so. One final comment, one of the advantages we have is that we're one of the very few companies that can offer the full stack solution of the cloud based, sorry, the voice communication services as well as the hardware and telephony equipment which we manufacture as well. Jeremy, you want to add anything to that? Speaker 600:17:09Yes, I'd add to comment that when you think about the market, it's big. It's still about a $2,000,000,000 market globally. It's declining at about 6%. But that's still a big market. So when you take arguably a 3rd or 4th player out of the market, I mean, you think of buy and the Mitel to some of the bigger ones in the market. Speaker 600:17:28When another player sort of drops out, that opens up a space for people to go after. We're particularly well suited for that space. We have a lot of relationships with the partners that NEC did as well. So we were able to kind of slide right in there pretty quickly. We could have ramped up all our training and support to get those partners enabled quickly and we think there's a lot of potential there and kind of to Charles' point, sometimes those service stem opportunities and they'll evolve through a cloud solution. Speaker 600:18:01So it actually not only does it support kind of growing our NRI business from a prem perspective, we've seen scenarios where we started with an engagement. We thought it looked prem, it felt prem, but it actually shifted to cloud. So you sort of get a 2 for 1 out of those opportunities. Speaker 400:18:16That's very helpful. Maybe just checking in on the macro environment, I mean, some kind of other players have called out election uncertainty in the September December quarters. I'm curious if you saw anything like that down in the U. S. And also curious whether you think the shift in political landscape going forward could drive an improved business environment and demand environment? Speaker 400:18:39We Speaker 500:18:39didn't really see much of an impact. In fact, we saw a bit of a positive lift on that because we have a stiff trunking business that actually helped a lot of the packs reach their constituents in trying to sway voters one way or the other. They use up bandwidth and capacity, we saw a little bit of a lift in that capacity and I think continuing to do so. But as far as sort of major impacts as we go to the election, if that's your question, it didn't really affect us that much. The storms and the hurricanes, that talked about, don't forget, we have offices right here in Sarasota. Speaker 500:19:09Our main office is here in Sarasota. So we had a lot of disruption leading up to these two storms coming in back to back with each other. But as far as elections go, no. As far as macro view of the industry, certainly, the stability, I think, that the markets are feeling today that the results came in, that there is stability now in the political arena in the U. S. Speaker 500:19:34Is going to help us help us a little bit today, certainly with the stock opened this morning. And I think it will continue to the stability will continue to be a positive environment for a company like us to grow in. And I only see more tailwinds than I see headwinds as a result of any political issues in the country. Speaker 400:19:53Okay. And then just lastly for me on the Pinnacle partner for earnings, big part of this effort I'm sure is on the changing partners' behaviors and working on kind of larger, more complex deals. So maybe you can just provide us with a bit of an update on how that partner behavior is shifting, what you're seeing there and also how perceptions of Sangoma are changing as a result? Yes. I mean, a couple Speaker 600:20:16of things I'd say. Our program officially launches on the 12th. But we already started, as Charles mentioned earlier, really to segment our partners. We really focus on the top 400 of them. And that focus for us has really been on helping them understand how we've come out of this transformation that we went through last year. Speaker 600:20:35And we're very focused on that integrated portfolio, the bundled solutions and being able to offer customers just unblock our suite of essential communications under that banner of enterprise capabilities at an affordable price. I'd say that the partners have responded well. I mean, we've seen, as Jocelyn said, an increase in a number of our metrics, some of the volumes from a large deal perspective. We've seen more new logos, 43% of our wins this quarter versus 36% last quarter are coming from new logos. So we're seeing the momentum with the partners. Speaker 600:21:09It always takes some time to build the momentum, but in both the partner program and the activities that we've taken to really drive that channel focus on our top 400, we're starting to see that momentum and we're excited about what it's going to offer us for the next couple of quarters. Speaker 400:21:27Great. That's it for me. Thanks so much. Thanks, Kevin. Operator00:21:30Thank you. Our next question is from Mike Latimore from Northland Capital Markets. Please go ahead. Speaker 400:21:41Hi, Mike. Hi, this is Vijay Deva for Mike Latimore. Speaker 700:21:48So yes, a couple of questions quickly. And the first one would be on, do you see the mix of product versus service changing in Speaker 400:21:57the second Speaker 700:21:58half? And what could be the likely mix for the full year? Well, Speaker 500:22:09the product business and our focus has been on the services business. We continue to stay focused on the services side. Product business is an important part of our portfolio. We've been generally eighty-twenty in that range, 80% services, 20% product. Actually, as we put more and more focus on the services side, you're starting to see the services mix going up to 83% this quarter versus 17% product. Speaker 500:22:33I think the product business can it has a seasonality to it. So there could be some quarters where there's a high demand for product in the quarter and then it will drop back. And we feel that demand and follows ebbs and flows. But generally speaking, you're going to stay in that roughly eighty-twenty rule, I think, for the rest of this quarter sorry, the rest of this year into the second half. But our focus will be maintained on driving higher MRR deals on the services side of our business. Speaker 600:23:01I think the short answer really though is it takes it just takes longer to ramp the services than it does in our business. So coming out of our transformation, we're aggressively focused on go to market building and establishing building existing relationships, establishing new partnerships. And in the short term, it's kind of easier to push on the product sales knowing that it takes a little bit longer to build that momentum and that scale with MRR business with our partners. So what you saw at certain points in time will favor a little bit of the product business because it just takes a little longer to scale MRR. Speaker 500:23:37It's one of the luxuries that we have in Sangoma, which is one of the assets that we talk about is that we have we manufacture our own products. So our own product sales are actually pretty good margin business for us. It's not like a resell of somebody else's. There is a part of our business that is a resell business for sure, but we have a big chunk of our business that is our own product. So we can push the accelerator on either one without being too dilutive to margins. Speaker 500:23:59But our real focus is long term MRR and our service side of business, which takes time to ramp, as Speaker 200:24:07Jeremy said. Speaker 700:24:07Got it. And another question would be, we have said the sequential growth each quarter or some ups and downs in the 3rd or second quarter? How do you look at it in terms of reaching out towards the end of the year? Speaker 500:24:23So as we stated back in Q4, how we started the year off, that there would be the MRR growth business of the company will be sequential quarter over quarter as we go out come out of the internal transformational focus that ended in June of well, continues but really ended in June of 2024. We started the go to market transformation, ramping that up at each quarter as we go through the quarter to get to our guidance of $250,000,000 to $260,000,000 as we stated. So we will see continued growth in the quarter as we execute on the go to market transformational activities, certainly what we're seeing in our pipeline. And in Q2, we'll begin to see more solidified metrics more than what you heard this quarter on how that go to market is performing relative to our ability to execute on the $250,000,000 to $260,000,000 guidance we're giving you. Speaker 700:25:15Great. I think that's it for me. All the best color on the SEC. Thank you. Thank you. Operator00:25:21Thank you. Our next question is from Robert Young from Canaccord Genuity. Please go ahead. Speaker 400:25:30Hi, good evening. First question around the working capital benefits. I assume that's one time and I guess that probably influenced the decision to pay the extra debt down. So I was curious about that. And then maybe if you could remind us on your plans after you get to those debts targets, how the behavior will change? Speaker 300:25:54Sure, Rob. So we've enjoyed solid operating cash flow for several quarters, and we anticipate that to continue. So while I highlighted that in the prepared remarks, I expect to continue to see really nice operating cash flow and allow us to continue to pay down that debt on an accelerated basis. As you noted, dollars 4,300,000 paid this quarter, dollars $5,300,000 paid this quarter, dollars 4,300,000 in prior quarter, and we'll accelerate that to get to that $55,000,000 to $60,000,000 range. And really, as we do that, that gives us these options that Charles keeps talking about, these vectors of growth and how we'll invest that moving forward and have the ability to do both from a cash and debt capacity perspective once we get there. Speaker 300:26:39So I don't expect to see decreases. And while certainly any point in time from another time is one time, I expect to see that continue throughout the fiscal year and continue to accelerate our ability to pay down debt and have cash for other options as we move throughout the year. Speaker 400:26:57Your second part of your question, Speaker 500:26:58what will we do with the debt, with the cash once we get to the debt level? Was that your question, Robert? Speaker 400:27:04Yes. I'm just curious what the how you expect the your behavior to change once you get to that target? Speaker 500:27:09Well, as I said in Q4, actually going into Q1, we had 3 ways to grow the company. The optionality methodology was something that I believed in. Organic growth, which you heard me talk about today through account expansion, new local acquisition and base building and inorganic growth. And that's really as a result of servicing our debt, getting it down properly timed to, I think, good tailwinds from cost of capital going forward. What I would borrow $100,000,000 for last year, it's going to cost me a lot less if I try to borrow the same amount a year from now. Speaker 500:27:45So we've got lots of opportunity now to begin to look at the inorganic methodology. And when we get the debt level to the point where we're comfortable with them, we also have the opportunity, obviously, to look at our portfolio of assets in the company. I spoke about the deposition of assets that would allow us to accelerate debt repayment even further and then potentially allow the inorganic engine to fire off even a lot faster. So these are the levers that we have now at our avail. Now that the transformational year is behind us, as we pivot towards growth, particularly from this quarter, as I told the Board, this is one of the first times, I think, that I've been here after the 4 quarters. Speaker 500:28:25I feel like the company is absolutely on solid ground now. And that allows us the opportunity to begin to execute some of these other elements of growth beyond the organic engine that you've been hearing about that's starting to ramp up sequentially quarter over quarter. We are now going to look at firing off the inorganic activities, looking at how we're going to handle our debt repayment, what other things could we do in the company to accelerate debt repayment that would help to accelerate potentially the inorganic engine. So we're in a really good position right now, I think, to be able to execute on all of these elements. And that's sort of our intention is what we told you in Q4 that this growth of this company will be predicated on a couple of different ways to grow the company operating simultaneously. Speaker 400:29:10Okay. And then part of the question was about the abnormally high cash flow conversion from EBITDA. I understand the cash flow is going to remain strong, but do you have additional levers like is there additional benefit in inventory efficiency or I think you said there's trade payables, like is there more to pull out of that or was this very high conversion? Is that a one time item? Speaker 300:29:32No, I don't view it as well. I mean, at that level perhaps, but I view it in a range that's anywhere from 90 to 100 moving forward, Rob. Okay. That's great. Speaker 400:29:44Second question, on the NEC, just continuing Gavin. Sorry if I'm retracing part of his question. I missed part of what he said. But that's ending, I think, the end of life. But I mean, its support goes to 2,030 and they're shipping through 2025. Speaker 400:30:00And so that seems as though that's a long drawn out process. I mean, is this a large opportunity for you over a long period of time? Or is this like a point in time opportunity? Yes. It's a Speaker 600:30:13good question. I think it's ongoing, right? I mean, I mentioned it's a the premise business is still like globally about a $2,000,000,000 business. It may be declining at 6%, 7%, somewhere around there if you look at sort of the major analyst reports. But there's an entire ecosystem that's built around building reselling PBXs and wrapping managed services around it. Speaker 600:30:34We have lots of partners to do that. That's the business model. Speaker 200:30:37They'll sell a little bit Speaker 600:30:38of cloud, but they're continuing to resell those PBXs. So that whole opportunity that NUCs walked away from, any new sales that are still occurring, they're not on that platform. So we're getting our way into that opportunity and picking up the business. So it's not temporary. It will go ongoing for quarters and quarters. Speaker 400:31:03And are there others of that size out there that you think could possibly end the life or just walk away from the business, anything you see out there in the market that maybe we might not see? Speaker 600:31:15I wouldn't say we see other signs of others doing that. I think you're in a difficult spot if you're a company that only does that. And so we're in a very favorable position in that we kind of have three flavors of our unified communications and premise systems. We have a fully cloud based system for those clients that just want to go pure cloud, like the attribute to cloud and the business model, those who want this kind of high reliability environment that is very advantageous to get some of the cloud features, like some of the premise model, we have a kind of hybrid system, we're very unique in the market around this hybrid model, high penetration in healthcare, manufacturing, retail, other verticals that need that sort of in building high reliability. And then the 3rd piece is having this premise system that we just talked about in NDT exiting. Speaker 600:32:08So with our partners, we're able to say, hey, as a communications platform company, we give you the optionality to to your end customers about all three scenarios. And if they pivot one way or the other way or they want to change that model over time, they are premise one day, cloud the other, and we give our partners the opportunity to kind of take their clients on that journey with a single provider. So we see tremendous benefit not only in just picking up and attacking some of the Zendesk business, but also connecting it to a broader hybrid and full cloud strategy. And it's resonated very well with our Speaker 400:32:43Deb. In the disclosure, you named a number of channel relationships, I think 1, 2, 3, 4, 5, Speaker 700:32:506 of them, I think, in Speaker 400:32:51the MD and A, Telarus, Avant, AppDirect and Telesys Gen, ScanSource. Like, are there any specific about those ones that are relatively important? Are they just the largest, most important ones in the Yes. Yes, they tend to be the largest. Speaker 600:33:06Those are some of the larger partnerships, relationships we have. They're in our top 400 list, but more towards the sort of north side or top side of that. But we're yes, Speaker 500:33:16I mean, we've got a lot Speaker 600:33:18of partners and again, depending on kind of which kind of product lines or flavors sort of support the business model, we kind of inject our product lines kind of based on their business model. If they're managed for service provider that could be certain pieces themselves, they might like more of the prem solution and hybrid solution in a wholesale model. We're fortunate enough to have such a wealth of assets that we can position them into different channel partners to suit their business model and gives them the opportunity to make extra money that they might not make with other partners as well. Speaker 400:33:54Okay. And maybe last question. You highlighted that you're seeing a higher level of new leads per week after the go to market shift and changes. But how does that change in the pipeline? Maybe you can just remind us or remind me on the sales cycle and how these leads move through the pipe and where the new lead activity is likely to benefit revenue? Speaker 400:34:18And I'll pass on. Yes. I mean, the bigger portion of Speaker 600:34:22our new leads are coming in from the kind of the MRR side, the cloud side, which is exciting and very much aligns with our strategy. I mean, the thing that I'd say, and I think Charles commented earlier on in his remarks, from a new logos perspective, last quarter, about 36% of our business was new logos this quarter, this past quarter, 43% through new logos. So that sort of gives you just a sense of these new leads coming in, which are mostly net new customers. Obviously, we know our base, so the new leads are tied to new, real new. So that's where we're seeing the opportunity of leads converting. Speaker 600:34:56So to get to go from 36% to 43 percent in 1 quarter, just as the momentum we're seeing, the new leads are coming in are helping to drive that kind of drive that growth as we want in the MRR business. Speaker 500:35:09And just to get maybe to give you some sense on the sales cycle question that you had, I'll just interject here, right? So what as I've always said, one of the reasons why I love this company when I joined it was that it had such a broad set of assets unlike any other company that I've experienced in the small tech area. And one of the assets obviously is our product business, which we manufacture our own products and services. So our product business and our platform services, UCaaS services, have generally lower sales cycle. We can get them in booked and the revenue is dropping really quickly. Speaker 500:35:43On the access side of our business, where we have multiple locations, less users, but lots of locations spread all over the country, those have a little longer sales cycles and a lot longer to implement. Maybe look more like 6 to 12 months, but at the time you actually begin the conversation with the customer, at the time you're actually seeing revenue come in. So you've got this dynamic between fast rotating revenue that comes in 30 days, you're going to get it to start getting a provision over a 3 month period inside of a quarter, you can pretty much do a deal if it's a pure UCaaS or a pure product. Get into access and networking and that type of thing, longer sales cycles for 6 to 12 months in duration because you've got multiple locations. So it's a we have to manage the pipeline and the revenue calls based on what we're seeing in the pipe on both the short term revenue, the slow sales cycles with the longer term revenue that's more base building, larger those are larger deals and they take a little longer to drop in the quarter that upcoming as you go through implementation and transition. Speaker 500:36:43Does that help, Robert? Speaker 400:36:45That's really helpful. Thanks a lot for taking the questions. I'll pass Operator00:36:53There are no further questions registered at this time. So please, your call has now ended. 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