Sangoma Technologies Q2 2024 Earnings Call Transcript

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February 8, 2024

There are 9 speakers on the call.

Operator

Thank you

Speaker 1

for standing by. This is the conference operator. Welcome to the Sangoma Investor Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions.

Speaker 1

I would now like to turn the conference over to Samantha Reburn, Chief Legal Officer. Please go ahead, Ms. Threburn.

Speaker 2

Thank you, operator. Hello, everyone, and welcome to I am here today with Charles Salome, Sangoma's Chief Executive Officer Jeremy Webb, Chief Operating and Marketing Officer and Larry Stoppe, Chief Financial Officer, to take you through the results of the Q2 of fiscal year 2024, which ended on December 31, 2023. 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. As a reminder, Sangoma reports under International Financial Reporting Standards, IFRS, 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 knew 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.

Speaker 2

Because such statements deal with future events, they are subject to various risks and uncertainties, and actual results might differ materially from those projected in the forward looking statements. Important factors that could cause actual results hosted on SEDAR Plus, EDGAR and our website. With that, I'll hand the call over to Charles.

Speaker 3

Thank you, Sam, and good afternoon to everyone on the call. Your presence here is greatly valued as we discuss Sangoma's journey and its achievements. When I joined 4 months ago, I saw the significant potential assets at Sangoma. Given the progress we are making, I am excited now more than ever of our potential and our ability to be a market leader providing communication technologies. The vision that I laid out last quarter is now in motion with concrete steps towards the realization of this direction.

Speaker 3

To kick things off, like to highlight our fiscal Q2 performance as detailed in our recent press release. We closed our Q2 with total revenues of $62,300,000 Alongside adjusted EBITDA of $10,400,000 this translates to 17% margin. This is a testament To our team's hard work and dedication, particularly over the last 120 days. Now reflecting on our discussion from November, when I was still quite new here, We announced and embarked on a transformative 100 day plan for Sangoma. This initiative was aimed at a comprehensive reassessment of our operations, It was crafted to align our strategic direction and was intended to maximize the potential of our assets.

Speaker 3

I am thrilled As Sangoma's expansion through 11 acquisitions certainly brought a rich diversity of offerings. However, realizing the full potential of these assets Requires overcoming the challenge of ineffective integration. Addressing this was the cornerstone of the 100 day plan that I outlined previously. Now, as we are past the initial 100 days, we have a transformative plan that is now in full execution mode. We are swiftly moving towards becoming a more dynamic and agile client centric organization, fully integrated To meet the evolving needs of our customers.

Speaker 3

The true value of Sangoma lies within the integrated offer we can provide this market. Today, I'm super excited to share some key milestones in this journey. First, we made some changes to our management team, Including augmenting it with strategic hires aligned directly to support the company's needs. We've hired Mark Schon as the company's first ever CIO. Mark's deep experience in IT transformation is invaluable and its addition signifies a major step forward for Sangoma.

Speaker 3

Additionally, as part of our forward looking go to market strategy and the overhaul that this entails, we further strengthened our team By introducing a seasoned global sales operations leader and a new marketing head, whose respective focus will be on enhancing our marketing presence And defining Sangoma's brand in the industry. My leadership team is now in place to lead Sangoma into a new era. In our organizational restructuring, we've streamlined functions and aligned our leadership with specific operational functions that enhance our agility and innovation capacity. The street structure not only drives innovation, but it also has led to a significant cost reduction, which Larry will discuss in far more detail. Savings that can be applied to the growth transformation we are about to undertake.

Speaker 3

But our approach balances nurturing our diverse and existing portfolio With expanding into new markets through bundled offerings, targeting sophisticated mid market clients, this dual strategy aims to cater to both our traditional base It enables new growth avenues to be opened. A key commitment I made from last quarter was to self fund this transformation, a goal I am proud to say we've successfully achieved. Larry will confirm this in his update. Our product offerings are being fully rejuvenated with new and innovative bundles marking Holy phase of Sangoma's commitment to being a dependable innovation partner to our vast ecosystem. Jeremy will share insights into these developments and our customer support enhancements, which we aim to complete by the end of this fiscal year.

Speaker 3

We've also reimagined our market strategy, leading to a revitalized approach Jeremy will further detail. Our internal operations have experienced significant improvements, moving away from outdated processes and systems That previously hindered our efficiency and our scalability, these changes are pivotal to Sangoma's growth, enabling us to better meet The market's demands. This decisive operational overhaul is already generating positive contributions to the overall financial performance of the company. But it should be expected that this level of transformation, the needed yet opportunistic changes we are making to capture our full market potential We'll show a lag before it translates to revenue contribution. Yet, with our clear strategy, the right leadership in place, reliable execution and transparent communications, we are now in a position to provide financial guidance for our full fiscal FY 'twenty four, which Larry will detail in just a few moments.

Speaker 3

With that, I now pass the baton to Jeremy Webb, Sangoma's Chief Operating and Marketing Officer, to dive deeper into our strategic market and product initiatives. Jeremy, over to you.

Speaker 4

Thanks, Charles, and thank you all for joining our call today. While I've spoken to some of you since Joining in September, I look forward to more collaborative engagements with the investment community in the weeks months ahead. I'd like to start by saying that I I've worked with Charles for many years, and I can't recall a time when he was this enthusiastic and energized by what's already been accomplished and what's ahead. So let's jump in and share some details on the changes we've made across the organization, starting from our go to market strategy and then working our way into the company. Sangoma has a long successfully focused on selling component technologies to a broad and diverse clientele, a practice that will remain a crucial underpinning throughout our transformative stage.

Speaker 4

However, as our company achieves greater effective internal integration, it This ability to expand our offerings has and will prove instrumental in serving clients with more complex And rapidly expanding needs, whether that be network modernization, technology updates or more broadly leveraging cloud based communications capabilities Let me share with you a recent client win to help illustrate how this is already bearing fruit. Recently, a statewide park department in the United States required a comprehensive solution for managing a series of parks. This client was looking for an experienced provider to take accountability for delivering and managing a full stack technology solution, including ongoing maintenance and support. This is exactly the type of client the bundled capabilities of Sangoma can reach. Smaller vendors providing point solutions or components, They put the burden on clients to manage and integrate these pieces themselves and larger vendors would have difficulty providing the capabilities and support needed at an affordable price.

Speaker 4

Sangoma is well positioned to play in both the small market and more sophisticated mid market. Client examples like this recent win offer higher MRR and NRR potential for both Sangoma and its VaaS partner ecosystem. As you can see, things are changing rapidly. Achieving complete and effective integration position us to offer not just component technologies, but feature rich recurring services To more sophisticated clients in specific mid market industries. Looking forward to fiscal year 2025, we anticipate tapping into market segments Such as retail, small and medium sized government agencies, hospitality, healthcare and in general more distributed enterprises, whose challenges and sophisticated requirements align perfectly with our bundled solution capabilities.

Speaker 4

To be clear, a go to market Adaptation of this scale will take time to ramp and there'll be a lag before it delivers material results. But I'm excited about the clear opportunity, Encouraged by the early improvement and success we're already seeing. So now let's shift a bit more inward. As Charles mentioned earlier, Sangoma brings to market a world class breadth of offerings. That's a big part of what attracted me here.

Speaker 4

But we've come up short on the consistent reliable innovation As I mentioned earlier, the integration that our end market demands. The increasingly sophisticated SMB segment, Our key market is seeking enterprise like capabilities at affordable prices. To address this head on, we've established an innovation team led by our CTO, Nannad Corbic, With a clear mandate to deliver new product features and enhancements with a reliable cadence, all of which is underpinned by best in class Customer service and support, working in partnership with Mark, our CIO. While it's still early, we've already made significant strides. Among them, Our ability to harness the power of AI technologies across the portfolio, including real time and post transcription services, summarization, Sentiment analysis, knowledge processing and virtual assistant functionalities.

Speaker 4

Yes, these plans are ambitious and executing them successfully will be a complex undertaking. But we now have a clear strategy, the right team in place, and we're on our way to unlocking the full potential of our platform. I look forward to your questions and increased dialogue with the investment community in the weeks and months ahead. And with that, I'm pleased to hand things over to

Speaker 5

Great. Thanks, Jeremy, and thanks to everyone for joining us today. I'll share with you some details of our fiscal second quarter results in just a moment. But I'd first like to focus my remarks today on the strides we've made as an organization that I'm very proud of, particularly in the face of a challenging backdrop. Despite current top line revenue trends, our financial discipline has never been stronger, as evidenced by our sequential adjusted EBITDA growth and margin expansion.

Speaker 5

But What I'm most pleased about is our balance sheet. In my tenure, it's arguably never been in better shape. There was 17% sequential increase in cash flow from operations and record high cash conversion. To help frame this, let's step back for a moment to our fiscal Q4 of last year, which ended on June 30, 2023. At that time, we made the prudent decision to accelerate the remaining quarterly issuances of Sangoma shares Owing to the start of star sellers that were scheduled to continue until fiscal 'twenty six.

Speaker 5

Fast forward to this past quarter, which ended on December 31st, Our robust and reliable cash generation enabled us to successfully expedite the remaining tax benefit payment to the Start A Star sellers well ahead of schedule. This marked an accelerated end to Sangoma's payment obligations and balance sheet complications relating to this acquisition. These deliberate decisions reflect our dedication to simplifying the company's financial landscape by eliminating the lingering complexities. By settling this financial commitment ahead of schedule, we have strategically unburdened our balance sheet, providing us with a clear path To prioritize and fuel Sangoma's growth initiatives. From an operational standpoint, inventories remain at healthy levels, Down marginally versus last quarter and our robust and reliable cash generation has enabled us to consistently pay down debt.

Speaker 5

So how did we get here? Well, in our fiscal Q1, we made the difficult but necessary decision to right size the organization through headcount reductions, Real estate and vendor consolidation and other related rationalizations, all with the objective of becoming more agile and focused. As compared to our Q1 annualized run rate, these structural changes have resulted in approximately $6,000,000 of cost savings in the fiscal year And $9,000,000 on an annualized basis, considerably ahead of our internal forecast. Now let's get to results, metrics and guidance. Revenue for the Q2 of fiscal 2024 was $62,300,000 up fractionally compared to the same period a year ago And down 1% on a sequential basis.

Speaker 5

Let's look a little deeper. Services revenue increased to $50,700,000 representing 81% of total quarter revenue, up 3% compared to the same period a year ago, yet declined just under 1% sequentially. Our services business has experienced a notable uptick in revenue year over year and the slight decrease in services revenue quarter over quarter is attributable to the transformation of our go to market strategy that Jeremy and Charles discussed earlier. Product revenue, Representing 19 percent of total quarter revenue declined from $11,900,000 to $11,600,000 a decline of 3% sequentially. In large part due to prevailing geopolitical and global economic conditions, which many companies are facing related to CapEx.

Speaker 5

Cost of sales during the Q2 decreased 5 percent to $18,300,000 compared to $19,200,000 a year earlier. The decrease is primarily due to overall revenue mix. This translated to a second quarter gross profit of 44,000,000 up 3% compared to the same period last year. Gross margin for the Q2 was approximately 71%, up 2 percentage points from the same quarter last year due to the favorable revenue mix. Our 2nd quarter operating expenses consisting of sales and marketing, Research and development, general and administration and amortization of intangible assets totaled 44,500,000 versus $45,000,000 in the Q1.

Speaker 5

Starting in the Q2 of fiscal 'twenty four, the company has removed amortization of intangible assets From the general and administration expenses to give a more accurate view of the company's hard costs. The slight decline in operating expenses was due to cost savings initiatives and previously announced headcount reductions. 2nd quarter adjusted EBITDA was $10,400,000 representing approximately 17% of revenue And up nearly 6% sequentially on higher margin due to the revenue mix and the cost savings initiatives. Net loss for the Q2 was $3,200,000 or $0.10 per fully diluted share compared to a net loss of 2.7 or $0.08 per fully diluted share for the equivalent period last year. Now before moving on to the balance sheet and cash flow performance, I'd like to comment on operational metrics.

Speaker 5

We've heard the feedback from the investment community on the importance of disclosing relevant operational metrics It's valuable tools used in effectively measuring the health of our business, and we agree. Specifics around how and when we disclose particular operational metrics We'll evolve over time, but we anticipate sharing greater operational transparency beginning in our fiscal 'twenty five. In the meantime, an operational mainstay of Sangoma's platform that I'm particularly proud to share is the stickiness of our services business. Our FY 'twenty four to date services revenue churn is 0.9%, underscoring the reliability and value our services provides to our With that said, let me discuss in more detail a few cash flow and balance sheet items referenced earlier that I'm particularly pleased about. During the Q2, we generated $9,190,000 in cash flow from operations, almost double $4,980,000 generated in the same quarter last year and a 17% increase over last quarter.

Speaker 5

This was driven by our ongoing focus on efficient working capital management and our prudent approach to cash spending. Cash conversion of cash flow from operations to adjusted EBITDA during the Q2 reached 88%, almost 2 times the rate compared to 47% a year ago and 79% from the immediately preceding quarter. We finished the quarter with cash balances of $10,600,000 Paid down $4,400,000 on our term loan, satisfied the contingent consideration payable of $2,100,000 and continued to trim inventory. Each of these metrics reflects our consistent progression of quarterly cash flow generation and laser focus on working capital management. I remain pleased with our cash flow from operations and look forward to sharing with you our cash allocation methodology currently being finalized on our next call.

Speaker 5

As you may recall, we temporarily suspended financial guidance on our fiscal Q4 earnings call in September As we embarked on our strategic transformation, given the strides we've made to date in our transformation plan and Sangoma's pivot to sustained Profitable growth now in motion. We are confident enough in our visibility to resume forward financial guidance. We are already seeing results from the changes we've made, and we expect to continue to see those contributions as the go to market transformation continues. With that said, We expect fiscal 'twenty four revenue in the range of $245,000,000 to $250,000,000 and adjusted EBITDA in the range of $41,000,000 to $44,000,000 Before I close, I'd like to thank Sangoma's dedicated team members around the world for their commitment and focus. I'm sure that they are all as excited as we are With that, I'll hand it back to Charles for a few closing remarks.

Speaker 5

Charles? Thank you, Larry.

Speaker 3

As you can tell by now, we have quite a bit going on, but I am thrilled to share with all of you the remarkable progress we've made against the transformation plan. These changes, while challenging and complex, are not just remedies. The pivot of these changes that are set into motion will enable Sangoma to remain the market leader Throughout this process, our leadership team has left no stone unturned. And as this transformation across people, product, marketing, financials begin to take Jay, I am extremely excited by what lies ahead for us. I'd like to close by extending my absolute gratitude to our employees, Our partners and our investors for your unwavering support and confidence in Sangoma's direction.

Speaker 3

With that operator, please open the call to all questions.

Speaker 1

We will now begin the analyst question and answer session. The first question comes from Max Ingram with Canaccord Genuity. Please go ahead.

Speaker 6

Hi, good evening. This is Max on for Rob Young at Canaccord. Thanks for taking my question. Maybe just Three quick ones for me, starting with hi. Starting with, first, gross margins were strong this quarter, Better than the last couple of quarters.

Speaker 6

Just digging into the drivers there, is that primarily a result of mix Or is there some pricing in there? Any color would be helpful.

Speaker 5

So, Max, yes, this is Larry. Most of that is driven By the mix, right, services revenue was 81% this quarter, and that drives a lot of that. What I can tell you, though, is that We're seeing for both services and product, they both had fairly consistent overall margin profiles this year, and the mix really drives that change that we've seen this quarter.

Speaker 6

Okay. That's helpful. And then secondly, during the transformational period, and it sounds like The priorities for cash, I think you had said, are going to be officially released next quarter. But my question there was, it sounds like M and A right now isn't At least last quarter, it didn't seem like it was going to be a priority going forward. So I was wondering if there's any And you can share on how you're thinking about using the cash, it's going to go towards debt pay down or anything else you'd like to do with it?

Speaker 3

The transformation obviously is a longer Process for us, we're kind of right in the middle of it. As CEO, my job is clearly to focus on delivering healthy and sustainable profitable growth, Building the cash reserves, strengthening the balance sheet gives us lots of optionality and right now, now that we understand the position of the company and its financial strength and where it's We're going to be sharing with you some of our capital allocation strategies as we go into the next quarter call. We just need some time to really look at all the options that are now available to us more than We've had before. I would want to make sure we're thoughtful about it and we will be communicating that to you in Q3. Okay, thanks.

Speaker 3

That makes

Speaker 6

a lot of sense. And then Quickly last question is, last quarter you discussed a focus on reinvigorating the brand of the company, not just to partners, but to the end customers.

Speaker 4

I was wondering if you

Speaker 6

can add any additional color on what strategies you're employing there? And then I'll pass the line. Thanks.

Speaker 4

Yes. For us, it's really critical that the end customer has a clear understanding of the value proposition of Sangoma. I think, historically, We've left it to our partners to communicate that to the end customers. Obviously, our focus continues to be very much on partners, partners as our route to market. We're making investments around communicating to our end customers, whether that's through events, normal go to market activities, how we're going to go in How we're going to go and make sure our end customers have a good view and create that pull into the partners.

Speaker 4

So, It's Jeremy as the marketing officer also responsible for our go to market. That's really critical for us to help drive Sustainable growth on a go forward basis.

Speaker 3

And I'll just add to you, we just brought Maria on board, our new Head of Marketing, Lou's had tremendous experience in some of the brand revitalization programs. She's here now and that's the whole idea is to continue to push that brand to our end customers, Make our brand relevant to the industry that they're focusing on, and really kind of get this full strategy going. So part of that management restructure that I spoke about, Maria's addition

Speaker 1

The next question comes from David Kwan with TD Securities. Please go ahead.

Speaker 7

Hi, David. Good evening.

Operator

Hey, guys. Just want to clarify the services revenue, so that declined this quarter sequentially. And I think you talked about the impact of the transformation as it relates to the go to market strategy. Was that just General disruption because of all these changes that you've been making or is there something else going on? I know in the past, there was a SIP trucking, Wholesale subtracting business, I don't know if that had come back again or if there it was just all the distractions from all the changes you guys are doing right now.

Operator

Yes.

Speaker 5

Thanks for the question, David. Nothing structurally from that point of view at all. It's really the change in the go to market as we initiate The balance sheet and throughout the P and L. So nothing other than that at this point.

Operator

Okay. That's helpful. And the guidance just it seems to imply, I think, maybe mid single digit type growth in services revenue. Does that kind of make sense from how you guys are looking at it? And how should we be looking at it kind of going forward?

Operator

I know in the past, There was a target of getting to 10% annual growth. Is that still a realistic target maybe a year out from now?

Speaker 5

Well, David, we've issued guidance for the remainder of 'twenty four, which we've reinstituted here. We're ready to pivot more towards that revenue growth that we see in the business. As we get closer to the end of 'twenty four and get into 'twenty five, we'll share some guidance Really at that time with respect to how we see that moving, as you know, we do expect a bit of a lag from the time we implement this new go to market strategy and when we see the revenue. But make no mistake, our long term priority is still consistent growth in Sangoma's revenue with absolutely that emphasis on services revenue quarter over quarter.

Operator

That was helpful. The last one also related to the guidance, I guess, it seems like it implies A continued decline in the product revenue. Is that more a macro geopolitical that you guys You talked about that kind of an issue or are you guys, I don't know, maybe deemphasizing that part of the business?

Speaker 5

Yes. So certainly, the global economic conditions, interest rates, shipping interruptions and Other uncertainty, absolutely plays a role from that perspective, and we do see somewhat of a conservative approach by In terms of how they look at CapEx. However, I think if you look and you see where we're guiding From what we're seeing today, that's our visibility as it is right now, and I would expect that to continue throughout the rest

Speaker 3

of the fiscal

Speaker 4

year. I'm going

Speaker 3

to add a A couple of comments on that, right. So product revenue, obviously, it runs through not only macroeconomic issues, but seasonality as well, the Customer buying periods and things of that nature. But the main message I would give you, David, is there There's no moving away from that. It is part of the value proposition of Sangoma, as I've said many, many times, is locked in the value of the bundle. The bundle includes the components and endpoints and products that our customers require for their full stack solution.

Speaker 3

We see that as an Incredible value differentiation to any other player in the marketplace. The product business is as important as the services business to us. We'll continue to be driven as part of the overall go to market As Jeremy told you, I told all of you that the historical view of the company was traditionally selling the components Mostly on their own, primarily because of some of the processes. All of this transformation that we're doing is to enable us to put these components together. One of those components happens to be product.

Speaker 3

And our clients are pulling product in as part of the overall services bundle and the full managed offering that we provide. So Just as important, will continue to be as important and is a clear differentiator in what sets us apart from your traditional UCaaS type player in the marketplace.

Speaker 1

The next question comes from Gavin Fairweather with Cormark Securities. Please go ahead.

Speaker 3

Hey, Gavin. Hey, Gavin. Hi.

Speaker 6

This is actually Graham on for Gavin. Gavin is just traveling.

Speaker 5

Hi, Graham on for Gavin.

Speaker 7

I was hoping you could give a bit more color on the timeline The AI product development, maybe you

Speaker 4

could just give some rough guidance, that would be helpful. Yes, no problem. A number of those Capabilities actually just came into marketing in January for our contact center solutions. And then the rest you're going

Speaker 3

to see over February

Speaker 4

March. I'd say we started in November, started to get the technology in the lab, started to test it with some clients, and now we're releasing it in January, February March. So, you're going to see it pretty much across the product lines that are on our UCaaS platform. You're going to see some new capabilities too in March around AI embedded in some of our security offerings, pretty comprehensive and across the portfolio.

Speaker 3

One thing I would add to that as well, just on one of Jeremy's Key deliverables, particularly in his first couple of months that he's been here, was the recognition That second pillar of our brand strategy is innovation. I talked about innovation support, a strong broad ecosystem of partners and some of the best talent In the industry, that first pillar of innovation needed to be nurtured and triaged, which Jeremy has done now by building in Sangoma Innovation Center of Excellence. That center of excellence will continue to produce innovative new products and features on a very regular cadence as you heard in his opening remarks. So This is not a one time thing with the first tranche, which January just talked about in January, a second tranche coming in March. It will be a consistent theme So that we can consistently meet the very changing needs of the small and medium business market and again create the differentiated value that we bring to the market that others don't.

Speaker 3

So That is going to be something you'll see not just on a time band, but a consistent approach almost every quarter, We will be launching new features and functionalities that continue to enhance our brand. So I just wanted to reassure you that this is not something I'm doing one time As a company, that is the brand of the company, and that will continue to be a cadence for us on a going forward basis.

Speaker 7

That's helpful. Thanks. And just to sort of get some clarity on that, have you guys been how is the early demand For those solutions, are you guys looking to kind of upsell customers on those? Are you going to start trying to maybe lead a bit more of your AI solutions? Any clarity on that would be great.

Speaker 4

Yes, I would say it's a combination. So there your customers buy the higher end packages and it comes with some of the more advanced transcription capabilities or other AI capabilities built in. And as a strategy, some of these, I'd say, similar capabilities are available in high very So our strategy is to take the very practical things that we know are of interest in high demand in the SMB market And build them into the kind of the tiering of our offering. So it's coming back to what I talked about earlier, which is getting enterprise like capabilities at affordable prices. And not AI for the sake of AI, but AI for the sake of practical things that really benefit businesses that are in that segment.

Speaker 7

That's great. Thanks. And then just moving to the channel, how is the optimization of

Speaker 3

It's progressing very well. I mean, one of the things you have to understand as part of Transformational program of Sangoma is that we were made up of 11 companies. And those 11 companies were to some degree bifurcated by the Acquisition that they were in. And so our idea now is to bring some of these partners together, bring our enablement of our solutions to those partners To kind of create the optimized channel that we're looking for and that allows us to segment our partners better understand the various needs of our partners based on their customer base and the agents All of that is coming along quite nicely. I've had multiple discussions with our top partners at various senior levels.

Speaker 3

They are excited about the changes we're making in the company. They're excited about what they can do with us and the sort of new Sangoma approach. And We're going to have a very and you're going to see more. We'll talk more about this as we embark further into the go to market transformation about how we're going to actually segment our partners And how our go to market approach will be quite bespoke to the various partner segments to ensure optimization is at its highest level by partner segment. So More to come on this.

Speaker 3

We're just really getting into the go to market component of the transformative plan. And I'll share more with you guys in Q3 and Q4 and how that's That's a great question.

Speaker 7

That's great. Thanks. And then just a last one for me before I pass the line. Kind of the midpoint of the guidance implies EBITDA margins coming up to just over 17% if I'm looking at that right. Can you just talk about How you expect the cadence of

Speaker 4

that to progress over the second half

Speaker 7

of the year? Is that just pretty much all from the cost efficiencies that you guys I've been putting in, if there's some, yes, if you could just maybe give

Speaker 3

a bit more color on

Speaker 4

how that ramps, that would be great.

Speaker 5

Sure. It's really a combination of things, right? So the revenue mix for sure from a margin perspective and then the cost savings initiatives that Have just begun, as you've seen in the progression from Q1 to Q2 for us on the OpEx line, continue as we get into Q3 and then to Q4. So it will progress as we get through the year, evenly as we put those in place.

Speaker 4

Thanks.

Speaker 1

The next question comes from Mike Latimore with Northland Capital Markets. Please go ahead.

Speaker 8

Hi, Mike. Hi. This is Vijay Devar for Mike Latimore. I just have a couple of questions. One on the sales cycle, if you could comment on how the sales

Speaker 3

Sorry, was the question of how are the sales cycles coming along?

Speaker 4

That's a great question. I'd say increasingly, as we've done a better job of packaging the integrated offers, we've seen that kind of a reduction in the sales cycle for the bundle. I'd say that kind of that being said, back to Charles' comment earlier about the partners and the partner ecosystem, we still have

Speaker 3

some work to do

Speaker 4

to figure out What are the right bundles for which partners to because the partners themselves are a key part of that cycle. So I'd say Exciting progress to see so far, but we've got more to come as we optimize and figure out the best way to manage and grow through our partner ecosystem.

Speaker 3

I mean, I would tell you that the 1st 120 days that I've been here, and certainly Jeremy as well, our focus has been on some of the key operational components, which we've been about and getting those things really fine tuned inside the company. Because of that, the outcome of that will be a much more efficient Bundled offerings because one of the issues that we had during the transformation was actually integrating all the components. Now that the components are integrated, Now we can actually produce them at a much faster rate. And the analogy I'll give you is we had a whole lot of ingredients in the kitchen. And what we did today is build the right kitchen to put those ingredients together far more efficiently.

Speaker 3

And that's certainly where we're at right now. We're in the point now of being able to measure the sales cycles on these bundles. But we're 120 days in We're just beginning to see that process. So more data in Q3 and Q4, I noted that question and we'll kind of let you know how that's going with some real metrics on that as we go into Q3 and Q4.

Speaker 8

That's fair. Sure. That's quite interesting. And maybe one more, if I can sneak in. On collections and bad debt, do you see them declining as you made this transformative plan?

Speaker 5

Yes. So we're very pleased with our AR and how quickly we turn AR into Cash, that's evident with the cash position that we have and have quickly returned it, there's nothing of any concern that I have relative To the AR base, we're not seeing any issues currently with anything economic that's driving anything. Yes, yes. No, certainly, no, nothing like that.

Speaker 1

This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Sangoma Technologies Q2 2024
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