Sangoma Technologies Corporation Q3 FY2024 earnings call

• Transformation efforts maintained strong momentum, with focus on go-to-market redesign, brand revitalization, and enterprise architecture investments.
• Go-to-market redesign includes appointing a new Chief Revenue Officer, implementing a new sales model, and flattening the organization to collaborate better with partners.
• Brand revitalization campaign involves updating web properties and ramping up channel marketing.
• Enterprise architecture investments include the ERP program, customer support model restructuring in line with ITIL framework, and modernizing instrumentation for better customer satisfaction.
• Product innovation includes audio transcription in video meetings, Sangoma AI Assist for meeting summarization, and the NetOps control panel for unifying MSP services.

In the third quarter of fiscal 2024, Sangoma's revenues were $61 million. Services revenue was $50.4 million, representing 82% of total quarter revenue, flat year-over-year. Product revenue was $10.7 million, 18% of total quarter revenue, down 13% year-over-year. Cost of sales decreased 2% to $18 million, resulting in a gross profit of $43 million, with a gross margin of 70% for the quarter.

• Reaffirmed fiscal '24 revenue guidance: $246.5 million to $248.5 million, adjusted EBITDA $41.5 million to $43.5 million.
• Prioritize debt repayments to reduce debt to $55 million to $60 million in fiscal '25.
• Plan to invest in organic growth, market expansion, and inorganic growth using strong operating cash flow.

• Market dynamics and geopolitical/economic conditions could impact CapEx decisions by companies.
• Challenges in integrating partners and legacy systems during the transformation process.

Q: Congrats on strong the results. Maybe just to start out, just on the growth acceleration as part of our plan. I mean, it's always been part of kind of the fiscal '25 plan, I believe, as you're kind of busy executing on transformation right now. But I guess I'm just curious, when you look into the pipeline, are you seeing any green shoots or KPIs that kind of stand out to you that provide some visibility on the growth acceleration that you're looking to execute on?

A: Yes. Great question, Gavin. I'd say a couple of things. The pipeline continues to grow quarter-over-quarter which is a good sign, obviously. We're seeing larger, more material deals in the pipeline. And this quarter, compared to the previous 2 quarters, we've seen an improvement also in our close rate. So, I'd say we're building momentum. We're trying to drive the multi-products into a single offer out to our clients. Larger deals, sometimes a bit larger -- longer sales cycle but more predictable in revenue. So we're seeing the early indications as we're just starting to do and drive our go-to-market transformation.

Q: Congrats on the nice results in the midst of a transformation here. Maybe can you clarify just a little bit more around the bundle strategy? Do you feel like you have most of the bundles that you want in place now? Or are there more to come? And then over time, do you expect the majority of your sales to be bundles? Or do you still think you'll have a healthy kind of a la carte card in wholesale business?

A: Yes. Maybe I'll just answer a little bit in reverse. I definitely think we'll still have cases where certain channels and partners buy a la carte and then we have other partners and channels that buy kind of the full bundle. I think that's just tied to the different markets we serve, the different verticals, the different kind of use cases that kind of our partners are somewhat comfortable with or kind of where their insertion point is with their different clients. I'd say we're 50%, 60% into kind of bundling the pieces in as efficient a way as I would like to see it. I'd say UCaaS, contact center, some of our CPaaS applications, they're more integrated, more bundled. We're now with some of the managed services and security. It's not bundled as efficiently as I'd like but there's a sales process to go sell it as a bundle, right? So we're selling the full suite of Sangoma out to our customers. I'd say a portion of it, we're delivering as automated isn't as efficient as we'd like. So the goal is to always propose the full Sangoma. The goal is to kind of lift off anything that, if a customer already has UCaaS, et cetera, to then cross-sell kind of the other things that are in the bundle to the existing base. So kind of in both cases, whether it's a new customer, we want to sell everything. Where it's an existing customer, we want to cross-sell or upsell everything. The goal is to sell the full Sangoma proposition but there is a very healthy channel still for kind of selling the 1-to-2s of the things that we have just based on the verticals they serve or even what those partners are comfortable with.