Sangoma Technologies Q2 2026 Earnings Call Transcript

Sangoma Technologies (NASDAQ: SANG ) held its second-quarter earnings conference call on Wednesday. Below is the complete transcript from the call. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

3 million. The company saw significant improvement in MRR bookings, up 67% sequentially and 60% year over year, driven by larger strategic deals and an enhanced partner program. Sangoma is focusing on scaling its go-to-market strategy with a $2 million investment in SG&A, aiming to strengthen its mid-market presence and maintain strong financial discipline. Operational highlights include a large strategic deal with a retail customer, and ongoing strength in their hardware and carrier voice solutions, with bookings translating into a strong backlog for Q3.

Future guidance indicates expected revenue of $205 million to $208 million for fiscal '26, with adjusted EBITDA margins between 17% to 18%, highlighting a return to organic growth post divestiture adjustments. Full Transcript OPERATOR Thank you for standing by. This is the conference operator. Welcome to Sangoma's second quarter fiscal 2026 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 to ask questions. To join the question queue, you may press star then one on your telephone keypad. If you need assistance during the conference call, you may reach an operator by pressing star then zero.

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

Hello everyone and welcome to Sangoma's second quarter of fiscal year 2026 investor call. We are recording the call and we will make it available on our website for anyone who is unable to join us live. I'm here today with Charles Salameh, Sangoma's Chief Executive Officer, Jeremy Wubs, Chief Operating Officer, and Larry Stock, Chief Financial Officer. Charles will provide a high-level overview of the quarter.

Jeremy and Larry will then take you through the operating results for the second quarter of fiscal year 2026, which ended on December 31, 2025. Following their presentation, we will open the floor for Q&A with analysts. We will discuss the press release that was distributed earlier today together with the company's financial statements and MD&A, which are available on SEDAR+, EDGAR, and our website. As a reminder, Sangoma reports under International Financial Reporting Standards, and during the call we may refer to terms such as adjusted EBITDA and free cash flow, which are non-IFRS measures that are defined in our MD&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&A, unaudited condensed consolidated interim financial statements, our annual information form, and the company's annual audited financial statements posted on SEDAR+, EDGAR, and our website. With that, I'll hand the call over to Charles. Charles Salameh, Chief Executive Officer Good afternoon everyone and thanks for joining us. I'm pleased to report that fiscal Q2 tracked right to plan, including one of our strongest booking quarters in recent history.

This is a clear indication that our go-to-market strategy is gaining traction and that the investments we've made in positioning Sangoma for growth are starting to show tangible results. As we outlined last quarter, Q2 would show sequential revenue growth and we delivered on that expectation. 2% sequentially, and importantly, service revenue grew 1%. This is an important signal as it reflects the early impact of improving bookings momentum beginning to translate into recurring revenue growth.

3 million in adjusted EBITDA with 16% margins, and conversion of adjusted EBITDA to operating cash flow was very strong at more than 120%. 24 per fully diluted share. Building on the KPIs we introduced last quarter, we're starting to see sustained progress in our mid-market strategy. Pipeline conversions remain solid, our bookings profile continues to improve, and we're seeing growing traction across our verticals and our wholesale motions.

Collectively, these trends highlight the increasing effectiveness of our platform approach and our ability to execute at larger scales. With regard to pipeline, our pipeline remains steady in Q2, reflecting a healthy balance between new opportunity creation and deal conversion. Importantly, we continue to see improvements in our close rates, which reinforces both the quality of the pipeline and the effectiveness of our go-to-market execution. On bookings, MRR bookings grew significantly, up 67% sequentially and 60% year over year.

As we increasingly engage with these larger, more complex mid-market opportunities, we expect some quarterly volatility but with a higher long-term value and stronger recurring revenue. This is exactly the type of shift we want to see as we scale this business. On churn, also very proud of this, we saw sequential improvement in the churn rate. Retention remains excellent, with blended churn holding just under 1%.

This reflects the stability of our recurring revenue base and the progress we've made in our customer experience, service delivery, and platform stability. Now, as we continue to execute on our FY26 priorities, we are seeing momentum across all the business. Our essential communications platform, combined with more focused solution bundles, deeper vertical alignment, and a strengthening partner ecosystem, is enabling us to compete more effectively for larger, multi-site, and more strategic mid-market opportunities.

More broadly, this reflects a shift in how customers are buying, and we're seeing that dynamic increasingly show up in the structure and the quality of opportunities we're pursuing. The progress we are seeing is not isolated to individual wins but is visible in the overall size of the opportunities, the quality of those bookings, and the breadth of the customer segments engaging with us on our platform. With our leadership team, our operating systems, and our partner programs now firmly in place, we are investing to scale our go-to-market engine.

As outlined last quarter, we committed approximately $2 million in incremental SG&A to accelerate pipeline development, customer acquisitions, and execute on partner enablement. In Q2, we began deploying these investments in a measured way, focused on building momentum while maintaining strong financial discipline. Our approach to capital allocation remains balanced and pragmatic. We continue to reduce debt and return value to our shareholders through our normal course issuer bid.

At the same time, we maintain the flexibility to pursue strategic and selective, accretive M&A aligned with our strategy should the right opportunity show up. Before I hand it over to Jeremy, I want to take a moment to step back and frame how we see the next phase of our business. What we are seeing in the market today, particularly in the mid-market, continues to reinforce the direction we've been intentionally pursuing over the past several years. Customer expectations are evolving towards fewer vendors, more integrated solutions, and partners that can deliver dependable service in industry-specific contexts.

In this environment, scale becomes a strategic priority—not as an objective on its own, but because it supports stronger economics, consistent execution, and deeper long-term customer relationships. The key point here is that our ability to pursue scale is now an enabler for Sangoma rather than a constraint. The foundational work we completed has positioned Sangoma extremely well. We have the balance sheet, the operating discipline, platform breadth, and the partner ecosystem required to grow organically while also being able to pursue opportunities that expand our scale and momentum as industry dynamics continue to evolve.

As a result, we have real flexibility in how we move forward. That includes continuing to execute organically, selectively expanding the platform where it makes sense, and maintaining the ability to evaluate broader opportunities as the market continues to mature. Any path we pursue will be grounded in discipline and a clear focus on long-term value creation, as we have been doing for the past two years. And importantly, you've already seen the impact of the foundation show up in the fundamentals—stronger bookings, a growing recurring revenue base, improving churn, and consistent cash generation.

I want to thank the entire Sangoma team for their continued focus and execution, as well as the key stakeholders who have been with us through this entire transformation. The progress we're seeing is the direct result of the work being done across the whole company, and it's what positions us well for the next phase of our growth. Jeremy is now going to walk you through how the momentum is translating into our go-to-market execution and our booking performance. Over to you, Jeremy.

Thanks. Jeremy Wubs, Chief Operating Officer I am pleased to provide an update on our go-to-market progress. Building on the bookings momentum Charles highlighted, what I want to emphasize today is how those wins are being driven and why we're confident in the trajectory of our go-to-market engine. As mentioned, our pipeline remains healthy and we continue to convert a balanced mix of volumetric business and larger strategic mid-market opportunities.

8 million for the first half of fiscal 2026. Equally important, we backfilled the pipeline as we move into the second half. These bookings further validate our strategy as an essential communications provider and our ability to move upmarket. Several of these large wins also include upfront product or NRR components and will contribute to a slightly higher product mix in Q3.

In prior quarters I referenced a number of our go-to-market strategies targeting service providers, MSPs, vertical solution providers and wholesale opportunities. Regarding the wholesale opportunities, last quarter I talked about a FELAC win of over 20k MRR and a comparable deal in our pipeline for a large healthcare organization of 12k MRR. I'm very pleased to confirm that this opportunity, which supports two large hospitals and nine urgent care facilities, is now a close win. We also closed a large multi-location retail customer worth 18k MRR that previously had three separate vendors for voice, access and managed services.

This client was looking for a single provider and valued the bundled solution from Sangoma to standardize the technology stack across all locations and ensure scalability, repeatability and simplified support. Our most substantial service win this quarter was a greater than 150k MRR deal with a large distributed retail customer with 350 plus locations and a fragmented and disparate business communications environment. This customer was also looking for a single provider to once again ensure scalability, repeatability and simplified support.

Beyond these large and strategic MRR wins, our hardware products such as our Prem UC products, phones and gateways continue to contribute to our product revenue as they move through distribution. I'm very pleased that this channel continues to show strength. With revenue up 4% over the same quarter last year, we are also seeing strong momentum with our carrier voice and trunking solutions. During the quarter we announced a contract with Kameo who selected our wholesale SIP trunking solution to support their nationwide cloud, voice and messaging footprint.

They are one of many new customers that are leveraging our trunking infrastructure, which is up over 10% from the same quarter last year. I'm encouraged by the progress of our go-to-market. We have a disciplined and focused team driving a growing pipeline in the volumetric business alongside larger strategic opportunities. These larger deals are being closed and we will see the revenue impact in later quarters, providing solid visibility towards our growth.

I want to extend my thanks and appreciation to the entire Sangoma team. It's truly a team effort for the continued execution and focus on driving sustainable, profitable growth. I'll end here and pass things over to Larry. Thank you.

Larry Stock, Chief Financial Officer Thank you Jeremy, and welcome everyone. We appreciate you joining us for today's call. Fiscal Q2 landed exactly where we expected, reflecting continued execution across the business. As a result of the bookings momentum in Q2, our starting backlog for Q3 is up approximately 125% compared to the start of Q2.

This provides strong visibility into the second half of the year and reinforces the improving consistency of our operating performance. 1 million in net cash from operating activities, representing a 122% conversion rate from adjusted EBITDA. This reflects positive working capital movements as trade receivables returned to historical levels following the timing impact we discussed last quarter related to our ERP implementation. Year-to-date, our conversion of adjusted EBITDA to net cash from operations was 91%, which is right in line with our expectations for the fiscal year.

24 per diluted share. Given our strong free cash flow yield relative to the share price, we continue to take advantage of our normal course issuer bid. During the second quarter, we repurchased approximately 196,000 shares. 1% of shares outstanding.

This reflects both our capital discipline and our confidence in the long-term value of the business. 2 million in debt during the second quarter. 4 million in Q2 of last year. This ongoing deleveraging remains an important part of our capital allocation strategy and as our credit profile improves, it further enhances our flexibility.

1 million, up 27% from June 30. Looking ahead to the remainder of fiscal '26 and into fiscal '27, our capital priorities remain unchanged: leveraging strong cash generation to support organic growth and profitability, continue reducing debt to provide greater strategic flexibility, return capital to shareholders where appropriate, including through the NCIB, and evaluate disciplined, strategically aligned M&A opportunity. This balanced approach positions us to drive durable long-term value creation. 2% from Q1.

4 million of revenue from VoIP Supply which was strategically sold to exit low-margin non-recurring resale activity, revenue was 2% lower year over year on a like-for-like basis. As Charles noted, services, which represent 92% of total revenue, grew 1% sequentially driven by higher cloud services revenue. 2 million in the second quarter and gross margin improved to 74% compared to 72% in the first quarter and 68% in the prior-year period, reflecting a more favorable revenue mix and continued strength in recurring services. 3 million, or 16% of revenue, consistent with Q1.

We also had higher commissions tied to several large contracts booked in Q2, a healthy sign of commercial productivity. We expect adjusted EBITDA margins to improve in the second half of fiscal '26 as revenue builds and we benefit from operating leverage. With the first two quarters coming in largely as expected and a solid backlog, we are tightening our guidance for fiscal '26. We now expect revenue of $205 million to $208 million and adjusted EBITDA margin in the range of 17% to 18%.

Achieving this outlook assumes another sequential revenue increase in Q3, and we anticipate returning to year-over-year organic growth once we adjust for the divestiture of VoIP Supply. We look forward to building on these foundations as we move through the back half of the year and into fiscal '27. Before we open the line for questions, I want to thank the broader Sangoma team. Your focus, commitment and execution continue to drive the progress we're seeing across the entire business.

We're now ready to open the call for questions. Operator? OPERATOR Certainly. We'll now begin the question and answer session.

For analysts to join the question queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request.