David Kwan

David Kwan asked about the expected drivers for the implied pickup in growth in Q4, particularly content, and the anticipated contributions from Business Network, ITOM, and cybersecurity, and also inquired about the specific products driving the strong enterprise cloud bookings.

Answer

Executive Chair and Chief Strategy Officer Tom Jenkins confirmed expectations for Business Network, ITOM, and cybersecurity to contribute to positive growth in Q4, and stated that content is currently leading the charge in enterprise cloud bookings. He added that other core product lines are expected to be 'dragged along' by content over time as Agentic AI matures, given their relevance to machine and transactional content.

David Kwan asked about the expected drivers for the implied growth pickup in Q4, specifically the contributions from Business Network, ITOM, and cybersecurity, and if these core products are anticipated to achieve sustainable positive year-over-year growth. He also inquired about the primary drivers of strong enterprise cloud bookings beyond content.

Answer

Executive Chair and Chief Strategy Officer Tom Jenkins confirmed expectations for Business Network, ITOM, and cybersecurity to contribute to positive growth this year. He stated that content is currently leading enterprise cloud bookings but anticipates other core product lines to be 'dragged along' by agentic AI maturation over time, especially as attention shifts to proprietary data and cybersecurity.

David Kwan sought clarification on Sangoma's revenue guidance, specifically regarding year-over-year organic growth post-VoIP Supply divestiture, the impact of higher Q3 product sales on gross margins, the allocation and baseline of increased OpEx for growth investments, and observations on the current M&A market.

Answer

CFO Larry Stock confirmed expectations for year-over-year organic growth (excluding VoIP Supply) starting in Q3 and continuing into Q4, in addition to sequential growth. Larry Stock also stated that gross margins are expected to remain stable despite a potential shift in product mix due to NRR associated with MRR business. Charles Salameh explained that increased OpEx in Q2 included higher commissions from new bookings and some tax-related G&A items, expecting these trends to continue in line with investments. Charles Salameh described the M&A market as opportune, with valuations coming down across various segments, enabling Sangoma to leverage its strong balance sheet for strategic acquisitions.

David Kwan sought clarification on the revenue guidance, specifically if year-over-year growth (excluding VoIP Supply) is expected to start in Q3 and continue into Q4, alongside sequential growth. He also asked about the impact of higher hardware product sales on Q3 gross margins, the nature of the $2 million growth investments in SG&A, and what Sangoma is observing in the M&A market regarding opportunities and valuations.

Answer

Charles Salameh (CEO) confirmed the revenue guidance expectations. He also stated that gross margins are expected to remain stable in Q3 and Q4, even with changes in product mix, which Jeremy Wubs (COO) clarified is tied to NRR from larger strategic MRR deals. Charles Salameh (CEO) attributed the OpEx increase to a combination of increased commissions for new bookings and timing of tax-related items, expecting the trend to continue. On M&A, Charles Salameh (CEO) described it as an opportune time with many opportunities and declining valuations, allowing Sangoma to leverage its strong balance sheet for strategic acquisitions in areas like vertical software, MSPs, and security.

David Kwan asked if Sangoma's gains in the on-premise market were primarily due to competitors exiting rather than a slowdown in the cloud transition. He also inquired about the company's M&A strategy, specifically if they are willing to make dilutive acquisitions to boost growth and what size of acquisitions they are considering. Additionally, he asked if Sangoma plans to provide historical data for the new core/adjacent revenue classification and other metrics like ARR. Finally, he questioned the reason for larger revenue declines outside the U.S. compared to North America.

Answer

Charles Salameh, CEO, confirmed that on-premise gains were indeed driven by market share acquisition from competitors exiting the business, rather than a slowdown in cloud adoption. Regarding M&A, Charles Salameh, CEO, stated that while they are generally seeking non-dilutive targets, they would consider slightly dilutive smaller acquisitions if strategically valuable, noting that valuations for point solution providers are becoming more favorable. He added that the target list spans a wide spectrum from small tuck-ins to larger, more material acquisitions, depending on strategic fit within key verticals. Larry Stock, CFO, confirmed that Sangoma will provide both comparative historicals for the new revenue classification and look to add additional metrics like ARR starting in Q1. Charles Salameh, CEO, explained that the focus has been on North America during the transformation, leading to less investment and larger declines internationally, but future plans include expanding into English-speaking markets like Canada and the UK, leveraging existing infrastructure and expanding the toolkit beyond legacy hardware. Jeremy Wubs, COO, added that the international portfolio is heavily weighted towards lower-margin hardware, which aligns with the purposeful shift of investments towards higher-margin core growth opportunities in North America.

David Kwan asked if Sangoma's recent gains in the on-premise market were primarily due to competitors exiting rather than a slowdown in the cloud transition. He also questioned the company's M&A strategy, specifically its willingness to pursue dilutive acquisitions to bolster growth and the potential size of future acquisitions. Furthermore, he inquired about plans to provide historical data for the new core/adjacent revenue classification and additional metrics like ARR, and the reasons behind the differing revenue performance between U.S. and international geographies.

Answer

CEO Charles Salameh confirmed that on-premise gains were indeed driven by competitors exiting the market. Regarding M&A, Salameh stated a willingness for slightly dilutive, smaller acquisitions if strategically valuable, noting that market dynamics are bringing down valuations for point solution providers. He indicated a broad spectrum for acquisition size, from sub-$1 million tuck-ins to larger, more material targets, depending on strategic fit. CFO Larry Stock confirmed plans to provide historical comparatives for the new revenue classification and additional metrics like ARR starting in Q1. Salameh and COO Jeremy Wubs explained that the international decline was due to a strategic focus on North America during the transformation, with international markets (especially English-speaking ones) being a future growth area, noting the international portfolio's heavier orientation towards lower-margin hardware.

David Kwan asked if Sangoma's on-prem gains were primarily due to market share capture from competitors exiting rather than a slowdown in cloud transition. He also inquired about the company's willingness to pursue dilutive acquisitions to bolster growth and the potential size of future M&A targets. Additionally, he questioned if Sangoma plans to provide historical data for the new core/adjacent revenue classification and other metrics like ARR, and sought an explanation for the larger revenue declines in international markets compared to the U.S.

Answer

CEO Charles Salameh confirmed that on-prem gains were indeed driven by market share capture from competitors exiting. Regarding M&A, Charles Salameh stated that while they are generally seeking non-dilutive targets, they would consider a slightly dilutive smaller acquisition if it's strategically valuable, emphasizing that market dynamics are bringing down valuations for point solution providers. He added that the size of acquisitions varies widely based on strategic fit, from tuck-ins to more material accounts, focusing on specific industries. CFO Larry Stock confirmed that Sangoma will provide historical comparatives for the new revenue classification and plans to add additional metrics like ARR starting in Q1. Charles Salameh and COO Jeremy Wubs explained that the larger international declines were due to a strategic prioritization of North America during the transformation phase, with international markets (especially English-speaking ones like Canada and the U.K.) being a future focus, and the current international portfolio being heavily weighted towards lower-margin, later-lifecycle hardware products.

David Kwan of TD Cowen questioned the capital allocation strategy, asking if a Substantial Issuer Bid (SIB) would be considered. He also sought clarity on the margin outlook for fiscal 2026 and inquired if any other business units beyond VoIP Supply were being considered for divestiture.

Answer

CFO Larry Stock and CEO Charles Salameh addressed the questions. Stock indicated satisfaction with the current NCIB for now. Salameh added that an SIB would be considered for fiscal 2026 planning. For margins, Stock projected gross margins approaching 75-80% and adjusted EBITDA of 19-20% in late fiscal 2026, driven by the shift away from non-core products. Salameh confirmed that no other parts of the business are currently being considered for sale, as the company is comfortable with its current asset mix.

David Kwan of TD Cowen inquired about capital allocation, asking if the company would consider a Substantial Issuer Bid (SIB). He also asked for clarity on the margin outlook for fiscal 2026 and whether other business units were being considered for divestiture.

Answer

CFO Lawrence Stock and CEO Charles Salameh indicated they are currently focused on the Normal Course Issuer Bid (NCIB) but will consider an SIB for fiscal 2026 planning. Stock projected gross margins could approach 75-80% and adjusted EBITDA 19-20% in late FY'26 as the company shifts away from non-core assets. Salameh confirmed that no other divestitures are planned at this time.

David Kwan inquired about the strategy behind deemphasizing the low-margin hardware resale business, asking if it would be wound down or sold. He also asked about other non-core product lines, potential mitigation strategies for tariffs, and progress on international expansion.

Answer

CEO Charles Salameh explained the decision was to reallocate SG&A investment from the uncertain federal government hardware business towards accelerating core, high-margin MRR growth, rather than just winding down a specific unit like VoIP Supply. COO Jeremy Wubs added that non-core lines are well-organized for potential divestiture. CFO Larry Stock noted that tariff impacts would be immaterial due to sufficient inventory and manufacturing options in locations like Vietnam. Regarding international growth, management confirmed improved performance and noted that the company's stronger balance sheet now allows for inorganic geographic expansion.

David Kwan sought to clarify if larger deal sizes were driven by product bundling or a strategic move toward larger customers. He also questioned the company's readiness to compete in the enterprise market and asked about the long-term adjusted EBITDA margin outlook beyond fiscal 2025.

Answer

COO Jeremy Wubs confirmed it's a combination of both multi-product bundles and pursuing larger deals, enabled by new disciplines like a robust deal pursuit process. CEO Charles Salameh added that segmenting their channel partners allows them to focus market development funds on partners who serve larger, mid-market clients. Regarding margins, CFO Lawrence Stock suggested that post-FY25, margins could be in the same range or higher as operational efficiencies from the ERP system are realized. Salameh emphasized the focus on the high-margin services business, which the ERP will help expand through cross-selling.

David Kwan of TD Cowen asked about the cause for the year-over-year decline in gross margin, sought details on constructive feedback from channel partners, and inquired about capital allocation priorities, specifically M&A criteria and potential leverage levels.

Answer

CFO Lawrence Stock stated the slight gross margin dip was due to a normal variation in the mix within services revenue. CEO Charles Salameh shared that constructive partner feedback centers on requests for more training and support to sell the full Sangoma portfolio. On capital allocation, Salameh emphasized the goal is creating 'optionality' for growth via a strong balance sheet, with debt repayment as a priority. He noted that while they are evaluating M&A, it is too early to specify criteria or leverage levels.

Inquired about the status of the OceanMD contract in British Columbia, including deployment progress and the timeline for revenue ramp-up. Also asked about the reasons for Wisp's lower EBITDA margin in the quarter and whether this might delay its potential sale.

Answer

The OceanMD deployment in BC is progressing as planned, but they are awaiting next steps from the provincial government which is undergoing a strategic review. E-referral numbers are improving, and other provinces are showing interest. The lower Q1 EBITDA for Wisp is a seasonal pattern due to increased advertising spend at the beginning of the year when rates are lower, plus some higher compliance costs. Management is confident margins will expand and does not believe this will delay the sale process.

David Kwan from TD Cowen inquired about the status of the OceanMD contract in British Columbia, specifically regarding deployment progress and the timeline for revenue ramp-up. He also asked about the recent decline in Wisp's EBITDA margins, its causes, and the potential impact on the timing of a sale.

Answer

Chairman and CEO Hamed Shahbazi reported that the OceanMD deployment in BC is on track, but they are awaiting next steps from the province, which is undergoing a broader strategic review. Regarding Wisp, Shahbazi explained that the lower Q1 EBITDA is a predictable seasonal pattern resulting from a strategic increase in advertising spend early in the year. He expressed confidence that margins will improve through 2025 and does not expect this to delay the divestiture process.

David Kwan asked for the mix of acquisitions versus absorptions in the longer-term pipeline of over 30 clinics. He also inquired about M&A opportunities and current valuation multiples in the diagnostics and specialty health business.

Answer

Chairman and CEO Hamed Shahbazi responded that the future clinic pipeline is more balanced between absorptions and traditional acquisitions, with a focus on adding strong operators and maximizing unlevered ROIC, not just acquiring "cheap-off" clinics. Regarding diagnostics, he noted that valuation multiples have moderated, creating a great opportunity to acquire high-quality radiology and cardiology assets, and signaled that WELL expects to be active in this area in the coming quarters.