Sangoma - Earnings Call - Q4 2025

Transcript

Operator (participant)

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 Fourth Quarter of Fiscal Year 2025 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 and Marketing Officer, and Larry Stock, Chief Financial Officer. Charles will provide a high-level overview of the quarter. Jeremy and Larry will take you through the operating results for the fourth quarter of fiscal year 2025, which ended on June 30, 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 Plus, EDGAR, and our website.

As a reminder, Sangoma reports under International Financial Reporting Standards, IFRS, and during the call, we may refer to terms such as adjusted EBITDA and free cash flow, which are non-IFRS measures but 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, Consolidated Financial Statements, our Annual Information Form, and the company's Annual Audited Financial Statements posted on SEDAR Plus, EDGAR, and our website.

With that, I'll hand the call over to Charles.

Charles Salameh (CEO)

Good afternoon, everyone, and thank you for joining us today. As we close out fiscal 2025, I'm proud to report that Sangoma has delivered another quarter of strong performance, strategic execution, and accelerating momentum. We exceeded consensus expectations in Q4 with revenues of $59.4 million, adjusted EBITDA of $11.4 million, and margins of 19%. These results reflect the strength of our model, the discipline of our execution, and the growing impact of our transformations. Over the past 24 months, we have modernized our systems, streamlined operations, and sharpened our go-to-market strategy. That work is now complete, and the results are showing up across the business. With a solid foundation in place, we are relentlessly focused on growth, investing in innovation, including AI, channel expansion, and deepening our partnerships to scale faster and capture share.

Sequential growth this quarter was driven by prem-based product sales, which performed well on the back of targeted campaigns and strategic share gains. We're seeing clear signs that our integrated communication offerings are resonating with our customers, and that Sangoma is finally winning in the market. A prime example of our sharpened focus is the sale of our VoIP Supply business, completed at the end of June. We executed this divestiture with speed and discipline, marking a deliberate shift towards software-led recurring revenue services, which now represent more than 90% of our revenue mix, up from 79% 24 months ago when I joined this company. It also frees up resources for our high-impact growth initiatives, with proceeds reinvesting to support our mid-market enterprise go-to-market strategy. Beginning in Q1, we will also evolve how we talk about and report our business.

Going forward, we will categorize our results into two areas: core services and adjacent services. Core represents our SaaS-led communication platform and is the growth engine, whereas adjacent are non-core but cash-generative businesses. This view clarifies where we're investing for growth and where we're harvesting cash flows and provides investors with greater transparency into where we see the strongest potential and how our mix is evolving. Jeremy is going to expand on this a little more shortly. As we enter fiscal 2026, our priorities are clear: deliver organic growth by investing in our people, products, and partners, pursue inorganic opportunities where they create strategic value, and generate strong cash flow to support these strategies and create value for our shareholders. We are increasing our investment into marketing and channel partner development to drive growth across our UCaaS, our CCaaS, our CPaaS, and our infrastructure platforms.

These investments are already yielding results, and we intend to broaden our presence in key verticals such as healthcare, education, and distributed enterprise, positioning the company to capitalize on structural shifts in the market. We are not doing this alone. As you may have seen by some of our recent press announcements, we've built strong strategic partnerships to deliver enterprise-grade solutions tailored to very specific industry needs. In hospitality, for example, we partnered with VTech hospitality to integrate their industry-leading phones with our UC platform, creating a fully unified guest experience solution for our hotels and for resorts. In education, we teamed up with Quicklert to help schools comply with Alyssa's Law and enhance campus safety, an urgent and growing opportunity across the U.S. Our prem-based solution is gaining solid traction here with a 16% rise in pipeline demand from this sector alone.

Equally important is our partnership with Amazon Web Services, which I'm very excited about, which we announced this summer. This is not a one-way relationship. On one side, we leverage AWS technologies to deliver scalable, secure, high-performance communication infrastructure for our UCaaS and contact center platform globally. On the other, we're aligning closely with AWS' vast ecosystem to tap into their global scale and co-sell opportunities, driving stronger demand generation for our combined solutions. Together, we are better positioned to serve this mid-large market of the enterprise customer that we've been talking about for some time, who require mission-critical cloud-based essential communication services. These partnerships reflect our commitment to building purpose-built solutions for very specific priority industries. Now, looking ahead, we are encouraged by the momentum and the opportunities we see across the core business.

Although some of the larger enterprise opportunities we pursued in FY 2025 have longer sales cycles and implementation cycles, we expect sequential growth to begin in Q2 and to continue through the remainder of fiscal 2026 and beyond. This has been a transition phase for Sangoma, with fiscal Q1 marking the inflection point. As it concludes in the coming weeks, we expect growth to resume as the pipeline builds to create bookings, which flow into implementation and then on to revenue, with contract terms lasting three to five years on average. The direction is clear. Our strategy is working, demand is building, and we are confident in the durability of these high-margin opportunities. In closing, I want to thank the entire Sangoma team for their outstanding work this year.

Together, we have shaped a more focused company, one that is ready to scale and backed by strong, flexible balance sheets that give us multiple pathways for growth. I also want to thank our investors for your continued support and confidence in our vision. We are energized by the opportunities ahead and confident in the significant value we will unlock. With that, I'll hand it over to Jeremy and Larry.

Jeremy Wubs (Chief Operating and Marketing Officer)

Thanks, Charles. I want to echo Charles' remarks and thank the Sangoma team for their tremendous work and accomplishments this fiscal year and our investors for their continued support. While the pace of growth is ramping more gradually, I am confident and excited by the opportunities we are capturing. I'm going to focus on two topics this afternoon, both of which Charles referred to in his opening remarks. First, more detail on how we're going to categorize the business going forward, and second, more on our go-to-market progress and key indicators. In Q2, I explained that we restructured how each of the product lines fits within our ecosystem and how we consolidated 11 product lines down to a simplified structure. I also talked about some areas not fitting in with our strategy. We have acted on that with the recent sale of VoIP Supply.

Now, as we further push to focus the business with the objective of capitalizing and prioritizing on areas of growth and high margin potential, it's natural to categorize the business between core and adjacent. With core being high-margin SaaS and related proprietary communications products covering UCaaS, CCaaS, CPaaS, premise PBX solutions, and our bundle strategy supported by our MSP capabilities. Put another way, core represents the products and services that materially contribute to our essential communications strategy for SMB and mid-market. With adjacent being the communications technologies supporting specific needs such as trunking, analog-to-digital and media gateways, and open-source solutions. Adjacent covers more established technologies that have a higher propensity to be sold standalone or as part of a third party's communication solution. Core will be our growth engine and today represents roughly 75% of Sangoma's revenue, while adjacent accounts for about 25%.

Shifting to the go-to-market, our offerings are resonating with customers, and we are winning in the market. We have and continue to see improvements in our forward-looking pipeline across the core categories I mentioned earlier, including UCaaS, managed services, and our prem-based UC product business, where we are capturing share from Avaya and Mitel. This drove a 3% sequential increase in our backlog at the end of Q4, reflecting healthy demand and providing visibility into future revenues. Why, as Charles mentioned, have our go-to-market efforts taken longer to impact revenue, with their contributions expected to be more visible as we move through FY 2026? During our transformation, we've reprioritized our cloud product roadmaps, advancing features like Microsoft integration, unified mobile apps, and others to support acquiring larger logos and moving up market.

As we were prioritizing and completing software development, which took longer than expected, we focused our go-to-market on our prem-UC share take program and large managed services opportunities. These larger managed services opportunities have a six to eight-month sales cycle and similar implementation cycles. This high mix of managed services deals in our pipeline means the MRR revenue is recognized in later quarters. Today, as we exit Q4 and enter Q1, that pipeline mix is becoming more balanced. Now we also have a growing number of shorter cycle deals of 60-90 days, with implementation cycles of 30-60 days that will help as we progress through the fiscal year. Adding multiple layers of pipeline, long cycle high-value opportunities, and shorter cycle wins is providing better visibility into the growth that we expect to begin in Q2.

This stronger, more balanced pipeline includes some of the largest MRR opportunities since Charles and I joined Sangoma, including some exceeding $100,000. In our prem-UC products, which contribute more quickly to the P&L, our channel has delivered three consecutive quarters of sequential revenue growth, including 18% growth in Q4 over Q3. We are opening new routes to market, including partnerships with service providers, hyperscalers, and vertical solution providers. Charles highlighted a few of the recent examples like AWS, VTech, and Quicklert. I've also talked in prior quarters about the untapped opportunity to provide solutions to service providers, something we've put focus on as part of our wholesale offerings in late FY 2025.

Since then, we started working on an opportunity with a CLEC approximately four months ago to provide a complete bundle to replace their soft switch and provide hardware and services to install and activate new users. That opportunity is now in late stages of the sales process and will ramp to over $20,000 MRR in the next nine months, with the potential to double by FY 2027. Equally important is how we focus on monetizing existing channels and deepen relationships with current clients. For example, one of the top opportunities in our pipeline that we've been seeding for 8+ months is an upsell with a distributed enterprise customer we've supported for years, expanding to a broader managed service and UCaaS bundle.

Our value proposition of essential communications with enterprise-like capabilities at an affordable price lends itself well to many of our clients and, in this case, supports an upsell of an incremental $16,000 MRR. These are just a few examples of how our go-to-market is taking hold across new logos, account expansion, and strategic opportunities. With the right focus and the right programs in place, we are adding layers to our pipeline that give us the visibility and confidence that demand will translate into revenue growth. Thank you, and over to you, Larry.

Larry Stock (CFO)

Thanks, Jeremy, and welcome, everyone. We appreciate you joining us for today's call. In Q4, Sangoma built on the momentum from earlier in the year, delivering solid financial performance and disciplined execution, providing the financial flexibility to invest with discipline to drive long-term growth. In the fourth quarter, we generated $7.1 million in net cash from operating activities, including $3 million of accelerated vendor prepayments relating to our ERP implementation. Excluding this one-time impact, net operating cash flow would have been $10.1 million, representing a healthy 89% conversion from adjusted EBITDA. For fiscal 2025, net cash from operating activities reached $41.8 million, representing a 102% conversion rate from adjusted EBITDA. Working capital management was again a positive contributor as we added $1.9 million for the year, driven by strong collections and improved inventory management. This builds on the $3.9 million generated in fiscal 2024.

Free cash flow for the fourth quarter was $4.8 million, or $0.14 per diluted share. For the full fiscal year, free cash flow reached $32.9 million, or $0.98 per diluted share, consistent with the $1 per diluted share of fiscal 2024, underscoring the value we are unlocking at Sangoma. This strong cash generation enabled us to retire an additional $5.2 million in debt during the fourth quarter, bringing total debt reduction for the year to $29.9 million. We ended Q4 at $47.9 million of total debt, well below our original target of $55 million-$60 million. We also executed on our NCIB as another way to return capital to shareholders. To date, more than 500,000 shares have been repurchased for cancellation, representing 1.5% of shares outstanding and reinforcing our confidence in Sangoma's long-term value.

The consistency of our cash generation and strong balance sheet is enabling us to lean into growth while still expanding profitability. We are prioritizing organic investments to advance our products and platforms, enhance the customer experience, and scale our go-to-market capacity. At the same time, we are preserving flexibility to execute on our inorganic pipeline, reduce debt, and return capital to shareholders. Now, turning to the P&L, revenue for the fourth quarter was $59.4 million, representing an increase of $1.3 million, or 2% sequentially from the third quarter, driven primarily by the strength in our prem-based product sales. Core platform revenue was stable sequentially, reflecting consistency in the base business. Gross profit was $40 million in the fourth quarter, representing 67% of revenue compared to 69% in the third quarter, reflecting a higher mix of product sales.

Adjusted EBITDA for the fourth quarter was $11.4 million, or 19% of revenue, and included half a million in expense related to our ERP implementation. Excluding these costs, adjusted EBITDA would have been $11.9 million, or 20% of revenue. This is up from 17% in the third quarter and represents the highest margin we've delivered over the past eight quarters. These results demonstrate the consistency of our performance and the resilience of our business model. Now, on to guidance. On June 30th, we completed the sale of VoIP Supply, our lower margin resale business, for $4.5 million in cash. This was a deliberate step to streamline our portfolio and sharpen our focus on recurring high margin growth while realizing a solid outcome at roughly four times trailing 12-month adjusted EBITDA.

With this divestiture behind us, our fiscal 2026 guidance reflects a stronger business mix and a sharper focus on our higher margin core platform products and services. For fiscal 2026, we are expecting total revenue in the range of $200 million-$210 million. This compares to $209 million in revenue in fiscal 2025, excluding the contribution from VoIP Supply. As Charles and Jeremy mentioned earlier, demand in our core categories is building, supported by progress in our mid-market enterprise initiatives. We expect sequential growth to begin in Q2 and continue through the year, with Q1 marking the low point and the bridge to stronger growth ahead. Beginning in Q1, we expect gross margins to improve to approximately 75%, with operating expenses stable at approximately $30 million per quarter, excluding the amortization of intangibles.

Finally, we are guiding to an adjusted EBITDA margin in fiscal 2026 in the range of 17%-19%, up from 17% margin in fiscal 2025. EBITDA margins will follow our normal seasonal pattern, starting lower in the first half and expanding in the back half, driven by higher sales and ERP-related cost efficiencies. This outlook reflects improved gross margins following the sale of VoIP Supply, while also funding incremental investments in channel and partner initiatives. Importantly, we expect strong cash generation to continue, giving us flexibility to lean into the growth initiatives and return value to shareholders. As we enter fiscal 2026, we do so with a stronger business mix, a healthy balance sheet, and growing momentum in our core markets. We are confident these fundamentals, combined with disciplined execution, position Sangoma to deliver sustainable growth and long-term value.

To repeat what Charles and Jeremy said earlier, we extend our sincere thanks to the talented team at Sangoma, whose dedication and daily contributions continue to drive our success. That concludes our prepared remarks. Operator, let's open the call up for some Q&A.

Operator (participant)

Okay. We will now begin the analyst question and answer session. To join the question queue, you may press star one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. The first question comes from Gavin Fairweather with Cormark. Please go ahead.

Gavin Fairweather (Analyst)

Oh, thanks for taking my questions. Maybe just to start on the incremental go-to-market investments, I'm curious how much of this is about going deeper with existing partners and channels versus kind of adding new partners and distribution channels. Maybe just secondly, do you feel like you have some really good data in your pipeline that suggests to you that these incremental investments will make a nice return?

Charles Salameh (CEO)

Hey, Gavin, Charles. I'll take a shot at the beginning of this. The investments are being put into kind of three areas, and I would categorize an overarching theme of coverage. Our platform is now being transformed and literally infinitely scalable. It's time now to start putting money into coverage, and that comes in two areas. One is field coverage, which will be adding more bodies to cover more of our states in the U.S. and potentially into Canada, as well as recruiting of new partners. Secondly, into marketing coverage, which is brand awareness, brand increases, marketing events, and industry events, things of that nature that are much more tied to our vertical strategy. We also now have better unit economics that we really didn't have, I guess, say, two years ago.

As we now better understand the dollar of input of investments into the market, both in field coverage and in brand awareness, and the translation of that to pipeline, as well as the lag from pipeline to bookings and then bookings into revenue. We have a pretty clear line of sight. We're being a little cautious with the investments. We don't want to go crazy right off the top. We're incrementally adding investments, seeing the results, and then we'll continue to do so over the course of the year as the pipeline builds. The investments that we have made have begun to show improvements in not only pipeline size, but also the quality of some of the activities in the pipeline, given the money we've spent so far. It's a progressive investment strategy throughout the course of this year and certainly going into 2027 and 2028.

Gavin Fairweather (Analyst)

I appreciate that. Jeremy, you touched on growth taking a little bit longer to accelerate than you anticipated, and you touched on R&D initiatives and sales cycles. You didn't really mention the macro or competitive landscape. Curious if you've noted any change on those fronts as well.

Jeremy Wubs (Chief Operating and Marketing Officer)

Yeah, no, I would say, Gavin, we haven't necessarily seen any major competitive pressures. I think, as I mentioned, the sales cycles are a little longer, and the implementation cycles are a little longer when you're attacking and going up market into some of these larger opportunities. It's really that, right? Larger deals take a longer time to sell, longer time to implement. We balance that out a little bit, as you saw from some of the one-time product sales, which went up quarter-over-quarter, sort of three consecutive quarters. It's just going to take a little bit of time for the kind of the MRR engine to light up, but Q2 and beyond, we'll start to see that lift quarter-over-quarter.

Gavin Fairweather (Analyst)

Great. Just quickly on VoIP Supply, was there a decent amount of Sangoma proprietary product moving through that channel, or was it mostly third party?

Jeremy Wubs (Chief Operating and Marketing Officer)

It was mostly third parties. 90%+ would be third party, and I think there's a little less than 10% was actual Sangoma. There's still a distributor for us. Even though we sold them, they still sell our product as they do with all the other product lines that were carried in that particular portfolio.

Gavin Fairweather (Analyst)

Got it. Lastly on M&A, you touched on it, Charles, in your opening remarks. I think you've been looking at various opportunities for a little while now, but with the balance sheet where it is and being in great shape, maybe you can just discuss your appetite for firing up that growth lever and discuss how active your funnel is.

Charles Salameh (CEO)

I'm starving. That's my appetite. I think the market, we've been very cautious and very disciplined about our M&A strategy. We've actually embarked with another group to help us fine-tune a target. We've got a target list, but I've been really waiting for the ERP to get finished, which got finished in May or June. The company is now very much able to accept in the manner by which I want to bring acquisitions on, integrate them within a quick period of time, 120 days, extract the integration savings. With now the systems in place, the tools in place, the structures in place, the transformation behind us, we've shifted completely towards growth and driving the two growth engines of organic, which you've heard Jeremy talk about, and now the inorganic has taken the top of priority for us.

Very much on the books and very much down the road on looking at various targets in the areas we've described before at SD-WAN, security, zero trust networks, these kinds of areas that add value to enrich the portfolio and create the stickiness that we're looking for.

Jeremy Wubs (Chief Operating and Marketing Officer)

Yeah, I'd just add to Charles's comments. We have a very robust funnel of targets, and part of our strategy to drive essential communications bundles right into the market means when you do an acquisition, you want to be able to, in a simple way, bundle in those capabilities. The leading work that was required, like Charles talked about, the ERP, some of those integration components are really required for us to go and deliver a compelling bundle based on some of the things that we have in our target list.

Gavin Fairweather (Analyst)

I appreciate that. Thanks so much. I'll pass it on.

Charles Salameh (CEO)

Thank you. Thanks, Gavin.

Operator (participant)

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

Charles Salameh (CEO)

Hey, Mike.

Mike Latimore (Analyst)

Hi. Hey, hi there. Congrats on the strong balance sheet improvement this year. That was awesome.

Charles Salameh (CEO)

Thank you.

Mike Latimore (Analyst)

In terms of your view into the second quarter's sequential growth, maybe give a little more color on visibility there. Is that tied to basically deploying bookings you've already had in hand, or is it dependent on a lot of newer, smaller sales that close quickly, or what are you sort of counting on for that sequential growth?

Jeremy Wubs (Chief Operating and Marketing Officer)

Hey, Mike. It's Jeremy. It's a combination of both. We've got some business we've closed already or closing in quarter or closed in quarter in the pipeline, some of those larger deals, which have longer sales cycles. They'll start to pull up and show in the second half, and then a pretty robust bundle of the newer deals that have shorter sales cycles. I mentioned a little bit of that in my earlier remarks. Two quarters ago, we started a pretty aggressive footwork to go after some of these larger logos. We've done that. They have six to eight-month sales cycles, six to eight-month implementation cycles with some of the new features and capabilities we've focused on from a product roadmap perspective. In the last quarter, we've been able to target some more cloud-based deals that have shorter cycles.

It's a combination of both that'll help us drive the back half of the year and give us confidence in our forecast.

Charles Salameh (CEO)

You heard us talk about the company now in these core versus non-core or core versus plus adjacent. Those are the two categories by which we describe the company, core being the high-margin SaaS business at 85%, 90% margins, and then the adjacent businesses are really more the cash-generative businesses that create stickiness with our customers. Both of these together are going to start moving based on stuff we did way back in January and certainly in Q3 and Q4, and that revenue starts to spill in in the second quarter of this year and then continue as it compounds going into Q3 and Q4 and then beyond.

Mike Latimore (Analyst)

For second quarter sequential growth, are you thinking of both total revenue as well as services, both sequentially up?

Jeremy Wubs (Chief Operating and Marketing Officer)

Total revenue, but in the categories of core and adjacent, Mike, is how we're looking at it forward, right? That'll take into account the MRR, the NRR, etc.

Mike Latimore (Analyst)

Okay. On the adjacent category, how much investment is going to go there? It sounds like you're counting on that to grow some here. How important is this adjacent category, and are there other products in here you might divest?

Jeremy Wubs (Chief Operating and Marketing Officer)

I would say the things that are in the adjacent category are going to concern businesses. They're reasonable markets. They don't have the same type of growth opportunity as the core does. We're not putting a lot of investment, per se, in those areas, a little bit in certain lines that are pretty targeted. We do see some growth in some areas, but not to the same degree as really the core and where we think the big SaaS opportunities are that will really help drive margin and revenue over time.

Charles Salameh (CEO)

To answer your question specifically, no, we don't see any divestitures there at this point.

Mike Latimore (Analyst)

Okay. All right. Great. Thank you.

Charles Salameh (CEO)

Thank you.

Operator (participant)

The next question comes from Suthan Sukumar with Stifel. Please go ahead.

Suthan Sukumar (Analyst)

Good morning, Dennis. For my first question, I wanted to touch on the customer churn that you guys have seen as part of refocusing the business. Given that your gross retention rates remain pretty strong, is that churn largely contained now, or is there still some low-hanging fruit that could fall off in the course ahead?

Charles Salameh (CEO)

I think the churn is actually well under control. We're starting to see positive trends in that area. We're also deploying, now that we've got some of the systems in place, more advanced AI-based tools that are going to help us even mitigate churn further. Our models right now are predicting that churn will actually continue to decline over the year and certainly going into FY 2027. As we've gone through the stage of a lot of the legacy customers that were in the business over the last two years, through the transformation, have kind of retired out. Our ability to upsell and cross-sell the new customers creates even more stickiness, which means less churn. We feel pretty comfortable about churn sort of being balanced and actually improving going into the next three quarters.

Suthan Sukumar (Analyst)

Next, I want to touch on organic growth. It sounds like visibility is improving, given your commentary on sequential growth in Q2 and forward. As you think about the revenue growth and the bookings growth, rather, looking ahead, how do you expect the mix of expansion activity versus new business to trend compared to what we've seen in the past?

Charles Salameh (CEO)

I think they're going to be driven pretty equally. We're actually investing in our field coverage that way, right? I'll explain quickly as I can. On the expansion side, we've lit up several new programs. We call them [Ignite] programs, where we're going to our existing base. Now that we've got better tool sets to allow cross-sell and upsell, we're seeing service attached and expansion to our existing clients beginning to ramp pretty significantly, actually, especially in our business voice platforms. Some of the old starter star business that we had, and an example of that was the bagel deal that we just described, the deal that we described on one of our customers who creates a kind of retail franchise operation who had a legacy access service with us, and we actually advanced a cross-sell solution to them.

The other area is new logos where we're going into new industry verticals. We're partnering with new partners in hospitality and healthcare. We're expanding the RCM footprint, our regional channel management footprint, investing in those areas, and they're creating momentum on new activity, new customers who've never done business with us before, but they're coming in with larger deal sizes and bigger chunks from us at one time versus buying, you know, a single point solution. It's a pretty dual strategy on both account expansion or share of wallet strategy, as well as a new logo or market share strategies. We have a third one, which is large strategic deals, which has its own momentum in and of itself that are not even really predicted in our forecast at this point because they're so binary.

Suthan Sukumar (Analyst)

Got it. Okay, great. No, that's helpful. Just wanted to double click on the M&A commentary. With respect to M&A, what priorities do you have here? In terms of, you know, are these about market access or running out the tech platform, or is it really about looking at consolidating competitors or quasi-competitors here?

Jeremy Wubs (Chief Operating and Marketing Officer)

Yeah, a little bit of it is market access, different entry points into different channels, right? Some of the technology that was highlighted earlier, things like SASE, SD-WAN, security, we provide some of those solutions a little bit in an MSP model. Our ability to integrate those kind of natively into our portfolio and leverage the partner ecosystem that would be part of an acquisition like that would open the door to not just selling more of those technologies, but also some of our UCaaS platforms, contact center platforms, and then vice versa. It gives us the opportunity to cross-sell those technologies into our existing partner ecosystem. The strategy really is, how do we make the go-to-market strategy that we have today with our essential communications bundles kind of more fulsome?

How do we not only provide value to the installed base through our cross-sell/upsell programs, but open up really new channels that give us an opportunity to cross-sell our existing technologies and solutions into those as well.

Suthan Sukumar (Analyst)

That's great. Thank you for taking my questions, guys. I'll pass the ones.

Charles Salameh (CEO)

Thanks.

Operator (participant)

The next question comes from Robert Young with Canaccord Genuity. Please go ahead.

Robert Young (Analyst)

Hi, good evening. Maybe just a couple of quick clarifications if I could. The split, the 75/25 core versus adjacent, is that a Q4 metric, or is that what you expect in 2026 after VoIP Supply?

Jeremy Wubs (Chief Operating and Marketing Officer)

Yeah, that's 2026 and forward. Yeah.

Robert Young (Analyst)

Okay. A couple of the comments on the return to growth, I just want to make sure I understand them. In the press release, it said second half return to growth in core platform, and then some of the comments were return to growth in Q2. I just want to parse that the right way. What are the pieces that are returning to growth just to make sure I understand it?

Larry Stock (CFO)

We're seeing beginning in our Q2 is actually core and adjacent both growing from that point forward.

Robert Young (Analyst)

Okay. Maybe last question. The EBITDA margin guidance for 2026 at 17%-19%. I'm just trying to, if you could help maybe bridge in simple terms. I know you talked about seasonality and expansion of some of the go-to-market, but I think you said that, you know, one-time items would be 20% in Q4, and it's stepping down in 2026 despite, you know, gross margin going up quite a bit. I think in the comments, you said $30 million OpEx, excluding amortization, which is, I mean, it seems to be similar to where it is today. Maybe if you could just help me understand, maybe if you could bridge between the 20% to the 17%-19% for me, that would be really helpful.

Larry Stock (CFO)

Yeah, sure. OpEx throughout the year will be about stable at about $30 million a quarter. You got to take out from $25 million, part of it is VoIP Supply, right, that was included in our 2025 results, right, from both an OpEx and an EBITDA perspective. Their EBITDA was about $1.1 million in the year. Also, revenue is down about $4 million. The 75% is the other $3 million. That bridges you down to that 17%-19% rough.

Robert Young (Analyst)

Okay. That's helpful. Maybe last thing, I think you said you saw 18% growth in Q4 over Q3 from some of the channel efforts.

Jeremy Wubs (Chief Operating and Marketing Officer)

Our channel efforts around, specifically around our Switchvox, you know, a prem product line, all of them in place two quarters ago to go after a lot of the premise PBX market, specifically Avaya, Mitel. They hired some folks from those organizations, and you've seen like that's three quarters now of sequential growth in our Switchvox prem lines and our phones. You know, that Q4 over Q3 had an 18% lift.

Robert Young (Analyst)

Okay. That's a direct result of some of these competitors and on-prem disengaging and channel coming to you?

Jeremy Wubs (Chief Operating and Marketing Officer)

We went out deeper there. Yeah, we went to find them. We weren't shy about it, right? They didn't necessarily just ring us up and call them. We went to find them. We knew, we knew just given, you know, some of the distress in the market between those two organizations that we could go find an opportunity. We had a compelling product, and we went and grabbed some of the key leaders from those organizations and kind of went out hunting, convinced them of the value proposition of our products, you know, being competitive and having the right compelling features, and signed up new partners. We've seen pretty substantial, as I mentioned, 18% Q4 over Q3 growth. We see that continue to be an opportunity for us going forward. I'll add one thing.

Charles Salameh (CEO)

Rob, you and I talked about this, you know, that discontinuity that occurred in the market where some folks exited, the mainstream players exited the prem business. We were able to jump in very quickly, and there was just this quick, really quick lift. We see that continuing for the foreseeable future. One of the things that is unclear completely is how big is this going to be, because these players have really moved out, and we're even a little bit surprised by how fast the reaction of the market was to our offering. The nice thing about our offering is a great transition from the prem markets at the client's pace to move to cloud, which we can capture them in our Switchvox cloud solution. This is a really interesting new area of growth for us.

We've been at it for about three or four months since we really tackled it, and we've just seen this quick lift. We're not really sure how big this is going to get over the course of the year, but certainly some opportunity that we're going to keep our eye on as we move through the year as a real growth engine for the company.

Robert Young (Analyst)

If I maybe push this a little bit there, would you give it an absolute dollar value for that business? Just to kind of, the 18% growth is really impressive. Is it just a small piece of revenue, or can you give a sense of, you know, scale?

Charles Salameh (CEO)

We don't report enough on that particular number as part of our overall core services, but I'll tell you, it's a major chunk of the business on two fronts, right? One, it creates a larger base of customers by which then get transitioned over to cloud. As long as you can maintain service levels, which we have, we have record service levels now, and customer sat over 90%. These become long-term value customers who go from prem-based to eventually cloud-based. It's a significant part of the portfolio. I don't want to give you the exact number, but you can assume it's a material piece of the three prem, hybrid, and cloud are the three big engines of growth for us. Prem plays a very important role in its current state, but then also in the future state as those customers move to cloud.

Robert Young (Analyst)

Okay. Thanks for taking all the questions. Appreciate it. Thank you.

Charles Salameh (CEO)

Great.

Operator (participant)

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

David Kwan (Analyst)

Hey, guys.

Charles Salameh (CEO)

Hey, David.

David Kwan (Analyst)

It sounds like the gains you've been making on the on-prem side have been more driven by you grabbing market share because of those players exiting versus maybe a slowdown in that transition towards cloud-based solutions. Would that be a fair statement?

Charles Salameh (CEO)

Yes, that'd be a fair statement.

David Kwan (Analyst)

Okay, that's great. It relates to the M&A strategy. It looks like you're looking for acquisitions in probably higher growing markets, which I suspect might carry higher valuation multiples among other things. Are you willing to make a dilutive acquisition here to help bolster your growth profile?

Charles Salameh (CEO)

Are we willing to? Is that the question? Maybe to some degree. To be honest, I think as the year progresses, also with the dynamics of what's going on in the industry with point solution providers, there are opportunities of other companies that are relatively close to our valuation that are in the market today, particularly in the security MSP space, the SD-WAN markets. These point solution providers are beginning to realize the market is looking for, especially the mid-market is looking for single vendors that can provide a holistic set of solutions with a service wrapper on top. Going it alone, the valuations, I think, are coming down, and there's opportunities for companies like ours, especially given where we are with our leverageability in the company, to find targets, plenty of targets that are not going to be very dilutive to the company.

If there's something really good out there and it's a smaller acquisition that's slightly dilutive, I don't think we'd have a problem with it. Nothing that would be too material from a dilution point of view.

David Kwan (Analyst)

Okay. How big of an acquisition would you look? I don't know if that view has changed over the last year or so.

Charles Salameh (CEO)

The spectrum changes, right? I mean, it's really about the value of the acquisition and how it fits into the opportunity that we see in the market relative to our base and the clients and the industries we're focusing on. I've already expressed we could go big with an acquisition if we wanted to, or we could pick up a client and account for something sub-$1 million. It really depends on how we're going after adding value to particular parts of our portfolio that capture markets that we're maniacally focused on: healthcare, retail, education. I think as the year goes on, that ideology might shift. Our target list right now spans a large spectrum of smaller type buttress type tuck-ins and larger type accounts that would be more materialistic to the company.

David Kwan (Analyst)

No, great. That's helpful. Just a couple more. Are you planning to provide historicals as it relates to kind of, I think it sounds like you're going to be changing how the revenue is going to be classified in your financials. Are you going to provide maybe other financial metrics like ARR?

Larry Stock (CFO)

We certainly will do both comparatives, David, and then look to add additional metrics beginning in Q1. Absolutely.

David Kwan (Analyst)

Great. Thanks, Larry. Last question. Just looking at the revenue by geography, obviously, the vast majority of the revenue is coming out of the U.S. You know, it's kind of been, the growth has been kind of low to mid-single digits on the negative side. Outside the U.S., there's been much larger declines. Wondering what's driving that difference there. Is it just weaker demand abroad? Are you maybe culling some of your international channel partners? Just wondering what's going on there.

Charles Salameh (CEO)

I'll let Jeremy fill in some blanks here, but I'll just give you a high-level view. Our focus has been North America, particularly the United States. There's just no two. As we prioritize where we put our energy through the transformational phase of the company in the first two years, our focus was to revive the brand and really begin to open up new channels in the United States. Our focus now, as we move into the transition and growth phase of the company, is to focus on international markets, mostly English-speaking, Canada, and U.K. In the U.K., our business there has been predominantly built on the back of voice hardware technology, legacy technology that we own, proprietary technologies.

Our goal now is to expand the rest of our toolkit into those markets, into the U.K., and expand our international footprint, but also into establishing new presence in areas like Canada, where we don't really have much of a presence, but we have lots of infrastructure already in place. The international side of the business is kind of part of the plan for this year and certainly will be a major part as we go into FY 2027 and FY 2028.

Jeremy Wubs (Chief Operating and Marketing Officer)

Yeah, I'd just add to that too that, you know, the international portfolio is very heavily oriented towards hardware box, right? It doesn't have, today, as limited SaaS and software as products that are as high margin as we're pursuing as part of a core growth strategy. We've been selective in how we've moved investments and dollars towards core and where we see the biggest growth and margin opportunity. That's why certainly the results in those areas in the international theaters haven't been as strong because it's kind of been purposeful for us in terms of where we put our dollars and where we get the best return going forward.

Charles Salameh (CEO)

It will be part of the program for going into the future.

Jeremy Wubs (Chief Operating and Marketing Officer)

Yeah, just that historically, it's.

Charles Salameh (CEO)

Yeah, that's right.

Jeremy Wubs (Chief Operating and Marketing Officer)

A lot of it's the product mix, they're later lifecycle products.

Charles Salameh (CEO)

Correct.

David Kwan (Analyst)

No, that's great. Thanks. Thanks for the color. That's it for me.

Charles Salameh (CEO)

Thanks, Dave. Okay. Have a good day.

Operator (participant)

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