Sangoma Technologies Corp.
(STC-T) C$3.79
Q2/F24 Preview: Looking to Get Back into Growth Mode
Event
Q2/F24 Results: Thursday, February 8, after market close.
Conference Call: 5:30 p.m. ET (Dial-in: 1-800-319-4610).
Impact: NEUTRAL
Expecting a rebound to positive revenue growth. Our Q2/F24 revenue forecast
of $64.5mm is in line with consensus at $63.6mm. We expect Sangoma to
return to positive y/y revenue growth this quarter, helped by easier y/y comps,
as Product revenue declined to pre-pandemic levels in Q2/F23. We expect a
second consecutive quarter of sequential Services revenue growth, albeit modest at
~1.6%, which is below Sangoma's initial target of ~2.5% q/q growth. We note that
management was reluctant to reaffirm this target on the Q1/F24 conference call.
Uncertainty likely driving the wide range of Adjusted EBITDA forecasts. Our
Adjusted EBITDA estimate of $10.5mm is at the high end of consensus, which sits at
$9.5mm. There is a wide range of estimates ($8.5mm-$10.5mm), which we believe
reflects the temporary withdrawal of annual guidance and the increased uncertainty
from the financial impact of changes being implemented by the new management
team, including a comprehensive business review that is still ongoing. Consensus
implies a further decline in Adjusted EBITDA margins from 15.7% last quarter to
~15% in Q2/F24, which compares with our estimates that imply a modest rebound
to 16.3% (still >300bps below the 19.5% achieved three quarters ago in Q3/F23).
Looking for updates on its 100-day plan, key changes, and (Gen)AI product
launches. New CEO Charles Salameh unveiled a 100-day plan to evaluate
Sangoma's current processes/systems, and align the business more with its
customers' needs. We will be looking for updates on the plan's progress and key
takeaways/action plans arising from the business review. Mr. Salameh also stated
that Sangoma will prioritize its product roadmap around AI and that announcements
of new (Gen)AI-enabled capabilities are expected in the coming quarters, with the
first such announcement possibly coming out around the Q2/F24 release. As we
believe GenAI will significantly impact the competitive dynamic facing Sangoma and
its peers, we look forward to seeing Sangoma's new (Gen)AI-enabled solutions.
TD Investment Conclusion
We are maintaining our C$5.50 target price, based on 4.5x our C2024 Adjusted
EBITDA estimate.