Sangoma Technologies Corp.
(STC-T) C$6.30
Q1/F23 First Take: Slight Miss, F2023 Guidance Maintained Event
Yesterday after market close, Sangoma reported its Q1/F23 results and provided F2023 guidance.
Conference call: 8:00 a.m. ET; 1-800-319-4610.
Impact: SLIGHTLY NEGATIVE
Results slightly miss expectations. Sangoma reported Q1/F23 revenue of $64.1mm that was slightly below expectations (TD: $66.5mm/consensus: $66.4mm), similar to Adjusted EBITDA of $10.7mm (TD: $10.9mm/consensus: $11.3mm).
Revenue grew 24% y/y (driven by the NetFortris acquisition) but fell 3% q/q due to seasonality, F/X, and some softness in Product revenue.
Product revenue of $15.7mm (25% of revenue) was modestly below our
$16.5mm estimate. Similar to commentary from its peers in recent weeks, management indicated that customers are becoming more sensitive to capex purchases given the current macroeconomic environment.
Service revenue of $48.3mm (75% of revenue) was slightly below our $50.0mm estimate and declined 1.5% q/q, its first sequential decline in over two years. Back then (Q4/F20), services revenue fell 0.8% q/q during the first full quarter of the pandemic and related lockdowns, which we thought was impressive given its material SIP trunking revenue base. We look to get more colour on the sequential decline in Services revenue on the conference call.
-
Gross margin was 67.7%, in-line with our estimate and also the level management expects for F2023.
-
FCF was $0.1mm, negatively impacted by higher-than-normal inventories (up 50% y/y and 9% q/q) Sangoma is keeping to meet customer orders. LTM FCF is $10mm and $23mm before changes in non-cash working capital.
-
Net debt was $108.9mm; Net debt/LTM Adjusted EBITDA was ~2.5x.
-
Repurchased ~40.9k shares for ~$267k in Q1/F23, with 13.6k shares repurchased in October for $70k and an additional 13.8k shares subsequently repurchased.
F2023 guidance reiterated. Sangoma maintained its F2023 guidance of $275mm- $285mm in revenue (TD/consensus at $278mm) and Adjusted EBITDA guidance of $48mm-$52mm (TD/consensus at $49.4mm). At the midpoint, guidance implies ~25% y/y revenue growth and ~18% Adjusted EBITDA margins.
Our take. Although it was not a great start to F2023, we believe Sangoma is still well-positioned to achieve its reiterated F2023 guidance. That said, we would like to get a better understanding of what drove the sequential decline in Services revenue before we have more conviction.