Sangoma Technologies Corp T.STC

TD

[retiredcf]

Sangoma Technologies

(STC-T) C$17.10

Q2/F22 Preview: Poised for Another Acquisition

Event

Q2/F22 Results: Thursday, February 10, after the markets close. Conference Call: 8 am ET, Friday, February 11 (Dial-in: 1 800-319-4610). Impact: NEUTRAL

Expecting another solid quarter. We are forecasting Q2/F22 revenue of $51.5mm and Adj. EBITDA of $10.0mm, in-line with consensus at $51.6mm and $10.4mm, respectively. We are expecting ~90% y/y revenue growth, primarily driven by the Star2Star acquisition but also complemented by solid organic growth, while Adj. EBITDA margins are expected to remain in the ~20% range.

Looking to make a deal. With most of the Star2Star integration work complete and leverage levels continuing to decline (we are forecasting net debt/pro forma Adj. EBITDA of <1.5x exiting Q2/F22, down from ~1.7x last quarter) aided by its strong FCF generation, Sangoma looks ready for its next acquisition in our view.

Given the share price weakness, we believe management may be more reluctant to issue equity at these levels to help fund its next acquisition so the next company it acquires could be significantly smaller than Star2Star with the transaction likely to be more heavily funded with debt.

Read-throughs from 8x8's Q3/F22 beat. Last week, 8x8 reported Q3/F22 revenue of US$156.9mm, slightly ahead of consensus at US$153.4mm. Services revenue grew 18% y/y to US$149.4mm while total ARR grew 16% y/y to US$572mm.

The Enterprise segment again drove revenue growth, with Enterprise ARR increasing 30% y/y to US$307mm helped by an increased focus by 8x8 on leveraging its XCaaS platform to win larger Enterprise customers. By contrast, Mid-Market ARR was US$102mm, up 9% y/y but has remained flat in F2022 while SMB ARR of US $162mm was down 1% y/y and has been trending downward in F2022.

Management indicated the slower/declining growth in Mid-Market and SMB ARR was due to higher churn and its increased focus on the Enterprise market, with the latter possibly creating more opportunities for vendors like Sangoma that have traditionally focused on winning SMB and Mid-Market customers.

TD Investment Conclusion

We are maintaining our C$31.00 target, which is based on 3.5x our C2022E revenue.

[skibum45]

Looks like a solid beat on consensus -- Rev, adj ebitda, and adj. ebitda margins. Upward guidance. All looks good. Guess we'll see what market thinks 

[Torontojay]

Overall it's pretty good. Sequential ebitda growth is at 3.3% and around 8.5% from Q2 compared to Q4. Growing ebitda annually by double digits and trading well under 10  times adjusted ebitda. What's not to like?   

[masfortuna]

Yup looks good...Now can we get some traction on the sp please folks? Torontojay, buy 2 million shares IMMEDIATELY and get this ball rolling!

[Captain71]

What's not to like? No earnings. Getting a little pop today on good revenue and Ebita, but think of how much better the SP performance would be if they cleaned up the bottom line. Hopefully soon. GLTA

[retiredcf]

The trading volume has picked up (already one of the top 10 days of the past 3 months) so that's a good sign. But still some impatient investors willing to part with their shares at what are still very much bargain prices. GLTA

[Torontojay]

  The net loss comes mostly from non cash expenses from intangibles. When you acquire a business, there is goodwill and intangible expenses. These intangible expenses come off the books and reduce your net income so the business is allowed to save on taxes and in many cases not pay any taxes. Furthermore, there is a lot of hidden value from r&d and sales and marketing which is

[Tan4646]

and the one time 1M for the Nasdaq listing,  without which it would have a net loss of only 1.4M,   this is growing just fine. 

[Captain71]

Thanks for the comments guys. Just can’t help but think we are not even getting a second look from many investors due to lack of earnings. The analyst on the CFRA report is estimating positive earnings for Q2, 2022, so let’s hope the SP don’t sink too much further by then. We are already down over 50% off our high, so not sure everyone believes we are “firing on all cylinders” right now. I’m old

[Captain71]

Sorry folks, my targets I mentioned in the previous post are in US dollars. GLTA