Sangoma Technologies Corp

TSX:STC

Thank you for standing by. This is the conference operator. Welcome to the Sangoma Investor Conference Call.

[Operator Instructions]

The conference is being recorded.

[Operator Instructions]

I would now like to turn the conference over to Samantha Reburn, Chief Legal Officer. Please go ahead, Ms. Reburn.

Thank you, operator. Hello, everyone, and welcome to Sangoma's Third 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 third quarter of fiscal year 2025, which ended on March 31, 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+, 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 are 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, unaudited condensed consolidated interim financial statements, our annual information form, and the company's annual audited financial statements posted on SEDAR+, EDGAR, and our website.

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

Good afternoon, everyone, and thanks for joining us today. Let's just start with the quarter. Sangoma delivered really strong financial performance in Q3 with revenue of $58.1 million, adjusted EBITDA margins of 17%, and operating cash flow conversion from adjusted EBITDA of over 100%, once again, generating strong free cash flow per share.

And while Larry will walk you through the full numbers shortly, I'm proud to say that we're seeing some consistent, meaningful improvements in our cash generation. This underpins both the value of and the strategic potential for our company.

We're also continuing to pay down debt well ahead of schedule, further strengthening our balance sheet and creating greater flexibility for our capital allocation priorities.

Now, as I emphasized last quarter, financial strength creates optionality. And today, that optionality is real, supporting the execution of our growth strategies with confidence.

After 15 months of focused execution, I'm excited to say that the major transformation we committed to through Project Diamond is now complete. Of course, continuous improvement is part of any great company, but the heavy lifting we set out to accomplish is finally behind us.

Today, Sangoma has the financial foundation, the operational structures, processes, and competencies to fully move into our next phase, a multipronged growth strategy.

Simply put, Sangoma has never been stronger or in a better position to tackle this growth. First, I want to spend a few moments talking about the operational readiness for that growth. I'm thrilled to share that our new ERP system is on track and online, and we're finalizing the user acceptance testing in April as promised.

This was a major milestone and critical component of our transformation that sets the stage for both organic and inorganic growth, as well as providing enhanced visibility across the entire business.

I've been speaking a lot about the ERP systems, and I'm very proud of what the team has done here. The efficiency gains we expect to realize from our modern ERP system will be a source of operating leverage with expected savings of approximately $5 million over the next 3 years.

We self-funded the entire ERP system implementation since the beginning of this transformation. We've also streamlined our processes, upgraded team competencies, and sharpened our value proposition to better position Sangoma as a communications partner of choice for small, medium enterprises globally.

Last quarter, I told you we'd start moving away from the lower-margin hardware reselling to focus on Sangoma as a pure-play communications software company, delivering significantly higher margins and predictability.

We've done exactly that. We have accelerated the divestiture of our noncore assets, improving profitability and sharpening our focus. And these assets have been classified as held for sale on the balance sheet, and we've seen strong interest from potential buyers.

As expected, this shift resulted in a slight revenue dip in Q3, but it also led to a sequential improvement in gross margins as we reduced our reliance on lower-margin NRR resale offerings.

At this time, we have been actively pursuing acquisitions that can expand our footprint in both North America and internationally. And importantly, with our debt lower than planned, we were able to launch and begin executing a normal course issuer bid, reinforcing our strong belief in Sangoma's intrinsic value.

This deliberate shift is already delivering benefits, freeing up resources for strategic investments that are creating momentum for our core MRR business, where the measurable benefits are clear.

Client satisfaction and NPS scores have improved significantly year-over-year, with NPS scores up nearly 300% and client satisfaction scores up 23%.

Customer churn remains industry-leading at below 1%, 0.9% to be exact. I'm most proud of this that we were able to maintain churn levels at this low level during a very significant transformation.

Our large deal pipeline is up considerably compared to last quarter. We are seeing accelerated signs of growth across our entire pipeline, new partner engagements, and in deal closings.

Free cash flow per share is $0.25 in Q3 and $0.84 in the first 3 quarters, a double-digit increase over the past 2 years. These results are the direct outcome of the strategy we outlined in the previous quarters.

We committed to enhancing customer success, focusing our investments on core communication platforms and driving disciplined operational execution. And we are seeing progress on all those fronts. This gives me great confidence that Sangoma is poised for the opportunities that lie ahead.

I just want to step back for a moment to speak on the industry trends. First, on tariffs and geopolitical risk. I get asked that question all the time. We have not seen a material impact on our business today.

For areas in our supply chain that were of concern, we got ahead of it and derisked the company. Because we own the IP and our own hardware, we have the flexibility now to adjust our processes and supply chain to mitigate any impact. And like all of you, we're just simply hoping for peace and common sense to prevail on the global stage.

Closer to home, we're witnessing a major shift in our industry landscape, one that plays directly into Sangoma's strength. Mitel's recent Chapter 11 filing highlights the struggles of legacy on-premises providers.

NEC and Avaya are pulling back from the premise-based business, reinforcing the industry shift to cloud and hybrid models. Single solution vendors continue to face commoditization pressures and margin erosion. Against this backdrop, Sangoma is now positioned to win.

With our integrated platforms, integrating both security and AI components, spanning premises, hybrid and cloud solutions, modernized systems in both back and front offices, and an energized channel ecosystem, coupled with financial flexibility, we are uniquely positioned to fill the void left by legacy players.

And we are already seeing the pipeline and market demand growing in this particular sector. We offer voice, data, video security, and proprietary hardware, the essential communication elements, and we're now bundling them into industry-tailored solutions, delivering exactly what midsized enterprises need as they modernize their communication infrastructure.

We are now a full one-stop shop for our customers, and a single product competitor cannot match that. The last 6 quarters have been challenging and accelerating.

The men and women of Sangoma have risen to the occasion, embracing change, strengthening our culture, and pushing the company to new heights.

We are a very different company than we were 1 year ago. That transformation is now complete. Sangoma now has the financial, operational, and cultural readiness to execute our 3-pronged growth strategy: organic expansion, strategic acquisitions, and geographic growth.

The changes we're seeing in the market validate the strategy we pursued, offering integrated essential communication services to a single trusted partner is working.

We anticipated this shift, and now we are ahead of the curve. We are confident Sangoma will continue to deliver increased value to customers and shareholders alike.

Finally, I want to sincerely thank the entire Sangoma team for achieving this remarkable transformation. And I want to thank our investors for the trust you placed in us throughout this journey.

I am more energized than ever to see what can be achieved with the transformed Sangoma that we've created. I'll now hand it over to Jeremy and Larry to walk you through the detailed financial and operational results. Jeremy, over to you.

Thank you, Charles. I'm very pleased and excited to share a meaningful update on both our company-wide transformation and the progress on our go-to-market programs this quarter.

Since Charles and I joined Sangoma in late 2023, we have been deeply focused on transforming the company into a simpler and more unified organization for our customers, partners, and employees.

As I shared last quarter, fiscal 2025 has been about reinforcing this transformation, and I am pleased to report that this work is now largely complete and firmly embedded across the organization, giving us a solid foundation from which to accelerate our growth strategy.

To achieve this, we have implemented cost savings programs, streamlined processes, and made substantial systems improvements. We've also instituted this philosophy of ongoing financial discipline and process improvement within the company.

Some of the notable highlights of our transformation efforts year-over-year include the following: company-wide Net Promoter Score has improved dramatically by more than 300%, both onboarding and support customer satisfaction have risen by more than 20% to the 90% level.

Support average time to answer has been reduced by 33%. In our IT business systems, our new ERP system is online, as Charles noted earlier, supporting streamlining and consolidating our finance systems and billers.

As part of our broader IT programs, we have also introduced standardized tools and processes across sales, invoicing, and commissions, laying the groundwork for a more scalable, unified, and efficient organization.

Our CTO office, in collaboration with the product team, has taken major steps to enhance and unify the customer experience across our platforms. We introduced TeamHub, our unified desktop application. And alongside, we enhanced our contact center offerings by bringing together a more integrated contact center as a service experience with our unified communications offerings.

In addition, we launched a new control panel with more releases to come that simplifies administration and offers a unified monitoring dashboard that delivers greater visibility and control.

Together, these innovations are strengthening our platform differentiation, improving customer satisfaction, and positioning us to drive greater adoption and expand our share of wallet in key markets.

In marketing, we have taken important steps to sharpen our brand and improve market engagement. This includes unifying our messaging and branding, refreshing our collateral and content, launching consistent social and e-mail campaigns, and updating key digital touchpoints such as our website, help center, and social ads.

These efforts ensure that Sangoma presents a clear, consistent, and compelling story to our customers and partners across every channel. As Charles highlighted, we have a financial foundation, operational structure, and competencies to drive a multipronged growth strategy with strength and with focus.

Last quarter, I highlighted the progression in our large deal pipeline and the revitalization of our infrastructure business, an area once stagnant. I'm very encouraged to report that this positive trajectory has continued.

Our large deal pipeline, defined as opportunities with 10,000 or more MRR, has seen a 90% quarter-over-quarter increase. In addition, our infrastructure business continues to show strength and is up 15% from the same quarter last year.

Moreover, our forward-looking indicators remain very strong with a 24% increase in our 90-day forward-looking pipeline and a 2x increase in our prem UCaaS pipeline, driven by competitive displacement efforts targeting providers like Mitel and Avaya, as Charles had mentioned earlier.

These results reinforce our confidence that our go-to-market model is gaining traction. I've said before that these large MRR sales cycles are longer at six to 12 months and therefore, take time to flow through to our P&L.

However, the increasing size and sophistication of the opportunities in our pipeline are clear indicators that our strategy is working. We are seeing tangible momentum from our market share takeout programs and competitive initiatives, which are creating new paths for growth and positioning Sangoma for long-term success.

I hope this gives you a sense of just how much we've accomplished in our transformation journey and that the foundation is firmly in place to scale the business and accelerate profitable growth.

With that, I'll now turn it over to Larry to provide an update on the financial results for the quarter. Over to you, Larry.

Thank you, Jeremy, and welcome, everyone. We appreciate you joining us for today's call.

In Q3, we built on the momentum of prior quarters, delivering strong performance across the key metrics that drive the company's strategic and financial health.

A key highlight continues to be the efficiency with which we converted adjusted EBITDA into net cash from operating activities and ultimately, free cash flow.

This strong cash generation supports our ability to reduce debt, execute share repurchases, and reinvest in our core business offerings to drive long-term growth.

In the third quarter, we generated $10.6 million in net cash from operating activities, achieving a cash conversion rate of 109% from adjusted EBITDA, our fifth consecutive quarter surpassing 100%.

Fiscal year-to-date, net cash from operating activities reached $34.7 million, representing a 7% increase over the prior year. In Q3, we also generated an additional $1.1 million in net positive changes to working capital, building on the $1.1 million generated in the second quarter.

This was driven by positive $2.3 million from collected trade and other receivables, plus $1 million from inventory. This quarter, we added free cash flow as a key financial performance indicator for investors.

While it can be historically derived by subtracting capital expenditures and development costs and net cash from operating activities, highlighting it emphasizes the power of Sangoma's value creation engine.

Free cash flow for the third quarter was $8.4 million or $0.25 per diluted share and $28.2 million or $0.84 per diluted share for the first three quarters ended March 31, 2025.

On an annualized basis, we are tracking above $1 in free cash flow per share, underscoring the value we see in Sangoma. This strong cash flow performance supported our decision to launch a normal course issuer bid or NCIB at the end of March.

Similar to prior quarters, we have continued on our accelerated debt reduction schedule, retiring another $7.3 million in total debt during the third quarter. This enabled us to not only achieve but exceed our target timeline and debt position of $55 million to $60 million, as we ended Q3 at $53 million of gross debt.

By the end of the third quarter, our net debt decreased to $35.8 million from $43.3 million at the end of the second quarter, resulting in a trailing 12-month net debt to adjusted EBITDA ratio of about 0.88x from 1.03x in the second quarter.

With our FY'25 debt reduction targets achieved well ahead of schedule and our Term Loan 1 fully repaid, we'll still allocate a portion of our cash flow toward further debt reduction.

That said, given the meaningful value of our long-term return potential, we see in our share price, we introduced the NCIB at the end of March as an additional way to return value to our shareholders.

We put in place an automatic share purchase plan, which allows us to continue repurchasing shares even during blackout periods. And since launching the NCIB, we've instructed our broker to purchase the maximum amount available subject to our daily limit, and we've already retired more than 155,000 shares.

Overall, these actions reflect our disciplined approach to capital allocation and underscore the confidence our management and Board have in Sangoma's long-term growth and value creation potential.

Now on to the P&L. Revenue for the third quarter of fiscal year 2025 was $58.1 million, representing a decline of $1 million from the second quarter. The sequential decline was primarily due to the decrease in our noncore products, including third-party resale, while in total, core platform products and services revenue increased sequentially for the second consecutive quarter.

We are now in the process of formally divesting our third-party resale assets, as shown by the classification of assets held for sale and liabilities directly associated with assets held for sale in the financial statements.

Revenue from core on-premises solutions and foam product lines increased quarter-over-quarter, reflecting the effectiveness of targeted go-to-market campaigns and strategic share gains following competitor exits from the on-premise market, which Charles and Jeremy spoke to earlier.

Gross profit reached $40 million in the third quarter. Our focus on higher-margin services contributed to an improvement in gross margin to 69% of revenue, up from 68% in the second quarter.

Adjusted EBITDA for the third quarter was $9.8 million or 17% of revenue and included $0.4 million in expense related to our ERP implementation. Excluding these costs, adjusted EBITDA would have been $10.2 million or 18% of revenue, consistent with 18% in the second quarter.

Overall, we're pleased that despite the broader macroeconomic uncertainties, our third quarter results came in largely as expected.

Now on to our guidance. For fiscal 2025, we are reaffirming and narrowing our revenue guidance range to $235 million to $238 million from $235 million to $240 million and reaffirming our adjusted EBITDA of $40 million to $42 million at approximately 17% of revenue given the results for the first three quarters of fiscal 2025.

As you can see from these numbers, the net effect of lower revenue for the second half of the fiscal year has had a relatively small impact on adjusted EBITDA and adjusted EBITDA margin is expected to improve as we remain focused on our higher-margin core offerings and advance our core platform strategy by accelerating strategic alternatives with respect to lower-margin noncore product lines, including our third-party hardware resale operations.

As always, 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.

The first question comes from Gavin Fairweather with Cormark.

Congrats on the quarter. I wanted to start out with the output of Project Diamond, maybe from a high level. I mean, there's certainly been a lot of sales and partner transformation that's been underway here, and you've also refocused on the core platforms as well.

So really encouraging to hear the sales KPIs that Jeremy was bringing out there in the prepared remarks. So I guess I'm curious, do you think that Sangoma has fully hit its stride here under the new program? Or do you suspect that there's further gains in sales momentum that you can achieve as the team and the new structure gel?

Yes. So great question. One thing about these transformations, and I've been trying to educate as much as I can on the complexity of companies like Sangoma that have 11 acquisitions, trying to solidify process systems, tools.

There's a lot that goes into that. In fact, in our Board meeting today, we had a great chat about it. We are building the stride up. It's almost like a 1,500-meter race.

We're in the, probably the third lap now, on the 400-meter track, and we're beginning to accelerate because everything is much more efficient now. We have efficient systems.

We have efficient tools. We have the right competency structure and processes by which to execute. And the momentum will continue to build over FY'26.

The real hard part is the first two laps. What pace do you want to go at? And all of the effort that has gone on through the transformation over the last 15 months since we started this back in January of 2024, it's gotten us to the point now where we can begin to accelerate.

The balance sheet is in the right place, cash flow is in the right place, and structured processes and tools are in the right place. The company went from 20 different legal entities down to 13. It went from 6,000 regulatory filings down to only 1,500.

The amount of efficiency that we are now able to leverage to quarter-over-quarter begin to increase momentum has really just begun over the last quarter, making the decision to move away from the noncore products and focus all of our attention on the core business just accelerates that even further.

So we're in the seventh or eighth inning of acceleration. I think there's more to come because we've got much more efficient capabilities by which to speed up the process.

And then maybe just specifically on the partner program, you obviously redesigned your partner program as part of the transformation, and there's also been some disruption in the on-prem channel as well of late.

So curious for your perspective on how many partners you're adding, what kind of level of partner engagement that you're seeing from the existing crop. Any color would be helpful.

Yes. So we've added about 56 new partners since the beginning of January. We're actually much more specific about our partners because our focus for the company, as you know, and have been hearing from me over the last 4 or 5 quarters, in particular, is to put these components of the company together so that we can begin to be much more bundled.

And those bundles are only really valuable when you can make them contextual to the discontinuity within a particular industry, health care, hospitality, government business, or retail.

These are areas where we're focusing our efforts. And therefore, we're being particular about partners who have very strong niches in those areas. So we're not just adding partners for the sake of trying to sell voice data, video security, or commodities.

We certainly revitalize all of those through our traditional partner routes and rebuild all of those, TSDs, VARs, and selling partners. We've also onboarded several new partners, the number I just gave you, who have got much more industry-focused, much more specific knowledge and awareness of these various industry verticals where we want to capitalize on.

Health care right now has become a real niche area for us. We've got great partners in that area. Hospitality, another one, where our offerings really go well with partners who really understand those verticals much better.

That Pinnacle partner program that we launched about three quarters ago is really starting to get a lot of traction with partners of not only the traditional style, but also ones that are much more aligned to our, I think, unique value proposition of integrated solution bundles that represent industry vertical solutions.

And then lastly, for me, maybe you can just help us with thinking and framing the opportunity for the on-prem business.

Obviously, there's been a lot of news there recently. Curious how you size up that opportunity and who you're bumping into now in terms of the competition for the prem business in the mid-market.

It's an interesting question. I don't have all the exact data for you because all of this has happened so quickly over the last, I would say, two quarters.

But what I can tell you is a couple of things. One, we've had a significant increase in the number of resellers who traditionally sold some of these other legacy competitors asking us for support because they don't have that opportunity.

The market size here is $3.3 billion, roughly. While the overall prem markets are somewhat declining for a company of our size, even if we were to grab 1%, 2%, or 3% market share of that $3.3 billion, it's a very significant contribution to our revenue.

So we are both seeing receptiveness from our major distributors, who have resellers who sell these types of products, and traditional legacy players coming to us at an increasing rate.

Our pipeline is growing at a very exponential rate. And in my prediction, I think this will be a shining light portfolio for us going into FY'26 because we have a product and a portfolio and a set of competencies in the company that can really capitalize on what's happened to some of the legacy traditional players.

And we're going to absolutely do that, including putting money into those areas in terms of investment.

So it's an opportunity that we think we can really capitalize on, and we're actually going to be putting quite a bit of effort into taking advantage of the situation that the market has given us.

The next question comes from Mike Latimore with Northland Securities.

This is Ketan on for Mike. I was just wondering if you're seeing any longer sales cycles recently, given macro considerations such as tariff tensions.

On the MRR part of our business, the sales cycles are normal, 6 to 12 months. They're bigger deals, as Jeremy said in his comments, we're starting to see deal sizes getting bigger as we put bundles together. And they fit and really haven't changed much of the normal sales cycle.

On the hardware side, absolutely, we saw some slowdowns. Customers were leery, particularly in March. Some of the tariff announcements first came on board, there was so much confusion in the market about what tariff would be we not, we had vendors who were in our hardware resale side, which is why that's the business we are looking to put into asset held for sale.

As I said in Q2, it became very volatile. And sales cycles got longer. We had no idea if it was a short-term thing or a long-term thing. That whole business became a little too volatile for us, given those dynamics. And we did see sales cycles changing dramatically week-on-week, depending on what the news cycle was.

But on the core business, no, we have not really seen much of a change there.

Then another question here is, how important are acquisitions as part of your strategy over the next 12 months?

Yes, Mike would have told you that over the last 3 quarters, probably since about the beginning of Q1, we announced that we had 3 major vectors for growth.

As we paid down the debt, the option of growing inorganically became very viable. Organic growth was also quite viable, which is obviously the integration of the company and the transformational activities, and then geographic expansion.

So, inorganic growth is literally 1/3 of our entire growth strategy. We needed to get the company integrated, which is now done. So the transformation is now over. We needed to get the balance sheet and debt cut in half, which it is.

We are at the lowest level we've had in quite some time, and well ahead of schedule. So now inorganic becomes an option, and inorganic activities will actually be a major part of our 2026 plan and our growth plan for beginning in July.

So it is an important element that we needed to get the integration done when you get the transformation done, when you get the balance sheet done, and the cash position up. And the market is in our favor.

Cost of capital has come down, valuations have come down. A lot of companies don't have the balance sheets we have. I think we're in a very favorable position to begin, and we actually already have begun the inorganic acquisition activities.

Do you have an estimate on the valuation expectations of those acquisition candidates?

Well, look, we don't want to be, I've said this before publicly, I don't want to be dilutive.

In January, we were $11.55 a share, which got us to like valuations of 7 to 8x EBITDA. Most of the market is in that 6 to 8x EBITDA area, which is why I think Sangoma is such an incredible offer right now or opportunity. That's why we put the NCIB.

I had to put money into an acquisition versus Sangoma, given where Sangoma is trading and our balance sheet and our cash position, the best thing for the shareholders would be to put my money into the NCIB and buy up stock because we got in February, when I took out all that lower margin revenue and said I was going to focus on the company, I had to change guidance.

The market reacted by about 11% or 12% on the stock. And then the rest of it was a lot of this noise from tariffs and geopolitical issues that are going on. And now look, since April, the low of April, we came back almost 40% in terms of its value.

So I think the company's stock is going to continue to do its thing and I think valuate when valuations are along the lines, which I think they are now, the stock is up a little bit, it will give us more opportunity to buy companies that are sitting in the kind of valuations that we are.

What I won't do, and I've committed to this, is I won't dilute the company. And so we have to be patient and invest in our own company and invest in SG&A, and invest in growing our company organically.

We'll continue to do that. And when the time is right and the opportunities are available to us, we will make acquisitions because now I can bring them in, integrate them, and take out the integration savings because I have an integrated company that allows me to do that efficiently.

So we started that process because these acquisitions take some time. We're not in a rush to acquire. We're in a position where we can take our time to be very thoughtful and very measured and very strategic about the acquisitions that we make, and we can make them because we have the leverage in our balance sheet to be able to do so.

The next question comes from David Kwan with TD Cowen.

I guess maybe tagging on to the last question, talking about capital allocation. Given how optimistic you guys are in terms of the outlook and where the stock is trading, you talked about the NCIB. Would you consider an SIB?

Larry, do you want to address that? I got my opinions on it, too.

I think at this time, we're good with where we are. We want to see how the NCIB goes and where else we might want to place that capital. I'd like to give that a little more time before really launching into something different, David.

Thanks, Larry. Charles, you had an opinion?

Yes. The NCIB, look, we launched that thing, I don't know, about a month ago, I think, and we've been buying the maximum allocation that we can possibly buy every single day since that happened.

We also put an automatic program in place to be able to buy right through the blackout. We are very comfortable right now that the best value for our capital at this point, beyond the consistent debt repayment that we're making, is to put it into Sangoma.

We see the value in the company, and we're doing it with our wallets by investing in share buybacks. At this point, doing anything more, I want to see how this plays out because as we're going into the fourth quarter now, one of the things I brought from my enterprise life, disciplined planning, is what we're in right now.

So we're planning for fiscal '26, which is July. Right after this call, the management team will get together to talk about, okay, capital allocation for last year was accelerated debt repayment, check mark, that is done. Debt is 2 quarters ahead of plan because of the work that Larry and his team have done.

And now what do we do with capital? Well, let's look at NCIB. How did that go over the next 3 months? As we go into July, we can make another decision about what to do with the capital.

One of the options, obviously, that I've already stated is acquisitions. So you've got acquisitions, you've got NCIB, you've got a little bit of debt left. And then we've got R&D investments to think about and consider.

And your commentary and your question are another element we put on the list, and we'll consider how those will affect improving shareholder value and advancing the position of the company relative to everything we just went through in the last 15 months, putting this company together and transforming it.

We've got much more intelligence and data and retrospective views on what the company has done to be much more prospective on how to allocate that capital going forward.

And David, your commentary is a fair one. The SIB is something we will put on the list, and we'll consider it for our fiscal '26 investment plans. And we'll share that with you guys as I've been doing with you all along the journey of the transformation of now we move to the next phase of growth.

Obviously, allocation of capital is an important part of expressing to our investors how we're going to use capital to do what we did in the first phase of this company, now do it in the second phase, which is focused on organic, inorganic, and geographic expansion.

It definitely helps us better understand how you guys are looking at capital allocation. I guess on the margin front, so your guidance is for roughly about 17% margins on the year. So I think that's roughly in line with where the consensus is.

Like, how should we be looking at it? I know you're not going to be giving guidance for 2026, but just trying to understand how to juggle some of the various aspects of you focusing on investing in organic growth.

Obviously, we want to try to get the services revenue, in particular, starting to grow again. But then you've also got the cost savings coming out of the ERP, which should obviously help boost margins. So like, how should we be looking at the margins looking out over the next year?

Yes. So I think, David, I would look at it in a couple of ways. We'll certainly see savings as we get into '26 for ERP as that starts to take hold. No doubt there.

But really, as we look to move away from the noncore, particularly that third-party retail stuff, we do expect, as we said before, that we'll start to see our gross margins get closer to the 75%, 80% range and adjusted EBITDA 19% to 20% range.

We would expect to see that as we move away from that, moving into the latter part of '26, as those things take hold. And that's the way I would think about it for sure, as we move more towards the services part of our business and the higher margins that they bring us.

One thing I'd add to that, David, just for you and others to understand. One thing that Larry and Sam and Jeremy, and I have committed to when we first started Project Diamond back in January of 2024 was that we were going to self-fund the transformation.

And for the most part, we have self-funded the entire transformation. All those investments, all those changes, all either costs came out, and then we put them back into things like ERP, all self-funded. Margins didn't really move all that much.

In fact, I think they improved despite the fact that we had to change the revenue mix from 78 to 22 services and products to now 84-16, and that has an impact on things.

I think when you think about going forward and growth, the philosophy of self-funding your own growth is the ideal scenario. And that's the mission that we're on, is that if we have to invest in SG&A or R&D or increase people to capitalize on growth opportunities, it may fluctuate the EBITDA margins up and down a point or 2.

But for the most part, we will try and find a way to self-fund that. And I think you should feel comfortable that operating leverage will increase in the EBITDA range slightly and increasingly over the course of the coming years.

But there will be moments in time where market opportunities will be right for us to go seize growth, and we'll go ahead and do that and explain to you what we're doing, when we're doing it, and how we're doing it.

We'll generally try and pull it out of the company because we have a much more efficient way of understanding how the company operates now that the transformation is over.

The main message for all of you is this period of transformation that we've gone through over 15 months, and the ability now for us to be much more aware of how levers that we can pull, think about like an Abacus.

Now, when you have an integrated company, you can move the advocates around to be able to capitalize on market opportunities and move at the speed of the market rather than the speed of the company. And EBITDA will ebb and flow within a very finite range to allow us to capitalize on opportunities that exist in the marketplace.

So, a little bit more color on what Larry is saying, and I hope that kind of gives you a little context of the dynamic and adaptable nature of what we have now with the company.

And just one last question for me. So you guys, I guess, put VoIP Supply up for sale. Are there other parts of your business that you're looking at selling?

No, not at this point. I mean, we had some vigorous debates as we went through our thought process around divestitures, what's core, what's noncore.

There are not any other at this point, we've narrowed it down to this particular area, the hardware resell environment that we just couldn't figure out how to integrate that into the core of the company, and it was just too volatile and especially with the macro issues that were going on, on the political arena.

But other than that, no, the answer is we're pretty comfortable with the assets we have. We know how they go together like a jigsaw puzzle, which makes our acquisition strategy much clearer now in terms of adding to that puzzle, new pieces that enhance value or expand our value.

The next question comes from Robert Young with Canaccord Genuity.

Maybe just a couple of channel-related questions. Given all of this legacy player disengagement, I think you're suggesting that there are a lot of channel players looking for a place to go.

So is that changing any of the dynamics, the power dynamic in the channel? I know this is a very large, fragmented channel, but is it changing in any way to your benefit?

Yes, it is. And particularly with, I don't want to name them again because I think I've talked about them a lot.

Two particular major legacy players had a very significant set of resellers that were attached to a significant set of distributors. When you think about the channel, the way the channel works, the distributors have resellers, resellers then buy products from resell products from those particular legacy vendors.

There are hundreds and hundreds of those resellers, if not thousands of them, who are now stuck. They made their old lifestyle by selling this particular platform.

Some of those companies are completely exiting. NAC is a complete exit in Chapter 11 in Mitel, in and out of Chapter 11, the confidence level of these lifestyle partners, who are in the tens of thousands, are desperately looking for an alternative. And there aren't many left in the marketplace.

We are one of them. We were known. Sangoma, before I joined 3, 4 years ago, was a well-respected prem-based provider to a platform called Switchbox. And for some reason, over the coming years, again, before I joined, there was a lot of confusion that Sangoma was out of that business with our parent.

So as we revitalize and let people know, no, no, no. We're not out of that business. In fact, we're so in it, we're in it. They started coming back in droves, like literally in droves. And so what we can do with all these partners and what they actually sell, that's going to be found out over the course of the next 3 or 4 quarters.

But it's one of those little things that sometimes the market like tariffs screw you and why is this happening now when we just finished transformation and then other things happen in the market that can actually help you. This is one of those help-you opportunities.

Because we're so adaptable and flexible, and we've got the ability to put money into areas of optimizing discontinuities in the marketplace, we're able to go after it really quickly. And we are going to light it up in literally 3 months.

I think it's going to be a very exciting area for us. And I don't see many players wanting to rush back in because ultimately, over the next 5 years, all of these midsized customers who have prem, a vast majority of them will begin to migrate to the cloud. So for us, it's a double-edged opportunity.

One, increase the base of my customers who want-prem now. And then because I have a cloud and hybrid solution, I can migrate them over time, which provides a phenomenal going concern in terms of increasing my base.

That's maybe just to dig deeper on that last point, it seems to me, and I may be wrong, you can correct me if I am, but it seems to me that these disengagements are faster than you would normally see.

I think the glide path to disengagement or end of life, you give support for years. Sometimes these things seem to be happening in months. And so because you've got a lot of hybrid environments out there and you're supporting a lot of different scenarios, I mean, maybe just digging deeper on that, that puts you in a pretty good position, I imagine, to pull the on-prem and then grow with them.

Maybe you can just dig a little deeper there. Am I pulling on a good thread there? Or is that misguided?

No, I think that's what I was saying. The idea of capitalizing on the prem markets now, while there are less and less major players to compete with, creates a foundation for us to grow with customers as they grow with their digital transformational road map.

So as customers decide they want to take advantage of the capabilities that cloud has to offer, and they're with us with prem, assuming that we can maintain high SLAs and great customer satisfaction, which is why we put so much effort.

I mean, Jeremy spent so much time focused on improving the back-office operations to improve customer sat and to improve NPS. You won't be able to migrate and grow with those customers who are going from prem to hybrid or prem to cloud directly if you don't have good customer sat scores, great customer service.

I think that's the effort of the last little while. And now that we have this opportunity with these players exiting the market, we can grab hold of those customers who still want to be on-prem, offering an on-prem solution, and then growing with them as they migrate to the cloud over time at their own pace.

When you get to the cloud, you have a whole new opportunity to upsell them all kinds of new service offerings, including security, including networking, more than just plain old voice, prem-based communications, the cloud offers all kinds of value-added features, particularly as they align to industry verticals, health care, education, retail, et cetera.

So you're pulling on exactly the right side. It's exactly the strategy that we're aligned with. And it's why we're a little excited that the market gave us a little bit of a bone here with this prem business, and Sangoma happened to have one readily available, ready to go.

Just the last question. It was nice to hear the margin ranges just a couple of minutes ago. And so this sounds like an opportunity to potentially maybe get better margins out of some of these customers and channel partners that are potential customers and potential channel partners that don't have other places to go.

Is there potentially upside in margins from that? And then I'll just pass the line.

I don't know yet. It's too early to know. I think that's a great question, one that I've actually challenged the team on, especially given we're a little bit more efficient now in the way we operate the company.

The cost adjustments have been made relative to the number of people that we had versus what we needed. All of those things are going to improve our margin position. And do we have an opportunity to leverage price here because there are fewer players? I think that's way too early to decide right now, but it's something obviously that we would consider.

Right now, I want to woo these partners back to us in droves and pick up that customer base. To me, it's more important to build the customer base because of the potential migration in the future to create a going concern for the company than it is to try and get a short-term hit to increase profits by driving up price, because there's a supply-demand inequality in the marketplace.

And so I'd be a bit more careful in terms of using price as a lever or mechanism to drive short-term profits up.

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