Sangoma Technologies' 2026 Q1 Earnings Call: Contradictions Emerge on Sales Strategy, Gross Margin Goals, and Partner Program Expansion

Date of Call: September 30, 2025

Financials Results

• Revenue: $50.8M, down $8.5M sequentially (primarily due to divestiture of VoIP Supply); on a YOY basis declined $1.7M (–3%) excluding $7.6M from VoIP Supply
• Gross Margin: 72% of revenue in Q1, compared to 67% in Q4; Q4 margin would have been 76% without VoIP Supply
• Operating Margin: Adjusted EBITDA margin 16% of revenue (Q1); excluding ~$0.4M ERP-related costs would be ~17%

Guidance:

• Reaffirm fiscal 2026 revenue guidance of $200M–$210M.
• Reaffirm adjusted EBITDA margin guidance of 17%–19%.
• Expect sequential growth beginning in Q2 and year-over-year growth in Q3–Q4 as bookings convert.
• Quarterly net cash conversion from adjusted EBITDA expected to be 90%–100% for the rest of the year.
• Investing ~$2M incremental SG&A across Q2–Q4 to accelerate channel/partner GTM; continue debt reduction, NCIB and selective M&A.

Business Commentary:

* Revenue and Financial Performance: - Sangoma reported $50.8 million in revenue for the first quarter of fiscal year 2026, with $8.3 million in adjusted EBITDA and $3.2 million in free cash flow. - The revenue decline from the previous quarter was mainly due to the divestiture of the third-party hardware resale business and normal seasonal patterns.

• Recurring Revenue and Bookings:
• Recurring revenue continues to be the main focus, representing 90% plus of total revenue, with MRR bookings growing 2.4% sequentially and 6.4% year-over-year.

• The increase in bookings is attributed to larger strategic opportunities and a strategic shift towards recurring revenue models following the transformation.

  

• Pipeline and New Business:

• The pipeline increased 39% quarter-over-quarter in new creation, with the 90-day forward pipeline now consisting of 62% of higher-velocity business.

• New pipeline growth is driven by an enhanced go-to-market strategy, improved product roadmap, and increased focus on vertical and wholesale opportunities.

• Operational Efficiency and Cost Management:

• Operating expenses for Q1 totaled $38.5 million, down $3.6 million, or 9% compared to the same period last year.
• Efficiency gains were achieved through transformation initiatives, maintaining a steady commitment to innovation, and focusing on AI-driven product development.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: 'fiscal 2026 is off to a strong start' and results 'tracked to plan exceeding consensus.' Key KPIs: new pipeline creation +39% QoQ, MRR bookings +6% YoY, blended churn ~1%; guidance reaffirmed and debt reduced from $69.1M to $42.8M.

Q&A:

• Question from Gavin Fairweather (Cormark Securities): Please update timing and key buckets for the $2M incremental growth spending, and timelines to returns; are new paths to market generating significant new pipeline; and commentary on the steeper services decline and whether services will drive sequential growth in Q2?
  Response: The $2M incremental SG&A is being deployed across Q2–Q4 into field capacity and marketing to recruit partners and target verticals; new channels (notably wholesale) are already generating meaningful pipeline; services decline was expected and should normalize with sequential services-led growth starting in Q2 as older small contracts cycle through.

• Question from Suzan Sugemar (Scotiabank): How have you optimized sales cycles/implementations for larger customers and do you foresee organizational changes to support the upmarket push; what heavy lifting in the partner ecosystem is done and what proof points should investors watch?
  Response: Upmarket execution improved via enhanced product features, disciplined weekly deal cadence and higher‑caliber sales hires; partner program was restructured (targeted Pinnacle Partners) and most onboarding work is complete—watch pipeline conversion, larger MRR wins, and partner-driven bookings as proof points.

• Question from David Kwan (TD Cowen): Can you dissect the 19% increase in average revenue per customer—how much from culling small customers versus upsells/bundles—and comment on gross margin drivers and expectations for services/core mix going forward?
  Response: ARPC +19% YoY is primarily driven by bundle upsells and new larger logos (cross‑sell/upsell), aided by CRM/ERP enabling bundling; Q1 gross margin was 72% (mix‑driven and higher product attachment) and management expects core/services conversion to strengthen in later quarters.

• Question from Mike Lattimore (Northland Capital) (asked by Vijay Devar): How much did backlog grow sequentially, and were bookings in the quarter in line with expectations?
  Response: Backlog was roughly flat quarter‑over‑quarter; bookings were essentially 100% in line with the company’s plan/expectations.

• Question from Robert Young (Canaccord Genuity): Are the >$100k MRR opportunities bundled mid‑market or wholesale CLEC deals; how does the wholesale/white‑label model work and what go‑to‑market lift was required; does this materially expand TAM; and clarify the pipeline vs. new pipeline creation comment?
  Response: Large wins include both wholesale CLEC white‑label deals and separate large bundled enterprise (e.g., $150k MRR) wins; wholesale is sold as a white‑label/wholesale solution to CLECs and institutions, enabled by systems and roadmap changes (minimal external GTM lift beyond partner enablement); management believes this opens materially larger TAM and notes aggregate pipeline is up modestly with new pipeline creation +39% QoQ.

Contradiction Point 1

Sales Strategy and Pipeline Growth

It reflects different approaches to driving sales growth and pipeline expansion, which are crucial for the company's revenue projections and market positioning.

Are new partner relationships and wholesale channels driving a significant sales pipeline? - Gavin Fairweather(Cormark Securities)

2026Q1: The pipeline has increased by 6% in the last six weeks, with new pipeline creation up 39%. The wholesale channel has shown potential, with a $25,000 MRR deal recently closed. - Charles Salameh(CEO)

What portion of incremental go-to-market investment is allocated to existing partners versus new channels, and what data supports the expected return on these investments? - Gavin Fairweather(Cormark)

2025Q4: The investments are primarily focused on coverage, including field coverage and brand awareness, which aligns with our vertical strategy. We are being cautious with investments, adjusting based on the response in the pipeline. The initial investments are showing positive results, improving pipeline size and quality, and we plan to continue this approach for the coming year. - Charles Salameh(CEO)

Contradiction Point 2

Gross Margin Targets and Expectations

It involves changes in financial targets, specifically regarding gross margin expectations, which are critical indicators for investors.

Why was gross margin below expectations, and will the 75% margin be sustained in Q2? - David Kwan(TD Cowen)

2026Q1: We expect margins to increase as services remain a high percentage of revenue. The target for the balance of the year is to maintain a 75% gross margin. - Charles Salameh(CEO)

Will Blackwell's Q4 revenue be additive, and what is the expected gross margin exit rate? - Stacy Rasgon(Bernstein Research)

2025Q4: Gross margins for Q3 are expected around 75%, with full-year guidance in the mid-70s. - Charles Salameh(CEO)

Contradiction Point 3

Partner Program and Channel Expansion

It involves differing perspectives on the growth and strategy of the partner program and channel expansion, which are crucial for revenue generation and market penetration.

Are new partnerships and wholesale channels generating significant new pipeline? - Gavin Fairweather (Cormark Securities)

2026Q1: The pipeline has increased by 6% in the last six weeks, with new pipeline creation up 39%. The wholesale channel has shown potential, with a $25,000 MRR deal recently closed. - Charles Salameh(CEO)

Can you discuss the shift to targeting larger clients and sales cycle optimizations? - Keaton Schuelke (Northland Securities)

2025Q3: We've added about 56 new partners since January, focusing on specific industry niches. We're revitalizing traditional partner routes and onboarding new partners aligned with our unique value proposition. - Charles Salameh(CEO)

Contradiction Point 4

Churn and Financial Stability

This contradiction involves Sangoma's explanation of its churn dynamics and financial stability, which directly impacts investor perception of the company's health and growth trajectory.

Can you discuss the shift to targeting larger customers and sales cycle optimizations? - Suzan Sugemar(Scotiabank)

2026Q1: Sangoma is about two or three quarters ahead in financial strength, which allows for accelerated organic growth. - Charles Salameh(CEO)

Will there be an impact on working capital from financial changes, and how will one-time expenses taper off? - Gavin Fairweather(Cormark)

2025Q2: The decision to focus more on core business has led to reduced investment in lower-margin products. - Charles Salameh(CEO)

Contradiction Point 5

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

What caused the lower-than-expected gross margin, and will the 75% margin be maintained in Q2? - David Kwan (TD Cowen)

2026Q1: The company expects margins to increase as services remain a high percentage of revenue. The target for the balance of the year is to maintain a 75% gross margin. - Charles Salameh(CEO)

Will Blackwell's Q4 revenue be additive, and what is the expected exit rate for gross margins? - Stacy Rasgon (Bernstein Research)

2025Q3: We expect margins to improve as we move away from non-core products, aiming for margins closer to 75% to 80%. Service offerings will drive higher margins. - Larry Stock(CFO)