Executive Summary / Key Takeaways

• Sangoma Technologies Corporation has successfully completed a significant 24-month transformation, "Project Diamond," shifting its focus to high-margin, software-led recurring revenue (MRR) services, which now constitute over 90% of its revenue mix, up from 79% two years prior.
• The company is strategically capitalizing on market dislocations, particularly the exit of legacy players like NEC, Avaya, and Mitel from the on-premise PBX business, driving significant growth in its Switchvox prem product line and creating a pathway for future cloud migration.
• Sangoma's robust financial health is evident in its strong cash generation, with net cash from operating activities reaching $41.8 million in fiscal year 2025 (102% conversion from adjusted EBITDA) and free cash flow of $32.9 million, enabling accelerated debt reduction and a Normal Course Issuer Bid (NCIB).
• The company's core investment thesis is underpinned by its differentiated technology, offering a unique full-stack solution spanning cloud, hybrid, and on-premise communications, enhanced by AI-powered services and strategic partnerships, positioning it as a comprehensive provider for the mid-market.
• For fiscal year 2026, Sangoma projects total revenue between $200 million and $210 million (excluding the divested VoIP Supply), with an adjusted EBITDA margin of 17% to 19%, driven by sequential growth from Q2 and improved gross margins of approximately 75%.

Sangoma's Strategic Evolution: A Unified Communications Powerhouse

Sangoma Technologies Corporation has undergone a profound transformation, evolving from a collection of 11 acquisitions into a streamlined, focused communications platform company. Its core business centers on providing essential communication solutions, including Unified Communications as a Service (UCaaS), Contact Center as a Service (CCaaS), Communications Platform as a Service (CPaaS), and premise-based Private Branch Exchange (PBX) systems. This comprehensive offering positions Sangoma uniquely in an industry rapidly shifting towards cloud and hybrid models.

The company's strategic journey, dubbed "Project Diamond," commenced in late 2023 under CEO Charles Salameh, culminating in a significant internal restructuring by mid-2025. This involved modernizing information systems, including a new ERP system completed in early calendar 2025, which is expected to generate approximately $5 million in operating leverage savings over three years. Concurrently, Sangoma bolstered its financial foundation through diligent revenue stabilization, enhanced operating cash flow, and substantial debt reduction, achieving its fiscal year-end debt target of $55 million to $60 million two quarters ahead of schedule.

Technological Edge: The Foundation of Flexibility and Innovation

Sangoma's competitive advantage is deeply rooted in its differentiated technology, offering unparalleled flexibility across deployment models. The company is the primary developer and sponsor of the open-source Asterisk platform and FreePBX project, which are globally recognized for building real-time, multi-protocol communication applications. This open-source foundation provides customers with significant customization capabilities and a lower barrier to entry compared to proprietary alternatives.

The tangible benefits of Sangoma's technology are evident in its ability to offer a full-stack solution that integrates cloud, hybrid, and on-premise systems. This allows businesses, particularly in the mid-market, to transition to cloud at their own pace, ensuring business continuity and mission-critical reliability. For instance, industries like healthcare and education, which require robust voice communications during power outages, find Sangoma's premise-based solutions indispensable. The company's proprietary hardware, including desktop and wireless phones, network connectivity, and session border controllers, further enhances its end-to-end solution strategy, ensuring seamless integration and high performance.

Sangoma is also actively investing in innovation, particularly in Artificial Intelligence (AI). Its "Scribe" transcription services have seen increased adoption, contributing to larger average order sizes. The company is developing new AI-powered services tailored for industry verticals, such as enhanced conversational Interactive Voice Response (IVR) for the restaurant industry and patient relationship management systems for healthcare. These initiatives aim to deepen market penetration and create stickier, higher-value solutions for specific customer needs.

Competitive Positioning in a Dynamic Market

The unified communications industry is undergoing a significant transformation, marked by the struggles of legacy on-premises providers and the rapid ascent of cloud-native solutions. Companies like Mitel, NEC, and Avaya are either filing for Chapter 11, pulling back from the premise-based business, or facing commoditization pressures. This market dislocation presents a substantial opportunity for Sangoma, which is strategically positioned to fill the void.

Sangoma directly competes with larger players like Cisco Systems , and cloud-focused innovators such as RingCentral and 8x8 . While Cisco boasts extensive resources and a broad enterprise focus, Sangoma leverages its open-source heritage and hybrid offerings to provide more flexible and cost-effective solutions for small and medium-sized businesses. Its ability to offer both on-premise and cloud solutions, along with a hybrid model, gives it a distinct edge over pure-cloud providers like RingCentral and 8x8, particularly for customers who prioritize control and reliability in mixed environments.

The company's "Switchvox" prem product line has seen three consecutive quarters of sequential revenue growth, including an 18% increase in Q4 2025 over Q3 2025, directly benefiting from competitors exiting the market. This competitive displacement strategy is a significant growth engine, allowing Sangoma to expand its customer base and subsequently migrate these clients to its cloud solutions over time. Management emphasizes building this customer base for long-term value rather than short-term price increases, demonstrating a strategic approach to market share capture.

Strategic partnerships further bolster Sangoma's competitive stance. Collaborations with VTech Hospitality integrate Sangoma's UC platform with industry-leading phones for a unified guest experience. A partnership with Quicklert helps schools comply with Alyssa’s Law, driving a 16% rise in pipeline demand for Sangoma's prem-based solutions in the education sector. Furthermore, aligning with Amazon Web Services (AWS) (AMZN) provides scalable, secure, high-performance communication infrastructure and co-sell opportunities, enhancing Sangoma's reach into the mid-large enterprise market.

Financial Strength and Operational Momentum

Sangoma's financial performance in fiscal year 2025 underscores the success of its transformation. In Q4 2025, the company reported revenues of $59.4 million, exceeding consensus expectations, and adjusted EBITDA of $11.4 million, representing a 19% margin. Excluding ERP implementation costs, adjusted EBITDA would have been $11.9 million, or 20% of revenue, marking the highest margin in the past eight quarters. For the full fiscal year 2025, net cash from operating activities reached $41.8 million, demonstrating a robust 102% conversion rate from adjusted EBITDA.

Free cash flow for the year was $32.9 million, or $0.98 per diluted share, consistent with fiscal year 2024.

This strong cash generation has enabled aggressive debt reduction, with Sangoma retiring $29.9 million in debt during fiscal year 2025, bringing total debt down to $47.9 million by year-end, well below its original target. The company also initiated a Normal Course Issuer Bid (NCIB) in March 2025, repurchasing over 500,000 shares, or 1.5% of shares outstanding, reflecting management's confidence in Sangoma's intrinsic value.

Operationally, the transformation has yielded significant improvements. Client satisfaction and Net Promoter Scores (NPS) have risen dramatically, with NPS up nearly 300% year-over-year and client satisfaction scores reaching the 90% level. Support average time to answer has been reduced by 33%, and churn rates have improved to below 0.95%, returning to historical low levels. These metrics validate the company's focus on customer success and operational efficiency.

Outlook and Growth Trajectory

Looking ahead to fiscal year 2026, Sangoma projects total revenue in the range of $200 million to $210 million, excluding the contribution from the recently divested VoIP Supply business. This compares to $209 million in fiscal year 2025 when excluding VoIP Supply. The adjusted EBITDA margin is guided to be between 17% and 19%, an increase from 17% in fiscal year 2025.

Management anticipates sequential revenue growth to commence in Q2 FY26 and continue throughout the year, with Q1 FY26 serving as an inflection point.

Key assumptions underpinning this guidance include an expected improvement in gross margins to approximately 75% starting in Q1 FY26, driven by the shift to a higher-margin business mix post-VoIP Supply divestiture. Operating expenses are projected to remain stable at around $30 million per quarter, excluding amortization of intangibles. EBITDA margins are expected to follow normal seasonal patterns, expanding in the latter half of the year due to higher sales volume and efficiencies from the ERP system.

Sangoma's growth strategy is multi-faceted. Organically, it is investing in marketing and channel partner development to expand its presence in key verticals such as healthcare, education, and distributed enterprise. The company's pipeline is building, with a balanced mix of long-cycle, high-value opportunities (some exceeding $100,000 MRR) and shorter-cycle deals. Inorganic growth is a top priority, with a robust funnel of potential targets in areas like SD-WAN, Security, and Zero Trust networking. The completed ERP system enables faster integration of acquisitions, allowing Sangoma to extract integration savings within 120 days.

Risks and Considerations

While Sangoma's outlook is positive, investors should consider several factors. The longer sales and implementation cycles for larger MRR deals mean that revenue recognition can be delayed, impacting near-term top-line growth. Although management believes the impact of tariffs and geopolitical risks is immaterial due to supply chain diversification and inventory, these external factors could introduce volatility. Competition remains intense from larger, well-resourced players like Cisco Systems (CSCO), and agile cloud-native companies such as RingCentral (RNG) and 8x8 (EGHT), requiring Sangoma to continuously innovate and execute its differentiated hybrid strategy.

Conclusion

Sangoma Technologies Corporation stands at a pivotal juncture, having successfully completed a comprehensive transformation that has fortified its financial position and sharpened its strategic focus. By divesting non-core assets and prioritizing high-margin, software-led recurring revenue, the company has established a robust foundation for sustainable growth. Its unique technological offering, spanning cloud, hybrid, and on-premise solutions, coupled with strategic partnerships and AI investments, provides a compelling value proposition in a dynamic unified communications market.

The company's ability to capitalize on market dislocations, particularly the retreat of legacy on-premise providers, positions it for continued market share gains and a clear pathway for customer migration to higher-value cloud services. With strong cash flow generation, a disciplined approach to capital allocation, and a clear vision for organic and inorganic expansion, Sangoma is well-equipped to unlock significant long-term value for its shareholders. The projected sequential growth from Q2 FY26 and anticipated margin expansion underscore the positive trajectory ahead, making Sangoma a compelling investment for discerning audiences.