Sangoma Technologies Corporation

Thank you for standing by. This is the conference operator. Welcome to the Sangoma Investor Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0. 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 Fingal in the third quarter of fiscal year 2026 investor call. We are recording the call and will make it available on our website for anyone who is unable to join us live. I'm here today with Charles Salameh, Fingal's Chief Executive Officer, Jeremy Webb, Chief Operating Officer, and Larry Stoff, 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 2026, which ended on March 31, 2026. Following that 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 CDAR+, EDGAR, and our website. As a reminder, take over 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 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 forum, and the company's annual audited financial statements, both on CR Plus, Ender, and our website. With that, I'll hand the call over to Charles.

Good afternoon, everyone, and thanks for joining us. This quarter is an important one for Sangoma, not just in terms of results, but in how we want investors to understand the business going forward. The market is shifting quickly, given the dynamics of AI. And before we get into the details of the quarter, I wanted to step back and provide a clear view of how we are seeing the business evolve due to these shifts. This quarter, we are breaking Sangoma into its core components, hardware, applications, the data networking, and the voice portfolios to better reflect where the growth is actually occurring inside the portfolio. What this view shows us is that it's a business in transition. When you look at Sangoma on a consolidated basis, you're seeing a blended view of very different businesses, some mature and under pressure and others growing and becoming increasingly strategic. That consolidated lens, while accurate from a reporting standpoint, does not fully reflect where the momentum is building or where we are investing for the future. Our data networking and voice networking segments are performing very well, going approximately 9% and 17% year over year, supported by increasing demand for trusted, intelligent communications infrastructure. At the same time, our application business has been transitioning. with growth in larger integrated contracts being somewhat outweighed by declines in more commoditized segments, which is kind of impacting our consolidated revenue profile. That divergence matters because the value in this company is not evenly distributed, and increasingly, it is being created in areas that are not always visible in the top line number. And given where we are in the year and the visibility we now have into Q4, we believe it's important to be direct. We now expect that full-year revenue to land somewhere between $204 and $205 million. This revision reflects two factors. Recent geopolitical and global trade-related disruptions are affecting certain international markets for us, and continued pricing and monetization pressure across parts of our software and UCAS markets are also affected. Importantly, there are parts of the business that we believe will drive long-term value, our infrastructure assets. that are performing and growing well, and we are seeing early signs of that shift accelerate. As we outlined in our earnings release today, in response to increasing inbound expressions of interest, the board has initiated a structured strategic process supported by a financial advisor to evaluate alternatives focused on ensuring the full value of the business is realized. This is an active board-led process and a priority at the highest levels of the organization. We believe the platform we've built, particularly our communications infrastructure, our recurring revenue base, and our AI-enabled platform strategies is increasingly relevant at scale. And this process is about aligning that strength with the right path forward. Our objective is straightforward. Continue to execute the business while the board evaluates the right path to ensure the value is realized. So for today, I'm going to anchor our discussion in three areas. First, our go-to market is evolving towards larger integrated deployments, which I've spoken about before. We are increasingly moving up market, not selling point solutions, but delivering integrated communication environments across our distributed enterprises. These are multi-product deployments that combine network, voice, security, and applications into a single managed framework. What's important here is not just the deal size, but the deal quality. These contracts are longer term, three to five years in duration, higher value, and expand generally over time. As the deal size and the complexity increase, deployments are implemented in stages, which affects the timing of when revenue is recognized across these bundles. That dynamic is impacting the short term. But these larger integrated deployments are improving customer lifetime value, reducing churn, and reinforcing our value propositions. We are building a deeper, more embedded relationship with our customers, and that is fundamentally shifting in our models. Secondly, our communication infrastructure business is emerging as a primary growth engine. This is where we're seeing the strongest and most consistent momentum. Our data and voice networking businesses are growing ahead of the rest of the portfolio, driven by increasing demand for reliable, secure, and scalable, intelligent, trusted communication infrastructures. This reflects a broader structural shift in how communications are being consumed. As automation and AI agents become embedded in these workflows, the volume and frequency of voice and data interactions increases. We think this will continue. These are not traditional user-driven calls. They are system-driven, always-on interactions that require routing, validation, and delivery across both the voice and the data network. That drives higher consumption at the infrastructure layer and is showing up in the numbers that we are seeing. We believe this is where the next phase of value creation will occur, not just in the applications, but in the networks that carry and enable those interactions. Our own global voice networks combined with our broader communications stack positions us directly in that layer. And importantly, it allows us to participate in that growth not just on a fee basis, but on a usage and consumption basis over time. This is where AI becomes a catalyst, not just a feature, and where we see Sangoma playing a central role as that demand scales across our infrastructures. Now, third, our financial models continue to generate strong cash flow and provide strategic flexibility. Our recurring revenue base, improved mix, and operating discipline translates into strong conversion from EBITDA to cash. That allows us to reinvest in growth, reduce our leverage, and maintain flexibility in how we allocate capital. In Q3, we made deliberate efforts to reposition our investments towards the growing areas of our business that I spoke about earlier. As those businesses scale, we expect operating leverage to support margin expansion over the next several years. That flexibility matters, particularly in the market where valuation does not always reflect underlying performance. Sangoma is a classic case. It allows us to continue to execute the strategy while also evaluating broader opportunities to unlock value. Taking together these three areas reflects a business that is shifting from a collection of products to a more integrated platform, from seat-based growth to infrastructure-led consumption, and from short-term revenue focus to longer-term value creation. And with that, I'll turn it over to Jeremy to walk through the operating results in more detail. Jeremy, over to you.

Thanks, Charles. I'll focus on what we're seeing operationally across the business, pipeline customer health, momentum in our MSP and voice infrastructure lines, and how well positioned we are to support long-term growth. First, both pipeline and customer health remain strong. Overall, pipeline and backlog were relatively flat quarter over quarter, while bookings were lower following a particularly strong Q2. As deal sizes increase, the mix and timing of bookings can vary, but we continue to build and execute against a pipeline of larger, more strategic opportunities. This quarter has seen an abundance of add-on business to previously booked deals, further reinforcing our central communication strategy and ability to capture share of wallet. For example, the large full-stack retail solution with 350-plus locations that close in Q2, it started out as 150K MRR. It's about 15% implemented and we're already booked an additional 50K MRR, taking this to 200K MRR. We have a customer with a large national group of clinics, and over the last 12 plus months, they've expanded to 675 locations and 144K of total MRR, with an additional 112 locations expected in the back half of this calendar year. And it's not just the larger deals that are getting larger. We have a multi-location healthcare customer that has expanded throughout the fiscal, from its first location in Q1, three more in Q2, five more in Q3, with bookings now totaling 22K MRR. Expansion is all about trust and confidence in our ability to support our customers, which continues to be stable and highly sticky. Churn improved this quarter to approximately 0.79%, which is better than her historical level at 1%, and a direct result of the significant improvements in CSAT and NPS that I talked about in prior quarters. Second, we continue to see strong momentum in our MSP and voice infrastructure lines. Our MSP business is growing approximately 9% year-over-year, outperforming the broader market, driven by our strategy to move upmarket and deliver full-stack deployments. These are multi-product engagements, where we move deeper into the customer environment over time. Our voice infrastructure and advanced tip-trumping lines remain a standout, growing approximately 19% year-over-year, driven by new customer wins, expansions within the existing accounts, and increasing traffic across our network. It's evident now more than ever that communications relevance, reliability, and trust reside in the infrastructure layer. This will continue to be amplified as cyber threats, voice and data phishing tactics, and importantly, AI agents become more prevalent and embedded in workflows and the way customers operate their business. Today, AI agents are already answering calls, booking appointments, and following up with customers. As these workflows move deeper into business operations, they rely on secure, trusted communications infrastructure. with appropriate regulatory and compliance measures in place, whether that's PCI, HIPAA, Sir Shakin. These capabilities don't get those overnight, and they represent areas where we've invested for years and continue to expand. At the same time, we're beginning to bring AI capabilities directly into the platform, with both AI IVR and conversational receptionist agents now in beta, and additional capabilities being added through select third-party integrations. We also continue to evaluate targeted acquisitions, particularly in AI and security, where those capabilities directly strengthen our intelligent, trusted communications infrastructure. As voice becomes more embedded in automated workflows, it is clear this will continue to be one of the fastest-growing and most strategic parts of our portfolio. With that, I'll turn it over to Larry to walk through the financials in more detail. Thank you, Jeremy. As Charles outlined, the consolidated view of Sangoma masks the growth that's happening within the portfolio. And that's particularly important as we think about the underlying value of the business. At a high level, approximately 60% of our revenue comes from applications, which includes UCaaS, CX, and CPaaS technologies. Over the past two years, we've consolidated this portfolio significantly, moving from a fragmented set of platforms to a more focused, integrated stack. Within this segment, we serve both a lower-end customer base where the market has become increasingly commoditized and a larger mid-market customer where we're growing through a vertical-led bundled strategy. Overall, this portfolio has declined at a low single-digit rate year-to-date, but we're seeing improving trends as our mix shifts towards larger, higher-quality deals. Approximately 30% of our revenue comes from our data networking and voice networking portfolio, which includes MSP access and carrier voice. Together, this infrastructure portfolio is growing in the mid-teens and becoming a more strategically important contributor as usage scales and value concentrates at the infrastructure layer. The remainder of the portfolio includes our open source business and hardware, which each represents single-digit percentages of revenue. While smaller in size, both play important strategic roles in supporting our infrastructure platform, and bundles essential communication solutions. The most important point is this. Different parts of the portfolio are growing at different rates, but the portfolio is built to generate cash across the board, and that cash flow is the foundation of value at Sangoma. In the third quarter, we generated $6 million in net cash from operating activities, representing an 80% conversion rate from adjusted EBITDA. Year-to-date, our conversion of adjusted EBITDA to net cash from operations was 87%, which is right in line with our expectations for the fiscal year. Free cash flow for the third quarter is $3.6 million, or 11 cents per diluted share, and remains a core driver of shareholder value. During the quarter, we repurchased approximately 196,000 shares under our NCIB, bringing total repurchases to approximately 271,000 shares year-to-date. Subsequent to quarter end, the TFX approved the renewal of the NCIB for an additional 12-month period. We also continued to reduce our debt. During the first three quarters of fiscal 26, we repaid approximately $15.5 million of term debt. Total outstanding debt at March 31st was $32.5 million, and quarter end cash was $15.2 million. Our consistent cash generation, Ongoing deleveraging and disciplined capital returns have continued to reinforce the underlying value of the business and provide strategic flexibility as we move forward. Now turning to the P&L. Total revenue for the third quarter was $51 million, reflecting the mix in timing dynamics we've discussed across the portfolio. Revenue from outside the U.S. is down approximately $300,000 quarter over quarter and $660,000 year over year, reflecting the macroeconomic and global trade-related pressures that have impacted demand in certain international markets. Gross margin for the quarter is 71% compared to 74% in the second quarter. The change reflects a combination of factors, including a higher contribution from infrastructure services with respect to product mix, and higher fulfillment costs in certain international regions. The deficit evened out for the third quarter with $7.5 million, or 15% of revenue. While margins were impacted by the factors I just outlined, we've been actively reallocating investments in both R&D and SG&A toward the faster-growing parts of the business, particularly infrastructure and AI-enabled capabilities, allowing us to continue investing in growth while maintaining solid profitability in cash generations. Turning to our outlook, we are updating our guidance for the fiscal year. We now expect full fiscal 20-fix revenue in the range of $204 million to $205 million. This reflects continued momentum in infrastructure and services, alongside the timing of revenue recognition on larger integrated deployments. It also takes into consideration the headwinds we have experienced on the international business. We now expect adjusted EBITDA margin in the range of 15% to 16%. The change reflects the evolving mix of the business with faster-growing infrastructure representing a larger share of revenue in the near term. Over time, we expect margin expansion from both the infrastructure side of the business as consumption volume grows and central communications applications as larger customer contracts scale. Importantly, this outlook continues to be supported by strong fast generation, disciplined capital allocation, and improving visibility as deployments mature. Before we open the line for questions, and as always, I want to thank the broader Center on the team for their hard work, dedication, and execution. Operator, we're now ready to open the call for questions.

Thank you. One moment, please. I'm just going to... We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you have a speakerphone, please. Pardon me. One moment, please. I'll begin again. We'll now begin the analyst question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We'll pause for a moment as callers join the queue. The first question is from Gavin Fairweather with ATB. Please go ahead.

Oh, hey, hopefully you can hear me. There's a bit of background noise. But just on the new focus around the voice and data networks and the infrastructure side, maybe we can just refresh us on kind of the capacity and geographic coverage of that segment, you know, how you, you know, win in that segment and differentiate yourself versus competitors. And just lastly, kind of how much of that is being sold through, you know, existing channels and existing clients versus it being separate? Yeah, I'll talk. Hey Gavin, it's Jeremy. A couple of things. First, you know, the kind of data infrastructure is more North American focused. It runs on a pretty advanced infrastructure backbone we have. That's really tied to a lot of the large deals and logos we talked about in the previous quarters. It starts with the network infrastructure and that traffic running over top and it gives us the opportunity to kind of in later quarters we'll sell more applications and solutions on top of it. So on that We got one component very North American-focused infrastructure-based, and then the voice infrastructure-based. There is some commonalities in the kind of network it operates on, but that's sold mostly to a lot of large other UCaaS trunking providers, you know, that have software offerings that need to, you know, run calling, run AI agents, run more advanced applications. That infrastructure is both North American-based and actually reaches out globally. into the worldwide theater. I would say, for the most part, it's a lot of the same partners in that partner ecosystem, but it's a subset. It's, you know, ones that are more sophisticated, ones that have a better appreciation for kind of the more advanced features and services they're able to provide. You know, they have a propensity to go after larger logos, and that's really what's helped us win, you know, a lot of those larger deals I talked about in other quarters and see that 19% growth on the bonus infrastructure side and 9% growth on the data infrastructure side. Appreciate that. Very helpful. And then just on the multi-product larger wins that you secured in recent quarters, I think you said that the backlog of deals kind of booked but not yet live was pretty unchanged with last quarter, which I think was at an elevated level. Maybe you could just talk about the timelines for some of that business to go live and start showing up on the server with us. Yeah, most of them take about six to eight months to deploy. I mean, the example I sort of talked about earlier, we closed in Q2, 350 locations. It's about 15, almost 20% implemented now. So, you know, you're talking a couple more quarters to a few more quarters before they get off the full run rate, whether that's, you know, the 150K one I mentioned.

You know, there's another one I talked about last quarter. It's about 20K.

Those types of deals... So you're talking six, eight months. If it's a little more voice infrastructure related, you know, probably in a quarter or two, if it starts with kind of a national data network, like the bigger ones that are in the 100k plus range, that's more in the six, eight month time.

Every quarter, though, we're continuing to build on the foundation of more bookings in this area. The simple way to look at it, Gavin, is We're getting these customers onto our networks through a value proposition that standardizes the network platform, reduces the total cost of ownership, and secures their network.

We bring them on every quarter.

They get rolled out over the course of 8 to 12 months. And every quarter, we keep adding to that portfolio. So the compounding effect of that, it's really hard to time it because some of it is not just our own capacity. It's the capacity of the clients themselves to organize their locations, get ready for us to install stuff. It's why we have difficulty sometimes so early, like only one year into this sort of pivot to the larger transformational type deals to really pivot and when these will all land on whatever particular quarter. I think as we get more and more mature, every single quarter, we'll get much more clarity on, you know, understanding how the impact has to revenue relative to the other pressures that we're facing and that we talked about earlier.

Thanks so much for that one.

The next question is from Daniel Rosenberg with Paradigm Capital. Please go ahead.

Hi there. Sorry for any background noise. I'm just in transit. But my first question was around the expressions of interest that you mentioned. Any color you could give about, you know, are there several expressions of interest? How, you know, initial conversations, how deep these conversations have gone? Just any color there would be appreciated.

We've been looking at ways to drive value creation with a company of our size. You know, we're a small-cap Canadian company with, you know, some liquidity challenges. And so, you know, part of our mandate was really to get the company into good operational strength, which is where it is now, and good financial strength. And we knew when we got them into these two positions, we'd have lots of options. One of the options would be to acquire a bunch of companies. and start to build on our platform. The other option was potentially to exploit the value in our financial systems. Well, just like we've been trying to do with our own company, we've had interest really since we've begun the transformation. You know, at the beginning of this fiscal year, we came out of transformation, and we've had lots of inbound interest to look at the company from all kinds of scenarios, mergers, potentially, you know, combining efforts, partnerships where we would combine portfolios, Obviously, we've been looking at acquisitions. So it's kind of been a slow-growing, ongoing set of interests over the course of the last year. And it just got to the point now where the board felt it was, you know, our duty to, you know, announce that this was going on because the interest continued to increase. And, you know, inside that last six months, really last six to eight months, the market has dramatically shifted. There's been a lot of activity in this type of space. And so we thought it was like the right time to do it.

Okay, I appreciate that. And then just turning to your commentary around kind of the macro, some international impacts, I'm just curious if you could tell me what you're hearing from the budget of your target customers. Has there been any change in propensity to spend? I think there's all these AI applications, you know, just dollars where they're being allocated. Just a little.

Honestly, on the international front, our portfolios international are somewhat restricted to a handful of offerings. We have a cloud-based offering that can operate in multiple countries, and we have a lot of traditional voice hardware business out in those parts of the world. These are offerings that are generally fairly cost-conscious. And with some of the activities in the state of Hormuz and the disruptions in supply chains, the shipping costs, production costs have gone up. And a lot of our clients are just basically telling us that the cost of the have had some disruptions. And basically, most of it has been around cost of transportation and shipping costs have just made it somewhat cost prohibitive and it slowed down our orders unexpectedly. And as you know by how fast this war came upon very, very quickly, which has caused a bit of a challenge we've had this quarter. And, you know, if I was just being honest with you, I think the feeling I'm getting from customers in that market is still a little ambiguous. You know, did this thing shut down in Q4 and we go back to normal? Does it take a couple of quarters before cost of shipping staples down while they go to the backlog? We don't know. And as a result, you know, we've been quite cautious about our guidance relative to the impact that would have. But also, just one other, you know, thing, like we've had events being canceled by customers because of some of this turmoil that's going on in the market. And so, you know, the overall answer to your question is the feedback we're getting is the market is very uncertain as to what's going on. It's creating caution. And that caution is translating into slow orders for us and delays in orders relative to the situation they're faced with. And to be honest, I don't blame them.

Okay. And lastly for me, just on the margin, so would you say the margin in fact this quarter is kind of a function of what you just described? And because when I think of you guys historically, you've been pretty consistent in the margin that you've been able to produce. Just wondering how you're thinking about margins on a go-forward basis, you know, any expectations of a rebound if some of these issues get resolved in the near term?

Yeah, so for, you know, for the next quarter as we're guiding, we see it relatively the same given the visibility that we have. As we, you know, as we transition to seeing some of the volume in some of these other areas and our ability to, you know, increase the margin there. Moving forward, we would expect to see that expand as we move forward, but for the next quarter, we put that into the guidance that we've given just because of the uncertainty in those areas.

Thanks for taking the questions.

Thank you.

The next question is from Susan Sukumar with CECL Canada. Please go ahead.

Good evening, guys. My first question, I wanted to touch on some of the commentary you guys made around, you know, keeping the investments going into the growth categories of the business. Is this more of a reallocation of resources, or is there now a new incremental scope of investment given some of the market signals that you're seeing?

It's really both. So we're always looking at costs, and on a net basis, we'd be at about a $2 million annualized cost reduction. However, we are putting back into the business significant investments in those areas, which would be a reallocation. So from that point of view, we're looking at where we can deploy those assets to serve where we're seeing the growth. So it is a combination of both, Suzanne.

Okay, great. And with respect to the color you all shared on the pipeline trends sequentially, I think you touched on it in the earlier question, but, you know, is that sort of activity in the pipeline that you're seeing now, is that more reflecting more of a pause in overall client decisions here given the macro? that's playing out, or is this also a function of really just the larger scope of deals that you guys are working with now and the lumpier nature of those deals? And, you know, moreover, what are you seeing, you know, post the quarter?

No, so I'll be clear on a couple things, if I understand your question. So, first of all, the pullback or the hesitation is really pretty focused in on some of our international markets and those customers. In the U.S. markets where 90% of our revenue exists today, we're not really seeing a pullback. What we're seeing there more of is, look, we kicked off in July of this year this idea because we were post-integration and transformation bundles of larger deals upmarket, which required, you know, three major things to happen. Sales leadership that knew how to sell the integrated bundle value proposition. Two, we need to really isolate the partners that really understood the complexity of these types of larger, you know, lowering TCO-type value propositions. And then three, we had to sort of land those deals and then roll them out. And so, we got all three of those things actually pretty right in the first couple of quarters. What we're still struggling with a little bit, it's just the speed of execution of deployment. and as every quarter goes by we get much more intelligent about how these things roll out especially these larger very large complex deals like the one jeremy was talking about you know we didn't anticipate that we would start at 150 000 mrr and then within three or four months later, we're now adding another 50,000 of MRR. So now it's at $200,000. We've never done deals of that size before. And so we're learning as we go. We don't see any real pause here. In fact, we're going to see continued escalation, not escalation, but increased volumes of these types of transactions. They're just going to be a little bit wonky for the first couple of quarters. Like one quarter, you might have huge booking numbers where you'll do 10 million of TCB. And in the next quarter, you might have half that. In the next quarter, you might have triple that. So as we get more and more mature over the coming quarters, because we're now definitively focused on this business, and couple that to start with, we've made a conscious decision this quarter to really focus the growth of the company on these areas of the business and not try and invest in all the areas. Because there's a realization that the application side of this business is just a very tough slug. And I think it's commoditizing. I think it's an area of the business where you need to deprioritize. I don't mean stop growing, but sustain that business, but really put dollars that we have available to us into those areas that are growing double digits. And the value proposition that we tested in July of this year, beginning of July, beginning of this year, has proven that this is the area that customers are appreciating and that we are going to start investing more and more of our energy and time to. And we're just not at the point yet where I can pinpoint every single quarter the exact amount of revenue that's going to fall. What I can tell you is it's growing. There's demand for it, and I think AI now and agent traffic on these networks is going to continue to increase the volume there, and we'll continue to learn as we deploy these things on a quarter-by-quarter basis. I know it's a day-to-day answer to the question, but it's really the best we can tell you about right now. It's an exciting area of growth for us, but it's a new area that is now showing up in real numbers for the company. as we announced today, in terms of what we're seeing, and we're allocating the investments to support that.

Got you. No, that's helpful color. And just one last one from you guys. Just on the strategic review, would you entertain selling parts of the business? And if the board ultimately deems that, you know, you all stayed the normal course of business, would you continue to be active on M&A going forward?

Being active on, I'm sorry?

Being active on the ambitions you've talked about in the past.

Yeah, yeah, yeah. So, of course, because what this announcement was about, and I know, you know, the general view is just simply, hey, we're looking at strategic alternatives in one dimension. We're not. We have been and continue to look at, you know, being an acquirer of companies, but now potentially being acquired, There's no definitive timeline at this point. Do we see selling parts of the company? I think that's what your question was. I don't think that's a logical answer because the value of this company has always been predicated in the foundation of the essential communications bundle that we believe the mid-market is moving towards. And selling parts of the company doesn't seem to make sense, although the board is willing to entertain anything that creates shareholder value. So it's a very broad, it's a broad announcement on how the board deals about what we want to do. We want to unlock value for the company that creates shareholder value, and we're going to look at all various options to maximize that.

Okay, great. Thanks for the feedback, Jack. I'll pass it on. Okay, bye.

The next question is from David Kwan with TD Securities. Please go ahead.

Hi, David.

Hello.

Mr. Kwon, your line is open.

Oh, hi.

Can you hear me?

Yes. Yeah. Oh, perfect. I'm not sure what happened. I also spoke a few months ago, and there was just a lot of bullish commentary and data points on the call, and not so much on kind of some headwinds that you might have been seeing, especially internationally. So I'm just trying to reconcile that with kind of what came out this quarter, like how did things, I guess, seemingly change relatively quickly in some of your markets, most notably internationally? Was it just the Iran conflict, or is there something else?

No, it was the Iran conflict. I mean, the Middle East crisis, the disruptions of the supply chain directly affected our mostly NRR business, which is tied to the international side of our revenue stream. It's a very stable business. The international markets for us and the leader who runs it is usually very stable. Q3 is actually our strongest quarter, generally speaking. It has been for multiple years. This is the seasonality trend of the international market. The only thing that's really disrupted it, and we're getting direct feedback, is the very rapid implications associated with the macroeconomic issues that are going on. It's created problems with shipping costs. It's created problems with clients you know, belief that we would get product to them in a certain time and orders were delayed. And it's just caused a short-term impact. And I don't know how long it's going to last. And that's why I'm being a little bit more conservative about, you know, where I think C4 is just going to end. And if it does, like, okay. Ask any of my CEO friends the same question. Okay, well, what's the backlog implications of this? If you're an NRR seller, you're a product seller, which we are. We're international. That's mostly what we sell out there. There's a direct impact there, and it creates a lot of ambiguity, and that's why I said in my remarks, I've got to be direct with you guys. I'm going to have to lower guidance as a result of it, because I just cannot put my finger on where they're going to be. We work quite bullish on them, and going into January, when did this thing happen? It happened, like, February, March, and boom. It has that kind of an impact. I'm not being cute, but that's about as honest as I can get.

No, I appreciate the color, Charles. When you look at the breakdown of the revenues, the product revenues actually were quite solid. But on the surface side, it looks like the shortfall was relative to kind of what you guys had kind of got into in terms of year-over-year sequential growth this quarter, maybe about $2 million. So I'm trying to understand what the difference was. Was there, you know, the FX was a bit of an impact there, but what happened there? So I'm sorry, with respect to what's the... Just on the services revenue side, like you guys have been talking about Q3 being a quarter of returning to not just quarter-to-quarter growth in services revenue, but also year-over-year basis. So relative to where the revenues fell out this quarter, it looked like they were divided $2 million shortfall. And given that churn was actually seemingly down this quarter based on January's commentary. I'm just trying to reconcile that. Hey, David, it's Jeremy. A lot of it was what Charles just mentioned previously. Like, there's timing. You really have some of those larger, more strategic deals. We booked a tremendous GCV in Q2, a very strong booking in Q1 as well around some of these larger strategic deals. And, you know, I wouldn't have predicted, you know, that they'd only be on some of these larger ones, 15% deployed. I thought we'd be at 40%, 50% deployed, and that MRR would have flown, you know, shown up this quarter. It's not, you know, it's not kind of, you know, our ability to implement and kind of pace these deals. It's just the pace at which the customers go. And one of the large account I mentioned before, large retail, 350 plus locations, some of them are in, you know, script halls. They've got to do it after hours. They've got to coordinate it with the landlord. They've got to get to the telecom room. And so you've got it on the schedule for whatever, the first of the month. And sometimes by the time you can get all that coordinated, it's two, three, four weeks later. And that's really what's impacting our, you know, our Q3 services revenue, the lumpiness and the pacing of these larger deals. So, as we have a larger and more stable volume of large deals, you know, that'll help create more predictability in the MRR services business.

And now, I mean, David, I made it clear as well, like, that is certainly a big part of it. The product, we have a big portfolio. Part of the portfolio is MRR and the product is. this has generally grown, so that you've heard some, there's been some headwinds associated with that that we described. But there's also a third bucket, which I've been really open about, right? The market has dramatically changed in the software industry in the last seven to eight months. No one would have, roughly a year ago, would I have thought the infrastructure and networking and data businesses would have been a strength of Sangoma? I would have said you're smoking grass. It is now, And if you talk to any of the major players in this space, infrastructure plus AI could become the new section because there's a realization AI agents are coming on these networks at an extraordinarily rapid rate, and they need an infrastructure that can trust, authenticate, timestamp these agents just like you would with voice calls. And so we've begun to realize that the services, the pure software side of the business, the traditional UCAS business, which makes up a large chunk of our revenue, is just commoditizing and accelerating rapid rate. And I can either fight that, which I probably could over the course of the year. I can fight it hard or I can try and differentiate with a company of my size, 200 million, or we can really put the guns of growth towards what we think, where we think the puck's going to be, which is in the infrastructure. So we kind of made a pivot in Q3 under that realization. And given the adaptability of this company and how fast we can pivot, we pivoted in Q3. We took out some costs. We reallocated. those costs into the growth engines, and that's had a bit of an effect on the year-over-year, the consolidated view, as Larry said in his remarks. It's hiding the underlying growth of what's really happening in the company, and what I believe the market is actually doing and rewarding. So I guess the simple way of saying it, the plan in July is a little bit different than the plan now, some eight, nine months later, primarily because the market, you cannot deny, the market has absolutely shifted. in technology, and particularly in the last eight months.

I appreciate the color, guys. Just one last question. For the strategic review, did you just commence that, or did that start earlier and you're only closing that now?

No, we've been sort of working with our bankers for about, since about the beginning of the fiscal year, but really it was mostly focused on a hugely broad mandate that kind of went into acquisitions, went into all kinds of a potential way to unlock shareholder value, because we just didn't feel the market was rewarding the company for the value that it had. I mean, we got value in two areas. You know, we strengthened the financial position of the company with its balance sheet, its debt, its cash flow, its meetings, and we strengthened the portfolio after two years of grueling transformation, and we still didn't feel the market was grueling it, and so we wanted to get a difference of the eyeballs on it, and we engaged that process at the beginning of the year, and it's just because of what's happening in the market, the company has drawn a lot of attention to itself, and we thought it was appropriate and our fiduciary responsibility to announce it.

I appreciate it. Thank you.

You're welcome.

The next question is from Robert Young with Canaccord Genuity. Please go ahead.

Hi, Jeannie. I was going to ask why now on the strategic review, but I think the last question, the answer to the last question partly answered. I mean, I think If I were to look at the previous comments you just made, it sounds as though you're looking at optimizing the business. This isn't a situation where you've had an outside offer that's forcing a process, if I'm, you know, trying to understand the answers of previous questions.

That's right, Robert. You're right. As usual, smart as a brick.

I mean, you're already looking at divesting smaller parts of the business, like the voice supply transaction. And so is this just a continuation of what you had been doing before, just more formalized?

Yeah, it's a little broader than that now. I think, like I said earlier, the market, you know, we're – where we, me, like most CEOs who are in my space right now, a little frustrated by this, this dramatic structural changes that are hard to understand in the software industry and UCAS industry. And, you know, we believe there's value in this company, in Sangoma in particular, dual value in its financial strength and dual value in its portfolio and the richness of the portfolio, and certainly in what we're starting to see now with the growth in the business in certain areas, you know, combined with the compression in other areas. And the value is just being locked up that the market's not appreciating. So we're looking at broader ways to unlock shareholder value. That's my job. First and foremost, have the integrity of the employees of the company is to increase shareholder value. And so, you know, I think we've just taken the mandate broadly. We've had a lot of inbound interest on the company. It's increasing. And it became, you know, for us, something that we felt it was our responsibility to announce, and that's what we did.

Okay. Thanks for that, Collar. Digging a little bit into the pricing pressure, you already suggested it was related to specific areas. I think you know what you passed, and I missed the other parts. But is this where bundling has not been a factor? And I think you said that there was strong demand in the U.S. Is the pricing pressure outside of the U.S.? ?

No, no. The pricing pressure is across the UCAS portfolio as a point solution. And so, the way you stave off commoditization when you have that is you move into value proposition that blends a commoditized offering with a better premium offering or a better value proposition. And so, the bundling strategy was our way. We always knew pricing compression was coming. When I joined the company in 2023, I joined it knowing full well that over the next two years, we're going to be in a commoditization cycle. There were too many UCAS players out there. But what Sangoma had that was different than everybody else is that it had voice, data, video, security, and its own proprietary hardware. So moved the company towards bundling, which took us two years. Again, I get the transformation enabled to make that happen. Launched that in July, which was the beginning of this fiscal year. Logged $11 million of TCB in the first two quarters. More coming this quarter, more coming next quarter. But those deals have a very different business model than selling point solution UCAS by itself. And so the timing of revenue between selling a point solution of UCAS at a super high margin by itself is way different than selling a bundle, which gets rolled out over eight to 12 months, depending on the speed of the client's ability to execute. So it's getting the timing right of dealing with commoditization while executing the bundle that we're still, I'm just being honest with you, still struggling to pinpoint how to land their plane in every 90-day cycle to meet these quarterly numbers. You know, at such a tight range, it's just hard to do. It's always been that way for anyone that plays in this space until you get volume. And so, as we go into 27 and 28, you know, we're going to have every quarter, we begin to understand better how to realistically time the revenue drop from the time of revenue contracted.

Great. Okay. And then the churn number is still very impressive. I was just, you know, there was a lot of large expansions, and so a net revenue retention or a net dollar retention number I would think would be very high this quarter. I know you don't see that number, but was it abnormally high this quarter? And maybe if you just talk about whether the, you know, the channel go-to-market strategy, is that driving some of this expansion activity with these large customers? Yes.

Yeah, not yet. It's just starting to. And so, first of all, in turn, Jeremy and his team have just done an outstanding job of, and that's certainly from his background, of focusing on customer service. If you're going to get into these bundles, you're going to become the virtual CIO for your customer. Therefore, in order to maintain and retain that customer, you've got to have some degree of trust built up through good service and good support. And between Jeremy and Joel Kappas, our chief client officer, they've driven that number down, including bringing the AI technologies in to better help us understand our client base and get them through, you know, the pre-2023, I guess, Sangoma. That had some challenges, and that caused a lot of this churn to kind of go through the system. On the bundling side, now that we're landing these larger contracts, there's a kind of phase two, right? First land the contract, and then now we're going to invest heavily into account expansion. We really couldn't do that until we got a bunch of these contracts in that were bundle aware. And so part of this reallocation that Larry had talked about, we're actually moving six bodies into the account expansion team. It's part of that investment and reallocation. Because mining, one of the core value capabilities of Sangoma is it's 100,000 plus customers. And we really haven't got into harvesting them well. We now have a great leader who's running that for us. We're putting more resources towards that. And we have a portfolio that has a good customer side and NPS score attached to it that makes it a little easier for us to sell more features, more services, more capabilities to that base. And so you've got these two plays, new local acquisitions going after large new contracts on these five-year terms that are more infrastructure-based and then moving them over to a farming function to allow for account expansion because the company is not ready to do so. And just like I said, those things are, both moving into full motion really this quarter and kind of going into 2017.

Okay. Last question. Just the infrastructure, if you could just clarify what that means. When you say that, I think of hardware, like session board controllers and such.

Just think about it simply, right? Think about a layer cake. So the bottom of the layer cake is the voice network. It's kind of A to Z countries. It's global, and it moves voice traffic. It carries voice traffic on a wholesale model. We sell it to ISVs, ISPs, carriers, those kinds of people, and then they move traffic, voice traffic, across these networks. And more increasingly, we're going to start to see more agent traffic moving back and forth, communicating with humans. So, agents communicating with its humans, humans communicating with humans over voice traffic. The next layer above that is the infrastructure of data. Mostly North American-based, our own network, and it's really more machine-to-machine, application traffic that moves across these networks, internet traffic, that type of stuff. It's got security embedded on top of that, and that carries, you know, mostly data traffic, and then I think in the future, agent-to-agent communication. And so, these two layers we call infrastructure in the simplest terms, and it's just carrying traffic that used to be primarily human, and increasingly, we're going to start seeing more agent traffic, 24 by 7, seven days a week, consuming more of those network infrastructures. and hopefully commanding more of a premium price than what traditional human-to-human conversations would get.

And just for clarity on those, those are absolutely services businesses.

They're not hardware. That's right. You know, recurring services or reoccurring services for usage on those platforms. The data network, for example, can be five-year contracts, three-year contracts on average. The voice ones are recurring revenue generally on a yearly basis. And so very, very high-quality revenue. That is very consistent. And once you get agent traffic on these networks, it's very hard to get off. So it's going to be a very sticky business and continue to be so as long as you don't have the customer hate, which is why NPS and customer side are so important to us.

Very interesting. Thanks for that. I'll pass the line.

Okay. 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.