Sangoma Technologies Corporation (SANG) Q4 2024 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Sangoma Investor Conference Call. [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 fourth quarter and fiscal year end 2024 investor call. We are recording the call and we'll make it available on our website for anyone who is unable to join us live. I'm here today together with Charles Salameh, Sangoma's Chief Executive Officer; Jeremy Wubs, Chief Operating and Marketing Officer; and Larry Stock, Chief Financial Officer, to take you through the results of the fourth quarter of fiscal year 2024, which ended on June 30, 2024. We will discuss the press release that was distributed early today together with the company’s financial statements and MD&A, which are both 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, which is a non-IFRS measure, but is defined in our MD&A. Before we start, I’d like to remind you that 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’re 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, 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.

Thank you, Sam, and good afternoon to everyone listening in. Really appreciate you taking the time to join us and for your support and interest in Sangoma. Hard to believe that this month marks my first anniversary as Sangoma's CEO. As I said before, when I joined I saw the potential to unlock value by integrating our strong portfolio of assets and focusing the organization on delivering a full stack solution of essential IT communication products and services to the SMB market. Over the past year, we've embarked on a transformative journey to realize this vision, we've assembled the right leadership team, streamlined our operations, reengaged with our partners, upgraded our systems and processes, and revamped our go-to-market. All the while, we bolstered our financial health and built flexibility into our model to put Sangoma on a scalable path to growth. I'm extremely proud of how the team has executed in the fourth quarter and throughout the fiscal year. We ended the year right on plan and I love it when a plan comes together. With revenues of $247.3 million, which fell squarely within our guided range of $246.5 million and $248.5 million. Our adjusted EBITDA of $42.6 million that was above the midpoint of our guided range of $41.5 million to $43.5 million and adjusted EBITDA margins of 17% and net cash generated by operating activities of $44.2 million, representing cash conversion from adjusted EBITDA of 104%. Sangoma is now fully prepared to execute its FY '25 operating plan with confidence. Our strategic focus for FY '25 is built upon the foundation of the transformation efforts successfully implemented in FY '24. With a robust pipeline of initiatives, we are positioned to deliver on quarter-on-quarter sequential growth throughout FY '25. These initiatives, coupled with our detailed operating plan, set the stage for sustained momentum and continued expansion as we capitalize on the opportunities ahead. Our strategic plan for FY '25 is centered around capitalizing on the three key vectors of growth, which I spoke about in our Q3 earnings call. With our strong balance sheet and differentiated offerings, we are now positioned to execute on the more strategic elements of our business through organic growth, inorganic expansion and market and channel development. As the market is rapidly evolving, companies like Sangoma are now well positioned to leverage their strength to seize the rich opportunities that are emerging. We are already seeing promising trends in AI security and SD-WAN, which can efficiently integrated into our portfolio through both build and buy models, driving sustained growth in the years ahead. For the next phase of our transformation will focus on a set of software, hardware and applications that distinguish Sangoma as a communications platform provider at its core. Our ability to address the essential IT communication needs of the SMB market, including the increasingly sophisticated mid-market, sets us apartheid, driving demand for multiple products and services across the entire portfolio. These areas provide high recurring revenue for our business and foster long term relationships that yield greater customer lifetime value. Reducing churn remains a top priority for our business. Throughout our transformation, we have successfully maintained churn rates below 1%. Now, by prioritizing exceptional client experiences we continue to make significant strides in further reducing churn aiming for industry leading retention rates. This focus not only strengthens our customer relationships, but also positions us for sustainable long term growth. This is shown through the appointment of a full time Chief Client Officer, Joel Kappes, who is spearheading the programs around customer operations that Jeremy will speak about in a moment. Now, by building on a steady foundation, we will look to drive top line improvements. We are already seeing signs of stabilization in previously challenged areas of the business, such as our product business, amid an uncertain macroeconomic backdrop. Additionally, we're observing early positive results from our go-to-market, channel management and brand revitalization initiatives. I've talked in the past about our plans to bundle products and services. This isn't just about grouping and cross selling products, it's about delivering comprehensive solutions to address industry specific needs. For example, our CX hybrid and cloud UCaaS solutions are all HIPAA compliant, enabling us to meet the communication needs of large multi-site healthcare organizations. Our solutions also comply with international privacy standards, opening up market opportunities in the European Union, Canada and Australia. Through our proprietary technology platforms, we control the end-to-end delivery of services and adhere to strict data and security standards, allowing us to cater to specific industry requirements, including the public sector. Now moving on to capital allocation, our high quality conversion of EBITDA to cash flow and strong balance sheet provides us with financial flexibility to pursue various strategic paths for maximizing value creation. Currently, our priority is debt repayment. As I announced in July, we accelerated debt repayment in the fourth quarter, aiming to reduce Sangoma debt position to $55 million to $60 million by the end of the fiscal 2025 year. We also continue to self-fund our transformational activities, including R&D spending and the completion of our ERP programs in early 2025, which again, Jeremy and Larry will discuss further in their remarks. A key benefit of the ERP program will be our enhanced ability to quickly integrate bolt-on acquisitions efficiently and drive greater synergies and return on investments. With our debt to trailing EBITDA ratios expected to fall well below our capacity at less than 1.5x, we'll be in a strong financial position to pursue inorganic growth opportunities through non-dilutive means that align with our core platform strategy. We are at the early stage of building a pipeline and we believe market conditions will continue to favor us as we move into the next calendar year. Now, before I turn it over to Jeremy to update you on the operational progress, I wanted to take a moment to acknowledge and welcome the addition of April Walker to our Board of Directors during this last fourth quarter. April brings a wealth of technology expertise and insights into the areas of customer success and digital transformation having previously held the role of Senior Vice President of Customer Success at Salesforce. At Sangoma, we are deeply committed to fostering a diverse and inclusive environment across the workplace, management levels and on our Board. By actively promoting and supporting a wide range of voices and experiences, we ensure that our team is equipped to tackle the challenges with creativity and insight. I am both proud and honored to have such a seasoned team around me. Now as we close out 2024, I am incredibly proud of the remarkable progress Sangoma has made. This has been a year of transformation, resilience and growth, and I'm confident that the foundations that we've built positions us strongly for FY '25. Our team's hard work, our strategic initiatives and the commitment to innovation have put us on a clear path towards sustainable success. Moving into our pivot to growth year, Sangoma remains a compelling investment opportunity with a well-defined path towards sustainable value creation. We are leveraging our strong financial foundation and executing a detailed operating plan that positions us to capitalize on market opportunities. I have immense confidence in our ability to deliver value to our key stakeholders, our customers, our employees and our shareholders, and I truly believe the best is yet to come for Sangoma. With that, I'm going to turn it over to Jeremy to dive deeper into our operating activities this past quarter. Hey Jez, over to you.

Thanks Charles. I'd like to echo your comments earlier. Fiscal 2024 was a foundational year to reorganize and align the organization and while there's still work to complete internally, like our ERP program automation projects and other operations improvements, this is all well in hand and our focus is clearly on our go-to-market and driving quarter-over-quarter growth. Sangoma Technologies at its core is a communication platforms company complemented by a rich and broad range of services and solutions. Our history of innovation and acquisition has resulted in a sophisticated set of assets and portfolios, most of which strongly align to our go-to-market and some of which I would describe as either late life cycle in nature are at times competitive to our partner ecosystem. As we continue to align and improve our go-to-market, we'll concurrently optimize our internal investments with this in mind. We now have a strong operating plan that instills confidence in our ability to meet our targets. This confidence is driven by a growing pipeline and larger MRR deals. To provide more transparency, we'll begin reporting go-to-market metrics starting in Q2. In FY 2025 we'll continue to focus on becoming a simpler and more unified Sangoma to our customers, partners and employees. We have implemented cost savings programs, streamlined processes, made systems improvements and will continue to do so throughout our fiscal. Let me provide an overview of some of the key operating activities for FY 2025. In the IT and business systems team we will see continued focus on our enterprise resource planning, customer relationship management and other programs supporting our end-to-end order to cash process. As outlined previously, fiscal 2025 will see a 70% reduction in our finance systems, a 58% reduction in product SKUs, and a 71% reduction in payment portals. In customer operations, we have a robust program that will continue to see improvements across all major support metrics. Similar to what was noted in our July 22 press release, we expect further improvements in customer satisfaction, net promoter scores, churn, mean time to repair and average time to answer. Some notable improvements we have already seen in Q4 compared to prior quarters include support M2TR improved by 35% and average time to answer improved by 24%. I'd like to acknowledge the tremendous work of our Chief Information Officer, Mark; and Chief Client Officer Joel the ability to be a best-in-class provider with enterprise quality support at affordable prices requires a disciplined and persistent focus on continuous improvement. As a communications platform company that is complemented by a rich and broad range of services and solutions, it's important that we continue to evolve our product line in a manner that supports the increasing preference for multiproduct solutions, enterprise class support and digital interaction. With this very focus in mind, our 2025 product and engineering plan prioritizes efforts under three major themes. First is core platform capabilities that includes advances in our established product lines and new forms of innovation. A couple of examples of recently released capabilities include ask Sangoma AI Assist, a new AI Bot trained on Sangoma products that has been soft launched internally, designed to further advance our support and to evolve as a support offering for our clients. A new major release on our switchbox premise platform supporting our ability to capture share in the space, an increased area of focus where we experienced quarter-over-quarter growth of 23%. Second is portfolio integration, more seamless inner working of our offerings such as tighter integration between our unified communications as a service and contact center as a service platforms supporting that multi product preference I mentioned earlier. And third is our overall digital experience, continued development and evolution of our Sangoma control panel which unifies our services into a single pane of glass. We have a clear plan that will see us delivering on two to three major releases per quarter across these three themes I just covered. Backed by a robust product and engineering plan, let's turn our attention to sales and go-to-market. Early in the fourth quarter, we welcomed Monica Walton as our new Chief Revenue Officer. Monica brings strong capabilities in business transformation and extensive channel experience with a proven track record in crafting and executing go-to-market strategies for the SMB market. The hallmark of our go-to-market activity is focus and prioritization. With such a wealth of capabilities at our disposal, it is critical to ensure there is strong portfolio alignment in our partner ecosystem. Our service revenue grew by 1.83% in FY '24. We kept churn under 1% and now as part of our growth strategy, we have structured our go-to-market program around the pillars of partnership, sales talent, expanded lead gen and structure. Partnership revolves around our disciplined focus on our top 400 partners that support 80% of our revenue. Sales talent that focuses on skills development, increased training and leveraging our new talent, including both our new CRO and new North American channel chief. Expanded lead gen, which includes emphasizing more inside sales capabilities and intensifying our focus on cross selling into the base. Structure includes leveraging new performance management tools, better instrumentation to measure, track and target our programs, channel incentives and internal rewards. We have a fulsome go-to-market program that is well underway and to quickly and steadily shift from Q4 into Q1, our sales plan naturally prioritizes NRR in early quarters given the longer sales cycles associated with the larger pursuits in our MRR business. I'm very pleased by the significant progress we've made in FY 2024 and the excitement and momentum we have going into Q1. The very same operating discipline used to execute on our internal programs. Our cost savings in FY 24 is now being applied to our go-to-market activities. Thank you. I would like to turn it over to Larry to provide more detail on our financial results. Over to you, Larry.

Thank you Jeremy, and welcome everyone. We appreciate you joining us for today's call. Fiscal '24 was a year of change for Sangoma, and that's why I'm pleased to report fourth quarter and fiscal year end results that were squarely within our guidance range on revenue and adjusted EBITDA. During the fourth quarter, we generated $11.7 million in net cash from operating activities, a 5% increase over the prior year period, and converted 105% of our adjusted EBITDA of $11.1 million into cash flow. In fiscal '24, we have generated $44.2 million in net cash from operating activities, an increase of 67%, and reduced our total debt position by $23 million. Throughout this fiscal year, every step of the way, we remain focused on deleveraging the balance sheet and creating optionality for future investments as we pivot to growth. Revenue for the fourth quarter of fiscal '24 was $60.9 million, a decline of 4% from the prior year period and down 0.2% on a sequential basis. Services revenue declined by 0.6% year-over-year at $49.9 million and represented 82% of total quarter revenue, up from 79% of revenue in the same period a year ago. For fiscal '24, services revenue of $202.1 million increased 1.83%. This is a great testament to the sticky nature of our core services business that we have been able to grow MRR while undergoing our transformation activities. Our services revenue churn remains very low at less than 1% in FY '24. Product revenue representing 18% of total quarter revenue declined from $13.5 million in the same period a year ago to $11 million in the current quarter, a decline of 18%. On a sequential basis, product revenue increased by 3% from the third quarter. For fiscal '24, product revenue was $45.1 million, a decline of approximately 16%. As Charles mentioned earlier, we are starting to see some stabilization in product revenue entering fiscal '25. Although economic conditions have impacted CapEx spend across our industry, we have seen some of our competitors pull back in certain markets and this is giving us opportunity to step-in to fulfill this demand. This will have a near term effect on product mix and blended gross margin in the first half of fiscal '25, but also gives us the opportunity to acquire new customers to drive longer term recurring revenue relationships. Cost of sales during the fourth quarter decreased 11% to $19.1 million compared to $21.4 million a year earlier. The decrease was primarily due to overall revenue mix which has shifted towards services. This resulted in fourth quarter gross profit of $41.8 million that declined 1% compared to the same period last year. Gross margin at 69% for the fourth quarter was down by approximately 1% from the previous quarter and up 3% compared to the prior year period. Our fourth quarter operating expenses, consisting of sales and marketing, research and development, general and administration and amortization of intangible assets totaled $41.6 million versus $43.7 million in the prior year period and declined from $43.7 million in the third quarter. Since we initiated our transformation plan that we call project diamond, the team has taken out $6.2 million in fiscal '24 cost savings and $9.1 million on an annualized basis. This is not just about reducing costs but improving our processes, data and efficiency in how we operate and scale the business going forward. With the completion of our ERP program in calendar '25, we believe the greatest benefits are still to come. However, there will be some one-time investments in fiscal '25 that I will cover a little later in our guidance. The team has done an incredible job reducing OpEx while at the same time we have continued to invest more in our technology platform, with R&D increasing 8% in the fourth quarter to $10 million, an increasing 6% in fiscal '24 to $39.5 million. Jeremy covered some of the areas that we are investing in, including AI, enhanced security and building greater integration across our core technology offerings to support multiproduct solutions. We reported fourth quarter adjusted EBITDA of $11.1 million representing 2% growth year-over-year, and was 18% of revenue equal to our adjusted EBITDA margin in the third quarter. Net loss for the fourth quarter was $1.7 million, or $0.05 per fully diluted share. Now moving on to the balance sheet. As previously disclosed, we accelerated our debt repayments in the fourth quarter with a $5.3 million repayment of our revolving credit facilities and $4.4 million in term loans that brought total debt repayments to $9.7 million in the fourth quarter and $23 million for the fiscal year. We finished the quarter with cash balances of $16.2 million, a $5.1 million increase from the $11.2 million at the end of fiscal '23. For now, we're going to continue to prioritize debt repayments for a couple of reasons. First, it lowers our interest payments in a higher rate environment and second, it provides added debt capacity that we can tap into at a later date as a strategic option as they present themselves. Now on to our guidance. For fiscal '25, we expect revenue in the range of $250 million to $260 million and adjusted EBITDA in the range of $42 million to $46 million. Since we're at the near end of our first fiscal quarter, we'll be providing guidance for Q1 with revenue in the range of $61 million to $62 million and adjusted EBITDA in the range of $9 million to $10 million. Within the guidance, there's a few points that are worth noting. From a top line standpoint, as Charles already mentioned, we are looking for growth to be gradual with revenue improvement on a sequential basis over the course of the fiscal year. Some of the contributing factors we see is stabilization and product revenue alongside a growing pipeline of MRR opportunities from our channel initiatives that we look to close in the second half of the fiscal year. Adjusted EBITDA guidance of $42 million to $46 million for fiscal '25 includes approximately $2 million in one-time ERP costs. Excluding these ERP implementation costs, we would expect adjusted EBITDA margins to be in the range of 17% to 18% of revenue, similar to the margin levels we have been reporting recently. Now, for some housekeeping and modeling purposes, we would expect interest expense in fiscal '25 to be in the range of $4.9 million to $5.3 million, depreciation and amortization of approximately $38 million, share compensation expense to be approximately $3 million, capital expenditures to be in the range of $4 million to $6 million. We hope the additional detail around the guide provides added transparency towards how we see this fiscal year progressing and highlights the strong value we see in the business. We remain dedicated to delivering long term value to our stakeholders while navigating evolving market dynamics. In closing, today I'd like to thank the dedicated employees of Sangoma for all they do on a daily basis and thank all of you again for joining us today. This concludes our prepared remarks. Operator, let's open the call up for some Q&A.

[Operator Instructions] The first question comes from Gavin Fairweather with Cormark. Please go ahead.

Hi, good afternoon. Great to hear all the progress on the turnaround. Maybe just to start on the pipeline, it sounds like we're due to get some increased disclosure, maybe alongside your Q2, but hoping you can maybe provide a bit of a sneak preview, maybe even from a high level, just in terms of the overall size of the pipeline, what you're seeing on deal sizes and win rates, et cetera.

Yes, a couple of things, Gavin. I mean, we're definitely seeing larger deals in our pipeline. The sales cycle on the MRR business still remain long, but the good thing is we're seeing more larger deals in the funnel. And I'd say from a go-to-market perspective, some of the metrics in Q2, I won't get into the metrics per se, but I'll tell you what the objective is. Really the objective is to show insight into how we're going to grow quarter-over-quarter and how we're going to hit guidance. So you'll get a little bit of insight into what's happening in the pipeline, how it's growing, kind of the deal size, those are the types of things that we're looking at and producing going forward in Q2.

That's helpful. And then just on the channel side, you've obviously done a lot of work to kind of redesign the partner program and done a lot of work to kind of integrate your various products and come up with bundles. Can you just discuss what kind of feedback you're getting from those target partners in terms of the new approach?

Yes, I would say that the feedback's been very positive, and I think the positive feedback comes from us being more precise and clear around the core offerings, how we see executing on those - together with those partners in the market. As I noted in my remarks, 400 partners make up 80% of our revenue. So really doubling down and prioritizing those partners allows us to work really closely with them on here's a set of offers or go-to-market motions that we know from our past have been successful, and we're building programs more specifically with them around different areas of focus. Some of our partners, for example, have more experience in particular verticals. So we can be more precise in, in focusing on specific verticals with them or horizontals, depending on who their set of customers are. But overall, very positive. We've been very clear about how we can partner together where we focus, and it's been received very well.

Yes. And you touched on - keep going…

I'm just going to add just little color to that. You remember in Q3 - by the way, how you doing? Hope you're doing well. Jump right in. But in Q3, remember I talked about the idea that go-to-market transformation, and one of the key pillars of that, or tenants of that strategy was account segmentation. That has now been done. We've really isolated our focus on the top 400 partners, which generate the majority of our revenue. Of those 400, we've begun to have very strategic discussions with the top 10% of those. And there's a couple of partners in particular where we're actually launching go-to-market initiatives, joint go-to-market programs with them. Their receptiveness to us is now changing from one of a typical supplier agent model, which is historical way the channel has been run to. We're really pioneering a new concept in this channel with strategic discussions, joint go-to-market, joint collaborations, industry specific focused transactions in whether it's in healthcare or multilocation retail. And we're starting to see some of that. In Q2, you're going to start to see the results of some of the early projects that we started last quarter, particularly over the course of the summer, in various verticals, and how they're going with very specific partners, which will kind of answer the question about how are some of the partners responding to the way we're treating the segmentation model within Sangoma.

That's helpful. And then lastly, for me, maybe just for Larry, zeroing in on the Q1 guide, if I look at it sequentially, it looks like revenue is up modestly, EBITDA down modestly on a sequential basis. I'm curious what's driving that, is that kind of product mix and gross margin. Are you starting to see some of the ERP costs ramping up or there other kind of growth investment areas that we should be aware of?

Hi Gavin. The answer is yes. Yes. So, as we see the sequential growth building over the years, certainly it's starting as, as we're talking about and then grows throughout the year, right, on a sequential quarter over quarter basis. As we mentioned, certainly in the beginning, we are seeing the margin impacted by the amount of product versus services revenue as we've talked about in the go-to-market, as that takes hold. And you're spot up, right in Q1 we are seeing increased ERP costs higher, really, then we'll see the rest of the year. And we baked all that in so that we give you an accurate picture. Also, Q1 traditionally for us is a little bit low. We have some expenses that hit in Q1, and so we had great visibility into what that's going to look like.

Okay. That's it for me. Thanks so much.

Thanks, Gavin.

Thanks, Gavin.

The next question comes from Mike Latimore with Northland Capital Markets. Please go ahead.

Thanks very much. Hi, good afternoon. Congrats on the big year - big cash flow year during the transformation. Looks great.

Thank you.

I guess just back on the pipeline, can you give a little more color there? It sounds like deal sizes are getting bigger, but I don't know if you can quantify the pipeline growth at this point. Maybe get some color on small business versus the mid-market within the pipeline there. And also just what's in demand. Are you seeing a lot of demand for certain services?

Yes. I mean, it's similar to what I said before. In Q2 we will publish go-to-market metrics. We are seeing larger size deals, I would say across the line of solutions we offer, continue to see momentum, certainly in UCaaS, certainly in our context center platform. And then what's been encouraging is there are a subset of even our NRR product lines that we develop too, that are seeing some increased momentum. So I think I touched on that in my comments earlier where even some of the premise hardware areas that hadn't had enough focus before, we're seeing some opportunity to drive some momentum in those as well. So we have some pretty rich communications platforms that we've been prioritizing with those top 400 partners, and we're starting to see that show up in, better said, larger deal sizes on the MRR, but the sales cycle is a little bit longer. And then some NRR opportunities to some products we've been manufacturing for a while, where we see an opportunity to drive some momentum.

One other area, Mike, that for your own interest on the pipeline. So we started to go-to-market transformation really at the end of Q3, as I announced and over the course of the summer, we picked various - some very specific initiatives. One of them was the prem based environment, which we call our switchbox platform. Jeremy and the team kicked off a very aggressive pipeline build model, demand generation model, and we saw a pretty significant growth, almost 23% growth in that particular portfolio in just the last quarter. And so this is how the go-to-market, is going to transform. The pipelines are going to grow based on portfolio elements that we decide to really go into the market with aggressively and very surgically. And that's one area where I can tell you we've seen upside in the potential of our client base. We've seen upside in the growth in that particular client area. And we're learning a lot about how the partners are being receptive to these new integrated bundles that we're putting together that are around either prem, hybrid or cloud based solutions, and particularly for the more mid-market customer that we're going after.

Okay, great. And then on the ERP system, you highlighted how you can more easily integrate acquisitions? I guess, should having that upgraded ERP system also help just with sales cycles sort of reacting more quickly?

Yes, well, I mean, obviously ERP does a lot of things for the company. It's why it's one of the most critical projects that I undertook when I first joined. It helps us, obviously, with cross sell and upsell, which is exactly allowing us for account expansion, which piggybacks very well on the account expansion story, as talked about. It helps with integration of acquisitions that we want to bring in or buttress acquisitions that we would consider in the future. Helps for integrating that a lot faster, a lot smoother and a lot easier. And it helps with cost reduction in the company and streamlining our processes. It helps with customer experience by allowing for a single bill, a single pane of glass, single invoicing models. And really, it helps with employee morale because you're now dealing with just one system rather than multiple systems in the company. So there are tremendous benefits from the ERP program across many, many fronts. And we're going to leverage every one of those benefits as we execute and roll it out over the course of this year and into next year.

Okay, awesome. Thanks very much. Good luck this year.

Thank you, Mike. Appreciate it.

The next question comes from David Kwan with TD Cowen. Please go ahead.

Hi, good afternoon. Hi, Charles. Curious, the comment on the larger deal sizes. It sounds like it's mostly due to these industry specific bundles, but is it also reflective of maybe going after some larger customers?

Yes. Correct. Hi, David, it's Jeremy. Yes, it's a combination of both. In some cases, it's a combination of, say, UCaaS and our content center as a service platform, putting those as a bundle out of the market. In other cases, I referenced it in my remarks, we talk about enterprise capabilities and affordable price. We haven't historically pushed hard enough on that opportunity. And so we're pushing our way with the right partners up into some of these larger deals, larger opportunities. So it's a combination of both multi product and just larger deals and being confident that we can go and hunt those down.

I don't want to underestimate this idea of what I just talked about with Mike and also measure with Gavin, right. Account segmentation for us goes across two different models. They're segmenting your partners and they're segmenting your end clients. We sell through a channel which is our partners. So as we've segmented the partners, we've gotten much tighter and much more focused on how we use market development dollars with those strategic partners to attract larger customers. In previous times, we were much more generic about how we use our market development. Now we're focusing on those partners that actually have larger customers who are interested in more integrated bundles which are creating higher value deals for us as we go through them as our channel.

And we've also added, David, just over the last couple quarters, we didn't have a robust deal pursuit process for larger pursuits. We didn't have as robust, say, an RFP response processes as I say, Charles and I are used to from our past. So there are some disciplines and some frameworks that need to be put in place for us to be able to go after those opportunities. Those are well in hand now, and we're leveraging those to get at those larger opportunities.

That's helpful color that you provided, because I know historically that the company hasn't focused on the enterprise market. I think part of that was product related. So it sounds like you feel that the platform is in a much stronger place that you can kind of go after those deals.

Absolutely. And the relationship with the strategic partners that we're now much more focused on and giving them the right attention. Again, you got to remember, we don't have a direct sales force. We use the channel as our sales force. And so by bifurcating the channel between high quality partners who actually are working on the mid-market versus the partners who work on the low end of the market, we want to service both of them. But now that we know who the ones that are focusing on the high end of the market, we can channel our market development dollars to them, which then brings us more at bets on the larger deals, which is exactly what's happening.

That's very helpful color, guys. Just on the guidance, I think if you adjust for the one-time ERP cost of just over $2 million, it seems to imply margins at the midpoint, around 18%, which is kind of like what we've seen in the second half of the past year. Is this kind of where we should expect to see margins over the next couple of years, particularly as you look to drive stronger growth? Or maybe is there more cost optimization work that you could still do?

Yes, this is Larry. So our continuous improvement methodology that really we started with project diamond and continue with today, we're always going to be looking for those opportunities to optimize. ERP will touch every single thing we do, including the optimization of our processes. And while we certainly haven't quantified that forward looking, what will that do from an EBITDA perspective, I would expect to see margins in that range or higher as we continue to evolve and drive to those operational efficiencies, as well as the ROI and something like that so quick that we'll start to see that as we get further along, not in '25 necessarily, but as we move beyond that. So that's certainly something we look at all the time.

So it sounds like, Larry, that there's probably some modest upside here, I'm guessing at fiscal '26 as it relates to the ERP implementation, but probably not too much more beyond that as you look to drive stronger growth.

Well, yes, I think we'll certainly capitalize on it and we'll drive it. We'll start to see it in '26, and I'd like to see it be something that we talk about as these quarters come up. But certainly we expect to see something.

I mean, David, I would say - just refine it a little bit. So we've been pretty clear. We're focusing heavily on the MRR business, the company, the services side of the company. We have an incredibly rich set of assets that produce very high margins of which we control and own the proprietary technology of these platforms going forward. So the high margin part of our business is where I'm focusing. The ERP program is going to allow me to unleash cross sell and upsell across that portfolio, not only to the small market, but now bring it up market, which gives me higher MRR and higher margins. All the while we're doing this, we're creating efficiency in the company through modernization, automation. We're going to use our own technologies inside the company to try to streamline our costs. So we're constantly going to be going after cost improvements, margin expansion, and obviously that coupled with growth from the market opportunities that our portfolio allows us to go after. So you can expect the company to continue to evolve itself in an upward trajectory to create value creation for the company through both growth mechanisms, efficiency mechanisms, and automation mechanisms, all of which we've been discussing. Whether we use terms like ERP or automation or transformation, all of it relates to the same three topics. It's growth through many, many mechanisms, both internally and through growth opportunities the market presents. I hope that makes sense.

It does. Thanks. Thanks again.

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.