Sangoma Technologies Corporation (SANG) Q4 2025 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Sangoma Investor Conference Call. The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Samantha Reburn, Chief Legal Officer. Please go ahead, Ms. Reburn.

Thank you, operator. Hello, everyone, and welcome to Sangoma's Fourth Quarter of Fiscal Year 2025 Investor Call. We are recording the call, and we will make it available on our website for anyone who is unable to join us live. I'm here today with Charles Salameh, Sangoma's Chief Executive Officer; Jeremy Wubs, Chief Operating and Marketing Officer; and Larry Stock, Chief Financial Officer. Charles will provide a high-level overview of the quarter. Jeremy and Larry will take you through the operating results for the fourth quarter of fiscal year 2025, which ended on June 30, 2025. Following their presentation, we will open the floor for Q&A with analysts. We will discuss the press release that was distributed earlier today, together with the company's financial statements and MD&A, which are available on SEDAR+, EDGAR and our website. As a reminder, Sangoma reports under International Financial Reporting Standards, IFRS. And during the call, we may refer to terms such as adjusted EBITDA and free cash flow, which are non-IFRS measures, but 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, consolidated financial statements, our annual information form and the company's annual audited financial statements posted on SEDAR+, EDGAR and our website. With that, I'll hand the call over to Charles.

Good afternoon, everyone, and thank you for joining us today. As we close out fiscal 2025, I am proud to report that Sangoma has delivered another quarter of strong performance, strategic execution and accelerating momentum. We exceeded consensus expectations in Q4 with revenues of $59.4 million, adjusted EBITDA of $11.4 million and margins of 19%. These results reflect the strength of our model, the discipline of our execution and the growing impact of our transformation. Over the past 24 months, we have modernized our systems, streamlined operations and sharpened our go-to-market strategy. That work is now complete, and the results are showing up across the business. With the solid foundation in place, we are relentlessly focused on growth, investing in innovation, including AI, channel expansion and deepening our partnerships to scale faster and capture share. Sequential growth this quarter was driven by prem-based product sales, which performed well on the back of targeted campaigns and strategic share gains. We're seeing clear signs that our integrated communication offerings are resonating with our customers, and that Sangoma is finally winning in the market. A prime example of our sharpened focus is the sale of our VoIP or VoIP Supply business completed at the end of June. We executed the divestiture with speed and discipline, marking a deliberate shift towards software-led recurring revenue services, which now represent more than 90% of our revenue mix, up from 79% 24 months ago when I joined this company. It also frees up resources for our high-impact growth initiatives with proceeds reinvesting to support our mid-market enterprise go-to-market strategy. Beginning in Q1, we will also evolve how we talk about and report our business. Going forward, we will categorize our results into 2 areas: core services and adjacent services. Now core represents our SaaS-led communication platform and is the growth engine, whereas adjacent are noncore but cash-generative businesses. This view clarifies where we're investing for growth and where we're harvesting cash flows and provide investors with greater transparency into where we see the strongest potential and how our mix is evolving. Jeremy is going to expand on this a little more shortly. As we enter fiscal 2026, our priorities are clear: deliver organic growth by investing in our people, products and partners; pursue inorganic opportunities where they create strategic value and generate strong cash flow to support these strategies and create value for our shareholders. We are increasing our investment into marketing and channel partner development to drive growth across our UCaaS, our CCaaS, our CPaaS and our infrastructure platforms. These investments are already yielding results, and we intend to broaden our presence in key verticals such as health care, education and distributed enterprise, positioning the company to capitalize on structural shifts in the market. And we're not doing this alone. As you may have seen by some of our recent press announcements, we've built strong strategic partnerships to deliver enterprise-grade solutions tailored to very specific industry needs. In hospitality, for example, we partner with VTech Hospitality to integrate their industry-leading phones with our UC platform, creating a fully unified guest experience solution for our hotels and for resorts. In education, we teamed up with Quicklert to help schools comply with Alyssa’s Law and enhance campus safety and urgent and growing opportunity across the U.S. Our prem-based solution is gaining solid traction here with a 16% rise in pipeline demand from this sector alone. Equally important is our partnership with Amazon Web Services, which I'm very excited about, which we announced this summer. This is not a one-way relationship. On one side, we leverage AWS technologies to deliver scalable, secure, high-performance communication infrastructure for our UCaaS and Contact Center platforms globally. On the other, we're aligning closely with AWS' vast ecosystem to tap into their global scale and co-sell opportunities driving stronger demand generation for our combined solutions. Together, we are better positioned to serve this mid-large market for the enterprise customer that we've been talking about for some time who require mission-critical cloud-based essential communication services. These partnerships reflect our commitment to building purpose-built solutions for very specific priority industries. Now looking ahead, we are encouraged by the momentum and the opportunities we see across the core business. Although some of the larger enterprise opportunities we've pursued in FY '25 have longer sales cycles and implementation cycles, we expect sequential growth to begin in Q2 and to continue through the remainder of fiscal 2026 and beyond. This has been a transition phase for Sangoma with fiscal Q1 marking the inflection point. As it concludes in the coming weeks, we expect growth to resume as the pipeline builds to create bookings, which flow into implementation and then on to revenue with contract terms lasting 3 to 5 years on average. The direction is clear. Our strategy is working, demand is building, and we are confident in the durability of these high-margin opportunities. In closing, I want to thank the entire Sangoma team for their outstanding work this year. Together, we have shaped a more focused company, one that is ready to scale and backed by strong, flexible balance sheet that gives us multiple pathways for growth. I also want to thank our investors for your continued support and confidence in our vision. We are energized by the opportunities ahead and confident in the significant value we will unlock. With that, I'll hand it over to Jeremy and Larry.

Thanks, Charles. I want to echo Charles' remarks and thank the Sangoma team for their tremendous work and accomplishments this fiscal year and our investors for their continued support. While the pace of growth is ramping more gradually, I am confident and excited by the opportunities we are capturing. I'm going to focus on 2 topics this afternoon, both of which Charles referred to in his opening remarks. First, more detail on how we're going to categorize the business going forward; and second, more on a go-to-market progress and key indicators. In Q2, I explained that we restructured how each of the product lines fits within our ecosystem and how we consolidated 11 product lines down to a simplified structure. I also talked about some areas not fitting in with our strategy. We have acted on that with the recent sale of VoIP Supply. Now as we further push to focus the business with the objective of capitalizing and prioritizing on areas of growth and high margin potential, it's natural to categories the business between core and adjacent, with core being high-margin SaaS and related proprietary communications products covering UCaaS, CCaaS, CPaaS, Premise PBX solutions and our bundle strategy supported by our MSP capabilities. Put another way, core represents the products and services that materially contribute to our essential communication strategy for SMB and mid-market. And with adjacent being the communications technology supporting specific needs such as trunking, analog to digital and media gateways and open source solutions. So adjacent covers more established technologies that have a higher propensity to be sold standalone or as part of a third-party's communication solution. Core will be our growth engine and today represents roughly 75% of Sangoma's revenue while adjacent accounts for about 25%. Shifting to the go-to-market. Our offerings are resonating with customers, and we are winning in the market. We have and continue to see improvements in our forward-looking pipeline across the core categories I mentioned earlier, including UCaaS, managed services and our prem UC Product business, where we are capturing share from Avaya and Mitel. This drove a 3% sequential increase in our backlog at the end of Q4, reflecting healthy demand and providing visibility into future revenues. So why, as Charles mentioned, have our go-to-market efforts taken longer to impact revenue with their contributions expected to be more visible as we move through FY '26. During our transformation, we've reprioritized our cloud product road maps, advancing features like Microsoft integration, unified mobile apps and others to support acquiring larger logos and moving upmarket. As we were prioritizing and completing software development, which took longer than expected, we focused our go-to-market on our [ prem UC share-take ] program and large managed services opportunities. These larger managed services opportunities have a 6- to 8-month sales cycle and similar implementation cycles. This high mix of managed services deals in our pipeline means the MRR revenue is recognized in later quarters. Today, as we exit Q4 and enter Q1, that pipeline mix is becoming more balanced. Now we also have a growing number of shorter cycle deals of 60 to 90 days with implementation cycles of 30 to 60 days that will help as we progress through the fiscal year. Adding multiple layers of pipeline, long-cycle high-value opportunities and shorter cycle wins is providing better visibility into the growth that we expect to begin in Q2. This stronger, more balanced pipeline includes some of the largest MRR opportunities since Charles and I joined Sangoma, including some exceeding $100,000. And in our prem UC products, which contribute more quickly to the P&L, our channel has delivered 3 consecutive quarters of sequential revenue growth, including 18% growth in Q4 over Q3. We are opening new routes to market, including partnerships with service providers, hyperscalers and vertical solution providers. Charles highlighted a few of the recent examples like AWS, VTech and Quicklert. I've also talked in prior quarters about the untapped opportunity to provide solutions to service providers, something we put focus on as part of our wholesale offerings in late FY 2025. Since then, we started working on an opportunity with a CLEC approximately 4 months ago to provide a complete bundle to replace their SOFTSWITCH and provide hardware and services to install and activate new users. That opportunity is now in late stages of the sales process and will ramp to over $20,000 MRR in the next 7 months with the potential to double by FY 2027. Equally important is how we focus on monetizing existing channels and deepen relationships with current clients. For example, one of the top opportunities in our pipeline that we've been seeding for 8-plus months is an upsell with a distributed enterprise customer we supported for years, expanding to a broader managed service and UCaaS bundle. Our value proposition of essential communications with enterprise-like capabilities at an affordable price lends itself well to many of our clients, and in this case, supports an upsell of an incremental $16,000 MRR. These are just a few examples of how our go-to-market is taking hold across new logos, account expansion and strategic opportunities. With the right focus and the right programs in place, we are adding layers to our pipeline that give us the visibility and confidence that demand will translate into revenue growth. Thank you, and over to you, Larry.

Thanks, Jeremy, and welcome, everyone. We appreciate you joining us for today's call. In Q4, Sangoma built on the momentum from earlier in the year, delivering solid financial performance and disciplined execution, providing the financial flexibility to invest with discipline to drive long-term growth. In the fourth quarter, we generated $7.1 million in net cash from operating activities, including $3 million of accelerated vendor prepayments relating to our ERP implementation. Excluding this onetime impact, net operating cash flow would have been $10.1 million, representing a healthy 89% conversion from adjusted EBITDA. For fiscal '25, net cash from operating activities reached $41.8 million, representing 102% conversion rate from adjusted EBITDA. Working capital management was again a positive contributor as we added $1.9 million for the year, driven by strong collections and improved inventory management. This builds on the $3.9 million generated in fiscal '24. Free cash flow for the fourth quarter was $4.8 million or $0.14 per diluted share. For the full fiscal year, free cash flow reached $32.9 million or $0.98 per diluted share, consistent with the $1 per diluted share in fiscal '24, underscoring the value we are unlocking at Sangoma. This strong cash generation enabled us to retire an additional $5.2 million in debt during the fourth quarter, bringing total debt reduction for the year to $29.9 million. We ended Q4 at $47.9 million of total debt, well below our original target of $55 million to $60 million. We also executed on our NCIB as another way to return capital to shareholders. To date, more than 500,000 shares have been repurchased for cancellation, representing 1.5% of shares outstanding and reinforcing our confidence in Sangoma's long-term value. The consistency of our cash generation and strong balance sheet is enabling us to lean into growth while still expanding profitability. We are prioritizing organic investments to advance our products and platforms, enhance the customer experience and scale our go-to-market capacity. At the same time, we are preserving flexibility to execute on our inorganic pipeline, reduce debt and return capital to shareholders. Now turning to the P&L. Revenue for the fourth quarter was $59.4 million, representing an increase of $1.3 million or 2% sequentially from the third quarter, driven primarily by the strength in our prem-based product sales. Core platform revenue was stable sequentially, reflecting consistency in the base business. Gross profit was $40 million in the fourth quarter, representing 67% of revenue compared to 69% in the third quarter, reflecting a higher mix of product sales. Adjusted EBITDA for the fourth quarter was $11.4 million or 19% of revenue and included $0.5 million in expense related to our ERP implementation. Excluding these costs, adjusted EBITDA would have been $11.9 million or 20% of revenue. This is up from 17% in the third quarter and represents the highest margin we've delivered over the past 8 quarters. These results demonstrate the consistency of our performance and the resilience of our business model. Now on to guidance. On June 30, we completed the sale of VoIP Supply, our lower-margin resale business for $4.5 million in cash. This was a deliberate step to streamline our portfolio and sharpen our focus on recurring high-margin growth while realizing a solid outcome at roughly 4x trailing 12-month adjusted EBITDA. With this divestiture behind us, our fiscal '26 guidance reflects a stronger business mix and a sharper focus on our higher-margin core platform products and services. For fiscal '26, we are expecting total revenue in the range of $200 million to $210 million. This compares to $209 million in revenue in fiscal '25, excluding the contribution from VoIP Supply. As Charles and Jeremy mentioned earlier, demand in our core categories is building, supported by progress in our mid-market enterprise initiatives. We expect sequential growth to begin in Q2 and continue through the year with Q1 marking the low point and the bridge to stronger growth ahead. Beginning in Q1, we expect gross margins to improve to approximately 75% and with operating expenses stable at approximately $30 million per quarter, excluding the amortization of intangibles. Finally, we are guiding to an adjusted EBITDA margin in fiscal '26 in the range of 17% to 19%, up from 17% margin in fiscal '25. EBITDA margins will follow our normal seasonal pattern, starting lower in the first half and expanding in the back half, driven by higher sales and ERP-related cost efficiencies. This outlook reflects improved gross margin following the sale of VoIP Supply while also funding incremental investments in channel and partner initiatives. Importantly, we expect strong cash generation to continue, giving us flexibility to lean into the growth initiatives and return value to shareholders. As we enter fiscal '26, we do so with a stronger business mix, a healthy balance sheet and growing momentum in our core markets. We are confident these fundamentals, combined with disciplined execution, position Sangoma to deliver sustainable growth and long-term value. To repeat what Charles and Jeremy said earlier, we extend our sincere thanks to the talented team at Sangoma, whose dedication and daily contributions continue to drive our success. That concludes our prepared remarks. Operator, let's open the call up for some Q&A.

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

Maybe just start on the incremental go-to-market investments. I'm curious how much of this is about going deeper with existing partners and channels versus kind of adding new partners and distribution channels. And then maybe just secondly, I mean, do you feel like you have some really good data in your pipeline that suggests to you that these incremental investments will make a nice return.

Gavin, it's Charles. I'll take a shot at the beginning of this. So the investments are being put into kind of 3 areas, and I would kind of categorize an overarching theme of coverage. Our platform is now being transformed and literally infinitely scalable. It's time now to start putting money into coverage, and that comes in 2 areas. One is field coverage, which will be adding more bodies to cover more of our states in the U.S. and potentially into Canada as well as recruiting of new partners. And secondly, into marketing coverage, which is brand awareness, brand increases and marketing events and industry events, things of that nature that are much more tied to our vertical strategy. So we also now have better unit economics that we really didn't have, say, 2 years ago, as we now better understand the dollar of input of investments into the market, both in field coverage and in brand awareness and the translation of that to pipeline as well as the lag from pipeline to bookings and then bookings into revenue. So we have a pretty clear line of sight. We're being a little cautious with our investments. We don't want to go crazy right off the top. We're incrementally adding investments, seeing the results and then will continue to do so over the course of the year as the pipeline builds. And so far, the investments that we have made have begun to show improvement in not only pipeline size, but also the quality of some of the activities in the pipeline given the money we've spent so far. So it's a progressive investment strategy throughout the course of this year and certainly going into '27 and '28.

Yes, I appreciate that. And Jeremy, you touched on growth taking a little bit longer to accelerate than you anticipated, and you touched on R&D initiatives and sales cycles. You didn't really mention the macro or competitive landscape. Curious if you've noted any change on those fronts as well.

No, I think, Gavin, like we haven't necessarily seen any major competitive pressures. I think -- as I mentioned, the sales cycles are a little longer and the implementation cycle is a little longer when you're attacking and going upmarket into some of these larger opportunities. So it's really that, right? Larger deals take longer time to sell, longer time to implement. Like we balanced that out a little bit, as you saw from some of the onetime product sales, which went up quarter-over-quarter for 3 consecutive quarters. So it's just going to take a little bit of time for the -- kind of the MRR engine to light up. But Q2 and beyond, we'll start to see that lift quarter-over-quarter.

Great. And just quickly on VoIP Supply. Was there a decent amount of Sangoma proprietary product moving to that channel? Or was it mostly third party?

It was mostly third-party. I'd say 90% plus would be third party, and I think a little less than 10% was actual Sangoma, and they're still a distributor for us. So even though we sold them, they still sell our product as they do with all the other product lines that were carried in that particular portfolio.

Got it. And then maybe just lastly on M&A, and you touched on it, Charles, in your opening remarks. I think you'd be looking at various opportunities for a little while now, but with the balance sheet kind of where it is and being in a great shape, maybe you can just discuss your appetite for kind of firing up that growth lever and discuss how active your funnel is.

I'm starving. That's my appetite. I think we've been very cautious and very disciplined about our M&A strategy. We've actually embarked with another group to kind of help us fine-tune the target. We've got a target list. But I've been really waiting for the ERP to get finished, which got finished in May and June. The company is now very much able to accept in the manner by which I want to bring acquisitions on, integrate them within a quick period of time, 120 days, extract the integration savings. With now the systems in place, the tools in place, the structure is in place, the transformation behind us, we've shifted completely towards growth and driving the 2 growth engines of organic, which you heard Jeremy talk about, and now the inorganic has taken a top priority for us. So very much on the books and very much down the road looking at various targets in the areas we've described before at SD-WAN, Security, Zero Trust network, these kind of areas that add value to enrich the portfolio and create the stickiness that we're looking for.

I'd just add to Charles' comments. We have a very robust funnel of targets. And part of our strategy to drive essential communications bundles into the market means when you do an acquisition, you want to be able to, in a simple way, bundle in those capabilities. So the leading work that was required that Charles talked about the ERP and some of those integration components are really required for us to go and deliver a compelling bundle based on some of the things that we have in our target.

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

Congrats on the strong balance sheet improvement this year. That was awesome. In terms of your view into the second quarter sequential growth, maybe give a little more color on visibility there. Is that tied to basically deploying bookings you've already had in hand? Or is it dependent on a lot of kind of new or smaller sales that close quickly? Or like what are you sort of counting on for that sequential...

Mike, it's Jeremy. It's a combination of both. I mean we've got some business we've closed already or closing in quarter or closed in quarter in the pipeline, some of those larger deals, which have longer sales cycles, they'll start to pull up and show in the second half and then a pretty robust funnel of newer deals that have shorter sales cycle. I mentioned a little bit of that in my early remarks. [ Two ] quarters ago, we started a pretty aggressive program to go after some of these larger logos. We've done that. They have 6- to 8-month sales cycles, 6- to 8-month implementation cycles with some of the new features and capabilities we've focused on from a product road map perspective. In the last quarter, we've been able to target some more cloud-based deals that have shorter cycles. So it's a combination of both that will help us drive the back half of the year and give us confidence in our forecast.

You heard us talk about the company now in these core versus noncore or core versus plus adjacent. Those are the 2 categories of which we described the company. Core being the high-margin SaaS business at 85%, 90% margins. And then the adjacent businesses are really more of the cash generative businesses that creates stickiness with our customers. So both of these together are going to start moving based on stuff we did way back in January and certainly in Q3 and Q4, and that revenue starts to spill in, in the second quarter of this year and then continue as it compounds going into Q3, Q4 and then beyond.

And for second quarter sequential growth, that's both -- are you thinking both total revenue as well as -- and services, both sequentially up?

So total revenue, but in the categories of core and adjacent, Mike, is how we're looking at it. That will take into account the MRR, NRR, et cetera.

Yes, okay. And then on the adjacent category, how much investment is going to go there? It sounds like you're counting on that to grow some here. Just how important is this adjacent category? And are there other products in here you might divest?

I would say the things that are in the adjacent category, I mean they're going concern businesses. They're reasonable markets. They don't have the same type of growth opportunity as the core does. So we're not putting a lot of investments per se in those areas, a little bit in kind of certain lines that are pretty targeted. So we do see some growth in some areas, but not to the same degree as really the core and where we think the big SaaS opportunities are that will really help drive margin and revenue over time.

But to answer your question specifically, no, we don't see any divestitures there at this point.

The next question comes from Suthan Sukumar with Stifel.

For my first question, I wanted to touch on the customer churn that you guys have seen as part of refocusing the business, given that your gross retention rates remain pretty strong. Is that churn largely contained now? Or is there still some low-hanging fruit that could fall off in the quarters ahead?

No. I think the churn is actually well under control. We're starting to see positive trends in that area. We're also deploying -- now that we've got some of the systems in place, we're deploying more advanced AI-based tools that are going to help us even mitigate churn further. Our models right now are predicting that churn will actually continue to decline over the year and certainly going into FY '27. As we've gone through the stage of a lot of the legacy customers that were in the business over the last 2 years through the transformation have kind of retired out and our ability to upsell and cross-sell the new customers creates even more stickiness with less churn. And so we feel pretty comfortable about churn sort of being balanced and actually improving going into the next 3 quarters.

That's great.

Next one, I want to touch on organic growth. It sounds like visibility is improving given your commentary on sequential growth in Q2 and forward. As you think about kind of the revenue growth and the bookings growth rather looking ahead, how do you expect the mix of expansion activity versus new business to trend compared to what we've seen in the past?

I think they're going to be driven pretty equally. We're actually investing in our field coverage that way, right? And I'll explain quickly as I can. On the expansion side, we've lit up several new programs, we call them ignite programs where we're going to our existing base. And now that we've got better tool sets to allow cross-sell and upsell, we're seeing service attach and expansion to our existing clients beginning to ramp pretty significantly, actually, especially in our business voice platform. So some of the old Star2Star business that we had. And the example of that was the [ Vega ] deal that we just described, the deal that we described on one of our customers who creates kind of retail franchise operation who had a legacy access service with us, and we actually advanced a cross-sell solution to them. The other area is new logos where we're going into new industry verticals. So we're partnering with new partners in hospitality and health care. We're expanding the RCM footprint, our regional channel manager footprint, investing in those areas, and they're creating momentum on new activity, new customers who've never done business with us before, but they're coming in with larger deal sizes and bigger chunks from us at one time versus buying a single point solution. So it's a pretty dual strategy on both account expansion or share of wallet strategy as well as new logo or market share strategies. And then we have a third one, which is large strategic deals, which has its own momentum in and of itself that are not even really predicted in our forecast at this point because they're so binary.

Got it. Okay. Great. That's helpful. And then just wanted to double click on the M&A commentary. With respect to M&A, what priorities do you have here? And in terms of -- are these about market access or running out the tech platform? Or is it really about looking at consolidating competitors or quasi-competitors here?

A little bit of it is market access, different entry points into different channels, right? So some of the technology that was highlighted earlier, things like SASE, SD-WAN, Security, we provide some of those solutions a little bit more in MSP model. Our ability to integrate those kind of natively into our portfolio and leverage the partner ecosystem that would be part of an acquisition like that would open the door to not just selling more of those technologies, but also our -- some of our UCaaS platforms, Contact Center platforms and then vice versa. It gives us the opportunity to cross-sell those technologies into our existing partner ecosystem. So the strategy really is how do we make the go-to-market strategy we have today with our essential communications bundles kind of more fulsome and how do we not only provide value to the installed base through our cross-sell, upsell programs, but open up really new channels, right, that gives us an opportunity to cross-sell our existing technologies and solutions into those as well.

The next question comes from Robert Young with Canaccord Genuity.

Maybe just a couple of quick clarifications, if I could. The split, the 75-25 core versus adjacent. Is that a Q4 metric? Or is that what you expect in 2026 after VoIP Supply?

Yes, that's 2026 and forward. Yes.

Okay. And then a couple of comments on the return to growth. I just want to make sure I understand it. In the press release, it said second half return to growth in core platform. And then some of the comments were returning to growth in Q2. I just wanted to like parse that the right way. Like what are the pieces that are returning to growth just to make sure I understand it.

So what we're seeing beginning in our Q2 is actually core and adjacent both growing from that point forward, Rob.

Okay. And then maybe last question. The EBITDA margin guidance for 2026 at 17% to 19%. I'm just trying -- if you could help maybe bridge in simple terms. I know you talked about seasonality and expansion of some of the go-to-market. But I think you said that ex onetime items will be 20% in the Q4, and it's stepping down in 2026 despite gross margin going up quite a bit. And I think in the comments, you said $30 million OpEx ex amortization, which is -- I mean, it seems to be that similar to where it is. Maybe if you could just help me understand the -- maybe if you could bridge between the 20% to the 17% to 19% for me, that would be really helpful.

Yes, sure. So OpEx throughout the year will be about stable at about $30 million a quarter. You got to take out from '25, part of it is VoIP Supply, right? That was included in our '25 results, right, from both an OpEx and an EBITDA perspective. The EBITDA was about [indiscernible] million in the year. Also, revenue is down about $4 million and 75% is [ the other $3 ] million. So that bridges you down to that 17% to 19%, Rob.

Okay. That's helpful. And -- then maybe last thing. The -- I think just -- I think you said you saw 18% growth in Q4 over Q3 from some of the channel efforts.

Yes, our channel efforts around -- yes, just specifically around our Switchvox prem product line, we put a program in place 2 quarters ago to go after a lot of the Premise PBX market, specifically Avaya, Mitel. We hired some folks from those organizations. And we've seen like that's 3 quarters now of sequential growth in our Switchvox prem lines and our phones and the Q4 over Q3 had an 18% lift.

Okay. And so that's a direct result of some of these competitors and on-prem disengaging and channel coming to you [indiscernible] there.

Yes. We went to find them. We weren't shy about it, right? They didn't necessarily just ring us up and call them. We went to find them. We knew just given some of the distress in the market between those 2 organizations that we could go find opportunity. We had a compelling product, and we went and grabbed some of the key leaders from those organizations and kind of went out hunting, convince them of the value proposition of our products being competitive and having the right compelling features and signed up new partners, and we've seen pretty substantial, as I mentioned, 18% Q4 over Q3 growth. And we see that continue to be an opportunity for us going forward.

Yes. I'll add one thing, Rob. Rob, you and I talked about this, that discontinuity that occurred in the market where some folks exited, the mainstream players exited the prem business, we were able to jump in very quickly. And there was this quick -- really quick lift. And we see that continuing for the foreseeable future. But one of the things that is unclear completely is how big is this going to be because these players have really moved out. And we're even a little bit surprised by how fast the reaction of the market was to our offering. The nice thing about our offering is a great transition from the prem markets at the clients' pace to move to cloud, which we can capture them in our Switchvox Cloud solution. So this is a really interesting new area of growth for us. We've been at it for about 3 or 4 months since we really tackled it, and we're just seeing this quick lift. And we're not really sure how big this is going to get over the course of the year, but certainly some opportunity that we're going to keep our eye on as we move through the year as a real growth engine for the company.

If I maybe push this a little bit there, would you give an absolute dollar value for that business? Just to kind of -- the 18% growth is really impressive. Is it just a small piece of revenue? Or can you give us a sense of scale?

We don't report [ nothing ] on that particular number as part of our overall core services, but I'll tell you, it's a major chunk of the business on 2 fronts, right? One is it creates a larger base of customers by which then get transitioned over to cloud. As long as you can maintain service levels, which we have, we have record service levels now and customer sat of over 90%. These become long-term value customers who go from prem-based to eventually cloud-based. So it's a significant part of the portfolio. I don't want to give you the exact number, but you can assume it's a material piece of 3. Prem, hybrid and cloud are the 3 big engines of growth for us. Prem plays a very important role in its current state, but then also in the future state as those customers move to cloud.

The next question comes from David Kwan with TD Cowen.

It sounds like the gains you've been making on the on-prem side has been more driven by you grabbing market share because of those players exiting versus kind of maybe a slowdown in that transition towards cloud-based solutions. Would that be a fair statement?

Yes, that would be a fair statement.

Okay. That's great. And it relates to the M&A strategy. So it looks like you're looking for acquisitions in probably higher growing markets, which I suspect might carry higher valuation multiples amongst other things. So are you willing to make a dilutive acquisition here to help bolster your growth profile?

We don't -- are we willing to -- is that the question? Maybe to some degree, but to be honest, I think as the year progresses, also with the dynamics of what's going on in the industry with point solution providers, there are opportunities of other companies that are relatively close to our valuation that are in the market today. Particularly in the security MSP space, the SD-WAN market. The point solution providers are beginning to realize the market is looking for -- especially the mid-market is looking for single vendors that can provide a holistic set of solutions with a service wrapper on top. And going it alone, the valuations, I think, are coming down, and there's opportunities for companies like ours, especially given where we are with our leverage ability of the company to find targets, plenty of targets that are not going to be very dilutive to the company. So if there's something really good out there, and it's a smaller acquisition that's slightly dilutive, I don't think we'd have a problem with it. But nothing that would be too material from a dilution point of view.

Okay. And how big of an acquisition would you look at? I don't know if that view has changed over the last year or so?

The spectrum changes, right? I mean it's really about the value of the acquisition and how it fits into the opportunity that we see in the market relative to our base and the clients and the industries we're focusing on. But I've already expressed, we could go big with an acquisition if we wanted to or we could pick up a client and account for something sub-$1 million. It really depends on what -- how we're going after adding value to particular parts of our portfolio that capture market that we're maniacally focused on, health care, retail, education. And I think as the year goes on, that ideology might shift. But our target list right now spans a large spectrum of smaller type -- buttress type tuck-ins and larger type accounts that would be more materialistic to the company.

Great. That's helpful. Just a couple more. Are you planning to provide historicals as it relates to kind of -- I assume it sounds like you're going to be changing how the revenue is going to be classified in your financials? And are you going to provide maybe other financial metrics like ARR?

We certainly will do both comparatives, David, and then look to add additional metrics beginning in Q1, absolutely.

Great. Last question. Just looking at the revenue by geography, obviously, the vast majority of the revenue is coming out of the U.S. It's kind of been -- the growth has been kind of low to mid-single digits on the negative side. But outside the U.S., there's been much larger declines. So wondering what's driving that difference there? Is it just weaker demand abroad? Or are you maybe culling some of your international channel partners? Just wondering what's going on there.

I'll let Jeremy fill in some blanks here, but I'll just give you a high-level view. Our focus has been North America, particularly the United States. It's just -- as we prioritize where we put our energy through the transformational phase of the company in the first 2 years, our focus was to revive the brand and really begin to open up new channels in the United States. Our focus now as we move into the transition and growth phase of the company is to focus on international markets, mostly English speaking, Canada and U.K. In the U.K., our business there has been predominantly built on the back of VoIP hardware technology, legacy technology that we own, proprietary technology. Our goal now is to expand the rest of our toolkit into those markets, into the U.K. and expand our international footprint, but also into establishing new presence in areas like Canada, where we don't really have much of a presence, but we have lots of infrastructure already in place. So the international side of the business is kind of part of the plan for this year and certainly will be a major part as we go into FY '27 and FY '28.

I'd just add to that, too, that the international portfolio is very heavily oriented towards hardware products, right? So it doesn't have -- today have limited SaaS and software products that are of high margin [ pursuing a big ] part of our core growth strategy. So we've been selective in how we've moved investments in dollars towards core and where we see the biggest growth in margin opportunity. So that's why they certainly results in those areas in those areas. International theaters haven't been as strong because it's kind of a purposeful for us in terms of where we put our dollars and where we get the best return going forward.

It will be part of the program [indiscernible].

Yes. Historically, a lot of it -- with the product mix, the later life cycle products.

Correct.

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.