Sangoma (STC) Q2 2026 earnings review
Shrinking to Grow: Margins Expand as Revenue Resets
Sangoma's strategic pivot is evident in Q2: the company has sacrificed top-line scale for profitability. While revenue appears stagnant ($51.5M, +1% sequential) due to the divestiture of the low-margin VoIP Supply business, the quality of that revenue has improved dramatically. Gross margins hit 74% (up from 72% in Q1 and 69% in 25Q3), driving strong cash generation. However, the company remains unprofitable on a GAAP basis (-$2.0M Net Loss), and the narrative now depends entirely on whether organic growth can kick in to fill the revenue hole left by divestitures.
🐂 Bull Case
The standout metric is cash flow. Sangoma generated $10.1M in operating cash flow on just $8.3M of Adjusted EBITDA (122% conversion). Free Cash Flow was $8.0M ($0.24/share). This liquidity allowed them to reduce debt by 38% YoY.
Future growth indicators are flashing green: MRR bookings surged 60% YoY. If these convert to recognized revenue efficiently, the top-line stagnation should resolve in H2 FY26.
🐻 Bear Case
Despite the 'success' of the transformation and record gross margins, the bottom line is still red. Net Loss was $2.0M, virtually unchanged from $1.9M a year ago. High margins are not yet covering the operating expense base.
Even adjusting for the VoIP Supply divestiture, organic growth is struggling. Sequential growth was only 1%, and the 'like-for-like' YoY comparison showed a 2% decline. The company is shrinking, not growing.
⚖️ Verdict: ⚪
Neutral. The financial engineering (divestiture + margin focus) is working to generate cash, but the lack of organic revenue growth is a concern. The company is leaner and safer, but not yet growing.
Key Themes
Gross Margin Acceleration
Accelerating. The mix-shift strategy is delivering results. Gross margin climbed to 74%, up from 69% in 25Q3 and 72% in 26Q1. This is driven by the exit from low-margin hardware resale (VoIP Supply) and a focus on high-margin Services revenue. Maintaining this level is critical to the bull case.
Deleveraging the Balance Sheet
The company used its strong cash generation to aggressively pay down debt. Total debt stands at $37.6M, a massive 38% reduction YoY (down from ~$60M levels). With $17.1M in cash on hand, net leverage is becoming negligible, removing a key overhang on the stock.
Operating Expenses Creep
While revenue grew only 1% sequentially, Operating Expenses rose 4% ($1.5M increase) to $40.0M. Management attributes this to higher commissions from large bookings, but negative operating leverage (OpEx growing faster than Sales) contradicts the efficiency narrative.
MRR Bookings Surge
Accelerating. The company reported a 60% increase in Monthly Recurring Revenue (MRR) bookings YoY. This is the strongest leading indicator in the report, suggesting that the sales force reorganization is finally gaining traction.
Interest Rate Hedges
The prior year report (25Q3) noted interest rate swaps fixed at 1.80%. With rates fluctuating, the expiry or adjustment of these favorable hedges could increase interest expense, though the rapid debt paydown mitigates this risk considerably.
Macro Resilience
Management noted no material impact from tariffs or macro headwinds on the core business, primarily because they exited the hardware-heavy VoIP Supply business which was most exposed to supply chain and tariff volatility.
Other KPIs
Stable. Down slightly from 16.8% in 25Q3. The company maintained margins in the mid-teens despite the revenue reset. Guidance suggests this will tick up to 17-18% for the full year, implying a stronger H2.
Accelerating. Represents $0.24 per share in a single quarter. This is remarkably high for a company with a $2.0M net loss, driven by high non-cash charges (D&A) and efficient working capital management.
Stagnant. Virtually unchanged from $(1.9)M in the prior year period. The heavy amortization of intangibles ($8.0M) continues to depress GAAP earnings.
Guidance
Stable. Range narrowed from $200-$210M. With H1 revenue approximately $102.5M (Q1~$51M + Q2 $51.5M), the guidance implies H2 revenue of ~$104M. This indicates effectively flat sequential performance for the remainder of the year.
Accelerating. The current quarter was ~16%. To hit the full-year midpoint of 17.5%, margins in H2 must expand to approximately 18-19%. This relies on the higher gross margin services mix continuing to scale.
Key Questions
Organic Growth Reality
Excluding the VoIP Supply divestiture, you cited a 2% YoY decline in like-for-like revenue. When exactly does the 60% surge in MRR bookings cross over into positive reported revenue growth?
OpEx Discipline
Operating expenses rose 4% sequentially while revenue only rose 1%. If commissions are driving this, are we seeing a permanent step-up in Customer Acquisition Costs (CAC)?
Capital Allocation Priority
With debt down 38% and cash flow strong, will you accelerate the NCIB (share buybacks) or are you accumulating cash for M&A?