Sangoma Technologies Corporation (STC - V) · 6/7/2017 · FreePBX and the manager/sponser of that...
Transcript of Sangoma Technologies Corporation (STC - V) · 6/7/2017 · FreePBX and the manager/sponser of that...
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$0.68
$1.50
Potential Return 121%
YE: Jun FY17E FY18E FY19E
Revenue (M) 25.9 29.5 33.7
EBITDA (M) 2.6 3.5 4.9
EBITDA margins 9.9% 12.0% 14.6%
GAAP EPS ($) 0.03 0.04 0.07
FY17E FY18E FY19E
EV/Sales 0.9x 0.8x 0.7x
EV/EBITDA 8.8x 6.4x 4.6x
P/E 22.7x 17.0x 9.7x
32.5
Shares O/S (FD) 34.6
Market Cap (Basic) $22.1
Market Cap (FD) $23.5
Cash $2.3 $0.07/sh
Debt $1.3 $0.04/sh
EV $22.6
Stock Performance
Stock Data (M)
Shares O/S (Basic)
Gabriel Leung 416-507-3963
Initiating Coverage
Previous Close
12-month Target Price
Estimates (C$)
Valuation
Company Description
Markham-based Sangoma provides a comprehensive Unified
Communications (“UC”) solution to service providers, carriers,
enterprises, small-to-medium sized businesses, and original
equipment manufacturers.
Research Team
$1.50BUY
Sangoma Technologies Corporation (STC - V)
June 7, 2017
I Like What I’m Hearing
Company Profile
Markham-based Sangoma Technologies provides a comprehensive
Unified Communications solution to service providers, carriers,
enterprises, small-to-medium sized businesses, and OEMs.
Investment Thesis
STC has spent the last several years evolving (via a combination of
organically adding new products, regions, and customer segments, as
well as several prudent acquisitions) its business from just selling
telephony cards to a comprehensive UC platform, including
technology and appliances such as session border controllers, IP-PBXs
based on Free PBX, a range of IP-phones, VoIP gateways, SIP trunking,
fax-over-IP services, and call center software. With this full-suite
platform and broad range of indirect channel partners, we believe
STC is well positioned to show meaningful organic growth and
operating leverage over our forecast period.
Investment Highlights
- It’s A Big Market Opportunity: According to Global Market Insights,
the UC market is forecast to hit $96B by 2023. Rising demand in the
enterprise is anticipated to be a key driver.
- Much Better Armed To Address This Market: Sangoma has evolved
from a one-trick pony (i.e. telephony cards) to a full suite UC
provider. STC’s ability to now execute a “land and expand”
strategy has been a key catalyst driving its organic growth.
- Everything We Are Looking For In A Good Tech Investment:
o ~40% of revenues are recurring services, which provides
good forward visibility.
o It has good growth momentum with nine-month y/y
revenue growth at 27% (largely organic).
o We believe there is good operating leverage potential as
the proportion of higher margin hosted software services
increases.
o The company has a healthy M&A pipeline to augment its
services offering and distribution capability.
o The company has no customer concentration (i.e. over
10% of revenues).
- Cheap and Potential Takeout Candidate: The stock is cheap at
0.7x forward EV/Sales and 4.6x EV/EBITDA versus comps at ~1.3x
and ~10x respectively. We also view Sangoma as a potential
takeout candidate given its large network of customers and
product offering. Initiating with a Buy rating and $1.50 target price,
which is based on 10x FY19e EV/EBITDA (ending June 2019).
Who They Are and What Do They Do?
• Markham-based Sangoma provides a comprehensive Unified Communications (“UC”) solution toservice providers, carriers, enterprises, small-to-medium sized businesses, and originalequipment manufacturers. The company has ~110 employees.
• Sangoma has spent the last several years evolving (through both acquisitions and internal R&D)its business from selling just telephony cards to a comprehensive UC platform, includingtechnology and appliances such as session border controllers, IP-PBXs based on FreePBX, arange of IP-phones, VoIP gateways, SIP trunking, fax-over-IP services, and call center software.
• UC refers to the integration of communication tools that help people exchange ideas and dotheir jobs more effectively. Ideally, a unified communications environment is integrated with theback-end systems that provide services as well as the front-end clients that provide access.
• The company has grown revenues to ~$25M with ~10% EBITDA margins across customers inover 100 countries. It has no major customer concentration (i.e. over 10%) and ~40% of revenuesare recurring services. It also has a broad ecosystem of distribution partners and strategicpartners (including OEM integration with major software suites).
• At its current valuation of 0.7x forward sales and 4.6x EV/EBITDA, we view the stock asrepresenting compelling value. We are initiating coverage with a Buy rating and $1.50 target.
1Gabriel Leung, 416-507-3963
UC – A Growing Market Opportunity
• According to research group Global Market Insights, Inc., the UC Market is forecast tohit $96B by 2023. Rising demand in the enterprise sector is anticipated to drive thisdemand over the forecast period. This can be attributed to the ability of thetechnology to deliver real-time communications services required for critical businessoperations.
• Key insights from the report include:
– The hosted unified communications market size is anticipated to witness significant growth over theforecast timeline. The advantages associated with these products such as rapid implementation,automated upgrades, and scalability will drive demand in the coming years (Sangoma offers products onboth an on-premise and hosted basis).
– Enterprises dominated as of 2015, occupying nearly 60% of the UC market revenue, which can becredited to the increasing adoption for enhancing business processes and advantages offered by UCsystems such as mobility.
– Government applications will exhibit considerable growth prospects due to escalating adoption of thetechnology to accommodate the needs of citizens pertaining to the permit processing and public safety.These solutions enable governments to efficiently deal with the emergencies and crisis conferencing.
– Asia Pacific is anticipated to witness significant growth at a 15% CAGR over the next eight years.Increasing demand for mobility is driving the demand for advanced UC systems across the region.
2Gabriel Leung, 416-507-3963
Evolution into an Integrated UC Provider
• Through internal R&D efforts and a series of acquisitions, Sangoma has transformed its business
from what was historically a single product, legacy telephony boards business to an integrated
Unified Communication solution, which is available on-premise and via the cloud.
• Key acquisition milestones include:
– VegaStream (acquired in August 2011 for £0.9M in cash): Acquired VOIP gateway appliances
– Schmooze (acquired in January 2015 for US$3M in cash and issued 3.65M shares for a value of US$1M
and entered into potential earn-outs of up to US$0.85M): Schmooze is the primary developer of
FreePBX and the manager/sponser of that open source project, one of the most widely used IP-PBXs
with millions of installs globally. Schmooze also offers chargeable, add-on commercial modules, support
services, accompanying hardware to complement FreePBX and an integrated SIP trunking service.
– RockBochs (acquired in January 2015 for US$1M in cash and potential earn-outs of US$500k ): Offers
Fax-over-IP monthly service, including developing its own FoIP customer premise equipment and offers
custom telecom appliances that allow customers to install their own communications software on a
purpose-built server.
– Micro Advantage (acquired in December 2016 for US$350k and potential earn-outs of US$300k): Is a
hosted telecom and IT provider in the Ohio area, that provides a range of services including a Cloud PBX
offering based upon Sangoma’s products and technology.
3Gabriel Leung, 416-507-3963
Sangoma’s UC Product Portfolio
• Session Border Controllers (“SBC”)
– SBC is a device regularly deployed in VoIP networks to exert control over the signaling and usually also the mediastreams involved in setting up, conducting, and tearing down telephone calls or other interactive mediacommunications. Sangoma’s SBCs are available as hardware appliances, as software-only solutions running on avirtual machine in hosted environments, or as a hybrid of both.
• IP-PBX
– A PBX (Private Branch Exchange) is a system that connects telephone extensions to the Public Switched TelephoneNetwork and provides internal communication for a business. An IP-PBX is a PBX with Internet Protocol connectivityand may provide additional audio, video, or instant messaging communication utilizing the TCP/IP protocol stack.Sangoma offers a feature rich IP-PBX called PBXact and also has the most widely used software-based PBX in theworld called FreePBX, which is available free of charge as open source software. Both PBXact and FreePBX aresoftware products and are also available pre-loaded on a Sangoma telecom appliances.
• IP-Phones
– Sangoma’s range of IP-Phones are customized to seamlessly integrate with all FreePBX systems to provide zerotouch installation, simplified system management and instant access to a wide range of features.
• VOIP Gateways
– VoIP gateways are needed any time voice traffic moves from a VoIP network to a traditional PSTN telephonenetwork. As the traffic traverses these networks there are issues that need to be resolved regarding both the media(the sound of the caller ’s voice) and the signaling (the method used to control the media traveling over thatconnection). VoIP Gateways are also needed to connect traditional telephones to an IP-PBX
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Sangoma’s UC Product Platform
• PBXact UCC Service
– PBXact UCC service is a cloud based PBX service specifically designed to meet the needs of SMBs andsmall enterprise. PBXact UCC uses Sangoma IP phones and delivers simple online signup, unlimitedUS/Canada calling, number portability and VoIP security.
• SIPStation
– SIPStation is a hosted, SIP trunking service targeted to users of FreePBX systems. SIP trunking is fastbecoming the technology of choice to interconnect an IP-PBX system to a telephone company (in thiscase an IP telephony service provider or ITSP).
• FoIP
– Sangoma offers a hosted fax over internet protocol services, which is particularly useful for smallbusiness that rely on fax communications and also for industries with challenging network conditionssuch as mining, oil rigs, ship to shore over satellite.
• Call Center Software
– Sangoma currently supports two different products used by outbound call centers for call progressanalysis (CPA). The NetBorder Call Analyser is targeted at very large call centers and is usually deliveredunder an OEM arrangement with the company providing the call center solution. Lyra is a “lighter-weight” version of the software that has been optimized to work with contact centers that are built onthe Asterisk platform.
5Gabriel Leung, 416-507-3963
Sangom’s UC Product Platform
• Other Connectivity and Media Processing Products
– Tapping Boards, which is a specialized, high-density board that can be used as part of large call
recording platforms
– Transcoding Boards and Gateways, are designed to translate media encoded by VoIP networks or
traditional telephony networks to allow calls to pass through networks.
– Multiplexers is a device that works at the physical layer of a network and is used to translate various
standards.
– PSTN Interface Boards, perform a very similar task to VoIP gates, but are installed inside the servers
rather than being stand-alone devices.
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Sangoma’s UC Product Platform
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Leverage Both Its Direct and Indirect Channels
• Sangoma has customers in over 100 countries with a very large base of users (up to 2M, which
includes FreePBX users). Roughly 55% of revenues are based out of North America, 20% in
Europe, 15% Asia Pacific and 10% Caribbean and Latin America.
• Sangoma sells its products on both a direct (typically to larger OEMs and carrier) and indirect
basis (for small-to-medium sized businesses and enterprises). The company has around 15
quota carrying sales reps.
• Carriers are typically telcos, ISPs, ITSPs, wireless/mobile operators, and service providers who
resell services using either their own networks or those of others. All of these organizations are
potential customers for Sangoma. OEM partners are companies that “design-in” Sangoma
products as a component of their solutions.
• In other cases, Sangoma utilizes an indirect distribution model (i.e. distributers and resellers) to
reach for enterprises and SMB. Using regional distributors and resellers supported by Sangoma’s
sales and marketing efforts has proven very successful.
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Broad Range Of Clients and Partners
9Gabriel Leung, 416-507-3963
Revenue Model Focused on Predictability
• Sangoma generates revenues via hardware, software, service, and subscription fees.
• The company’s order size ranges between $2k to $200k and it does not have any
customer concentration.
• Revenues from the company’s newer products (i.e. not telephony cards) now represent
over 70% of total revenues and it has a strong recurring services revenue base now
representing 40% of revenues, including maintenance, subscription, software, and hosted
services.
• Seasonally, the company’s fiscal Q4 (ending June) is the strongest, while fiscal Q1 (ending
September) is the weakest.
• We believe the company’s ability to offer a full suite UC solution has enabled it to
successfully execute a “land and expand” strategy, which we believe has been a key driver
of organic revenue growth.
10Gabriel Leung, 416-507-3963
Financial Review – Focus on Profitable Growth
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• Sangoma recently reported fiscal Q3 (ended March) revenues of $6.8M, which was up 28% y/y.
• EBITDA was $730k (up 62% y/y) representing EBITDA margins of 11%.
• Revenues were split $3.9M and $2.9M between products and services (services include recurringrevenues).
• YTD revenues and EBITDA are up 27% and 54% respectively.
• We believe the fiscal Q3 growth reflect the fruits of the company’s multi-year turnaround plan,which saw it transform from a single product company to a full-suite unified communicationprovider addressing a broad range of global customers.
• The company ended the quarter with $2.3M in cash against $1.3M in debt. FCF was largely flatwith operating cash flow of $586k offset by $21k in capex and $563k in capitalized developmentcosts. Changes in working capital was a drag at $554k as the company was building inventory forthe seasonal strong fiscal Q4.
• Note that to be conservative, amortization of capitalized development (~$435k per quarter) is notadded back to EBITDA, which we believe reduces the distortion stemming from the capitalizeddevelopment costs.
Financial Review – Key Statistics
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Source: Company filings
Sangoma - Revenue Analysis
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
FY12 FY13 FY14 FY15 FY16 FY17e FY18e FY19e
($M
)
Revenues Year-Over-Year Growth (RHS)
Sangoma - EBITDA Analysis
Source: Company filings
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
FY12 FY13 FY14 FY15 FY16 FY17e FY18e FY19e
($M
)
EBITDA EBITDA Margins (RHS)
Forecast Assumptions
13Gabriel Leung, 416-507-3963
• As part of its recent fiscal Q3 results, the company guided for FY17 (ended June) revenues and
EBITDA to exceed $25M and $2.4M respectively. That would represent y/y revenue and EBITDA
growth of at least 18% and 70% respectively.
• For FY18 (ending June 2018), the company had previously guided to revenue growth of 15 – 20%
and EBITDA margins to exceed 10%, although the company plans to update this guidance (likely
on the upside) as part of its fiscal Q4 results (expected end-August).
• For the purposes of our go forward estimates, we have modeled organic revenue growth of
~14% for FY18 and FY19 and EBITDA margins to improve to 12% and 14.6% for FY18 and FY19.
We expect the company’s ability to meet or exceed our margin assumptions to be largely driven
by revenue mix (i.e. software/hosted services versus hardware product).
• The company has $2.1M of Federal tax credit carry forwards and also unutilized SR&ED
expenditures carry forward of $4.38M for deferral and Ontario income tax purposes. As such,
although we have modeled 35% taxes in our estimates, we expect cash taxes to be slightly lower.
Financial Estimates
14Gabriel Leung, 416-507-3963
Q4 FY17e FY17e FY18e FY19e
($) 30-Jun-17 30-Jun-17 30-Jun-18 30-Jun-19
Revenues 6,708,826 25,910,708 29,538,207 33,673,557
Gross profit 4,407,699 17,001,595 19,475,311 22,312,404
Gross margins 65.7% 65.6% 65.9% 66.3%
EBITDA 636,742 2,561,601 3,533,812 4,903,533
EBITDA margins 9.5% 9.9% 12.0% 14.6%
Sangoma - Financial Estimates
Source: Beacon Securities
Initiating With a Buy Rating and $1.50 Target
15Gabriel Leung, 416-507-3963
- As highlighted by the table in the following page, comparable companies are trading at a
forward EV/Sales multiple of ~1.3x and EV/EBITDA of ~10x.
- By comparison, Sangoma is trading at 0.7x and 4.6x respectively.
- Applying a 10x EV/EBITDA multiple to our FY19e (ending June 2019) estimates results in a target
price of $1.50.
- This represents a 121% potential return leading us to initiative coverage with a Buy rating.
- In our opinion, continued positive growth execution (particularly as it relates to successful cross-
selling activity within the large existing customer base) and potential acquisitions represent key
catalysts for the stock.
Comparable Analysis
16Gabriel Leung, 416-507-3963
2-Year 2-Year
Ticker Mkt Cap ($M) FY - 1 FY1 FY + 1 Revenue CAGR FY - 1 FY1 FY + 1 EBITDA CAGR FY -1 FY1 FY + 1
Comps
AudioCodes AUDC.O 210.37 1.4 x 1.3 x 1.2 x 6% 18.0 x 13.5 x 9.9 x 35% 14.8 x 20.2 x 17.2 x
Cisco CSCO.O 157,801.72 2.4 x 2.5 x 2.5 x -1% 7.3 x 7.1 x 7.1 x 1% 15.0 x 13.2 x 12.9 x
Clearone CLRO.O 80.52 1.4 x 1.3 x 1.2 x 7% 7.6 x 12.4 x 7.3 x 3% 35.2 x 23.1 x 14.1 x
Mitel Networks MITL.O 883.65 1.1 x 1.1 x 1.1 x -2% 6.6 x 8.0 x 6.8 x -1% 25.0 x 9.2 x 8.9 x
Shoretel Inc SHOR.O 419.89 0.9 x 0.9 x 0.9 x -1% 10.7 x 15.7 x 15.8 x -18% -85.2 x 107.0 x 91.1 x
Sonus Networks SONS.O 364.98 1.1 x 1.1 x 1.0 x 2% 10.5 x 14.2 x 11.6 x -5% -26.1 x 32.2 x 26.0 x
Global Average 1.4 x 1.4 x 1.3 x 2% 10.1 x 11.8 x 9.7 x 2% -3.6 x 34.2 x 28.4 x
Global Median 1.2 x 1.2 x 1.1 x 1% 9.1 x 12.9 x 8.6 x 0% 14.9 x 21.7 x 15.7 x
Sangoma Technologies STC.V 23.51 0.9 x 0.8 x 0.7 x 14% 8.8 x 6.4 x 4.6 x 38% 22.7 x 17.0 x 9.7 x
Sangoma: Peer Group Analysis
Source: Thomson, Company filings, Beacon Securities
EV/Sales EV/EBITDA P/E
Risks To Our Analysis
17Gabriel Leung, 416-507-3963
Ability to grow profitably – While the company has done a great job in stabilizing its operations, it isstill in the very early innings of its revenue growth initiatives and its ability to grow profitably will bea key item to watch.
Legacy products declining – Around 30% of the company’s revenues are still derived from its legacytelephony cards business. While the company has done a good job extending the life cycle of thisproduct through geographic expansion, we anticipate that this will remain a declining business,which will need to be offset by its newer products.
Financing and integration risks – We anticipate that acquisitions will remain a pillar for growth forSangoma over the near-term. We believe this introduces potential financing (i.e. dilution) andintegration risks. However, based on recent transactions and results, we believe the managementteam has done a good job driving positive synergies with its acquired businesses.
Competition – We view the unified communication market as being very competitor with numerous(larger) competitors in Sangoma’s key focus markets. Key competitors include Avaya, Cisco, RingCentral in hosted and cloud-relate services. Within the enterprise, we believe Sangoma facescompetition from traditional IP communications vendors and Software ventures such as Alcatel-Lucent, Ericsson, and Mitel.
Seasoned Management Team
18Gabriel Leung, 416-507-3963
William J. Wignall, President and CEO has run several technology companies and prior to Sangoma held the role of President
and CEO at Truition, a developer and marketer of e-Commerce software. Prior to that, he was President and CEO of
Electronics Workbench.
David S. Moore, CFO, is a CMA with 25 years of experience in both public and private companies within the technology sector.
Most recently he was CFO at Truition Inc. and before that CFO of Fifty-Plus International (now trading as Zoomer Media).
Tony Lewis, COO, oversees Global Sales, R&D and Operations. Prior to joining Sangoma, Mr. Lewis was the CEO and co-
founder of Schmooze Communications, which was acquired by Sangoma.
Frederic Dickey, VP of Marketing & Product Management, was previously at Paraxip leading marketing and business
development efforts, which was acquired by Sangoma in July 2008. Prior to that, he was GM at Kallastra, a wholly-owned
subsidiary of Octasic Semiconductors, and has over 25 years of experience in the networking industry starting at Nortel.
Doug Vilim, VP Global Sales, prior to joining Sangoma, Doug worked in positions of increasing responsibility in sales and
marketing roles at Eicon Networks, now Dialogic, as well as 10 years in pre-sales technical which lead to positions in Channel
and Enterprise sales at NEC and Compaq
Nenad Corbic, CTO, is an industry veteran with 20 years of engineering experience in the networking industry, and leads
Sangoma’s global R&D efforts with teams around the world.
Board of Directors
David Mandelstam (Chairman) – was previously President and CEO of Sangoma.
Yves Laliberte - has held (and currently holds) senior management positions in various companies, including those
listed on the TSX and NASDAQ. He is a member of the Institute of Corporate Directors and was part of the Audit
Committee of Aastra Technologies Limited until April 2006.
Allan James Brett - is a CPA, CA and CBV, and is currently the CFO at The Descartes Systems Group Inc., a public
company listed on the TSX and NASDAQ. From June 1996 until January 2014, Mr. Brett was the CFO at Aastra
Techonlogies Limited, a TSX listed company.
William Wignall – is CEO of Sangoma
Al Guarino – is Chair of the Audit Committee and is currently CEO of PhysioMed Physician Services in Toronto. He
has previously been CFO of Health Holdings Company and was the Managing Partner of Arthur Andersen
Enterprise Practice. He is a Chartered Accountant and holds a Bachelor of Commerce from the University of
Toronto.
19Gabriel Leung, 416-507-3963
Capital Structure
20Gabriel Leung, 416-507-3963
Basic shares outstanding 32,479,809
Warrants 0
Options 5,967,160 - Average exercise price of $0.31
Fully diluted shares outstanding 38,446,969 - Without considering strike price
Key shareholders
David Mandelstam 4,292,500 - Former CEO of Sangoma, now Chairman
Other Insiders 185,500
Nicholas Galea 5,658,500 - CEO of 3CX, which is a competitor of Sangoma
Sangoma Capital Structure
Source: Beacon Securities, Company filings
- Of note, ~15% of shares are held by Nicholas Galea who is CEO of 3CX (a Sangoma competitor). As we understand it, the shares are held as a personal investment for Mr. Galea.
June 7, 2017 | Page 21 Gabriel Leung | 416.507.3963 | [email protected]
Sangoma Technologies Corporation
Sangoma - Income Statement
FY13 FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 FY18 FY19
(C$) 30-Jun-13 30-Jun-14 30-Jun-15 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17 30-Jun-17 30-Jun-18 30-Jun-19
Revenue 12,950,178 13,829,082 16,318,046 21,193,272 5,820,431 6,569,674 6,811,777 6,708,826 25,910,708 29,538,207 33,673,557
Y/Y Revenue Growth -5.9% 6.8% 18.0% 29.9% 23.5% 29.3% 28.5% 10.0% 22.3% 14.0% 14.0%
Cost of sales 4,465,551 4,574,556 5,351,335 6,785,161 2,054,980 2,219,213 2,333,793 2,301,127 8,909,113 10,062,896 11,361,152
Gross profit 8,484,627 9,254,526 10,966,711 14,408,111 3,765,451 4,350,461 4,477,984 4,407,699 17,001,595 19,475,311 22,312,404
Gross margins 65.5% 66.9% 67.2% 68.0% 64.7% 66.2% 65.7% 65.7% 65.6% 65.9% 66.3%
Expenses:
Sales and marketing 2,777,713 3,359,401 3,596,652 4,401,707 1,074,293 1,164,015 1,344,823 1,341,765 4,924,896 5,876,815 6,734,711
% of revenues 21.4% 24.3% 22.0% 20.8% 18.5% 17.7% 19.7% 20.0% 19.0% 19.9% 20.0%
R&D 2,827,648 2,594,514 3,437,852 4,608,540 1,193,845 1,284,712 1,300,525 1,300,525 5,079,607 5,450,525 5,900,000
% of revenues 21.8% 18.8% 21.1% 21.7% 20.5% 19.6% 19.1% 19.4% 19.6% 18.5% 17.5%
General and administration 3,080,595 2,416,295 3,269,863 4,958,014 1,351,792 1,385,967 1,405,127 1,405,127 5,548,013 5,720,000 5,880,000
% of revenues 23.8% 17.5% 20.0% 23.4% 23.2% 21.1% 20.6% 20.9% 21.4% 19.4% 17.5%
Foreign currency exchange (gain) loss -141,024 -56,472 -268,071 50,391 15,339 24,233 -25,462 0
8,544,932 8,313,738 10,036,296 14,018,652 3,635,269 3,858,927 4,025,013 4,047,417 15,552,516 17,047,340 18,514,711
Operating income -60,305 940,788 930,415 389,459 130,182 491,534 452,971 360,282 1,449,079 2,427,972 3,797,693
EBITDA 628,096 1,298,038 1,637,238 1,432,597 422,100 759,218 729,431 636,742 2,561,601 3,533,812 4,903,533
EBITDA margins 4.9% 9.4% 10.0% 6.8% 7.3% 11.6% 10.7% 9.5% 9.9% 12.0% 14.6%
Interest income -26,907 -26,809 -17,992 -2,694 0 0 0
Interest expense 198,000 0 46,282 108,761 24,565 23,116 27,071 27,071 101,823 108,284 108,284
Impairment of intangible asset 1,056,088
Accelerated amortization of patents
Impairment of goodwill 3,543,912
Business acquisition costs 0 0 297,145
Income before taxes -4,831,398 967,597 604,980 283,392 105,617 468,418 425,900 333,211 1,347,256 2,319,688 3,689,409
Income taxes -496,741 230,547 352,102 168,959 42,075 178,423 145,273 116,624 482,395 811,891 1,291,293
Tax rate 10.3% 23.8% 58.2% 59.6% 39.8% 38.1% 34.1% 35.0% 35.8% 35.0% 35.0%
Net income -4,334,657 737,050 252,878 114,433 63,542 289,995 280,627 216,587 864,861 1,507,797 2,398,116
EPS:
Basic -0.15 0.03 0.01 0.00 0.00 0.01 0.01 0.01 0.03 0.05 0.07
FD -0.15 0.03 0.01 0.00 0.00 0.01 0.01 0.01 0.03 0.04 0.07
Shares outstanding:
Basic 29,261,162 28,829,809 30,629,809 32,479,809 32,479,809 32,479,809 32,479,809 32,479,809 32,479,809 32,479,809 32,479,809
FD 29,261,162 28,829,809 30,629,809 32,479,809 33,021,912 33,237,533 34,576,650 34,576,650 33,853,186 34,214,918 34,034,052
Source: Company filings, Beacon Securities
June 7, 2017 | Page 22 Gabriel Leung | 416.507.3963 | [email protected]
Sangoma Technologies Corporation
Sangoma - Balance Sheet
FY13 FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17
(C$) 30-Jun-13 30-Jun-14 30-Jun-15 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17
Assets
Current assets
Cash 4,012,126 4,981,571 2,518,156 2,086,932 2,365,107 2,277,375 2,278,521
Trade receivables 4,963,684 5,309,728 5,267,027 4,214,079 3,294,276 3,312,985 3,773,250
Inventories 3,035,704 2,587,634 3,975,892 3,887,233 3,993,363 4,533,404 5,031,638
Investment tax credits receivable 321,794 367,874 364,797 374,115 313,837 313,837 70,563
Income taxes receivable
Sales tax receivables 28,854 44,422
Investment in Vegastream Private Networks 10,665 10,665
Other current asset 47,677 115,348 205,532 448,939 561,983 421,018 249,608
Total current assets 12,420,504 13,417,242 12,331,404 11,011,298 10,528,566 10,858,619 11,403,580
Non-current assets
Property and equipment 333,451 349,553 494,945 597,103 569,771 564,346 555,194
Intangible assets 1,172,642 998,514 5,938,508 5,480,583 5,313,905 6,080,249 5,818,191
Development costs 2,539,418 2,745,227 2,173,284 2,506,452 2,518,613 2,560,992 2,551,915
Deferred income tax assets 887,581 944,282 1,231,340 1,520,472 1,657,972 1,792,330 1,929,644
Goodwill 0 0 1,750,066 1,638,546 1,638,546 1,638,546 1,638,546
4,933,092 5,037,576 11,588,143 11,743,156 11,698,807 12,636,463 12,493,490
Total assets 17,353,596 18,454,818 23,919,547 22,754,454 22,227,373 23,495,082 23,897,070
Liabilities
Current liabilities
Accounts payable and accrued liabilities 1,628,555 1,705,802 4,067,014 2,435,687 1,729,121 2,467,695 2,384,822
Provision 23,318 43,318 83,318 103,318 108,318 113,318 118,318
Sales tax payable 0 113,735 60,006 11,064 81,791
Income tax payable 21,598 116,000 117,187 64,130 241,507 373,084
Operating line 1,340,603 1,340,603 1,340,603 1,340,603 1,340,603
Current portion of term loan 17,035
Deferred revenue 146,514 300,226 359,868 417,369 495,284 481,604 449,570
Total current liabilities 1,815,422 2,070,944 5,966,803 4,527,899 3,797,462 4,655,791 4,748,188
Term loan
Deferred income tax liabilities
Total liabilities 1,815,422 2,070,944 5,966,803 4,527,899 3,797,462 4,655,791 4,748,188
Shareholders' equity
Share capital 15,333,326 15,333,326 16,497,326 16,497,326 16,497,326 16,497,326 16,497,326
Contributed surplus 1,621,375 1,730,025 1,882,017 2,060,557 2,131,991 2,210,009 2,248,944
Accumulated other comprehensive income 0 -19,162 49,218 90,585 80,614
Deficit -1,416,527 -679,477 -426,599 -312,166 -28,624 41,371 321,998
Total shareholders' equity 15,538,174 16,383,874 17,952,744 18,226,555 18,649,911 18,839,291 19,148,882
Total liabilities and shareholders' equity 17,353,596 18,454,818 23,919,547 22,754,454 22,447,373 23,495,082 23,897,070
Source: Company filings, Beacon Securities
June 7, 2017 | Page 23 Gabriel Leung | 416.507.3963 | [email protected]
Sangoma Technologies Corporation
Sangoma - Consolidated cash flow statement
FY13 FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17
(C$) 30-Jun-13 30-Jun-14 30-Jun-15 30-Sep-16 31-Dec-16 31-Mar-17
Operating activities:
Net income -4,334,657 737,050 252,878 114,433 63,542 289,995 280,627
Adjustments for:
Depreciation of property and equipment 87,219 74,472 102,825 121,648 34,513 29,356 30,097
Amortization of intangible assets 407,393 174,128 452,006 742,950 185,972 160,310 207,428
Amortization of capitalized development costs 1,747,593 1,673,410 1,750,466 1,525,977 423,703 429,054 435,484
Unrealized foreign exchange gain 0 -132,240 7,009 -13,573 -4,223
Income tax expense -496,741 230,547 352,102 168,959 42,075 178,423 145,273
Income tax paid 8,632 -14,245 -37,449
Income tax refunds 760,638 208,075
Share-based compensation expense 193,789 108,650 151,992 178,540 71,433 78,018 38,935
Impairment of intangible assets 1,056,088
Impairment of goodwill 3,543,912
Investment in Vegastream Private Networks 10,665
Accretion expense 15,843 12,825 0 0 7,267
Change in item of working capital:
Trade receivables -468,666 -346,044 42,701 1,060,308 919,803 -18,709 -460,265
Inventories 5,133 448,070 -1,388,258 88,659 -106,130 -540,041 -498,234
Other current assets 327,856 -67,671 -90,184 -244,564 -113,045 140,966 171,410
Sales tax payable 188,570 -15,568 44,422 113,735 -53,729 -48,942 70,727
Accounts payable and accrued liabilities -473,043 77,247 693,977 249,995 -706,566 738,575 -57,744
Provision 23,318 20,000 40,000 20,000 5,000 5,000 5,000
Deferred revenue 43,552 153,712 59,642 53,930 77,916 -13,680 -32,035
Income tax payable 21,598 94,402 -8,510 -53,054 177,377 3,053
Income tax refund 0 0 0 243,274
Investment tax credits receivables 239,390 -46,080 3,077 -9,318 60,278 0 0
Income tax paid 0 0 0 0 0 -94,680 0
-113,890 245,264 -500,221 1,324,235 30,473 345,866 -554,814
Operating cash flow 2,090,706 3,252,153 3,334,949 4,227,953 858,720 1,497,449 586,074
Investing activities:
Purchase of property and equipment -42,110 -90,574 -248,217 -214,456 -7,181 -23,931 -20,945
Development costs -2,790,468 -2,175,099 -2,234,750 -2,562,936 -573,364 -608,933 -563,934
Acquisition of Schmooze and Rockboch 0 -4,656,000 0 0 0 0
Business combination
Payment of contingent consideration 0 0 -1,868,400 0 0 0
Purchase of intangible assets 0 0 0 0 -952,317 0
Total investing activities -2,832,578 -2,265,673 -7,138,967 -4,645,792 -580,545 -1,585,181 -584,879
Financing activities:
Repayment of term loan -34,072 -17,035 0 0 0 0 0
NCIB -228,755
Operating line 0 0 1,340,603 0 0 0 0
-262,827 -17,035 1,340,603 0 0 0 0
Effect of f/x on cash 0 0 0 -13,385 0 0 0
Change in cash -1,004,699 969,445 -2,463,415 -431,224 278,175 -87,732 1,195
Cash, beginning of period 5,016,825 4,012,126 4,981,571 2,518,156 2,086,932 2,365,107 2,277,376
Cash, end of period 4,012,126 4,981,571 2,518,156 2,086,932 2,365,107 2,277,375 2,278,571
Source: Company filings, Beacon Securities
Beacon Securities Ltd.| 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830 |www.beaconsecurities.ca
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As at May 31, 2017 #Stocks Distribution
Buy 68 75% Buy Total 12-month return expected to be > 15%
Speculative Buy 10 11% Speculative Buy Potential 12-month return is high (>15%) but given elevated risk, investment could result in a material loss
Hold 6 7% Hold Total 12-month return is expected to be between 0% and 15%
Sell 0 0% Sell Total 12-month return is expected to be negative
Under Review 5 5%
Tender 2 2% Tender Clients are advised to tender their shares to a takeover bid or similar offer
Total 91 100%
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