Hello, everyone. This is David Moore, Chief Financial Officer at Sangoma. I apologize for the technical difficulties we just had. We're going to restart the call and Bill will follow me very shortly. I believe I've got to the point where before we start, I want 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, hopes, beliefs, expectations and strategies for the future. Because such statements deal with future events, they are subject to various risks and uncertainties, and actual results might 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 in the company's annual audited financial statements, which are posted on SEDAR.
With that, I'll hand the call over to Bill Wignall.
Operator, how is the voice quality since we've had to change connections here? Is it okay?
Yeah, you sound loud and clear.
Okay. Thank you, David Moore. Good morning, everyone, and thank you for joining us today. I consciously kept my prepared remarks a little shorter for this one because I provided a very extensive update on our year-end call just a few weeks ago. If there is anyone joining us for the first time today, I would invite you to listen to the September 30 recording of our fiscal 2021 results from our website, as that will give you a much fuller picture. Back to today's call. I have structured my prepared remarks in three sections. First, I will take you through our Q1 results. Second, I will share a brief refresher on strategy and corporate development, including a short update on the Star2Star integration. Third, I will touch on our forward guidance for fiscal 2022.
As always, I'll then wrap up with a brief summary and turn the call over to David Moore for our typical open Q&A session. With that, let's move to our first section covering our Q1 results. Sales for the quarter ended September 30 were a record $52.48 million, more than double the $26.22 million in the first quarter of fiscal 2021. The increase in sales from the prior year resulted primarily from the Star2Star acquisition, the continued growth and compounding of the company's services business. For the first time in a while, an uptick in our product sales. Our Q1 revenue also grew by approximately 5% sequentially from the immediately preceding Q4, an equally encouraging sign. Our services revenue represented over 70% of total sales for the quarter, consistent with our expectations for fiscal 2022.
Gross profit for the first fiscal quarter was $ 37.9 million, also more than double that of Q1 last year. Gross margin for the quarter was 72% of revenue, 6% higher than the 66% in the same quarter a year ago. This is driven principally from the steady increase in the percentage of revenue from services, and that of course, includes the impact of the higher fraction of Star2Star revenue that also comes from services. Our cost of goods continues to feel some pressure from the higher supply chain costs that most of you will have heard about in many industries. These supply chain pressures affected not only costs, but also availability of components and increases in shipping costs as we ship more product by air in order to ensure that we've had inventory when and where it was needed to deliver on customer orders.
As I have said in recent calls, I'm very pleased with the Sangoma teams in this area who have been working tirelessly to keep abreast of demand under challenging circumstances. Operating expenses for the first quarter this year were $38.7 million versus $14.8 million in the same period last year. The materially higher OpEx were primarily driven by the cost that came with the addition of Star2Star and the non-cash intangible asset amortization arising from the acquisition. As I did last quarter, I will offer just a few comments on the three individual OpEx buckets under IFRS, namely sales and marketing, R&D, and G&A, given this is just the second quarter of including Star2Star.
Regarding sales and marketing, you will notice that the portion of our OpEx that is in the sales and marketing category has increased in the first quarter of this year versus Q1 in the prior year, both in absolute dollars and as a percentage of sales. This was primarily the result of the addition of the Star2Star sales team, the incremental marketing staff, the accompanying marketing program spend, and the channel partner commissions. With respect to R&D, the increase in the first quarter of fiscal 2022 from the same quarter in the prior year is largely due to the addition of the Star2Star engineering teams and our continued investment in innovation. Finally, the G&A expense also shows an increase from the prior year, driven in large part by the intangible amortization associated with the acquisition as mentioned.
As a reminder, this intangible amortization is a non-cash expense, so it does not affect our adjusted EBITDA or cash flow, but of course does appear as an expense in our income statement. Adjusted EBITDA was a record in the first quarter, exceeding $10 million for the first time and more than twice the $ 4.95 million from the first quarter of the previous fiscal year. This level of adjusted EBITDA is equivalent to about 19% of sales and is in line with our expectations for this point in fiscal 2022. As you may recall from our prior calls together, I do not typically spend much time on the costs below adjusted EBITDA and above net income. However, I mentioned during our last quarterly call that I would update you on the cost related to the Star2Star acquisition.
As you might remember, Sangoma accrued for the majority of the transaction costs related to the Star2Star deal in fiscal 2021. Of course, we also expected that there would be integration costs, and that activity was undertaken primarily during Q1, so we recorded integration expenses of $ 0.84 million this past quarter. Net income for the first quarter was $- 2.3 million, primarily the result of the non-cash intangible asset amortization following the Star2Star acquisition. Please note that the admittedly and somewhat confusing entry entitled, Gain or Loss on Consideration Payable, which I explained in detail last quarter, had minimal impact on net income this quarter as expected. That brings my commentary on our income statement to a close, and I'd like to cover a few highlights from our balance sheet and cash flow. As you will see, Sangoma's balance sheet remains strong.
Our cash balance at the end of the first quarter was $19.1 million, which is about $3 million lower than at June 30. This was driven primarily by our regular debt service payments, the annual staff bonuses, and the cash paid to purchase certain assets of M2 Telecom for $2 million. As you may recall, M2 was the leading sales channel for our wholesale TaaS service, and as part of sales integration across the combined company, we have restructured the way we sell that cloud service by incorporating it into the one company-wide sales organization. Inventory is up modestly from $11.8 million at the end of Q4 to $12.6 million at September 30.
As we shared on our last call, we had anticipated the need to slightly increase inventory levels to help minimize the impact of the supply chain disruptions and maximize our ability to fulfill orders. This helped our product sales this quarter. We expect these global supply chain challenges to continue a little longer still and certainly through Q2. Trade receivables also exhibited only modest changes, finishing the first quarter at $14.07 million, down slightly from the $14.7 million at June 30. As always, we continue to monitor receivables on an ongoing basis. Now a comment on cash flow. During the first quarter, we generated adjusted cash flow from operations of $5.16 million, up from the $3 million in the same period of the prior year.
This measure of adjusted cash flow excludes the impact of acquisitions, financing, and other non-operating anomalies. We also made debt service repayments of $3.6 million, and we continue to be very comfortably within our covenants. This level of adjusted cash flow was around 52% of adjusted EBITDA, a little lower than the average as you've seen over the years. It is quite normal for Sangoma's conversion of adjusted EBITDA to operating cash flow to fluctuate somewhat from quarter to quarter, with Q1 typically being towards the lower end of the range. That brings my comments on Q1 financial results to a close, and I will now move on to an update on strategy and corporate development.
In this section today, I'm going to cover four topics, a final update on the integration of Star2Star within Sangoma, a short recap of Sangoma's strategy, the TSX uplisting, and our share consolidation. Let's begin with the integration. As many of you know, Star2Star was Sangoma's tenth acquisition and was a very important one, placing us clearly into the top tier of the growing cloud communications industry and fully cementing our transition to a SaaS business. I remain very pleased with how the companies have come together as we continue to achieve our integration plan. In the past couple of quarters, I have shared with you that we undertook a series of integration projects, each covering a key part to bringing the companies together. These projects included people, product, customers and channels, customer-facing cloud networks, and back-office systems.
Let me start by saying we have achieved our timeline for the first phase of integration, which we plan to take about six months, and the longer-term items are also on track. Since our last call was not too long ago and the integration projects were covered in quite some detail there, in fact, several of you had reached out to us afterwards to say that was one of the most wholesome updates you'd heard from any company on an integration. This quarter's update is shorter. Now, a few words on each project, starting with people. The cultures of Sangoma and Star2Star were quite similar, which is one of the things that attracted the two companies to each other.
This is even more so today as our people have come together brilliantly, and so I'm very pleased to report that we are now one team across the board. You may recall from our prior call that we approached the people integration project in two stages. First, the staff functions such as finance, legal, or HR were almost immediately integrated after closing the transaction. Second, we integrated the line functions such as sales, engineering, marketing, or operations over the first two quarters together. The integration of both the staff and the line functions is now fully complete, so let's turn to product. With the combination of Star2Star plus Sangoma, we now have the industry's most complete internally developed portfolio of products and cloud communications services bar none.
This includes UCaaS, Trunking as a Service, Video Meetings as a Service, Contact Center as a Service, CPaaS, collaboration, access control, together with all the PBX products, all available from a single supplier and all part of a one throat to choke solution. Our first high priority in the product integration work was to decide on which product to keep for any product categories where both Sangoma and Star2Star had a similar offering. During our last call, I told you we decided on which product we would go forward with and that those decisions were uncontentious and unanimous, such as Sangoma's video meeting product and Star2Star's CPaaS product. Our second high priority in product integration was to tightly integrate our various cloud services into one cohesive suite.
We have created one unified look and feel for all of our as a service products so that customers have a consistent experience, whether that product initially came from Star2Star or from Sangoma. As the new versions of each product get released, they are getting upgraded to this new look and feel. We now have a robust product roadmap for each of our 12 product lines, a dedicated product manager for each, and a dedicated engineering development team on each product line with a senior leader and a significant size team on each, a team that is now approaching 200 engineers across the company. I'll now share an update on progress with customer and channel integration. The integration of customer and channel activities progressed throughout Q4 of last year and into Q1.
We started by holding initial meetings and webinars with the channel partners from each company and ended with comprehensive multi-day live events with these key partners to ensure the messaging and actions were well understood. We have now completed the work on customer and channel integration, so I'd like to thank everyone at Sangoma for continuing to take such good care of our customers throughout that process. Of course, to integrate the customer base, we have to integrate our sales teams and present one face to our customers. On the last call I updated you on how we restructured the sales organization. The new sales structure will allow our customer and channel-facing teams to focus on the key segment they are each uniquely responsible for. Finally, regarding sales integration, I'm very excited to tell you that I've just flown back from our sales kickoff event.
This is an internal event that we will now hold annually and was the first time that the merged Sangoma and Star2Star sales teams had been together. It was a truly great event, energizing, inspiring, and focusing for the approximately 150 sales staff who attended. Many of these folks have been selling in our industry for over 20 years and have been to 20 or 30 of these events over their careers, having worked for multiple companies. We heard repeatedly that this was the best such event they'd ever attended. Next, I'd like to touch on the integration of our cloud networks.
Both Sangoma and Star2Star had their own versions of these, of course, and this provided an excellent opportunity to rationalize and consolidate all of this architecture, data centers, and service providers to standardize the hardware and software for our cloud networks, all to make it more efficient and reliable to operate, as well as less expensive to run. This is done in a design and then implement approach, with the design being complete now and the implementation phase taking place over the next several quarters. As you may recall from our last call together, back office is the set of internal systems we use and that our customers and partners use to do things like quoting or ordering or licensing and enabling software or billing, et cetera. We have now completed phase I of this integration, and the longer-term items in this project will take place in phase II.
Finally, I wanted to touch on cost synergies. As you know, we did not expect large cost reductions as part of the Star2Star acquisition. That was not why we did this deal. This transaction was all about positioning the combined company in the top tier of the industry with the full suite of cloud services and supporting products, and completing our transition to a SaaS company. That is what we appropriately have focused on. However, as we've said before, we would see some cost-saving opportunities, of course, and we continue to follow our plan to reinvest them back into R&D and sales and marketing to help drive Sangoma's growth.
We are indeed on track with that, and I can now confirm that we estimate those synergies to be about $ 3 million, with the majority of this being reinvested, and this is already factored in to our budget and guidance. With that, I will bring my update on Star2Star integration to a close and move on to a brief reminder about our strategy. I often characterize Sangoma's expansion strategy by describing this combination of organic growth augmented with prudent M&A activity, all while demanding healthy profitability. This is a conscious decision from the board of directors, one that most of you also support, and we continue on that approach today. Many of you are familiar with the history behind the strategy.
The turnaround phase when new management came in to take over the reins and recognized the sales of telephony cards were unavoidably going to decline as networks gravitated away from the PSTN and towards the Internet. Over the next few years, we evolved from a single product line company to one with a much broader product portfolio made up of multiple product lines. We managed to transition from a hardware company to a software business, an extremely difficult leap, which took us on the path to becoming a full solution unified communications provider. Once we had that full solution, we began the metamorphosis from a one-time revenue firm to a SaaS and recurring revenue company by building up our valuable cloud business, another very tough step to make. Along the way, we built some of those components ourselves and added others via acquisition.
In fiscal 2021, this transition to a full SaaS company was capped off with the acquisition of Star2Star, positioning the merged company in the top tier of the exciting cloud communications industry, an entrant into the big leagues that absolutely nobody could have predicted five or 10 years back. We are now well-positioned to continue on this strategic path, and that's the natural segue into the other two topics in this section today on strategy and corporate development. On October 29, we announced that Sangoma received approval for the listing of our common shares on the Toronto Stock Exchange, with trading commencing on November 1. As we said in our press release, graduating from the Venture Exchange was indeed a major milestone for our company, a confirmation of our progress, and another important step as we become a larger and even more valuable company.
On November third, we announced a share consolidation of a reverse stock split, an action you overwhelmingly approved at a special meeting of shareholders held on September twenty-third. The ratio was 1 new common share for every seven previously outstanding common shares, and the new share count took effect on Monday this week, as many of you will no doubt have noticed. We remain optimistic that completing such major steps as these should help trading volumes and hopefully multiple appreciation with our share price as well. That concludes my comments on Sangoma strategy, and I'll move to my third and final section today on guidance for fiscal 2022.
On the last call, I shared our guidance for fiscal 2022 revenue would be between $209 million and $213 million, with our services revenue expected to be about 70% of sales, a really positive sign of sustainability. I also discussed our guidance for adjusted EBITDA of $41 million-$43 million, again United States dollars , delivering leading adjusted EBITDA margins now expected to reach 20% of sales for fiscal 2022. You've now seen our results for this first quarter and heard additional color from me today. We are pleased with your company's performance in Q1 this year and have therefore decided to reiterate our guidance today, remaining confident in that forecast. With that, I'd now like to bring my prepared remarks to a close with a quick summary.
Sangoma has grown from a very small nano cap company with about $10 million in sales to a strong, growing, much larger business with over $200 million in expected revenue this year and an enterprise value approaching CAD 1 million on the TSX. We have demonstrated proven top-line growth over an extended period, solid and expanding EBITDA, an increase in our services business, where the recurring revenue was generated to over 70% of sales and robust cash flow. We continue to be well-positioned to take advantage of an extremely large total addressable market in a space that's growing well. The macro trend of moving to the cloud is still relatively new in communications, and we expect to benefit from this for many years to come, both in North America and internationally as well, where cloud communications is more in its infancy.
We look for ways to further expand your company by continuing on our dual-pronged growth strategy via organic growth driven by investing in sales and marketing, R&D, and customer acquisition, augmented with deliberate and disciplined M&A. Finally, before I close off my prepared remarks today, just a reminder that we have our annual general meeting coming up next month as normal. Date and time are still being finalized, but it will be late December again this year. In order to ensure the safety of our shareholders and the Sangoma team, we have decided to do this one virtually, hopefully for one last time. Please stay tuned as we will be issuing the circular shortly with all the details, and we just wanted to encourage you to participate with us. With that, I'll turn the call back to David for questions.
Thank you, Bill Wignall. To make sure everybody knows how to ask questions, I'm going to ask the operator to go over the instructions. Operator, we're ready to take questions now, please.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two.
Great. Thank you, operator. Actually, before we take the first one, we've had a number of investors ask about how the fractional shares were handled in the share consolidation. Larry Stock, could I ask you to please explain this and then we'll take additional questions from those on the call?
Certainly. Thanks, David Moore. Good morning, everyone. As David Moore mentioned, we've had a couple of shareholders email us with some questions about not providing a cash equivalent for the fractional portion that a shareholder may lose as part of the rounding down due to the divisor being an odd number, in this case, seven. We thought we'd just tackle that one right out of the gate. As a reminder, just prior to the consolidation, there were 133,151,508 common shares issued and outstanding. Post consolidation, there are 19,021,614 common shares issued and outstanding.
While no fractional shares are issued as a result of the share consolidation, the application of the consolidation was done on a pro rata basis, such that the percentage of ownership remains the same prior to and subsequent to the consolidation. If someone owned 100 shares before and they own 14 now, the base is a little bit lower as a result of the way that the rounding works, and therefore the percentage owned for everyone is done pro rata and remains the same. I hope that answers that question, and you know, feel free to email me with any specific questions, and we can handle those individually as well. David Moore, back to you.
Yeah. Thank you, Larry Stock. Operator, let's open the lines up to investors, please.
Certainly. The first question is from Gavin Fairweather from Cormark, p lease go ahead.
Oh, hey there. Good morning?
Hi, Gavin Fairweather.
I wanted to start out on the service line. If we do some math, you know, on FX, it looks like you grew that line by about kind of 5% sequentially, which feels a bit hotter than maybe what's implied by your guidance in the summer quarter, where we know it can be sometimes harder to get deals, you know, across the line. Maybe you could just provide some color, you know, on that strength and which pockets of the business it's coming from and help us kinda understand that because it did look like a nice print there.
Yeah. I think that is the right interpretation. It was a good solid quarter. So maybe I have two thoughts in response, Gavin Fairweather. As part of your question, you touched on the seasonality that's existed at Sangoma, and you are quite right about that, of course. What I thought I would explain there is not that the seasonality has gone away, right? Of course, it's still true that if you, whatever, live in, I don't know, Italy, you're probably still taking July or August off. But the fraction of our business which comes from product is declining, and the fraction of our business which comes from service is growing. That services business being, you know, where the recurring revenue is means, you know, the impact of the lumpiness of product sales on Sangoma is decreasing each year.
Given seasonality affects new product sales and not, you know, the recurring revenue attached to a customer you signed up 23 months ago, in general, I think as a trend, seasonality will start to decrease over time. That's the first part of my answer. The second part is, the quarter was stronger kind of across the board, right? The services revenue was strong, and I also mentioned this, you know, it has been quite a while since we saw an uptick in product sales. You know, those are the two big factors that I think contributed, Gavin. It's the seasonality impact declining, which of course is a Q1 factor only, and, you know, the general shift, of product to services driving that.
Secondly, solid sales across the board, not just on the services line with the compounding, but also with product this quarter.
That's helpful. Then secondly, for me, just a couple questions on M&A. I mean, it's certainly the integration of Star2Star seems like it's pretty well kind of in hand at this point. You know, looking at your balance sheet, you got just over a turn of leverage. You know, kind of curious, you know, whether you feel like the business today is ready to do another acquisition, and maybe you can just kinda touch on the deal flow and deal environment that you're seeing right now.
Yeah, sure. Let's take both of those in turn. Yes, the business is ready to start thinking about M&A. You know, without saying something I shouldn't and can't, you have seen public disclosures about things like share consolidation, the explanation for why we're doing that. You guys certainly understand that we're heading in the direction of becoming a U.S.-listed company down the road. I would like that to finish first before the next acquisition. You know, we're working on that. Generally, yes, you're quite right that the integration has gone very well. I've updated you guys on the last two quarters about that. We probably wouldn't need to do another update on the integration.
You know, the management team, which splits its time between running the business and raising capital and upgrades to TSX or across the border and M&A, can now focus a little bit more of our time on that. Timing is starting to be good. We don't have anything, you know, well advanced or about to be announced, just to be clear. Secondly, on the you know the amount of headroom in debt and what the deal pipeline looks like for sure, you're right. We're, I don't know, David, somewhere between 1x and 1.5x that EBITDA, very low, very manageable. You guys have seen us quite comfortable between 3x and 3.5x at the point of an acquisition. We have several ideas in our acquisition funnel and starting to work on.
As I said, nothing far enough along that would make sense for me to talk about, but it is a robust funnel. There are good opportunities out there. Sangoma is absolutely seen as a high credibility buyer by a seller, and so that feels pretty good right now.
That's great. Maybe just lastly for me on from a competitive standpoint, I'm curious for your perspective on the RingCentral and Mitel deal. You know, I thought it was interesting for a couple reasons. You know, number one, it included kind of a hybrid middle step to cloud for Mitel's on-prem base. The second piece is that Mitel did have kind of a cloud offering. It's not always, you know, easy or clean cut to kind of migrate, you know, customers over. Maybe just, you know, talk about that and refresh us on how you're thinking about kind of stick handling, you know, the opportunity to move your on-prem base to hybrid and then, you know, full cloud over time as they're ready.
Yeah. So of course, you could imagine that we watch such announcements with deep-seated interest. We follow it closely, we analyze it, you know, at length. It being, you know, the transaction you just asked me about, the RingCentral-Mitel one, feels to me very much like the RingCentral-Avaya announcement. For example, Gavin, you know, you're quite right that Mitel had an on-prem and a cloud business like Avaya did. I think the difference between those kinds of companies and Sangoma is the degree to which we have successfully managed the transition to cloud. The fraction of our revenue that comes from on-prem maintenance is very low. If you're a 1980s or 1990s on-prem PBX company, maintenance revenue is the crack cocaine, right?
Like you are addicted to it, and it is everything, and it's really hard to get off it. Those companies had not as successfully transitioned to cloud as Sangoma has. There's no benefit to me sitting here and criticizing other companies, so I think I stop short of that. Sangoma has. You know, we are a cloud SaaS business and it is on one end, a little bit surprising to see a company with a prem business, you know, to some degree, abdicate the ability to upsell that user base to cloud. On the other hand, one might understand it if you think through the degree to which Mitel relies upon the prem business compared to the degree to which Sangoma does. I think that's what I feel comfortable saying at this stage, Gavin.
I hope that was useful and was somewhat on point to your question.
Very helpful. Thanks so much.
Sure.
The next question is from Eric Martinuzzi from Lake Street, p lease go ahead.
Yeah, good morning. Congratulations on the Q1 results. Good to see that sequential growths are very healthy and then the coverage across both lines of the revenue. Had a question regarding, you know, you just came back from the sales kickoff. I gotta believe pipeline was part of the discussion at sales kickoff. Anything that you're learning about the macro demand environment from pipeline review and anything anecdotal from the sales kickoff that you can share with us?
Yeah. Good question actually, Eric. You know, it's hard for us to talk about stuff that's not generally in the public domain, so I have to kind of abstract up out of that. Of course, you're completely correct. That is one of the things that gets covered there. Absolutely. I think what I would choose to say is the pipeline is going exactly in the direction that one would've hoped when merging Sangoma and Star2Star together. You know, just aside from the general trends in the industry, you know, which are, this is gonna become a very, very big industry, right?
This is an industry that most analysts, you have opinions about this I know, Eric, you know, believe is hundreds of billions of dollars, and whether that means $ 140 billion or $200 billion, you know, it depends upon the person. It's gonna be big. There are only three companies that have even exceeded $ 1 billion, right? Our view of the macro drivers in the industry have not changed, and that's reflected in our pipeline. Then the second thing I would say is, we are starting to see some uptick in cloud demand outside of North America.
You and I have talked about this explicitly, Eric, and we're kind of on the record about this, that, you know, the U.S. is so far ahead of the rest of the world in cloud adoption, and yet, you know, prem is still a significant fraction of it here. In Europe, you know, and then Asia and then Latin America, you know, cloud is not nearly as penetrated. We are starting to see early signs of that in the funnels as a slightly higher fraction of customers in whatever Germany or the U.K. are talking about cloud. Not so much yet in Asia, but here and there.
The third thing I would say about funnel is we are starting to see exactly what we hoped we would see, which is some of the cross-pollinating of any of the products that came from the traditional part of Sangoma being embraced and adopted by the part of the channel that came from Star2Star, and vice versa. You know, some of the products that came from Star2Star being embraced by some of the products that traditionally came from Sangoma. We actually had a discussion about this not only at the sales kickoff but at the board meeting yesterday. Those early signs are encouraging. You know, it's not one or two orders. There's now lots of them. It's not for one product from one company being adopted. It's two or three products into the other side of the channel.
It's not one or two channel partners. It's you know, dozens. Though that early work on building up funnel in which a salesperson or channel partner begins to take advantage of the products that came from the other part of the company is the third thing about funnel, I guess I would just mention.
You talked a little bit about reduced seasonality just because of the, you know, the continued growth in the services line. I've got my own, some of us are modeling at home on a quarterly basis, on an annual basis. Sequentially, how should we be thinking about it? I mean, typically, I would see a December quarter up sequentially on both the revenue and the adjusted EBITDA. Is it an appropriate assumption?
Yeah. We haven't typically done guidance by quarter. I don't think I wanna get pulled into that quite yet right after the acquisition. What I will say is, if you look back at the trends inside Sangoma over the last several years, that would be a valid assumption based upon historical records. You said it more generally, you know, across other companies, and I'm just confirming that that is how it's worked at Sangoma historically. We're not yet far enough into Q2 for me to say anything about that. If you looked historically, that would not be a bad assumption.
Okay. Lastly, you touched on it a little bit, but the Nasdaq uplist, just any a layer deeper there, can you give us? Is the ball in their court, your court? Timing, barriers, where are we?
I think that's one I just have to say I can't say anything about. We are right in it, Eric. It's going very well. But, you know, we're at that time when all the lawyers are around saying, This is not something to be discussing publicly. I just have to be super careful on that one. Yeah, I'm not trying to evade your question. It's just, this is one that at this particular point in time, we can't be talking about publicly, but everything is kind of on track.
Okay. Fairly well handled. I don't think you'll get in trouble with the lawyers for that.
Thank you for not pushing me too much farther, Eric.
All right. That covers it for my questions. Thanks, guys.
Okay.
The next question is from Nihal Upadhyaya from TD Securities, p lease go ahead.
Morning, guys. Congrats on the quarter. I just got a couple of questions here on behalf of David Kwan. Firstly, excluding any COVID and supply chain related headwinds, how should we think about the growth profile of your product revenue going forward? Are there any other potential headwinds like transition to the cloud, for example?
Well, I don't think there's anything about the Q1 results which would cause us to alter our view of the long-term trends on product revenue. You know, the long-term trend, as you pointed out in the second portion of your question/statement, is towards cloud. We don't see product as a driver of Sangoma's growth, and that hasn't changed in any way because of Q1. What I could say about Q1 to explain why we don't see that as all of a sudden, oh, you know, product's gonna start growing quickly, which is not what we're saying, is that, you know, product revenue is more lumpy, right? It's not recurring. It's partially driven by the return to the office trend that we're seeing in most developed economies. It doesn't mean every single person is going back to the office.
We totally see what everybody else sees, which is, you know, a more split workforce where some people are in the office full time and some people work from home and some work from home part of the week and work in the office other parts of the week. We're not missing that in any way, but more people are returning to the office, which has, you know, bumped demand a little bit. Part of our product increase is tied to services, so the non-recurring revenue portion of the Star2Star demand that drags along, for instance, desk phones. Part of it was tied to what you said, you know, please, you know, putting aside the supply chain challenges, but that actually worked in our favor in Q1.
The supply chain challenges put us in a better position in terms of having the right inventory in the right levels, in the right places versus our competitors. If a customer was looking for something, it was more likely Sangoma had it than someone else. That's not an increase in demand, that's a sure shift. It's probably more detailed than you were looking for, but that's how we view the product trend in Q1, and it's not something that we would tell David to, you know, go model them soon. Sangoma is gonna be ramping up product sales over the next while.
Gotcha. No, thank you. That's helpful. Then just the last one from me was, could you provide some general feedback from the couple of channel partner events you hosted recently?
Yeah, we did that a little bit on the last call. So if you want more detail, I would say, you know, check out the recording. The feedback we got generally was okay, good. I don't have to worry that Sangoma only cared about one set of channel partners versus the other. You want us all. That's really important to maintain, you know, a channel's motivation and commitment. Secondly, if you came to the combined merged company from the traditional Sangoma side, you know, one of the things you were trying to figure out as a channel partner is which of the new products that are now part of the company are big opportunities for me.
We spent a lot of time talking with those channel partners about things like, you know, contact center as a service or desktop as a service, or collaboration as a service. If you came to these partner events from the Star2Star channel, we would talk more about which products you now have access to from the traditional Sangoma side. Yes, we know the world is going cloud, of course, but in North America, depending who you listen to, somewhere between 25% and 40% of, you know, new purchases are still on-prem. You've not had a solution for that. You're walking away from 40% of the market. Here's how to use prem. We're not saying use prem in place of cloud. We're cloud first, but if your customer wants prem or needs a hybrid, here's how to sell it, right?
I don't know, the Sangoma video meeting product or we make our own phones. That's what we were focused on, was getting the channel confident and reassured, explaining where to focus and then uniting the channel programs so that they didn't have to worry about, oh, how do I buy these products? Like, do I buy this one this way and that one another way. That was really the focus of the two events.
All right. Perfect. Thanks, Bill.
Okay.
As a reminder, it is star one to ask a question. The next question is from Gabriel Leung from Beacon Securities, p lease go ahead.
Good morning, and thanks for taking my questions and congrats on all the progress.
Hi, Gabriel.
Bill. Hi there. Bill, just wanted to go back to the questions around the sales funnel again. I'm curious, given the, I guess, given your greater scale now, both in terms of product and sales firepower, I'm curious if there's been any changes in terms of the characteristic of the sales funnel. I'm thinking specifically about, you know, are you starting to see, you know, more business potentially coming from new customers as opposed to the existing? If you're starting to see also, you know, bigger sales opportunities, bigger ticket items from the get-go, which may, you know, potentially impact sales cycles going forward.
Yeah. I don't think there's anything like really earth shattering or revolutionary yet that's changing in the funnel, Gabriel. You know, there are some things that I could talk about there, but it's not you know, it's just too soon after the channels have been integrated and the sales teams have been combined and you know, we do this big sales kickoff event and explain to them what to focus on. That stuff would not yet have manifested in the average size of a new incoming opportunity is way bigger already. What I could say is the kinds of customers that we're seeing in the sales funnel look pretty similar to the kinds we've seen before. They're looking for the same kinds of products. They come from all of the different verticals.
They range in size from, you know, 10 seats to 2,000 seats, right? That all feels the same. What we're starting to get a little glimpse of is customers being interested in more than one cloud service at a time. Customers being interested in first, I don't know, contact center and then saying, Oh, you also have UCaaS, so let's look at both. Or the other way around. You know, it's more common they would come in for UCaaS and then say, Oh, you also do video meetings and collaboration. That I think is the most important trend that we're just starting to see in the funnel. For me, Gabriel, that's arguably the one that we need to be most focused on, right? That is the way that over time the company can increase ARPU.
It's the way we can offset any trends in price erosion as more and more people adopt UCaaS and like any other technology product or service. You know, products and service prices come down over time, not go up. We're starting to see that, but it's very early. The other thing that I talked about in the answer to the prior question about funnel was, you know, we are beginning to see entries in the funnel from the portions of the channel that came from either of the predecessor companies embracing products from the other. You know, it's dozens, not hundreds yet, right? We can see, I don't know, a Sangoma channel partner will have, you know, I don't know, a Contact Center as a Service prospect that we wouldn't have had three months ago.
If there's, I don't know, 10 such opportunities, it's not one channel partner with 10, it's seven different channel partners across which those 10 opportunities are spread. We can begin to see that, but it's not far enough along for me to comment on it quantitatively at this point.
Gotcha. Thanks for that feedback. My second question, maybe for David, just in terms of the business integration costs in the Q4, the $836 thousand. Sorry, I might have missed it, but was that paid out in the quarter? Second question, do you anticipate any more meaningful integration charges over the course of the fiscal year?
Gabriel, good question. Thank you. We have accrued for, you know, the costs that we see in front of us. The answer to the first part of your question is, yes, this should be, you know, in the ballpark, but not that it will necessarily be the final number. In fact, probably only about 30% of that has been paid out in cash at this point in time. We have accrued what we think it will be to that sort of order of magnitude. It is possible there will be a few other things that come along, but it's our best estimate at this point.
Awesome. Thanks for that. Congrats again, guys.
Thank you, Gabriel. That actually is the last question. With that, ladies and gentlemen, I really appreciate you joining us today. This concludes the conference call, and we will provide a recording on our website shortly. Thank you very much for participating today, and we do hope that some of you will join the AGM via this same kind of conference call format. Have a very pleasant rest of your day.
Sorry for the confusion at the beginning.
Yes, sorry for the technical problems we had at the outset. Thanks, everyone.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.