Earnings Call: Q2 2021

Feb 5, 2021

Earnings release

Thank you for standing by. This is the conference operator. Welcome to Sangoma Technologies Second Quarter Fiscal twenty twenty one Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. I would now like to turn the conference over to David Moore, Chief Financial Officer. Please go ahead, Mr. Moore. Good morning, everybody. Thank you, and welcome to Sangoma's investment call to discuss the second quarter results of our fiscal year 2021. We are recording the call and will make it available on our website later today for anybody who is unable to join us live. I'm here today with Bill Wignell, Sangoma's President and Chief Executive Officer and John Zabaya, EVP, Corporate Development, to take you through the results of the second quarter of our fiscal year 2021, which ended on 12/31/2020. We will discuss the press release that was distributed yesterday afternoon, together with the company's unaudited interim financial statements and Q2 MD and A, which are available both on SEDAR and on our website at www.sangoma.com. As a reminder, Sangoma reports under International Financial Reporting Standards, IFRS. And during the call, we may also refer to a couple of terms such as operating income, EBITDA and adjusted cash flow that are not IFRS measures, but which are defined in our MD and A. Also, note that unless otherwise stated, all references to dollars are to the Canadian dollar. While this is the same as in past years, the growing percentage of costs and debt that is denominated in U. S. Dollars has caused us to change the functional currency of the holding company and one of its subsidiaries to U. S. Dollars. This means that as described in Note two of our financial statements from July 1, all the company's transactions are recorded in U. S. Dollars and are then converted to Canadian dollars for our quarterly reporting and filings. Before we start, I'd like to remind you that statements made during the course of this call that are not purely historical are forward looking statements regarding the company or management's intentions, 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 and A, our annual information form and in the company's annual audited financial statements posted on SEDAR. With that, I'll hand the call over to Bill. Thanks, David. Good morning, everyone, and thank you for joining us today. Given we only just spoke together one week ago when I announced the Star to Star acquisition, this will be a slightly shorter call than normal. I will focus first on Q2 results and second will turn to year to date. I'll then touch briefly on guidance for fiscal twenty twenty one. And fourth, I'll provide an update on the cyber attack. Finally, I'll offer a few remarks on the Star to Star acquisition very briefly given that once again, it's only been a week since we spoke about this. As always, I'll then wrap up with a brief summary and turn the call back over to David for a typical open Q and A. With that, let's move to Section one, our Q2 results. Sales for the quarter ended December 31 were $35,300,000 up 9% from the $32,300,000 in the second quarter of fiscal twenty twenty. The increase in sales was driven by the continued growth in compounding of the company's services business, where the recurring revenue was generated, helped by having VoIP innovations for a couple of extra weeks in Q2 this year versus last, all partly offset by some modest softening in demand for onetime product sales driven primarily by COVID-nineteen. Overall, services revenue as a percentage of total sales was 56% in the second quarter, 6% higher than last year. Gross profit for the second fiscal quarter was $23,500,000 10% higher than the $21,300,000 realized in the second quarter of fiscal twenty twenty. Gross margin for the quarter was 66 of revenue. Operating expenses for the second quarter this year were $19,700,000 versus $19,200,000 in the same period last year and are increasing at a rate slower than Sangoma's revenue growth, which is, of course, exactly the plan. EBITDA was a record $6,800,000 in the second quarter, 32% or $1,600,000 above last year when Saint Goma generated $5,200,000 in EBITDA. This level of EBITDA is equivalent to about 19% of sales, and as many of you will realize, is slightly higher than our expectation for fiscal twenty twenty one. This 19% figure is partly the result of COVID related cost containment. So as customer demand continues to recover gradually, as we anticipate it should, we will begin to carefully open up spending once again, slowly but surely. This prudent gradual relaxation of the cost controls over the next while should bring EBITDA back closer to the expected range in our fiscal 'twenty one guidance of around 17% of sales. Interest for the quarter ended December 31 was $500,000 compared to the $800,000 in the same period last year. This decrease is because we converted the debt to a lower variable rate, locked in half of the debt through an interest rate swap and they're paying interest on a lower amount, having already made four quarterly payments since acquiring DI last year. Net income for the second quarter was $2,500,000 compared to the loss of $1,300,000 for the equivalent quarter last year when we had the onetime deal expenses associated with the VI acquisition. Okay. With that short summary of Q2, let's now go through our half year results for the year to date. Sales for the first six months of fiscal twenty twenty one were $70,400,000 up 17% from the $60,300,000 in the same period of fiscal twenty twenty. The increase in sales was due to the same factors I covered for Q2, namely the continued growth in compounding of the company's services business, helped by the inclusion of DI for the full six months, all partly offset by some softening in demand for onetime product sales, primarily driven by COVID-nineteen. Overall services revenue as a percentage of total sales was 56% in the first six months of fiscal twenty twenty one compared to 45% in the same period last year. Product revenue was up slightly from Q1 sequentially, which was somewhat positive but remains partially constrained by the lockdowns in different parts of the world. Gross profit for the first June of twenty twenty one was $46,600,000 20% higher than the $38,800,000 realized last year. Gross margin for the first six months was 66% of sales, 2% higher than the same period a year ago, a further benefit of the steady increase in the percentage of revenue coming from services. Operating expense for the first six months of fiscal 'twenty one was $39,300,000 versus $35,000,000 in the same period last year. This growth is substantially driven by having the VI cost included for a full six months this year. EBITDA at $13,600,000 for the year so far is more than 50% higher than last year. This is equivalent to about 19% of sales and thus remains a little above our longer term expectations, as I shared in my Q2 comments. Interest was down year over year for the same reasons covered in my Q2 remarks, and net income was $4,700,000 rounding out a very good year so far. And for the final portion of my commentary on year to date results, I'll briefly touch on a couple of highlights from our balance sheet and cash flow. Let's start with the cash flow. During the second quarter, we generated adjusted cash flow from operations of $6,300,000 well above last year's second quarter. This measure of adjusted cash flow excludes the impact of acquisitions, financing and other nonoperating anomalies and was very close to EBITDA we earned in the quarter. As you will recall, we started the quarter with the cash raised in the bought deal last summer. We have kept that cash in U. S. Dollars because it will be used principally to help fund the cash portion of the consideration being paid for Star to Star, which you now know is being done in greenbacks. Because it is being kept in U. S. Dollars, our cash balance, as reported in our Canadian dollar financial statements, actually declined a little from September despite the very positive operating cash flow just mentioned. That's a result of the significant and rather sudden shift in FX rates during our second quarter as the U. S. Dollar fell against many currencies, in our case, from $1.33 in Q1 to $1.27 this quarter. And now for a brief comment on our balance sheet, which is relatively uninteresting this quarter. The past few quarters, I've been sharing thoughts on inventory and receivables, but there isn't too much to say this quarter. Inventory settled down exactly as we telegraphed it would after the big supply chain changes made last year. And receivables remained fairly constant in Q2, helped by the growing fraction of revenue coming from services, which are most often paid for automatically each month on a credit card as part of subscription agreements. We even bumped up our AR provision slightly the past couple of quarters just to be prudent during COVID but haven't really seen any significant deterioration in payments from our customers that pay on terms. And lastly, regarding balance sheet and cash flow, I will just reiterate that, of course, we continue to comfortably meet all of our debt covenant obligations. That brings my comments on our financial results to a close, and I'll now move to my third section on guidance. Naturally, guidance will need to change materially once we close the acquisition of Star2Star. But in the meantime, we need to examine guidance by looking at STC on a stand alone basis. Given our year to date results, we are reaffirming our fiscal 'twenty one guidance of between twenty four million and twenty six million dollars in EBITDA and between $143,000,000 and $147,000,000 in revenue. The substantial swings in FX rates since the start of our fiscal year, as the U. S. Dollar rate has fallen from $1.33 to $1.27 as just mentioned, is significant for us and has indeed introduced some headwinds that are not generally predictable. But that's beyond our control, and we remain focused on generating growth and delivering our guidance despite far fewer companies issuing guidance during COVID. And with that, I'd like to offer a few brief remarks on the cyber attack we've been dealing with over recent weeks. First, I'd like to start by stating the obvious. I am not at all pleased that someone got into our network, stole files from us and posted them online. The fact that this trend of hacking and ransomware has been happening more and more in the world really is no excuse. Second, I'm quite proud of the fact that while it was, of course, necessary and appropriate to allocate significant focus and resources to this cyber attack, Sangoma was able to do so without taking our eye off the ball as we worked through the execution of the Star to Star deal. Several of you have commented to me about this in addition to getting that done during COVID and travel restrictions. Third, I realized, of course, that it's management job to handle such things, and shareholders simply expect us to do so as you should. But it was probably not lost on many of you that our response to the cyber attack was taking place exactly over the holiday season. Many talented people at Sangoma and at the outside firms who were assisting and advising us basically gave up that entire period, including time with family, to work around the clock 20 fourseven. And I simply wanted to acknowledge that in front of you guys and thank them for their dedication. It was a crappy situation and even crappier timing, but the commitment did not go unnoticed. Okay. And with that, here's a little additional color. Since we first announced the cyber attack in December, we've been working with a highly experienced team of third party cybersecurity experts to conduct a fulsome and comprehensive investigation into the incident. We now know that the attack was limited to a section of our network. And while the investigation is not quite finished, we are confident that none of our products or services were impacted. We have sought to be transparent about this incident, and several shareholders have expressed to me personally that you've appreciated the fact that we tried to get out in front of this and have provided regular public updates regarding our progress. Some of you have also asked if we paid the hackers. And the answer to that is no, we did not pay. That is the general guidance from the RCMP and the U. S. Department of Treasury who advise organizations to avoid paying ransom demands where possible. So Sangoma chose not to engage with the hackers. And finally, while we still have some work to do on analysis and notifications, it is coming together. So we now expect to complete the investigation this month and report the results publicly. As a reminder, we've announced that we do not expect the cyber attack will have a material impact on sales or opportunities in the company's pipeline. And having given you a brief update on the ransomware attack, I'd now like to turn to something much more positive and exciting for my fifth and final section today, a very, very brief comment on the Star2Star acquisition. I stay brief because we only just spoke about this less than a week ago, so I don't have a whole lot new to add from just the past few business days. As many of you will have seen since that call last Friday, we've now posted a fairly comprehensive presentation deck on our website that describes the transaction, the company and the rationale in some detail. If you've not seen it and would like to, it's in the IR portion of our site. We've also held many, many calls with investors, both in group settings and in one on one video calls. Overwhelmingly, the reaction has been extremely positive. The kind of feedback I've heard from shareholders includes comments on the transformative nature of the transaction, but it does absolutely complete the highly conscious strategy we've been executing on to become a SaaS model company. It catapults us to the top tier of the cloud communications companies that the resulting product suite is indeed a leading one and that it's impressive to have been able to pull it off, never having been in the same room together. I would say I agree with all of that. In addition to the positive feedback, we did receive a lot of calls and e mails asking about the trading halt in Sangoma shares. I hope you have now seen that this is being lifted and trading will resume on Monday. Lastly, the only other thing I'll mention at this point on the Star to Star acquisition is that we're now working on the shareholder mailing and circular for the required vote. So I just ask you respectfully to please remember to vote your shares and in favor in this important special meeting, which will again be virtual as we had to do with our AGM. Okay. With that, I'll bring my abbreviated but prepared remarks to a close with a very short summary. Overall, another really solid quarter for your company with ongoing sales growth, nice compounding in the recurring services revenue and very healthy EBITDA and cash flow. It's now been capped off with the incredibly exciting news of the combination of Sangoma with Star to Star. I won't repeat all the reasons it makes so much sense or the advantages of the combined company. You can, of course, listen to the recording of last week's call or take a peek at the IR deck on our website. But it's amazing to see the opportunity that merging these two well performing companies will bring. Everyone at both Star to Star and at Sangoma is excited, and I personally am pumped to get going. With that, I will turn the call back over to David for questions. Thank you, Bill. To make sure everybody knows how to ask questions, I will ask the operator to please take us through the instructions. Operator, we're ready to take questions now, please. We will now begin the question and answer session. The first question comes from Gabriel Young with Beacon Securities. Go ahead. Good morning. Thanks for taking my questions. Hi, Gabriel. Bill, hi there. Bill, just curious if there's any notable commentary around your observations on in terms of customer buying patterns over the past few months, whether you've seen any changes or any, like I said, any notable observations, specifically within the services side of your business? I think you're pretty clear that on the product side, it was still somewhat being impacted by COVID. I'm curious within services, whether there's been any interesting commentary there. Not a whole lot new in Q2 versus Q1, Gabe. I would say it was a bit more noticeable if you talked about Q4 of the last fiscal year compared to Q1 of this fiscal year. And I guess the obvious conclusion would be what was driving that noticeable change was the impact in Q4 as the COVID shutdown was just beginning, right? So if you may remember, we talked about very modest impacts on services, things like slightly slower decision making. There was a little bit of a slightly elevated churn. It was very modest. Sometimes it wasn't whole customers leaving, but a customer that might have 87 seats would call and say, I've had to lay off 20 people. Can we reduce our seats to 63? But that shift was much more apparent, as I said, going from Q4 into Q1. It wasn't a big change from Q1 to Q2. Our growth rates in terms of gross adds measured in customers or seats or MRR was similar. Churn rates were similar. So it wasn't something pronounced this past quarter. Got you. And we're still pretty early into fiscal Q3. But just based on some of the conversations you're having with your customers, with your sales team, is there anything to note in terms of what customers are thinking in terms of additions going into this calendar year? You're right. I think it's too early for me to say anything definitive, Gabe. I have a little bit of anecdotal information. I mean, of course, we have regular sales review meetings, and we talk about what's in the funnel as any normal company does. I would say there's a little bit more optimism that we are coming out of COVID. You hear customers sounding a little bit more positive and confident. There's lots of discussions with them about COVID specific issues. Oh, will the vaccine make it possible for, you know, us to come and see you or you to come and see us? But there's nothing that I could be quantitative about in terms of financial projections from those anecdotal comments, really. Got you. And just moving over to the sorry, the ransomware attack, it would appear that in the December, I guess, it's probably the G and A that saw, I believe, was a $400,000 accrual related to that. What do you expect did you anticipate sort of elevated spending to be on going forward just in terms of increased security expense, for example, going to the next couple of quarters? Yes, but probably not in the way that your question anticipated, Gabe. We will have to spend a little bit more in CapEx to implement some of the improvements that we've kind of taken away from the lessons learned, but that will not be material in any big way. The more important potential short term impact is not on will Sangoma have to spend more on security on an ongoing basis into the future. But as you said, the accrual taken in Q2 to cover some of the short term costs does not cover everything. There'll be more costs in Q3. I don't think much of that will bleed into Q4, to be honest. But the details of that are not something that I could comment on yet. It's too early in Q3. We don't have a full view of those costs and how much is covered by insurance. But the impact in Q3 is likely to be more from the same kinds of expenses as we incurred in Q2 for the investigation than it is due to a big huge ramp in spending to improve the technology solutions for security. Got you. And maybe one last question either for Bill or for David. With the addition of Star to Star, an even greater proportion of revenues that could be coming from U. S. So are there any plans on moving to U. S. Dollar reporting over the course of the year? Well, it certainly won't be over the course of the fiscal year, Ed. I'm guessing you meant the calendar year in your question. And we tend to think of that as more closely tied to whether and when we might move to a U. S. Cross border listing. You guys know we're thinking about that and starting to do some work on it and when might it happen. It seems logical to consider that kind of a change at that time, but we've not made a definitive decision on it yet. Got you. Thanks for all the feedback. Yes, you're welcome. Our next question comes from Gavin Fairweather with Cormark. Please go ahead. Hey, good morning. Hi, Gavin. I wanted to start out on the discretionary growth investments. The commentary talked about how it was still they were still being held back in the Q2, but obviously with the guidance being left unchanged, it does imply a ramp in spend. So what are you waiting to see to increase those growth investments? Would it be fair to say with the guidance left unchanged that maybe you've already started to crank up that dial a little bit? Yes. That would be fair to say, Gavin. That is right. We've started I mean, I think it was in our Q4 results call, which would have been October, that we started talking about this, and we did it again in our November call for Q1. You know, the q three call for the March in which we would have had a conversation in May, we we really hadn't got our hands fully around what was happening with COVID. The restrictions hadn't begun. People were still doing some traveling. So it it it was really, really q four, q one, and in into our q two. Some of the biggest ways that a tech company like ours control spending is things like hiring freezes. Most of our money goes to payroll, right? This is not a fixed asset company where you're laying railway or buying factories or digging holes in the ground to dig out gold. So we had a hiring freeze in place for many, many months. You think about things like travel or training. You control some of the marketing spend on marketing programs. So all of that stuff was done over the last little while, and it's portions of each of those that is being relaxed, Gavin, including the hiring freeze. We started to hire again a little bit in Q3 that we've not done in Q2. So I think you've got the right picture. And then maybe on product sales for a minute, I think it sounds to me around the $1,516,000,000 dollars a quarter each quarter. I guess I'm just curious for the outlook there. You talked about maybe some green shoots coming out of the sales pipeline meeting. Curious if that also relates to product sales and to the extent to which there might be some pent up demand there as economies start to reopen. It's very hard to know, Gavin. And the reason it's hard to know is not because what you called the green shoots or my comments about our people starting to feel slightly better about the COVID trajectory. It's because the product sales trend has multiple competing factors that affect it, right? There's the issue of COVID, of course, but it's also the move from on premise to cloud, and it's also the shift away from the PSTN. So it's been extremely difficult for us to forecast given how modest the movements are, right? Is it going to go up three or 4% or five percent? Or is it going to drop three or four or 5%? And when it drops five percent, might it come back up and recover too? It's there's such small variations that they're really, really hard to foresee. So to your point, if those green shoots from COVID start to look a little bit better, is that like, who knows, right, a two percent positive impact? And will that two percent positive impact be offset by a negative 1% impact as a result of the shift away from the PSBN or the move towards cloud? They're such small percentages that it's almost impossible to predict them. Our job, as we see it in this area of the business, is to continue investing very strategically, continue to sell into that area and do it in such a way that it's a good business on its own and it's supporting the evolution to cloud. So that product sale you're asking about, if it's, I don't know, if it's a piece of premise UC software, The idea is we want the customer, and we want them because that customer may want to stay on prem or they may put a prem solution in their corporate headquarters and a cloud solution for remote workers or satellite offices, or they might buy prem now and move to cloud in a year. So in the product part of our business, we do not spend very much energy trying to estimate will it fall 3% or fall 5% or grow 1% or shrink 1%. We focus all of the energy on what stuff can we control and try not to get too wrapped around the axle about the very granular differences between minus 3% and minus 5% or plus one and minus 1%. That's fair. And then just lastly, before I pass the line, you shared some institutional feedback on the Star to Star deal. Curious what feedback you've been hearing from both the St. Gomez channel and also the Star to Star channel since the deal is in that sense. That's it for me. Yes. I would say equally positive, right? If you put yourself in the shoes of a channel partner, they form opinions about these things not based upon Sangoma. Good, of course, they want the vendor of choice to be successful and financially healthy. But they're business people, right? They look at it from their own best interest. And if you're a channel partner, what really matters to you? My argument when talking about this with folks is what really matters is is the company that I'm dealing with making it easier and easier for me to succeed? What's succeed? It's it's win a customer when in a sales cycle. It's once I've won the customer, do they get onboarded quickly and efficiently so I start getting my commission? Or does it drag on and take too long and the customer gets, you know, frustrated? Once they're onboarded, that is, I don't know, the invoice they get every month matching what the salesperson told them it was gonna cost. Is it easy to understand? If they have a question and they call the tech support line, what's the experience like? You know, is is the waiting time on hold one minute or fifteen minutes? When the person answers the phone, are they polite and respectful? Are they technically competent and and resolved the issue? And I think generally, on this topic, the channel sees this as another positive step in that direction, right? Broader financial strength, more resources to bring to bear, larger scale in the industry, which should allow better investment in things that make those processes, including the back office, work well. The second thing they care about is how can I amortize the cost of a sales cycle across more and more revenue? I'm going to pay for a salesperson or a salesperson plus a sales engineer to go out and visit my end customer, and maybe it's more than one visit and maybe there's some travel involved. Then am I going to get a sale for product X or a sale for product X plus Y, right? And so for both of those two broad reasons, the channel is saying, This is great. They're super excited. You know, they they they always have a little bit of natural trepidation because they know change can cause disruption. And so our job when communicating to the channel about this is to be really clear, remove any confusion, mitigate any worry. And that's what we're trying to do. It's very, very soon, and the deal hasn't closed. So the deep discussions about that will not happen until after close, but the initial reaction was very positive. Great. Thank you so much. Our next question comes from Josh Nichols with B. Riley. Please go ahead. Hey, Josh. Yes, Bill. Thanks for taking my question. How's it going? You've been pretty busy, obviously. Yeah. Yeah. I wanted to ask a little bit. I know you've hit on start to start before. But obviously, they have a big presence in the voice market. But what do you think the biggest opportunities are outside of voice given that they have a pretty comprehensive platform? Is it contact center, CPaaS? Or where do you think the big cross selling opportunities are there? Yeah. Yeah. I I I think all of the above and our positioning for them will depend upon that answer. Our view is one of the unique differentiated strengths that both Sangoma and Stardustar agreed upon before ever deciding to merge together, and it's one of the things that was so reassuring when we started our talks, was that if you look at Stardustar and by the way, this is true of Sangoma, although in different product categories, have different strengths both companies have bet on the importance of the breadth of the portfolio above singular depths in any one individual product category, right? Josh, you and I have talked about this extensively many times. The idea that what do you think of when you think rate and you think voice? And what do you think of when you think Twilio? You think CPaaS? And what do you think of when you think, I don't know, Zoom? You think video. Right? And our view is you asked about video and CCaaS and CPaaS. And my view is all of the above. We will not place any one singular bet on one of those product categories at the expense of the others. I have views about which ones might grow fastest and which ones we'll have success with earliest. We have a very good video offering that I think will have success with getting subscribers. What's the challenge with the video offering? You and I talked about this yesterday, right? The idea that voice cloud services have managed to maintain a price point that sits around something like $20 per seat a month, whereas because of go to market strategies by some of our competitors, the video world has kind of created a premium model that has led some customers to think video is free. So while we might be able to get decent subscriber traction in video, for me, it may not be as easy to see video revenue go up as fast as some of the other categories. CCaaS, for instance, is a product category that Stardustar already has further along than Sangoma. And one of the beautiful things about CCaaS is it has the opposite trend to that which I just mentioned for video. You may not win as many seats because not everybody needs a call center the way everybody needs a video meeting service, but CCaaS is not $20 a seat. You know, it's $50 or $100 Right? So there's all these different dynamics. In the CPaaS world that you asked about, my view here is that CPaaS is kind of the beginning. It's the underpinning or the foundational work upon which we or our partners will build other things. And whether that's CPaaS going to an integration platform as a service or the StarterStar Studio, which allows customers and partners to build apps, or 150 integrations with so many different existing apps or really new novel ones that they have started to build themselves that I think has a really encouraging opportunity in front of it. You can build an app that does, I don't know, curbside pickup for restaurants that are now shut down during COVID in a week as opposed to building a software app that would have taken a quarter. Right? So all of those will become important. Which ones ramp earliest and which ones have the easiest path to revenue, I think we need some more time on. But we're not going to focus on one at the expense of the other ones, Josh. Thanks, Bill. And then last question for me, I'll pass the torch. Sangoma has a pretty diverse presence geographically, Star to Star, a lot of focus in The U. S. And North America region. Do you think expanding outside of North America with this new product offering is going to be a significant driver? Also, we'll start to start our focus on like the mid market enterprise space. Do you see significant opportunities kind of increase the company's ARPU over time as you target those bigger customers? Yes. Two totally different questions, right? So let me take them in turn. The answer to the first one is absolutely 100%. The devil is in the details about when and where. But I've spoken about this with you and other analysts, and we've talked about it in the press release and we've talked about it in our investor deck. Just like we emphasize that the mid market and enterprise segment is less well penetrated in North America than the SMB segment, the international markets are less well penetrated for cloud than the domestic markets. Depending which industry analysts you listen to, in general, I would say that kind of converges in my head as Europe is about half as far along as North America. So if North America, again, who you listen to, is 30% penetrated or 35% penetrated, maybe Europe is 15%. Of course, it's higher in, I don't know, The U. K. And Germany and lower in whatever, Poland or The Ukraine. And Asia and Latin America are even less far along. And one of the reasons that Sangoma had been building up international presence very consciously was beginning to prepare for this eventuality. What do you need to launch a service globally? You need people in those countries. You need to know how to operate. You know, that that sounds easy to say, but there's there's a 100 things you have to learn. Right? How does business work there? How do people pay for things? Do they pay on credit cards? Or is it, you know, direct payment? Or do they send you checks? What currencies? What languages? Right? So we know that stuff. You have to build up a channel. You have to build up a customer base, and you also need a platform that is scalable. And that's one of the reasons we've hesitated. We didn't want to launch with one platform and then change it a year later. So I feel like we have all the pieces of that puzzle now, Josh. There's still a fair chunk of work in front of us to bring the companies together and integrate. So I do not expect cloud services launching in Europe in the next several months. But 100%, it's going to happen, and it's one of the strategic benefits Your other question about ARPU, the answer to that is an equally emphatic yes. One of the reasons that, of course, everybody's interested in being able to take cloud from SMB to mid market enterprise is because of the inherent truth behind your question. It's not just higher ARPU, but stickier relationships, deeper relationships where the customers know you well and want to do business with you rather than perhaps a bit more transactional relationships when it's a customer with 24 seats, right, who, in fairness, you can't afford to spend a whole lot of time with. We try and do a better job of that than most, and I think that's shown in our ability to win customers at a lower customer acquisition cost. But for sure, we want to move more and more to midsize and enterprise, which will drive higher ARPU. Thanks, Phil. Look forward to keeping abreast of any future updates. I'll hop back into the queue. Someone else take a turn. Okay. Our next question comes from Rick Holt, a Private Investor. Please go ahead. Hey, guys. I think a lot of the hard question answered a lot of my question I had. I'm first of all, I'm super excited about the StarStar deal. I think it's awesome, and it's definitely a great move. My my I guess, to break down my question and target it specifically toward the voice area because we're, you know, we're y'all are traditionally about voice. And but I know your product suite's gonna be so much more expansive, and we don't even know the areas in the future where y'all might end up that may not even exist today. But speaking on the voice, my my question is it it seems to be kinda like a battle for the desktop. I know, like so, like, lot of companies are going to, like, Microsoft Teams. And I just wanna know how do y'all view yourself competing on the desktop? Are you complimentary to a Microsoft product? Are you competitive directly competitive with them? How do you see that? Because I you know, it's Slack has to answer the same question. Zoom has to answer the same question. They're kind of the gorilla. And just wanted to get your thoughts on how you strategically compete on the desktop for someone like that. Yes. It's a good question, actually, Rick. It's a good question that has a very complex answer. We could talk about this for two hours on its own. It's hard to do in a minute or What I what I will say is, you know, it's complicated for a few reasons. One is, you're right. The interplay between the desktop and communications is kind of new emerging and still being sorted out. You asked it in the context of Teams, but Teams is not the only one. For instance, you said you're excited about Stardustar. Stardustar has a very strategic relationship with a partner named Citrix, who does exactly desktop, remote desktop, and wants to be able to add communications to the product offering they have. So so so that's one thing, the interplay between the desktop and and communications. Number two is, you asked, you know, are we competing? Are we able to complement and integrate? And the answer is yes. This is where some of the complexity comes from. In many parts of the industry, you find two different companies that compete in some ways and cooperate or integrate in others. And that's how it works for Sangoma. We absolutely can interface to and integrate with Teams. And there's multiple ways of doing that, whether it's using session border controllers or trunking as a service platforms. And we compete. That's right. Our view is Teams is a competitor for Sangoma. We treat it that way and try to understand it like we would any other competitor. The third thing that makes your question complex is Teams has some of the dilemma that I joked earlier about video having this unfortunate emergence of price expectations at zero, Right? Most Teams users, I don't know what the fraction would be. I don't have that data. But most Teams users probably use the free version, right, and don't pay a whole lot for it. When you own the desktop and can give something away, like Microsoft has done so well with other product categories, you know, that that that makes the comparison hard. But I think in the end, our view is we have to keep our eye on Teams. It is becoming more common. But it is a product that doesn't generate a huge amount of revenue on a per seat basis across the entire installed base because so much of it's for free. And what we want is to find a way to monetize video services over time in a manner that demonstrates to people there's value, right? There's cost associated for us with carrying video traffic. There's a lot more data in a video call than in a voice call. So it's kind of a work in progress. This is still being sorted out by the industry. And it's one of the reasons that our view is competing to try and be the very best in a single product category is not likely to be the most winning strategy for Sangoma and Star two Star. The strategy that we're locked on and focused on and sell as a competitive differentiation is most customers, and I've said on prior calls, I do acknowledge that this does not include know, a Fortune 100 company, right? If you're Siemens, you may be perfectly fine buying video from Zoom and voice from Ring and CPaaS from Twilio and collaboration from Slack. Our view is most customers want a combination of those in a single suite that is integrated. Collaboration is becoming increasingly important. The integration between these services so that you can start an interaction with a colleague or customer in one way, right, you begin as a phone call and upgrade to video, you start as a chat and turn it into a phone call, whatever, is what's really important. I wouldn't pretend we're all the way there yet. And Sangoma Suite has not been as tightly integrated as the Stardustar Suite, which is one of the advantages from the acquisition. So I know it was not as pointed an answer to your question as you'd hoped, Rick, but it actually is a complex question. Yes. Thank you. I know it is. And I think you guys are doing everything right. So, we'll just see where it takes us. And congratulations. You all are doing an excellent job. Thanks. Thank you. Thank you, Rick. There's nobody else in the queue right now. So I'm just going to ask, we've got a few more minutes. If there's anybody else who has a question, please take this opportunity. Our next question comes from Andrey Omachak with LimeGuard Capital. Please go ahead. Yes. Hi, guys. Great results and great quarter. I just have one very quick question. On FX adjusted basis, what would be the organic growth rate of the services side of the business? Clearly, FX have negative impact to the quarter, so just trying to get to the bottom of the organic growth rate on a sequential basis. Yes. We've never disclosed that yet, Andre, so I'm not going to do it today. We at least two or three calls ago, maybe three calls ago, we got asked this, could you tell us the organic growth of UC prem software and phones and connectivity products? Could you tell us the growth of UCaaS versus trunking as a service versus video meetings as a service? And our view is it's a little bit premature for that. We know we're heading in that direction. As Sangoma continues to scale, we'll have to add more and more disclosure. We're not quite ready to do that. I've seen the levels of disclosure in some of the analysts on the call like Josh, who cover U. S. Competitors, see this more and more. But what we've said, Andre, and you've heard me say it, so I know I'm not telling you something you don't know, is you just have to get comfortable at this stage with the combined growth rate of the overall business. You know that the cloud and services business is growing at strong double digits. And how that gets offset by what happens in product or how it might be affected by FX, of course, you're right. But I don't want to get into partway through the year right before an acquisition the growth rates of individual product We'll get there. I feel like we've been increasing disclosure more and more and more over the past two or three years. But that and we also get asked, what's the gross margin by product line? What's the margin by phones? What's the margin for UCaaS? What's the margin on a gateway? What's the margin for the trunking service? Is it different for retail than for wholesale? And at $1,000,000,000 in revenue, I know we're going to have to break this down in a much more granular way. It's just not in February. Sure. That's fair. And we appreciate the forthcoming inclusion disclosure given the great enterprise value of the business. Thanks, guys. Great job. Okay, Andre. Thanks. Someone? Okay. Sounds like we have no more questions. Then thank you very much, everyone, for joining us. David, I don't know if there's anything you want No, thank you. Operator, would you please conclude the call? And I'd just like to say a big thank you for joining us, and enjoy the rest of your day. Thank you very much. Bye, guys. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.