Thank you for standing by. This is the conference operator. Welcome to the Sangoma Technologies year-end fiscal 2020 investor 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.
Thank you, operator. Hello, everyone, welcome to Sangoma's fiscal 2020 year-end investor call. We are recording the call, and we'll make it available on our website tomorrow for anyone who is unable to join us live. I'm here today with Bill Wignall, Sangoma's President and Chief Executive Officer, as well as John Tobia, EVP Corporate Development, to take you through the results of our fourth quarter and full fiscal year 2020. We will discuss the press release that was distributed this afternoon, together with the company's annual audited financial statements and Q4 MD&A, which are available both on SEDAR and will be posted on our website shortly at www.sangoma.com.
As a reminder, Sangoma reports under International Financial Reporting Standards, IFRS, and during the call, we may 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&A. For fiscal 2020, and thus starting on July 1, Sangoma adopted IFRS 16, a new accounting standard, and the fiscal 2020 results incorporate that new standard. Also, please note that unless otherwise stated, all references to dollars are to the Canadian dollar. Before we start, I'd like to remind you that the statements made during the course of this call that are not purely historical are forward-looking statements regarding the company or management's intentions, hopes, beliefs, expectations, and strategies for the future.
Because such statements deal with future events, they're subject to various risks and uncertainties, and actual results might differ materially from those projected in our forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in our accompanying MD&A and our annual information form, and in the company's annual audited financial statements posted on sedar.com. With that, I'll hand the call over to Bill.
Thank you, David. Good afternoon, everyone, and thanks for joining us today. I would like to welcome some new shareholders to this call, investors who joined us at the time of our most recent capital raise. It has been quite a year at Sangoma, it's very good to have you with us for this conference call. I have structured my prepared remarks into five sections today. I will start by taking you through our Q4 financials. I will cover results for the full fiscal 2020 year. I will offer a brief update regarding the impact from COVID-19 on Sangoma. I will offer my typical year-end commentary on the evolution of our company strategy. Finally, I will cover forward guidance for fiscal 2021 as provided for the first time in this afternoon's press release.
I'll then wrap up with a brief summary and then turn the call back to David for our typical Q&A session. With that, let's turn to our Q4 results. Sales for the quarter ended June 30, 2020, were CAD 34.8 million, up 16% from CAD 30.1 million in the fourth quarter of fiscal 2019. This 16% growth was driven by the continued growth and compounding of our services business, where our recurring revenue is generated, as well as the acquisition of VoIP Innovations, all partly offset by some slight softening in demand for our one-time revenue product sales due to COVID-19. The slight softening in Q4 product sales, as mentioned, was mostly due to the COVID shutdowns. This modestly impacted demand for these products, which are CapEx-type decisions for customers, and it also made it more challenging for Sangoma or our channel partners to get physically on-site to do installations.
More importantly, it was really gratifying to see that our services revenue, which we've worked so hard to build up the past few years, held up well in our fourth quarter, growing in absolute terms and once again, exceeding half of our sales. Gross profit for the fourth fiscal quarter of 2020 was CAD 22.6 million, 21% higher than the CAD 18.7 million realized in the fourth quarter of last year. Gross margin for the quarter was 65% of revenue, 3% higher than in the same quarter a year ago due to the steady increase in the percentage of revenue from higher-margin services and to the impact of the VoIP Innovations acquisition. Operating expenses for the fourth quarter of fiscal 2020 were CAD 19.6 million versus CAD 16 million in the same period last year.
This was primarily driven by the additional operating expense that came with the acquisition of VI, additional investment in R&D and marketing and sales to generally drive growth, all partly offset by COVID-related cost controls during the fourth quarter. These cost controls involved several initiatives, which I will cover in more detail during my COVID update coming shortly. For the fourth quarter of fiscal 2020, EBITDA at CAD 6.2 million was 50% higher than the same quarter last year, resulting from top-line growth, slightly expanded gross margin percentage, and cost controls introduced during COVID Q4, as just mentioned. Interest expense for the fourth quarter was up year-over-year, as expected, due to the additional debt taken on partially funding the VI acquisition. As we shared in a prior quarterly call, we have also reduced our borrowing costs, bringing our interest rate down to about 4.2% versus the previous rate of 6.5%.
Net income for the fourth quarter was a record CAD 2.6 million, compared to CAD 1.7 million for the equivalent quarter last year. For the final portion of my commentary on Q4 results, I will briefly touch on a couple of highlights from our balance sheet and cash flow. Let's start with the balance sheet. You will recall from our last call, shortly after COVID emerged, that Sangoma drew down its two operating lines to ensure that the company was ready for anything at a time when it wasn't clear what the impact of the pandemic might be and whether there would be a liquidity crunch. We were certainly not alone in taking this step, and we held this CAD 9.3 million of cash through the rest of the fourth quarter in fiscal 2020.
This action, together with the cash generated in Q4, less our quarterly CAD 2 million debt repayment, raised our cash balance from CAD 12.5 million on March 31st to CAD 27 million on June 30. As the impact of COVID became somewhat more understood, I should mention that we repaid those operating lines after the end of fiscal 2020. Of course, I'll just mention that Sangoma is in full compliance with all of our debt covenants. Next, I would like to touch on inventory for a moment. As we mentioned in recent calls, earlier this year, we undertook a significant supply chain project to consolidate some contract manufacturers. In Q2, that caused an increase in inventory buffer stock. With the project completed, we began to draw down some of this buffer during Q3 and reduced our inventory by a further CAD 1.3 million in Q4.
We closed the year with inventory at CAD 12.6 million and expect that it will remain in or around this level going forward. For the third and final point on our balance sheet, a few words on receivables. During the summer, there was a lot of media coverage about how companies might stop paying their bills or perhaps significantly delay payment due to COVID-19. I'm pleased to say that we really have not seen too much of that from our customer base, at least not to any material extent. Sure, there are some customers here or there that are having some financial challenges from this pandemic, of course. Sangoma has no customer concentration, and we've managed through that phase without seeing material impacts on AR.
In fact, our receivables were down CAD 0.4 million in the fourth quarter and are about at the same level as they were at the end of fiscal 2019, despite our larger base of business. To be prudent, we increased our AR provision over the course of fiscal 2020 from about CAD 300,000 a year ago to almost CAD 600,000 now, just in case. For a few remarks on cash flow. In Q4, we generated a very solid adjusted cash flow from operations of CAD 7.4 million. This measure of adjusted cash flow excludes the impact of acquisitions, financing, and any unusual non-operating anomalies. For the fourth quarter, the adjusted cash flow even exceeded our EBITDA of CAD 6.2 million, mostly because of the reduction of inventory and receivables that I just covered.
That brings my comments on Q4 financial results to a close, and I'll now turn to our full-year fiscal 2020 results. Sales for the year ended June 30 were CAD 131.4 million, 20% higher than the CAD 109.7 million in fiscal 2019. The increase in sales was driven by the ongoing growth and compounding of our services business by the acquisition of VI partway through fiscal 2020. The fact that Digium was not included in the first couple of months of fiscal 2019, all offsetting a slight decline in one-time product sales during the COVID-impacted fourth quarter. For the year, services revenue increased 81%, and the percentage of sales from services has grown from 33% in fiscal 2019 to about 50% for fiscal 2020, reflecting the company's focus on cloud and recurring revenue streams.
Our services revenue exceeded product revenue for the first time in Q3 this year, a key milestone in our transition to becoming more and more a recurring revenue company. I'd just like to reiterate how significant that transition has been. In fiscal 2018, we averaged about CAD 5 million per quarter in services. By last year in fiscal 2019, that was CAD 10 million per quarter, and this past year in fiscal 2020, we're over CAD 15 million per quarter. The cost of sales for the year ended June 30 was CAD 46.5 million, compared to CAD 42.8 million for fiscal 2019. Gross profit for fiscal 2020 was CAD 84.9 million, 27% higher than the CAD 66.8 million realized in fiscal 2019.
Gross margin for fiscal 20 was 65% of revenue, up 4% from the 61% last year, reflecting slightly higher margins in the newly acquired businesses and a greater percentage of revenue coming from higher-margin services. Operating expenses for fiscal 20 were CAD 74.5 million compared to CAD 59.8 million for the same period last year, reflecting the additional OpEx in the acquired VI and .e4 businesses, the investment in growth, all partly offset by constrained spending in the fourth quarter due to COVID. For fiscal 20, EBITDA at CAD 21.6 million was 75% higher than last year, resulting from higher revenue, the gradually increasing fraction of sales from services, a few extra points of gross margin, the inclusion of VI, the adoption of IFRS 16 at the beginning of the fiscal year, and operational efficiencies introduced during fiscal 19 being in place for all of fiscal 20.
Interest expense is up substantially year-over-year as a result of the debt taken on for the acquisitions, just as it was for the quarter, and the comments I made for Q4 apply to the year as well. Net income for the fiscal year ended June 30 was CAD 3.9 million compared to a net income of CAD 1.5 million in fiscal 2019. Earlier in fiscal 2020, you may remember Sangoma recorded CAD 2.6 million of costs directly associated with the legal financing and closing of the VI acquisition in October of 2019. In fiscal 2019, the year before, we coincidentally incurred a similar amount of CAD 2.7 million for the purchase and integration of Digium, and the year-over-year growth in net income is thus really quite an apples to apples comparison.
This brings my comments on our fiscal results for fiscal 20 to a close, and I'll now provide a COVID update before I move on to strategy. We have shared information about the impact of COVID-19 in earlier calls and in press releases, but since it arguably remains the most critical near-term variable for many businesses, I'm going to provide a full update today on this fiscal 20 year-end call. I recognize that we've held investor calls specifically dedicated to this topic in the past, so if you're one of the folks that did join us for those calls, please bear with me. Before jumping into the details of the COVID update, I'd just like to say how very pleased I am with the way Sangoma performed this year, especially given how very challenging it's been for everyone during the COVID-19 crisis.
It's been truly gratifying to see the resilience of our business during times like these, with Sangoma ending up with 20% revenue growth and EBITDA expanding 75% to over CAD 20 million for the first time. Okay, now for your COVID update. I will cover this from two perspectives today. First, I will discuss the distinct phases of impact on Sangoma, second, I'll describe why we feel your company is well-positioned to withstand that impact. Let's start with what we describe as the three distinct stages in which COVID affected Sangoma. They were the impact on our supply chain, followed by the impact on business continuity, finally, the impact on demand. Stage one for Sangoma was all about our supply chain. As you may recall, coronavirus first started to get attention in early January as it emerges in the city of Wuhan, China.
Initial fears are all about China as the world's factory. Although our services business now represents more than half our revenue, the other part involving the sale of products does still involve some suppliers in China, especially for phones. Thus, Sangoma's focus during stage one of the COVID-19 crisis was to ensure that we were able to get our products from suppliers in a timely manner and in sufficient quantities in a way that did not negatively impact our customers.
During this period, our operations team was working very diligently with all links in our supply chain to make sure that raw materials were available at factories when needed, that our contract manufacturers could still build, especially given this was happening during Chinese New Year, that our suppliers could deliver to us across international borders, and that we could subsequently ship to all of our customers around the world. This is perhaps not glamorous work, not the type of in-the-trenches effort that we'd stand up and tell investors about while we were handling it.
In the end, the first stage of dealing with COVID lasted about four to six weeks for us, and most importantly, significant work by our teams ensured that virtually all customers were able to get their orders filled on time, and thus our revenue was not impacted in any material way as we wrestled the supply chain challenges during stage one. Stage two in the COVID impact on Sangoma relates to business continuity. Stage two begins in or around February. At this point, had it become clear that coronavirus was no longer a China-only problem and was turning into the global pandemic we know it to be today. Sangoma's top priority during this stage had to be the safety and well-being of our employees while ensuring business continuity for partners and clients, much like many of your organizations, I'd suspect.
Like most companies, we gradually began to reduce business travel ahead of public policy, eventually eliminating all business travel. We instituted new policies such as no visitors to Sangoma offices, social distancing, hand sanitizer, stay at home if you're feeling ill, et cetera, and by early March, we required all of our staff who could do so to work from home. We seamlessly migrated to this model with no material impact on operations. This was especially complex for a highly globalized company with staff in over 20 countries around the world, and in about 25 states across the U.S., all needing access to the right systems, all at about the same time in March and April. While there has been some voluntary return to the offices where local regulations permit, Sangoma still has more of our staff working from home.
As complex as that was, we benefited from the fact that we make many of the products and services that work from home staff need, so we know these tools very well. We have been able to continue serving our customers who count upon us every day, perhaps now more than ever, for mission-critical communications. Stage two continues to this day, of course, but is also now fully under control, and concern about the impact on our business from stage two is now also behind us, and we have contingency plans for local COVID-19 related issues that might arise. Excuse me. Sangoma describes stage three of the COVID crisis for us as the impact on the demand side of our business. We saw this third phase starting to surface in March and more fully in April as the shutdowns began.
We saw this most dramatically during our fiscal 2020 fourth quarter, and of course, some of this still persists or is being restarted during the second wave. You've already heard that the impact on demand has had a fairly minor effect on Sangoma during Q4, mostly in product revenue, while our services business has demonstrated many of the reasons that the trend out there towards cloud is a real permanent thing, including moving a CapEx decision to an OpEx decision for customers, especially important when cash is king for them, better support for remote workers, less distraction from the core business because they spend less time managing communications, and expense savings as they don't need to pay IT personnel to manage it. Further, our management team and board have many years of experience managing through disruptive change.
As a result, Sangoma took action during this third phase to mitigate such possible impacts, including we have taken prompt, prudent expense mitigation steps to appropriately control discretionary spending, such as a temporary hiring freeze, scaled back on non-essential marketing investments, eliminated business travel, et cetera. We've adjusted our product roadmap in a very nimble way to reprioritize the launch of planned products earlier than scheduled, where they fit with the increased needs of employees working remotely. We've launched numerous customer-focused initiatives to win new clients in need of improved communications during this crisis and to secure our existing customer base. We've begun to get some staff back at work and continue to be flexible to work within local guidelines in our many offices around the globe.
This planning accommodates enhanced social distancing, frequent cleaning, hand sanitizer, rules regarding employees with any symptoms remaining at home, and regular enforcement of such rules. The net result is that we feel Sangoma has understood the impacts of COVID-19 on our business, even as they changed over three phases, and have controlled well the things that are within our control, managing prudently through those three phases. In the second part of my COVID update, I promised to share why we believe strongly that Sangoma is well-positioned to weather the impacts just described. I'd like to review some of those reasons now. First, Sangoma continues to operate in as close to a business-as-normal manner as is possible under these conditions as an essential service.
We have repeatedly demonstrated an ability to adapt as part of our team's core competency, whether it was turning ourselves into a software company from a hardware business, or building out an entire portfolio from a single product, or creating a fast-growing services business based upon recurring revenue in just a few years. This track record makes me confident that Sangoma will emerge from the COVID-19 crisis ready to step on the accelerator. We have a very large customer base diversified on multiple dimensions. No customer concentration with our largest customer representing less than 10% of sales, a geographically distributed client base in over 125 countries around the globe. Many varied customer segments, including SMB, enterprise, service providers, and contact centers. Services revenue now accounts for more than half of sales and is more insulated from this business cycle.
Customers across many verticals, including manufacturing, mil-aero, government, retail, education, transportation, technology, et cetera. We have a broad portfolio of products that appeal to many different users and needs, from cloud communications to premise-based UC to connectivity. In-demand products that are critical in today's work from home world, including soft phones, headsets, audio conferencing, and the ability to take an employee's desk phone home and use it there in a way that matches exactly what it does on their desk at work. An ever-present focus on the customer, enabling Sangoma to respond quickly with empathy towards our clients. Our staff have been asked to be patient and supportive towards our customers and each other during these times of high stress.
We will be flexible with them, helping customers beyond strict contract entitlements. Because we have the financial resources to do so, and how we handle them in difficult times will be remembered in the good ones. Investment in innovation continues unabated by this crisis, resulting in our ability to reprioritize roadmaps and quickly launch new products. Last, but certainly not least, our proven financial strength. Consistently growing our top line for over 22 straight quarters, now generating over half of our sales in services revenue, which is more insulated from these economic shocks. We produced very healthy EBITDA at over CAD 6 million this past quarter. We're cash flow positive with over CAD 7 million in operating cash flow during Q4, precisely during the tremendous disruption of COVID exactly on that quarter.
In addition, we have, of course, always paid full interest and principal payments due under our loan agreements, have never failed to meet our debt covenants, and we're well capitalized and have over CAD 90 million in cash reserves to take advantage of opportunities that may arise, as well as being fully prepared for any uncertainties in the future during the COVID-19 pandemic. For all of these reasons, both financial and strategic, we strongly believe Sangoma is unusually well-positioned to weather the COVID-19 pandemic. Now I'll turn to Sangoma's corporate strategy. I typically provide a comprehensive update on strategy once per year, usually on the Q4 calls, with shorter updates to specific strategic information on a quarterly basis. Since we have some new significant shareholders this year, I'm going to first review where we've come from. I'll get into where are we going and how will we get there.
Let's jump in. I've consistently characterized Sangoma's turnaround and then subsequent expansion using the phrase, "Investing to drive strategic growth through 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, based upon my discussions with many of the folks on this call. We are continuing on that path today. Several years ago, when new management came in to take over the reins at Sangoma, we recognized that sales of telephony cards were unavoidably going to gradually decline as networks gravitated away from the PSTN and towards the internet. The first stage of strategy was to begin a complete turnaround and rebuild of the company. It manifested in three principal planks, broadening the product portfolio, penetrating new customer segments, and selling into new geographies.
Over the next few years, we evolved from a single product company to one with a much broader portfolio made up of multiple product lines, all part of plank number one, which has taken us on the path to becoming a full UC provider, first on premise and now in the cloud. In order to expand our market presence, Sangoma began targeting not just our traditional customers in the SMB segment, but also enterprise customers along with OEMs and carriers, fulfilling the second plank in that turnaround strategy. During this time, we have also expanded our global reach by adding staff and channel partners to serve over 100 countries around the world. As the turnaround phase was unfolding, the next step in strategy was to go from a portfolio of individual products to a complete solution.
Sangoma now has the ability to offer a full UC suite that includes not only the core UC software as the central brains of this full solution, but also the other products that purchasers need with such a communication system, including phones, appliances to install that software brain upon, and all the differing ways of connecting your UC system out into the network, be it a session border controller, cards, or gateways. I think you can see that the whole has proven greater than the sum of the individual parts and has allowed us to compete for a larger share of wallet in each sales cycle.
Having garnered the full suite of products, the next phase in our strategy was to take that full solution, which could be sold on premise, just industry jargon, meaning that the software is installed at the customer site, and introduce cloud-based services built on our own products and software. We now host and manage these cloud services in data centers. This allows us to provide monthly subscription service for customers who prefer our cloud-based service rather than the on-premise model. This commenced a rapidly growing services business, which you are now so very familiar with. Where our recurring revenue is generated, Sangoma uses our own software and equipment to provide these services. Along the way, we built some of these components ourselves and added others via acquisition. That's why we say that Sangoma employs two approaches to scaling.
One is organic growth, and the other is prudent acquisitions to complement and accelerate that growth. We use these acquisitions either to get needed technology or to get it faster than we'd be able to do it ourselves in-house, or to get new customer segments, or to secure paths to market to win such customers. Sometimes an acquisition gives us two or all three of those strategic attributes. In fiscal 2020, this strategy led us to make two acquisitions. The first was VoIP Innovations, a cloud communications company offering what we refer to as trunking-as-a-service, or TaaS, using the same naming convention as SaaS or UCaaS. This wholesale SIP trunking service is sold to partners, not typically to end users, and is sold with a usage-based pricing model.
We've been hard at work on integrating the parts of that business, and of course, VI revenue has held up well during the pandemic, given it is almost all recurring. The second deal this fiscal year was a company called .e4, which had been a partner of Sangoma's for many years. We knew them well, their leadership, their culture, and their unique skills in the open source ecosystem. That community is somewhat different from other markets we serve, with their own set of needs and expectations, so this deal was done to strengthen our sales capabilities, specifically in open source. Accordingly, the .e4 team focuses on that portion of the market, and we've seen the benefit of that focus already in our fourth quarter. Those acquisitions this past year are not to say we've slowed down our internal development.
In fiscal 2020, we've launched both our newest cloud service, called Sangoma Meet, as well as our new line of headsets. Sangoma Meet is our brand-new cloud service for video meetings, collaboration, and screen sharing. It was launched by reprioritizing our product roadmap, demonstrating agility to bring it forward given the adoption of video meeting services during the current work from home trend. For the period of the COVID-19 pandemic, we offered this service for free, and will gravitate to a commercial model in the next short while. Headsets were important to round out our portfolio endpoints, which included desk phones, soft phone client software for your computer or mobile device, and now these new headsets. This was also an important addition to have during the COVID crisis, as remote workers wanted this capability at home. Where do we go from here strategically, and how will Sangoma get there?
Your company continues along its current strategic path, one that has served us well and one that we are executing on. We want to grow much further via our mix of organic growth and M&A, but we also seek to do so prudently, balancing growth and the investments that drive it with the desire for reasonable profitability that provides financial stability. In our market, we seek competitive strategies that provide a unique advantage or positioning so that we are very consciously not simply fighting head to head on the same basis against larger players. This approach has worked as part of our organic growth strategy, and we've continued refining it such that in fiscal 2020, we've become even more precise about our value proposition in our cloud business. Here's what I mean. In our opinion, cloud communications does not equal UCaaS.
I know that some industry players and some analysts see them as synonymous. That is not my view. At Sangoma, we started using the term communications as a service, C-A-A-S or CaaS. To us, CaaS is an overarching umbrella of cloud communication services with a number of cloud applications under it. Those applications, of course, include UCaaS for voice. CaaS also incorporates trunking as a service or TaaS, as well as CPaaS and video meetings as a service, and collaboration as a service, et cetera. Sangoma's differentiated strategy includes the idea of offering all of these capabilities from a single provider, integrated elegantly with one user interface, single sign-on, and a consistent UX or user experience. We don't believe that most normal companies want five different tools from five different vendors, such as video meetings from Zoom or Voice from RingCentral or CPaaS from Twilio or Collaboration from Slack.
Sure, if you're a Fortune 100 company with a huge IT department capable of integrating five different tools on your own, maybe that's realistic, but it's not practical for most companies. This is the direction Sangoma is headed. We have UCaaS, TaaS, video meetings as a service, CPaaS, fax as a service. We are well on our way, and we're feeling like this strategy is a winner. Secondly, on the inorganic side, Sangoma's future will continue to involve prudent acquisitions to accelerate that organic growth. Just after the end of fiscal 2020, we undertook a significant financing in July, raising gross proceeds of over CAD 80 million. This issuance of about 35 million shares at a price of CAD 2.30 netted us almost CAD 76 million, substantially hardening our balance sheet. This raise was a big deal for Sangoma.
Five banks participated in a syndicate to make this happen, and it was upsized as it progressed with the 15% over-allotment being filled. This was done for general corporate purposes and undertaken at a time during which the equity markets looked like they could become challenging as COVID and its impacts unfolded. We are now well-positioned for a variety of conceivable scenarios, including possible future acquisitions. Sangoma typically has a number of such conversations taking place at any one time, and today's M&A climate looks really interesting to us.
While I'm of course not in a position to share any further details with you today, I just want you to know that we're confident Sangoma will put the money that many of you entrusted us with to good use indeed. Finally, before I leave our section on strategy, I'd just like to draw your attention to the company's 2020 AIF, or Annual Information Form. Companies on the Venture Exchange are not required to provide an AIF each year, Sangoma has decided to add it to the series of documents describing the business that we share with you. You will find it posted on SEDAR. The AIF describes the business, including customers, competition, corporate structure, risk factors, a three-year history of events, et cetera, so it can be a useful source of information on strategy for those of you who may be so inclined.
That concludes my comments on general strategy. I'd like to move on to forward guidance for fiscal 2021. Let me start by reminding us how Sangoma fared against fiscal 2020 guidance. We guided towards CAD 128 million to CAD 132 million in revenue, and towards CAD 19 million to CAD 21 million in EBITDA. You now know that we came in at the very upper end of the revenue range and surpassed our EBITDA targets. Pretty decent for a year rocked with COVID, perhaps the biggest shock to the economy in most of our lifetimes. A quick refresher on how Sangoma's cadence for issuing guidance works. When we release results for a fiscal year, we then provide guidance for the year that follows.
Today, we're releasing audited results for fiscal 2020, and thus it's time to provide guidance for fiscal 2021, as some of you have no doubt seen in today's press release. In it, we shared that our guidance for fiscal 2021 is for revenue of between CAD 143 million and CAD 147 million, as well as for EBITDA between CAD 24 million and CAD 26 million. In determining this range of growth projections, we tried to consider a number of factors, such as the expected growth in our services business, the FX rate outlook, likely GDP growth, trends in Europe, Asia, North America, and CALA, the ongoing COVID-19 pandemic, and the gradual decline of PSTN networks for our product sales. To be honest, I'm guessing we had all hoped things would have been clearer this late in calendar 2020.
Instead, we have to acknowledge that the outlook for the global economy remains somewhat unclear. Many of you on this call are still in work-from-home mode or know people whose businesses are closed or see that reopening or closing again of companies around the globe is still kind of inconsistent. As a bit of context, today, only 28% of S&P 500 companies are providing forward forecasts, which is less than half of the 57% who were providing guidance right before COVID hit. This gives you some idea of the ambiguity that even the biggest companies are still seeing. While there still indeed remains significant uncertainty, we feel confident enough to share with you today what we see at this point for the year ahead. With that, I'd 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 CAD 10 million in sales to a strong, growing business with over CAD 130 million in revenue, a level we fully expect to continue adding on to, and a market cap of over a quarter billion CAD. We have demonstrated proven top-line growth over an extended period, solid and expanding EBITDA, increases in our services business, where the recurring revenue is generated, and positive cash flow. Sure, we see some of the temporary COVID headwinds that so many other companies are experiencing, too. We're very well positioned to withstand them. Our recent acquisitions are bearing fruit as expected. We have excellent M&A opportunities in front of us. Share price has been strengthening, albeit more slowly than I'd like.
We are cashed up on our balance sheet, and we're comfortable enough to provide guidance in spite of one of the worst economic shocks in our lives. As I just mentioned, all in all, a pretty darn good year in fiscal 2020, all things considered. Indeed, we've come a long way, and we fully intend to continue on that path. With that, I'll turn the call back over to David for questions, and finally, a simple reminder that we'll be back together again in just a few weeks, given the somewhat strange sequencing of results at this time of year for Sangoma. Full-year results from fiscal 2020 in October and first-quarter results from fiscal 2021 in November. Okay, David, over to you.
Thank you, Bill. To make sure everybody knows how to ask questions, I'll ask the operator to go over the instructions. Operator, we're ready to take questions now, please.
Thank you. To join the question queue, you may press star then one on your telephone keypad. You'll 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. Our first question is from Nick Corcoran with Acumen Capital. Please go ahead.
Hi guys, and congratulations on the great full year as well.
Hey, Nick. Thank you.
My first question is just to do with the product sales that were potentially lost in Q4. The MD&A in your comments said that Q4 revenue was slightly softer than Q3. Can you give any indication of what the magnitude of that impact was?
I don't have that off the top of my head. Maybe David could help me with that. David, there'll be segment disclosure in the financial statements that show product for Q4 versus product for Q3?
Yep. Nick, the answer is, the product part of our business was more impacted because of the COVID shutdowns in various parts of the world. In some cases, even where we have made a sale, it was difficult to deliver the product and have it installed. We also have more lumpiness in our products as a matter of course, and I think you'll recall in Q4 of 2019, there was a substantial single transaction that hasn't repeated in fiscal 2020.
Great. That's helpful. Can you maybe give an indication whether or not product sales in Q1 will be higher than Q4?
No, we're not going to comment on that yet, Nick. We've just finished Q1. We're just closing books and pulling all that information together. I don't think we want to get into Q1 numbers on the Q4 call. We're only, I don't know, two, three-ish weeks away from that, so please bear with us.
Yeah, that's fair. Just the last question from me. Can you give any more color on the M&A pipeline, what you're seeing, and then whether there's been any changes in multiples that potential buyers are asking for, or sellers are asking for? Sorry.
Yeah. Sure we can. I don't see a big change in the landscape, to be honest, Nick. Some of the research analysts and industry analysts have asked whether COVID made a big difference to the M&A landscape. I don't see that. I said on an earlier call, and I think it still holds true after the end of Q4 and into the beginning of fiscal 2021, that good companies are still good companies. If you have a good, healthy business, it's still healthy and doing well. Those are the kind of firms we're interested in. We're not bottom-feeders looking to pay the lowest possible multiple.
For sure, there are examples of companies, which might be what you're hinting at, that fall into a bucket like, I don't know, it's a small CAD 10 million or CAD 15 million cloud company, and they generate CAD 10 million a year in revenue and spend CAD 15 and lose CAD 5 million a year. There was lots of money available very cheaply over many years to fund those ongoing operating losses. Those guys have changed. More of them have come out of the woodwork to be bought. We certainly get lots of those calls. We didn't go and raise CAD 80 million to spend CAD 10 million, right? While that segment of the industry might have found themselves struggling more in COVID, the kind of businesses that we would be looking at haven't seen big changes. I wouldn't say multiples have come down because of COVID.
Yeah, that's about the best I could do without being too specific right now, Nick.
Is there any specific part of the product offering or service offering that you'd look to target with potential acquisition?
Yeah. When I've been asked this question in the past, instead of answering in a singularly pointed way, which can get you in trouble because now people are saying, "What about this company? What about that one?" The best way I can describe what we're looking for, because that's where your question hints at, is we're looking for one of three things. As I said in some subtle way during my prepared remarks, we're looking for companies that have certain product or service categories where we feel we might have a hole or are a bit weaker than others, or we're looking for companies that have a certain kind of customer base, or we're looking for companies that have a go-to-market strategy or a path or a channel to certain customers. That's the kind of firm that we're looking for in acquisition discussions.
We have more than one of those sets of conversations going on, and if you're fortunate, you can find businesses that satisfy more than one of those conditions, as I said in my comments, sometimes two or once in a while, all three.
Great. That's all for me. Thanks for taking my questions.
Okay, Nick. Sure.
Thank you, Nick.
The next question is from Gavin Fairweather with Cormark Securities. Please go ahead.
Hey there. Good afternoon.
Hey, Gavin.
Appreciate the difficulty of providing guidance at this time. Thank you for that. I guess just a question on that. The last couple of quarters, we've seen very strong growth in services and then some softness in product, as you mentioned in your prepared remarks. Is that kind of your base case assumption as you kind of build up your guidance for fiscal 2021, that that'll continue?
Yeah, generally, I think that's fair. There's lots of nuance to that at the next level down, Gavin, not stuff that I talk about on this call. That's quite right. We see services continuing to grow quickly. We see product sales, flat, little bit of growth, little bit of shrinkage. It really depends on the individual quarter, what's happening in certain geographies, if one part of the world's shut down. Year-over-year compares depend upon, as David said, whether there was a lumpy order in that quarter from the prior fiscal year, et cetera. I think you got the right picture.
Maybe we can jump into the nuance a little bit. You mentioned the shift towards UCaaS in the market. Do you see that trend accelerating? Have you guys been feeling that? On the product side, are you still finding that some of the sales cycles are delayed and purchasing decisions are deferred?
Yeah. Two totally separate questions, right? On the cloud side, the first part of my answer is, as I suggest that I would start to do when I introduced part of my strategy comment, we don't equate cloud communications with UCaaS, and I'm assuming you don't specifically mean UCaaS in your question, just do I see the trend to more cloud communications accelerating? The answer to that is yes, right. If you look back over many years and, of course, different industry analysts, not so much research analysts, but Forrester, Dataquest, Gartner, et cetera. I don't know. Four years ago, people were talking about 10% to new adoptions were cloud and 90% were prem, and then it was 15%, and then it was 20%, and then it was 25%. Now most seem to be saying 30-plus.
I even saw one that went as high as 40% for the first time I saw that number. Those are the numbers in North America, as you and I have discussed before, right, Gavin? While in North America, the vast majority of the runway is still in front of us, the runway is even longer in Europe and Asia and Latin America, where cloud is not nearly as penetrated. For sure, we expect the fraction of new adoptions that use cloud to be getting bigger and bigger every year. We see it in our business. There's no stopping it. There's lots of good reasons that end users choose cloud, and more and more of the channel is becoming focused on cloud as well. Your other question about whether product sales or product orders are continuing to get delayed.
It's a little bit early to tell. The impacts of COVID are kind of oscillating a little bit right now, which is suboptimal for sure, right? It looked like the impact in Q4 was kind of obvious what was happening, our fiscal Q4. In the summer, it seemed like it was starting to get a little bit better, and I would say any delay in product orders or hesitation of capital spending might've been looking a little bit more promising. It looks like the second wave has come. More countries are beginning to ratchet things down again. Certainly in Europe, there's lots of that. We're seeing it in different regions in Canada. The U.S. is continuing to see more cases, although maybe less willingness to shut down the economy. It's very unpredictable, right, Gavin?
I don't think we should quantify what we think is going to be up and down and for this quarter or next. We've tried to give guidance when almost nobody else is doing it. I think that's about as far as we want to stick our necks out for now until we see the next couple of months.
With that backdrop, you talked about being ready to step on the accelerator kind of when the environment calls for it. I guess, what would you like to see in order to get more aggressive in terms of your investments in sales and R&D?
Yeah. I think there's some stuff which is economic and financial and some which is more general socio trends. The biggest one, and the reason I spent so long today talking about COVID is that pandemic really needs to feel like it's getting more under control, right? Different people have different definitions of what that means, whether all you look at is the number of cases or the number of hospitalizations or the percentages of tests that are proving positive, or whether you look at other factors, including what's the improvement in treatments or where are we on vaccine development. We're not a bunch of epidemiologists here. We're a bunch of geeky engineers running tech companies. From our perspective, COVID has to look like it's heading in the right direction, not oscillating up and down. It is better, it's a bit worse, it's better, it's a bit worse.
We're optimistic. I would say that Sangoma is run by people who kind of have a positive outlook. The second wave doesn't look great right now for multiple places in the world. The second thing, I guess, Gavin, is we can measure more directly customer behaviors. Whether that's quantified or assessed in a more qualitative way by listening to salespeople on the front line who are talking to customers and channel partners. What you hear right now is people getting a bit nervous again. That's okay. We managed through the nervousness in Q4. Doesn't feel like it's at that level. Seems like it's going in the right direction, not the wrong direction. For sure, this was a bit of a pause during the second wave.
Let's see customer sentiment. Thirdly, I guess what I would say is we'd like to see some of the problem areas geographically that are the most worrying begin to improve, right? Cases in the Southern U.S., some of the most problematic European countries that were bad and then got better and then worse again, they tend to be the big European economies. The U.K. is in trouble right now. France looks like it's struggling. Germany a bit more again. Those are the three things I would point out. Nothing magical, not like our crystal ball is better than anyone else. That's the stuff we care about. It won't end up paralyzing us. I don't want you guys to hear this and say, therefore, Sangoma is not going to take action. We are acting both in terms of R&D, marketing and sales, and M&A.
As you said, I would say we haven't entirely stepped on the accelerator yet, and that's true.
Okay. That's very helpful. That's it for me. Thank you.
Okay.
Once again, if you have a question, please press star then one. Our next question is from David Kwan with PI Financial. Please go ahead.
Hey, guys.
Hey, David.
Hey. I was curious, just on the SIP trunking side of your business, how much of an impact you saw maybe in Q4? Just it seems like more people were shifting to kind of using video conferencing platforms instead of using kind of traditional phone calls. If you did, was there much difference between your wholesale channel versus your direct sales to end customers?
Yeah. A couple of parts to the answer. One is for sure, there was a shift towards more video meetings as people were working from home. I would say there was a shift to more video and to more voice. That doesn't mean that in Q4 we saw usage go up. We'll talk about that next in the second part of my answer. I remember reading an article partway through our fiscal quarter or the calendar Q2 that voice was the new killer app, right? People weren't talking on the phone as much anymore. It was becoming one of the ways of communicating along with Slack and collaboration or whatever. From our point of view, we've always believed in voice. I don't see that going away. Cloud voice makes that even easier to access, including in hybrid-type deployments.
It's true that video got lots of extra attention and certainly lots of users for all the obvious reasons, but I wouldn't equate that to less importance placed upon voice. What I would say is any dip we saw in wholesale usage, less so in retail, was mostly, maybe not mostly, probably entirely related to the impact of the way customers and their companies were operating. Right? It was a company with 100 employees and 10 people got laid off. Or it was a company that was in the restaurant business and had to shut down temporarily. Or it was a company that didn't survive the COVID phase. Now, you heard that none of that ended up all summed together having a material impact on us. For sure, we saw examples of that.
While the retail trunking business did not dip, continued to grow, we saw a little tiny bit of a dip in Q4 in wholesale trunking revenue, not because we were losing more customers or anything like that, but the traffic they were generating dipped a little bit.
That's helpful, I guess. Maybe also with people not meeting face-to-face, you might have seen a bit of a buffer from that standpoint in terms of whether people used video or voice.
Yeah, completely agree.
Okay. I guess on a related note, just on the Sangoma Meet, you answered one of my questions as it relates to kind of the revenue model for that going forward. I know when you were prioritized getting it out, there were still some kind of features and functionality that you wanted to get it up to some of the other platforms out there. Can you maybe talk about some of the additions that you might have made over the last few months and what might still be in the works?
Yeah, sure. There are a few that were at the top of the list, David, and it depended upon which kind of user. For example, the ones that we were most paying attention to were things like scheduling a video-based meeting from inside calendars and sending invites, whether you use G Suite or Outlook, and being able to put the meeting link into a calendar entry or sending that to someone else. We were in the process of adding the ability to dial into a video bridge from a phone if that appealed to an end user. I've needed that several times when joining a video meeting from the car while driving somewhere. We were adding the ability to control a call by a moderator. There's still a few things we'd like to add, but that's very close to being a normal GA product.
From our point of view, we had a pretty tolerant user base at the time, given we weren't charging for the product. We're now going through the exercise internally about how to monetize and what the economics of that kind of a service will look like.
Well, it's helpful. Just two more questions. As it relates to the inventory, you guys talked about, obviously, the supply chain, things that you are handling in terms of consolidation. Also given what's gone on with COVID here, and cases picking up, is the decision to kind of keep your inventories where they are, as opposed to maybe stocking up a bit, particularly on the component side, more a reflection of maybe what's gone on in China, where they've seemingly done a better job of controlling a second wave?
Sorry, I didn't quite follow. Were you asking whether the buffer stock that we built up was in any way related? Is that what you were getting at?
It was just, I guess you guys had talked about keeping inventories flattish from current levels.
Yes.
Given what's gone on with COVID around the world, and potential supply chain issues, is the decision at least to kind of hold it flat where it is right now more a factor of China better handling a second surge of COVID?
Yeah. Not really, I would say, David. No. If I felt like we were exposed with the level of inventory we have, it's not like I'm hesitant to buy an extra CAD 500,000 of raw material. We could easily do that. The balance sheet has tons of capacity on it. I just think we're okay right now. There's not a sign that we have any issues with an inability to ship. The fraction of revenue that's coming from product is going down every quarter. Lots of that product is software, not all hardware. I think we're good. If there was ever a sign where our operations group felt like there could be some issue, for sure we would act, but we're not seeing it today.
Okay, perfect. Just a last question. You talked about the AIF. Any plans on upgrading to the TSX, given obviously that would be one step that you'd probably want to do?
Yeah. We have lots of plans. Not something that I think I want to commit to on the call, David. We're not quite there yet. But I would agree if what you're hypothesizing is that CAD 140 something million company that plans to become CAD 250, that becomes CAD 500 million, is eventually going to move off the Venture Exchange. That's completely right. It's a matter of less about if and more about when and which exchange, not whether we would plan to be on the Venture Exchange a few years from now.
Sounds good. Thanks, guys.
Okay.
Thank you, David. Let me ask again, is there anybody else who would like to ask us a question? Operator, perhaps you could just remind people how to do that.
Certainly. Once again, to join the question queue, press star then one.
That looks like that's it for everybody. Let's bring the call to a close. Thank you very much for joining us today. Just a reminder, there will be a replay available on our website later tonight or tomorrow. We do have our annual general meeting coming up in December, and we will be back to you in November with the Q1 results for our fiscal 2021. Thanks very much for your support during the course of fiscal 2020, and have a very good evening.
Bye, everyone. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.