Sangoma Announces Strategic Acquisition of VoIP Innovations, LLC

Sangoma, a trusted leader in delivering Unified Communications solutions, both in the cloud and on-premises, and the provider of the two most widely used open source communications software products in the world, has acquired VoIP Innovations, LLC (“VI”).

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VI is a privately-held, Pittsburgh-based technology company that specializes in wholesale SIP trunking offered primarily to resellers, service providers, MSPs, and call center customers across North America, utilizing a recurring revenue model. VI has over 1,400 customers (with no significant customer concentration), about 35 employees, and has been growing consistently the last several years. The company has also recently launched its new, strategic Communications Platform as a Service (or CPaaS) product. CPaaS is an exciting new product category receiving significant attention from customers and investors alike, that enables developers to add communication capabilities (such as voice, video, messaging, etc.) to their software and web applications without having to be communications nor networking experts.

Sangoma’s pedigree in the SIP Trunking business is underscored by its performance in the recent report titled “2019 SMB SIP Trunking Customer Satisfaction”, conducted by the Eastern Management Group. The report details a survey of 3,000 IT managers in a side-by-side comparison of 29 SIP trunk providers. Customers evaluated their SIP vendors on six Customer Satisfaction Measurements under the headings of product, vendor experience, and customer delight. In Eastern Management Group’s survey, Sangoma received the highest possible ranking — four stars, in every customer satisfaction measurement: technology and product, purchase experience, support, management tools, total overall satisfaction, and recommend-to-a-friend. Out of 29 SIP trunking companies examined in the Eastern Management Group’s latest survey, none beat Sangoma. No vendor other than Sangoma received the highest possible ranking — four stars — in every customer satisfaction category.

“We continue to look for prudent ways to grow our product portfolio, customer base, distribution network, overall sales, recurring revenue and EBITDA,” said Bill Wignall, President and CEO of Sangoma. Wignall continued, “This acquisition is strategic to Sangoma for all of those reasons, and with about 90% of VI revenue being recurring, it should increase Sangoma’s proforma recurring/services revenue to approximately 45% of total sales. We know the SIP trunking business well, so adding a wholesale channel model to our existing go-to-market approach is quite strategic and it may provide the sales organizations for both companies with additional revenue synergies. We are also excited to now add a CPaaS offering to our growing product portfolio. I’d like to welcome all of our new staff who I’m very pleased to say will be staying with the company, as well as our valued new clients and partners, to the expanding Sangoma family.”

The acquisition, Sangoma’s eighth in eight years, provides the combined Company with several strategic advantages including: increased scale, a recurring revenue contribution that continues to grow, an entirely new product category in CPaaS, robust EBITDA margins, and an excellent new sales channel that has expressed the desire for Sangoma’s broader portfolio.

“One of the things that mattered most to us as former owners, was how the buyers would handle the VI employees and customers,” said Jason Tapolci, co-founder, shareholder and longtime CEO of VoIP Innovations. “Of all the buyers who considered the acquisition of VI, it became very clear to us that Sangoma was the company that most understood, appreciated and valued our long-term staff, loyal customers and company vision. We are very pleased that Sangoma will continue on with the VI business and we are confident it will continue to grow under the leadership of their very capable management. We have had the pleasure of getting to know the Sangoma team through these discussions and are excited to see VI taken to the next level.”

VoIP Innovations’ employees will continue to work out of their current Pittsburgh office and will be led by Sebastian Kiely, VI’s President, who will report to Sangoma’s CEO, Bill Wignall.

Transaction Details

Under the terms of the agreement, Sangoma paid an upfront consideration of US$36 million (the “Upfront Consideration”) which consisted of US$30 million in cash and US$6 million in Sangoma common shares, representing 5,500,417 Sangoma common shares based on the ten (10)-day volume weighted average price as of the date of execution of the definitive agreement. In addition, there is a contingent consideration component of up to US$6 million (the “Contingent Consideration”) that will be payable in cash upon achievement of certain revenue milestones in the twelve (12) months following the date of closing. This would lead to a total purchase price of US$42 million if achieved, on a debt-free and cash-free basis, subject to customary net working capital adjustments. VI has no debt, generated US$18.9 million in revenue for the year ended December 31, 2018, with US$3.3 million of Net Income under US GAAP, that would have generated EBITDA of about US$5.6 million, implying an upfront purchase price of about 6.4x EBITDA on a trailing basis. Please see below for a reconciliation of Net Income to EBITDA.

The cash portion of the consideration was funded through a combination of cash on hand and, to minimize dilution, a new credit facility, jointly from TD and BMO replacing Sangoma’s existing debt. Approximately C$46 million has been drawn on this facility of which approximately C$22 million will be used to pay off all existing debt and around C$24 million to fund this acquisition. This new facility also provides for up to C$8 million in a term loan, which would be utilized in about one year, to pay out any of the up to US$6 million in contingent consideration earned, but which would only be drawn upon if required at that time. Finally, it also includes a C$10 million revolver available for general working capital purposes. The new credit facility will be drawn in US dollars, be repaid over 6 years and is expected to have an interest rate of 6.75% per annum at closing.

Outlook for Fiscal Year 2020 to Include the VI Acquisition

For fiscal year 2019, Sangoma had previously issued guidance of over $100 million in revenue and $11 million in EBITDA. Subsequent to the end of fiscal 2019 on June 30, Sangoma announced in early August, that preliminary, unaudited revenue for the full fiscal 2019 year, was over $109 million. Sangoma earlier today released its audited results for fiscal 2019 with revenue of $109.6 million and EBITDA of $12.3 million. Following the closing of the acquisition today, VoIP Innovations, LLC will contribute just over eight (8) months of results towards Sangoma’s fiscal year 2020 which runs from July 1, 2019 to June 30, 2020. It is expected that combined revenues will increase to between C$135 million and $143 million in fiscal 2020. Further, the Company anticipates generating EBITDA of between approximately C$19 and $20 million this fiscal year. Sangoma’s leverage would then be projected to be about 2.4 times total debt to EBITDA, or under 2x net debt to EBITDA.

Transaction Advisor

INFOR Financial Inc. acted as the exclusive financial advisor to Sangoma in connection with the transaction.

About Sangoma Technologies Corporation

Sangoma Technologies is a trusted leader in delivering Unified Communications solutions for SMBs, Enterprises, OEMs, Carriers and service providers. Sangoma’s globally, scalable offerings include both on-premises and cloud-based phone systems, telephony services and industry leading Voice-Over-IP solutions, which together provide seamless connectivity between traditional infrastructure and new technologies. Sangoma’s products and services are used in leading PBX, IVR, contact center, carrier networks and data-communication applications worldwide. Businesses can achieve enhanced levels of collaboration, productivity and ROI with Sangoma. Everything Connects, Connect with Sangoma!

Sangoma Technologies Corporation is publicly traded on the TSX Venture Exchange (TSX VENTURE: STC). Additional information on Sangoma can be found at: www.sangoma.com.

About VoIP Innovations, LLC

VoIP Innovations offers a business class wholesale VoIP network that is designed with performance, availability, and security in mind. Our data centers, located on multiple power grids, are interconnected via a robust dark fiber network that provides both the scalability and flexibility that our customers demand. Internet transit points within each discrete data center are served by multiple tier 1 peerings in order to provide the most direct service to our customers, reduce latency, and ensure maximum performance between endpoints. VoIP Innovations has over 8,500 rate centers and a wholesale DID warehouse that holds hundreds of thousands of DIDs that are ready to be provisioned on demand, offering us the unique ability to be an agile partner that can meet customers’ constantly evolving business requirements.