Condensed consolidated interim statements of financial position
As at December 31, 2023, and June 30, 2023
(Unaudited in thousands of US dollars, except per share data)
December 31,
June 30,
Note
2023
2023
$
$
Assets
Current assets
Cash and cash equivalents
4
10,562
11,156
Trade and other receivables
4
20,088
21,905
Inventories
6
17,124
17,970
Sales tax receivable
136
273
Income tax receivable
3,050
3,192
Contract assets
1,570
1,762
Derivative assets
15
877
1,218
Other current assets
3,134
4,420
56,541
61,896
Non-current assets
Property and equipment
7
8,426
9,152
Right-of-use assets
8
12,033
13,152
Intangible assets
9
140,714
157,437
Development costs
10
7,551
6,569
Deferred income tax assets
2,505
3,210
Goodwill
12
187,502
187,502
Contract assets
2,728
2,911
Derivative assets
15
352
768
Other non-current assets
430
422
418,782
443,019
Liabilities
Current liabilities
Accounts payable and accrued liabilities
4
19,660
24,077
Provisions
13
489
237
Sales tax payable
5,501
5,867
Income tax payable
137
61
Consideration payable
14
—
1,894
Operating facility and loans
15
17,700
17,700
Contract liabilities
16
9,936
10,909
Lease obligations on right-of-use assets
8
2,956
2,719
56,379
63,464
Long term liabilities
Operating facility and loans
15
74,275
83,125
Contract liabilities
16
3,358
3,642
Non-current lease obligations on right-of-use assets
8
10,300
11,612
Deferred income tax liabilities
11,581
14,295
Other non-current liabilities
1,513
766
157,406
176,904
Shareholders’ equity
Share capital
380,915
379,924
Contributed surplus
18,659
18,132
Accumulated other comprehensive income
761
1,335
Accumulated deficit
(138,959)
(133,276)
261,376
266,115
418,782
443,019
Approved by the Board
(Signed)
Al Guarino
Director
(Signed)
Allan Brett
Director
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
Sangoma Technologies Corporation
Condensed consolidated interim statements of loss and comprehensive loss
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
Three month periods ended
Six month periods ended
December 31,
December 31,
December 31,
December 31,
Note
2023
2022
2023
2022
$
$
$
$
Revenue
19
62,276
62,035
125,304
126,086
Cost of sales
18,290
19,246
37,290
39,960
Gross profit
43,986
42,789
88,014
86,126
Expenses
Sales and marketing
14,652
15,613
31,169
31,261
Research and development
10,005
9,227
19,320
18,656
General and administration
11,518
10,840
22,326
21,592
Amortization of intangible assets
9
8,362
8,578
16,723
17,155
Interest expense (net)
4,15
1,795
1,632
3,457
3,210
Restructuring and business integration costs
1,335
355
1,491
407
Loss (gain) on change in fair value of consideration payable
14
202
(350)
202
(1,931)
Loss before income tax
(3,883)
(3,106)
(6,674)
(4,224)
Provision for income taxes
Current
11
279
744
664
785
Deferred
11
(923)
(1,115)
(1,655)
(298)
Net loss
(3,239)
(2,735)
(5,683)
(4,711)
Other comprehensive (loss) income
Items to be reclassified to net (loss) income
Change in fair value of interest rate swaps, net of tax
15
(481)
212
(574)
649
Comprehensive loss
(3,720)
(2,523)
(6,257)
(4,062)
Loss per share
Basic and diluted
17(iii)
$
(0.10)
$
(0.08)
$
(0.17)
$
(0.14)
Weighted average number of shares outstanding
Basic and diluted
17(iii)
33,154,121
32,512,058
33,246,940
33,039,477
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
Sangoma Technologies Corporation
Condensed consolidated interim statements of changes in shareholders' equity
For the six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
Note
Number of common shares
Share capital
Shares to be issued
Contributed surplus
Accumulated other comprehensive earnings
Accumulated deficit
Total shareholders' equity
$
$
$
$
$
$
Balance, July 1, 2022
21,439,632
203,032
179,132
15,055
839
(104,250)
293,808
Net loss
—
—
—
—
—
(4,711)
(4,711)
Change in fair value of interest rate swaps, net of tax
15
—
—
—
—
649
—
649
Deferred tax benefit on share issuance costs
1,838,458
27,817
(27,817)
—
—
—
—
Common shares issued for options exercised
17(i)
9,234
57
—
(20)
—
—
37
Common shares purchased and cancelled
17(i)
(78,822)
(477)
—
—
—
—
(477)
Common shares returned from escrow
4
(142,124)
(1,702)
—
—
—
—
(1,702)
Share-based compensation expense
17(ii)
—
—
—
2,197
—
—
2,197
Balance, December 31, 2022
23,066,378
228,727
151,315
17,232
1,488
(108,961)
289,801
Balance, July 1, 2023
33,038,367
379,924
—
18,132
1,335
(133,276)
266,115
Net loss
—
—
—
—
—
(5,683)
(5,683)
Change in fair value of interest rate swaps, net of tax
15
—
—
—
—
(574)
—
(574)
Common shares issued for RSU exercised
17(i)
287,208
991
—
(991)
—
—
—
Share-based compensation expense
17(ii)
—
—
—
1,518
—
—
1,518
Balance, December 31, 2023
33,325,575
380,915
—
18,659
761
(138,959)
261,376
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
5
Sangoma Technologies Corporation
Condensed consolidated interim statements of cash flows
For the six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
Six month periods ended
December 31,
December 31,
Note
2023
2022
Operating activities
$
$
Net loss
(5,683)
(4,711)
Adjustments for:
Depreciation of property and equipment
7
2,123
2,499
Depreciation of right-of-use assets
8
1,490
1,978
Amortization of intangible assets
9
16,723
17,155
Amortization of development costs
10
2,030
1,024
Income tax expense (recovery)
11
(991)
487
Income tax paid
(199)
(3,946)
Share-based compensation expense
17(ii)
1,518
2,197
Unrealized foreign exchange (gain) loss
(35)
150
Accretion expense
8,14
210
603
Gain on lease modification
8
—
(36)
Loss on disposal of property and equipment
7
237
158
Loss (Gain) on change in fair value of consideration payable
14
202
(1,931)
Changes in working capital
Trade and other receivables
1,817
(620)
Inventories
846
(1,871)
Sales tax receivable
137
141
Contract assets
375
(734)
Other assets
1,278
1,927
Sales tax payable
(366)
(277)
Accounts payable and accrued liabilities
(4,417)
(4,749)
Provisions
252
12
Other non current liabilities
747
(76)
Contract liabilities
(1,257)
(756)
Net cash provided by operating activities
17,037
8,624
Investing activities
Purchase of property and equipment
7
(1,634)
(2,471)
Development costs
10
(3,397)
(3,647)
Net cash flows used in investing activities
(5,031)
(6,118)
Financing activities
Proceeds from operating facility and loan
15
—
3,000
Repayments of operating facility and loan
15
(8,850)
(8,850)
Repayment of lease obligations on right-of-use assets
8
(1,654)
(2,119)
Payment of consideration payable
14
(2,096)
—
Common shares purchased and cancelled
17(i)
—
(477)
Issuance of common shares for stock options exercised
17(i)
—
37
Net cash flows used in financing activities
(12,600)
(8,409)
Decrease in cash and cash equivalents
(594)
(5,903)
Cash and cash equivalents, beginning of the period
11,156
12,702
Cash and cash equivalents, end of the period
10,562
6,799
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
6
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
1. General information
Founded in 1984, Sangoma Technologies Corporation (“Sangoma” or the “Company”) is publicly traded on the Toronto Stock Exchange (TSX: STC) and NASDAQ (NASDAQ: SANG). The Company was incorporated in Canada, its legal name is Sangoma Technologies Corporation and its primary operating subsidiaries for fiscal 2024 are Sangoma Technologies Inc., Sangoma US Inc., Digium Inc., NetFortris Corporation, Star2Star Communications LLC, VoIP Supply LLC, and VoIP Innovations LLC.
Sangoma is a leading provider of hardware and software components that enable or enhance Internet Protocol Communications Systems for both telecom and datacom applications. Enterprises, small to medium sized businesses (“SMBs”) and telecom operators globally rely on Sangoma’s technology as part of their mission critical infrastructures. The product line includes data and telecom boards for media and signal processing, as well as gateway appliances and software.
The Company is domiciled in Ontario, Canada. The address of the Company’s registered office is 100 Renfrew Dr., Suite 100, Markham, Ontario, L3R 9R6 and the Company operates in multiple jurisdictions.
2. Significant accounting policies
Statement of compliance and basis of presentation
These interim financial statements for the three and six month periods ended December 31, 2023 and 2022 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”).
These interim financial statements do not include all of the disclosures required by International Financial Reporting Standards (“IFRS Accounting Standards”) for annual consolidated financial statements and accordingly should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2023 (“annual financial statements”) prepared in accordance with IFRS Accounting Standards.
The condensed consolidated interim financial statements were authorized for issue by the Board of Directors on February 8, 2024.
3. Significant accounting judgements, estimates and uncertainties
These unaudited condensed consolidated interim financial statements were prepared using the same basis of presentation, accounting policies and methods of computation as those of the audited consolidated financial statements for the year ended June 30, 2023. They were prepared using the same critical estimates and judgments in applying the accounting policies as those of the audited consolidated financial statements for the year ended June 30, 2023.
The preparation of the interim financial statements requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and reported assets, liabilities, revenue and expenses, consistent with those described in the Company’s annual financial statements and as described in these interim financial statements. Estimates and underlying assumptions are reviewed on an ongoing basis. Estimates are based on historical experience and other assumptions that are considered reasonable in the circumstances. The actual amount or values may vary in certain instances from the assumptions and estimates made. Changes will be recorded, with the corresponding effect on profit or loss, when, and if, better information is obtained.
7
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
4. Financial instruments
The fair values of the cash, trade and other receivables, contract assets, other current assets, accounts payable and accrued liabilities approximate their carrying values due to the relatively short-term nature of these financial instruments. The fair values of operating facility and loans approximate their carrying values due to variable interest loans or fixed rate loan, which represent market rate. Derivative assets and liabilities and consideration payable are recorded at fair value.
Cash and cash equivalents are comprised of:
December 31,
June 30,
2023
2023
$
$
Cash at bank and on hand
10,562
11,156
Cash includes demand deposits with financial institutions and cash equivalents consist of short-term, highly liquid investments purchased with original maturities of three months or less. As at December 31, 2023 and June 30, 2023 the Company had no demand deposits and cash equivalents.
Interest expense (net) comprises of total interest income and interest expense for financial assets or financial liabilities that are not at fair value through profit or loss, and can be summarized as follows:
Three month periods ended
Six month periods ended
December 31,
December 31,
December 31,
December 31,
Note
2023
2022
2023
2022
$
$
$
$
Interest income
(8)
(31)
(14)
(31)
Interest expense
15
1,701
1,363
3,261
2,638
Accretion expense
8, 14
102
300
210
603
Interest expense (net)
1,795
1,632
3,457
3,210
The Company examines the various financial instrument risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, foreign currency risk, interest rate risk and market risk.
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations. Where possible, the Company uses an insurance policy with Export Development Canada (“EDC”) for its trade receivables to manage this risk and minimize any exposure.
December 31,
June 30,
Note
2023
2023
$
$
Trade receivables
15,582
16,060
Receivable related to working capital adjustment
4,506
5,845
Trade and other receivables
20,088
21,905
8
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
During the period ended December 31, 2023, the Company received $1,339 (December 31, 2022 - $nil) cash from the escrow account for the working capital provision related to certain indemnification assets recorded in respect of liabilities assumed on the acquisition of NetFortris. The remaining balance is $4,506 as at December 31, 2023 (June 30, 2023 - $5,845).
The Company’s maximum exposure to credit risk for its trade receivables is summarized as follows with some of the over 90-day receivable not being covered by EDC:
December 31,
June 30,
2023
2023
$
$
Trade receivables aging:
0-30 days
11,244
11,759
31-90 days
3,317
3,313
Greater than 90 days
2,236
2,554
16,797
17,626
Expected credit loss provision
(1,215)
(1,566)
15,582
16,060
The movement in the provision for expected credit losses can be reconciled as follows:
December 31,
June 30,
2023
2023
$
$
Expected credit loss provision:
Expected credit loss provision, beginning balance
(1,566)
(2,281)
Net change in expected credit loss provision during the period
351
715
Expected credit loss provision, ending balance
(1,215)
(1,566)
The Company applies the simplified approach to provide for expected credit losses as prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables and contract assets. The expected
credit loss provision is based on the Company’s historical collections and loss experience and incorporates forward-looking factors, where appropriate.
Substantially all of the Company’s cash and cash equivalents are held with major Canadian and US financial institutions and thus the exposure to credit risk is considered insignificant. Management actively monitors the Company’s exposure to credit risk under its financial instruments, including with respect to trade receivables.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements. The Company coordinates and align this planning and budgeting process with its financing activities through its capital management process.
9
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
The Company holds sufficient cash and cash equivalents and working capital, maintained through stringent cash flow management, to ensure sufficient liquidity is maintained. The following are the undiscounted contractual maturities of significant financial liabilities of the Company as at December 31, 2023:
within 12 months
12-24 months
24-36 months
>36 months
Total
$
$
$
$
$
Accounts payable and accrued liabilities
19,660
—
—
—
19,660
Sales tax payable
5,501
—
—
—
5,501
Operating facility and loans
17,700
22,775
20,600
30,900
91,975
Lease obligations on right of use assets
3,304
2,819
2,036
6,422
14,581
Other non-current liabilities
—
—
—
1,513
1,513
46,165
25,594
22,636
38,835
133,230
Foreign currency risk
A portion of the Company’s transactions occur in a foreign currency (Canadian Dollars (CAD), Euros (EUR), Great British Pounds (GBP), Indian Rupees (INR), Philippine Peso (PHP), Australian Dollar (AUD), and Columbia Peso (COP) , therefore, the Company is exposed to foreign currency risk at the end of the reporting period through its foreign denominated cash, trade receivables, contract assets, accounts payable and accrued liabilities. As at December 31, 2023, a 10% depreciation or appreciation of the CAD, EUR, GBP, INR, PHP, AUD and COP currencies against the U.S. dollar would have resulted in an approximate $56 (June 30, 2023 - $76) increase or decrease, respectively, in total comprehensive loss.
Interest rate risk
The Company’s exposure to interest rate fluctuations is with its credit facility (Note 15) which bears interest at a floating rate. As at December 31, 2023, a change in the interest rate of 1% per annum would have an impact of approximately $727 (December 31, 2022 - $878) per annum in finance costs. The Company also entered an interest rate swap arrangement for its loan facility (Note 15) to manage the exposure to changes in SOFR-rate based interest rate. As described in detail in Note 15, the fair value of the interest rate swaps are a current asset of $877 and non-current asset of $352 on December 31, 2023 (June 30, 2023 - current asset of $1,218 and non-current asset of $768).
5. Capital management
The Company’s objectives in managing capital is to safeguard the Company’s assets, to ensure sufficient liquidity to sustain the viability of the future development of the business via advancement of its significant research and development efforts, to conservatively manage financial risk and to maximize investor, creditor, and market confidence. The Company considers its capital structure to include its shareholders’ equity and operating facilities and loans. Working capital is optimized via stringent cash flow policies surrounding disbursement, foreign currency exchange and investment decision-making. There have been no changes in the Company’s approach to capital management during the period, and apart from the financial covenants as discussed in Note 15, the Company is not subject to any other capital requirements imposed by external parties.
10
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
6. Inventories
Inventories recognized in the condensed consolidated interim statements of financial position are comprised of:
December 31,
June 30,
2023
2023
$
$
Finished goods
12,896
13,860
Components and parts
5,406
5,234
18,302
19,094
Provision for obsolescence
(1,178)
(1,124)
Net inventory carrying value
17,124
17,970
11
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
7. Property and equipment
Office furniture
Stockroom
and computer
Software
and production
Tradeshow
Leasehold
equipment
equipment
equipment
improvements
Total
Cost
$
$
$
$
$
$
Balance at July 1, 2022
4,737
458
10,451
47
475
16,168
Additions
846
—
3,170
—
—
4,016
Disposals
(217)
—
(754)
—
(25)
(996)
Balance at June 30, 2023
5,366
458
12,867
47
450
19,188
Additions
458
—
1,135
—
41
1,634
Disposals
—
—
(402)
—
—
(402)
Balance at December 31, 2023
5,824
458
13,600
47
491
20,420
Accumulated depreciation
Balance at July 1, 2022
2,452
413
2,759
47
223
5,894
Depreciation expense
976
21
3,670
—
62
4,729
Disposals
(64)
—
(523)
—
—
(587)
Balance at June 30, 2023
3,364
434
5,906
47
285
10,036
Depreciation expense
385
10
1,703
—
25
2,123
Disposals
—
—
(165)
—
—
(165)
Balance at December 31, 2023
3,749
444
7,444
47
310
11,994
Net book value as at:
Balance at June 30, 2023
2,002
24
6,961
—
165
9,152
Balance at December 31, 2023
2,075
14
6,156
—
181
8,426
For the three and six month periods ended December 31, 2023, depreciation expenses of $247 and $492 (three and six month periods ended December 31, 2022- $261 and $524) were recorded in general and administration expense in the condensed consolidated interim statements of loss and comprehensive loss. Depreciation expenses in the amounts of $803 and $1,631 were included in cost of sales for the three and six month periods ended December 31, 2023 (three and six month periods ended December 31, 2022 - $932 and $1,975).
12
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
8. Leases: Right-of-use assets and lease obligations
The Company’s lease obligations and right-of-use assets are presented below:
Right-of-use assets
$
Present value of leases
Balance as at July 1, 2022
23,230
Additions
41
Terminations
(1,089)
Balance at June 30, 2023
22,182
Additions
371
Terminations
(1,423)
Balance at December 31, 2023
21,130
Accumulated depreciation and repayments
Balance as at July 1, 2022
6,256
Depreciation expense
3,778
Terminations
(1,004)
Balance at June 30, 2023
9,030
Depreciation expense
1,490
Terminations
(1,423)
Balance at December 31, 2023
9,097
Net book value as at:
June 30, 2023
13,152
December 31, 2023
12,033
Lease Obligations
$
Present value of leases
Balance as at July 1, 2022
17,989
Additions
41
Adjustments due to lease modification
(36)
Repayments
(4,072)
Accretion expense
476
Terminations
(54)
Effects of movements on exchange rates
(13)
Balance at June 30, 2023
14,331
Additions
371
Repayments
(1,654)
Accretion expense
210
Effects of movements on exchange rates
(2)
Balance at December 31, 2023
13,256
Lease Obligations - Current
2,956
Lease Obligations - Non-current
10,300
13,256
13
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
9. Intangible assets
Other
Purchased
Customer
purchased
Note
technology
relationships
Brand
intangibles
Total
$
$
$
$
$
Cost
Balance at July 1, 2022
110,123
126,456
6,787
2,748
246,114
Balance at June 30, 2023
110,123
126,456
6,787
2,748
246,114
Balance at December 31, 2023
110,123
126,456
6,787
2,748
246,114
Accumulated amortization
Balance at July 1, 2022
23,906
25,464
2,820
2,555
54,745
Amortization expense
17,670
15,357
766
139
33,932
Balance at June 30, 2023
41,576
40,821
3,586
2,694
88,677
Amortization expense
8,837
7,551
315
20
16,723
Balance at December 31, 2023
50,413
48,372
3,901
2,714
105,400
Net book value as at:
Balance at June 30, 2023
68,547
85,635
3,201
54
157,437
Balance at December 31, 2023
59,710
78,084
2,886
34
140,714
Amortization of intangible assets for the three and six month periods ended December 31, 2023 were $8,362 and $16,723 (three and six month periods ended December 31, 2022 - $8,578 and $17,155).
14
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
10. Development costs
Cost
$
Balance at July 1, 2022
5,969
Additions
7,250
Cost fully amortized
(380)
Investment tax credits
(788)
Balance at June 30, 2023
12,051
Additions
3,397
Investment tax credits
(385)
Balance at December 31, 2023
15,063
Accumulated amortization
Balance at July 1, 2022
(3,108)
Amortization
(2,705)
Cost fully amortized
331
Balance at June 30, 2023
(5,482)
Amortization
(2,030)
Balance at December 31, 2023
(7,512)
December 31,
June 30,
2023
2023
$
$
Net capitalized development costs
7,551
6,569
Each period, additions to development costs are recognized net of investment tax credits accrued. In addition to the above amortization, the Company has recognized $8,947 and $17,290 of engineering expenditures as expenses during the three and six month periods ended December 31, 2023 (three and six month periods ended December 31, 2022- $8,625 and $17,632).
15
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
11. Income tax
The Company income tax expense is determined as follows:
Three month periods ended
Six month periods ended
December 31,
December 31,
December 31,
2023
2022
2023
2022
Statutory income tax rate
25.62%
26.15%
25.62%
26.15%
$
$
Loss before income tax
(3,883)
(3,106)
(6,674)
(4,224)
Expected income tax expense
(994)
(812)
(1,709)
(1,104)
Difference in foreign tax rates
5
(1)
13
(10)
Share based compensation
219
335
389
574
Other non deductible expenses
(32)
(52)
(62)
(33)
Changes in estimates
(193)
23
1
23
Scientific Research and Experimental Development (SR&ED)
18
36
44
36
Sec 481(a) adjustment
—
(34)
—
—
Gain on consideration payable
51
(92)
51
(506)
Stock options deduction revaluation adjustment
—
183
—
1,350
Earn-out amortization
—
46
—
92
Changes in tax benefits not recognized
282
(3)
282
65
Income tax expense
(644)
(371)
(991)
487
The Company’s income tax expense is allocated as follows:
$
$
$
$
Current tax expense
279
744
664
785
Deferred income tax expense
(923)
(1,115)
(1,655)
(298)
Income tax expense
(644)
(371)
(991)
487
12. Goodwill
The carrying amount and movements of goodwill was as follows:
$
Balance at July 1, 2022
210,009
Goodwill Impairment
(22,507)
Balance at June 30, 2023
187,502
Balance at December 31, 2023
187,502
There is no addition to goodwill for the three and six month periods ended December 31, 2023. The Company has evaluated for triggers of impairment at December 31, 2023 and has not identified any indicators of impairment.
16
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
13. Provisions
$
Balance at July 1, 2022
200
Additional provision recognized
37
Balance at June 30, 2023
237
Additional provision recognized (used)
252
Balance at December 31, 2023
489
The provision for warranty obligations represents the Company’s best estimate of repair and/or replacement costs to correct product failures. The sales returns and allowances provision represent the Company’s best estimate of the value of the products sold in the current financial period that may be returned in a future period. The stock rotation provision represents the Company’s best estimate of the value of the products sold in the current financial period that may be exchanged for alternative products in a future period. The Company accrues for product warranties, stock rotation, and sales returns and allowances at the time the product is delivered.
14. Consideration payable
During the three and six month periods ended December 31, 2023, the Company made payments of $2,096 (December 31, 2022 - $nil ). As of December 31, 2023, the Company's has no outstanding balance of consideration payable.
The fair value of consideration payable as at December 31, 2023 is summarized below:
$
Opening balance, July 1, 2022
12,768
Payments
(8,334)
Accretion during the period
435
Remeasurement during the period
(2,975)
Ending balance, June 30, 2023
1,894
Payments
(2,096)
Remeasurement during the period
202
Ending balance, December 31, 2023
—
15. Operating facility and loan and derivative assets and liabilities
(a) Operating facility and loan
(i)On October 18, 2019, the Company entered into a loan facility with two banks and drew down $34,800. This loan is repayable on a straight-line basis through quarterly installment of $1,450, and will be fully repaid on September 30, 2025. Separately, as required under the agreement, the Company locked in half of the original loan amount by entering a six year interest rate credit swap with the two banks for $8,700 each. The balance outstanding against this term loan facility as of December 31, 2023 is $10,150 (June 30, 2023 - $13,050). As at December 31, 2023, term loan facility balance of $5,800 (June 30, 2023 - $5,800) is classified as current and $4,350 (June 30, 2023 - $7,250) as long-term in the condensed consolidated interim statements of financial position.
17
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
(ii)On March 31, 2021, the Company amended its term loan facility with its lenders and drew down a second loan of $52,500 to fund part of the acquisition of StarBlue Inc.
The second loan is repayable, on a straight-line basis, through quarterly payments of $2,188 and matures on February 28, 2027. As at December 31, 2023, $8,750 (June 30, 2023 - $8,750) is classified as current and $19,688 (June 30, 2023 - $24,063) is classified as long-term in the condensed consolidated interim statements of financial position.
(iii)On March 28, 2022, the Company amended its term loan facility with its lenders and drew down a third loan of $45,000 to fund part of the acquisition of NetFortris Corporation. The loan is repayable, on a straight-line basis, through quarterly payments of $1,875 and is due to mature on March 28, 2027. On June 28, 2022, the Company amended its term loan facility with its lenders, the amended repayment for the first twelve quarterly payments of $788 and $2,963 thereafter. As at December 31, 2023, $3,150 (June 30, 2023 - $3,150) is classified as current and $36,337 (June 30, 2023 - $37,912) is classified as long-term in the condensed consolidated interim statements of financial position.
(iv)On April 6, 2023 the Company increased the amount of the revolving credit facility from $6,000 to $20,000 and the amount of the swingline credit facility from $1,500 to $5,000. As of December 31, 2023, the amount of $13,900 (June 30, 2023 - $13,900) remains outstanding and is classified as long term in the condensed consolidated interim statements of financial position.
For the three and six month periods ended December 31, 2023, the Company incurred interest costs to service the borrowing facilities in the amount of $1,701 and $3,261 (for the three and six month periods ended December 31, 2022 - $1,363 and $2,638). During the six month period ended December 31, 2023, the Company borrowed $0 (six month period ended December 31, 2022 - $nil) in operating facility and loans and repaid $8,850 (six month period ended December 31, 2022 - $8,850).
Under its credit agreements with its lenders, the Company must satisfy certain financial covenants, principally in respect of total funded debt to earnings before interest, taxes and amortization (“EBITDA”), and debt service coverage ratio. As at December 31, 2023, and June 30, 2023 the Company was in compliance with all covenants related to its credit agreements.
(b) Derivative assets and liabilities
The Company uses derivative financial instruments to hedge its exposure to interest rate risks. All derivative financial instruments are recognized as either assets or liabilities at fair value on the condensed consolidated interim statements of financial position. Upon entering into a hedging arrangement with an intent to apply hedge accounting, the Company formally documents the hedge relationship and designates the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge. When the Company determines that a derivative financial instrument qualifies as a cash flow hedge and is effective, the changes in fair value of the instrument are recorded in accumulated other comprehensive loss, net of tax in the condensed consolidated interim statements of financial position and will be reclassified to earnings when the hedged item affects earnings.
The interest rate swap arrangement with two banks became effective on January 31, 2020, with a maturity date of December 31, 2024. The notional amount of the swap agreement at inception was $17,400 and decreases in line with the term of the loan facility. Effective March 31, 2022, Sangoma US Inc. entered into a fixed rate swap transaction worth $43,750 over a five year period and terminating on February 28, 2027. As of December 31, 2023, the notional amount of the interest rate swap was $33,733 (June 30, 2023 – $39,621). The interest rate swap has a weighted average fixed rate of 1.80% (June 30, 2023 – 1.80%) and have been designated as an effective cash flow hedge and therefore qualifies for hedge accounting.
18
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
As at December 31, 2023, the fair value of the interest rate swap assets were valued at current of $877 (June 30, 2023 - $1,218) and non-current $352 (June 30, 2023 – $768). The current and non-current derivative assets were recorded in the condensed consolidated interim statements of financial position.
For the three and six month periods ended December 31, 2023, the change in fair value of the interest rate swaps, net of tax, were a loss of $481 and $574 (December 31, 2022 – a gain of $212 and $649) recorded in other comprehensive loss in the condensed consolidated interim statements of loss and comprehensive loss. The fair value of interest rate swap is determined based on the market conditions and the terms of the interest rate swap agreement using the discounted cash flow methodology. Any differences between the hedged SOFR rate and the fixed rate are recorded as interest expense on the same period that the related interest is recorded for the loan facility based on the SOFR rate.
16. Contract liabilities
Contract liabilities, which includes deferred revenues, represent the future performance obligations to customers in respect of services or customer activation fees for which consideration has been received upfront and is recognized over the expected term of the customer relationship.
Contract liabilities as at December 31, 2023, and June 30, 2023 are below:
$
Opening balance, July 1, 2022
15,067
Revenue deferred during the period
23,839
Deferred revenue recognized as revenue during the period
(24,355)
Ending balance, June 30, 2023
14,551
Revenue deferred during the period
19,244
Deferred revenue recognized as revenue during the period
(20,501)
Ending balance, December 31, 2023
13,294
Contract liabilities - Current
9,936
Contract liabilities - Non-current
3,358
13,294
19
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
17. Shareholders' equity
(i)Share capital
The Company’s authorized share capital consists of an unlimited number of common shares without par value. As at December 31, 2023 and 2022, the Company’s issued and outstanding common shares consist of the following:
Three month periods ended
Six month periods ended
December 31, 2023
December 31, 2022
December 31, 2023
December 31, 2022
#
#
#
#
Shares issued and outstanding:
Outstanding, beginning of the period
33,184,200
22,289,373
33,038,367
21,439,632
Shares issued as installment for shares to be issued
—
981,314
—
1,838,458
Shares purchased and cancelled
—
(62,622)
—
(78,822)
Shares returned from escrow and cancelled
—
(142,124)
—
(142,124)
Shares issued upon exercise of options
—
437
—
9,234
Shares issued upon exercise of RSUs
141,375
—
287,208
—
Outstanding, end of the period
33,325,575
23,066,378
33,325,575
23,066,378
During the six month period ended December 31, 2023, a total of 287,208 (December 31, 2022 – nil) shares were issued upon the exercise of Restricted Share Units, and the Company recorded a charge of $991 (December 31, 2022 – $nil) from contributed surplus to share capital.
(ii) Share based payments
On December 13, 2022, the Corporation’s shareholders approved the Omnibus Equity Incentive Plan (the “Plan”), which replaces the previous share option plan (the “Legacy Plan”). No further grants will be made under the Legacy Plan.
Under the Plan, the Company may grant participants Options, Performance Share Units (PSUs), Restricted Share Units (RSUs) and Deferred Share Units (DSUs). The PSUs, RSUs and DSUs are redeemable either for one common share or for an amount in cash equal to the fair market value of one common share (at the option of the Company and as set out in the participant’s equity award agreement). All PSUs, RSUs and DSUs are accounted for as equity-settled awards.
DSUs generally vest immediately and become redeemable once a director no longer serves on the board of the Company. RSUs vest over a three-year period after the date of grant. The expense is measured based on the fair value of the awards at the grant date.
PSUs vest in full at the end of a three-year period and the final amount is based 50% on market-based performance targets being met and 50% on non-market-based performance targets, with the conversion ratio for vested PSUs being from 0% to 150%. The expense related to the PSUs is measured (i) based on the fair value of the awards at the grant date using the Monte Carlo simulation, with respect to the 50% based on the market-based performance targets, and (ii) based on the fair value of the awards at the grant date using the volume weighted average trading price per share on the TSX during the immediately preceding five trading days.
For the three and six month periods ended December 31, 2023, the Company recognized share-based compensation expense in the amount of $856 and $1,518 (December 31, 2022 - $1,282 and $2,197).
20
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
Stock Options
Under the Plan (and previously under the Legacy Plan), employees are periodically granted share options to purchase common shares at prices not less than the market price of the common shares on the day prior to the date of grant or the volume weighted average trading price per share on the TSX during the five trading days immediately preceding the grant date. The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. Expected volatility is determined by the amount the Corporation’s daily share price fluctuated over a period commensurate with the expected life of the options. During the six month period ended December 31, 2023 and December 31, 2022, the Corporation did not grant any options.
The following table shows the movement in the stock option plan:
Number
Weighted
of options
average price
#
$
Balance, July 1, 2022
1,207,908
14.02
Exercised
(9,234)
(4.02)
Expired
(82,536)
(16.13)
Forfeited
(181,218)
(17.59)
Balance, December 31, 2022
934,920
13.24
Balance, July 1, 2023
723,051
13.58
Forfeited
(199,181)
(10.40)
Balance, December 31, 2023
523,870
14.79
The following table summarizes information about the stock options outstanding and exercisable at the end of each period:
December 31,
December 31,
2023
2022
Number of
Weighted
Number of
Weighted
Number of
stock options
average
Number of
stock options
average
stock options
outstanding and
remaining
stock options
outstanding
remaining
Exercise price
outstanding
exercisable
contractual life
outstanding
and exercisable
contractual life
$3.01 - $5.00
—
—
0.00
18,018
18,018
0.08
$5.01 - $7.00
—
—
0.00
67,338
53,569
0.99
$7.01 - $9.00
146,627
65,129
3.50
241,000
—
4.50
$9.01 - $12.00
85,526
61,597
1.42
191,479
100,641
2.42
$12.01 - $15.00
45,000
19,695
3.25
55,000
—
4.25
$15.01 - $18.00
133,010
84,482
2.50
178,965
67,211
3.50
$18.01 - $20.00
22,856
12,876
2.50
75,713
23,667
3.67
$20.01 - $27.00
90,851
63,682
2.11
107,407
47,077
3.11
523,870
307,461
2.60
934,920
310,183
3.30
21
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
Share Units
The following table summarizes information about the DSUs, RSUs and PSUs granted, exercised and forfeited during the six month period ended December 31, 2023.
DSU
PSU
RSU
Total
Awards outstanding July 1, 2022
—
—
—
—
Awards granted during the period
—
352,500
655,000
1,007,500
Awards outstanding December 31, 2022
—
352,500
655,000
1,007,500
Awards outstanding July 1, 2023
66,391
130,000
130,000
326,391
Awards granted during the period
105,695
379,800
772,700
1,258,195
Awards exercised during the period
—
—
(287,208)
(287,208)
Awards forfeited during the period
—
(42,500)
(26,251)
(68,751)
Awards outstanding December 31, 2023
172,086
467,300
589,241
1,228,627
During the six month period ended December 31, 2023, 105,695 DSU were granted (December 31, 2022 – nil). The fair value of each DSU issued during the six month period ended December 31, 2023 is $3.07 per share (December 31, 2022 – $nil).
During the six month period ended December 31, 2023, 379,800 PSU were granted (December 31, 2022 – 352,500). The fair value tied to market-based performance targets for each of PSU issued during the six month period ended December 31, 2023 is $3.44 per share (December 31, 2022 –$3.69 ) using the Monte Carlo simulation.
The key assumptions used in the Monte Carlo simulation are:
December 31
December 31
2023
2022
Share price
3.44
3.69
Expected volatility
64.00%
60.00%
Time to expiry
2.57 years
2.52 years
Risk-free interest rate
4.40%
4.08%
During the six month period ended December 31, 2023, 772,700 RSU were granted (December 31, 2022 – 655,000). The fair value of each RSU issued during the six month period ended December 31, 2023 is $3.11 per share (December 31, 2022 –$4.20 ).
During the six month period ended December 31, 2023, 287,208 RSU were exercised and settled through the insurance of common shares (December 31, 2022 – nil).
22
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
(iii)Loss per share
Both the basic and diluted loss per share have been calculated using the net loss attributable to the shareholders of the Company as the numerator.
Three month periods ended
Six month periods ended
December 31,
December 31,
December 31,
December 31,
2023
2022
2023
2022
Number of shares:
Weighted average number of shares outstanding
33,154,121
22,512,058
33,246,940
23,039,477
Shares to be issued
—
10,000,000
—
10,000,000
Weighted average number of shares used in basic and diluted earnings per share
33,154,121
32,512,058
33,246,940
33,039,477
Net loss for the period
$
(3,239)
$
(2,735)
$
(5,683)
$
(4,711)
Loss per share
Basic and diluted loss per share
$
(0.10)
$
(0.08)
$
(0.17)
$
(0.14)
18. Related parties
The Company’s related parties include key management personnel and directors. Unless otherwise stated, none of the transactions incorporated special terms and conditions and no guarantees were given or received. Outstanding balances payable are usually settled in cash and relate to director fees.
The Company had incurred no related party transactions and had no outstanding balance with related parties for the six month periods ended December 31, 2023 and 2022.
19. Segment disclosures
The Company operates as one operating segment in the development, manufacturing, distribution and support of voice and data connectivity components for software-based communication applications. The majority of the Company’s assets are located in Canada and the United States of America (“USA”). The Company sells into three major geographic centers: USA, Canada and other foreign countries. The Company has determined that it has a single reportable segment as the Company’s decision makers review information on a consolidated basis.
Revenues for group of similar products and services can be summarized for the three and six month periods ended December 31, 2023 and 2022 as follows:
Three month periods ended
Six month periods ended
December 31,
December 31,
December 31,
December 31,
2023
2022
2023
2022
$
$
$
$
Products
11,573
12,604
23,445
28,331
Services
50,703
49,431
101,859
97,755
Total revenues
62,276
62,035
125,304
126,086
23
Sangoma Technologies Corporation
Notes to the condensed consolidated interim financial statements
For the three and six month periods ended December 31, 2023 and 2022
(Unaudited in thousands of US dollars, except per share data)
The sales in each of these geographic locations for the three and six month periods ended December 31, 2023 and 2022 as follows:
Three month periods ended
Six month periods ended
December 31,
December 31,
December 31,
December 31,
2023
2022
2023
2022
$
$
$
$
USA
58,010
57,163
116,703
116,845
Others
4,266
4,872
8,601
9,241
Total revenues
62,276
62,035
125,304
126,086
The non-current assets, in US dollars, in each of the geographic locations as at December 31, 2023, and June 30, 2023 are below:
December 31,
June 30,
2023
2023
$
$
USA
356,656
374,814
Others
5,585
6,309
Total non-current assets
362,241
381,123
Non-current assets included in Others primarily consists of assets held in Canada.
20. Authorization of the consolidated financial statements
The condensed consolidated interim financial statements were authorized for issuance by the Board of Directors on February 8, 2024.
