Gamma Communications ends year in line with consensus

Unified communications-as-a-service (UCaaS) provider Gamma Communications said in an update on Thursday that its UK business continued to perform “strongly” through the year just ended in both the indirect and direct channels, with “healthy demand” for its portfolio and products enabling Microsoft Teams.

The AIM-traded firm said the strength of its financial performance “more than offset” inflationary pressures in the UK, adding that the “minor” industry-wide hardware supply delays in the direct channel were “actively managed and resolved” within the year.

In Europe, UCaaS product revenue growth was offsetting the “expected and continuing decline” in lower-margin traditional revenues.

The board said the overall growth of the company’s European UCaaS business was continuing in line with the market, but added that individual performance varied, reflecting the different market conditions in each country.

“Our largest European business, Germany, continues to perform well, leading the UCaaS product growth across our European geographic footprint,” the board said in its statement.

“During the year, our German business won a number of 1000+ cloud seat regional customers which underpinned its anticipated double-digit percentage UCaaS seat growth and overall UCaaS revenue growth.

“The Netherlands business continues to make steady progress within its more mature market.”

Gamma said its smaller Spanish business was impacted by “challenging” local market economic conditions.

As a result, following a recent and ongoing review, the board said it expected that the achievement of future business performance targets could take longer than initially forecast.

That, combined with the increase in discount rates, would likely result in the need to impair the goodwill carried in relation to the Spanish 2020 VozTelecom acquisition in the audited results for the year ended 31 December 2022.

It would be a non-cash adjusted item, the directors confirmed.

Gamma said its closing net cash balance was £92.2m, up from £49.5m year-on-year, which the board put down to the firm’s continued high operating profit cash conversion.

The “sizeable” £42.7m net cash increase year-on-year was achieved even after allowing for £13.3m paid to shareholders in dividends, up from £11.7m year-on-year, as well as the Neotel Spanish bolt-on acquisition which saw £4.4m paid in the period, and a “modest increase” in group capital expenditure in product development.

Overall, the firm said it expected to report a group financial performance which would demonstrate “significant” year-on-year growth and an adjusted EBITDA and adjusted earnings per share for the year ended 31 December in line with the board's previous expectations.

Market consensus had increased since the half-year report, published in September, but the company said it expected to report adjusted EBITDA in the upper half of the updated range, and adjusted earnings per share within the range.

“Our staff and partners have delivered another set of strong results for Gamma,” said chief executive officer Andrew Belshaw.

“The positive, UK driven, momentum in the first half continued throughout the year, more than offsetting the cost headwinds created by the increased inflationary environment.

“Although market conditions remain challenging in Europe, Gamma, led by its robustly performing German business, continues to grow its UCaaS footprint.”

Belshaw said the recent bolt-on Neotel acquisition in Spain was helping to deliver “greater operational scale” which the company expected would lead to improved performance in that market.

“Demand for UCaaS products continues to grow across all our markets and segments. Gamma is well positioned with its strong relationships, evolving product set and resilient recurring revenue model.

“This, alongside the high margins and cash generation the group enjoys, will allow Gamma to continue to deliver and grow through the testing macroeconomic environment in 2023.”

Gamma said it would announce its results for the year ended 31 December on 21 March.

At 1131 GMT, shares in Gamma Communications were up 4.43% at 1,125.8p.

Reporting by Josh White for Sharecast.com.