Gamma Communications Regulatory News (GAMA)

12 January 2023

Gamma Communications plc

Trading Update

Full year adj. EBITDA and adj. EPS growth expectations remain unchanged*

Gamma Communications plc ("Gamma"), a leading provider of Unified Communication as a Service ("UCaaS") products, announces a trading update for the year ended 31 December 2022.

Trading

The UK business has continued to perform strongly throughout the year in both the Indirect and Direct channels, with healthy demand for our broadening UCaaS portfolio and products enabling Microsoft Teams. The strength of our financial performance more than offset the UK inflationary pressures, and 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 continues to offset the expected and continuing decline in lower margin traditional revenues. The overall growth of our European UCaaS business continues in line with the market but the individual performance varies 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. 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. Our smaller Spanish business has been impacted by the challenging local market economic conditions. Therefore, following a recent and ongoing review, the Board anticipates that the achievement of future business performance targets may take longer than originally forecast. This, combined with the increase in discount rates, will 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. This will be a non-cash adjusted item.

Cash

The closing net cash balance was £92.2m (2021: £49.5m), demonstrating Gamma'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 (2021: £11.7m), a year-on-year increase of 13.7%., the Neotel Spanish bolt-on acquisition (£4.4m paid in period) and a modest increase in group capex investment in product development compared to 2021.

Financial Performance

Overall, we anticipate reporting a group financial performance which will demonstrate significant year on year growth and an adjusted EBITDA and adjusted EPS for the year ended 31 December 2022 in line with the Board's previous expectations*. Market consensus has increased since the Half year report, published in September, but we expect to report adjusted EBITDA in the upper half of the updated range, and adjusted EPS within the range.**

Overview of the year

Some of the key highlights from the year include:

Growth in core Cloud PBX seats in UK in line with previous years; attachment volumes for supplementary products continue to grow and ARPUs have been maintained.

Significant contract wins, including the Department of Work and Pensions and DEFRA for Microsoft Teams, The AA for mobility services and Central Bedfordshire and Colchester Borough councils for UCaaS and CCaaS.

Investment in our own products as well as enabling systems. There were product launches of CircleLoop (digital cloud based small business phone system) in both the Netherlands and Germany; and of Operator Connect for Teams in the Netherlands. We have also started programmes to update both our HR and Finance systems across the Group.

The Board expects to announce results for the year ended 31 December 2022 on Tuesday 21 March 2023.

Note: Company compiled range is based on known sell-side analyst estimates.

* At the H1 Trading update (2 August 2022) the Board reiterated their expectation that adjusted EBITDA and adjusted EPS for the year ending 31 December 2022 would be in the upper half of the analysts' range: The range being adjusted EBITDA £102.3m - £106.8m and adjusted EPS 67.1 pence - 74.6 pence. The Board's expectations remain unchanged.

** The latest known sell-side analyst estimates for the full year ended 31 December 2022 are adjusted EBITDA £102.7m - £107.0m and adjusted EPS 70.1 pence - 74.8 pence.

Andrew Belshaw, Chief Executive, commented:

"Our staff and partners have delivered another set of strong results for Gamma. 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. The recent bolt-on Neotel acquisition in Spain helps deliver greater operational scale which we expect will 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."

END