Gamma Communications Regulatory News (GAMA)

16 January 2024

Gamma Communications plc

Scheduled Trading Update

Full year adj. EBITDA and adj. EPS growth expectations reiterated delivering significant cash generation*

Gamma Communications plc ("Gamma" or the "Company"), a leading provider of Unified Communication as a Service ("UCaaS") solutions, announces a trading update for the year ended 31 December 2023.

Overall, the Board anticipates reporting a group financial performance which will demonstrate healthy year-on-year growth in both adjusted EBITDA and adjusted EPS for the year ended 31 December 2023. This is in line with the market consensus that was increased following the publication of our 2023 interim results in September 2023.*

Trading

The UK business has continued its robust financial performance throughout the year in both the Gamma Business (formerly Indirect) and Gamma Enterprise (formerly Direct) business units. The strength of our performance, supported by price rises earlier in the year, mitigated the UK inflationary pressures. Both business units have delivered similar margin and volume trends to those we shared in our 2023 interim results.

Gamma Business has continued to expand its UCaaS offering through both new external partnerships and the internal development of our own software, such as PhoneLine+. This more recent external approach includes a deeper long-term partnership with Cisco and a unique UK partnership with Ericsson-LG (following the acquisition of EnableX Group in December 2023). Given our UCaaS portfolio has now been strengthened by these opportunities with market leaders, there is likely to be a need to adjust the carrying value of intangible development costs in relation to some of our own products which had been in development. This will be a non-cash exceptional item with detail provided at the full year results, following completion of reviews and the normal full year audit process.

Gamma Enterprise has continued to have significant contract wins, including UK wide SD-WAN solutions for Redde Northgate plc and the Denholm Group, and a Microsoft Teams implementation with a Contact Centre as a Service ("CCaaS") overlay for Gloucester County Council. There have also been a number of wins for our AWS omnichannel contact centre, via our enablement tool Smart Agent, with the Government Digital Project and Shawbrook Bank. In addition, Satisnet Limited, the UK-based Managed Security Services Provider that was acquired in August 2023 has been successfully integrated.

In Europe, we have seen an improved year-on-year financial performance. The German and Dutch businesses have been combined under a single leadership team. The financial growth of our Spanish business has been CCaaS led with the successful integration of the Neotel business acquired in 2022.

Following organisational changes related to the expanded UCaaS offering and the combining of the German and Dutch senior leadership team, the Company carried out a restructuring exercise in late 2023, impacting around 5% of the group's workforce. Given the one-off nature of this cost, it will be treated as an exceptional item.

Cash

The closing net cash balance was £134.8m (2022: £92.5m), which demonstrates Gamma's continued high cash generation from operations, which as a percentage of adjusted EBITDA remained above 100%. The sizeable £42.3m net cash increase year-on-year was achieved after taking account of the cash outflow for the two acquisitions and the payment of dividends to shareholders. The two acquisitions were Satisnet for an initial cash payment, less cash acquired, of £8.3m and EnableX Group for an initial cash payment (including the repayment of EnableX borrowings), less cash acquired, of £18.9m. The dividend payment to shareholders increased 14.3% to £15.2m (2022: £13.3m). Capital expenditure remained within guidance.**

The Board expects to announce results for the year ended 31 December 2023, including an update on the Company's approach to capital allocation, on Monday 25 March 2024.

Andrew Belshaw, Chief Executive, commented:

"Our staff and partners have delivered another set of positive results for Gamma across all our business units in the UK and Europe.

We welcomed the Satisnet and EnableX teams to the group and I am excited about the partnerships with a number of the global tech giants which bring us enhanced access to leading edge UCaaS and CCaaS solutions, such as Cisco's Webex AI Portfolio. I am also pleased with the strong European 2023 financial performance, as well as the work done on a Gamma-wide HR system that will be operational in Q2 2024 and the launch of the Finance ERP system project which will enhance our capabilities from 2025.

Gamma continues to deliver high cash generation, allowing for the self-funding of bolt-on acquisitions while growing net cash by 45% to £135m and is well positioned to continue to grow in 2024 with strong relationships, our evolving in-house and third-party solution set and Gamma's resilient recurring revenue model."

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

* The latest known sell-side analyst estimates for the full year ended 31 December 2023 are adjusted EBITDA £113.8m - £116.0m and adjusted EPS 74.2 pence - 77.4 pence.

** Capex guidance provided at the 2022 full year results (21 March 2023) and reiterated at the 2023 interim results (5 September 2023) of £22m-£25m for the year ending 31 December 2023.