On the day Gamma’s 2012 financial results are announced CEO Bob Falconer talks to Comms Business Magazine about their achievements and the hard work and innovation that went in to them as well as providing his insight in to the market.
In a very challenging market Gamma has increased its turnover – up 4.4% from £131.4m to £137.2m whilst gross profits are up 18.2% from £38.0m to £44.9m. And it’s good news all round as EBITDA rises 29.7% from £10.9m to £14.2m and cash inflow before acquisitions and financing is up 23.1% from £5.3m to £6.6m.
Comms Business Magazine (CBM): Bob, these are a great set of results for Gamma. Do they exceed your expectations and what do you put the success down to?
Bob Falconer, CEO Gamma (BF): They are towards the upper end of our expectations to be honest. The success is mainly down to our channel partners smelling the coffee, as the Americans would say, and enthusiastically adopting next generation products like hosted and SIP, and what we increasingly refer to as Voice Application Services – essentially software that does clever stuff with voice calls. We’ve also had good early traction with our Ethernet and mobile offering, although these aren’t the main drivers of the overall numbers in 2012 – more so in 2013 we hope.
As a business we focus hard on selecting our product roadmap and we take a lot of input from the channel in doing that. We aim to stand out over the competition in three key areas: first, quickly turning product concept into practice, that is getting products out there that the channel values and
can easily adopt using good portals and the maximum automation. Second, a real emphasis on quality and customer service. When things go bump, as they inevitably will sometimes, we are absolutely brutal with ourselves in preventing recurrence, and third recruiting and retaining really capable people through our culture of openness and delegation. We were particularly pleased to be recognised as one of the 2013 Sunday Times Top 100 Companies to Work For.
CBM: Your growth seems to be largely organic whereas others have been more acquisitive – why is that? Clearly you have the balance sheet to make significant acquisitions if you choose?
BF: There are clearly different business models and we are definitely not a build and buy consolidator; making that model successful in the long term can be quite challenging as debt accumulates, churn erodes the base, and quality becomes hard to maintain with multiple systems etc. There is a real
mixture of successes and failures with this model; much of it is about timing of buying and selling. I’m rubbish at that – buy high sell low seems to be my track record in my limited forays into the stock market!
No, we’re essentially about having a clear strategy and coherent product roadmap with our products increasingly being joined up – or converged. To achieve this they have – to name just one constraint – to be on one CRM and billing system. This tends to be best achieved organically – when we have looked at acquiring product capability – as we did for data services a couple of years ago – we seem to inevitably conclude it will be better and cheaper to build on what we’ve got. We currently have over 70 people in development – mostly software related skills. This doesn’t mean that we won’t acquire when it is clearly accretive to our capability, indeed I’m very open to that. Equally, consolidating a business that wants to exit – if that makes sense for both parties then we’ll consider it – providing it doesn’t throw us off course and compromise our Policy of One on systems.
CBM: Would you agree that the market for SIP trunks and hosted telephony has now matured and past the early adopter phase?
BF: These are maturing at different rates and are now very much finding their place. For all but the more cautious customer SIP is very much on the agenda, and is the voice connectivity of the future whereas multi-tenanted hosted is not a panacea, but is finding its place alongside the PBX and single-tenanted hosted in the market. We’ve never been the doomsayers of the PBX. In both cases the big catalyst for growth is the availability of high capacity, resilient data services and the rapid expansion of fibre infrastructure in the UK is enabling that. We believe that there are around 750,000 SIP channels out there, but still 2.4 million ISDN lines so the market has some way to go.
We see SIP, coupled to high quality resilient Ethernet, as very compelling for mid-market to larger enterprises. When combined with an inbound call control system with network queuing, automated call diversion etc it creates a reliable and highly flexible combination – but it does need to be carrier class. We’ve put SIP into a lot of very large organisations with 500 to 1000 channels upwards.
The hosted voice market is a bit slower and has not grown at the rate that was predicted. There are many reasons for this, not least the bandwidth reliability as mentioned earlier. Also for the channel it has not always been an attractive financial model as the annuity cash flows are very different for a PBX reseller business. Customers of course tend to keep their PBX for 7 years or more and this naturally slows down a replacement technology. Multi-tenanted hosting is a solution that is, predominately, best suited to the SME market and distributed small sited customers. We have been supplying hosted telephony now for almost 7 years and our latest Horizon product is seeing the highest growth rates that we have ever seen. Even the most hardened PBX resellers either have or are considering a hosted offering in their portfolio.
CBM: How would you characterise the comms market right now. Generally, are resellers optimistic about their future and what would their reasons for this outlook?
BF: By their nature resellers are an optimistic bunch: which is what I love about the channel. The big big difference is that fewer of them are pure resellers anymore. Go back 5 years and the market was dominated by voice resellers offering businesses a discount on their telephone bill, PBX resellers swapping out hardware and mobile dealers. Many of these have either exited the market through the consolidation that has taken place, or transformed into something much broader. A typical channel partner of Gamma today is taking at least three products from us and adding their own magic sauce to that mix. Businesses are much more interested in a total solution nowadays, and that will certainly embrace data, voice and mobility, but may also include managed Lync for example.
We are much more engaged now with our partners in their selling process, providing the sort of support that hardware vendors are familiar with but carriers are not. So despite the continuing difficulties in the economy, or perhaps because of, businesses more than ever before need a trusted partner to work with.