Good day, and thank you for standing by. Welcome to the Ooma Fiscal First Quarter 2025 Financial Results. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to hand the conference over to your speakers today, Matt Robison. Please go ahead.

Thank you, Victor. Good day, everyone, and welcome to the fiscal first quarter 2025 earnings call of Ooma, Inc. My name is Matt Robison, Ooma's Director of IR and Corporate Development. On the call with me today are Ooma's CEO, Eric Stang; and CFO, Shig Hamamatsu. After the market closed today, Ooma issued its fiscal first quarter 2025 earnings press release. The release is also available on the company's website, ooma.com. This call is being webcast live and is accessible from a link on the Events & Presentations page of the Investor Relations section of our website. This link will be active for replay of this call for one year. During today's presentation, our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today and those risks were fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements, except as required by law. Please note that other than revenue or as otherwise stated, the financial measures to be disclosed on this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures is included in our earnings press release, which is available on our website. Excuse me. On this call, we will give guidance for the second quarter and full year fiscal 2025 on a non-GAAP basis. Also, in addition to our press release and 8-K, the Overview page and Events & Presentations page in the Investors section of our website, as well as the Quarterly Results page of the Financial Information section of our website, include links to information about costs and expenses not included in our non-GAAP values and key metrics of our core subscription businesses. These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation that also provides resolution of GAAP expenses that are excluded from non-GAAP metrics. Now, I will hand the call over to Ooma CEO, Eric Stang.

Thanks, Matt. Hi, everyone. Welcome to Ooma's first quarter fiscal year 2025 earnings call. Thanks for joining us. We are off to a good start for this fiscal year, and I look forward to reviewing our results with you. Ooma delivered $62.5 million in revenue and $3.6 million of non-GAAP net income in Q1. I'm pleased to report that each of these amounts exceeds our original expectations for the quarter and together they represent good momentum for the start of our FY '25 fiscal year. Revenue growth in Q1 was solid at 10% year-over-year. We are particularly pleased with our Q1 growth in business services revenue, which grew 18% year-over-year. We're also pleased to have increased our total number of business users despite a larger than normal churn of users by our largest customer, IWG, which was expected for the quarter. We are equally pleased with our operating cash flow of $3.6 million in Q1 and the fact that we were able to pay down an additional $4.5 million of debt in Q1, leaving us now with just $11.5 million of total debt. You will note that this is down from $18 million of debt just two quarters ago. In Q1, our operating cash flow was very nearly triple that of the same quarter a year ago. Ooma Business, which comprises our leading Office, Enterprise, AirDial and 2600Hz solutions, performed well in Q1. Our strategy to utilize our Pro and Pro Plus tiers to serve larger-sized customers is working with more new Ooma Office customers than in prior quarters being 20 or more users in size. Similarly, our integrations in select verticals are helping to drive our growth. We added several new integrations in the quarter, including with Zendesk, HubSpot and Square. Our integrations are also enhanced by some of…

Thank you, Eric, and good afternoon, everyone. I'm going to review our first quarter financial results and then provide our outlook for the second quarter and full year fiscal 2025. We had a solid start to our fiscal 2025 with total revenue of $62.5 million in the first quarter, above our guidance range of $61.7 million to $62.2 million. On a year-over-year basis, total revenue grew 10% in the first quarter, driven by the strength of Ooma Business as well as the addition of 2600Hz. In the first quarter, business subscription and services revenue accounted for 60% of total subscription and services revenue as compared to 56% in the prior-year quarter. Q1 product and other revenue came in at $4.1 million as compared to $3.8 million in the prior-year quarter. On the profitability front, the first quarter non-GAAP net income was $3.6 million, above our guidance range of $3 million to $3.3 million. Now some details on our Q1 revenue. Business subscription and services revenue grew 18% year-over-year in Q1, driven by user growth and the addition of 2600Hz. Excluding 2600Hz revenue contribution, business subscription and services revenue grew 12% year-over-year. On the residential side, subscription and services revenue was down 2% year-over-year. As a reminder, we had a one-time churn event during the first quarter of last fiscal year with a particular customer with an unusual application, which impacted our year-over-year comparison in Q1. For the first quarter, total subscription and services revenue was $58.4 million or 93% of total revenue as compared to $53 million or 93% of total revenue in the prior-year quarter. Now some details on our key customer metrics. We ended our first quarter with 1.239 million core users, which is slightly down from 1.243 million core users at the end of the fourth quarter.…

Thanks, Shig. So overall, Ooma is in a strong position, we think, with high-quality recurring revenue, a low cost structure for providing services, steady and manageable churn, positive cash generation and leading product solutions. Our focus today is on driving growth for our Ooma Business solutions. I believe we made good progress in Q1 and are off to a good start for FY '25. Thank you, everyone. We'll now take questions.

[Operator Instructions] Our first question will come from the line of Mike Latimore from Northland Capital. Your line is open.

All right, great. Thanks. Congrats on the strong profitability here. Curious about this 2600Hz win. You said it could be, I think, the one of your largest revenue customers. I guess, first question is, is the contract signed or is it still in the pipeline? And then maybe if you did -- if it is officially won, like what were the main reasons you won this deal?

Yeah. Hi, Mike. So, the contract is signed. The deployment process is underway. And we're quite excited about how large this customer can ultimately be. You've heard me talk in the past, we think that the 2600Hz platform and the way it's designed offers a lot of capability and flexibility for customers, and with hundreds of APIs available to build off of to customize a solution just the way you want it. And that makes it more extensive than the traditional CPaaS solutions out there in the market. This large customer happens to have a solution in place today, built off of a CPaaS solution and they felt that the 2600Hz platform was the right step for them to take to revise their solution and do more with it. So, we think it's great vote of confidence too in the concept of what we can do with this solution, the 2600Hz solution, in combination with all the apps and other development we've done in Ooma put together into this platform. So that's what this is about. I wish I could say more, but it's confidential for the customer and we'll be able to talk about more in the fall.

Okay, great. And then, on AirDial, it sounds like continued progress there. Would it be fair to assume AirDial could be 5% of subscription revenue exiting the year or is there any way to bracket just the size of AirDial?

Yeah. We really haven't given those kinds of estimates. We do have goals to grow AirDial through this year from where it's at. And yes, it did well in Q1, but that's one step in the journey for AirDial. As you know, we've been investing additional resources in the go-to-market for AirDial. So, it's a little bit hard to predict. I'm not sure I want to make a prediction. But I will say that we're very encouraged by the resellers we're working with and the ones we continue to add. And we are working very large opportunities on the AirDial front. And to be honest with you, we're working large opportunities across our business, not just with AirDial.

Okay. And just the last one, can you talk a little bit about kind of cloud, phone, bookings or demand kind of throughout the first five months of the year here, kind of as expected, is it kind of a consistent flow? And I guess I would sort of -- I'm referencing kind of the base not including your large customer.

Sure. Yeah, I mean, I guess I would frame your question -- Mike, the answer is this way, we were pleased with our bookings, if you will, our sales for Ooma Office and Enterprise in Q1, it was strong and we have not seen a market situation that would give us concern as we look to the rest of the year.

Okay, great. Thanks very much.

Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Brian Kinstlinger from Alliance Global Partners. Your line is open.

Great. Thanks so much for taking my questions. The first one, you mentioned you added some larger AirDial customer wins that are starting small. How do you think about the timeline of customers like this? Does it take six months after initial installs before a customer you think decides to adopt more for more copper lines? Will it take longer than that? And then, do you expect second orders to be much larger, to be similar in size? I guess, I'm just trying to understand the lifecycle of a large customer.

It's a very good question, Brian. I appreciate it. I'm looking at a list of close to 10 right here in front of me, where they might be hundreds of lines of potential or maybe even more than that. But we closed one location or two locations and -- which means a handful of lines. I think you can think of the timeline as -- I hate to say it, but a couple of months at least to get through a proof of concept and an install and some time to see how it works and let the customer come to grips with it, maybe another little bit of time for the customer to assess their needs across their whole business. There'll be some time to finalize an overall contract for a large number of locations and then a rollout process. A rollout process can take three to six months. So, I think the customers we're winning this -- that we won in Q1, if I look -- talk about that, the large customers we won in Q1 are the ones with large potential, they'll probably take till the end of the year to develop. I'll give you one more example. We had a customer we announced last fall. We won a retail chain with this customer and mentioned they're very high profile and have several other retail chains. We're now rolling out in two other of their retail chains. And I heard about a third one that may be a potential as the next step after this. So, that was six months ago that we did some work for them in their first retail chain, and here we are six months later and we're rolling out in two more. So, customers want to get this done. They know they need to get done over the next year or two if lines are going away, but unless they face severe pricing pressures in the moment, they don't need to move superfast. But they are moving. And we have the leading solution, which you've heard us talk about, feature wise, up against any other solution in the market, I think we show very, very well. And we do have a number of customers who tried other solutions and then came to us. So, I feel good about the opportunity longer term, but trying to handicap it is hard.

And a follow-up -- I'm sorry.

Yeah, just to add to what Eric said, another kind of a [flavor] (ph) customer that we see is that we have one particular customer who wanted to do a site survey for their locations. They are considering installing AirDial. Site survey meaning they wanted to send our installers out to see what they -- determine exactly what they got. And in that situation, we're talking about quite a number of locations, and they're willing to pay for that site survey. So, it gives them some revenue for that, too. But that's another example where if it's a large customer, they may want to do a site survey, they will want to pay for it, and the site survey itself could take a few months. So that's another flavor.

Got it. My follow-up on AirDial, I mean, I have one financial question, is, are you able to discuss your installed base with a number of [line base] (ph)? And then, alternatively, if all of your customers are in [POCs] (ph) or there are customers, what's the total potential if all lines were adopted? And if you can't give that today, it'd be great to get that, and think about that as a new KPI.

Yeah. I understand the desire to focus in on AirDial. We don't get so specific for competitive reasons. Obviously, we give our user accounts overall and we tend to think about this overall from an Ooma Business perspective, but we'll give consideration to that. I actually haven't added up, the second part of your question, but it'd be interesting to do that, and we'll take a look at it.

I think one color that we talked about, we talked about we're getting through the first 10,000 boxes of AirDial. And we're getting close to tapping into the second batch of 10,000 boxes. And so, maybe that gives you some guess -- idea around where we are in terms of progress.

That's helpful. My last question is, when I look at the adjusted EPS guidance, just given the change in gross margin in the second half alone from the hardware revenue, coupled with the slightly stronger revenue, I'm curious why EPS doesn't include something a little bit higher, and maybe there's something we should think about if you can share in terms of accelerated investments on the P&L?

Yeah. I think little bit of that gap between sort of EPS, which is obviously based on non-GAAP net income versus EBITDA, some of the non-GAAP net income uplift portion of it is coming from better interest income line versus what we forecasted earlier. So, maybe there's a little bit of gap there. But I think in terms of EBITDA, thinking about going to second half versus where we are in Q1 and what we guided to in Q2, we see ourselves get into 9% EBITDA margin or better in second half. So hopefully, that gives you some idea of what we are thinking.

We are very mindful of our spend and making sure it pays off.

Great. Thank you. I'll take it offline.

Thanks, Brian.

Thank you. And one moment for our next question. Our next question will come from the line of Arjun Bhatia from William Blair. Your line is open.

Great. Thank you. This is Chris on for Arjun. The first question for me, it sounds like AirDial is really starting to show some strength. How much of the recent momentum would you attribute to some of the marketing efforts that you're putting behind it? What's proving to be effective on that front? And how much more room do you have to go in terms of building awareness in the market?

We have a long way to go on building awareness. We also have said we want to add a couple of partners or more every quarter who will help us with reach and will resell AirDial. We started some of our own direct sales activities on this about six months ago and we're seeing a little more momentum out of that, and -- but we are also being prudent on how much we spend on it. And I'd say our results overall are reflective of doing well in AirDial and in the rest of our business. So, yes, I think that you've heard I've given very large estimates in the past about what I think AirDial can be for us, and I still believe those kinds of estimates are possible, but certainly taking us longer to get there, and -- but we're still working with that mindset.

Got it. That's very helpful color. Thank you. And also just want to touch on the AirDial launch in Canada. I was curious to get a sense from you, how you were thinking about the size of the market, level of competition, how that stacks up compared to the U.S.?

I don't think we've been in the market long enough to give a educated answer to that, but I will say that I was very pleased how quickly a couple of reseller partners wanted to work with us in Canada. And in fact, one of them have been asking us to come to Canada. And we had to get together our wireless infrastructure partner and adjust the product for the Canadian market, which we've done. So, we're happy to be launched now and we are already seeing business in Canada. We're seeing the same trends in Canada generally with large providers of POTS lines in Canada saying they're going to exit them and wanting to move customers to different solutions. So, I think the same momentum is there in Canada. The pricing increases in Canada have been less than in the U.S. I don't think the customers are feeling quite as much pain yet, but we were surprised to learn how much of momentum there is around replacing POTS in Canada.

Great. Thank you. Congrats on a good quarter.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Josh Nichols from B. Riley. Your line is open.

Yeah, thanks for taking my question. I was just kind of curious on a couple of things. Honing in on 2600Hz a little bit, how is that integration going? I know you're talking about getting an EBITDA profitability this quarter. It sounds like if you're not there, you're probably close. I'm just curious, is there much else to do? And you're already securing some wins. So, your thoughts on the outlook for the second half?

No. There is more to do. We have a long list of capabilities within Ooma that we want to enable on the 2600Hz platform to make it stronger for customers. To the ones that are rolling out this quarter in our plans are improving the mobile app on 2600Hz platform and adding a better form of messaging into the platform. But these are things Ooma knows how to do and is doing. And so, moving them on the platform is not a ton of work. But yeah, we're continuing to strengthen that platform and we'll probably strengthen it all through this year. I will say, too, that winning this very large customer has taken some resources on our side to support them with their deployment needs. Some of that, it will be -- some of that work is getting paid to us. So, it's not just, gratis, but that's changed our plans a little bit to enable that. And we do have other very large potential customers for the 2600Hz platform who are in some form of either discussion or POC. So, we're seeing pretty active opportunity on that front, which is great. It fits the thesis we had, even though we justified the acquisition solely on the cost synergy and the development synergy between ourselves and 2600Hz being together in one.

Just looking at that, for context, I mean, one of the biggest customers potentially, I mean, does that mean like a low-single digit percentage of revenue, or do you think potentially 5%-plus of revenue? And like timeline to kind of get to that? Is that one year or more like two-years-plus timeline overall?

Well, we don't have any customer today who's 5% of revenue. So, I said that these guys could become one of our largest customers. I think they could become our largest customer over time, which is saying a lot considering we have one very large customer today, but I wouldn't predict that currently. But yeah, I think that they can represent a six figure number of seats and be a very strong customer for us as we go forward.

Appreciate it. And just I guess last question because I guess it's timely, T-Mobile, UScellular. I mean you kind of are working with most of the players in the space. So, just thoughts on any potential impacts there overall?

Yeah. It's relatively new news, although there's a lot of speculation prior. We have good relationships with both. We're thrilled that both are rolling out more resale of our solutions, particularly UScellular, it's going to resell Ooma Office and Ooma Telo. And so, I think that only strengthens the opportunity for us. It's going to be, what, six to 12 months before the acquisition closes. So, we don't need to think too much about it at this time. But I think when they do come together, since we have good relationships with both, it'll only be -- it'll be a positive for us.

Sounds good. Thanks everyone.

Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Matthew Harrigan from Benchmark. Your line is open.

Thank you. Firstly, Telo sounds a little neglected. What's really been the impetus for the improvement? Is it T-Mobile? Is it -- are you -- do you think you'll have elusive regulatory aspect to it going forward? And is there enough of an impetus to really push the consumer area to more positive? And then just to add to this monopoly of AirDial questions, I mean, you've also talked about non-North America, Europe in particular. I assume you're seeing a lot of almost full-driven interest there? You talked more about the U.S. and Canada. Thanks, Eric.

Sure. So first on Telo, we did well in Q1 in retail with the solution. And -- but overall, I think we did shrink in users a little bit on the platform, partly due to just the normal churn that we see on the platform. What's got me a little bit more excited about Telo, I didn't put it in my earnings script because I don't want to get out to a head, but with POTS lines going away, it's not only an issue for businesses, it's an issue for consumers. And with POTS lines getting more expensive, it's an issue for providers who maybe resell POTS lines and are stuck between a customer price and a rising purchase price. We think that the decline of POTS is going to open up opportunities for Telo as well in the market with partners and resellers and people who need to replace their POTS lines. So, we're not ready to predict any different outlook for Telo, but we do have opportunities in play there as well that could be significant. Now your question about AirDial in Europe, I didn't say anything about it. It's not something we're planning to do in Q2. It remains something that we're building for. We do have a version of our product in development that will be usable in Europe with the different requirements and bands they have there. But at this time, it's not something to put into our outlook. When we're closer to doing something there, we'll talk about it.

Great. Nice numbers.

All right, thank you. One moment for our next question. [Operator Instructions] And our next question will come from the line of Patrick Walravens from Citizens JMP. Your line is open.

Great. Thank you. Been a while, Eric. So...

Yeah. Hi, Pat.

Yeah. So look, you took this business public nine years ago. Obviously, there have been a ton of changes in the market and in the company's offerings. Things went up, things went down. How do you feel like the business is set up to drive shareholder value going forward? What are you most excited about for that? And what's the biggest risk?

Yeah, good question. So, over the last nine years, we've put a lot of investment into this business. When we went public, we're largely just a residential solution. And look where we are today. I mean, got the leading solution in the small business space. We have a enterprise-level solution that's very targeted at certain verticals and doing well in them. I didn't even speak too much about that in my remarks. We've expanded with a whole unique area with AirDial. And now with 2600Hz, we've also gone international with our largest customer. We've put a lot of work in for a long time. But I think we do sit here today ready to consolidate, if you will, or to focus more on delivering results from what we've built than trying to build something new. We're quite far along in our capabilities across our solutions. And what we're still doing is, for instance, on 2600Hz platform is just giving it the benefit of what we've already done elsewhere in the company. So, we do think about expanding our top-line without having to grow our R&D line commensurately. And we do think also I think more than ever before, Pat, about making sure that the investments we make in the business pay off. We generate, what, $165 million a year in gross profit dollars. Think about that for a minute. And we've got a valuation of $200 million. That's -- I'm still shocked by those statements. But $165 million of gross profit dollars being generated by this company gives us tremendous latitude to either invest in a lot more growth or bring a lot more to the bottom-line or do a combination of both. And what we don't want to do is rush to drive profitability and forsake any of the great investments we've made in the business over these last nine years, which we're ready to capitalize on, but at the same time, we want to make sure that anything we invest going forward has a very clear and measurable payoff. And so, that's the way we're thinking about things. We would like to pay down our debt as fast as possible and put ourselves in a position to be in a stronger cash position, maybe to do our next small acquisition. But those aren't essential. We've got the assets in-house, I think, to take us quite far.

All right, great. Thank you for that perspective.

You bet.

Thank you. And I'm not showing any further questions in the queue. I'd like to turn it back over to Eric Stang for any closing remarks.

No. Thank you, everyone. We appreciate your time here with us today and we'll just keep working hard to hopefully deliver a great year. Thank you, everyone.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.