Good day, and thank you for standing by. Welcome to the Ooma, Inc. First Quarter Fiscal Year 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To ask for your question, please press star one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Matt Robison. Please go ahead.

Thanks, Lisa. Good day, everyone, and welcome to the fiscal first quarter 2026 earnings call at Ooma, Inc. My name is Matt Robison, and I am a Director of IR and Corporate Development. 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 2026 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 and presentation page of the Investor Relations section of our website. The 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. 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 are more 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. 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. Discussion of why we present non-GAAP financial measures and a reconciliation of non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures is included in our press release available on our website. On this call, we will give guidance for the second quarter and full year fiscal 2026 on a non-GAAP basis. Also, in addition to our press release and 8-K filings, the overview events and presentations page, the Investor Relations 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 One and Supplemental Financial Disclosure Two. Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation that also provides a resolution of GAAP expenses that are excluded from non-GAAP metrics. Now, I will hand the call over to Ooma's CEO, Eric Stang.

Thank you, Matt. Hi, everyone. Welcome to Ooma's first quarter fiscal year 2026 earnings call. Thank you for joining us. We are pleased to report solid Q1 financial results and share with you the strong start we are making to this fiscal year. For our first quarter of FY 2026, we achieved $65 million of revenue, $5.6 million of non-GAAP net income, and $6.7 million of adjusted EBITDA. We are particularly pleased that our net income and adjusted EBITDA exceeded the top end of our range, and we are off to a good start toward driving higher profitability this year. Our revenue growth was 4% year over year, which was near the high end of our guidance range as we build momentum this year, particularly for Airdial growth. We are pleased to say we made particularly great progress on Airdial in Q1 and are optimistic about our outlook, which I will touch on in a few moments. As you know, we focus on four market segments: cloud communications specifically designed for smaller-sized businesses, POTS replacement for both business and residential customers, wholesale platform services, and residential telephony. We believe we are a leader in each of these segments. Our cloud communications solutions performed well in Q1, though our overall results were dampened a little by some expected rightsizing at our largest customer, Regus. Regus remains a very important customer, and I am pleased to report that the rightsizing of their business, which we announced starting two quarters ago, is now fully behind us. Both Ooma Office and Ooma Enterprise performed well in Q1, especially in certain verticals we target. Sequentially versus Q4, Ooma Office expanded the number of new account wins and users. Success in verticals such as dental and medical, insurance and financial services, and legal help drive this,…

Thank you, Eric, and good afternoon, everyone. I am going to review our first quarter financial results and then provide our outlook for the second quarter and full year fiscal 2026. First quarter revenue was $65 million at the higher end of our guidance range and was up 4% year over year driven by the growth of Ooma business, including Airdial. In Q1, business subscription and services revenue accounted for 62% of total subscription and services revenue, which is compared to 60% in the prior year quarter. The Q1 product and other revenue came in at $4.8 million as compared to $4.1 million in the prior year quarter. The year-over-year growth in product revenue was driven by growth in Airdial installations. On the profitability front, Q1 non-GAAP net income was $5.6 million, above our guidance range and grew 56% over the prior year quarter. Now some details on our Q1 revenue. Business subscription and services revenue grew 6% year over year in Q1 driven by user growth and upward growth. On the residential side, subscription and services revenue was down 2% year over year. For the first quarter, total subscription and services revenue was $60.3 million or 93% of total revenue as compared to $58.4 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 1,225,000 core users, which is down from 1,234,000 core users at the end of the fourth quarter. The sequential decline in total core users was primarily due to the seat reductions with IWG, which was anticipated going into Q1. At the end of the first quarter, we had 499,000 business users or 41% of total core users. The blended average monthly subscription and services revenue per core user or ARPU…

Thank you, Shig. As Shig said, we now have a solid Q1 behind us. And more importantly, we increased momentum and added new partners in multiple parts of our business to support our plans this year. We have made significant investments to develop leading solutions in each of our four target segments and are executing well to capitalize on the significant opportunities in front of us. We look forward to sharing our progress in future quarters. Thank you. We will now take your questions.

You will hear an automated message advising your hand is raised. We also ask that you please wait for your name and company to be announced before proceeding with your question. The first question that we have today is coming from Alinda Li from William Blair. Your line is open.

Perfect. Thank you. What contributed to the 1% increase in NRR this quarter? And can we expect NRR to stay at around 99% or above going forward with IWG fully realized with their seat churn?

Yes. So the retention rate improvement was largely due to the improvement in non-Regus subscription revenue. So we are talking about traditional UCaaS solutions offerings and the residential solutions. In Q1, we saw the improvement in the retention rate for the other businesses, which offset the anticipated decline that came through for Regus. So that is really what happened. And overall, I think we should be remaining at 99%, which we have been at prior to Regus churn that we experienced in the last couple of quarters.

Perfect. That is helpful. And what are you seeing in the demand? Well, what did you see in the demand environment in Q1? And what are you seeing in the recent months as well?

I am sorry. Demand in what? Environment? Oh, in the demand environment. Yeah.

Yes.

I would almost just say steady as she goes. I mean, I have not seen it improve or deteriorate to any noticeable degree. Yeah. I mean, that is really the best I can say about it. You know, that answers mainly from a UCaaS, a new office, new enterprise perspective. The demand environment for Ooma Airdial is accelerating. There is no question about that. More and more companies are realizing they need to do something. Prices continue to go up. And so we are seeing much more interest and willingness to act on that front than perhaps a year ago.

That is helpful. Thank you.

Mhmm. Thank you.

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

Great. Thanks so much. Two questions for me. It is great to hear all the details around Airdial. You mentioned just now demand is accelerating. The fiscal 2026 outlook is unchanged. So I am curious, is there any change to visibility on when you think adoption will begin to ramp? In terms of revenue dollars and in terms of larger scale implementations?

Yeah. So we are I kind of put it in my script. We have opportunities before us that are greater in size than we have won in the past. And we are excited about them. And I think they are moving along well. So that gives us some perspective on Outlook. Our relationship with Comcast is still very early days. And, you know, it will be rolling out within Comcast across their sales teams over the rest of this year in a way. So and it does take time with larger accounts to move through the sales cycle. So we are optimistic that the early opportunities we are seeing bode well for what we are going to continue to see growing through the rest of this year.

Okay. My second question is you mentioned tariffs in your business. Which is relatively small. But tariffs have certainly had a disproportionate impact on SMBs in the short term. What is the impact on this on your subscriber base as well as the sales cycle for new logos in your new cast business?

Yeah. I think that is something we all wonder about, but I cannot point to any effect on our customer base or sales opportunity driven from tariffs today. Maybe some of the pauses in tariffs have contributed to that. But we are not hearing from our customer base that because of tariffs, they are going to do something differently. And so and I said in my script that sequentially versus Q4, we had a nice uptick in the number of accounts and users that we won in Q1. Now Q1 is typically a stronger quarter than Q4, but still, if you look at it versus a year ago, it was also strong. So no evidence of that being an issue at this time.

Okay. Thanks.

Thank you. One moment for the next questions. And the next question is coming from the line of Eric Martinuzzi from Lake Street Capital Markets. Your line is open.

Yeah. Wanted to congratulate you on the profit outperformance. It looks to be in the operating expense items that you are getting good productivity there. And given the guidance, I am assuming that that productivity persists. Is there anything that we should be anticipating in the out quarters as far as areas maybe that you will be investing in? Obviously, the R&D is down here, but anything puts and takes between the three buckets between sales, R&D, and G&A?

Yeah. Hi, Eric. Happy to go into that. I make two observations. One is within the bucket sales and marketing, which runs 27%, 28% of revenue, we are making a slow and steady shift towards Airdial. And to some degree towards 2600 Hertz. Versus the other two segments we serve. Not enough to really call out a fundamental change, but still rather than grow the sales and marketing span, we are allocating where we see our biggest and most significant opportunities. Now R&D running at 17% last quarter is still quite a sizable amount of spend. We spend close to $50 million a year on R&D in the company. And we do have several significant feature enhancements that we are driving towards this year. And they kind of differ by segment. But in a nutshell, with Ooma Office, we are bringing out more advanced capabilities that make Office appeal to a little bit larger-sized businesses and that expands our TAM. And we are seeing some success with that. We have customers now up to 300, 400 users. One of our office customers is over 600 users. So we like that trend. Airdial is in pretty good feature shape, but we continue to make remote device management and the way customers can monitor and operate the device more effective. In terms of not effective, more extensive. And that is well-liked by our customers and a source of differentiation among many for Airdial. And on 2600 Hertz, we are still in the process of bringing all of the Ooma IP and applications onto that platform. Which will appeal to new customers who want a more turnkey solution. And that is going to be a long-term project through this year, but we are making 2600 Hertz significantly stronger with that investment. So there is a lot going on in the company. We are also on 2600 Hertz continuing to invest particularly in contact center capability. That is at the core of some of our recent customer wins. And so those are the areas we are working on. But, yes, overall, our longer-term target, our mid-to-range target is for R&D as a percent of revenue to be a little bit lower from what we are spending currently.

Okay. And I guess I should have started with the gross margin. Your 72% on the subscription and service. And is that expected to persist at that same level?

In the short term, Eric, yes. And the main reason for that is we are also investing in the infrastructure and team resources to support the growing installed base and growing new installation as well of Airdial. So we have got the near-term investment in those capacity a bit. And so perhaps we start to see a little more better improvement towards the back end of the year. But in the near term, that is the reason I see a relatively stable 72% subscription gross margin.

Okay. And then my last question is on your Airdial partners. You know, a year ago, you had fifteen Airdial Partners, and today, we are over thirty. Curious to know about, you know, I am less concerned about the number of partners you have and really more concerned about how productive the partners are that you have. What about those fifteen from a year ago? Have you been pleased with the traction they have got? Have you been disappointed? What have you learned?

So when we bring on a partner, really a reseller, Airdial reseller, we know from the status of their business kind of what to expect. And some of them are smaller, some of them are more significant. We are very pleased with our largest relationships. T-Mobile, US Cellular, Comcast, some of the larger aggregators we work with, like SpectraTel and others. Some of our partners are more focused. It might be a small CLEC with only, you know, five to ten thousand users, something like that. But they are all contributing, and that is the main thing. We did bring on what I call a medium-sized CLEC, if you can say it that way. A CLEC with the potential for a hundred thousand users for Airdial. We brought them on last fall and we talked about them. And they have started rolling out Airdial to their base. And are discussing with us about accelerating how fast they go with that. It is very hard to put things like that into our forecast till they happen. So we are pretty conservative about trying to forecast things that are likely to develop until we see them developing. But we are excited that they are now having good success with Airdial and growing it. So yeah, across our range of resellers, they are all important. We support them all, and we think it is a great example of the strength of the BARC product solution in the market because they have other folks they could go to and they have come to us.

Thanks for taking my questions.

Sure.

Thank you. One moment for the next question. The next question will be coming from the line of Josh Nichols of B. Riley. Your line is open.

Thanks for taking my question. Real quick, just touch on it. I do not think it has been brought up. But, I mean, you have seen some really good traction in the hospitality space. Five hundred hotels across North America. That is one of the largest end markets. I am just kind of curious if you could elaborate on how quickly that has been ramping up. And do you think that could be a significant driver going forward and what you think the opportunity set there is over the next year?

Yeah. It is significant. When we stopped and looked at it, we were surprised ourselves in a way. We target winning fifty to a hundred hotels a quarter. That is roughly where we aim. Now, we hope that we can do better than that perhaps now that the Marriott relationship has been solidified and we can leverage our certification there with Marriott properties. But all in, that is kind of the range we try to work in. And generally, we achieve just, you know, sales each quarter in that range. Some hotels take Ooma Enterprise. Some take Ooma Airdial, and some take both. And you know, in either case, getting one success with the customer is an opportunity to then build with the other. But, yeah, it is actually quite an extensive segment in terms of opportunity, and I think we could run with it for quite some time.

Thanks. And then just to take a little bit deeper dive, we touched on Airdial a good amount, but also 2600 Hertz. Like, you do not break those out. I assume there is still a relatively immaterial piece of revenue today and, like, what is the plans in the future to maybe start divulging a little bit more into, like, maybe some segment reporting or whatnot and is there a timeline where you think that that may come into play given the backlog that you have been seeing build up over the last year or so?

Let me give a general answer, and then maybe Shig will add to what I say. Our outlook this year is built with acceleration of Airdial. It is built with acceleration of new customer wins on 2600 Hertz, but we do not expect them to contribute much until next year. Because of the time to ramp customers. So between the two, we expect more growth out of Airdial than we do out of 2600 Hertz this year. Both, of course, started from small bases. And so I think we are a ways away from being in a position where we would think about trying to break them out separately, but I do not know if Shig wants to share more.

Yeah. I mean, you are obviously right, Josh, in that it is still a low single-digit percentage of revenue. You know, that is in the total revenue report today, but we are excited about the new customers coming on and pipeline longer sales cycle. But kind of the second part of your question, we do not necessarily have a bright line sort of rule or expectation as to when we could start to report more separately. But I think, you know, once it starts to get into, you know, ten percent, fifteen percent of revenue kind of a scale, I think we will start to consider being a little bit more granular about how we disclose and inform the investors in our analyst community to share a little more detail.

Sounds fair. Appreciate it. Thank you.

Thank you. One moment for the next question. And the next question is going to come from the line of Patrick Walravens of Citizens. Your line is open.

Hi, Tim. This is Kincaid on for Patrick Walravens. Was just wondering if you guys had any significant changes to the competitive environment that you could highlight for us. Thanks.

Yeah. We are in a competitive environment all the time. And that is why we focus on the four segments we do where we think we can really bring the leading solution. And that is how we get competitive advantage and win. And in the segments we target, I think they are more immune to some of the pressures that our industry has had generally. Certainly, Airdial, we are selling most of our customers on three or five-year contracts. And these are applications where once they get installed, they just want them to run. And are not going to be wanting to touch them. There is installation effort to put them in place. So that is also a barrier once you get in. Small business UCaaS, small businesses need a unique combination of easy and turnkey installation and great support along with great value. And we have architected a solution built in that way. And we think half or more of the small business out there across North America one to twenty employees have yet to move to a cloud-type solution. So we keep just going at that market. Straightforwardly, and I do not know that we have seen any particular change in competition in that. So, you know, I think the general answer is not anything to call out here. And you know, we will keep monitoring that, but I really think our outlook depends most of all on our own execution.

Thanks so much.

Thank you. One moment for the next question. Our next question is coming from the line of Matthew Harrigan of The Benchmark Company. Your line is open.

Thank you. As we all well know that cable companies tend to emulate each other on the product pipeline and that tech roadmap, you know, particularly since they do not directly compete. And particularly on the business side, you know, they tend to obviously, they do not have a national footprint, so they work together there especially well. Are you already talking with other cable companies? I mean, you have got the largest guinea pig or maybe Cappy and Comcast instance. Are people kind of waiting to see how everything hardens out as far as their execution? And then secondly, in response to your earlier question, you said, I think largely with reference to Airdial, that there are other people that your clients could talk to. When you look at your and I know Europe and Asia are not your point of emphasis right now, to say the least. But, you know, what are people doing there on the workaround on the copper line replacement? And are there competitors over there that are not present in North America? Are they some of the very large telecom equipment companies? Because you have a tremendously large TAM for Airdial, and it is just I do not know what the workarounds would be other than paying a lot more money for your copper line right now. I mean, specifically, you know, who are you seeing as competitors as some semblance of a comparable technology solution? Thanks.

Sure. Yeah. Thank you. So on your first question, we do have a broad effort trying to engage with new reseller partners for Airdial. As you would expect. And, you know, our goal is to add at least a couple of partners every quarter. And we have met that goal now for two years straight. Yes. You are right that when you work with one cable company, others will notice. And they do not directly compete often. That can open some doors for collaboration or just referencing. So, yeah, we are excited that we could continue to add more reseller partners on Airdial. And I think that will be an important driver of growth for us. On your second question, which I think was particularly focused on Europe, we have some engagements in Europe. Obviously, we are in 32 countries with IWG, but that is on the UCaaS side. We have some engagements in Europe with 2600 Hertz customers, and I think I mentioned a quarter ago that we won a new one in Europe just a quarter ago, which was kind of exciting in the Netherlands. But with Airdial, today, Airdial is not sold, it is not used, I guess, I would say, outside of North America. Would love to win large carriers for Airdial in Europe or other parts of the world. We do not have a big sales effort going on on that, but at any point in time, we have some discussions going, I would say. And, generally, our experience so far has been companies taking a slow approach to the problem and seeing if they cannot delay the need or implement something internally that will get by. But I do think opportunities will continue to unfold as we look forward.

Thanks, Eric.

Sure.

Thank you. One moment for the next question. Our next question is coming from the line of Mike Latimore of Northland Capital Markets. Your line is open.

Hey. Hi. This is Vijay Devar for Mike Latimore. Two questions. One, when will you be done integrating Ooma apps into 2600 Hertz?

I would say end of this year, and I know that seems like a long time and maybe a little bit longer than we originally intended. But 2600 Hertz really operates in three ways that it goes to market. There is our shared hosted, our private cloud, and our global infrastructure. And each one operates a little bit differently, so we actually have to enable the capabilities in each one. We have already, though, launched our mobile app for some customers. And our desktop app, as well. And so we are making, I think, good progress.

Good. The second one, have you seen any change in sales cycles for 2600 Hertz given the Metaswitch acquisition?

That is hard to answer because it is only really since that acquisition that we have invested in sales for 2600 Hertz. And we do have a small team there today. And I will say they are doing a fantastic job. We had, you know, multiple wins of new customers in Q1. And so we are seeing customers receptive. One of the customers we won has their own solution in a vertical space and wants to add communications to it, and they could have built it using CPaaS. They instead went with us and was after looking at competitor solutions. So that was a really nice win for us. And another, that company also is small, but the person running it has a lot of deep knowledge and experience with large carriers in the industry and chose us over others. So I am seeing good momentum, but I do not know if it is us or if it is the market.

Understood. Thank you.

You bet.

Thank you. We now have a follow-up coming from the line of Brian Kinstlinger of Alliance. Please go ahead. Your line is open.

Great. Thanks so much. I have two questions. Again, the first one is wondering if you can quantify the number of lines that churned over the last two quarters at Regus so we could evaluate the underlying growth of the business?

Yeah, Brian. It is about what we guided. It is. I guess you are asking for a specific quantify asking us to quantify. Yeah. It was about, you know, twelve, thirteen thousand in that range in the last two quarters. And we a year ago, we talked about churning in total about nineteen to twenty thousand over the course of last fiscal year, and Guccanco that slipped into Q1. So again, I remind you, that with a ten thousand or so that churned in Q1, we ended up churning about the same as what we had expected in total a year ago.

Got it. So nineteen to twenty in total. Twelve to thirteen in the last two quarters?

Correct. And roughly ten in the last quarter.

Yeah. That is helpful. I mean, obviously, we can see the growth there. And then you have clearly, in the last I would say, two quarters shifted your focus to driving stronger profits. Assuming Airdial does enjoy solid adoption, what is a reasonable goal for adjusted EBITDA margin maybe three years out or more?

A lot higher than where we are at. We have brought our adjusted EBITDA up nicely over the last twelve to eighteen months, but I think it is just the start. There is no reason why this business cannot be very profitable with 72% margins and, you know, our core solutions each in our four segments, you know, pretty well developed and not needing the level of R&D they have taken in the past.

Okay. Thanks.

Thank you. And at this time, I am not showing any messages for Kayla, and I would like to turn it back to Eric for closing remarks. Please go ahead.

Well, thank you, Lisa, and thank you everyone for joining us today. We really appreciate it. And I think we are off to a good start for the year. So thank you. I will let you go. Bye-bye.

Thank you all for participating in today's conference call. You may now disconnect.