Ooma, Inc. (NYSE:OOMA) Q1 2027 Earnings Call Transcript

Ooma, Inc. (NYSE:OOMA) Q1 2027 Earnings Call Transcript May 26, 2026

Ooma, Inc. beats earnings expectations. Reported EPS is $0.35, expectations were $0.32.

Operator: Hello, and welcome to Ooma First Quarter Fiscal Year 27 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 1-1 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. I would now like to hand the conference over to Matthew Sewell Robison, You may begin.

Matthew Sewell Robison: Thank you, Towanda. Good day, everyone, and welcome to the first quarter of fiscal 27 earnings call of Ooma, Inc. My name is Matthew Sewell Robison. I am the director of IR and Corporate Development. On the call with me today are Ooma’s CEO, Eric Stang, and CFO, Shigeyuki Hamamatsu. After the market closed today, Ooma issued its first quarter fiscal 27 earnings press release. This 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 presentations page of the Investor Relations section of our website. This link will be active A replay of this call for 1 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 that we issued earlier today, those risks more fully described in our filings with the Securities and Exchange Commission. 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. The discussion of why we present non GAAP financial measures and a reconciliation of the non GAAP financial measures discussed on this call to the most directly comparable GAAP financial measures are included in our earnings press release, which is available on our website. On this call, we will give guidance for second quarter and full year fiscal 27 on a non GAAP basis. In addition to our press release and 8 k filing, the overview page and events and 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. It 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.

Eric Stang: Thank you, Matthew. Hi, everyone. Welcome to Ooma’s first quarter fiscal year 27 earnings call. Thank you for joining us. We are pleased to report strong Q1 financial results and a good start to our fiscal 27 year. I believe we are making good progress on our key initiatives for this year, and I look forward to reviewing them with you today. Financially, for Q1, I am pleased to report that we exceeded expectations with revenue growing 25% year-over-year to $81.1 million non GAAP net income growing 73% year-over-year to $9.7 million and adjusted EBITDA growing 78% year-over-year to $11.8 million. Subscription and services revenue from business customers grew 38% year-over-year and reached 69% of total subscription and services revenue.

Excluding the impact of 2 acquisitions that we made late last year, we stepped up our organic growth rate of business subscription and services revenue by a couple of percentage points to 9% year-over-year. As expected, a key driver of our stronger business services growth was Airdial. Airdial services revenue in Q1 was up by 80% versus a year ago. And on the residential side of our business, I am happy to mention that for the first time in many quarters, we grew our base of residential users in Q1. All in, we believe we are off to a strong start for fiscal 27 and so we will be providing improved guidance for the balance of this year later in our remarks. As we discussed on our last conference call, we are focused on several key initiatives for this fiscal year.

The first I would like to address is our commitment to expanding Airdial. We believe the market opportunity for POTS replacement is accelerating as more companies incur higher POTS charges or have their lines turned off. By AT and T or others. And as you know, we have built Airdial from the ground up to provide a fully integrated solution incorporating unique features to best serve this market. In Q1, we were proud to announce new features including equipment disconnect, detection. Where we identify if the equipment that is connected to AirDial goes down. We also announced off hook alerts. To identify equipment connected to AirDial that goes off hook for an extended time. These features were added in response to a customer of ours in the health care space who must ensure working connections are always in place.

We believe that both of these new features are unique to Airdial and bring added differentiation to Airdial’s remote device management suite of services. Commercially, Q1 was a record quarter for AirDial. New lines installed were more than double the number of a year ago. In general, we are seeing increased market interest in POTS replacement by many sectors. And in Q1, achieved particular success serving health care customers, REITs, and state and local government bodies, including schools. In Q1 we also met our goal of securing 2 additional AirDial resellers in the quarter. 1 of these new resellers will be switching away from a competitor’s product to exclusively sell Airdial. We are excited to be working with them in all of our 40-plus AirDial resellers.

The second initiative for this year that I would like to discuss is our plans to introduce AI solutions on our Ooma Office platform. I am pleased to report that earlier this month, we announced Ooma AI, which is a suite of new AI powered capabilities including AI transcriptions, AI answering service, AI receptionist, AI insights, and an open AI integration. Together, these features enable Ooma customers to capture, summarize, and analyze call information automatically while improving responsiveness, and overall call handling efficiency. Today, 3 of these features, namely AI transcription, AI answering service, and the OpenAI integration, have been released to customers and the 2 others are in beta and will be released soon. The AI answering service and the AI receptionist service carry a separate monthly charge.

And the other features have been made available in Ooma’s top tier of service called Pro Plus. As such, we expect adoption of Ooma AI to bring increased revenue for Ooma. In general, we believe AI can be a valuable tool for small businesses to help them automate routine tasks, deliver real time insights, move faster, and work smarter. 1 statistic we have heard is that over 50% of calls to small businesses go unanswered by a live person. And close to 25% go unanswered at all. Key goal in our development of Ooma AI has been to create the right set of features that will be most useful to small businesses while also making the features very easy to enable and use. While it is early days and too soon to evaluate customers’ response to Ooma AI, we are excited about its potential.

The third initiative for this year that I would like to update is our plans for our residential business. Last quarter, I mentioned that Ooma Telo sales were remarkably robust I am pleased to report that strong sales of Telo continued in Q1. In fact, as I mentioned earlier, for the first time in many quarters, we grew our base of residential users, Q1. We see several market drivers for residential phones. 1 in particular is parents’ desire to give their kids a phone but avoid the screen time associated with mobile phone use. We estimate there are approximately 20 million households in The United States with children aged 5 to 14 years old. According to the Pew Research Center, 86% of parents say managing children’s screen time is a day to day priority.

that is not surprising given studies have shown that smartphone use in children can lead to sleep disruption, negative mental health outcomes, and increased inattention symptoms. Organizations like Wait Until 8th, unplugged, Smartphone Free Childhood, ScreenStrong, ScreenSense, and many others have emerged to help parents with screen time concerns. To address this and give parents a solution, we recently launched MyPhone, a modern landline designed specifically for families with kids. My phone contains several features aimed at allowing parents to monitor and control their kids’ phone usage. 1 is trusted circle calling, which allows calls only between approved contacts and another is quiet hours, which blocks all calls during homework, bedtime, or family time.

Online call logs also allow parents to monitor incoming and outgoing calls. I am pleased to report that we have received a strong retailer response to our announcement of MyPhone. MyPhone is now available at walmart.com and will soon roll out to other online retailers. We also expect that MyPhone will become available on the shelf in Walmart stores starting this fall. The last initiative I would like to touch upon is our plans to make the most of our 2 acquisitions from late last year, and to pursue further acquisitions in the future. We believe the integration of each of our recent acquisitions is going well and our rationale and plans for each acquisition continue to hold true. As a reminder, FluentStream is a solid business generating high EBITDA that brings us increased channel strength and another outlet to sell air dial.

Phone.com has low EBITDA, but we can take and are taking steps. To improve its financial performance through scale economies, and phone.com also affords us a second small business brand in the market with a powerful name and URL. We anticipate driving further improvements over the next 3 quarters as we increasingly leverage Ooma’s marketing and sales expertise, lean operations, product strengths, and vendor relationships. As Shig will note in his comments, we have now paid down our debt to about $53 million and intend to continue to pay it down further each quarter to strengthen our ability to make more acquisitions in the future. I will now turn the call over to Shigeyuki Hamamatsu, our CFO, to discuss our results and outlook in more detail and then return with some closing remarks.

Shigeyuki Hamamatsu: 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 27. Had a strong start to fiscal 27 with the first quarter revenue of $81.8 million, up 25% year-over-year driven by the growth of Ooma Business, including AirDial, and the additions of FluentStream and phone.com. On a combined basis, FluentStream and phone.com added $11.5 million of revenue, in Q1, which was the first full quarter since the acquisition. Excluding the impact of these acquisitions, total revenue in Q1 grew 7% year over year. In Q1, business subscription and services revenue accounted for 69% of total subscription and services revenue as compared to 62% in the prior year quarter.

Q1 product and other revenue came in at $6.6 million and was up 37% year-over-year. Driven by the growth of AirDial installations with a record number of add-on line installations again in Q1, more than doubled over the prior year quarter. New bookings for AirDial also continue to be robust On the profitability front, and grew more than 75% year-over-year in Q1. Q1 non GAAP net income was $9.7 million and grew 73% year-over-year. On a combined basis, FluentStream and phone.com added approximately $2.7 million of non-GAAP net income in Q1. Excluding the impact of these acquisitions, non GAAP net income grew 24% year-over-year as we continue to focus on operating leverage on R&D and optimizing our sales and marketing spend. Now some details on our Q1 revenue.

Business subscription and services revenue grew 38% year-over-year in Q1, driven by user growth and ARPU growth for Ooma Business, the additions of FluentStream and phone.com. Excluding the impact of the acquisitions, business subscription and services revenue in Q1 grew 9% year-over-year. On the residential side, subscription and services revenue was flat year-over-year as the residential user base continued to stabilize in Q1 following a trend we saw beginning in the second half of the last fiscal year. For the first quarter, total subscription and service revenue was $74.6 million or 92% of total revenue. As compared to $60.3 million or 93% of total revenue in the prior year quarter. Now some details on our key customer metrics. Please note that Q1 ARPU as well as net dollar retention rate include the impact of the 2 recent acquisitions for the first time as these businesses had their first full quarter with Ooma in Q1.

Our blended average monthly subscription and services revenue per core user or ARPU increased 9% year-over-year to $16.77. This year over year increase in blended output reflects a meaningful increase in our business core user base with higher ARPU. Which now accounts for 49% of the core users as compared to 41% a year ago. During the first quarter, we continued to see a healthy office Pro and Pro Plus take rate with 53% of new Office users opting for these high tier services. or 39% of Ooma Office users now subscribe to these higher tier services. Our Net Dollar subscription retention rate for the quarter was 99% as compared to 99% in the fourth quarter. We ended the first quarter with 1.42 million core users up from 1.4 million core users at the end of the fourth quarter.

At the end of the first quarter, we had 699 thousand business users or 49% of our total core users, an increase of 15 thousand. From Q4. Our annual executive recurring revenue was $294.6 million, up 26% year-over-year. Excluding the impact of the recent acquisitions, our annual exit recurring revenue grew 7%. Year over year. Now some details on our gross margin. Our subscription and services gross margin for the first quarter was 72%, compared to 72% in the prior year. Product and other gross margin for the first quarter was negative 31% as compared to negative 41% for the same period last year. The year over year improvement in product and other gross margin reflects an increase in mix of AirDial hardware installed installation revenue within product and other revenue.

On an overall basis, the total gross margin for Q1 was 64% as compared to 63% in the prior year. Quarter. And now some details on operating expenses. Total operating expenses for the first quarter were $41.4 million, an increase of $5.9 million year-over-year due to the additions of FluentStream and phone.com, Excluding the impact of the acquisitions, the total operating expenses increased $300 thousand from the same period last year. Sales and marketing expenses for the quarter were $19.7 million or 24% of total revenue, up 8% year-over-year due to the addition of FluentStream and phone.com expenses. Research and development expenses were $14 million or 17% of total revenue, up 24% year-over-year due to the addition of FluentStream and phone.com team members.

G&A expenses were $7.6 million or 9% of total revenue for the first quarter compared to 5.8%, $5.8 million for the prior year quarter. Non GAAP net income for the first quarter was $9.7 million or diluted earnings per share of $0.35 as compared to $0.20 in the prior year quarter. Adjusted EBITDA for the quarter was a record $11.8 million or 15% of total revenue and grew 78% over the prior year quarter. We ended the quarter with total cash and investments of $17.2 million in Q1 we generated $6.4 million of operating cash flow and $4.9 million of free cash flow. On a trailing 12 month basis, we generated $30.3 million of operating cash flow. and $24.5 million of free cash flow We spent a total of $17.7 million over the last 4 quarters, including $4.6 million in Q1, to buy back stock through a combination of open market repurchase and RSU net share settlement.

In addition, we paid down the term loan by $5 million in Q1, and reduced the outstanding debt balance to $53.5 million at the end of Q1. On the headcount front, we ended the quarter with 1.43 thousand employees and contractors. Now I will provide a guidance for the second quarter and full fiscal year 2027. Our guidance is on a non GAAP basis, and has been adjusted for expenses such as stock based compensation, amortization of intangibles, and acquisition related and other expenses. We expect total revenue for the second quarter fiscal 27 to be in the range of $81.6 million to $82.3 million which includes $6.3 to $6.7 million of product and other revenue. Expect the second quarter non GAAP net income to be in the range of $9.4 million to $9.8 million Non GAAP diluted EPS is expected to be between $0.33 to $0.34 We have assumed 28.9 million weighted average diluted shares of outstanding for the first quarter.

For full year fiscal 2027, we are raising our guidance and now expect total revenue to be in the range of $326 million to $328.5 million. The full year fiscal 27 revenue guidance assumes business subscription and services revenue growth rate of approximately 31% over fiscal 26. While residential subscription revenue to be flat to a decline of 1%. In terms of revenue mix for the year, we expect approximately 92% of total revenue to come from subscription and services revenue and the remainder from products and other revenue. We expect non GAAP net income for fiscal 27 to be in the range of $37.5 million to $39 million. Based on this guidance range, we estimate our adjusted EBITDA for fiscal 2027 to be 45 million to $46.5 million. We expect non GAAP diluted EPS for fiscal 2027 to be in the range of $1.29 to $1.34.

We have assumed approximately 29.1 million weighted average diluted shares outstanding for fiscal 27. In summary, we are pleased with our strong start to our fiscal 27 with a record adjusted EBITDA of $11.8 million in Q1, which grew 78% year-over-year along with a record free cash flow of $24.5 million for the trailing 12 months. Are excited about both organic and inorganic growth opportunities in front of us. And remain focused on achieving another meaningful progress. Towards our long term financial targets. I will now pass it back to Eric for some closing remarks. Eric?

Eric Stang: Thank you, Shigeyuki. With our strong start, we feel we are off to what can be a very strong year for Ooma. While we have exciting initiatives across our business, we are most focused on capturing what we see as accelerated market demand for AirDial, driving added growth through Ooma AI and MyPhone, driving further contributions from our acquisitions of FluentStream and phone.com, and working to pursue new acquisitions in the future. Thank you everyone for joining us today. We will now take your questions.

Operator: Thank you. Ladies and gentlemen, as a reminder to ask a question. To withdraw your question, please press star 1-1 again. Our first question comes from the line of Arjun Bhatia with William Blair. Your line is open.

Q&A Session

Arjun Bhatia: First, thank you so much. Congrats on the quarter here, guys. Eric, if I can start with you, sounds like AirDial really is picking up. Can you just give us a sense of your visibility into the future revenue there? What is the pipeline look like? And how are of the implementations going with those customers that you have already sort of won at this point?

Eric Stang: Sure. Hi, Arjun. So implementations are going great. We are we are able to respond as needed, as customers come in, and you know, we are excited about all the opportunities we are seeing. We are including those where some of our customers have maybe had a bad experience with another competitor and are switching to move to Airdial. We do not really discuss pipeline, so to speak, but I can say that with you know, 40-plus resellers now, we have quite a big footprint in the industry helping us find opportunities. And that is part of the strategy here is to really leverage ourselves with all of our great partnerships. I am really excited about the 2 we added this last quarter. And, obviously, our biggest partners today remain T Mobile, Comcast, and a couple of carriers that we have we have talked about in the past.

Comcast is still not is still only doing a small bit of a small amount of what we think they can be in the future. But still, it is a great relationship and 1 that is developing. So we think we have a lot of activity underway. And the market, it is possible to see where AT and T and others are shutting off lines and a number of announcements just keep going up. And I think a lot of we are we are talking to a lot of companies today that were not as focused on this a year or 2 ago, but now realize they need to do something, and they are really looking for the best solution in the market. And when we can get that kind of engagement with the customer, we do very, very well because there are things about our solution that are unique. And we think make it quite special.

So we are we are excited about the outlook in The US and in Canada. As we look forward and think that the market is building and we are we are growing. We have opportunity to grow significantly as we move forward.

Arjun Bhatia: Perfect. that is helpful. Thank you. And maybe on the AI sort of announcements, those were very interesting to hear as well. It sounds like you are in different phases of deployment depending on which AI service we are we are talking about, and they are monetized in different ways as well. But I am just curious to hear your kind of perspective on what the financial impact, you know, could be from, you know, talking about this, you know, in a year or 2 years out. You know, is this something customers have expressed interest in? And, you know, what is the upsell opportunity look like for ad transcription and answering service?

Eric Stang: Yeah. that is a good question, and it is it is 1 that we do not have a lot of experience with to give a very educated answer. The statistics on small businesses being able to answer their phone calls while they are doing everything else they do, suggests that there is a real need for these capabilities. And given that our AI voice mail and AI transcription are going to be very competitively priced And I think very easy to set up and use. We are hopeful that a lot of our customers will find value and adopt them, and it will become an extra charge to our customers. So from a revenue perspective, it is a boost for Ooma. Today, a single-digit percentage of our customers take Ooma Pro Plus, which is the highest tier of service we have.

And some of our AI services are going into that tier. We would like to think that with those services there and some education of our customer base, we could move that take rate up to double-digit going forward. So there will be a boost there as well. it is it is hard to say, but I think we are all experiencing the power of AI in our businesses. And there is no going back. There are going to be more features to come. We have only announced the first 4 or 5 that are coming out now. But we have a road map out for years to pursue. And we believe there is going to be a range of things we can do for small businesses. it is it is really a special opportunity for us because, you know, all of that customer’s communications their phone calls, their messaging, you know, are flowing through Ooma.

So we can help them analyze that data, and be more proactive with it. So I think it is it is the start of a story for Ooma that we can unfold over the next couple years.

Arjun Bhatia: Alright. Got it. Thank you for the color.

Operator: Thank you. Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Your line is open.

Eric Martinuzzi: Yeah. Congrats on the quarter as well from me. I wanted to better understand the drivers of the upside. just going back to your guide for Q1, the midpoint of your revenue expectation was $80 million even and you exceeded that by $1.1 million. Is the big driver here just the core business customers Is it more air dial? what is the biggest driver of the upside?

Shigeyuki Hamamatsu: Yes. Eric, thanks for the question. And the biggest driver of the upside was from AirDial. And, you know, as we said when we guided for Q1, and for the year, we wanted to remain conservative in AirDial piece in particular. Because it is not always easier for us to predict the timing of installation even though the bookings and demand has been increasing. So we are cautious about that. We are we are happy with the outcome of it. Obviously, exceeded by a good amount, and I think that is the biggest piece of it. The other piece, as Eric pointed out in his remarks too, but the residential did not decline. And, again, that is another area that we plan conservatively, and we actually did not see a decline there. So that helped a bit, as well in Q1 in relation to what we had expected at the beginning of the quarter. So I would say those were the 2 biggest driver and AirDial being the biggest of it.

Eric Martinuzzi: Okay. And then just the follow on would be for this You have also upped your outlook for the full year. Do you expect does that refreshed guidance for FY 2027, does that anticipate both of these trends that you outlined persisting, or is it a Q1 a bit of an anomaly? Let’s see how things play out in Q2. Thank you.

Shigeyuki Hamamatsu: I would not say that Q1 was an anomaly. Obviously, Q1 is the toughest Obviously, the Q1 established the baseline, so to speak, to begin the year, which is a great baseline, by the way. And but in our guidance, you know, I think you will see when you walk the model that we still remain conservative relatively speaking, especially the pace of ramp on AirDial because, again, for the same reason I said it, just now that we wanna remain conservative in predicting the timing of installation of the lines Again, the booking has been strong. Like I said in my remarks, the booking in Q1 year over year grew 75%, and that looks like 3 or 4 quarters in a row, we had a growth rate of bookings. But, again, timing of installation is still hard to predict.

But we are optimistic, but we wanna be conservative on that. And secondly, I do not know if you picked up, but I used to say in a guidance that residential would be down -1% to -2%. But based on the recent trend, I improved that a little bit to say flat to -1%. Now we are going to see you know, Walmart stores being stopped with MyPhones in the second half of the year. We had we are being conservative on that. We do not know quite frankly, how much the take rate is gonna be as much as we are we are excited about it. So there is a little bit of conservatism built on that. So long story short, Eric, that you know, we are still being conservative forward looking here. Given some of the you know, nature of these businesses, AirDial and MyPhone in particular, that I just mentioned.

Eric Martinuzzi: Got it. Thanks for taking my questions.

Operator: Thank you. Our next question comes from the line of Patrick Walravens with Citizens. Your line is open.

Patrick: Hey, team. Congratulations on the quarter. I just wanted to dig in on Ooma AI. I was doing the math a little bit on how much usage the customer is going to get for that $15.99 on AI assistant and $49.99 on the receptionist And it seems like it is it is $0.38 a minute and $0.50 for the receptionist. It would be great to, give us an understanding of what the COGS look like for something like that. Is that going to be, you know, positive for your margins, or is that something that is potentially gonna hurt it? And then the press release was not very specific on how the usage additional usage is going to be priced, and so it would be great to get some clarity on that.

Eric Stang: Yeah. We will price additional usage per minute is the way we do it. And If you look in the industry you will see prices that range quite a bit for these kinds of services. We think we are pretty competitive with the package we put together. And, the AI answering machine is kind of a unique positioning in the market. You do not see that from others. And it is a very useful capability at a lower price point than a full AI receptionist service would be. So it is a nice entry point for a small business as well to get started with some added capability. We are you know, we are we are hosting internally the AI activities to you know, transcribe calls, summarize them, and then work with the work with the data. Also do utilize some outside capabilities as well. And I cannot tell you here exactly what our COGS are, but I can tell you that we think we will be driving margins that are well in line with the margins we report overall. Spectacular.

Patrick: And then just 1 quick follow-up on that. You know, I guess when I think about it, it feels like the amount of time that a customer spends on spends talking to the AI system is something that the business itself does not have a lot of control over. If I have 1 customer that you know, yaps along with it for the 40 minutes, I have I have blown through my usage without getting a lot of value. Is there any way that you guys manage that on your end, or how do you think about that kinda conundrum?

Eric Stang: Well, you are talking now about the answering service and the receptionist service. The other you know, people leaving voicemails or just, you know, all your conversations throughout the day are part of pro plus. So there is there is not a usage based element to that. You know, for receptionist answering services people tend to leave a message of a minute or 2 at most. And not really go on. But, you know, I think different businesses will vary. And, obviously, we are gonna make this attractive to our customers. So we may come out with other packages over time for high power customers. You can enable these services on 1 line or many lines in the business as well. So depending on how many numbers you have set up, for outside you know, reaching outside parties, you have flexibility there too. I think that for a business that finds value in these services, I do not think our pricing is gonna hold them back. Alright.

Patrick: Thank you so much.

Operator: Thank you. Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners. Your line is open.

Brian Kinstlinger: Great. Thanks. it is great to hear about the progress your business development with AirDial is making. Can you put any numbers behind your comments? For example, you mentioned AirDial lines. Service revenue, bookings. And more were up 75% to 80%, and maybe that is not the exact range. Can you share what any of those numbers are for us?

Eric Stang: Yeah. I mean, the number we gave you is lines installed. And that number was up sorry, pause a minute. I said that new lines installed were more than double that of a year ago. And Shig said that bookings go ahead were up over 75%.

Shigeyuki Hamamatsu: Yeah. Yeah and yeah.

Eric Stang: I mean, that gives you some sense of how fast it is it is moving for us. We expect it to be up again in Q2 and up each quarter throughout this year. Sorry.

Brian Kinstlinger: What I meant was are we going from 2,000 to 4 thousand lines? We are going from 10 thousand to 20 thousand? Double is hard to understand where we really are. Same with services revenue and bookings. Are you just not prepared yet, and they are too small numbers to share?

Eric Stang: They are not too far small numbers to share. We do not break out AirDial at maybe the level of granularity that you are asking for here. But you know, we are comfortably over how the best do I wanna say it, Chip?

Shigeyuki Hamamatsu: 1 way to think about it, so Eric, well Brian had to say is that, you know, we reported about 15 thousand core business user growth from quarter to quarter. You know, majority of that was air dial.

Brian Kinstlinger: Got it. that is helpful. Thank you. And then are the sales cycles beginning to train change? Is it just integrations are starting for bookings from several quarters ago? Which changed over the last quarter and a half or so that you are starting to see this inflection point, it sounds like, on the demand side?

Eric Stang: Well, I think it is the things I have said in my conference calls. There are more lines being shut down than ever before. We have more partners reselling AirDial than ever before. We are seeing larger entities with many locations around the United States get more and more focused on the need to do something and starting to take action. We are even seeing some of the partners we started working with or customers we won 6, 12 months ago just go faster now. It really varies by customer. But we are definitely seeing market movement. And you know, not surprisingly, there are millions of lines out there that are gonna have to switch out. Over the next 2, 3 years. And so customers need to get in front of this. it is an exciting time for us.

I think for the next 3 years, we are going to see Airdial as a very strong contributor to the business as the, you know, the majority of lines go away. Now having said all that, most of the lines going away today are from AT and T. There are others out there that have lots of lines, Verizon being 1. That are really not sunsetting many lines yet. So depending on how those parties you know, move forward. This there is a long term road map here for, you know, POTS lines needing to be replaced. So it is it is still, frankly, early days in the in the POTS line replacement business, I think, compared to where it is going. And that is why we are seeing the market acceleration.

Brian Kinstlinger: Great. Thanks. Last question I have. You talked about M&A. Are some of the top priorities Maybe any details related to either technology? What fills out your stack, or geography where maybe you are lacking presence Anything you can share on that would be great.

Eric Stang: Sure, happy to. But neither of those are particular concern to us. We viewed making smaller sized acquisitions as a way to strategically grow Ooma cost effectively. And all 3 you know, all if you look at our 3 last 3 UCaaS acquisitions in FluentStream, phone.com, and OnSIP, any business like those would be of interest to us. would be in our target sweet spot. Does not mean we would not also look at other things or things that might broaden us in certain ways, but fundamentally, we are we are looking for cost effective growth, increased scale, moving Ooma up to just be a larger business in the market. And I think that when businesses that we are acquiring can be accretive 1 quarter out, which both FluentStream and phone.com were. it is a very viable, strategy for us. So that is what we are trying to do. And about the only constraint I would say is we are we are focused in North America. We are not we are not trying to expand geographically. Great.

Brian Kinstlinger: Thanks a lot.

Operator: As a reminder, ladies and gentlemen, that star 1 to ask a question. Thank you. Please stand by for our next question. Our next question comes from the line of Matthew Harrigan with Benchmark Stonex. Your line is open.

Matthew Harrigan: This may be quite a conjectural question, but I will go there anyway. When you look at the family safety market, which would include you know, predatory activity toward kids as well as not being too distracted by social media. On the mobile side, I mean, it is an enormous TAM, you know, both in US and Europe as well. I am aware of 1 small software company that is trying to address that. I know Verizon’s done some things in house. But is there anything that you are doing that would be appropriate to that market? Because, I mean, clearly, there is some opportunity with MyPhone, but if you had something comparable on the mobile side where you had both kind of a safety element and not watch too much of the Kardashians. Element as well. It would certainly have a pretty huge TAM in the market relative to my phone. Thanks.

Eric Stang: Yeah. that is an interesting area to think about. And there are certainly other things 1 can do and other things certain companies are doing. Our focus today is MyPhone, which is you know, specifically targeted at who have, you know, a defined list of others they wanna be in touch with. And you know, there is a bit of a viral in impact to this because when you know, when your kid gets 1, you want the other kids that are they are friends to get them too, and the parents get together and they discuss what they are gonna do. And it, you know, really is a nice way to give your kids some freedom, the ability to interact with others, but still know that you know, that, you know, they are not subject to all the challenges of social media and, you know, connectivity that comes with a smartphone.

So it is it is it is a remarkably large movement. We were talking just the other day about an organization in Washington the state of Washington, in a particular location there. Where there is actually a nonprofit that is giving out phones like this to try and get all the kids on, you know, on something that is safer. it is it is a it is a big deal. We have also seen social media banned in some countries for kids below a certain age, not The US, of course, but I am thinking of countries, I believe, if I am remembering right, Spain was 1 of them that did that recently. So, you know, I think there is a real role for MyPhone, and I can tell that when we talk to retailers, our buyers at retail are often you know, individuals with kids at home. And they get it instantly.

When we start talking about the use case. If you have got a kid at home and you are facing these issues and you hear about what MyPhone is and what we are trying to do, it really resonates. So, you know, as you can tell from Shigeyuki’s guidance, our guidance, we do not really know what to expect from MyPhone, and we have not put too much in the outlook for it. But we are going to really put some marketing behind it, particularly through social media channels and influencers and see if we can get you know, get a lot of parent interest in what we think is a great solution for younger kids. So that is really our focus. And, you know, as we are successful with that, maybe we will look more broadly. From there.

Matthew Harrigan: Would you say that even if you did not have anything in the hopper in terms of active developments or discussions, would you have reason to believe that any of your technology would be readily transferable to the mobile side, or is it just no visibility on that In other words, it would not it would not be it would be an app.

Eric Stang: Oh, no. I do think some of our technology is transferable. In fact, I am sorry? Well, I do not I do not wanna get too specific or I do not know if you can hear me, but I do not wanna get try to get too specific on what we might be thinking about or what you are going towards. But we do have our mobile app called Talk A Zone. And we are very we are very aware of how mobile apps can be can be tailored to meet certain needs in the market. And so we have that technology in house along with the technology that obviously creates the special features that MyPhone brings. But, yeah, I think you are getting out ahead of where we are.

Matthew Harrigan: Okay. Great. Thanks, Eric. Congratulations again on the numbers.

Operator: Please standby for our next question. Thank you. Our next question comes from the line of Josh Nichols with B. Riley Securities. Your line is open.

Matthew: Hi. This is Matthew on for Josh. Thanks for taking my questions. Just to start off, so on the product gross margin side, came in at around, like, negative 30%. I am wondering like how much of that is sustainable you know, AirDial Gen 2 cost savings And is negative 30% a, like, around there a good run rate going forward?

Shigeyuki Hamamatsu: Yes, Matthew, this is Shig. Thanks for the question. I do think and our expectation right now is you are gonna see a little bit worse product margin starting Q2 and rest of the year. There are a couple of reasons. 1 would be the you know, we are going to start to see the impact of a higher component prices that we may have we may have talked about in the past a little bit. So these are memory pieces. So it is not unique to it is not unique to Ooma per se. But, you know, so those components go into, Telo, our residential product, and AirDial. So we are going to start to see some impact of it starting Q2 and rest of the year. Secondary, again, we are not putting too much MyPhone, estimate into the forecast.

to be conservative. But to the extent that we see those units shipped into stores in the second half when we do realize them, we are going to lose some money upfront. You know, really, customer acquisition cost from our perspective. So for those 2 reasons, you know, you are gonna see a little bit worse product margin in Q2 and particularly in the second half. So long story short here that I think that, for the whole of the year, we are estimating about -40% for the whole for the entirety of the year. So maybe you can model to that. to that number.

Matthew: Got it. that is helpful. Okay. So then going into fiscal 28, right, after some of that second half weakness from launching more of MyPhone products, like, I guess, how do you see that going from negative 40 to, I guess, closer to 30, like, maybe 35?

Shigeyuki Hamamatsu: Yeah. I mean, I cannot really predict yet of the, you know, 28. But you know? And I just nobody knows where the memory price is going either. Right? So it is hard for me to say. But if you have to model something for 2028, maybe you wanna keep it or maybe you want to keep it on -40 for now.

Matthew: Got it. Thanks. And then so I guess you mentioned MyPhone. I am wondering, like, what the ARPU is looking like for MyPhone versus Ooma Telo.

Shigeyuki Hamamatsu: So MyPhone would be all premium. Subscription users when they sign up. So, you know, it will be, accretive to our average residential ARPU, which is, you know, $9 and change. So it will be accretive to that number.

Matthew: Great. Super helpful. Last question for me. I know you guys had mentioned Verizon was still inactive on POTS shutdowns. I am just wondering if you see any signals on when that might change? Maybe it might be second half of this year, maybe next year. I am wondering, like, as an upside lever. What we should think about that.

Eric Stang: I do not have any signals to share there now.

Matthew: Alright. that is fair. Thanks for taking my questions.

Operator: Thank you. Ladies and gentlemen, I am showing no further questions. I would now like to turn the call back over to Eric for closing remarks.

Eric Stang: Well, thank you everyone for joining us today. We appreciate your time. it is just 1 quarter into the fiscal year, but it is a good start. And we see lots of opportunity to go to go capture, and we are gonna execute our best to do it. So thank you, everyone. Bye.

Operator: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.