Ooma Q4 2025 Earnings Report

Ooma EPS Results

• Actual EPS: $0.05
• Consensus EPS: $0.16
• Beat/Miss: Missed by -$0.11
• One Year Ago EPS: $0.13

Ooma Revenue Results

• Actual Revenue: $65.10 million
• Expected Revenue: $64.70 million
• Beat/Miss: Beat by +$397.00 thousand
• YoY Revenue Growth: N/A

Ooma Announcement Details

• Quarter: Q4 2025
• Date: 3/4/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, March 4, 2025
• Conference Call Time: 5:00PM ET

Ooma (NYSE:OOMA) is a cloud communications company that provides voice, collaboration, and related technology services to small and midsized businesses, enterprises, and residential customers. Its services are delivered primarily through internet-based platforms designed to help customers manage communications without relying on traditional on-premises phone systems.

For businesses, Ooma offers cloud phone and unified communications solutions under brands and product lines that include Ooma Office, Ooma Pro, Ooma Enterprise, and Ooma AirDial. These services can include business calling, messaging, video conferencing, call management, virtual extensions, analytics, and connectivity for organizations transitioning from legacy telephone infrastructure.

Ooma also provides residential communications and connected-home services, including its Telo internet phone platform and associated calling features. The company serves customers primarily in the United States and Canada through direct sales, channel partners, and telecommunications relationships. Ooma was founded in 2004 and became a publicly traded company on the New York Stock Exchange in 2015.

Ooma Q4 2025 Earnings Call Transcript

Key Takeaways

• Q4 FY25 performance: Revenue reached $65.1M (6% YoY growth) with non-GAAP net income of $5.8M, while FY25 revenue grew 8% and non-GAAP net income rose 17%, generating over $20M in free cash flow.
• FY26 guidance: Management forecasts full-year revenue of $267M-$270M (5-6% growth in business subscriptions) and non-GAAP net income of $22M-$23.5M, targeting an ~11% adjusted EBITDA margin.
• POTS replacement momentum: Ooma secured exclusive Marriott certification for Aerodial, remains on track with a major cable partner and Frontier Communications, and earned a Frost & Sullivan leadership award.
• SMB cloud communications expansion: The take rate for Office Pro and Pro Plus climbed to 60% of new office users and Ooma plans to launch call center and AI features, expand channel partners, and enhance wireless integration.
• Core users dipped to 1.234M in Q4 (from 1.242M) due to seat reductions at IWG, with guidance assuming additional churn in Q1 before user levels stabilize.

Presentation

[Operator]

Thank you for standing by, and welcome to the Ooma Inc. Fourth Quarter and Fiscal Year 2025 Financial Results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one, one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one, one again. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Matthew Robison. Please go ahead, sir.

[Matthew Robison, Director of IR and Corporate Development at Ooma]

Thank you, Jonathan. Good day, everyone, and welcome to the fourth quarter and fiscal 2025 earnings call of Ooma. 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 fourth quarter and fiscal 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 and presentation 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.

[Matthew Robison, Director of IR and Corporate Development at Ooma]

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 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, 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.

[Matthew Robison, Director of IR and Corporate Development at Ooma]

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. On this call, we will give guidance for first quarter and full year fiscal 2026 on a non-GAAP basis. Also, in addition to our press release and AK 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 One and Supplemental Financial Disclosure Two.

[Matthew Robison, Director of IR and Corporate Development at Ooma]

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's CEO, Eric Stang.

[Eric Stang, CEO at Ooma]

Thank you, Matt. Hi, everyone. Welcome to Ooma's fourth quarter and fiscal year 2025 earnings call. Thanks for joining us. We're pleased to report our results and to share our plans for our upcoming fiscal year. For Q4 FY25, which of course is our quarter just ended, we achieved $65.1 million of revenue and $5.8 million of non-GAAP net income. Our growth was solid, and our non-GAAP net income took a significant step up versus prior quarters. For all of FY25, our revenue grew 8% year-over-year, and our non-GAAP net income grew 17% year-over-year. We generated over $20 million of free cash flow and spent approximately $9 million repurchasing Ooma stock. Looking forward, we believe we are well positioned to serve market segments with significant growth potential.

[Eric Stang, CEO at Ooma]

We also believe our higher non-GAAP net income represents a good start toward our plan to increase profitability going forward. As you know, we focus on four specific market segments: cloud communications specifically designed for smaller-sized businesses, POS replacement for both business and residential customers, wholesale platform services, and residential telephony. We believe we are a leader in each of these segments. Given this is the start of a new fiscal year, I would like to talk about our progress and plans for each. As we have shared previously, our strategy for serving smaller-sized businesses is built around continued customer outreach to generate awareness of our services, converting customers up to higher value tiers of service, and adding select bigger business features in a simple-to-use way to extend the appeal of our solution to slightly larger-sized businesses.

[Eric Stang, CEO at Ooma]

Our progress in Q4 was on track, with both the percentage of our customer base taking a premium tier of service and our average revenue per user growing in line with expectations. We were particularly pleased to win a large new Ooma Office customer with 282 users and to secure a double-digit number of new Office customers with over 25 users each. Looking ahead, we plan to continue our current cloud communications strategy targeting small to medium-sized businesses. We will expand our feature set in two key directions by launching new call center and new AI capabilities. We will also enable more integrations and, along with that, strengthen our vertical marketing activities. We intend to extend our sales reach, particularly through channel agents and by improving our wireless internet solution to create a stronger double-play offering.

[Eric Stang, CEO at Ooma]

We believe millions of small to medium-sized businesses across North America have yet to gain the benefits of moving to cloud-based communications, and we have the ideal solution for them. Moving to our second key market segment, POS replacement, our strategy is to provide the most sophisticated and complete solutions in the market and to leverage a combination of sales channels to increase our customer reach. To achieve this, we focus on three routes to market: direct, via channel agents, and through third-party resale partners. I'm pleased to report that in Q4, we made good progress both expanding our sales activities and helping existing resale partners launch with us. The large nationwide cable provider who we discussed last quarter will resell Ooma AirDial currently remains on track to start doing so by the end of March.

[Eric Stang, CEO at Ooma]

Frontier Communications, the large ILEC we won last year, is now working with us in a limited way to begin selling Ooma Telo for residential POS replacement, targeting customers of theirs who are at risk of phasing out. Furthermore, I'm pleased to share some particularly exciting news for AirDial with Marriott Hotels and Resorts. After an extensive review process, Marriott International Administrative Services just recently extended Marriott brand certification to AirDial, which we understand makes AirDial the only current de facto POS replacement solution recommended and supported by Marriott. Our understanding is brand certification is a driving factor in vendor selection at all Marriott-owned or managed properties and also strongly referenced at independently managed properties. We couldn't be more pleased to now have this exclusive preferred position with Marriott for AirDial.

[Eric Stang, CEO at Ooma]

I'm also pleased to highlight our recent announcement that the research firm Frost & Sullivan selected Ooma AirDial as the competitive strategy leader in POS replacement. It's terrific to receive this external validation of the strength of our AirDial solution. Our plan for FY26 is to continue to execute our POS replacement growth strategy by introducing improved and lower-cost product solutions for both business and residential and by expanding sales activities across all three routes to market. We intend to add resale partners every quarter and to assist them to drive the fastest sales ramp possible. We believe the POS replacement market opportunity is quite sizable in the millions of lines, and market dynamics are increasingly driving companies to take action. These trends make this segment a key opportunity for Ooma.

[Eric Stang, CEO at Ooma]

Our third key market segment is wholesale platform services, where our strategy is to strengthen our 2600Hz platform by incorporating Ooma's turnkey solutions, to employ the modern-designed architecture of our 2600Hz solution to serve customers' unique requirements, and to capitalize on the market shift away from older and less substantial platforms that is starting to occur. In Q4, we launched new turnkey desktop and mobile apps, expanded our sales resources, landed a couple of small new customers, and continued proof of concept engagements with other potential customers. Securing customers and scaling them into a sizable revenue takes an extended amount of time in this segment, but we are quite excited about the strength of our platform and the market dynamics which we feel support adoption of new solutions. Finally, residential telephony remains a key segment for Ooma.

[Eric Stang, CEO at Ooma]

Our strategy is to maintain our retail placements and customer awareness marketing at Best Buy, Amazon, Costco, Walmart, and other retailers, to drive customer interest through new lifestyle bundles such as for seniors, families, and home offices, to capitalize more on Telo LTE, which combines wireless internet connectivity with Telo, and to expand through enabling incumbent and competitive local exchange carriers and other fiber providers to replace their residential POTS lines with Ooma. In Q4, we began ramping residential telephony sales at the CLEC I announced in Q3. We also made progress, as mentioned earlier, toward starting limited sales with Frontier Communications. Looking forward, we view residential telephony as a stable part of our overall business, and we will explore whether we can drive growth via partners who need to replace their existing residential POTS lines.

[Eric Stang, CEO at Ooma]

Overall, I believe we enter FY26 with good momentum across many parts of our business. We are mindful that our outlook depends in particular on the pace at which our partners sign new customers and the timing of when we secure new partners and customers. We feel we need to be cautious with our outlook while our plans materialize. 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.

[Shig Hamamatsu, CFO at Ooma]

Thank you, Eric, and good afternoon, everyone. I'm going to review our fourth quarter financial results and then provide our outlook for the first quarter and full fiscal year 2026. Our fourth quarter revenue was $65.1 million at the high end of our guidance range and was up 6% year-over-year, driven by the growth of Ooma business, including AirDial. In Q4, business subscription and services revenue accounted for 61% of total revenue, subscription and services revenue, as compared to 60% in the prior year quarter. Q4 product and other revenue came in at $4.5 million as compared to $3.7 million in the prior year quarter. The year-over-year growth in product revenue was primarily driven by growth in AirDial installations.

[Shig Hamamatsu, CFO at Ooma]

On a four-year basis, total revenue was $256.9 million for fiscal 2025 as compared to $236.7 million in the prior year, representing 8% growth year-over-year, including 13% growth in business subscription and services revenue. On the profitability front, Q4 non-GAAP net income was $5.8 million, meaningfully above our guidance range of $4.5 million-$4.8 million, as we saw the benefit of R&D operating leverage we discussed in the last earnings call. Q4 non-GAAP net income also benefited from lower-than-expected tax expense. On a four-year basis, non-GAAP net income was $18 million, year-over-year growth of 17%, compared to $15.4 million in the prior year. Now, some details on our Q4 revenue. Business subscription and services revenue grew 8% year-over-year in Q4, driven by user growth and output growth. On the residential side, subscription and services revenue was down 1% year-over-year.

[Shig Hamamatsu, CFO at Ooma]

For the fourth quarter, total subscription and services revenue was $60.6 million, or 93% of total revenue, as compared to $58 million, or 94% of total revenue in the prior year quarter. Now, some details on our key customer metrics. We ended our fourth quarter with 1,234,000 core users, which is down from 1,242,000 core users at the end of the third quarter. The sequential decline in total core users was primarily due to the seat reductions with IWG, which was anticipated going into Q4. At the end of the fourth quarter, we had 503,000 business users, or 41% of our total core users. Our blended average monthly subscription and services revenue per core user, or ARPU, increased 4% year-over-year to $15.26, driven by an increasing mix of business users, including higher-ARPU Office Pro and Pro Plus users.

[Shig Hamamatsu, CFO at Ooma]

During the fourth quarter, we continued to see a healthy Office Pro and Pro Plus take rate with 60% of new Office users opting for these higher-tier services, which was up from 59% in the prior quarter. Overall, 34% of Ooma Office users have now subscribed to these higher-tier services. Our annual exit recurring revenue was $234 million, up 3% year-over-year. Our net DOS subscription retention rate for the quarter was 98% as compared to 99% in the third quarter. Now, some details on our gross margin. Our subscription and services gross margin for the fourth quarter was 72% as compared to 72% in the prior year. Product and other gross margin for the fourth quarter was negative 55% as compared to negative 72% for the same period last year.

[Shig Hamamatsu, CFO at Ooma]

The year-over-year improvement in product and other gross margin was primarily due to our fully consuming higher-cost components we had procured during the pandemic in the first half of fiscal 2025. On an overall basis, the total gross margin for Q4 was 63% as compared to 63% in the prior quarter. The flat overall gross margin year-over-year reflects a heavier mix of product revenue in fiscal 2025, which was seven percent of total revenue due to an increase in AirDial installations, which offset the improvement in product gross margin. Now, some details on our operating expenses. Total operating expenses for the fourth quarter were $35.1 million, up $0.4 million, or one percent from the same period last year. Sales and marketing expenses for the fourth quarter were $17.7 million, or 27% of total revenue, up 2% year-over-year, primarily driven by higher marketing and channel development activity for AirDial and 2600Hz.

[Shig Hamamatsu, CFO at Ooma]

Research and development expenses were $11.2 million, or 17% of total revenue, down six percent on a year-over-year basis and also down seven percent sequentially from Q3. The decrease was primarily driven by headcount management as we continued to focus on R&D efficiency and operating leverage. G&A expenses were $6.2 million, or nine percent of total revenue for the fourth quarter compared to $5.4 million for the prior quarter. The year-over-year increase in G&A expenses was primarily due to increases in personnel and audit-related costs. Non-GAAP net income for the fourth quarter was $5.8 million, or diluted earnings per share of $0.21, as compared to $0.13 in the prior year quarter. Adjusted EBITDA for the quarter was $6.9 million, another record for the company, or 11% of total revenue, as compared to $5.2 million, or 8% for the prior year quarter. We ended a quarter with total cash and investments of $17.9 million.

[Shig Hamamatsu, CFO at Ooma]

We had another robust cash flow quarter with $7.8 million generated from operations in Q4. In fiscal 2025, we generated a record $26.6 million of operating cash flow and $20.2 million of free cash flow, which represented 117% and 230% increase, respectively, over fiscal 2024. With strong free cash flow generation, we fully paid off the debt in Q4 and spent a total of $8.9 million during fiscal 2025 to buy back stock through a combination of open market repurchase and RSU net share settlement. On the headcount front, we ended a quarter with 1,186 employees and contractors. Now, I will provide guidance for the first quarter and full fiscal year 2026. Our guidance is on a non-GAAP basis and has been adjusted for expenses such as stock-based compensation and amortization of intangibles.

[Shig Hamamatsu, CFO at Ooma]

We expect total revenue for the first quarter of fiscal 2026 to be in the range of $64.7 million-$65.1 million, which includes $4.4-$4.6 million of product revenue. We expect first quarter net income to be in the range of $5.1 million-$5.4 million. Non-GAAP diluted EPS is expected to be between $0.18-$0.19. We have assumed $28.4 million with average diluted shares outstanding for the first quarter. For full year fiscal 2026, we expect total revenue to be in the range of $267 million-$270 million. The full year fiscal 2026 revenue guidance assumes business subscription and services revenue growth rate of five to six percent over fiscal 2025, while residential subscription revenue to decline one to two percent.

[Shig Hamamatsu, CFO at Ooma]

In terms of revenue mix for the year, we expect 91%-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 2026 to be in the range of $22 million-$23.5 million. Based on this guidance range, we estimate our adjusted EBITDA for fiscal 2026 to be $27.5 million-$29 million. We expect non-GAAP diluted EPS for fiscal 2026 to be in the range of $0.77-$0.82 per share. We have assumed approximately 28.6 million average diluted shares outstanding for fiscal 2026. Let me provide additional context for our first quarter and fiscal 2026 guidance.

[Shig Hamamatsu, CFO at Ooma]

Our revenue guidance reflects the impact of an additional churn expected from IWG in the first quarter, as well as some challenges associated with predicting the timing of AirDial revenue ramp with new partners and customers we acquired recently. While we are very excited about these new relationships to drive AirDial growth, the pace of revenue ramp is difficult to predict as we are still in the early phases of implementation with them. In terms of profitability, our non-GAAP net income guidance and our adjusted EBITDA reflect a meaningful step up, and at the midpoint of guidance, these metrics are expected to grow 26% and then 21% over 2025, respectively. With respect to adjusted EBITDA margin, we believe we can achieve close to 11% for fiscal 2026 as compared to 9% in fiscal 2025 as we continue to drive operating leverage and make progress towards our long-term target.

[Shig Hamamatsu, CFO at Ooma]

In summary, we are pleased with a solid finish to our fiscal 2025 with a record quarterly adjusted EBITDA, along with a record free cash flow of over $20 million for the year. We're excited about growth opportunities in front of us and remain focused on executing to our long-term strategy to achieve profitable growth. I'll now pass it back to Eric for some closing remarks. Eric?

[Eric Stang, CEO at Ooma]

Thanks, Shig. I have talked with you today about our focus on four segments, where we believe Ooma has crafted leading solutions. We want to extend our success providing communication solutions to smaller-sized businesses, capture the large POTS replacement market opportunity both directly and through resale partners, and solidify 2600Hz as the modern platform for the future used by carriers worldwide. As we achieve these goals, we also want to drive enhanced bottom-line results.

[Eric Stang, CEO at Ooma]

This is an exciting time for us, and I feel we're well placed to succeed. Thank you. We will now take your questions.

[Operator]

Certainly. Our first question comes from the line of Arjun Bhatia from William Blair. Your question, please.

[Alinda Li, Equity Research Associate at William Blair]

Awesome. Thanks. Hey, this is Alinda Li here for Arjun. Eric, a question for you. What are you seeing in the S&B environment? Has it faded a little bit after the election?

[Eric Stang, CEO at Ooma]

No, I wouldn't say it's faded. Q4 is always the one quarter of the year where, with everything else going on, holidays and a lot of business activity, small businesses may not be in the market quite as much. Things roar back in January, and we've seen that. I think it's been strong, and it remains strong.

[Alinda Li, Equity Research Associate at William Blair]

Awesome. Another question.

[Alinda Li, Equity Research Associate at William Blair]

Can you give us more color on how you are thinking about assisting resale partners in driving sales, but also the strategic approach on adding new resellers every quarter in fiscal 2026? Thanks.

[Eric Stang, CEO at Ooma]

Yeah. It's pretty amazing to think we have over 20 partners that we've established relationships with to resell, in particular, Ooma AirDial. It's really exciting to see that growing as we go forward. Some of those partners are reselling Office, a small number, and one or two are reselling Telo for POTS replacement as well. This cuts across our business even beyond AirDial.

[Eric Stang, CEO at Ooma]

We think there are lots of entities out there that need to replace POTS lines or want to be in the market to replace POTS lines, and that our solution is the clear winner when you really step back and look at what it can do and how it operates and how we've built it as one complete solution. We are excited to keep pursuing that. We have a small team of corporate development individuals who are focused on that. As I said, our goal—and we've said this in the past, too—our goal is to add a couple of resellers every quarter, and we think we can do that.

[Alinda Li, Equity Research Associate at William Blair]

Awesome. Thank you.

[Operator]

Thank you. Our next question comes from the line of Brian Kinstlinger from Alliance Global Partners. Your question, please. Great. Thanks so much.

[Brian Kinstlinger, Director of Research and Senior Technology Analyst at Alliance Global Partners]

For someone like Marriott, how many POTS lines do they have, and what's been communicated in terms of their plans and maybe timeframe for replacement?

[Eric Stang, CEO at Ooma]

I can tell you that Marriott has over 5,000 properties in the U.S. alone. I actually haven't looked into Canada or other markets where we can sell AirDial today. It's very early stages with this agreement, so I think we're going to have to give it some time to be able to answer your question fully. I know that brand certification is fundamental within the Marriott community, and having it and being the only POTS replacement solution to have it, I think, is a very strong position to be in. I also think within the hospitality industry generally, Marriott is looked up to for the degree to which they review their solutions before they adopt them.

[Eric Stang, CEO at Ooma]

We're hopeful that this will carry some weight with us, too, as we look at other players in the market. No, it's essentially an open door now for us to go target their properties and bring them our solutions. I can tell you that a large Marriott property might need 20-40 lines if you think about all the different applications that might have a parts line in them. This can be sizable, but how big and how fast, it's too soon to say.

[Brian Kinstlinger, Director of Research and Senior Technology Analyst at Alliance Global Partners]

Okay. In terms of your large cable partner for parts replacement, I think last quarter you mentioned you would know more in March in regard to the ramp from either that partner or the market in general from other partners.

[Brian Kinstlinger, Director of Research and Senior Technology Analyst at Alliance Global Partners]

Can you help us understand what has limited visibility, if I'm understanding you correctly, and why do you think customers might not be motivated to move much more quickly?

[Eric Stang, CEO at Ooma]

The limited visibility we have is, will this partner launch in March as they are intending to do? We think they will. It is now March, but still, that is a first step. How fast will their sales force generate deals and generate business? We are going to wait and see. I can tell you, though, that with this large cable partner, the vast majority of the Fortune 1000 have some relationship with them already. We are involved with them not only in their enterprise business side of the company, but also with their public sector activities. That is a door opener for us into the public sector.

[Eric Stang, CEO at Ooma]

That's not an area that we've been able to do much in up to date. We have lots of hopes, but we're going to have to go through the year and see how it materializes. In general, I think what's been happening in the market over the last year, businesses are more likely to move forward on parts replacement than ever before. We still do win customers who we think are going to be quite large, but they start small. They start with a handful of properties or locations because that's where they face the immediate need. We also do see them where they need hundreds or maybe even thousands of lines. We are excited about the market developing, but it's very hard to handicap or be certain just what's going to happen each month through this year.

[Brian Kinstlinger, Director of Research and Senior Technology Analyst at Alliance Global Partners]

Got it.

[Brian Kinstlinger, Director of Research and Senior Technology Analyst at Alliance Global Partners]

The last question I have, you mentioned in the first quarter some more churns expected from IWG. Will we continue to see after the first quarter more churn? Do you think it's stable at that point? Just give us the short to medium-term trajectory after the first quarter of how it's been communicated to you or what you expect.

[Eric Stang, CEO at Ooma]

Yeah. We have a view on this, but things can change. It is interesting that, as we said last quarter, there would be some more line reductions this quarter. When you look at it in aggregate over the last 12 months, we're just about right where we said we'd be a year ago. It took them longer to do some reductions than what we said were going to happen literally this time last year. They have been done now, and we do not expect a lot more coming.

[Eric Stang, CEO at Ooma]

We think we're pretty stabilized. I will say this too, and I can't give away too much, but up until now, almost everything we've done with IWG Regus has been to serve the businesses and users that they have in their buildings. They are testing, and we are working with them on some opportunities that will take them beyond that into new areas. If those plans unfold and turn positive, it could be an upside for us together. We have a very good working relationship with them, as you might expect, and we're excited to enable them to try some new things. You never know, but I think after this quarter, we're going to be in a pretty good, pretty stable spot, maybe with some growth opportunity.

[Brian Kinstlinger, Director of Research and Senior Technology Analyst at Alliance Global Partners]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from the line of Josh Nichols from B. Riley.

[Operator]

Your question, please.

[Josh Nichols, Senior Analyst at B. Riley]

Yeah. Thanks for taking my question. I'm just curious what you're seeing a little bit more in the SMB market if you were to just strip out what your assumptions are for AirDial overall, if you could provide a little bit of context. I know you said you were being pretty conservative on the AirDial recurring revenue piece of the business, but if you could provide a little bit more granularity, that would be helpful.

[Eric Stang, CEO at Ooma]

Sure. Let me frame this more in the context of Ooma's strategy and our priorities than maybe the SMB market per se. We have expanded our business scope to include an incredible parts replacement market opportunity and also a longer-term wholesale services market opportunity. We have shifted some of our sales and marketing activities into those areas without growing substantially our sales and marketing spend.

[Eric Stang, CEO at Ooma]

We've done that in part because we're also committed to driving improved bottom-line performance. We were thrilled to grow non-GAAP net income 17% last year and to give guidance this year that's even higher in the amount of growth we're going to drive there. We're always balancing across our business. We see good opportunities in the small business segment. We're going after them, and we'll grow this year nicely, but it's in the context of the overall growth we're trying to do for the company. We still estimate there are millions of small businesses in North America that have yet to move to the cloud. We've seen data that are around 7 million businesses with 1 to 20 employees in North America, and that's a lot of opportunities.

[Eric Stang, CEO at Ooma]

Still, the majority of the new customers we get, we're taking them—I was going to say—we're taking them from just a few phone lines for maybe a cable provider or maybe even someone like a POTS line provider into the cloud and into all the features that come with that. It's less often that they're actually switching from another cloud provider. We continue to see good market opportunity, but we are balancing our outlook across all the segments of growth we have.

[Josh Nichols, Senior Analyst at B. Riley]

Thanks. Understood. Just taking a step back, I know you're not providing formal guidance for anything longer-term.

[Josh Nichols, Senior Analyst at B. Riley]

Given that you have a little bit of churn headwinds with your largest customer and are being a little bit conservative about some of these new AirDial rollout opportunities, I guess one fair to say that you would hope to see the revenue growth, particularly on the recurring piece, start to accelerate more meaningfully next year. Longer-term, you talked about the focus on increasing profitability, nice bit of margin expansion. Do you expect to continue marching along that path beyond this year?

[Eric Stang, CEO at Ooma]

Yeah. I think another way to say that is if you look at the segments that we're targeting today, they have—I don't know what it is—but many years of growth potential in them. I think as big as AirDial and parts replacement is going to be this year, it's going to be even bigger next year and maybe even the year after that.

[Eric Stang, CEO at Ooma]

Wholesale services carriers are just beginning to pick their head up and realize that the broads off the Metaswitch solutions they have are not going to take them forward over the next 5-10 years. There is a huge small business community still to be gone and gotten. We are viewing the investments we have made in our business, particularly in building our product portfolio, to be something we can leverage for years to come. We are committed to doing that while we also improve the bottom line. We think because we have built leading solutions in the market, we are going to continue to evolve them, improve them, but we do not have to invest in them at the level we have invested in the past. Our guidance this year does reflect a little bit better leverage on R&D, which we are already set up to achieve.

[Eric Stang, CEO at Ooma]

Yeah, I don't see any reason why we can't grow and be more profitable as we go forward. That's the goal we set.

[Josh Nichols, Senior Analyst at B. Riley]

Thanks, Eric.

[Eric Stang, CEO at Ooma]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Max Michaelis from Lake Street Capital Markets. Max, your question, please.

[Max Michaelis, Equity Research Associate at Lake Street Capital Markets]

Hey, guys. Thanks for taking my question. It's good to hear that you guys are on track with that top-tier cable company. It sounds like March is still in play. Can you remind me, are we in conversations with any other of the top national cable companies around the United States?

[Eric Stang, CEO at Ooma]

We're in a long list of conversations at different stages in their process.

[Eric Stang, CEO at Ooma]

I can't really say who we're talking to and who we're not talking to, but certainly, we have aspirations to win more large players in the market, whether they be CLECs and ILECs, who have their own POTS lines in place, aggregators who bring solutions together, or cable companies and others that play in the market. Yeah, we are excited to talk to anyone who's interested in our solutions.

[Max Michaelis, Equity Research Associate at Lake Street Capital Markets]

All right. We look at the business segment. I believe you said five to six percent growth in 2026 or fiscal year 2026, that is. I mean, help me think about first half and second half. Maybe are we low single digits first half, maybe double digits second half, or just mid-single digits across the board? I guess kind of help me out there how that should spread out throughout the year.

[Eric Stang, CEO at Ooma]

Yeah.

[Eric Stang, CEO at Ooma]

Matt said the way we think about it is we aim to grow at the fastest pace in the second half. That's how we think about it. To the extent that you were taking a conservative stance on AirDial in particular, how the installation goes, and we see installing more in the back half than first half. Once we install, as you know, the subscription revenue follows that. As we think about how that five to six percent, that's the business subscription growth that I guided to for the year, how it's distributed. I would say second half is more than the first half.

[Max Michaelis, Equity Research Associate at Lake Street Capital Markets]

Okay. That makes sense. Thank you.

[Operator]

Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star one, one on your telephone.

[Operator]

Our next question comes from the line of Matthew Harrington from Benchmark. Your question, please.

[Matthew Harrington, Analyst at Benchmark]

Thank you. I think when you initially announced the 2600Hz deal, you pointed out that there were a number of aspects of their business that were almost completely unmonetized. I know it would have to be a gradual push over time. When you look at the growth there, is that more new customer acquisition? Is it broadening the offering to a particular customer? Or is there really kind of de novo opportunities to monetize what was kind of open source before? Secondly, presumably, the incremental growth on your top new product is going to be higher this year than last year, and you've got some 2600Hz growth on top of that.

[Matthew Harrington, Analyst at Benchmark]

Does that imply you're seeing a slowdown or at least a plateauing in the Ooma Office side on the SMB side, maybe out of caution on the economy? I know in some other calls, you talked a fair bit about caution on the economy, and clearly, a lot of the other names I follow, some of them are not in your area, are really expressing a lot of concerns over the economy right now. Thanks.

[Eric Stang, CEO at Ooma]

Hi, Matthew. On the second part of your question first, we think of it more as 2600Hz will take time for the revenue to ramp because when you secure new customers, they have to adopt the solution and make it work for them. If they're going to convert existing customers over, that's a whole process as well.

[Eric Stang, CEO at Ooma]

I think the impact on our business will be greater next fiscal year than this fiscal year from 2600Hz. In order to achieve that, we're going to have some major wins this year in 2600Hz, and that is what we're setting out to do. You asked about 2600Hz and how we monetize it. I think most of the growth that we're looking to achieve there is going to come from new customer wins. We do have services that we are adding to the platform that can be monetized with existing base. One of them comes from just the Ooma IP and apps that we're bringing onto the platform. Some of our customers are going to want to adopt them, and that can lead to some revenue.

[Eric Stang, CEO at Ooma]

We also have launched carrier services to go with the 2600Hz solution, leveraging our low-cost structure for our customer base there. Some of those activities can also be some incremental growth from the existing base. I think that what you're really hearing from us is just what I said in my opening remarks, that the pace at which AirDial expands and the pace at which these resale partners join us and the ones we have ramp and how fast new 2600Hz customers expand with us, we're going to be cautious until those things are materializing. We haven't reduced our outlook in any part of what we're doing.

[Matthew Harrington, Analyst at Benchmark]

On the Frost & Sullivan commentary on the accelerating need for the POTS replacement, the awareness, really kind of the predatory pricing on some of the copper lines.

[Matthew Harrington, Analyst at Benchmark]

If you're being cautious and moderating your pace, I mean, that either implies the market's not making the necessary adjustments that fast or there's someone else there. I mean, you have to have some competition. I mean, where are you seeing alternatives to your offering? I know you're not pushing hard in Europe or certainly not Asia right now, but you've got some issues in those markets as well. I mean, if you're in Germany or the U.K. and someone has the same problem, how are companies addressing it? Are they not addressing it? Is there a smorgasbord of solutions over there? In other words, it feels like your pace of growth there may be a little bit inconsistent with the dynamics of the market that Frost & Sullivan and yourselves have spoken about.

[Eric Stang, CEO at Ooma]

I've seen some analyst commentary that suggests that less than 10% of the market has converted yet away from their POTS line in terms of the remaining lines that we see out there. It's very hard to know what that number exactly is. I will say it's a little baffling. I think I've learned through this process. There's customers who we could save a seven-figure amount of money, and still they take a year to get it done when they could have done it in three months. I don't know if these decisions aren't making it up to the CFO ranks or what, but it is shocking to me. I know someone, a local business here in the Bay Area, who told me they just got Ooma AirDial for two buildings they have, recommended to them by their elevator servicing company, which was great to see.

[Eric Stang, CEO at Ooma]

They had never looked at their POTS lines, and they were shocked to find out they're paying over $600 a month per line at each place. They were thrilled on how much we're saving them, but they just didn't know. I think it's a matter of getting the word out. I think it's a matter of this rising up to a level where companies understand what's happening because it's not uncommon to see $100-$200 a month or more for the cost of a POTS line, which is just nuts when you think about it. If you got a lot of them, it's quite substantial. We think all the trends are there for the market to get bigger and go faster. We've talked about our competitors in the past here.

[Eric Stang, CEO at Ooma]

Our biggest two competitors are aggregators who, with larger-sized accounts, may have an existing relationship. That relationship is how they will sell versus us selling with what we believe is a better product solution. We have had large customers start with one of them and then come to us when they could not get what they needed from that other player. We do not feel like we are at some competitive disadvantage. We feel like we actually have the best solution in the space. Our approach to that challenge is to work with resale partners such as T-Mobile or UScellular or other aggregators or this large cable provider because they have those relationships when we do not. You mentioned international as well. Outside of North America, we have not spent a lot of time from an AirDial perspective.

[Eric Stang, CEO at Ooma]

We would want to have a large partner reseller to make the effort to go international, but it is something we'd like to do, and it's something we do spend some time on. Honestly, we have so many resale partner conversations and activities and opportunities that we're pursuing in North America that I think we haven't moved as fast as we could outside of North America. That's a good problem to have. I mean, if you think about the last half of last year, we won Frontier Communications, we won another CLEC, and we won this large cable provider all in the space of six months. We are having some pretty good momentum. Anyway, we have to be cautious till things come together, and that's the outlook we've given you. We're just going to keep working at it to drive the success we want to have.

[Matthew Harrington, Analyst at Benchmark]

I know you can't be too definitive, but I would assume that Verizon will look at Frontier as best practices when they assimilate the acquisition.

[Eric Stang, CEO at Ooma]

I'm sure they will. Yes. When those two companies can start having strategic conversations, which they can't do yet, I'm told that the door will be open for us to engage in a bigger way there again.

[Matthew Harrington, Analyst at Benchmark]

Right. You have a lot of nice problems with AirDial. Thanks, Eric. Bye.

[Eric Stang, CEO at Ooma]

Thank you.

[Operator]

Thank you. Once again, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. This does conclude the question and answer session of today's program. I would like to hand the program back to management for any further remarks.

[Eric Stang, CEO at Ooma]

Thanks everyone for joining us today.

[Eric Stang, CEO at Ooma]

We appreciate your support for Ooma, and we're going to work hard here to have a great year. Thank you, everyone. Bye-bye.

[Operator]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Participants

Executives

• Eric Stang, CEO
• Matthew Robison, Director of IR and Corporate Development
• Shig Hamamatsu, CFO

Analysts

• Alinda Li, Equity Research Associate at William Blair
• Josh Nichols, Senior Analyst at B. Riley
• Matthew Harrington, Analyst at Benchmark
• Brian Kinstlinger, Director of Research and Senior Technology Analyst at Alliance Global Partners
• Max Michaelis, Equity Research Associate at Lake Street Capital Markets