Ooma, Inc. (OOMA) Earnings

Management highlights

Ooma management reported a strong start to FY27, beating revenue expectations and making progress across four core strategic initiatives: - **AirDial POTS Replacement Expansion** - The market for POTS replacement is accelerating, as major carriers (led by AT&T) continue to shut down legacy copper lines, prompting more enterprises across sectors to proactively seek replacement solutions. - Ooma added two unique customer-centric features in Q1: equipment disconnect detection and off-hook alerts, developed in response to healthcare customer requirements; these features are unique to AirDial and strengthen its competitive differentiation. - Q1 was a record quarter for AirDial, with new installations doubling YoY and bookings growing over 75% YoY. The company added two new AirDial resellers in Q1 (one switching exclusively from a competitor), bringing the total reseller network to over 40 partners including key carriers T-Mobile and Comcast. - Strongest growth was seen in the healthcare, REIT, and state/local government (including K-12 education) sectors. - **Ooma AI Launch for Small Business** - Ooma launched Ooma AI, a suite of AI-powered capabilities for the Ooma Office platform including AI transcriptions, AI answering service, AI receptionist, AI insights, and OpenAI integration. Three features are already generally available, with the remaining two in beta and launching soon. - The AI answering service and AI receptionist are offered as paid standalone monthly subscriptions, while the other AI features are included in the top-tier Pro Plus service tier. Ooma expects AI adoption to drive incremental revenue and increased Pro Plus take rates. - The product addresses a key pain point for small businesses, where over 50% of inbound calls go unanswered by a live person and 25% go unanswered entirely, by automating call handling and improving responsiveness. - **Residential Growth and MyPhone Launch** - Strong Ooma Telo sales continued in Q1, leading to the first residential user base growth in many quarters. - Ooma launched MyPhone, a purpose-built modern landline for families with children designed to reduce childhood screen time associated with smartphones. Key parental control features include trusted-circle-only calling, quiet hours, and online call log monitoring. - MyPhone has received strong initial retailer interest: it is already available on walmart.com, will roll out to additional online retailers soon, and is scheduled for in-store placement at Walmart starting fall 2026. - **Acquisition Integration and M&A Strategy** - Integration of the two 2026 acquisitions (FluentStream and Phone.com) is progressing according to plan. FluentStream is a high-EBITDA business that adds channel distribution strength and an additional sales channel for AirDial. Phone.com provides a second strong small business brand with low current EBITDA that Ooma is improving via scale and operating efficiencies. - Ooma paid down $5 million of acquisition debt in Q1, reducing outstanding term loan balance to $53.5 million, and plans to continue quarterly debt paydown to preserve capacity for future accretive acquisitions. - Future M&A will focus on smaller, accretive UCaaS-style acquisitions in North America that deliver cost-effective growth and increased scale.

Guidance

Ooma raised its full-year FY27 guidance from prior levels, with all guidance provided on a non-GAAP basis: - **Second Quarter FY27**: Expect total revenue of $81.6 million to $82.3 million, including $6.3 million to $6.7 million in product and other revenue. Non-GAAP net income is expected to be $9.4 million to $9.8 million, with non-GAAP diluted EPS of $0.33 to $0.34. - **Full Year FY27**: Raised total revenue guidance to a range of $326 million to $328.5 million. Management expects business subscription and services revenue to grow approximately 31% YoY, and residential subscription revenue to come in flat to a 1% decline (improved from prior guidance of a 1% to 2% decline). - Full-year non-GAAP net income is expected to be $37.5 million to $39 million, adjusted EBITDA is expected to be $45 million to $46.5 million, and non-GAAP diluted EPS is expected to be $1.29 to $1.34. - Management retained conservatism in guidance, particularly around the timing of AirDial installations (despite strong bookings growth) and the initial adoption trajectory of MyPhone, so there is embedded upside to guidance if both outperform expectations. - Full-year product gross margin is expected to average approximately -40% for FY27, worse than Q1's -31% due to higher memory component costs and upfront customer acquisition costs for MyPhone in the second half.

Segment performance

Total Q1 FY27 revenue was $81.8 million, up 25% year-over-year (YoY); excluding the two late 2026 acquisitions (FluentStream and Phone.com), total revenue grew 7% YoY. The two acquisitions added $11.5 million in Q1 revenue and $2.7 million in non-GAAP net income. Non-GAAP net income for the quarter was $9.7 million, up 73% YoY, growing 24% YoY excluding acquisition impact. Adjusted EBITDA hit a record $11.8 million, up 78% YoY, representing 15% of total revenue. 1. **Business Subscription and Services**: Revenue grew 38% YoY to $51.47 million, accounting for 69% of total subscription and services revenue (up from 62% in Q1 FY26). Excluding acquisitions, organic growth was 9% YoY. AirDial (the company's POTS replacement service) drove much of this growth: Q1 AirDial service revenue rose 80% YoY, new lines installed more than doubled YoY, and bookings grew over 75% YoY. 2. **Residential Subscription and Services**: Revenue was flat YoY, with the residential user base stabilizing after declines in prior quarters. For the first time in many quarters, total residential users grew in Q1, driven by continued strong sales of the Ooma Telo device. Total subscription and services revenue (business + residential) was $74.6 million, representing 92% of total revenue. 3. **Product and Other**: Revenue was $6.6 million, up 37% YoY, driven by record AirDial hardware installations. Gross margin for product and other improved to -31% from -41% YoY, due to a higher mix of AirDial installation revenue.

Risks & headwinds

- The timing of AirDial line installations is difficult to predict accurately, even with strong bookings growth, which can create quarterly variability in revenue performance. - Memory component prices have increased, which will pressure product gross margins starting in Q2 for the remainder of FY27. - Initial customer adoption of new offerings including Ooma AI and MyPhone is unproven, and actual uptake may differ from management expectations. - Legacy POTS shutdown timelines from major carriers other than AT&T (notably Verizon) remain uncertain, creating uncertainty around the timing of long-term AirDial market growth. - Forward-looking performance depends on successful integration of recent acquisitions and the ability to realize expected cost synergies and operational improvements from Phone.com. - General macroeconomic uncertainty and small business spending volatility could impact customer acquisition and retention for Ooma's business offerings.

Analyst Q&A

• Q: What is your visibility into future AirDial revenue, what does the pipeline look like, and how are implementations going for won customers? /

  A: Implementations are going smoothly, and the company is able to meet demand even as volumes grow, including customers switching from underperforming competitor solutions. Ooma does not disclose detailed pipeline data, but notes its 40+ reseller network (including major partners T-Mobile and Comcast) creates significant ongoing deal flow, with two high-value resellers added in Q1. Market demand is accelerating as more carriers shut down legacy lines and more customers who delayed action are now seeking solutions, and AirDial's unique features give Ooma a strong competitive advantage when engaging customers.

• Q: What is the expected long-term financial impact of Ooma AI, and how large is the upsell opportunity for existing customers? /

  A: It is still early to give precise projections, but the proven unmet need for better small business call handling suggests significant upside. Currently only single-digit percentage of Ooma customers subscribe to the top-tier Pro Plus plan (which includes some AI features), and Ooma expects new AI capabilities to push this take rate into double-digits over time, driving incremental ARPU growth. AI is a long-term strategic opportunity for Ooma, with a multi-year product roadmap beyond the initial five features launched, as Ooma's position as a provider of customer communications creates unique opportunities to add value via AI-powered analytics and automation.

• Q: What are the COGS and margin profile for the paid Ooma AI services, and how is overage usage priced? /

  A: Additional usage will be priced per minute, and Ooma's pricing for its AI packages is competitive with industry offerings. The AI answering service fills a unique lower-priced market entry point not well served by competitors. While Ooma does not disclose exact COGS, management expects the AI services to deliver overall margins well aligned with Ooma's existing corporate average margin.

• Q: What is the absolute scale of AirDial growth, and what is driving the recent demand inflection? /

  A: Ooma does not break out granular absolute line counts, but notes that the majority of the 15,000 sequential core business user growth in Q1 came from AirDial. The inflection is driven by three factors: faster legacy POTS shutdowns by major carriers, a larger reseller partner network driving more deal flow, and large multi-location enterprises finally starting to act on replacement plans after years of planning. It is still early in the multi-year POTS replacement cycle, with millions of lines still set to be replaced over the next 2-3 years, and Verizon has not yet begun large-scale shutdowns, creating significant long-term upside.