Q1 2025 Ooma Inc Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Ooma Fiscal First Quarter 2025 Financial Results.
Good day and thank you for standing by welcome to the fiscal first quarter 2025 financial results. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone.
Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You'll then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today. Matt Robinson, please go ahead. Thank you, Victor.
The automated message advising you Andres to withdraw your question. Please press star one one.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speakers today, Matt Robinson. Please go ahead.
Matthew Sewell Robison: Thank you, Victor. Good day, everyone, and welcome to the fiscal first quarter 2025 earnings call of Ooma Inc. My name is Matt Robison, Ooma's Director of IR and Corporate Development. On the call with me today are Ooma's CEO, Eric Stang, and CFO, Shig Hamamatsu. After the market closed today, Ooma issued its fiscal first quarter 2025 earnings press release. The release is also available on the company's website, ooma.com. This call is being webcast live and is accessible from a link on the events and presentations page of the investor relations section of our website. This link will be active for the replay of this call for one year.
Matthew Sewell Robison: Thank you Victor Good day, everyone and welcome to the fiscal first quarter 2025 earnings calls Inc. My name is Matt Robison, who is director of IR and corporate development on the call with me today are CEO, Eric Stang, and CFO of Shake Hamamatsu after.
Speaker Change: After the market closed today <unk> issued its fiscal first quarter 2025 earnings press release.
Speaker Change: It is also available on the company's website <unk> com.
Speaker Change: 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 just like we will be active for replay of this call for one year.
Matthew Sewell Robison: During today's presentation, our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today and those risks more fully described in our filings with the Securities and Exchange Commission. The foregoing 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.
Speaker Change: 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.
Speaker Change: Actual results are subject to risks and uncertainties that.
Speaker Change: Could cause actual results to differ materially from those projected. These risks include those set forth in the press release, we issued earlier today and those risks are more fully described in our filings with the Securities and Exchange Commission.
Speaker Change: The forward looking statements in this presentation are based on information available to us as of the date hereof and.
Speaker Change: And we disclaim any obligation to update any forward looking statements, except as required by law.
Matthew Sewell Robison: Please note that, other than revenue or as otherwise stated, the financial measures to be disclosed on this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures and the 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.
Speaker Change: 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.
Speaker Change: In isolation or as a substitute for results prepared in accordance with GAAP.
Speaker Change: 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.
Speaker Change: As included in our earnings press release, which is available on our website.
Matthew Sewell Robison: On this call, we will give guidance for the second quarter and full year of fiscal 2025 on a non-GAAP basis. Also, in addition to our press release and 8K filing, the overview page and the events and presentations page in the investors section of our website, as well as the quarterly results page in 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 business.
Speaker Change: Oh excuse me.
Speaker Change: On this call we will give guidance for the second quarter and full year fiscal 2025 on a non-GAAP basis. Also in addition to our press release and 8-K filing the overview page in the 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 includes links to information about costs and expenses not included in our non-GAAP value.
Speaker Change: Key metrics of our core subscription businesses. These are titled supplemental financial disclosure, one and supplemental financial disclosure too.
Speaker Change: Our investor presentation slides include slides include GAAP to non-GAAP reconciliation that also provides resolution of GAAP expenses that are excluded from non-GAAP metrics.
Matthew Sewell Robison: These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include a GAP to non-GAP reconciliation that also provides resolution of GAP expenses that are excluded from non-GAP metrics. Now, I will hand the call over to Ooma CEO Eric Stang.
Speaker Change: Now I will hand, the call over to CEO, Eric Stang.
Eric B. Stang: Thanks, Matt. Hi everyone. Welcome to Ooma's first quarter fiscal year 2025 earnings call. Thanks for joining us. We're off to a good start for this fiscal year, and I look forward to reviewing our results with you. Ooma delivered $62.5 million in revenue and $3.6 million of non-GAAP net income in Q1. I'm pleased to report that each of these amounts exceeds our original expectations for the quarter, and together they represent good momentum for the start of our FY25 fiscal year.
Thanks, Matt Hi, everyone welcome to <unk> first quarter fiscal year 2025 earnings call. Thanks for joining us.
Eric B. Stang: We were off to a good start for this fiscal year and I look forward to reviewing our results with you.
Eric B. Stang: Newmont delivered 62, and a half million in revenue and $3 6 million non-GAAP net income in Q1.
Speaker Change: I'm pleased to report that each of these amounts exceed our original expectations for the quarter and together they represent good momentum for the start of our FY 'twenty five fiscal year.
Eric B. Stang: Revenue growth in Q1 was solid at 10% year over year. We're particularly pleased with our Q1 growth in business services revenue, which grew 18% year over year. We are also pleased to have increased our total number of business users despite a larger-than-normal turn of users by our largest customer, IWG, which was expected for the quarter. We are equally pleased with our operating cash flow of $3.6 million in Q1 and the fact that we were able to pay down an additional $4.5 million of debt in Q1, leaving us now with just $11.5 million of total debt. You will note that this is down from $18 million in debt just two quarters ago.
Speaker Change: Revenue growth in Q1 was solid at 10% year over year.
Speaker Change: We're particularly pleased with our Q1 growth in business services revenue, which grew 18% year over year.
We're also pleased to have increased our total number of business users. Despite a larger than normal churn of users by our largest customer IW G, which was expected for the quarter.
Speaker Change: We are equally pleased with our operating cash flow of $3 6 million in Q1, and the fact that we were able to pay down an additional four and a half million of debt in Q1.
Speaker Change: Cvs now with just $11 5 million of total debt.
Speaker Change: You will note that this is down from $18 million of debt just two quarters ago.
Eric B. Stang: In Q1, our operating cash flow was very nearly triple that of the same quarter a year ago. Ooma Business, which comprises our leading office, enterprise, airdial, and 2600 hertz solutions, performed well in Q1. Our strategy to utilize our pro and pro plus tiers to serve larger-sized customers is working, with more new Ooma Office customers than in prior quarters being 20 or more users in size. Similarly, our integrations and select verticals are helping to drive our growth.
Speaker Change: In Q1, our operating cash flow was very nearly triple that of the same quarter a year ago.
Speaker Change: Well my business, which comprises our leading office enterprise air dial in 'twenty 600 Hertz solutions.
Speaker Change: <unk> performed well in Q1, our strategy to utilize our pro and pro plus tiers to serve larger sized customers, who is working with more new home office customers than in prior quarters being 20 or more users in size.
Speaker Change: Similarly, our integrations in select verticals are helping to drive our growth we added several new integrations in the quarter, including with Zen desk hub spot and square or.
Eric B. Stang: We added several new integrations in the quarter, including with Zendesk, HubSpot, and Square. Our integrations are also enhanced by some of the new features we added in Q1, most notably Contact Widget and Scheduled Messages, which along with our other, with a lot, excuse me, which along with our automated online bookings, digital call deflection, and other features, allow frontline businesses to interact with customers more efficiently, more efficiently, efficiently over the web and via real messages.
Speaker Change: Our integrations are also enhanced by some of the new features we added in Q1, most notably contact widget and scheduled messages, which along with our other.
Speaker Change:
Speaker Change: With what <unk>, excuse me, which along with our automated online bookings digital call deflection and other features allow frontline businesses to interact with customers more official more efficient efficiently over the web and through messaging.
Eric B. Stang: Enabling new features to help our customers engage with their customers is one of the ways Ooma intends to maintain a leading position serving business customers, especially smaller sized businesses. We also continue to drive growth of our Ooma business through our strategy to replace aging copper lines. In Q1, we achieved several notable larger-sized customer wins for Airdial. We also closed more new customers in total than ever before.
Speaker Change: Enabling new features to help our customers engage with their customers is one of the ways I may intends to maintain a leading position serving business customers, especially smaller sized businesses.
Speaker Change: We also.
Speaker Change: Continue to drive growth boom of business through our strategy to replace aging copper lines.
Speaker Change: In Q1, we achieved several notable larger sized customer wins for airtime.
Speaker Change: We also closed more new customers in total than ever before.
Eric B. Stang: Many of our largest new customers are starting with just a few lines to prove the solution in their environment and give them time to plan for rollout. Nonetheless, we believe they represent good momentum for Airdot. We also signed up additional Airdial resellers in Q1, bringing the total now to over 15 partners reselling Airdial. One of these three phases we announced in a press release during the quarter. Three Phase is a leading independent elevator service company that maintains 28,000 elevators nationwide.
Speaker Change: Many of our largest new customers are starting with just a few lines to prove the solution in their environment and give them time to plan for rollout.
Speaker Change: Nonetheless, we believe that represent good momentum for airtime.
Speaker Change: Also signed up additional air dial resellers in Q1, bringing bringing the total now to over 15 partners reselling airtime.
Speaker Change: One of these three phase we announced in our press release during the quarter.
Speaker Change: <unk> is a leading independent elevator service company that maintains 28000 elevators nationwide.
Eric B. Stang: In addition, we recently announced that Airdial is now available in Canada, and we are already engaged with new Airdial resellers in Canada. It's also an exciting time for Ooma business on the wholesale front as we pursue our strategy to integrate Ooma technology and applications into the 2600 Hertz platform. We are now two quarters into owning 2600 Hertz and couldn't be more pleased.
Speaker Change: In addition, we announced recently that <unk> is now available in Canada, and we are already engaged with new Airedale resellers in Canada.
Speaker Change: It's also an exciting time for whom a business on the wholesale front as we pursue our strategy to integrate <unk> technology in applications into the 'twenty 600 Hertz platform.
Speaker Change: We are now two quarters into owning 2600, Hertz and couldnt be more pleased we are making good progress toward realizing the synergy and technology strength made possible by this acquisition. We are also seeing significant market interest in our solution.
Eric B. Stang: We are making good progress toward realizing the synergy and technological strength made possible by this acquisition. We're also seeing significant market interest in our solution. Already, we are engaged with new customers who are working on deployment. One of these, I'm very pleased to report, has the potential to become one of Ooma's largest revenue customers. We expect this customer to be deployed and to be able to make more announcements about them in the back half of this year.
Speaker Change: Already we are engaged with new customers, who are working on deployment.
Speaker Change: One of these I am very pleased to report has the potential to become one of <unk>.
Speaker Change: Largest revenue customers, we expect this customer to be to be deployed and to be able to make more announcements about them in the back half of this year.
Eric B. Stang: In general, we see strong interest in Ooma's solution, and this interest spans both business and residential. While it is too soon to discuss many of the opportunities we are pursuing, I can mention a couple of new developments that are starting this quarter. I'm pleased to report that U.S. Cellular will begin offering both Ooma Office and Oomatello to its customers. Similarly, T-Mobile, which now offers Oomatello to its wireless home internet customers, will also begin offering it to its fiber customers.
Speaker Change: In general we see strong interest in <unk> solutions. This interest spans both whom our business and Umar residential while it's too soon to discuss many of the opportunities. We are pursuing I can mention a couple of new developments that are starting this quarter.
I am pleased to report that U S. Cellular will begin offering both <unk> office and <unk> to its customers.
Speaker Change: Similarly, T mobile who now offers tailored to their wireless home Internet customers will also begin offering rheumatol are tailored to their fiber customers.
Eric B. Stang: Several other engagements are either underway or under discussion, some of which could be quite meaningful to our outlook. I hope to have more announcements for you in the coming quarter. I will now turn the call over to Shig, our CFO, to discuss our results and outlook in more detail and then return with some closing remarks.
Speaker Change: Several other engagements are either underway or under discussion some of which could be quite meaningful to our outlook I hope to have more announcements for you in the coming quarters.
Shigeyuki Hamamatsu: I'll now turn the call over to shake our CFO to discuss our results and outlook in more detail and then return with some closing remarks.
Shigeyuki Hamamatsu: Thank you, Erik, and good afternoon, everyone. I'm going to review our first quarter financial results and then provide an outlook for the second quarter and full year fiscal 2025. We had a solid start to fiscal 2025 with total revenue of $62.5 million in the first quarter, above a guidance range of $61.7 million to $62.2 million. On a year-over-year basis, total revenue grew 10% in the first quarter, driven by the strength of the Ooma business, as well as the addition of 2600 Hertz.
Speaker Change: Thank you Eric and good afternoon, everyone.
Shigeyuki Hamamatsu: I'm going to review, our first quarter financial results and then provide our outlook for the second quarter and full year fiscal 2025.
Shigeyuki Hamamatsu: In the first quarter, business subscription and services revenue accounted for 60% of total subscription and services revenue as compared to 56% in the prior quarter. Q1 product and other revenue came in at $4.1 million as compared to $3.8 million in the prior year quarter. On the profitability front, the first quarter non-GAAP net income was $3.6 million, above a guidance range of $3 million to $3.3 million. Now, some details on our Q1 revenue. Business subscription and services revenue grew 18% year-over-year in Q1, driven by user growth and the addition of 2600 Hz.
Eric B. Stang: We had a solid start to our fiscal 2025 with total revenue of $62 $5 million in the first quarter above our guidance range of $61 7 million to $62 2 million.
Eric B. Stang: On a year over year basis total revenue grew 10% in the first quarter.
Speaker Change: Driven by the strength of my business as well as the addition of 2600 Hertz.
Speaker Change: In the first quarter business subscription and services revenue accounted for 60% of total subscription and services revenue as compared to 56% in the prior year quarter.
Speaker Change: Okay.
Q1 product and other revenue came in at $4 $1 million as compared to $3 $8 million in the prior year quarter.
Speaker Change: On the profitability front, the first quarter non-GAAP net income was $3 $6 million above our guidance range of 3 million to $3 3 million.
Speaker Change: Now some details on our Q1 revenue.
Speaker Change: Business subscription and services revenue grew 18% year over year in Q1.
Driven by user growth and the addition of 2600 Hertz.
Speaker Change: Excluding 2600 Hertz revenue contribution there.
Speaker Change: Subscription and services revenue grew 12% year over year.
Speaker Change: On the residential side subscription and services revenue was down 2% year over year. As a reminder, we had a one time churn event during the first quarter of last fiscal year with a particular customer with an unusual application, which impacted our year over year comparison in Q1.
Shigeyuki Hamamatsu: Excluding 2600 Hertz's revenue contribution, business subscription and services revenue grew 12% year over year. On the residential side, subscription and services revenue was down 2% year-over-year. As a reminder, we had a one-time churn event during the first quarter of last fiscal year with a particular customer with an unusual application, which impacted our year-over-year comparison in Q1. For the first quarter, total subscription and services revenue was $58.4 million, or 93% of total revenue, as compared to $53 million, or 93% of total revenue in the prior quarter.
Speaker Change: For the first quarter total subscription and services revenue was $58 $4 million or 93% of total revenue.
Speaker Change: As compared to $53 million or 93% of total revenue in the prior year quarter.
Shigeyuki Hamamatsu: Now some details on our key customer metrics. We ended our first quarter with 1,239,000 core users, which is slightly down from 1,243,000 core users at the end of the fourth quarter. As mentioned on the last call, the sequential decrease in core users was anticipated due to the impact of larger-than-normal churn from IWG, approximately half of which was realized in the first quarter.
Speaker Change: Now some details on our key customer metrics.
Speaker Change: We ended our first quarter with $1 million 239000 core users.
Speaker Change: Which is slightly down from $1 243000 core users at the end of the fourth quarter.
Speaker Change: As mentioned on the last call the sequential decrease in core users was anticipated due to the impact of larger than normal churn from IW G.
Speaker Change: Approximately half of which was realized in the first quarter.
Shigeyuki Hamamatsu: We currently anticipate the remaining portion of this large and normal churn to be realized in the second quarter. At the end of the first quarter, we had 488,000 business users, or 39% of total core users, and an increase of 4,000 from Q4 as churn from IWG was offset by the strength in user additions for other Ooma business offerings. A blended average monthly subscription and services revenue per core user, or ARPU, increased 3% year-over-year to $14.177.
Speaker Change: We currently anticipate the remaining portion of this larger than normal churn to be realized in the second quarter.
Speaker Change: At the end of the first quarter, we had 488000 business users or 39% of total core users an increase of 4000 from Q4 as a churn from <unk> was offset by the strength in user additions for other Umar business offerings.
Speaker Change: Our blended average monthly subscription and services revenue per core user or <unk> increased 3% year over year to 2014 guidance 17 seven cents.
Shigeyuki Hamamatsu: Driven by an increasing mix of business users, including higher-up Office Pro and ProPlus users. During the first quarter, we continued to see a healthy OfficePro ProPlus take rate with 57% of new office users opting for these higher tier services, which was up from 55% in the prior year quarter. Overall, 31% of total Ooma office users have now subscribed to these higher tier services.
Speaker Change: And by an increasing mix of business users, including higher up your office pro and pro plus users.
Speaker Change: During the first quarter, we continued to see a healthy office pro pro plus take rate, we're at 57% of new.
Speaker Change: Office users opting for these higher tier services, which was up from 55% in the prior year quarter.
Speaker Change: Overall, 31% of total home office users have now subscribed to these higher tier services.
Shigeyuki Hamamatsu: All right, anyways, recurring revenue grew to $228 million and was up 8% every year. Our NetDAX subscription retention rate for the quarter was 99% as compared to 99% in the fourth quarter. Now some details on our gross margin. Our subscription and services gross margin for the first quarter was 72%, as compared to 73% in the prior year. As a reminder, subscription and services gross margin for the first quarter of this fiscal year included an impact of 2600 Hz gross margin, which is running lower relative to Ooma's subscription gross margin.
Speaker Change: Okay.
Speaker Change: Our annualized recurring revenue grew to $228 million and was up 8% year over year.
Speaker Change: Our net dollar subscription retention rate for the quarter was 99% as compared to 99% in the fourth quarter.
Speaker Change: Now some details on our gross margin.
Speaker Change: Subscription and services gross margin for the first quarter was 72% as compared to 73% in the prior year.
Speaker Change: As a reminder, subscription and services gross margin for the first quarter. This fiscal year included an impact of 2600 hurts gross margin.
Speaker Change: Which is running at a lower altitude Umar subscription gross margin.
Shigeyuki Hamamatsu: Product and other gross margin for the first quarter was negative 67 percent as compared to negative 61 percent for the same period last year. As mentioned in prior calls, the year-over-year decline in Q1 product gross margin was primarily due to the sell-through impact of certain higher-cost components we had procured during the pandemic. We currently estimate product and other gross margin for the second quarter will be comparable to that of the first quarter as we consume the remaining excess component costs and then normalize in the negative 50% range starting in the second half of fiscal 2025. On an overall basis, total gross margin in Q1 was 63% as compared to 64% in the prior quarter.
Product and other gross margin for the first quarter. It was negative 67% as compared to negative 61% for the same period last year.
Speaker Change: As mentioned in prior calls.
Speaker Change: The year over year decline in Q1 product gross margin was primarily due to the sell through impact of certain higher cost components, we had procured during the pandemic.
Speaker Change: We currently estimate.
Speaker Change: <unk> and other gross margin for the second quarter will be comparable to that of the first quarter as we consume the remaining excess component costs and then normalizing in the negative 50% range starting in the second half of fiscal 2025.
Speaker Change: On an overall basis total gross margin in Q1 was 63% as compared to 64% in the prior year quarter.
Shigeyuki Hamamatsu: And now some details on operating expenses. Total operating expenses for the first quarter were $35.2 million, up $2.6 million or 8% from the same period last year. Excluding the impact of 2600 Hz, the total operating expenses increased $0.9 million, or 3% from the same period last year. Thus, marketing expenses for the first quarter were $17.8 million, or 28% of total revenue, up 6% year-over-year, primarily driven by higher marketing and channel deployment activity for Airdot.
Speaker Change: And now some details on operating expenses.
Speaker Change: Total operating expenses for the first quarter worth $35 2 million up $2 6 million or 8% from the same period last year.
Speaker Change: Excluding the impact of <unk> 26, and it hurts the total operating expenses increased <unk> $9 million or 3% from the same period last year.
Speaker Change: Sales and marketing expenses for the first quarter were $17 $8 million or 28% of total revenue up 6% year over year, primarily driven by higher marketing and channel development activity for <unk>.
Shigeyuki Hamamatsu: Research and development expenses were $12 million, or 19% of total revenue, up 11% on a year-over-year basis, driven mainly by the addition of 2600Hz team members. Our DNA expenses were $5.5 million, or 9% of total revenue for the first quarter, compared to $5 million for the prior year quarter. The year-over-year increase in G&A expenses was primarily due to increases in personnel and audit-related costs.
Speaker Change: Okay.
Speaker Change: Research and development expenses were $12 million or 19% of total revenue up 11% on a year over year basis.
Speaker Change: Driven mainly by the addition of 2600 Hertz team members.
Speaker Change: G&A expenses were $5 5 million or 9% of total revenue for the first quarter compared to $5 million for the prior year quarter.
Speaker Change: The year over year increase in G&A expenses was primarily due to increases in personnel and audit related cost.
Shigeyuki Hamamatsu: Non-GAAP net income for the first quarter was $3.6 million, or diluted earnings per share of $0.14, as compared to $0.16 of delivered earnings per share in the prior quarter. As mentioned in our last call, the year-over-year decline in non-GAAP net income was anticipated for the following reasons. First, interest expense for Q1 increased by $0.3 million due to the new revolver debt, which we used to acquire 2600 Hertz in the third quarter last year.
Speaker Change: non-GAAP net income for the first quarter was $3 $6 million or diluted earnings per share of <unk> 14.
As compared to <unk> 16 of diluted earnings per share in the prior year quarter.
Speaker Change: As mentioned last call that year over year decline in non-GAAP net income was anticipated for the following reasons first.
Speaker Change: Interest expense for Q1 increased by <unk> $3 million due to a new revolver debt, which we used to acquire 2600 Hertz in the third quarter last year.
Shigeyuki Hamamatsu: Second, interest income for Q1 was lower year-over-year by approximately $0.2 million, as we continue to focus on debt paydown in fiscal year 2025. Adjusted EBITDA for the quarter was $5 million, or 8% of total revenue as compared to $4.8 million for the prior year quarter. We ended the quarter with a total cash and investments of $15.6 million, which decreased from $17.5 million at the end of Q4 as we paid down the outstanding debt by $4.5 million during the quarter.
Second interest income for Q1 was lower year over year by approximately zero point $2 million as we continue to focus on debt paydown in fiscal year 2025.
Speaker Change: Okay.
Speaker Change: Adjusted EBITDA for the quarter was $5 million or 8%, our total revenue as compared to $4 8 million for the prior year quarter.
Speaker Change: We ended the quarter with a total cash and investments of $15 $6 million, which decreased from $17 $5 million at the end of Q4, as we paid down the outstanding debt by $4 5 million during the quarter.
Shigeyuki Hamamatsu: With the additional paydown, we have reduced the outstanding debt balance to $11.5 million at the end of Q1, which reflects a significant reduction from $18 million at the end of Q3, when we acquired 2600 Hertz. In terms of operating cash flows, despite the seasonal challenge in the first quarter, we generated cash from operations of $3.6 million, which was significantly higher as compared to $1.3 million in the same period last year. On the headcount front, we ended the quarter with 1,146 employees in contract.
With the additional Paydown, we have reduced the outstanding debt balance to $11 5 million at the end of Q1, which reflects a significant reduction from $18 million at the end of Q3, when we acquired 600 Hertz.
Speaker Change: In terms of operating cash flows despite the seasonal challenge in the first quarter, we generated cash from operations of $3 $6 million, which was significantly higher as compared to $1 3 million in the same period last year.
Speaker Change: On the headcount front, we ended the quarter with 1100 46 employees and contractors.
Shigeyuki Hamamatsu: Now I will provide guidance for the second quarter and fiscal 2025. Guidance is on a non-GAAP basis and has been adjusted for expenses such as stock-based compensation, amortization of intangibles, and certain non-recurring gains and expenses. We expect total revenue for the second quarter of fiscal 2025 to be in the range of $62.5 million to $63 million, which includes $3.9 million to $4.1 million of product revenue. We expect second quarter net income to be in the range of $3.6 million to $3.9 million.
Speaker Change: Now I'll provide guidance for the second quarter and full year fiscal 2025, our guidance is on a non-GAAP basis and has been adjusted for expenses such as stock based compensation amortization of intangibles and certain nonrecurring gains and expenses.
Speaker Change: We expect total revenue for the second quarter of fiscal 2025 to be in the range of $62 5 million to.
Speaker Change: To $63 million.
Speaker Change: Which includes $3 9 million to $4 $1 million of product revenue.
Speaker Change: We expect second quarter net income to be in the range of $3 6 million to $3 9 million.
Shigeyuki Hamamatsu: Non-GAAP diluted EPS is expected to be between $0.13 and $0.14. We have assumed $26.9 million, where the average Duluth share is outstanding, for the second quarter. For four-year fiscal 2025, we are updating the bottom end of the prior guidance and expect total revenue to be in the range of $250.7 million to $253 million. The four-year fiscal 2025 revenue guidance assumes a business subscription and services revenue growth rate of 11 to 13 percent over fiscal 24. Water Residential Subscription Revenue is expected to decline 1 to 2%.
non-GAAP diluted EPS is expected to be between 13 to 14.
Speaker Change: We have assumed $26 9 million weighted average diluted shares outstanding for the second quarter.
Speaker Change: For full year fiscal 2025, we are updating the bottom end of the prior guidance and expect total revenue to be in the range of $250 7 million to $253 million.
Speaker Change: The full year of fiscal 2025 revenue guidance assumes business subscription and services revenue growth rate.
That 1% to 13% over fiscal 'twenty for Waterlase.
Speaker Change: Waterlase that is our subscription revenue to decline 1% to 2%.
Eric B. Stang: In terms of revenue mix for the year, we expect 93 to 94% of total revenue to come from subscription and services revenue, and the remainder from products and other revenue. We are also updating non-GAAP net income for fiscal 2025, which is now expected to be in the range of $15 million to $16 million. Based on this guidance range, we estimate our adjusted EBITDA for FY25 to be $20.6 million to $21.6 million.
In terms of revenue mix for the year, we expect 93% to 94% of total revenue to come from subscription and services revenue and the remainder from products and other revenue.
Speaker Change: We are also updating non-GAAP net income for fiscal 2025, which is now expected to be in the range of 15 million to $16 million.
Speaker Change: Based on this guidance range, we estimate our adjusted EBITDA for fiscal 'twenty five to be $20 6 million to $21 6 million.
Eric B. Stang: We expect non-gap diluted EPS for FY25 to be in the range of $0.55 to $0.58. We have assumed approximately $27.4 million, where the average diluted share is outstanding for fiscal 2025. In summary, we are pleased with a solid start to our fiscal 25 and remain focused on executing to a long-term strategy to achieve profitable growth. I'll now pass it back to Erik for some closing remarks.
We expect non-GAAP diluted EPS for fiscal 'twenty five to be in the range of 55 to <unk> 58.
Speaker Change: We have assumed approximately 27 4 million weighted average diluted shares outstanding for fiscal 2025.
In summary, we are pleased with our solid start to our fiscal 'twenty five and remain focused on executing to our long term strategy to achieve profitable growth.
Eric B. Stang: I will now pass it back to Eric for some closing remarks, Eric.
Eric B. Stang: So overall, Ooma is in a strong position, we think, with high quality recurring revenue, a low cost structure for providing services, steady and manageable churn, positive cash generation, and leading product solutions. Our focus today is on driving growth for our Ooma business solutions. I believe we made good progress in Q1 and are off to a good start for FY25. Thank you, everyone. We'll now take questions. As a reminder, to ask a question, you need to
Eric B. Stang: Thanks, Nick.
Eric B. Stang: So overall remains in a strong position, we think with high quality recurring revenue, our low cost structure for providing services.
Eric B. Stang: Steady and manageable churn positive cash generation and leading product solutions. Our focus today is on driving growth of our <unk> business solutions I believe we made good progress in Q1 and are off to a good start for FY 'twenty five thank.
Speaker Change: Thank you everyone. We will now take questions.
Operator: As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.
Speaker Change: As a reminder to ask a question you need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby will compile the Q&A roster.
Operator: Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Mike Latimore from Northland Capital. Your line is open.
Speaker Change: One moment for our first question.
Speaker Change: Our first question will come from the line of Mike Latimore from Northland Capital. Your line is open.
Eric B. Stang: All right, great. Thanks. Yeah, congrats on the strong profitability here. Curious about this 2600 Hertz win. You said it could be, I think, one of your largest revenue customers. I guess the first question is, you know, is it, is it, is the contract signed, or is it still in the pipeline? And then maybe, you know, if you did, if it was officially won, like what were the main reasons you won this deal?
Michael James Latimore: Alright, great. Thanks, Congrats on the strong profitability here.
Speaker Change: Im curious.
Speaker Change: Curious about this 2600 Hertz and you said it could be I think the.
Speaker Change: One of your largest revenue customers I guess first question is is it is it.
Speaker Change: As the contract sign or is it still in the pipeline and then maybe if you did if it is officially one like what were the main reasons you on steel.
Eric B. Stang: Yeah, hi, Mike. So the contract is signed. The deployment process is underway, and we're quite excited about how large this customer can ultimately be. As you know, we think that the 2600 hertz platform and the way it's designed offers a lot of capability and flexibility for customers. And, you know, with hundreds of APIs available to build off of, to customize a solution just the way you want it.
Michael James Latimore: Yes, hi, Mike so the.
Speaker Change: The contract is signed the deployment processes underway.
Speaker Change: And.
Speaker Change: We're quite excited about how large this customer can ultimately be.
Speaker Change: You've heard me talk in the past.
Speaker Change: We think that the.
Speaker Change: <unk> thousand 600, Hertz platform and the way it's designed.
Offers a lot of capability and flexibility for our customers and.
Eric B. Stang: And that makes it more extensive than the traditional CPaaS solutions out there in the market. This large customer happens to have a solution in place today, built off of a CPaaS solution, and they felt that the 2600 hertz platform was the right step for them to take to revise their solution and do more with it. So, we think it's a great vote of confidence, too, in the concept of what we can do with this solution, the 2600Hz solution, in combination with all the apps and other development we've done in Ooma, put together on this platform. So, that's what this is about. I wish I could say more, but it's confidential for the customer, and we'll be able to talk about more in the fall. Got it, great.
Speaker Change: With hundreds of Api's available to build off of to customize a solution just the way you want it.
Speaker Change: And that makes it more extensive than the traditional <unk> solutions out there in the market. This large customer happens to have a solution in place today.
Speaker Change: Built off of the C pass solution and they felt that the 2600 plus Hertz platform was the.
Right step for them to take to revise their solution and do more with it. So we think it's a great vote of confidence to and the concept of what we can do with this solution.
Speaker Change: The 26 unheard solution in combination with all the apps and other development we've done in Houma put together.
Speaker Change: Into this platform. So that's what this is about I wish I could say more but it's confidential for the customer in.
Speaker Change: We'll be able to talk about more in the fall okay great.
Eric B. Stang: And then on AirDial, sounds like, you know, continued progress there. Would it be fair to assume Airedale could be, you know, 5% of subscription revenue leaving the year? Or is there any way to just quantify just the size of Airedale?
Speaker Change: And then on onward.
It sounds like continued progress there.
Speaker Change: Would it be fair to assume here now it could be.
Speaker Change: 5% of subscription revenue exiting the year or is there any way to bracket the size of <unk>.
Eric B. Stang: Yeah, we really haven't given those kinds of estimates. We do have goals to grow Airdial through this year from where it is at, and yes, it did well in Q1, but that's one step in the journey for Airdial. As you know, we've been investing additional resources in the go-to market for Airdial. So it's a little bit hard to predict.
Speaker Change: Yes, we really haven't given those kinds of estimates.
We do have goals to grow air dial through this year from where it's at and yes. It did it did well in Q1, but that's one step in the journey for Air now as you know we've been investing additional resources in the go to market for air dial.
Eric B. Stang: I'm not sure I want to make a prediction, but I will say that we're very encouraged by the resellers we're working with and the ones we continue to add. And we are working on very large opportunities on the Airdial front. And to be honest with you, we're working on large opportunities across our business, not just with Airdial.
Speaker Change: Its little bit hard to predict I'm not sure I want to make a prediction but.
Speaker Change: Sure.
Speaker Change: I will say that we're very encouraged by the by the resellers, who are working with and the ones we continue to add and.
Speaker Change: We are working very large opportunities.
Speaker Change: On the <unk> front and to be honest with you, we're working large opportunities across our business not just with <unk>.
Eric B. Stang: Okay, and just the last one, can you talk a little bit about kind of cloud phone bookings or demand kind of throughout the first five months of the year here, kind of as expected, or, you know, the kind of a consistent flow. And I guess I would, you know, sort of I'm referencing kind of the base, not including your large customer.
Speaker Change: Zone.
Speaker Change: Okay and then just the last one can you talk a little bit about.
Speaker Change: And a cloud phone bookings or demand kind of throughout the first.
Speaker Change: Five months of the year here.
Speaker Change: Kind of as expected.
Kind of a consistent flow.
Speaker Change: And I guess I would.
Speaker Change: Sure.
Speaker Change: And referencing kind of the base not including our large customer.
Speaker Change: Sure.
Eric B. Stang: Sure. Um... Yeah, I mean, I guess I would frame my question, my answer this way. We were pleased with our bookings, if you will, our sales for Ooma Office and Enterprise in Q1. It was, it was strong. And we have not seen a market situation that would give us concern as we look to the rest of the year.
Speaker Change: Yes, let me make this I would frame your question might be answer this way.
Speaker Change: We were pleased with our bookings if you will our sales for <unk> office in enterprise in Q1.
Speaker Change: It was it was strong.
Speaker Change: We have not seen.
Speaker Change: A market situation that would give us concern as we look to the rest of the year.
Eric B. Stang: Yeah, great. Thanks very much. Thank you.
Speaker Change: Yeah, great. Thanks very much.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Brian Kinstlinger from Alliance Global Partners. Your line is open.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question will come from the line of Brian <unk> from Alliance Global Partners. Your line is open.
Operator: Great, thanks so much for taking my questions. The first one, you mentioned you added some larger Airdial customer wins that are starting small. How do you think about the timeline of customers like this? Does it take six months after initial installs before a customer, you think, decides to adopt more for more copper lines? Will it take longer than that? And then, do you expect second orders to be much larger or similar in size? I guess I'm just trying to understand the life cycle of a large customer.
Brian David Kinstlinger: Great. Thanks, so much for taking my questions.
Speaker Change: The first one you mentioned you added some larger air Dow customer wins, there starting small.
Speaker Change: Do you think about the timeline of customers like this does it take six months. After initial an initial installs before a customer you think decides to adopt more for more copper lines will take longer than that and then do you expect <unk> orders to be much larger to be similar in size I guess I'm just trying to.
Speaker Change: To understand the lifecycle of a large customer.
Eric B. Stang: It's a very good question, Brian; I appreciate it. You know, I'm looking at a list of close to 10 right here in front of me where they might be. You know, hundreds of lines of potential, or maybe even more than that, but we closed one location or two locations, which means a handful of lines. I think you can think of the timeline as, I hate to say it, but a couple months at least to get through a proof of concept and an installation and some time to see how it works and let the customer come to grips with it.
Brian: So very good question, Brian I appreciate it.
Speaker Change: Yes.
Speaker Change: I'm looking at a list of close to 10 right here in front of me.
Speaker Change: Where they might be.
Speaker Change: Hundreds of lines of potential or maybe even more than that but we closed one location or two locations and.
Which means the handful of lines I think you can think of the timeline as.
Speaker Change: I hate to say it but a couple of months at least to get through.
Speaker Change: A proof of concept in an install and some time to see how it works and let the customer come to grips with it may be another a little bit of time for the customer to assess their needs across their whole business.
Eric B. Stang: Maybe another little bit of time for the customer to assess their needs across their whole business. There will be some time to finalize an overall contract for a large number of locations, and then a rollout process can take three to six months.
Speaker Change: There will be some time to finalize and overall contracted for for a large number of locations.
Speaker Change: And then a rollout process and a rollout process can take three to six months. So I think the customers. We're winning this that we won in Q1, if I look.
Eric B. Stang: So I think the customers we're winning in this that we won in Q1. The large customers we want in Q1, or the ones with large potential, they'll probably take until the end of the year to develop. I'll give you one more example.
Talk about that the large customers. We won in Q1 are the ones with large potential they'll they'll probably take till the end of the year two to develop.
Eric B. Stang: We had a customer we announced last fall. We won a retail chain with this customer and mentioned they're very high profile and have several other retail chains. We're now rolling out in two other retail chains, and I heard about a third one that may be a potential as the next step after this. It was six months ago that we did some work for them in their first retail chain, and here we are six months later, and we're rolling out in two more, and we want to get this done.
Speaker Change: <unk> give you one more example, we had a customer we announced last fall we won a retail chain with this customer had mentioned they are very high profile and have several other retail chains. We're now rolling out in two other of their retail chains.
Speaker Change: I heard about a third one that may be a potential as the next step. After this so that was six months ago that we did some work for them in their first retail chain and here. We are six months later, we're rolling out in two more so.
Speaker Change: Customers.
Eric B. Stang: They know they need to get it done over the next year or two if lines are going away, but unless they face severe pricing pressures at the moment, they don't need to move super fast. But they are moving, and we have the leading solution, which you've heard us talk about. Feature-wise, you know, up against any other solution in the market, I think we do very, very well. And we do have a number of customers who tried other solutions and then came to us. So I feel good about the opportunity in the long term, but trying to handicap it is hard.
Speaker Change: Want to get this done and they know they need to get done over the next year or two if lines are going away, but unless they faced severe pricing pressures in the moment.
Speaker Change: They don't need to move Super fast.
Speaker Change: But they are moving and we have the leading solution, which you've heard us talk about feature wise up against any other solution in the market I think we show very very well and we do have a number of customers who tried other solutions and then came to us. So I feel good about the opportunity longer term, but trying to handicap it is hard.
Shigeyuki Hamamatsu: And Brian, just to add to what Erik said, another kind of playable customer that we see is that we have one particular customer who wanted to do a site survey for their locations. They are considering installing AirDial.
Speaker Change: And Brian I'll just add.
Speaker Change: Right.
Brian: Yes, just to add let's say what.
Erik: Erik said, another kind of a flavor customer that we see is that.
Erik: We have one particular customer who wanted to do a site survey for their locations. They are considering installing agile site survey, meaning they wanted to send our installers out to see what they try and exactly what they got.
Shigeyuki Hamamatsu: Site survey means they wanted to send our installers out to see what they could determine exactly what they had. And in that situation, we're talking about quite a number of locations, and they're willing to pay for that site survey. So, you know, it gives them some revenue for that too. But that's another example where, if it's a large customer, they may want to do a site survey. They were willing to pay for it, but the site survey itself could take a few months. So that's another flavor.
Erik: And in that situation, we're talking about quite a number of locations and they are willing to pay for that site. So they so.
Erik: It gives them some revenue for that too, but that's another example, where if it's a large customer they may want to do a site survey.
Erik: To pay for it and.
Erik: <unk> itself could take a few months so that's another flavor.
Eric B. Stang: My follow-up on AirDial, and then I have one plenipotentiary question, is: Are you able to discuss your installed base, what the number of lines is, and then, alternatively, if all of your customers are in POCs, or there are customers, what's the total potential if all lines were adopted? And if you can't give that today, it would be great to get that and think about that as a new KPI.
Speaker Change: Got it.
Speaker Change: My follow up on their dollar and then we have one financial question.
Speaker Change: Are you able to.
Speaker Change: Despite year installed base with a number of line games and then alternatively.
Speaker Change: All of your customer there and <unk>, our and our customers' what's the total potential all lines were adopted and if you can't give that today it would be great to get that and think about that as new kpis.
Eric B. Stang: Yeah, I understand the desire to focus in on Airdial. We don't get so specific for competitive reasons. Obviously, we look at our user accounts overall, and we tend to think about this overall from an Ooma business perspective, but we'll give consideration to that. I actually haven't added up the second part of your question, but it would be interesting to do that, and we'll take a look at it. I think one color that we talked about, you know, we're getting through the first 10,000 boxes of AirDial, and you know we're getting close to tapping into the second batch of 10,000 boxes, and so maybe that gives you some idea around where we are in terms of progress.
Speaker Change: Yes, I understand the desire to focus in on <unk>, we don't get so specific for competitive reasons, obviously, we give our user counts overall and we tend to think about this overall from an <unk> business perspective, but we will give consideration to that.
Speaker Change: I actually haven't added up the second part.
Speaker Change: Part of your question, but it would be interesting to do that and we'll take a look at it.
Speaker Change: I think Juan.
Speaker Change: Color there we talked about.
Speaker Change: We talked about.
Speaker Change: Again through the first 10000 boxes of agile.
Speaker Change: And.
Speaker Change: Well were getting close to tapping into the second batch of 10000 boxes and so.
Speaker Change: Maybe that gives you some.
Some guests.
Speaker Change: The idea around while we are in terms of progress.
Shigeyuki Hamamatsu: That's helpful. My last question is, when I look at the Adjusted EPS guidance, just given the change in gross margin in the second half alone from the hardware revenue, coupled with this slightly stronger revenue, I'm curious why EPS doesn't include something a little bit higher. And maybe there's something we should think about, if you can share in terms of accelerating investments on the P&L.
Speaker Change: That's helpful. My last question is when I look at the.
Speaker Change: Adjusted EPS guidance.
Speaker Change: Just given the change in gross margin in second half alone from the hardware revenue coupled with a slightly stronger revenue.
Speaker Change: I'm curious why EPS doesn't.
Speaker Change: <unk> includes something a little bit higher.
Speaker Change: And maybe there's something we should think about if you can share in terms of accelerating investments on the P&L.
Shigeyuki Hamamatsu: Yeah, I think a little bit of that gap between sort of an EPS, which is obviously based on non-gap net income versus EBITDA, some of the non-gap net income uplift portion of it is coming from better... Interesting come line versus what we forecasted earlier. So maybe there's a little bit of a gap there, but I think in terms of even, you know, thinking about going to the second half versus what we are in Q1 and what we guided to in Q2, we see ourselves getting to 9%, even the margin, or better in the second half. So hopefully, that gives you some idea of what we are thinking.
Speaker Change: Yes, I think little bit of that gap between sort of the EPS, which is obviously based on non-GAAP net income versus EBITDA similar to the non-GAAP net income uplift portion of it is coming from better.
Speaker Change: Interest income line versus what we forecasted earlier, so maybe there's a little bit of gap there but.
Speaker Change: But.
Speaker Change: I think in terms of the EBITDA.
Speaker Change: Thinking about going into the second half versus where we are in Q1, and what we guided to in Q2.
Speaker Change: We see ourselves get into 9% EBITDA margin or better in <unk>.
Second half so hopefully that gives you an idea of what we're thinking.
Shigeyuki Hamamatsu: We are very mindful of our spend and make sure it pays off.
Speaker Change: Okay, we are very mindful of our spend and making sure it pays off.
Operator: Great. Thank you. Take it offline. Thanks, Brian. Thank you. And one moment.
Speaker Change: Great. Thank you.
Speaker Change: It offline.
Operator: Thank you. And one moment for our next question. Our next question will come from Arjun Bhatia of William Blair. Your line is open.
Speaker Change: Thanks, Brian.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of our June <unk> from William Blair. Your line is open.
Operator: Thank you. This is Chris on behalf of Arjun.
Chris: Thank you this is Chris on for origin.
Speaker Change: First question for me it sounds like <unk> really starting to show some strength how much of the recent momentum would you attribute some of the marketing efforts that you're putting behind it what's proving to be effective on that front and how much more room do you have to go in terms of building awareness in the market.
Eric B. Stang: The first question for me is, it sounds like AirDial is really starting to show some strength. How much of the recent momentum would you attribute to some of the marketing efforts that you're putting behind it? What's proving to be effective on that front, and how much more room do you have to go in terms of building awareness in the market?
Eric B. Stang: We have a long way to go on building awareness. We also said we want to add, you know, a couple of partners or more every quarter who will help us with reach and will resell Airdial. You know, we started some of our own direct sales activities on this about six months ago, and we're seeing a little more momentum out of that. But we are also being prudent on how much we spend on it.
We have a long way to go on building awareness we also.
Speaker Change: Have said, we want to add a couple of partners or more every quarter who will.
Speaker Change: Help us with reach and will resell air dial.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: We started some of our own direct sales activities on this about six months ago, and we're seeing a little more momentum out of that.
Speaker Change: And.
Speaker Change: But we are also being prudent on how much we spend on it.
Eric B. Stang: And I'd say, you know, our results overall are reflective of doing well in Airdial and in the rest of our business. So, yeah, I think that you've heard me give very large estimates in the past about what I think Airdial can be for us. And I still believe those kinds of estimates are possible, but it's certainly taking us longer to get there. And, but we're still working with that mindset.
Speaker Change: And.
Speaker Change: I'd say our results overall.
Speaker Change: Ah reflective of doing well in air dial in in the rest of our business.
Speaker Change: No.
Speaker Change: Yeah.
Speaker Change: I think that you've heard I've given very large estimates in the past about what I think <unk> can be for us and I still believe those kinds of estimates are possible.
Speaker Change: But certainly taking us longer to get there.
Speaker Change: But we're still working with that mindset.
Eric B. Stang: Got it. That's very helpful, Culler. Thank you. And also, just want to touch on the Airdial launch in Canada. I was curious to get a sense from you about the size of the market, the level of competition, and how that stacks up compared to the U.S.
Speaker Change: Okay.
Speaker Change: Got it that's very helpful color. Thank you and then also just wanted to touch on the <unk> launch in Canada I was curious to get a sense from you. How you were thinking about the size of the market level of competition, how that stacks up compared to the U S.
Eric B. Stang: You know, I don't think we've been in the market long enough to give an educated answer to that, but I will say that I was very pleased how quickly a couple of reseller partners wanted to work with us in Canada. And in fact, one of them had been asking us to come to Canada. And, you know, we had to get together with our wireless infrastructure partner and adjust the product for the Canadian market, which we've done.
Speaker Change: No I don't think we've been in the market long enough to give a educated answer to that but I will say that I was very pleased how quickly.
Speaker Change: A couple of reseller partners wanted to work with Us and Canada and in fact, one of them had been asking us to come to Canada, and we had to get together, our wireless infrastructure partner and adjust the product for the Canadian market, which we've done so we're happy to be launched.
Eric B. Stang: So we're happy to be launched now, and we are already seeing business in Canada. We're seeing the same trends in Canada generally with large providers of POTS lines in Canada saying they're going to exit them and wanting to move customers, you know, to different solutions. So I think the same momentum is there in Canada, the pricing increases in Canada have been less than in the US, and I don't think the customers are feeling quite as much pain yet. But we were surprised to learn how much momentum there is around replacing POTS in Canada.
Speaker Change: Now and we are already seeing business in Canada.
Speaker Change: We.
Speaker Change: We're seeing the same trends in Canada, generally with with large providers of pots lines in Canada, saying theyre going to.
Speaker Change: Exit them and.
Speaker Change: Wanting to move customers to different solution. So I think the same momentum as they are in Canada. The pricing increases in Canada have been less than in the U S. So I don't think the customers are feeling quite as much pain yet.
Speaker Change: But we were surprised to learn how much momentum there is around replacing parts in Canada.
Speaker Change: Okay.
Eric B. Stang: Great, thank you. Absolutely perfect. Thank you.
Speaker Change: Great. Thank you congrats on a good quarter.
Speaker Change: <unk>.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Josh Nichols from B Riley. Your line is open.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Josh Nichols from B Riley Your line is open.
Operator: Yeah, thanks for taking my question. I'm just kind of curious about a couple things. Honing in on 2600 hurts a little bit.
Speaker Change: Yes.
Michael Joshua Nichols: Yeah. Thanks for taking my question I, just kind of curious on a couple of things honed in on 2600 <unk>.
Eric B. Stang: How's that integration going? I know you were talking about getting even profitability this quarter. It sounds like if you're not there, you're probably close. I'm just curious.
Speaker Change: Hurts a little bit how is that integration going I know you were talking about getting into EBIT profitability. This quarter. It sounds like if youre not there youre probably close I'm. Just curious is there much else to do and you're already securing some wind so your thoughts on the outlook for the second half.
Eric B. Stang: Is there much else to do? And you're already securing some wins. So, what are your thoughts on the outlook for the second half?
Eric B. Stang: No, there is more to do. We have a long list of capabilities within Ooma that we want to enable on the 2600 Hertz platform to make it stronger for customers. Two of the ones that are rolling out this quarter in our plans are improving the mobile app on the 2600 Hertz platform and adding a better form of messaging to the platform. But these are things Ooma knows how to do and is already doing. And so moving them on the platform is not a ton of work.
Speaker Change: No. There is there is more to do.
Speaker Change: We.
Speaker Change: We have a long list of capabilities within <unk> that we want to enable on the 2600 Hertz platform to make it stronger for our customers.
Speaker Change: Two the ones that are rolling out this quarter and our plans are.
Speaker Change: Improving the mobile app on the <unk> platform and adding.
Speaker Change: A better form of messaging into the platform, but these are things <unk> knows how to do and is doing and so moving them on the platform is not a ton of work, but yes, we are continuing to strengthen that platform and we will probably strengthen all through this year I will say too that winning this.
Eric B. Stang: But yeah, we're continuing to strengthen that platform, and we'll probably strengthen it all through this year. I will say, too, that winning this very large customer has taken some resources on our side to support them with their deployment needs. Some of that will be, you know, some of that work is getting paid to us. So it's not just gratis, but that's changed our plans a little bit to enable that. And we do have other very large potential customers for the 2600 platform who are in some form of either discussion or POC.
Speaker Change: This very large customer has taken some resources on our side too.
Speaker Change: Support them with their deployment needs some of that it will be some of that work is getting paid to us. So it's not just gratis, but.
Speaker Change: <unk>.
Speaker Change: No.
Speaker Change: Changed our plans a little bit to enable that and we do have other very large potential customers for the 2600 platform who are in some form of either discussion or.
Eric B. Stang: So we're seeing pretty active opportunities on that front, which is great. It fits the thesis we had, even though we justified the acquisition solely on the cost synergy and the development synergy between ourselves and 2600 Hertz being together in one.
Speaker Change: POC so.
We're seeing pretty active opportunity on that front, which is great.
Speaker Change: It fits the thesis we had.
Even though we justified the acquisition system slowly on the cost synergy and the development synergy.
Speaker Change: Between our.
Speaker Change: Ourselves in 2600 Hertz being together in one.
Eric B. Stang: Just looking at the, for context, I mean, one of the biggest customers potentially, does that mean like a low single-digit percentage of revenue, or do you think potentially 5% plus revenue and like timeline to kind of get to that? Is that one year or more like two years plus timeline overall? Well, we don't.
Speaker Change: Okay.
Speaker Change: Just looking at the for context, I mean, one of the biggest customers potentially.
Speaker Change: Does that mean like a low single digit percentage of revenue or do you think potentially 5% plus of revenue and Mike.
Speaker Change: Timeline to kind of get to that is it one year or more like two years plus timeline overall.
Eric B. Stang: Well, we don't have any customers today who are 5% of revenue. So I said that these guys could become one of our largest customers. I think they could become our largest customer over time, which is saying a lot considering we have one very large customer today, but I wouldn't predict that currently. But yeah, I think that... They can represent a six-figure number of seats and be a very strong customer force as we go forward.
Michael James Latimore: Well, we don't have any customer today, who is five 5% of revenue. So I said that these guys can become one of our largest customers I think they could become our largest customer over time.
Michael James Latimore: Which is saying a lot considering we have one very large customer today, but I wouldn't predict that currently but but yes I think that.
Uh huh.
Michael James Latimore: They can represent a six figure number of seats and.
Michael James Latimore: And be a very.
Michael James Latimore: Very strong customer for us as we go forward.
Eric B. Stang: Appreciate that. Just, I guess, the last question, because I guess it's timely. T-Mobile, U.S. Cellular, you kind of are working with most of the players in the space. What are your thoughts on any potential impacts there overall?
Michael James Latimore: Okay.
Speaker Change: I appreciate it and then just I guess last question, because I guess thats timely T mobile U S. Cellular I mean, you kind of are working with most of the players in the space. So just thoughts on any potential impacts there overall.
Eric B. Stang: Yeah, that's relatively new news, although there was a lot of speculation prior to it. We have good relationships with both. We're thrilled that both are rolling out more resellers of our solutions, particularly U.S. Cellular is going to resell Ooma Office and Oomatella. And so I think that only strengthens the opportunity for us. It's going to be what, six to 12 months before the acquisition closes, so we don't need to think too much about it at this time. But I think when they do come together, since we have good relationships with both, it'll be positive for us.
Speaker Change: Yes, it's relatively new news, although there's a lot of speculation prior.
We have good relationships with both we're thrilled that both are rolling out more resale of our solutions, particularly U S. Cellular is going to resell <unk> office and <unk>.
And so.
Speaker Change: I think that only strengthens the opportunity for us it's going to be what six months to 12 months before the acquisition closes so.
Speaker Change: Need to think too much about it at this time, but I think when when they do come together since we have good relationships with both it alone.
It'll be a positive for us.
Eric B. Stang: Sounds good. Thanks, everyone. Thank you.
Speaker Change #100: Sounds good thanks, everyone.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Matthew Harrigan from Benchmark. Your line is open.
Speaker Change #101: Thank you. Thank you.
Speaker Change #102: Thank you one moment for our next question.
Speaker Change #102: Our next question comes from the line of Matthew Harrigan from Benchmark. Your line is open.
Operator: Thank you. Firstly, since Paolo sounds a little neglected, what's really been the impetus for the improvement? Is it T-Mobile? Do you think it'll have a looser regulatory aspect to it, you know, going forward? And is there enough of an impetus to really push the consumer area to a more positive side? And then, just to add to the panoply of Aerodial questions, I mean, you've also talked about non-North America, Europe, in particular. I assume you're seeing a lot of almost pull-driven interest there. You talked more about the U.S. and Canada. Thanks, Eric.
Bruce: Thank you Bruce.
Bruce: It sounds a little neglected what's really been the emphasis for the <unk>.
Speaker Change #104: <unk> is at T. Mobile is that are you do you think will have a looser regulatory.
Speaker Change #105: Thank you.
Speaker Change #106: Going forward and is that enough.
Speaker Change #107: And it really puts the consumer area to more positive and then just to add to the panoply of.
Speaker Change #108: Aero dial question, but you've also talked about non North America Europe in particular.
Speaker Change #109: Youre seeing a lot of almost KOL driven interest there can you talk more about the U S and Canada. Thanks.
Eric B. Stang: Sure. So first on Tello. We did well in Q1 in retail with the solution, and overall, I think we did shrink in users a little bit on the platform, partly due to just the normal turn that we see on the platform. What's got me a little bit more excited about Telo. I didn't put it in my earnings strip because I don't want to get ahead of myself, but with POTS lines going away, it's not only an issue for businesses; it's an issue for consumers.
Speaker Change #108: Eric.
Speaker Change #108: Sure.
Speaker Change #110: So first on Tullow.
Speaker Change #110: We did we did well in Q1 in retail with the solution.
Speaker Change #110: And.
Speaker Change #110: But overall I think.
Speaker Change #111: We did shrink and users a little bit on the platform.
Speaker Change #111: Partly due to.
Speaker Change #111: Just the normal churn that we see on the platform. What's got me a little bit more excited about tullow. It didnt put it in my earnings script, because I don't want to get out too ahead, but with pots lines going away.
Not only an issue for businesses, Tim issue for consumers and with pulse lines getting more expensive. It's in this year.
Eric B. Stang: And with POTS lines getting more expensive, it's an issue. For providers who maybe resell POTS lines and are stuck between a customer price and a rising purchase price, we think that the decline of POTS is going to open up opportunities for Telo as well in the market with partners and resellers and people who need to replace their POTS lines. You know, we're not ready to predict any different outlook for TELO, but we do have opportunities in play there as well that could be significant. Now, your question about airdial in Europe. I didn't say anything about it.
Speaker Change #111: For providers, who may be resell pots lines and are stuck between a customer price in a rising.
Speaker Change #111: The purchase price.
We think that the decline of pods is going to open up opportunities for for Tullow as well in the market with with partners and resellers and people who need to replace their pots lines. So.
We're we're not ready to predict any different outlook for tullow, but we're we do have opportunities in play there as well.
Speaker Change #111: That could be could be significant.
Eric B. Stang: It's not something we're planning to do in Q2. It remains something that we're building for. We do have a version of our product in development that will be usable in Europe with the different requirements and bands they have there. But at this time, it's not something to put into our outlook. When we're closer to doing something there, we'll talk about it.
Speaker Change #112: Question about <unk> in Europe, I didn't say anything about it it's not something we're planning to do in Q2.
Speaker Change #112: It remains something that we are building four we do have a version of our product in development that will be usable in Europe with the <unk>.
Speaker Change #112: Current requirements and bands they have there but at this time.
Speaker Change #112: It's not a <unk>.
Something to put into our outlook when we're closer to doing something there we'll talk about it.
Operator: Great, nice numbers.
Speaker Change #113: Great numbers.
Speaker Change #112: Members.
Operator: All right, thank you. One moment for our next question. Once again, that's star 11 for questions, star 11, for our next question.
Speaker Change #114: Alright. Thank you one moment for our next question.
Speaker Change #115: Once again Thats Star 101 for a question Star one one.
Speaker Change #116: And our next question will come from the line of Patrick Wall Ravens from citizens JMP. Your line is open.
Operator: Oh, great. Thank you. It's been a while, Eric.
Speaker Change #117: Oh, great. Thank you I've been a while Eric so.
Pat: Hi, Pat Yeah, Yeah. So interpret this public nine years ago, obviously, there have been a ton of changes in the market and in the company's offerings.
Eric B. Stang: So yeah, I pass. Yeah, yeah. So look, he took this business public, you know, nine years ago. Obviously, there've been a ton of changes in the market and in the company's offerings. You know, things went up, things went down. How do you feel like the business is set up to drive shareholder value going forward? You know, what are you most excited about for that, and what's the biggest risk?
Speaker Change #119: Things went up things went down.
Speaker Change #120: How do you feel like the business is set up to drive shareholder value going forward.
Speaker Change #121: Excited about for that and what's the biggest risk.
Eric B. Stang: Yeah, good question. So, you know, over the last nine years, we've put a lot of investment into this business. When we were public, we were largely just a residential solution, and look where we are today. I mean... got the leading solution in the small business space. We have an enterprise-level solution that's very targeted at certain verticals and doing well in them. I didn't even speak too much about that in my remarks.
Speaker Change #122: Yeah. Good question.
So over the last nine years, we've put a lot of investment into this business. We know when we went public we are largely just a residential solution and look where we are today I mean.
Speaker Change #122: Got the leading solution in the small business space, we have a enterprise level solution, that's very targeted at certain verticals and doing well in them I didn't even speak too much about that in my remarks.
Eric B. Stang: You know, we've expanded with a whole unique area with AirDial and now with 2600 Hertz. We've also gone international with our largest customer. We've put a lot of work in for a long time. But I think we do sit here today ready to consolidate, if you will, or to focus more on delivering results from what we've built than trying to build something new. We're quite far along in our capabilities across our solutions.
Speaker Change #123: We've expanded with our whole unique area with air dial in now with 2600 Hertz. We've also gone international with our largest customer we've put a lot of work for a long time, but I think we do sit here today ready to consolidate if you will or two.
Speaker Change #123: Focus more on.
Speaker Change #124: Delivering results from what we've built than trying to build something new.
Speaker Change #124: We're quite far along in our capabilities across our solutions and what we're still doing is <unk>.
Eric B. Stang: And what we're still doing is, you know, for instance, on the 2600 Hertz platform, just giving it the benefit of what we've already done elsewhere in the company. So, you know, we do think about expanding our top line without having to grow our R&D line commensurately. And we do think also, I think more than ever before, Pat, about making sure that the investments we make in the business pay off. We generate what 165 million dollars a year in gross profit dollars. Think about that for a minute. And we've got a valuation of 200 million. That's, that's, I'm still shocked by those statements.
Speaker Change #124: For instance on <unk> platform is just giving it the benefit of what we've already done elsewhere in the company. So we do think about expanding our top line without having to grow our R&D line commensurately.
And.
Speaker Change #124: We do think also I think more than ever before Pat about making sure that the investments we make in the business.
Speaker Change #124: Payoff, we generate $165 million a year in gross profit dollars think about that for a minute and.
And we've got a valuation of $200 million.
Eric B. Stang: But, but 165 million gross profit dollars being generated by this company gives us tremendous latitude to either invest in a lot more growth or bring a lot more to the bottom line or do a combination of both. And what we don't want to do is rush to drive profitability and forsake any of the great investments we've made in the business over these last nine years, which we're ready to capitalize on.
Speaker Change #125: That's I still soft by by those statements, but but $165 million of gross profit dollars being generated by this company gives us tremendous latitude to either invest in a lot more growth or bring a lot more to the bottom line or do a combination above and.
Speaker Change #126: What we don't want to do is.
Speaker Change #126: Rush to drive profitability and forsake any of the great investments we've made in the business over these last nine years, which were ready to capitalize on but at the same time, we want to make sure that anything we invest going forward has a very clear and measurable payoff and so that's the way we're thinking about things we would like to.
Eric B. Stang: But at the same time, we want to make sure that anything we invest going forward has a very clear and measurable payoff. And so that's the way we're thinking about things we would like to, [inaudible] Thank you.
Speaker Change #127: Uh huh.
Speaker Change #127: Pay down our debt as fast as possible and.
Speaker Change #127: Put ourselves in a position to be in a stronger cash position maybe to do our next small acquisition, but those are the essential we've got we've got the assets in house.
Speaker Change #127: I think to take us quite far.
Operator: All right, great. Thank you for that perspective.
Alright, great. Thank you for that perspective.
Speaker Change #128: You bet.
Eric B. Stang: Thank you. And I'm not showing any further questions in the queue. I'd like to turn it back over to Eric Stang for any closing remarks.
Speaker Change #129: Thank you and I'm not showing any further questions in the queue I would like to turn it back over to Eric Stang for any closing remarks.
Eric B. Stang: No, thank you, everyone. We appreciate your time here with us today, and we'll just keep working hard to hopefully deliver a great year. Thank you, everyone.
Eric B. Stang: No. Thank you everyone. We appreciate your time here with us today and.
Eric B. Stang: We'll just keep working hard to hopefully deliver a great year. Thank you everyone.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Speaker Change #130: Thank you for your participation in today's conference. This does conclude the program and you may now disconnect everyone have a great day.
Speaker Change #130: Okay.
Speaker Change #130: [music].
Speaker Change #130: Okay.
Speaker Change #130: [music].