Quarterly Report for Quarter Ending April 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements included in our Annual Report on Form 10-K for the year ended January 31, 2026 filed with the SEC on April 3, 2026. In addition to historical financial information, the following discussion contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other legal authority. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, objectives, plans and current expectations. The words "believe," "will," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "expect," "predict," "could," "potentially" and variations of such words and similar expressions are intended to identify such forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results, events or circumstances to differ materially from those expressed or implied in our forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Item 2. MD&A, as well as the section titled "Risk Factors" included under Part II, Item 1A below. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

Executive Overview

Ooma provides leading communications services and related technologies that bring unique features, ease of use, and affordability to businesses and residential customers through our smart SaaS and unified communications platforms. For businesses of all sizes, we deliver advanced voice and collaboration features including messaging, intelligent virtual attendants, and video conferencing to help them run more efficiently. Ooma's all-in-one replacement solution for analog phone lines helps businesses maintain mission-critical systems by moving connectivity to the cloud. For consumers, our residential phone service provides PureVoice high-definition voice quality, advanced functionality and integration with mobile devices.

We generate revenues primarily from the sale of subscriptions and other services for our business and residential communications solutions. We generate our product and other revenue from the sale of on-premise devices and end-point devices, including Ooma AirDial, and from installation services, equipment rentals, and professional services. We primarily offer our solutions in the United States and Canada, with limited offerings in certain other countries.

We refer to Ooma Office, Ooma Enterprise, Ooma AirDial, 2600Hz, FluentStream, Phone.com, and OnSIP collectively as Ooma Business. Ooma Residential includes Ooma Telo basic and premier services, as well as Ooma Telo LTE services.

First Quarter Fiscal 2026 Financial Performance

Reconciliations of non-GAAP adjusted measures to the most directly comparable GAAP measures are presented below under Adjusted EBITDA and Non-GAAP Financial Measures.

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Key Business Metrics

We review the key metrics below to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions (in thousands, except percentages):

Core Users increased year-over-year, which was primarily driven by growth in Ooma Business users, including the addition of 165,000 core users associated with our FluentStream and Phone.com offerings. As of April 30, 2026, Ooma Business users comprised approximately 49% of our total core users, up from 41% as of April 30, 2025. We define our core users as the number of active residential user accounts and business user extensions (excluding Talkatone and 2600Hz users). We believe that the relationship that we establish with our core users positions us to sell additional premium communications services and other new connected services to them.‌

Annualized Exit Recurring Revenue ("AERR") grew year-over-year due to an increase in the average revenue per core user, which was largely driven by an increasing mix of Business users. We believe that AERR is an indicator of recurring subscription and services revenue for near-term future periods. We estimate our AERR by dividing our recurring quarterly subscription revenue from our Core Users by the average number of core users each quarter and annualize by multiplying by four. We then multiply that result by the number of core users at the end of the period to calculate AERR. AERR includes the annual recurring revenue from 2600Hz. Since the fourth quarter of fiscal 2026, AERR includes annual recurring revenue generated from our FluentStream and Phone.com offerings.

Net Dollar Subscription Retention Rate ("NDRR") was flat year-over-year. We believe that our net dollar subscription retention rate provides insight into our ability to retain and grow our subscription and services revenue and is an indicator of the long-term value of our customer relationships and the stability of our revenue base.

We define our NDRR as (i) one plus (ii) the quotient of Net Dollar Change divided by Average Monthly Recurring Subscription Revenue. We define Net Dollar Change as the quotient of (i) the difference of our Monthly Recurring Subscription Revenue at the end of a period minus our Monthly Recurring Subscription Revenue at the beginning of a period minus our Monthly Recurring Subscription Revenue at the end of the period from new customers we added during the period, all divided by (ii) the number of months in the period. We define our Average Monthly Recurring Subscription Revenue as the average of the Monthly Recurring Subscription Revenue at the beginning and end of the measurement period.

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Adjusted EBITDA

In addition, we use Adjusted EBITDA (Earnings Before Interest Tax and Depreciation and Amortization) to manage our business, evaluate our performance and make planning decisions. We consider this metric to be a useful measure of our operating performance, because it contains adjustments for unusual events or factors that do not directly affect what management considers the core operating performance, and are used by our management for that purpose. We also believe this measure enables us to better evaluate our performance by facilitating a meaningful comparison of our core operating results in a given period to those in prior and future periods. Investors often use similar measures to evaluate the operating performance with those of competitors. Adjusted EBITDA represents net income before interest and other income, income taxes, depreciation and amortization of capital expenditures, amortization of intangible assets, stock-based compensation and related taxes, restructuring costs and litigation costs.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including net income (loss) and our other GAAP results.

The following table provides a reconciliation of GAAP net income (loss) to Adjusted EBITDA, for each of the periods indicated below (in thousands):

Components of Results of Operations

Revenue

Subscription and services revenue is derived primarily from recurring subscription fees related to service plans such as Ooma Business, Ooma Residential and other communications services, and to a lesser extent from payments associated with our Talkatone mobile application and prepaid international calls. We expect our subscription and services revenue to grow as we expand our user base, driven primarily by growth in Ooma Business. We expect revenues from Ooma Business will continue to account for most of our revenue for foreseeable future.

Product and other revenue consists primarily of sales sale of our on-premise devices and end-point devices, including Ooma AirDial, and from installation services, equipment rentals, and professional services.

Cost of revenue and gross margin

Cost of subscription and services revenue includes payments made for third-party network operations and telecommunications services, license fees, certain telecom taxes and fees, including Federal Universal Service Fund ("USF") contributions, credit card processing fees, costs to build out and maintain data centers, depreciation and maintenance of servers and equipment, personnel costs associated with customer care and network operations support, amortization of certain acquired intangible assets, and allocated overhead costs.

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Cost of product and other revenue includes the costs associated with the manufacturing of our on-premise devices and end-point devices, including Ooma AirDial, as well as personnel costs for employees and contractors, costs related to porting our customers' phone numbers to our service, shipping and handling costs, tariffs imposed on imported product and allocated overhead costs.

Subscription and services gross margin may fluctuate from period-to-period based on the interplay of a number of factors, including revenue mix and fluctuations in the costs described above. We expect our subscription and services gross margin to increase over the long term, primarily as we achieve scale efficiencies and as Ooma Business revenue becomes a larger majority of total subscription revenue and as and to the extent we realize anticipated synergies from our recent acquisitions.

Product and other gross margin may fluctuate from period-to-period based on a number of factors, including total units shipped as compared to the direct costs of production and relatively fixed personnel costs incurred. We sell our on-premise devices at aggressive price points to facilitate the adoption of our platforms and services. Additionally, some product costs have become subject to significantly higher pricing due to supply chain constraints in the global macroeconomic environment and increasing tariffs, as well as certain components becoming subject to end-of-life, and we may not be able to fully offset such higher costs through price increases. We are also experiencing higher AirDial installation costs due to ramp up efforts in recent periods to address growth in customer demand. Accordingly, we expect that our product and other gross margin will continue to be negatively impacted by these higher component costs and AirDial installation costs, and our product and other gross margin will continue to be negative for the foreseeable future.

Our subscription and services gross margin is significantly higher than product and other gross margin. As a result, any significant change in revenue mix will cause our total gross margin to change. For example, in periods where we sell significantly more on-premise devices or other products, we would expect our total gross margin to be impacted.

In February 2026, the U.S. Supreme Court issued a ruling invalidating certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). As a result of this ruling, we may be eligible for a refund of tariffs previously paid on imported goods. As the recoverability and timing of any such refund remains uncertain, we have not recorded a benefit for any potential refund and will not until such amounts are realizable. We will continue to monitor these developments and their potential impact on our results of operations.

Operating expenses

Sales and marketing expenses consist primarily of personnel costs for employees and contractors, advertising and marketing costs, sales commissions paid to internal sales personnel and third parties, amortization of capitalized sales commissions, amortization of acquired customer relationship intangible assets, travel expenses and allocated overhead costs. We expect our sales and marketing expenses to increase in absolute dollars as we continue to grow our business.

Research and development expenses are focused on developing new and expanded features for our solutions and improvements to our platforms and backend architecture. Research and development expenses consist primarily of personnel costs for employees and contractors, including third-party development, and allocated overhead costs. We expect our research and development expenses to increase in absolute dollars as we continue to grow our business.

General and administrative expenses consist of personnel costs for our finance, legal, human resources and other administrative employees and contractors, as well as professional service fees, and allocated overhead costs. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business.

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Consolidated Results of Operations

The following table sets forth selected consolidated statements of operations data for each of the periods indicated (in thousands):

Costs of revenue and operating expenses included stock-based compensation expense and related payroll taxes as follows (in thousands):

Comparison of the three months ended April 30, 2026 and 2025 (dollars in tables are in thousands):

Revenue

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Three months ended April 30, 2026 Compared to Three months ended April 30, 2025

We derived approximately 70% and 62% of our total revenue from Ooma Business and approximately 28% and 35% from Ooma Residential for the three months ended April 30, 2026 and 2025, respectively.

Subscription and services revenue increased $14.3 million or 24% year-over-year, primarily attributable to the contribution of FluentStream and Phone.com offerings, continued growth in AirDial lines, and organic growth, including increased sales of Ooma Office services, which resulted in an increase in our average revenue per core user.

Product and other revenue increased $1.8 million or 37% year-over-year, primarily attributable to an increase in AirDial shipments.

Cost of revenue and gross margin

Three months ended April 30, 2026 Compared to Three months ended April 30, 2025

Subscription and services gross margin of 71% increased year-over-year from 70%. Cost of subscription and services revenue increased $3.8 million or 21% year-over-year, primarily due to a $2.1 million increase in personnel-related costs, a $0.8 million increase in infrastructure costs, a $0.3 million increase in banking fees, and a $0.3 million increase in intangible amortization, partially offset by a $0.2 million decrease in regulatory fees. Overall, the increase in the cost of subscription and services in part reflects the growth of Ooma Business and the additional costs resulting from sales of FluentStream and Phone.com offerings.

Product and other revenue gross margin improved to negative 32% from negative 42% in the prior year period. The improvement in product margin was primarily due to a more favorable sales mix toward higher margin products such as AirDial.

Operating expenses

Three months ended April 30, 2026 Compared to Three months ended April 30, 2025

Sales and marketing expenses increased $2.5 million or 13% year-over-year, primarily due to a $1.1 million increase in commissions due to growth in AirDial lines and sales of FluentStream and Phone.com offerings, a $1.4 million increase in amortization of intangible assets attributable to recent acquisitions, and a $0.4 million increase in personnel-related costs, partially offset by a $0.8 million decrease in advertising and marketing expense.

Research and development expenses increased $2.6 million or 21% year-over-year, primarily due to a $2.2 million increase in personnel and contractor-related costs, a $0.3 million increase in license fees, and a $0.1 million increase in restructuring costs.

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General and administrative expenses increased $1.8 million or 22% year-over-year, primarily due to a $1.3 million increase in personnel-related costs related to increased headcount from recent acquisitions and a $0.2 million increase in restructuring costs.

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Liquidity and Capital Resources

As of April 30, 2026, we had $17.2 million of total cash and cash equivalents and borrowing capacity of $10.0 million under our Credit Agreement, which we believe will be sufficient to meet our cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the introduction of new and enhanced offerings, the timing and extent of our sales and marketing activities and research and development expenditures, the repayment of outstanding indebtedness, and other factors. We may in the future make investments in or acquisitions of businesses or technologies, which may require the use of cash. We may seek to raise additional funds at any time through equity or debt financings. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected.

The table below provides selected cash flow information for the periods indicated (in thousands):

Operating Activities

The table below provides selected cash flow information for the periods indicated (in thousands):

For the three months ended April 30, 2026, our net income of $2.6 million included non-cash items of $8.7 million primarily related to stock-based compensation, operating lease expense, and depreciation and amortization expense. Operating asset and liability changes for the three months ended April 30, 2026 included:

Cash provided by operating activities for the three months ended April 30, 2026 increased $2.7 million year-over-year, which primarily reflected working capital impacts resulting from the timing of payments. Although we have generated cash from operations, our operating cash flow may not remain positive in the future as we continue to invest in efforts to scale our business.

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Investing Activities

For the three months ended April 30, 2026, cash used in investing activities was $1.1 million, which consisted primarily of capital expenditures of $1.5 million, offset by $0.4 million cash received from working capital adjustment related to the FluentStream acquisition. Cash used in investing activities decreased $0.1 million compared to the prior year period, driven by the $0.4 million working capital adjustment received, partially offset by higher capital expenditures.

Financing Activities

For the three months ended April 30, 2026, cash used in financing activities was $8.3 million, which consisted of payments of $1.4 million related to shares repurchased for tax withholdings on vesting of RSUs, and payments of $3.3 million under our stock repurchase plan, and debt prepayments of $5.0 million, partially offset by proceeds of $1.4 million from the issuance of common stock from our ESPP and stock option exercises. Cash used in financing activities increased $6.9 million year-over-year, which primarily reflected prepayments of term loan borrowings under our Credit Agreement (as defined below) during the three months ended April 30, 2026, which did not occur in the three months ended April 30, 2025.

Term Loan and Revolving Credit Facility

We maintain a credit agreement with Citizens Bank, N.A., as amended through December 2025 (the "Credit Agreement"). The Credit Agreement has a five-year term and provides for a term loan facility of up to $65.0 million and a revolving credit facility of up to $10.0 million. In December 2025, we borrowed $65.0 million as a term loan maturing on December 1, 2030. We used the proceeds of the term loan to finance the FluentStream and Phone.com acquisitions (see Note 13: Business Acquisition). As of April 30, 2026, we had a $52.9 million term loan balance, net of unamortized debt discount and issuance costs, no borrowings under the revolving credit facility under the Credit Agreement, and were in compliance with all loan covenants.

Contractual Obligations and Commitments

Refer to Note 6: Operating Leases and Note 11: Commitments and Contingencies in the notes to our condensed consolidated financial statements for disclosures related to our lease obligations and non-cancelable purchase commitments.

Critical Accounting Policies and Estimates

Refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2026 for a discussion of our critical accounting policies and estimates. There have been no changes to the Company's significant accounting policies and estimates as outlined in our fiscal 2026 Annual Report in the first quarter of fiscal 2027.

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