Release Date: December 04, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Ooma Inc (NYSE:OOMA) achieved record financial results in Q3, with $65.1 million in revenue, $4.6 million in non-GAAP net income, and $8.1 million in cash flow from operations.
• The company is now debt-free, having paid off $18 million of debt over the last 12 months.
• Ooma Inc (NYSE:OOMA) secured significant new customer wins in Q3, building on previous successes from earlier in the year.
• The business segment contributed 62% of total revenue in Q3, up from 58% a year ago, indicating strong growth in this area.
• Ooma Inc (NYSE:OOMA) has formed a partnership with a top-tier national cable company to resell its AirDial solution, representing a major win and potential for significant growth.

Negative Points

• Ooma Inc (NYSE:OOMA) experienced a slight decline in total core users, primarily due to seat reductions with IWG.
• The company's subscription and services gross margin remained flat year-over-year at 72%, indicating no improvement in this area.
• Product and other gross margin was negative, although it improved from the previous year.
• There is potential for further churn with IWG, which could impact future revenue.
• The acquisition of Frontier by Verizon has caused a delay in the launch of Ooma Inc (NYSE:OOMA)'s partnership with Frontier, affecting expected timelines.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with OOMA.

Q: Can you comment on the market dynamics and any benefits from the planned sunset of Microsoft's MetaSwitch regarding the 2,600 Hertz acquisition? A: Eric Stang, CEO: When we acquired 2,600 Hertz, we initially focused on synergies and technology control. However, we've seen significant opportunities, especially as older platforms like Broadsoft and MetaSwitch are not receiving much investment. MetaSwitch is even being phased out by Microsoft. This creates a large market opportunity, with an estimated 50-80 million users on these platforms globally. Our modern design and flexible delivery model make us well-positioned to capture this market.

Q: With the improving margin dynamics, does this assume the revenue growth rate remains the same, or is there an expected improvement? A: Shea Masu, CFO: For Q4, we expect a year-over-year growth of about 5% at the midpoint. We're seeing leverage in R&D expenses, which are expected to decrease sequentially in Q4. Additionally, a slight reduction in product revenue will help improve overall margins.

Q: Regarding the IWG churn, is it definitive that this will end in Q4, or could it extend into fiscal 2026? A: Eric Stang, CEO: There could be more churn as we move forward, but it's not fundamental to our outlook. We work closely with IWG to optimize their services, and while there may be some churn, we also have new centers opening regularly.

Q: Can you quantify the impact of the IWG runoff on Q4 revenue guidance? A: Shea Masu, CFO: The impact is not significant as half of it was realized in Q3. The churn from IWG is relatively small compared to our total revenue, so its impact on Q4 is minimal.

Q: With the acquisition of Frontier by Verizon, how long do you expect the disruption delay to be in the ramp-up with Frontier? A: Eric Stang, CEO: Initially, Frontier wanted to proceed despite the acquisition announcement. However, many programs, including ours, are being reconsidered. We continue discussions with them, and while the timeline is uncertain, the need to replace residential phone lines remains. The opportunity to engage with both Frontier and Verizon is exciting for us.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.