# OOMA INC (OOMA) FY 2025 MD&A

Verbatim Item 7 Management's Discussion and Analysis from OOMA INC's 10-K for fiscal year 2025.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1327688/000095017025048692/ooma-20250131.htm
Accession: 0000950170-25-048692
Filing date: 2025-04-01
Report date: 2025-01-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/OOMA/
All MD&A years: /company/OOMA/mda/
Previous year: /company/OOMA/mda/fy2024/ (FY 2024)
Next year: /company/OOMA/mda/fy2026/ (FY 2026)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Form 10-K. The last day of our fiscal year is January 31, and we refer to our fiscal year ended January 31, 2025 as fiscal 2025, our fiscal year ended January 31, 2024 as fiscal 2024 and our fiscal year ended January 31, 2023 as fiscal 2023. All other references to years are references to calendar years.

This section of this Form 10-K generally discusses fiscal 2025 and 2024 items and year-to-year comparisons between fiscal 2025 and 2024. Discussion regarding our financial condition and results of operations for fiscal 2024 as compared to 2023 is included in Item 7 of our Annual Report on Form 10-K for the year ended January 31, 2024, filed with the SEC on April 2, 2024 (the "FY2024 Form 10-K").

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. 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 our on-premise devices and end-point devices. 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, and OnSIP collectively as Ooma Business. Ooma Residential includes Ooma Telo basic and premier services, as well as Ooma Telo LTE services. See Item 1. Business above for additional information regarding our business, including products and services offered, competitive market and regulatory matters.

Fiscal 2025 Financial Performance

•
Total revenue was $256.9 million, up 8% year-over-year, primarily driven by the continued growth of Ooma Business and the acquisition of 2600Hz in late October 2023.

•
Subscription and services revenue from Ooma Business grew 13% year-over-year, driven by user growth.

•
Total gross margin was 61%, down from 62% in fiscal 2024.

•
GAAP net loss was $6.9 million, compared to a net loss of $0.8 million in fiscal 2024,

•
GAAP net loss for fiscal 2024 includes tax benefit for the release of a $3.1 million valuation allowance resulting from the recording of certain intangible assets associated with the acquisition of 2600Hz, as well as a $1.0 million gain on consolidation of facility costs, partially offset by $0.7 million in acquisition related costs and $0.5 million of certain restructuring costs, which did not recur in fiscal 2025.

•
Non-GAAP net income was $18.0 million, compared to $15.4 million in fiscal 2024.

•
Adjusted EBITDA was $23.3 million, or 9% of revenue, compared to $19.8 million in fiscal 2024.

•
Cash flow provided by operating activities was $26.6 million, compared to $12.3 million in fiscal 2024.

•
As of January 31, 2025, we had total cash and cash equivalents of $17.9 million, up $0.4 million from $17.5 million as of January 31, 2024.

•
As of January 31, 2025, we had no outstanding debt, compared to $16.0 million as of January 31, 2024.

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

Ooma | FY2025 Form 10-K | 46

Key Factors Affecting Our Performance

Our historical financial performance and key business metrics have been, and we expect that our financial performance and key business metrics in the future will be, primarily driven by the following factors:

Core user growth. Our growth in the number of core users, a key business metric defined below, is a key indicator of our market penetration, the growth of our business and our anticipated future subscription and services revenue, especially Ooma Business.

Low core user churn. We believe that maintaining our current low core user churn for Ooma Business and Ooma Residential is an important factor in our ability to continue to improve our financial performance and is a distinguishing advantage over many of our competitors. We focus on providing high-quality services and support to our users so they remain with us.

Growth in additional services and products. We believe that there is significant opportunity for us to increase the additional subscription and services that our customers purchase from us in both the business and residential markets, which generates more value to Ooma over the life of our customer relationship. We are investing in Ooma Business to develop additional features to continue our momentum serving businesses of all sizes and further increase our average revenue per user. We continue to see a large market opportunity to capitalize on Ooma AirDial as an integrated solution for businesses to replace legacy copper-wire analog phone service.

Investing in long-term revenue growth. We believe that our total addressable market opportunity is large and we intend to continue significantly investing in sales and marketing to grow our user base in multiple verticals and channels. We expect the domestic and international markets in which we conduct our business will remain highly competitive. We plan to work together with our strategic partners to explore and pursue potential growth opportunities related to the market transition to 5G internet. We expect to continue investing in research and development to enhance our platforms and develop additional connected services and products, as well as launch our Ooma Business services in a number of international countries. We may evaluate additional possible acquisitions of businesses, products and technologies that are complementary to our business.

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):

[[GREPCENT_TABLE]]
[["","","As of January 31,"],["","","2025","","","2024","","","2023"],["Core users","","","1,234","","","","1,243","","","","1,210"],["Annualized exit recurring revenue (AERR)","","$","234,086","","","$","227,500","","","$","206,700"],["Net dollar subscription retention rate (1)","","","98","%","","","99","%","","","99","%"],["Adjusted EBITDA","","$","23,257","","","$","19,842","","","$","17,395"]]
[[/GREPCENT_TABLE]]

(1) Revised January 31, 2023 due to new methodology as described below

Core Users decreased year-over-year, which was primarily driven by a decline in Ooma Residential users, partially offset by an increase in Ooma Business users. As of January 31, 2025, Ooma Business users comprised approximately 41% of our total core users, up from 39% as of January 31, 2024. We believe that the number of our core users is an indicator of our market penetration, the growth of our business and our anticipated future subscription and services revenue. 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. Beginning in the third quarter of fiscal 2024, AERR includes annual recurring revenue from 2600Hz.

Ooma | FY2025 Form 10-K | 47

Net Dollar Subscription Retention Rate

Effective in the first quarter of fiscal 2024, we transitioned to a new calculation methodology for our net dollar subscription retention rate (“NDRR”) as discussed below. Since the majority of our subscription revenue is now generated from Ooma Business customers, we believe the new methodology better reflects our operational performance during the reporting period and is more in alignment with the reporting of our industry peers. 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.

Prior to fiscal 2024, we calculated NDRR as a function of the year-over-year growth in average revenue per user and churn as further discussed in the FY2023 Form 10-K. Under the new methodology, we define our NDRR as (i) one plus (ii) the quotient of Net Dollar Change (as defined below) divided by Average Monthly Recurring Subscription Revenue (as defined below). We define “Net Dollar Change” as the quotient of (i) the difference of our Monthly Recurring Subscription Revenue (as defined below) 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. “Monthly Recurring Subscription Revenue” is defined as recurring subscription amounts from Ooma Residential and Ooma Business customers at the end of the most recent month, excluding recurring revenue from 2600Hz.

For example, if our Monthly Recurring Subscription Revenue was $115 at the end of a quarterly period and $100 at the beginning of the period, and $18 at the end of the period from new customers we added during the period, then the Net Dollar Change would be equal to ($1.00), or the amount equal to the difference of $115 minus $100 minus $18, all divided by three months. Our Average Monthly Recurring Subscription Revenue would equal $107.5, or the sum of $115 plus $100, divided by two. Our NDRR would then equal 99.1%, or approximately 99%, or one plus the quotient of the Net Dollar Change divided by the Average Monthly Recurring Subscriptions.

NDRR declined slightly year-over-year due to user churn offset by an increase in Average Monthly Recurring Subscription Revenue.

Adjusted EBITDA increased year-over-year in line with our revenue growth, representing approximately 9% and 8% of our total revenues for fiscal 2025 and fiscal 2024, respectively. We use Adjusted EBITDA (Earnings Before Interest, Taxes, 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 being 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 competitors. Adjusted EBITDA represents net income before interest and other income, income taxes, depreciation and amortization of capital expenditures, amortization of intangible assets and acquisition related costs, stock-based compensation and related taxes, litigation costs, restructuring costs, gain on note conversion, and facilities consolidation (gain) charges.

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:

•
Adjusted EBITDA does not consider the impact of income tax provisions or benefits, other income/expense, stock-based compensation and related taxes, amortization of intangible assets and acquisition-related costs, restructuring costs and costs that are not recurring in nature; and

•
Adjusted EBITDA does not consider any expenses for assets being depreciated and amortized that are necessary to our business; although these are non-cash charges, the property and equipment being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash capital expenditure requirements for such replacements;

•
Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and our other GAAP results.

Ooma | FY2025 Form 10-K | 48

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

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","","2024","","","2023"],["GAAP net loss","$","(6,901",")","","$","(835",")","","$","(3,655",")"],["Reconciling items:"],["Interest and other income, net","","181","","","","(1,188",")","","","(332",")"],["Income tax provision (benefit)","","760","","","","(1,978",")","","","(1,770",")"],["Depreciation and amortization of capital expenditures","","4,294","","","","4,318","","","","3,771"],["Amortization of intangible assets and acquisition-related costs","","5,767","","","","4,594","","","","3,824"],["Stock-based compensation and related taxes","","18,217","","","","15,110","","","","14,155"],["Litigation costs","","340","","","","300","","","","\u2014"],["Restructuring costs","","1,579","","","","477","","","","\u2014"],["Gain on note conversion","","(980",")","","","\u2014","","","","\u2014"],["Facilities consolidation (gain) charges","","\u2014","","","","(956",")","","","1,402"],["Adjusted EBITDA","$","23,257","","","$","19,842","","","$","17,395"]]
[[/GREPCENT_TABLE]]

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 core 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 the foreseeable future.

Product and other revenue consists primarily of sales of our on-premise devices and end-point devices used in connection with our services, including shipping and handling fees for our direct customers.

Cost of revenue and gross margin

Cost of subscription and services revenue includes payments made for third-party network operations and telecommunications services; 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.

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.

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. Another factor is the high AirDial installation costs due to ramp up efforts. Accordingly, we expect our product and other gross margin will continue to be negatively impacted by these higher component costs and AirDial installation costs. We expect our product and other gross margin to continue to be negative for the foreseeable future.

Ooma | FY2025 Form 10-K | 49

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.

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, certain acquisition-related costs, and allocated overhead costs. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business.

Consolidated Results of Operations

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

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","","2024","","","2023"],["Revenue:"],["Subscription and services","$","238,641","","","$","221,624","","","$","199,105"],["Product and other","","18,211","","","","15,113","","","","17,060"],["Total revenue","","256,852","","","","236,737","","","","216,165"],["Cost of revenue:"],["Subscription and services","","71,199","","","","63,667","","","","54,499"],["Product and other","","29,635","","","","25,838","","","","24,018"],["Total cost of revenue","","100,834","","","","89,505","","","","78,517"],["Gross profit","","156,018","","","","147,232","","","","137,648"],["Operating expenses:"],["Sales and marketing","","77,325","","","","73,503","","","","69,671"],["Research and development","","54,287","","","","49,935","","","","45,939"],["General and administrative","","31,346","","","","27,795","","","","27,795"],["Total operating expenses","","162,958","","","","151,233","","","","143,405"],["Loss from operations","","(6,940",")","","","(4,001",")","","","(5,757",")"],["Interest and other income, net","","799","","","","1,188","","","","332"],["Loss before income taxes","","(6,141",")","","","(2,813",")","","","(5,425",")"],["Income tax (provision) benefit","","(760",")","","","1,978","","","","1,770"],["Net loss","$","(6,901",")","","$","(835",")","","$","(3,655",")"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","","","","Fiscal Year Ended January 31,"],["","","","","","2025","","","","2024","","","","2023"],["Cost of revenue","","","","","$","1,049","","","","$","1,026","","","","$","986"],["Sales and marketing","","","","","","3,969","","","","","2,276","","","","","2,068"],["Research and development","","","","","","5,589","","","","","4,876","","","","","4,713"],["General and administrative","","","","","","7,610","","","","","6,932","","","","","6,388"],["Total stock-based compensation expense","","","","","$","18,217","","","","$","15,110","","","","$","14,155"]]
[[/GREPCENT_TABLE]]

Ooma | FY2025 Form 10-K | 50

Comparison of fiscal years 2025, 2024 and 2023 (dollars in tables are in thousands):

Revenue

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended January 31,","","","Change"],["","","2025","","","2024","","","2023","","","2025 vs. 2024"],["Revenue:"],["Subscription and services","","$","238,641","","","$","221,624","","","$","199,105","","","$","17,017","","","8","%"],["Product and other","","","18,211","","","","15,113","","","","17,060","","","","3,098","","","20","%"],["Total revenue","","$","256,852","","","$","236,737","","","$","216,165","","","$","20,115","","","8","%"],["Percentage of revenue:"],["Subscription and services","","","93","%","","","94","%","","","92","%"],["Product and other","","","7","%","","","6","%","","","8","%"],["Total","","","100","%","","","100","%","","","100","%"]]
[[/GREPCENT_TABLE]]

Fiscal 2025 Compared to Fiscal 2024

We derived approximately 61% and 58% of our total revenue from Ooma Business and approximately 36% and 40% from Ooma Residential in fiscal 2025 and 2024, respectively.

Subscription and services revenue increased $17.0 million or 8% year-over-year, primarily attributable to an increase in the average revenue per core user, driven by organic growth, which was in part due to higher sales to our Office and Enterprise customers, revenue contributed from 2600Hz, which we acquired at the end of third quarter of fiscal 2024, and an increase in AirDial lines.

Product and other revenue increased $3.1 million or 20% year-over-year, primarily attributable to the increase of AirDial units shipped, sale of accessories to Ooma Enterprise customers, and professional service revenue from 2600Hz.

Cost of Revenue and Gross Margin

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended January 31,","","","Change"],["","","2025","","","2024","","","2023","","","2025 vs. 2024"],["Cost of revenue:"],["Subscription and services","","$","71,199","","","$","63,667","","","$","54,499","","","$","7,532","","","12","%"],["Product and other","","","29,635","","","","25,838","","","","24,018","","","","3,797","","","15","%"],["Total cost of revenue","","$","100,834","","","$","89,505","","","$","78,517","","","$","11,329","","","13","%"],["Gross margin:"],["Subscription and services","","","70","%","","","71","%","","","73","%"],["Product and other","","","(63",")%","","","(71",")%","","","(41",")%"],["Total","","","61","%","","","62","%","","","64","%"]]
[[/GREPCENT_TABLE]]

Fiscal 2025 Compared to Fiscal 2024

Subscription and services gross margin of 70% decreased year-over-year from 71%. Cost of subscription and services revenue increased $7.5 million or 12% year-over-year, primarily due to a $2.7 million increase in infrastructure costs, a $1.6 million increase in personnel and contractor related costs, a $1.6 million increase in regulatory fees, a $1.8 million increase in intangible amortization expense and a $0.5 million increase in credit card processing fees, partially offset by a $0.5 million decrease in software and license costs and a $0.2 million decrease in travel costs. Overall, the year-over-year increase in the cost of subscription and services reflects both organic growth and growth related to our acquisition of 2600Hz in fiscal 2025.

Product and other revenue gross margin improved to negative 63% from negative 71% in the prior year period, primarily due to the depletion of certain higher cost components that we procured in prior fiscal years to stay ahead of pandemic driven supply chain issues.

Ooma | FY2025 Form 10-K | 51

Operating Expenses

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended January 31,","","","Change"],["","","2025","","","2024","","","2023","","","2025 vs. 2024"],["Sales and marketing","","$","77,325","","","$","73,503","","","$","69,671","","","$","3,822","","","5","%"],["Research and development","","","54,287","","","","49,935","","","","45,939","","","","4,352","","","9","%"],["General and administrative","","","31,346","","","","27,795","","","","27,795","","","","3,551","","","13","%"],["Total operating expenses","","$","162,958","","","$","151,233","","","$","143,405","","","$","11,725","","","8","%"]]
[[/GREPCENT_TABLE]]

Fiscal 2025 Compared to Fiscal 2024

Sales and marketing expenses increased $3.8 million or 5% year-over-year, primarily due to a $4.7 million increase in personnel and contractor related costs, and a $0.6 million increase in commission costs, partially offset by a $1.5 million decrease in advertising and marketing expense.

Research and development expenses increased $4.4 million or 9% year-over-year, primarily due to a $3.8 million increase in personnel and contractor related costs, driven by higher headcount, a $0.7 million increase in restructuring costs, and a $0.1 million increase in allocated overhead costs, partially offset by a $0.2 million decrease in hosting costs.

General and administrative expenses increased $3.6 million or 13% year-over-year, primarily due to a $2.9 million increase in personnel-related costs, driven by higher headcount, an absence of a $1.0 million facility consolidation gain which did not recur in fiscal year 2025, a $0.3 million increase in restructuring costs, and a $0.3 million increase in allocated overhead costs, partially offset by a $0.9 million decrease in acquisition-related costs.

A significant portion of the year-over-year increase in personnel-related costs and amortization of intangible assets for operating expenses was due to the 2600Hz acquisition near the end of the third quarter of fiscal 2024.

Income Taxes

We recorded an income tax benefit of $3.1 million in fiscal 2024, offset by $1.1 million of income tax expense in fiscal 2024. The income tax benefits were related to certain preexisting deferred tax assets realized because of deferred tax liabilities assumed in our acquisition of 2600Hz in fiscal 2024, which did not recur in fiscal 2025.

Other Non-GAAP Financial Measures

This Form 10-K contains certain non-GAAP financial measures, including non-GAAP net income and Adjusted EBITDA. These non-GAAP financial measures are presented to provide investors with additional information regarding our financial results and core business operations. Non-GAAP financial measures are presented for supplemental informational purposes only to aid an understanding of our operating results and should not be considered a substitute for financial information presented in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. A limitation of the non-GAAP financial measures presented is that the adjustments relate to items that the Company generally expects to continue to recognize. The adjustment of these items should not be construed as an inference that the adjusted expenses or gains are unusual, infrequent or non-recurring. Therefore, both GAAP financial measures of Ooma’s financial performance and the respective non-GAAP measures should be considered together. See page 57 for a discussion of Adjusted EBITDA.

Ooma | FY2025 Form 10-K | 52

The following table presents a reconciliation of GAAP net loss to non-GAAP net income for the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","","2024","","","2023"],["GAAP net loss","$","(6,901",")","","$","(835",")","","$","(3,655",")"],["Stock-based compensation and related taxes","","18,217","","","","15,110","","","","14,155"],["Amortization of intangible assets and acquisition-related costs","","5,767","","","","4,403","","","","3,824"],["Litigation costs","","340","","","","300","","","","\u2014"],["Restructuring costs","","1,579","","","","477","","","","\u2014"],["Gain on note conversion","","(980",")","","","\u2014","","","","\u2014"],["Acquisition-related income tax benefit","","\u2014","","","","(3,131",")","","","(2,133",")"],["Facilities consolidation (gain) charges","","\u2014","","","","(956",")","","","1,402"],["Non-GAAP net income","$","18,022","","","$","15,368","","","$","13,593"]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

Our material cash requirements are discussed below under “Contractual Obligations and Commitments.” As of January 31, 2025, we had $17.9 million of total cash and cash equivalents and borrowing capacity of $30.0 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 expansion of our business internationally and other factors. We may in the future make investments in or acquisitions of businesses or technologies, which may require the use of cash.

The following table summarizes cash flow information for the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","","","Fiscal Year Ended"],["","","January 31, 2025","","","January 31, 2024","","","January 31, 2023"],["Net cash provided by operating activities","","$","","26,606","","","$","","12,273","","","$","","8,773"],["Net cash used in investing activities","","","","(6,447",")","","","","(35,328",")","","","","(6,146",")"],["Net cash (used in) provided by financing activities","","","","(19,824",")","","","","16,454","","","","","1,843"],["Net increase (decrease) in cash and cash equivalents","","$","","335","","","$","","(6,601",")","","$","","4,470"]]
[[/GREPCENT_TABLE]]

Operating Activities

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

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

For fiscal 2025, our net loss of $6.9 million included non-cash items of $30.3 million primarily related to stock-based compensation, operating lease expense, depreciation and amortization expense and gain on note conversion. Operating asset and liability changes for fiscal 2025 included:

•
a decrease of $1.8 million in accounts receivable due to the timing of cash collections;

•
a decrease of $6.6 million in inventories and deferred inventory costs;

Ooma | FY2025 Form 10-K | 53

•
an increase of $2.7 million in prepaid expenses and other current and non-current assets primarily due to the capitalization of sales commissions and the timing of prepayments; and

•
a net decrease of $2.2 million in accounts payable, accrued expenses and other liabilities due to the timing of payments

•
a decrease of $0.4 million in deferred revenue.

Cash provided by operating activities for fiscal 2025 increased $14.3 million year-over-year, which primarily reflected working capital impacts resulting from the timing of payments. Although we have generated cash from operations in recent periods, our operating cash flow may not remain positive in the future as we continue to invest in efforts to scale our business.

Investing Activities

Cash used in investing activities was $6.4 million for fiscal 2025, which consisted of capital expenditures of $6.4 million. Cash used in investing activities was $35.3 million for fiscal 2024, which consisted of cash consideration paid for the 2600Hz business acquisition of $32.2 million, and capital expenditures of $6.2 million, partly offset by proceeds of $2.8 million from maturities of short-term investments. We did not have any acquisitions in fiscal 2025.

Financing Activities

Cash used in financing activities was $19.8 million for fiscal 2025, which consisted of $16.0 million in debt repayments, payments of $4.4 million related to shares repurchased for tax withholdings on vesting of RSUs, and payments of $4.5 million under our stock repurchase plan, offset by proceeds of $5.1 million from the issuance of common stock from our ESPP and stock option exercises. Cash used in financing activities increased $36.3 million year-over-year, which primarily reflected a borrowing of $18.0 million under our Credit Agreement for the 2600Hz acquisition in fiscal 2024, which did not recur in fiscal 2025, and repayments of borrowings outstanding under our Credit Agreement in fiscal 2025.

Revolving Credit Facility

In October 2023, we entered into a credit and security agreement with certain banks that provides for a secured revolving credit facility under which we may borrow up to an aggregate of $30.0 million and, subject to certain conditions, may be increased to up to $50.0 million. As of January 31, 2025, we had zero outstanding borrowings and were in compliance with all loan covenants.

Contractual Obligations and Commitments

Our principal commitments consist of obligations under operating leases for our headquarters located in Sunnyvale, California, as well as office space and co-location data center facilities in several locations. As of January 31, 2025, our total future expected payment obligations under non-cancelable operating leases with initial terms longer than one year were approximately $19.1 million, with payments of $3.8 million due in the next 12 months and $15.3 million due thereafter. See Note 7: Operating Leases in the notes to our consolidated financial statements.

As of January 31, 2025 and 2024, non-cancelable inventory purchase commitments to our contract manufacturers and other suppliers totaled approximately $6.2 million and $1.1 million, respectively. Additionally, we have a non-cancelable service agreement with a telecommunications provider pursuant to which we are obligated to total minimum purchase commitments of $11.9 million between March 2024 and February 2029, of which $10.2 million was outstanding as of January 31, 2025, and a non-cancelable service agreement with a cloud service provider pursuant to which we are obligated to total annual minimum purchase commitments of $1.1 million between March 2024 and February 2025, of which $0.1 million was outstanding as of January 31, 2025.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flows and the related disclosures. We base our estimates on historical experience and on other assumptions we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates. Note 2 to the notes to consolidated financial statements of this Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.

Ooma | FY2025 Form 10-K | 54

Revenue Recognition

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. Subscription revenue is generally recognized ratably over the contractual service term. Product and other revenue is primarily generated from the sale of on-premise devices and end-point devices, including shipping and handling fees for our direct customers. We recognize product and other revenue from sales to direct end-customers and channel partners at the point in time that control transfers.

Our contracts with customers typically contain multiple performance obligations that consist of communications services and related products. Judgment is required to properly identify the accounting units of multiple performance obligations and to determine the manner in which revenue should be allocated among the obligations. Individual performance obligations are accounted for separately if they are distinct. The contract transaction price is then allocated to the separate performance obligations on a relative stand-alone selling price (“SSP”) basis. We determine the SSP for our communications services based on observable historical stand-alone sales to customers, for which we require that a substantial majority of selling prices fall within a reasonably narrow pricing range. We determine the SSP for our on-premise devices and end-point devices based upon our best estimates and judgments, considering company-specific factors such as pricing strategies, discounting practices, and estimated product and other costs. The determination of SSP is made through consultation with and approval by our management. As our business offerings evolve over time, we may be required to modify our estimated selling prices in subsequent periods, and the timing of our revenue recognition could be affected.

Our distribution agreements with channel partners typically contain clauses for price protection and right of return. We record reductions to revenue for estimated product returns from end users and customer sales incentives at the time the related revenue is recognized. Product returns and customer sales incentives are estimated based on our historical experience, current trends and expectations regarding future experience. Trends are influenced by product life cycles, new product introductions, market acceptance of products, the type of customer, seasonality and other factors. Product return and sales incentive rates may fluctuate over time but are sufficiently predictable to allow our management to estimate expected future amounts. If actual future returns and sales incentives differ from past experience, additional reserves may be required. To date, actual results have not been materially different from our estimates.

Inventories

Inventories consist of raw materials and finished goods and are stated at the lower of actual cost and net realizable value on a first-in, first-out basis. At each balance sheet date, we determine excess or obsolete inventory write-downs based on multiple factors, including: forecast demand for our products within a specified time horizon, generally 12 months, product acceptance and competitiveness in the marketplace, product life cycles, product development plans, and current and historical sales levels. Inventory write-downs for excess and obsolete inventory are recorded in cost of goods sold within the consolidated statement of operations during the period in which such write-downs are determined as necessary by management. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. This would have a negative impact on our gross margin in that period. If in any period we are able to sell inventories that were not valued or that had been written down in a previous period, related revenues would be recorded without any offsetting charge to cost of product and other revenue resulting in a net benefit to our gross margin in that period.