Financial Data and Key Metrics Changes - Sales of continuing operations for Q2 FY 2025 increased by 5% year-on-year to JPY 3,107.9 billion, while operating income rose by 10% to JPY 429 billion, both record highs for the second quarter [2] - Net income increased by 7% to JPY 311.4 billion [2] - Full-year sales forecast was upwardly revised by 3% to JPY 12 trillion, operating income by 8% to JPY 1 trillion 430 billion, and net income by 8% to JPY 1 trillion 50 billion [2] - Operating cash flow forecast was revised upward by 18% to JPY 1.5 trillion [3] Business Segment Data and Key Metrics Changes - GNNS segment sales increased by 4% year-on-year, but operating income decreased by 13% due to non-recurring losses of approximately JPY 49.8 billion [3] - Music segment sales increased by 21% year-on-year, with operating income rising by 28%, driven by higher visual media and platform revenue [7] - Picture segment sales decreased by 3% year-on-year, and operating income decreased by 25% due to lower theatrical release sales [10] - INSS segment sales increased by 15% year-on-year, and operating income increased by 50%, both reaching record highs for the segment [14] Market Data and Key Metrics Changes - Streaming revenue in recorded music increased by 12% year-on-year, and 25% in music publishing [7] - The global success of artists contributed to a double-digit increase in sales and operating income for the music segment [9] - The smartphone market is showing signs of gradual recovery, particularly in North America [45] Company Strategy and Development Direction - The company aims to strengthen its studio business and expand IP franchises through continuous learning and improvement [6] - Plans to expand the PS5 install base during the year-end sales season while balancing profitability [5] - The company is focusing on improving efficiency in business operations and product development in the next mid-range plan period [17] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the U.S. economy, noting signs of slowing down and inflation concerns [22] - The company plans to operate cautiously in the uncertain business environment while striving to achieve results [17] - The upwardly revised operating income forecast projects an average annual growth rate of 18% compared to the final year of the previous mid-range plan [18] Other Important Information - The company established a share repurchase facility of up to JPY 100 billion to be executed by May 2026 [18] - The company recorded an impairment loss against a portion of the assets at Bungie due to underperformance expectations [5] Q&A Session Summary Question: What are the market conditions and consumer behaviors? - Management noted stability in Japan and the U.S., but expressed caution due to signs of slowing in the U.S. economy [22] Question: How will the company grow content-related businesses like Demon Slayer? - The company plans to adapt titles to films and partner with distributors to grow the business, especially in Hollywood [23] Question: What is the status of the live service game Marathon? - The game is still in development, with a technical test conducted, and the company aims to launch it as scheduled [24] Question: What contributed to the success of Demon Slayer? - The unexpected performance was attributed to strong overseas market results, particularly in Hollywood [25] Question: What is the contribution of Demon Slayer to the music segment's operating income? - Approximately 50% of the upward revision in operating income was attributed to Demon Slayer and Kokuhou [27] Question: What is the impact of tariffs on the company's forecast? - The impact of tariffs was revised down from JPY 70 billion to JPY 50 billion [30] Question: What is the strategy for expanding the PS5 install base? - The company aims to expand the install base while focusing on customer lifetime value and profitability [32]

Financial Data and Key Metrics Changes - Total revenues grew to $89.6 million, a 0.8% increase from $88.9 million in the same period last year [16] - Net income increased by 3.9% year-over-year to $40.7 million, with a net margin of 45.4%, up 1.4 percentage points year-over-year [5][15] - Total costs and expenses decreased by 1% to $55.9 million from $56.4 million in the same period last year [16] - Cost of revenues as a percentage of total revenues decreased to 31.7% from 35.8% in the same period last year [17] Business Line Data and Key Metrics Changes - Average monthly active users (MAUs) increased by 8.1% year-over-year to 43.4 million [12] - Selling and marketing expenses rose by 30.3% to $9.6 million, primarily due to higher advertising and marketing promotion expenses [17] - Technology and product development expenses increased by 21.4% to $8.6 million, driven by increased salaries and benefits for staff [18] Market Data and Key Metrics Changes - The Middle East digital economy is expected to reach around $7.1 billion in 2025, with 75% year-over-year growth in the gaming market [5] - The company is focusing on expanding its presence in both the MENA region and new markets, leveraging its gaming titles to penetrate diverse regional markets [29] Company Strategy and Development Direction - The company aims to capture the growing digital entertainment ecosystem in the MENA region and enhance its product portfolio [6] - A dual-track strategy focusing on self-developed titles and game distribution has been established to build a competitive edge in mid-core and hardcore games [33] - The company plans to maintain a similar level of share repurchases in 2026 as in 2025, with a commitment to maximizing shareholder value [41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth potential of the gaming market in the MENA region and the company's ability to innovate and adapt [5][11] - The outlook for Q4 2025 anticipates revenues between $78 million and $85 million, with expectations for new business initiatives to become more visible in the coming quarters [21][43] - Full-year 2025 net margin is expected to reach about 40%, with R&D spending trends remaining similar to 2025 [43] Other Important Information - The company has repurchased over 7.7 million ADS for an aggregate amount of $51.9 million as of November 7, 2025, achieving its full-year repurchase commitment ahead of schedule [9][41] - The company celebrated its fifth anniversary of public listing, highlighting its growth and leading position in the online social networking and gaming market [10] Q&A Session Summary Question: Can Management brief us on the advancements in mid-core and hardcore games? - Management highlighted the soft-launch of two match-three titles, Turbo Match and a roguelike product, with plans for further investment based on positive test results [24][25] Question: How should we think about the strategic role of our match game? - Management indicated that match-three games serve as an entry point for exploring diversified regional markets, with plans to increase marketing budgets in strong-performing areas [29][30] Question: Could Management share the company's upcoming gaming strategy? - Management outlined a dual-track strategy focusing on self-developed casual and mid-core games, alongside partnerships for game distribution to enhance the product pipeline [33][34] Question: Can we get Management's view on the quarterly performance of flagship products? - Management reported significant breakthroughs in product innovation for Yalla and Yalla Ludo, with expectations for stable growth and new feature introductions [37][38] Question: Could Management outline the plans for future shareholder returns? - Management confirmed the completion of the 2025 repurchase commitment and plans to maintain a similar level of share repurchases in 2026 [41][42] Question: What is the revenue and profitability outlook for Q4 and 2026? - Management expects limited contribution from new business initiatives in Q4, with full-year 2025 revenue anticipated to be broadly in line with 2024 [43]

Financial Data and Key Metrics Changes - Total revenues grew to $89.6 million, a 0.8% increase from $88.9 million in the same period last year [16] - Net income increased by 3.9% year-over-year to $40.7 million, with a net margin of 45.4%, up 1.4 percentage points [5][15] - Total costs and expenses decreased by 1% to $55.9 million, with cost of revenues down 10.7% to $28.4 million [16][17] Business Line Data and Key Metrics Changes - Average monthly active users (MAUs) increased by 8.1% year-over-year to 43.4 million, driven by user acquisition channel optimization and AI-powered upgrades [12] - Selling and marketing expenses rose by 30.3% to $9.6 million, reflecting higher advertising and marketing promotion expenses [17] - Technology and product development expenses increased by 21.4% to $8.6 million, due to higher salaries and benefits for staff [18] Market Data and Key Metrics Changes - The Middle East gaming market is projected to reach around $7.1 billion in 2025, with a year-over-year growth of 75% [5] - The company is focusing on expanding its presence in both the MENA region and new markets, leveraging its gaming titles to penetrate diverse regional markets [29][30] Company Strategy and Development Direction - The company aims to capture the growing digital entertainment ecosystem in the Middle East and enhance its product portfolio [6] - A dual-track strategy is established, focusing on self-developed titles and game distribution to build a competitive edge in mid-core and hardcore games [33][34] - The company is committed to maximizing shareholder returns through a $150 million share repurchase program [9][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth potential of the gaming market in the MENA region and the company's ability to innovate and adapt [5][11] - The outlook for Q4 2025 anticipates revenues between $78 million and $85 million, with expectations for new business initiatives to contribute more significantly in the future [21][43] Other Important Information - The company celebrated its fifth anniversary of public listing, highlighting its growth and leading position in the online social networking and gaming market [10] - The company has repurchased over 7.7 million ADS for a total of $51.9 million, achieving its full-year repurchase commitment ahead of schedule [9][41] Q&A Session Summary Question: Can Management brief us on the advancements in mid-core and hardcore games? - Management highlighted the soft-launch of two match-three titles, Turbo Match and a roguelike product, with plans for further investment based on positive test results [24][25] Question: How should we think about the strategic role of our match game? - Management indicated that match-three games serve as an entry point for exploring diversified regional markets, with plans to increase marketing budgets in strong-performing areas [29][30] Question: Could Management share the company's upcoming gaming strategy? - Management outlined a dual-track strategy focusing on self-developed casual and mid-core games, alongside partnerships for game distribution to enhance the product pipeline [33][34] Question: Can we get Management's view on the quarterly performance of flagship products? - Management reported significant breakthroughs in product innovation for Yalla and Yalla Ludo, with expectations for stable growth through new features and operational activities [36][38] Question: Could Management outline the plans for future shareholder returns? - Management confirmed the completion of the $50 million repurchase commitment and plans to maintain a similar level of share repurchase in 2026 [41][42] Question: What is the revenue and profitability outlook for Q4 and 2026? - Management expects limited contribution from new business initiatives in Q4, with full-year 2025 revenue anticipated to be broadly in line with 2024 [43]

Financial Data and Key Metrics Changes - In Q3 2025, the company's revenue grew by 13% year-on-year, reaching $1.3 billion, driven primarily by strong demand for AI products [3][5] - The gross profit margin reached a record high of 23.5%, contributing to an increase in annual gross margins [3] - The expense-to-sale ratio increased to 16.4% during this quarter, reflecting higher operational costs [3] Business Line Data and Key Metrics Changes - The cloud data center segment revenue increased by 33% year-on-year, driven by high-speed and high-voltage AI connectivity solutions [5][6] - The auto mobility segment achieved 116% year-on-year growth, despite challenges in the automobile sector [6] - The consumer interconnect segment remained flat but outperformed prior guidance due to flexible responses to customer needs [5][6] Market Data and Key Metrics Changes - The smartphone segment experienced a 20% decline, consistent with guidance, due to ongoing market challenges [5][8] - The company anticipates a high teens year-on-year decline in the smartphone segment for Q4 2025 [8] - The overall micro-conditions are expected to slow down, leading to a flat outlook in the consumer interconnect segment for Q4 [9] Company Strategy and Development Direction - The company maintained its revenue outlook for the full year, projecting a high single-digit increase while keeping the gross margin around 20% [7] - The focus is on reallocating resources to support new certifications, product launches, and regional expansion [7] - The company is shifting its focus toward expanding the AI-related portion of its business portfolio following the successful execution of its 3+3 strategy [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving consistent low double-digit growth in operating profit for the full year, despite near-term operating margin pressures [8] - The company expects enduring market dynamics to play a significant role in the upcoming year, particularly in the AI infrastructure sector [8][9] - Management noted that the expected decline in the RF category is mainly due to cancellations in the Terra heat pump division [9] Other Important Information - The company signed a strategic MOU with Al-Basami Transport Group to collaborate on EV charger installations across logistics hubs [12] - The company showcased its AI solutions at various industry events, highlighting its strong ecosystem collaboration and engineering excellence [13][14] Q&A Session Summary Question: Progress in backplane connector developments - Management did not comment on individual products but noted that existing solutions are gaining recognition due to strong technical capabilities [15][16] Question: Impact of competitors bypassing patent restrictions - Management refrained from commenting on specific competitors but emphasized the importance of reliability and integration in high-speed interconnect areas [17] Question: Customer orders for AI-related high-power products - Management indicated that market share for existing power products is steadily increasing, with new high-voltage solutions introduced [18] Question: Customer adoption of new power products - Management reported that power-related products have been certified by major global customers and are shipping steadily [19] Question: Sustainability of AI segment growth - Management noted that strong growth is driven by new project ramp-ups and rising consumer demand, with AI applications expected to be a key growth catalyst [21] Question: Backplane connector market competition - Management highlighted vertical integration as a key advantage in maintaining leadership in the backplane connector market [26] Question: Investment in new applications like robotics - Management acknowledged the emerging area of robotics and indicated ongoing exploration of new technologies and partnerships [28] Question: Revenue performance benchmarking against group companies - Management stated that direct comparisons are complex due to differing delivery schedules and stocking levels [31] Question: Plans for investment in the U.S. - Management confirmed an operational presence in the U.S. and openness to further investments aligned with customer needs [32] Question: Impact of higher memory prices on consumer electronics demand - Management reported no pricing pressures from higher memory costs so far [34] Question: Reason for lack of growth in operating cash flow - Management attributed this to product launch readiness and adjustments in production facilities [42]

Financial Data and Key Metrics Changes - In Q3 2025, the company's revenue grew by 13% year-on-year, reaching $1.3 billion, driven primarily by robust demand for AI products [3][5] - The gross profit margin reached a record high of 23.5%, contributing to an increase in annual gross margins [3] - The expense-to-sale ratio increased to 16.4% during this quarter, reflecting higher operational costs [3] Business Line Data and Key Metrics Changes - The cloud data center segment revenue rose by 33% year-on-year, now accounting for a mid-teens percentage of overall revenue [5][6] - The smartphone segment experienced a 20% decline, consistent with guidance due to ongoing market challenges [5] - The auto mobility segment achieved 116% year-on-year growth, despite challenges in the automobile sector [6] - The consumer interconnect segment remained flat but outperformed prior guidance [5] Market Data and Key Metrics Changes - The company anticipates a high teens year-on-year decline in the smartphone segment for Q4 2025, consistent with the full-year projection [8] - The cloud data center segment is expected to see a high 20% increase in Q4 2025 [9] - The auto mobility segment is projected to grow by 40% in Q4 2025 [9] Company Strategy and Development Direction - The company maintains its revenue outlook for the full year, projecting a high single-digit increase while keeping gross margin guidance at around 20% [7] - The focus is on reallocating resources to support new certifications, product launches, and regional expansion [7] - The company is shifting its focus toward expanding the AI-related portion of its business portfolio after achieving its five-year targets ahead of schedule [10] Management's Comments on Operating Environment and Future Outlook - Management acknowledges ongoing system risks but expects enduring market dynamics to play a significant role in the upcoming year [8] - The company is confident in achieving consistent low double-digit growth in operating profit for the full year [8] - Management noted that the unfavorable conditions in the smartphone segment are expected to persist [9] Other Important Information - The company signed a strategic MOU with Al-Bassami Transport Group to collaborate on EV charger installations [12] - The company showcased several new products at industry events, including the first 102.4 Tbps CPO connector [13][14] Q&A Session Summary Question: Progress in backplane connector developments - Management refrained from commenting on individual products but noted that existing solutions are gaining recognition due to strong technical capabilities [15][16] Question: Impact of competitors bypassing patent restrictions - Management stated that success in high-speed interconnect areas depends on reliability and integration capabilities, emphasizing their focus on engineering strengths [17] Question: Customer orders for AI-related products - Management confirmed steady market share growth for existing power products and highlighted new high-voltage solutions [18] Question: Customer adoption of new power products - Management reported that power-related products have been certified by major global customers and are shipping steadily [20] Question: Sustainability of AI segment growth - Management indicated that new project ramp-up and rising consumer demand are driving growth, with expectations for continued momentum [21] Question: Backplane connector market competition - Management emphasized their vertical integration as a key advantage in maintaining leadership in the backplane connector market [26] Question: Automotive segment improvements - Management mentioned ongoing consolidation and optimization efforts in the automotive segment [27] Question: Investment in new applications like robotics - Management expressed openness to exploring new technologies and noted capabilities in providing cable assemblies for robotics [28] Question: Revenue performance benchmarking against group companies - Management stated that direct comparisons are complex due to differing delivery schedules and stocking levels [31] Question: Plans for investment in the U.S. - Management confirmed an operational presence in the U.S. and openness to further investments aligned with customer needs [32] Question: Impact of higher memory prices on consumer electronics demand - Management reported no pricing pressures from higher memory costs so far [34] Question: Reason for lack of growth in operating cash flow - Management attributed this to product launch readiness and adjustments in production facilities [42]

Financial Data and Key Metrics Changes - In Q3 2025, the company's revenue grew by 13% year-on-year, reaching $1.3 billion, driven primarily by robust demand for AI products [4][7] - The gross profit margin reached a record high of 23.5%, contributing to an increase in annual gross margins [4][9] - The expense-to-sale ratio increased to 16.4% during this quarter, reflecting higher operational costs [4][9] Business Line Data and Key Metrics Changes - The cloud data center segment revenue grew by 33% year-on-year, driven by strong demand for high-speed and high-voltage AI connectivity solutions [7][8] - The auto mobility segment achieved 116% year-on-year growth, despite challenges in the automobile sector [8] - The consumer interconnect segment remained flat but outperformed prior guidance due to effective customer engagement [7][8] Market Data and Key Metrics Changes - The smartphone segment experienced a 20% decline, consistent with guidance due to ongoing market challenges [7][10] - The company anticipates a high teens year-on-year decline in the smartphone segment for Q4 2025 [10] - The overall micro-conditions are expected to slow down, leading to a flat outlook for the consumer interconnect segment in Q4 [10] Company Strategy and Development Direction - The company is reallocating resources to support new certifications, product launches, and regional expansion while maintaining cost optimization initiatives [9][10] - The focus is shifting towards expanding the AI-related portion of the business portfolio, with long-term guidance for the cloud data center segment aiming for a low 20s revenue mix in 2026 [12][13] - The company emphasizes the importance of vertical integration and reliability in maintaining leadership in the backplane connector market [29] Management's Comments on Operating Environment and Future Outlook - Management acknowledges considerable headwinds in the consumer electronics industry but remains focused on capturing opportunities from AI momentum [56] - The company expects to achieve consistent low double-digit growth in operating profit for the full year, despite temporary impacts on near-term operating margins [10][12] - Management is optimistic about the growth of AI-related applications as a main catalyst for future performance [23] Other Important Information - The company has signed a strategic MOU with Al-Basami Transport Group to collaborate on EV charger installations across logistics hubs [14] - The company showcased several new products at industry events, including the industry's first 102.4 Tbps CPO connector [14][15] Q&A Session Summary Question: Progress in backplane connector developments - Management refrained from commenting on individual products but noted that existing solutions are gaining recognition due to strong technical capabilities [17][18] Question: Impact of competitors bypassing patent restrictions - Management did not comment on specific competitors but emphasized the importance of reliability and integration in high-speed interconnect areas [19][20] Question: Customer orders for AI-related high-power products - Management indicated steady market share growth for existing power products and highlighted new high-voltage solutions [20][21] Question: Customer adoption of new power products - Management reported certification by major global cloud and AI server customers, with steady shipments underway [21][22] Question: Sustainability of AI shipment growth - Management expects stabilization in the short term but sees a clear growth trend driven by new projects and consumer demand [23][24] Question: Differentiation in the backplane connector market - Management highlighted vertical integration as a key advantage in maintaining leadership in the backplane connector market [29] Question: Investment in new applications like robotics - Management is open to exploring new technologies and has capabilities for robotic applications [31] Question: Revenue performance benchmarking against group companies - Management stated that direct comparisons are complex due to differing delivery schedules and stocking levels [34] Question: Plans for investment in the U.S. - Management confirmed an operational presence in the U.S. and openness to further investments aligned with customer needs [35][36] Question: Impact of higher memory prices on consumer electronics demand - Management reported no pricing pressures from higher memory costs so far [37] Question: Reason for lack of growth in operating cash flow - Management attributed this to product launch readiness and adjustments in production facilities [46][47] Question: Impact of larger rack form factors on interconnect cable business - Management expects a positive impact from the trend of larger rack form factors [48]

Financial Data and Key Metrics Changes - Total revenues for the third quarter of 2025 reached $89.6 million, a 0.8% increase from $88.9 million in the same period last year [18] - Net income grew by 3.9% year-over-year to $40.7 million, with a net margin of 45.4%, up 1.4 percentage points from the previous year [5][17] - Total costs and expenses decreased by 1% to $55.9 million, with cost of revenues down 10.7% to $28.4 million [18][19] Business Line Data and Key Metrics Changes - Average monthly active users (MAUs) increased by 8.1% year-over-year to 43.4 million, driven by user acquisition and AI-powered innovations [13] - Selling and marketing expenses rose by 30.3% to $9.6 million, reflecting higher advertising costs for user acquisition [19] - Technology and product development expenses increased by 21.4% to $8.6 million, due to higher salaries and benefits for staff [20] Market Data and Key Metrics Changes - The Middle East gaming market is projected to reach approximately $7.1 billion in 2025, with a year-over-year growth rate of 75% [5] - The company is focusing on expanding its presence in both the MENA region and new markets, leveraging successful game titles [30] Company Strategy and Development Direction - The company aims to capture the growing digital entertainment ecosystem in the MENA region and enhance its product portfolio [6] - A dual-track strategy is being implemented, focusing on self-developed titles and game distribution partnerships [35] - The company plans to maintain a similar level of share repurchases in 2026 as in 2025, with a commitment to maximizing shareholder value [40][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth potential of the gaming market and the company's ability to innovate and adapt [5][12] - The outlook for Q4 2025 anticipates revenues between $78 million and $85 million, with expectations for new business initiatives to contribute more significantly in the following quarters [24][42] - Full-year 2025 net margin is expected to reach about 40%, with continued investment in R&D to support long-term growth [42] Other Important Information - The company has repurchased over 7.7 million ADS or Class A ordinary shares, totaling $51.9 million, achieving its full-year repurchase commitment ahead of schedule [10][40] - Yalla Group celebrated its fifth anniversary of public listing, marking significant growth and achievements in the past five years [11] Q&A Session Summary Question: Can Management brief us on the advancements in mid-core and hardcore games? - Management highlighted the soft launch of two match-three titles, Turbo Match and a roguelike product, with plans for further investment based on positive test results [26][27] Question: How should we think about the strategic role of our match game? - Management indicated that match-three games serve as an entry point for exploring new regional markets, with plans to increase marketing budgets in high-performing areas [29][30] Question: Could Management share the company's upcoming gaming strategy? - The company is focusing on casual and mid-core game segments, with a dual-track strategy for self-developed titles and game distribution partnerships [34][35] Question: Can we get Management's view on the quarterly performance of flagship products? - Both flagship products, Yalla and Yalla Ludo, achieved significant breakthroughs, with expectations for stable business scale and continued growth through new features [37][38] Question: Could Management outline the plans for future shareholder returns? - The company plans to maintain a similar level of share repurchase in 2026 and remains committed to prioritizing shareholder interests [39][40]

Financial Data and Key Metrics Changes - In Q1 2026, the company reported revenue of $50.8 million, adjusted EBITDA of $8.3 million with a margin of 16%, and free cash flow of $3.2 million [6][22][24] - Revenue decreased by $8.5 million from Q4, primarily due to the divestiture of the third-party hardware resale business, VoIP Supply [22] - Year-over-year revenue declined by $1.7 million, or 3%, excluding VoIP Supply revenue [22] - Gross profit was $36.8 million, with a gross margin of 72%, compared to 67% in Q4 [23][24] Business Line Data and Key Metrics Changes - Core revenue, which accounted for 74% of total revenue, decreased by 6% year-over-year, while adjacent revenue increased by 6% [23] - Services now account for 92% of total revenue, reinforcing the company's transformation to a predominantly MRR-driven model [23][25] - Monthly Recurring Revenue (MRR) bookings grew by 2.4% sequentially and 6.4% year-over-year [9] Market Data and Key Metrics Changes - The overall size of the pipeline remained steady, but new pipeline creation increased by 39% quarter-over-quarter [8][14] - The company saw a pickup in its higher-velocity volumetric business, which now represents 62% of the 90-day forward pipeline [8] - Retention remains strong, with blended churn holding near 1% [9] Company Strategy and Development Direction - The company is transitioning to a higher-margin recurring revenue model, which now represents over 90% of total revenue [6] - Investments of approximately $2 million in incremental SG&A are planned to accelerate customer acquisition and partner enablement [11][21] - The company is exploring selective AI-driven software acquisitions to strengthen its vertical focus in healthcare, hospitality, retail, and education [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting fiscal FY26 guidance, expecting sequential growth in Q2 and year-over-year growth in Q3 and Q4 [12][26] - The broader SMB market conditions may influence deal timing, but early Q2 activity is encouraging [12] - Management highlighted the importance of larger deal sizes and growing recurring revenue as indicators of entering a new phase of sustainable, profitable growth [12] Other Important Information - The company retired an additional $5.2 million in debt during Q1, ending with total debt of $42.8 million [20] - The capital allocation strategy focuses on leveraging strong cash generation to accelerate organic growth while maintaining flexibility for selective M&A [20][21] Q&A Session Summary Question: Growth investments and timelines for returns - Management indicated that the $2 million investment will focus on increasing field capacity and marketing to enhance brand coverage [30] Question: Pipeline tied to new partner relationships - Management noted a 6% increase in pipeline over the last six weeks and a 39% increase in new pipeline creation [33] Question: Decline in services and future expectations - Management acknowledged the decline in services but expects sequential growth starting in Q2 as older customer contracts complete [37] Question: Optimizations for targeting larger customers - Management highlighted improvements in product roadmap and a disciplined approach to pursuing large opportunities [45] Question: Average revenue per customer growth - Management attributed the 19% year-over-year increase in average revenue per customer to upselling and the effectiveness of the bundling strategy [58] Question: Gross margin expectations - Management indicated that gross margin was impacted by a higher mix of product revenue but expects improvement moving forward [61] Question: Backlog growth - Management stated that backlog was consistent quarter-over-quarter, with expectations for growth in upcoming quarters [69] Question: Large MRR opportunities - Management clarified that large MRR opportunities include both wholesale and bundled solutions, with significant deals already closed [74][75] Question: Total Addressable Market (TAM) expansion - Management confirmed that the new wholesale channel opens up significant TAM opportunities beyond traditional markets [80][81]

Financial Data and Key Metrics Changes - In Q1 2026, the company reported revenue of $50.8 million, adjusted EBITDA of $8.3 million with a margin of 16%, and free cash flow of $3.2 million [6][22][24] - Revenue decreased by $8.5 million from Q4, primarily due to the divestiture of the third-party hardware resale business, VoIP Supply [22] - Year-over-year revenue declined by $1.7 million, or 3%, excluding $7.6 million from VoIP Supply [22] - Gross profit was $36.8 million, with a gross margin of 72%, compared to 67% in the previous quarter [23][24] Business Line Data and Key Metrics Changes - Core revenue, which accounted for 74% of total revenue, decreased by 6% year-over-year, while adjacent revenue increased by 6% [23] - Monthly Recurring Revenue (MRR) bookings grew by 2.4% sequentially and 6.4% year-over-year [9] - Larger strategic opportunities saw a 39% sequential increase in deals over $10,000 of MRR, which are 72% above the FY25 quarterly average [9] Market Data and Key Metrics Changes - The overall size of the pipeline remained steady, but new pipeline creation increased by 39% quarter-over-quarter [8] - The volumetric business now represents 62% of the 90-day forward pipeline, up from 55% in Q4 [8] - The company’s prem business grew over 60% year-over-year, benefiting from larger players exiting the segment [10] Company Strategy and Development Direction - The company is transitioning to a higher-margin recurring revenue model, which now represents over 90% of total revenue [6] - A new segment structure has been introduced, dividing revenue into core and adjacent categories to provide greater transparency [10] - The company plans to invest approximately $2 million in incremental SG&A to accelerate customer acquisition and partner enablement [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting fiscal FY26 guidance, expecting sequential growth in Q2 and year-over-year growth in Q3 and Q4 [12][26] - The management highlighted the importance of larger deal sizes and growing recurring revenue as indicators of entering a new phase of sustainable, profitable growth [12] - The company is exploring selective AI-driven software acquisitions to strengthen its vertical focus in various sectors [10] Other Important Information - The company continues to generate strong cash flow while strategically reinvesting in growth initiatives [10] - The capital allocation strategy includes paying down debt, reducing leverage, and returning value to shareholders through share repurchases [20][21] Q&A Session Summary Question: Growth investments and timing - Management indicated that the $2 million incremental growth spending will focus on increasing field capacity and marketing efforts to enhance brand coverage [28][30] Question: Pipeline tied to new partner relationships - Management reported a 6% increase in pipeline over the last six weeks and a 39% increase in new pipeline creation, indicating significant growth from new paths to market [32][33] Question: Decline in services revenue - Management acknowledged the decline in services revenue due to longer sales cycles but expects sequential growth starting in Q2 as older contracts complete [36][37] Question: Targeting larger customers - Management highlighted improvements in sales cycles and implementation timelines due to a disciplined approach and enhanced product offerings [44][46] Question: Average revenue per customer growth - The increase in average revenue per customer by 19% year-over-year was attributed to upselling and the effectiveness of the bundling strategy [58] Question: Gross margin expectations - Management noted that gross margin was impacted by a higher mix of product revenue but expects improvements as the year progresses [61][62] Question: Backlog growth - Management indicated that backlog remained consistent quarter-over-quarter, with expectations for growth in upcoming quarters [69][70] Question: Large MRR opportunities - Management clarified that large MRR opportunities include both wholesale solutions and bundled offerings, with significant deals already closed [73][74]

Financial Data and Key Metrics Changes - Revenue for Q1 2026 was $50.8 million, a decrease of $8.5 million from Q4 2025, primarily due to the divestiture of the third-party hardware resale business [19] - Adjusted EBITDA was $8.3 million, representing a margin of 16%, with a temporary negative impact on free cash flow of $3.2 million due to working capital changes [5][18] - Free cash flow for the quarter was $3.2 million, or $0.10 per diluted share, with a net cash from operating activities of $4.9 million [17][18] - Total debt decreased to $42.8 million from $69.1 million year-over-year, with $5.2 million in debt retired during the quarter [18] Business Line Data and Key Metrics Changes - Core revenue, which accounted for 74% of total revenue, decreased by 6% year-over-year, while adjacent revenue increased by 6% [20] - Monthly Recurring Revenue (MRR) bookings grew 2.4% sequentially and 6.4% year-over-year, with larger deals over $10,000 MRR increasing by 39% sequentially [7][8] - Average revenue per customer increased by 19% year-over-year, driven by the bundling strategy [15][52] Market Data and Key Metrics Changes - The overall size of the pipeline remained steady, with new pipeline creation increasing by 39% quarter-over-quarter [6][12] - The blended churn rate held near 1%, indicating stability in the recurring revenue base [8] Company Strategy and Development Direction - The company is transitioning to a higher-margin recurring revenue model, which now represents over 90% of total revenue [5] - Investments of approximately $2 million in SG&A are planned to accelerate customer acquisition and partner enablement [10][19] - The introduction of a clearer performance view through two segments: core and adjacent, aims to enhance transparency in revenue mix evolution [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting fiscal FY26 guidance of $200 million to $210 million in revenue, with expectations for sequential growth in Q2 and year-over-year growth in Q3 and Q4 [24] - The company is optimistic about the growth potential in the wholesale channel and AI-driven software acquisitions to strengthen vertical focus [9][10] Other Important Information - The company continues to generate strong cash flow while strategically reinvesting in growth initiatives and expanding partner ecosystems [9] - R&D investment remained consistent at $11.3 million, with 90% of R&D spend directed towards new product capabilities [23] Q&A Session Summary Question: Update on growth investments and timelines for returns - The $2 million investment will focus on increasing field capacity and marketing efforts to enhance brand coverage and partner recruitment [26][27] Question: Pipeline generation from new partner relationships - The pipeline has increased by 6% in the last six weeks, with significant growth in bookings and a balanced mix of business types [29][30] Question: Decline in services and expectations for sequential growth - The decline was anticipated due to the completion of contracts with smaller customers, with expectations for sequential growth starting in Q2 [33][35] Question: Optimizations for targeting larger customers - The company has improved its product roadmap and established a disciplined approach to pursuing larger opportunities, enhancing efficiency in deal execution [40][41] Question: Changes in the partner ecosystem and ongoing success metrics - The partner program has been realigned to focus on strategic partners, with ongoing training and support to drive growth [46][47]