Negative Points

• Gross margin declined to 61.6% due to the mix shift toward lower-margin usage-based offerings, and is expected to remain flat to slightly down in Q2.

• The company continues to face ASP downsell pressure in UC seat-based pricing, driven by competitors offering lower prices, which impacts retention and revenue per customer.

• Platform usage revenue growth is expected to slow significantly to 30-35% year-over-year in Q2, down from 63% in Q1, due to tougher comparables.

• Cash flow from operations can be volatile quarter-to-quarter, with Q1 results benefiting from favorable timing of collections and payments.

• The term loan balance will be reclassified to current liabilities ahead of its August 2027 maturity, and refinancing specifics have not yet been disclosed.

• The company's focus on usage-based revenue, while growing, carries lower margins, and the path to improved profitability depends on achieving economies of scale in newer products.

• Despite progress, the company acknowledges that channel partners are not yet fully educated on the entire product portfolio, limiting potential revenue acceleration.

Q & A Highlights

Q: Can you provide high-level commentary on customer retention and churn, and whether AI-enabled solutions are driving lower churn and higher customer adoption? A: Samuel Wilson (CEO): On a year-over-year basis, both contact center and UCC seats are up. We are still seeing a ripple-through of street pricing on UC, particularly with smaller customers, which causes some ASP downsell pressure at renewal, driven by competitors pushing lower prices. However, this hasn't gotten worse over the last 18 months. We are not losing many customers, and customer loss is decreasing. There is a clear correlation between more products and higher retention and higher average revenue per customer, with a big jump as customers go from one to two, two to three, and three to four products. The key is pushing the multiproduct strategy.

Q: How much of the strong usage-based results were related to AI versus the CPaaS business, and are you seeing pressure on seat-based pricing as AI becomes more of a revenue lever? A: Samuel Wilson (CEO): The two are deeply interconnected. When you send an SMS or use WhatsApp, it frequently hits our AI Studio on the backend. The vast majority of usage revenue is still traditional CPaaS due to high volumes, but AI is growing well in excess of 100% year-over-year. On pricing, seat-based pricing pressure is due to competitors pricing lower to grab seats, not AI. AI is seen purely as an add-on, with customers paying per seat for UC and CC and adding usage-based items on top.

Q: How are AI deployments changing relationships with your channel, and how effective is the channel at selling the full platform? A: Samuel Wilson (CEO): The channel is the primary route to market. While some global channel partners are doing amazing things with AI Studio, the biggest issue is educating and enabling the channel base on the full range of products. We are a full business communications company, and when we achieve better channel enablement on products like CPaaS, Engage, AI Studio, and workforce management, I believe our revenues will significantly accelerate.

Q: Can you provide more color on why traditional CPaaS growth has been so strong over the last couple of quarters and why it might moderate into Q2? A: Samuel Wilson (CEO): CPaaS is a bigger piece overall, and while Southeast Asia is important, we sell CPaaS globally, with strong growth in Europe. AI is growing well in excess of 100% year-over-year. The single biggest driver is that over the last 18 months to two years, we've integrated the products together, making it easy to drive corresponding CPaaS business. CPaaS adds a lot of dollars because it starts with a much bigger number, while AI is smaller but growing faster; the blend drives overall growth.

Q: Can you provide more color on the magnitude or timing expectations for expanding margins in the usage portfolio? A: Kevin Kraus (CFO): It's a continuous work in process. AI usage margins are much higher than basic wholesale-type margins. We are balancing our ability to do certain volumes in wholesale areas to gain better advantage elsewhere. As we get scale, margins should come up over time. Samuel Wilson (CEO) added that customers often start with lower-margin basic products like SMS messaging and then add on higher-margin services like AI Studio and WhatsApp, which expands margins over time, though not overnight.

Q: You raised the top-line revenue guidance while maintaining the profitability outlook. Can you discuss the dynamics between lower gross margin and operating leverage from usage-based revenue, and whether there's a threshold where operating leverage becomes more positive? A: Samuel Wilson (CEO): Usage-based models carry lower gross margins than traditional SaaS because there's no "vaporware," but they also carry a lower OpEx profile. As usage revenue scales, we expect continued growth and higher operating profit dollars and cash flow over time. We need to get newer products to economies of scale to drive down unit costs. Kevin Kraus (CFO) added that the mix within usage is shifting, with new products not as geographically concentrated in low-profit areas, which should have a positive effect on gross profit dollars over time.

Q: Can you elaborate on the strong usage-based revenue growth and the expectation for growth to slow to 30%-35% in Q2 from 63% in Q1? A: Kevin Kraus (CFO): The lower growth in Q2 reflects a tougher compare to a strong Q2 '26 rather than a change in business dynamics. The higher platform usage growth drives a modest shift in mix, and we expect gross margins to be flat to down slightly quarter over quarter. We are keeping operating expenses flat to Q1, which gives us the operating margin guidance of 8% to 9%.

Q: Can you provide more detail on the Q2 guidance and the model dynamics driving it? A: Kevin Kraus (CFO): For fiscal Q2 '27, we expect service revenue between $180 million and $185 million, total revenue between $185 million and $190 million, gross margin between 60.5% and 61.5%, and operating margin between 8% and 9%. We assume continued strong growth for platform usage, with year-over-year growth slowing to 30%-35% from 63% in Q1 due to a tougher compare. Annual merit increases take full effect in Q2, but we offset incremental costs with operational efficiencies and a lower cost structure associated with platform usage.

Q: Can you provide an update on the debt refinancing and the term loan reclassification? A: Kevin Kraus (CFO): The term loan balance currently classified as long-term debt will move to current liabilities on the balance sheet reflecting the August 2027 maturity. This is a standard GAAP mechanic, not a change in financial position. We intend to continue paying down the term loan on schedule and are confident in our ability to refinance debt balances prior to maturity. We are not prepared to share refinancing specifics today but remain confident in the cash-generating capabilities of the business model.

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