Ooma, Inc. (OOMA) Q2 FY2026 Earnings Call Transcript & Summary

Hello, and welcome to Ooma, Inc. Second Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Matt. You may begin.

Thank you, Towanda. Good day, everyone, and welcome to the Fiscal Second Quarter 2026 Earnings Call of Ooma, Inc. My name is Matt Robison, Ooma's Director of IR and Corporate Development. On the call with me today are Ooma's CEO, Eric Stang; and CFO, Shig Hamamatsu. After the market closed today, Ooma issued its fiscal second quarter 2026 earnings press release. This release is also available on the company's website, ooma.com. This call is being webcast live and is accessible from a link on the Events and Presentations page of the Investor Relations section of our website. This link will be active for replay of this call for 1 year. During today's presentation, our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today, and those risks more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements, except as required by law. Please note that other than revenue or as otherwise stated, the financial measures to be disclosed on this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures is included in our earnings press release, which is available on our website. On this call, we will give guidance for third quarter and full year fiscal 2026 on a non-GAAP basis. Also in addition to our press release and 8-K filing, the Overview page and Events and Presentations page in the Investors section of our website as well as the Quarterly Results page of the Financial Information section of our website includes links to information about costs and expenses not included in our non-GAAP values and key metrics of our core subscription businesses. These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation that also provides resolution of GAAP expenses that are excluded from non-GAAP metrics. Now I will hand the call over to Ooma's CEO, Eric Stang.

Thank you, Matt. Hi, everyone. Welcome to Ooma's Second Quarter Fiscal 2026 Earnings Call. Thank you for joining us. We're pleased to report strong Q2 financial results and to discuss the momentum we have going into the second half of our fiscal year. Financially, we grew our revenue in Q2 to $66.4 million, while also setting some bottom line records. In Q2, we achieved record non-GAAP net income of $6.5 million and record adjusted EBITDA of $7.2 million. GAAP net income was $1.3 million and cash flow from operations was $6.4 million. Currently, we are at 11% adjusted EBITDA as a percent of revenue, our highest to date and now already at the low end of our midterm target range model of 11% to 14%. I believe these results show the power of our business to grow top line revenue while also driving improved bottom line profitability. Regarding our revenue from Business users, our metrics strengthened in Q2. User growth net of churn, average revenue per user, annual exit recurring revenue and the take rate of our Pro and Pro Plus higher-tier offerings were all up both sequentially and year-over-year. We believe we executed well to achieve these results. Regarding our communications solutions for smaller-sized businesses, we will be strengthening our ability to provide a double-play offering by introducing the Connect 5000 later this quarter. Connect 5000 is a 5G Internet solution that incorporates WiFi and prioritizes voice traffic over the connection. Sold with Ooma Office, it will allow us to offer a more complete solution for our customers. It also affords us the opportunity to increase our revenue and have a deeper relationship with our customers. In Q3, we will also continue our efforts to develop new AI-driven features. For smaller-sized businesses, we believe AI features need to be not only powerful, but also very easy to use and extremely low cost. We have already developed AI applications that we use internally and are learning from them as we craft new features for our customers. New AI features, along with more advanced contact center functionality and integrations with other vertical solutions will allow us to serve slightly larger-sized businesses, and we are already beginning to see some traction in that regard. I'm pleased to report that AirDial ramped well in Q2. We more than doubled new bookings year-over-year and secured our largest customer win today with a large national retailer. We've started the rollout with this retailer and anticipate serving over 3,000 locations. We also closed several other significantly sized customers who placed initial orders. As is our goal every quarter, we expanded the number of partners who will resell AirDial and signed 3 new partner resellers in the quarter. We believe 2 of these new partners have experience selling competitive solutions and will be able to ramp relatively quickly with AirDial. In total, we are now approaching 35 AirDial partner resellers. Currently, real estate and REITs, colleges and universities, health care and senior living, state and local government and hospitality are very active segments for AirDial. And in general, we believe the POTS replacement market is expanding as more businesses come to realize the need to act. We believe AirDial is the leading solution in the market today, and we intend to make it even stronger in the future by introducing further enhancements to our AirDial Remote Device Management portal and by driving down the cost of AirDial hardware. For 2600Hz, our wholesale UCaaS, CPaaS and contact center platform, we announced in Q2 the launch of new mobile and desktop applications. More recently, we also introduced video meetings and team chat. We signed one new customer in Q2 and expanded with several existing customers. Looking forward, we see continued sales momentum and remain focused on extending Ooma's IP to the 2600Hz platform. On the Residential front, we had a stronger quarter for new customer acquisition and experienced slightly reduced churn compared to Q1. Subscription and services revenue, though down year-over-year, was up slightly sequentially. Retail and direct are our main sales channels, but we also sell to Internet service providers and receive customer referrals from T-Mobile. Currently, we have approximately 85 ISPs selling or referring Telo, and we signed 7 new ISPs in Q2. While ISP-driven users make up just a small percentage of our Telo user base today, we believe sales to ISPs represent additional opportunity for growth. As we go into the second half of our fiscal year, our focus is on capitalizing fully on AirDial, continuing to enhance Ooma Office to drive higher ARPU and to expand to larger customers and positioning 26Hz (sic) [ 2600Hz ] as the best wholesale platform. We hope to expand our list of AirDial partners and see our existing partners ramp sales significantly. Most of all, we are focused on executing well. We believe we have built outstanding solutions and have set goals to drive both growth and improved profitability going forward. Now before I turn it over to Shig, I would also like to mention that this past July marked 10 years since Ooma became a public company. We are proud of this milestone. Since we went public, we have more than tripled our revenue, dramatically improved our bottom line, shifted to serving primarily Business customers and reinvented ourselves to serve new markets. I'm proud of our accomplishments and excited as I look forward since I believe Ooma has never been stronger than it is today. I'll now turn over the call to Shig, our CFO, to discuss our results and outlook in more detail and then return with some closing remarks.

Thank you, Eric, and good afternoon, everyone. I'm going to review our second quarter financial results and then provide our outlook for the third quarter and full fiscal year 2026. Our second quarter revenue was $66.4 million, above our guidance range and was up 3.5% (sic) [ 3% ] year-over-year, driven by the growth of Ooma Business, including AirDial. In Q2, Business subscription and services revenue accounted for 62% of total subscription services revenue as compared to 60% in the prior year quarter. Q2 product and other revenue came in at $5.2 million and was up 15% year-over-year due to growth in AirDial installations. On the profitability front, Q2 non-GAAP net income was $6.5 million, above our guidance range of $5.6 million to $5.9 million and grew 59% year-over-year, primarily driven by our improving operating leverage. Q2 non-GAAP net income this year also included a small amount of tax benefit due to the recent changes in the U.S. tax law. Now some details on our Q2 revenue. Business subscription and services revenue grew 6% year-over-year in Q2, driven by user growth and ARPU growth. On the Residential side, subscription and services revenue was down 2% year-over-year. For the second quarter, total subscription and services revenue was $61.1 million or 92% of total revenue as compared to $59.6 million or 93% of total revenue in the prior year quarter. Now some details on our key customer metrics. We ended the second quarter with 1,230,000 core users, up from 1,225,000 core users at the end of the first quarter. At the end of the second quarter, we had 508,000 business users or 41% of our total core users, an increase of 9,000 from Q1. Our blended average monthly subscription and services revenue per core user or ARPU increased 4% year-over-year to $15.68, driven by an increase in mix of business users, including higher ARPU Office Pro and Pro Plus users. During the second quarter, we continued to see a healthy Office Pro and Pro Plus take rate with 61% of new Office users opting for these higher-tier services, which was up from 58% in the prior year quarter. Overall, 37% of Ooma Office users have now subscribed to these higher-tier services. Our annual exit recurring revenue was $240 million, up 3% year-over-year. Our net dollar subscription retention rate for the quarter was 100% as compared to 99% in the first quarter. Now some details on our gross margin. Our subscription and services gross margin for the second quarter was 71.3% as compared to 72% in the prior year. Product and other gross margin for the second quarter was negative 47% as compared to negative 69% for the same period last year. The year-over-year improvement in product and other gross margin was primarily due to a fully consuming higher cost components we had procured during the pandemic in the first half of the last fiscal year. On an overall basis, the total gross margin for Q2 was 62% as compared to 62% in the prior year quarter. The flat overall gross margin in Q2 this year reflects the heavier mix of product revenue versus prior year due to an increase in AirDial installations, which offset the improvement in product gross margin. And now some details on operating expenses. Total operating expenses for the second quarter were $35.1 million and down $0.1 million year-over-year. Sales and marketing expenses for the second quarter were $18 million or 27% of total revenue, up 2% year-over-year, primarily driven by higher marketing and channel development activity for AirDial and 2600Hz. Research and development expenses were $11.5 million or 17% of total revenue, down 6% on a year-over-year basis, primarily driven by headcount management as we continue to focus on R&D efficiency and operating leverage. G&A expenses were $5.6 million or 8% of total revenue for the second quarter compared to $5.4 million for the prior year quarter. The year-over-year increase in G&A expense was primarily due to an increase in personnel-related costs. Non-GAAP net income for the second quarter was $6.5 million or diluted earnings per share of $0.23 as compared to $0.15 in the prior year quarter. Adjusted EBITDA for the quarter was a record $7.2 million or 11% of total revenue and grew 27% over the prior year quarter. We ended the quarter with total cash and investments of $19.6 million. In Q2, we generated $6.4 million of operating cash flow and $5 million of free cash flow. On a trailing 12-month basis, we generated $26 million of operating cash flow and $20 million of free cash flow. With strong free cash flow generation, we spent a total of $14.5 million over the last 4 quarters, including $4.5 million in Q2 to buy back stock through a combination of open market repurchase and RSU net share settlement. On the headcount front, we ended the quarter with 1,195 employees and contractors. Now I will provide guidance for the third quarter and full fiscal year 2026. Our guidance is on a non-GAAP basis and has been adjusted for expenses such as stock-based compensation and amortization of intangibles. We expect total revenue for the third quarter of fiscal '26 to be in the range of $67.2 million to $67.9 million, which includes $5.7 million to $6.2 million of product revenue. We expect the third quarter non-GAAP net income to be in the range of $6 million to $6.4 million. Non-GAAP diluted EPS is expected to be between $0.22 to $0.23. We have assumed 27.9 million weighted average diluted shares outstanding for the third quarter. For full fiscal year '26, we expect total revenue to be in the range of $267 million to $270 million, which is unchanged from our prior guidance. The full year fiscal '26 revenue guidance assumes Business subscription and services revenue growth rate of 5% to 6% over fiscal '25, while Residential subscription revenue to decline 1% to 2%. In terms of revenue mix for the year, we expect 91% to 92% of total revenue to come from subscription and services revenue and the remainder from products and other revenue. In terms of full year fiscal '26 non-GAAP net income, we are raising the guidance and now expect it to be in the range of $24.5 million to $25 million. Updated non-GAAP net income guidance for fiscal '26 includes the impact of approximately $500,000 of tariffs, which is our current best estimate. Based on this guidance range, we estimate our adjusted EBITDA for fiscal '26 to be in the range of $28.5 million to $29 million. We expect the non-GAAP diluted EPS for fiscal '26 to be in the range of $0.87 to $0.89. We have assumed approximately 28.2 million weighted average diluted shares outstanding for fiscal '26. In summary, we are pleased with our solid results for the second quarter with a record adjusted EBITDA of $7.2 million, which grew 27% year-over-year and improved our adjusted EBITDA margin to 11%. Our free cash flow remains robust with $20 million generated for the past 12 months, along with $14.5 million of share repurchase for the same period. We're excited about growth opportunities in front of us and remain focused on executing to our long-term strategy to achieve profitable growth. I'll now pass it back to Eric for some closing remarks. Eric?

Thanks, Shig. I'm pleased to say we now have a strong first half of our fiscal year behind us and the momentum that goes with that. We're encouraged by our recent growth with AirDial and by the scope of market opportunity we see across our business. Our focus is on executing well, capturing the opportunities before us and in driving improved top and bottom line results. Thank you, everyone. We'll now take questions.

[Operator Instructions] Our first question comes from the line of Josh Nichols with B. Riley.

Good to see the improvement, particularly on the bottom line and the company buying back some stock. I know you mentioned AirDial bookings more than doubled. And with the second half hardware ramp, I presume a lot of that's related to AirDial as well. Is it AirDial contributing any meaningful percentage to ARR at this point? Or at what point do you think you'd start giving a little bit more granularity on the breakout as that continues to build?

Yes. I think -- yes, AirDial is contributing to the growth of ARR and also the ARR as a whole, starting to contribute meaningfully. And if we also look at from the perspective of user adds on the Business side, which increased by 9,000 quarter-over-quarter, a good chunk of that came from AirDial. And -- so from these kind of data points, we think that -- especially if you look at a quarter-over-quarter basis, even on an annual basis, AirDial is starting to contribute more to the ARR itself. And also having double the booking year-over-year, as you heard it, Josh, that certainly helps to accelerate that growth further into the second half.

And then just to update, I mean you've continue to add new partners on the AirDial front as well, too. When you look -- I think in 1Q, you launched with a very large market cap telecom company, an aggregator of CLEC and previously announced like ILEC. Any updates, Eric, that you could give us on just like how that ramp is progressing since like the last quarter call update?

Yes. Josh, it's pretty exciting to have nearly 35 partners who are reselling AirDial in the marketplace. I think that's a pretty strong vote of the strength of our solution as well to the resellers we brought on or signed, I should say, this last quarter are moving from a competitor's product to ours, which is also quite exciting. These resellers do take time to ramp. We announced a very important relationship with Comcast early this year. We have seen orders now from Comcast, but still, it's slowly moving forward as Comcast works deals and trains its sales teams. I think that the back half of this year, we could see acceleration there. T-Mobile has never been stronger with us on AirDial. They are doing a fantastic job. And we are also seeing the CLEC that we announced pretty much this time last year finally start to ramp with AirDial in a meaningful way. So -- and that's just 3 of the close to 35 resellers we have. I feel well placed with -- I feel we're placed with -- well placed with the range of companies we're working with. And I think all of them have plans to grow as we go forward. Our goal is to add a couple every quarter. And my expectation at this time is that we'll have more that we're adding in Q3, and a couple of them could be particularly exciting as well. So more to come, but yes, that's working well for us.

Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets.

Congratulations as well on the improving profitability of the business. I wanted to talk about where you're pointing that incremental cash flow. Obviously, in Q2, with the -- what was it, $4.5 million or so on share repurchase program. Is that to say that we're not actively pursuing any M&A opportunities? Or is it just to say that your own shares are the better bargain in the market with that cash flow?

It really doesn't say either one of those. We do feel some share buybacks at this current share price in the market are sensible for us. So we are -- have started doing that as about 9 or 12 months ago. But we are always looking for M&A opportunities that fit our criteria. And our criteria are fairly specific. We don't want to overpay. We're looking for a strategic way to acquire users more than technology. And we're looking for businesses that are small enough in size that they can fit into what we're doing without upsetting our major plans as a company. There are opportunities out there. We're -- from time to time, we have discussions. And we would like to do more, almost call them tuck-ins like that as we go forward.

Okay. And then the growth on the Business side, it's -- you've got 2 quarters in a row here of 6% growth in the core subscription service growth rate on the Business side. You're talking about 5% to 6% for the year. Is that just conservatism? Or are we looking at maybe some incremental churn that we need to model for in the back half?

Yes. Eric, so it's not so much about incremental churn. But I think you may notice that we've given a relatively wide range for Q3 on revenue and also still for the whole year. I think the variability there is just the timing of the AirDial installation going into second half. Now we doubled -- more than doubled the booking, and we continue to ramp up the bookings going into second half. Sometimes the installation timing because of customer timing on their end, not so much about our readiness to install, plays into it. So there's a little bit of conservatism from that perspective. But it's not about the churn that we're expecting.

Our next question comes from the line of Pat Walravens with Citizens.

This is Kincaid on for Pat. Super excited to hear about that new largest retail customer that you guys landed. I'd love to hear more about how that deal came about. What was the differentiator? What lets you win that? And are we going to start seeing that in the back half of the year? Or what's the time line there?

Yes. It's an exciting win for us. This is a very large national retailer. This is a company we've talked to for a long time. They went through a number of trials with our solution. We actually thought they might sign up in Q1 that moved into Q2. This is a customer we've also won with our partner, T-Mobile, which we're very excited about as well. They played a key role in winning this deal, too. We've done a limited amount of installations with them so far, and we are anticipating installations through the back half of this year. I don't know how fast it will move at this point. But yes, a very big validating win. And frankly, we hope the first of many more. I mean, there are large business opportunities in the market like this. And with the strength of the partners we have and the increased focus on POTS replacement by larger businesses now, we have a whole range of sizes of opportunity in our pipeline, and we're obviously working all of that. But yes, a really nice win. I wish I could say who it was. I can't, but it came together after a lot of validation on their part and a lot of testing of our solution.

Spectacular. If you can give you a little color on how much -- like you said 3,000 locations, how much revenue are you expecting to drive per location with these installations?

We don't -- we can't answer that for a customer, but we've given guidance to you on what to model for AirDial ARPU, and that's around $25 a line per month. And that's a blend of -- across our go-to-market channels and the different pricing we have in them. And I think that's a reasonable number to use for AirDial going forward.

Our next question comes from the line of Matthew Harrigan with The Benchmark Company.

I know it's probably a touch of an afterthought compared to AirDial. But can you talk a little bit about 2600Hz and what kind of the organic growth rate there is? I know you introduced a number of new open APIs. And I think when you did the deal, there was some discussion of trying to get better monetization for Kazoo. And I know it fits well within your Business portfolio, but it necessarily doesn't get as much bandwidth as AirDial perhaps understandably.

Yes. So 2600Hz is a wholesale platform, and we sell it to companies that want to offer their own solutions in the market. And so our ARPU per user, if you look at that way, is pretty low. But obviously, we're not doing any of the rest of the business to get those users. We are working this year to bring Ooma IP onto the 2600Hz platform. And I made some important announcements about that actually in my opening script and comments. The reason for that is that the real strength of 2600Hz is its flexibility and its API-based design, but it doesn't have as strong a turnkey applications as we'd like it to have. And by bringing Ooma IP onto it, we are making it a very good turnkey solution as well. For smaller customers in the market, that's important. For the larger customers in the market, they really care about the flexibility and what they can do with it. And our largest win to date on that platform was ServiceTitan, who uses, in particular, 2600Hz as contact center capability and was able to build a number of AI-based applications working with our platform to really create something bespoke to their needs. That's powerful. And our vision for 2600Hz is to win other large customers like that, who will use the platform in that way. I would say this year, by the end of the year, we will have also filled out the boxes in terms of the turnkey solutions, and that will put us in a stronger position for next year for going after the smaller players who care more about that. I think we've added about a handful of customers so far this year onto the platform. But it's also a sale where once you win a customer, it can take many months to have them move their users over or grow with the platform. So we view it more as upside opportunity next year than this year. This year, we are really rounding out the solution. We'll continue to give guidance every quarter on it. And we're super excited for the long term because the traditional platforms in use out there today, BroadSoft, BroadWorks, Metaswitch, others, they were built a long time ago. They don't have all the modern features that a platform like 2600Hz can enable. And -- so we feel there's real opportunity over the next several years to be the platform in the future.

And we know that you have enough on your hands with AirDial in North America. But to the extent that you're getting pull demand from Europe, I mean that's really a testament to the efficacy of the product relative to limited alternatives. Are you seeing more of that? And again, I know that's not a priority, but I was just curious.

So today, AirDial is being sold in North America, U.S. and Canada. We would move to other parts of the world if or when we have a large carrier or other entity that can be a lead customer in that market. And we don't have any announcements in that regard today. But that's how we would evolve with it. Now if we are able to achieve a customer like that, we already have Ooma services operating in 32 countries around the world as part of our IWG/Regus customer relationship. So we already have a pretty good head start towards enabling a service like AirDial in other countries. But honestly, I don't want to make too much of this because our primary focus still is North America because we just see so much opportunity here.

Our next question comes from the line of Alinda Li with William Blair.

Congrats on a solid quarter and also on the 10-year anniversary. A quick question here. NRR was 100%. Can you give us more color in terms of what drove the 1 point uptick there? And what should we expect NRR to be going forward?

Yes. I think the biggest contributor just overall was we had a better churn quarter over last. And so obviously, last quarter, we saw the impact of the -- what we think is last of the large IWG churn. We didn't have that this quarter. And just looking across the other service lines, I think we had, generally speaking, the improved churn quarter. So I think that's the biggest contributor to the better retention rate. What's the second part of the question, Alinda? Sorry, I missed it.

Yes, no worries. The second part was what should we expect NRR to be going forward?

Yes. I think we've been very steady between 99% to 100%. sometime rounds up, sometimes round down kind of a situation. So I think that's a good zone to be in. And I think we -- that's what we think it's going to be.

[ Cool ]. And another question is top line guidance was reiterated, but net income guidance is raised again by around 7.6% at the midpoint. So what are the efficiencies that you're looking to implement or to achieve the bottom line guidance? I know you mentioned also the tax benefit that is helping with the bottom line. Any other efficiencies that we should be aware of?

Yes. Just to kind of get the tax one out there. So part of the raise for net income, I would say, [indiscernible] of the raise was related to tax law change that I talked about. It's just that our estimate for tax payment is much lower due to the One Big Beautiful Bill that we already heard about. And -- but a remainder, which is still a meaningful portion of the raise is really seeing the R&D efficiency. That's a big part because we more or less see flat R&D or maybe slightly less R&D going into second half. So as we said going into this year, we want to see the R&D leverage that we talked about. So I think that's the biggest driver in addition to the tax benefit. But also, we've been very prudent about the sales and marketing expense. It's hovering around 27% of revenue. And as we said before, we are very disciplined about customer acquisition cost and making sure that we're putting into the right channel to realize best ROI we can achieve. So both the sales and marketing efficiency, R&D leverage and the tax, those are 3 pieces.

[Operator Instructions] Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners.

This is [ Kevin ] for Brian. Can you give us a sense on the new business line trends you're seeing with your largest UCaaS customer? And should we expect meaningful growth over the next 12 to 18 months?

If you're referring to IWG/Regus, we have rolled out to the countries we're planning to roll out to. And so I think we expect them to be essentially stable we look forward in our outlook.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Eric for closing remarks.

Thank you. Thank you, everyone, for joining us today. It's interesting to put our results in a little bit of longer-term perspective. I think it was a couple of years ago, we did mid-teens, upper teens EBITDA. I think last year, we did $23 million. We've guided this year for around $29 million, Shig, if I'm correct. And we intend to drive EBITDA higher next year. I think we have built a business that has a potential to be highly profitable. And our solutions are well developed, and they're leading in the market. And so as we grow, we can get leverage on a lot of our spending. So it is our plan to continue to drive both growth and bottom line performance. And we feel that's -- the combination of those 2 is what's going to build the most valuable company as we look forward. We appreciate your time today. We had a strong first half of the year. And as I said in my opening comments, we're glad to have that momentum as we go into the second half of the year. Thank you, everyone.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.