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

Okay. Excuse me, everyone, let's take a seat. We want to try to start closed on time. No one's listening to me. Well, good morning, everyone. Thank you for joining us today. I'm Eric Stang, of course, CEO of Ooma. We're excited to talk with you today about what's going on in the company. . We're going to try to move through it fairly quickly so we can get to Q&A, but we do have a lot to talk about, including a couple of exciting announcements, which we'll be making today. So I hope you enjoy our presentation. And by the way, welcome also to everyone who's dialed in and watching this online as well. First, though, our safe harbor statement, which speaks to forward-looking statements that we'll be making during the day. I'll let you read this post the presentation. Ooma, we're obviously a cloud-based communications provider. We like to say that Ooma stands for object of my infection. But the real truth is we're named after [ Ooma Thermon. ] So if any of you know her, let her know, she's got a public company named after her, not everyone can say that. I'm very pleased to welcome many of our leadership team members here today. Not everyone on the slide has joined us, but several folks have, and you'll meet them as they come up to present. So I won't take a moment now to introduce them. But excited to be here with you. So Ooma today, just a little bit of background of perspective. As you know, we provide a set of services to customers using a multi-tenant SaaS platform focused around telephony, messaging, video, and all kinds of unified communications solutions that go along with that. We have over 1.4 million core users today. Core users for us excludes a small subsidiary that is a mobile app, Talkatone and also our 2,600 hertz customers. About 1,500 people based in Sunnyvale, been public for about a little over 10 years. On the last trailing 4 quarters, we've driven $307 million in revenue, which is up 17% year-over-year. About $44 million in EBITDA, quite a lot of growth in EBITDA in the last 2 or 3 years, and we're committed to driving EBITDA up further as we go forward. About $300 million in annual recurring revenue and our recurring non-GAAP gross margins run in the 70% plus range. So we're driving a lot of value from our customers with 99% retention. We feel we're building a bigger business and a better business each quarter that we go forward. Our strategy is pretty simple. We aim to bring together advanced features, superior ease of use and uncommon value. And when we combine -- can combine all 3 of those together, we believe we have a winning strategy, and we do that in certain segments that we target. And that allows us, we believe, to be a leader in those segments. We don't try to be everything to everybody, but we are going to take you through today the segments we're in and why we think we're winning. A little bit of a history of the company and where we've gotten to today, we started out over 20 years ago in the residential telephony business. That today is less than 30% of our revenue. But we quickly moved past that and moved into business UCaaS, Unified Communications as a Service, started that segment for us over over 10 years ago. We're very excited that third parties have rated us #1 in both of those areas of our business. More recently, in the last few years, we've gotten into pots replacement, replacing plain old telephone service with more advanced solutions. And there, we're very excited because we have a very large partner reseller community. And that is growing for us every quarter. And we've also been recognized there as well for some of the leadership elements we bring, and we'll talk about what those are as we go further in the presentation. And then finally, most recently, with our 2,600 Hertz acquisition, we've also been able to use our platform as a wholesale platform for others to leverage, and we'll talk to you a little bit about where we're going there and the pretty significant longer-term potential that, that segment holds for us. Looking at a little more detail, what are customers looking for in each of these segments? And why Ooma, why do we do well? When it comes to smaller business communications, businesses up to 100, 200, 300 employees. They really want to avail themselves of newest methods and resources that they have not generally had access to before. And with that, they want to portray a bigger business image and communicate with our customers more effectively. Now why we win in that segment is we really put together a curated set of features for the smaller business customer and we do that so that they get everything they need, but they don't get a lot of extra that's confusing or too much for that. Keep in mind, a lot of our small business customers have no IT professional in their business. So they have to be able to set up and operate that and use that system themselves. And we marry that together with great ease of installation and use, good value and very very ready available support. And we think when we put that package together with a focus on their needs, we can differentiate versus the general UCaaS industry. In [ box ] replacement, it's pretty simple. Our customers are looking to reduce costs, the cost of potlines have gotten astronomical and they're also trying to just keep their equipment operating. Our equipment is legacy equipment that needs an analog connection. What do they do if that potline goes away. You're going to hear from us talk today about some very differentiated features that we bring to the space. And we have built our system end-to-end, so we can bring the control and reliability that is needed for this type of solution. With our wholesale communications, software and services we find our customers are probably using an older platform and they want to stay competitive as things are evolving. And where our platform really stands out is very modern in design, very API-based allows our customers to not only leverage prebuilt applications but really innovate on top of it to meet their needs, and we'll talk a little bit about what folks are doing there. And finally, in residential communications, it's really about the safety and convenience of having a home phone. And we believe we bring a very reliable service with some advanced features at a very low cost, and we'll talk more about that. So our strategic priorities as a business today. We want to win carriers and other resale partners in order to dramatically grow in Air dial and our POS replacement solutions. We want to focus on AI to extend our leadership, serving small business customers. And with that, dramatically grow our ARPU. We want to continue to focus on the modern capabilities of our 2,600 hertz platform and position it as the choice for the future as carriers and others eventually decide to replace their legacy solutions. And in residential, we have 2 new offerings, MyPhone and [indiscernible] which we'll talk about, and those will allow us to reignite residential growth. At an overall level, we target certain segments where we believe we can be the best. We're going to take you through why as we go further here. But to do that, we have to have the leading solution and put together those 3 elements of the strategy that I talked about. We're also augmenting our growth with acquisitions in the -- primarily in the UCaaS space. I'll talk about what our objectives there and goals are a little later. But with that, we can build scale and drive more profitability as a business. And finally, the last one, driving profitable growth. We're very focused on what we're spending for what we're achieving, our customer acquisition cost or payback, building scale to really bring that 72% gross margin that we run with today are for recurring revenue on a non-GAAP basis to bring more and more of that down to the bottom line. So with that, this is our agenda for today. I've taken us through the first one on here. We're very excited to have [ Elka Popova ] with us from Frost & Sullivan. She's going to give us a general market perspective, and then we're going to go through each of our 4 segments: financial metrics. I'll talk a little bit about acquisitions and closing remarks, and we will get to Q&A, although I know it's a lot. And Elka, thank you for joining us. She has got a lot of experience in our industry She's the lead author for Frost & Sullivan's annual radar reports on UCaaS and CPaaS. She's going to be joining us for Q&A as well in lunch. So feel free to also ask for questions as we go through the day. Thank you, Elka.

Thank you, Eric. Thank you for having me here, and hi, everybody. I'm here to talk to you about the growth opportunities in the UCaaS market, and there's a lot to talk about, so feel free to connect with me after the event or during lunch to take a deep dive -- throughout my brief presentation, I wanted to double-click on 2 trends that are defining this space. More specifically, I want to talk about AI technologies which are transforming the industry by elevating the service provider value propositions, enabling the providers to position as workflow orchestrators above and beyond simple providers of communications and collaboration solutions. I will also talk about a very distinct opportunity in parts replacement. And as you will find out, Ooma is particularly well positioned in that space. But what's important to understand is that there is an urgency to replace legacy residential and business pot lines. Now let's talk briefly about the key factors that are driving growth. Overall, we are in a relatively mature space. But going forward, the core benefits of cloud communications and collaboration solutions. More specifically, the CapEx avoidance, the ability to flexibly adjust capacity more rapidly gain access to advanced functionality and so on will continue to compel organizations to move their telephony from the premises to the cloud. Also, we're seeing communications being perceived as strategic assets today. Not just an expense center within the organization. And this is again driven by the digital technologies, AI, APIs and so on which are enabling organizations to embed communications into workflows and drive deeper transformation. Apologies. Now with the more rapid adoption of collaboration tools, video meetings, group chat and so on. We're also seeing pull-through for telephony solutions to be integrated with the collaboration stack and moved from the premises to the cloud. There's a lot to say about AI. But in my opinion, in the next few years, we're going to be -- to see a significant impact on the UCaaS market, where service providers will be able to boost ARPU and drive accelerated revenue growth. Hybrid work has become a common phenomenon across organizations. I know the pendulum has swung a drastic shift in remote work back to the offices, but overall, organizations are a lot more distributed than they used to be, and that's where cloud communications offer the best solution to empower the employees. And last but not least, deskless workers and different vertical organizations have been underserved in the past. Today, we have an opportunity to create tailored solutions for health care, for retail, hospitality and other industries using AI and APIs. Now this is my forecast for the UCaaS market without incorporating the impact of AI technologies. So this is a mature space. if you do not count on the AI impact, I'm still doing kind of back of the napkin calculations. And if some of you are also doing this, let's collaborate perhaps but I believe that by 2031, we can see a boost of about 15% to 20%, just driven by paid AI capabilities. And there's a lot to look to say about this, but I'll move on in the interest of time. Here is just some data from a survey we conducted this year among close to 1,200 IT decision makers, which included finance people, staff and C-level executives. And what you're seeing is -- the light blue is the data from 26 and 29 is projections -- sorry, the darker blue is projections for 29 Overall, we see an increase in the number of organizations or the proportion of organizations adopting a gen AI across multiple use cases. So this proportion will double from 15% to 29%. At the same time, we're going to see a drastic decrease in the ones that are still in the watching and proof-of-concept stages. What the adoption of AI is driving is an accelerated shift to integrated platforms that unify telephony meetings, messaging, presence and even contact center capabilities. Why? Because that's how you create a common data pool across which you can run AI technologies for deeper insights into the organization, customer engagement and so on. And this is a particularly favorable trend for a company like Ooms. And now switching gears. I talked about the urgency to replace Port Solutions, legacy technologies, deregulation around the globe is driving price increases for legacy solutions also limiting the availability of some of those legacy services. So the urgency is driving organizations to increase their investment in next-generation solutions replacing specialty pot lines. So more than 50% will be increasing. And practically, no 1 decreasing their investments. And now I'll take a moment to mention that we have the best practices of recognition program as part of which we recognized specifically for its air dial solution. We believe it creates an opportunity for Ooma to capitalize on at least 12 million pot lines that needs to be replaced in the U.S. specifically, some of which are residential, some are business lines. And what we specifically value in women's approach is the fact that the solution was tailored for those mission-critical analog applications, fire alarms, elevator phones and so on, which are very common across many organizations. And they also have an integrated solution that includes the hardware, the connectivity service, the voice applications and also leverage patented technologies that improve the reliability and security of those applications.

Why do people have to replace...

Because the government authorities have deregulated the market -- and now the telcos are rapidly increasing the prices of these solutions and fully discontinuing the availability of some of these services. So you can have an analog line. You got a move on to a next-generation solution. And that's separate from the benefits you get in terms of functionality, in terms of security and reliability and so on. So I'll just quickly mention the pot tracker about which you will hear from Ooma itself, but it's a new capability that provides additional visibility to organizations about their risk exposure. So all of these capabilities combined really distinguished Ooma for us, and this is why we gave them that Best Practices award. And with this, I need to introduce Thad White, who's going to talk about emerging products.

Great. Good morning. And Chris Burgy, who's speaking later, will elaborate more on the pot shutdown and what's driving that and the rate. So pots replacement is different from UCaaS. Many of the raining pot lines are serving specialty equipment. This is things like elevators, alarm panels, door and entry gate entry phones. And this type of equipment has requirements that are not easily met by traditional voice over IP solutions. Ooma Air dial solves these requirements in unique ways, and I want to share some of the differentiators from others in the market. First of all, Ooma owns and controls the full stack of the Air dial solution. From the hardware device that sits on-premise, which we design and manufacture ourselves, to the cloud call control layer, which we've built over many years and hardened to handle these special use cases to the management plane, where we've built a custom portal to provide monitoring and management with unmatched visibility to a customer or partners phone lines. And what this owning the full stack allows is us to customize the firmware to serve these difficult applications, we have full control over the reliability of the service, and we're able to create differentiated features. The first I want to talk about is multipath redundancy. So this type of specialty equipment requires redundant network connections. And usually, what that means is fail over. The problem with fail over is that it takes time and any calls in progress will be dropped. Ooma has developed this patented solution to simultaneously transmit all of the voice traffic over multiple links at once. And what this means is that calls in progress will not be interrupted if one of the network connections fails. And it also means that if one of the network connections is degraded, perhaps because of congestion, but not enough to fail over, our calls won't be interrupted on Air dial. Next is notifications. So Ooma Air dial provides more visibility to a customer or partner lines than anyone else in the market. We provide standard device-based notifications. So if your device goes on to battery power or off-line, only Ooma Air dial provides call alerts, which can send an e-mail or SMS if a call to a specific number is made, such as 911 or to any number. Only Ooma Air dial provides extended off hook notifications. So if an emergency phone is accidentally left off hook, we can notify the IT group and only Air dial provides equipment disconnect notifications. And this is very important and one of the reasons that health care customers choose Ooma Air dial. Hospital phones, it's very important to the IT department that the emergency red phones are not removed from their place and put in a drawer and Ooma Air dial is the only service that can notify a hospital IT when that happens. Next, our remote device management portal, or RDM, is a one-stop shop for monitoring and managing your air dial devices and phone lines. It combines many features that competitors offer in separate portals from separate vendors. And it's one of the reasons that retailers choose Ooma Air dial. We have many large retailers who have -- who value the hierarchical approach that we provide to managing a portfolio of POX lines across the U.S. We have customers with retail installations in more than 47 states. And we also provide APIs so that these customers and partners can integrate monitoring and management into their own in-house tools. And finally, installation and project management is critical to our customers when replacing their pot lines. We provide a third-party network of installers nationwide. We assign onshore project management to orders within 24 hours. And this is one of the reasons that schools choose Air dial. We have over 800 schools and school districts, many with large-scale deployments across dozens or even hundreds of sites. Here's a map of our schools and school districts. Now let's hear from one of our customers, Phoenix Senior Living.

Hello. My name is Darren Marinko. I'm with Epic 360 IT. We are here in Roswell, Georgia, and we are an IT services and help desk provider. Phoenix Senior Living is 1 of our largest senior living community partners. They have over 46 communities in the Southeast. We started looking at pots replacement solutions for Phoenix Senior Living for 2 main reasons. One was the cost to was the visibility. We looked at several other solution providers and the reason we chose Ooma was the outstanding portal that gave us the visibility we needed not only into the health of the system, but also the costs that are incurred. In addition to that, it allowed us to use our existing life safety equipment. One other great feature of the Ooma Air dial is the high availability. There's an active, active multipath that leverages both the LAN and the LTE to provide a high availability service. It's not unusual for our communities to experience a sustained Internet outage and when that happens, Ooma Air dial comes to the rescue to keep the service alive. In addition to that, if there is a power outage, the 12-hour battery backup keeps us running even when the lights are out.

And even though we feel like we have a really strong lead in this pots replacement market with differentiated features. We're not stopping we have a whole road map of enhancements. Soon, we will have a dual modem device with active LTE connections. We are working on FedRAMP early start certification to open up federal deals. We will have a 5G version of air dial. The use case for pots replacement doesn't require the speeds of 5G, but we want a future proof as carriers change their spectrum. And we are also developing a high-density solution for installations at buildings with more than 50 potlines to replace at once. We're also innovating on the remote device management cloud side, we are extending it to manage other Ooma products and devices, and we're building proactive monitoring capabilities and automated diagnosis and remediation capabilities. So with that, I want to thank you and hand it off to Chris Burgy, our Senior Vice President of CorpDev.

Thank you, Thad. Good morning, everybody. excited to have the opportunity to share more information with you today around the transition and the process for pods deprecation. This journey actually began about 4 years ago, when the FCC began to lift restrictions for the carriers here in the U.S. that started with forbearance, which allowed them to effectively increase prices at whatever rate that they want which was a measure that they used to obviously protect revenue, but also to encourage customers to migrate off the network that they want to shut down. The FCC took further actions to remove the red tape over a series of other orders, including some this year that effectively allow the incumbent carriers in the U.S. to fully deprecate the network at their own pace and desire. And so we've seen that journey commence in earnest, we estimate, based upon the data that the FCC shares that there are up to 8 million lines and businesses alone that still exist here in the U.S. that need to go through this migration. Also bear in mind, this does impact the residential home phone service market, which is a separate category that they track. So there's mutual benefit for Ooma in 2 distinct categories of solutions that we offer. The carriers are now taking this quite seriously, and it has become a factor that has weighed heavily on customers and determining what to do, including emergency shutdowns that occur often for things like copper theft, believe it or not, where companies may come out of compliance with their fire panel and other devices that had shared and that forces immediate decision. The good news for us is this has woken up the market, and it is a forcing function for organizations to have to take action, we believe this journey for deprecation will continue for many years. And AT&T is the first to be most aggressive around this. As Elka mentioned earlier and one of the reasons that we're recognized by Frost & Sullivan, we developed a tool called Pots tracker that allows organizations to understand the risk profile for their locations. This tool ingests and analyzes the filings that are submitted by the carriers both with the FCC and many of them do it on their own direct websites as well. And this identifies the stages and the phases and the locations in which they're going to shut down the copper network. What we've seen incidentally through this system is an increasing wave of these actions. The first 1 actually began in June of this year. AT&T has another major action coming up in November. And they're continuing to conduct filings that now go into 2027 and 2028. And Incidentally, we've also seen with the acquisition of Frontier by Verizon, that they are now starting in earnest their journey to deprecate the legacy Frontier network as well. This tool allows customers to upload all of their locations into watch list and identify if they are matching restrictions or deprecation events and equally as important, identify and notify them of future events as they happen so they can properly plan out the process to transition over. This allows us to assist them uniquely the journey of working through phases, especially for large organizations with many thousands of locations. We take a multifaceted approach to go market strategy. This has been one of our greatest strengths as an organization for the Air dial solution. we believe that it gives us exposure and access to a wide variety of verticals and size of companies. Some examples of this approach include Tier 1 carriers like T-Mobile and Comcast CLEC and wholesalers like LINGO, NextGen aggregators like Spectrotel and traditional channels in the UCaaS space like the technology services distributors and the sub agents, many of whom have a long background serving telecom for customers. So this gives us effective access to the Fortune 1000 market, gives us effective access into people who have vertical specializations, lots of different touch points. And it is not uncommon for us in large organizations to have multiple of our channel partners in each of these categories bid which sends a signal clearly to that customer if you have 3 organizations bidding on an RFP, for example, and it's all air dial, the customer thinks there's something really special here since everybody is positioning this. It also allows us to scale our go-to-market strategy because we're not dependent on our own direct selling motion, but we can lean on these other routes to market. I'm also very pleased and excited today to announce our newest relationship with TELUS. TELUS is a Tier 1 carrier in the Canadian market. TELUS went through a journey of evaluating all of the pots vendors in the space, all of our competitors. And out of that evaluation, they selected Air dial as the solution for their business pots replacement. This is a testament to the journey that we went through here in the U.S. and the credibility that we've built with a wide array of channels and carriers. TELUS evaluated and selected us for all the same reasons that the carriers here in the U.S. have selected us for as well, many of the things that had shared with you. I think this sets us up for a strong position going forward. There are other carriers, of course, in Canada. And this is an exciting journey as Canada as a country goes to the same process as the United States. TELUS Business Solutions, where we're first starting has up to 300,000 lines. We're hopeful in that journey to assist them in converting as much as it will allow us to. There are other divisions in TELUS that have their own pot lines as well, so we'll continue to discuss on a the contract has been executed. We are starting the planning for launch TELUS tends to want to move quickly and launch with our U.S.-based infrastructure to get to market soon. And then we'll move into Canadian-based data center facilities to serve the government entities where this is a requirement there. We estimate the go live will happen in the second half of our fiscal year. The other attractive thing about Air dial is the structure of economics and the stickiness, if you will, about the solution. Customers don't look at this like other technology solutions that they select, they want a contract, they want certainty that it's going to stay and it's put it in and forget it sort of scenario. So we sell Air dial on a contract to practically all of our customers, some even longer than 3-year contracts. Our ARPU, as we've shared previously in earnings is approximately $25 per line. That is a blend of our own direct sales, a blend of reseller partners who have a different structure. We also have an upfront capital model where they purchase equipment or rent it. Today, we have approximately 45 reseller partners exciting opportunity for us to continue to expand. We typically add approximately 2 or more per quarter. And again, this is really attractive to Ooma from an economic perspective because many of these reseller partners actually own the full selling motion. They'll do service delivery. So it gives us a strong standing to accelerate growth as a company, and we don't have to bear the cost of things that normally would in doing a direct sale. With that, I'd like to introduce Dennis Peng, our Senior Vice President of Product Management.

I'm Dennis Peng. I'm here to talk about the UCaaS side of the business. UCaaS is the phone, messaging and collaboration solution that businesses rely on every day. It encompasses a wide range of capabilities, but it basically includes everything that a business needs to communicate. From their phone number to text messaging, video conferencing, mobile and desktop apps and now the AI services that layer on top of it all. Ooma serves companies of all sizes today. Our customers are primarily located in 30 countries -- in North America, but we are in 30 countries, primarily to serve 1 of our biggest customers IWG or Regis. This chart covers our entire UCaaS customer base. And while many of our customers are small businesses, we now have 45% of our seats, which are in accounts with 10 or more users and 15% of accounts with 100 or more seats in them. Lumieres 2 very distinct customer types with 2 different solutions because they have different needs. First, our small businesses. Here, the buyer is an owner or an office manager. There's no IT professional in the building, so it has to be simple. They just want to save money, sound professional to their callers and talk to a human when they need help. And that's Ooma Office. Second is Ooma Enterprise. These are generally larger organizations, and the buyer is a CIO or an IT department. They usually have more sophisticated requirements and sophisticated needs. So they need a more flexible solution and a different engagement model. And we serve those customers with Ooma Enterprise. Now Ooma Office is purpose-built to serve small businesses and it draws from our years of experience serving consumers. A small business owner should be able to order phone service and be up and running the same day. We find that small businesses prefer to use hardware phones, so we label them, test them and pre activate them. And so that when they arrive, they are ready to be used. We have onboarding specialists and support agents available 24/7 to answer questions. and to help them customize their setup. All this comes at a small business price and no contracts. Let's now hear from an Ooma Office customer.

My name is Keith Basinger. I'm aptamers for Miamisburg Vision here. Also the IT Director for Optometric Management Group. We have 15 locations at the moment, and it's pretty much all in the state of Ohio. Phone service is important for our group, mostly for patient contact. Ooma had a solution that would let us integrate all our offices together on an IP platform. So we didn't have to have 15 different phone systems. We had one phone system that was integrated between [indiscernible] Currently, we have about 90 lines that are using Ooma. As we add more locations, we'll be adding more lines. Ooma also does the cellular backup. So they have a backup system that if our land Internet goes down, the Internet kicks back right up to the cellular function, which is super important for electronic health record keeping because everything is cloud-based. We do like the desktop app a lot partly for the visual voice mail but also does e-faxing, which makes it very, very easy to use. The management for Ooma for me helps me out a lot as the IT director, one of my offices has an issue, they can call me, they can call Ooma, sometimes it's something I can direct them over the phone and say, hey, get into the app and change the setting and now we'll do what you want. So it gives us flexibility for any of the locations. I can do it from my home and there may be 3 hours away. So makes it easy. For other optometrist offices that are looking for a phone system, Ooma would be a good option. A lot of flexibility. So they'll be able to set up your phone system, how you want it to, and it will make your office very functional and very flexible how you would like it to be.

Switching gears now to Ooma Enterprise, which is how we serve larger businesses. Here, you need to have a deeper set of features and more customization options like open APIs and flexible deployment models. You also need to work with the customer to solve a broader range of issues, ranging from network security, and telephony requirements and adapt to their specific needs. We found success in the hospitality segment of this market by addressing workflow specific to this industry. And in total, we now have over 1,000 hotels using our solution. Let's now hear from an Ooma Enterprise partner.

My name is Bill Nipper, CEO of Notice. Notice is headquartered in St. Paul, Minnesota and we do bill auditing, contract management, procurement for commercial and hospitality accounts across the country. We currently have a big legacy maintenance base of PBX customers. And those PBXs are end of lighting, and we are having to convert those out. They're going to have to go to a cloud solution. And we are proposing and selling the Ooma Cloud hospitality, PBX. We are seeing a huge interest from a lot of the customers in that base to now not only use Ooma Air dial to transition from their pot services, but also use the Ooma PBX version of the cloud system with our hospitality features to convert their PBX portion also. The good thing about that is Ooma takes it to a different level with their engineering design and how they're really taking it to discover what is actually in the customer environment. before they do the proposal, before they do the contracting before they ever do an install, they know what needs to be replaced, and that's not typically what happens in the industry.

As we look to the future, we are investing in 3 key areas that we think will drive growth. Number 1 is customer engagement. Today, we support customer contacts through voice, text, video and contact us widget that customers can put on their website. We want to expand to more web and digital channels so that a business can manage all their customer interactions in 1 place. Number two, AI solutions. I'm going to go into a lot more detail about AI later, so I won't say more about it now. Number three, CRM integrations. Customers find huge value in integrating their phone system with their CRM because they can see the customer history, pop on their screen when someone calls. We support over 25 integrations today, including many in specialized verticals such as CEO for law firms. And we are more successful in selling our service when we have a product integration. So we want to build more. Our call center solution called Ooma CX is coming this fall. At $49.95 per agent per month, and is an affordably priced call center solution for teams that need more than what we currently offer in our Pros Tier of service, but also who don't need the cost and complexity of an enterprise contact center implementation. We are excited about the call center functionality because it is an important capability to have to go up market and to win larger accounts. OomaCX will check that box. Plus it will give us a high-value upsell into our installed base -- now to AI, which is the biggest product opportunity in front of us. Our view is that we're ideally positioned to provide turnkey solutions to small business customers that will deliver real value. As their communications provider, we already see all the calls and tax going into and out of the business. We already connect to their CRM systems and calendaring systems. So we can build integrated AI solutions that will layer on top of this rich data source and the connectors that we already have. And we've spent years building for small businesses in a wide range of industries -- so we know how to make it simple to put it into action. Our customers are price sensitive, so we try to offer features with a low upfront fee and charge based on usage. And because we can build and host our own solutions, we will be able to capture the benefit of improving AI models and the declining cost of intelligence as we scale. We recently added 4 AI features to our Pros Tier service, transcriptions, summaries, insights and as AI -- we also started selling 2 voice agents as add-ons, a basic canceling service and a full receptionist. Early results have been encouraging from our inside sales team, who we first rolled out the program. First, we're seeing customers step up to Pros to access those AI features, and this has caused our take rates on Pros to nearly double for new customers. We are also seeing double-digit attach rates of the voice agent on new deals. Keep in mind, we're still in our first quarter of selling these new solutions, and we think there's more growth opportunity to unlock. The potential impact on revenue of AI is unmistakable. Take a small insurance group, which would have bought 5 Pro users before I and now with AI, they step up to Pro plus and' get the AI receptionist, and our total revenue jumps up by 60%. We also believe there will be a secondary benefit in terms of retention, Existing customers don't need to look elsewhere for a solution. And we also believe that use of AI features generates a large tree of data, which will be harder to walk away from. Now finally, let me talk about the AI productivity agent bundle that we are launching this week. Our strategy is to look around the functions of the business from front desk to customer service to sales and ask how AI can streamline the work, take a task off someone's plate, or do the work that no 1 has time to do. We've identified a list of jobs that agents can perform, and we are launching 4 agents Snap as part of Phase 1. To give you an idea of what these agents can do. One of them will review your calls and fly the ones that need your attention such as the unhappy customer or the big new sales opportunity, the benefit to the business get on top of problems early and don't let that opportunity drop through the cracks. Another agent will review calls from a customer, their recent calls, their recent tax and generate a summary. So the business is prepared for the next call, the benefit, that frees up employee time and it allows them to deliver more personalized service. more agents will be launched through the balance of the year and early next year, and we're going to be offering access to all these agents through a single bundle instead of individual separate offerings. So the business can try one and expand over time. They just pay for what they use. No matter which business you talk to, you'll likely find that they're short-handed. And these agents will allow them to add capacity without hiring -- let me now turn it over to Rob.

Thank you, Dennis. Good morning. My name is Rob Ferrer. I run business sales for Ooma. So let's refresh everybody's memory on the UCaaS market space. There's just under 8 million businesses that contribute approximately 57 million lines or users in this space. 95% of that is 50 users or 50 lines and below, which is commonly called the SMB marketplace. Within that marketplace, about 50% of it is still available to convert to what you would now commonly call a full UCaaS solution like Ooma. From a go-to-market strategy perspective, we focus in on that SMB, and that's core to our message. We -- the importance of that 95% and how we communicate to them is specifically around a business impact, ease of use, cost-effective solution. And we do that through web-based marketing, which is the primary place where the buyer looks for their solutions, so digital demand. And our messaging is clear. Again, we focus on many calls to action, simple, cost-effective, high value and delivers an immediate business impact. From an enterprise perspective, it's a little bit different. We focus more, as Dennis had mentioned, more on some of the segments that we have specific competitive advantage in things like hospitality, additionally, things like large health care and hospital systems where we can deliver a solution that is much more specific to their needs than a generic UCaaS one-size-fit-all solution that our competitors typically do. This is much more partner-driven. So our marketing efforts go towards our partner community. Overall, the business, UCaaS and all of our segments, we have 3 main routes to market and Chris did a good job of articulating a little bit of that earlier. First is our direct sales organization. And this one is a high velocity transaction organization, optimized to convert marketing leads. Most of those lead them in from our SMB segments. And we mainly have inside sales organizations to in the United States and 5 plus in Manila. We also have other routes to markets that we leverage for our direct selling efforts. From a channel sales perspective, this is the telecom service brokers, the telecom distribution brokers, and this is the agent community. Chris also alluded to that a little bit earlier. The community that's historically been buying telecommunications, UCaaS solutions pots replacement solutions. Those are the entities that sell that to the large enterprises. We leverage those heavily within our channel partner environment. And we work side-by-side with them. Sometimes we leave in the sales. Sometimes we sell together. Typically, it's one of those two. And finally, the strategic partner aspect of it which is commonly called the resellers. This is tiered again. Chris did a great job of articulating this. We have the carrier sales, TMO, Comcast and excited to talk about TELUS. But also, we have the other tier of 40, 45 plus other resellers that we work through. So between all of these, we have a unique coverage model to the marketplace to capitalize on the growth that we see not only in the UCaaS space, but the dial space. I'll take a moment just to give you some perspective from the UCaaS environment. what our cost structure looks like. We don't have to go through this too much, but it gives you a really good sense. We have multiple tiers from a pure UCaaS perspective. for an entry-level UCaaS user all the way to our PROs, which is fully enhanced, has AI features. And then we have the AI and other add-on solutions, the CX answering service receptionist and the productivity suite that we're going to be releasing -- well, we announced releasing today. With that, I'm going to bring back Chris Burgy.

Thank you, Rob. Also pleased to share some perspective on 2,600 hertz, which is a business that we acquired in October 2023. This is a wholesale platform that allows other entities to build UCaaS CCaaS and CPaaS solutions. And they have flexibility to do this in a turnkey model or the flexibility to take parts and pieces and design their own differentiation off of this platform. There's multiple different deployment models for how they can host this, and the entire architecture from the onset was designed to be API-driven, which gives us a lot of power in the tailor and customization of the solution. Additionally, since the acquisition, Ooma has been porting over our own intellectual property into the platform to make it more robust and more capable things like our desktop and mobile AI will be coming as well. This will allow the platform to become very competitive out in the market and equip others to be successful in the same way that Ooma has been in the space. With that, I'm pleased to share a testimonial from one of our largest customers, Service Titan.

Hi. My name is Vincent [indiscernible] I'm Senior Vice President and General Manager of Pro Products at Service Titan, the #1 software for the trades. Contact center operations are absolutely critical to our customers. Most of the revenue go through it. And as we thought about the future, as we thought about where AI was going as we thought about the needs of our customers, we had to create an enterprise-grade world-class solution ready for your future. As we were architecting our solution and making the decision, we looked at all the options from building in-house through partnering with like different partners who have different approaches and different level of capabilities and in the end, the [indiscernible] platform was by far the winner because it's the 1 that gave us the flexibility we needed, the ability to create like a fully native product to our system. The ability to innovate on top of it ended up being absolutely the right choice, the right solution for us. This partnership has been an incredible success, both for us and for our customers. Partnering with 2,600 Hertz allowed us to launch our brand-new product, Contact Center Pro, [indiscernible] Service Titan, AI-ready with built-in virtual agent all of that in a matter of a few quarters, which would have been absolutely impossible if we had taken another pack. And above all, we didn't build it with the 2600 team as just the support team. We built it in partnership. We benefited immensely from the knowledge, the expertise of that group and like together, we actually created like a product that's game changing for our customers.

It was such a joy to watch the solution that they've built and how they've been able to transform the trades business. The market opportunity for 2,600 hertz is something that's very attractive to us over the long term. There's a variety of different targets for us to pursue companies that are operating legacy platforms that are locking features like BroadSoft and MetaSwitch fiber companies that may have regulatory requirements to offer voice services to their customers in situations like Service Titan and many of our other customers that are vertical SaaS companies that want to incorporate voice capabilities, whether UCaaS or contact center into their solution because they are now the system of record, and that's a whole data set that they can take advantage of and blend into the AI capabilities that many of these companies have. This market is shifting because of the regulatory requirements that I mentioned and that there are lots of legacy providers out there that aren't maintaining their platforms. the investment that we've made by converting over the significant R&D expertise and intellectual property that we have really tees us up to have a compelling platform in the future. While there is a lot of addressable market here, the other thing to bear in mind is this is like an enterprise sales cycle, slightly more complex. These are entities that are running thousands users or hundreds of thousands of users. So the decision-making cycle takes a long time and then you have to go through a migration process. Either way, we view this as a very interesting growth lever for Ooma in the future that we can tap into that additionally helps us to scale. With that, I'd like to introduce Jim Gustke, our Senior Vice President of Marketing and Residential sales.

Thank you very much, Chris. I am here to talk about our residential business and why Ooma continues to win. So let's start with our core product, Oomatello. It's been rated #1 by Consumer Reports magazine for over 10 years. And that's not a mistake. It's because of our technology, PureVoice HD technology that makes it noticeably better quality than a typical land line. We work with handsets in the home but we have the flexibility through the Ooma mobile app to also go on the road -- most important is our freemium business model, which means the core service is free, all they pay our taxes and fees with an optional premier service at $9.99 for customers that want more. Today, we have over 723,000 customers, and I'm really happy to say and growing. So the North America market, why does this matter? It's still a 27 million phone lines -- home phone lines in North America. But many people say, "Well, why do people even have a home phone Well, the answer is they like the convenience of having a home phone and especially homes through their phones throughout their home. 911 plays a big role. They want the safety and security of address-based 911 -- and they know that their phone is always on in the house, never runs out of batteries. And finally, the presence of children in the household is a big driver to have a home phone. So -- I'm sorry, let me go back. Don, let me point your attention to the lower right-hand corner, the market drivers for the residential phone market. First, many parents are now delaying smartphone use among their kids. The second is the unbundling of cable service. And the third is what we've been talking about a lot today copper sunset or the decommissioning of copper phone lines. Now speaking of parents delaying smartphone use, I mean with their children, let me introduce Myphone. Myphone was designed specifically for families with kids. For kids, it delivers simple, screen-free calling, no texting, no social media. It has a trusted circle of contacts that the kids can communicate with. It has a party line so that they can talk to multiple friends at once, and they can also listen to voice mails. For parents, what it delivers is the safety of having real address-based 911 in the home and it has scheduled quiet hours. So the phone isn't available during bedtime or homework time. it has call logs, so they can see who their kids are talking with. And because it's from Ooma, it's easy setup with no technology background needed. Now what is the market opportunity from the U.S. census, there's a huge number of households with kids that's suitable for my phone. And this is a real issue for parents. Per Research found that 86% of parents are managing their kids' screen time on a day-to-day basis. And this is not a fad. There's a whole ecosystem of parent led organizations throughout the country that are focused on reducing smartphone use and screen time. wait till it is on eighth grade, unplugged, and there are many, many others. And currently, my phone is online on ooma.com, with major online retailers, and I'm very happy to announce here today that beginning in November, we're launching in-store with a major brick-and-mortar. I'd like to play a video from one of our social influencer that really brings the MyPhone message alive for parents. [Presentation]

Okay. Now shifting gears to another opportunity. It's Starlink households. Starlink has been growing like crazy and some forecasts are that it's going to reach 10 million households in North America by 2030. We designed Starlink specifically for satellite Internet. It's got optimal sound quality, not only through HD voice, but also through our adaptive redundancy which is perfect for the latency of a satellite Internet connection. And this is -- this package design and the whole product is designed to be marketed right next to Starlink. And I'm also really happy to announce today that a major retailer is taking Starlink in as part of their start sorry, Star dial as part of their Starlink assortment. So finally, let me bring this all together. We've got 4 major drivers of the residential market. The first is the Copper Sunset, then unbundling of cable services, the delay of smartphone use and Starlink. We have specific products that address each of these entrants into the market. That's our strategy, and that's why we're confident that Ooma is going to win in residential. Now let me introduce Shig, our CFO.

Thank you, Jim. Good morning, everyone. I'm going to spend the next few minutes talking about our key financial metrics and also how what you heard so far from my colleagues can translate into our long-term financial targets. So a quick recap on our most recent quarterly the numbers coming on Q2, most recent quarter. So our current revenue guidance for fiscal year is about $333 million. And we have achieved 38% year-over-year growth on business subscription revenue in the second quarter. We also maintained a high dollar retention rate. We are also -- we all exited Q2 with $299 million of annual exit recurring revenue, which grew 25% year-over-year. In terms of free cash flow and EBITDA profitability, we also achieved 50% and 68% year-over-year growth, respectively. In terms of adjusted EBITDA, this is a trailing 12-month number as -- we did guide to about $48 million of EBITDA for the year. This is a historical graph on our total revenue going back to fiscal '21 and far right, was showing the guidance number for the year. And as you can see, we have almost doubled between fiscal '27 guidance number. We also maintain a very high proportion of recurring revenue, providing a lot of visibility. Over 90% of revenue coming from the recurring revenue and we believe that, that trend will continue in the future years. Now drilling a little bit more into the recurring portion of revenue you saw. Here's a breakdown of recurring revenue going back to fiscal '21 blue bar at the bottom is residential recurring revenue. And the red bar at the top is the business subscription. So as you can see that we are maintaining the recurring revenue on subscription relatively stable. And we continue to grow the business subscription coming from the UCaaS solution and also the air dial solution. And we believe that the proportion of the business recurring revenue continue to grow with the growth of do business UCaaS, which also drives the gross margin -- recurring gross margin improvement over time. So here's an output trend. It's the adage revenue per user per month. This is a blended ARPU between business and residential recurring revenue, and it was almost $17 per user per month at the end of Q2. We also believe that there's an opportunity to continue to increase ARPU overall going forward with increasing proportion of business users. It was about 70% coming out of Q2. We think that can be much higher as we continue to grow the UCaaS users and add out users. And also, you heard about the exciting AI offerings, which upsell to our UCaaS users, which we believe that can add to the ARPU trend going forward. So here's a historical chart on the EBITDA and the free cash flow generation going back quarters. And each bar in the line graph shows on the numbers on a trailing 12-month basis. So at the end of Q2, on a trailing 12-month basis, we generated over $44 million of adjusted EBITDA and also $30 million of free cash and we believe we can continue to drive the higher -- on both metrics. And by the way, we do convert about 70% of EBITDA into free cash. And we have a very low CapEx requirement. We believe that's going to be the case going forward as well. So we believe we can continue to grow free cash flow along with the adjusted EBITDA. Now [indiscernible] we have seen this, but our long-term target is to get to over 20% to 25% of adjusted EBITDA from where we are today, which is 15%. And let me get to the next page here, it's just kind of bridge from where we are to how we get to that number. On the left-hand side, what we're trying to say here is that we're looking at a 3- to 4-year time frame, that's our long-term target model time frame. While we aim to double revenue, mostly coming from the business UCaaS, organic and inorganic growth and also the air dial. Those are 2 big chunks. On the right-hand side, I'm bridging the EBITDA margin 15% in Q2 this year to over 20%. Good chunk of that's coming from the recurring margin -- gross margin expansion, again, bigger proportion of the recurring revenue coming from business users in the future years. We also think that there's a lot of operating leverage that come from R&D leverage. It's about 17% today. of revenue that can be going down to low teens. We have made heavy investments already in the growth areas. So I'd like to end my section with a slide. In terms of delivering shareholder value, we believe it's all about execution. We are in the this UCaaS market for small business. We believe we are the strong offerings. We have AI features that are coming on. And also, we want to supplement that with the inorganic growth, which we have a good history of -- we are very clear about the new growth strategies -- you already heard from my colleagues in the middle column. And we -- combining these things, we think we can expand the gross margin. realize the operating leverage, which all translated into greater EBITDA generation and free cash flow generation. With that, I would like to give mic back to Eric for our M&A strategy and closing remarks.

Thank you, Shig, and thanks, everyone, for joining us through this conversation. We just have a couple of slides left. We've talked a little bit about M&A and how that can augment our growth and outlook -- our primary objectives -- primary objectives for M&A are around acquiring more UCaaS users cost effectively. We're not looking to get into a new segment. There's no new technology that we feel we need to bring in. . But where we can bring in more UCaaS users cost effectively, that allows us to broaden our sales and marketing reach, drive cost reduction with synergies, particularly with shared in R&D, but also just in general, from growing them at scale. And our goal when we do these is to have our acquisitions be accretive within just a couple of quarters and to drive EBITDA in the 15% to 40% range post acquisition. Depends a little bit on how much we want to grow the business after we've acquired it. business that's not growing, we expect to be in the 30% to 40% EBITDA range. Now our deal targets are really solid businesses that don't need fixing. But if they have some feature gaps, that's fine. We have a lot of technology in Ooma that we can bring to fill out those gaps. We prefer our focus on North America and $10 million to $50 million in revenue is a nice size. It's a nice size for us to digest. It's also an acquisition target that there aren't many companies like us going after -- so it gives us leverage as we look for opportunities. We made 2 acquisitions late last year. Both have worked out very well for us. We were able to purchase Fluent stream at just 4.5x EBITDA and Phone.com at about 1x revenue. I'm very pleased to say that with Fluent stream, we've been able to expand with some channel opportunities and at Phone.com, we've already moved the EBITDA up into double digits. And we're excited about where we can go with both of these as we go forward. So in quick closing, I hope we've shown you that we believe we're leading with differentiated solutions in the market. I believe in all of our markets, we're serving opportunities that are in inflection points. Air dials at an inflection point. We even see that in residential with new things happening. We're attempting to accelerate our profitable growth through acquisitions. We would like to do an acquisition or 2 every year. Obviously, that has to line up in terms of opportunities and valuations because we are pretty selective. But that is our goal. And finally, trying to leverage our customer base to drive enhanced profitability as we go forward. With that, I want to thank you. We're all about creating amazing experiences and ultimately, revolutionizing markets. Now we do have time for Q&A. We ran over a little bit, but we can go as long as you like. If you're joining us virtually. There's a tab, ask a question. If you submit your question there, someone will read it in the room. So I don't know if -- why don't we bring our Ooma team up, so we can all I'll be here to answer whatever you'd like to talk about. Anyone want to start? Yes, please.

Sure. Okay. On your acquisitions, like what's the potential -- I mean, is it a target-rich environment for you? Those that $20 million in revenues that are there a lot of companies out there that you can go after?

There are actually quite a few players. Some of them happen to be resellers of BroadSoft or other platforms. Some of them have built their own platforms. It's not uncommon to come across a player in that $10 million to $50 million range that has struggled to keep up with the latest developments in technology and also spending a lot on sales and marketing just to kind of stay where they are and not grow very much. But what holds us back from doing more acquisitions faster, those businesses have to be at a point where they're ready to do a transaction. We don't want to overpay when we do these acquisitions. And so -- but yes, we think there's quite a number of charges. We've looked at some this year. Nothing's come together, but we look at things every quarter.

Okay. One more. . I don't understand why AT&T and why are they trying to get rid of their copper -- what's wrong with the -- what's wrong with that business? .

It's a good question. I'll let Chris answer that.

Yes. So it's a great question. And there's a couple of factors that are contributing to this. One, much of the talent that understands how to maintain that network has retired. And the second is it's very costly to maintain all of that infrastructure, the central office facilities, the copper in the ground, the nitrogen they have to pump in, to keep water out of it. It's a degrading asset, whether conditions that occur. So they view it as an OpEx savings. And another perspective to think about is the central offices are like many data centers. So that's real estate footprint that they could look at selling or leveraging for distributed AI data centers effectively.

There's a question right behind you. Why don't we go there next because he had his hand up first.

Great. My question is actually for Elka. How many companies were recognized with best practices for pots replacement? That's my first part of it? And then can you speak to the competitive landscape, how many U.S. solutions providers for POX replacement have a quality solution that your research suggests can compete with Ooma?

Boy, that's a tough one. So Ooma is the only company we've recognized with this particular award. We're trying to be very selective in general with the best practices award. So they're usually given in different spaces for different kind of capabilities. But in pots replacement, only Ooma. Now the issue with that space is that you have that are only hardware-based or just a service offered by different providers. The telcos sometimes simply get a device from a hardware vendor and use it for the same purposes. That's why I highlighted the fact that Omahas an integrated approach. I would not want to mention any other competitors that have the same approach. But a few in my opinion and based on my research have the combination of capabilities.

Great. I've got a follow-up for the Ooma team. If AT&T has another way of terminating pot lines coming up in November, what does the sales cycle look for these users? And when did the majority of these enterprises or small companies, when do they transact? When do they look to get ready for that termination?

Sure. So while they announced that there's going to be a wave, the wave has a date, right? So it's typically not 30 days out. we have on occasion seen 90 days out, but it's typically a year or so out. So that starts the process. . And some folks are immediately made aware that this is happening to them. But the way that announcement is made, many of the affected parties may not know, right? Kind of alluded to the fact that a lot of the carriers don't have that expertise in-house. A lot of our customers haven't thought about pots lines for 20 or 30 years. So it takes a little bit of cure time. Now the good news is this marketplace has matured in terms of awareness Three years ago, 3-plus years ago when we got into the space, a lot of the questions we were getting were water pots and why would we even care? Now we're much more aware. So what we're seeing is we're seeing an acceleration, but it still could take multiple months before they form a project, multiple months to evaluate the vendors and then a deployment cycle after that. So these announcements could have anywhere from a 3-month to a 18-month tail on it.

Alinda will go that way. We'll get to you, Eric.

Alinda here with William Blair. So with the AI existing products like the AI receptionist answering service and AI insights, what are the early customer fee and adoption trends on that? And how should we think about 6x look going forward with AI monetization in the next 12 to 24 months as you continue to add on new AI software add-ons here.

So I'll let Dennis speak to that. But I'll start by saying -- our goal with the AI productivity bundle is to have something that every one of our customers find valuable so that we can spread AI across our customer base at large. But we only have about 1/4 of experience so far. And I'll let Dennis let you repeat some of the metrics we've seen so far from our inside sales team, we're very pleased with what we've seen in just 1 quarter in terms of impact. But go ahead. .

Yes. So in terms of the features that we have bundled with Pro Plus, we have seen the movement of Essentials and Pro plus customer into Pro plus, right? So for new customers, we're seeing a doubling of that take rate for Pros, which indicates that they are upgrading for the AI features. We're also seeing double-digit take rates of the voice agents, the entering service and receptionists around a 60-40 split between full receptionist and basic answering service. And right now, those programs are largely rolled out to new sales, and we're just starting kind of our installed base marketing of those features.

Got it. That's helpful. And another question. So with the multiple growth initiatives underway, including Air do expansion, Star dial and also the AI product development, how are you prioritizing your investments across these opportunities? And which areas are seeing the greatest focus over the next year?

So the way we organized our presentation today is our focus. We started by talking about Air dial, then we went to UCaaS, and then we went to 2,600 hertz in residential. Now we have a lot going on in the company, but we're also fortunate that a lot of these solutions are built and in market, and now we're capitalizing on the growth opportunities. So we don't -- we've done a lot of the legwork now already, and we're not having to invest maybe at some of the levels we did in the past. Let's go up to Eric, and then we'll come down the side. Sorry, guys.

My question has to do -- Eric Martinuzzi Marines from Lake Street Capital Markets. My question has to do with the air dial and the traction, I think, Shig, you put up the about $100 million of that the business over the next few years is going to be air down driven. I think we're in kind of an $18 million to $20 million marker right now for air dial. So how does -- how do we close that gap. Is it that we've got the 40-plus resellers and it's going to be resellers and it's going to be linear between here and there? Or is it somebody like a TELUS shows up and we get a big slug all at once. And I've got a follow-up.

Well, I'll start, and then I'll let Shig or Chris or others jump in. We're super excited about the contract we just signed with tell us. they are the best customer we can have for Air dial because they have the lines. It's their lines that they provide those customers, and they can go into their own customers and do the upgrades. . And as far as we know, we are the only company they're working with, and they selected us after a long process. And they are eager to move forward quickly. So when we look at a customer like that has potential for 300,000 lines or more, it was really just one part of tells that we indicated with that 300,000 line number, there's significant potential. If you want to add?

Yes. So I'll add a little more color to that. The reseller channels are certainly an interesting lever. We continue to add to that. And they vary in the nature of the types of accounts that they pursue. So which were in the enterprise division, for example, is pursuing Fortune 1000 companies. . That's how that team is compensated, so much longer sales cycles, but much larger opportunities. And you start to see those entities move, and that's a lever up for it as well. What we did not share in the as an example, is the Verizon ecosystem. We're also in we have their top platinum level partners and Verizon's strategy has shifted to channel first is the way that they fulfill Verizon Proper has not started their own copper deprecation yet. They're just working on the Frontier assets they will begin that journey in the future, and we believe that's another interesting opportunity for us to be the preferred solution fulfilled through their critical platinum partners.

Okay. So no, there's not like Air dial has targets it needs to hit across or per reseller. Sorry, I put that backwards resellers don't have targets that they need to achieve to maintain their reseller status or anything like that. .

It varies. There are some that have particular targets based upon how we structure the relationship. But to be frank, we were fairly relaxed in that approach to snag as many resellers as we can, many of them converted from competitive replacement products to us. So we think the coverage model of continuing to add and all of them attacking the market will be sufficient to capture the demand that we need going forward.

Okay. And I know you've been working with resellers for as long as we've had air dial, whatever it is 3, 4 years. Any lessons learned with certain resellers as far as enabling them or holding them to investments in Ooma.

Yes. I think there's been a lot of lessons learned between Rob's team and my team. We've invested a lot of effort in enablement strategy for resellers. Some of them are very capable on their own. Others are not as capable. So we have a team of sales reps that actually focus exclusively on the resellers. We have another team that helps with the enablement and product management and taking more of the lead where we're allowed. So a good example of this is T-Mobile. -- their sellers are used to selling cell phones to be candid. And so we have different programs where now they're letting us lead the sales process. We're much more expert at doing this. So I think that helps us them more successful, they get access to the accounts and all the right tools. There's been a lot of positive feedback that's come from resellers on product capabilities. product management and engineering have built that have really strengthened the solution versus the other offerings that are available in the market. So we're -- we've hit this maturity point, I guess, to put more in how we're handling go-to-market, and it's very well packaged and very well structured now as we bring on new resellers. [This call length has exceeded streaming capabilities. Please refer to the preliminary transcript that will be posted shortly.]

Let's go to Tim.

Thanks for your patience, Tim.

Great presentation, by the way, great very, very well done. Two broad questions. On AirDial, so the primary reason people need to use this is because they require connectivity that's always on with backup and multiple paths of connectivity. Is that right?

Yes. So there's a multitude of legacy devices out there that they don't want to swap out or they can't swap out, and they need to maintain that same old-school POS copper connectivity into that device. Give you an example, we have a natural gas company. They monitor their pipelines over POS lines and modems, for example. We're at the Sunoco fuel tank at NASCAR tracks, same thing. So it presents an opportunity that they have to act because these are critical devices. And in some cases, there are legal requirements with fire panels and elevators, for instance, and how they have to work fire inspector can come in and find you or even revoke your certificate of occupancy. So folks just want the easy swap on this. They know it's going away. There's a lot of price pressure, of course, with the bills that they're seeing. So that's what puts us in a bit of a unique situation versus other categories in the voice space.

Yes. I mean I'm looking at these buildings would have a dozen of those connections each for fire elevators.

Yes. We have a number of customers here in New York State. Yes, same thing. They just want to swap.