Hello, and welcome to Ooma, Inc. Second Quarter Fiscal Year 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. 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. I'm with 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. The release is also available on the company's website, ooma.com.

Payments 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 are 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 the 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. 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 the 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, the investor section of our website as well as the quarterly results page of the financial information section of our website, include 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 one and supplemental financial disclosure two. Additionally, investor presentation slides include GAAP to non-GAAP reconciliation also provides us resolution of GAAP expenses that are excluded from non-GAAP metrics. Now I will hand the call over to Ooma 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 $500,000 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 5,000 later this quarter. Connect 5,000 is a 5G Internet solution that incorporates Wi-Fi 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…

Thank you, Eric. 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% 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 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 U.S. tax law. Now some details on our Q2 revenue. Business subscription and services revenue grew 66% 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 and services revenue per core user or ARPU increased 4% year…

Thanks, Shig. Excuse me. I'm pleased to say we now have a strong first half of our fiscal year behind us. 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 then driving improved top and bottom-line results. Thank you, everyone. We'll now take questions.

Thank you. Ladies and gentlemen, as a reminder to ask a question, please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Josh Nichols with B. Riley. Your line is open.

Yes. Thanks for taking my question. Good to see the improvement, particularly in the bottom line. 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 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?

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

Thanks. And then just to update, I mean, you've continued to add new partners on the Airdial front as well too. When you look, I think in Q1, you launched with a very large market cap telecom company. You have 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? Thanks.

Yeah. Hi, Josh. You know, 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. 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 three of the close to 35 resellers we have. I feel 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 I know my expectation 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, yeah, that's working well for us.

Appreciate it. Thanks, guys.

Thanks, Josh. Please standby for our next question. Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Your line is open.

My 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 was it? $4.5 million or so on the 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?

You know, 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 have started doing that as of about nine or twelve 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. 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 know, you've got two 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?

Yeah. It's hey, Eric. So it's not so much about incremental churn, but I think, you know, you may notice that we've given the literally 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 the second half. Now we double more than double the booking, and we continue to ramp up the bookings going into the 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.

Got it. Thanks for taking my questions.

Thank you. Please stand by for our next question. Our next question comes from the line of Pat Walravens with Citizens. Your line is open.

Hey, team. This is Kincaid on for Pat. Thanks for taking the question. Super excited to hear about that new largest retail customer that you guys landed. I'd love to hear more about, you know, how that deal came about, what was the differentiator, what lets you win that, and are we gonna start seeing that in the back half of the year, or what's the timeline there?

Yeah. 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, you know, sign up in Q1, but 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'll move at this point. But, yeah, 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 possibly placement by larger now, you know, we have a whole range of sizes of opportunity in our pipeline, and we're obviously working all of that. But, yeah, 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 me 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, you know, 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.

Thank you so much.

Please stand by for our next question. Our next question comes from the line of Matthew Harrigan with The Benchmark Company. Your line is open.

Thank you. I know it's probably a bit of touch of an afterthought compared to Airdial. But can you talk a little bit about 2,600 Hertz 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 Kizu. And I know it fits well within your business portfolio, but it necessarily doesn't get as much bandwidth as Airdial, perhaps understandably. Thank you.

Yeah. So 2,600 Hertz 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 it 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 2,600 Hertz 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 2,600 Hertz 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, you know, our largest win to date on that platform was ServiceTitan, who uses, in particular, 2,600 Hertz 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 2,600 Hertz 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'll 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, you know, 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 2,600 Hertz can enable. And so we feel there's real opportunity over the next several years to be the platform of 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 full 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, I was just curious.

So today, Airdial's being sold in North America, US, 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 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 Regis 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.

Great. Thanks, Eric.

Please stand by for our next question. Our next question comes from the line of Alinda Li with William Blair. Your line is open.

Perfect. Thank you. Congrats on the solid quarter and also on the 100%. Can you give us more color in terms of what drove the one-point uptick there? And what should we expect NRR to be going forward?

Yeah. 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, you know, what we think is the last of the large IWG churn. We didn't have that this quarter. And just looking across the other service lines, I think we're generally speaking, the improved churn quarter. So I think that's the biggest contributor to the better retention rate. Was the second part of the question, Alinda? Sorry. I missed it.

Yeah. No worries. The second part was, what should we expect in our NRR to be going forward?

Yeah. I think, you know, we've been very steady between 99 to 100%. Sometimes rounds up, sometimes rounds down kind of a situation. So I think that's a good zone to be in, and I think that's what we think it was gonna 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 are looking to implement 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?

Yeah. Just to kinda get the tax one out there. So part of the raise for net income, I would say 7 to 100,000 of the raise was related to the tax law change that I talked about. It just said our estimate for tax payment is much lower due to the one big beautiful bill that we already heard about. But the remainder, which is still a mini 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 the second half. So, you know, as we said going into this year, we wanted 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, you know, we've been very prudent about 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 the best ROI that we can achieve. So both the sales and marketing efficiency, the R&D leverage, and the tax, those are three pieces.

That's really helpful. Thank you.

As a reminder, ladies and gentlemen, that's star one one to ask a question. Please stand by for our next question. Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners. Your line is open.

Hi. Thanks. This is Kevin for Brian. Can you give us a sense of the new business line trends you're seeing with your largest UCaaS customer? And should we expect meaningful growth over the next twelve to eighteen months?

If you're referring to IWG Regis, 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 as we look forward in our outlook.

Great. Thank you.

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 the 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. We feel that the combination of those two is what's gonna 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.