Q2 2025 Ooma Inc Earnings Call
Hello, I'm Matthew Robison, I'm Matthew Robison, I'm Matthew [inaudible]
Speaker Change: Thank you for standing by and welcome to Umas 2nd Quarter, fiscal year 2025 financial results conference call.
Speaker Change: At this time, all participants are in a list in the only mode.
Speaker Change: After the Speaker presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Matt Robison in Investor Relations.
Matt Robison: Please go ahead. Thank you, Latif. Today everyone and welcome to the fiscal second quarter of 2025, Bernie's call is on the ink.
Matt Robison: My name is Matt Robison, and I'm a director of IR and corporate development on the call with me today. I'm a CEO, Eric Stang, and CEO of Shigey Hamamatsu.
Speaker Change: I'm from the Market Closed today, you know what issue? It's fiscal second quarter, 2025 earnings press release, this release is also available in the company's website in the.com To sell a thing webcast live and it's accessible from a link on the events and presentations page of the investigation section or website
Speaker Change: This link will be active for replays called for one year. During today's presentation our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance.
Speaker Change: Arxfocations and beliefs regarding these matters, and that materialized and actual results are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Speaker Change: These risks include those set forth in the press release we issued earlier today, and those risks no flow described in our findings with the securities and exchange commission. Before looking statements in this presentation, our based on information available to us as of the day here up, and we just claimed any obligations that the any forward-looking statements except is required by law.
Unknown Executive: Thank you for standing by, and welcome to Ooma's second quarter fiscal year 2025 financial results conference call. At this time, all participants aren't a listen to only mode.
Unknown Executive: After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again.
Speaker Change: Please note that other than revenue or as otherwise stage, the financial measures to be disclosed on the call will be on a non-gap basis.
Speaker Change: The non-gap financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with gap. Discussion of why we present non-gap financial measures and reconciliation of the non-gap financial measures discussed in this call to the most directly comparable gap financial measures is included in our earnings press release.
Matthew Robison: I would now like to hand the call over to Matt Robison in investor relations. Please go ahead. Thank you, Latif.
Matthew Robison: Good day everyone and welcome to the fiscal second quarter 2025 earnings call of Ooma Inc.
Matthew Robison: My name is Matt Robison and was director of IR and Corporate Development.
Speaker Change: which is available on our website. On this call we will give guidance for a third quarter and a full year fiscal 2025 on a non-gap basis.
Matthew Robison: On the call with me today, I owe him a CEO, Eric Stang, and see if those Shigeyuki Hamamatsu. After the market closed today, Ooma issued its fiscal second quarter 2025 earnings press release. This release is also available on the company's website in the wood.com. This fellow is being webcast live and is accessible from a link on the events and presentations page of the investor relations section or a website. This link will be active for replays called for one year.
Speaker Change: Also, in addition to our press release and AK filing, the overview page and events and presentations page, the investor section of our website, as well as a quarterly results page of the financial information section of our website. It includes links to information about cost and expenses, not included in our non-get values and key metrics of our course of subscription businesses.
Speaker Change: These are titled Supplemental Financial Disclosure One and Supplemental Financial Disclosure Two. Additionally, our investor presentation slides include Gapton on Gapberg Insulation. It also provides resolution of Gapx expenses that are excluded from now on Gapmetrics.
Matthew Robison: During today's presentation, our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize in actual results of subject to risk on certain needs 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 fully described in our filings with the Securities and Exchange Commission.
Speaker Change: Now, we'll hand the call over to Numa Seo, Eric Stang
Numa Seo: Thank you, Matt. Hi, everyone. Welcome to the second quarter of fiscal year 2025 earnings call. Thanks for joining us. We have great results to present for Q2 and the developments to report as we look ahead. Look forward to reviewing our progress and outlook with you.
Matthew Robison: The forward-looking statements in this presentation are based on information available to us as of the day hereof, and we just claim any obligations update any forward-looking statements except is required by law. Please note that other than revenue or, otherwise stated, the financial measures to be disclosed on this call will be on a non-gap basis. The non-gap financial measures are not intended to be considered an isolation or as a substitute for results prepared in accordance with GAP.
Numa Seo: Financially, T2 was a strong quarter as we outperformed on all of our major financial goals.
Numa Seo: Q2 revenue was 64.1 million and Q2 non-gap net income was 4.1 million.
Numa Seo: Both results were above guidance and up nicely versus Q1 of this year.
Numa Seo: Q2 Casflow from Operations was 7.1 million, which is close to double what we achieved both in Q1 of this year and in Q2 a year ago.
Matthew Robison: The discussion of why we present non-gap financial measures and the reconciliation of the non-gap financial measures discussing this call to the most directly comparable GAP financial measures is included in our earnings press release, which is available on our website. On this call, we will give guidance for a third quarter and a full year fiscal 2025 on a non-gap basis. Also, in addition to our press release in AK 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 cost and expenses not included in our non-gap values, and key metrics of our course subscription businesses. These are titled supplemental financial disclosure one and self-minifacial disclosure two. Additionally, our investor presentation slides include GAP to non-gap reconciliation that also provides resolution of GAP expenses that are excluded from non-gap metrics.
Numa Seo: With the improved cash flow, we were able to reduce our debt by 3 million in the quarter to 8.5 million at the end of Q2.
Numa Seo: We also spent approximately 1.8 million in Q2 to to repurchase stock to help us set the solution from besting of stock grants.
Numa Seo: It's great to be ahead of where we thought we would be financially at this point in our fiscal year.
Numa Seo: As in Q1, Uma Business, which comprises our UCAS, Pops Replacement, and wholesale solutions.
Numa Seo: Performance well in Q2.
Numa Seo: In the office, our small business-you-cast solution was buoyed by new feature releases, including several customer engagement features to enable our customers to connect more effectively with their customers.
Eric Stang: Now, I will hand the call over to Uma CEO Eric Stang. Thank you, Matt. Hi, everyone.
Numa Seo: and two new integrations, one with square, and the other with into it quick books.
Eric Stang: Welcome to Uma's second quarter of fiscal year 2025 earnings call. Thanks for joining us. We have great results to present for Q2 in new developments to report as we look ahead, look forward to reviewing our progress and outlook with you. Financially, Q2 was a strong quarter as we outperformed on all of our major financial goals. Q2 revenue was $64.1 million, and Q2 non-gap net income was $4.1 million. Both results were above guidance and up nicely versus Q1 of this year.
Numa Seo: The release of features such as these helps enable Uma Office customers to trade up to a higher price service tier and also expand the appeal of Uma Office to businesses of a larger size.
Speaker Change: In this vein, we're excited about our development roadmap for UMA office, which includes leveraging the capabilities of our 2600 Hertz acquisition to launch more sophisticated call center features later this year.
Eric Stang: Q2 cash flow from operations was $7.1 million, which is close to double what we achieved both in Q1 of this year and in Q2 a year ago. With the improved cash flow, we were able to reduce our debt by $3 million in the quarter to $8.5 million at the end of Q2. We also spent approximately $1.8 million in Q2 to re-purchase stock to help offset delusion from investing of stock grants. It's great to be ahead of where we thought we would be financially at this point in our fiscal year.
Speaker Change: Luma Erdyle, our Pots Replacement Solution, also made the progress in Q2.
Speaker Change: We further enhance our differentiation versus other solutions with the launch and Q2 of Call Alerts, which informs customers when their dial calls are placed. It can be a critical value in life-safety applications.
Speaker Change: We believe we are the only pots replacement provider to offer this feature.
Speaker Change: Likewise, our investment to expand our sales and marketing reach is generating more opportunities and sales momentum.
Speaker Change: Once again, in Q2 we closed more new customers for air dial than any previous quarter.
Eric Stang: As in Q1, Ooma business, which comprises our UCAS, POTS replacement, and wholesale solutions, performed well in Q2. Ooma office, our small business UCAS solution, was buoyed by new feature releases including several customer engagement features to enable our customers to connect more effectively with their customers and two new integrations, one with square and the other with Intuit QuickBooks. The release of features such as these helps enable Ooma office customers to trade up to a higher price service tier and also expands the appeal of Ooma office to businesses of a larger size.
Speaker Change: As in prior quarters, we also added new air dial resellers in Q2.
Speaker Change: Here I have some special news.
Speaker Change: We've been told by an incumbent local exchange carrier.
Speaker Change: But they planned to resell Eric Isle beginning later this year.
Speaker Change: This is exciting because of the size and scope of this new partner who we believe is one of the top 10 largest service providers in America.
Speaker Change: As a large and company carrier, they have a vast number of customers they serve today with There will ultimately need to be replaced.
Speaker Change: We expect to be able to provide more detail about this, including the timing for launch, on our third quarter conference call. We believe this is a breakout win for AirDow.
Eric Stang: In this vein, we're excited about our development roadmap for Ooma office, which includes leveraging the capabilities of our 2600 Hertz acquisition to launch more sophisticated call center features later this year. Ooma air dial, our POTS replacement solution also made good progress in Q2. We further enhanced our differentiation versus other solutions with the launching Q2 of call alerts, which informs customers when air dial calls are placed and can be of critical value in life safety applications.
Speaker Change: 2600 Hertz, our whole sale and developing CPAS solution, so I expanded customer interesting YouTube both domestically and internationally.
Speaker Change: We are increasingly excited by the level of interest in the 2600 Hertz platform and scope of market opportunity. In part due to the metastwitch end of life announcement and the effect this is having in the marketplace.
Speaker Change: We believe the leading capabilities of the 2600 Hertz platform, the enhancements we are making by integrating the pneumotet technology and applications into the platform.
Eric Stang: We believe we are the only POTS replacement provider to offer this feature. Likewise, our investment to expand our sales and marketing reach is generating more opportunities and sales momentum. Once again, in Q2 we closed more new customers for air dial than any previous quarter. As in prior quarters, we also added new air dial resellers in Q2.
Speaker Change: and the steps we are taking to broaden the platform to serve select, CPAS applications, are all driving strong customer interest.
Speaker Change: As well, the aging nature of competitive platforms is driving market opportunity.
Speaker Change: Wil recall we announced a very large customer win for 2,600 Hertz last quarter and believe this customer will become one of our largest customers in the future.
Eric Stang: Here I have some special news. We have been told by an incumbent local exchange carrier that they plan to resell air dial beginning later this year. This is exciting because of the size and scope of this new partner who we believe is one of the top 10 largest service providers in America. As a large incumbent carrier, they have a vast number of customers they serve today with POTS lines that will ultimately need to be replaced.
Speaker Change: I'm pleased to report that we are on track to launch with this customer this fall.
Speaker Change: I'm also pleased to report that in Q2, this customer chose to expand the scope of our relationship and adopt more capabilities of the 2600 Hertz platform that are recently envisaged.
Speaker Change: We were able to upsell this customer to a more turnty solution thanks to our efforts to integrate UMA applications and technology into the 2600 Hertz platform.
Eric Stang: We expect to be able to provide more detail about this, including the timing for launch on our third quarter conference call. We believe this is a breakout win for air dial. 2600 Hertz, our wholesale and developing CPAS solution, saw expanded customer interest in Q2 both domestically and internationally. We are increasingly excited by the level of interest in the 2600 Hertz platform and scope of market opportunity in part due to the meta switch end-of-life announcement and the effect this is having in the marketplace.
Speaker Change: While this customer of course receiving a lot of our attention, I'm also pleased to report they are not the only new 2600 customer we expect to roll out with this fall and we see that he is significant and growing pipeline of opportunity.
Speaker Change: It's difficult to foresee the revenue we will drive in the back half of this year from 2600 Hertz expansion, but we anticipate positive momentum.
Eric Stang: We believe the leading capabilities of the 2600 Hertz platform, the enhancements we are making by integrating Ooma Technology and Applications into the platform, and the steps we are taking to broaden the platform to serve select, see pass applications are all driving strong customer interest, as well, the aging nature of competitive platforms is driving market opportunity. We will move in for 2600 Hertz last quarter and believe this customer will become one of our largest customers in the future.
Speaker Change: On the residential front, Luma-Telo also performed well in Q2.
Speaker Change: We remain excited about the residential market opportunity, especially now that residential tax lines are also increasing in cost and starting to sunset.
Speaker Change: We believe TELLO can be an ideal solution to replace residential copper lines.
Speaker Change: In this regard, I'm extremely pleased to report that the large incumbent local exchange carrier I mentioned earlier has also told us that they plan to replace the residential copper lines across their business with Umatella.
Eric Stang: I'm pleased to report that we are on track to launch with this customer this fall. I'm also pleased to report that in Q2 this customer chose to expand the scope of our relationship and adopt more capabilities of the 2600 Hertz platform than originally envisaged. We were able to upsell this customer to a more turnkey solution thanks to our efforts to integrate Ooma Applications and Technology into the 2600 Hertz platform. While this customer is of course receiving a lot of our attention, I'm also pleased to report they are not the only new 2600 Hertz customer we expect to roll out with this fall, and we see it see a significant and growing pipeline of opportunity.
Speaker Change: and they are actively engaged with us to start doing so.
Speaker Change: Together, we have selected one local market to launch this fall as a test to refine the deployment process.
Speaker Change: We anticipate this carrier will resell the tele-solution and convert their residential copper base over time.
Speaker Change: We expect this first market roll out to begin late in our Q3, and we expect to be able to provide more information on our next earnings call.
Speaker Change: Well, we don't yet have clear visibility to predict the impact of this on our business. We can say that the market potential, afforded by this carrier, is very large indeed, and is meaningful, relative to the size of our current residential business.
Eric Stang: It's difficult to perceive the revenue we will drive in the back half of this year from 2600 Hertz expansion, but we anticipate positive momentum. On the residential front, Ooma Tello also performed well in Q2. We remain excited about the residential market opportunity, especially now that residential pop lines are also increasing in cost and starting to sunset. We believe Tello can be an ideal solution to replace residential copper lines. In this regard, I'm extremely pleased to report that the large incumbent local exchange carrier I mentioned earlier has also told us that they plan to replace the residential copper lines across their business with Ooma Tello, and they are actively engaged with us to start doing so.
Speaker Change: Before I turn it over to Shig, I'd like to make one more comment about Uma's strategic direction.
Speaker Change: We are fortunate to have invested in several premier solutions with tremendous market potential.
Speaker Change: In doing so, we have spent heavily on creating these solutions in developing our current strategic position.
Shig: As such, as we look forward, we feel we are reaching a turning point, where we can increasingly capitalize on the investments we've made and the market opportunity they afford.
Shig: In this regard, we also anticipate that we can drive increased bottom line results, as we endeavored to capitalize on our competitive advantage and succeed in our target markets.
Shig: I'm now turning the call over to Shigey, our CFO to discuss our results and not look at more detail and then return with some closing remarks
Eric Stang: Together, we have selected one local market to launch this fall as a test to refine the deployment process. We anticipate this carrier will resell the Tello solution and convert their residential copper base over time. We expect this first market rollout to begin late in our Q3. We expect to be able to provide more information on our next earnings call. While we don't yet have clear visibility to predict the impact of this on our business, we can say that the market potential afforded by this carrier is very large indeed and is meaningful relative to the size of our current residential business.
Shigey Hamamatsu: Thank you, Eric and good afternoon, everyone.
Shigey Hamamatsu: I'm going to review our second quarter financial results and then provide a outlook for the third quarter in four years fiscal 2025.
Shigey Hamamatsu: Our second quarter revenue was $64.1 million solidly above the high end of our guidance range and was up 10% year over year.
Shigey Hamamatsu: Driven by the strength of Uma Business, as well as the addition of 26th Anniversary.
Shigey Hamamatsu: In the 7th quarter, we saw better than expected of revenue contributions from many of the offerings, including air dial and 26th on a Hertz.
Eric Stang: Before I turn it over to Shayk, I'd like to make one more comment about Ooma's strategic direction. We are fortunate to have invested in several premier solutions with tremendous market potential. In doing so, we have spent heavily on creating these solutions and developing our current strategic position. As such, as we look forward, we feel we are reaching a turning point where we can increasingly capitalize on the investments we've made and the market opportunity they afford. In this regard, we also anticipate that we can drive increased bottom line results as we endeavor to capitalize on our competitive advantage and succeed in our target market.
Speaker Change: Also, with the Nazi any material seat reductions from IWG during the quarter, although we now believe the reductions we had originally anticipated in Q2 have been deferred to the second half of this fiscal year.
Speaker Change: In the second quarter, business subscription and services revenue accounted for 60% or total subscription and services revenue as compared to 57% in the prior quarter.
Speaker Change: QD product and other revenue came in at $4.6 million, as compared to $3.6 million in the prior quarter.
Speaker Change: On the profitability front, the second quarter non-gap net income was $4.1 million, above the guidance range of $3.6 to $3.9 million.
Shigeyuki Hamamatsu: I will now turn the call over to Shig or CFO to discuss our results and outlook in more detail and then return with some closing remarks Thank you, Eric and good afternoon everyone. I'm going to review our second quarter financial results and then provide a outlook for the third quarter in four year fiscal 2025. Our second quarter revenue was $64.1 million solidly above the high end of our guidance range and was up 10% year over year driven by the strength of Ooma business as well as the addition of 26 cent of hurts.
Speaker Change: Now some details on our tutu revenue.
Speaker Change: Business subscription and services revenue grew 15% the over year in Q2, driven by user growth and the addition of 26 hundred hertz.
Speaker Change: Excluding 26th Anniversary's Revenue Contribution, Business Subscription and Services Revenue grew 9% over year.
Speaker Change: On the right side, subscribe and service as revenue is down 1% year over year.
Speaker Change: For the second quarter, total subscription and services revenue was $59.6 million or 93% of total revenue as compared to $54.7 million or 94% of total revenue in the prior quarter.
Shigeyuki Hamamatsu: In the second quarter, we saw better than expected revenue contributions from many of our offerings including air dial and 26 cent of hurts. Also, we did not see any material seat reductions from IWG during the quarter, although we now believe the reductions we had originally anticipated in Q2 have been deferred to the second half of this fiscal year. In the second quarter business subscription and services revenue accounted for 60% or total subscription and services revenue as compared to 57% in the prior quarter.
Speaker Change: Now some details on a key customer metrics.
Speaker Change: We ended a second quarter with 1,244,000 core users, which is up from 1,239,000 core users at the end of the first quarter.
Speaker Change: At the end of the second quarter, we had 500,000 business users, or 40% of a total core users, an increase of 12,000 from Q1.
Shigeyuki Hamamatsu: Q2 product and other revenue came in at $4.6 million as compared to $3.6 million in the prior quarter. On the profitability front, the second quarter non-gap net income was $4.1 million above a guidance range of $3.6 to $3.9 million. Now some details on our Q2 revenue. Business subscription and services revenue grew 15% year over year in Q2 during by user growth and the addition of 26 cent of hurts. Excluding 26 cent of hurts revenue contribution, business subscription and services revenue grew 9% year over year.
Speaker Change: Driven by user additions for UMA Office, UMA Enterprise, and Aidao.
Speaker Change: I'm a blended average monthly subscription and services revenue per core user or uproot increased 4% year of a year to $15.7.
Speaker Change: Driven by an increase in mix of business users, including Hayaya, Uppu, Office Pro, and Pro Plus users.
Speaker Change: During the second quarter, we continued to see a healthy office pro and pro plus take rate with 58% of new office users opting for these higher tier services, which was up from 55% in the prior quarter.
Shigeyuki Hamamatsu: On the residential side, subscription and services revenue was down 1% year over year. For the second quarter total subscription and services revenue was $59.6 million or 93% of total revenue as compared to $54.7 million or 94% of total revenue in the prior quarter. Now some details on our key customer metrics. We ended a second quarter with 1,244,000 core users, which is up from 1,239,000 core users at the end of the first quarter.
Speaker Change: Olaal 31% of UMA office users have now subscribed to these higher tier services.
Speaker Change: I'm your ex at recurring revenue, grew to 233 million dollars and was up 8% over year.
Speaker Change: Our net data subscription retention rate for a quarter was 100% as compared to 99% in the first quarter.
Speaker Change: Now some details on Adro's margin.
Speaker Change: I was subscription and services gross margin for the second quarter of 72% as compared to 72% in a prior year.
Speaker Change: As I remind you, subscription and services gross margin for the 7th quarter, this fiscal year included an impact of 263rds.
Shigeyuki Hamamatsu: At the end of the second quarter, we had 500,000 business users or 40% of total core users an increase of 12,000 from Q1. Driven by user additions for human office, human enterprise and air dial. Our blended average monthly subscription and services revenue per core user or approved increased 4% year over year to $15.7. Driven by an increase in mix of business users including higher approved office pro and pro plus users, users.
Uma: Gross Margin, which is running low reliability to Uma's subscription Gross Margin.
Uma: Product and other gross margin for the second quarter was negative 69% as compared to negative 73% for the same period last year.
Uma: As anticipated, we have substantially completed consumption of high-cost components. We had procured during the pandemic in the second quarter.
Uma: Accordingly, we expect product and other gross margin will start to normalize in the negative 55% range in the second half of this fiscal year.
Shigeyuki Hamamatsu: During the second quarter, we continue to see a healthy office pro and pro plus take rate with 58% of new office users opting for these higher tier services, which was up from 55% in the prior quarter. Overall, 31% of Ooma office users have now subscribed to these higher tier services. Our annual exit recurring revenue grew to 233 million dollars and was up 8% over year. Our net debt subscription retention rate for the quarter was 100% as compared to 99% in the first quarter.
Uma: On an all-all basis, total gross margin for Q2 was 62% as compared to 63% in the prior quarter.
Uma: and now some details on our operating expenses.
Uma: Total operating expenses for the second quarter worth $35.2 million, up to $6 per cent for the same period of last year.
Uma: Excluding the impact of 26th Anniversary Ferts
Uma: The total operating expenses increased $0.2 million from the same period last year.
Uma: So the marketing expenses for the second quarter were $17.6 million or $27 per cent of the total revenue. What's down 1% year over year, as we control our spending to increase profitability.
Shigeyuki Hamamatsu: Now some details on our gross margin. Our subscription and services gross margin for the second quarter was 72% as compared to 72% in the prior year. As a reminder, subscription and services gross margin for the second quarter this fiscal year included an impact of 2600 Hertz gross margin, which is running lower relative to Ooma subscription gross margin. Product and other gross margin for the second quarter was negative 69% as compared to negative 73% for the same period last year.
Uma: Research and development expenses were $12.2 million on 19% of total revenue up 15% on a year of a year basis driven mainly by the addition of 2600 hertz team members.
Uma: DNA expenses were 5.4 million dollars or 8% of total revenue for the second quarter compared to 4.9 million dollars for the prior quarter.
Uma: The year over your increase in DNA expenses was primarily due to increases in personnel and audit the late class.
Shigeyuki Hamamatsu: As anticipated, we have substantially completed consumption of higher cost components we had procured during the pandemic in the second quarter. Accordingly, we expect product and other gross margin will start to normalize in the negative 55% range in the second half of this fiscal year. On an overall basis, total gross margin for Q2 was 62% as compared to 63% in the prior year quarter.
Uma: Non-Gap net income for the second quarter was $4.1 million or deluded for a share of 15 cents as compared to 15 cents in the prior quarter.
Speaker Change: I just said EBITDAF what a quarter was $5.6 million.
Speaker Change: A record for the company was 9% of total revenue as compared to $4.9 million for the project quarter.
Shigeyuki Hamamatsu: And now some details on our operating expenses. Total operating expenses for the second quarter were 35.2 million dollars, up to million dollars, or 6% for the same period last year, excluding the impact of 2600 Hertz, the total operating expenses increased 0.2 million dollars from the same period last year. So the market expenses for the second quarter were 17.6 million dollars or 27% of the total revenue was down 1% over year as we controlled our spending to increase profitability.
Speaker Change: We ended a quarter with total cash and investments of $16.6 million.
Speaker Change: Cash generated from operations for the second quarter but strong in 7.1 million dollars, it was a new quarterly record for the company.
Speaker Change: On a trailing 12-month basis, we generated a record $18 million off an cash flow and $12 million of free cash flow.
Speaker Change: which represented 69% and 154% increase respectively over the same period a year ago.
Shigeyuki Hamamatsu: Research and development expenses were 12.2 million dollars or 19% of the total revenue, up 15% on a year-over-year basis driven mainly by the addition of 2600 Hertz team members. GNA expenses were 5.4 million dollars or 8% of total revenue for the second quarter compared to 4.9 million dollars for the prior quarter. The year-over-year increase in GNA expenses was primarily due to increases in personnel and audit related costs. Non-gap net income for the second quarter was 4.1 million dollars or diluted for a share of 15 cents as compared to 15 cents in the prior quarter.
Speaker Change: We paid down a debt by $3 million in a second quarter and reduced the outstanding debt balance to $8.5 million.
Speaker Change: On the headcount front, we ended a quarter with 1130 employees and contractors.
Speaker Change: Now I will provide guidance for the second third quarter in full fiscal year 2025.
Algaira Siddhan: Algaira Siddhan, a non-gab basis and has been adjusted for expenses such as stock-based compensation, ampsidiacinal intangibles, and certain non-becoring gains and expenses.
Algaira Siddhan: We expect total revenue for the third quarter of fiscal 2025 to be in the range of 64.2 million to 64.6 million dollars, which includes 4.3 to 4.5 million dollars of product revenue.
Shigeyuki Hamamatsu: Adjusted EBITDA for the quarter was 5.6 million dollars. A record for the company were 9% of total revenue as compared to 4.9 million dollars for the prior quarter. We ended a quarter with total cash and investments of $16.6 million. Cash generated from operations for the second quarter, but strong, and at $7.1 million, it was a new quarterly record for the company. On a 12 month basis, we generated a record $18 million off-end cash flow and $12 million off-end cash flow, which represented 69% and 154% increase respectively over the same period a year ago. We paid down a debt by $3 million in a second quarter and reduced the outstanding debt balance to $8.5 million. On the head count front, we ended a quarter with 1130 employees and contractors.
Algaira Siddhan: We expect third quarter net income to be in the range of 4.1 to 4.3 million dollars.
Algaira Siddhan: Non-Gap, Dulu to the EPS, is expected to be between 15 cents and 16 cents.
Algaira Siddhan: We have assumed 27.5 million word average to the diluter shares outstanding for the third quarter.
Algaira Siddhan: For full fiscal 2025, we are raising both revenue and profitability outlook.
Algaira Siddhan: We now expect total revenue of $254 million to $255.5 million.
Algaira Siddhan: The four year fiscal 2025 revenue guidance assumes business subscription and services revenue growth rate of approximately 13% over fiscal 2024.
Algaira Siddhan: While residential subscription revenue to decline 1%.
Algaira Siddhan: In terms of revenue next year, we expect 93% to 94% of total revenue to come from subscription and service as revenue, and a remainder from products and other revenue.
Shigeyuki Hamamatsu: Now, I will provide guidance for the second third quarter and full fiscal year 2025. Our guidance is on a non-gap basis and has been adjusted for expenses, such as stock-based compensation, amputation and intangibles, and certain non-recurring gains and expenses. We expect total revenue for the third quarter of fiscal 2025 to be in the range of 64.2 million to 64.6 million dollars, which includes 4.3 to 4.5 million dollars of product revenue. We expect third quarter net income to be in the range of 4.1 to 4.3 million dollars.
Algaira Siddhan: As for non-gap net income, we now expect it to be in the range of 15.7 to $16.2 million.
Algaira Siddhan: Based on this guidance range, we estimate our adjusted EBITDA for fiscal 25 to be in 21.5 million to 22 million dollars.
Algaira Siddhan: We expect non-gap de lured EPS for fiscal 25 to be in the range of 57 cents to 59 cents.
Algaira Siddhan: We have assumed approximately 27.5 million where the average due looters shares without standing full fiscal 2025.
Shigeyuki Hamamatsu: Non-gap deluded EPS is expected to be between 15 cents and 16 cents. We have assumed 27.5 million where the average deluded shares outstanding for the third quarter. For full fiscal 2025, we are raising both revenue and profitability outlook. We now expect total revenue of 254 million to 255.5 million dollars. The four-year fiscal 2025 revenue guidance assumes business subscription and services revenue growth rate of approximately 13% over fiscal 2024, while residential subscription revenue to decline 1%.
Algaira Siddhan: In summary, we are pleased with our solid cuter results with record, adjusted EBITDA, in free cash flow. And we may focus on executing to a long-term strategy to achieve profitable growth.
Algaira Siddhan: I'm not fussing about Eric for some closing remarks, Eric
Eric Stang: Thank you, Shigeyuki
Eric Stang: We're going to pleasure to talk with you today about our great key to results in our progress to grow our business. The next two quarters should be very interesting for humans. We attempt to roll out and expand new customer relationships and we look forward to being able to share more with you as these opportunities unfold.
Speaker Change: Thank you, we will now take questions.
Speaker Change: Thank you as a reminder to ask a question, you will need to press star 1-1 on your telephone, to remove yourself from the QE may press star 1-1 again, please stand by while we compile the Q&A roster.
Shigeyuki Hamamatsu: In terms of revenue next for the year, we expect 93% 94% of total revenue to come from subscription and services revenue and the remainder from products and other revenue. As for non-gap net income, we now expect it to be in the range of 15.7 to 16.2 million dollars. Based on this guidance range, we estimate our adjusted EBITDA for fiscal 25 to be in 21.5 million to 22 million dollars. We expect non-gap deluded EPS for fiscal 25 to be in the range of 57 cents to 59 cents. We have assumed approximately 27.5 million where the average deluded shares outstanding for fiscal 2025.
Speaker Change: Our first question comes from the line of Brian Kim Slinger of Alliance Global Partners.
Speaker Change: Great, thanks so much for taking my questions to couple. The first one is, are there any updates on the sales cycle or install pace for air dial customers, the enterprise ones?
Speaker Change: Nothing special to report. We've talked about the sales cycle on pace in the past and about help.
Speaker Change: [inaudible]
Speaker Change: Customers
Speaker Change: Sometimes start with a portion of their needs and even proof of consistency before they move to full roll out. But all the pressures are there in the market and we do see the market.
Shigeyuki Hamamatsu: In summary, we are pleased with our solid cuter results with record adjusted EBITDA in free cash flow and remain focused on executing to a long-term strategy to achieve profitable growth.
Speaker Change: Developing as we'd expect is plotlines become even more expensive and more sunset. But no, it's still a process with the larger customers, with the smaller customers.
Eric Stang: Are not possible to add to Eric for some closing remarks. Eric Thank you, Shigey. It's been a pleasure to talk to you today about our great key two results and our progress to grow our business.
Speaker Change: We can move pretty quickly. Most often when you've got a customer that just needs a few lines, we'll have it installed within a month.
Eric Stang: The next two quarters should be very interesting for humans. We attempt to roll out and expand new customer relationships, and we look forward to being able to share more with you as these opportunities unfold.
Speaker Change: Great, thank you, and then you talked about the content service provider in the U.S. selling their dial to which residential customers. Is this sales, the execution of the sale on them?
Unknown Executive: Thank you. We will now take questions. Thank you as a reminder to ask a question. You will need to press star 11 on your telephone to remove yourself from the queue. You may press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Will we see what's going to change? Do you expect to see the residential customers and users begin to increase in the second half of the year or early next year? How do you think this might impact your results on the residential side?
Brian Kinstlinger: Our first question comes from the line of Brian Kinstlinger of Alliance Global Partners. Great. Thanks so much for taking my questions to a couple.
Speaker Change: Well first of all to clarify this incumbent local exchange carrier I talked about.
Eric Stang: The first one is, are there any updates on the sales cycle or install a pace for air dial customers, the enterprise lines? Nothing special to report. We've talked about the sales cycle and pace in the past and about how customers sometimes start with a portion of their needs. We've talked about the pace and even proof of concepts before they move to full roll out, but all the pressures are there in the market, and we do see the market developing as we'd expect, as podcasts become even more expensive and more sunset.
Speaker Change: They're doing two things with us. With their reselling air dial, which will go to their business customers, which they have a lot.
Speaker Change: and reselling Uma-Telo, which will go to their residential customers.
Speaker Change: which they also have a lot.
Speaker Change: I think both are quite significant for us as a company, but I'm not yet ready to give guidance on what we'll mean for next year.
Speaker Change: But these are terrific new opportunities for Uma. We believe we're the only provided they're working with and since they...
Eric Stang: But no, it's still a process with the larger customers. With the smaller customers, we can move pretty quickly. Most often, when you've got a customer that just needs a few lines, we'll have it installed within a month. Great. Thank you.
Speaker Change: Own or manage all of these residential and business copper lines.
Speaker Change: They have direct customer access, they have trucks that can roll out to switch customers over.
Eric Stang: And then you talked about the top 10 service provider in the US selling air dial to which residential customers. Is the sales, the execution of the sale on them, and will we see what's going to change it? Do you expect to see the residential customers and users begin to increase in the second half of the year or early next year? How do you think this might impact your results on the residential side?
Speaker Change: Um, they have the ability to move at whatever pace they choose to move and so it's, we expect it to be a very exciting, um,
Speaker Change: Opportunity Force that won full, particularly over the next three or four months, as they go through the trial on the residential side, which I mentioned, and as they get the air dial product launched into market.
Speaker Change: When it's all open that you mentioned they can move as fast as they want so the consumer, the user and a residential side won't have to opt in.
Eric Stang: Yeah. Well, first of all, to clarify, this incumbent local exchange carrier, I talked about they're doing two things with us, with their reselling air dial, which will go to their business customers, which they have a lot, and reselling umatelo, which will go to their residential customers, which they also have a lot. I think both are quite significant for us as a company, but I'm not yet ready to give guidance on what we'll mean for next year.
Speaker Change: On these are residential consumers that they have today.
Speaker Change: Um, they do have to give, I think maybe a 90-day notice per...
Speaker Change: Laws that exist around this, but if they're going to shut off your pot's line, your residential line, and then give you that 90 day notice, as a residential customer, I guess you have a decision to make. You can say, yeah, come in and switch it out with a tell-over, you can say, don't.
Speaker Change: But they have control over their customers and how they handle them, I believe.
Eric Stang: But these are a terrific, terrific new opportunities for, for Uma, we believe we're the only provider they're working with. And since they own or manage all of these residential and business copper lines, they have direct customer access, they have trucks, they can roll out to switch customers over. They have the ability to move at whatever pace they choose to move. And so it's, we expect it to be a very exciting opportunity for us that one fold, particularly over the next three or four months as they go through the trial on the residential side, which I mentioned, and as they get the air dial product launched into market.
Speaker Change: I call the last question for Shigey. I asked this last quarter to, but with revenue in the third quarter and fourth quarter, looking similar to what was just reported with a similar mix.
Speaker Change: and the gross margin of hardware coming down by 15 points or more.
Speaker Change: I guess I'm wondering why the adjusted net income guidance.
Speaker Change: Look similar in the third quarter and fourth quarter compared to what would have reported in the second quarter. That makes sense.
Speaker Change: Yeah, I understand.
Speaker Change: So part of it is, you know, obviously the guidance for revenue let's say Forest includes the impact of anticipated term. Now you have to slip from Q2 to second half with IWG I talked about. So there's a little impact that that is factored in in a second half.
Eric Stang: I'm going to follow up on that. You mentioned they can move as fast as they want to the consumer, the user, the residential side won't have to opt in. These are residential consumers that they have today. They do have to give, I think, maybe a 90-day notice for some laws that exist around this. But if they're going to shut off your POTS line, your residential line, and they give you that 90-day notice, as a residential customer, I guess you have a decision to make. You can say, yeah, come in and switch it out with a teller, or you can say, don't. But they have control over their customers and how they handle them, I believe. Great. That's helpful.
Speaker Change: and also the...
Speaker Change: Friday to revenue, you know, I think I got at the 4.1 to 4.3 in Q3.
Speaker Change: Some of those parts were having you, right away, what I'm going to say is undulated to air dial, so something other than air dial, there's some one-time installations that we're expecting in Q3 that may not recur in Q4.
Speaker Change: So there's some one time we have a new plus in Q3 that's not a recovery for, you know, so this is the same fact.
Speaker Change: is impacting the revenue pace Q3 versus Q4.
Shigeyuki Hamamatsu: Last question. I think I got this last quarter, too. But with revenue in the third quarter and fourth quarter, looking similar to what was just reported with a similar mix, and the gross margin of hardware coming down by 15 points or more. You get some wondering why the adjusted net income guidance looks similar in the third quarter and fourth quarter compared to what was reported in the second quarter. That makes sense.
Speaker Change: Yeah, so those are the main drivers, you know, I think of the...
Speaker Change: Q3, I'm excuse me, Q2, so the market is spent, we controlled well, we made sure that
Speaker Change: Roy Investon right channel, but to the extent that we want to look closely at the opportunity through invest some more dollars into sales and market, maybe in 28% range instead of 27%. So there's some puts and takes that leading to the dinosaur number.
Shigeyuki Hamamatsu: Yeah, I understand. So part of it is obviously the guidance for revenue, let's say, for us includes the impact of anticipated term. Now it has slipped from Q2 to the second half with IWG I talked about. So there's a little impact that that is factored in in a second half. And also, the product revenue, I think I got it to 4.1 to 4.3 into 3. Some of those part were revenue, right away, what I'm going to say is undulated to air dial.
Speaker Change: How did you say that? You know, we're still looking at the 9% EBITDA based on a guidance, EBITDA margin for a second half, which should put us to 9% EBITDA margin for the whole year.
Speaker Change: First 8% will be guided to coming out of the year. I think some more work we can do improve but we're happy to see what we are going into second half to improve the profitability much better than what we've guided to at the beginning of the year.
Shigeyuki Hamamatsu: So something other than air dial, there's some one time installations that were expecting a Q3 that may not recurring to 4. So there's some one time revenue plus in Q3, that's not a recurrent Q4. And also this recent impact is impacting the revenue pace Q3 versus Q4. So those are main drivers. I think the Q3, excuse me, Q2, sales and marketing spend, we controlled well. We made sure that we're investing right channel.
Speaker Change: Thanks.
Speaker Change: Alright, I think that the other thing Brian so...
Speaker Change: Just finished up my thought. There's a little seasonality through a GNA expense, a namely to audit feeds. We get build more in the second half as we get into the kind of a heavy year-settable audit cycle in the years. So that's the other fact to impact in the all-text little bit higher for GNA in the second half.
Speaker Change: Okay, that makes a little more sense because it sounds like you're going to save a million dollars and hardware grows margin.
Speaker Change: the exact same split of revenue. So to me that million dollars may be explained by GNA but more than that it would be a little bit more. Yeah, maybe I should've said that first but that's one of the bigger factors and you know thinking about how you model that next to course.
Shigeyuki Hamamatsu: But to the extent that we want to look closely at the opportunity to invest some $1 into sales and marketing maybe in 28% range instead of 27%. So there's some puts and takes that's leading to the guidance number. But having said that, we're still looking at the 9% EBITDA based on a guidance EBITDA margin for a second half, which should put us to 9% EBITDA margin for the whole of the year.
Speaker Change: Okay, thank you. Yeah, thank you.
Shigeyuki Hamamatsu: So that's, you know, versus 8% will be guided to coming out of the year. So, you know, I think we're some more work we can do to improve. But we're happy to say what we are going into second half to improve the profitability much better than what we guided to the end of the year. Thank you.
Speaker Change: Thank you.
Speaker Change: from the line of Mike Latamour of Northland Capital Markets.
Mike Latamour: Great, great, thanks, yeah, great to great results and some interesting updates here. I guess at first on 2600 Hz.
Mike Latamour: Obviously you have a nice big customer you're launching. I guess as you look at the pipeline, is the pipeline more skewed towards sort of a wholesale model, or a C-PAD's customer.
Speaker Change: Well, I think it's more skewed towards the wholesale model today. We have many customers talking with us who haven't met a switch in particular and are trying to figure out what they're going to do next.
Shigeyuki Hamamatsu: Oh, I think that the other thing, Brian, so just finished up my thought, there's a little bit of seasonality to a GNA expense, namely to audit fees. We get built more in the second half as we get into the kind of a heavy-year set of audit cycle in the year. So that's the other factor in impacting the off-ex a little bit higher for GNA in the second half. Okay, that makes a little more sense because it sounds like you're going to save a million dollars on hardware, gross margin, the exact name of revenue.
Speaker Change: and the CPAT model is something that's evolving for us.
Speaker Change: We did make some advances on that front in Q2 that I didn't even get into in my script.
Speaker Change: to start the process of strengthening what we do for that type of service delivery. But no, the very big opportunities that we're chasing today are largely...
Speaker Change: Holsale, Holsale Opportunities. One though that comes to mind is Cpass, where we be replacing another Cpass provider. So it's a little bit above, but that's how we see it. Got it.
Shigeyuki Hamamatsu: So, to me, that million dollars may be explained by GNA, but yeah, maybe I should have said that first, but that's one of the bigger factors in, you know, thinking about how you model that. That's two quarters. Okay, thank you. Yeah, thank you.
Speaker Change: I mean, yeah, I like, you know, it's very interesting, I guess, did you say that you are the exclusive vendor into the business channel there or is it, you know, the preferred vendor?
Unknown Executive: Thank you.
Mike Latimore: From the line of Mike Latimore of Northland Capital Markets. All right, great. Thanks. Yeah, great, great results. And some interesting updates here. I guess at first on 2600 Hertz, obviously you have a nice big customer you're launching. I guess as you look at the pipeline, is the pipeline more skewed towards sort of a wholesale model or a CPAS customer? Well, I think it's more skewed towards the wholesale model today. We have many customers talking with us who have met a switch in particular and are trying to figure out what they're going to do next.
Speaker Change: What I said is we believe we're the only vendor for a post-repacement solution and we believe we're the only vendor for a residential copper line replacement solution.
Speaker Change: We think they're working only with us and we're...
Speaker Change: [inaudible]
Speaker Change: You know, are the features and capabilities of our air dial solution stand above others? And similarly, our residential solution has been rated the number one phone service in America by consumer reports for like 10 years.
Speaker Change: But yes, we think that this is a, it's a very new, it's a breakout for us because it's the first partner we've signed up who has their own residential lines to go replace themselves.
Mike Latimore: And the CPAS model is something that's evolving for us. We did make some advances on that front in Q2 that I didn't even get into in my script to start the process of strengthening what we do for that type of service delivery. But no, the very big opportunities that we're chasing today are largely wholesale opportunities. One though that comes to mind is CPAS where we'd be replacing another CPAS provider. So in the ILEC analysis, very interesting.
Speaker Change: And it's also the first time we've signed up a partner who's going to take our residential solution into the residential marketplace.
Speaker Change: Both of those are big, big wins for us and in fact this is a we believe a top ten.
Speaker Change: I like in the country, this could turn out to be quite significant for Uom over time.
Speaker Change: And they have a sort of drop dead date where their hotline go away and you know, who be a catalyst for both these segments.
Mike Latimore: I guess, did you say that you are the exclusive vendor into the business channel there? Or is it, you know, the preferred vendor? What I said is we believe we're the only vendor for a POTS replacement solution and we believe we're the only vendor for a residential copper line replacement solution. We think they're working only with us and we're, I mean, that shouldn't be surprising though. I mean, if you look at the products in the market today, you know, are the features and capabilities of our air dial solutions stand above others?
Speaker Change: Um...
Speaker Change: I will answer that a little bit differently by saying I think they are eager to move forward.
Speaker Change: Yeah, all right.
Speaker Change: Thanks for watching!
Speaker Change: I think you.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Josh Nichols of B. Riley.
Josh Nichols: Yeah, thanks for taking my question, good to see some upsides on the top line, not just for the quarter, but for the year. Sounds like you got a few irons in the fire, but I'm kind of curious if you were to think about the back half and the upside revenue guidance.
Mike Latimore: And similarly, our residential solution has been rated the number one phone service in America by consumer reports for like 10 years. But yes, we think that this is a, it's a very new, it's a breakout for us because it's the first partner we've signed up who has their own residential lines to go replace themselves. And it's also the first time we've signed up a partner who's going to take our residential solution into the residential marketplace.
Speaker Change: How would you attribute that if you were kind of bifurcated between the core business offering that you guys have, air dial and 2600 herbs, how's that being driven?
Speaker Change: Well, our core business offering is our business solutions and whether they're delivered in a wholesale way, with 26 and a Hertz, or to small businesses with whom the office or larger businesses and particularly hospitality hotels with whom they're enterprise or
Mike Latimore: Both of those are big, big wins for us. And the fact that this is a, we believe a top 10, I like in the country, it could turn out to be quite significant for them over time. Do they have a sort of drop dead date where their pop lines go away and you know would be a catalyst for both these segments? I will answer that a little bit differently by saying I think they are eager to move forward. Great. Thanks very much. Thank you.
Speaker Change: You know, our post replacement solution, which is more akin to our residential solution, some respects, we focus on growing all of those and all of them are growing.
Speaker Change: and um
Speaker Change: Now, the market dynamics are a little different across the three, I mean the competitors we face and the competitive position we have.
Speaker Change: It's different across all three in two of them wholesale and post replacement aren't traditional U-casts and I think that's a nice to be diversified as a company across different areas.
Speaker Change: But even our U.K. solution given our focus on small business sets us apart from most of the rest of the industry. It's our intent to grow all three and grow all three well. Now obviously, air dials growing off a smaller base.
Josh Nichols: Next question comes from the line of Josh Nichols of B. Riley. Thanks for taking my question. Good to see some upside on the top line not just for the quarter, but for the year. Sounds like you got a few irons in the fire, but I'm kind of curious if you were to think about the the back half and the upside revenue guidance. How would you attribute that if you were kind of bifurcated between the core business offering that you guys have air dial and 2600 Hertz?
Speaker Change: So, you know, not surprisingly, I think it'd be fair to say that's the fastest growing of the three segments today, but we announced a huge customer win a quarter ago.
Speaker Change: Smoney House almost old news now, but they'll be rolling out this fall and as I said, we expect them to get to be one of our very largest, if not largest customers over time, and that's just one win on the wholesale front.
Josh Nichols: How is that being driven? Well, our core business offering is our business solutions and whether it's delivered, whether they're delivered in a wholesale way with 2600 Hertz or to small businesses with Ooma office or larger businesses and particularly hospitality hotels with Ooma enterprise or you know, our posture placement solution, which is more akin to our residential solutions and respects. It's we focus on growing all of those and all of them are growing.
Speaker Change: We've got great opportunities across all three, and we kind of look at it as Zoom a business today. A lot of our teams are combined. We tried to drive synergy across all three of those areas.
Speaker Change: Thanks to them, I know the 2600 Hertz margin profiles are a little bit lower, but the companies actually see subscription and services gross margins start to increase again, sequentially, at least for the last couple quarters. I'm just curious when you look at that piece of the business.
Josh Nichols: And now the market dynamics are a little different across the three. I mean the competitors we face and the competitive position we have is different across all three in two of them. The whole sale and and post replacement aren't traditional UCAS and I think that's a it's nice to be diversified as a company across different areas. But even our UCAS solution given our focus on small business sets us apart from most of the rest of the industry.
Shigeyuki: Shigeyuki, I think that there's room for that margin to continue to expand current levels and the back half now that the integration is largely complete or what are the margin thoughts for the subscription piece in the back half?
Shigeyuki: Yeah, we're trying to think that...
Speaker Change: There's this, you know, more room to improve on 2600 furs and, you know, team is constantly working on.
Josh Nichols: It's our intent to grow all three and grow all three well now obviously air dials growing off a smaller base. So I you know not surprisingly I think it'd be fair to say that's the fastest growing of the three segments today. But we announced a huge customer win a quarter ago. It's funny how it's almost old news now but they'll be rolling out this fall. And as I said we expect them to get to be one of our very largest, if not largest customers over time.
Speaker Change: The Opportunity to...
Speaker Change: and do that. I think for the remainder of the year, we're still projecting around 72% margin, you know, round number. Part of it is, you know, while we continue to increase the 26th on her own specific growth margin, that we probably will continue to invest a little bit more into their adult support.
Speaker Change: You know, things like that in the nature, so there's a little bit of setting going on, but certainly going into next year, obviously when I died into next year, we should start to see another...
Josh Nichols: And that's just one win on the wholesale front. So we've got great opportunities across all three and we kind of look at it as a business today. A lot of our teams are are combined. We we try to drive synergy across all three of those areas. Thanks so then I know the 2600 Hertz margin profiles a little bit lower but the company's actually seen a subscription and services gross margin start to increase again sequentially at least for the last couple quarters.
Speaker Change: You know, I just want to step away and prove and subscribe to the most smarts in as we continue to grow the business subscription revenue.
Speaker Change: Thanks for the question for me in terms of timing it looks like you have a lot of stuff that's starting to come online in the second half of this year.
Speaker Change: from New Air Dial opportunities as well that we've talked about recently.
Speaker Change: as well as twice a tonner hard since he seems to be benefiting from the metaswitch news.
Josh Nichols: I'm just curious when you look at that that piece of business. Shig do you think that there's room for that margin to continue to expand from current levels and the back half now that the integration is largely completed or what are the margin thoughts for the subscription piece and the back half. Yeah, we certainly think that there's, you know, more room to improve on 2600 FERS and, you know, team is constantly working on the opportunity to, and do that.
Speaker Change: Fair to assume, when if you look at like how you guys laid out the guidance for this year that
Speaker Change: Well, you're not providing any formal guidance for next year that you would expect at least a decent acceleration and growth rate based on kind of the iron that you guys have in the fire. Today, at least on the subscription boost.
Speaker Change: Well, that's certainly what we're driving towards and I do think these large customer wins have the potential to be a real adder to our growth rate. We said at the start of this year that the guidance we gave, we wanted to...
Josh Nichols: I think for the remainder of the year, we're still projecting around 72% margin, you know, around number. Part of it is, you know, while we continue to increase the 2600 FERS specific or margin, that we probably will continue to invest a little bit more into their doubt of support, you know, things of that nature. So there's a little bit of setting going on, but certainly going into next year, obviously, we're not guiding to the next year, but we should start to see another, you know, additional step will improve.
Speaker Change: Drive North, which is to say either a grow faster or make more money or both.
Speaker Change: I think we'll be able to do both next year and obviously we have to get to the end of this year and be able to give you guys since we'll know at that time. But the two large customer wins we've announced the last two quarters are just...
Speaker Change: Kagipens, we massive for us, and we're not done. We are hope.
Josh Nichols: And so subscription goes margin as we continue to grow the business subscription revenue. Thanks. So then I guess like the last question for me, in terms of timing, it looks like you have a lot of stuff that's starting to come online in the in the second half of this year, some new air dial opportunities as well, that we've talked about recently as well as 2600 FERS. It seems to be benefiting from the meta-switch news.
Speaker Change: Full to have further wins here on even this year.
Speaker Change: Yeah, we're trying to build up the building blocks that can be very clearly looked at to estimate but we hope we'll be a faster growth rate next year.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question, comes from the line.
Speaker Change: of Eric Martinosing of Lake Street Capital Markets.
Josh Nichols: Fair to assume, when if you look at how you guys laid out the guidance for this year, that while you're not providing any formal guidance for next year, that you would expect at least a decent acceleration in growth rate based on kind of the irons that you guys have in the fire today, at least on the subscription boost. Well, that's certainly what we're driving towards. And I do think these large customer wins have the potential to be a real adder to our growth rate.
Eric Martinosing: Yeah, I wanted to follow up on the highlight when was there any other competitor on either the business side or the residential side that...
Eric Martinosing: kind of gave you a run for your money or cause the awarding of it to maybe get slow down versus what you thought or is it pretty much you're writing the RFT and winning the RFT.
Josh Nichols: We said at the start of this year that the guidance we gave, we wanted to drive north, which is to say either a grow faster or make more money or both. I think we'll be able to do both next year. And obviously we have to get to the end of this year and be able to give you guidance and so we'll know at that time. But the two large customer wins, we've announced the last two quarters are just as a test we massive for us.
Speaker Change: Well, we're in a competitive market. There's no doubt. I mean, most companies have competitors. And I'm sure that this new customer did their homework.
Speaker Change: I can tell you that we were working with them for a while and have been through much of Q2, we were doing development in conjunction with them to be ready for the Q3 residential rollout that we talked about.
Josh Nichols: And we're not done. We are hopeful to have further wins here even this year. So yeah, we're trying to build up the building blocks that can be very clearly looked at to estimate, but we hope will be a faster growth rate next year.
Josh Nichols: Thank you.
Uma: So, but I don't think it was too hard for Uma to stand out, I mean, ours.
Uma: Our Air Dial solution in our residential solution, I think have so many competitive advantages and can be offered at such a great value that I think the important thing is getting to the point where customers like that.
Uma: Make the decision they need to do something and start the process to do it. And I think with the post replacement market, it's just...
Eric Martinuzzi: Our next question comes from the line of Eric Martinuzzi of Lake Street capital markets.
Speaker Change: You know a year ago we talked to the coach that he hadn't even heard about.
Eric Stang: Yeah, I wanted to follow up on the I-LEC when was there any other competitor on either the business side or the residential side that kind of gave you a run for your money or caused the awarding of it to maybe get slowed down versus what you thought or is it pretty much You're writing the RFP and winning the RFP. Well, we're in a competitive market. There's no doubt. I mean most companies have competitors and I'm sure that this new customer did their homework.
Speaker Change: The need. The almost customers have kind of heard about this but we haven't really hit the inflection point where the market I think turns and a lot of people need to do something but we're getting there. One analyst that talk with us told us they think only about
Speaker Change: I mean, like...
Speaker Change: Sub 5% of the lines that need to convert in the U.S. have converted so far. I don't know how they quite get that number, but I can tell you that.
Speaker Change: We have one this one large customer and we
Speaker Change: Uh, have other conversations going on where we're starting to see.
Speaker Change: Potentially large partners get to the point where they know they need to do something and they're considering what they're going to do. And that's great for us. That's what we've been building to for the last two years in all honesty. So it's got a success.
Eric Stang: I can tell you that we've been working with them for a while and have been through much of Q2. We're doing development in conjunction with them to be ready for the Q3 residential rollout that we talked about. So, but I don't think it was too hard for Ooma to stand out. I mean our our air dial solution and our residential solution. I think have so many competitive advantages and can be offered at such a great value that I think the important thing is getting to the point where customers like that.
Speaker Change: So that's pipeline that could potentially convert here in FY25.
Speaker Change: Yeah, we will get sales in FY25, which is to say the back half of this year, and we should go into FY26 with start February next year with a lot of momentum.
Speaker Change: Okay?
Speaker Change: and for the business growth rate, you know.
Speaker Change: Your guidance is based on 13% for business and residential at a minus 1%. Just looking quarter by quarter, the trend is actually going the other way, Q2 versus Q1 on the business side at 9%.
Eric Stang: Make the decision they need to do something and start the process to do it. And I think with the pots replacement market, it's just, you know, a year ago we talked to customers who hadn't even heard about the need. Now most customers have kind of heard about this but we haven't really hit the inflection point where the market I think turns and a lot of people need to do something but we're getting there.
Speaker Change: Joseph, the 12% we had in Q1. Is that just a question of the lumpiness of the quarter by quarter and we've got a back log or a pipeline that substantiates that full year at 13% which behind the guy.
Eric Stang: One analyst that talked with us told us they think only about, I mean like sub 5% of the lines that need to convert in the US have converted so far. I don't know how they quite get that number but I can tell you that we have won this one large customer and we have other conversations going on where we're starting to see potentially large partners get to the point where they know they need to do something and they're in a considering what they're going to do.
Joseph: Yeah, that's...
Speaker Change: is mainly due to the World's EOBIA growth rate for a largest customer AWG. So, if you recall that last...
Speaker Change: A couple quarters, the new seat additions that we just has been relatively low compared to, let's say, Q2, Q3, Q4 last year.
Speaker Change: So, um, the...
Eric Stang: And that's great for us. That's what we've been building to for the last two years in all honesty. So it's got us excited. So that's pipeline that could potentially convert here in FY 25. Yeah, we will get sales in FY 25 which is to say the back half of this year and we should go into FY 26 which starts February next year with a lot of momentum.
Eric Stang: Okay.
Speaker Change: If you think about 21, we had them.
Speaker Change: More benefit of having user additions in the prior 12 months. Now you go to Q2 now and we have a less benefit because we do not add as many in the last couple quarters plus we had a turn.
Speaker Change: In Q1, Apple the large term we talked about. So really the driver there is the Rita's eOV of growth has been lower a quarter of a quarter.
Shigeyuki Hamamatsu: And then for the business growth rate your guidance is based on 13% for business and residential at a minus 1%. Just looking quarter by quarter the trend is actually going the other way Q2 versus Q1 on the business side at 9% versus the 12% we had in Q1. Is that just a question of the lumpiness of the quarter by quarter and that we've got a back either a backlog or a pipeline that substantiates that full year at 13% what's behind the guys.
Speaker Change: I'll see you in the next video!
Speaker Change: Thank you for taking my questions.
Speaker Change #100: Well, thank you.
Speaker Change #101: Thank you, our next question.
Speaker Change #102: Kamsun-The Line of Arjun Batia of William Belayer.
Speaker Change #102: Hi, this is Chris Lumpher, I already know on my congrats on a great quarter, so it was nice to see net retention in place to up to a hundred, because you give us a sense for what one of the main drivers were there and how you see this trending over the next few quarters, is this the start of a trend or will that not be consistent until we get through the full IWGC trend?
Shigeyuki Hamamatsu: Yeah, that is mainly due to the growth EOB growth rate for our largest customer IWG. So if you think if you recall that last couple quarters. The new seed additions that we just has been relatively low compared to let's say Q2 to Q3 Q4 last year. So the if you think about Q1 we had a more benefit of having user additions in the prior 12 months. Now you go to Q2 now and we have a less benefit because we didn't add as many in the last couple quarters plus we had a term, in Q1. Half of the large term we talked about. So really the driver there is the Reedus Eovio growth has been lower, a quarter of a quarter.
Speaker Change #102: Sure.
Speaker Change #103: The main driver is improving 100% I think is we had a little better term, you know, for business shooting in particular, this past quarter so, you know, that certainly helped us to pick up a dead to 100% from 99% last quarter.
Unknown Executive: Thank you for taking my questions.
Unknown Executive: Thank you.
Speaker Change #104: To your point, in terms of short-term looking forward, I do think that it could get back down to 99% when the large turn is second half from IWG who expect when that happens.
Arjun Bhatia: Our next question comes from the line of Arjun Bhatia of William Belayer.
Speaker Change #104: Right now most of it looks like going to happen Q3, maybe some Q4 but that could pull us back down to 99%. So my sense right now is going to hover between 99% in the foreseeable future.
Speaker Change #105: Got it, thanks to the Temple Color. And then we're, you know, about a quarter in the launch of air dial in Canada. I was learning you had it in early feedback from customers and you had things going in that market.
Arjun Bhatia: Hi, this is Chris Lomper, Arjun, and I'll have my congrats on a great quarter. So I was actually seeing that retention inflicted up to a hundred. Could you give us a sense for what some of the main drivers were there and how you see this trending over the next few quarters? Is this the start of a trend or will that not be consistent until we get to the full IWG feature? Sure.
Speaker Change #105: Put enough market development into Canada yet. We do have a party up there that we've worked with that is starting to re-sell air dial, which is great and we've had some wins but I think there's a lot more market opportunity than what we've tapped into yet. So it's just something we need to...
Speaker Change #105: Keep back security on.
Arjun Bhatia: The main driver is improving a hundred percent. I think is, you know, we had a little better term, you know, full of business issues in particular this past quarter. So, you know, that certainly helped us to take up a bet to 100 percent from 99 percent last quarter. To your point, in terms of short term, looking forward, I do think that the, it could did back down to 99 percentish when the large turn and second half from IWG were expecting when that happens.
Speaker Change #105: [inaudible]
Speaker Change #105: I'll be back with you in the next video.
Speaker Change #106: Hello, everyone.
Speaker Change #107: Again, ladies and gentlemen, to ask a question, please press star 1-1 on your telephone. Again, that star 1-1 on your telephone to ask a question.
Speaker Change #107: Hello, everyone.
Speaker Change #107: I'll see you in the next video!
Speaker Change #107: We have a follow-up question from Brian Kinslinger of Alliance Global Partners.
Brian Kinslinger: Thanks so much, I have two thoughts. The third one is...
Arjun Bhatia: Right now, most of it looks like going to happen Q3, maybe some in Q4, but that could pull us back down to 99 percent. So my sense right now is going to hover between 99 and 100 percent in the fourth year of the future. Got it. Thank you. That's helpful color.
Brian Kinslinger: Can you provide an update on that large 2200 Hertz customer you mentioned?
Speaker Change #109: He has a potential at 100,000 seats I believe last quarter. I do see that rollout playing out over the next four to six quarters. I guess is there a committed number of lines that they've communicated over the next over the first 12 months.
Eric Stang: And then we're, you know, about a quarter in the launch of airdile in Canada. I was wondering if you had any early feedback from customers and, you know, how things are going in that market. Thanks. Yeah, I'm glad you asked about that. It's also a good start, but honestly, I don't think we've put enough market development into Canada yet. We do have a party up there that we've worked with starting to resell airdile, which is great.
Speaker Change #110: So, my expectation is they will launch their product in beta form in the market in September.
Speaker Change #111: and that'll be a great step for them. How long that beta labs is hard to say? I can see it last in a month, couple two, three months.
Speaker Change #111: because it's a very elaborate new solution that they're bringing to market versus what they've had in the past.
Eric Stang: We've had some wins, but I think there's a lot more market opportunity than what we've tapped into yet. So it's just something we need to keep executing on. Again, ladies and gentlemen, to ask a question, please press star 11 on your telephone. Again, that star 11 on your telephone to ask a question.
Speaker Change #112: Um, I think that means by closer to year-end, I'm ready to go GA with it and really roll it out.
Speaker Change #112: and how fast they roll it out across the customer base. I don't know.
Speaker Change #112: But then sure they will give us more guidance at that time. But I could see them rolling out the most of their customer base through next year. And if they do that, it will be a long way towards that 100,000 user number if not above it.
Speaker Change #112: Yeah, I think it's clearly the platform of the future for them and they put a lot of work.
Speaker Change #113: On their side, you know, using the APIs in the 2600 Hertz platform to really build a custom solution for the market that is just what they want to bring to market. So I think they're going to move us fast to the camera that once they get over the step of the beta process.
Brian Kinstlinger: We have a follow-up question from Brian Kinslinger of Alliance Global Partners. Thanks so much. I have two thoughts.
Eric Stang: The first one is, can you provide an update on that large 2200 Hertz customer? You had mentioned it has a potential at 100,000 seats. I believe last quarter. I do see that rollout playing out over the next four to six quarters. I guess is there a committed number of lines that they've communicated over the next over the first 12 months. So, my expectation is they will launch their product in beta form in the market in September.
Speaker Change #113: Great. So, yeah.
Speaker Change #114: It's helpful. And then my other question is relate to that local carrier you're discussed on this call. Can you, maybe you did all right, I missed it? Can you size both the residential and their price opportunity in terms of lines?
Speaker Change #115: No, I didn't get this point, I would rather just say that we believe there are top 10 I like in the country, that means they're gonna have
Eric Stang: And that'll be a great step for them. How long that beta lasts is hard to say. I could see it lasting months, couple two, three months because it's a very elaborate new solution that they're bringing the market versus what they've had in the past. I think that means by closer to year end, they're ready to go GA with it and really roll it out. And how fast they roll it out across their customer base.
Speaker Change #116: Hundreds of thousands of residential copper lines and hundreds of thousands of business lines that they served today. And I think I'll leave it at that for now, but you know, it's clearly a big number.
Speaker Change #116: Ok, thank you so much.
Speaker Change #117: Thank you.
Eric Stang: I don't know, but I'm sure they will give us more guidance at that time. But I could see them rolling out to most of their customer base through next year. And if they do that, we'll be a long way towards that 100,000 user number if not above it. So, yeah, I think it's clearly the platform of the future for them and they put a lot of work on their side. You know, using the APIs in the 2600 Hertz platform to really build a custom solution for the market that is just what they want to bring to market. So, I think they're going to move as fast the camera that once they get over the step of the beta process. Right. So, yeah, that's helpful.
Speaker Change #118: Thank you. Next question comes from the line.
Speaker Change #118: of Matthew Herrigan of the Benchmark Company.
Matthew Herrigan: Thank you, it's nice to see that that curator is also what's taking cello as a cop and that's an area I'll be told that it hasn't gotten nearly as much
Matthew Herrigan: Patenton, can you talk about a little bit more about size in the town, on cello, and what it would be in our national, I guess, especially in Europe, given the regulatory differences, and I have some more questions after that.
Speaker Change #120: Yeah, well we don't so tell you in Europe today we could certainly do it but we have not customized the product for that marketplace here in North America weeks.
Speaker Change #121: Gosh, the FCC puts out numbers with delay, but I guess you could estimate around 40 million residential hotlines in use today in North America, so gives you sense of what's out there that's going to have to change over.
Eric Stang: And then my other question is relate to that local carrier you're discussing this call. Can you, if you were, maybe you did already I missed it, can you size both the residential enterprise opportunity in terms of lines? No, I think at this point, I would rather just say that we believe they're a top 10 I like in the country. That means they're going to have hundreds of thousands of residential copper lines and hundreds of thousands of business lines that they served today. And I think I'll leave it at that for now, but you know, it's clearly a big number. Okay. Thank you so much. Thank you.
Speaker Change #121: I know that this is an interesting statistic that I give me...
Speaker Change #122: is meaningful to me when we see a more rural entity who might be working with us, roll out, and tell a little cross their base. They get 20 to 25% take rate of the homes they pass.
Speaker Change #122: and that tells me people want to have home phones. They want to be able to call 911 and have something that
Speaker Change #122: You know, it works well from home and it would be a more cellular challenge location so
Matthew Harrigan: Next question comes from the line of Matthew Herigan of the benchmark company. Thank you. It's nice to see that the carrier is also what they can sell was a compliment the air dial because it hasn't gotten nearly as much attention.
Speaker Change #122: [inaudible]
Speaker Change #123: Yeah, I think the real challenge with with with residential is just getting to those customers and having a partner who who who can directly do that because they already have the customers is going to be a great step.
Eric Stang: Can you talk about a little bit more about size in the town on cell. And what it would be international. I guess especially in Europe given the regulatory differences and I have two more questions after that. Yeah.
Speaker Change #124: and you did say in the way that the bad I like that this is a company that has one of the top 10 member of the team.
Speaker Change #124: and the relationship that we can infer that we're probably at the high end of the...
Eric Stang: Well, we don't so tell them in Europe today. We could certainly do it, but we have not customized the product for that marketplace here in North America. We got the FCC puts out numbers with delay, but I guess you could estimate around 40 million residential pop lines in use today in North America. So gives you a sense of what's out there that's going to have to change over. I know that this is an interesting statistic that gives me is meaningful to me when we see a more rural entity who might be working with us roll out.
Speaker Change #125: The leaked air was on that one.
Speaker Change #125: If you're interested, you know, then diagrams like we've said.
Speaker Change #125: Bear.
Speaker Change #127: I'm not sure what you just said exactly, but I really can't say more than that we believe there are top 10 highlights. It didn't come all the way to say one of the top 10 companies in terms of U.S. and similar relationships that I'm listening to.
Speaker Change #127: Dave.
Dave: I'm not sure I said that, no.
Dave: Okay, I'm sorry that. Great. Well, that's the solution quite a while, see you guys later.
Dave: Thank you.
Dave: Thank you.
Speaker Change #129: Next question, come from the line of Patrick Wall Ravens of Citizens JMP.
Eric Stang: They get 20 to 25% take rate of the homes they pass and that tells me people want to have home bones. They want to be able to call 911 and have something that works well from home in maybe more cellular challenge locations.
Speaker Change #129: Hey, great. This is Oliver Ones for Pat. Could you provide an update on the US Cellular and Keymobile reseller partnerships, how they contributed this quarter and how you expect those to ramp throughout the back-off of the year?
Speaker Change #130: Sir, he mobile is a very strong partner for us on the earth aisle day.
Eric Stang: So, yeah, I think the real challenge with residential is just getting to those customers and having a partner who can directly do that because they already have the customers is going to be a great step, and you did say in relation to that I like that this is a company that has one of the top 10 number of people relationship so we can infer that we're probably at the high end of the lead table on that one if you interfere with them diagrams I would think that's fair.
Speaker Change #131: and Foley and Brace Dare Dile and they, because of the kind of company they are and have some very large customer relationships that we certainly wouldn't have. So we have a lot of activity going on with Dare Dile at T-Mobile and I don't, I don't, I don't, I don't.
Speaker Change #131: I think that will just continue. U.S.
Speaker Change #131: Timobo is also, I've announced in the past.
Speaker Change #131: Selling some residential products.
Speaker Change #131: Alongside their fiber rollout and alongside their wireless home internet.
Patrick Walravens: I'm not sure what you just said exactly but I really can't say more than that we believe they're a top 10 I like I'm I'm not sure I said that no okay I miss her that's been quite a while thank you thank you and next question come from the line of Patrick Walravens of Citizen's JMP great this is all of our own for Pat could you provide an update on the US cellular and T-Mobile reseller partnerships how they contributed this quarter and how you expect those to ramp throughout the back half of the year sure T-Mobile is a very strong partner for us on air dial they have fully embraced air dial and they because of the kind of company they aren't have some very large customer relationships that we certainly at you know Ooma wouldn't have so we have a lot of activity going on with air dial at T-Mobile and you know I don't I think that'll just continue US you know T-Mobile is also I've announced in the past selling some residential product alongside their fiber rollout and a log side their wireless home internet they don't emphasize it but it's there for a customer who who asks or needs a solution and those you know that that's going well too although those tend to be more referral opportunities for for us than then direct sale by T-Mobile US cellular is going great we have great relationship there and we you know last quarter we we mentioned that not only are they selling air dial but they're going to begin to start selling Ooma office and that's that's coming along too although that's still nascent but these are two strong relationships for us and you know expect both of them to grow through the forward thank you I would now like to turn the conference back to Eric saying for closing remarks sir well thank you everyone for joining us today it was a busy Q2 for us we're excited they have some new developments in the company and you know more importantly strategic position that we feel is really strong as we look forward our annual exit recurring revenue for Q2 was 233 million with 72 percent gross margin that puts us at about 167 or so million of gross profit dollars from our business services business and got a strong balance sheet and and and good opportunity to execute based on on our financial position so we'll keep working at that and look forward to giving you more updates on our next call This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you. . Brian Kinstlinger, Patrick Walravens, Eric Stanglinger, Matthew Harrigan Brian Kinstlinger, Patrick Walravens, Eric Stanglinger, Matthew Harrigan Brian Kinstlinger, Patrick Walravens, Eric Stanglinger, Matthew Harrigan
Speaker Change #131: Um, they don't emphasize it, but it's there for a customer who asks or needs a solution and, um, uh, those.
Speaker Change #131: That's going well too.
Speaker Change #131: Although those tend to be more referral.
Speaker Change #131: Opportunities for us, then direct sale by team mobile.
Speaker Change #132: U.S. Cellular is going great. We have great relationship there. And we, in the last quarter, we mentioned that not only are they selling air to op, they're going to begin to start selling U.S. office.
Speaker Change #132: and that's coming along too, although that's still nascent. But these are two strong relationships for us.
Speaker Change #132: We expect both of them to grow as we look forward.
Speaker Change #132: [inaudible]
Speaker Change #132: [inaudible]
Speaker Change #132: Thank you, I would now like to turn the conference back to Eric Stang for closing remarks, sir.
Eric Stang: Well, thank you everyone for joining us today. It was a busy Q2 for us.
Speaker Change #133: We're excited to have some new developments in the company and more importantly, strategic position that we feel is really strong as we look forward. Our annual secret exit recurring revenue for Q2 was 233 million.
Speaker Change #133: with 72% gross margin that puts us at about 167 or so million of gross profit dollars from our business services, business and residential services.
Speaker Change #133: I feel like we've got a strong balance and good opportunity to execute based on our financial position. So we'll keep working at that and look forward to giving you more updates on our next call. Thank you everyone.
Speaker Change #134: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change #135: Hello, everyone.
Speaker Change #135: Hello, I'm Matthew Robison, I'm Matthew Robison, I'm Matthew Robison, I'm Matthew [inaudible]
Tom: Hello, I'm Tom.
Speaker Change #137: [inaudible] Thank you.
Speaker Change #137: [inaudible]
Speaker Change #137: Thank you for watching!
Speaker Change #137: Hello, I'm Matthew Robison, I'm Matthew Robison, I'm Matthew Robison, I'm Matthew Robison, [inaudible]
Hamamatsu: Hamamatsu, Hamamatsu, Matthew Robison, Hamamatsu, Hamamatsu, Hamamatsu, Hamamatsu, [inaudible]