Q3 2025 Ooma Inc Earnings Call
Speaker Change: Hello, and thank you for standing by. Welcome to UMMA Third Quarter Fiscal Year 2025 Financial Results.
At this time, all participants are on a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
To withdraw your question, please press star 11 again.
Speaker Change: I would now like to hand the conference over to Matthew Robison. You may begin. Thank you, Towanda. Good day, everyone, and welcome to the fiscal third quarter 2025 earnings call of UMA, Inc. My name is Matt Robison, UMA's Director of IR and Corporate Development. On the call with me today are UMA's CEO Eric Stang and CFO Shigeyuki Hamamatsu.
Speaker Change: After the market closed today, UMA issued its fiscal third quarter 2025 earnings press release. This release is also available on the company's website, uma.com. This call is being webcast live and is accessible from a link on the events and presentations page of the investor relations section of our website. This link will be active for replaying this call for one year.
Speaker Change: During today's presentation, our executives will make forward-looking statements within the meaning of the federal securities laws.
Speaker Change: Forward-looking statements generally relate to future events or future financial or operating performance.
Speaker Change: Our expectations and beliefs regarding these matters may not materialize, and actual results are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today, and those risks more fully described in our filings for the Securities and Exchange Commission.
Speaker Change: Forward-looking statements in this presentation are based on information available to us as of the date hereof and we disclaim any obligation to update any forward-looking statements except as required by law. Please note that, other than revenue or as otherwise stated, the financial measures to be disclosed in this call will be on a non-GAAP basis.
Speaker Change: The non-GAAP financial measures are not intended to be considered in isolation, or as a substitute for issues prepared, for results prepared in accordance with GAAP.
the discussion of why we present non-GAAP financial measures.
Speaker Change: and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures is included in our earnings press release, which is available on our website.
Speaker Change: On this call, we will give guidance for fourth quarter and full year fiscal 2025 on a non-gap basis. Also, in addition to our press release and 8K filing, the overview page and events and presentation page and investors'
Speaker Change: section of our website, as well as the quarterly results page of the financial information section of our website include links to information about costs and expenses not included in our non-GAAP values and key metrics of our core subscription businesses.
Speaker Change: These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation and also provides resolution of GAAP expenses that are excluded from non-GAAP metrics. Now I will hand the call over to UMA CEO Eric Stang.
Eric Stang: Thanks, Matt. Hi, everyone. Welcome to UMMA's third quarter fiscal year 2025 earnings call. Thanks for joining us.
Eric Stang: Q3 was a great quarter for UMA, not only financially, but also competitively. I look forward to sharing our results, including two very significant new customer wins we secured in Q3.
Eric Stang: These new customer wins build on our big wins from Q1 and Q2 of this year and have us excited as we look forward.
Eric Stang: Financially, we exceeded expectations in Q3, achieving $65.1 million in revenue, $4.6 million in non-GAAP net income, $5.7 million in adjusted EBITDA, and $8.1 million in cash flow from operations.
Each of these is a record result for UMA.
Eric Stang: on the strength of our $8.1 million in cash flow from operations.
Eric Stang: We paid off the remaining debt on our credit line shortly after the end of Q3 and are now debt-free.
Eric Stang: Over the last 12 months, we have paid off $18 million of debt and also bought back $5.2 million of our stock for a combined $23.2 million.
Eric Stang: Strategically, our efforts to improve operating expense leverage, given the strong product solutions we have built and the synergies afforded by our 2,600 hertz acquisition, are starting to take hold.
Eric Stang: Looking forward, we believe we can both execute our growth strategy and drive further operating leverage with further improvement in bottom-line results in the coming quarters.
Eric Stang: Within UMA Business, UMA Office, our UCAS solution for Main Street businesses, and a significant component of UMA business revenue, performed well in Q3.
Eric Stang: We launched new customer engagement features including one-to-many messaging and a website widget for our customers to allow their customers to create online bookings.
Eric Stang: And we continue to promote our caller info search, messaging templates, expanding set of integrations, and more.
Eric Stang: Our strategy to enable more advanced features in our premium tiers helps drive the percentage of new users taking a premium tier in Q3 to 60%.
Eric Stang: It also helped secure a growing number of larger sized customers in Q3 as we work to expand the market opportunity for UMA Office.
Eric Stang: Regarding AirDial, our solution for POTS replacement, we believe the market is heating up and that contributed to a step up in sales for us in Q3.
Eric Stang: We learned in Q3 that a large carrier and provider of copper lines is once again implementing price increases.
Eric Stang: The pricing of copper lines is, of course, a key driver in customers' decision-making to take action and replace them.
Eric Stang: We also noticed, late in Q3, a several-fold increase in the number of announcements for copper lines to be shut down in the coming months.
compared to prior periods this year.
Eric Stang: Market momentum, in combination with our marketing, partner development, and expanding product features, helped us achieve our best quarter yet and significant growth quarter over quarter for Airdial.
Eric Stang: We signed several larger customers in Q3, including a couple that we expect will surpass 1,000 lines each.
Eric Stang: On the partner front for AirDial, we have some very significant news to share. I'm very pleased to report that a top-tier national cable company has chosen to resell AirDial.
Eric Stang: To our knowledge, we are the only provider they are working with at this time, and they want to launch as quickly as possible, which we expect will be in calendar Q1.
Eric Stang: This is significant because of the large size of this partner and there are many existing business relationships.
Eric Stang: It is our understanding that their business strategy encompasses bringing broadband to businesses and moving communications to the Internet.
Eric Stang: and now with AirDial, they can move the remaining copper lines which until now were not easily handled.
Speaker Change: Our partnership gives them a way to continue to take share from other major national carriers who they view as competitors.
Speaker Change: As you can tell, this is a major win for us and a partner that represents huge potential.
Speaker Change: I also have a second significant new partner win to share with you. I'm pleased to report we signed an aggregator slash CLEC to resell both Airdial and Tello.
Speaker Change: You'll recall that we now believe there is also a sizable opportunity in the residential space for pots replacement, and we believe our Telos solution is ideal for this market. We're thrilled that this aggregator has selected UUMA for both their business and their residential needs.
Speaker Change: Our understanding is this new partner primarily serves business customers and provides around 100,000 copper lines to businesses today.
Speaker Change: This partner has already launched earlier this month with Telo, and will be launching soon with Airdial.
Speaker Change: I also want to give an update on our partnership with the large incumbent local exchange carrier that we announced last quarter.
Speaker Change: I can tell you now that this customer is Frontier Communications, which of course is one of numerous legacy regional carriers in the U.S.
Speaker Change: As you also likely know, Frontier and Verizon recently announced that Verizon intends to acquire Frontier. This development has affected Frontier's launch timing, which may now not be until Frontier can formally start their business planning with Verizon.
Speaker Change: We believe Frontier continues to view AirDial and Tello as their chosen solutions for POTS replacement, and that longer term, we now also have the exciting opportunity to engage with not only Frontier, but also Verizon.
Speaker Change: Overall, I'm pleased to report we now have more than 20 total partners contracted to resell Airdial.
Speaker Change: We believe the two major partner wins we have shared today further validate our strategy to secure large carrier partners for both Airedial and Telo.
Speaker Change: It is our goal to add new Airdale resale partners each quarter going forward, and we currently have several significant discussions underway.
Speaker Change: Switching now to 2600 Hz, which is our platform used by resellers to create their own solutions.
Speaker Change: I'm excited to point out our recent press release, which identified ServiceTitan as the large new customer we won two quarters ago.
Speaker Change: ServiceTitan is a $685 million revenue company providing end-to-end workflows for the trades.
Speaker Change: They recently launched their new Contact Center Pro solution which utilizes UMA 2600 Hz for enablement.
Speaker Change: As we've discussed previously, we're thrilled to be working with this marquee customer and look forward to supporting them as they expand and grow their business.
Speaker Change: I will now turn the call over to Shig, our CFO, to discuss our results and outlook in more detail and then return with some closing remarks.
Thank you, Eric, and good afternoon, everyone.
Shig: I'm going to review our third quarter financial results and then provide an outlook for the fourth quarter in full year fiscal 2025.
Shig: Our third quarter revenue was $65.1 million, solidly above the high end of our guidance range, and was up 9% year-over-year.
Shig: driven by the strength of UMA business, including better-than-expected revenue contribution from AirDial, as well as addition of 2600 Hz.
Shig: During the quarter, we saw about a half of IWG state reductions we had forecasted for the second half of this fiscal year and expect additional reductions to occur in the fourth quarter.
Shig: In Q3, business subscription and services revenue accounted for 61% of total subscription and services revenue as compared to 58% in the prior quarter.
Shig: The year-over-year growth in product revenue was primarily driven by growth in air dial installations.
Shig: On the profitability front, Q3 non-GAAP net income was $4.6 million, above a guidance range of $4.1 to $4.3 million.
Now some details on our Q3 revenue.
Business subscription and services revenue grew 13% year-over-year in Q3.
driven by user growth and the addition of 2600 Hz.
excluding $2,600 revenue contribution.
Business subscription and services revenue grew 7% year-over-year.
Shig: On the residential side, subscription services revenue was down 1% year over year.
Shig: For the third quarter, total subscription and services revenue was $60.1 million, or 92% of total revenue as compared to $55.9 million, or 93% of total revenue in the prior quarter.
Now some details on our key customer metrics.
Shig: We ended the third quarter with 1,242,000 core users, which is slightly down from 1,244,000 core users at the end of the second quarter.
Shig: The sequential decline in total core users was primarily due to the seat reductions with IWG I mentioned earlier.
Shig: At the end of the third quarter, we had 504,000 business users, or 41 percent of the total
Shig: our total core users an increase from Q2 as user additions for UMA Office, UMA Enterprise, and Airdial offset the impact of IWG.
Shig: A blended average monthly subscription and services revenue per core user, or APU, increased 3% year-over-year to $15.14.
Shig: driven by an increasing mix of business users, including higher-up Office Pro and ProPlus users.
Shig: During the third quarter, we continued to see a healthy Office Pro and ProPlus take rate, with 60% of new Office users opting for these higher-tier services.
Shig: which was up from 56% in the prior year quarter. Overall, 33% of UMA Office users have now subscribed to these higher tier services.
Shig: Our annual exit recurring revenue grew to $234 million and was up 4% year-over-year.
Shig: Our net dollar subscription retention rate for the quarter was 99% as compared to 100% in the second quarter.
Now some details on our gross margin.
Shig: As a reminder, subscription and services gross margin for the third quarter this fiscal year included an impact of $2,600 gross margin, which has ran lower relative to UMA's subscription gross margin.
Thank you. Thank you. Thank you.
Shig: Product and other gross margin for the third quarter was negative 56% as compared to negative 73% for the same period of last year. As anticipated, we saw a meaningful year-over-year improvement in product and other gross margin as we completed consumption of higher cost components we had procured during the pandemic.
Thank you for watching!
Shig: On an overall basis, total gross margin for Q3 was 62 percent as compared to 62 percent in the prior quarter. The flat overall gross margin year-over-year reflects a heavier mix of product revenue this year, which was 8 percent of total revenue in Q3, due to an increase in air-dial installations, which offset the improvement in product gross margin.
And now, some details on operating expenses.
Shig: Total operating expenses for the third quarter were $35.6 million, up $2.2 million, or 7% from the same period last year.
Shig: Excluding the impact of 2600 Hz, the total operating expenses increased $0.9 million from the same period last year.
Okay.
Shig: Sales and marketing expenses for the third quarter were $17.5 million, or 27% of total revenue and was up 4% year-over-year, primarily driven by higher marketing and child development activity for Airdial.
Shig: Research and development expenses were $12.1 million or 18.5% of total revenue, up 7% on a year-over-year basis.
driven mainly by the addition of 2600 Hertz team members.
Shig: G&A expenses were $6.1 million or 9% on total revenue for the third quarter compared to $5.3 million for the prior year quarter.
Shig: The year-over-year increase in G&A expenses was primarily due to increases in personnel and audit-related costs.
Shig: Non-GAAP net income for the third quarter was $4.6 million or diluted earnings per share of 17 cents as compared to 15 cents of diluted earnings per share in the prior quarter.
Shig: I just said EBITDA for the quarter was 5.7 million dollars, another record for the company on 9% of total revenue as compared to 5 million dollars for the prior year quarter.
Shig: We ended a quarter with total cash and investments of $17.1 million.
Shig: Cash generated from operations for the third quarter was strong, and at $8.1 million, it was another quarterly record for the company.
Shig: On a trailing 12-month basis, we generated a record $24 million of operating cash flow and $18 million of free cash flow.
Shig: which represented 367 percent and 141 percent increase, respectively, over the same period a year ago.
Shig: We paid down the debt by $5.5 million in the third quarter and reduced the outstanding debt balance to $3 million at the end of the third quarter.
Shig: On the headcount front, we ended the quarter with 1,157 employees and contractors.
Shig: Now, I will provide guidance for the fourth quarter and full fiscal year 2025.
Shig: Our guidance is on a non-GAAP basis and has been adjusted for expenses such as stock-based compensation, amortization of intangibles, and certain non-recurring gains and expenses.
Shig: We expect total revenue for the fourth quarter to be in the range of $64.6M to $65.1M, which includes $4.5M to $4.7M of product revenue.
Shig: We have assumed $28.1 million, with average Duluth shares outstanding, for the fourth quarter.
Shig: For four-year fiscal 2025, we are raising both revenue and profitability outlook.
Shig: We now expect total revenue of $256.3 million to $256.8 million.
Shig: The full year fiscal 2025 revenue guidance assumes business subscription and services revenue growth rate of approximately 13% over fiscal 24, while residential subscription revenue to decline 1%.
Shig: In terms of revenue mix for the year, we expect approximately 93% of total revenue to come from subscription and services revenue and the remainder from products and other revenue.
Shig: As for non-GAAP net income, we now expect it to be in the range of $16.7 million to $17 million.
Shig: Based on this guidance range, we estimate our adjusted EBITDA for FY25 to be $22.1 million to $22.4 million.
Shig: We have assumed approximately $27.6 million weird average diluted shares outstanding for fiscal 2025.
Shig: In summary, we are pleased with our solid Q3 results with record adjusted EBITDA and free cash flow, and remain focused on executing to a long-term strategy to achieve profitable growth.
Speaker Change: I will now pass it back to Eric for some closing remarks. Eric?
Thank you, Shig.
Eric Stang: It's our pleasure to report to you today on our strong Q3 results and our new customer wins. We see accelerating momentum for Airdial and also for residential pots replacement and hope to continue to announce significant new resale partnerships in the coming quarters.
Eric Stang: We are also leaning in on 2600 Hz given the capabilities of our platform and the market need to replace older, aging solutions.
Eric Stang: And in UCAS, for smaller-sized businesses, we are seeing success moving upmarket and growing premium tiers of service.
Eric Stang: In addition, we believe we can deliver improved bottom line performance as we execute our strategy.
Eric Stang: We look forward to updating you on our progress as we capitalize on our growing community of partners.
Thank you. We'll now take questions.
Speaker Change: Thank you. Ladies and gentlemen, as a reminder to ask the question, please first start 1-1 on your telephone, then wait for your name to be announced.
to withdraw your question. Please press star 1 again.
Please stand by while we compile the Q&A roster.
Thank you for watching!
Speaker Change: Our first question comes from the line of Josh Nichols with B Rally. Your line is open.
Thank you for watching!
Speaker Change: Yeah, thanks for taking my question. Good to see some of the large partnerships announced for this quarter, as well as the improving cash flow and margins. I'm just kind of curious on the 2600 hertz, it seems
Speaker Change: Initially, when you made that acquisition, expectations seemed like relatively low, but you become increasingly optimistic about some of the long-term potential for that. I'm just kind of curious if you could kind of comment a little bit about what you're seeing in the market dynamics and any benefits potentially from the planned sunset of Microsoft's Metaswitch on that front.
Speaker Change: Yeah, hi Josh. Well, you're right. When we made that acquisition, we justified it around synergies and full control of all the technology in UMA. And since then, we've really seen tremendous.
Speaker Change: opportunities we look forward and we're leaning in, as I said in my script, to capitalize on it. You know...
Bronsoft and Metaswitch both.
Speaker Change: Kabilites are going to be and how they get there. We estimate between 50 and 80 million users on those two platforms around the world, so it's really massive.
Speaker Change: I didn't get into it in my script, but I talked mainly about Service Titan because it's a huge win for us and one that we...
Speaker Change: at scale over to 2600 Hz. So the fact that we have those kind of opportunities as well is pretty exciting. But what I didn't get into my script is we also had a couple of other smaller wins on the 2600 Hz platform in the quarter, including one in Europe.
Speaker Change: which was great to see, as we do a little bit more over there with the platform. You know, there's some real uniqueness to our solution in space.
Speaker Change: Now, if they just want it turnkey, we can do that too, and we're moving UMA solutions onto the 2600Hz platform so that customers who want just, you know, to check a box and go have the best out there, but gosh, the API design of the platform creates great flexibility.
Speaker Change: And then also, we are very flexible in our delivery model. We will host it for the customer, but we'll also let the customer host it themselves.
in their own data centers.
Speaker Change: and get as much or as little services from us in doing that. So, we think we have a great solution for what is a quite significant market. And I think it's fair to say that just about every carrier you can think of
Speaker Change: has something they're doing in their business model that is built off of one of...
Speaker Change: But we have people talking to us today about the solution on just about every platform that's out there.
Speaker Change: and historically out there, and we're excited that there's that level of interest. We are leaning in. We've increased some sales resources of late in that part of our business because it's just a massive market opportunity.
Thanks and then last question for me
Speaker Change: You mentioned in your comments and then in the release about, you know, you're seeing some increased operating leverage and then...
Speaker Change: Last quarter, I did notice you took up your medium-term EBITDA margin targets. Based on the implied outlook for 4Q, you should be 9% plus EBITDA margin. I know you're not giving formal guidance, but bear to assume that you could potentially get to 10% plus, maybe, or something like that, for the full year, based on what you're seeing in business and some of the comments you've already made.
Speaker Change: The midpoint would give you about 9.2% of the margin in Q4.
Speaker Change: And then we're going to see further improvement in Q4, like I said, a midpoint, 9.2%. So in relation to the midterm model that you're referring to, which is the back of our investor deck that we publish every quarter.
Speaker Change: We think we're progressing pretty good and on the path to, you know, get into a double-digit, even a margin, you know, next year. Obviously, we're not ready to talk about guidance next year, but I think we're making pretty good improvement, as Eric said, showing some operating leverage.
Yeah, and I would add, Josh, without getting into guidance,
Speaker Change: It's important to remember just how profitable this business is. We have 70 plus percent recurring margins and a very stable revenue base.
Speaker Change: several areas to the company where we have what we believe is the leading solution in the market today and Now it's more a matter of exploiting them for growth I don't feel like we need to invest in all areas at the level we have in the past and honestly at these
Speaker Change: be on a continuous train here of improving bottom line performance.
Speaker Change: Thanks for the context. I appreciate it. I'll hop back in the queue.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Mike Lattimore with Northland Capital Markets. Your line is open.
Speaker Change: Great, thanks. Yeah, congrats on the strong cash flow and new wins here. I just want to clarify on Airedial. In the second quarter, you said Airedial had a record bookings.
Speaker Change: Is it fair to say that in the third quarter you had higher bookings than the second quarter?
We did, yes.
Speaker Change: Got it. And then you talked about obviously this improving margin dynamic. Does that assume that the revenue growth rate kind of remains where it is, you know, certainly implied in the fourth quarter? Does that assume some improvement in the revenue growth rate?
Speaker Change: Yeah, so in the context of this fiscal year and Q4 guidance we gave, Mike, that the, you know, I think you can take away that based on my revenue guidance for Q4, the year-over-year growth is about 5% at the midpoint.
And what we have seen, though, we're seeing the...
Speaker Change: more leverage in R&D in particular. You know, directionally speaking, the absolute dollars on R&D to be down sequentially in Q4, so that's the other part that's...
Speaker Change: you know, giving us more leverage, and also the overall gross margin, too, to the extent that
Speaker Change: We anticipate a little bit less product revenue in Q4 versus Q3. So that helps the overall margin a little bit versus Q3. So these are a couple of places that gives us the incremental edge to improve on the profitability.
Speaker Change: Thank you. Thank you for that. And then just on the.
He said that there's a
A little more churn in the fourth quarter for IWG.
Speaker Change: Is it pretty definitive that that will be the end of this enhanced term, or is there something that could kind of go into 26?
Speaker Change: I think that there could be more churn as we look forward. It's hard to say how much. We don't think it's fundamental to our outlook.
Speaker Change: And we're always doing that with them to, you know, frankly, support them fully. So there could be some. You know, we also have ads. We have quite a number of new centers open every quarter. Sometimes it can be 25 to 50 new centers in a quarter opening. So it's hard to forecast exactly, but I think it's something that could be with us also in the next year.
All right, great. Thank you.
You bet.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Eric Matanuzzi with Lake Street Capital Markets. Your line is open.
Thank you for watching!
or adjusted for IWG.
Speaker Change: Yeah, I mean, I'm not going to be too specific about it. Eric, I appreciate the question. It wouldn't be...
Speaker Change: That huge, you know, because it happened in the middle of Q3, so half of the, you know, the impact was already realized in Q3, so we got four-quarter effect, another month and a half or so impact in Q4, so it's not as large as you think.
Speaker Change: you know, to answer your question specific to that impact of IWG term. But I guess to your point, there's a little more churn that we're expecting in Q4, the residual of what we thought.
But, you know, it's that.
It's not that big of an impact.
Speaker Change: You might recall too that we talked very early this fiscal year about churn at IWG and then it didn't happen for a while and some of what we're talking about now is what we already talked about.
Speaker Change: earlier in the year and just got pushed out. Yeah, and just to remind you of context, too, the IWG itself, we talked about being, you know, low single-digit percentage revenue in relation to our total revenue.
Speaker Change: And, you know, you realize in turn off of that relatively small concentration, so that gives you another context of the impact of it too.
Okay.
Speaker Change: And then the disruption delay, congratulations on the Frontier actually being able to name the customer. You did talk about, you know, with the acquisition by Verizon, we do have this disruption delay.
Speaker Change: What was the prior expectation and what are you guys kind of spitballing as the potential delay here in the ramp up with the frontier relationship?
Yeah, um...
Speaker Change: It's interesting, when that announcement came out in early September, Frontier was telling us they still wanted to go and move forward now, and it wasn't until...
Speaker Change: Close to the end of Q3 that I think that there are a lot of programs in Frontier that are kind of getting just thought about
Speaker Change: And ours is, you know, this is just one of many that are getting thought about.
Speaker Change: We continue to have discussions with them. They continue to think about what they want to do. There are some reasons why they might want to move sooner. There are some reasons why they might want to wait until they can do planning with Verizon.
Speaker Change: You can handcap as well as I can probably when they might be able to start their planning with Verizon. But I can tell you that they have a lot, you know, now that I can see who they are, they have hundreds of thousands of...
of residential customers with phone service only that need.
to be replaced.
Speaker Change: We went through an RFP process and a lot with them over 18 months to get to where we are. So we still remain pretty excited about where this could go and actually being able to be involved with Verizon in this matter as well is quite exciting for us because to our knowledge to date, Verizon has not really determined a solution on their end for what they will do about stranded residential phone lines where the POTS lines are going away or going up in price.
Speaker Change: So, you know, I think it's unfortunate. Obviously, we'd like to move forward, starting kind of now. But I don't think it's going to affect us.
Speaker Change: Also, because the other win I talked about today, the National Top Tier Cable Company,
Speaker Change: This is a big win for us. If I was to make a very short list of the most important partners I'd like to win, they'd be on it.
Speaker Change: We have a new partner in hand here who wants to launch as soon as possible, and so we can work that a little bit while Frontier figures out what it's going to do. Also, these things do take a long time to gestate.
Speaker Change: And I wouldn't give guidance that we expect more partnerships to happen if we didn't have things that we were talking about and doing. And, you know, if you think about the 10 million plus business
Speaker Change: copper lines in the U.S. and all needing to be replaced over the next three or four years. That's a big nut to go crack. I read just recently where AT&T in a conference call or something says they're going to completely subset all their copper lines now by 2029.
That's not a lot of time.
Speaker Change: So, we think we've got, you know, I think we're winning the big ones and with that we're demonstrating we can win substantially here with these partners. So, that's maybe more than what you just asked, but that's the way I see it in the bigger context.
Speaker Change: I appreciate the added steps and certainly want to congratulate you on that win with the National Top Tier Cable Company as well as the good results for the quarter and the outlook.
Thank you.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Patrick Wall-Ravens with Citizens JMP. Your line is open.
Thank you for watching!
Speaker Change: Hi, thank you for taking my question. This is Nick on for Pat. Eric, what does the macro environment look like in regards to customer behavior, and are there any implications post-election?
That's a good question.
So, uh...
Speaker Change: Let me start with one angle and then I'll take a second. Q4, the quarter we're in now, is always the hardest one for us to predict because of the holidays involved during the quarter and small businesses being very busy during this time. That said, we see the market still strong
Um, I-
Speaker Change: And I don't know that the election has changed things, but certainly things have not gotten worse. Let me put it that way. We think, you know, we're serving very unique markets with AirDial and with 2600 Hertz, and those markets are driven off their own dynamics. And then when you look at small business UCAS with UMA Office,
Speaker Change: We feel we've got a unique position at serving small businesses with a type of solution that's different from what others have and easier easier to adopt and use and you know there's a vast small business market out there.
Speaker Change: is similar or maybe a little better since the election, but Q4 always has us a little concerned about how it's going to go, and we're careful about forecasting for Q4 because of the holidays.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Arjun Bhatia with Will and Blair. Your line is open.
Thank you for watching!
Chris: Hi, this is Chris and thanks for taking my question. I want to echo about some of the earlier congrats on a solid quarter.
Speaker Change: I appreciate the question, Chris. One of the areas that we continue to look at is being opportunistic about buyback. Eric talked about spending $5 million in the last year or so, we want to be opportunistic in doing so prospectively. We also look at the
Speaker Change: The customer-based acquisitions we talked about in the past, so to the extent that we are able to put a little more cash on the balance sheet at the same time buying back the stock.
Speaker Change: You know, it's obvious that when you look at a cash flow that we benefited from. Team did a great job over reducing inventory over the last 18 months.
and that gave us a good cash flow.
Speaker Change: from operations and you know we at some point you know soon we need to build another batch of air dollar inventory
Speaker Change: We talked about exciting opportunities for residential and so forth. So, you know, that's going to be another use of cash that we see.
to grow our business.
Speaker Change: Got it. Thank you. That's all very helpful color. And then one other question in terms of the IWGC churn. So, you know, that largely being behind us, at least what you have anticipated throughout this year, kind of going into the fourth quarter. Do you expect to see NRR inflect up in the back half of fiscal 26 back to sort of the 100 level or above?
Thank you for watching!
Speaker Change: Yeah, it's, we're not ready to talk about, Chris, the question. I think you're asking, you know, do we see...
Speaker Change: increase in the users for IWG coming back in the second half. I think that's what you're asking, correct?
Speaker Change: I was just talking about net retention, you know, I think we saw it kind of pick up last quarter when you had lighter than expected of seat churn from IWG, and so I was just wondering, you know, as we move past the anticipated churn,
Speaker Change: if you were expecting to see, or as we lapped at the trend that we saw this year, if you would expect net retention to inflect sort of back to that 100% level or higher. Oh, I see. I see. You're asking about the retention rate. Yeah. Thank you for clarification.
Speaker Change: Yeah, so I think a Q4, given the expected term that I just described, you know, it may have a little impact from where we are at 99%, we just reported. And I think, you know,
Speaker Change: As we get into next year, you know, we hope to see the stabilization there on retention rate. But in any case, I think...
Speaker Change: there's a good momentum in Airedile and the other areas to offset that retention rate in good ways too. So I think it's going to stabilize in a 98- 99% range in the short term.
Great. Thanks for taking my questions.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Matthew Harrigan with the Benchmark Company. Your line is open.
Speaker Change: Thank you. As far as the two national cable companies that I'll refer to as Thing 1 or Thing 2, I'm not sure which one it is, but I have a suspicion. But as you know, they pretty much do everything in tandem in terms of the technology roadmap and the product, you know, bouquet. I don't know whether you've ever been to the SCTE Cable Engineering Show, but, you know, it's pretty much...
Speaker Change: Are you already in discussions with whichever one you didn't do?
Speaker Change: a deal, an arrangement with, and I assume at the very least it would accelerate the RFP process, you know, given the reciprocal confidence they would have in each other's
Speaker Change: Eric Stang, Matthew Robison, Matthew Robison, Matthew Hamamatsu, Eric Stang, Matthew Robison,
double visited Ibadegro over the next, you know, couple years.
Speaker Change: Are these deals kind of incremental to that, or was it already wired in to a certain extent?
Scott.
Speaker Change: and I'll follow everyone else in congratulating you on all the developments.
Thanks for watching.
Thank you for watching!
Yeah, um...
Speaker Change: The first part of your question, that's a good question, but I can't really comment on who we're talking to or not about what, but I can say it's a long list.
Speaker Change: And it's keeping us quite busy. And it's, you know, the price increases we've seen on copper lines of lead and the continued announcements about shutting them down, about places where they are getting shut down, are just really fueling the market and the momentum I talked about. So we think we have the best solution in the space. We could go through Y year again. I won't. And I think some of the wins we've had help demonstrate that. You know, we are going to drive...
Meaningful increase in Ibida going forward.
Speaker Change: whatever happens with on the partnership front. The partnerships can help us scale faster and get bigger faster, which we think they will. That'll be an additive to our plans already on EBITDA. I kind of said it earlier in a lot of words, but we have a lot of
Speaker Change: Gross profit dollars as a company and we need to leverage that into more bottom line as we go forward and fortunately We've done the building to be in a position now to do that
Speaker Change: And presumably you're looking hard at Europe on airdial as well, even though North America is the first priority.
Speaker Change: The product would have to be a little different. There'd be a different modem in it, different bands, but that's all stuff that we've been thinking about for a while.
Thanks, Eric. Happy Holidays.
Oh, thank you, you too.
Thank you. As a reminder, ladies and
Please stand by for our next question.
Thank you for watching!
Speaker Change: Our next question comes from Alana Bryant-Kentz-Fengler with Alliance Global Partners. Your line is open.
Great, thanks so much for taking my question.
Speaker Change: I know it's hard to predict, Eric. In terms of Airdial, you've announced several partners that sound very bullish.
Speaker Change: They own their own copper line, so they should be motivated.
Speaker Change: and then you talked about the recent press, the market heating up. So how should investors think about what this means in fiscal 26?
Speaker Change: In terms of bookings, revenue, some measure of progress, I guess when do you think Airdai will be more impactful catalyst to the P&L?
Thank you for watching!
Speaker Change: That's a fair question, Brian, and I think we'll know a lot more when we give annual guidance in early March next year because some of these partnerships I've been talking about the last two quarters
Speaker Change: We'll have a lot more time under them and we'll be seeing what rate they're moving at.
I...
Speaker Change: The market's there and the market's going to happen, and so I don't see a reason why we aren't going to play well in it.
Speaker Change: So, that's certainly true, but I think when we get to giving guidance in March, we'll be able to give you a much firmer picture on how we think that'll work out next year and what to expect when. I'm just not prepared to do it right now.
Speaker Change: But given your answer to the RAM, it's not gonna be the first half of fiscal 26. It's more likely to be the second half.
Is that right?
Speaker Change: It depends on what you mean by ramp. It depends on what you mean by ramp. I mean, this top-tier national cable company wants to launch in Q1.
Speaker Change: next year and you know, I don't know what they have pent up for demand, but we'll see we'll see well, we'll take it step-by-step and and Obviously tell you everything we know as we know it
Speaker Change: I'm sure we've asked this in the past, but for a hundred lines on the Enterprise,
Speaker Change: And for 10,000 lines as unresidential, what's the market opportunity for Aerodial on a partner like that?
Thank you for watching!
Speaker Change: You're talking about the second large partner I spoke about. Yeah, yeah, fair enough. We also, by the way, won some smaller partners that I don't even take time to mention here. So if a customer has that kind of opportunity, call it 100,000 lines of business, 10,000 residential, every one of them, in theory, is a potential opportunity, because every one of those needs to be addressed.
Speaker Change: In some cases customers may just do without the line or their equipment that works with it may get upgraded to to a new solution, but when we look at numbers like that we think
Speaker Change: a significant majority will ultimately convert to Airdial or to Tello. And so, that's the way we see it. It could take three or four years to get all of them converted.
Speaker Change: That kind of timing works fine. So, but yeah, that's how we see it.
100,000 lines.
Speaker Change: equates, if they all converted, there's no loss of lines. For example, 100,000 lines
Oh, um...
Speaker Change: Well now I have to be careful we Suggest to you as investors to model air dial
Speaker Change: at about $300 in revenue a year to us in recurring revenue. That's about $25 a month.
Speaker Change: So you can multiply that out. We can't, I can't share what the pricing is for that partner or other partners. And by the way, the partner pricing can vary a little bit depending on whether we're providing the cellular connection or the partner's doing it. But the margins are strong regardless. And as I said, we think a majority to a significant majority of these lines when we give these numbers are ultimately gonna convert.
for us.
Great, thank you.
You bet.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue.
Speaker Change: I would now like to turn the call back over to management for closing remarks.
Speaker Change: We appreciate everyone's attendance today. Thank you. We'll keep working hard here and look forward to the next time we can can talk and if not before the holidays, happy holidays to everyone. Thank you. Bye-bye.