Executive Summary / Key Takeaways

• Ooma is executing a strategic transformation, shifting its focus to high-growth business segments like cloud communications and POTS replacement, leveraging differentiated technology and strategic partnerships to drive both top-line expansion and enhanced profitability.
• The company achieved record financial performance in Q2 FY2026, with non-GAAP net income of $500,000 and adjusted EBITDA of $7.2 million, reaching 11% adjusted EBITDA margin, which is at the low end of its midterm target range of 11% to 14%.
• Ooma AirDial, its Plain Old Telephone Service (POTS) replacement solution, is gaining significant traction, with new bookings more than doubling year-over-year in Q2 FY2026 and securing major partnerships, including brand certification from Marriott Hotels (MAR) and a top-tier national cable company for reselling.
• The 2600Hz wholesale platform, acquired in 2023, is emerging as a critical long-term growth driver, capitalizing on the industry's shift away from aging legacy platforms with its modern, API-first architecture and Ooma IP integration.
• Ooma's financial outlook for FY2026 projects continued profitable growth, with non-GAAP net income expected to be between $24.5 million and $25 million and adjusted EBITDA between $28.5 million and $29 million, reflecting strong operating leverage and R&D efficiency.

Ooma's Evolution: From Residential Roots to Business Communications Leadership

Ooma, Inc., founded in 2003 and headquartered in Sunnyvale, California, has undergone a remarkable transformation since its public listing in July 2015. Initially known for its residential telephony solutions, Ooma has strategically pivoted to become a formidable player in the business communications sector. This evolution has seen the company more than triple its revenue, significantly improve its bottom line, and reinvent itself to capitalize on emerging market opportunities.

The company's current strategy is firmly anchored in four distinct, high-potential market segments: cloud communications tailored for smaller-sized businesses, Plain Old Telephone Service (POTS) replacement for both business and residential customers, wholesale platform services, and traditional residential telephony. This multi-pronged approach is designed to capture diverse revenue streams and leverage Ooma's core technological strengths across a broad customer base.

Technological Edge: The Foundation of Ooma's Competitive Moat

Ooma's competitive advantage is deeply rooted in its smart SaaS and unified communications platforms, which are built on a hybrid connectivity architecture utilizing standards like SIP, SRTP, TCP/IP, and UDP. This foundational technology enables the delivery of high-definition voice quality and advanced functionality across its service offerings.

Ooma AirDial: Revolutionizing POTS Replacement

At the forefront of Ooma's technological differentiation is Ooma AirDial, a comprehensive solution for POTS replacement. AirDial integrates 5G Internet connectivity with Wi-Fi and intelligently prioritizes voice traffic, ensuring reliable communication for critical systems. This technology offers tangible benefits over traditional copper lines, which are increasingly expensive and subject to phase-outs. The solution's efficacy is underscored by its status as the only current de facto POTS replacement solution recommended and supported by Marriott International Administrative Services, a testament to its reliability and completeness.

The market for POTS replacement is rapidly expanding, driven by large carriers implementing price increases and accelerating announcements of copper line shutdowns, with AT&T (T), for instance, planning to sunset all copper lines by 2029. AirDial's average revenue per user (ARPU) is estimated at approximately $25 per line per month, indicating a robust recurring revenue stream. Ooma is committed to enhancing AirDial's remote device management portal and driving down hardware costs, further solidifying its market leadership and expanding its addressable market.

2600Hz: The Modern Wholesale Platform

The acquisition of 2600Hz in October 2023 was a strategic move to gain full control over Ooma's technology stack and capitalize on the significant market shift away from older, less-invested platforms like BroadSoft and Metaswitch. 2600Hz boasts a modern, API-first design with over 300 APIs, providing unparalleled flexibility for resellers to craft bespoke communication solutions. This contrasts sharply with legacy platforms that lack modern features and investment.

Ooma is actively integrating its own intellectual property and turnkey applications onto the 2600Hz platform, aiming to offer both highly customizable and ready-to-deploy solutions. This initiative, expected to be largely complete by the end of the current fiscal year, will significantly strengthen 2600Hz's appeal to a broader range of customers, from those seeking deep customization to those desiring a turnkey experience. The platform's ability to support complex, AI-based applications, as demonstrated by its partnership with ServiceTitan, a $685 million revenue company, highlights its advanced capabilities and potential for substantial growth in the CPaaS and contact center markets.

Ooma Office and AI Innovation

For its Ooma Office cloud communications solution, Ooma is continuously innovating to serve small- to medium-sized businesses (SMBs) and expand its appeal to slightly larger enterprises. The company is developing new AI-driven features, emphasizing power, ease of use, and low cost, leveraging internal AI applications for learning and development. These AI enhancements, coupled with more advanced contact center functionality and integrations, are designed to broaden Ooma Office's market reach and drive higher average revenue per user (ARPU). The upcoming introduction of Connect 5,000, a 5G Internet solution that prioritizes voice traffic, will further enhance Ooma Office's "double-play" offering, providing a more complete and sticky solution for customers.

Financial Performance and Operational Momentum

Ooma's strategic focus on high-growth business segments and technological differentiation is translating into robust financial performance and operational momentum. In Q2 fiscal year 2026, the company reported total revenue of $66.4 million, a 3% increase year-over-year, primarily fueled by the growth of Ooma Business. Subscription and services revenue from Ooma Business grew 6% year-over-year in Q2 FY2026, driven by user growth.

Profitability metrics are also on an upward trajectory. Ooma achieved record non-GAAP net income of $500,000 and record adjusted EBITDA of $7.2 million in Q2 FY2026. The adjusted EBITDA margin reached 11% of revenue, marking the highest to date and aligning with the low end of the company's midterm target range of 11% to 14%. This improvement is a direct result of enhanced operating leverage, particularly in research and development (R&D) expenses, which decreased by 8% year-over-year in Q2 FY2026 due to reduced personnel and contractor costs.

Gross margins reflect the company's strategic shifts. The total gross margin for Q2 FY2026 was 61%, up from 60% in the prior year quarter. Notably, product and other gross margin improved significantly to negative 47% in Q2 FY2026 from negative 70% in the prior year, primarily due to the full consumption of higher-cost components procured during pandemic-driven supply chain disruptions. While product gross margin is expected to remain negative in the near term due to ongoing component and installation costs, the higher-margin subscription and services segment is anticipated to drive overall gross margin expansion over the long term as Ooma Business revenue constitutes a larger portion of total subscription revenue.

Ooma's liquidity and capital allocation strategy further bolster its investment appeal. As of July 31, 2025, the company held $19.6 million in cash and cash equivalents and maintained a zero outstanding debt balance. Strong cash flow generation is evident, with $6.4 million in operating cash flow and $5 million in free cash flow in Q2 FY2026. Over the trailing twelve months, Ooma generated $26 million in operating cash flow and $20 million in free cash flow, demonstrating robust financial health. The company has also been opportunistic with share repurchases, buying back $14.5 million of its stock over the last four quarters.

Competitive Landscape and Strategic Positioning

Ooma operates in a highly competitive unified communications and VoIP market, facing both direct and indirect rivals. Direct competitors include established UCaaS providers like RingCentral (RNG), 8x8 (EGHT), and collaboration platforms such as Zoom (ZM), as well as enterprise networking giants like Cisco (CSCO). Indirect competition comes from traditional telecom providers (e.g., Verizon (VZ), AT&T) and emerging communication tools.

Ooma's strategic positioning leverages its strengths in ease of use and SMB-tailored solutions. While larger competitors like RingCentral and Zoom may lead in advanced AI integrations and broader enterprise reach, Ooma differentiates itself through its integrated hardware-software solutions and a focus on specific verticals. For instance, AirDial's unique capabilities and Marriott's brand certification provide a significant competitive edge in the POTS replacement market, where Ooma is recognized as a leader. The 2600Hz platform directly challenges legacy wholesale providers like BroadSoft and Metaswitch, offering a modern, flexible alternative that appeals to carriers seeking to future-proof their infrastructure.

However, Ooma's smaller scale compared to some rivals could present vulnerabilities, potentially limiting its R&D investment capacity for certain advanced features. The company mitigates this by strategically allocating sales and marketing efforts towards high-potential areas like AirDial and 2600Hz and focusing on operational efficiencies to drive profitability. Ooma's expanding network of reseller partners, including a top-tier national cable company and various CLECs, is crucial for extending its market reach and competing effectively against larger players with established customer bases.

Outlook and Risks

Ooma's guidance for fiscal year 2026 reflects continued optimism for profitable growth. The company projects total revenue between $267 million and $270 million, with business subscription and services revenue expected to grow 5% to 6% over fiscal 2025. Non-GAAP net income is anticipated to be in the range of $24.5 million and $25 million, and adjusted EBITDA is guided between $28.5 million and $29 million, with an adjusted EBITDA margin expected to reach close to 11% for the full year. These projections are underpinned by assumptions of accelerating AirDial installations in the second half of the year and continued R&D efficiency.

Despite the positive outlook, Ooma faces several risks. The nascent POTS replacement market is characterized by long sales cycles, and the pace of AirDial's revenue ramp with new partners and customers remains somewhat difficult to predict. Supply chain constraints, tariffs, and component costs could impact product gross margins. The company's reliance on third parties for critical network services and E-911 also presents operational risks. Furthermore, the evolving regulatory landscape for telecommunications and emerging AI technologies could introduce new compliance costs or restrictions. While the anticipated seat reductions from IWG Regus are largely behind the company, customer churn remains a factor given the monthly subscription nature of many services.

Conclusion

Ooma stands at a pivotal juncture, having successfully transformed its business model and established leadership in key growth segments. The company's differentiated technology, particularly AirDial's comprehensive POTS replacement solution and 2600Hz's modern wholesale platform, provides a strong competitive foundation. Coupled with a disciplined approach to operational efficiency and strategic partnerships, Ooma is well-positioned to capitalize on significant market opportunities. The consistent improvement in profitability, robust cash flow generation, and clear guidance for continued bottom-line expansion underscore a compelling investment thesis. While market adoption timelines and competitive dynamics present inherent risks, Ooma's focus on execution and technological leadership suggests a trajectory towards sustained profitable growth, making it a noteworthy consideration for discerning investors.