Ooma Inc (OOMA) September 2026 Capital Markets Day Transcript

Well, good morning, everyone. Thank you for joining us today. I'm Eric Stang, of course, CEO of UMA. We're excited to talk with you today about what's going on in the company. We're going to try to move through it fairly quickly so we can get to Q&A, but we do have a lot to talk about, including a couple of exciting announcements which we'll be making today. So I hope you enjoy our presentation. And by the way, welcome also to everyone who's dialed in and watching this online as well. First, though, our safe harbor statement, which speaks to forward-looking statements that we'll be making during the day. I'll let you read this post the presentation. UMA, we're obviously a cloud-based communications provider. We like to say that UMA stands for object of my affection, but the real truth is we're named after UMA Thurman. So if any of you know her, let her know. She's got a public company named after her. Not everyone can say that. I'm very pleased to welcome many of our leadership team members here today. Not everyone on the slide has joined us, but several folks have, and you'll meet them as they come up to present. So I won't take a moment now to introduce them, but I'm excited to be here with you. So UMA today, just a little bit of background and perspective. As you know, we provide a set of services to customers using a multi-tenant SaaS platform. focused around telephony, messaging, video, and all kinds of unified communication solutions that go along with that. We have over 1.4 million core users today. Core users for us excludes a small subsidiary that is a mobile app, Talkatone, and also our 2,600 Hertz customers. About 1,500 people based in Sunnyvale, been public for about a little over 10 years. On the last trailing four quarters. We've driven $307 million in revenue, which is up 17% year over year. About $44 million in EBITDA. Quite a lot of growth in EBITDA the last two or three years, and we're committed to driving EBITDA up further as we go forward. About $300 million in annual recurring revenue and our recurring non-gap gross margins run in the 70% plus range. So we're driving a lot of value from our customers, and with 99% retention, we feel we're building a bigger business and a better business each quarter that we go forward. Our strategy is pretty simple. We aim to bring together advanced features, superior ease of use, and uncommon value. And when we can combine all three of those together, we believe we have a winning strategy. And we do that in certain segments that we target. And that allows us, we believe, to be a leader in those segments. We don't try to be everything to everybody, but we are going to take you through today the segments we're in and why we think we're winning. A little bit of a history of the company and where we've gotten to today. We started out over 20 years ago in the residential telephony business. That today is less than 30% of our revenue. But we quickly moved past that and moved into business UCAS, Unified Communications as a Service, started that segment for us over 10 years ago. We're very excited that third parties have rated us number one in both of those areas of our business. More recently, in the last few years, we've gotten into POTS replacement, replacing plain old telephone service with more advanced solutions. and there we're very excited because we have a very large partner reseller community and that is growing for us every quarter and we've also been recognized there as well for some of the leadership elements we bring and we'll talk about what those are as we go further in the presentation and then finally you know most recently with our 2600 hertz acquisition we've also been able to use our platform as a wholesale platform for others to leverage and we'll talk to you a little bit about where we're going there and the pretty significant longer-term potential that that segment holds for us. Looking at issues in a little more detail, what are customers looking for in each of these segments, and why UMA? Why do we do well? When it comes to smaller business communications, businesses up to 100, 200, 300 employees, they really want to avail themselves of the newest methods and resources that they have not generally had access to before. And with that, they want to portray a bigger business image and communicate with their customers more effectively. Now, why we win in that segment is we really put together a curated set of features for the smaller business customer. And we do that so that they get everything they need, but they don't get a lot of extra that's confusing or too much for them. Keep in mind, a lot of our small business customers have no IT professional in their business. So they have to be able to set up and operate that and use that system themselves. And, you know, we marry that together with great ease of installation and use, good value, and very ready available support. And we think when we put that package together with a focus on their needs, we can differentiate versus, you know, the general UCAS industry. In pots replacement, it's pretty simple. Our customers are looking to reduce costs. The cost of POTS lines have gotten astronomical, and they're also trying to just keep their equipment operating. Their equipment is legacy equipment that needs an analog connection. What do they do if that POTS line goes away? You're going to hear from us talk today about some very differentiated features that we bring to the space. And we have built our system end-to-end so we can bring the control and reliability that is needed for this type of solution. With our wholesale communications software and services, we find our customers are probably using an older platform and they want to stay competitive as things are evolving. And where our platform really stands out is very modern in design, very API-based, allows our customers to not only leverage pre-built applications, but really innovate on top of it to meet their needs. And we'll talk a little bit about what folks are doing there. And finally, in residential communications, it's really about the safety and convenience of having a home phone. And we believe we bring a very reliable service with some advanced features at a very low cost. And we'll talk more about that. So, you know, our strategic priorities as a business today, we want to win carriers and other resale partners in order to dramatically grow in Airdial and our POTS replacement solutions. We want to focus on AI to extend our leadership serving small business customers and with that, dramatically grow our ARPU. We want to continue to focus on the modern capabilities of our 2600 Hertz platform and position it as the choice for the future as carriers and others eventually decide to replace their legacy solutions. And in residential, we have two new offerings, MyPhone and StartIsle, which we'll talk about, and those will allow us to reignite residential growth. At an overall level, We target certain segments where we believe we can be the best. We're going to take you through why as we go further here. But to do that, we have to have the leading solution and put together those three elements of the strategy that I talked about. We're also augmenting our growth with acquisitions, primarily in the UCAS space. I'll talk about what our objectives there and goals are a little later. But with that, we can build scale and drive more profitability as a business. And finally, the last one, driving profitable growth. We're very focused on what we're spending for what we're achieving, our customer acquisition cost, our payback, building scale to really bring that 72% gross margin that we run with today for recurring revenue on an on-gap basis to bring more and more of that down to the bottom line. So with that, this is our agenda for today. I've taken us through the first one on here. We're very excited to have Elka Popova with us from Frost & Sullivan. She's going to give us a general market perspective, and then we're going to go through each of our four segments, financial metrics. I'll talk a little bit about acquisitions and closing remarks, and we will get to Q&A, although I know it's a lot. And, you know, Elka, thank you for joining us. She has got a lot of experience in our industry. She's the lead author for Frost & Sullivan's annual radar reports on UCAS and CPAS. She's going to be joining us for Q&A as well and lunch, so feel free to also ask for questions as we go through the day. Thank you, Alka.

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

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

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

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

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

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

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

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

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

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

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

Thank you, Rob. Also pleased to share some perspective on 2600 Hertz, which is a business that we acquired in October 2023. This is a wholesale platform that allows other entities to build UCaaS, CCaaS, and CPaaS solutions, and they have the flexibility to do this in a turnkey model or the flexibility to take parts and pieces and design their own differentiation off of this platform. There's multiple different deployment models for how they can host this, and the entire architecture from the onset was designed to be API-driven, which gives us a lot of power in the tailor and customization of the solution. Additionally, since the acquisition, UMA has been porting over our own intellectual property into the platform to make it more robust and more capable. Things like our desktop and mobile AI will be coming as well. This will allow the platform to become very competitive out in the market and equip others to be successful in the same way that UMA has been in the space. With that, I'm pleased to share a testimonial from one of our largest customers, ServiceTitan.

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

It was such a joy to watch the solution that they've built and how they've been able to transform the trades business. The market opportunity for 2600 Hertz is something that's very attractive to us over the long term. There's a variety of different targets for us to pursue. Companies that are operating legacy platforms that are lacking features like Broadsoft and Metaswitch, fiber companies that may have regulatory requirements to offer voice services to their customers, and situations like Service Titan and many of our other customers that are vertical SaaS companies that want to incorporate voice capabilities, whether UCAS or Contact Center, into their solution because they are now the system of record, and that's a whole data set that they can take advantage of and blend into the AI capabilities that many of these companies This market is shifting because of the regulatory requirements that I mentioned and that there are lots of legacy providers out there that aren't maintaining their platforms. The investment that we've made by converting over the significant R&D expertise and intellectual property that we have really tees us up to have a compelling platform in the future. While there is a lot of addressable market here, the other thing to bear in mind is this is like an enterprise sales cycle, slightly more complex. These are entities that are running thousands of users or hundreds of thousands of users. So the decision-making cycle takes a long time, and then you have to go through a migration process. Either way, we view this as a very interesting growth lever for UMA in the future that we can tap into that additionally helps us to scale. With that, I'd like to introduce Jim Gutske, our Senior Vice President of Marketing and Residential Sales.

Thank you very much, Chris. I'm here to talk about our residential business and why UMA continues to win. So let's start with our core product, Umatello. It's been rated number one by Consumer Reports Magazine for over 10 years. And that's not a mistake. It's because of our technology, Pure Voice HD technology, that makes it noticeably better quality than a typical landline. We work with handsets in the home, but we have the flexibility through the UMA mobile app to also go on the road. Most important is our freemium business model, which means the core service is free. All they pay are taxes and fees, with an optional premier service at $9.99 for customers that want more. Today, we have over 723,000 customers, and I'm really happy to say, and growing. So the North America market, why does this matter? It's still 27 million phone lines, home phone lines in North America. But many people say, well, why do people even have a home phone? Well, the answer is they like the convenience of having a home phone, and especially phones throughout their home. 911 plays a big role. They want the safety and security of address-based 911. and they know that their phone is always on in the house, never runs out of batteries. And finally, the presence of children in the household is a big driver to have a home phone. So, I'm sorry, let me go back down. Let me point your attention to the lower right-hand corner, the market drivers for the residential phone market. First, many parents are now delaying smartphone use among their kids. The second is the unbundling of cable service. And the third is what we've been talking about a lot today, Copper Sunset or the decommissioning of copper phone lines. Now, speaking of parents delaying smartphone use with their children, let me introduce MyPhone. MyPhone was designed specifically for families with kids. For kids, it delivers simple screen-free calling, no texting, no social media. It has a trusted circle of contacts that the kids can communicate with. It has a party line so that they can talk to multiple friends at once. And they can also listen to voicemails. For parents, what it delivers is the safety of having real address space 911 in the home. And it has scheduled quiet hours so the phone isn't available during bedtime or homework time. It has call logs so they can see who their kids are talking with. And because it's from UMA, it's easy setup with no technology background needed. Now, what is the market opportunity? From the U.S. Census, there's a huge number of households with kids that's suitable for my phone. And this is a real issue for parents Pew Research found that 86% of parents are managing their kids' screen time on a day-to-day basis. And this is not a fad. There's a whole ecosystem of parent-led organizations throughout the country that are focused on reducing smartphone use and screen time. Wait till 8th is one, eighth as in eighth grade, unplugged, and there are many, many others. And currently, my phone is online on uma.com with major online retailers. And I'm very happy to announce here today that beginning in November, we're launching in-store with a major brick and mortar.

I'd like to play a video from one of our social influencers that really brings the my phone message alive for parents we just got the coolest thing the ooma my phone for kids we're back in the 90s baby one thing that's so great about this phone is you can do quiet hours so you can control when this phone can be talked on and also you can do a trusted circle so only the contacts you want in this phone can be in the phone this is not a restaurant mom i miss you

listen bring it back to the good old days check out uma my phone for kids we love it we know you will too okay now shifting gears to another opportunity it's starlink households uh starlink has been growing like crazy uh and some uh forecasts are that it's going to reach 10 million households in north america by 2030 we designed starlink specifically for satellite internet It's got optimal sound quality, not only through HD voice, but also through our adaptive redundancy, which is perfect for the latency of a satellite Internet connection. And this package design and the whole product is designed to be marketed right next to Starlink. And I'm also really happy to announce today that a major retailer is taking Starlink in as part of their Star Dial, as part of their Starlink assortment. So finally, let me bring this all together. We've got four major drivers of the residential market. The first is the Copper Sunset, then unbundling of cable services, the delay of smartphone use, and Starlink. We have specific products that address each of these entrants into the market. That's our strategy, and that's why we're confident that UMA is going to win in residential. Now, let me introduce Shig, our CFO.

Thank you, Jim. Good morning, everyone. I'm going to spend the next few minutes talking about our key financial metrics and also how what you've heard so far from my colleagues can translate into our long-term financial targets. So quick recap on our most recent quarter, the numbers coming out of Q2, most recent quarter. So our current revenue guidance for fiscal year is about $333 million. And we have achieved 38% year-over-year growth on business subscription revenue in the second quarter. We also maintain a high data retention rate. We also exited Q2 with $299 million of annual exit recurring revenue, which grew 25% year-over-year. In terms of free cash flow and EBITDA profitability, we also achieved 50% and 68% yield yield growth, respectively. In terms of adjusted EBITDA, this is a trailing 12-month number as of Q2. We did guide to about $48 million of EBITDA for the year. This is a historical graph on our total revenue going back to fiscal 21. And far right, we're showing the guidance number for the year. And as you can see, we have almost doubled between 21 to fiscal 27 guidance number. We also maintain the very high proportion of a recurring revenue, providing a lot of visibility, over 90% of revenue coming from the recurring revenue. And we believe that that trend will continue in the future years. Now, drilling a little bit more into the recurring portion of revenue we just saw, here's a breakdown on recurring revenue going back to fiscal 21. Blue bar at the bottom is residential recurring revenue, and the red bar at the top is the business subscription. So as you can see that we are maintaining the recurring revenue on residential subscription relatively stable. and we continue to grow the business subscription coming from the UCAS solution and also the Airedial solution. And we believe that the proportion of the business recurring revenue continue to grow with the growth of Airedial and business UCAS, which also drives the recurring gross margin improvement over time. So here's our output trend. It's the average revenue per user per month. This is a blended ARPU between business and residential recurring revenue, and it was almost $17 per user per month at the end of Q2. We also believe that there's an opportunity to continue to increase ARPU overall going forward with increasing proportion of business users. It was about 70% coming out of Q2. We think that can be much higher as we continue to grow the UCAS users and adult users. And also you heard about the exciting AI offerings, which are an upsell to our UCAS users, which we believe that can add to the trend going forward. So here's a historical chart on the EBITDA and a free cash flow generation going back 12 quarters. And each bar in a line graph shows on the numbers on a trailing 12-month basis. So at TianoQ2, on a trailing 12-month basis, we generated over $44 million of adjusted EBITDA and also $30 million of free cash. And we believe we can continue to drive the higher on both metrics. And by the way, we do convert about 70% of EBITDA into free cash. And we have a very low CAPEX requirement. We believe that's going to be the case going forward as well. So So we believe we can continue to grow free cash flow along with the adjusted EBITDA. Now, many of you have seen this, but our long-term target is to get to over 20% to 25% of adjusted EBITDA from where we are today, which is 15%. And let me get to the next page here. It's just kind of bridged from where we are to how we get to that number. On the left-hand side, what we're trying to say here is that we're looking at three to four-year time frame. That's a long-term target model time frame where we aim to double revenue, mostly coming from the business use gas, organic and inorganic growth, and also the air dial. Those are two big chunks. On the right-hand side, I'm bridging the EBITDA margin 15% in Q2 this year to over 20%. Good chunk of that's coming from the recurring gross margin expansion. Again, bigger proportion of the recurring revenue coming from business users in the future years. We also think that there's a lot of operating leverage that can come from R&D leverage. It's about 17% today of revenue that can be going down to low teens. We have made heavy investments already in the growth areas. So I'd like to end my section with a slide. In terms of delivering the shareholder value, we believe it's all about execution. We are in this UCAS market for small business. We believe we have the strong offerings. We have AI features that are coming on. And also, we want to supplement that with the inorganic growth, which we have a good history of. We are very clear about the new growth strategies. You already heard from my colleagues in the middle column. And combining these things, we think we can expand the gross margin, realize the operating leverage, which all translated into greater EBITDA generation and free cash flow generation. With that, I'd like to give Mike back to Eric for our M&A strategy and closing remarks.

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

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

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

Okay, one more. I don't understand why AT&T, why are they trying to get rid of their copper? What's wrong with that business?

It's a good question. I'll let Chris answer that. You want to stand here?

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

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

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

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

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

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

Alinda, we'll go that way. Don't worry, we'll get to you, Eric.

Alinda Lee here with William Blair. Thanks for taking my question here. So with the existing AI products like the AI Receptionist, Answering Service, and AI Insights, what are the early customer feedbacks and adoption trends on that? And how should we think about success going forward with AI monetization in the next 12 to 24 months as you continue to add on new AI software add-ons here.

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

So in terms of the features that we have bundled with ProPlus, we have seen the movement of essentials and pro customers into ProPlus. So for new customers, we're seeing a doubling of that take rate for ProPlus, which indicates that they are upgrading for the AI features. We're also seeing double-digit take rates of the voice agents, the answering service and receptionist, around a 60-40 split between full receptionist and the basic answering service. and right now those programs are largely rolled out to new sales and we're just starting kind of our install-based marketing of those of those features got it that's helpful and another question so with the multiple growth initiatives underway including air dial expansion star dial my phone and also the ai product developments how are you prioritizing your investments across these opportunities, and which areas are receiving the greatest focus over the next year?

So the way we organized our presentation today is our focus. We started by talking about air dial, then we went to UCAS, then we went to 2600 Hertz and residential. Now, we have a lot going on in the company, but we're also fortunate that a lot of these solutions are built and in market, and now we're capitalizing on the growth opportunities. So we've done a lot of legwork now already, and we're not having to invest maybe at some of the levels we did in the past.

That's awful. Thank you.

Let's go up to Eric, and then we'll come down this side. Sorry, you guys.

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

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

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

So, no, there's not like Airdial has targets it needs to hit, you know, across or per reseller. Sorry, I put that backwards. Resellers don't have targets that they need to achieve to maintain their reseller status or anything like that?

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

Okay, and I know you've been working with resellers for as long as we've had, AirDial, whatever it is, three, four years. Any lessons learned with certain resellers as far as enabling them or holding them to investments in UMA?

Yeah, I think there's been a lot of lessons learned between Rob's team and my team. We've invested a lot of effort in enablement strategy for resellers. Some of them are very capable on their own. Others are not as capable, so we have a team of sales reps that actually focus exclusively on the resellers. We have another team that helps with the enablement and product management. And taking more of the lead where we're allowed, so a good example of this is T-Mobile. Their sellers are used to selling cell phones, to be candid. And so we have different programs where now they're letting us lead the sales process. we're much more expert at doing this. So I think that helps us make them more successful. They get access to the accounts and all the right tools. There's been a lot of positive feedback that's come from resellers on product capabilities that product management and engineering have built that have really strengthened the solution versus the other offerings that are available in the market.

So we've hit this maturity point, I guess, to put more succinctly in how we're handling go-to-market, and it's very well packaged and very well structured now. as we bring on new resellers gotcha thank you let's go to tim thanks for your patience tim thank you uh great presentation by the way and great very very well done um two broad questions on air dell so the primary reason people need to use this is because they they require a connectivity that's always on with backup and multiple paths of connectivity is is that right Yes.

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

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

Yeah, we have a number of customers here in New York. Yeah, so same thing. They just want to swap.

So, I mean, your market estimates seem very low to me. Like, who else is providing this service? Like, you know, you mentioned TELUS. I mean, AT&T is going to have to swap out three million lines. Who else are they going to go to if they're not using you?

So AT&T does have a separate solution that they're currently utilizing for it. There are a handful of vendors in this space that I would consider our material competitors to in particular, but there are not a lot of choices, and there have been a lot of product-related struggles with the other solutions. And for us, this goes back to the point where, and Thad made this, we own the whole stack, and that's really unique for us because we can go turn the knobs in lots of different places to make the fire panel work that nobody else can get to work, for example. So it's a fairly concentrated market in terms of the vendors that are available and the choices that are available.

Yeah, I mean, just the other choices I've seen. Yours, they don't even seem to compare, but good luck. Well, thank you. And then just switching gears to the AI side, Eric, can you maybe just step back a little bit and talk about where do you get your data? How have you built this platform? You know, what other suppliers, you know, are you using? What kind of security? Like, how important is your AI platform for the solution here?

So I'll say a couple words, but either Dennis or Toby can join me after. We've developed a fair bit internally, not all the models we run. Sometimes we do work with outside models, but we also run some models internally. And we do that with the goal of driving to the lowest cost structure we can get. And that's kind of permeated UMA as a fundamental core competency in everything we do. We will invest and design our own in order to get the lowest cost structure possible. We do think it's dynamic.

So when we're using an outside model, we usually use more than one, and we can switch between them based on what's working best or, frankly, where costs go. but we are running equipment in data centers to get this done I think that just is your question at least in part but I don't know if Dennis or Toby want to add to that No, I think I'll just reiterate the point we do use a combination of both in-source and outside models the AA models are progressing very quickly there's constant change in that market The advent of, you know, open-weight models is also changing pricing structure, right, in the industry. So we're staying flexible right now. We do use some outside models right now for time to market and for instant capacity. But at the same time, we are, you know, vendor, you know, basically model agnostic. and we're constantly experimenting with other models to try to find the right price point, the right value for delivering what a specific agent or task needs to do.

And maybe just do your customers let you use their data or where do you get the data? And then I guess you're alluding to on the hardware side, do you actually own some of your own GPUs that you're running this on?

Yeah, so we do. And one of the things about AI that I think the industry is going to learn is AI does not read loyalty at the infrastructure layer. It's very easy to move from one model to another at the infrastructure layer. At the application layer and kind of the harness around it and the user interface, that's something that you have to get eyeballs to be used to a particular way of using it. That's sticky. But what we approach this from an infrastructure point of view is to give ourselves that flexibility so we can move to different solutions. And, yes, we do own GPUs, and the trick there is to figure out how to spread the load so that you're not overbuilding just for your peak usage, but actually figure out how to spread that out. If you think about it from a residential point of view, residential use of AI, the peak load is in the evening. For business, it's in the morning or it's in the afternoon. And so they actually overlap very nicely to get maximum use of the infrastructure. So we pay attention to that, and we have had attention to being able to be flexible about what models we move to based on market.

And the data we're using is the customer's data. There are phone calls, text messages, other things they're doing, and we just use that data for that customer. We're not asking our customers to share their data.

Lastly, have you built your own harness capabilities?

That's essentially what you and you.

Hang on, you've got to speak here if you're going to speak.

When you use the product, when an actual user uses the product, he's using the user interface that the team has built. That's what they get used to using, and they don't want to switch once they figure out exactly how that works and how to get the most out of it.

One of the things we cut from our presentation, because we were worried about time, but we had a pretty detailed look at our AI receptionist product. uh it's difficult to for business has to educate that product for their situation their vertical what they want customers to know about them we've built automated tools for to make it easy for a business to do that and set it up and i think a very elegant way and that's that harness capability that really makes it come to life for a small business situation and that's where i we think the competitive advantage is along with the fact that we're bundling together in one solution So instead of trying to put things together themselves as a customer and deal with inefficiencies, we can put it all together in one package.

Just to follow up on that, it seems to me that it's pretty impressive that you were able to get this to market pretty quickly. Could you maybe describe the process of how you decided to pursue these products? How long have you been working on it? How much have you invested, you know, either from an operating expense or capitalized expense? And then as you think about the revenue from here, I would think that the contribution margin from that revenue is going to be extremely high. Is that sort of a correct assumption that there's very little in the way of incremental operating expense as you sell these products? Yeah.

On your second question first, there is a lot of leverage in our pricing today. We're able to leverage what we've done across these customers and make it work well for us. We're excited about the margins we see as we get into AI. Now, how did we get into this in the first place? We started, boy, it's maybe a year and a half ago or more, but we started building systems for our own use internally. And we launched those, particularly in our inside sales and customer support teams. And it was very dynamic. We were changing models and changing ways of doing things almost every month for a long time. And what we wanted to do through that process is get to a point where we really understood it and could make it simple and easy to use. And so we kind of used ourselves as the test case to see what worked and what didn't and to learn from it. And it wasn't until we had been at that for over a year that we started working on our solutions for customers. And I think that's partly why we've been able to move so fast since we made that transition because we had a lot built and ready to go. I'll go to the very back because we have, Jean is going to read questions from outside the room and then I'll get back to you We'll start with the first two virtual questions.

Peter Lowry with Citizens. AirDial is growing rapidly and seems like a great market opportunity. Is there anything you can speak to in terms of its current scale?

Shig, do you want to address that? Sorry, could you repeat the question? I was... Oh, sure.

Go back to it. Airdial is growing rapidly and seems like a great market opportunity. Is there anything you can speak to in terms of its current scale?

Sure. So, you know, we've been talking about an intermediate goal to hit, excuse me, I should sign up here, to hit, you know, 300,000, 330,000 lines to hit $100 million of recurring revenue. We're about a little bit over the fifth of the way at Q2. So, you know, I think you also heard us say coming out of Q2 that we grew the subscription revenue in Q2 year by year by 70%. And so, you know, again, you heard about their one-way that's remaining, which is still large. And we got, you know, good new partners and carriers sign-ups. And so, you know, we believe that we continue to have a good momentum on the air dial.

Okay, and the second question comes from Matthew Mouse with B. Riley. How much of the growth in the revenue bridge factors is contributions from acquisitions, or would acquisitions add upside to the long-term roadmap?

Yeah, I don't know if we've been explicit about that, but there's certainly some acquisitions included in the UCAS bar that we're showing on that breakdown. If we can accomplish our goal of an acquisition every year or more in the $10 to $50 million range over two or three years, we could certainly exceed that $100 million of growth for sure. But we can't handicap whether those acquisitions will happen and whether we'll be able to bring them to fruition. But we've had a pretty good track record. If you think back, we acquired BroadSmart, we acquired Voxster, we acquired Onsit, we acquired FluentStream and Phone.com, and we have every reason to think there are going to be more as we go forward.

Just to add to what Eric said, again, the timing itself is hard to predict, but again, just the FluentStream and Phone.com as an example that we did almost a year ago. and those two brought in 46 million dollars of revenue so you can see that it you know doesn't take too much to actually fill the gap on that ucas growth that i showed on the bridge so go ahead hang on hi there thanks for taking my question andrew king at rosenblatt securities um just wanted to go into the ai bundle that you launched today uh first off can you just give us a little

bit of your reasoning behind bundling those solutions rather than offering them a standalone on products. And then any further color that you can give us into the pricing of that bundle would be great.

Sure. We're always thinking, particularly for our smaller business customers, how do we keep this simple? And so putting it all together in one bundle is $15 a month for the account. That's almost nothing to sign up to have it. And then you've got all this stuff to play with. and we will charge based on usage. There are certain credits that the customer will buy and they'll be able to use them up as they do different work with those agents. So it's just a simple way to bring it to market. Also, all of those items are built around improving productivity at the business.

So they do go together well in that sense. um we thought it was just a an easy entry way to to get started i don't know if you want to add yeah um you know i think our strategy there like eric said was to make it easy and accessible for small businesses uh we find that they're interested in ai but also hesitant right so they want to be able to try it they want to test it they want to see you know they might start with one feature then as they see that, you know, build on that success, enable more. So we think that giving them access to everything at once encourages that, you know, that experimentation and eventually the adoption of the feature, right, in production. So it is a usage-based system. For $15 per month, they get a certain number of credits, right, the agents, you know, based on which agents they select, which workflows they use. They're, you know, they're deducted from their credits, so it gives us a way to let them experiment and use the features, and we have control, right, over our, you know, margins and our cost, because they, you know, inevitably there's a cost aspect to it, so it just allows us to tune the knobs so that we're always, you know, bright side up.

Go ahead, Brian. Okay.

A couple more. Thanks, Brian, from AGP for taking my follow-ups. First, congrats on the TELUS win. How long was the evaluation process? Are you aware of how many vendors were evaluated? You said there were all of your competitors. Are you willing to share what your pricing was and how it compared to those competitors?

Well, we won't share the last.

That's why I said, are you willing that's why i said are you willing i knew yeah so the process was uh for a tier one carrier relatively quick uh end in i would say it was approximately six months so pretty quick all of our competitors were in there they evaluated the major vendors if you do your research you'll see who those are top five solutions basically as part of that process they went through thorough testing, incidentally, of all of the solutions, including a fire panel that is unique to Canada. And again, much to our strength and our talent on the engineering side, we're able to make adaptations to the firmware on our device within a couple days and make it work. Our ability to act that quickly, thoroughly impressed Telus, to be honest, that we have that sort of bench on the development side. But it was a quick process, and Canada is going through the same journey as the U.S. CRTC, which is their equivalent of the FCC, has a new head that wants to, in fact, parallel what the FCC did by removing all the red tape for the Canadian carriers. So it really opened up optionality for them, where that was not the case at all, because it was highly regulated and difficult to shut down the network.

I have two more. The first is this was 300,000 lines. Your medium term target is 300,000 lines. So I want to make sure I understand how long do you expect it's going to take to fully replace all of these lines?

Yeah. So one point of correction, 300,000 lines and just tell us business solutions. They have other divisions that have their own lines or in conversations with them. I think that they'll follow a similar journey and path is what AT&T has done here. They'll likely take action over a number of years, three to five, maybe, for example. You have to send out notices, give customers sufficient time planned. You don't want to shut off critical life safety devices, elevators and fire panels, et cetera, and have liability issues. So it'll be a pragmatic approach over time. They intend to use their own techs. to also do this so other carriers have done this where they're dispatching the tech out you get a letter that we're changing your service here's your new device here's the tech that's going to plug it in and operate it for you so that becomes kind of to rob's point earlier much like enterprise customers a project management cycle that you have to address over time and do in stages because you can't just rapidly go convert 100 000 lines for example in 12 months right some of those lines will go away.

I'm sure some will get upgraded where they decide to put a new elevator panel in or something that will work and not require legacy capability. But I think in our experience, majority of the lines that we see out there, the best and easiest solution for the customers to just pop in air dials. Salesforce Tower in San Francisco, every elevator in that tower has an airdial powering the call button. And it was a very simple way for them to upgrade. And that's what is why the solution is so powerful.

Great. I got one last question. Thanks for taking them all. When you look at your active pipeline for POTS replacement, how many active opportunities do you have that are similar to TELUS with a network operator where you're already addressing an RFP and being evaluated, if you can share that?

We can maybe say a couple words around that. I don't think we can give that in absolute numbers, but Chris, if you have any questions.

Sure. So we're engaged in a number of conversations, as you can imagine, both here in the U.S. and Canada. Of course, we have outside of AT&T relationships established with the key tier one carriers here in the U.S. There's still ample opportunity. And one of the benefits that I will share is a lot of people are approaching us now about air dial. Either they've lost in an opportunity against one of our other resellers or they've heard about it or they've had a failed experience with one of the other solutions. So it's equally become an inbound exercise for us as much it was an outbound exercise for outreach before.

Let's try to take, there was a question over here that I skipped past, but let's take one or two questions and then we can keep talking at lunch if that sounds good.

Was there another question?

Yeah, go ahead. Oh, I don't mind whichever way we want to do it.

Thank you. Great presentation. Shig, I would like to ask you a question. On the three- to four-year framework to roughly double revenue, could you help us think about the composition of that growth? Specifically, how much of the incremental revenue do you expect to come from Airdial versus Organic UCAS growth, AI, and 2600, and how much assumes the future M&A? And as the mix shifts towards those businesses, Which of those drivers should contribute most to getting your goal EBITDA margins above 20%? I'm from Freedom Capital Markets.

So, well, I appreciate the question. So, you know, you saw that in terms of bridging where we are today to a long-term model. On a high-low, I showed the similar amount of bucket, 100 million coming from UCAS and the 100 million coming from ADIL. And, you know, AirDial could certainly be bigger than that, depending on what we achieve prospectively with new partners and new carriers and large accounts. And as I said earlier, you know, we're seeing the AirDial subscription growth being a high double digit. We've done that in the last few quarters, and we think there's opportunity to continue to do that in the short term. At some point, the law of large number comes in, obviously, right? And so that might be a little smaller. But I think in terms of pure growth rate, because Airdial is growing from a smaller number versus a UCAS, we're going to continue to see the higher growth rate for Airdial. In terms of the small business UCAS, it's been, in the recent quarters and years, it's been steadily growing about mid-single to a little bit higher than that year over year. But I think this AI opportunity is a very interesting, exciting opportunity for us that could accelerate that further to high single-digit or even double-digit. We need to see that come through that. But that's a magnitude of growth rate between the two. Obviously, UCAS growing from the larger base, you're going to see those numbers I just described. But that's what I can tell you right now. Does that answer your question? The best I can.

Is there one last question over here, this gentleman? Here, take the mic so that they can hear you out externally, too.

So in general, can you give us some kind of, I don't know, how do you generally deal with your resellers? Is there a general revenue split here? Or can you, without, you know, getting specific. Yeah.

Well, first of all, I'll say that when we tell investors to model around $25 per line per month, that's a blend of our direct sales that are often above that and our resellers, which can be below that. And so we're putting that together that way for you. It depends, too, on what we do versus what the reseller does. Some of the resellers will bring the wireless internet connection, the data plan, and marry that up with our capability. In that case, we would see less revenue, but we also have less cost. So it varies with that.

A little relationship.

Are their customers even going to know that you're part of the deal?

Yes. None of the carriers hide that it's UMA. The portal shows UMA, so we're not doing any custom white-label branding, any of that for them. And one more thing to add on for the reseller structure, the model goes deeper into how much they own in the value chain. So there's obviously the data connectivity. The Verizon partners, for instance, bring Verizon Sims so the reps get compensated. We have others that want us to assist with the selling motion, handle all of the project management and install. So we charge kind of a la carte, if you will. the more they ask us to do, which raises that transfer price for them.

Jean, was there a last question from the back?

One last question from Bill Wolfenden, Cottonwood, slide showed air dial goal of 333,000 lines. That's only 4% share of 8 million lines.

Can it be much higher, like over a million lines? it's so hard to to make these predictions we we set our goal thinking 100 million in recurring revenue from air dial would be a nice thing to aim for and um we remain confident we can we can get to that level um but yes the the industry is large um we've got you know three to five maybe even more years to go before this transition runs its course and um we see things accelerating at the moment. So we're going to push hard and see how far we can get. With that, I think I will say thank you to all of you for joining us today. Really appreciate your attention and interest in UMA. And we have lunch coming and we can chat more, but let's call the meeting at this point.