Exchange: NYSE | Sector: Communication Services | Industry: Telecommunications Services
Q3 2025
Published: Dec 10, 2024
Earnings Highlights
Revenue of $65.13M up 8.8% year-over-year
EPS of $0.16 increased by 78.4% from previous year
Gross margin of 60.3%
Net income of -2.36M
""Q3 was a great quarter for Ooma, not only financially, but also competitively. I look forward to sharing our results, including two very significant new customer wins we secured in Q3."" - Eric Stang
Ooma reported a resilient Q3 FY2025, delivering revenue of $65.1 million, up 9% year over year, with non-GAAP net income of $4.6 million and adjusted EBITDA of $5.7 million. Operating cash flow reached a quarterly record of $8.1 million, and the company exited the quarter debt-free after paying down the remaining balance of its credit line. Management highlighted accelerating momentum in AirDial and the 2600Hz acquisition, underscored by a growing partner ecosystem (now over 20 AirDial resale partners) and several large new customer wins, including opportunities exceeding 1,000 lines each. Ooma Business contributed 62% of total revenue in Q3, aided by UCaaS growth and higher-tier premium offerings. The company is advancing its cost-structure leverage, supported by the 2600Hz platform, and has raised full-year 2025 guidance, signaling confidence in extended profitability as it scales. Management also cautioned about near-term churn associated with IWG seat reductions, while emphasizing favorable long-term tailwinds from copper-line sunset timelines and carrier migrations away from legacy POTS. The overarching thesis is that Ooma is transitioning from a primarily growth-oriented spend profile toward sustainable profitability, driven by recurring subscription revenue, a diversified product mix, and a broadened partner-enabled distribution model.
Key Performance Indicators
Revenue
65.13M
QoQ: 1.56% | YoY:8.81%
Gross Profit
39.27M
60.30% margin
QoQ: 1.47% | YoY:6.31%
Operating Income
-2.29M
QoQ: -43.23% | YoY:-124.56%
Net Income
-2.36M
QoQ: -10.62% | YoY:-203.46%
EPS
0.16
QoQ: 298.76% | YoY:78.37%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $65.1 million, up 9% YoY; Product and other revenue: $5.0 million; Subscription and services revenue: $60.1 million (92% of total).
Gross margin: Total gross margin 62% (subscription & services gross margin 72%; product & other gross margin -56% due to pandemic-era cost components unwinding).
Operating expenses: $35.6 million, up 7% YoY; ex-2600Hz impact minor.
EBITDA: $5.7 million (9% of revenue).
Non-GAAP net income: $4.6 million; Non-GAAP diluted EPS: $0.17.
Financial Highlights
Financial highlights for Q3 FY2025 and relevant metrics:
- Revenue: $65.1 million, up 9% YoY; Product and other revenue: $5.0 million; Subscription and services revenue: $60.1 million (92% of total).
- Gross margin: Total gross margin 62% (subscription & services gross margin 72%; product & other gross margin -56% due to pandemic-era cost components unwinding).
- Operating expenses: $35.6 million, up 7% YoY; ex-2600Hz impact minor.
- EBITDA: $5.7 million (9% of revenue).
- Non-GAAP net income: $4.6 million; Non-GAAP diluted EPS: $0.17.
- Cash flow: Operating cash flow $8.1 million; net cash at end of period $17.1 million; debt balance reduced to $0 by period-end; trailing 12-month operating cash flow $24.0 million; trailing 12-month free cash flow $18.0 million.
- Key user metrics: core users 1.242 million; business users 504k; blended ARPU $15.14/month (YoY +3%).
- Customer engagement: Office Pro/Pro Plus take rate ~60% of new Office users; 33% of Office users on premium tiers.
- Revenue mix and guidance: ~93% of annual revenue expected from subscription & services; Q4 revenue guidance at $64.6–$65.1 million; full-year revenue guidance $256.3–$256.8 million; GAAP/non-GAAP reconciliation provided in accompanying materials.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
65.13M
8.81%
1.56%
Gross Profit
39.27M
6.31%
1.47%
Operating Income
-2.29M
-124.56%
-43.23%
Net Income
-2.36M
-203.46%
-10.62%
EPS
0.16
78.37%
298.76%
Key Financial Ratios
currentRatio
1.08
grossProfitMargin
60.3%
operatingProfitMargin
-3.51%
netProfitMargin
-3.63%
returnOnAssets
-1.58%
returnOnEquity
-2.83%
debtEquityRatio
0.15
operatingCashFlowPerShare
$0.3
freeCashFlowPerShare
$0.24
priceToBookRatio
3.84
priceEarningsRatio
-33.94
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management insights from the Q3 FY2025 earnings call:
- Strategy and platform: "we’re leaning in on 2600Hz given the capabilities of our platform and the market need to replace older aging solutions" (Eric Stang). This underscores the strategic priority of the 2600Hz platform as a driver of next-gen UCaaS and CPaaS deployments.
- AirDial momentum and partnerships: "a top-tier national cable company has chosen to resell AirDial... launch as quickly as possible, which we expect will be in calendar Q1" (Eric Stang). "we signed an aggregator/CLEC to resell both AirDial and Telo... around 100,000 copper lines to businesses today and ~10,000 lines to residential customers" (Eric Stang). These partner wins validate AirDial as a meaningful growth vehicle.
- Operational execution and leverage: "Q3 revenue was $65.1 million, solidly above the high end of our guidance range and was up 9% year-over-year" (Shig Hamamatsu). Management emphasized ongoing operating leverage and plans to accelerate bottom-line improvement in coming quarters.
- Balance sheet and capital allocation: "we paid off the remaining debt on our credit line shortly after the end of Q3 and are now debt-free" (Eric Stang); "on a trailing 12-month basis, we generated a record $24 million of operating cash flow and $18 million of free cash flow" (Shig Hamamatsu). The company signaled opportunistic buybacks and inventory replenishment as part of capital allocation.
- Guidance and outlook: management reaffirmed and raised full-year targets, highlighting 13% subscription revenue growth and 1% decline in residential subscription revenue for FY25, with a path to double-digit EBITDA margins next year. "We are on the path to get into a double-digit EBITDA margin next year" (Shig Hamamatsu) and CEO commentary reinforced confidence in the monetization of AirDial and 2600Hz opportunities.
- Macro and churn considerations: several analysts probed churn tied to IWG; management acknowledged ongoing churn risks but framed them as modest in the near term and offset by AirDial and 2600Hz momentum. Eric Stang noted Q4 is typically the hardest to forecast due to holiday seasonality, but market dynamics remain supportive.
"Q3 was a great quarter for Ooma, not only financially, but also competitively. I look forward to sharing our results, including two very significant new customer wins we secured in Q3."
— Eric Stang
"We paid off the remaining debt on our credit line shortly after the end of Q3 and are now debt-free."
— Eric Stang
Forward Guidance
Outlook and catalysts are anchored by stronger profitability and growth levers beyond Q3:
- Near-term backdrop: Q4 revenue guidance: $64.6–$65.1 million; non-GAAP net income $4.5–$4.8 million; non-GAAP diluted EPS $0.16–$0.17; assuming 28.1 million weighted-average diluted shares. This implies approximately 5% organic growth at the midpoint, with improved margin dynamics versus Q3 driven by a higher mix of recurring revenue and lower relative product margin headwinds.
- Full-year 2025 targets: Revenue guidance raised to $256.3–$256.8 million; non-GAAP net income $16.7–$17.0 million; adjusted EBITDA $22.1–$22.4 million; non-GAAP EPS $0.61–$0.62; ~27.6 million weighted-average diluted shares. Management attributes the increase to 13% growth in business subscription & services and a modest decline in residential subscription revenue, with a shift toward higher-margin premium Office tiers.
- Margin trajectory: Q4 EBITDA margin at midpoint around 9.2% (per management), with a longer-term objective of returning to double-digit EBITDA margins next year, supported by higher Office premium take rates, a favorable product mix, and ongoing operating expense leverage.
- Growth levers and milestones to monitor:
- AirDial: Pipeline of national carrier partnerships expanding beyond Frontier; potential US copper-line replacement tailwind expected to accelerate in calendar 2025–2026; a 100k–over 100k lines per partner scenario implies meaningful potential revenue uplift if conversions materialize.
- 2600Hz: Additional enterprise wins (e.g., ServiceTitan) and Europe opportunities; continued investments in API-rich, hosted/self-hosted deployment options, driving adoption among resellers and carriers.
- Ooma Office premium tiers: Sustained take-rate improvements (60% of new Office users) and higher ARPU mix; retention and expansion within SME UCaaS remain a focal point.
- Key risks to monitor: IWG churn tailwinds and potential stabilization in net revenue retention; timing of carrier/Verizon negotiations impacting Frontier-related ramp; copper-line pricing dynamics; macro uncertainty around SMB spending and election cycles; execution risk in integrating 2600Hz and scaling AirDial partnerships.
- Bottom line takeaway: Ooma is transitioning from a growth-at-all-costs phase toward sustainable profitability through a diversified, recurring revenue mix, meaningful progress on AirDial and 2600Hz, and a debt-free balance sheet that enhances financial flexibility to execute select buybacks and inventory investments while pursuing expansion opportunities.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
OOMA Focus
60.30%
-3.51%
-2.83%
-33.94%
SHEN
60.70%
-4.77%
-0.75%
-28.00%
ATEX
90.90%
4.49%
5.33%
18.51%
LBRDP
1.00%
11.50%
1.49%
0.00%
IDT
31.10%
5.15%
2.59%
40.57%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Positive long-term investment thesis supported by a solid Q3 performance, debt-free balance sheet, and accelerating growth catalysts in AirDial and 2600Hz. The company is building a diversified, high-quality recurring revenue base with improving margins and meaningful free cash flow. Near-term focus remains on managing churn (IWG), accelerating AirDial partner ramps, and converting copper-line replacement opportunities into billable revenue. Management guidance implies mid-single-digit organic growth in Q4 with a trajectory toward double-digit EBITDA margins next year, supported by continued premium-tier adoption in Ooma Office and the monetization of new platforms and partnerships. If AirDial and 2600Hz milestones materialize on schedule, Ooma could achieve better-than-peer profitability while expanding addressable markets, particularly with European expansion potential and large national carrier deals. Investors should monitor: (1) the pace of AirDial deployments and partner activity, (2) net retention stabilization, (3) contribution from 2600Hz-driven offerings, and (4) the progression toward double-digit EBITDA margins in 2026.
Key Investment Factors
Growth Potential
AirDial revenue potential tied to copper-line sunset and growing carrier partnerships (20+ AirDial resellers; large partners launching in Q1 and beyond); 100k+ copper-line opportunities per partner and potential cross-sell with Telo residential; 2600Hz platform enabling broad CPaaS/UCaaS opportunities with marquee customers (e.g., ServiceTitan) and Europe expansion potential.
Profitability Risk
Near-term churn risk from IWG (net retention around 99% in Q3, with potential transient impact into Q4); dependence on ramp timing of large carrier partnerships (Frontier/Verizon ramp uncertainty); copper-line pricing volatility; concentration in SMB UCaaS and AirDial markets; integration risk and execution challenges in scaling 2600Hz-driven solutions; macro headwinds affecting small business spending.
Financial Position
Strong liquidity and capital allocation flexibility: cash and investments of $17.1 million at quarter end; no debt outstanding after period-end; trailing 12-month operating cash flow of $24 million and free cash flow of $18 million; net debt negative at period end (-$4.92 million) indicating a net cash position. Outlook emphasizes profitability alongside growth, with an initial objective to reach double-digit EBITDA margins next year and opportunistic buybacks as a capital-allocation tool.
SWOT Analysis
Strengths
High recurring revenue mix with 93% of annual revenue from subscription and services
Strong gross margins in subscription & services (72%) and solid overall gross margin (62%)
Debt-free balance sheet post-Q3, with net cash position
Growing AirDial partner ecosystem (>20 resellers) and multiple large carrier opportunities