Hello, everyone. Thanks for joining us. I'm Eric Stang, CEO of Ooma. I'm here with Shig Hamamatsu, our CFO, and Matt Robison, our head of IR. Thanks for joining us. I'm excited to take you through a short presentation about our company and what we're doing. Before I get into it, though, our obligatory safe harbor statement, giving comments about how we're approaching today's presentation. So Ooma, we provide communication services from the cloud with a focus on small businesses and also legacy residential offering. And we have some new areas of growth that we're also going to get in here today that are exciting new developments for us. We like to say we transform sophisticated technology into elegant, simple communication solutions that we're accessible to everyone. Quick snapshot of what we look like today: our last four quarters' revenue is about $262 million, growing 5% year over year.
We are generating $25 million of adjusted EBITDA, about 11% adjusted EBITDA last quarter, and that's a number that's been going up for us, and we're excited to be driving more EBITDA as we look forward. Primarily recurring revenue business, almost 93% or so of our revenue comes from existing customers paying us every month, and that gives us a very strong business foundation with 72% recurring gross margins on that business, so we have built a great foundation. You'll hear us talk about our core users, which excludes some of our users, but we have over 1.2 million core users today, about 1,200 people in the company, and we went public about 10 years ago. At the heart of our company is providing communications from the cloud. Sometimes we call this UCaaS, Unified Communications as a Service.
We started out 20 years ago with the Ooma Telo, which you see on the left here, which is a residential solution, and today, that's 35%-40% of our revenue, very stable, very profitable, and a great foundation, but our growth is coming from small business and larger business communications, and the one in the middle you see here, Ooma Office, is our flagship solution for smaller-sized businesses, businesses one to 20 employees in size in particular. We feel we have the market-leading solution in that segment, and that's been a very important driver of our growth and profitability. We'll come back to that as I go into this more deeply. Ooma Enterprise, we do serve larger-sized businesses. In fact, our largest customer is over 70,000 seats today, and we operate, we provide them service in 32 countries, but generally speaking, our focus is primarily on the small business segment.
Within Ooma Enterprise, we have focused on certain verticals, particularly hospitality and hotels. Now, why Unified Communications and why does it matter? We bring out advanced features that customers can use to power their business in unique ways. We allow customers to communicate in more places and communicate in more ways. Instead of just having a phone on your desk, you now have messaging and chat. You can do video meetings. You can send faxes, do conference calls. You have all of that working for you. For a lot of small businesses, they've never had those capabilities before, so it's very transformative. Along with that come a host of additional features around customer engagement, contact center, being able to have calls queued up, being able to have a widget on your website for people to click on and call you, all kinds of vertical market solutions.
Clio is an important partner of ours. We do very well in the legal space with the integration we do with Clio, just as one example. Specialized analytics, there's really a whole host of things you can do. Coming will be additional AI features beyond what we do today around recording and transcription. And we're excited about the potential that will bring us. We've been able to bring out more advanced features over the last several years. And as we've done that, we've been able to bring out higher tiers of service at higher price points. Those higher price points have helped us bring our ARPU up over the last couple of years. And we're excited about that trend and where it leads us going forward as we move into even larger-sized businesses. One of the things underpinning our success and position is our cost structure.
Our ARPU, when you blend residential, which is very low-priced, and business, is around $15 a user a month. Yet we're driving these 72% gross margins. We believe these kind of numbers compare very favorably to competition and show that we have built a very strong underlying capability in the company to deliver services not only that are very advanced, but are also very low cost. And I think serving small businesses, it really is a combination of ease of use, specialized features, and value that make the difference for success. And we feel like we lead on all three. Underlying that is our platform, which we've been investing in for 20 years. I won't go into this too much, but it is the core strength of the company.
You'll see in some of the new areas that we have for growth going forward, on top of what I'm talking about right now, we are drawing on these platform capabilities. One of the things that excites us the most is that we're rated number one. PC Magazine does a user survey every year where they ask people who use cloud phone systems and others for their overall satisfaction. We've ranked number one in that for many years now. Then on the residential side, Consumer Reports ranks us number one, the best home phone service in America as well. It's exciting. We think by focusing in these areas, we've been able to not try to be everything to everybody, but really have the winning strategy in these defined segments.
Particularly on the small business side, focusing on small businesses has helped insulate us from some of the Teams and other competition that you see in the larger business space. The market, it's big and it's growing. We believe in North America, there are approximately 6.5 million small businesses to go win, and that half of them have yet to move to any type of cloud solution like we offer. A lot of our growth on the small business UCaaS front is around just doing marketing outreach to those customers and bringing them to the company directly as new wins. It's one of the great things about telecom. It's a big market. There are a lot of companies in it, but there are lots of segments, and there's a lot of opportunity. That's what excites us.
Now, I talked about a couple of new areas for growth. One of those, and I want to spend a little time on this, is a product solution we call AirDial. I don't know if you're aware, but copper lines, POTS lines, POTS stands for Plain Old Telephone Service, they're going away. The FCC has taken price controls off of them for business POTS lines. Prices of POTS lines have been going up. I've seen them cost hundreds of dollars per line per month at businesses. And they're also being shut down. AT&T has announced they're shutting down the copper network over the next several years. Well, that's fine for many applications.
But what if you have applications like shown on this slide: elevator phones, security panels and alarm panels, an old PBX that uses copper lines into it, gate phones, entry phones, door phones, phones around the campus, even companies that want to use analog faxing for security and other reasons. This kind of equipment can't move to the internet without being upgraded or replaced. And that's expensive. So what are companies doing? Well, they're looking for alternative solutions. And that's what AirDial is. AirDial is a drop-in replacement solution that consists of a piece of hardware, which you see on the left here, and the whole Ooma Cloud network behind it. And that allows us to provide the experience of a copper line for equipment, as you see here, without needing the copper line. We are partnered with about 25 different companies that are reselling the solution for us today.
And we're very excited about those partnerships. I think they're a very big vote of confidence in the strength of our solution. Those companies include Comcast, T-Mobile, and a whole host of others. Our most recent announcement from Q2, we signed on two or three more resellers in Q2, but one of them that announced us was AireSpring, an aggregator, if you will, someone who's been in the space selling a competitive solution and is excited to move forward with AirDial. So really exciting for us to have a product opportunity like this. We estimate there's 10 million lines in the U.S. that need to be switched out. And so it's a big opportunity. If we can get 300,000 of those lines, so what, 3%, that would be about $100 million a year in recurring revenue, additional recurring revenue for the company. So we're going hard at this.
We announced in Q2 that we just ended that our bookings were up year- over- year by over 100%. This is still a small part of our company, but it's growing fast, and we see the market only getting more and more interested in these types of solutions as the copper lines get more expensive and eventually go away. There's some things about our product too that we think make it special and make it stronger than competitive solutions. I won't go into that too much here, but suffice to say that we're seeing good success and really think we could break out with an extra or a new avenue for growth for the company here on top of what we're doing in UCaaS, which I've already talked about. The second area that is kind of new and affords additional long-term opportunity for the company is our 2600Hz platform.
Now, what do I mean by this? 2600Hz, that's the name of it, is a communications platform solution that is sold wholesale to others who will then use it to offer their own solutions in the market. And it has open source and closed source components to it. Ooma has always used some of the open source components to it. This is a business we acquired a couple of years ago. But now we're able to strengthen it with our closed source capabilities that we've put onto the platform. And we've been able to really position it as the platform for the future. And you'll often, with a product like this, we're up against older platforms that were built a long time ago.
You may have heard of platforms like BroadSoft or Metaswitch, platforms that have not had a lot of investment in them that have gone up in price. And we really think 2600Hz brings some special advantages. One of the key ones is it's a 100% API-driven solution with about 300 APIs built in, which means it's very flexible. And you can build on top of it very unique solutions. Our largest new customer for this is a company called ServiceTitan, who we announced a couple of quarters or more ago. And they are using it as kind of the underlying plumbing on some of their new solutions. And that's been a great win for us in this space. If you look longer term, this market's quite sizable, although customers here take time to make decisions, take time to ramp.
So we view it as more a situation where customers who win this year will have an impact next year and so on going forward. But exciting additional area for the company. This just says a little bit more about what I've just talked about. So we put all this together. We have an integrated platform built around the 2600 Hz capability. And we have an integrated growth go-to-market strategy. Much of our business growth is coming through either the partners that are working with us or our own direct sales or the channel agents that we work with out there that represent telecom services to businesses. And all three of those are growing for us. AirDial has been a great synergy in the sense that we are growing our channel agent network.
And as they get to know us, they get excited about the other products we have for the market as well. That's on the business side. On the residential side, we do still do a fair bit of advertising. You can buy our residential solution at Costco, Amazon, Best Buy, Walmart, other places. And it's exciting to see that reach and position. There's still tens of millions of landlines in use in North America. And a lot of people still buy our residential solution, have a landline at home for no other reason than to have 911 service. Just the peace of mind that if you pick up that phone and dial 911, the authorities know where you are and they're coming, even if you don't speak.
People also buy it when they have young kids in the home before they're old enough for a cell phone, but they want to be able to call their friends, call their grandparents, and people buy it for a home office solution when they want to have a little bit better calling experience in a home office. There's all kinds of reasons why we find people still will invest in our residential solution as well, which is exciting, so you put all that together, we believe we've brought unique solutions for certain targeted segments that have a lot of growth potential, small businesses with underserved needs, large businesses, particularly in the places we focus, replacing copper lines with AirDial for businesses, and also, frankly, a residential solution. Copper lines are going away for homes as well.
There are opportunities there too, helping telecom resellers modernize their platform with 2600Hz. Finally, while we are in 32 countries, we really are focused mainly in North America today. That geographic expansion remains an opportunity as we look forward. With that, let me turn it over to Shig to give a short financial review.
Good afternoon. I'm going to spend a few minutes here to give you a financial overview of Ooma. First of all, here's the revenue trend. On the left-hand side, we're showing the annual revenue trend. As you can see, we have had very consistent growth over the last three fiscal years, growing from $260 million to $257 million last year. Most recent quarter on the right-hand side, we just reported $66.4 million, which is a record for the company as well. Again, as Eric mentioned earlier, over 90% of our revenue is recurring basis. That gives us a lot of predictability going into any fiscal year or quarter. Also, we have a very high retention rate. I think Eric showed the chart saying 100%- 99%, which is our trend on a quarterly basis.
I think the other point that I'll make here is that the mix of residential versus the business customer base. So, most recent quarter, we had 62% of revenue coming from business user base. So those are Ooma Office, small business solution, Ooma Enterprise, AirDial, and now 2600Hz. They are accounting for 62%. That's an important trend because if you go back, let's say three years, we are probably about 50% residential, 50% business, now 62% and growing. It's important because we have a higher ARPU for business users. And what that also means is that as we get more and more from business users, we should have a gross margin expansion as well. So here's a quick breakdown of business versus residential I just talked about. So as you can see on the left-hand side, this is the revenue trend.
So you can see that more than 60% now is coming from business users. To the right, it's the number of users in thousands. And so again, more than 1.2 million core users on a recurring basis. And over 500,000 users of that is from business. You can see the growth trend there in residential, slight down, but very steady. But again, the growth in the business user is a key to our growth in the future from revenue, but also from the margin perspective. So here are other key metrics Eric talked about earlier about growing ARPU. We think that we are one of the very few in our space who are growing the ARPU. So average revenue per user per month, most recent quarter, that's a blend of residential and business, but we just reported over $15.68. You can see the nicely growing trend.
Again, that's because of the increase in mix of higher ARPU business users. AERR, that's the annual recurring revenue exit rate. So in Q2 that we reported last week, we just achieved $240 million of, excuse me, of the annual run rate on recurring revenue. Here's a trend on gross margin. Again, we are over 70% on a non-GAAP gross margin on recurring revenue. So that's a very high recurring margin. And we also believe the reason for a little bit of flatness in the recent quarter is that we're making upfront investments for AirDial customer support team. So we're trying to get ahead of that by making the investment into a support team ahead of the ramp. But we do believe that in the mid to long term, we can get back into mid-70s.
Again, that plays into gross margin growth story, but also the EBITDA margin growth story I'm going to talk about in a minute. So here's the chart showing the trailing four quarters adjusted EBITDA number. So you can see that especially if you look at the last four quarters, we have grown adjusted EBITDA quite a bit. Now, that's because we started to show a lot of operating leverage, particularly in R&D spend as a percentage of revenue. If you go back a year ago, we were spending about 19% of revenue in R&D activities. And now we just reported about 17% of revenue in Q2. And we have an intent to leverage that down even further, let's say next one to two years in the mid-teens and further down to low teens in a four to five-year time frame.
We can do that because growth areas, let's say AirDial in particular, we talked about earlier, we made heavy investments in development of the features and product related to AirDial. That's behind us, heavy investment phase is behind us. As we ramp on the AirDial revenue, we think that there's a lot of R&D leverage we can realize going forward. Similarly, for G&A, as we grow further, we can see some leverage as well. The line chart in green is a free cash flow. As you would expect, as we grew the adjusted EBITDA margin, we have grown the free cash flow as well. In fact, we generated about $20 million of free cash flow in the last four quarters. It's growing as well. In terms of capital allocation, so in the recent quarters, our choice for capital allocation has been repurchasing our stock.
In the last quarter, Q2, we spent $4.5 million repurchasing our stock. In the 12-month period ending Q2, we actually spent $14.5 million of the $20 million free cash flow to repurchase because we believe that we are currently undervalued despite our growth profile and also the profitability improvement over time. But the other use of cash flow to the extent the opportunity presents is that we have been acquisitive in the past. We tend to prefer the small business customer-based type acquisitions, meaning that if there are businesses out there in the small business communication space with, let's say, $10 million-$20 million of revenue with a steady customer base, we want to acquire them at the good price. We tend to use 1x revenue to be kind of a base measure that we use to acquire somebody.
We also have a pretty good template into integrating them and also making them EBITDA accretive. Those are kind of the $10 million-$20 million price tag type customer-based acquisition we have done in the past. We want to do more of those to use some of the free cash flow as an opportunity presents to supplement our organic growth. This is a financial snapshot more from the balance sheet perspective. We carried about $20 million of cash, but there's no debt. We do have available revolver of $30 million. That's unused. That gives us some flexibility. Again, generating a lot of cash from operations and free cash flow. We're a pretty CapEx-like company. We have a steady, let's say, 1.5 million per quarter kind of rate on average.
But other than that, our growth wouldn't require too much CapEx either, which also means that we can grow free cash flow further as we grow. So this is the last page. And I want to show you the mid-term to long-term financial model we're targeting. So you can see where we ended. That's the middle column, Q2 FY26 is a quarter we just reported last week. And we achieved adjusted EBITDA of 11%. Now, that's 11% margin to that point, I would say about 9% last year. So you can see the tremendous growth in a short period of time. And in fact, we're already at the bottom end of the mid-term range. So it is our intent to grow profitably and achieve the higher adjusted EBITDA margin in the coming years.
If you look at the long term, we think that is a four-to-five-year time horizon. We think if we can double the revenue from where we are, we think we can achieve the further leverage in operating expenses, gross margin expansion we talked about because of the business user growth. All that translates into 20% plus of adjusted EBITDA margin. That's our four-to-five-year target. How do we grow our revenue top line to double? Let's say $250 million of revenue is needed in four-to-five years to double our revenue. $100 million of that would be from the continuing growth of our Ooma Office, Ooma Enterprise, business communication solutions. We still think there's a lot of tail out there. Small businesses, still a few million small businesses yet to be converted to a solution like ours just in North America.
So a lot of market still left in that. So that's $100 million or $250 million. Second, $100 million we think can come from AirDial growth. Eric talked about earlier at 300,000 lines, which is only about 3% of the total available lines in just the U.S. for AirDial. 300,000 lines can generate about $100 million of recurring annual revenue. So that's a second $100 million. The remaining $100 million, we think there's a great opportunity from 2600Hz and other areas. 2600Hz in particular, as we can go after some of those carrier opportunities who may need to be converted from BroadSoft or a Metaswitch platform. So that's how we intend to grow our top line in the next four to five years to achieve this financial model.
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