Good afternoon. My name is Chantal and I will be your conference operator today. At this time, I would like to welcome everyone to the Ooma First Quarter Fiscal 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Matt Robison, you may begin your conference.

Good day, everyone. And let me also welcome you to the first quarter fiscal 2019 earnings call of Ooma, Inc. My name is Matt Robison, Ooma's Director of IR and Corporate Development. With me here today are Ooma's CEO, Eric Stang and CFO, Ravi Narula. After the market closed today, Ooma issued a press release via Nasdaq GlobeNewswire. The release is also available on the company's Web site ooma.com. This call is being webcast live and is accessible from the link on the events and presentations page of The Investors section of our Web site. This link will be active -- a replay of this call for at least one year. During the course of today's presentation, our executives will make forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize and actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as if the date hereof and we disclaim any obligation to update any forward-looking statements except as required by law. Please note that, other than revenue or otherwise stated financial measures to be disclosed on this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute or results prepared in accordance with the GAAP. The discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call for the most directly comparable GAAP financial measures are included in our earnings press release that is available on our Web site. On this call, we'll give guidance for second quarter and full year fiscal 2019 on a non-GAAP basis. Also in addition to our press release and 8-K filing, the events and presentations page in the Investor section of our Web site includes a link to cost and expenses not included in our non-GAAP -- values and key metrics of our core subscription businesses. Additionally our investor presentation slides include GAAP to non-GAAP reconciliation. It also provides resolution of GAAP expenses that are excluded from non-GAAP metrics. Our May 7th press release, despite our participation in several conferences during the next few months including tomorrow on Thursday, May 23 and 24 at the B. Riley FBR Invitational Investor Conference in Santa Monica, California. Okay, Eric.

Thank you, Matt. Hello and welcome to Ooma's FY'19 Q1 earnings call. I'm pleased to report, we are off to a good start this fiscal year. In Q1, we once again achieved significant growth in subscription services revenue. Our core subscription services revenue grew 20% year-over-year with growth in our business segment up 53% and growth in our residential segment up 11%. I believe these growth rates are outstanding and reflect the strength of our products, services and business model. We have three major strategic initiatives this fiscal year and I would like to update you on each of them. As a reminder, our core initiatives this year are to continue the fast growth of Ooma office in our small business customer base to capitalize on our recent Voxter acquisition to serve larger businesses with custom UCaaS solutions and to bring our home security solution to fruition with new sensors and features an integration of the Butterfleye video security camera. Now starting with Ooma Office. Ooma Office is a custom solution with curated features, easy, do it yourself installation and broad usability that is designed to meet the unique needs of small businesses. Small businesses represent a vast market opportunity up to 90% or more of the businesses in North America. And we believe this market is not well served by others. In Q1, we invested in growth for Ooma office in two ways. One, we expanded our sales and marketing efforts by growing our sales team and by investing in improvements to our marketing engine. And two, we continued our R&D efforts to bring out new features that will expand the addressable market for Ooma office. While we have several new features that we want to add to Ooma office, we want to complete most of them by the…

Thank you, Eric, and good afternoon everyone. I'll start by reviewing the financial results of our first quarter of fiscal year '19 and then provide outlook for the second quarter and full year fiscal '19. All income statement items except revenue are on a non-GAAP basis and exclude expenses such as stock-based compensation, amortization of intangibles and acquisition related charges. The reconciliation of GAAP to non-GAAP financial data can be found in the press release issued earlier today, which is available on the Investor Relations section of our Web site. Now Q1 '19 results. We had a solid start to our fiscal year '19 achieving $30.2 million of revenue in the first quarter. This is an increase of $2.6 million or 10% on a year-over-year basis and exceeds our previously issued guidance range of $29.5 million to $30 million. This growth was driven by continued strong performance of our core business segments, particularly Ooma Office. Net loss for the first quarter of fiscal '19 was $849,000 within the previously issued guidance range of a $700,000 to $1.2 million loss. To help provide clarity, we’ll reclassified Ooma Office and Voxter Communications as Ooma Business. As a reminder, we acquired Voxter Communications in March of this year and though Voxter is not material to the overall business today, we expect it to be a strategic growth initiative for us going forward. We are pleased with the continued growth of our subscription and services revenue of Ooma Business, which grew 53% on a year-over-year basis and our residential subscription and services revenue grew 11% on a year-over-year basis. Once again, the combined subscription and services revenue from the core businesses namely Ooma Business and Ooma Residential grew 20% year-over-year. Talkatone revenue declined 17% year-over-year to $1.17 million slightly ahead of our previously issued…

Thanks Ravi. To summarize, we are pursuing three major strategic initiatives this year continuing Ooma Office growth, capitalizing on Voxter and launching Ooma Home Security. It's a lot to accomplish, but we are off to a good start and excited about where we are headed. And overall, we intend to provide disruptive quality and value in everything we do as we believe ultimately this will drive our success. Thank you. We are now happy to take questions.

[Operator Instructions] Your first question comes from Brad Zelnick with Credit Suisse. Your line is open.

Hi. Thanks for taking my question guys. Just wanted to ask how the Voxter integration is going and how long do you think it'll take?

Hi, Brad. This is Eric. I think it's going well. We've got a really great team up in Vancouver. We've needed to build the go-to-market side of the organization and we've now done three or four very important hires for that. And I think that's coming together nicely. As I said in my script, we've got good feedback from the customers and partners we've talked to so far. And so now, we're just working as you can imagine on the things we need to execute. We believe we will add hundreds of users this quarter on to the Voxter platform. That's the way we're looking at it for the Q2.

Awesome. And if I could just ask one other, perhaps you can expand just a bit more on the opportunity with Butterfleye the video security product.

I'm happy to talk about Butterfleye. We're very excited about the capabilities of this product. It really stands out in the space. With the facial recognition capabilities we have. We've actually improved them since we acquired Butterfleye is now possible within the app to set it for instance to only alert you if it's a stranger, it doesn't recognize things like that. With the onboard storage, battery back-up, the fact that it can use both temperature, motion and heat -- well, that's temperature, but temperature motion and sound, thank you, to identify what's going on, I think it's really an outstanding product. It's a high-end solution for the space. But I think it really stands out at that position. We've just begun manufacturing and shipping of it. We were clearing our backlog of customers who have preordered. We've shipped to one or two retailers. Now, I'm not even sure Amazon has it actually in stock yet, products probably sitting in front of a warehouse somewhere. But we're excited now for the rest of the year as we start to build brand awareness and drive the product forward.

Awesome. Sounds like a great addition. Thanks so much guys.

Thank you.

Thank you.

Your next question comes from the line of Nikolay Beliov with Bank of America. Your line is open.

Hi. Thanks for taking my question. Question for you Ravi, you raised the lower end of the revenue guidance, but you kept the high-end of the revenue guidance same just wanted to understand the puts and takes here.

Yes. So, given – Nikolay, given what we performed in Q1 and the guidance range for Q2, I felt very comfortable with raising the low-end of the guidance range. And as we progress in the year, hopefully, we'll be working on the upside also, but right now there is a lot of opportunities ahead of us or we have to execute on those, as Eric said in terms of Voxter, in terms of Ooma Office and even Butterfleye. So we are very optimistic and we feel we're making good progress, but I did feel comfortable raising the low-end of the guidance range at this time.

And how should we think about the split between subscription revenues for the year and product revenues in light of Butterfleye being a pricier product?

So, I think our subscription revenue overall as a percentage of revenue is 90%. I think it will stay around that number. In terms of growth of subscription revenue, I think this year is more land grab for the Butterfleye side of it, means we will sell a lot of -- our expectations we'll be selling lots of cameras, but the subscription revenue coming from that will be very small compared to the overall 90% revenue right now we get on subscription from a million or so core users. So I think it will take some time for subscription revenue from Butterfleye to become meaningful, but the number one focus is, get the cameras, sell it over to as many customers and as they start using it and they start liking the features, I think it will become a lot bigger subscription revenue going forward in the years out there. So we are very optimistic about our execution on the Ooma Business side. So we have been growing around 50% year-over-year and our goal is to grow as much as possible for the year.

And Eric, a question for you, how should we think about the Home Security strategy in light of the fact that there's more noise in the marketplace. Amazon, for example, packaging their own solution and whatnot, what's going to be the differentiation for Ooma in the marketplace. That's it for me. Thank you.

Hi, Nikolay. Couple of answers to that last question. We are about disruptive quality and value. And I believe we've got a platform position to do just that also in the home security space. Like integrating some of the features we have on the phone service side with Home Security, we can differentiate by leveraging the base that we have for phone security also for Home Security, it's less cost for consumers. We are just a few dollars a month frankly to get all our great features on the Home Security platform. So it's really -- I think coming together in a pretty compelling way. Now I look at someone like Amazon and I actually don't think their strategies are aligned with where we're headed. They are focused I think most of all on package delivery in-home package delivery and they are also doing some things from a services perspective much like Geek Squad would do services for you. And in that activity they will -- they are selling other's products. And if we wanted, I assume we could try to have them sell Ooma's Home Security solution when we get a little bit farther with it as well. So Amazon is a key partner of ours. We're thrilled that if you go online to buy Amazon Connect, which is what is used to connect the phone service up to Amazon Echo. When you go to buy that connect, you get a box shown right next to it to buy a Telo with it, if you also need phone service. They are a close partner of ours that -- and I think that's really the relationship we have there. The Home Security space has got a lot of players in it. But no one's put everything together and certainly not the way we're going to do it. And the market is big, it's arguably 15% or so households today doubling to 30% to 25% anyway within the next five years. That size of market opportunity, I think leaves a clear place for someone like us with disruptive quality and value to carve our space.

Thank you.

Your next question comes from the line of Bhavan Suri with William Blair. Your line is open.

Hi. This is Sarah Shizas just in for Bhavan. Thanks for taking my question. Can you expand a little bit more on your investments in sales and marketing for your office solution and Voxter going forward? And what sort of synergies, it sounds like there's some synergies associated with leveraging the partner channel of Voxter for your office solution?

Sure. I'll start, but I'll let Ravi follow up. We are building a separate go-to-market team for Voxter and the full UCaaS segment. But as we develop channel partners and leverage the channel partners we have that is a combined effort where channel partners we hope will sell both Voxter and Ooma Office to different segments of the market. Some channel partners don't want to sell at all to the very low end of the market. But some do. Yes. Anything to add?

And just one other thing, Sarah, this is Ravi. I think besides what Eric mentioned about building the sales teams. They're also working on creating marketing, lead generation programs. So having inside sales team and getting the benefit of synergies and scale from that team to help drive demand for both Voxter and Ooma Office, I think that's something we are working on in terms of integration.

Yes. Thank you. We now will send leads that we drive to one or the other depending on the size of the lead and where we think it fits. Prior to the Voxter acquisition, some of those leads we just really couldn't serve. So that's part of the synergy.

Great. Thank you, guys.

Thank you.

Your next question comes from the line of Pat Walravens with JMP Securities. Your line is open.

Hi. This is Mathew Spencer on for Pat. Thank you for taking my question. So you obviously have a lot on the table with WeWork International expansion Butterfleye, Home Security and UCaaS. What are your single most important initiative right now and I guess Eric where you specifically focused the most? Thanks

Sure. Well, you mentioned five things there, but I really focused on three in my script. We are not attempting to expand internationally beyond our WeWork relationship. And even with WeWork, we do not expect to expand much beyond the footprint of 5 or 6 countries that we're in right now, at least at this time. And WeWork itself is running smoothly and a great opportunity for us. We actually added more WeWork customers in Q1 than any prior quarter looking back. And I think that's working well, but that's a little bit in a way almost on autopilot, if you will. But coming back to the three initiatives I talked about, first and foremost, it's continued growth of Ooma Office that's where most of our sales and marketing spend goes today. And that is the biggest driver of our revenue growth for this year. We are building on the Home Security front and building on the UCaaS Voxter front. And I know they will contribute this year, but they come second and third to building Ooma Office.

Great. Thank you so much and congratulations.

Thank you.

Your next question comes from the line of Josh Nichols with B. Riley. Your line is open.

Yes. Hi. Thanks for taking my question. I was going to ask, you're rolling out a number of new Home Security features. Could you talk about any other type of offerings that might be of interested or potentially how do you feel about doing say like a white label security offering competing with companies like ADT and whatnot?

We are fairly flexible in our go-to-market strategies where we would never say no outright to something like that. We have the systems and capabilities in place to do those sorts of things. But our focus clearly today is getting the base -- base is probably not quite the right word, but the core solution for Home Security out into the market and we define that as having sensors we've talked about up to now along with the siren and then smoke detector along with some pretty outstanding features like remote 911, which is already there. But also our geosensing capability which allows arming and disarming to happen automatically as the last person leaves the house or the first person comes home to the house. These are some cool features we've been developing. We have a siren that we will be bringing out, we intend in Q2. And we think with those things, we will have a very nice platform to build on. But once we've done those things that we've talked about so far that's really step one for us. There will be further development of additional capabilities on the home security platform as we go forward. If you look at our spend overall from a development perspective, we're spending a lot right now. There's no doubt about 25% of sales went into R&D this last quarter. I see things moving in phases. The core Telo business, we've spent very little on it today. It is the best home phone service in America. Don't ask me, ask the third party organizations that say so. And we feel very good about where we are with that. It is our goal to get Ooma Office to that same position by the end of this year. So that we do not really need to invest pretty much in Ooma Office going forward. Ooma Office part of its elegance, it curates what you need and does in a simplistic way. So you can do it yourself install it and use it. And if we try to make it much more than that, we'll muddy it up. So as we create that transition we will then be focused primarily on Home Security and what we're doing with Voxter. I believe with both of those we will be transitioning more and more into a sales and marketing challenge of how much do we want to spend on building brand awareness and building channel. And that's discretionary at some level in terms of how fast we want to go.

And Josh, this is Ravi. If I can just add one small thing to Eric's point, your question about white label for Home Security. We have a very great value in features what we have offering. If in case an opportunity like that comes in, I think we'll be able to make it happen given our price structure and cost synergies we have. So I think our goal is to -- once the product is ready market it as soon as if opportunities like those come in. We'll be open to looking into it.

And then, nice to see the bottom end of guidance raise for the year. Just want to clarify a little bit as far as the revenue guidance, how much is built-in or pertaining to the Home Security offering this fiscal year?

When I look at Home Security this includes the Butterfleye also. So in my last earnings call I mentioned between Voxter and Butterfleye I expect $2 million to $3 million in revenue from the two acquisitions. The Home Security that will be in addition to when we talk about sensors and some are subscription revenue in addition to that, but it's a small number for fiscal ‘19. It's not a big number. I think once the products are ready, we will start marketing, we'll start working with channel partners that will take some time. But I wanted -- without having gone to that process, didn't want to put in big amount of revenue in our guidance.

And then, last question for me, I mean Voxter seems like a great fit for the company to move up and to provide customizable, UCaaS solutions for some larger enterprise customers. But I did want to ask, are you seeing any other potential advantages given those are good talent base in Canada that you could pull from as well or any additional benefits as far as Voxter also has some -- a couple of good international clients that maybe it will help with the company as well.

There are several benefits. I talked about some of these on our last call, but certainly having a base in Vancouver we're excited about. It’s a great team up there and it's a great market and we will I think grow more there this year than we will here in Silicon Valley in terms of just the amount of engineering talent we add to the company. We gain some scale with them certainly more importantly they have done quite a bit in several markets internationally they have customers in Japan and customers in more countries in Europe than we are in today with Ooma Office. So there is an opportunity there for a significant leverage as well. And finally, we believe the way they've scaled their platform and some of the things we're doing with our platform to scale it here forward blend together which will help save us engineering effort as we go. The last area of course is channel synergies and Ooma Office is a great solution for any sized business that wants just pretty simple telephony PBX in the cloud solution without a lot of fancy features on top of that. And but getting channel attention with Ooma Office is not as easy as when you have Ooma Office and Voxter together to be a real partner for the channel. We have dozens of customers today on Ooma Office that are more than 20 users. But, we have seen time and time again where customers, ‘Oh, they want this one feature,’ ‘They want that one feature,’ which is not what Ooma Office is intended to do and now we have the ability to leverage that in our channel on our direct sales. So I think it fits together well and I think that the notion of now putting them together is a Ooma Business is a step in the direction of where we're headed.

Thanks Eric and Ravi.

Thank you.

Thank you.

[Operator Instructions] Your next question comes from the line of Mike Latimore with Northland Capital Markets. Your line is open.

Thanks. Yes. Nice quarter. Eric you mentioned the -- finishing up sort of ideal feature set for Ooma Office. Can you remind me what the next or the next two kind of key features are to focus on?

Yes. On Ooma Office, there's a handful. But the two that I believe will most make a difference for the platform are being able to operate multi-site. Today the business has two locations. They would need to have two Ooma Office systems. They could not use one on multi-site. And secondly, having a receptionist phone capabilities so that one person at the front desk can oversee all the phones in the office and handle it that way. I think those are the two biggest features and we're working hard on both. There's some other things too but they are much I think less significant. There's about – there's a handful of things that we really want to get done. But one that we would like to add that will take the longest. And I think probably till the end of this year is to enable call recording on the platform that has -- that is fairly dynamic when you really sit down and think through how it needs to operate and when it needs to do. And that will be the longest one out. But as I said, we hope by the end of this year they'll be very well placed with Ooma Office and not needing to invest at the level we are in it today thereafter.

Got you. And then, Voxter you mentioned it kind of customizable offering, I guess, the customization, are you thinking the customer is able to customize it or do you need to add stay professional services that help with that customization?

We're actually thinking – well, we're thinking I think the way you asked the question, the latter. When we work with channel partners, the channel partner will do customization on the platform or we will do it for a customer when we have a direct customer need to support them in some new way. It's very easy to create complete new branding on the platform for a channel partner for instance. It's very easy to have your IP phones customized to your individual needs of the customer and as customers tell us, ‘Oh, we'd like it to integrate with this or we'd like it to also have these analytics over here.’ We have a platform that's designed for easy enhancement and adaptability. And I think that's one of the strengths of the platform. We have some very significant customers at Voxter who -- we have one customer with hundreds of locations and it was the unique centralized call management capability that we were able to design for them that won us that customer. And it's those kinds of things that we're focused on. Now, ultimately when you do this kind of work it leads you to more of a vertical market strategy in the market when you get really good at what I just described for instance for that last customer. There are other customers out there who have pretty similar needs. And so our strategy will be to leverage what we've done, but it's that ability to be more bespoke and to work with the customer to say just how do you want this phone system to work in your company? That I think will set us apart. And the same fits with a channel partner where we really want to embrace the channel and let channel partners add their value not just try to treat them more as a sales organization.

That makes sense. And then, with the regard to Butterfleye, I mean do you expect most of the sales or the majority to be at your base or is there a wide enough net being [cast] [ph] here that maybe the majority is sort of new customers?

No, we think the majority of Ooma Butterfleye will be sold to new customers. We need to get it out to all our retailers and then start promoting. We just got into production with it. We've got a couple thousand or more cameras that have come in, but over the next month or so we'll be in a position I think where we have significant inventory coming in we'll be able to pursue it more significantly. No, that market is sizable. Arguably it's $1 billion a year market opportunity just home surveillance video cameras of this type and that -- and today and growing. And so given that, we have a lot of customers in backlog who sought us out because of the unique feature of the product. And I really thank them and we're excited that that level of interest is being -- is coming to the product. So the challenge for back half of the year is to create the awareness around it. We know we have a good solution.

Okay. Thanks a lot.

Thank you.

This concludes today's conference call. You may now disconnect.