00:02 Good day and thank you for standing by. Welcome to the Ooma Incorporated Third Quarter Fiscal Twenty Twenty Two Financial Results. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Without a further ado. I’d like to welcome your first speaker for today, Mr Matt Robinson, Sir, the Floor yours.

00:43 Thanks (Karl) [ph]. Good day everyone and welcome to the third quarter fiscal year twenty twenty two earnings call of Ooma, Inc. My name is Matt Robison, Ooma's Director of IR and Corporate Development. On the call with me today are Ooma's CEO, Eric Stang and CFO Shig Hamamatsu. 0:58 After the market closed today, Ooma issued its third quarter fiscal year twenty twenty two earnings press release. The release is also available on the company’s website, ooma.com. This call is being webcast live and is accessible from a link in the Events & Presentations page of the Investor Relations section of our website. This link will be active for replay of this call for at least one year. A telephonic replay will also be available for a week starting this evening about 8:00 PM Eastern Time. Dialing information for it is included in today's press release. 01:28 During 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 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 earlier today, and those risks more fully described in our filings with the Securities and Exchange Commission. 01:58 The forward-looking statements in this presentation are based on information available to us as of the date hereof and we disclaim any obligation to update any forward-looking statements, except as required by law. 02:09 Please note that other than revenue or as otherwise stated, the 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 for results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures are included in our earnings press release, which is available on our website. 02:38 On this call, we will give guidance for fourth quarter and full year fiscal twenty twenty two on a non-GAAP basis. Also, in addition to our press release and 8-K filing, the Overview page and Events & Presentations page in the Investors section of our website, as well as the Results page of the Financial Information section of our website include links to information about costs and expenses not included in our non-GAAP values and key metrics of our core subscription businesses. These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation that also provides resolution of GAAP expenses that are excluded from non-GAAP metrics. 03:18 Now, I will hand the call over to Ooma's CEO, Eric Stang.

03:23 Thank you, Matt. Hi everyone. Welcome to Ooma’s Q3 fiscal year twenty twenty two earnings call. Thank you for joining us today. Q3 was another strong quarter for Ooma and we're excited to talk with you today about our progress and outlook. In Q3, we continue to drive growth across our business. Our key subscription and services revenues increased year-over-year by twenty four percent for business customers and four percent for residential customers. 03:52 I'm pleased to report business customers now make up forty nine percent of our total subscription and services revenues and are on pace to exceed fifty percent in the near future. I'm also pleased to report total revenues in Q3 were up fourteen percent to forty nine point one seven million dollars and we expect to exit our FY22 fiscal year at a two hundred million dollar total annual revenue run rate. 04:20 We achieved this growth while also exceeding our goals on the bottom line. Q3 Non-GAAP net income was three point three million dollars. EBITDA was four million dollars, and we ended the quarter with an increase in cash to thirty one million dollars. All in, Q3 was another strong quarter for Ooma, which we continue to drive growth across the business. 04:41 Our primary objective of course, remains to grow revenues from business customers. In Q3, we developed several new Ooma office features, including call analytics, mobile app enhancements for multiline and three-way calling, Google and Microsoft contacts integrations and new capabilities to enable easier adoption of office by larger-sized businesses. 05:06 Altogether, these feature additions will also help propelled the growth of Ooma office Pro, our premium service tier. In Q3, we achieved our highest level so far with forty eight percent of new office users opting for our Pro tier.…

09:45 Thank you, Eric, and good afternoon, everyone. I will begin with a review of our third quarter financial results and then provide our outlook for the fourth quarter and the full year fiscal twenty twenty two. We delivered another quarter with strong financial results achieving forty nine point two million dollars in total revenue. Exceeding our guidance range of forty seven point eight million dollars to forty eight point five million dollars. On a year-over-year basis, total revenue grew fourteen percent driven by the strength of Ooma business. Ooma business now accounts for forty nine percent of total subscription and services revenue compared to forty four percent in the prior year quarter as we continue to make progress towards achieving more than fifty percent of subscription and services revenue coming from business customers in the near future. 10:41 Non-GAAP net income for the third quarter was three point three million dollars which exceeded our guidance range of two million dollars to two point eight million dollars. Our solid revenue growth and profitability demonstrate the strength of a large and diversified customer base as well as the increasing scale of the company. 11:02 Now, some details on our Q3 revenue. Our business subscription and services revenue grew twenty four percent on a year-over-year basis and residential services revenue grew four percent year-over-year. On a combined basis in Q3, total subscriptions and services revenue grew just over thirteen percent compared to the same period last year. 11:30 Subscription and services revenue was forty four point seven million dollars, ninety one percent of total revenue compared to ninety two percent in the prior year quarter. During the third quarter, we saw a product and other revenue increased thirty five percent to four point five million dollars as compared to three point three…

19:18 Thanks Shig. I just want to say it's terrific having you on board. In summary, we're excited to be increasing our outlook once again for the balance of this fiscal year. We feel have great momentum and the right initiatives underway to drive growth. Next quarter, we will lay out our plans and guidance for fiscal year twenty twenty three and I can highlight here some of our growth drivers as we look forward. We believe our plans for office Pro and Pro plus. Our plans for expanding sales through channel partners, our plans for growing internationally to serve our largest customer on a larger scale, our plans for making AirDial the go to solution to replace aging copper lines and our plans for expanding our partnership with T-Mobile to include Ooma Telo are significant and present great opportunity for FY23. 20:12 Let me stop there and turn over the operator to handle questions. Operator?

20:37 Thank you, sir. [Operator Instructions] Our first question comes from the line of Brian Kinstlinger from Alliance Global. Your line is now open.

20:46 Great. Thanks so much, nice results. Can you talk about…

20:49 Thank you.

20:50 Can you talk about how the T-Mobile sale process of your residential will occur. First, if I'm already a wireless home customer, how will I become aware of this product and does this cut the cord, so it cannibalize their landline business. Alternatively if I'm the new customer, how will I be made aware of this offer?

21:16 So, T-Mobile is only wireless Internet today and they will be offering Ooma Telo as a home phone solution to go with it when you're purchasing their wireless Internet and you can think of it as almost like a double play opportunity in a way. And T-Mobile will be doing that through various channels that they use to go to market, and I think that's exciting for us. It'll be T-Mobile doing presenting that to their customers and then obviously, the customer wants to get an Ooma Telo, we'll be arranging to provide that. It's exciting because they are quite committed to 5G and wireless internet. And even a small attach rate on the scale of what they're doing will be quite significant for us.

22:16 Okay. That leads to my one follow-up and then I'll get back in the queue. Is – how should, it’s a big market like you said and even a small tax rate to big number, how do you think about this ramping in-house investors think about this in twenty twenty two or twenty twenty three or when it has a real material impact on your business?

22:42 So, I think we will know more in our next conference call because we will be launching this soon with them. Residential for us is still a growing business and we estimate this fifty million dollars plus households in North America, obviously, T-Mobile is just in the U. S. but a large market opportunity to replace landlines with new solutions and so, we're quite excited to be continuing to see and drive growth with Ooma Telo and our residential business and we think what T-Mobile's doing now passing thirty million homes with wireless 5G Internet is quite significant. And so it's an exciting time for us, but we'll be able to give you more outlook on that next quarter after we've started.

23:41 Okay. Thank you.

23:42 Yeah.

23:45 Our next question comes from the line of Mike Latimore from Northland. Please ask your question.

23:55 Great. Yeah, thanks and excellent quarter there. On the subscription gross margin, I think that was a record, but it certainly was up a lot year-over-year and sequentially. I guess, is that a sustainable kind of number?

24:09 Yeah. Mike, thanks for question. Yes. We're really pleased with the progress we're making, and I think we have opportunity to continue to make a progress on that especially through continued update percentage. The update percentage is continuing to uptick on a Pro tier on a better side and if you look at the mid-term model that we talked about seventy percent to seventy five percent and was sort in the middle right there. So, I think I've talked about, we're going to introduce the Pro plus tier in the near future and that gives us another opportunity to enhance the ARPU on a business side a little bit more. So I think we have a little more room to grow there as we scale further as well.

25:07 Okay. And then the AirDial opportunity sounds interesting. Do you have, maybe a total addressable market or a number of lines to think about is the market for AirDial?

25:22 That's a good question. Mike. There are, I would say I've seen numbers on the order of thirty million copper lines still in use in the U. S. And they're all going away. It's being [Indiscernible]. We've also talked to customers who are paying two hundred dollars, three hundred dollars a month for their copper line if you can imagine it. So I see a lot of reason for customers to look for new solutions and eventually, they're going to have to look for them over the next kind of few years. 25:56 It's really hard for us to gauge exactly how many of those copper lines are used in the kind of applications I was talking about in businesses, but I know it's a big number because we've been overwhelmed by the level of customer interest we've received in this product since we announced it. And I don't say that likely overwhelmed. And we're still trying to sort out how fast we can build them and how fast we can ramp it.

26:25 Okay. And it is all through your current channels or if development a new channel for this?

26:33 No, we're seeing a lot of interest in it from our current master agent type channels. We're also seeing larger sized businesses talking with us directly about it. Business, you need literally thousands of lines, but I do think our existing channels will be good channels for this and in a way it's also a door opener for us because it'll give us the opportunity I think to expend with channel partners that we haven't yet worked with, because there really aren't good solutions for this problem today in my view. And I think it's a great opportunity for us looking forward.

27:20 Great. It’s last one, sounds gave a big fixed wireless customer here. What is the use case there? What was the catalyst for them to use your service?

27:31 So, this is, we can't talk about who it is at this point, but they were interested in a version of our fixed wireless product solution and that's not something we normally sell standalone today, but this customer, the strategic customer, we hope to turn into a strategic partner and by that, the distinction on making there is we hope down the line to also sell our voice services with them. They do not have their own solutions to that and so, the sales kind of the beginning of what I hope will be a longer term and much more sizable partnership but we're not really to talk – ready to talk about anything more because anything more isn’t set and finalized yet. But no, this is, they liked what we were able to provide them from a fixed wireless product perspective and it's a growing relationship for us.

28:34 Okay. Great. Thank you.

28:37 Thank you.

28:40 Our next question comes from the line of Matt Stotler from William Blair. Please ask your question.

28:48 Hey, thank for taking the questions. So maybe just first, we've interested to get your perspective on the hiring environment at this point, right, not only in the quarter, but as you think through the kind of growth drivers you talked about, whether that’s new products or international markets eventually expanding outside of this a large customer that you're currently focused on and what have you, how do you think about the hiring environment here? And then how do you see that kind of playing out going forward?

29:19 I think the hiring environment is pretty tough to be frank with you and it's not just tough on us, but it's tough on some of the channel partners we work with who we want to see higher as well. Our total headcount has been relatively stable this year and it hasn't grown like we wished it to grow. And that is in remains a challenge for us. We've doubled our efforts on that, and I do believe we'll get it done, but no, the channel, that hiring environment is challenging. Yeah. I'm not sure as much more I can say about it. I mean, all businesses face this and we're all working through it. But it's probably held us back a little bit up till now.

30:11 All right. Alrighty. Got it. Okay. And then just a quick follow-up. Obviously, you mentioned continue to expand the partner ecosystem. Can you just give a quick update on the contribution both from kind of your face to face channels as well as non-face to face channels and maybe you just quick update on the priorities in terms of expanding those efforts and explain that partnering ecosystem from here?

30:39 Sure. So as you've heard me talked in the past, a lot of our sales on the business side have been direct and we were relatively late in developing channel relationships in selling through channel partners, that something that's growing – been growing nicely for us over the last kind of eighteen months or so. And we do report the percentage of business sales that go through channel partners. That number for Q3 was forty percent four zero, that's down a little bit from the previous quarter. I think hiring staffing was a little bit of that effect and the other was just deal timing. I'm not worried about that forty percent we added more partner relationships in Q3. And I'm seeing good opportunities looking forward.

31:33 Got it. That's helpful. Thanks again.

31:37 Okay

31:39 The next question comes from the line of Josh Nichols from B. Riley. Your line is open.

31:47 Yes. Thanks for taking my question. Good to see the solid performance and the guidance raise. I was looking here just to hit on the last question or follow-up. I guess one, ultimately, where do you see channels sales going, Is that going to be something that you think is going to push to like the fifty percent level of sales? If we look twelve eighteen months from now and also to your point where you've added some of these new relationships, you've added at least like one new master agent that could, I would assume be pretty meaningful as they get towards ramping next year? How is that progressing as well?

32:25 Yes, we talked about that adding that master agent a quarter or so ago. It's ramping. It takes time, you still have to court the individual agents and get your products understood and get in front of them. But I think that we're making the progress we expect to make and you're right, it will be a helpful driver for us next year. It's hard to give you a target estimate for channel versus direct because it’s kind of a little bit on what we do across our business and how, but from where we sit today, fifty fifty is not a bad place to be targeting to be. And that's kind of what we're aiming for at the moment as we think this through, but we can give a little bit better guidance on that probably in our next conference call when we're also guiding to what we think why twenty three will look like overall.

33:26 Fair enough. Thanks for the color on that. I just wanted to hit on it. I mean, clearly a huge opportunity for T-Mobile, and I think a lot of people and been ongoing surprised that you've been able to continue to grow. Your residential business pretty successfully at a fairly stable rate here, is it fair to assume like the unit economics are fairly comparable in terms of ARPU and margin relative to like the residential Pro offering that you guys sell or how to think about that as you add some new customers from T Mobile?

34:07 Yes. Yes. The economic will fit in nicely with the way our business works today. We are going to be – the service we're going to be providing in this that they'll be bringing to their customers will be premier based. So, all the customers will be getting the premier package and that comes with a monthly fee. So that's that is part of what we're doing. It's really exciting for us this. We're going to have to get into it and see just how big it can be, but T-Mobile is very committed to the 5G space and wireless home Internet and already, I mean I'll let you turn to them for what they say about how many customers they have today and how fast they're growing for next year. But it's sizable. It's real scale and we know that that a lot of people value a home phone for all kinds of reasons, simply to call nine one one. Kids in the home and mother-in-law home office, which is become more important, obviously in the last couple of years. In our solution, ranked number one in the country, is perfect for that and very good value. So, I think we've got everything going for us in this new opportunity and we just can't get ahead of ourselves and give a sense of what it's going to mean for us until we get going with it.

35:42 Fair enough. And then just last question for me, again, good to see launching and I think you mentioned, like thirty new locations with your largest customer or looks like you're expanded in multiple regions, not just in North America, but the Europe and other places well, it seems like that most of that expansion for this year is coming in the second half of the fiscal year. So, fair to assume that you think that you could see a material acceleration in that ramp like next fiscal year and now that things are going, and you guys are pretty well set up to ramp in these new locations?

36:19 Yes. We've talked about the potential with this customer and what we've achieved so far is not nearly that potential. Our best outlook right now is that the first half of next year will be quite significant for us with that customer. It's unfortunate, but the rollout with that customer isn't just up to us. The customer has to do other things. Our product doesn't work in isolation, and it just takes time when you're doing something this significant, but the relationships extremely strong where I think, I mean, I know the works basically behind us now, and we are planning the large rollout for next year.

37:08 Thanks guys. Appreciate it.

37:10 Thank you.

37:14 The next question comes from the line of Matthew Harrigan of Benchmark. Please ask your question.

37:22 Thank you. Congratulations on the numbers. Can you talk about any implications from team essentials from Microsoft and on a standalone basis? I mean it rattled some people's cage is certainly on Zoom. And is there anything you can say on video conferencing activity and any potential you fallout or variation off, I hate just use a word, but Omicron.

37:53 Sure. Let me touch the first one, but you may have to talk more about the second one with me. Yes, team essentials. Teams has been available for free to businesses for a while now. But it has usage limitations that are fairly significant. Team essentials at four dollars as I think a great value and frankly, I think versus Zoom or versus maybe others that are trying to own the desktop for collaboration, that's a very compelling offer by Microsoft and I do think it's worth really taking a heart. From our perspective, I don't think it means much. Our UCaaS solution in our Ooma office and the primary ways in which it's used complement that very, very well. And so, we don't expect essentials at four dollars to really have any impact on us at all. We do have pretty good adoption of our video solution, which we bundle in with our Pro package, but a lot of other things we bundle in with our Pro package two and I don't think if the customer wants to use essentials for video and chat, basically, they wouldn't also still value our Pro solution. 39:17 Now Microsoft has also offered team's phone with calling plan, but that's really just their business voice being put together with teams, which has already been out there for a while. And we don't really see that product targeting most of the businesses we go after. Most of the business we go after are really small businesses and Microsoft solutions very cumbersome and difficult to configure in administer and really needs a partner a Microsoft implementation partner involved and also lacks – a lot of – many of the features that we already have that we have today in office. But in any case, we don't think that team's phone with calling plan is also something that's going to have a material effect in our business as we look forward. So, it is seem to see Microsoft putting it all together a little bit more. But I think it primarily affects the Zoom and the rings of the world, than it does the type of customers were going after and in solution we've gotten in the marketplace.

40:31 And then, I guess secondly, what are you seeing on video conferencing activity? And is there anything with Omicron that could affect your introduce more variability on your business of one – in one direction or another, I mean you navigated through relatively well last time and every time, the isolation, you've seen me a little narrower, but nonetheless, I mean, this is a wrinkle that nobody saw coming or maybe a lot of people did see it coming, but people were in denial?

41:03 Yeah. There's nothing about our business to speak to on that. Our customers love our video conferencing solution. They're using it. We use it and it's a great value being bundled into Pro. And we haven't seen anything really affect that.

41:22 Great. Thanks, Eric.

41:25 Okay.

41:27 The next question comes from the line of Joe Goodwin from JMP. Please ask your question.

41:35 Great. Thank you so many guys for taking the question. Just given the expanding product portfolio and as well as higher level tiers that you're offering and it is great to see your retention rates stabilized at ninety eight percent for last three quarters, but just given those two dynamics that I just mentioned, would you expect that to return to one hundred percent which where we were before the pandemic or even above Thank you.

42:03 Yeah. You're right, Our net dollar retention rates about ninety eight percent went up a little bit from previous quarter, just a little. I will say that as we – we do find that the little bit larger size small businesses that we sell to have a little bit lower churn. I think it's a little bit more of a commitment they make, and we certainly see lower churn when we sell through channel because often that sold on a three year contract. So, there are some potentials here to bring churn down over time. Our churn in Q3 was a little bit lower than it was in Q2 as well, which was a favorable trend. We're not really giving projections on this net dollar retention rate, but I could, it could go up to one hundred percent, it could stay at ninety eight. I think over time there are more forces to move it up rather than down. So, Yes. I think it's solid and probably going to get a little better over the longer term as we can move forward.

43:13 Understood. Thank you.

43:27 [Operator Instructions] We have a follow-up question coming from the line of Brian Kinstlinger from Alliance Global. Please, your line is now open.

43:37 Well, I could start to, but I'll ask it anyway. I am going to ask on the business ARPU specifically with onboarding accelerating with your largest customer in the first half of the year in the short term, how do that affect just the business ARPU and then longer term with all the new products and services you've offered what is the long-term potential or goal you have to reach for business ARPU?

44:11 So, I'll answer the second part of that and Shig maybe take first. The new products and solutions we're talking about with you here today AirDial, office Pro plus those will drive ARPU up. We expect them to drive ARPU up over time. Also as most of our business today is with Ooma office to the small business segment as we do more growth with Ooma enterprise that can also move ARPU up because enterprise users by a greater bundle of features often. 44:50 But in terms of the impacts on ARPU as we scale with our largest customer in the first half the next year. Shig?

44:58 Yes. So, Brian, if you think about the large customer opportunity that we want to scale next year. The, just given the nature of their account, which is large opportunity, the Pro user pricing of that will be lower than what we have here on business ARPU that you see today. So as we expand that will provide a little bit pull down on ARPU, but I think we have other opportunities in Pro tier adoption with more customers outside of this large customer as well as we are offering a higher Tier pro that Eric talked about earlier. 45:42 So, I think there's some offsetting going on with both, that all the time, I think with step opportunity to improve on ARPU, even where the largest customers ramping, because if you really think about it, only in nineteen percent the total office users today has higher Pro tier. And so we have a lot of more opportunity and the trend that we see right now on every quarter, this quarter about forty eight percent of the new office user that adopting Pro tier. So, we think about ability to keep it up and increased total Pro tier subscribers across all office users moving high over nineteen percent as well. So long story short, we're going to see some downward from the largest customer, but I think that’s enough offsetting force from other areas that we can see improvement on ARPU as well.

46:45 Great Thanks so much.

47:03 [Operator Instructions] We have no further questions at this time. I will now turn the call over back to Mr. Eric Stang, our CEO. Sir? Do the honours for the closing remarks.

47:15 Thank you. Thanks, everyone for joining us today. We're excited to take up our guidance for the balance of the year and to have some new drivers to talk about with you as long as all the other things we've been doing to grow the business and really look forward to the next conference call where we will be able to layout FY23 for you in more detail. Thanks for joining us today. Bye bye.

47:43 This concludes today's conference call. Thank you again for participating. You may now disconnect.