Good afternoon. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Ooma Fourth Quarter and Fiscal 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a Q&A session. If you'd like to ask a question during this time, simply [Operator Instructions]. If you'd like to withdraw your question, again [Operator Instructions]. Thank you. Mr. Robison, you may begin your conference.

Thanks Emma. Good day, everyone and welcome to the Fourth Quarter and Fiscal Year 2022 Earnings Call of OOMA, Inc.. My name is Matt Robison, I am Director of IR and Corporate Development. On the call with me today are OOMA's CEO, Eric Stang, and CFO, Shig Hamamatsu. After the market closed today, OOMA issued its fourth quarter of fiscal year 2022 earnings press release. This release is also available on the company's website, ooma.com. This call is being webcast live and is accessible from a link on the Events and 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. [Indiscernible] information for is included in today's press release. 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 were 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 of 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 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 is included in our earnings press release, which is available on our website. On this call, we will give guidance for first quarter and full year fiscal 2023 on a non-GAAP. Also, in addition to our press release and 8-K filing, the Overview page and Events and Presentation page in the Investors section of our website, as well as the Results page of the Financial inflows 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. Now, I will hand the call over to OOMA CEO, Eric Stang.

Thank you, Matt. Hi, everyone. Welcome to OOMA's Q4 fiscal year 2022 earnings call. Thank you for joining us today. I'm pleased to report we exceeded expectations for Q4 and our full fiscal 2022 year. And I'm excited to talk with you about our outlook and the many initiatives we have underway to drive growth in our upcoming fiscal year. We kept off our fiscal 2022 with Q4 revenues of $50.5 million, representing 14% growth year-over-year. Total revenue for fiscal 2022 was a $192.3 million up $23.3 million from fiscal 2021, and also representing 14% growth year-over-year. We accomplished this growth while increasing our ARPU, generating EBITDA of $15.6 million, an increasing our cash on hand to over $30 million. FY2022 was a strong year for us and one we're proud of. Looking back at FY2022, we're also proud of the investments we made in our future. As I go through my remarks today, I will highlight a number of growth opportunities that we put in place during FY2022, in which hold tremendous potential for this year and beyond. Looking first though at our progress in Q4, we continue to execute our core strategy of growing our SMB and enterprise subscription revenues through feature enhancements and sales and marketing expansion. For our SMB customers, we added features such as hot desking, which facilitates shared work spaces, dynamic caller ID, which allows individual control of caller ID, and calendar integration with Google G Suite and Microsoft Office 365. We also continued development of our upcoming Pro plus tier, which will extend our range of features to serve even larger businesses and facilitate further ARPU growth for Ooma Office. I'm pleased to report we remain on track to launch Ooma Office Pro plus in Q2 of this year. For our enterprise customers,…

Thank you, Eric. And good afternoon, everyone. I'll begin with a review of our fourth quarter and full year fiscal 2022 financial results and then provide our outlook for the first quarter and the full fiscal year 2023. We delivered another quarter with strong financial results, achieving $50.5 million in total revenue, exceeding our guidance range of $49.7 million to $50.2 million. On a year-over-year basis, total revenue grew 14% in the fourth quarter, driven by the strength of OOMA business subscription and services revenue, which accounted for 49% of total subscription in services revenue as we continue to make progress towards achieving more than 50% of our subscription and services revenue coming from business customers in the near future. On a full-year basis, total revenue was $192.3 million compared to $168.9 million in the prior year, representing 14% growth year-over-year, including 23% growth in OOMA business subscription and services revenue. Non-GAAP net income for the fourth quarter was $3.2 million, which exceeded our guidance range of $2.3 million to $2.8 million. And net income for full year fiscal '22 was $12.6 million compared to $11.5 million in the prior year, driven by the growth in subscription and services revenue and expansion of related gross margin. Now some details on our revenues for Q4 and end fiscal 2022. Ooma business subscription and services revenue grew 19% year-over-year in Q4, and 23% for fiscal year 2022, driven by user growth, as well as ARPU growth. Residential subscription and services revenue grew 3% of both fourth quarter and full fiscal year 2022. For the fourth quarter, total subscription and services revenue was $45.8 million or 91% of total revenue compared to 93% in the prior year quarter. During the fourth quarter, as expected, we saw a product and other revenue increase to…

Thanks Shig. I mentioned at the outset of my remarks that in FY2022, we made significant investments in our future. Those investments in the international expansion and higher level service tiers, new developments of new verticals and channels in creating the most complete solution for replacing copper lines, in partnering Telo with T-Mobile and more, they all positioned us better than ever for FY2023. While our visibility on what we will achieve in FY2023 will improve through the year, we clearly have the potential to drive significant growth. As always, the OOMA team is 100% focused on building OOMA's long-term success. Thank you. We will now take your questions.

At this time, I would like to remind everyone in order to ask a question, [Operator Instructions]. Your first question today comes from the line of Matt Stotler with William Blair. Your line is now open.

Hey, Eric and Shig, thanks for taking the questions. First off, it's helpful color you gave on the guidance and the puts and takes, both of the large customer and some of the seasonality in Q1. It's been a tough environment towards the end of the year, early this year, for a lot of people. And we saw looking at some of the KPIs, net adds were a little bit down sequentially, retention took a little of a step-down, and there's a little bit of a deceleration in business revenue growth. So if you just talk about maybe some of the factors that you saw that impacted those KPIs, whether it's seasonality or what you saw, Omicron and some of those face to face channels potentially. And then thoughts on how those -- how I think about those going forward.

Sure. Hi, Matt. You hit some of the issues right there in your question. If you look at Q4, it was December that was the tough month of the quarter for us. We -- with Omicron and seasonality, we had tougher a December than we'd expect, but we bounced backed well in January. I would add a secondary comment. This was less significant for us, but we did launch a new line of IP phones in the quarter and we had some teething pains with those phones as we first brought users up on them and that affect us a little bit as well. But what I can say is that January was strong, February is running at the kind of run rates that would lead to us back at our previous middle of last year churn levels and also back at our previous of last year, adding net business users in -- how do I say it? Five figures, over $10,000 for the quarter. I'm feeling pretty good about the business, where we are today, but you are right. Q4, particularly in the December period, was a little challenging.

Got it. That's helpful. And then maybe one on the vertical specific opportunities. You talked a little bit about the specific opportunities in hotels and hospitality, and you made some announcements around that after the Jazzware partnership. How do you think about the potential for additional -- obviously it's still early. So maybe some thoughts on how that plays out? And then the potential for additional vertical-specific opportunities going forward, and maybe what you're focused on there?

Yeah. You've captured our strategy at the enterprise level pretty simply with the question. Rather than trying to be everything to everybody, we're finding applications and verticals where our unique capabilities can really differentiate. In hospitality, particularly in conjunction, we adjust where we have a great kind of integrated solution that can bring UCaaS features together with more basic features for powering individual rooms, analog and digital combined, connected up to PMS systems. It's become a bit of a focus for us. It's a way to develop our business. And also, frankly, convinced new channel partners and resellers to work with us because we've got something special to bring to them. In that vein, AirDial also is helping us open up new channel partners, new channel reseller relationships because again, we have something that is fairly unique in the industry that causes these resource to want to work with us. Through this year, we are intending to develop additional verticals. We have some that I could talk with you about here, but they take time to really come together and they are strongest when we can bring some real extra dimensionality around the feature set as well, but that's part of our strategy for building enterprise and we'll target a couple more this year.

Very helpful. Thanks again.

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

Thanks for taking my question. I'd like to touch on T-Mobile, seems like an interesting longer-term opportunity. I realize it's early stage, but any commentary you can make like what type of traction you're seeing. And I'm curious how conservative you're being in your guidance for T-Mobile for this year on the revenue side given that you did mention it's relatively early stage. Could you elaborate on that a little bit, please?

Yes, happy to. It starts with T-Mobile's own comments around their intentions with home Internet. They are very committed to the space. They talked about building out their user base to millions of users as we look forward to the next few years. I won't try to re-quote what they've said, but I'm sure you can look back at that. That's exciting, and alongside that effort they feel and I think the market has spoken that some customers want to have what we call a double play solution, have phone service and Internet together. So there's a natural fit between the two of us. And in addition, some customers may be switching away from cable-based solutions where they may already have both services and they want to continue to get both in order to switch. So it's a great partnership to work together on this. We do have a cadence of planning and marketing meetings with them as we develop the next steps that will happen to try to capture this opportunity. So far, the only thing that's happened is there's been a section put up on their website. When you buy home Internet, you can also click on that section to get phone service. We're seeing sales every day from that, but I would say compared to what this could be, it's not big numbers today. But as I said it's early stage. I think that you asked about how we forecasted it in our outlook. We forecasted it fairly low because we just want to wait to see how it unfolds. We -- if we take the forecast that they gave us for how many units we should be planning for this year, it is a much much bigger number than what we have in our forecast today. So let me just leave it at that. It's -- we thought we'd have a little bit more visibility than I can give you right now, by this time, but December and January were the easiest times to pursue this, but it's developing well now.

Thanks. That provides some really good clarity and then just to touch on that one more. Historically, 30% of the company's revenue has been allocated to sales and marketing. One of the really interesting things at least in my perspective with T-Mobile is the idea that you wouldn't have a lot of those expenses. You may have some. Is that -- is that fair to assume or is there going to be some joint marketing that you may do to partner with T-Mobile? How should we think about the flow-through?

No. What we're doing with T-Mobile, we're enabling their marketing and sales efforts. We have put together a special offer for their customers. But aside from that, we're really an enabler to them doing the things they want to do. And so far we're just on their Internet website, but the joint plans discussed between both of us is to do more than that.

And then last question for me, then I'll jump back in the queue. Just to elaborate a little bit, looking at the guidance for this year, I think everything makes sense on the revenue side, given what you've said in some of the services and that's built in there, but I know the EPS guidance is going to be down year-over-year. Where are those additional investment dollars going to be allocated to? Is it going to be more front-half, back half-weighted? How should we think about the operating side of the guidance?

Yes, Josh, thanks for the question. With respect to the areas of investments, the biggest piece is going to be in the side of marketing. And as we said before, we want to continue to invest into channel development to drive the user growth on the business side. And I think in the whole of '22, we spent about 29%. That's -- as Eric and I said before, that's a little bit lower than we've probably like to be to drive growth. And so between the channel development, and also hiring a front, which we were behind in FY2022. And also just in general, as we come out of pandemic here, and things normalize, that we see that activities in trade shows and travel probably start to pick up towards the second half of the year, so those investments insures the market. And I think we'll probably see that [Indiscernible] marketing as a percent of revenue to be more like in the range of 31.5% to 32%. By the way, that level it's still a low end of mid-term model that we talked about in the past. But we want to invest. And then other areas just across OPEC, as I said in my remarks, that there's a general increase in cost of labor, which are not unique to us but in [Indiscernible] expansion. That with the largest customer we talked about, that piece one can say that some of that spend on a projecting in FY2023 is something that we originally intend to spend in '22, but because of the timing of that ramp with the largest customer, that's moving into next year. So hopefully that gives you a little color there.

That's perfect. Thanks.

Your next question comes from the line of Sharon Kiruba with Northland Capital Markets. Your line is now open.

Hi, this is Sharon on behalf of Mike Latimore. Can you please talk about the pipeline for AirDial and what are the marketing strategies you're currently using for it?

Sure. Hi. So the pipeline that we add up even now is more than we think we can produce this year. It's pretty encouraging. We don't know that we need to do that much marketing. We see three or four ways in which the product will go to market. One is through channel resellers who, as I spoke earlier, can bring AirDial into the needs of their enterprises they go to. We are seeing some column distributors or aggregators who want to be able to offer the solution. And we are also finding some Cvax that have a real need to be able to replace copper lines with the said type of solution. So those activities I mentioned, we've already signed multiple parties to work with us on going to market for AirDial. I think there's a lot of interest in it. I think everyone's waiting for us to get going with it and get products flowing in quantity.

Okay. Thank you. And in regard with your largest customer, do you think that they will be moving materially forward this year internationally?

Yes.

Okay. Thank you.

Sure.

Your next question comes from the line of Matthew Harrigan with Benchmark. Your line is now open.

Thank you. Reverting back to the target model you alluded to, it feels like you've got a number of growth initiatives and I know that's the priority. If you can get sales growth, you're going to opt for that and reasonable ROI versus trying to tap out the margin immediately, but do you see the timing on the transition from the mid-term to long-term margins getting pushed out a little bit by the level of activity that you have going on? Is there any flux at all in the long-term model? I know that some of this is probably devised by Shig's predecessor, but I'd love to know if there's any sense of variation and timing off this -- off the new initiatives or even some of the long-term objectives that maybe even been tweaked a little bit color-wise. Thanks.

Matt, thanks for that question there. I think when I look at gross margin model, we talked about mid-term and long-term model in the past. Then I'm looking at this now, mid-term, we aim to be in the 62 to 65 total margin I'm talking about, in the subscription 70 to 75. We do feel good about the subscription margin. I think we're in the right middle of it, 73%, and as we scale further with user ads and a business side, and when AirDial ramps that's the business user. So we think we have a path to continue to improve incrementally from where we are. So we feel good about the subscription, that's number one data point. I think a total gross margin -- I know we reported 62% total this past quarter, but that's more a function of having a heavier product mix to that strategic customer last two quarters. So do keep in mind that product mix that at the beginning of this past year did not expect happening in the last half or this past year that threw us off a little bit. But so going into next year, as I said, Q1, we expect the revenue mix between subscription revenue to go back to what it was in first half of last fiscal year, which means that more like a 93% subscribed share and 7% product. I see that on first half and so that should improve our overall gross margin because it's going to be tilted more towards a subscription margin. That's one data point and if we go into second half of next year, I'm seeing that right now, that the product mix I just described -- revenue mix, excuse me, is probably shift towards 92% subscription, 8% product, only because we're anticipating more meaningful ramp on AirDial, which has a product component to pick up in so that changed the mix of the revenue a little bit. But overall, to answer your question, we still feel good about our mid-term and long-term model and I think we're progressing pretty well towards those.

And then on AirDial, you have the happy circumstance of functionally obviously, only alternative in the markets and the transpoint of the CY as you just said. And I'm curious, how long do you think you're going to have that circumstance where you're the real innovator and de facto the only alternative. We've got something that's kind of in your business plan on or would you anticipate getting getting more competition or some or some competition at some point?

The market is big enough that there's already competition today and there will be more in the future but when we look at that competition, it isn't approaching the solution the way we have. We are a unique company and that we can design hardware to work in conjunction with our cloud and provide an integrated service and through our partnership with T-Mobile on this as well, that includes the wireless internet that is part of the controlled network that these devices require. There are competitors out there, but they tend to be small and they tend to be just product makers and we have put together a very complete solution. We're in a very good spot and that we'll be able to maintain that for a while. These things -- we've worked on the solution for about a year to get to where we are today and now we're scaling up production and scaling up production in this product environment is difficult because we don't have an existing supply chain for the product, we've got to create it and trying to get components these days can be difficult. What we've been doing over the last year puts us ahead of anyone else who may be looking at this today as well.

[Indiscernible] like it's going to be getting any easier immediately. Thanks, Eric, and thanks, Shig.

Sure. Thank you.

Your next question comes from the line of Andrew King with Colliers Securities. Your line is now open.

Hey, guys. Thanks for taking my question. Eric, just really good to see that partnership with Jazzware going forward. I just want to get an idea, what hurdle do you go to get the sales force ramp to efficiently sell a more specialized solution into the hospitality services area, and then off of that also, how many of these 80 of ours they added in this quarter were hospitality focused?

So generally when we work with agents and bars, they're not focused on just an industry, but what they do find or what what we do find is that when they get success in a vertical, they will follow it up with focus on it because it's something they, they know they can build. Of the 80-plus bars and resellers we added about half would be the type that I would say we'll be more focused on selling Ooma Office and about half were the type that I would say we'd be more focused on a larger company enterprise-type sale. And all of those resellers that we added from an enterprise perspective, I don't -- I can't say all, but I think significant majority would be easily capable of selling into the hospitality space. There are some resellers out there that are focused on that space. And one in particular, we have just recently started to work with and we're excited about that. So we're looking at it that way as well. But no, these are -- it's traditional -- it's that way our space is traditionally developed, which as you've got, in this case, hotels, motels etc., where they've got all the antiquated solutions that are expensive to run and they need to modernize and the kind of stuck. And you can come in with a solution that really takes some to a modern result. And that's the way you sell it. And the more success we have in the vertical though, the more we get known for it. And that helps us too as we grow. But I hope I've answered your question there with the different comments I just made.

Yeah. That's great. Then also just looking at the hospitality vertical, can you give us any color if there's any material differences in the sales process in the hospitality vertical versus the other verticals, and if there's any seasonality we should expect in that business.

Like any vertical, it helps if you can talk their needs and walk in with solutions to the problems you know they're going to have. In this case, one of the key issues is, or problems is how to integrate analog and digital capabilities together in one solution. A lot of these -- a lot of hospitality industry doesn't want to change the phones and rooms, but they do need modern capabilities at the front desk and otherwise. Through focus, you can establish that. Also, keep in mind, what's really underlying, what we're doing in this vertical -- underlying what we do in other verticals is our enterprise solution is very flexible. It's API based, it's a very modern design and we can use it both to customize for very large customers, but also to do something like what we're talking about here with you about the hospitality space where we can put together something that's unique to their needs. With that, we're well-placed to serve the vertical. In terms of seasonality, I don't see any particular seasonality in this regard. It's just something we're going to have to build over time and what will pace our growth a little bit is how fast we can bring on the agents and the resellers and get them comfortable with the solution and taking it to market.

Great. I appreciate you taking my questions.

Sure. Thank you.

Your next question comes from the line of Brian Kinstlinger with Alliance Global Partners. Your line is now open.

Great. Thank you. In terms of T-Mobile and the Ooma Telo Air program, like you said, I looked on T-Mobile's website and the ISP website, and to be honest, it's exceptionally hard to find. You got to scroll down, you almost have to be looking for it. So can you talk about when and the other ways, first at T-Mobile's playing to make home Internet users aware of the program? How much inventory do you have to deliver this and what are the lead times for suppliers?

Yes. So on the first question, I really shouldn't comment because it's -- I don't really want to talk about a partner and what they're going to do. I can tell you that they have plans to do significantly more than what you'll see on their website today. But I really can't get into what they're planning until they do it. Yes, we have -- on the product availability side, since last fall we've been planning for the kinds of quantities that they've told us they'd like to get from us for this year. And I think, in terms of the components needed that are unavailable, if you don't plan ahead, we've put those plans in place. Some components that we need to scale up to big quantities would probably cost us more in short-term to get them but we would work through that. So I feel we're placed well enough today that as they do more things, and more customers come to us through that relationship, we'll be able to satisfy it.

Great. And then in terms of once that program ramps, is there going to be a hardware piece that crushes the margin, widen the results of the recurring piece? And then same question on AirDial. When that starts to ramp, what's the impact it's going to have on the overall gross margin?

Sure. Yes, Brian. Thanks for question. On the first piece on Telo, yes, there's a product piece and subscription piece. And by the way, just a reminder on a subscription piece, they are all premium users on a Telo side. But the way I would say is that we're not expecting right now that [Indiscernible] that total costs or sales and product side would have a materially different impact on the gross margin profile and product side right now. So if you look at, like I said, on earlier remarks, Q2, last year as we go into this Q1 and forward into FY2023, when I look at a normalized level of product revenue and gross margin profile for product revenue, it's about minus 50% to minus 55%. So I think that's a good range even with the ramp of Telo through T-Mobile. So that's one reference for you. AirDial, it does have both the subscription component and also product component. The -- I do think that the -- on a product side revenue we do think that has a positive impact on our product margin when we do ramp. So I'll just leave it as that without quantifying too much there since it's early. And also it should have a positive impact on our subscription margin as well. And that's a business subscription by the way. So hopefully that gives you some color there.

Great. Thanks so much.

Thank you.

Your next question comes from the line of Joe Goodwin with JMP Securities. Your line is now open.

Great. Thank you for taking my questions. Eric, on the five-part priorities for growth for FY2023, could you stack rank those in order of importance through this year?

Sure. Hi Joe. I started off with number 1 is just executing the gross sales to business customers. That is number 1 for us, to continue to bring out Pro plus and expand our sales and marketing activities. We did not grow our sales and marketing team this last year, like we wished, hiring and other things were challenges, but we believe we will achieve it this coming year. After that, it's hard to rank the next four. We're very focused on developing new verticals and stronger channel sales but that is a longer-term multiyear strategy of ours, that -- which will -- some things will happen this year, something will happen thereafter. I feel pretty comfortable as I've stated in these in my remarks, very comfortable actually, that we're going to expand our users significantly with our largest customer and we're ready to go, and they are moving forward now, starting this quarter. Expanding in Europe will happen. I believe we're not intending to expand beyond serving users at this large customer. We want to get that to happen and have that under our belt before we try to look at doing more with OOMA in Europe, between Ooma Office in Europe before -- so our focus this year is really expanding with our largest customer. AirDial in the transition to 4G -- transition to 5G and what we're doing with T-Mobile, those have tremendous upside. I think in the first case of depending how many units we can build, and the second will depend on what sales and marketing activities T-Mobile chooses to do and how they do them, but in the market response. But I think each is material, so I don't know if I've answered your question very well, but after number 1, we think all the next four are important and we invested in all four of these last year. So as I look at this year, while it's a lot to say we're going to go do, I actually think most of the work on these next four is done. And so at least Europe AirDial and Hello with T-Mobile. So I feel like we can accomplish all of them as well this year.

Got it. Okay. Thank you for that. And then just another question from me. Can you talk about the current strategy that you're employing to upsell your existing Ooma Office customers to Ooma Office Pro. Are you reaching out, are you providing any sort of offers or anything like that or just -- how do you actually approach the upselling to your existing base?

For the up selling to our existing base is relatively simple, as we bring out a new feature in Ooma Office Pro, we just let our base know. And as it's a way to reach out them and show them what we can do and if they're interested, they will take it from there. And so we do have an installed base marketing program in the company and that's essentially how we do it. We're not getting too aggressive with that. We don't give free trials, we don't offered special promotions, anything like that, but we do make a point to tell people about the exciting features as they, as they come along. So when Pro plus launches this year, that will give us a whole new basis to go go out to our customer base and tell them about now what's also available there.

Great. Thank you.

Thank you.

Again if you would like to ask a question, [Operator Instructions]. We'll pause for just a moment to compile any final questions.

Think we're pausing.

Everyone, thank you for joining us. I'll close with one final comment. It's of a fun thing. I don't want to make too much out of this but in January, we were named -- OOMA was named one of the best tech brands for 2022. We were in the top 10 list along with names like Tesla, Apple and Sony. It was a lot of fun. This is something that PC Magazine put out based on some kind of reader survey though, don't quote me on that, but it's fun to see that recognition for OOMA. We're very focused on the customer experience and our users having a good experience and telling their friends has helped to drive our growth. It was rewarding to us as a team to see that. Thank you, everyone. I appreciate your time today and I look forward to next time we could talk. Bye-bye.

This concludes today's conference call. Thank you for attending. You may now disconnect.