Good day, everyone. My name is Kylian, I’ll be the conference operator for today. At this time, I’d like to welcome everyone to the Ooma’s Fourth Quarter and Fiscal 2023 Results Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I’d like to turn things over to Mr. Matthew Robison. Please go ahead, sir.

Thank you, Kylian. Good day, everyone, and welcome to the fourth quarter and fiscal year 2023 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. After the market closed today, Ooma issued its fourth quarter and fiscal year 2023 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 08:00 PM Eastern Time. Dialing information for it 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 of 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. 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 basis. Also in addition to our press release and 8-K filing, the Overview page and Events and Presentations page in the Investors section of our website, as well as the results page of the financial info 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's CEO, Eric Stang.

Thank you, Matt. Hi, everyone. Welcome to Ooma’s Q4 fiscal year 2023 earnings call. Thank you for joining us. It's my pleasure to talk to you today about our Q4 and FY23 results and our outlook for FY24 including the many growth initiatives we have underway. Q4 FY23 was another strong quarter for Ooma. In fact, it was a record quarter $4.1 million in net income, $5.1 million in adjusted EBITDA and $3.3 million in cash flow from operations were all records for Ooma. Overall for FY23, Ooma achieved 24% growth in Business Services revenue, 12% overall growth in revenue, adjusted EBITDA of over $17 million and cash flow from operations of nearly $9 million. We ended the year with close to $27 million in cash ahead of our plans to rebuild our cash position after our successful OnSIP acquisition in late Q2 last year. With positive cash flow from operations, no debt, and several exciting growth initiatives underway, I feel we are well positioned for our new fiscal year ‘24. Turning now to our progress in Q4, we continue to execute well on our key growth initiatives. For Ooma Office, our solution targeted at small to medium sized businesses. We added features to our Pro Plus tier of service. These capabilities included call screening, integration with Zoho CRM, additional call center capabilities, improvement to Ooma meetings, and new customer analytics. In FY24, we plan to add more features to the Office Pro Plus each quarter throughout the year, including further integrations, more advanced call center functionality, and other exciting features. These advances are part of our longer term strategy to expand the customer opportunity for Office to increase our ARPU. I'm pleased to say that in Q4, a little over 50% of our new Office users adopted a premium…

Thank you, Eric. And good afternoon, everyone. I'm going to review our fourth quarter financial results and then provide our outlook for the first quarter and full fiscal year 2024. We delivered another solid quarter, with a total revenue of $56.5 million near the high end of our guidance range of $56.3 million to $56.6 million. On a year-over-year basis, total revenue grew 4% in the fourth quarter, driven by the strength of Ooma business as well as the addition of onset. In the fourth quarter, business subscription and services revenue accounted for 55% or total subscription and services revenue as compared to 49% in the prior year quarter. Q4 product and other revenue came in at $3.9 million as compared to $4.7 million in the prior quarter. The prior Q4 product revenue included certain accessory sales that did not recur this year as we mentioned on our last earnings call. On a full year basis total revenue was $216.2 million compared to $192.3 million in the prior year, representing 12% growth year-over-year including 24% growth in business subscription and services revenue. On the profitability front, the fourth quarter non-GAAP net income was $4.1 million above our guidance range of $3.5 million to $3.8 million and was another record for the company. On a four year basis, non-GAAP net income was $13.6 million, compared to $12.6 million in the prior year. The team has done an excellent job balancing execution of our growth initiatives and managing expenses during the fourth quarter. Now some details on our Q4 revenue. Ooma business subscription and services revenue grew 29% year-over-year in Q4, driven by user growth and the addition of OnSIP which continues to perform while with solid customer retention. Excluding the effect of onset revenue and contribution Ooma business subscription and services…

Thanks Shig. I'm pleased to say I have some additional good news to share. We learned earlier this week that Ooma has once again won PC Magazine's business Choice Award for Best VoIP system. We're always deeply honored to win this award because it is based on PC mags independent customer surveys. For a remarkable 10th year in a row Ooma was voted number one ahead of other providers. Ooma Business, of course is our primary focus for revenue growth. Business Services revenue now makes up 55% of total Ooma services revenue driven in part by our outstanding 39% growth in business users during FY23. As we head now into FY24, we're excited to continue to pursue several initiatives for growth, including extending our leadership serving small business, targeting select verticals and customer requirements for larger enterprises. establishing ourselves as the number one solution for replacement of aging copper POTS lines, and expanding further internationally to serve our largest customer in new markets, and position ourselves for further future growth in those markets. As we look ahead to FY24, we see tremendous opportunity for profitable growth. Thank you everyone. We will now pause and take your questions.

[Operator Instructions] We'll hear first today from Matthew Stotler with William Blair.

Hey there, thanks for taking the question. Maybe just first on OnSIP, appreciate the updated color on that one, maybe just double click on where we're at in terms of the integration of that business. And then any plans to re-platform acquire customers going forward or how we should think about further progress there ahead.

Hi, Matt. Progress is good, the team is folded into the Ooma team functionally and I think the resources are very efficient on that business. We've also made some great strides in improving the gross margins in that business. We do have a little farther to go. But I'm excited about where we're at. In terms of actually moving OnSIP customers over to the Ooma platform that is a longer term initiative for us. And actually, looking at our plans this year we have so many good growth initiatives underway that we're taking an even more measured pace in terms of making those -- that transition, we don't feel a strong need to have to do it quickly. If in select cases, we move a little faster because we have something on Ooma platform that a customer wants that the OnSIP platform doesn't offer. And in those cases, we would move a customer because we don't want to make significant investments in the OnSIP platform beyond what it does. But it's a very good platform, it does a lot of good things today, and a lot of customers very happy with it. Our churn is stable and well in line with where we expect it to be on that business. So we are, it's been folded in, it's just part of Ooma now. And we're kind of taking it in stages as we go from here.

Got it. That's very helpful. And then maybe one on the call center capabilities that you have, you mentioned a couple of times, looking to build out more of those capabilities going forward. Maybe we could just dig into what that opportunity looks like, for Ooma, right? How many customers are seated at this point are being used for call center functionality or using call center functionality. And what that opportunity looks like within kind of the broader base or the market that you're going after. And then maybe some commentary on what that ARPU uplift is for call center over Ooma Office. Thank you.

Sure. And by the way, let me speak about this from two perspectives. We have customers on Ooma Enterprise who use our call center capability on Ooma Enterprise and some of those customers are just using call center capability. We've offered call center solutions that are pretty extensive on Ooma Enterprise for some time. Ooma Office traditionally has not offered any call center capability. Now with Ooma Office Pro Plus, which sells for $29.95. we're building in what I would call basic call center functionality. Obviously, that starts with call queuing, and the ability to have agents log in and log out. And dynamically direct calls, be able to listen in on calls, barge in on calls, do the other basic things you do in a call center environment. That is helpful to Ooma Office. Remember, Ooma Office is targeted at small and medium businesses, particularly 1 to 20 employees, but really up to 100 employees. And there's 7 million plus businesses in North America in that size range. And with this capability in the Office Pro Plus, we can go after the company that has a 2,3,4, 5,10 persons call center, taking calls for their business in a more integrated way. But that's different from powering up a more significant call center application. If we're going to power up a more significant call center application, we would turn Ooma Enterprise. But you'll recall that one of the key hallmarks of Ooma Office is that it's simple and easy to use, and can be set up by businesses without even needing an IT professional to do it. And that's the way we're approaching call center with Ooma Office Pro Plus and the pricing there will be $29.95, it already is that's $5 higher from Office Pro, which does not have these capabilities and other things. And that's the opportunity, it moves us up to a little bit larger size businesses buying Ooma Office. And it allows us to be a pretty well rounded solution for most businesses, kind of 100 employees and less.

We will hear next from Mike Latimore with Northland Capital Markets.

Yes, thanks. Congrats on the strong profitability there. I'm wondering if you can give a little, just a little more info on AirDial whether it's how many units have been deployed, or how many you've built now kind of what kind of growth we expect this year. And I know you've kind of given some give and take there, but just a little more detail would be great.

Yes. We've obviously built in an outlook for AirDial to our overall outlook. And we're a little careful with that because it's difficult to predict how fast the market will develop. And it's very, it's going to be driven for us to buy to what degree particularly large customers sign on with us, because some of these customers can make a very material difference to what happens in the year. We're not disclosing specific numbers for AirDial at least not at this time. We built the first 10,000 boxes last year. Those boxes can support up to four lines each and we are still consuming that first, those first 10,000 units as we sit here today. So we hope also to have additional partners who will resell AirDial to announce in the first half of this year. And if we close those opportunities that are looking promising to us right now, those might take up our forecasts a little bit for the year. So I hope that gives you a little more color. But that's about what we're ready to disclose today.

Great. Thanks. And then, just on the macro environment, sounds like you talked a little bit about a little bit longer sales cycle, but then you also said January seem pretty good. I mean can you talk a little bit about over the last six months, let's say how things transpired here? Are we, it sounds like things were maybe a little softer in third quarter, maybe stay that way for now? Are they getting better now? Or are they still kind of soft just how's the macro environment playing out last six months?

Yes, fortunately, overall, we're doing well, because we're growing internationally, as you know and we're going with AirDial, and that's on top of what we do with Office and Enterprise. When I look at Office and Enterprise specifically, we have to work a little harder to tell our messages. Now our messages are compelling, we can save customers money, we can give them a lot more capability than what they've had previously. And all that's very positive. But I will say that second half in November, and December were, I would say down a tick for us versus prior to that. And I would say we're up a full tick and more starting January. So something about that time of year, we actually experienced kind of a similar outcome a year ago. I don't want to just say it seasonality, because I think every year is a little different. But I do think that's the case a little bit. On the Enterprise side, in particular, where we're selling larger customers and larger deals. We had some deals that we, where the customers broke them apart and decided to take them in phases, rather than go forward with before playing at once. And we're seeing that a little bit with these economic times. But by and large, our solutions save customers money. And that's a saving grace for us, even in these market times. We can rely on that to continue to drive growth.

I will just move next to Brian Kinstlinger with Alliance Global Partners.

Great, thanks so much for taking my questions. You got to my first one is last quarter, well, discussion, I'm curious about these prospective customers in the AirDial last quarter, you said it was taking time and resources to plan for and that it was taking longer than expected as a result, customers weren't prepared. Can you give us any update on changes to customer planning. And moreover, are customers moving forward with planning and preparation is necessary, outside of that nice one that you announced.

Yes, I gave a lot of color in my opening remarks to help with that thinking a little bit so that, that customer that we landed in Q4, and that's a big win 26, ,more than 2,600 lines. They're going to, they expect they want to get them all installed in the first half of this year. And that's about as fast as we I think a customer is going to move when you've got that much to do. I think it might even extend out a little bit longer than that. But it's a good sign to us that they want to get on with it and get them all done. We have had other customers move at a slower pace. It depends on the customer's resources, whether they want to do the installs themselves or contract with us to do them. We do have the third party resources in place for doing installs. We've got a strong internal team to support that process. We are hiring in that area as well. But I think by and large, we're, it's a little bit customer specific, but it does take time. With the largest customers out there. The ones that are 1,000s of lines, they're more likely to still be evaluating the situation what they want to do. Testing a solution and not feeling the need necessarily to act right away. But realizing that they've got to act, they've got to do something. And in a way, we like that, because when a customer tests and uses our solution, they, it really stands out how much better ours is in certain ways, particularly the remote device manager that I talked about in my opening remarks. It's a very enterprise grade solution that we built. And all these boxes that we're…

Is a perfect segue into my second question actually. With that win that you discussed that nice win for AirDial, I am curious the nature of it, was it a direct sale, was it via T-Mobile, they call you. And then last quarter, you talked about T-Mobile's paying commission. So unlike Telo reps are likely going to be more engaged. I am curious, is that pieces playing out since we last spoke? Meaning are the reps engaged in AirDial and pipeline building sales?

So I'll take the first part of your question. That large deal is one that we were working for several months. It came to us through an agent, our partner. Really an agent, and but deal of that size. The agent plays a key role, but we also get involved in a direct basis as you can imagine. And then the second party question, we couldn't be more pleased with the reception and the effort T-Mobile's making. They are -- they've been – they’ve turned into be a great partner for AirDial. And we're optimistic because we look forward.

We'll move on to Matthew Harrigan with Benchmark.

Thank you. You've always taken a very carefully modulated approach internationally, I think, mainly working in concert with your largest customer, you're now much more seemingly ambitious. Can you talk about how you’re containing your risk in this macro environment especially sounds like going into a new continent as well? Thank you. And congratulations on the numbers and the guidance.

Thank you. Yes, I can talk about that. And what we've done in North America. And what we've done in greater Europe has been done with a fair bit of investment, physical investment in our own machines and data center locations that we work with. And built for larger scale and that's working well for us. But as we think about many other regions of the world, and by the way, when we talk regions, we talk more regions than you might think, because with our kinds of communication services, latency is important matter. So you don't want to have your machines, your data centers located too far from where customers are. So as we move to these other regions of the world that we're opening up, we're doing it on a much lower cost basis, working with a hosting provider. And we've done the work internally to also have our system run in that environment. And it becomes cookie cutter a little bit, you can turn on and turn off processing capability, if you will as you need it. It makes your per unit expenses a little bit higher. But when you're lower scale and these other geographies, that's how we're going to ensure that we don't end up spending too much. And then managing it, we can manage this worldwide from our NOC and our resources here in the US and Europe. So we're not having to add a lot of physical people resources in other regions. So I feel pretty comfortable. We know how many users we're going to get in each region. We know roughly how fast we're going to get them. To be honest, we have to put some of this capability in place before the conversions happen. And there is a little bit of a drag on our gross margin, so to speak, as we put the cost in place, and then convert the users over but we can model that and we know what it's going to be. And so that's how we see it. If we look out to next year and years beyond, we'll want to expand beyond serving this one large customer. But honestly, our first focus would be in Europe, it wouldn't be these other regions that we're going to be also be working with them in. By and large, I would say that so. So we've had to make sure that what we're doing in these other regions is reasonable expense versus what we're going to drive in revenue.

I think you commented before that the copper line issue, replacement issue was even more of an issue in Europe and in the US. Are you trying to -- are you doing anything with AirDial at this point over in Europe, or is that you've got too many things and other things in the hopper to do that at this point.

We do not have in our plans this year to do anything with AirDial outside of the United States. But that said, if we are able to establish the right partnerships, or right partners in some of these other countries that could change our outlook. If we did develop such partnerships, though, it'll take a little time to reconfigure the product to operate properly. With the kind of modem and bands we need to work there. It’s not a lot. It's not hard engineering but will take some time. So but we would like to be building towards in future years selling AirDial in other markets. We've looked at some markets, in some cases, we've seen markets that have already started the transition to sunsetting copper lines. In other markets, they're just talking about starting it like this year or next year. So we're not behind. And it's perfect timing for us to start working towards that.

We'll hear from Josh Nichols with B. Riley.

Thanks. Sorry. Okay. We just over unmute the line and bumped into the table. I guess that was enough to get disconnected. But just wanted to know, yes. easier for me to dial back in. So just want to check in. Great to hear you reaffirm that 1Q is going to be a very strong quarter with your key customer expanding into further markets. I think through 3Q you had added 25,000 additional seats right this past year. Anything you comment about the expectancy to seat adds of the cadence this year is expected to be comparable to last year a little bit higher or lower based on the plan that the company has given you thus far.

I think the best planning for this year would be to say we'll onboard on the order of the number of users we did last year. And I think you'll see some, a little bit heavier onboarding in the first quarter and second quarter and then it's a little bit farther out for me to plan Q3, Q4, but we're thinking we can have a year similar to last year in growth.

Perfect and then last question for me. Obviously, there's a huge market opportunity for AirDial, and we're getting closer and closer to potential sunsets for some of these copper lines. Have you been hearing any rumblings about viable competitors or alternatives that are coming to market even if they're not out today? I find it odd that you guys have such a lead on this. But it's a very large opportunity.

I have not heard any rumblings of new competitors in the space. I can tell you that in a larger deal, we're most likely going to be up against Granite who bought Epik. And that's a solution that they bought a hardware solution that they bring to the market. And we're going to be up against probably AT&T, who resells a box they buy from data remote. We believe in against both of those solutions, we have clear advantages. And you can imagine when you're taking hardware from somewhere and then try and put service on top of it, you do not have the kind of integrate solution that we've designed from the ground up. So we do have competition out there. But it's not nearly as extensive as you might think. And yes, we feel good with the product we're bringing to market.

And our next question will come from Joe Goodwin with JMP Securities.

Great, thanks for taking my question. It's great to hear that the churn across the subscriber base has remained stable in the current environment. Just curious can you talk about any trends and kind of churn on the business side for those who are on the Office Pro and Office Pro plans? Is it materially higher than just your standard office subscriber or any sort of commentary that would be great.

It's not. In fact, I would suggest that probably our Pro and Pro Plus tier customers are lower because they're more likely to be a little bit larger business. Our churn --

Yes, I excited and bursts. Sorry about that.

Yes. Our churn tends to run a little higher with the smallest customers we have. And as the customers get bigger it tends to be less. In since Office Pro Plus are going to apply more likely to a little bit larger customer. It's, but in general, overall churn is very stable. And with no other questions at this time, I'd like to turn things back to the company for closing remarks.

Well, everyone, thank you, as always, for taking the time to join us for our call. We really appreciate it. We are working hard here to drive a bigger and more valuable business. We're excited about our progress and the things we're doing. And obviously look forward the next time we can speak. Thank you, everybody. Bye-bye.

And it does conclude today's conference. Again, thank you for joining us. You may now disconnect.