Good afternoon. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to Ooma's Fiscal Second Quarter 2024 Earnings 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.

Thank you, Emma. Good day everyone and welcome to the fiscal second quarter 2024 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 fiscal second quarter 2024 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 & 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. 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. 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 the third quarter and full year fiscal 2024 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 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 second quarter fiscal year 2024 earnings call. Thanks for joining us. I'm pleased to report Ooma performed well in Q2. I'm looking forward to reviewing our accomplishments and the progress we've made on the several growth initiatives we have underway this year. Financially, Ooma achieved $58.4 million in revenue, $3.8 million in non-GAAP net income, $4.9 million of EBITDA, and $3.6 million in cash flow from operations in Q2. We also managed OpEx spending well in the quarter and reduced our inventory. Regarding growth, our important business subscription services revenue grew 27% year-over-year. Overall, we ended the quarter with $215 million of annualized exit recurring revenue, up 15% versus a year ago. I believe we executed well in Q2 to drive these results and that Ooma is in a strong position today to pursue its strategy and growth initiatives. During Q2, we continued to invest in Ooma Office, which of course is our award-winning solution specifically designed for small to medium-sized businesses, which seek a combination of advanced features, ease of use, and affordability. We added to Pro Plus, our top service tier, several new features to facilitate collaboration and customer interaction, including online bookings, one to many messaging, team chat, and new CRM integrations with Zoho and Freshdesk. We also improved our Office Desktop app introducing an updated user interface and faster performance for a more cohesive user experience that simplifies interactions. These feature enhancements continue our strategy to build out the capabilities available in our Pro Plus service tier, which, along with our Pro service tier, allow us to target slightly larger customers and drive higher revenue per user. We feel our Ooma Office strategy is working by allowing us to serve increasingly larger customers, while maintaining our longstanding focus…

Thank you, Eric and good afternoon everyone. I'm going to review our second quarter financial results and then provide our outlook for the third quarter and full year fiscal 2024. We delivered another strong quarter with a total revenue of $58.4 million, exceeding our guidance range of $57.4 million to $57.9 million. On a year-over-year basis, portal revenue grew 11% in the second quarter, driven by the strength of Ooma business as well as the addition of OnSIP. In the second quarter, business subscription and services revenue accounted for 57% of total subscription and services revenue as compared to 51% in the prior year quarter. Q2 product and other revenue came in at $3.6 million as compared to $4.7 million in the prior year quarter. The prior year Q2 product revenue included certain accessory sales that did not recur this year. On the profitability front, the second quarter non-GAAP net income was $3.8 million at the high end of our guidance range of $3.5 million to $3.8 million and represented 26% increase over $3 million in the prior year quarter. Now, some details on our Q2 revenue. Ooma business subscription and services revenue grew 27% year-over-year in Q2, driven by user growth and the addition of OnSIP. Excluding the effect of OnSIP revenue contribution, Ooma business subscription and services revenue grew 15% year-over-year. On the residential side, subscription and services revenue were flat year-over-year. As a reminder, we had a one-time churn event during the first quarter with a particular customer with an unusual application where we lost approximately 4,000 fellow users and we saw a full quarter impact of it in Q2. We expect Residential subscription revenue growth to resume at the low single-digit percentage on a year-over-year basis in the second half of this fiscal year. For the…

Thank you, Shig. This month marks 20 years since the original two founders of Ooma hired a small team and got to work. In that time since, we have developed into a successful growing public company with over 2 million users and over 1,100 employees and contractors. Over the last 20 years, we believe we have saved our customers billions of dollars in the aggregate compared to what they would have paid with traditional phone service solutions, while also bringing them advanced features previously unavailable to smaller businesses and consumers. Perhaps most exciting for us, that we have become a leader in the disruptive change underway in communications made possible by cloud technology. With the strong market position we have built over the last 20 years and the multiple growth initiatives we have underway, we're excited about our outlook. Thank you. we'll now take your questions.

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

Great. Thanks gents. Congrats on the good solid results there. So, the Prologis partnership is interesting. What are the next steps there in terms of getting that fully launched?

It will take at least a few weeks, maybe a little longer, it depends on how fast they move. They have to put us into their Essentials platform, which is a web-based solution for their customers to draw on. They have certain categories of capabilities they have in that platform. We'll be kind of a new area for them with communications, but I think it's not only important for being part of the Essentials platform, but also I think it demonstrates the whole REIT community what Ooma can bring. And I know many REITs out there look to Prologis because they're clearly the leader in the world in that space. So, I think it was important for us to get the press release out and just continue the awareness building that we're trying to do for that space.

Great. And then on your largest customer, you talked about being a path towards a 100,000 users there. Can you just mention, like, what is the user count presently? And, also, just, why did some of your AirDial customers push out their timing?

So, with our largest customer, that's a -- they're obviously taking com combination of Ooma Office and Ooma Enterprise from us. We're over 80,000 users with them today, and, I can see us being at a 100,000 or more by fiscal year end. And we've always thought we'd get there, but I feel -- I have you more visibility now than we've had about our path there. It's great to have our new node up and running in a new region of the world and to have some customers on it already and be planning the major rollout that now comes with that. And having got that one up and running, I think we've worked out the kinks a fair bit in terms of putting up the next one and the next one. So, I feel like we did some lifting in Q2, and we're in a great position as we go forward to Q3. On the AirDial front, the second part of your question, it baffles me a little bit, Mike, because we save our customers so much money compared to what pops [ph] is now costing them. It baffles me sometimes why they don't move faster. But the savings are clearly compelling and I think that's what I really turned to in terms of my confidence in AirDial and where we're going. To be honest, we just need to look forward with what we know and not speculate on what we think we can also achieve. And I can tell you we have a significant pipeline, we have deals out for signing. We have a lot of things that we think are going to come in the back half of this year, but we'll have to -- it's a little bit harder to predict than our traditional areas of the company that we've been at longer and in which are more steady. So, as things happen, we'll keep you guys updated and we'll see where we're at the end of Q3.

All right. Sounds good. Thanks.

Your next question comes from the line of Matt Stotler with William Blair. Your line is now open.

Hey, guys. This is Alex on for Matt. Thanks for taking our questions. Just a first one for me. Maybe could you touch on the progress that's been made with Jazzware and NexHealth, those partnerships that were announced earlier in the year? How's the progress going with those rollouts and maybe how those how you see those layering into the overall business going forward?

Sure. So, on the first one, the progress with Jazzware, they're a partner of ours for the hospitality space with our Enterprise solution and that, that's gone well. We continue to grow in that space. Like I was just describing for AirDial, we have some significant opportunities in front of us as well. They're more of a technology enabler for us because with the Jazzware capability combined with ours, we can make our system do more for the customer. So, I would say that's rolling well. NexHealth, I think we had slower progress than anticipated in Q2 and that's turning around now for Q3. As we brought the solution into the market, we realized some additional integrations that we wanted to have with it, we and they together. And so, we have customers using it and things -- and all that, but we did some further development in Q2. And I think we're really just turning up sales efforts on it more this quarter.

Got it. Sounds good. Thank you for that. And then, maybe just one on OnSIP, can you give us an update on how the acquired business from OnSIP is integrating with the rest of the Ooma portfolio, alongside maybe any growth contribution you can share to the overall business? Thanks.

Sure. So, from an integration into our business standpoint, it's been seamless and everything we planned and more. The members of the OnSIP team have folded into Ooma, some activities have changed for some people, some people are working on what we were doing on the Ooma side before we got together, but nonetheless, the OnSIP platform, we continue to drive development in some -- in certain areas and certainly continue to drive sales and marketing for it. I will tell you that when we make our decisions now, we don't think so much about we want to do this for OnSIP, we're going to do that for Ooma. We think about customer acquisition cost, payback, and, channels to market, and we're always measuring what we do. And so I would say that we aren't spending all that much on growth for the OnSIP platform today. We found that that some of the things we're doing more with -- under the Ooma brand, if you will, have been, more powerful for us, but we are still investing in OnSIP, and they brought on a meaningful number of users last quarter. But we're not seeing -- we're not driving a lot of growth in OnSIP per se, but certainly, it's fungible where we spend the money. With OnSIP here, they're positively contributing to our bottom-line and we have sales and marketing budget from that and we just allocate where we think we can make the biggest impact. So, that's kind of how we look at it and, we were fortunate. OnSIP was a very mature platform that runs very, very well. We did bring out -- I should say, they are already well along with, but we finished up and brought out a new admin portal that I think is a nice step forward for them. We've made some additions and changes to their mobile app. But really, we can kind of view this as part of the Ooma portfolio now and kind of run our sales and marketing as one company. And that's how we're doing it.

Got it. Perfect. Thank you. I'll pass it on.

Thank you. Thanks Alex.

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

Yes. Thanks for taking my question. Just to dig in a little bit more, it's good to hear about all the new wins and growing funnel for AirDial. But where do we stand today as far as how many units have been installed, if you could kind of, pontificate a little bit about where the backlog is today in terms of number of units, so we could get some idea of what that growth potential should like whenever the deliveries and installations do start to ramp?

So, I can frame it a little for you, Josh. As you know, we haven't given those specifics yet. When we get a large customer, it can take six months to do rollout. In fact, our large customer from last fall that we announced two quarters ago, I think we're mopping up now, the stragglers, but there's a handful of installations still to go, but they're pretty much getting done after six months of effort. Frankly, a month or two of planning and then six months of effort. So, rollout does take time. I think we've gotten a lot better at rollout. We work with multiple third-parties for when a customer wants to have a third-party do installation and pay for it, by the way, it's something we charge for. And with some of those new third-parties are relatively new compared to where we started, we've revamped our team internally. We have discovered that we need to dedicate more resources to this. We are actively hiring in the sales and sales engineerings side of our company to try to support the growth of AirDial. I don't feel like we're keeping up with the opportunities we're seeing in the market. And I know it's a shame to say that, but it's kind of a new area for us, this kind of direct strategic sales capability. And, we're -- we've got significant ambitions to add to the team through the balance of this year. On the partner front, I mean, we've had some big wins. I mean, T-Mobile, now UScellular, frankly, Prologis because of what they represent in the industry, and we're achieving new partners every quarter on AirDial. And it takes a little while to train them, takes a while to get out in the market, but I can tell you that, we routinely get surprised when a partner -- we expect some of these partners to deliver opportunities that are a few lines here, a few lines there, but it's amazing how some can bring in a larger-sized opportunity. So, it's an exciting time for us, but it's -- I don't feel like we have enough presence in the market and I worry about the deals we're not seeing. I think if you look at our -- well, I know if you look at our pipeline, our pipeline, which is to say, opportunities in our sale funnel, which are not yet closed, there are tens of thousands of lines and that's the kind of opportunity we aspire to achieve. But, in any case, I hope that frames a little bit. I know it -- is maybe a little frustrating not to know it more specifically than that, but you do have our overall guidance, and you know what we're trying to do and -- yes, the largest wins that we achieve, I have been announcing those, and it gives you a sense that that there is bigger potential here, I hope, as we go forward.

Thanks for providing a little bit of clarity there. And then last question for me, you mentioned it just now in your comments, but haven't talked about it too much. I know you have some partnerships with T-Mobile on AirDial, but also some residential solutions. Just any updates on progress that's going on with that partnership?

Sure. That partnership has been in place for over a year now and it's been pretty steady in the greater sense over the last several quarters. We get some customers out of that relationship that mainly are our customers there to saw, our presence on T-Mobile's website and feel they want to get phone service with their internet. What T-Mobile has not done is enabled marketing, if you will -- marketing sales through their inside teams and some other things do mainly to systems, challenges, and other things. So, it's not been a big driver of our residential business today, but it's a nice adder. We do see other opportunities similar in some respects to this to go after. And I don't know how far we'll get with those, but we are working other opportunities as well to try to use partners as well as our own sales activities on the residential side of our business.

Great. Thank you.

Thanks.

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

Great. Thanks for taking my questions. First, can you comment on how active T-Mobile and UScellular have been as partners to AirDial and have either closed deals?

Oh, goodness. Both of close deals. I talked about the very first deal from UScellular that happened even before they announced the program formally to their sales teams. Yes, they are two largest deals from last quarter, both came through partners and so, it takes time to ramp-up. There's no question, it takes time for salespeople to get comfortable with things. And to be honest with you, there's a lot to know about AirDial, it's not the typical kind of thing that that some of these entities would normally sell. But we have staff to work with them in deals and to -- and support the process. And I think it's a really important part of our strategy because we also sell AirDial through our channel partners that also sell, in particular, Ooma Enterprise, and they're finding us a lot of deals, but a lot of they find us are a few lines or a dozen lines. And I think what will really make AirDial the breakout success that we all aspire it for it to be is winning the 500, 1,000 or even bigger line opportunities. And our partners have good relationships for that and we're excited about what we're seeing with them.

Great. And then what is it that takes about six months for a large implementation? Is it that the process needs to be changed for customers? Does technology have to be changed to prepare? And then once the actual -- once the customer's ready, how long does it actually take for Ooma for their process to actually install?

So, you need to wrap your head around a little bit, the scope of a large customer. Let's say that last -- that large customer I've talked about from last fall, more than 2,500 lines, more than 700 locations. If you're going to do this in six months, you're doing, what, 115 locations a month, 30 locations a week. It starts to -- in every location, you don't really know maybe where your lines even terminate in your building. And once you, find them and get the AirDial put in and, test its reception, which usually works fine, but we can switch as we've talked in the past to a variety of cellular providers if needed to get better reception. But once you get the analysis and test it, then you got to plug the equipment into it and test the equipment. But all that said, couple hours, three hours, we'll get an installation at a site done. If that installation needs two AirDials and six lines, it goes pretty fast per location. So, it's really the number of locations that drives the timeline and the effort, just the project planning and the pre-installation analysis you need to do to know how you're going to make the conversion happen.

Got it. Last question for me is on the international front, you've obviously used your largest customer to expand internationally. At what point does the company make the investment necessary to begin selling to other customers outside this large customer? Is that in the next 12 and 24 months? Is there too much on your plate to think about that right now?

Well, it's not in our plan for this fiscal year, which is the next six months, but I think it's fair to say that we aspire to it being in the timeframe you mentioned or something like that. We're also going to have to question what we lead first with internationally, I -- we see tremendous AirDial opportunity internationally as well. But, most likely, if we're going to dovetail off what we've done with this large customer, we would begin selling our Ooma Office solution in particular probably in Western European countries and to third-parties, to other parties. We would love to do that with certain partners or certain, entrées into the market, and we are thinking about our strategy in that regard. But this year, we don't -- we are not working on those next steps yet.

Great. Thanks for taking my question.

You bet.

[Operator Instructions] Your next question comes from the line of Matthew Harrigan with Benchmark. Your line is open.

Thank you. Congratulations on the results and the guidance. I just had a couple dangling things. One, I guess in the nature of course, the vacuum category, you've got a huge TAM for AirDial and clearly, there's a crying need right now. Are you seeing anything in the way of incipient competition or people you see who are at least desirously coming in the space? And then anecdotally in the US, I mean, despite their AT&T working hard to phase out copper lines and all that, you're seeing something that's almost price-gouging in terms of what they're charging as the current alternative Are you seeing the same type of this pricing when you look at Europe and other markets in terms of the copper lines just being way out of whack and that’s increasing the urgency of people wanting to move on? Thank you.

Yes. So, on your second part of your question, it varies a little bit. We don't see it so much in Canada. I believe in Canada, pricing is still relatively controlled, although, we are seeing Canadian customers in need of AirDial and asking for it and currently we're not, providing AirDial in Canada. So, even though the market, I don't think is as far along as it here in the US, certainly going that way, but it's not there yet. When we look at Europe, it varies a little bit by country, in fact, it varies a lot by country. Some countries haven't started their journey, but they know they need to. And they're in the very early days of looking for what they might do. Others, are kind of getting started and its -- and now looking at, what's the best approach to take. And I feel like whenever we can get in front of a partner in one of these countries, because keep in mind, we need a cellular provider to at least provide the internet connection that goes with AirDial. We find that once we explain what AirDial does and how it works, there's no product like it in the market. And -- so, it's a really compelling story and I really believe that. And it's just getting better every day too. We've made so many improvements to it even over the last six months and extensions to it. So, we're actively thinking that at that level, more broadly than the US, but, I don't think there's -- I don't think that the other markets have turned the corner like the US has over the last 12 months. Over the last 12 months -- really over the last six months, even since the start of this year, we've seen customers a lot more aware of the need to do something. I think word starts to get out and they're -- they start to notice their bills. And so the US is clearly farther along than other countries. But, I see -- you can definitely see it coming. I hope that addresses your question. I don't know if there's a first part of your question, I didn't get to or not.

Yes, the first part of the question was really incipient competition, I know there's a long sales cycle. It takes a while to get product out and all that. But there's a crying need that's a massive market opportunity. Do you see anyone at all who's at least working on a comparable solution incipiently, because it doesn't feel like you would necessarily have four or five years to address this massive market before someone else or other people aggressively came in?

I don't know of anyone that's working on a new solution for this market or any development underway to change the solutions that are out there today. I think the biggest challenge we face is making sure customers know we have AirDial and know what it can do for them. And we need a lot more outreach and branding and marketing to do that. But if you're a large aggregator today, you have a lot of pot signs that you sold and you know where they are and you can just walk into those customers, we need to get them to realize there's a viable alternative. We have a significant opportunity we're working right now where they got introduced to us through a third-party and they were just thrilled to find out about us, but they had no idea. They just didn't know. And it's kind of customer we should we should be reaching out to. And so we're really trying to build our sales and marketing capability, to be able to do more of that and that's, I think, what will drive the business.

Great. Nice problem [ph] to have. Thanks Eric.

Thank you.

There are no further questions at this time and concludes our Q&A session. I turn the call back to Eric for closing remarks.

Well, thank you, everyone. We were excited to outperform on the revenue and frankly, our $3.6 million in cash flow from operations is I think the most we've ever had as a company and we're doing it while we're investing in these new strategic initiatives. I feel like we're on track and I realize from all the questions here and just in general talking with all of you, we as well want to be able to show you even more AirDial success and I want you to know we're working hard towards that. With that, thank you everyone. We'll stop here. Thank you.

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