Ooma [OOMA] Conference call transcript for 2022 q1
2021-05-26 22:21:04
Fiscal: 2022 q1
Operator: Ladies and gentlemen, thank you for standing by and welcome to the Ooma, Inc. first quarter fiscal 2022 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. . I would now like to turn the conference over to your host, Mr. Matthew Robison. Please go ahead.
Matthew Robison: Thanks Alexander. Good day everyone and welcome to the first quarter of fiscal year 2022 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, Ravi Narula.
Eric Stang: Thanks Matt. Hi everyone. Welcome to Ooma's Q1 fiscal year 2022 earnings call. Thanks for joining us today. I am excited to share with you the strong start we have made to this year and I look forward to updating you on our key growth initiatives and outlook. For fiscal Q1, our results again have outpaced our guidance with revenue of $45.6 million and non-GAAP net income of $2.8 million. Our Q1 revenues grew 13% year-over-year, comprised of 24% year-over-year growth in business revenue and 5% year-over-year growth in residential revenue. We also once again generated positive cash flow from operations on vesting in new growth initiatives including international expansion. Across our business, I believe we executed well and we are on a good trajectory to realize our plans for this year. You may recall I mentioned last quarter that 76% of small businesses, defined as less than 100 employees, say they have yet to invest in IP-based communications solutions. Ooma Office is our uniquely designed solution for such small business customers who desire advanced features, but do not have an IT department to implement them. We believe Ooma Office brings productivity improvements and savings that drive compelling value. Our strategy is to target this vast market opportunity, primarily by scaling our sales and marketing programs, by adding features that drive increased customer adoption and raise our revenue per user and by expanding internationally. On the first of these, scaling our sales and marketing programs, we executed well in Q1 and established several important new reseller relationships to support future channel sales growth. For the quarter, sales through channel resellers contributed approximately 40% of business sales. On the marketing front, we increased our intent-based marketing and enhanced the targeting of our marketing programs. Direct sales, particularly e-commerce sales, performed well in Q1. Some of our more notable Ooma Office new customer wins included a 67 user implementation for a multilocation restaurant group and a 55 user implementation for a medical group. We also continued expansion with a large national brand through the addition of over 150 new locations. Scaling our sales and marketing programs will continue to be a priority for us this year. We also launched exciting new features in Q1 to support our strategy to serve more small business customers and increase revenue per user. Most notably, we just recently added two new features to our Ooma Office Pro tier of service. The first we call Caller Info Search. This feature enables caller information from CRM systems, such as Salesforce, Hubspot and Zoho and from websites such as LinkedIn, Google and Facebook to pop up automatically in our desktop app when a call comes in. The second feature is integration with Google Workspace, specifically an add on in the Google Workspace Marketplace, which enables calendar integration, for example, to schedule an Ooma video meeting and automatically populate meeting details in Google Calendar. Further integration with Google Contacts, the Chrome browser and more are planned to follow along with similar capabilities for integration with Microsoft 365. These new developments will improve productivity for small businesses and further grow adoption of our Office Pro higher tier of service. In Q1, approximately 43% of new Office users stepped up to our Pro tier of service at $5 more per month.
Ravi Narula: Thank you Eric and good afternoon everyone. I will start with a review of our financial results for the first quarter and then provide our outlook for the second quarter and full year fiscal 2022. We delivered strong financial results, achieving record revenues of $45.6 million which was above the high end of our previously issued guidance range of $44 million to $44.8 million. On a year-over-year basis, total revenue grew 13%, driven by the strength of Ooma Business. Ooma Business now accounts for 47% of total revenue compared to 43% in the prior year quarter. Net income for the first quarter of fiscal 2022 was $2.8 million and above our previously issued guidance range of $1.8 million to $2.4 million. Our strong revenue growth and profitability demonstrates the strength of our large and diversified customer base as well as our solid execution. Now some details on our Q1 revenue results. Our overall subscription and services revenue grew 12% on a year-over-year basis to $42 million with Ooma Business subscription and services revenue growing 22% year-over-year and 5% sequentially from Q4. Our residential subscription and services revenue for Q1 grew 4% year-over-year which is an improvement from the 3% growth we saw in the first quarter of last year. Subscription and services revenue as a percentage of total revenue was 92%, compared to 93% for the prior year quarter. During the first quarter, we saw our product and other revenue increase 34% to $3.6 million and compared to $2.7 million for the same period last year. This strong growth in product and other revenue was driven by increased sales of IP phones as well as higher activation revenue from the business users. Now some details on key customer metrics. We ended the first quarter with 1,083,000 core users, up from 1,049,000 at the end of the first quarter last year, driven by growth in business users through various sales and marketing activities. I am excited to report we now have over 281,000 business users, a 19% increase on a year-over-year basis. Our average monthly subscription and services revenue per core user or ARPU increased 10% to $12.68, up from $11.56 in the prior year quarter due to an increasing mix of business users, including higher ARPU Office Pro users. Accordingly, our business ARPU is now approximately $24 per user. We are pleased wit the growth of our annual exit recurring revenue which has now increased to a record $165 million, growing 13% year-over-year. Our net dollar subscription retention rate for the first quarter improved to 98%, a two point improvement on a sequential basis.
Eric Stang: Thank you Ravi. Our priorities for this year remain as we outlined them just a quarter ago, namely to increase our sales and marketing both for direct and through channel resellers, to add new features to Ooma Office that can build our revenue per user, to focus on Microsoft Teams direct routing, feature customization in select verticals to drive growth of Ooma Enterprise, to evolve our Ooma Connect and Ooma managed Wi-Fi solutions and to expand geographically to serve users in more than a dozen new countries. We believe these actions will allow us to capture the large market opportunity before us and drive significant expansion of our business. We are excited about the opportunities ahead. Thank you. In a moment, we will take your questions and then at the very end after the question-and-answer session, Ravi and I will have some final remarks. Operator?
Operator: . We have your first question from Mike Latimore with Northland Capital. Your line is open.
Mike Latimore: Excellent. Yes. Thanks a lot. Great quarter. The revenue retention rate up to 98% from 96%, was that largely driven by improvements in the business segment?
Ravi Narula: That is right, Mike. There's a lot of things with moves in there but if you look at them, primarily it was the growth of improvement in the net dollar retention rate is improved ARPU as well as churn improving also.
Mike Latimore: Got it. And then maybe just a macro comment on the small businesses environment. How does the pipeline look? How is sort of new lead activity? Do you feel like as the economy opens, you are seeing more deals from over the horizon here?
Eric Stang: Hi Mike. When we talked a quarter ago about positive tailwinds for this year coming out of COVID, it's hard to talk too much about pipeline because a lot of our small business customers purchased relatively quickly after they connect with us and find out what we can offer. But I will note that in Q1, e-commerce sales were very strong as were direct sales in general. So we are seeing those positive signs.
Mike Latimore: Got it. Thanks. And then maybe just on your large customer that's expanding internationally that you expect deployments, sort of material deployments to start in the second quarter here?
Eric Stang: Yes. We put a lot of work into preparing for the expansion and we expect that expansion to engage, so to speak, start to have in Q2. It will roll out through the whole year. But we do expect to see some significant progress in Q2.
Mike Latimore: Great. Thanks a lot.
Eric Stang: Thank you.
Ravi Narula: Thank you.
Operator: We have your next question from Matt Stotler with William Blair. Your line is open.
Matt Stotler: Hi guys. Thanks for taking my questions. Just maybe the first one here on the direct routing for Teams. I would love to double-click on where you are seeing the demand there? I think of the direct routing opportunity maybe as being more of an upmarket opportunity. But clearly, obviously that's where you Teams for corporate "free with 365". But clearly you are seeing some good traction here, some good interest. I would love to just better understand what you are seeing on that front? Where that demand is coming from?
Eric Stang: Sure. So our data from last quarter, which we talked about, suggest that 70% of the businesses that are installing Teams are going to turn to a direct routing solution for more flexibility and better cost. And you are right. It is larger sized entities. We tend to think about 100 users and up for this type of application. It's part of our Ooma Enterprise platform, this capability. And it's largely sold through channel resellers that we are connected to. And I will say, there has been a very favorable reception by channel resellers to what we have done with our Teams direct routing. And it's certainly developing opportunity. We also learned through this because these larger sized companies, there is now a pipeline and a time until companies make their decisions and install. And so we have been building pipeline for the four, five months since we have launched this and we have a good outlook for it now, but it does take time.
Matt Stotler: Got it. That's helpful. And then second question, just looking at the international opportunity. Obviously, you were very clear about the primary focus there being supporting your large customer and the expansion there. And that's inherit in that you are going establish some of the underlying infrastructure you need to support other customers. Can you just walk through assuming that may be in next year, in the coming years, you start to expand your international presence outside of that core customer, if you will, what kind of investments will be left on the go-to-market front and getting that infrastructure set up internationally? And how do you think about the timing of when that starts to layer in?
Eric Stang: Yes. You are right that this year is all about serving our large customer. And we talked a quarter ago about how we see the potential this year to double the number of users with that customer from 25,000 or so today to 50,000. And that's our primary focus this year. We are not trying to go beyond that. It's a little too soon to talk about what our plans will be next year. I can tell you that this large customer will have the potential for significant further growth next year as we look out. So we will be bouncing that with trying to go beyond this customer and serve the market in general. A lot of our small business customers come to us through direct sales activities, a lot of marketing, a lot of inside sales, those things will be relatively easy to ramp in new locations. And so we do think about that. But I am sure when we get to planning next year, we will be trading off all the different opportunities in front of us to see where we think we have the most impact. And so that one is a little bit more to come.
Matt Stotler: Got it. That's helpful. Thanks again.
Operator: We have your next question from Josh Nichols with B. Riley. Your line is open.
Josh Nichols: Yes. Thanks for taking my question and great to hear the company is kind of on track for business revenue to kind of cross that key 50% threshold at the end of this fiscal year. in a similar core, it looks like you are getting some good traction on the reseller market as well. What do you think is really driving that as far as the company's core value proposition? And how long until that could get from, say, 40% of sales today to kind of close to 50%? I am trying to think about the opportunity there.
Eric Stang: Yes. So what's driving it a little bit is our investing, if you will, in the development of those channels. We historically have focused more on the direct sales side of things. And we have been building the team and building the relationships and establishing the solutions for serving larger businesses through channels. And I think that's going well. But I think we have a long runway ahead of us, a lot farther we can go with it. One of the channel reseller relationships that we established in Q1 could be quite impactful for us as we look forward. It's a very large reseller that we are very excited to now be starting to work with. How fast it will get to 50%? It depends a little bit on how fast the other half of business grows as well. So we haven't really set that kind of a target. But we have set targets to develop in these areas because we do see channel resale activities as an untapped opportunity for us, largely speaking. And so we definitely want to develop it.
Josh Nichols: Thanks. And then last question for me. If we could break it out a little bit. What's kind of the mix right now between like office and enterprise? If you could kind of elaborate a little bit on what you are seeing as far as like the current growth trajectory there and outlook generally?
Eric Stang: So keeping in mind that we launched our first office solutions a number of years ago. And we set out, I like to say sometimes, we set out 10-plus years ago to conquer residential and we did it. And we established the number one solution in the market, not only in terms of our success but in terms of scores by customers. And we set out to do the same in small business quite a number of years ago. And I think we are there today. I think we are growing faster than others. And I know we are rated the number one solution in third-party surveys. Enterprise is still a work in progress for us. And so it is much smaller. We started this effort with an acquisition we made a couple years ago. It was a fortunate move because we were able to blend what we do with enterprise along with what we do at the office to serve our largest customer and enable that opportunity. So a lot of our early efforts with enterprise were around that. But today, as I said in my remarks, we are focused on what we consider a differentiated strategy against the other larger players, one built around on some unique things we do on direct routing for Teams, some select verticals where we think we can bring some added value and thirdly, the ability to customize our solution for larger customers to do special things that they just wouldn't get from anybody in the industry today. And those capabilities, I think, will allow us to charter it on course, but it is a long -- we are in now a longer term strategy to build enterprise to where we want it the way we have already done with residential and office.
Josh Nichols: Thanks. I will hop back in the queue. And Ravi, best of luck on your future opportunities. It's been great working with you over the years. I will talk to you guys later on.
Operator: We have your next question from Matthew Harrigan with Benchmark. Your line is open.
Matthew Harrigan: Thank you. At Deutsche Telekom Capital Markets Day, T-Mobile really reiterated their emphasis on their home Internet project and really getting to seven to eight million customers in five years. They are also taking a much more of a business and SME focus overall, not surprisingly, gravitating away from their traditional consumer emphasis because they are underpenetrated. I know you probably got hurt a little bit by Sprint being much more business oriented than T-Mobile initially and now it looks it's pulled back in your direction. Is that anything that has any implications for you, positively or negatively? Or is that just basically noise?
Eric Stang: Well, let me start with part of what you are speaking about. We are very excited about what we think we can do with Ooma Connect, which is our wireless Internet solution as we look forward. And T-Mobile is our partner. And we are also thinking not only about 4G, which is the way that product works today but in the future when 5G is more ubiquitous and lower cost. I do believe business Internet, small business Internet can be well served by 5G with capabilities on price points that will be competitive. So we are looking ahead to that. We are also mindful that when you put that Internet together with our Ooma Office phone service solution, you can do things that improve the experience for the customer, whether it's making their Wi-Fi phones work better or our continuous voice technology or other things. So we are also thinking about an integrated solution to be stronger in serving small businesses. T-Mobile is an important partner of ours for this. And we are thrilled to be working with them.
Matthew Harrigan: Great. Thanks Eric. A very brief interval but nice working with you, Ravi, as well.
Ravi Narula: Absolutely. Thank you Matt. It has been fun. It was a pleasure working with you.
Operator: We have your next question with Brian Kinstlinger with Alliance Global Partners. Your line is open.
Brian Kinstlinger: Thanks so much for taking my question. For three consecutive quarters, you guided roughly a solid 12,000 new business subs net during the pandemic. As the business environments improve, there is no travel restriction really in the U.S., I am not sure that impacts you at all how you shifted. You are adding new channel partners. You are adding direct sales folks. Your churn is lower. So the question is, outside of your largest customer, is there any reason to believe you wouldn't be increasing or accelerating the number of subs you add per quarter? The second part of the question is, given your personnel and travel restrictions wherever they are, what's you capacity to add users per quarter, meaning can you add 15,000 per quarter outside of your largest customer while continuing to expand within the customer?
Eric Stang: Yes. So let me take the second part of your question first. We have a lot of capacity to expand with more users. There is nothing holding us back on that front. And yes, to realize our growth ambitions, we have to add more users as we go forward. So that's clearly in our strategy. To be honest, the second wave of the pandemic around the holidays and then what happened the first few months of this year did affect some of our channels. Not enough to slow us down fundamentally but we do think as we look go forward that those will bounce back. And as we look forward now, we are seeing a brighter outlook than we did, say, early in Q1 when some of that was happening. So yes, it's certainly are intent to grow significantly. There are arguably six million businesses in North America with one to 20 employees. And we have less than 100,000 of them or about 100,000 of them. So tremendous opportunity for us to go after.
Brian Kinstlinger: Great. My follow-up question is, in terms of the enterprise side where you obviously highlighted you haven't been there as long, so taking a little bit of time. Has management and the Board considered M&A as a way to accelerate enterprise adoption or a stronger entry?
Eric Stang: Well, we got to where we are partly by two M&A moves, the acquisition of Voxter and the acquisition of Broadsmart. The first brought us more technical capability and the second brought us an established customer base and established sales and channel relationships as well as other capabilities. I think that's a great foundation for us. We are not adverse to more M&A that we think would build our direction. But it's also not a primary focus for us. We certainly don't want to distract ourselves from the opportunities we are pursuing right now. So I realize it's a bit of an ambiguous answer for you, but that's kind of how we see it today.
Brian Kinstlinger: Okay. Thanks so much.
Eric Stang: Thank you.
Operator: . I am showing no further questions at this time. I would now like to turn the conference back to Mr. Eric Stang, CEO, for any closing remarks.
Eric Stang: Thank you operator. And yes, we do have some closing remarks this time. As we announced on April 26, Ravi will be departing Ooma to pursue other opportunities. And when that occurs, we are fortunate to have Namrata Sabharwal who will take over as Interim Chief Financial Officer. We also intend to enter into a consulting agreement with Ravi upon his departure to assist in the transition to a successor. I know from the many comments that have been shared with me since the announcement that all of us will miss Ravi and that we wish him well. I can honestly say that Ravi has been like a brother to me the last 6.5 years and I will dearly miss working with him every day. But I am also really happy to see Ravi move to the next chapter of his career and I wish him great success in those endeavors. And most of all, on behalf of the Board and the company, I just want to thank him for his many, many contributions to Ooma. So Ravi, thank you.
Ravi Narula: Thank you Eric. This means a lot to me. I would like to take this opportunity to thank Ooma's Board, customers, shareholders and the entire Ooma team for providing me with such an amazing experience. Over the years, we have seen Ooma become more mature public company with a solid foundation, supported by Eric and a strong management team where the company's culture enables execution, continuous improvement and a positive team environment. As a result of this, Ooma has executed well towards its strategy and I believe it is well-positioned to do so in the future. I am forever grateful for this opportunity I was provided to be a part of something big. I have very much enjoyed my time at Ooma. It has truly become a second family to me. I wish Eric and the entire Ooma team the very best. Thank you.
Eric Stang: Thank you Ravi. Thank you everyone on this call. A new chapter ahead but we are looking up. So we are looking forward, I should say. Thank you everyone. That ends the call.
Ravi Narula: Thank you.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
