Ooma [OOMA] Conference call transcript for 2022 q4
2022-03-03 20:28:07
Fiscal: 2022 q4
Operator: 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.
Matt Robison: 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.
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, we launched our integration with Jazzware to link OOMA's UCaaS features for Jazzware's cloud service and control of property management solutions. Our plan is for OOMA and Jazzware together to enable advanced features for the hospitality industry. We also continued our ongoing effort to modernize each of the ways our users interact with Ooma Enterprise. In this regard, I'm pleased to report that we believe we will complete our update of Ooma Enterprise in the first half of this year with the release of new mobile apps and an updated admin portal. On the sales and marketing front, we made good progress, although we did face some headwinds driven by the intensity of Omicron and typical Q4 seasonality. One particularly exciting new customer for OOMA Office in Q4 with a large fast food franchise group with over 300 users. We also added more than 150 new locations representing nearly 500 users with franchises of a large services firm, bringing us in total now to over 5,000 franchise users with this firm. In hospitality, we landed six new properties in Q4 and are seeing our backlog of opportunities build since the recent launch of our [Indiscernible] ware integration. We are also signed with over 80 new agents and bars in Q4, as part of our continued effort to expand sales through channel partners and resellers. All-in, we made good progress expanding our business in Q4. We also accomplished a lot in Q4 to enable our largest customer to rollout at scale to more users. While we know this has been a long time coming, we fully expect that rollout will begin in Q1 and accelerate through the balance of the year. In addition, through our efforts over the last couple of quarters, we have expanded the longer-term scope of opportunity for us with this customer. Our immediate goal, as we stated previously, is to add 25,000 plus users, taking us to 50,000 users approximately in total. And once that is achieved, we anticipate further expansion will follow. Last quarter, we made the exciting announcement that we are introducing Ooma AirDial. As you'll recall, AirDial provides analog-to-digital conversion, remote management, battery backup, and wireless LTE over a controlled network to replace copper lines serving critical building applications. The market reception to AirDial has been strong and we have already signed multiple resellers. Currently we have beta units in use at customers and production underway of AirDial units that will be available for sale starting late Q1. We anticipate our biggest challenge through this year will not be demand, but rather our ability to build and supply units. At this time, we are conservatively forecasting AirDial and our business outlook until we have more certainty on market development, our build quantities and timing. Nonetheless, we see significant upside potential for AirDial in FY2023 and are actively working internally to execute on this opportunity. Last quarter, we also made the exciting announcement that T-Mobile will offer Ooma Telo to T-Mobile 5G home internet customers. OOMA and T-Mobile are working together to pursue this opportunity and Telo is the only solution being offered. We're excited by T-Mobile's significant growth plans for home internet and by the continued market demand we see from customers who want to combine Internet with home phone. As of now, Telo is included as an add-on option on T-Mobile's website, and joint work is underway to implement other marketing initiatives. We're experiencing sales every day with T-Mobile, but still too early to forecast the full potential of this partnership. As we look forward to FY2023, we believe we have built a solid foundation for growth. We see ourselves today as a leader in each of our target segments, serving SME customers, select enterprise applications, and residential customers. We have built a robust and very flexible end-to-end platform that is operating at large scale, serving approximately 2.5 million users today. Online marketing and direct sales are strategic competencies of ours, and we are investing to build our channel reseller sales. Our scope now extends beyond North America to Europe and soon we'll extend beyond that to other regions of the world. We are increasingly charting our own direction as we broaden our solutions to include integrated services such as Ooma connect, Ooma Wi - Fi, and Ooma AirDial. Overall, we're not only driving growth, but also generating positive cash flow from operations. Our accomplishments today create a strong foundation for future growth. Strategically, our vision remains to provide leading communications and related services that deliver advanced features, superior ease-of-use, and uncommon value to businesses worldwide. As we seek to implement this vision, we are focused in FY2023 and find priorities for growth. First, execute to grow sales to business customers. In particular, we intend to launch Ooma Office Pro, which has a higher service tier to expand our sales and marketing activities and to continue to build our brand recognition. Number 2, develop new verticals and stronger channel sales. As part of achieving this, we intend to grow the number of agents and bars we work with and to strengthen our support for channel resellers. Number 3, expand in Europe. We'll achieve this in FY2023 by rolling out service to a large number of new users as part of our expansion plans with our largest customer. Number 4, capitalize on AirDial to replace copper lines that are sun-setting. Our intention is to create both the most extensive solution and the best value solution, and be the leader serving this opportunity. And finally, number 5, leverage the transition to 4G and 5G Internet to drive added growth. With Telo offered by T-Mobile and with Ooma Connect, we have the first steps in place to achieve this. As you can see, while we have a lot to accomplish this year, we also have more opportunity in front of us than ever before. I will now turn the call over to Shig, our CFO, to discuss our results and outlook in more detail and then return with some closing remarks.
Shig Hamamatsu: 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 $4.7 million, as compared to $3.1 million for the same period last year, driven by the sale of additional units of our fixed wireless products to the same strategic customer which we discussed in our third quarter earnings call. Now some details on our key customer metrics. We ended fiscal 2022 with 1,100,000 core users, up from 1,074,000 core users at the end of the prior fiscal year driven by the growth in business users. I'm excited to report that we now have 308,000 business users, which represented 28% of our total core users, up from 25% at the end of the prior fiscal year. Our blended average monthly subscription and services revenue per core user or ARPU, increased 8% to $13.41 up from $12.46 in the prior year quarter, driven by an increase in mix of business users, including higher ARPU Office Pro users. During the fourth quarter, 44% of our new office users opted for Office Pro service and for full fiscal year 2022, 45% of new Office users opted for Pro service, which was up from 40% in the prior fiscal year. Overall, 20% of our Office users have now subscribed to our Pro tier. Our annual as a recurring revenue in Q4 grew to $176.9 million and was up 10% year-over-year. Our net dollar subscription retention rate for the quarter was 96%, which remains stable compared to the prior year quarter. For the entirety of fiscal 2022, our quarterly net dollar retention rate averaged 98%, which was an improvement from 96% in fiscal 2021. Now some details on our gross margin. Our subscription and service gross margin for the fourth quarter was 73%, which was an improvement from 72% in the prior year. The improvement in subscription and service gross margin was driven by our increase in scale and a greater mix of higher ARPU business customers. Product and other gross margin for the fourth quarter was negative 49% compared to negative 58% for the same period last year. This improvement over the prior year quarter was mostly due to the sale of fixed wireless products to the strategic customer I mentioned earlier. On an overall basis, total Gross margin for Q4 was 62% as compared to 63% for the same quarter prior year as we had a higher mix of product revenue during the quarter. And now some details on operating expenses. Total operating expenses for the fourth quarter were $27.9 million up $3 million or 12% from the same period last year. Sheldon marketing expenses for the fourth quarter were $14.5 million or 29% of total revenue up 13% year-over-year, driven by higher marketing and channel development activities for OOMA business. Research and development expenses were $8.9 million or 18% of total revenue, up 9% on a year-over-year basis from $8.2 million, driven by investments in new features for both Ooma Office and Ooma Enterprise, as well as new products such as Ooma AirDial. G&A expenses were $4.5 million or 9% of total revenue for the fourth quarter, compared to $3.9 million for the prior year quarter. Our non-GAAP net income of $3.2 million resulted in a diluted earnings per share of $0.13 for the fourth quarter as compared to $0.12 of diluted earnings per share in the prior year quarter. Adjusted EBITDA for the quarter was $4 million or 8% with total revenue as compared to $3.6 million for the prior year quarter. Adjusted EBITDA for full fiscal year '22 was $15.6 million as compared to $14 million in the prior fiscal year. The increases in non-GAAP net income and adjusted EBITDA were driven by economies of scale, especially the growth in subscriptions, and services revenue, and related gross margin. We ended a quarter with total cash and investments of $31.3 million compared to $28.3 million at the end of Q4 in the prior year. Cash generated from operations for the fourth quarter was $1.8 million compared to $2.2 million in the same period last year. For full fiscal year 2022, cash generated from operations was a record $6.7 million as compared to $4.4 million in the prior year. On the headcount front, we ended a quarter with 979 employees and contractors. Now, I'll provide guidance for the first quarter and full fiscal year 2023. Again, our guidance is on a non-GAAP basis and has been adjusted for expenses such as stock-based compensation and amortization of intangibles. For the first quarter of fiscal 2023, we expect total revenue to be in the range of 49.5 million to $50.2 million. The first quarter revenue guidance range assumes product and other revenue will normalize to the level we saw in the first half of fiscal 2022 as we do not anticipate additional shipment of fixed wireless products to the same strategic customer discussed earlier. The guidance range also reflects our normal seasonal decline of [Indiscernible] revenue in the first quarter as [Indiscernible] revenue typically peaks in the fourth quarter driven by its ad-based revenue over the holiday season. We expect the First Quarter net income to be in the range of $2.2 million to $2.8 million. Non-GAAP diluted EPS is expected to be between $0.09 to $0.11. We have assumed 25.1 million where the average diluted shares outstanding for the first-quarter. For full fiscal 2023, we expect total revenue to be in the range of $209.5 million to $212.5 million. Let me give you additional context for our fiscal 2023 revenue guidance. It is important to remember that fiscal 2022 revenue included approximately $3 million of product revenue to a strategic customer that we currently do not anticipate will recur in fiscal 2023. Excluding the impact of this product revenue in fiscal 2022, the net point of our fiscal 2023 revenue guidance represents approximately 11.5% revenue growth year-over-year, which assumes subscription and services revenue growth rate of 20% of OOMA business and between 1% to 2% for residential. The revenue guidance for for fiscal year 2023 also reflects our current expectation that contribution from AirDial will be more meaningful in the second half of the fiscal year. We expect non-GAAP net income for fiscal 2023 to be in the range of $8.5 million to $10.5 million after incorporating increasing cost of labor, cost to expand our channel strategy, launched new products such as AirDial and the enables significant expansion of services in international locations. We expect non-GAAP diluted EPS for fiscal 2023 to be in the range of $0.33 to $0.41. We have assumed approximately $25.7 million where the average diluted shares outstanding for fiscal 2023. In summary, we're very pleased with our solid performance in fiscal 2022, which demonstrates strength in our execution, while we made progress towards our long-term objectives. I will now pass it back to Eric for some closing remarks. Eric?
Eric Stang: 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.
Operator: 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.
Operator: Your next question comes from the line of Josh Nichols with B. Riley. Your line is now open.
Operator: Your next question comes from the line of Sharon Kiruba with Northland Capital Markets. Your line is now open.
Operator: Your next question comes from the line of Matthew Harrigan with Benchmark. Your line is now open.
Operator: Your next question comes from the line of Andrew King with Colliers Securities. Your line is now open.
Operator: Your next question comes from the line of Brian Kinstlinger with Alliance Global Partners. Your line is now open.
Operator: Your next question comes from the line of Joe Goodwin with JMP Securities. Your line is now open.
Operator: Again if you would like to ask a question, [Operator Instructions]. We'll pause for just a moment to compile any final questions.
Eric Stang: Think we're pausing.
Shig Hamamatsu: 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.
Operator: This concludes today's conference call. Thank you for attending. You may now disconnect.
