Q3 2020 Ooma Inc Earnings Call
Welcome to the <unk> third quarter fiscal 2021 financial results Conference call.
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I'd now like to hand, the conference over to your Speaker today, Matt. Thank you. Please go ahead Sir.
Thank you David Good day, everyone and welcome to the third quarter fiscal year 2021 earnings call. It <unk>, Inc. My name is Matt Robison, who must director of IR and corporate development on the call with me today are from a CEO, Eric Stang CFO Ravi Narula.
To the market close today and issued its third quarter earnings press release, the <unk> business, where.
The release is also available and the company's website at <unk> Dot Com. This call is being webcast live and is accessible from my weight on the that's page of the Investor Relations section of our website. This low.
We'll be active for replay of this call for at least one year and telephonic replay will also be available for a week starting to see anybody PM eastern time.
The only 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 security laws.
Forward looking statements generally relate to future events or future financial or operating performance.
Expectations and beliefs regarding these matters may not materialize and actual results and financial periods 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.
Related to the impact of the COVID-19 pandemic and those risks more fully described in our filings with the Securities and Exchange Commission before.
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.
Note that other than revenue, whereas 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 and isolation or as a substitute for results prepared in accordance with GAAP.
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 are included in our earnings press release, which is available on our website on.
On this call well give guidance for fourth quarter and full year fiscal 2021 on a non-GAAP basis. Also in addition to our press release and 8-K filing the events and presentations page and the investors section as well as the quarterly results page or the financial information section of our website include links to cost and expense is not included in our non-GAAP values.
A key metrics of our core subscription businesses. These are titled supplemental financial disclosure, one and supplemental financial disclosure to Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation, but also price. It provides resolution of GAAP expenses that are excluded from our non-GAAP metrics.
Now I will hand, the call over to and what Youre Irks day.
Thanks, Matt Hi.
Hi, everyone welcome to whom is Q3 fiscal year 2021 earnings call. Thank you for joining us today.
I'm pleased to report that in Q3, whom and continued its strong performance.
For the quarter, we grew revenues to 43 million and non-GAAP net income to 3.1 million each of these results exceed our plan and significantly.
Q3 was a record quarter for the number of new business users out and exclusive of the very large customer we onboarded last year.
And regarding this large customer.
I'm pleased to report that in Q3, we continue to expand by Onboarding. Many of the new sites and North America that we mentioned on our last conference call.
Overall this year the cobot crisis has certainly presented new challenges and caused us to pivot our strategy for example to accelerate the launch of the meetings and to adapt our sales and marketing I.
I believe we have responded well to the challenge and I'm optimistic about our outlook as.
As one example of the progress we are seeing.
I'm pleased to report the churn of business users, which increased at the start of the pandemic is now and nearly back to the level, we experienced pre pandemic I.
I believe this progress positions us well for Q4.
Sales and marketing execution is a key element of our strategy this year.
So far this fiscal year, we've increased our sales and marketing organization by more than 100 employees and contractors.
Our expanding team is of course focused on enabling not only direct sales, but also channel retail and partner sales.
I'd like to share some examples of our progress.
For the first time sales to business users through bars and channel resellers represented over 40% of our total business sales.
For sales and enterprise specifically.
16% of our sales were from channel resellers working with us for the first time.
We continue to perform per trip, particularly well in select verticals and with select profiles of customers. You may recall two quarters ago, you mentioned, a large national brand, where we had enabled over 900 local independent locations.
Now two quarters later, we enable nearly 1200 locations with this national brand.
We find that the quality of our service delights our customers. One example of this is a new customer located in Florida, and North Carolina, and started with whom office for just for users about a year ago.
As of Q3 have grown to over 300 users and rolled out our service across 29 sites and their organization.
The adoption rate per room office pro or higher priced more feature tier of service is now above 30% for new office users. This is up from about 25% just a quarter ago.
And finally, we have started to and Cooper Corporation and will connect our wireless Internet service and new my wife, I or managed Wi Fi service into our marketing and sales processes.
And it's still early days since these services were just recently launched however, we continue to believe they fill a critical need for small business customers and provide us increased leverage to win new accounts.
Oh, and I believe we are executing well and our sales and marketing initiatives.
Our strategy is to serve businesses of all sizes and we are increasingly doing so.
For small businesses, we believe we bring unique competitive advantage and are the industry leader today.
Our combination of curated features ease of installation and use and value set us apart and drive our growth.
We're also creating new related infrastructure services for small businesses provide a more complete solution and greater value.
This past quarter, we announced that frost and soul of and honored us with their best practices Award from North American competitive strategy innovation and leadership.
They commented that <unk> is creating its own segment with its managed services strategy the connected SMB market and cost effective communications and network services.
It's terrific to see Prost and sold and share our vision. The small business represents a vast market opportunity that is underserved and ready for disruption.
With larger sized businesses, we are expanding our opportunity through adding features developing new channel partners and increasing our reach.
Competitive advantage today is largely built upon our abilities to customize our solution for specced true, especially from customer needs and support complex customer deployments.
Increasingly we are also differentiating by focusing on the needs of select vertical market segment.
But these advantages we serve both large companies with unique needs and businesses of all sizes and targeted segments.
We are confident that we can can get increasingly differentiate our solution through focus on what we do best.
I'll now turn the call over to Ravi to discuss our results and outlook in more detail and then return with some closing remarks. Thank you Eric and good afternoon, everyone first I want to tanked and diet my team for their hard work during these times and for helping will not deliver strong financial results.
I'll begin with a review of our third quarter financial results and then provide our outlook for the fourth quarter and for full year fiscal 21.
Once again delivered a strong performance achieving $43 million and border revenue and exceeding our previously issued guidance range of $41 million to $41.8 million.
These results were driven by strong market demand, what other cloud communication services as well as solid performance from a number of parts sales and marketing channels.
But and revenue growth was once again, net but well my business, which now accounts for 44% of paper revenue.
Paid to 42% and the pride in Florida.
Net income for the third quarter of fiscal 21 was $3.1 million, which exceeded our previously issued guidance range of $1.7 million and $2.2 million.
This strong profitability was primarily due to the growth of that business and also stems from lower employee related expenses and reduced travel Latin employees are working from home.
Now some details on our Q3 revenue this quarter business subscription and services revenue grew 17% on a year over year basis.
Normalizing for the effect of non undercutting installation activity from our largest customer and the same period last year.
<unk>, 21% growth in business revenue this quarter compared to the same period last year right.
Residential revenue grew approximately 2% year over year, which was in line with our expectations.
On a combined basis into three filter business and residential subscription revenue grew 9% compared to the same period last year.
As a percentage of total revenue subscription and services revenue was 92%, which was similar to the last quarter.
Product sales for the third quarter were strong with product and other revenue of sleep and $3 million up 7% year over year.
During Q3, we saw improvements in order activity from our direct customers as well as from a volume and reseller partners.
Additionally, we saw an increase in residential product sales to brick and mortar stores and preparation for the holidays.
Now some details on other key customer metrics. We are very pleased with the growth up on board and core to users in the third quarter, especially the sequential acceleration of well my business.
And then to the third quarter, we had 1.063 million GOR to users up from last years third quarters 1.038 million Cooladhesive.
24% of discord users what business users compared to 21 per cent for the same period last year.
Our average monthly subscription and services revenue per quarter user or ARPU increased 9% good flow dollars intense and up from $11.13 the prior year quarter.
We're pleased with this ARPU growth driven by higher mix of business revenue as well as from new service offerings like My office true.
Our and will exit recurring revenue grew $254.3 million and was up 11% from the third quarter of fiscal 20, driven by growth of ARPU and business users.
Our net dot net subscription retention rate was 95%.
Net to the second quarter of this fiscal year and you see.
He continued improvements in our customer churn from whom up business and have now seen stabilization in our churn well residential customers.
Now some details and other gross margin.
Subscription and services gross margins continue to trend higher and were 72 per cent and this quarter up from 71 per cent for the same period last year.
These higher gross margins were driven by economies of scale and a greater mix of higher ARPU business customers.
Product and other gross margins for the third quarter was negative 46 per cent compared to negative 36% for the same period last year. This is mostly due to increased promotional activities in the quarter.
On an overall basis.
Gross margins look and see what 63% and increase of 30 basis points from the same period last year, driven by improvements and subscription and services gross margins and.
Some specifics on operating expenses.
Operating expenses for the third quarter was $24 million down $800000, a 3% from the same period last year.
Sales and marketing expenses for the third quarter was $12.4 million or 29% of total revenue up 1%, Italy, yet and up 13% sequentially as we added more sales resources and expanded our marketing programs yes.
We are pleased to see improvement and sales productivity given the changes we do this year and that gives us and that gives us confidence to continue investing and sales and marketing activities for future growth was thing topic of and.
Research and development expenses was $7.8 million or 18% of total revenue down 11% on a year over year basis from $8.8 million.
This decline in R&D expenses resulted primarily from cost savings associated with the discontinuation of the smart game in October 2019.
Given the market evolution, our primary focus for R&D is to continue to add new features and integration. So both my office and enterprise solutions, which we expect will yield continued strong growth and well my business users and ARPU.
Gee and expenses were $3.8 million or 9% and order revenue for the third quarter and comparable to the prior year quarter.
During the quarter, we had one time credits of approximately $300000, which had not expected to repeat in the future.
Our net income of people and $1 million resulted in a diluted earnings per share of 13 cents compared to a one cents diluted earnings per share and the Brad you repeated.
This greatly improved profitability was driven by a number of factors, including higher revenues economies of scale and and lower employee related expenses due to the current work from home situation.
For the third quarter of fiscal 21, adjusted EBITDA earnings improved significantly to sleep and $6 million or 8% of total revenue, what's the $600000 for the prior year quarter.
For the nine months of fiscal 21, our EBITDA earnings were $10.4 million from.
Beta and EBITDA loss of approximately $400000 for the same time period last year.
We ended the quarter with total cash and investments of $27.6 million with no debt and up sequentially from $25.3 million at the end of the second quarter.
Cash generated from operations for the third quarter of fiscal 21, plus $2.5 million and.
Eight to $600000 of cash used in operations and the same period last year.
Additionally, during the third quarter, we generated $1.7 million a free cash flow.
Now some details and other fourth quarter and full year fiscal 21 and guidance.
Again, our guidance is non-GAAP and has been adjusted for expenses, such as stock based compensation and amortization of intangibles.
We have been successful this hit and adapting our sales and marketing activities to address the current disruption should conditions become more superior execution and could be more challenging.
We expect total revenue for the fourth quarter of fiscal 21 to be in the range of $43 million to $43.8 million.
We expect fourth quarter non-GAAP net income to be in the range of $2 million to $2.6 million.
Non-GAAP diluted EPS is expected to be between eight cents and 11 cents. We have assumed 24 million weighted average diluted shares outstanding for Q4.
Our full year fiscal 21, we expect total revenue for fiscal 21 to be in the range of $167.7 million $268.5 million and increase from our previously issued guidance range of $163 million 264 and $5 million.
We expect non-GAAP net income for fiscal 21 to be in the range of $10.6 million to $11.2 million up from our previously issued guidance range of $8 million to $9.5 million.
We expect non-GAAP diluted EPS for fiscal 21 to be in the range of 45 cents to 47 cents. We have assumed approximately 23.6 million weighted average diluted shares outstanding for fiscal 21.
In summary, we are very pleased to have a strong performance in our third quarter, which demonstrate strength and our execution, while we make progress towards our long term strategy and.
Not pass it back to Eric for some closing remarks, Eric.
Thanks Ravi.
Looking forward, we believe the significant investments we have made and continue to make today set us apart from others key to our strategy is the is the unique vision, we take the market, which includes small businesses, having different needs from larger businesses.
Also key to our strategy is the end to end platform, we have created to enable both superior quality and superior value.
Talk to me communications is a disruptive new service with a vast market opportunity. We believe our strong focus on execution power growth and all areas of our business.
At this time, our priorities are to expand our marketing and direct sales build.
Build our reseller community.
Secure new wins for whom enterprise with larger customers and.
And add to our product and feature differentiation.
I'm confident we are poised for a successful Q4 and well positioned to execute in the coming next fiscal year.
Thank you and we'll now take questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key leased.
Please stand by while we compile the Q and a roster.
Your first question comes from the line of Mike Latimore with Northland Capital. Your line is open.
Great. Thank you.
We've also great there.
Thank you so.
I guess I wanted to.
And I got this number right did you say you increase the sales and marketing headcount or 100 per cent for what was that for free.
We said since the start of the fiscal year, we've added over 100 personnel to sales and marketing.
Okay got it and.
What kind of percentage increase and I mean.
And.
And it's Oh, we have gone up by roughly.
Roughly 30, plus 25% to 30%.
Okay and started here and.
And it's tied to the.
Josh.
Right and then on the.
Increasing channel activity.
Do you attribute that to just sort of getting further away from the started co head or what do you attribute the increase channel activity Jeff.
Just hard work execution, [laughter] and with the you know to build that community you really need to get involved and ticked and tied into a.
Develop the relationships and the capabilities and we've just been investing that all along here for a while now.
Okay.
And then just two financial questions gross.
Gross margin and look like they're really strong you know what was the reason for that and the guidance sustainable and just on a subscription side and then how much revenue came from talk and Tom.
So.
Yes, gross margin side I'm happy very happy with the gross margin and subscription services side and I think as we continue to add more business customers.
We get north of $20 per user per customer has hired three 510 users data that he has a very highly profitable.
Customer for us so as we continue to add more business customers that drives our gross subscription services gross margins higher and then ER and be lost from office brawls. So and the started this year and that's for $5 and month per use and anymore and that also helps with improving our gross margin. So.
I think that and sustainable as we continue to add more and more business users, we should see a continuous improvement and gross margins topical and revenue contributions for the clock and a lot of around $1.2 million, which was higher than what was in Q2.
Okay, Great My current fixed.
Thanks, Mike.
Your next question comes from the line of Josh Nichols with B. Riley Your line is open.
Yes, Thanks for taking my question and great to see such strong performance from the top and the bottom line. Despite some day early pandemic headwinds and thank you I'm looking here could you.
And curious like what's the split if you could break it out today between on the business side and enterprise and good day.
This growth or how is that expected to kind of trend in the future. If you could elaborate and not a little bit.
Yeah.
Well the enterprise is much smaller than new office, so we target a higher growth rate there but.
But both both are you know.
Both are part of our strategy I guess, I'd say and you know office Pro is were up over 30% of New York, New customers adopting new office pro and we think that we can even or pushed out farther as we go forward. So I'm just kinda.
An increasingly important part of our business, we just launched Houma meetings, which were very excited about it it's got some sales.
Special features including really great voice quality and ability to share and multiple screens at once and.
It's included in home office Pro for no additional charge. So it's a brand new capability now for us to even drive more adoption from office growth and.
And Josh if I may just add into your first point.
Rather and breaking out revenue between Houma enterprises must assume office in the last earnings call I had mentioned that and just remind you exactly and we when we look at our size of customers and.
<unk> customers with greater than $10000 of annual recurring revenue, we had set off the houma business customers I don't funny per cent up those are giving us more than $10000 and yeah that includes a large number of customers from Houma enterprise as well as from home office.
Good day.
Which have more than $10000. They are so that number has been progressing and improving over the last number of years and I think given our sales and marketing channels resellers channel largest we do believe that number will continue to grow in the future.
Hopefully that helps.
Yeah definitely thanks that helps quantify and just to hit on your point, Eric and you've seen some really good adoption for the office Pro and now also with video collaboration at the company just release I know, it's early but yes, I would expect that there could be a very high demand that could kind of accelerate the room office growth.
Description adoption and well also doing that help you guys get back to your net dollar subscription retention revenue of 100 or possibly higher than that as you continue to add subs on that is that your expectation based on.
When you've been hearing about this early offering.
It is indeed I mean, we.
We aren't stopping either with whom and meetings there will be additional things to come that that get added into my office pro as we go forward that will make it even more attractive.
And at some point and I'm not trying to signal anything immediate but at some point and I'm sure. We'll even have higher tiers of capability beyond him office growth. So it is our long term strategy to build a more.
More capability and features into these premium offerings and drive the adoption of them.
Thanks, and then last question from me that.
Yes, I'll pass and then hop back into the queue.
You mentioned that seemed like a very good number and the Companys business subs are have this $10000 or more of a are are you seeing a little bit more success on that front or how should we think of the company's blend.
Really smaller business customers versus some of these larger customers trendy and with the higher a are amounts that you're getting with some of these customers and the large deployments youve seen.
Yes, Josh we are focusing on small and larger businesses. We are not we and our just focusing on but bigger businesses, but that's more than $10000 era, we are happy to get and Accountant's office dental office as well as mainstream businesses and we are seeing very good success with that along with that well my enterprise whom office.
From some of these things large and as they do being and larger businesses examples, which Eric mentioned earlier in his prepared remarks about restocking and law office with one customer in Florida, and Ford users nod and more than 300, those things are driving so because of our features because of the need for the cloud come together.
And I think we are seeing a customer.
Customers have been larger sales.
Size and footprint also adopt our solution. So I think we are focusing and all of those but I feel given the day.
<unk> depth and backed up our solution, we will continue to see because customers also adding more and more.
Dollar data lot of portfolio.
Thanks, guys I'll hop back in the queue.
Thanks, Josh.
Your next question comes from the line and Brian Kinstlinger with Alliance Global Your line is open.
Great. Thanks, so much and you mentioned.
And this quarter or additions, which were very strong from business jobs. We're one of the strongest in the history. If you exclude.
And your large customer that added last year.
You look at this quarter's additions.
And you could characterize the concentrations.
From just a handful of customers, including your largest customer at least a high concentration or was it very broad based.
No.
The board.
Even E commerce was up nicely for us sick.