Q1 2023 Ooma Inc Earnings Call
Expenses not included in our non-GAAP values and key metrics of our core subscription businesses. These are titled supplemental financial disclosure, one and supplemental financial disclosure. Two 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 CEO , Eric Stang.
Thanks, Matt Hi, everyone welcome to <unk> Q1 fiscal year 2023 earnings call. Thanks for joining us.
This is an exciting time for Umar as we pursue several important growth initiatives and it's my pleasure today to review with you our strong Q1 results and our plans looking forward.
Our results for Q1, once again exceeded expectations on both the topline and Bottomline Q.
Q1 revenue was $50 3 million non.
non-GAAP net income was $3 million.
And cash increased in the quarter to $31 8 million.
We're happy to be off to a good start on our fiscal 2023 year.
During Q1, we made strong progress expanding our sales and marketing resources and driving business user growth.
We added approximately 50 head count to our sales and marketing team with most of these additions coming onboard late in Q1.
We also engaged with over 150, new Vars and agents.
As we expected our introduction of <unk> Air dial is a new and exciting offering for resellers and is helping us expand relationships and the reseller community.
For Q1, we grew our business user base by approximately 12000 users, which is a rebound from the last couple of quarters.
Along with this our pipeline of opportunity grew as well.
We are encouraged by these accomplishments as we look ahead to the rest of this year.
Our progress with Uber office Pro and our recent launch of whom office pro plus.
Also gives us confidence as we look ahead.
Our take rate for office pro amongst new customers.
Ticked up in Q1 to 49% of new users.
Across our installed base, we now have over 24% of users taking the pro tier.
And we just launched office pro plus which brings customers exciting new features and should serve to expand our opportunity and addressable market.
Office Pro plus completes our office lineup, which now consists of office essentials at $19 95 per month.
Office Pro at $24 95 per month and office pro plus at $29 95 per month.
With pro plus customers can now take advantage of typically larger business features while continuing to benefit from the turnkey easy to use office platform.
Pro plus today brings call queuing for satisfying basic call center needs.
Hot desking to facilitate hybrid work environments, where phones are shared.
Salesforce integration. So so pro plus features can be used from within Salesforce.
Force and more.
Moreover, as we also did after launching office pro we intend to add to the pro plus feature set over coming quarters.
Houma Enterprise made progress in Q1, as well, particularly in the select verticals we are targeting.
We closed 16, new deals in the hospitality vertical a step up versus Q4.
These deals included wins with both small and larger sized hotel properties.
We also continued our growth with franchises of a large services firm, where we now serve over 6000 franchise users nationwide.
Regarding further development of <unk> enterprise, we have an ongoing effort as we've discussed previously to modernize the ways our users interact with our solution.
In Q1, we released new mobile apps and we remain on track to complete our update of whom are enterprises desktop app and admin portal in the first half of this year.
We're also on track with our rollout to additional users at our largest customer.
Late in Q1, we began the rollout in earnest and we ended Q1 with about 27000 users with this customer.
We are currently expanding quickly and expect to onboard 8000 or more additional users with this customer in Q2.
On the way to our goal of adding 25000 users during this fiscal year.
Our expansion opportunity spans both North America and Europe .
In Europe , specifically, we now serve users located across 13 countries are most yet with this customer.
As Youll recall luminaire dial is our new solution for customers, replacing aging and costly copper line.
<unk> launched in Q1 and is rapidly gaining interest by reseller agents <unk>.
Lex and select strategic partners.
With tens of millions of copper lines now in use in the U S. We believe the market opportunity for <unk> is massive.
To provide some perspective.
AT&T announced that they expect to sunset, 50% of their copper network by 2025.
Moreover, custom.
Customers have shared with us that the price they pay for individual copper lines has in some cases doubled or more over the last year alone.
One customer for example reported their bill jumped from $105 per month, a year ago.
$506 per month, now and Thats for one copper line.
Generally copper lines of customers that we used to see costing 80 to $120 per month, we now see costing 120 to $300 per month.
If nothing else luminaire dial, which is priced similarly to our other business offerings on a per user basis.
<unk> customers, a great financial incentives to make the switch.
In Q1, we released the <unk> remote device manager and we are currently working on several additional air dial enhancements.
So far our supply has been limited, but we are cautiously optimistic that we can build enough aired our units this quarter to ramp up sales.
Okay.
In addition, our initiatives to capitalize on the trend to wireless Internet continue to move forward.
Sales of <unk> connect <unk> wireless Internet in Q1 were our strongest yet.
As we've discussed before we are finding success with businesses, whose only fixed internet option as low grade DSL.
And also with businesses, who have a critical need for a second backup Internet service.
Okay.
Similarly sales of whom are tayloe, driven by our partnership with T mobile who.
As you know is offering tullow as an add on to their homeworld Internet sales.
Sales grew in Q1 as T Mobile's marketing initiatives started to take hold.
In Q2, we anticipate T mobile will implement additional marketing initiatives.
Finally, I'd like to highlight the announcement, we made in March that Umar for the ninth year in a row, one PC magazine's prestigious business Choice Award for Best Voip system.
This award is determined from the magazines annual business choice surveys of its readers. So we.
We find it, especially gratifying that <unk> once again emerged as the top provider.
We believe this demonstrates that our strategy to provide a unique combination of advanced features superior ease of use and uncommon value is resonating with customers.
I'll now turn the call over to shed or.
<unk>, our CFO to discuss our results and outlook in more detail and then return with some closing remarks.
Thank you Eric and good afternoon, everyone.
I will begin with a review of our first quarter financial results and then provide our outlook for the second quarter and full year fiscal 2023.
We delivered another quarter with strong financial results, achieving $53 million in total revenue exceeding our guidance range of $49 5 million to $50 2 million.
On a year over year basis.
Total revenue grew 10% in the first quarter.
Driven by the strength of <unk> business, which has reached a milestone and accounted for over 50% of total subscription and services revenue for the first time in our company's history as compared to 47% in the prior year quarter.
non-GAAP net income for the first quarter was $3 million, which also exceeded our guidance range of $2 2 million to $2 8 million.
Now some details on our Q1 revenue.
<unk> business subscription and services revenue grew 18% year over year in Q1.
Driven by user growth as well as output growth.
Residential subscription and services revenue grew 4%.
Year over year.
For the first quarter total subscription and services revenue was.
$46 7 million or 93% of total revenue compared to 92% in the prior year quarter.
Product and other revenue in the first quarter was $3 6 million, which.
Which was comparable to the prior year quarter.
Now some details on our key customer metrics.
We ended the first quarter with $1 million 111000 core users up from $1 million 100000 core users at the end of the fourth quarter last fiscal year drill.
Driven by the growth in business users.
At the end of the first quarter, we had 320000 business users or 29% of our total core users an increase of 12000 from Q4.
Our blended average monthly subscription and services revenue per core user or <unk> increased 8% year over year is $13 71.
Up from $12 68.
In the prior year quarter, driven by an increasing mix of business users, including higher <unk> office pro users.
During the first quarter, we saw a nice rebound rebound in office for take rate with 49% of New office users opting for office for service, which was up from 44% in Q4 and 43% in the prior year quarter.
Overall, 24% of our office users have now subscribed to our office pro tier.
Our annual exit recurring revenue in Q1 grew to $182 $7 million and was up 11% year over year.
Our net dollar subscription retention rate for the quarter was 96% as compared to 98% in the prior year quarter.
Now some details on our gross margin.
Our subscription and services gross margin for the first quarter was 72%.
<unk> was an improvement from 71% in the prior year.
The improvement in subscription and service gross margin was driven by our increasing scale and a greater mix of higher <unk> business customers.
Product and other gross margin for the first quarter. It was negative 42%, which was comparable to negative 41% for the same period last year.
On an overall basis total gross margin for Q1 was 64% as compared to 62% in the prior year quarter.
A higher total gross margin in Q1. This year was attributable to the year over year improvement in subscription and services gross margin and.
And having a higher mix of subscription and services revenue.
As I mentioned earlier represented 93% of total revenue in Q1.
And now some details on operating expenses.
Total operating expenses for the first quarter were $29 3 million up $3 5 million or 14% from the same period last year.
Sales and marketing expenses for the first quarter were $15 4 million or 31% of total revenue up 16% year over year.
Driven by higher marketing and channel development activity Umar business.
Research and development expenses were $9 4 million or 19% of total revenue up 14% on a year over year basis from $8 $2 million.
Driven by investments in new features for both <unk> office, and Umar enterprise as well as new products such as Umar agile.
G&A expenses were $4 5 million or 9% of total revenue for the first quarter.
Impaired to $4 3 million for the prior year quarter.
non-GAAP net income for the first quarter was $3 million or diluted earnings per share of <unk> <unk>.
<unk> <unk> as compared to 11.
Our diluted earnings per share in the prior year quarter.
Okay.
Sure.
Adjusted EBITDA for the quarter was $3 9 million or 8% of total revenue as compared to $3 5 million.
Over the prior year quarter.
We ended the quarter with total cash and investments of $31 8 million compared.
Compared to $29 million at the end of Q1 in the prior year.
Cash generated from operations for the first quarter was <unk> 8 million compared.
Compared to <unk> 4 million in the same period last year.
On the head count front, we ended the quarter with 1031 employees and contractors, which represented an increase of over 50% from the end of last fiscal year.
As Eric mentioned earlier the increase in the first quarter came primarily from the sales and marketing functions.
Now I'll provide guidance for the second 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.
We expect total revenue for the second quarter of fiscal 2023 to be in the range of $51 4 million to $51 9 million.
Which includes product and other revenue of between 4 million and $4 3 million.
We expect the second quarter net income to be in the range of $2 4 million to $2 8 million.
non-GAAP diluted EPS is expected to be between <unk> 11.
We have assumed a 25 million weighted average diluted shares outstanding for the second quarter.
For full fiscal year 2023, we expect total revenue to be in the range of $210 5 million to $213 5 million and.
An increase from our previously issued guidance range of $209 5 million.
$212 5 million.
We expect non-GAAP net income for fiscal 2023 to be in the range of $9 5 million to $11 million up from our previously issued guidance range of $8 5 million to $10 $5 million.
We expect non-GAAP diluted EPS for fiscal 2023 to be in the range of 37 to <unk> 43.
We have assumed approximately $25 4 million weighted average diluted shares outstanding for fiscal 2023.
In summary, we are pleased with our strong start to our new fiscal year as we continue to focus on executing to our long term objectives. We shared with you join our recent Investor day event.
I will now pass it back to Eric for some closing remarks, Eric.
Thanks sure.
On April 14th the New management team held its first ever Investor day, we.
We hope you were able to attend but if not we encourage you to view the presentation on our website.
At that event, we laid out the strategy for the company and we highlighted five strategic priorities for growth.
The first is to extend our leadership serving small business customers.
For example through the launch of <unk> Office Pro plus which we just announced.
The second is to develop new verticals and stronger sales channels.
Third is to expand internationally driven by serving the needs of our largest customer.
Fourth is to capture the parts copper copper line replacement opportunity with our innovative <unk> solution.
And fifth we want to leverage the trend towards <unk> and fixed wireless internet.
Altogether, we believe these initiatives place us in a strong position for continued growth and success.
With that thank you we will now take your questions.
At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Brian <unk> with Alliance Global Partners. Your line is open.
Great. Thanks, so much great quarter.
Thank you Brian give us some more deep can you give us some more detail on the strategic partnership with T mobile.
And on the Tallo, you mentioned a pickup in advertising in the current quarter.
That campaign already begun and you know if we're going to focus our efforts on TV streaming E Mail and then outside of being on their web site, which we discussed.
Discussion last quarter.
Are there any other marketing or advertising by T mobile during the first quarter.
Sure I'll share what I can Brian there were more things that happen. Besides just being on their web site in Q1, and we think there will be.
The additional things that happen in Q2 that that has not happened yet.
If it had happened I could talk about them because it would be out there in the market, but I don't want to talk about what T. Mobile is going to do before they do it as I'm sure you can appreciate.
<unk>.
This is a this is a.
Great opportunity for us and for T mobile too.
Serve customers many of which are walking away from a double play solution.
That's what we're there to be with them and.
Yeah.
So I don't know if im answering your question fully but.
It's a close relationship we have with them we meet.
By weekly planning next steps and things were going to do.
We think both about marketing to new customers and also to the installed base. Let me, let me leave it at that.
Great one follow up I appreciate your difficulty entering yet.
You've been clear the supply chain has made it difficult.
In building or dialed product and shipping it out just maybe take us through where that supply chain challenges today versus say three months ago.
Prior to can you make.
When might you think the easing of that.
Capacity or inventory.
Inventory build will start to get better for Qunar. Thank you that's all for me.
Sure happy to comment on that.
So when we talk with you a quarter ago, we were ramping the supply chain. It did not have much visibility.
Beyond a small number of units that we were.
Building for trial in beta and those sorts of things.
As with anything its kind of like building a car. These days you've got everything you need to accept that one little part that you can't get that stops you from building the whole car device as.
As we sit here today.
And keep in mind too with <unk>, we are ramping up a new supply chain. This is a new products, we have to engage with vendors and get them to <unk>.
<unk> working with us.
We can build a couple of thousand units or more today, and we are very very close to being able to build another seven or 8000 units through.
Through the balance of this quarter provided we can get through one or two last hurdles, which we do believe we'll get through.
Visibility beyond that first 10000 units is.
A little harder to give but I can tell you too that we've been going through.
All it redesign of the Airedale Thats, an overstatement, but new designs to make it possible to work with multiple vendors in certain areas too.
Reduce the dependencies in some key areas and those designs should be able to kick in.
By Q3, so in terms of our outlook and our guidance. This year, we feel like we can achieve what we're trying to do in and whether we can serve the large upside opportunity we see we'll have to.
Wait to comment on that until we know more.
Your next question comes from the line of Matt Stotler with William Blair. Your line is open.
Hey, this is Hal and Luke on for Matt Stotler. Thanks for taking the questions I wanted to start with the new room Opex 12, plus plan on attacking really intriguing feature is the hot desking capability integration with <unk>.
And set up for some of our call center and whatnot, It's obviously still early but what kind of interest or feedback from customers.
Any early interest from new customers, but also the upsell opportunities with them, we will be testing customer base.
Yes.
Yes.
We are truly just launched it.
In the last days.
We've had a couple of salespeople sell it before we even sort of had the time to train them on what it is which is always fun to see.
For a little bit larger sized customers. These are very valuable features.
We have a customer we're talking to right now thats fairly sizable that if we didn't have salesforce integration. It would be a nonstarter that that's a key for them and their business needs as you get to a little bit larger sized businesses to running a simple call center operation, where <unk> got a handful of people taking calls that are coming in in order and you can monitor.
And see some analytics and things that that's also a very valuable feature.
We know that these will be <unk>.
Well received in the market, particularly with I think customers going forward.
We will obviously offer this to our installed base and will help too.
Learn as we go with that but this allows us to expand our opportunity in our addressable market for for office I do want to emphasize too that the four features that we mentioned in our press release and there are more than just that already but there will be another half dozen features that come out over the next couple of quarters.
Two or three of which I think are super exciting on top of what we've already done so.
There's more to come with pro plus and you may recall with office pro when we first launched it we kind of got a certain rate and then it started to blossom as we added more and more into the into the package.
We expect that kind of development.
Development with office Pro plus too.
Got it that's helpful. Thank you and then maybe just a follow up if I could on hiring given the macro environment could you just talk about the impact of the tough hiring.
Tough hiring market, but also for your customers and your partners just given that focus on the SMB segment of the market I know last quarter, you mentioned that you don't kind of sales and marketing as much last year.
So it's great to see that booking or additions this quarter how.
How should we think about the plans and priorities for adding head count growth going forward.
For the remainder of the year.
Thank you.
Sure Yeah.
Hiring is tough and it's particularly tough to find.
Yes.
No.
To find people, who are who really want to do the things we want to do because it takes the kind of person who wants to hustle and you can you can do well with boomer, but it's a demanding job.
But that said, we've got a great team and we're thrilled to see the growth go up by 50, I know not all of those people will work out.
Over the first two or three months, we'll we'll.
We will see some attrition in that but we continue to hire and I believe we are well on track now to what we want to achieve this year or are planned for this year is by the end of the year to increase our sales and marketing team by about 100 people.
That's what our plan was last year and we didn't execute it.
But.
We've got some new things, we're doing these days and new ways, we're approaching the problem and.
I am pretty comfortable we'll bring that 100 dose 100 people onboard well before the end of the year.
Got it that's helpful color. Thank you.
Your next question comes from the line of Mike Latimore with Northland Capital markets. Your line is open.
Yes, nice quarter as well.
So.
Eric You mentioned a strong pipeline.
Really strong user adds in the quarter and then this large customer ramping I guess does that give you confidence that you can kind of hit this goal of 20% subscriber growth.
Construction growth.
Yes. It does I know, we didn't get there in Q1 I'm not sure we'll get there in Q2, either in fact, probably more likely we won't with the guidance we've given you.
As a bit of a flow through effect from Q3, and Q4, where if.
If we had had more user ads in those quarters they'd be piling up for us.
Or contributing if you will here in the first half of this year, but but yes with the things we have underway and the bounce back and user adds in Q1 I feel good about that metric for the year.
Okay great.
The catalysts to get your kind of large customer ramping this year.
Oh gosh.
As we've talked a lot of the house as well.
When you are trying to bring on so many users.
It's just a lot of work and so we spend a lot of time last year developing tools and capabilities to bring these users over to omer as cost effectively and as quickly as possible and so we invested a lot last year frankly doing some additional things that we didn't anticipate we're going to the customer.
We want to do with us, but but the good news is those things are behind us now and they apply to all of the user ramp ahead of us I mean, they make the user ramp much more straightforward going forward.
As we've discussed in the past. This this customer can someday be over a six figure number of users for us so.
We're really excited to be ramping in earnest now.
Platform.
And lastly did you have any <unk> growth number I might have missed that but.
Yeah, Mike, Yes, so we.
Our latest blended <unk> was $13 71, so year over year growth on that was 8%.
Alright, Thanks, a lot.
Thanks, Mike Thank you.
Yeah.
Your next question comes from the line of Matthew Harrigan with benchmark. Your line is open.
Well. Thank you all also delving into that our two number can you talk about sort of you won't give us the specifics, but just the relative momentum on the business side, where you have a bus broader product, okay, and then on the on the consumer side because clearly.
Youre, just breaking out where you were before and that's that's very fundamental.
Two valuation upside.
Financial upside and then secondly could you talk about the health of the economic trends Youre seeing.
On smaller businesses and the consumer are you seeing any.
Signs of stress and I know you, sometimes deliberately not marketed the consumer side in February .
As the business side, but do you think that you have the capacity to grow that business faster. If you were really.
Using the apply your marketing wherewithal in dollars there.
Thank you.
Yes, so maybe I'll take a quick question first Matt and then I'll pass the consumer side impact Eric and.
So on the business.
Like I said blended at $13 71 that was <unk>.
Again, another quarter of growth and if I think about that business. We also saw the growth I know that in the investor deck, We published quarterly we say over 'twenty for that so we're not too specific that we saw in our growth there is strong growth as well and marching closer towards 'twenty five in fact within there.
24 range and that's largely driven by again strong uptake on the pro plus excuse me pro plus plus plus yet.
<unk> uptake rate of 49% that we saw in quarter and that was as I pointed out in my script up from 44%.
Last quarter, so we see a nice trend and now that 29% of all of the office users subscribe to premium tier and an increasing at 24% excuse me.
Increasing so that's really driving that trend and hopefully that the.
Plus as we see the trend on that over the next few quarters, hopefully that will continue to help.
The trend on that business residential we also see the growth.
<unk>, we say all of our nine but we saw growth quarter over quarter I think that trend. We're seeing there is that even before we see the ramp on T mobile.
Users, we're seeing the overall trend, where we're seeing more <unk>.
Premium subscribers.
On the residential side, so that's helping that trend as well.
And I guess I'll pass it over to Eric for consumer.
Thanks sure. So your second part of your question small business health and opportunities with residential growth.
We are not seeing any signs of weakness yet in terms of small business health.
All businesses.
Going well for us.
And.
We are.
If you look at our churn rates in Q1 they were.
Down versus Q sure marginally and really.
Where we expect to see them so.
We're not seeing any any negative signs from an economy or macro perspective on.
Our growth now.
Potentially one reason for that which is.
We can offer our small business customers, so much more and often save the money so.
Really our marketing and our growth depends on our growth depends a lot on the mountain market and the amount of customers we touch.
And.
I think even in differ more difficult economic times. The fact that we can save customers money also as a real positive for us.
In terms of.
Our ability to drive our own business forward on residential.
We did better in Q1 than we have in the last few quarters in terms of the number of residential users. We declined a very small amount probably about 1000 users over on close to 800000. So it was a good quarter for residential use.
Users and.
As <unk> mentioned the trend towards more premium users. It means overall revenue per residential continues to grow and grow nicely can we grow residential faster. We certainly could there is no doubt we choose to a portion of our sales and marketing expense.
<unk>.
Business growth small business and enterprise.
But.
There is certainly opportunity on residential side too.
There's probably 50 to 60 million home Landlines in North America and.
We have.
Less than $1 million of them. So you can see the scope of opportunity and if copper lines go away at the residential level as well that could open up more opportunities for customers to shop around so.
That's kind of how we see the macro environment today I hope that answers your question.
Oh thanks.
You don't mind. The earlier question on the <unk> supply chain Im sure Youre, not worrying about neon gaslog Ukrainian or anything like that but is there anything that specifically.
China or.
Geopolitically Frost is giving you pause or it's just kind of ordinary dislocations we congestion.
Why chain that everyone seeing right now thanks.
No our challenge in their dialysis is simple it's theirs.
Quite a number of components and signed that.
Go on to the board for that that unit and there's always one or two that are that are particularly hard to get.
And but we've been doing a good job of finding ways to get them.
In some ways in some areas, we've had to spend a little bit more but we've also found we can pass those costs on and the price of the product.
So we haven't been too worried about about that we do have manufacturing so to speak we work with contract manufacturers, but we can build products today.
Both inside China and outside China.
So.
We are not.
Dependent on building <unk> in China.
At least not as we look forward so.
Yes, it's just a matter of building up a new supply chain for a new product and working with vendors and that's coming along.
Thanks, Eric Thanks.
Sure. Thank you.
As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
Pause for just a moment to compile any remaining questions.
There are currently no further questions at this time I'll turn the call back to <unk> CEO , Eric Stang for any closing remarks.
Awesome, Thanks, everybody for joining us.
Nice to have a clean quarter, a good quarter and be off to a good start for the year.
I look forward to seeing some of you perhaps at conferences this week in and week reduce time, which will be up so.
Kate your time today, Thank you bye bye.
This concludes today's conference call. Thank you for joining you may now disconnect.
Yes.
Yeah.