Ooma Inc (OOMA) Q4 2021 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to the Ooma, Inc. Fiscal Fourth Quarter and Year 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I now would like to hand the conference over to your speaker today, Mr. Matt Robison. Please go ahead.

Thank you, everyone, and welcome to the Fourth Quarter and Fiscal Year 2021 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. After the market close today, Ooma issued its fourth quarter and fiscal year 2021 earnings press release via Business Wire. The release is also available on the company's website, Ooma.com. This call is being webcast live and is accessible from a link on the Events & Presentations page of the Investor Relations section of our website. This link will be active for replay of this call for at least 1 year. A telephonic replay will also be available for a week starting this evening about 8:00 PM Eastern Time. Dialing information for it is included in today's press release. During today's presentation, our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results 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, and those risks more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements except as required by law. Please note that other than revenue or as otherwise stated, the financial measures to be disclosed on this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures are included in our earnings press release, which is available on our website. On this call, we'll give guidance for the first quarter and full year fiscal 2022 on a non-GAAP basis. Also, in addition to our press release and 8-K filing, the Events & Presentations page in the Investors section as well as the Quarterly Results page of the Financial Information section of our website includes links to 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 and also provide resolution of GAAP expenses that are excluded from our non-GAAP metrics. Now, I will hand over the call over to Ooma's CEO, Eric Stang.

Thank you, Matt. Hi, everyone. Welcome to Ooma's Q4 Fiscal Year 2021 Earnings Call. Thank you for joining us today. I look forward to reviewing with you our fiscal 2021 accomplishments and our plans and outlook for this coming year. I'm pleased to report that Q4 was another strong quarter and capped off a strong year for Ooma. We again outpaced our guidance in Q4 by delivering $44.3 million in revenue, $2.8 million in non-GAAP net income and $3.6 million in EBITDA. For the full 2021 fiscal year, we achieved $168.9 million in revenue while also generating $14 million in EBITDA. Moreover, we exited Q4 with $160.5 million in annual recurring revenue, up from $143 million a year ago, driven primarily by 27% year-over-year growth in subscription services revenues from business customers. All in all, I'm proud of our performance and excited as I look forward to the year ahead. Diving a little deeper into our progress in Q4, I can share that we again increased the percentage of new customers who adopt our Office Pro higher tier of service. In Q4, 45% of new office customers selected Office Pro. We believe our future additions during the year, including the launch of video meetings and enhancements to our desktop and mobile apps, helped drive this adoption. Adoption of Office Pro is a driver of our increasing revenue per user. Strategically, we intend to continue to expand the capabilities of Ooma Office to attract larger customers, and we have new service enhancements planned for fiscal 2022. I can also share that our sales through channel resellers were our highest yet in Q4 and represented 43% of our business sales. Developing and growing channel resellers and partners is a long-term strategy to expand our sales and marketing reach. This will continue to be a strategic priority for us in fiscal 2022. As we pursue strategies to expand our services in our channel and market reach, we intend to grow our business not only with small business customers, where we believe we are the market leader today but also with increasingly larger customers. I'm pleased to share that we won a customer in the healthcare industry in Q4 that is over 700 users. This customer chose our Enterprise solution because it fit well with their business needs and will enable them to manage their business more productively across a large number of locations. For Ooma Office, we won a customer in the auto industry in Q4 that is over 175 users spread across 16 locations. This customer valued the simplicity, ease of use, and value afforded by Ooma Office. As a solution designed specifically for a small business environment, Ooma Office simply fit their needs better. This is a larger customer than is typical for Ooma Office, but it helps demonstrate that Office can be a strong solution for larger companies. Already today, approximately 20% of our Ooma Office users are in businesses with 10 or more employees. Now, regarding our largest overall customer, which as you'll recall, entails more than 25,000 users, I'm pleased to share that over the course of Q3 and Q4, we enabled direct trunking services to more than 450 new locations in North America. This represents important growth with our largest customer and lays the foundation for future expansion of our services to them. Internationally, we also grew with this customer and now have expanded our activities with this customer to 4 European countries. On the services front, we made a major announcement in Q4 that we now offer Direct Routing for Microsoft Teams. Through our global data network, we can connect Teams users to external phone lines and transform Teams into a highly reliable business phone system. With more than 2 million users, we have the scale advantage to do this reliably and efficiently. Unlike some Direct Routing solutions on the market, our offering runs through our core platform, allowing us to deploy our UCaaS functionality to complement Teams in a hybrid model. Currently, we primarily see demand for Teams with larger businesses of 100 users or more. According to Ribbon Research, 70% of businesses deploying Teams indicate they will use Direct Routing. We believe Direct Routing for Teams represents a significant new market opportunity for us going forward. And finally, regarding Q4, on the residential side of our business, we received the great news in November that Consumer Reports once again ranked Ooma the number one home phone service in America. This result comes from user surveys performed by Consumer Reports, in which we were ranked a 4 or 5 out of 5 on all 4 metrics, namely reliability, call quality, customer support, and value. This is the 8th time we won this honor and couldn't be more proud. With more than 50 million home phones in operation in North America, residential phone service remains a significant opportunity in its own right. In the vast majority of cases, we believe consumers can get both better phone service and less expensive phone service by switching to Ooma. Our corporate focus today is, of course, on building our business customer base. But we also delivered on the residential front in fiscal 2021 by achieving 3% year-over-year growth in residential subscription service revenues. Looking ahead, we see favorable market trends. The research firm IDC reported that their surveys indicate increased work-from-home trends will continue post-COVID. They report that pre-COVID, 37% of responding organizations indicated part-time or full-time work-from-home practices at their company. Now, 52% of responding organizations report such practices, and expect them to continue post-COVID. Additionally, IDC reported that 55% of respondents said they will increase their spending this year on universal communications and collaboration services. Similarly, a survey by Ribbon Research indicates 2.5 times more interest by small businesses in investing in IP-based communication solutions versus a year ago. They also report that 76% of small businesses, defined as having less than 100 employees, say they have yet to invest in IP-based communications solutions. As we look ahead, we are optimistic about the market trends and the sizeable opportunities in front of us. Our plans for fiscal 2022 include several initiatives to grow our business. At the core is continued execution of our strategies to serve small businesses with unique solutions designed specifically for them, to serve larger businesses with customizable solutions to satisfy their individual needs better, to continue expansion of our sales and marketing efforts both direct and through channel partners, and to grow internationally serving our largest customer. In fiscal year 2022, we intend to: 1) offer additional features with Ooma Office to continue our momentum serving larger businesses and further increase our average revenue per user; 2) capitalize on the market demand for Teams Direct Routing as well as our other activities to grow Ooma Enterprise; 3) increase our sales and marketing significantly through investments in digital marketing and inside sales to attract and support more channel resellers; 4) evolve our Ooma Connect and Ooma managed Wi-Fi solutions, which are part of our longer-term strategy to provide a more complete solution for small businesses; and 5) expand geographically to serve users in a number of new countries, focusing on countries in Europe. This effort will be ongoing throughout the year and driven by adding new users with our largest customer. By the end of fiscal 2022, we anticipate having expanded to more than a dozen new countries. Overall, the strong market environment and the success we are seeing with our solutions and our strategy make us excited for the coming year. I will 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. I'll start with a review of our fourth quarter and full year fiscal 2021 results, and then provide our outlook for the first quarter and full year fiscal 2022. We once again delivered a strong financial performance, achieving record revenues of $44.3 million and above the high end of our previously issued guidance range of $43 million to $43.8 million. On a year-over-year basis, total revenues grew 9% driven by the strength of Ooma Business, which grew 16%. On a full year basis, total revenue was $168.9 million, compared to $151.6 million of fiscal 2020, reflecting 11% growth year-over-year, including 24% growth in Ooma Business. Fourth quarter fiscal 2021 net income was $2.8 million above our previously issued guidance range of $2 million to $2.6 million. Net income for the full year fiscal 2021 was a record $11.5 million compared to a net loss of $700,000 for fiscal 2020, largely driven by increased subscription and services revenues, improved gross margins, and expense management. With that, I'll now provide some details about our revenues and customer metrics. Ooma Business subscription and services revenue for Q4 grew 19% on a year-over-year basis and 7% sequentially from Q3. In spite of the pandemic, revenue from Ooma Business subscription and services for fiscal 2021 grew 27% year-over-year driven by user growth. Ooma Residential subscription and services revenue for both the fourth quarter and for the full year fiscal 2021 grew 3% year-over-year; we are pleased with the resiliency of our residential business, which demonstrates the value proposition we offer to our customers. Our residential business generates a good amount of cash flow, which enables us to invest that cash back to grow Ooma Business. Ooma Business now accounts for 45% of total revenue compared to 42% in the prior year quarter. Even with this growth, we believe Ooma Business will generate the majority of our revenues within the next 12 to 18 months. Subscription and services revenue as a percentage of total revenue increased to 93% compared to 92% in the prior year quarter. Product and other revenue for the fourth quarter was $3.1 million, up 7% of total revenue, compared to $3.2 million in the prior year quarter. Our core users at the end of fiscal 2021 number 1,074,000, up from 1,048,000 at the end of the last fiscal quarter, with 25% of our core users being business users, up from 22% last year. Our blended average monthly subscription and services revenue per user, or ARPU, increased 3% sequentially and 9% year-over-year. This increase from $11.38 in the prior year quarter to $12.46 in the fourth quarter was due to growth of business users as well as a higher take rate of Office Pro. We expect these increasing ARPU trends to continue as Ooma Business grows as a percentage of total revenue. Given the increase in core users and higher ARPU, our annual exit recurring revenue (AERR) grew to $260.5 million at a 12% increase year-over-year. Driven by the strong performance of Ooma Business and the stabilization of our customer churn rate, our net dollar subscription retention rate for Q4 was 96%, up from 95% sequentially. Let me now provide some color on gross margin. Subscription and services gross margins for the fourth quarter of fiscal 2021 were 72%, up from 70% in the same period last year. This gross margin improvement was driven by the growth of Ooma Business as well as vendor management. Product and other gross margins were negative 58% for the fourth quarter of 2021 compared to negative 36% of the same period last year. This decline in product gross margins was primarily due to increased promotional activities over the holiday season as well as higher shipment costs. Given increases in lead times for procurement of some components, as well as longer shipping times, we have been building up inventory to meet the growing needs of our customers and partners. Overall, gross margins in the fourth quarter increased to 63% from 61% in the same period last year, driven by growth in subscription and services revenue, which have higher gross margins. Now, on to operating expenses for the quarter. Fourth quarter fiscal 2021 operating expenses were $24.9 million, up 3% year-over-year. Sales and marketing expenses were $12.8 million, or 29% of total revenue, up 4% year-over-year. This increase was driven by additional marketing programs to support Ooma Business. Given the effectiveness of these programs, we intend to continue investing in some of these channels to enable further revenue growth. Research and development expenses were $8.2 million, or 18% of total revenue, and up 8% on a year-over-year basis. Going forward, we will continue to develop new products and features and plan to add resources toward deploying services in a number of international locations with our largest customer. G&A expenses were $3.9 million, or 9% of total revenue, down $400,000 year-over-year. With that, net income for the fourth quarter was $2.8 million or $0.12 diluted earnings per share, compared to $0.04 income per share in the prior year quarter. Adjusted EBITDA profit for the fourth quarter was $3.6 million, compared to $1.4 million for the same period last year. Adjusted EBITDA profits for the full year fiscal 2021 increased significantly to $14 million, as compared to $1 million in fiscal 2020, an increase of $13 million. This increased profitability was driven by economies of scale, especially in subscription and services revenue, improved gross margin, and due to lower travel and other expenses. Now, some color on our cash and investments. We ended the fiscal year with total cash and investments of $28.3 million with no debt. This reflects a $2.2 million increase in cash for the year. Cash generated from operations for the fourth quarter of fiscal 2021 was also $2.2 million compared to cash used in operations of $800,000 at the same period last year. Cash generated from operations for the full year fiscal 2021 was at an all-time high of $4.4 million, and we generated $1.2 million of free cash flow for the year. With that, I will now provide some financial guidance for the first quarter and full year fiscal 2022. Again, our guidance is non-GAAP and has been adjusted for expenses such as stock-based compensation and amortization of intangibles. For the first quarter fiscal 2022 guidance, we expect total revenue to be in the range of $44 million to $44.8 million. We expect non-GAAP net income to range between $1.8 million and $2.4 million. Non-GAAP diluted EPS is expected to be between $0.07 and $0.10. We have assumed 24.4 million weighted average diluted shares outstanding for Q1. For the full year fiscal 2022, total revenue is expected to be in the range of $182.5 million and $185.5 million. This guidance includes a year-over-year subscription and services growth rate of 20% for Ooma Business and between 1% and 3% for residential business. We expect non-GAAP net income for fiscal 2022 to be in the range of $6.5 million to $8.5 million. After incorporating costs to enable significant expansion of services in international locations, our fiscal 2022 guidance includes some revenue from this rolling launch, but since the service will be launched throughout the year, full benefit from this international user expansion is expected to be realized in fiscal 2023 and beyond. Longer term, this expansion should help us achieve meaningful revenues from international locations. Non-GAAP diluted EPS is expected to be in the range of $0.26 to $0.34. We have assumed approximately 25 million weighted average diluted shares outstanding for fiscal 2022. From a cash flow perspective, we expect to continue generating positive cash from operations subject to certain seasonality. This seasonality driven by the timing of annual payments can cause cash flows to fluctuate throughout the year, with the first quarter typically resulting in higher cash usage. Further, our planned international expansion is expected to result in higher capital expenditures for the year. Accordingly, we expect our fiscal 2022 capital expenditures to range between $5 million and $6 million. In closing, fiscal 2021 was an outstanding year for Ooma, driven by solid execution. We achieved a number of all-time records on multiple metrics, including revenue, gross margins, and AERR. Given our fiscal 2021 performance, I believe we are well positioned for a strong fiscal 2022 and remain committed to our midterm EBITDA target of at least 5%. With that, I'll pass it back to Eric for some closing remarks.

Thank you, Ravi. Like all companies at the start of this year, we had to adapt quickly to the changes caused by the pandemic. I want to take this moment to compliment the entire Ooma team for their hard work and success doing so. Our strong results for fiscal 2021 along with our enduring strategy to differentiate our solutions in the marketplace position us well for fiscal 2022. We believe we have an exciting outlook and can't wait to execute on our plans this year to drive further growth and international expansion and build a stronger company for all of our stakeholders. Thank you all. Operator, we can take questions.

Absolutely. Your first question will come from the line of Mike Latimore of Northland. Please go ahead.

Yes, great. Congratulations on the strong year there.

Thank you.

I guess, in terms of - you gave I think business guidance growth rate for the year of 20%. Did that include hardware or was that subscription only?

It's subscription only, Mike.

Okay, got it. Great. And also, as you highlighted Microsoft Teams direct as an opportunity. I guess, if you're successful there, how meaningful could that be? Could it be 10% of bookings at some point? Just trying to get a sense of how meaningful that could be.

So it's a good question. I'll let Ravi maybe approach it from a numbers perspective. But Teams with larger organizations is doing well in the marketplace, and most companies find value in getting a separate direct routing solution. We can bring some extra features to Teams through that process as well. So we see a lot of opportunity for it. We're new to it. Of course, we launched it in Q4, we're just getting going. But we think it can be meaningful. And we also have some advantages given the scale we're at, with over 2 million users total, which gives us a real advantage versus some of the other companies trying to do this. Ravi, do you want to give a sense on scope, Teams?

I think Eric covered it. It's a meaningful opportunity for us. Our goal is not only to focus on Microsoft Teams or larger enterprises, but also smaller businesses too. So I think this has potential, but obviously, we'll work on growing both Ooma Office as well as Ooma Enterprise along with Microsoft Teams.

Yeah, yeah. Great. And then, just last on your large customer, I think at one point you had highlighted the opportunity to sort of double the size of that customer with an international effort. I guess, is that still what you're thinking here? And is it still kind of the same - maybe 12-month horizon or how should we think about that relative to prior comp?

Sure. Yes, what we believe we can achieve this year, by adding a dozen or more countries internationally to where we serve them. We believe that has the potential to double the users we have from where we're at today with this customer. I think it's a little early to exactly know; we've got a lot of rollout to do. And it'll take through the year for the growth to happen. But yes, we certainly see the potential for that and more if we look out even longer term.

Great. Thanks a lot. Good luck.

Thank you.

Your next question comes from the line of Matthew Harrigan of Benchmark. Please go ahead.

Thank you. You have a pretty schemed-out analytics for looking at the TAM domestically, Bureau of Labor Statistics information, and all that. When you look at Europe, I mean, how do you think the relative opportunity is, based on the characteristics of the economy over there? I mean, I guess you've got the Mittelstand in Germany famously that would be right within your niche. And are there any issues in terms of achieving scale on the cost side or other issues when you don't really have it tacked on to a residential business if you do make a major endeavor in Europe over a period of time? Thank you.

Yeah. So we're focused this year primarily on expanding to serve the needs of this customer that we have. We believe we can do that very successfully. There is going to be investment through the year to do that, and those investments can be leveraged to do even more. But we feel comfortable having a large customer opportunity gives us the scale we need to do this well. We are already in a small way in 3 or 4 countries in Europe. We can bring a lot of what we do in our network and the design of our network to achieve scale. But you're right, as we get even bigger, we'll have a scale of economies that we can drive further. But we feel it's very doable, and it'll give us the beachhead to build from, to go even farther.

And I guess, a quick follow-on when you look at how much COVID has worked or maybe the economy or maybe it's already changed in some areas. When you look at the product for your customer verticals, has there been any real change in terms of where you perceive the opportunities over a period of time? I mean, I think it's almost, I'd tell, you weren't hurt very badly at all, obviously, in the restaurant bar side; that's not your constituency. But just apart from just the overall growth in the market, are there any verticals that you're particularly excited about?

There are some verticals that we are more excited about. But I don't want to focus too much on them because, in general, smaller-sized businesses are not well served today, by the solutions that most have. Most of our competitors have designed solutions for larger-sized company implementations and focus more on larger businesses. Our smaller business solutions are really applicable to just about every small business out there. We don't find we need to think vertically too much with those solutions to be successful. So, I did mention that one of our large customers this last quarter was in healthcare, and another one was in the automotive space. So those are certainly areas that do well for us, as do many others, especially professional services in general. Even in restaurants and other sectors, new businesses are being formed every day, and we found tremendous opportunity with our small business solution, designed specifically for the needs of that segment. So, yeah, COVID hasn't really caused us at the small business level to have to change much from the market of the sales and marketing efforts that we were pursuing.

Thanks, Eric.

Your next question will come from the line of Brian Kinstlinger of Alliance. Please go ahead.

Great, thanks so much. You mentioned a couple of large customer wins, clearly, the healthcare and automotive clients. First, can you talk about the average number of users per customer today? And is there a different sales cycle in terms of length for customers like this that are larger? And if so, can you quantify how long they take versus the smaller deals?

Sure, I'll say a little bit of that and let Ravi jump in too. So when you move up to an enterprise customer, which often includes 10s of users, if not over 100 users, there's definitely a sales cycle. You are selling to a more educated customer with probably an in-house IT department. It is a more technical and more issue-oriented sale. When you're selling to a small business, our tagline for those customers means they sound like a big business at a small business price. I mean, these customers often haven't had the advantage of IVRs, mobile apps, desktop apps, and some of the other things we bundle into our Ooma small business solution, including e-fax and conferencing at a great value price. A lot of those customers do make their purchase decisions quickly with us, so it is different between the 2. Our average users per customer are in the 10s of users for enterprise overall. Still, we have customers who go much larger. On the small business side, sometimes we have a lot of smaller locations that are part of a larger business entity, but per location, we're in the single-digit users per location with our small business solution.

And then, one thing, Brian, I’ll add to Eric’s point. If you look at 3 or 4 years ago, we added very few businesses with more than 10 users. Now Eric mentioned earlier that about 20% of our users are more than 10 users. So our size of users has been going up, but obviously, we focus on small businesses, whether it’s 5-employee businesses or 25-employee businesses; they are pretty happy with any or all of them.

Great. And then clearly, you've been upfront about the investments we're making, and it looks like profits will be down this year purposely. Can you specifically first talk about, as Eric mentioned, additional investments in sales and marketing? Can you maybe quantify what that is versus how much does, on average, it cost the company at least this year? Is it going to open a new geographical location?

Yeah. This is Ravi, Brian. So there are a couple of things which we have incorporated into our guidance for the year. Obviously, we want to keep investing and adding in our sales and marketing to grow faster. The other aspect is opening new geographic locations. We've also incorporated, as the economy picks up, more travel, and employee-related expenses. Those are the 3 major factors we have included into our guidance. To quantify all of those, I think all of them probably will have some meaningful amount. The travel expenses and project-related expenses could be $1 million or $2 million for fiscal 2021 - fiscal 2022, assuming not everything will open up on day one. The large customer opportunities are a one-time cost initially, which could also be a couple of million dollars in expenses. So it’s a combination of sales and marketing, large customer launch, and some expenses on the employee side.

Great. Last questions are a quick numbers question. You added 12,000 business jobs. Can you quantify how many of that were from - in this quarter were from your largest customer? Are you able to quantify that?

Brian, I think you mentioned 12,000, and I believe that in Q4.

I mean, 12,000. Sorry, I skipped the zero. Yeah, 12,000, sorry, that's a big difference. Of the 12,000, how many - yeah.

12,000 is net of churn, right, net new users. A significant majority of that is coming from regular organic business, not from large customers. Large customer launches are expected to happen throughout the year. You’ll see the user growth coming from that in fiscal 2022. More of the numbers in the 12,000 were very small.

Got it. I misunderstood that. Thank you so much.

Your next question comes from Josh Nichols of B. Riley. Please go ahead.

Yeah, thanks for taking my question. Eric, if you could dive into a little bit more on the company's strategy and how you're expanding the partnerships that seem to be going well on the reseller channel. But a little bit more about you mentioned digital marketing and what the company's plans are maybe to ramp that spend a little bit?

Yeah, I can say a few words. I think we're operating and executing very well on our sales and marketing fronts right now. We're growing nicely and just about all the areas in which we try to grow. Some of that growth is direct, some of it is through channel partners, and we're simply doing more of what we do well. We spent about 29% of revenue in Q4 on sales and marketing, which is low for our industry. We would like to be more aggressive and dial that up. It’s kind of a stair-step process as you bring on personnel and invest more in your online marketing methods and your other channel support activities. So there's no major change in what we're trying to do for fiscal year 2022. We just want to do more of it and grow commensurately with it. That has us excited as we go into the year, executing well. The big additional focus this year on the sales and marketing front is expanding internationally with our largest customer. That also impacts the R&D front with the efforts to put in the capabilities for that. I hope that answers your question.

Yeah, thanks for that. And then I did want to talk a little bit about good to see the churn seems to be subsiding after the original spike with the pandemic. You have net dollar subscription retention revenue improving quarter-over-quarter. What's left for potential improvement on that front? I know historically, if you go back a few quarters, a company has been able to achieve 100% or even a little bit better than that; that could also help support the company's growth? And what's left to be done on that front for potential improvement for 2022?

That's got 2 components to it. As you know, it has to do with the growth rate for existing users and churn. With the launch of Office Pro, we've made great headway. We will continue to focus on that as we go forward, and we see more potential there still. As we add more features and services to Office, which we talked about in my prepared remarks, you'll see additional elements to what we do with Ooma Office that I think can also help drive this metric. As we move to slightly larger customers, we tend to sell more of our business on contracts as opposed to just month-to-month. That might have a little bit of impact on this, although I think my view has always been, you just have to serve the customer really well, and it doesn't matter whether you have a contract or not. That's a dimension as well; we have seen churn stabilize and come down somewhat from the peak of the pandemic, but it is not all the way back to where it was pre-pandemic. So there's potential there too, which is maybe somewhat a little bit out of our control, but more just with time through the year. So all of that is part of how we look at trying to see that number go up further. The core of it, frankly, is doing a good job for your customer. When Consumer Reports ranks us number one on the residential side or the readers of PC Magazine ranked us the number 1 solution for business, I mean, that's the key. That's what really drives that metric. Augmenting that with additional services allows us to sell back to our existing customer base, including Ooma Connect and potentially Ooma Wi-Fi, which drives that in the right direction.

Thanks. The last question for me, I know the company has done a good job transitioning to generating healthy cash flow this year, record cash flow. But it seems like the company just took out a revolving credit line. I want to ask a little bit about your thoughts on the high-level capital allocation strategy given that you already have a pretty strong balance sheet. Is that just out of some additional caution after the pandemic or potential bolt-on M&A opportunities? I know the company has done a few before.

Hey, Josh. This is Ravi. You're right. We had a pretty solid fiscal 2021 cash flow perspective, free cash flow, and cash flow generation, and our revolver of $25 million is for housekeeping. It also reminded us during the pandemic how well we are prepared. There wasn't any specific reason we got this revolver. Obviously, if an M&A opportunity comes up, we want to be able to look at that. The purpose of the revolver initially was to prepare for something that may happen. Although our day-to-day needs of business are entrenched with a pretty positive cash flow from operations, I'm not worried about it, and we actually added that. It was generally speaking good housekeeping.

Thanks, guys.

Thank you, Josh.

Your next question will come from Matt Stotler of William Blair. Please go ahead.

Hey, Eric, Ravi, Matt. Thanks for taking the question. Just a couple of quick ones here. I guess, one on the partnership front. Obviously, the partner channel is becoming an increasingly meaningful part of the overall go-to-market, with an increasing portion of bookings there. You guys obviously have a pretty solid representation on the retail side of the partner channel. I would love to get an update on just how you're thinking about expanding go-to-market partnerships going forward, what that pipeline looks like, and where you're most focused in terms of building out those new relationships, whether that's resellers, master agents, sub-agent, system integrators, or carriers; how do you think about that?

Sure. You're right. We see a lot of potential on this front in two respects. One is there is a large reseller community out there. Ooma hasn’t focused on that community that much until the last couple of years. We're not very penetrated into it yet. We have some very close partners that we work very well with, but the vast majority of, say, master agents or others in the industry, we really haven't gotten involved with them yet. So it's a longer-term direction for us to continue expanding in that regard. I see a lot of potential going forward for us in this space. The second respect, though, is we also work with partners who might be resellers or someone we work in conjunction with, but they could be a company that does something particularly in a vertical space, and find there's value in marrying up what our solutions do with what they do otherwise. We don't really talk about who those partners are, but they're an essential investment area for us. We have a handful onboard today, and over time, these efforts should show up and are intended to show up in the growth of the overall revenues we drive. We found that our small business solution fits well with what some others are doing in the small business space. That's an untapped opportunity for us to keep pursuing throughout the year and beyond.

Great. Yeah, absolutely. And then just one more quick follow-up on Ooma Meetings. We'd love to get a little bit of an update there on early interest or traction. Obviously, still relatively early there, but embedding this offering in Office Pro. Do you plan to offer standalone Meetings or collaboration product versus that? Would that make sense? Just any commentary around that product and how you're thinking about how to advance going forward would be helpful.

Sure. Well, first of all, Ooma Meetings works great, and we've had very positive feedback from those of our customers using it. Having Ooma Meetings and some of the other things in our Office Pro tier have also helped to drive the adoption of Office Pro. So far, what we've done with Ooma Meetings is working excellently for our customer base. But we will consider enhanced features in Ooma Meetings that might even be a higher-level tier of service as we look out over time. But we don't have plans today to offer Ooma Meetings standalone; that's not a direction we're taking at the moment. We're using it to help drive the step-up to the premium level services that we bring to our customers, and I think that's working well.

Great, thanks again.

And we have no further questions. I'll turn the call back over to the presenters.

Great. Well, thank you, everyone for joining us today. It's been an exciting fiscal year 2021. We're even more excited as we look forward to 2022. We have a lot of good things happening, and we look forward to updating you through the year on how things develop. Thank you.

This concludes today's conference call. Thank you for joining. You may now disconnect.