Ladies and gentlemen, thank you for joining us, and welcome to Ooma's Financial Results Call for the First Quarter of Fiscal Year 2023. Thank you. Matt Robison, you may begin your conference.

Thanks, Josh. Good day, everyone, and welcome to the first quarter fiscal year 2023 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, Shig Hamamatsu. After the market closed today, Ooma issued its first quarter fiscal year 2023 earnings press release. This release is also available on the company's website, ooma.com. This call is being webcast live and it is accessible from a link on the Events and Presentations page of the Investor Relations section of our website. This link will be active for replay of this call for at least 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 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 from results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call, to the most directly comparable GAAP financial measures, is included in our earnings press release, which is available on our website. On this call, we will give guidance for second quarter and full year 2023 on a non-GAAP basis. Also, in addition to our press release and 8-K filing, the Overview page and Events and Presentation page in the Investors section of our website as well as the results page of the financial info section of our website include links to information about costs and expenses, not included in our non-GAAP values and key metrics of our core subscription businesses. These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation that also provides resolution of GAAP expenses that are excluded from non-GAAP metrics. Now I will hand the call over to Ooma's CEO, Eric Stang.

Thanks, Matt. Hi, everyone. Welcome to Ooma's Q1 fiscal year 2023 earnings call. Thanks for joining us. This is an exciting time for Ooma, 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 top line and bottom line. Q1 revenue was $50.3 million, non-GAAP net income was $3 million, and cash increased in the quarter to $31.8 million. We are 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 headcount to our sales and marketing team with most of these additions coming on board late in Q1. We also engaged with over 150 new VARs and agents. As we expected, our introduction of Ooma AirDial is a new and exciting offering for resellers and is helping us expand relationships in the reseller community. For Q1, we grew our business user base by approximately 12,000 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 Ooma Office Pro and our recent launch of Ooma Office Pro Plus also give us confidence as we look ahead. Our take rate for Office Pro amongst new customers picked 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 Pro Plus features can be used from within Salesforce and more. Moreover, as we also did after launching Office Pro, we intend to add to the Pro Plus feature set over coming quarters. Ooma 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 6,000 franchise users nationwide. Regarding further development of Ooma 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 Ooma Enterprise desktop app and admin portal in the first half of this year. We are 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 27,000 users with this customer. We are currently expanding quickly and expect to onboard 8,000 or more additional users with this customer in Q2, on the way to our goal of adding 25,000 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, our most yet, with this customer. As you will recall, Ooma AirDial is our new solution for customers replacing aging and costly copper lines. AirDial launched in Q1 and is rapidly gaining interest from reseller agents, CLEC and select strategic partners. With tens of millions of copper lines now in use in the U.S., we believe the market opportunity for AirDial is massive. To provide some perspective, AT&T announced that they expect to sunset 50% of their copper network by 2025. Moreover, 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 to $506 per month now, and that's 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, Ooma AirDial, which is priced similarly to our other business offerings on a per user basis, provides customers a great financial incentive to make the switch. In Q1, we released the AirDial Remote Device Manager, and we are currently working on several additional AirDial enhancements. So far, our supply has been limited, but we are cautiously optimistic that we can build enough AirDial units this quarter to ramp up sales. In addition, our initiatives to capitalize on the trend to wireless Internet continued to move forward. Sales of Ooma Connect 4G wireless Internet in Q1 were our strongest yet. As we've discussed before, we are finding success with businesses whose only fixed Internet option is low-grade DSL and also with businesses, who have a critical need for a second backup Internet service. Similarly, sales of Ooma Telo, driven by our partnership with T-Mobile, who is offering Telo as an add-on to their home wireless Internet, 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 Ooma for the ninth year in a row, won PC Magazine's prestigious Business Choice Award for Best VoIP System. This award is determined from the magazine's annual Business Choice surveys of its readers. So we find it especially gratifying that Ooma 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 will now turn the call over to Shig Hamamatsu, 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 $50.3 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 Ooma Business, which has reached a milestone and accounted for over 50% of total subscription and services revenue for the first time in the 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. Ooma Business subscription and services revenue grew 18% year-over-year in Q1, driven by user growth as well as ARPU growth. Residential subscription and services revenue grew 4% year-over-year. For the first quarter, total subscription and service 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 was comparable to the prior year quarter. Now some details on our key customer metrics. We ended the first quarter with 1,111,000 core users, up from 1,100,000 core users at the end of the fourth quarter last fiscal year, driven by the growth in business users. At the end of the first quarter, we had 320,000 Business users or 29% of our total core users, an increase of 12,000 from Q4. Our blended average monthly subscription and services revenue per core user, or ARPU, increased 8% year-over-year to $13.71, up from $12.68 in the prior year quarter, driven by an increase in the mix of Business users, including higher ARPU Office Pro users. During the first quarter, we saw a nice rebound in Office Pro take rate with 49% of new Office users opting for Office Pro 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%, which was an improvement from 71% in the prior year. The improvement in subscription and service gross margin was driven by our increase in scale and a greater mix of higher ARPU Business customers. Product and other gross margin for the first quarter 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. The higher total gross margin in Q1 this year was attributable to the year-over-year improvement in subscription and services gross margin, and having a higher mix of subscription and services revenue, which, 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 for Ooma 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 Ooma Office and Ooma Enterprise, as well as new products such as Ooma AirDial. G&A expenses were $4.5 million or 9% of total revenue for the first quarter, compared 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 $0.12 as compared to $0.11 of diluted earnings per share in the prior year quarter. 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 to $29 million at the end of Q1 in the prior year. Cash generated from operations for the first quarter was $0.8 million, compared to $0.4 million in the same period last year. On the headcount front, we ended the quarter with 1,031 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 will 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 $0.10 and $0.11. 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, an increase from our previously issued guidance range of $209.5 million to $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 $0.37 to $0.43. 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, which we shared with you during our recent Investor Day event.

I will now pass it back to Eric for some closing remarks. Thanks, Shig. On April 14, the Ooma management team held its first ever Investor Day. 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 Ooma 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 POTS copper line replacement opportunity with our innovative AirDial solution. And fifth, we want to leverage the trend toward 5G 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.

Your first question comes from Brian Kinstlinger with Alliance Global Partners. Your line is open.

Great. Thanks so much. Great quarter.

Thank you, Brian.

Can you give us some more detail on the strategic partnership with T-Mobile and Ooma Telo? You mentioned a pickup in advertising in the current quarter. Is that campaign already begun? And you know if they're going to focus our efforts on TV, streaming, e-mail, and then outside of being on their website, which we, I think, discussed last quarter, was there any other marketing or advertising by T-Mobile during the first quarter? Thanks.

Sure. I will share what I can, Brian. There were more things that happened besides just being on their website in Q1. And we think there will be additional things that happen in Q2 that have not happened yet. If they had happened, I could talk about them, because it'd 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. This is a great opportunity for us and for T-Mobile to serve customers, many of which are walking away from a double-play solution. And that's what we're there to be with them. And so I don't know if I'm answering your question fully, but it's a close relationship we have with them. We meet biweekly, planning next steps, and things we're going to do. And we think both about marketing to new customers and also to the installed base. Let me leave it at that.

Great. One follow-up. I appreciate your difficulty in answering that. You’ve been clear the supply chain has made it difficult in building AirDial product and shipping it out. Just maybe take us through where that supply chain challenges today versus, say, 3 months ago? How much product can you make? And when might you think the easing of that capacity or inventory build will start to get better for Ooma? Thank you. That’s all for me.

Sure. Happy to comment on that. So when we talked with you a quarter ago, we were ramping the supply chain and did not have much visibility beyond a small number of units that we were building for trial and beta and those sorts of things. As with anything, it's kind of like building a car these days. You've got everything you need except that one little part that you can't get that stops you from building the whole car device. As we sit here today, and keep in mind too, with AirDial, we're ramping up a new supply chain. This is a new product. We have to engage with vendors and get them to start 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 7,000 or 8,000 units through the balance of this quarter, provided we can get through one or two last hurdles, which we do believe we will get through. Visibility beyond that first 10,000 units is a little harder to give. But I can tell you, too, that we've been going through, call it, redesign of the AirDial. That's an overstatement, but the new designs to make it possible to work with multiple vendors in certain areas to 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 and whether we can serve the large upside opportunity we see, we will 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 Halle Mogk on for Matt Stotler. Thanks for taking the question. I want to start with the new Ooma Office Pro Plus plan. It's got some really intriguing features, the hot desking capabilities, integration with Salesforce, the ability to set up the simple call center and whatnot. It's obviously still very early, but what kind of interest or feedback are you getting from customers? Any early interest from new customers, but also the upsell opportunities within the existing customer base? Thanks.

Yes. We just launched it in the last few days. We've had a couple of salespeople sell it before we even had time to train them, which is encouraging. For larger customers, these features are very valuable. We're currently in discussions with a sizable customer for whom Salesforce integration is essential; without it, they would not move forward. This integration is crucial for their business needs. Additionally, for larger businesses running a simple call center with a small team handling incoming orders, the ability to monitor calls and access analytics is also a valuable feature. We believe these will be well-received in the market, especially with future customers. We will offer this to our existing customers and will learn as we proceed. This expands our opportunities in our addressable market for Office. I also want to highlight that the four features mentioned in our press release are just the beginning; we are expecting to release another six features over the next couple of quarters, with two or three of those being particularly exciting. There is more to come with Pro Plus. You may remember when we first launched Office Pro, it started at a certain rate and then grew as we added more into the package. We anticipate similar development with Office Pro Plus as well.

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 market on Ooma, 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 didn't grow sales and marketing as much last year as you wish. So it's great to see that 50 new additions this quarter. How should we think about the plans and priorities for adding headcount growth going forward for the remainder of the year? Thank you.

Yes. Hiring is tough. And it's particularly tough to find people, who are really committed to the things we want to achieve, because it takes the kind of person who wants to hustle. I mean you can do well with Ooma, but it's a demanding job. But that said, we've got a great team. We are thrilled to see the growth go up by 50%. I know not all of those people will work out. And over the first 2 or 3 months, we will see some attrition in that, but we continue to hire. And I believe we're well on track now to what we want to achieve this year. Our plan 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 are doing these days and new approaches to the problem. And I'm pretty comfortable we'll bring those 100 people on board 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.

Thanks. Yes, it was a nice quarter. Eric, you mentioned a strong pipeline, impressive user additions this quarter, and a significant customer expansion. Does that provide you with confidence in achieving the goal of 20% growth in business subscriptions?

Yes, it does. I know we didn't get there in Q1. I'm not sure we will get there in Q2 either. In fact, it's probably more likely we won't, with the guidance we've given you. There's a bit of a flow-through effect from Q3 and Q4, where if we had had more user adds in those quarters, they'd be piling up for us or contributing, if you will, here in the first half of this year. But yes, with the things we have underway and the bounce back in user adds in Q1, I feel good about that metric for the year.

Great. And what was the catalyst to get your kind of large customer ramping this year?

Oh, gosh. As we've talked about in the past, bringing on so many users is a lot of work. So we spent a lot of time last year developing tools and capabilities to bring these users over to Ooma as cost-effectively and as quickly as possible. So we invested a lot last year, frankly, doing some additional things that we didn't anticipate the customer would want to do with us. 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. And as we've discussed in the past, this customer can someday be a six-figure number of users for us. So we are really excited to be ramping in earnest now.

Did you happen to share an ARPU growth number? I might have missed that.

Yes, Mike. Yes. So our latest blended ARPU was $13.71, so year-over-year growth on that was 8%.

That’s correct. Okay. Thanks a lot.

Thanks, Mike.

Thank you.

Your next question comes from Matthew Harrigan with Benchmark. Please go ahead.

Thank you. Additionally, regarding the ARPU number, could you discuss the relative momentum in the business sector where you have a much wider range of products? Also, on the consumer end, it seems you are just starting to see growth compared to where you were before, which is essential for both valuation and financial growth. Furthermore, can you comment on the economic trends you are observing with smaller businesses and consumers? Are there any indications of stress? I understand you have chosen not to focus your marketing efforts on the consumer side as much as on the business side. Do you believe you could accelerate growth in that area if you decided to invest more in marketing there?

Sure. I'll address the ARPU question first, and then I'll let Eric discuss the consumer side. For the Business, our blended ARPU stands at $13.71, reflecting another quarter of growth. We've noted strong growth in the Business segment as well, with indications in our investor deck showing over 24%. While we are not being overly specific, we did see significant growth and margins approaching 25%, specifically within the 24% range. This positive trend is primarily due to a strong uptake of Pro, with a 49% adoption rate this quarter, up from 44% last quarter. Additionally, 29% of all Office users now subscribe to a premium tier, and this number is on the rise. We anticipate that Pro Plus will continue to influence this growth positively in the coming quarters. In the residential segment, we are also seeing an increase in ARPU, reporting over $9 with a quarter-over-quarter growth. Even prior to the increase in T-Mobile users, we have noticed a larger trend of more premium subscribers on the residential side, contributing positively to our overall growth. Now, I’ll hand it over to Eric for the consumer side.

Thank you, Shig. Regarding your second question about small business health and opportunities for residential growth, we haven't observed any signs of weakness in small business health. It's performing well for us. Our churn rates in Q1 were slightly lower than in Q4, which aligns with our expectations. We’re not noticing any negative indicators from an economic or macro perspective in relation to our growth. One reason for this could be that we can provide small business customers with significant value and often save them money. Our marketing and growth heavily rely on our marketing efforts and the number of customers we reach. Even during tougher economic times, the ability to save customers money positively impacts our business development. In terms of residential, we experienced better performance in Q1 compared to previous quarters, with a small decline of about 1,000 users, totaling close to 800,000. It was a solid quarter for residential users, and as Shig pointed out, the shift towards more premium users contributes positively to our growing revenue in this area. We can certainly grow the residential segment faster; however, we intentionally allocate our sales and marketing budget towards small business and enterprise growth. There remains significant potential on the residential side as well, with approximately 50 to 60 million home landlines in North America, and we currently serve less than 1 million of those. This highlights the opportunity we have. Additionally, if copper lines are phased out at the residential level, it may create more opportunities for customers to explore their options. This is our view of the current macro environment. I hope that addresses your question.

Well, thanks. And actually, if you don't mind the earlier question on the AirDial supply chain. I'm sure you're not worrying about Neon gas out of Ukraine or anything like that. But is there anything that specifically China or geopolitically is giving you pause or it's just kind of ordinary dislocations and congestions in the supply chain that everyone is seeing right now? Thanks.

Our challenge with AirDial is straightforward. There are several components that need to be integrated into the board for that unit, and typically one or two are particularly difficult to obtain. However, we have been successful in finding ways to source them. In some cases, we have had to incur higher expenses, but we have also discovered that we can incorporate those costs into the product pricing, so it hasn't been a major concern. We collaborate with contract manufacturers, allowing us to produce products both in China and elsewhere, which means we are not solely reliant on manufacturing AirDial in China as we look ahead. The focus is on establishing a new supply chain for this new product and working with our vendors, and that process is progressing well.

Thanks, Eric. Thanks, Shig.

Sure, Matthew.

There are currently no further questions at this time. I will turn the call back to Ooma's CEO, Eric Stang for any closing remarks.

Awesome. Thanks everybody for joining us. It's nice to have a clean quarter, a good quarter and be off to a good start for the year. And I look forward to seeing some of you perhaps at conferences this week and in a week or two's time, which we will be at. So I appreciate your time today. Thank you. Bye-bye.

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