Ooma, Inc.

only mode later we'll conduct a question and answer session and instructions will follow at that time if anyone should require assistance during the conference please press star zero i would now like to turn the conference over to your host mr matthew robinson please go ahead thanks alexander good day everyone and welcome to the first quarter fiscal year 2022 earnings call of uma inc my name is matt robison who is director of ir and corporate development

On the call with me today are UMA's CEO, Eric Stang, and CFO, Ravi Narula. After the market closed today, UMA issued its first quarter fiscal year 2022 earnings press release via BusinessWire. The release is also available on the company's website, UMA.com. This call is being webcast live and is accessible from a link on the events and presentations page of the investor relations section of our website. This link will be active for replay of this call for at least one year. The telephonic replay will also be available for a week starting this evening about 8 p.m. Eastern time. Filing 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 Law. 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 in 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 will give guidance for second quarter and full year fiscal 2022 on a non-GAAP basis. Also, in addition to our press release and 8K filing, the overview page and events and presentation page and investor 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 course subscription businesses. These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include gap to non-gap reconciliation. It also provides a resolution of gap expenses that are excluded from non-gap metrics. Now I will hand the call over to UMA's CEO, Eric Stang. Thanks, Matt. Hi, everyone. Welcome to UMA's Q1 fiscal year 2022 earnings call. Thanks for joining us today. I'm excited to share with you the strong start we've made to this year, and I look forward to updating you on our key growth initiatives and outlooks. For fiscal Q1, our results again outpaced our guidance with revenue of $45.6 million and non-GAAP net income of $2.8 million. Our Q1 revenues grew 13% year-over-year, comprised of 24% year-over-year growth in business revenue and 5% year-over-year growth in residential revenue. We also once again generated positive cash flow from operations while investing in new growth initiatives, including international expansion. Across our business, I believe we executed well, and we are on a good trajectory to realize our plans for this year. You may recall I mentioned last quarter that 76% of small businesses, defined as less than 100 employees, say they have yet to invest in IP-based communications solutions. UMA Office is our uniquely designed solution for such small business customers who desire advanced features but do not have an IT department to implement them. We believe UMA Office brings productivity improvements and savings that drive compelling value. Our strategy is to target this vast market opportunity primarily by scaling our sales and marketing programs, by adding features that drive increased customer adoption and raise our revenue per user, and by expanding internationally. On the first of these, scaling our sales and marketing programs, we executed well in Q1 and established several important new reseller relationships to support future channel sales growth. For the quarter, sales through channel resellers contributed approximately 40% of business sales. On the marketing front, we increased our intent-based marketing and enhanced the targeting of our marketing programs. Direct sales, particularly e-commerce sales, performed well in Q1. Some of our more notable UMA office new customer wins included a 67-user implementation for a multi-location restaurant group and a 55-user implementation for a medical group. They also continued expansion with a large national brand through the addition of over 150 new locations. Scaling our sales and marketing programs will continue to be a priority for us this year. We also launched exciting new features in Q1 to support our strategy to serve more small business customers and increase revenue per user. Most notably, we just recently added two new features to our UMA Office Pro tier of service. The first we call Color Info Search. This feature enables caller information from CRM systems, such as Salesforce, HubSpot, and Zoho, and from websites, such as LinkedIn, Google, and Facebook, to pop up automatically in our desktop app when a call comes in. The second feature is integration with Google Workspace, specifically an add-on in the Google Workspace Marketplace website. which enables calendar integration, for example, to schedule a NUMA video meeting and automatically populate meeting details in Google Calendar. Further integration with Google Contacts, the Chrome browser, and more are planned to follow, along with similar capabilities for integration with Microsoft 365. These new developments will improve productivity for small businesses and further grow adoption of our Office Pro higher tier of service. In Q1, approximately 43% of new office users stepped up to our pro tier of service at $5 more per month. Internationally, as we discussed last quarter, we are expanding this year to more than a dozen new countries and plan to capitalize on the opportunity to serve our largest customer in these new locations. We made good progress on this goal during Q1 and now are serving or have the capability to serve users in nine Western European countries. In Q2, we expect to launch in more European countries and at least one country in Asia. The rollout of additional users with our largest customer has just recently started, and we expect significant progress to occur during Q2. In addition to our strategy to target the vast market opportunity afforded by small businesses that have yet to move to the cloud, We also have a second strategy underway to serve larger businesses which have custom needs or in verticals where we believe we can bring unique value. To this end, we continued our investment in UMA Enterprise during Q1 and are excited about winning a new opportunity with a reseller, which we believe will lead near term to the addition of more than 1,000 new users. We also secured several new customer wins in one of the key verticals we are targeting, We scaled up sales efforts for our direct routing for Microsoft Teams solution, and we implemented direct routing for Teams for our initial customers during the quarter. We intend to continue to invest in UMA Enterprise this year to develop new opportunities. Our longer-term vision extends to providing a more complete infrastructure solution to small businesses and distributed enterprises. As a start to this vision, we launched UMA Connect last year to provide business wireless Internet services, both for Internet backup and for primary Internet use. Since the launch, we've worked to learn about the connectivity needs of small businesses and enhance our value proposition. In Q1, we extended our capabilities to include use of the T-Mobile network to enable both user and UMA-controlled speed options, to make our unique continuous voice technology available to all UMA Connect customers, and to introduce unlimited data plans. We're excited about the potential to provide increasingly extensive and integrated solutions that bring more value to small business customers. Finally, I'm pleased to report our residential business also performed well and increased in revenue in line with our expectations. During Q1, we expanded our retail distribution of Umatello. We also extended the power of our residential mobile app to include cellular mode calling. This mode uses the mobile device's voice network to provide a new option for completing calls. Many of our residential customers take advantage of our very low-cost international calling rates to make calls overseas while on the go, for example, while driving on the highway. In such circumstances, cellular mode can enable more reliable calls. We continue to see a strong outlook for our residential business. So overall, we are excited to be off to a good start on the year, and we are looking forward to driving further growth in the quarters ahead. 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 financial results for the first quarter and then provide our outlook for the second quarter and full year fiscal 22. We delivered strong financial results, achieving record revenues of $45.6 million, which was above the high end of our previously issued guidance range of $44 million to $44.8 million. On a year-over-year basis, total revenue grew 13% driven by the strength of UMA business, UMA Business now accounts for 47% of total revenue compared to 43% in the prior year's quarter. Net income for the first quarter of fiscal 22 was $2.8 million and above our previously issued guidance range of $1.8 million to $2.4 million. Our strong revenue growth and profitability demonstrates the strength of our large and diversified customer base as well as our solid execution. Now some details on our Q1 revenue results. Our overall subscription and services revenue grew 12% on a year-over-year basis to $42 million, with UMA business subscription and services revenue growing 22% year-over-year and 5% sequentially from Q4. Our residential subscription and services revenue for Q1 grew 4% year-over-year, which is an improvement from the 3% growth we saw in the fourth quarter of last year. Subscription and services revenue as a percentage of total revenue was 92% compared to 93% for the prior year quarter. During the first quarter, we saw our product and other revenue increase 34% to $3.6 million and compared to $2.7 million for the same period last year. This strong growth in product and other revenue was driven by increased sales of IP phones, as well as higher activation revenue from business users. Now some details on key customer metrics. We ended the first quarter with 1,083,000 core users, up from 1,049,000 at the end of the first quarter last year, driven by growth in business users through various sales and marketing activities. I am excited to report we now have over 281,000 business users, a 19% increase on the year-over-year basis. Our average monthly subscription and services revenue per core user, or R2, increased 10% to $12.68, up from $11.56 in the prior year quarter due to an increasing mix of business users, including higher R2 Office Pro users. Accordingly, our business output is now approximately $24 per unit. We are pleased with the growth of our annual exit recurring revenue, which has now increased to a record $165 million, growing 13% year over year. Our net dollar subscription retention rate for the first quarter improved to 98%, a two-point improvement on a sequential basis. Now some color on gross margins. Subscription and services gross margins for the first quarter were 71.3%, an increase of 70 basis points year over year, and down 60 basis points sequentially, primarily due to investments being made for future growth. Product and other gross margins for the first quarter were negative 41%, compared to negative 39% for the same period last year, and improved sequentially from the negative 58% in Q4. Our overall gross margins were 62% for the quarter, compared to 63% in the prior year period, driven by a higher proportion of product revenue in the quarter. Now some details on our operating expenses. Operating expenses for the first quarter for fiscal 22 were $25.8 million, an 11% increase on a year-over-year basis. Sales and marketing expenses were $13.3 million, or 29% of total revenue. This 13% year-over-year increase was driven by higher marketing and channel development activity through my business. Research and development expenses were $8.2 million, or 18% of total revenue. This is an increase of 6% on a year-over-year basis, driven by investments in the new products and features including launching our service in a number of international countries, starting first with our largest customers. DNA expenses increased to $4.3 million, or 9% of total revenue, compared to $3.8 million for the prior year quarter due to higher personnel-related costs. Net income for the first quarter was $2.8 million, resulting in diluted earnings per share of 11 cents comparable to the $0.11 EPS for the prior year quarter. Adjusted EBITDA earnings for the first quarter improved to $3.5 million, or 8% of total revenue, as compared to $3 million in the prior year quarter. We ended Q1 with cash and investments of $29 million, compared to $23.3 million at the end of Q1 in the prior year. Even though the first quarter had a number of annual payments, we generated approximately $400,000 in cash from operations, which was a significant improvement from the $2.8 million of cash used in operations in the prior year quarter. This was our fourth consecutive quarter of positive cash flow from operations. On the personnel front, we ended the first quarter with 983 employees and contractors up from $799 at the same time last year. Now I will provide guidance for second quarter and full year fiscal 22. Again, our guidance is non-GAAP and has been adjusted for expenses such as stock rate compensation and amortization of expenses. We expect total revenue for the second quarter of fiscal 22 to be in the range of $46 million to $46.8 million. We expect second quarter non-GAAP net income to be in the range of $1.9 million to $2.4 million. Non-GAAP diluted EES is expected to be between $0.08 and $0.10. We have assumed 23.4 million weighted average basic shares and 24.6 million weighted average diluted shares outstanding for future. Full year fiscal 22 guidance. We expect total revenue for fiscal 22 to be in the range of $185 million to $187 million and increase from the previously issued guidance range of $182.5 million to $185.5 million. We believe we are tracking well towards our objective of business revenue crossing 50% of total revenue by the end of this fiscal year. We expect non-GAAP net income for fiscal 22 to be in the range of $7.5 million to $9.5 million versus the previously issued guidance range of $6.5 million to $8.5 million. Non-GAAP diluted EPS is expected to be in the range of 30 cents and 38 cents. We have assumed approximately 23.5 million weighted average basic shares and 25 million weighted average diluted shares outstanding for fiscal 22. From a cash flow perspective, we expect to continue to generate positive cash from operations for the full year fiscal 22. With that, I'll pass it back to Eric for some closing remarks. Thank you, Ravi.