This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the UMA fourth quarter and fiscal 2022 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Mr. Robison, you may begin your conference.
spk07: Thanks, Emma. Good day, everyone, and welcome to the fourth quarter and fiscal year 2022 earnings call at UMA, Inc. My name is Matt Robison, UMA's Director of IR and Corporate Development. On the call with me today are UMA's CEO, Eric Stang, and CFO, Shig Hamamatsu. After the market closed today, UMA issued its fourth quarter and fiscal year 2022 earnings press release. This 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. A telephonic replay will also be available for a week starting this evening about 8 p.m. 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 in actual results or 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 were fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information information available to us as of the day 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 is included in our earnings press release, which is available on our website. On this call, we will give guidance for first quarter and full year fiscal 2023 on a non-GAAP basis. Also, in addition to our press release and 8K 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 a resolution of GAAP expenses that are excluded from non-GAAP metrics. Now, I will hand the call over to UMA CEO Eric Stang.
spk08: Thank you, Matt. Hi, everyone. Welcome to UMA's Q4 fiscal year 2022 earnings call. Thank you for joining us today. I'm pleased to report we exceeded expectations for Q4 and our full fiscal 2022 year. And I'm excited to talk with you about our outlook and the many initiatives we have underway to drive growth in our upcoming fiscal year. We capped off our fiscal 2022 with Q4 revenues of $50.5 million. representing 14% growth year over year. Total revenue for fiscal 2022 was $192.3 million, up $23.3 million from fiscal 2021, and also representing 14% growth year over year. We accomplished this growth while increasing our ARPU, generating EBITDA of $15.6 million, and increasing our cash on hand to over $30 million. FY22 was a strong year for us and one we're proud of. Looking back at FY22, we're also proud of the investments we made in our future. As I go through my remarks today, I will highlight a number of growth opportunities that we put in place during FY22 and which hold tremendous potential for this year and beyond. Looking first though at our progress in Q4, We continue to execute our core strategy of growing our SMB and enterprise subscription revenues through feature enhancements and sales and marketing expansion. For our SMB customers, we added features such as hot desking, which facilitates shared workspaces, dynamic caller ID, which allows individual control of caller ID, and calendar integration with Google G Suite and Microsoft Office 365. We also continued development of our upcoming Pro Plus tier, which will extend our range of features to serve even larger businesses and facilitate further ARPU growth for UMA Office. I'm pleased to report we remain on track to launch UMA Office Pro Plus in Q2 of this year. For our enterprise customers, we launched our integration with Jazzware to link UMA's UCaaS features with Jazzware's cloud service and control of property management solutions. Our plan is for UMA and Jazzware together to enable advanced features for the hospitality industry. We also continued our ongoing effort to modernize each of the ways our users interact with UMA Enterprise. In this regard, I'm pleased to report that we believe we will complete our update of UMA Enterprise in the first half of this year with the release of new mobile apps and an updated admin portal. On the sales and marketing front, we made good progress, although we did face some headwinds driven by the intensity of Omicron and typical Q4 seasonality. One particularly exciting new customer for UMA Office and Q4 is a large fast food franchise group with over 300 users. We also added more than 150 new locations representing nearly 500 users with franchises of a large services firm, bringing us in total now to over 5,000 franchise users with this firm. In hospitality, we landed six new properties in Q4 and are seeing our backlog of opportunities build since the recent launch of our Jazzware integration. We also signed with over 80 new agents and bars in Q4 as part of our continued effort to expand sales through channel partners and resellers. All in, we made good progress expanding our business in Q4. We also accomplished a lot in Q4 to enable our largest customer to roll out at scale to more users. While we know this has been a long time coming, we fully expect that rollout will begin in Q1 and accelerate through the balance of the year. In addition, through our efforts over the last couple of quarters, we have expanded the longer-term scope of opportunity for us with this customer. Our immediate goal, as we stated previously, is to add 25,000 plus users, taking us to 50,000 users approximately in total. And once that is achieved, we anticipate further expansion will follow. Last quarter, we made the exciting announcement that we are introducing UMA Airdial. As you'll recall, Airdial provides analog to digital conversion, remote management, battery backup, and wireless LTE over a controlled network to replace copper lines serving critical building applications. The market reception to Airdial has been strong, and we have already signed multiple resellers. Currently, we have beta units in use at customers and production underway of Airdial units that will be available for sale starting late Q1. We anticipate our biggest challenge through this year will not be demand, but rather our ability to build and supply units. At this time, we are conservatively forecasting Airdial and our business outlook until we have more certainty on market development, our build quantities, and timing. Nonetheless, we see significant upside potential for Airdial and FY23 and are actively working internally to execute on this opportunity. Last quarter, we also made the exciting announcement that T-Mobile will offer UMA Tello to T-Mobile's 5G home internet customers. UMA and T-Mobile are working together to pursue this opportunity, and Tello is the only solution being offered. We are excited by T-Mobile's significant growth plans for home internet and by the continued market demand we see from customers who want to combine internet with home phone. As of now, Tello is included as an add-on option on T-Mobile's website, and joint work is underway to implement other marketing initiatives. We are experiencing sales every day with T-Mobile, but it's still too early to forecast the full potential of this partnership. As we look forward to FY23, we believe we have built a solid foundation for growth. We see ourselves today as a leader in each of our target segments, serving SMB customers, select enterprise applications, and residential customers. We have built a robust and very flexible end-to-end platform that is operating at large scale, serving approximately 2.5 million users today. Online marketing and direct sales are strategic competencies of ours, and we are investing to build our channel reseller sales. Our scope now extends beyond North America to Europe and soon will extend beyond that to other regions of the world. We are increasingly charting our own direction as we broaden our solutions to include integrated services such as UMA Connect, UMA Wi-Fi, and UMA Airdial. Overall, we are not only driving growth but also generating positive cash flow from operations. our accomplishments today create a strong foundation for future growth. Strategically, our vision remains to provide leading communications and related services that deliver advanced features, superior ease of use, and uncommon value to businesses worldwide. As we seek to implement this vision, we are focused in FY23 on five priorities for growth. First, execute to grow sales to business customers. In particular, we intend to launch UMA Office Pro, which is a higher service tier, to expand our sales and marketing activities and to continue to build our brand recognition. Number two, develop new verticals and stronger channel sales. As part of achieving this, we intend to grow the number of agents and VARs we work with and to strengthen our support for channel resellers. Number three, expand in Europe. We'll achieve this in FY23 by rolling out service to a large number of new users as part of our expansion plans with our largest customer. Number four, capitalize on Airdial to replace copper lines that are sunsetting. Our intention is to create both the most extensive solution and the best value solution and be the leader serving this opportunity. And finally, number five, leverage the transition to 4G and 5G internet to drive added growth. With Telo offered by T-Mobile and with UMA Connect, we have the first steps in place to achieve this. As you can see, while we have a lot to accomplish this year, we also have more opportunity in front of us than ever before. I will now turn the call over to Shig, our CFO, to discuss our results and outlook in more detail and then return with some closing remarks.
spk05: Thank you, Eric, and good afternoon, everyone. I'll begin with the review of our fourth quarter and full year fiscal 2022 financial results and then provide our outlook for the first quarter and full fiscal year 2023. We delivered another quarter with strong financial results, achieving $50.5 million in total revenue, exceeding our guidance range of $49.7 million to $50.2 million. On a year-over-year basis, total revenue grew 14% in the fourth quarter, driven by the strength of UMA business subscription and services revenue, which accounted for 49% of total subscription and services revenue as we continue to make progress towards achieving more than 50% of our subscription and services revenue coming from business customers in the near future. On a four-year basis, Total revenue was $192.3 million compared to $168.9 million in the prior year, representing 14% growth year-over-year, including 23% growth in UMA business subscription and services revenue. Non-GAAP net income for the fourth quarter was $3.2 million, which exceeded that guidance range of $2.3 million to $2.8 million. And net income for four-year fiscal 22 was $12.6 million compared to $11.5 million in the prior year, driven by the growth in subscription and services revenue and expansion of related gross margin. Now some details on our revenues for Q4 and fiscal 2022. LUMA business subscription and services revenue grew 19% year-over-year in Q4 and 23% for fiscal year 2022 Driven by user growth as well as output growth, residential subscription and services revenue grew 3% for both fourth quarter and full fiscal year 2022. For the fourth quarter, total subscription and services revenue was $45.8 million, or 91% of total revenue, compared to 93% in the prior year quarter. During the fourth quarter, as expected, we saw a product and other revenue increase to $4.7 million as compared to $3.1 million for the same period last year, driven by the sale of additional units of our fixed wireless products to the same strategic customer, which we discussed in our third quarter earnings call. Now, some details on our key customer metrics. We ended fiscal 2022 with 1,100,000 core users up from 1,074,000 core users at the end of the prior fiscal year, driven by the growth in business users. I am excited to report that we now have 308,000 business users, which represented 28% of our total core users, up from 25% at the end of the prior fiscal year. Our blended average monthly subscription and services revenue per core user, or APU, increased 8% to $13,041, up from $12,046 in the prior year quarter, driven by an increasing mix of business users, including higher output Office Pro users. During the fourth quarter, 44% of our new Office users opted for Office Pro service, and for full fiscal year 2022, 45% of new Office users opted for Pro service, which was up from 40% in the prior fiscal year. Overall, 20% of our office users have now subscribed to our pro tier. Our annual exit recurring revenue in Q4 grew to $176.9 million and was up 10% year over year. Our net dollar subscription retention rate for the quarter was 96%, which remains stable compared to the prior year quarter. For the entirety of fiscal 2022, our quarterly net dollar retention rate averaged 98%, which was an improvement from 96% in fiscal 2021. Now some details on our gross margin. Our subscription and service gross margin for the fourth quarter was 73%, which was an improvement from 72% in the prior year. The improvement in subscription and service gross margin was driven by our increase in scale and the greater mix of higher approved business customers. Product and other gross margin for the fourth quarter was negative 49% compared to negative 58% for the same period last year. This improvement over the prior year quarter was mostly due to the sale of fixed wireless products to the strategic customer I mentioned earlier. On an overall basis, total gross margin for Q4 was 62% as compared to 63% for the same quarter prior year, as we had a higher mix of product revenue during the quarter. And now some details on operating expenses. Total operating expenses for the fourth quarter were $27.9 million, up $3 million, or 12%, from the same period last year. Sales and marketing expenses for the fourth quarter were $14.5 million, or 29% of total revenue, up 13% year-over-year, driven by higher marketing and channel development activities for UMA business. Research and development expenses were $8.9 million, or 18% of total revenue, up 9% on a year-over-year basis, from $8.2 million, driven by investments in new features for both UMA Office and UMA Enterprise, as well as new products such as UMA Airdial. G&A expenses were $4.5 million, or 9% of total revenue for the fourth quarter, compared to $3.9 million for the prior year quarter. A non-GAAP net income of $3.2 million resulted in a diluted earnings per share of 13 cents for the fourth quarter as compared to 12 cents of diluted earnings per share in the prior year quarter. Adjusted EBITDA for the quarter was $4 million or 8% for total revenue as compared to $3.6 million for the prior year quarter. Adjusted EBITDA for full fiscal year 22 was $15.6 million as compared to $14 million in the prior fiscal year. The increases in non-GAAP net income and adjusted EBITDA were driven by economies of scale, especially for the growth in subscriptions and services revenue and related gross margin. We ended a quarter with total cash and investments of $31.3 million, compared to $28.3 million at the end of Q4 in the prior year. cash generated from operations for the fourth quarter was $1.8 million compared to $2.2 million in the same period last year. For full fiscal year 2022, cash generated from operations was a record $6.7 million as compared to $4.4 million in the prior year. On the headcount front, we ended a quarter with 979 employees and contractors. Now, I'll provide guidance for the first 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. For the first quarter of fiscal 2023, we expect total revenue to be in the range of $49.5 million to $50.2 million. The first quarter revenue guidance range assumes product and other revenue will normalize to the level we saw in the first half of fiscal 2022, as we do not anticipate additional shipment of fixed wireless products to the same strategic customer discussed earlier. The guidance range also reflects a normal seasonal decline of talk-a-thon revenue in the first quarter, as talk-a-thon revenue typically peaks in the fourth quarter driven by its ad base revenue over the holiday season. We expect the first quarter net income to be in the range of $2.2 million to $2.8 million. Non-GAAP diluted EPS is expected to be between $0.09 to $0.11. We have assumed $25.1 million worth of average diluted shares outstanding for the first quarter. For full fiscal 2023, We expect total revenue to be in the range of $209.5 million to $212.5 million. Let me give you additional context for our fiscal 2023 revenue guidance. It is important to remember that fiscal 2022 revenue included approximately $3 million of product revenue to a strategic customer that we currently do not anticipate will recur in fiscal 2023. Excluding the impact of this product revenue in fiscal 2022, the midpoint of fiscal 2023 revenue guidance represents approximately 11.5% revenue growth year over year, which assumes subscription and services revenue growth rate of 20% for UMA business and between 1% to 2% for residential. The revenue guidance for full fiscal year 2023 also reflects Our current expectation that contribution from Airdial will be more meaningful in the second half of the fiscal year. We expect non-GAAP net income for fiscal 2023 to be in the range of $8.5 million to $10.5 million after incorporating increasing cost of labor, cost to expand our channel strategy, launch new products such as Airdial, and to enable significant expansion of services in international locations. We expect non-GAAP diluted EPS for fiscal 2023 to be in the range of $0.33 to $0.41. We have assumed approximately 25.7 million weighted average diluted shares outstanding for fiscal 2023. In summary, we are very pleased with our solid performance in fiscal 2022, which demonstrates strength in execution while we make progress towards our long-term objectives. I'll now pass it back to Eric for some closing remarks. Eric?
spk08: Thanks, Shig. I mentioned at the outset of my remarks that in FY22 we made significant investments in our future. Those investments in international expansion, in higher level service tiers, in the development of new verticals and channels, in creating the most complete solution for replacing copper lines, in partnering TELO with T-Mobile and more, they all position us better than ever for FY23. While our visibility on what we will achieve in FY23 will improve through the year, we clearly have the potential to drive significant growth. As always, the UMA team is 100% focused on building UMA's long-term success. Thank you. We will now take your questions.
spk00: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your first question today comes from the line of Matt Stotler with William Blair. Your line is now open.
spk02: Hey, Erica, Shig. Thanks for taking the questions. I guess, first off, you know, the helpful call you gave on the guidance and kind of the puts and takes, both of the large customer and some of the seasonality in Q1. You know, it's been kind of a tough environment, you know, towards the end of the year, early this year for a lot of people. And we saw, you know, looking at some of the KPIs and net ads were a little bit down sequentially. Retention took a little bit of a step down. There's a little bit of a deceleration in business revenue growth. So if you just talk about maybe some of the factors that you saw that, you know, impacted those KPIs, whether it's seasonality or, you know, what you saw with Omicron and some of those face-to-face channels potentially, and then thoughts on how to think about those going forward.
spk08: Sure. Hi, Matt. You hit some of the issues right there in your question. If you look at Q4, it was December that was the tough month of the quarter for us. With Omicron and seasonality, we had a tougher December than we'd expect, but we bounced back well in January. I would add a secondary comment. This was less significant for us, but we did launch a new line of IP phones in the quarter and we had some teething pains with those phones as we first brought users up on them. And that affected us a little bit as well. But what I can say is that January was strong. February is running at the kind of run rates that would lead to us back at our previous middle of last year churn levels and also back at our previous of last year, you know, adding net business users in, how do I say it, five figures, over 10,000 for the quarter. So I'm feeling pretty good about the business for where we are today, but you're right, Q4, particularly in the December period, was a little challenging.
spk02: Got it, got it. That's helpful. And then maybe one on the vertical specific opportunities. You know, you talked a little bit about the, you know, specific opportunities in hotels and hospitality, and you made some announcements around that after the JASWR partnership. How do you think about the potential for additional, obviously this one's still early, right? So maybe some thoughts on how that plays out and then the potential for additional vertical specific opportunities going forward and maybe what you're focused on there.
spk08: Yeah. Well, you've captured our strategy at the enterprise level pretty distinctly with the question. Rather than trying to be everything to everybody, we're finding applications and verticals where our unique capabilities can really differentiate. In hospitality, particularly in conjunction with JASWARE, we have a great kind of integrated solution that can bring UCAS features together with more basic features for powering individual rooms, analog and digital combined, connected up to PMS systems. So it's become a bit of a focus for us. It's a way to develop our business and also, frankly, convince new channel partners and resellers to work with us because we've got something special to bring to them. In that vein, Airdial also is helping us open up new channel reseller relationships because, again, we have something that's fairly unique in the industry that that causes these resellers to want to work with us. Through this year, we are intending to develop additional verticals. We have some that I could talk with you about here, but they take time to really come together, and they are strongest when we can bring some real extra dimensionality around the feature set as well. But no, that's part of our strategy for building enterprise, and we'll at least target a couple more this year.
spk02: Very helpful. Thanks again.
spk08: Yep.
spk00: Your next question comes from the line of Josh Nichols with B Reilly. Your line is now open.
spk10: Yeah, thanks for taking my question. I'd like to touch on T-Mobile. Seems like an interesting longer-term opportunity. I realize it's early stage, but any commentary you can make, like what type of traction you're seeing? And I'm curious how conservative you're being in your guidance for T-Mobile for this year on the revenue side, given that you did mention it's relatively early stage. Could you elaborate on that a little bit, please? Yeah, happy to.
spk08: You know, it starts with T-Mobile's own comments around their intentions with home internet. They are very committed to the space. They've talked about, you know, building out their user base to millions of users as we look forward the next few years. I won't try to re-quote what they've said, but I'm sure you can look back at that. That's exciting. And, you know, alongside That effort, they feel, and I think the market has spoken, that some customers want to have what we call a double play solution, have phone service and Internet together. So there's a natural fit between the two of us. And in addition, some customers may be switching away from cable-based solutions where they may already have both services and they want to continue to get both in order to switch. It's a great partnership to work together on this. We do have a cadence of planning and marketing meetings with them as we develop the next steps that will happen to try to capture this opportunity. So far, the only thing that's happened is there's been a section put up on their website. When you buy home internet, you can also click on that section to get phone service. Sales every day from that, but I would say compared to what this could be, it's not big numbers today, but as I said, it's early stage. You know, I think that you asked about how we forecasted it in our outlook. We forecasted it fairly low because we just want to wait to see how it unfolds. If we take the forecast that they gave us for how many units we should be planning for this year, it is a much, much bigger number than what we have in our forecast today. So let me just leave it at that. We thought we'd have a little bit more visibility than I can give you right now by this time, but December and January weren't the easiest times to kind of pursue this, but it's developing well now.
spk10: Thanks. That provides some really good clarity. And then just to touch on that one more, historically, 30-ish percent of the company's revenue has been allocated to sales and marketing. One of the really interesting things, at least from my perspective with T-Mobile, is the idea that you wouldn't have a lot of those expenses. You may have some. Is that fair to assume? Or is there going to be some joint marketing that you may do to partner with T-Mobile? How should we think about the flow through?
spk08: No, what we're doing with T-Mobile, we're enabling their marketing and sales efforts. We have put together a special offer for their customers. But aside from that, we're really an enabler to them doing the things they want to do. And, you know, so far we're just on their Internet website. But the joint plans discussed between both of us is to do more than that.
spk10: And then last question for me, then I'll jump back in the queue. Just to elaborate a little bit, looking at the guidance for this year, I think everything kind of makes sense. On the revenue side, given what you said and some of the conservatism that's built in there, but I know the EPS guidance is going to be down year over year. where are those additional investment dollars going to be allocated to? Is it going to be more front half, back half weighted? How should we think about the operating side of the guidance?
spk05: Yeah, Josh, thanks for the question. And, you know, with respect to the areas of investments, you know, the biggest piece is going to be in the sales and marketing. And, you know, as we said before, we want to continue to invest into, you know, channel development to drive the user growth on the business side. And I think in the whole of 22, we spent about 29%. That's, you know, as Eric and I said before, that's a little bit lower than we probably would like to be to drive growth. And so, you know, between the channel development and also hiring front, which we were behind in FI 22, And also just in general, as we come out of pandemic here and things normalize, we see that activities and trade shows and travel probably start to pick up towards the second half of the year. So those are the investments in sales and marketing. And I think we'll probably see that sales and marketing as a percent of revenue to be more like in the range of 31.5% to 32%. By the way, that level is still a low end of, mid-term model that we talked about in the past, but you want to invest. And then, you know, other areas just across Alpex, as I said in my remarks, that there's a general increase in cost of labor, which is not unique to us, and an international expansion that with the largest customer we talked about. That piece, I mean, one can say that some of that Spending on projecting in FY23 is something that we originally intended to spend in 22, but because of the timing of the WAMP with the largest customer, that's kind of moving into next year. So hopefully that gives you a little color there.
spk03: That's perfect. Thanks.
spk00: Your next question comes from the line of Sharon Caruba with Northland Capital Markets. Your line is now open.
spk01: Hi, this is Sharon on behalf of Mike Latimore. Can you please talk about the pipeline for Airdial and what are the marketing strategies you're currently using for it?
spk08: Sure, hi. So the pipeline that we add up even now is more than we think we can produce this year. It's pretty encouraging. We don't know that we need to do that much marketing. We see three or four ways in which the product will go to market. One is through channel resellers who, as I spoke earlier, can bring Airedial in to meet the needs of their enterprises they go to. We are seeing some, call them distributors or aggregators, who want to be able to offer the solution. And we are also finding some CLECs that have a real need to be able to replace copper lines with this type of solution. So those activities, I mentioned we've already signed multiple, you know, we've already signed up multiple parties to work with us on going to market for Airdial. I think there's a lot of interest in it. I think everyone's waiting for us to to get going with it and get products flowing in quantity.
spk01: Okay, thank you. And in regards to your largest customer, do you think that they will be moving materially forward this year internationally?
spk03: Yes. Okay, thank you.
spk00: Your next question comes from the line of Matthew Harrigan with Benchmark. Your line is now open.
spk06: Thank you. Actually, reverting back to the target model that you alluded to, it feels like you've got a number of growth initiatives, and I know that the priority, I mean, if you can get sales growth, you're going to opt for that, a reasonable ROI versus just trying to top out the margins immediately. But do you see the timing on the transition from the midterm to long-term margins getting pushed out a little bit by the level of activity that you have going on? Is there any flux at all in the long-term model? I know that some of this is probably devised by Suge's predecessor, but I'd just love to know if there's any sense of variation in timing off the new initiatives or even some of the long-term objectives have maybe even been tweaked a little bit color-wise. Thanks.
spk05: Yeah, so Matt, thanks for that question there. I think, you know, when I look at gross margin model, we talked about midterm and long-term model in the past, and I'm looking at this now. You know, midterm, we aim to be in the 62 to 65 total margin I'm talking about, and subscription 70 to 75. We do feel good about the subscription I think we're in the right middle of it, 73%, and as we scale further with user ads on the business side, and, you know, when AirDot ramps, that's a business user, so we think we have a path to continue to improve incrementally from where we are. So, you know, we feel good about the subscription. That's number one data point. I think the total gross margin, I know we reported 62% total this past quarter. But that's more a function of having a heavier product mix to that strategic customer last two quarters. So do keep in mind that product mix that at the beginning of this past year did not expect to happen in the last half of this past year. That threw us off a little bit. But so going into next year, as I said, Q1, we expect the product, the revenue mix, excuse me, between subscription revenue to go back to what it was in first half of last fiscal year, which means that more like a 93% subscription, 7% product. I see that in first half. And so that should improve our overall gross margin because it's going to be tilted more towards the subscription margin. That's one data point. And I think if we go into second half of next year, I'm seeing that right now that the product mix I just described, revenue mix, excuse me, is probably shift towards 92 subscription, 8% product, only because we're anticipating more meaningful ramp on air dial, which has a product component to pick up. And so that changed the mix of the revenue a little bit.
spk06: but overall um to answer your question we still feel good about our midterm and long-term model and i think we're you know progressing pretty well towards those and then on airdial you have the happy circumstance of functionally having the only uh alternative in the market from the advanced point of the clex as you just said and uh i i'm curious how long do you think you're going to have that circumstance where you you're the real innovator and de facto the only alternative? Is that something that's kind of in your business plan or would you anticipate getting more competition or some competition at some point?
spk08: The market's big enough that there's already competition today and there will be more in the future. But when we look at that competition, it isn't approaching the solution the way we have. We are a unique company in that we can design hardware to work in conjunction with our cloud to provide an integrated service. And through our partnership with T-Mobile on this as well, that includes the wireless internet that is part of the controlled network that these devices require. So I think that we've, there are competitors out there, but they tend to be small and they tend to be just product makers. And we have put together a very complete solution. So I feel like we're in a very good spot and that we'll be able to maintain that for a while. You know, these things, we've worked on this solution for about a year to get to where we are today. And now we're scaling up production. And scaling up production in this product environment is difficult because we don't have an existing supply chain for the product. We've got to create it. And trying to get components these days can be difficult. So I think, you know, what we've been doing over the last year puts us ahead of anyone else who may be looking at this today as well.
spk06: Doesn't look like it's going to get any easier immediately. Thanks, Eric. Thanks, Sheik. Sure. Thank you.
spk00: Your next question comes from the line of Andrew King with Collier Securities. Your line is now open.
spk11: Hey guys, thanks for taking my question. Eric, just really good to see this partnership with Jazzware going forward. Just wanted to get an idea, what hurdles do you have to go as you look to get the Salesforce ramp to efficiently sell a more specialized solution into the hospitality services area? And then off of that also, how many of these 80 VARs that you added in this quarter were hospitality-focused?
spk08: So generally when we work with agents and bars, they're not focused on just an industry, but what they do find or what we do find is that when they get success in a vertical, they will follow it up with focus on it because it's something they know they can build. Of the 80 plus bars and resellers we added, about half would be the type that I would say would be more focused on selling UMA office. and about half were of the type that I would say would be more focused on a larger company enterprise-type sale. And all of those resellers that we added from an enterprise perspective, I can't say all, but I think a significant majority would be easily capable of selling into the hospitality space. There are some... resellers out there that are focused on that space and one in particular we have just recently started to work with and we're excited about that. So we're looking at it that way as well. But no, these are, it's traditional, it's the way our space is traditionally developed, which is you've got, in this case, hotels, motels, et cetera, where they've got old antiquated solutions. that are expensive to run and they need to modernize and they're kind of stuck and you can come in with a solution that really takes them to a modern result. And that's the way you sell it. And the more success we have in the vertical though, the more we get known for it and that helps us too as we grow. But I hope I've answered your question there with the different comments I just made.
spk11: Yeah, that's great. And then also just looking at the hospitality verticals, can you give us any colorist if there's any material differences in the sales process in the hospitality verticals versus the other verticals? And if there's any for seasonality we should expect in that business?
spk08: Well, like any vertical, it helps if you can talk their needs and and walk in with solutions to the problems you know they're going to have. In this case, one of the key issues or problems is how to integrate analog and digital capabilities together in one solution. A lot of these hospitality industry doesn't want to change the phones in rooms, but they do obviously need modern capabilities at the front desk and otherwise. So I think through focus you can establish that. Also keep in mind what's really underlying what we're doing in this vertical and what will underlie what we do in other verticals is our enterprise solution is very flexible. It's API based, it's a very modern design and we can use it both to customize for very large customers but also to do something like what we're talking about here with you about the hospitality space where we can put together something that's kind of unique to their needs. So, you know, with that, I think we're well placed to serve the vertical. In terms of seasonality, I don't see any particular seasonality in this regard. I think that it's just something we're going to have to build over time. And what will pace our growth a little bit is how fast we can bring on the agents and the resellers and get them comfortable with the solution and taking it to market.
spk11: Great. Appreciate you taking my question.
spk08: Sure. Thank you.
spk00: Your next question comes from the line of Brian Kinslinger with Alliance Global Partners. Your line is now open.
spk04: Great. Thank you. In terms of T-Mobile and the Umatello Air program, like you said, I looked on T-Mobile's website, on the ISP website, and to be honest, it's exceptionally hard to find. You've got to scroll down. You almost have to be looking for it. So can you talk about when and the other ways first that T-Mobile is planning to make home internet users aware of the program? How much inventory do you have to deliver this, and what are the lead times for suppliers?
spk08: Yes. So on the first question, I really shouldn't comment because it's – I don't really want to talk about a partner and what they're going to do. I can tell you that they have plans to do significantly more than what you'll see on their website today, but I really can't get into what they're planning until they do it. Yes, we have, on the product availability side, since last fall, we've been planning for the kinds of quantities that they've told us they'd like to get from us for this year. And I think in terms of the components needed that are unavailable if you don't plan ahead, we've put those plans in place. Some components that we need to scale up to big quantities would probably cost us more in short term to get them, but we would work through that. So I feel we're placed well enough today that as they do more things and more customers come to us through that relationship, we'll be able to satisfy it.
spk04: Great. And then in terms of once that program ramps, Is there going to be a hardware piece that pressures the margin while then there's also the recurring piece? And then same question kind of on Airdyne. When that starts to ramp, what's the impact it's going to have on the overall gross margin? Sure.
spk05: Yes, Brian, thanks for the question. On the first piece on Telo, yes, so there is a product piece and a subscription piece. And by the way, just a reminder, on a subscription piece, they are all premium users on a tele side. But the way I would say it is that we're not expecting right now that when it ramps that total cost of sales and product side would have a materially different impact on the profile, the gross margin profile on the product side right now. So if you look at, like I said in the earlier remarks, Q2 last year, as we go into this Q1 and forward in FY23, when I look at the normalized level of product revenue and gross margin profile for product revenue, it's about minus 50 to minus 55%. So I think that's a good range, even with the ramp of TELO through TEMO. So that's one reference point for you. Airdial, it does have both the subscription component and also product component. I do think that on the product side, revenue, we do think that has a positive impact on a product margin when we do ramp. So I just leave it as that without quantifying too much there since it's early. And also, it should have a positive impact on a subscription margin as well. And that's a business subscription, by the way. So hopefully that gives you some call there.
spk04: Great. Thanks so much. Thank you.
spk00: Your next question comes from the line of Joe Goodwin with JMP Securities. Your line is now open.
spk09: Great. Thank you for taking my questions. So, Eric, on the five priorities for growth for FY23, could you stack rank those in order of importance for you this year?
spk08: Sure. Hi, Joe. So I started off with number one is just executing to grow sales to business customers. I think that that is number one for us to continue to bring out ProPlus and expand our sales and marketing activities. We did not grow our sales and marketing team this last year like we wished. Hiring and other things were challenges, but we believe we will achieve it this coming year. After that, it's hard to rank the next four. We're very focused on developing new verticals and stronger channel sales, but that is a longer-term, multi-year strategy of ours, which some things will happen this year, something will happen thereafter. I feel pretty comfortable, as I've stated in my remarks, very comfortable, actually, that we are going to expand our users significantly with our largest customer, and we're ready to go. And they are moving forward now, starting this quarter. So expanding in Europe will happen, I believe. We are not intending to expand beyond serving users at this large customer. We want to get that to happen and have that under our belt before we try to look at doing more with UMA in Europe, particularly UMA office in Europe, before, you know, So our focus this year is really expanding with our largest customer. Airdial and the transition to 4G and transition to 5G and what we're doing with T-Mobile, those have tremendous upside. I think in the first case, it'll depend on how many units we can build. In the second, it'll depend on what sales and marketing activities T-Mobile chooses to do and how they do them and the market response. But I think each is material. So I don't know if I've answered your question very well, but after number one, we think all the next four are important. And we invested in all four of these last year. So as I look at this year, while it's a lot to say we're going to go do, I actually think most of the work on these next four is done. And so at least Europe Airdial and Tello with T-Mobile. So I feel like we can accomplish all of them as well this year.
spk09: Got it. Okay. Thank you for that. And then just another question for me. Can you talk about the current strategy that you're employing to upsell your existing UMA Office customers to UMA Office Pro? Are you reaching out? Are you providing any sort of offers or anything like that? Or just kind of how do you actually approach the upselling to your existing base?
spk08: So the upselling to our existing base is relatively simple. As we bring out a new feature in Zoom Office Pro, we just let our base know. And it's a way to reach out to them and show them what we can do. And if they're interested, they'll take it from there. And so we do have an installed base marketing system. program in the company, and that's essentially how we do it. We're not getting too aggressive with that. We don't give free trials. We don't offer special promotions or anything like that, but we do make a point to tell people about the exciting features as they come along. So when ProPlus launches this year, that'll give us a whole new basis to go out to our customer base with and tell them about now what's also available there.
spk09: Great. Thank you. Thank you.
spk00: Again, if you would like to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile any final questions.
spk03: I think we're pausing.
spk08: Everyone, thank you for joining us today. I'll close with one final comment. It's just a fun thing. I don't want to make too much out of this. But in January, we were named, UMA was named one of the best tech brands for 2022. We were in the top 10 list, along with names like Tesla and Apple and Sony. It was a lot of fun. This is something that PC Magazine put out, I think based on some kind of reader survey, though. Don't quote me on that. It's just fun to see that kind of recognition for UMA. We're very focused on the customer experience and our users having a good experience and telling their friends is helping to drive our growth. And so it was rewarding to us as a team to see that. Thank you, everyone. Appreciate your time today and look forward to next time we can talk. Bye-bye.
spk00: This concludes today's conference call. Thank you for attending.
Disclaimer