Ooma Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 23, 2023

There are 9 speakers on the call.

Operator

Afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to Ooma's Fiscal Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, There Will Be A Question and Answer Thank you.

Operator

Matt Robison, you may begin your conference.

Speaker 1

Thank you, Emma. Good day, everyone, and welcome to this fiscal 2nd quarter 2024 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 Stange and CFO, Shig Hamamatsu. After the market closed today, Ooma issued its Q2 2024 earnings press release.

Speaker 1

This release is also available on the company's website, ooma.com. This call is being webcast live and is accessible from a link on the Events 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 p. M.

Speaker 1

Eastern Time. Dialing information forward 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.

Speaker 1

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 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 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.

Speaker 1

On this call, we will give guidance for Q3 and full year fiscal 2024 on a non GAAP basis. Also in addition to our press release and 8 ks filing, The overview page and events and presentations page in the Investors section of our website as well as the results page of the Financial Inflow 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 Stange.

Speaker 2

Thank you, Matt. Hi, everyone. Welcome to Ooma's Q2 fiscal year 2024 earnings call. Thanks for joining us. I'm pleased to report Ooma performed well in Q2.

Speaker 2

I'm looking forward to reviewing our accomplishments and the progress we've made on the several growth initiatives we have underway this year. Financially, Ooma achieved $58,400,000 in revenue, dollars 3,800,000 in non GAAP net income, $4,900,000 of EBITDA and $3,600,000 in cash flow from operations in Q2. We also managed OpEx spending well in the quarter and reduced our inventory. Regarding growth, our important business subscription services revenue grew 27% year over year. Overall, we ended the quarter with $215,000,000 of annualized exit recurring revenue up 15% versus a year ago.

Speaker 2

I believe we executed well in Q2 to drive these results and that Ooma is in a strong position today to pursue its strategy and growth initiatives. During Q2, we continued to invest in Ooma Office, which of course is our award winning solution specifically designed for small to medium sized businesses, which seek a combination of advanced features, ease of use and affordability. We added to Pro Plus, our top service tier, several new features to So take collaboration and customer interaction, including online bookings, one to many messaging, team chat and new CRM integrations with Zoho and Freshdesk. We also improved our Office Desktop app, introducing an updated user interface and faster performance for a more cohesive user experience that simplifies interactions. These feature enhancements continue our strategy to build out the capabilities available in our Pro Plus service tier, which along with our Pro service tier allow us to target slightly larger customers and drive higher revenue per user.

Speaker 2

We feel our Ooma Office strategy is working by allowing us to serve increasingly larger customers, while maintaining our long standing focus on making communications approachable for businesses of any size. As in past quarters, more than half of our new office users in Q2 selected 1 of these 2 premium tiers as we continue our journey to democratize advanced technology and make it accessible to small and medium sized businesses. While Ooma Office is targeted at businesses 1 to 20 users in size, I'm pleased to report our largest office customer win in Q2 with a 286 user account, which valued the flexibility and affordability of our solution. We're also seeing interest in Office from potential partners who see Office as a good fit with their products and services. Last quarter, you may recall we announced a partnership with NEX Health, which focuses on the dental space and we have additional office partnerships in progress.

Speaker 2

For the rest of this year, our plans for Ooma Office are to continue to build out the Pro Plus tier feature set and to enable more partners to integrate with and in some cases resell Ooma Office. We also continue to invest in Ooma Enterprise, our solution targeted at larger sized businesses in select verticals or in need of customization. One focus for us is hospitality customers, where we continued in Q2 to secure wins with major brand hotels. We also began working recently with a new partner to enable our core telephony and SMS capabilities in their platform in support of an artificial intelligence use case. Ooma Enterprise will be incorporated into the partner solution via a CPaaS like business model.

Speaker 2

Our partner already has several Alpha customers deployed and is targeting launch this year. While we don't specifically promote Ooma Enterprise as a CPaaS solution, I believe this one off use case demonstrates the ultimate power of our platform to adapt to bespoke needs. For the rest of this year, our plans for Ooma Enterprise are to continue our industry focused strategy, while also growing our network of telecom agents and resellers. We're also making investments to expand internationally. As planned, we made a major step forward in Q2 with our largest customer by putting in place the capability to serve them in a new region of the world.

Speaker 2

Over the coming weeks, we will begin rollout in earnest in this new region. I'm also pleased to report that during Q2, we were able to add more users than we anticipated and we gained visibility for increasing to 100 1,000 users or more with this customer. For the balance of this year, we will focus on implementing our service for this customer in the new region, plus at least one additional region as well as on continuing to onboard their users. Our largest area of investment at this time is Ooma Aerodial, our integrated solution to replace aging and expensive copper lines that serve critical infrastructure and other specialized applications. As you know, we see a massive market opportunity for Aerodial, both in the USA and in other countries.

Speaker 2

Our feature enhancements to AirDial continued in Q2 as we brought out version 2.0 of our remote device manager, Implemented network side auto dial features to support older emergency phones and implemented modem support to make remote programming of door access systems more reliable. There is a long tail of specialized and older equipment relying on copper lines today. We feel our ability to control the total end to end solution is an advantage as we evolve AirDile to meet all the needs of the market. Owning all aspects of our platform end to end has allowed us to adapt the AerDao platform to serve the needs of customers with challenging use cases, including in circumstances where those Commercially, we announced earlier this month that U. S.

Speaker 2

Cellular completed its launch planning and began offering AirDial through its sales organization. In fact, I'm pleased to report that U. S. Cellular's first customer win with a customer requiring 136 lines occurred in Q2 even before the formal launch date. In this case, Aerodial displaced a competitor whose products were not working well and we helped U.

Speaker 2

S. Cellular deliver a solution in a situation where the customer needed to maintain compliance in a very short timeframe. As in past quarters, our sales funnel for AerDyle continued to build in Q2 and we had some notable wins in the quarter. Our largest Q2 win was a restaurant group which will deploy over 7.50 lines. Just days after the end of Q2, we also won a large retailer opportunity representing approximately 800 lines.

Speaker 2

Both of these opportunities came through partners of ours who are reselling Aerodial. Just this week, we made a further exciting announcement regarding Aerodial. I'm pleased to report that the largest REIT in the world, Prologis, will offer both Ooma Airdial and Ooma Office through their Essentials platform. This platform provides building and other services to Prologis' large base of customers. We're thrilled they have chosen Ooma as their featured and only solution for POS replacement and business communications.

Speaker 2

Bringing on partners is one of our key strategies to drive airdial growth. Most typically, our partners resell airdial, but in some as they refer customers to us. This last quarter, in addition to U. S. Cellular and Prologis, We also established new partnerships with 2 CLECs, 2 aggregators and 2 other resellers.

Speaker 2

Our plans for the rest of this year for Aerodial are to grow our sales and go to market resources significantly, establish more resale partnerships and further enhance the differentiation of our solution. As I've outlined, we have a lot of initiatives underway and it's an exciting time for us. I will now turn the call over to Shig, our CFO, to

Speaker 3

Thank you, Eric, and good afternoon, everyone. I'm going to review our 2nd quarter financial results and then provide our outlook for the Q3 and full year fiscal 2024. We delivered another strong quarter with a total revenue of $58,400,000 exceeding our guidance range of $57,400,000 to $57,900,000 On a year over year basis, auto revenue grew 11% in the Q2, driven by the strength of Ooma Business as well as the addition of Onset. In the 2nd quarter, Business subscription and services revenue accounted for 57% of total subscription and services revenue as compared to 51% in the prior year quarter. Q2 product and other revenue came in at $3,600,000 as compared to $4,700,000 in the prior year quarter.

Speaker 3

The prior year Q2 product revenue included certain accessory sales that did not recur this year. On the profitability front, the 2nd quarter non GAAP net income was $3,800,000 at the high end of our guidance range of $3,500,000 to $3,800,000 and represented 26% increase over $3,000,000 in the prior year quarter. Now some details on our Q2 revenue. Ooma Business Subscription and Services revenue grew 27% year over year in Q2, driven by user growth and the addition of On Sip. Excluding the effect of On Sip revenue contribution, Ooma Business subscription services revenue grew 15% year over year.

Speaker 3

On the residential side, subscription and services revenue were flat year over year. As a reminder, we had a one time churn event during the Q1 with a particular customer with an unusual application where we lost approximately 4,000 fellow users and we saw a 4 quarter impact of it in Q2. We expect residential subscription revenue growth to resume at the low single digit percentage on a year over year basis in the second half of this fiscal year. For the Q2, total subscription and services revenue was $54,700,000 or 94% of total revenue as compared to $48,000,000 or 91% of total revenue in the prior year quarter. Now some details on our key customer metrics.

Speaker 3

We ended the 2nd quarter with 1,237,000 core users, up from 1,225,000 core users at the end of the first quarter. At the end of the second quarter, we had 467,000 business users or 38% of core total core users, an increase of 18,000 from Q1. Our blended Average monthly subscription and services revenue per core user or ARPU increased 5% year over year to $14.51 driven by an increasing mix of business users, including higher ARPU Office Pro and Pro Plus users. During the Q2, we continued to see a healthy Office Pro and Pro Plus take rate with 55% of new office users opting for these higher tier services, which was up from 47% in the prior year quarter. Overall, 27% of Ooma Office users have now subscribed to our Pro or Pro Plus tier.

Speaker 3

Our annual exit recurring revenue grew to $215,400,000 and was up 15% year over year. Our net dollar subscription retention rate for the quarter was 99% as compared to 99% in the 1st quarter. Now some details on our gross margin. Our subscription and services gross margin for the Q2 was 72% as compared to 74% in the prior year. As a reminder, subscription and services gross margin for the Q2 this fiscal year included the impact of On SIP gross margin, which is running lower relative to Ooma's subscription gross margin of 73% when ONSIP is excluded.

Speaker 3

Q2 subscription and services gross margin this year was also impacted by certain upfront investments we made for our largest customer as we prepare for further expansion into new regions in the second half of this fiscal year. Product and other gross margin for the Q2 was negative 73% as compared to negative 31% for the same period last year. As mentioned on our last call, the decline in Q2 product gross margin this year versus last year was anticipated And was primarily due to the following three factors. First, we saw the sell through impact of certain higher cost components that we had procured in the last fiscal year to stay ahead of pandemic driven supply chain issues. 2nd, that prior year Q2 product gross margin benefited from certain accessory sales that did not recur this year.

Speaker 3

And third, We incurred nonrecurring facility costs as we completed our move to a new warehouse facility during the quarter. We continue to expect product and other gross margin for the remainder of fiscal 2024 to be negatively impacted by one time excess component costs running through the P and L and currently estimate product and other gross margin for the second half of this fiscal year to be in the neighborhood of negative 65%. On an overall basis, total gross margin for Q2 was 63% as compared to 65% in the prior year quarter. And now some details on operating expenses. Total operating expenses for the Q2 were $33,200,000 up $2,100,000 or 7% from the same period last year.

Speaker 3

Excluding the impact of Onset, the total operating expenses increased $1,100,000 or 4% from the same period last year. Sales and marketing expenses for the 2nd quarter was $17,700,000 or 30% of total revenue, up 7% year over year, driven by higher marketing and channel development activity for Ooma Business, which includes Research and development expenses were $10,600,000 or 18% of portal revenue, up 7% on a year over year basis from $9,900,000 driven by investments in new features for both Ooma Office and Ooma Enterprise as well as new products such as air dial. A portion of the year over year increased R and D expense was also for the activities related to international expansion with our largest customer and the addition of On-site team members. G and A expenses were $4,900,000 or 8% of total revenue for the 2nd quarter compared to $4,500,000 for the prior year quarter. The year over year increase in G and A expenses was primarily due to an increase in personnel costs and the addition of Ooma's.

Speaker 3

Non GAAP net income for the 2nd quarter was $3,800,000 or diluted earnings per share of $0.14 as compared to $0.12 in the prior quarter. Adjusted EBITDA for the quarter was $4,900,000 or 8 percent of total revenue and represented 22% increase over $4,000,000 for the prior year quarter. We ended the quarter with total cash and investments of $29,500,000 which increased from $28,400,000 at the end of Q1. We generated cash from operations of $3,600,000 which was up from $2,200,000 in the same period last year. On the headcount front, we ended a quarter with 1108 employees and contractors.

Speaker 3

Now I'll provide a guidance for the Q3 and full fiscal year 2024. Our guidance is on a non GAAP basis and has been adjusted for expenses such as stock based compensation, amortization of intangibles and certain non recurring expenses. We expect total revenue for the Q3 of fiscal 20 24 to be in the range of $59,000,000 to $59,600,000 which includes $3,700,000 to $4,000,000 of product revenue. We expect 3rd quarter net income to be in the range of $3,800,000 to $4,100,000 Non GAAP diluted EPS is expected to be between $0.14 to $0.16 We have assumed 26,300,000 with average diluted shares outstanding for the 3rd quarter. For full year fiscal 2024, we expect total revenue to be in the range of $235,500,000 to $237,000,000 The adjustment to the high end of the guidance range is related to our expectation around the timing of air diode product revenue within this fiscal year.

Speaker 3

While we are very excited about growing pipeline of air diode opportunities, We believe some shipments of EBITDA hardware will be deferred to next fiscal year, primarily due to customer driven timeline. As for business subscription and services revenue for the year, we expect a year over year growth rate of 18% to 20%, which is unchanged from our prior expectation. In terms of revenue mix for the year, we expect approximately 93% of total revenue to come from subscription and services revenue and the remainder from products and other revenue. In terms of profitability, we are raising the bottom end of our prior guidance range. We expect non GAAP net income for fiscal 2024 to be in the range of $15,500,000 to $16,500,000 Based on this guidance range, we estimate our adjusted EBITDA for fiscal 2024 to be 19.5 $1,000,000 to $20,500,000 or approximately 9% of revenue at the upper end of the range.

Speaker 3

We expect non GAAP diluted EPS for fiscal 2024 to be in the range of $0.59 to 0 point 6 3 dollars We have assumed approximately $26,400,000 weighted average diluted shares outstanding for fiscal 2024. In summary, we are pleased with our solid performance in the 2nd quarter and remain focused on executing to our long term strategy to achieve profitable growth. I will now pass it back to Eric for some closing remarks. Eric?

Speaker 2

Thank you, Shig. This month marks 20 years since the original two founders of Ooma hired a small team and got to work. In that time since, we have developed into a successful growing public company with over 2,000,000 users and over 1100 employees and contractors. Over the last 20 years, we believe we have saved our customers 1,000,000,000 of dollars in the aggregate compared to what they would have paid with traditional phone service solutions, while also bringing them advanced features previously unavailable to smaller businesses and consumers. Perhaps most exciting for us is that we have become a leader in the disruptive change underway in communications made possible by cloud technology.

Speaker 2

With the strong market position we have built over the last 20 years and the multiple growth initiatives we have underway, we're excited about our outlook. Thank you. We'll now take your questions.

Operator

Your first question comes from the line of Mike Latimore with Northland Capital. Your line is open.

Speaker 4

Great. Thanks, Jen. Congrats on the good solid results there. The ProLogistix partnership is interesting. What are the next steps There in terms of getting that fully launched.

Speaker 2

It will take at least a few weeks, Maybe a little longer. It depends on how fast they move. They have to put us into their Essentials platform, which is a web based solution for their customers to draw on. They have certain categories of capabilities they have in that platform. Will be kind of a new area for them with communications.

Speaker 2

But I think it's not only important for being part of the Essentials platform, but also I think it demonstrates to the whole REIT community, what Ooma can bring. And I know many REITs out there look to Prologis because they are clearly leader in the world in that space. So I think It was important for us to get the press release out and just continue the awareness building that we're trying to do for that space.

Speaker 4

Great. And then on your largest customer, you talked about seeing a path towards 100,000 users there. Can you just mention like what is the user count presently? And also just why did some of your air dial customers push out their timing?

Speaker 2

So with our largest customer, that's a they're obviously taking a combination of Ooma Office and Ooma Enterprise from us. We're over 80,000 users with them today and I can see us being at 100,000 or more by fiscal year end. And we've always thought we'd get there, but I feel I have even more visibility now than we've had about our path It's great to have our new node up and running in a new region of the world and to have some customers on it already and be planning the major rollout that now comes with that. And having got that one up and running, I think we've worked out the kinks a fair bit in terms of putting up the next one and the next one. So I feel like we did some lifting in Q2 and we're in a great position as we go forward to Q3.

Speaker 2

On the Airdel front, the second part of your question, It baffles me a little bit, Mike, because we save our customers so much money compared to what POTS It baffles me sometimes why they don't move faster. But The savings are clearly compelling and I think that's what I really turned to in terms of My confidence in Airdyle and where we're going. To be honest, we just need to look Forward with what we know and not speculate on what we think we can also achieve. And I can tell you we have A significant pipeline. We have deals out for signing.

Speaker 2

We have a lot of things that we think are going to come in the back half of this year. But we'll have to it's a little bit harder to predict than our traditional areas of the company that we've been at longer and which are more steady. So As things happen, we'll keep you guys updated and we'll see where we're at the end of Q3.

Speaker 4

Okay. Sounds good. Thanks.

Operator

Your next question comes from the line of Matt Stottler with William Blair. Your line is now open.

Speaker 5

Hey, guys. This is Alex on for Matt. Thanks for taking our questions. Just a first one for me. Maybe could you touch on the progress that's been made with Jazzware and Next Health, those partnerships that were announced earlier in the year.

Speaker 5

How is the progress going with those rollouts and maybe how How you see those layering into the overall business going forward?

Speaker 2

Sure. So on the first one, the progress with Jazzware, they are a partner of ours for the hospitality space with our enterprise solution and that's gone well. We continue to grow in that space. Like I was just describing for Aerodial, we have some significant opportunities in front of us as well. They're more of a technology enabler for us Because with the Jazzware capability combined with ours, we can make our system do more for the customer.

Speaker 2

So I would say that's rolling well. NxHealth, I think we had slower progress than anticipated in Q2 And that's turning around now for Q3. As we brought the solution into the market, we realized some additional integrations that we wanted to have with it, we and they together. And so we have customers using it and all that, We did some further development in Q2 and I think we're really just turning up sales efforts on it more this quarter.

Speaker 6

Got it. Sounds good.

Speaker 5

Thank you for that. And then maybe just one on On Sip. Can you give us an update on how The how the acquired business from Onsip is integrating with the rest of the Ooma portfolio, alongside maybe any growth contribution you can share to

Speaker 2

Sure. So from an integration into our business standpoint, it's been Seamless and everything we planned and more. The members of the Onset team have folded into Ooma. Some activities have changed for some people. Some people are working on what we were doing on the Ooma side before we got together.

Speaker 2

But nonetheless, On the Onset platform, we continue to drive development in certain areas and Certainly continue to drive sales and marketing for it. I will tell you that when we make our decisions now, we don't think so much We want to do this for Oncipo, we're going to do that for Ooma. We think about customer acquisition cost, payback and channels to market and we're always measuring what we do. And so I would say that, we aren't spending all that much on growth for the Onset platform today. We found that some of the things we're doing more with the under the Ooma brand, if you will, have been more powerful for us, but we are still investing in OnZip and they brought on a meaningful number of users last quarter.

Speaker 2

But we're not seeing we're not driving a lot of growth in OnSiP per se. But certainly It's fungible where we spend the money. With Onset peer, they're positively contributing to our bottom line and we have sales and marketing budget from that And we just allocate where we think we can make the biggest impact. So that's kind of how we look at it. And we were fortunate On Sip was a very mature platform that runs very, very well.

Speaker 2

We did bring out I should say they were already well along with, but we finished up Brought out a new admin portal that I think is a nice step forward for them. We've made some additions and changes to their mobile app. But really, We can kind of view this as part of the Ooma portfolio now and kind of run our sales and marketing as one company. And that's how we're doing it.

Speaker 5

Got it. Perfect. Thank you. I'll pass it on.

Speaker 2

Thank you. Thanks,

Operator

Alex. Your next question comes from the line of Josh Nichols with B. Riley. Your line is open.

Speaker 7

Yes, thanks for taking my question. Just to dig in a little bit more, it's good to hear about all the new wins in the growing funnel for Ergau. But where do we stand today as far as how many units have been installed? And if you could kind of participate a little bit about where the backlog is today in terms of number and units, so we could get some idea of what that growth potential should look like whenever the deliveries and installations do start to ramp?

Speaker 2

So I can frame it a little for you, Josh. As you know, we haven't given those specifics yet. When we get a large customer, it can take 6 months to do rollout. In fact, our large customer from last fall that we announced 2 quarters ago, I think we're mopping up now the stragglers, but there's a handful of installations still to go, but they're pretty much getting done after 6 months of effort. Frankly, a month or 2 of planning and then 6 months of effort.

Speaker 2

So rollout does take time. I think we've gotten a lot better at rollout. We work with multiple third parties for when a customer wants to Have a third party do installation and pay for it by the way. It's something we charge for. And with some of those new third parties are relatively new compared to where we started.

Speaker 2

We've revamped our team internally. We have Discovered that we need to dedicate more resources to this. We are actively hiring in the sales and sales engineering side of our company to try to support the growth of Veradigm. I don't feel like we're keeping up with And I know it's a shame to say that, but it's kind of a new area for us, this kind of direct strategic sales capability. And we've got significant ambitions to add to the team through the balance of this year.

Speaker 2

On the partner front, I mean, we've had some big wins. I mean, T Mobile, now U. S. Cellular, frankly, Prologis because of what they represent in the industry. And we're achieving new partners every quarter on airdial.

Speaker 2

And it takes a little while to train them, takes a while to get out in the market. But I can tell you that we routinely get surprised when a partner we expect Some of these partners to deliver opportunities that are a few lines here, a few lines there, but it's amazing how some can bring in a larger sized opportunity. So It's an exciting time for us, but it's I don't feel like we have enough presence in the market and I worry about the deals we're not seeing. I think if you look at our well, I know if you look at our pipeline, our pipeline, which is to say Opportunities in our sales funnel which are not yet closed, there are tens of thousands of lines. And that's the kind of opportunity we aspire to achieve.

Speaker 2

But in any case, I hope that frames a little bit. I know it is maybe a little frustrating not I know it more specifically than that, but you do have our overall guidance and you know what we're trying to do. And Yes. The largest wins that we achieve, I have been announcing those and it gives you a sense that there is bigger potential here, I hope, as we go forward.

Speaker 7

Thanks for providing a little bit of clarity there. And then Last question for me. You mentioned it just now in your comments, but haven't talked about it too much. I know Yes, some partnerships with T Mobile on air dial, but also some residential solutions. Just any updates on progress that's going on with that partnership?

Speaker 2

Sure. That partnership has been in place for over a year now and it's been pretty steady in the greater sense over the last several quarters. We get some customers out of that relationship that mainly Our customers there to saw our presence on T Mobile's website and feel they want to get phone service with their Internet. What T Mobile has not done is enabled marketing, if you will, marketing sales through their inside teams and some other things due mainly to systems challenges and other things. So it's not been a big driver of our residential business today, but it's a nice adder.

Speaker 2

We do see other opportunities similar in some respects to this to go after. And I don't know how far we'll get with those, but we are working other opportunities as well to try to use partners as well as our own sales activities on the residential side of our business.

Speaker 3

Great. Thank you.

Speaker 6

Thanks.

Operator

Your next question comes from the line of Brian Kinstlinger with Alliant Global Partners. Your line is open.

Speaker 6

Great. Thanks for taking my questions. First, can you comment on how active T Mobile and U. S. Cellular have been as partners to Aerodal and have either closed deals?

Speaker 2

Oh! Goodness! Both have closed deals. I talked about the very first deal from U. S.

Speaker 2

Cellular that happened even before They announced the program formally to their sales teams. Yes, our 2 largest Deals from last quarter both came through partners. And so It takes time to ramp up. There's no question. It takes time for salespeople to get comfortable with things.

Speaker 2

And to be honest with you, there's a lot to know about Airdial. It's not the typical kind of thing that some of these entities would normally sell. But we have staff to work with them in deals and to and support the process. And I think it's a really important part of our strategy because We also sell Aerodial through our channel partners that also sell in particular Ooma Enterprise and they're finding us a lot deals, but a lot of the deals they find us are a few lines or a dozen lines. And I think what will really make Airdial the breakout success that we all is winning the 500, 1000 or even bigger line opportunities.

Speaker 2

And our partners have good relationships for that And we're excited about what we're seeing with them.

Speaker 6

Right. And then what is it that takes About 6 months for a large implementation. Is it that the process needs to be changed for customers? Does technology have to be changed to prepare? And then once the actual once the customer is ready, how long does it actually take for Ooma for their process to actually install?

Speaker 2

So you need to wrap your head around a little bit, the scope of a large customer. Let's say That large customer I've talked about from last fall, more than 2,500 lines, more than 700 locations. If you're going to do this in 6 months, you're doing what 115 locations a month, 30 locations a week. It starts to in every location you don't really know maybe where your lines even terminate in your building. And once you find them and get the airdial put in and test its reception, which usually works fine, but we can switch as we've talked in pass to a variety of cellular providers if needed to get better reception.

Speaker 2

But once you get the analysis And test it, then you got to plug the equipment into it and test the equipment. But all that said, couple hours, 3 hours, we'll get per location. So, it's really the number of locations that drives the timeline and the effort, Just the project planning and the pre installation analysis you need to do to know how you're going to make the conversion happen.

Speaker 6

Got it. Last question for me is on the international front, You've obviously used your largest customer to expand internationally. At what point does the company Make the investment necessary to begin selling to other customers outside this large customer. Is that in the next 12 months to 24 months? Is there too much on your plate to think about that right now?

Speaker 2

Well, it's not in our plan for this fiscal year, which is the next 6 months. But I think it's fair to say that we aspire to it being in the timeframe you mentioned or something like that. We're also going to have to question what we lead first with internationally. We see tremendous airdial opportunity internationally as well. But most likely, if we're going to dovetail off what we've done with this large customer, we would begin selling Our Ooma Office solution in particular, probably in Western European countries and to third parties, to other parties.

Speaker 2

We would love to do that with certain partners or certain entrees into the market and we are thinking about our strategy in that regard. But this year, We don't we are not working on those next steps yet.

Speaker 6

Great. Thanks for taking my questions.

Speaker 8

You bet.

Operator

Your next question comes from the line of Matthew Harrigan with Benchmark. Your line is open. Thank you.

Speaker 8

Thank you. Congratulations on the results and the guidance. I just had a couple dangling things. 1, I guess in the nature of who is the vacuum category, you've got a huge TAM for Aerodial And clearly, there's a crying need right now. Are you seeing anything in the way of incipient competition or people you see who are at least desirous in coming in the space.

Speaker 8

And then anecdotally, in the U. S, I mean, despite their AT and T working hard to phase out copper lines and all that, you're seeing something that's almost price gouging in terms of what they're charging as the current alternative. Are you seeing the same type of this pricing when you look at Europe and other markets in terms of the copper lines just being way out of whack and that increasing the urgency of people wanting to move on. Thank you.

Speaker 2

Yes. So on your second part of your question, it varies a little bit. We don't see it so much in Canada. I I believe in Canada pricing is still relatively controlled, although we are seeing Canadian customers in need of air dial and asking for it and Currently, we're not providing air dial in Canada. So even though the market, I don't think is as far along as it is In the U.

Speaker 2

S, certainly going that way, but it's not there yet. When we look at Europe, it varies a little bit by country. In fact, it varies a lot by country. Some countries haven't started their journey, but they know they need to. And they're in the very early days of looking for what they might do.

Speaker 2

Others are kind of getting started and it's and now looking at what's the best approach to take. And I feel like whenever we can get in in front of a partner in one of these countries. Because keep in mind, we need a cellular provider to at least provide The Internet connection that goes with Aerodial. We find that once we explain what Aerodial does How it works. There's no product like it in the market.

Speaker 2

And so, it's a really compelling story. And I really believe that. And it's just getting better every day too. We've made so many improvements to it even over the last 6 months and extensions to it. So we're actively thinking that at that level more broadly than the U.

Speaker 2

S. But I don't think there's new I don't think the other markets have turned the corner like the U. S. Has over the last 12 months, over the last 12 months, really over the last 6 months even, since the start of this year, we've seen customers a lot more aware of the need to do something. I think word starts to get out and they start to notice their bills.

Speaker 2

And so the U. S. Is clearly farther along than other countries. But you can definitely see it coming. I hope that addresses your question.

Speaker 2

I don't know if there

Speaker 1

was a first part of

Speaker 2

your question I didn't get to or not.

Speaker 7

The first part of the

Speaker 8

question is really in CIFI and competition. I know there's a long sales cycle. It takes a while to get product out and all that, but there's a crying need. It's a massive market opportunity. Do you see anyone at all who's at least working on a comparable solution incipiently?

Speaker 8

Because it doesn't feel like you would Necessarily, I'll have 4 or 5 years to address this massive market before someone else or other people aggressively came in.

Speaker 2

I don't know of anyone that's working on a new solution for this market or any development underway to change the solutions that are out there today. I think the biggest challenge we face is making sure customers know we have Aerodial and know what it can do for them. And we need a lot more outreach and branding and marketing to do that. But If you're a large aggregator today, You have a lot of potlines that you've sold and you know where they are and you can just walk into those customers. We need to get them to realize there's a viable alternative.

Speaker 2

We have a significant opportunity we're working right now where they got introduced to us through a third party. And they were just thrilled to find out about us, but they had no idea. They just didn't know. And it's kind of customer we should be reaching out to. And so we're really trying to build our sales and marketing capability to be able to do more of that.

Speaker 2

And that's I think what will drive the business.

Speaker 8

Great. Nice call to be have. Thanks, Eric.

Speaker 7

Thank you.

Operator

There are no further questions at this time and concludes our Q and A session. I'll turn the call back to Eric for closing remarks.

Speaker 2

Well, thank you, everyone. We were excited to outperform on the revenue and frankly our $3,600,000 in cash flow from operations is I think the most we've ever had as a company and we're doing it while we're investing in these new strategic initiatives. I feel like we're on track and I realize All the questions here and just in general talking with all of you, we as well want to be able to show you even more, air dial success. And I want you to know we're working hard With that, thank you, everyone. We'll stop here.

Speaker 2

Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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Earnings Conference Call
Ooma Q2 2024
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