Ladies and gentlemen, thank you for standing by, and welcome to the Ooma Fourth Quarter and Fiscal 2020 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker, Mr. Matt Robison. Please go ahead, sir.

Ladies and gentlemen, welcome to the fourth quarter of fiscal year 2020 earnings call of Ooma, Inc. As Holly mentioned, my name is Matt Robison and I'm the Director of IR and Corporate Development. With me here today are Ooma's CEO, Eric Stang; and CFO, Ravi Narula. After the market closed today, Ooma issued a press release via GlobeNewswire. The release is also available on the company's website, ooma.com. This call is being webcast live and is accessible from a link on the Events page of the Investor Relations section of our website. This link will be active for replay of this call for at least 1 year. A telephonic replay will also be available for a week starting this evening about 8:00 p.m. Eastern Time. Dialing information for it is included in today's earnings press release. During today's presentation, our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize and actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today as well as those 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 otherwise stated, the financial measures to be disclosed on this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures are included in our earnings press release, which is available on our website. On this call, we'll give guidance for first quarter and full year fiscal 2021 on a non-GAAP basis. Also in addition to our press release and 8-K filing, the Events and Presentations page in the Investors section as well as the Quarterly Results page of the Financial Information section of our website includes links to costs and expenses not included in our non-GAAP values and key metrics of our core subscription businesses. These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation that also provide resolution of GAAP expenses that are excluded from non-GAAP metrics. Now I will hand the call over to Ooma's CEO, Eric Stang.

Thanks, Matt. Hello, everyone, and welcome to Ooma's Q4 FY '20 Earnings Call. I'm very pleased to talk with you today. Since this is our fiscal year-end, I'd like both to recap our overall progress in FY '20 and to provide a strategic look at the new year ahead. But before I do so I'd like to review briefly our strong Q4 results. For our Q4 quarter just ended, Ooma generated revenue of $40.6 million and net income of $1 million, both above our guidance ranges. Q4 revenue grew 17% year-over-year. We believe we exit FY '20 in a strong position, with $143 million of annual recurring revenue and 100% net dollar subscription revenue retention rate. I'm particularly pleased to announce that during Q4, our largest customer for Ooma Business grew to be now over 20,000 users. I'm also pleased to announce that our Sprint partnership deepened and the backlog of opportunities we see from this partnership expanded severalfold. And I also want to announce that with the Q4 launch of an expanded feature set for Ooma Office, which is a new service tier we call Ooma Office Pro, our solution is attractive to more businesses and larger businesses than ever before. Overall, we are excited because we believe our success in Q4 positions us well for FY '21. We have winning solutions for the market, and we see tremendous opportunity ahead. It's interesting to look back just 1 year to the start of FY '20 and observe the progress Ooma has made. In just the last 12 months, Ooma has partnered with Sprint and enabled Sprint to resell Ooma office through their sales teams, branded Sprint Omni. We have demonstrated the superiority of our business solution versus others at a very large multinational corporation and scaled it to over…

Thank you, Eric, and good afternoon, everyone. I'll start with a review of our fourth quarter fiscal '20 financial results, then provide our outlook for the first quarter and full year fiscal '21. We had strong financial performance in Q4, achieving $40.6 million in revenue, above the high end of our previously issued guidance range of $39.6 million to $40.3 million. On a year-over-year basis, total revenue grew 17%, driven primarily by Ooma Business. Ooma Business accounted for 42% of total revenue as compared to 30% in the prior year quarter. On a full year basis, total revenue for fiscal '20 was $151.6 million compared to $129.2 million for fiscal '19, achieving 17% growth year-over-year. Revenue from Broadsmart, which was acquired in May 2019 added 5 percentage points of growth to the year. And importantly, net income for the fourth quarter was $1 million, significantly better than our previously issued net income guidance range of breakeven to $400,000. This performance was driven by higher subscription revenue and expense management, while continuing our focus on growth. Net loss for full year fiscal '20 was $672,000 compared to a net loss of $3 million for fiscal '19. I'll now add additional color to the Q4 revenue. Ooma Business subscription and services revenue in Q4 grew 61% on a year-over-year basis and 38% year-over-year after excluding revenue from Broadsmart. In the fourth quarter, we added new users in North America from the large customer we had mentioned in our previous earnings calls. We are excited about the continued sales momentum with this customer. And as Eric mentioned earlier, we're engaged on multiple fronts, including conducting a proof-of-concept in a new market. Going forward, we expect further expansion from this opportunity and will provide progress updates in future earnings calls. Ooma Residential subscription and…

Thanks, Ravi. To recap, Ooma made great strides in FY '20. Our increased focus on business, combined with new customer and partnership opportunities, positions us well in our view for the upcoming fiscal year. The market opportunity we serve is vast. We have exciting new developments planned and strong focus on sales and marketing execution. I'm proud of the Ooma team and thank everyone of them for their hard work and dedication to make this possible. I also thank our shareholders and our other stakeholders for their support. Everyone at Ooma is 100% committed to driving future success. With that, let me turn it back to the operator so we can take questions.

[Operator Instructions] Our first question is going to come from the line of Mike Latimore, Northland Capital.

Great quarter and outlook. Very nice. I guess in terms of this large customer, what -- I guess how quickly did you get that deployed? That's pretty quick to get 20,000 pieces deployed. How fast was that deployment?

Mike, this is Eric. We started that late Q2 of last year. So really, in the 6 months back half of last year -- last fiscal year, we did that. And yes, it took a lot of work. You're right.

In terms of the new opportunity there, is that of similar size to what's already been deployed or some variation on that?

Yes, I think the opportunities with this customer are extensive over an extended outlook. I do believe we have the potential to, this year, see growth similar to what we achieved last year, but we're going to have to get through this proof-of-concept and then expand from there.

In terms of the channel work that you've been doing, what kind of pipeline are you seeing through the channel, I guess, separate from Sprint?

Yes. With the Broadsmart acquisition, we strengthened our channel relationships. And we've also built up a team for this effort that took some time to put in place. But we go into this fiscal year with that team solidly in place, and I think pretty good momentum. We're adding tens of reseller partners and agents every quarter. And it takes a little time to help those partners and agents get their first sale. But then if things go well with you and you become a good partner to work with them, then you can build from there. We also have a specific strategy, as we've talked previously around securing white label partners, partners who want to white or gray label our solutions. Since our Enterprise solution is so customizable, it's easy for a white label partner to make it look and feel their own. And that has made good progress of late as well, simply because it took us most of last year to put the systems in place to kind of work with partners in that way. But that is also part of our plans for growth this year. We don't -- I'm not sure we've given any further metrics, just how much we do in channel and reseller activities, but it's -- I think relative to the industry, we're lights on it. We're heavy on our direct sales activities. And so we see potential to get a little more growth out of the reseller side of the business.

Yes. And then in terms of first quarter guidance. Is there any seasonality there, like on the product side or residential side to think about?

Mike, this is Ravi.

I'll make a comment.

Go ahead.

Go ahead, Ravi. It's fine.

I was just going to say, generally speaking, if you look at -- from a residential perspective, there's small seasonality in January, February. Residential is pretty -- generally speaking, holiday period is heavy and then Jan, Feb is slightly lower. But given the size of our business, given the scale, there's not much seasonality overall. Talkatone might have small seasonality also January, February, same thing with CPM. But overall, we do not see any major seasonality in the business in Q1.

Okay. Very last one. You talked about adding, I think, collaboration this year. Can you elaborate on that? There's a lot of different sort of definitions of collaboration.

Sure. And what I was actually speaking to was modernizing the user experience for the things we have today. We offer video collaboration. We offer the other things I mentioned in my opening remarks. But the user interfaces and user experience has been ideal, as ideal as we'd like it. So we've been investing in that. We've brought out a new desktop app on our enterprise solution already. We're soon to bring out new mobile app user experience and a new admin portal user experience. And the last thing we will get to will be revamping our video collaboration experience. But, yes. So...

Our next question will come from the line of Bhavan Suri, William Blair.

Let me echo my congrats. It's a nice quarter there. I guess let me touch a little bit first on the big customer, too. Just -- Eric, I'd love to understand sort of the competitive environment there. Who did you see? Who did you compete against? And sort of what drove some of that selection process?

Yes, I can't add a lot of color beyond what we think we've talked in the past about, Bhavan. This is a customer that's a large multinational company. They've used a variety of solutions in their business in different places and for different reasons. It's a competitive environment. We have had to beat out some well-known competitors at that customer to move forward the way we have. But we were able to bring 2 things that really fit this customers' need well. One was a very simple, easy to use, good value solution in Ooma Office for much of their needs, combined with a very sophisticated enterprise solution that we could customize and make it do some things that they weren't getting generally from the industry. And it is interesting to think about this as more of a trend. We see customers who have PBX solutions -- in-house PBX solutions where they customize them quite extensively and they don't want to give up those capabilities, yet they want to move to the cloud. And I think we're well positioned to be able to work with a customer and even improve upon what they've had in the past. So where we win with an enterprise customer is often when we can sit down and say, how does your business work? How can we enable you better? And based on that that's how we won this customer, and that's how we hope to win other large customers as we go forward.

Got it. Got it. And then I want to touch on Sprint a little bit. I know you brought it up. But I'd love to understand sort of the dynamics in terms of growth there. I'll ask, and I know you won't share, sort of its overall contribution to the business. And then more importantly, sort of as you give color, what types of customers are you seeing coming through that channel? Is there a pattern of size or geography or vertical or something like that?

Yes, I can answer that a couple of different ways. First of all, Sprint has an extensive business sales force. And it's not just one way to market. They work with channel partners. They have larger customer teams, smaller customer teams. And we are slowly working towards working with all the members of their sales force. I would say, on average, for -- they're probably bringing in a little bit larger-sized customers than what we would bring it on our own. But it's not a big difference. I will say this, though, they do have some very large customer relationships that, I think, with Ooma Connect now coming will be another point of leverage to potentially also help us through them really, let them secure some very large customers that we might not normally be reaching out to. So I think it's a great opportunity. Everything takes time. Their sales force does sell lots of things. And fortunately, the sales that we've made with them so far have gone well, and I think it would be fair to say that the people within Sprint at the front lines are pleased and talking positively about the experience, which is the momentum you need and encourage the sales force to get behind something. We've set our goal, and it's a goal we set rather random lease. So bear with me on this. But our goal is that by the time we've matured this relationship, 10% of our new users that we're adding in a period will be through the Sprint channel.

Got it. Got it. Got it. That's helpful. I'll ask a quick one on the channel itself, overall. Obviously, sort of the direct piece and then there's sort of the embedded piece, so to speak, the white label piece, the co-branding. Just about sort of how those 2 pieces are progressing, sort of are you seeing more traction with the co-branding or the white labeling? How are those conversations and discussions going in terms of those types of arrangements?

I think we're seeing good traction with talking to resellers and getting them to understand the uniqueness that we can bring to them and how we can work with them and support them. Our customization is a big differentiator. A second differentiator is our ability to handle an end-to-end deployment with whatever needs arise. That's a capability that the Broadsmart team brought to us, and in some customer situations can be quite meaningful. I would say for last fiscal year, our progress was relatively slow. And I think what gotten away a little bit was this big new customer that we added in the back half of the year. And all the work we did for them and the customization we did for them to enable them, that delayed some of our other plans on -- with enterprise. But I think it's really coming together today, and we have much bigger goals for it this year than last year. And the channel is quite extensive. We have our own unique capabilities for it, some of which I just mentioned. And I think we're going to find our niche in it, and that's going to be successful for us and take us much further than where we are today with it.

[Operator Instructions] Our next question will come from the line of Aman Gulani, B. Riley.

Congrats on another great quarter. So I want to talk about the Sprint partnership some more. Obviously, it's progressing pretty smoothly. I just want to get a sense for the visibility in terms of when you think that might ramp. And do you think your visibility will improve once the merger is complete?

I'm not quite sure I know what you mean by visibility. If you mean our ability to give you visibility about it...

Yes, just like visibility in terms of ramping, like when the sales team might be marketing Omni to their customers aggressively.

Yes. We increased our sales in Q4 versus Q3. We built our backlog. And by the way, we don't see all of Sprint's backlog, but they do share some of it with us where we can help them with it. That grew severalfold. And I would venture to say that a significant number of the people, their sales team, have not yet made a significant step with us in terms of, for instance, selling a customer or quoting or things like that. So I think there's plenty of room to develop. And it's -- and I can tell you, Sprint's been great to work with. They are solidly behind what we're doing together. And with our new Connect solution powered by Sprint, it's a 2-way partnership. And I think it's on us. This goes into our bucket of sales and marketing execution for this year that we just need to do.

Got it. And do you -- are you looking to maybe possibly, like, secure another wireless carrier with a similar, like, white label solution?

Well, if I can be cheeky for a moment. We're hoping T-Mobile will become part of the partnership. But no, I mean at this point we are focused on what we're doing with Sprint. Now Sprint is the partnership, primarily for the United States. So in other market areas, we might do something. But I think in the U.S., we're pretty focused on Sprint.

Got it. Okay. Just last question from me. I just wanted to get a sense for how Ooma Office Pro is tracking, and then how are the new features sort of being received by the market.

Yes. We're not going to give numbers every quarter on this. But since we launched it a couple of months ago, I think we have 2,500 users on it, something like that. And that was really came from customers that were explicitly waiting for it. And we are -- we've been training our sales team on it. And we -- I don't have a good perspective on what percentage of the customer base is going to adopt it. But I know that it isn't uncommon in our industry to get some advanced features, find out you like them, and then choose to keep using them. And that'll be part of the model as we go forward.

Our next question is going to come from the line of Pat Walravens, JMP Securities.

This is Joe Goodwin on for Pat. Congrats, again, on the quarter. Just curious, looking at the business subscription revenue growth line. Excluding Broadsmart, it has decelerated now down to 38%. As we lap that acquisition, is there a level of revenue growth that you expect that the business subscription line to kind of stabilize that? Or how should we think about that in the model going forward?

Joe, this is Ravi. There are a couple of things I'll highlight. One, in my prepared remarks, I did say my guidance assumes around 30% year-over-year growth on business subscription in fiscal '21 compared to fiscal '20. That's one aspect. So I did -- I have, at least saying, it will be 30% or probably higher, hopefully. Second aspect is, if you look at Q4, we ramped the large customer implementation early on late last year. And while we're working on POC for this year in a new market, I do feel there is some opportunity for growth because of either this large customer or other large customer opportunities, which could come up, and I do believe those things will help us in the longer term with our growth rate. So I do feel 30% is something I feel very comfortable with. But obviously, we have to execute on those, and then there are opportunities behind that. And then as Eric mentioned earlier, Office Pro, if larger customers start adopting Office Pro, we will see some uptick on that one. Ooma Connect is going to be launched later this quarter. So those could potentially also help increase our subscription services. So there are lots of levers we have, larger customers. This large customer POC, once it's successful, and we are ready to deploy. And then these new solutions can help us grow our ARPU and subscription growth rates.

I'll add one comment there just to get a little more drill down on Ooma Connect. 20 -- over 20% of our business user base today runs on a DSL line. And if you look at the speeds of connectivity they get and what they pay for it, I believe Ooma Connect can be a better solution all around for those customers. So we're pretty excited about the potential for Ooma Connect in that way. And it's going to take time with any new product, I'm sure there'll be some working out and refinement. But we see a lot of potential for this new solution. Also when you get to the small business environment, often, we're competing with a cable-type Internet solution, and that can mean a double play from someone else. And now, in effect, we have our own double play. And so I think it's going to also strengthen us all around as we go to market. It's been a big effort on our part. The new Ooma base station is a significant step forward, and this antenna is -- and module adapter is a very custom design that takes advantage of the latest technology with advanced LTE to get good signal strength even at pretty remote locations. So I think we've got a lot of potential. It's going to take us a little time to prove these things, and then we'll be able to give better guidance on them, but that's how we're viewing it.

And we have time for one final question. Our last question for the day will come from the line of Andrew King, Dougherty & Company.

So I just wanted to get a bit of a better idea of where you're seeing your confidence that you'll be able to hit this 30% year-over-year growth despite a lot of your competitors predicting the slowdown in spending as a result of COVID-19?

Well, I'm not aware of what my competitors are specifically projecting vis-à-vis COVID-19. I can tell you that, so far, our business has not been affected by it on the business side of the company. And we are -- we have channels to market and routes to market that I think can be strong even if people aren't traveling, so to speak. So I suppose, we don't know what COVID-19 is going to turn into. I know there's been a lot of concern about it. But I think we've given a forecast that we believe in with the knowledge we have at this time. Ravi, do you want to add anything?

I would -- just one other thing. Over the last couple of years, Andrew, we have built very diversified sales channels, whether it's resellers, VARs, our channel, we talked about Sprint and some of these other opportunities. So that also gives us confidence that, hey, we have a very diversified channel, it doesn't depend upon one specific thing. So we have done a detailed analysis on as part of our planning for fiscal '21 and see how we can look at and feel comfortable about our 30% guidance range. We looked at our supply chain also. So we have looked at a number of places and feel that we are -- given the channels, we are well positioned for this growth rate.

Okay. And if you don't mind me sneaking a quick follow-up. How many quarters did you build into your guidance of any COVID-19 impact? Was it just this next quarter? Or are you seeing it farther up than that?

It's a good question. We don't know much what will happen in long term, but we have looked at the next 3 to 6 months of where the supply chain issues could come in. There could be big situations. But we have looked at our supply position for the next 3 to 6 months.

I'll add a little bit to that. I actually did talk with a leading infectious disease doctor about this last week. I think everyone -- the expectation most people have is that between now and the end of April, it's going to be the strongest. And then the summer is going to be lighter. And then you're going to see it come back next winter -- next fall/winter. And I think, also if you -- now, I'm sorry, I'm just going on here. But U.S. has not done much testing of this virus, and it's not easy to get tested for the virus. And so the virus could be a lot more places already than we know. But I think it's -- I think you have to assume that it's going to spread, that most people who get it are going to have mild symptoms. And we're just going to have to wait and see on how much it slows down our economy as such. A lot of our products do ship out preconfigured for the customer through an inside sales process. So that process can -- is not likely to be largely affected by something like this. And also our CMs in Asia are, for the most part, back to work. They've been through the quarantine process and such, and particularly the larger CMs, people are back producing. So I think -- we think we're going to get through it in the next couple of months. It's going to die down through the summer, and then we'll be dealing with it again next fall. But I think the U.S. will be a lot better positioned to deal with it when that point comes. My two cents.

Thank you. I would now like to turn the call over to Eric for closing comments.

Well, thank you, everybody. We appreciate your taking time to listen to our call today. As I said in my last remarks, everyone at Ooma is 100% focused on driving results for this year. And we look forward to the next time we can talk with you. Thank you very much.

Once again, we'd like to thank you for your participation on today's conference call. You may now disconnect.