Ooma Inc (OOMA) 2016 Q2 法說會逐字稿

Good day, everyone, and welcome to the Ooma second quarter fiscal 2016 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Ms. Cynthia Hiponia, Investor Relations.

Please go ahead, ma'am.

Thank you, Rebecca. This is Cynthia Hiponia, Ooma Investor Relations. I am pleased to welcome you to Ooma's conference call to discuss its fiscal second quarter 2016 earnings results. With me on the call today is Ooma CEO Eric Stang and CFO Ravi Narula.

After the market closed today, Ooma issued a press release to PRNewswire. The release is also available on the Company's website at Ooma.com. This call is being webcast live on the investor relations page of the Ooma website and will be available for a period of one year. During the course of 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 our future financial or operating performance. Forward looking statements in this presentation include but are not limited to statements related to our business and financial performance and expectations and guidance for future periods, our expectations regarding our strategic product initiative and the related benefits and our expectations regarding the market.

Our expectations and beliefs regarding these matters may not materialize and actual results in future 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 that 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 metrics except as required by law.

Please note that other than revenue or as specifically stated, the financial measures to be discussed 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 disclosed in this call to the most directly comparable GAAP financial measures are included in our earnings press release and is available on our website.

On this call, we will give guidance for the third quarter of fiscal 2016 on a non-GAAP basis. We do not make available reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward looking basis due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures.

Let me now turn the call over to, Eric Stang, Ooma's CEO.

Thank you, Cynthia. Hello, everyone and welcome to Ooma's first quarterly earnings call. The last few months have been very exciting four our Company. In addition to closing a strong quarter, we achieved a significant milestone with the completion of our IPO in July. We appreciate the confidence our new investors have placed in us and we are pleased to review our performance with you here today.

For the July quarter, our total revenue was $21.1 million, up 27% year-over-year. More than 80% of our total revenue came from our high margin subscription services revenue which was up 37% year-over-year. We also grew our core users to approximately 717,000, up 29% year-over-year and we increased our percentage of core users who are premium users to 44%, up from 40% a year ago. We are pleased with these results and the momentum they demonstrate.

Ravi will provide additional detail on our financial performance and our outlook for the third fiscal quarter later in the call. Since this is our first earnings call, I would like to take this opportunity to provide a brief overview of our company and business strategy. Ooma provides communications and other connected services to small business, home, and mobile users.

Cloud communications is our core connected service and is the primary growth driver for our business today. It also opens the door for us to establish new customer relationships and provide additional connected services. Our unique hybrid SaaS platform creates significant competitive advantage in both our communications and our other connected services.

There is an enormous opportunity ahead of us. In North America, we see significant growth potential to deliver cloud communications solutions to small businesses as today only around one in five small businesses have moved to the cloud.

And our unique and flexible platform also allows us to extend beyond communications, provide productivity and other cloud services.

In the residential consumer market, nearly 80 million homes use land lines in North America, this also represents a massive market opportunity for Ooma including for other connected services since the Ooma platform has the capability to be at the heart of the trend toward the internet of things and the connected home, and provide unique new home automation monitoring and control solutions.

Our unique hybrid SaaS platform drives our competitive advantage by providing differentiated features and innovative technology that improves the quality, reliability and cost of our services. One key component, our on premises appliance, talks to other local endpoint devices wirelessly and serves as the hub for current and future services.

It also enables our proprietary PureVoice HD branded voice quality technology. For small businesses and consumers who often suffer from internet congestion and packet delay, our patented PureVoice HD technology offers consistently great voice quality and a solid user experience.

We believe it is the key driver of our industry leading single-digit annual core user churn rate.

Together, our on-premises appliance cloud infrastructure mobile apps and endpoint devices create an integrated and managed platform that sets us apart from our competitors, enabling advanced communications and many other connected services.

Now let me provide a brief overview of our products in our target markets. Our Ooma communication solutions for small business provides many PBX features in the cloud such as a virtual receptionist, music on hold, extension dialing, conferencing, and the like. It serves both landline and mobile users seamlessly and helps small businesses function and compete more effectively with bigger businesses. It is easy to self install, and can be used with standard analog phones without the need of additional wiring.

With Ooma Office, our small business subscription pricing starts at $19.98 per month for one phone number and user with $9.99 per month for each additional user. A significant savings compared to competitive offerings.

Our vision for small businesses extends beyond communications to many other connected services. One service we have already launched is business promoter. This service provides lead generation marketing solutions for small business customers, by elevating the visibility of their businesses across digital channels to drive new leads and new customers to their businesses.

We believe our combination of quality, affordability, and innovative features is what has persuaded readers of PC Magazine to rank Ooma Office the number one small business communications solution for the last two consecutive years.

For home consumers, we offer the award-winning, Ooma Telo. After a one-time purchase of equipment, we provide basic home phone service for free, charging only minimal taxes and fees. Customers can also upgrade to our premiere service for an additional $9.99 per month and get more than 20 innovative features including black listing which automatically blocks telemarketers from calling.

With our innovative features, patented PureVoice HD voice quality, free mobile app and range of end point devices, we provide a comprehensive home phone solution which delivers all the customer's are accustomed to with a land line and more and at a fraction of the cost.

It is also our strategy to provide frequent firmware upgrades to our customers over time to expand our feature set and offerings. Some of our innovation in new connected services for the home includes home security, automation and control solutions, our most recent initiative in this area is a partnership with NEST, a connected thermostat and smoke alarm provider owned by Google.

We envision more partnerships like this in the future to integrate our features with other connected devices in the home.

We believe our innovative best in class cost effective home communication solution is what has driven Ooma Telo to be named by consumer report as the number one home phone service in America. We also offer a third mobile calling app solution, branded Talkatone, which is available for free download in the IOS and the Android app stores.

Talkatone provides free calling and texting to over 1.7 million users today and is powered by an advertising based business model. Over the longer term, our Talkatone service will enable us to introduce more customers to Ooma and keep us on the forefront, the leading edge mobile solutions. In terms of marketing, our primary method for increasing brand awareness is TV advertising. Taking a broad based approach, we complement our TV advertising with significant online and social marketing efforts and both on our own and through retailer partners. They also take advantage of strong customer referral and word of mouth, leveraging our strong net promoter score which PC magazine reported as 85%.

On the sales front, the majority of our home consumers purchased us through leading retailers such as Amazon, Best Buy, and Costco. We also reached business customers through these retail channels, however, a higher proportion of business customers come through our direct sales activities. And we augment our retail and direct sales activities through partnerships with resellers. All told, we see a massive market opportunity. The communications alone, we have a $35 billion market opportunity before us and by providing additional connected services that deepen share of wallet with our customers, including business productivity, home automation and control, and networking infrastructure solutions, we believe the market opportunity can be several times larger.

Now turning again to our performance for the July quarter, and to our near term plans, I'm excited by our progress on a number of fronts. One is the advances we are making on our office platform. In the July quarter, we were able to expand the capacity of Ooma Office from five to 20 users, launch our Ooma Office mobile companion apps for IOS and Android, and release our Ooma Office Business Promoter Service on the Office Platform.

Looking forward, we will be launching additional functionality for Ooma Office this quarter. I'm also excited by the added recognition Ooma Telo received. Last month, Ooma Telo was named Editor's Choice for Home VoIP Services by PC Magazine. Recently, Consumer Report announced that their readers once again, ranked Ooma Telo the number one home phone service.

In fact, this markets the fifth year in a row that we are ranked number one. This quarter, we will further enhance Ooma Telo by announcing our next connected home partnership and with it, new services.

Also in the joint July quarter, we launched a new more responsive Ooma.com website, since we know that most consumers visit our website before making a purchase decision. We will be launching a new website for Ooma.ca in Canada this quarter. In terms of growth, last quarter, we significantly expanded our direct sales team which focuses on sales of Ooma Office, we will be expanding it further this quarter. We also anticipate increasing our retail distribution network this quarter.

And finally, in the July quarter, we shipped our first order with a new OEM partner. We are now looking forward to growing this new relationship while we continue to explore additional OEM partnerships to broaden our business reach.

Now, before I turn the call over to Ravi, I would like to take this moment to acknowledge the dedication and passion of our Ooma employees and business partners who have worked so hard to deliver the achievements I have mentioned here today.

We are grateful for your commitment and effort. After Ravi speaks, we will come back with additional comments before we open up for questions. Ravi.

Thanks, Eric. As a reminder, this portion of the presentation as well as Eric's remarks, contain forward looking statements. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. More information about the risks and uncertainties associated with these forward looking statements is contained in Ooma's SEC filings.

Unless otherwise noted, all financial information except revenue are on a non-GAAP basis and exclude non-cash expenses such as stock based compensation expense including warrants, amortization of intangibles, debt issuance costs, and acquisition related to contingent consideration.

Today, I'm going to review the results of our second quarter fiscal 2016 and also provide outlook for our third quarter. Since this is our first earnings call as a public company, I will first provide additional color regarding our key financial metrics as well as a brief overview of our revenue model. Total revenue for the second quarter was $21.1 million, an increase of $4.4 million or 27% from the prior year's quarter.

We report revenue in two streams, subscription and services revenue and product and other revenue.

Subscription and services revenue for the second quarter increased $4.7 million year-over-year to $17.4 million, a growth of 37% from the prior year quarter. The increase was driven primarily due to the growth in our subscriber base, which increased to approximately 717,000 core users, at the end of the second quarter, from approximately 556,000 core users at the end of the prior year quarter, and in addition to the 29% increase in our overall core users, our average monthly subscription and services revenue for core user increased to $7.78 for the second quarter of fiscal 2016 compared to $7.56 for the prior year quarter.

During the same period, our small business core users grew more than 200% from the prior year's quarter and now make up over 10% of our overall core users. Additionally, [topical] monthly active users or MAUs grew to over 1.7 million from approximately 800,000 MAUs at the end of second quarter of last year.

The number of our core users is a key metric for us because it is an indicator of our market penetration. This allows us to measure growth of the business and it helps us forecast future subscription and services revenue.

The core user metric also indicate the potential for future upsell opportunities as we introduce new services. We derive our subscription and services revenue primarily from recurring monthly and also some annual payments related to our services.

For example, Ooma offers services, Ooma Basic and Premier Services and international calling plans. We also generate revenue for payments from lead generation services for small business customers and from advertising via our Talkatone mobile app.

We have seen consistent growth in revenue in all of these categories on a year-over-year basis. Our product and other revenue is generated from the sale of our hardware primarily on-premise appliances and our end-point devices, but also from [ordering] fees which is a transfer of existing phone numbers to the Ooma service.

Product and other revenue for the second quarter was $3.7 million or 17% of total revenue as compared to $4 million or 24% for the past year quarter.

The decrease of $300,000 from the same quarter last year was primarily due to a large initial product order from an OEM partner that was shipped over several quarters in fiscal 2015 that was not repeated in fiscal 2016.

In the second quarter of fiscal 2016, we developed a new OEM partner relationship and made a small initial sale to that partner. We do expect subscription revenues from both of these OEM partners to grow over time as they grow their user base.

As we execute on our plan and as our customer mix shifts to a higher proportion of small business, our subscription and service revenues should go faster than our product revenue. This is due to the fact that one appliance can support a number of business users.

Additional metric we track includes annualized exit recurring revenue or AERR which is a measurement of recurring subscription and services revenue. Our AERR has increased 32% year-over-year to $66.9 million for the second quarter of fiscal 2016 from $50.5 million at the end of last year's quarter.

Our annual net dollar subscription retention rate was 96% at the end of second quarter compared to 101% in the prior year quarter. The primary reason for the decline was due to the year-over-year reduction of average revenue per user related to our lead generation business called the Business Promoters.

As we have grown our customer base, we now have a wider variety of customers resulting in higher overall revenue though with lower revenue per user.

We do expect the net dollar subscription retention rate to fluctuate on a quarterly basis and improve in Q3 from Q2. Our total gross margin improved to 54% in the second quarter compared to 51% for the same quarter last year.

Our total gross margin is comprised of a subscription and services gross margin and product and other gross margin. Subscription and services gross margin was 64% compared to 66% in the prior year quarter and flat sequentially driven by investment to ramp the growth in the small business services primarily Business Promoter.

We target product and other gross margin to be at breakeven and it was 3% in the second quarter compared to 6% in the prior year quarter.

We continue to experience strong growth in our core user base which drives growth in our subscription and services revenue both on an absolute dollar basis and as a percentage of total revenue.

Accordingly, subscription and services revenue as a percentage of total revenue grew to 83% in the second quarter from 76% in the second quarter of last year.

Increasing recurring revenue from subscription and services is a key focus for us because besides improving our bottom-line, it also provides visibility to future revenue.

Second quarter operating expenses was $13.5 million, an increase of $3.7 million or 37% year-over-year.

Sales and marketing expenses were $6.7 million, an increase of $900,000 year-over-year primarily due to ramping of our activities related to small business segment.

Research and development expenses are $4 million, an increase of $1.1 million over last year primarily due to an increase in personnel cost related to the development of our platform and features.

General and administrative expenses are $2.7 million which is an increase of $1.6 million year-over-year due to increased personnel expenses and professional fees to scale as a public company. We do expect the growth in G&A expenses to slow down going forward.

To support our expected revenue growth and our operations, we intend to continue to invest in the business particularly in sales and marketing so we can continue to grow our core user base, as well as investing in research and development to further improve our platform and develop additional features and functionalities.

We incurred a net loss for the second quarter of $2.5 million or $0.58 for basic and diluted share compared to a net loss of $1.3 million or $0.59 for basic and diluted share for the second quarter of fiscal 2015.

We incurred an adjusted EBITDA loss of $1.8 million in the second quarter of fiscal 2016 as compared to $1.1 million loss in the second quarter of fiscal 2015.

Now, turning to the balance sheet, proceeds from the initial public offering net of offering cost, were approximately $57 million. After the payment of $10.3 million of our debt, we now have cash and cash equivalents of $59.2 million as of the end of the second quarter.

Cash used in operations during the second quarter was $2 million. Deferred revenue at the end of the second quarter increased to $14 million from $13.1 million at the end of the prior year quarter.

We ended the quarter with 135 full-time employees, an increase from 86 at the end of the prior year quarter.

Now, for the Q3 outlook. The following guidance for Q3 is based on non-GAAP results and excludes stock-based compensation, amortization of acquisition-related charges and other related expenses.

Total revenue is expected to be in the range of $23 million to $23.5 million. Non-GAAP net loss is expected to be in the range of $2.2 million to $2.5 million, non-GAAP EPS loss is expected to be in the range of $0.13 to $0.15. We have assumed approximately 17 million basic and diluted shares for Q3.

With that, let me pass it back to Eric for some closing remarks. Eric?

Thanks, Ravi. In summary, we believe we have the leading solutions in the market today. Our business model is getting stronger every quarter as we broaden brand awareness, increase our mix of small business customers who bring us higher revenue per user and launched new services to increasingly monetize our growing base of customers.

Longer term, we have the potential to turn nearly every customer of ours into a premium customer by providing some additional service they can't live without. And I don't see any competitor with a platform like ours which can drive very little churn and enable new services to significantly expand revenue per customer over time.

I believe our 37% year-over-year growth in subscription services revenue in Q2 is industry-leading and demonstrates the strength of our business model. We go into to Q3 with strong momentum and look forward to executing on the Q3 guidance we're providing you here today.

Thank you. I now like to open up the call for questions.

Thank you. Ladies and gentlemen, the question-and-answer session will be conducted electronically. (Operator Instructions).

And your first question will come from Michael Nemeroff with Credit Suisse.

Hey, guys, thanks for taking my questions and congratulations on a very nice quarter and a good start to public life.

Thank you.

Thank you, Michael.

Just -- you're welcome. Just real quickly, Ravi, I know you gave us third quarter guidance. I'm curious, you know, did you specifically purposely not give us full-year 2015 guidance? And if so, you know, what was the rationale behind that?

Michael, with respect to the guidance, you know, starting as a public company, we want to make sure we are totally -- first and foremost, we have good visibility from our subscription revenue but we want to make sure we are giving one quarter guidance as a policy.

And we will discuss the color around on a longer term basis with you but our policy has been to give -- provide quarterly guidance.

Okay. And then as it relates to the -- to the third quarter guidance, the $23 million to $23.5 million, could you maybe give us a sense for what you're thinking subscription and services would look like in Q3?

As I mentioned earlier in my prepared remarks, product and as -- our focus is to grow subscription and services revenue given our lower churn, high retention rate and growth in ARPU. So I do expect that subscription and services revenue could grow at a much, much faster rate.

Product and revenue should be -- should be relatively flat or consistent to what we have seen in Q2 but the subscription revenue is where we are focused on growing and that is what will be growing going forward.

That's helpful. So on the breakdown on the business in the core users is the Telo versus Office. And I know that's something that you might not want to break out explicitly. But if maybe you could just comment generally on where the strength was in Q2, did you see acceleration in the growth of the Office users during the quarter?

Yes. So if you look at -- we have -- we are breaking out -- at least I gave in the guidance in my script the overall SMB, small business, which includes Office as well as Business Promoter, both of those on a year-over-year combined grew more than 200% from last year. So now, SMB as a percentage of core user is greater than 10%.

Okay.

So it has been growing. And keep in mind, we only launched these products around 18 months ago, so they have been growing pretty fast and now, they are -- and they grew at more than 200% on a year-over-year basis.

That's helpful, Ravi. So Eric, as it relates to the business from three months ago pre-public, is there any change or deviation or anything different that you see about the business that would cause you to feel differently about how you felt about the business pre-IPO versus today?

No. I'm excited. I believe our team executed well in Q2. I hope I gave in our prepared remarks a fair number of insights into what we expect for Q3. And we feel excited about our outlook.

And just lastly, I know in the past we've talked about this but maybe for the benefit of others, you know, how does -- how does Ooma's products and sales typically perform in times of macroeconomic uncertainty?

We don't expect macroeconomic uncertainty to hold us back. We did very well in the 2009, 2010, 2011 timeframe when obviously things were very tough. It turns out wanting to save money is one of the things we offer, so we get a lot of interests in those times. So we're not thinking about macroeconomic outlook is affecting us plus or minus as we look forward.

Okay. That's very helpful. Again, congratulations on a very good quarter.

Well, thank you, Michael.

And next we'll hear from Nikolay Beliov with Bank of America.

Hi. Thank you for taking my questions. Congratulations, first of all, on your first earnings call as a public company and good results.

Eric, I had a question for you, a high-level question. When you look at your connected services strategy, you mentioned home monitoring and you also had some plans for the Office side. What are the upticks going forward? How should we evaluate in terms of executing on that strategy going forward?

I think you're going to see us roll out new services and new solutions over time. I don't want you to think it doesn't take a fair bit of development; it does. And we've got efforts underway. I mentioned in my script that we'll be announcing another partnership on that front in Q3 and it's in our intention to do more partnerships over time. But in terms of more fundamental solutions offered directly by us, we're looking at sometime next year for those solutions, and we really haven't pinned down yet when that will be.

And can you talk about your M&A strategy in that context?

Sure. We may -- I mean, we're always thinking about small, more technology-oriented acquisitions that can move us faster into the areas we want to go. Business Promoter service, for instance, was an acquisition as with Talkatone as you know. But we're not relying on acquisitions to get there. And if they do develop for us, they'll just move us along faster.

Thank you. And then, Ravi, one question for you. I know didn't guide for the year, but how should we think about Q4 seasonality isn't going to follow historical pattern?

Yes. So I think there are a couple of things in the seasonality. One is the holiday season actually helps with some on-premise appliances side of it, but only some budget flush issues on the Business Promoter side. I think there are a couple of different plays, which happens in Q4 compared to other years. And we don't see any reason why it should be any different than previous periods.

I would highlight one distinct fiscal '15 Q4. We had a large order from Vivint in Q4 last year, so that was in the product revenue, which we don't expect it to be repeating in Q4 '16. If that happens, there'll be an upside. So other than that, the typical seasonality you should expect from the overall business.

Thank you for taking my questions, and congrats again.

Thank you, Nikolay.

And from Wunderlich, we'll hear from Matt Robison.

Thanks for taking my question, and let me throw my congratulations and especially with how busy you guys were in the quarter. Great execution.

I was hoping to hear a little bit -- I know you gave the strong additions for SMB. How should we think of the percentage of revenue contribution from SMB? And also I'm curious if you have shifted your sales and marketing spending, I think, in terms of [free bucks] between the web ads, the TV ads, and the direct sales, and kind of where and how we should think about that as we...

Hey, Matt, this is Ravi. Let me start with it and then Eric can provide more color on the marketing strategy.

On the SMB side, as I said, we have more than 10% of our overall core users now for Office as well as Business Promoter together. And the revenue has also been increasing so now it's in high teens of the overall revenue. And just to give you a flavor, it was -- it has grown from even last quarter in terms of total SMB revenue as a percentage of revenue. It has been growing sequentially, so it is at the high teens number now. So -- and we do expect it to continue going forward as we are emphasizing not only our efforts in there but also increasing our [directives] activities.

Yes, hi, Matt, and thank you. We have certainly shifted a meaningful portion of our sales and marketing budget over to the office side, which drives more spend in a direct sales type of way, activities to drive leads and prospects to [top of their] inside sales team primarily. That has, to some degree, forced us to hold back or even cut back some on how much we spend on growing Telo in the consumer channels. That's not something we want to do and it's something that we are constantly trading off. But we are clearly putting a lot of focus around the small business front and seeing the results from that.

So, you know, as we look forward, we want to grow our sales and marketing on both fronts. It's not that we want to cut back either one. But I would say, at this point, we've put our budget down in a way that it's pretty much how we want to maintain it going forward in terms of balance between the two.

Thanks, Eric. And it's kind of a tough topic late April, early May. Can you comment about how the churn developed or changed from that period when you had the trouble?

Sure. We had a little bit of increased churn in the middle of Q2 for some one-off reasons, which we've discussed. But our churn levels recently, last month or two, has been as low as they've ever been. We're thrilled with where they're at. And we've got programs in place to manage them down from here, but they are very solid. I think, yes, we couldn't be more happy with where we're at right now.

And if I can just add in that -- the churn did not impact our financial performance in Q2. It was not material. And as Eric said, since April, May, the churn has significantly gone down from there also, so I think we are broadly back to normal with execution going forward.

Thanks a lot.

Thank you, Matt.

And as a reminder, that is star-one to ask a question. Next from William Blair, we'll go to Bhavan Suri.

Hey, guys. Thanks for taking my question, and nice job. Just a couple of quick questions here. The first, when you look at the Business Promoter and the office product, just any color around cross-sell, and I know it's early days but sort of how has that been progressing?

It is early days, but we have started. We announced in Q2 that the Business Promoter service is now available on the office platform.

We've been targeting subsets of our users with focused marketing, learning and trying how to -- how to best market and sell it.

I can tell you that recently we've been achieving low double-digit take rates with our efforts there, and we're pleased with that. Our goal was to be in double-digits and so we're there. But honestly, we have a lot farther to go to introduce it to our whole customer base and keep building it.

Got it, got it. And then just to stay on that topic for a second. Any new agency wins or maybe any color on how the agency pipeline is coming along?

Yes. We do use digital agencies to help bring us additional customers for our Business Promoter service. And one of our strategies from early this year was to broaden the number of digital agencies we work with. We're originally working with just one, then we broadened it to two.

Today, we're working with six. Actually, Ravi said seven, so I think the last one's new. But we feel like we're a lot stronger position today in that business because of the breadth of what we're doing. And we certainly have a lot more opportunity on that front, there's no question.

Great, great. And then just turning guest to the competitive environment a little bit. Obviously, Microsoft announced their sort of Skype Cloud PBX. It's not even out yet, but the competition was there six months ago and they sort of put something more formal out there.

Anyway we should think about that, Eric? So how should we view that and sort of, you know, how much of that side is that really to kind of Ooma's business as you start driving the small business part of the company?

You know, I'm glad you asked that because I think it speaks to one of our key differentiators, or at least differences in the market versus many competitors out there. We're targeting the truly small businesses, Main Street businesses, businesses with one to 10 employees, doctor's office, insurance agent, drycleaner, local plumber.

I don't believe what Microsoft is trying to do today is targeted at that customer set. And so we don't expect it to have much impact on our business. Competitors can maybe try to go after large-sized businesses. I think we may see more competition from that.

I also believe that our solution is uniquely suited for this target market that we're serving and with the -- with all the things we talked about in the script. So I feel like even if Microsoft were to come to this market that we're targeting with what they've got, they would still lack a lot of the other solutions that we outlined in our script. So I feel very strong about our competitive advantage in the space regardless of what they're doing.

Got it. That's helpful. Thanks, guys, and nice job there.

Thank you, Bhavan. Good talk to you.

And we'll go to Patrick Walravens with JMP Securities.

Hey, guys. It's actually [Matt] on for Pat. I wonder if you could share your perspective with us. One perception that there's out there in the market is that everyone is basically cutting the cord in the residential side especially. Could you maybe give us your thoughts on that and how you're expecting your business as I see it moving forward?

Sure. I don't think it's affecting our business at all. There's nearly 80 million landlines in North America. There's good reasons to keep a landline -- access to real 911, the convenience of phones in every room if you have a home office. If you have children that don't yet have their own cell phone.

Families with children are the most likely customer for us, and we believe that a customer is out there and there's a lot of them. So we're not really worried about the cord cutting per se. We're just targeting that market with the solutions that we think they need.

In any case, given the size of the market, it's going to be a big market for a long time relative to our stake in it. So even if that market continues to decline at some rate, I'm not worried for Ooma. I think we have a long-term outlook that shows a lot of potential. And frankly, we're just talking North America. We haven't even begun to think about or talk about Ooma moving into other countries around the world where we could also bring phone service.

So, one of the great things about telecommunications is it's ubiquitous. Everybody likes to talk to people. And if you can do so with landline quality and landline features, it just, you know, minimal taxes and fees per month. That's pretty compelling.

We even have customers who come to us who had given up their landline entirely, but came back having one with Ooma because at our quality and price point, they got something they really value. So we're excited about the outlook, those concerns notwithstanding.

I would say also, too, one last thing, as we add connected services, we become more relevant to our customers. And beyond just the occasion, it makes switching and changing all that much harder. I think already we have a very low churn rate, but we think our strategy and long-term direction is going to help drive our churn rate even down from where it's at. So I hope -- that's probably more answer than you were looking for, but I hope that's helpful.

No, certainly, it's perfect. Thanks. And that's all I had.

Thank you, Matt.

And at this time, there are no other questions in the queue, but I would like to turn the conference back over to Cynthia Hiponia for any additional concluding remarks.

Great. Well, thank you everyone for joining us on the first earnings call, and we look forward to updating you again next quarter.

Bye-bye.

And, ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.