Ooma Inc (OOMA) 2016 Q3 法說會逐字稿

Good day and welcome to the Ooma Third Quarter Fiscal 2016 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Cynthia Hiponia. Please go ahead ma'am.

Thank you. This is Cynthia Hiponia, Ooma Investor Relations, and I'm pleased to welcome you to Ooma's Conference Call to discuss its fiscal third quarter 2016 earnings results.

With me on the call today is Ooma's CEO, Eric Stang and CFO, Ravi Narula. After the market closed today, Ooma issued a press release to PR Newswire. The release is also available on the company's website at Ooma.com. This call is being webcast live on the Investor Relations page with 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 Federal Securities Laws. Forward-looking statements generally relate to future events or a 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 initiatives and related benefits and our expectations regarding the market, our expectations and belief regarding these risk 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 statement 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 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 an 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 a non-GAAP financial measures discussed 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 fourth quarter and full year 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 feasibility with respect to the charters, 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 Q3 Earnings Call. I'm pleased to report Q3 was a strong quarter for Ooma.

Total revenue grew to $23.5 million, up 28% over the same quarter a year ago; and over 80% of our revenue was our high-margin subscription services revenue, which grew to $19.5 million, up 36% compared to a year ago. Our adjusted EBITDA loss was $1.5 million, which has improved sequentially when compared to Q2.

These results and others, which Ravi will take you through, shortly demonstrate the power of Ooma's business model and our competitive advantage in providing Cloud communications and other connected services to small business, home and mobile consumers.

As I look at our business today, at the solid results we are driving and at the opportunity ahead, I see tremendous potential driven by four main elements; our unique hybrid SaaS Platform Solution, our integrated strategy of serving both small business and home consumers, our high customer retention and satisfaction and our potential for and commitment to innovation and new services. I like to say more about each of these, since together they set us apart from competition and drive our success.

First, our unique hybrid SaaS Platform has taken us years to build and it's like no other solution in the marketplace today. In our view, it is essential to providing high quality Cloud communications to small business and home consumers who lack large, high capacity internet connections. No small business is going to accept garbled sounding calls when their DSL line happens to get busy with other traffic and with Ooma, they don't have to.

In addition, with Ooma, our small business customers do not need to buy expensive IP phones, do not need to run cabling, do not need to integrate into their existing router and do not need to pay an IT professional for installation. Instead, they receive a simple to use low cost, high quality solution with advanced Cloud features and mobile connectivity. It's the perfect solution for the unique needs of the small business, or for that matter, home consumer.

Second, our integrated strategy of serving both small business and home consumers affords us leverage in developing brand recognition, in reaching customers to retail channels and ensuring simple and easy product and service solutions. Customer acquisition costs, as compared to customer lifetime value, is what drives the economics of our business. We believe our integrated strategy affords us a lower customer acquisition cost and will be the case if we were serving either customer set exclusively, or for that matter both, but with independent solutions.

Third, we believe our industry leading high customer retention rate of approximately 94% on an annual basis and our high customer satisfaction speaks for themselves. Ooma Telo is simply the best home phone solution in the marketplace today, as rated by consumers for now five years in a row. Now, does this really matter? We believe it matters a lot.

Our high retention means our investments to acquire customers payoff. It enhances our growth when customers refer us to their friends and family and gives us higher confidence that investing to grow our business will be rewarded.

The final core element driving our success is our commitment to innovation and new services. Our platform is ideally suited to drive new productivity, connected home and infrastructure services and we are strategically investing in R&D to do so.

For our small business customers, we continue to optimize our Business Promoter service, which generates new customer leads for our customers. We're also expanding our Ooma Office Communications Platform, so it can serve small business customers who desire an entirely mobile-only solution. We call this Ooma Office for Mobile.

We are currently providing it to select customers in a testing phase before we launch it formally in the near future. Our Ooma Office for Mobile expands our market opportunity and also represents a convenient way for new customers to experience Ooma Office before investing in our full fixed-line solution.

For our home customers, we are innovating to integrate our home phone service with popular connected home products, such as Philips Hue light bulbs and with iOS and android mobile devices including smart watches from Apple and Samsung. These innovations will be available from us in the near future and we will be introducing several more at the consumer electronics show in January.

For our Talkatone mobile users, we have improved the customer experience by recently launching new Apple on android versions of our mobile app. These featured a new look and feel, streamlined onboarding and simpler usage, especially for connecting to friends.

In the third quarter, we took steps to close certain Talkatone accounts with very low usage, resulting in a sequential decline in our total monthly active users. However, in the fourth quarter, we are already seeing an uptake in users and we expect to grow once again the number of Talkatone monthly active users.

Now together these four elements, our unique platform, integrated go-to-market strategy, high customer satisfaction and retention and commitment to innovation are why we are better able than others to satisfy the special performance and value requirements of small business, home and mobile users. They are also why we were named in Q3 by Deloitte as one of the fastest growing technology companies in North America.

I'm pleased to report as well that in Q3 we increased once again the number of store fronts carrying Ooma products and we established a new OEM partner, our third, and completed our first shipment of products to them.

As I look at the opportunity ahead, I believe we can capitalize on these four elements in a big way given the very large market in front of us. Our market opportunity includes the more than 90% of businesses in North America that are truly small businesses, every home household and mobile consumers who desire additional communication solutions. This market opportunity is vast, as for the most part not yet switched to the clear benefits of the Cloud communication solution, and generally is underserved by most other providers in the market today.

Let me now turn the call over to Ravi to discuss our Q3 in more detail and then I will come back with further comments on the business.

Thanks Eric. As a reminder, this portion of the presentation, as well as Eric's remarks, contained 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 FCC filings. Unless otherwise noted, all financial information, except revenue, is on a non-GAAP basis and excludes non-GAAP charges such as stock-based compensation expense, amortization of intangibles and acquisition-related contingent consideration. The full reconciliation of the GAAP to non-GAAP financial data can be found in the press release issued earlier this afternoon.

Today, I'm going to review the results of our third quarter fiscal 2016 and provide outlook for our fourth quarter and full fiscal year. Total revenue for the third quarter was $23.5 million, an increase of $5.2 million, or 28%, from the prior year's quarter.

Subscription and services revenue, a component of total revenue, increase $5.2 million, or 36%, year-over-year to $19.5 million. Subscription services revenue was 83% of total revenue for the third quarter compared to 78% of total revenue for the prior year's quarter.

As a reminder, we derive a subscription and services revenue primarily from residential and small business customers. Small business customer offerings include Ooma Office Services as well as Lead Generation Services while our residential offerings include basic and premier services as well as international calling. We also generate revenue from advertising with our Talkatone mobile app.

The year-over-year increase in subscription and services revenue was driven primarily by growth in our subscriber-base, which we view as an indicator of market penetration and future upsell opportunities. Core users increase to 761,000 at the end of the third quarter from 604,000 at the end of the prior year's quarter; a growth of 26% on a year-over-year basis.

Premium users grew to 45% in Q3 compared to 41% at the end of the prior year quarter. During the same period, our small business core users continue to increase and grew 117% from the prior year's quarter and now in the low teens as a percentage of our overall core users. In addition, our average monthly subscription and services revenue for core user increased to $8.15 for the third quarter fiscal 2016 compared to $7.89 for the prior year's quarter.

As of quarter end, Talkatone had over 1.5 million Monthly Active Users, or MAUs, going from approximately 1 million MAUs at the end of third quarter of last year. The Talkatone Monthly Active Users were down from the prior quarter as we eliminated some low revenue generating accounts, but at the same time, increased our overall total revenue and thus also our revenue for MAU.

Product and other revenue, another component of total revenue, increased 1% year-over-year to $4 million from the prior year's quarter, coming from increased unit sales, offset in part by lower average selling price. As Eric mentioned, we are pleased to have signed up a third OEM partner during the quarter that generated product revenue in Q3.

Annualized Exit Recurring Revenue, or AERR, which is a measurement of recurring subscription and services revenue, increased 30% year-over-year, or $74.4 million, for the third quarter of fiscal 2016 from $57.2 million for the prior year period. Our annual net-dollar subscription retention rate was 97% at the end of third quarter compared to 102% in the prior year quarter and increasing from 96% quarter-over-quarter.

Our total gross margin improved to 54% in the third quarter compared to 52% for the same quarter last year. This increase in gross margin is primarily due to the increase in the proportion of revenue derived from subscription and services revenue, which carries a higher margin than product revenue.

Subscription and services gross margin was 66% compared to 67% in the prior year quarter, which was primarily driven by investment in the small business segment. Product and other gross margin was -6% for the third quarter compared to -2% for the prior year quarter, which was primarily due to lower ESP from some of our channel partners.

Third quarter operating expenses are $14.6 million, an increase of $4.1 million, or 39%, year-over-year. Here, the marketing expenses are $7.3 million, an increase of $1.4 million year-over-year, primarily due to ramping up our activities related to small business segment. Research and development expenses are $4.5 million, an increase of $1.1 million year-over-year due to increase in personnel cost related to the development of a platform and further enhancement of our features and functionality.

G&A expenses were $2.8 million, which is an increase of $1.5 million year-over-year, primarily due to increased personnel expenses and professional fees as a public company. We intend to continue to invest in the business, particularly in sales and marketing to increase consumer awareness and grow our core user-base.

We incurred a net loss in the third quarter of $2 million, or $0.12 per basic and diluted share, compared to a net loss of $1.1 million, or $0.48 per basic and diluted share, for the third quarter of fiscal 2015. We incurred an adjusted EBITDA loss of $1.5 million in the third quarter of fiscal 2016 as compared to $800,000 loss in the third quarter of fiscal 2015.

Now, turning to the balance sheet; we had cash and cash equivalent of $57.3 million at the end of the third quarter. Cash used in operations during the third quarter was $46,000 compared to $3.3 million usage in the prior year's quarter. Deferred revenue at the end of the third quarter increased to $15.6 million from $14.4 million at the end of the prior year quarter. We ended the quarter with 137 full-time employees, an increase from 95 at the end of the prior year quarter.

Now for our outlook, the following guidance is with the non-GAAP result and excludes stock-based compensation, amortization of acquisition-related charges and other related expenses. For Q4 fiscal 2016, total revenue is expected to be in the range of $24.5 million to $25 million. This guidance takes into account our lower revenue contribution from our lead generation service business due to some carrier operational issues encountered in late Q3.

Non-GAAP net loss is expected to be in the range of $1.7 million to $2 million. Non-GAAP EPS loss is expected to be in the range of $0.10 to $0.12. We have assumed approximately 17 million basic and diluted shares for Q4.

Guidance of full fiscal year 2016; total revenue is expected to be in the range of $89 million to $89.5 million. Non-GAAP net loss is expected to be in the range of $8.6 million to $8.9 million. Non-GAAP EPS loss is expected to be in the range of $0.85 to $0.88. We have assumed approximately 10.1 million basic and diluted shares for fiscal 2016.

In summary, we remain confident in our ability to achieve our long-term target of total gross margins between 65% to 70% and adjusted EBITDA margins between 20% to 25%. With that, let me pass it back to Eric for some closing remarks. Eric?

Thank you Ravi. As in Q3, we expect in Q4 to grow our core user-base significantly, to increase our percentage of users who are premium users and to maintain our high customer satisfaction and retention. As Ravi mentioned, our Q4 outlook is for revenue of $24.5 million to $25 million.

We have reflected in this outlook our anticipation of more modest growth in our Business Promoter service. Over the course of this year, we took steps to expand and diversify the number of partners we work with to source new customer accounts for Business Promoter. We successfully accomplish that and, in fact, today have grown the number of partners we work with and our backlog in new customer accounts to their highest level ever.

However in Q3, we did experience some operating issues, in particular, relating to our carrier's activities. These issues are now behind us, but they limited the growth of our account-base, such that in Q4 we have tempered our revenue outlook.

Longer term, we expect continued good economics as we grow our Business Promoter service and regarding the main drivers of our business, Ooma Office and Ooma Telo, we expect continued strong growth in Q4 with Telo sales to home consumers especially strong, given the holiday period. All in, we expect strong growth in our core user base again in Q4, even after factoring in more modest growth for Business Promoter.

So in summary, we are very pleased with our results in the third quarter, which we believe show the strength and quality of our unique hybrid SaaS Platform and we continue to make investments to provide additional innovative services for our small business, home and mobile customers. With that, Ravi and I will be happy to take questions.

Thank you. (Operator Instructions) We'll take our first question from Bob Ansari with William Blair.

Hey guys. Thanks for taking my question. Nice job on going the subscription revenue.

Eric, I just want to dive in a little bit just in the beginning. You talked a little bit about the Business Promoter impact from the carrier, did you see any impact of that in Q3 and then how confident do you feel that's been resolved? Any color there would be great.

Sure. Happy to talk about that I knew you'd want to dig in there a little bit.

Yes, we had plans to grow our Business Promoter service more in Q4 than we believe we're going to be able to do it. What drove us is something really strange to be honest with you. We discovered in Q3 that some of our -- this Business Promoter works because we deliver phone calls, which are new customer leads to the end customers that we're working with.

We discovered in Q3 that some of our phone calls were not being completed, and it turns out we had spent a while looking at our own systems thinking what are we doing wrong and it turns out the major driver was that the inbound calls coming to us did not have enough forwarding potential within the internet process to reach their end destination, so to say that differently, every bit of information traveling through the internet has a certain amount of forwards allowed before it will stop going further and that's to prevent, among other things, the internet from just spiraling with the same information running around it forever.

While normally we would have the inbound calls coming to us with the maximum number of forwards of maybe 70, and each time the server touches the information that number gets documented, we actually discovered some of the calls coming in with 10 or less even as low as 1, such that they just wouldn't get through our system, or if they got through our system, they wouldn't get to where they were going before they would hit their max and die, so very strange situation. We were able -- Once we discovered this work with our carrier, it took them a while.

We're not even sure today what they had to do to address this, but they address it. It's not an issue anymore and it's not going to affect us going forward, but it did affect our ability to create and develop new accounts in Q2. We spent a lot of our development time looking at this problem.

We did not get some of the productivity work done that we're going to do instead to make adding new accounts more productive for us, and as such, we believe we're going to have a lower number of total accounts in Q4 than we originally plan and that means we won't see the growth that we are intending for Q4, but Business Promoter itself is a very nice, healthy service with good margins and I have no doubt that we can now catch up or build from here over the next couple of quarters. And with the, frankly, very large backlog of accounts that have not been enabled and developed into generating revenue yet, we see a lot of potential for it, but that's what happened there. There are some other small things too, but that's by far the big thing and it was odd, but we've addressed it.

And then, I guess, on the flipside of this promoter, obviously the agencies are somewhat instrumental in that business too. Just any update on the pipeline there and how they are doing in terms of building a backlog, and if you look at the backlog, you obviously haven't been able to launch the account, the backlog there of new account opening, if I was to backlog year-over-year, what sort of growth, what's the color can we tell about that backlog that maybe means next year we see a resurgence in growth?

This is Ravi here. Good question. With respect to backlog, we have not disclosed the backlog, but let me put it differently.

We have the highest amount of backlog, number of backlog accounts we ever had in the history, so it's as Eric said, we were distracted, we were focused on solving this immediate problem, but we have been on the sales side, we have been adding new partners. We have been able to add new backlog accounts.

Now, our focus is to continue to execute and create and have these accounts start producing revenues. So, it'll take some time to start generating revenue, but we have a significant amount of backlog; that's a good thing and we have work to do to get this backlog convert into revenue generating, so highest backlog ever we had, but there's work to be done to produce revenue from those accounts.

Great Ravi, helpful. One last one for me, if I may. If you look at your Q4 guidance, obviously, what will be great to give a little more color on the split between subscription versus the product line, obviously product line came a little late, which, obviously, that's just a foothold to get in the longer term subscription anyway, but some color on how that might look for Q4 and then, obviously, how you think that trends into next year.

Yes, we'll provide the guidance for full fiscal year in our Q4 Earnings Call, but if I were to start with the Q4 guidance, in Q3, we have product revenue of roughly $4 million and Q4 is the residential side is good due to the holiday season, the small business, the Ooma Office; not too many small businesses make changes to the phone systems and during the holiday period, so in all, I believe the product revenue to be relatively flat, maybe a little bit higher, but it's not going to be significantly different from what Q3 is or was. So, with the guidance I've given, approximately we have $4 million of product revenue in Q3 and it should be a little bit above, but not too far off.

That's really helpful. Thanks for taking my question guys.

You bet. Thank you.

And the next is Michael Nemeroff with Credit Suisse.

Hi. This is Alex Qu in for Michael. Thanks for taking my question. First question, aside from the carrier specific issues on the lead generation side, which seems to be, have there been any meaningful changes since last quarter to how we should think about the growth trajectory for 2016 as [close this month] and head into next year.

Well, we're not here today to give you guidance for next year. I'll let Ravi add to what I'm going to say here in a second, but no, our business is nicely on track. We had a strong Q3 and have, we believe, a solid outlook. You can add to that.

Alex, as Eric said, nothing major has changed in the business. We saw a small shift here. We have resolved it. That's why that is reflected in our Q4 guidance, but we do believe the fundamentals of the business on the residential site, small business site, all of those are pretty strong and we continue to execute towards that, so there's no major change happening on that side we can highlight.

Great, that's good color. And then one more for you Ravi. Can you also just comment about how your unit economics have been tracking this growth for both the residential side and office, like how is it tracked versus support for it? Have there been any (inaudible) division or improvements that you're seeing a leverage? Any color on that would be appreciated. Thanks.

Yes, the customer acquisition cost, the lifetime value, most of those are trending pretty consistently. There's always small changes here and there, which happens, but if you look at the big picture, there's nothing significant deviation from what we discussed in our Q2 Earnings Call, so largely speaking, they are trending in the right direction and pretty consistent.

Same thing Eric mentioned about the retention rate; it has been pretty consistent with very high retention rate at around 94%, so on an annual basis, all of those economic, customer acquisition cost, [direct] their retention return; they're all largely aligned and moving consistently.

Got it. Thank you very much.

We're going next to Matt Robison with Wunderlich.

Hi. Digging down on the promoter side a little bit more. So, we think of this as a sequential impact of 10% or more, like 20% or 30%, but I was hoping you could get in to talk a little bit more about the [based off] office and Telo return and maybe a little bit of sequential comparison in terms of office revenue qualitatively.

Yes. On your first question, we set out this year to add more partners and to grow our -- and diversify, frankly, our account-base and did a nice job of adding the partners and establishing the backlog, but this issue in Q3 really held us back from capitalizing on that and really pushed out our ability to capitalize on that, so when we look at our outlook for this quarter Q4; we're not able to drive the growth that we thought we're going to drive in Business Promoter because we didn't do the work last quarter.

We spent a lot of our time and effort dealing with the issue I described. As I'm sure you can appreciate, it took a while to figure out what the primary issue was, because it's not something you would ever think and it wasn't in our systems, so it diverted us for a fair bit of time, but that said, Business Promoter, we have good growth ambitions for it next year. We think the backlog is in place and we're going to be able to make that happen.

Do you want to cover the other question Ravi?

Just one thing Matt - Ravi. One more thing on your question about quantification and impact of Business Promoter in Q4; with the guidance, what we are bringing, the major change in the guidance is primarily due to Business Promoter. As I mentioned earlier, all the other fundamentals of the business are pretty strong. We had to temper our guidance because of the hiccup, which we just had and in terms of Office and Telo, they're trending reasonably well. The turn is with no expectations; we can always do better, but we are pretty happy with the residential turn and even the Office turn has been improving over the last six to nine months, so nice improvements happening, but there's still more work to be done in terms of Office turn, but it's in pretty decent shape where we are.

I guess I was getting to a backend of what you're thinking about subscription and services rather than that -- that promoter, so I'm trying to understand if you're actually anticipating sequential decline for that or just absence of growth.

If you look at, excluding Business Promoter, we do, as I said, there's no major change happening. We do expect the subscription and services revenue for all the other growth engines to continue to grow.

Thanks.

Sequentially. Absolutely.

(Operator Instruction) We'll go next to Nikolay Beliov with Bank of America.

Hi. Thanks for taking my question. Hey Eric, when you look into fiscal year 2017 qualitatively, how do you think about the business in terms of investment priorities and where the focus is going to be? And then if you can touch, specifically, on new services, I know in the past you have spoken about home monitoring services and what is the focus in that area?

Sure. We continue to look at next year from the point of view of investing in both Office for small businesses and Telo for home and that means we do sometimes have to make tough choices between those two, because there's only so many dollars to go around, but we do intend to invest in both. We have new development coming for both.

On the Office side, we're pretty excited about Ooma Office for Mobile. For businesses that want to be entirely mobile-based, it will be a great solution that they can just download and get started using and particularly for owner operator businesses that this is just one individual that can be particularly useful solution. We said that's in a testing phase, it will be formally announced shortly and we're going to have to then build from there.

We continue to invest in the Office platform in other new features; you've heard us say in the past perhaps we would like at some point to support IP phones. We don't today. It's not that we think most customers of ours will use them, but if they want to use them we'd like to be able to support them and there's other developments there, too.

On the home front, you're right to mention connected home. That's our primary strategy; to make Ooma and communications in the home integrate more with the other things that are going on in your connected home and we mentioned the most near term announcements we tend to have being able to interconnect with Philips Hue light bulbs. You could imagine if a particular caller, we have identified calls your light bulbs change color, or they blink when someone is calling or whatever else you want them to do. You could imagine having your caller ID show up on your smart watch, but these are some of the most near-term things we'll be bringing out in the very near-term.

CES, which comes for us in early January, will have several additional announcements. Again, more integrations like that. You won't see home monitoring solutions more broadly provided directly by us until probably the back half of next year, but we are working towards that and we believe we have the ability to bring some interesting solutions on that front and we are investing in that for the back half of next year.

If you look at our engineering spend, it has grown substantially year-over-year and I have no doubt it will continue to grow because we do see a lot of innovative ideas there and new things we can do. Does that addressed your question?

Yes, sort of, thank you. And Ravi, when you look at your SMB business, it was like low-teens in terms of units this quarter, what is the percentage of subscription revenues and over the long-term, next two to five years, how do you envision the SMB home split developing in terms of mobile units and revenues?

So Nikolay, both in terms of core users as revenue for SMB has continued to increase both year-over-year and sequentially in terms of dollars as a percentage of revenues. So, in Q3, as I said, the number of core users is in low-teens. Earlier in the last earnings call, I did mention it's in double in low double digit, so it went into low-teens and the revenue is in high-teens, so from SMB and I do believe in the longer terms since we're emphasizing on the growth of SMB as well as residential, but much more on SMB, I do believe in the longer term that number, that percentage of revenue from SMB, should be in north of 40%, so we're not there as yet, but we're making good consistent progress on SMB revenue on a quarter-over-quarter basis as well as year-over-year basis.

Got it. Thank you.

We'll go next to Patrick Walravens with JMP Securities.

Yes hi, this is Natasha on for Pat. My question is can you tell us about competitive environment in the small business space and how that competitive environment is changing?

Sure. The interesting thing about the small business space still for us is we more often than not do not find ourselves competing directly with another Cloud-based solution for small business. We're usually talking to a small business that has a, what I call a traditional solution, either something like an AT&T or maybe a cable-provided solution and when we have that conversation we can easily offer them more features.

We can integrate their mobile workers. We can give them an IDR in the Cloud, extension dialing, a lot of additional features and we can do that significantly at lower price point. So, when we have that conversation, we honestly, when our inside sales team talks to a business, we close over 50% of those discussions. It's something we're very proud of.

Now, I don't see a lot of change coming from either from the traditional solutions that we're largely competing against today. When I look at the competitors who are providing, what I call newer Cloud-based solutions, I believe all of them, or largely all of them, are moving up market, or trying to move up market. They work through VARs with IT professionals. They would like to sell to larger businesses, get more seats per-sale as part of that.

They are adding certain features to their products that a small business wouldn't necessarily value and there are also providing a more traditional solution of a Cloud service married up to IP phones connected to the internet. That can work for large businesses because they have very large internet pipes, but when it get to small businesses, you might just have a DSL line or a local cable loop, in our experience those kinds of solutions are going to produce garbled calls when the internet gets busy, and the internet does get busy, so we feel we have a unique solution for the small business space and we don't see anybody innovating or doing anything to offer our kind of solution to the small business space; one that can give a very high quality experience, even when the internet is not ideal, and I think that's one of our core competitive advantages, and so, we don't think too much about competition to be honest with you. We think mainly about what investments we can make to have more conversations with more small businesses by our inside sales team because that is going to drive growth, and so, I hope that answers your question. I may have gone a little bit there, but if you have more follow-up let me know.

It did. Thank you so much.

It appears there are no further questions at this time. I'll turn the call back to Cynthia for any additional or closing remarks.

Great. Thank you everyone for joining us this afternoon and we look forward to updating you again on our next quarter call.

Bye everyone.

That does conclude today's conference. We thank you for your participation.