Ooma Inc (OOMA) 2018 Q2 法說會逐字稿

Good afternoon.

My name is Christine, and I'll be your conference operator today.

At this time I would like to welcome everyone to Ooma's Second Quarter Fiscal 2018 Earnings Conference Call.

(Operator Instructions) Matt Robison, Director of Investor Relations and Corporate Development, you may begin your conference.

Thank you, Christine.

Good day, everyone, and welcome to the fiscal second quarter earnings call of Ooma, Inc.

My Name is Matt Robison.

It's a pleasure to have participated in every Ooma earnings call prior to today as an analyst, and now as Ooma's Director for IR and Corporate Development.

With me here today are: Ooma's CEO, Eric Stang; and CFO, Ravi Narula.

After the market close today, Ooma issued a press release through Nasdaq GlobeNewswire.

The release is also available on the company 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 1 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 future financial or operating performance.

Our expectations and beliefs regarding these matters may not materialize and actual results in the 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 as otherwise stated, the financial measures to be disclosed on this call will be on a non-GAAP basis.

The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

A discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP financial measures are included in our earnings press release that is available on our website.

On this call, we'll give guidance for the third quarter and full year fiscal 2018 on a non-GAAP basis.

Also, in addition to our press release and 8-K filing, there is an Events and Presentations page in our site that includes the link to non-GAAP reconciliation.

Okay, Eric.

Thanks, Matt, and welcome to the Ooma team.

Hello, everyone, and welcome to Ooma's FY '18 Q2 earnings call.

I am pleased to talk with you today about our strong Q2 performance and our momentum for the balance of fiscal year '18.

I'd like to highlight our investments in new services and international expansion and our excitement about our outlook and opportunity for growth.

In Q2 FY '18, we exceeded our revenue guidance by achieving total revenue of $28.2 million.

In line with our ambitious growth expectations, Ooma Office for small business customers grew subscription service revenue approximately 62% year-over-year.

And Ooma Telo for residential customers grew subscription services revenue approximately 11% year-over-year.

I'm pleased to report that in each of these core business lines, we are, to our knowledge, growing faster than all our other competitors in our space.

I'm also pleased to report that we achieved this growth while improving our gross margins, generating positive cash flow and investing heavily in R&D.

In fact, our subscription services margins achieved a new record high of 70%.

And Q2 is now the fifth quarter in a row that we have generated positive operating cash flow in spite of investing over 22% of sales in R&D in Q2.

We exit Q2 with approximately 2.4 million total users, annual exit recurring revenue of over $92 million and a core user dollar subscription revenue retention rate of 98%.

Clearly, our business is working, and we believe we are in a strong position to execute our strategy.

Our strong momentum stems from our unique hybrid SaaS platform.

We believe we are the only company that has designed the full value chain and user experience end-to-end from the device to the cloud, to achieve a unique competitive advantage.

We believe this affords us several fundamental strengths over competitors.

First, we enable an all-around, higher-quality experience for the user, especially regarding superior voice quality; second, we provide unique features and an expanding set of services for which customers pay extra; third, we are the disruptor in the market from a price value standpoint, based upon a cost structure that we believe is below competition; fourth, we offer solutions that users can adopt and use without professional or IT specialist help or expense; and fifth, we provide the broadest range of solutions, with support for analog phones as well as IP phones, fax machines and mobile apps.

Because of these advantages, we believe we achieve uniquely high customer retention and loyalty.

Now as we look to the balance of this fiscal year, we're excited about the key opportunities we are pursuing.

First and foremost is growth of Ooma Office for small businesses.

We are growing our sales team, investing in the development of a VAR reseller channel and adding features that expand our market potential.

I'm pleased to report that we now have a meaningful number of borrowers on board, and more importantly the systems and processes in place to continue to grow this channel.

I'm also pleased to report that we could now serve businesses with more than 20 users and are doing so with several new customers.

While it remains our strategy to focus on small businesses where we bring fundamental competitive advantage, we nevertheless also see opportunity to serve larger-size businesses that simply want a great calling solution at a low price point.

Going forward, we expect this potential to serve price-conscious, larger-size businesses to expand as we continue to develop our VAR reseller channel.

One key additional growth opportunity for Ooma Office is, of course, our special partnership with WeWork.

We remain thrilled that WeWork picked Ooma to create a custom solution for its members and to expand with internationally.

I'm pleased to report that we have now launched at WeWork in Australia, in addition to WeWork in the USA and Canada and France.

I'm also pleased to report that next month, we will be launching with WeWork in the United Kingdom, which is WeWork's second largest country after the USA.

WeWork presents a long-term opportunity for Ooma to add business users on a global scale for the large, fast-growing partner.

In addition to the opportunities we see this year with Ooma Office for small businesses, we also see tremendous potential for Ooma Telo for home customers.

Our major focus this year for Ooma Telo is to build out our home security solution so we can bring new services to our large installed base so we can attract new customers and so we can create more reasons for customers to choose Ooma.

In this regard, I am pleased to say we have now shipped well over 10,000 sensors to our installed base, even though we just launched home security about a quarter ago and we have yet to provide the full solution that we want to enable.

Consistent with our primary goal to grow Ooma Office, we are making steady progress on our development of home security.

I believe the reception we've received so far demonstrates a large potential for us to disrupt the home security space the way we have with home phone service.

Simply put, the power of the Ooma platform will allow us to provide both better features and better value to the fast-growing home security segment.

Now while we have a lot going on this year to drive growth, we also have many investments we are making for the future.

I believe this fiscal year, when we look back on it, will be a milestone year for us in which we put in place the key elements for future growth.

Today, across our business, we are investing to being stronger next year.

When we have completed these investments, I believe we'll be well positioned for growth on 4 main fronts: number 1, for small business customers, we'll have completed the feature set we want for Ooma Office to serve a wide range of businesses; number 2, for mobile-only business customers, we'll have improved our mobile app solution to a level where we believe it will be superior to other solutions on the market; number 3, for the home security market, we'll have all the basic systems in place that are need to provide a satisfying, DIY security solution at a very attractive price point.

As part of this, we intend to launch 5 new developments to the home security platform over the next 6 to 9 months; and four, internationally, we'll be well along in providing our services to key regions of the word and ready to deploy our services beyond WeWork to small business customers generally in these new markets.

As you can see we have a lot going on, and we are still in the early days for Ooma.

Our business model contemplates that we will continue our strong growth, obtain leverage, not only on G&A but also on R&D, and continue to improve our margins through a combination of mix and additional services, both of which will expand our average monthly revenue per user.

Now before I turn it over to Ravi, I'd like to mention one final thing.

Earlier this month, we completed the sale of our Business Promoter service, and Business Promoter is no longer a part of Ooma.

I will let Ravi provide more specifics on this transaction, as well as discuss our results and outlook in more detail.

I will then return with final comments, and we will take your questions.

Thanks, Eric.

As a reminder, all income statement items, except revenue, are on a non-GAAP basis and exclude expenses such as stock-based compensation and related taxes and amortization of intangibles.

The reconciliation of the GAAP to non-GAAP financial data can be found in the press release issued earlier today on our Investor Relations website.

Today, I'm going to review the financial results of our second quarter fiscal '18 and then provide outlook for the third quarter and full year fiscal '18.

Total revenue for the second quarter of fiscal '18 was $28.2 million, an increase of $2.7 million or 11% on a year-over-year basis, driven by the continued strong performance of Ooma Office.

Net loss for the second quarter of fiscal '18 was $396,000 compared to an $856,000 loss for the second quarter last year.

Loss per share was $0.02 compared to a loss of $0.05 per share for the same period last year.

For the second quarter of fiscal '18, subscription and services revenue for Ooma Office and Ooma Telo, combined grew 20% on a year-over-year basis.

We are pleased with the subscription and services revenue growth of Ooma Office, which grew at 62% in the second quarter of fiscal '18 and Ooma Telo's subscription and services revenue grew 11% on a year-over-year basis.

As Eric mentioned earlier, we sold our Business Promoter service earlier this month, because Business Promoter had significant volatility and was non-core to the Ooma service.

We expect this divestiture will help us further increase our focus on the core businesses: Ooma Office and Ooma Telo.

This divestiture will have an impact on our previously provided guidance as Business Promoter had an annual revenue run rate of $3 million to $4 million.

As part of this divestiture, we may realize some earn out payments over the next few years, which will be included as a reduction of our G&A expenses in accordance with accounting policies.

We do not expect these earn out payments to be significant to our overall results.

Consistent with the prior earnings call, we have excluded Business Promoter data from our key metrics, such as core users, ARPU and annual exit recurring revenue.

Please review the Investor Relations section of our website for supplemental information on these metrics.

Our core user base increased 11% from 803,000 core users at the end of the second quarter last year to over 895,000 core users at the end of the second quarter this year.

Our premium users, as a percentage of overall core users, grew from 43% to 45% during the same period.

Ooma Office core users are now 11% of total users compared to 9% at the end of the same period last year.

From a revenue perspective, it is now 21% of our overall revenue compared to 15% in the prior year quarter.

Our average monthly subscription and services revenue per Ooma Office and Ooma Telo user was $8.61 for the second quarter of fiscal '18 compared to $8.06 for the prior-year period.

This growth in ARPU was driven by higher growth in Ooma Office users, which has higher ARPU.

Annual exit recurring revenue increased 19% on a year-over-year basis to $92.5 million, up from $77.7 million for the prior year quarter.

Our net dollar subscription retention rate for the second quarter was 98% compared to 102% for the same quarter last year.

Talkatone revenue declined to 20% on a year-over-year basis to approximately $1.5 million.

This decline was due to lower ad sells as well as lower CPMs.

Product and other revenue for the second quarter was $3 million, a 3% decline on a year-over-year basis due to lower sales of Telos, offset by higher Ooma Office sales as with the sales of home security sensors in the quarter.

Now moving on to gross margins.

We achieved another milestone this quarter, our overall subscription and services gross margins are now 70% for the first time in the company's history, up from 68% for the same period last year, primarily as a result of continued growth of Ooma Office customers.

Product and other gross margins were negative 25% for the quarter compared to negative 12% for the prior year quarter.

This increase in negative margins was primarily due to higher freight costs incurred due to expedited shipping of sensors in the quarter.

Our overall gross margins are now 60% in the second quarter compared to 58% for the same period last year, driven by improvements in subscription and services revenue margins.

Second quarter operating expenses were $17.5 million, an increase of $1.8 million or 11% on a year-over-year basis.

This increase in operating expenses were driven primarily by higher R&D expenditure as was increased sales and marketing spend to grow Ooma Office.

Sales and marketing expenses were $8.7 million, an increase of $522,000 on a year-over-year basis due to continued development of sales channels to grow our small business user base.

R&D expenses were $6.1 million, an increase of $1.1 million on a year-over-year basis to support the work on our office platform, including launching WeWork services in Australia and the U.K. as well as enabling our platform to support greater than 20 users and the development of home security features on our residential platform.

G&A expenses were $2.7 million, an increase of $122,000 from the prior-year period to support the growth in the business.

Our net loss in the second quarter was down to $396,000 or $0.02 loss per share compared to a net loss of $856,000, a $0.05 loss per share for the second quarter of fiscal '17.

Adjusted EBITDA loss was $71,000 in the second quarter of fiscal '18, down from negative $542,000 in the same period last year.

Now turning to the balance sheet.

We have cash, cash equivalents and short-term investments of $53.8 million with no debt as of the end of the second quarter.

This was the fifth consecutive quarter we have generated positive cash from operations and the most since being a public company.

In Q2, we generated approximately $1.3 million of cash from operations compared to approximately $700,000 in the prior-year period.

Deferred revenue at the end of the second quarter was $16.1 million, up 5% from the prior-year period.

We ended the second quarter with 631 full-time employees and contractors through our various partner organizations, up from 457 in the prior year quarter.

Now for our outlook.

The following guidance reflects the impact of divesting Business Promoter, which we estimate would have generated revenue between $1.6 million to $2 million for the second half of fiscal '18.

It also excludes stock-based compensation expense and related taxes and amortization of intangibles.

Our third quarter Fiscal '18, quarter revenue from ongoing operations is expected to be in the range of $27.8 million to $28.3 million, which reflects the absence of approximately $800,000 to $1 million of Business Promoter revenue, relative to our prior guidance.

Accordingly, non-GAAP net loss for the third quarter of fiscal '18 is expected to be in the range of $400,000 to $800,000.

Non-GAAP net loss per share is expected to be in the range of $0.02 to $0.04.

We have assumed 18.8 million weighted shares outstanding for Q3.

For full year fiscal '18, total revenue is expected to be in the range of $113 million to $114 million.

We expect non-GAAP net loss to be in the range of $1.5 million to $2.3 million.

Non-GAAP net loss per share is expected to be in the range of $0.08 to $0.12.

We have assumed approximately 18.6 million weighted average shares outstanding for full fiscal '18.

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

Eric?

Thanks, Ravi.

To my mind, it's amazing what Ooma has already done for customers.

We now estimate that Ooma customers have collectively saved over $1.5 billion compared to what would have paid using traditional providers.

From an execution standpoint, we are thrilled to be the fastest growing business in each of our core business lines.

And strategically, we're even more excited that the investments we are making this year will position us extremely well for our next upcoming fiscal year.

So thank you.

We're now happy to take your questions.

Operator?

(Operator Instructions) Your first question comes from the line of Michael Nemeroff from Credit Suisse.

This is Alex Hu on for Michael.

Eric, just wanted to touch on the strength in Telo.

I believe you mentioned last quarter you expect a more conservative growth trajectory for Telo, in part due to indirect competition and other things.

But clearly that's not the case, given the double-digit growth this quarter.

Has that framework changed at all?

How are the adoption levels and consumer interest tracking relative to last quarter?

And did you see any impact from Alexa and/or Google Home?

I'll answer the second part first.

No, we don't see an impact from those in the quarter that I can put a finger on, neither those platforms provides a calling service like we do, of course.

And it's hard to see how they will, given that, that would turn them into our regulated home phone service.

In fact, we hope that will be an opportunity for us someday to leverage those platforms if they open up their APIs ever and make that possible.

The strength of Telo, we put a little more effort into marketing front, and we continue to believe there's a very big market opportunity out there for Telo.

As you know, we were ranked #1, and we can offer customers a great savings and more features.

And so we just -- our focus on small business, we pulled back on our telemarketing but we tried to do a little better in Q2, and I'm pleased that we achieved that.

It's says to me we've got good opportunity there.

Great.

Thanks for the color.

And just on the Ooma Office, clearly it's growing greater than 60% for pretty much forever.

Just curious == now that we expanded the capabilities to serve sort of small businesses greater than 20?

Has your go-to-market efforts changed?

Or do you sort of foresee any adjustments you need to make aside from the expanded VAR channel, which is great, given this larger market opportunity you're addressing now?

As we sit here today, no, we're not making any specific changes in light of this additional capability that we have.

We believe strongly that the business market segments into, really 3 segments.

It's wrong to talk about business without separating enterprise from small business because their needs are different, they purchase differently and we have focused on small business and serving that segment better than anyone else.

And that remains our focus.

I do think as we build a VAR reseller channel, we're going to see more opportunities for larger-sized businesses are going to take advantage of them.

I think we have a disruptive price point in that space.

And that will help propel us, but no, as we sit here today, our strategy is not changing.

And we will stay focused on small business.

By the way, the third segment I see in the business space is the mobile only segment, and we haven't talked much about that in a while, but we hope to talk more about that segment with you in coming quarters as we continue to make improvements on our office for mobile products solutions.

All right, great.

And just one last question for Ravi.

So I heard the Q3 guide, you said it excluded $800,000 to $1.0 million from Business Promoter.

Correct?

That is right Alex, yes.

For the full year guide, I might have missed this, can we just extrapolate that, and just say it, full year guide excludes, call it, $1 million to $2 million from Business Promoter?

$1.6 million to $2 million, yes.

Your next question comes from the line of Pat Walravens from JMP Securities.

So first of all, I'm delighted that you are divesting Business Promoter.

That's been a source of a lot of problems.

I'd love to hear, sort of the background on that.

I don't talk about it anymore, Pat.

I'm going to let Ravi talk about it.

The only thing is --

Okay, fair enough.

I said 2 quarters ago, that if it wasn't stabilized at $1 million, we were going to do something about it.

And I'm glad to say, we now have.

But I'll let Ravi take it.

Yes and Pat, I think this is early this month, we did divest it.

We will have some earn out, there was no major upfront cash payout, but this will be more going forward.

The benefits of this will be, we will be able to prioritize more on every aspect of our business into the core Ooma office and Ooma Telo.

In terms of the arrangements, there will be some earn out, and I don't think it'll be material, it was contributing some positive EBITDA to the bottom line.

But we'll, as we grow and as we grow our gross margins, I think we'll get through those things quickly.

So it does have a year-over-year impact, because in Q3 and Q4 we won't have comparable revenues from Business Promoter, but I do believe this will make us more stable and we'll have less volatility going forward as a business.

Great.

And then the other one that I have my doubts about, but I think, maybe you guys feel differently, and let's talk about it, is sort of Talkatone, last quarter you talked about how you're unable to fill the ad space on, I think more than 15% of the ads that you'd hope to display.

It seems like the -- it's down 30% last quarter, down even more this quarter.

So how do you feel about that business?

Yes, we talked about last that time, and I would reiterate here today what we said before, which is to say we don't have new things to add at this time.

That business has suffered from the ad market changes.

But it's stabilized, and we are taking 2 steps in that business internally.

One is, steps to add ad partners, and work with ad partners in new ways to -- we think increase the amount of ad volume we can tap into.

And then secondly, begin to enable certain services on the platform that we can charge independently for.

We launched one in the quarter, and it's possible now in Talkatone to pay, to change your phone number to a new phone number.

The business though, the team's working hard, they're doing a good job, the business is stable.

And we're going to continue to evaluate strategically how we can make the most of it or plan its future.

Okay, great.

And then lastly, the, and if I missed this forgive me, but I remember last quarter one of the things that was making the WeWork expansion a little harder than you thought was some issues around the speed at which you are hiring engineering resources.

Can you update us on that?

I can.

That's a glass half-full, glass half-empty story.

You can see we grew our R&D spend as percentage of revenue up to over 22% of sales and grew it faster than we grew sales and marketing, if you compare it to a year ago.

We did a lot of hiring in the quarter and I'm very proud of what the team accomplished.

That said, there's still farther to go and there's still, if you will, catching up a little bit with all the things we want to do this year.

But the feel we're in much better place now than we were a quarter ago and we feel like we're executing well, to be frank.

Your next question comes the line of Nikolay Beliov from Bank of America Merrill Lynch.

This is Jane Wong on for Nikolay.

My question is, in light of this quarter, how are you thinking about what Telo's long-term sustainable growth rate?

And more specifically, can that business grow sustainably in the low double digits?

Or are you thinking more in the single digits growth rate?

When we talked on our call last quarter, that we felt an upper single digits growth rate was achievable, with the level of marketing and sales investment we were putting into that.

And we still feel that way, and we also feel that if we were to put more resources on the growth of that segment, the home segment, with Telo we could grow faster.

And I do make both of those comments with very low expectations, or really not including much at all for home security.

Home security is a new area of development for us and it's one where we're making steady progress.

And we look at the home security market and are pretty excited about it.

We've seen data that says only about 8 million residences in the U.S. have -- or North America, have adopted smart home security solution.

And also see estimates that, that's going to grow 15% a year to double in 5 years.

And I think we're going to have an incredibly successful solution for that space.

Not only do we offer features others can't offer, like our unique 911, remote 911 capability, and we're able to do these at price points that others can't reach.

So as we develop more on the home security front, we may take a new look at the potential and our outlook for the home residential market in Telo.

But right now, what he said a quarter ago is still the way we see it.

You read our minds, because that was our follow-up, kind of the traction on home security.

And I guess, we were wondering, is it impacting the numbers yet or not yet?

Well it is a little bit.

We've sold well over 10,000 sensors.

And we're thrilled with that start to the effort.

And, but as I've said, too, there are additional developments we want to bring to that business line that you want to round out what we have in the way of home security.

And I think it'll take 6 to 9 months, as I said in the script to get all those things in place.

And as we do, we'll be able to put more effort and traction on it.

And can you update us on kind of what's in the pipeline for the partnership with WeWork?

Well, sure.

We're thrilled.

We've integrated with WeWork at the onboarding level, at the customer support level.

We're expanding countries with them.

Our next country will be the United Kingdom, which we'll go into with them next month.

I anticipate there will be more countries we go into the balance of this year and presumably ongoing.

So it's an incredible partner to have, to be growing with internationally.

And one of our challenges for next year will be to leverage our investment in international, to do more than just what we do for WeWork in those countries.

It's one of the 4 upsides that I see as we look to next year for the investments we're making this year.

Your next question comes from the line of Mike Latimore from Northland Capital Markets.

In terms of the sensors sold in this quarter, was that -- do you see that as sort of repeatable in the third quarter?

Or is that kind of a one-time event that maybe third quarter.

Well, with the numbers I gave, well over 10,000 is since launch, it's not just from Q2, but yes, we do expect to continue to sell sensors.

I don't know if Ravi would add more to this.

Hey, Mike.

We have, we do have a large number of customers, we have tapped some of our customers and they bought, some of them have bought one sensor, some of them have bought multiple sensors.

We do believe, with the hundreds of thousands of users we have in the longer term, we can absolutely sell a lot more, a lot more sensors than what we have done.

So it is a start, not an end.

And I think, as we bring more and more features to the home security platform, we would probably see even more increase in the users.

Okay, got it.

And then, I think your guidance implies kind of a good sequential growth in the fourth quarter.

I guess, what do you see, sort of as a fourth quarter driver here?

There are a couple of things.

One, there's always some seasonality in Q4, given we have just Black Friday's, Thanksgiving, holiday time period.

Where Telo generally picks up a little bit.

And we are always working on some other opportunities.

So there are a number of growth opportunities we have for Q4, which some of those are built into our forecast.

So I think of what -- the number one thing is seasonality, just because there is the more sales of Telo's and as we invest more and more, I think we should be able to get that benefit, but beyond that, I think we are working on other opportunities.

And then with the -- it's good to see the new office launch with, I guess, I (inaudible)

Hey Mike, you're cutting out.

Can you repeat the question, please?

Sure.

On the office product, obviously, you've expanded it, so that it supports more users but I thought there was, at some point you were going to do a multi-site offering as well.

Is that still slated for this year?

Yes.

That and other things.

We're very proud of what we've built on the Ooma Office platform, but there -- there's polishing still to do on it.

We're only 3 or 4 years into it.

And there are some features like that, meaning the sport businesses with multisite locations.

They will only expand our market potential.

And yes, we have plans, such as that in the balance of this year.

We want to go into next year very well set on the opportunity for Office, on the opportunity for Office for mobile, with the additional things we're doing there.

On the opportunity for home security, with the additional 5 developments we're trying to bring out over the next 6 to 9 months, and on the opportunity internationally, now that we're placed in those international markets.

That's what next year is all being set up for, for us.

And yes, that's one of the key things for Office.

Your next question comes from the line of Josh Nichols from B. Riley.

Since you just mentioned it, I mean, could you elaborate a little bit on some of these areas of interest for these 5 new developments you're working on, in the home monitoring side of things that might be a good complement to you, you might think?

Yes, I can say a little bit.

I mean, obviously, we can't announce new features before we're ready to announce them.

But we want to enable a DIY security solution for our customers that gives them just about everything they need to experience a good experience with that.

I'll give you -- one example would be, there are certain other products out, so we'd like to integrate, integrate with, that we don't integrate with yet today.

Another example would be, we think we can make it more streamlined, how users enable and disable the alarming of the system as they're -- when they're home or when they're away.

There's just different things we want to do that we think will bring that platform all together.

Now I will say this too, once we get there, over the next 6 to 9 months, there will be another set of things we want to do to really create a quota, a pro-tier or a higher level of capability with it.

But I do think over the next balance of this year, maybe a little bit longer, we'll be able to put in place all the basics to really have a great solution to market.

That's helpful.

And then, how many WeWork subscribers are you up to at this point, with the expansion going on?

Well we have quite a few, but that's not a number we're actually disclosing specifically.

We achieved 62% growth in subscription services revenue for office year-over-year, and WeWork's one of those components, along with the many other things we're doing to get there.

And we're thrilled with our progress on all fronts.

And then WeWork actually just received some significant funding from SoftBank that's it's going to use to expand, specifically in Asia and Tokyo and Singapore.

I assume that you're going to be with them in those locations as they launch as well?

I can't make forward comments this time on where we'll go with WeWork.

But yes, we are expanding with them internationally.

And then last question.

So looking here, no real change to the guidance on the revenue side, except for the adjustment for Business Promoter.

Are you still targeting, transitioning back to sustainable EBITDA profitability in Q4?

Josh, this is Ravi.

With the guidance we have given, the implied guidance for Q4 would have a loss, and there are a couple of factors we have as a result of the guidance there.

One is, we are investing into so many opportunities ahead of us, whether it is in engineering as well as, we're continuing to work on development of sales and marketing channels.

The Business Promoter was contributing to positive EBITDA, which is also the second reason why I think we'll have some small amount of loss in Q4 versus the previous expectations of positive EBITDA in Q4.

Your next question comes from the line of Bhavan Suri from William Blair.

I guess to start off with, obviously, Ooma office, now to a bigger market, I'd like to understand the go to market with partners, right?

So some of the guys you sell to, these larger enterprises go through a VAR channel.

Avaya's sort of falling apart.

Now it's a bit bigger than what you typically sell to, but now that I can deal with large customers, sort of how are you thinking about the VAR channel?

Yes.

That's a good question, Bhavan, and I think this is in the evolving part of our strategy as we go forward.

So -- but where we sit today is we are trying to build a VAR channel that's specifically focused on the small business user.

These are local IT professionals or others -- they may not -- they're most likely not just focused on voice, and I think they're a channel that we can work well with, our product's very easy to install and use.

And it can be a nice add-on sell for these partners.

We are getting some, what I'd call more traditional telecom VARs as well, just as we build it.

In fact, we're having some of the more traditional VARs, if you will, tell us they love Second Line to carry for the smaller customers out there.

That they don't want to put so much effort into, or don't want to pay the higher price point of what others might have.

But it's not our focus today to go head-to-head in enterprise.

We're focused on small business.

We have -- that's a big market, it's 90% of the businesses out there.

We have the best solution in our minds for that.

And we're going to stay focused on that and win.

So that's kind of a half in -- I mean, that's an answer of sort of halfway to your question, but that's the way we see it today.

As we develop, we may try to go farther, but that's where we are today.

Got it.

So maybe touching on WeWork a little bit, and I know a lot of question's been asked about it.

But I guess, as you look at that space, there's a bunch of players that compete with WeWork, is there anything that restricts you going after the other players, or offering the same solution or, you just thought about sort of going after that space, and say hey, we partnered with WeWork, we should partner with a bunch of guys that offer shared workspace.

Any thoughts there?

No, there's nothing that restricts us.

Got it.

Got it.

And then are you targeting it?

Have you, sort of your people thinking about that?

Or is that just sort of something that maybe, down the road?

We think about all kinds of customer opportunities.

That's one we thought of as well as any.

We do manage our commitments to what we can accomplish.

And as you know, we've had our hands full with WeWork.

But we're kind of through that now.

We are coming through that now.

And we built a better system out of what we've done with them, we've built an international footprint out of what we've done with them.

So we're a much stronger company today than we were just 6 months ago.

And I'm really excited about the next 6 months, because what I see us accomplishing over the next 6 months is so much.

I mean, I feel like we have, I talked about 4 things for next year.

I feel like we've got the ball 90% of the way up the hill on each of those 4. And just over the balance of this year, we're going to get it to the top of the hill.

And so, but yes, we're obviously, looking at things, but also being mindful of what we can accomplish.

No, no, that's great.

And the 4 things, that's great that you're getting there.

I guess one quick one, maybe for Ravi.

If you look out at churn for Telo and Office, you've always had pretty low churn for Telo, given it's a consumer offering.

But just -- I don't need a number, just sort of color of how office churn is trending vis-à-vis Telo, and then obviously, how that impacts the whole business from a CAC or LTV perspective.

Any color there would be great.

Hey Bhavan.

Yes, the churn for small business is higher than the residential churn.

And one of the biggest reasons why that happens is because businesses go out of business.

So it is higher.

But it is, we have great initiatives as well as a great platform, where we do expect in the longer term to have even much lower churn than, and then the industry as we have for residential.

So as Eric said earlier, this office platform is 3 or 4 years old, I think as we bring in more features and more, even more stability, I do expect it to be coming down and hopefully closer to the residential churn there, but it's not there as yet, but it's making good progress towards that side.

In terms of LTV and CAC, we do look at both the Telo and business side.

Under office, small business CAC and payback period, it is a little bit hard to just put a total number because there are certain investments we are making, for example, we are investing into the WeWork relationship, we are investing into building a VAR channel, and there -- it takes time to get results from of those investments.

So the CAC is a little bit higher, the payback period a little bit longer than what our target range is, our target payback period is 18 to 24 months, we are not there.

Given, we are making some investments into some sales and marketing channels today.

We do believe as we continue to build those things, and we have a large number of VARs, we have large, we have a big footprint on WeWork, I think we'll get more benefit in the future.

There are no further questions at this time.

Mr. Eric Stang, I turn the call back over to you.

Thank you.

We're -- we appreciate everyone's time today.

We're excited about our results.

We believe our growth rates for Office and Telo are right where we thought they could be.

And we're going to stay focused on executing going forward.

So thank you, everybody.

Thank you, ladies and gentlemen, this concludes today's conference call.

You may now disconnect.