Ooma Inc (OOMA) 2023 Q4 法說會逐字稿

Good day, everyone. My name is Kelly Ann. I'll be the conference operator for today. At this time, I'd like to welcome everyone to the Ooma Fourth Quarter and Fiscal 2022 Results Conference Call. Today's call is being recorded. (Operator Instructions)

At this time, I'd like to turn things over to Matthew Robison. Please go ahead, sir.

Thank you, Kelly Ann. Good day, everyone, and welcome to the Fourth Quarter and Fiscal Year 2022 Earnings Call of Ooma, Inc. My name is Matt Robison, Ooma's Director of IR and Corporate Development. On the call with me today are Ooma's CEO, Eric Stang; and CFO, Shig Hamamatsu.

After the market closed today, Ooma issued its fourth quarter and fiscal year 2023 earnings press release. This release is also available on the company's website, ooma.com. This call is being webcast live and is accessible from a link on the Events & Presentations page of the Investor Relations section of our website. This link will be active for replay of this call for at least 1 year. A telephonic replay will also be available for a week starting this evening about 8:00 p.m. Eastern Time. Dialing information for it is included in today's press release.

During today's presentation, our executives will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today and those risks 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 in this call to the most directly comparable GAAP financial measures is included in our earnings press release, which is available on our website. On this call, we will give guidance for the first quarter and full year fiscal 2024 on a non-GAAP basis.

Also, in addition to our press release and 8-K filing, the Overview page and Events & Presentations page in the Investor section of our website as well as the Results page of the Financial Info section of our website include links to information about costs and expenses not included in our non-GAAP values and key metrics of our core subscription businesses. These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation that also provides resolution of GAAP expenses that are excluded from non-GAAP metrics.

Now I will hand the call over to Ooma's CEO, Eric Stang.

Thank you, Matt. Hi, everyone. Welcome to Ooma's Q4 Fiscal Year 2023 Earnings Call. Thank you for joining us. It's my pleasure to talk to you today about our Q4 and FY '23 results and our outlook for FY '24, including the many growth initiatives we have underway.

Q4 FY '23 was another strong quarter for Ooma. In fact, it was a record quarter. $4.1 million in net income, $5.1 million in adjusted EBITDA and $3.3 million in cash flow from operations were all records for Ooma. Overall, for FY '23, Ooma achieved 24% growth in business services revenue, 12% overall growth in revenue, adjusted EBITDA of over $17 million and cash flow from operations of nearly $9 million. We ended the year with close to $27 million in cash ahead of our plans to rebuild our cash position after our successful OnSIP acquisition in late Q2 last year. With positive cash flow from operations, no debt and several exciting growth initiatives underway, I feel we are well positioned for our new fiscal year '24.

Turning now to our progress in Q4. We continue to execute well on our key growth initiatives. For Ooma Office, our solution targeted at small- to medium-sized businesses, we added features to our Pro Plus tier of service. These capabilities included call screening, integration with Zoho CRM, additional call center capabilities, improvements to Ooma Meetings and new customer analytics.

In FY '24, we plan to add more features to Office Pro Plus each quarter throughout the year, including further integrations, more advanced call center functionality and other exciting features. These advances are part of our longer-term strategy to expand the customer opportunity for office and to increase our ARPU. I'm pleased to say that in Q4, a little over 50% of our new office users adopted a premium service tier either Office Pro or Office Pro Plus, which tells us our strategy is working.

Regarding Ooma Enterprise, we continued our focus on future development, growth in select verticals and channel expansion. Ooma Enterprise, once again in Q4, increased the number of new hospitality customer wins compared to prior quarters. New hotel customers spanned independent operator/owners of several hotel brands, including Marriott, Hilton, Hyatt, Sheraton and IHG. We continue to believe our hybrid solution and integration with approximately 80 different hotel management platforms provides a strong differentiation in this vertical. We intend this year to increase our sales and marketing efforts targeted toward this and other key verticals for Ooma Enterprise. We also expect to develop 1 and possibly more new partners for Ooma Enterprise as a means of opening up new vertical market opportunities.

Turning to our international expansion. We executed as expected given the holidays in Q4, adding more users but at a slower pace than we did in Q3. Currently, we provide service to users in 13 countries and are about to bring on users in 9 additional countries, making 22 in total. We anticipate that Q1 of this year will be close to, if not our strongest quarter ever for bringing on new users with our largest customer. We expect to continue to add more users with this customer through the balance of the year. Starting late spring, we expect to enable services in a new geographic region outside of North America and Europe and to enable services in additional geographic regions before the end of this year. We anticipate FY '24 will be a milestone year for Ooma's international expansion and will position us to broaden our customer base in new markets in the years ahead.

In general, for Ooma Office and Ooma Enterprise, our marketing and sales efforts during Q4 were hampered a little by end-of-year seasonality, but I'm pleased to say January and now February performed well. All in, we are making good progress, though given the current economy, it is certainly the case that customers are more careful before buying, take longer to make decisions and sometimes start with smaller commitments. We find we have to work harder in these economic times to get our messages across, but when we do, we continue to see strong customer interest.

Switching over now to AirDial, our integrated solution launched just last year to replace aging and expensive copper POTS lines. I'm pleased to say we see significant market opportunity for FY '24. We estimate that just in the U.S.A., there are 10 million or more POTS lines serving businesses, that these lines are becoming increasingly costly to customers, and that most, if not all, will be shut down at some point over the next several years. Market awareness of the need to replace these copper POTS lines is growing, and large enterprises, in particular, are starting to awaken to the fact they need a solution.

To put this in perspective, just 1 Fortune 500 company that we are currently talking with needs to replace approximately 25,000 lines across their business. Their situation parallels many large organizations who are trying to navigate a path forward and, in some cases, may already be faced with lines suddenly turned off or egregiously increasing costs for their analog line. It's not uncommon for us to engage customers who have hundreds or even thousands of lines they will need to replace. Of course, replacing these lines will be a multiyear process, and many companies today are evaluating their requirements and determining the best path forward before proceeding in earnest. We are also not surprisingly seeing the providers of copper POTS lines on occasion, particularly for larger customers, delay price increases or delay the sunset of their copper POTS lines to provide customers more time.

This past quarter, I'm pleased to report we again increased our pipeline of opportunity for AirDial. More importantly, perhaps, I can share that our largest AirDial customer win in the quarter was a company that contracted with us for over 2,600 AirDial lines. We have begun the installation of these lines and expect to have them all in place by the middle of this year. I'm proud to share as well that organizations are increasingly reaching out to Ooma to inquire about buying or reselling AirDial.

Our goal this year is to establish AirDial as the #1 solution for POTS replacement and to increase awareness of AirDial substantially, especially amongst larger customers. Our partnership with T-Mobile is a great enabler to executing our strategy. I'm pleased to report that Ooma AirDial is now prominently featured in T-Mobile's new innovation center in Atlanta, Georgia.

Our strategy for AirDial also encompasses increasing the number of partners who resell AirDial, increasing our channel agent and VAR representation for AirDial, and over the longer term, selling AirDial outside the U.S.A. Particularly for equipment designed to use an analog line, a solution such as AirDial is essential. We believe AirDial is the strongest solution in the market today, and that our development plans for this year will further our competitive advantage.

In particular, our Remote Device Manager capability, which gives enterprises the ability to monitor, control and operate all of their lines together from 1 desktop application, sets us apart from all other solutions that we see in the market. It is difficult to anticipate the speed at which the market will develop for AirDial, in addition, how quickly customers will act to install AirDial across their range of needs, but we are confident this is an exciting opportunity for Ooma this year and for years to come.

Now on the residential front, where we sell to Ooma Telo, we continue to achieve modest growth in line with the level of investment we choose to make. During FY '24, we will introduce a redesigned Telo, incorporating a new lower-cost processor, which could also make possible new Telo features longer term. We will also continue our partnership with T-Mobile for Telo sales and continue our efforts to expand our level of engagement with T-Mobile. As new fiber Internet and wireless 5G Internet both roll out, we believe new opportunities are created in the market for Telo adoption, and we are keen on taking advantage of these opportunities.

So altogether, this is an exciting time for Ooma. Unlike nearly all of our competitors, we have not made any layoffs or reductions in force. Rather, with our strong cash flow and 0 debt, we have the flexibility to invest for growth, and if the opportunity arises, also to make targeted acquisitions. As we look forward to FY '24, we are necessarily mindful of the challenging economic situation and the difficulty we face in predicting the market growth for copper POTS lines replacement, but we are also steadfast in our strategy to be the #1 provider of communications to the small and medium business segment, to larger enterprises operating in select verticals or with custom requirements, and to the many applications served by copper lines that are sunsetting.

I will now turn the call over to Shig Hamamatsu, our CFO, to discuss our results and outlook in more detail and then return with some closing remarks.

Thank you, Eric, and good afternoon, everyone. I'm going to review our fourth quarter financial results and then provide our outlook for the first quarter and full fiscal year 2024. We delivered another solid quarter with a total revenue of $56.5 million, near the high end of our guidance range of $56.3 million to $56.6 million. On a year-over-year basis, total revenue grew 12% in the fourth quarter, driven by the strength of Ooma Business as well as the addition of OnSIP.

In the fourth quarter, business subscription and services revenue accounted for 55% of total subscription and services revenue as compared to 49% in the prior year quarter. Q4 product and other revenue came in at $3.9 million as compared to $4.7 million in the prior year quarter. The prior Q4 product revenue included certain accessory sales that did not recur this year, as we mentioned on our last earnings call. On a full year basis, total revenue was $216.2 million compared to $192.3 million in the prior year, representing 12% growth year-over-year, including 24% growth in business subscription and services revenue.

On the profitability front, the fourth quarter non-GAAP net income was $4.1 million, above our guidance range of $3.5 million to $3.8 million, and was another record for the company. On a full year basis, non-GAAP net income was $13.6 million compared to $12.6 million in the prior year. The team has done an excellent job in balancing execution of our growth initiatives in managing expenses during the fourth quarter.

Now some details on our Q4 revenue. Ooma Business subscription and services revenue grew 29% year-over-year in Q4, driven by user growth and the addition of OnSIP, which continues to perform well with solid customer retention. Excluding the effect of OnSIP revenue contribution, Ooma Business subscription and services revenue grew 15% year-over-year. On the residential side, subscription and services revenue grew 2% year-over-year. For the fourth quarter, total subscription and services revenue was $52.6 million or 93% of total revenue compared to 91% in the prior year quarter.

Now some details on our key customer metrics. We ended the fourth quarter with 1,210,000 core users, up from 1,202,000 core users at the end of the third quarter. At the end of the fourth quarter, we had 428,000 business users or 35% of our total core users, an increase of 11,000 from Q3. Our blended average monthly subscription and services revenue per core user, or ARPU, increased 6% year-over-year to $14.24, driven by an increase in mix of business users, including higher ARPU Office Pro and Pro users. During the fourth quarter, we continued to see a healthy Office Pro and Pro Plus take rate with 52% of new office users opting for these higher tier services, which was up from 44% in the prior year quarter. Overall, 26% of Ooma Office users have now subscribed to our Pro or Pro Plus tier.

Our annual exit recurring revenue grew to $206.7 million and was up 17% year-over-year. Our net dollar subscription retention rate for the quarter was 94% as compared to 95% in the third quarter. A few words about our net dollar retention rate, which is a function of year-over-year ARPU growth and churn. As we saw back in the second quarter, the continuing growth from our largest customers slowed the rate of ARPU growth in the fourth quarter, giving us specific pricing structure with them, while the overall churn across our user base remains stable during the quarter.

As mentioned previously, we plan to transition to a revised calculation methodology for our net dollar retention rate effective in the first quarter of fiscal 2024. We believe it will make this metric a better reflection of our operational performance as well as more in line with how others in our industry are reporting. Had we used the new methodology in the fourth quarter, we estimate that our net dollar retention rate would have been approximately 99%.

Now some details on our gross margin. Our subscription and services gross margin for the fourth quarter was 73%, which was consistent with 73% in the prior year. As a reminder, subscription and services gross margin for the fourth quarter this fiscal year included the impact of OnSIP gross margin, which is running lower relative to Ooma's subscription gross margin of 74% when OnSIP is excluded.

Product and other gross margin for the fourth quarter was negative 54% as compared to negative 49% for the same period last year. There were 2 primary drivers for the year-over-year decline in product gross margin. First, certain accessory sales that benefited product gross margin in the prior year did not recur this year. Second, we started to see the impact of certain higher cost components that we had procured earlier in fiscal year to stay ahead of pandemic-driven supply chain issues. On an overall basis, total gross margin for Q4 was 64% as compared to 62% in the prior year quarter. The higher total gross margin in Q4 this year was primarily due to a lower mix of product revenue.

And now some details on operating expenses. Total operating expenses for the fourth quarter were $32.3 million, up $4.4 million or 16% from the same period last year. Excluding the impact of OnSIP, the total operating expenses increased $3 million or 11% from the same period last year.

Sales and marketing expenses for the fourth quarter were $16.9 million or 30% of total revenue, up 16% year-over-year, driven by higher marketing and channel development activity for Ooma Business, which includes AirDial as well as the addition of OnSIP-related expenses.

Research and development expenses were $10.5 million or 19% of total revenue, up 17% on a year-over-year basis from $8.9 million, driven by investments in new features for both Ooma Office and Ooma Enterprise as well as new products such as AirDial. A portion of the year-over-year increase in R&D expense was also attributable to the addition of OnSIP team members.

G&A expenses were $4.9 million or 9% of total revenue for the fourth quarter compared to $4.5 million for the prior year quarter. The year-over-year increase in G&A expenses was primarily due to an increase in personnel costs and the addition of OnSIP.

Non-GAAP net income for the fourth quarter was $4.1 million or a diluted earnings per share of $0.16 as compared to $0.13 in the prior year quarter. In addition to stock-based compensation and intangible amortization expenses, non-GAAP net income for the fourth quarter excludes approximately $0.2 million of acquisition-related costs incurred in connection with the OnSIP transaction.

Adjusted EBITDA for the quarter was $5.1 million, another record for the company, or 9% of total revenue as compared to $4 million for the prior year quarter. We ended the quarter with total cash and investments of $26.9 million. Cash generated from operations for the fourth quarter was strong and at $3.3 million was the most we have achieved and nearly double the $1.8 million generated in the same period last year. On the headcount front, we ended the quarter with 1,040 employees and contractors.

Now I will provide guidance for the first quarter and full fiscal year 2024. Our guidance is on a non-GAAP basis and has been adjusted for expenses such as stock-based compensation and amortization intangibles. We expect total revenue for the first quarter of fiscal 2024 to be in the range of $56.4 million to $56.9 million, which includes $3.4 million to $3.7 million of product revenue.

The first quarter revenue guidance includes the negative impact of approximately 4,000 residential users churning in the quarter for a specific customer. This onetime event, which is expected to impact our residential services revenue, is related to a customer who has been using Ooma Telo for their call centers for many years, and we have been anticipating their transition to another solution for some time. Meanwhile, our relationship with this customer remains strong as we continue to expand the relationship with Ooma Business offerings for other users.

We expect first quarter net income to be in the range of $3.4 million to $3.7 million. Non-GAAP diluted EPS is expected to be between $0.13 to $0.14. We have assumed 25.7 million weighted average diluted shares outstanding for the first quarter. For full year fiscal 2024, we expect total revenue to be in the range of $235.5 million to $238.5 million.

The full year fiscal 2024 revenue guidance assumes subscription and services revenue growth rate of 18% to 20% for Ooma Business and subscription and services revenue growth of 1% for residential. In terms of revenue mix for the year, we expect 92% to 93% of total revenue to come from subscription and services revenue and the remainder from products and other revenue.

We expect non-GAAP net income for fiscal 2024 to be in the range of $14.5 million to $16.5 million. Based on this guidance range, we estimate our adjusted EBITDA for fiscal 2024 to be $18.7 million to $20.7 million or approximately 9% of revenue at the upper end of the range.

Let me give you some additional color on our non-GAAP net income guidance and adjusted EBITDA range for fiscal 2024. We expect product and other gross margin for fiscal 2024 will continue to be negatively impacted by certain higher cost components we have procured in fiscal 2023 in order to manage pandemic-driven supply chain issues.

We estimate the impact of such onetime excess component costs running through fiscal 2024 P&L to be $2 million to $3 million. Excluding the impact of this onetime cost, we believe our fiscal 2024 non-GAAP net income and adjusted EBITDA range could have been higher by a similar amount, which would have put our adjusted EBITDA margin in the 9% to 10% range.

We expect non-GAAP diluted EPS for fiscal 2024 to be in the range of $0.55 to $0.63. We have assumed approximately 26.3 million weighted average diluted shares outstanding for fiscal 2024.

In summary, we are pleased with our solid finish to our fiscal 2023 with a record quarterly non-GAAP profitability, along with strong cash generation in the fourth quarter. We're excited about growth opportunities in front of us and remain focused on executing to our long-term strategy to achieve profitable growth.

I will now pass it back to Eric for some closing remarks. Eric?

Thanks, Shig. I'm pleased to say I have some additional good news to share. We learned earlier this week that Ooma has once again won PC Magazine's Business Choice Award for Best VoIP System. We're always deeply honored to win this award because it is based on PCMag's independent customer surveys. For a remarkable tenth year in a row, Ooma was voted #1 ahead of other providers.

Ooma Business, of course, is our primary focus for revenue growth. Business services revenue now makes up 55% of total Ooma services revenue, driven in part by our outstanding 39% growth in business users during FY '23.

As we head now into FY '24, we're excited to continue to pursue several initiatives for growth, including extending our leadership serving small business, targeting select verticals and customer requirements for larger enterprises, establishing ourselves as the #1 solution for replacement of aging copper POTS lines, and expanding further internationally to serve our largest customer in new markets and position ourselves for further future growth in those markets. As we look ahead to FY '24, we see tremendous opportunity for profitable growth.

Thank you, everyone. We'll now pause and take your questions.

(Operator Instructions) We'll hear first today from Matt Stotler with William Blair.

Maybe just first one, OnSIP, appreciate the updated color on that one. Maybe we can just double-click on where we're at in terms of the integration of that business, and then any plans replatform acquired customers going forward, or how we should think about further progress there ahead.

Matt, progress is good. The team has folded into the Ooma team functionally, and I think the resources are very efficient on that business. We've also made some great strides in improving the gross margins in that business. We do have a little further to go. But excited about where we're at.

In terms of actually moving OnSIP customers over to the Ooma platform, that is a longer-term initiative for us. And actually, looking at our plans this year, we have so many good growth initiatives underway that we're taking in even more measured pace in terms of making those -- that transition. We don't feel a strong need to have to do it quickly. If -- in select cases, we move a little faster because we have something on the Ooma platform that a customer wants, that the OnSIP platform doesn't offer. And in those cases, we would move a customer because we don't want to make significant investments in the OnSIP platform beyond what it does. But it's a very good platform. It does a lot of good things today, and a lot of customers are very happy with it.

Our churn is stable and well in line with where we expected to be on that business. So we are -- it's been folded in. It's just part of Ooma now, and we're kind of taking it in stages as we go from here.

Got it. That's very helpful. And then maybe one on the call center capabilities that you have. You mentioned a couple of times looking to build out more of those capabilities going forward. Maybe we could just dig into what that opportunity looks like for Ooma, right? How many customers or seats at this point are being used for call center functionality or using call center functionality and what that opportunity looks like within kind of the broader base of the market that you're going after? And then maybe some commentary on what that ARPU uplift is for call center over Ooma Office.

Sure. And by the way, let me speak about this from 2 perspectives. We have customers on Ooma Enterprise who use our call center capability on Ooma Enterprise, and some of those customers are just using call center capability. We've offered call center solutions that are pretty extensive on Ooma Enterprise for some time. Ooma Office traditionally has not offered any call center capability.

Now with Ooma Office Pro Plus, which sells for $29.95, we're building in what I would call basic call center functionality. Obviously, that starts with call queuing and the ability to have agents log in and log out and dynamically direct calls, be able to listen in on calls, barge in on calls, do the other basic things you do in a call center environment. That is helpful to Ooma Office. Remember, Ooma Office is targeted at small and medium businesses, particularly 1 to 20 employees, but really up to 100 employees. And there's 7 million-plus businesses in North America in that size range.

And with this capability in Office Pro Plus, we can go after the company that has a 2-, 3-, 4-, 5-, 10-person call center, taking calls for their business in a more integrated way, but that's different from powering up a more significant call center application. If we're going to power up a more significant call center application, we would turn to Ooma Enterprise.

But you'll recall that one of the key hallmarks of Ooma Office is that it's simple and easy to use and can be set up by businesses without even needing an IT professional to do it. And that's the way we're approaching call center with Ooma Office Pro Plus. And the pricing there will be $29.95. It already is. That's $5 higher from Office Pro, which does not have these capabilities and other things. And that's the opportunity.

It moves us up to a little bit larger-sized businesses buying Ooma Office, and it allows us to be a pretty well-rounded solution for most businesses, kind of 100 employees and less.

We'll hear next from Mike Latimore with Northland Capital Markets.

Congrats on the strong profitability there. Wondering if you can give just a little bit more info on AirDial, whether it's -- how many units have been deployed or how many you've built, kind of what kind of growth do you expect this year. I know you've kind of given some gives and takes there, but just a little more detail would be great.

Yes. We've obviously built in an outlook for AirDial to our overall outlook. And we're a little careful with that because it's difficult to predict how fast the market will develop. And it's very -- it's going to be driven for us, too, by to what degree particularly large customers sign on with us. Because some of these customers can make a very material difference to what happens in the year. .

We're not disclosing specific numbers for AirDial, at least not at this time. We built the first 10,000 boxes last year. Those boxes can support up to 4 lines each, and we are still consuming that first -- those first 10,000 units as we sit here today. So we hope also to have additional partners who resell AirDial to announce in the first half of this year. And if we close those opportunities that are looking promising to us right now, those might take up our forecast a little bit for the year.

So I hope that gives you a little more color. But that's about what we're ready to disclose today.

And then just on the macro environment. It sounds like you talked a little bit about a little bit longer sales cycle. But then you also said January seemed pretty good. I mean kind of can you talk a little bit about over the last 6 months, let's say, how things transpired here? Are we -- it sounds like things were maybe a little softer in third quarter, maybe stayed that way for -- are they getting better now? Or are they still kind of soft? Just how is the macro environment playing out the last 6 months here?

Yes. Fortunately, overall, we're doing well because we're growing internationally, as you know, and we're growing with AirDial. And that's on top of what we do with Office and Enterprise. But when I look at Office and Enterprise specifically, we have to work a little harder to tell our messages. Now our messages are compelling. We can save customers money. We can give them a lot more capability than what they've had previously. And all that's very positive. .

But I will say that second half of November and December were, I would say, down a tick for us versus prior to that. And I would say we're up a full tick and more starting January. So something about that time of year, we actually experienced kind of a similar outcome a year ago. I don't want to just say it's seasonality because I think every year is a little different. But I do think that's the case a little bit.

On the enterprise side, in particular, where we're selling larger customers and larger deals, we had some deals that we -- where the customers broke them apart and decided to take them in phases rather than go forward with the full thing at once. And we're seeing that a little bit with these economic times. But by and large, our solutions save customers money, and that's a saving grace for us even in these market times. We can rely on that to continue to drive growth.

From B. Riley, we'll hear next from Josh Nichols.

Operator, maybe we can come back to Josh in a little bit.

It looks like he may have disconnected accidentally. I will just move next to Brian Kinstlinger with Alliance Global Partners.

We got 2. My first one is, last quarter -- well, the discussion I'm curious about is prospective customers in AirDial. Last quarter, you said it was taking time and resources to plan for and that it was taking longer than expected as a result, customers weren't prepared. Can you give us any update on changes to customer planning? And moreover, are customers moving forward with planning and preparations as necessary, I would say, to that 1 nice win that you announced?

Yes. I gave a little color in my opening remarks to help with that thinking a little bit. So that customer that we landed in Q4, and that's a big win, more than 2,600 lines, they're going to -- they expect -- they want to get them all installed in the first half of this year. And that's about as fast as we -- I think the customer is going to move when you've got that much to do. I think it might even extend out a little bit longer than that. But it's a good sign to us that they want to get on with it and get them all done.

We have had other customers move at a slower pace. It depends on the customers' resources, whether they want to do the installs themselves or contract with us to do them. We do have the third-party resources in place for doing installs. We've got a strong internal team to support that process. We are hiring in that area as well. But I think by and large, we're -- it's a little bit customer-specific, but it does take time.

With the largest customers out there, the ones that are thousands of lines, they're more likely to still be evaluating the situation, what they want to do, testing a solution, and not feeling the need necessarily to act right away, but realizing that they've got to act, they've got to do something. And in a way, we like that because when a customer tests and uses our solution, they -- it really stands out how much better ours is in certain ways, particularly the Remote Device manager that I talked about in my opening remarks. It's a very enterprise-grade solution that we've built. And all these boxes that we're putting out in the field are manageable remotely from our cloud, and it's a very powerful solution.

So I think that -- I think it behooves us when we can work with a customer and really explain the benefits of what we bring. We continue to add capability and evolve what AirDial is able to do. We are now able to work with -- our primary partner is T-Mobile, and we build in the surface with -- service with their wireless Internet. But if a customer has a strong relationship with another wireless provider, we have others that we can work with now as well. We have brought out remote antennas for customers who may need extra boost, antennas that can even be mounted outdoors for the system.

So there's all kinds of refinements that are going on as well. Even on Remote Device Managers on Generation 3, and I think we have 3 more generations that we want to evolve it with this year, but it's exciting. And increasingly, if you'd asked me just 3, 4 months ago, 5 months ago, I would say almost all of our customer wins were from our own marketing or outreach.

We're starting to see customers calling us now saying, I heard about you. I read about you in one of the analyst pieces or I saw your press release with T-Mobile or whatever it is. And I think that a key to our growth this year, too, is getting our name -- getting it much better known what we are bringing to the market. So I don't know. I hope I didn't go on too far there, but that's a little perspective.

It's a perfect segue into my second question, actually. With that win that you've discussed, a nice win for AirDial, I'm curious the nature of it. Was it a direct sale? Was it via T-Mobile? Do they call you? And then last quarter, you talked about T-Mobile's paying commission. So unlike Telo, reps are likely going to be more engaged. I'm curious, is that thesis playing out since we last spoke, meaning are the reps engaged in AirDial and pipeline building sales?

So I'll take the first part of your question. That large deal is one that we are working for several months. It came to us through an agent, a partner -- well, really, an agent. And -- but a deal of that size, the agent plays a key role, but we also get involved on a direct basis, as you can imagine.

And then the second part of your question, we couldn't be more pleased with the reception and the effort T-Mobile is making. They are -- they've turned in to be a great partner for AirDial, and we're optimistic as we look forward.

We'll move on to Matthew Harrigan with Benchmark.

You've always taken a very carefully modulated approach internationally. I think mainly working in concert with your largest customer, you're now much more seemingly ambitious. Can you talk about how you're containing your risk in this macro environment, especially it sounds like going into a new continent as well? Congratulations on the numbers in the guidance.

Thank you. Yes, I can talk about that. And what we've done in North America and what we've done in Greater Europe has been done with a fair bit of investment -- physical investments in our own machines and data center locations that we work with and built for larger scale, and that's working well for us.

But as we think about many other regions of the world -- and by the way, when we talk regions, we talk more regions than you might think. Because with our kinds of communication services, latency is an important matter. So you don't want to have your machines, your data centers located too far from where customers are. So as we move to these other regions of the world that we're opening up, we're doing it on a much lower cost basis working with a hosting provider.

And we've done the work internally to also have our system run in that environment. And it becomes cookie-cutter a little bit. You can turn on and turn off processing capability, if you will, as you need it. It makes your per unit expenses a little bit higher, but when you're lower scale in these other geographies, that's how we're going to ensure that we don't end up spending too much. And then managing it, we can manage this worldwide from our NOC and our resources here in the U.S. and Europe. So we're not having to add a lot of physical people resources in other regions.

So I feel pretty comfortable. We know how many users we're going to get in each region. We know roughly how fast we're going to get them. To be honest, we have to put some of this capability in place before the conversions happen, and there is a little bit of a drag on our gross margin, so to speak, as we put the cost in place and then convert the users over, but we can model that and we know what it's going to be. So that's how we see it.

As we look out to next year and years beyond, we'll want to expand beyond serving this 1 large customer. But honestly, our first focus would be in Europe. It wouldn't be these other regions that we're going to also be working with them in, by and large, I would say that. So we've had to make sure that what we're doing in these other regions is reasonable expense versus what we're going to drive in revenue.

And I think you commented before that the copper line issue -- replacement issue was even more of an issue in Europe and the U.S. Are you trying to -- are you doing anything with AirDial at this point over in Europe? Or is that -- you've got too many things and other things in the hopper to do that at this point?

We do not have in our plans this year to do anything with AirDial outside of the United States. But that said, if we are able to establish the right partnerships or right partners in some of these other countries, we -- that could change our outlook. If we do develop such partnerships, though, it will take a little time to reconfigure the product to operate properly with the kind of modem and bands we need to work with, not a lot. It's not hard engineering, but it will take some time.

So -- but we would like to be building towards in future years selling AirDial in other markets. We've looked at some markets in -- in some cases, we've seen markets that have already started the transition to sunsetting copper lines. In other markets, they're just talking about starting it like this year or next year. So we're not behind. And it's perfect timing for us to start working towards that.

(Operator Instructions) We'll hear now from Josh Nichols with B. Riley.

I just want to check in. Great to hear you reaffirm that 1Q is going to be a very strong quarter with your key customer expanding into further markets. I think through 3Q, you had added 25,000 additional seats, right, this past year. Anything you could comment about the expected [seed ads or] the cadence this year? Is it expected to be comparable to last year, a little bit higher or lower based on the plan that the company has given you thus far?

I think the best planning for this year would be to say we'll onboard on the order of the number of users we did last year. And I think you'll see some -- a little bit heavier onboarding in the first quarter and second quarter, and then it's a little bit further out for me to plan Q3 and Q4. But we're thinking we can have a year similar to last year in growth.

Perfect. And then last question for me. Obviously, there's a huge market opportunity for AirDial, and we're getting closer and closer to potential sunsets for some of these copper lines. Have you been hearing any rumblings about viable competitors or alternatives that are coming to market? Even if they're not out today, I find it odd that you guys have such a lead on this, but it's a very large opportunity.

I have not heard any rumblings of new competitors in this space. I can tell you that in a larger deal, we're most likely going to be up against Granite who bought EPIK, and that's a solution that they bought -- a hardware solution that they bring to market. And we're going to be up against probably AT&T, who resells a box they buy from DataRemote.

We believe against both of those solutions we have clear advantages. And you can imagine, when you're taking hardware from somewhere and then try and put service on top of it, you do not have the kind of integrated solution that we've designed from the ground up. So we do have competition out there, but it's not newly as extensive as you might think. And yes, we feel good with the product we're bringing to market.

And our next question will come from Joe Goodwin with JMP Securities.

It's great to hear that the churn across the subscriber base has remained stable in the current environment. Just curious, can you talk about any trends in kind of churn on the business side for those who are on the Office Pro and Office Pro plans? Is it materially higher than just your standard Office subscriber? Or any sort of commentary there would be great.

It's not. In fact, I would suggest that probably our Pro and Pro Plus tier customers are lower because they're more likely to be a little bit larger business. Our churn...

Sorry. I said it inverse. Sorry about that.

Yes. Our churn tends to run a little higher with the smallest customers we have. And as the customers get bigger, it tends to be less and since Office Pro and Plus are going to apply more likely to a little bit larger customer. It's -- but in general, overall churn is very stable.

And with no other questions at this time, I'd like to turn things back to the company for closing remarks.

Well, everyone, thank you, as always, for taking the time to join us for our call. We really appreciate it. We are working hard here to drive a bigger and more valuable business. We're excited about our progress and the things we're doing and obviously look forward to the next time we can speak. Thank you, everybody. Bye-bye.

And that does conclude today's conference. Again, thank you for joining us. You may now disconnect.