Ooma(OOMA) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited financial statements show revenue growth to $56.7 million and a net loss of $2.8 million for the quarter, reflecting the OnSIP acquisition Condensed Consolidated Balance Sheets Total assets grew to $124.5 million, driven by the OnSIP acquisition which increased goodwill and intangible assets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | October 31, 2022 | January 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $68,228 | $66,029 | | Inventories | $22,021 | $13,841 | | Intangible assets, net | $11,256 | $4,208 | | Goodwill | $8,946 | $4,264 | | Total Assets | $124,514 | $109,253 | | Total Current Liabilities | $54,108 | $46,930 | | Total Liabilities | $64,686 | $58,197 | | Total Stockholders' Equity | $59,828 | $51,056 | Condensed Consolidated Statements of Operations Quarterly revenue increased to $56.7 million, while the net loss widened to $2.8 million due to higher operating expenses Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | | :--- | :--- | :--- | | Total Revenue | $56,679 | $49,172 | | Subscription and services | $51,749 | $44,659 | | Gross Profit | $35,920 | $30,246 | | Total Operating Expenses | $38,775 | $30,625 | | Loss from Operations | ($2,855) | ($379) | | Net Loss | ($2,810) | ($326) | | Net Loss Per Share | ($0.11) | ($0.01) | Condensed Consolidated Statements of Cash Flows Net cash from operations was $5.5 million, while the OnSIP acquisition drove a $6.6 million use of cash in investing activities Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Activity | October 31, 2022 | October 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,471 | $4,872 | | Net cash used in investing activities | ($6,647) | ($3,686) | | Net cash provided by financing activities | $1,546 | $956 | | Net increase in cash and cash equivalents | $370 | $2,142 | | Cash and cash equivalents at end of period | $20,037 | $19,440 | - The primary use of cash in investing activities was $9.8 million for a business acquisition, compared to none in the prior year period[14] Notes to Condensed Consolidated Financial Statements Disclosures detail the $9.8 million OnSIP acquisition, revenue disaggregation, commitments, and financing arrangements - On July 22, 2022, the company acquired Junction Networks, Inc (OnSIP) for an aggregate fair value consideration of $9.8 million in cash[18][73] - For the three months ended October 31, 2022, Ooma Business accounted for approximately 55% of total revenue, up from 50% in the prior year, while Ooma Residential accounted for 43%, down from 48%[28] - As of October 31, 2022, the company had non-cancelable inventory purchase commitments of $12.4 million and a service agreement with a telecommunications provider with minimum commitments of $1.5 million through July 2023[58] - The company has a secured revolving credit facility of up to $25.0 million, with zero outstanding borrowings as of October 31, 2022[68][71] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 15% YoY to $56.7 million, driven by the OnSIP acquisition, while net loss widened due to investment and one-time charges Executive Overview The company acquired OnSIP for $9.8 million in cash to accelerate the growth of its Ooma Business communications platform Third Quarter Fiscal 2023 Financial Highlights | Metric | Q3 FY2023 | Change (YoY) | | :--- | :--- | :--- | | Total Revenue | $56.7 million | +15% | | Ooma Business Subscription Revenue | - | +30% | | Total Gross Margin | 63% | from 62% | | Net Loss | $2.8 million | vs. $0.3 million | | Adjusted EBITDA | $4.5 million | vs. $4.0 million | - The company completed the acquisition of OnSIP on July 22, 2022, for approximately $9.8 million in cash to accelerate the growth of Ooma Business[81] Key Business Metrics Core users grew to 1.2 million and Annualized Exit Recurring Revenue reached $207.4 million, though retention slightly declined Key Business Metrics Comparison | Metric | As of Oct 31, 2022 | As of Oct 31, 2021 | | :--- | :--- | :--- | | Core users (thousands) | 1,202 | 1,098 | | Annualized exit recurring revenue (AERR) | $207,418 | $174,309 | | Net dollar subscription retention rate | 96% | 98% | | Adjusted EBITDA (thousands) | $4,504 | $4,033 | - Ooma Business users comprised approximately 35% of total core users as of October 31, 2022, up from 28% a year prior, with the current user count including about 50,000 acquired OnSIP users[85] Consolidated Results of Operations Revenue grew 15% YoY to $56.7 million, but a 27% surge in operating expenses widened the operating loss - Subscription and services revenue for Q3 FY2023 increased by $7.1 million (16% YoY), primarily due to growth in Ooma Business (up 30% YoY) and a higher mix of premium tier services[108] - Sales and marketing expenses increased by $2.9 million (20% YoY) due to higher advertising costs, personnel costs, and amortization of commissions and intangible assets[120] - Research and development expenses rose by $3.0 million (32% YoY), driven by a $2.7 million increase in personnel-related costs to support new feature development[121] - General and administrative expenses increased by $2.2 million (36% YoY), largely due to a $1.4 million facilities consolidation charge related to vacating office space from the OnSIP acquisition[122] Liquidity and Capital Resources The company holds $24.5 million in cash and investments and generated $5.5 million in operating cash flow year-to-date - The company had $24.5 million in total cash, cash equivalents, and investments as of October 31, 2022[130] Selected Cash Flow Data (Nine Months Ended, in thousands) | Category | October 31, 2022 | October 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,471 | $4,872 | | Net cash used in investing activities | ($6,647) | ($3,686) | | Net cash provided by financing activities | $1,546 | $956 | - An increase of $8.1 million in inventories was a significant use of operating cash, intended to mitigate global supply chain disruption risks[133] Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk were reported during the first nine months of fiscal 2023 - There have been no material changes to the Company's market risk during the first nine months of fiscal 2023[140] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that as of October 31, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[141] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[142] PART II. OTHER INFORMATION Legal Proceedings The company faces ongoing litigation, including an unfavorable tax ruling and a class action lawsuit with inestimable potential loss - The company's petition to the U.S. Supreme Court regarding the Oregon Emergency Communications Tax assessments was denied on June 21, 2022[62] - A class action complaint is ongoing in Canada alleging violations of the Trademarks Act and Competition Act, for which the amount of any reasonably possible loss is not estimable[63] Risk Factors Key business risks include supply chain dependency, reliance on third-party developers, security vulnerabilities, and regulatory changes - The company depends on a small number of vendors and sole suppliers for certain components, creating risk from delays or price increases amid global supply chain disruptions[149][158] - Ooma relies on third parties, including some located in Russia, for software development, and international sanctions could disrupt these operations[149][163] - A ransomware attack or other security breach is a significant risk that could interrupt service, compromise data, and result in significant liability[149][165] - The business is subject to extensive regulation, and changes to rules regarding 911 services, call completion, and Universal Service Fund (USF) contributions could increase costs[152][253][256]