Soohwan Kim - IR, The Blueshirt Group Eric Stang - CEO Ravi Narula - CFO.

Matt Robison - Wunderlich Nikolay Beliov - Bank of America Merrill Lynch Pat Walravens - JMP Securities Bhavan Suri - William Blair & Co. Josh Nichols - B. Riley & Co..

Good day. And welcome to the Ooma First Quarter Fiscal 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Soohwan Kim. Please go ahead sir..

Thank you. This is Soohwan Kim, Ooma Investor Relations and I am pleased to welcome you to Ooma's conference call to discuss its first quarter fiscal 2018 earnings results. With me on the call today is Ooma's CEO, Eric Stang; and CFO, Ravi Narula. After the market closed today, Ooma issued a press release through PR newswire.

The release is also available on the company's website at ooma.com. This call is being webcast live on the Investor Relations' page of the Ooma website and will be available for a period of one year. During the course of today's presentation, our executives will make forward-looking statements within the meaning of the Federal Securities Laws.

Forward-looking statements generally relate to future events or future financial or operating performance.

Forward-looking statements in this presentation include, but are not limited to, statements related to our business and financial performance, expectations and guidance for future periods, our expectations regarding our strategic product initiative and the related benefits and our expectations regarding the market.

Our expectations and beliefs regarding these matters may not materialize and actual results in financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

These risks include that were set forth in the press release that we issued earlier today, as well as those more fully described in our filings with the SEC, 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 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 mostly 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 second quarter and full year fiscal 2018 on a non-GAAP basis. Do not make available reconciliation non-GAAP guided measures first on GAAP measures on a forward-looking basis - are still working for the non-GAAP measures. Let me now turn the call over to Eric Stang, Ooma's CEO..

Thank you, Soohwan. And hello and welcome to Ooma's FY 2018 Q1 earnings call. Like to begin by sharing our Q1 results and overall outlook and then discuss our plans to drive results moving forward. In the first quarter, our revenue was $27.6 million which fell short of expectations and our adjusted EBITDA was $0.1 million.

Like to say upfront that we appreciate how important it is to deliver on our plans and everyone at Ooma remains deeply committed to achieving our goals for the business. In Q1 we delivered on our key initiatives to rapidly expand Ooma Office for small business and to grow Ooma Telo for residential.

Our combined subscription services revenue from these 2 core parts of our business grew 20% year-over-year and our Q1 subscription service revenues from Ooma Office alone grew 63% year-over-year. Our business promoter service and our Talkatone mobile app however performed below expectations.

Our combined revenues for these 2 parts of our business declined more than $1 million versus Q1 a year ago and largely drove our revenue shortfall for the quarter.

Looking forward to Q2 and the rest of this fiscal year, we anticipate continued strong growth of Ooma Office for small business, but we see a more conservative growth trajectory for Ooma Telo for residential and we anticipate continued revenue weakness in both business promoter and Talkatone.

As such, I'd like to review each part of our business in depth and describe the actions we're taking. We remain focused on our plans to grow Office for small business. As I stated earlier, we achieved strong growth in office in Q1 and our outlook for Office remains positive for the balance of the year.

We outlined last quarter that our key Ooma Office initiatives this year includes increasing investment in sales and marketing, building a reseller program involving new channels of distribution, introducing new features and supporting more IP phones to increase our addressable market, and capitalizing on our WeWork partnership including launching service in several new countries.

I'm pleased to report that in Q1 we launched our service in France for WeWork and are now in the process of rolling out to other countries. We've also continued the development of a reseller channel including establishing the systems and tools to support it. It is early days for both of these efforts, but we're proud of our progress so far.

I'm also especially happy to announce that the readers of PC Magazine have voted Ooma Office the best business voice service for an unprecedented fourth year in a row. Overall, I believe we have strong momentum in Ooma Office which is our number one priority.

Turning now to Ooma Telo, which is of course our platform that provides home phone and other services to our residential customers. Consistent with our plans, we grew residential subscriptions services revenue 12% in Q1 compared to a year ago.

As you know Ooma Telo's voice quality, unique features, and great value make it an ideal platform for delivering home phone service and other services such as home security and internet security. We achieved good growth in Q1. However, a couple of factors lead us to be more conservative in our outlook for revenue for Q2 in the remainder of FY 18.

The first factor is that we are currently running below both prior year adoption levels in our expectations for this year and believe we should be cautious with our residential outlook. We anticipate comparatively light sales in February and March but customer adoption has not picked up significantly in April and onward.

We see declining consumer and retailer interest in home phone service and going forward we believe there's the potential for indirect competition from Amazon, Alexa, and Google Home. The second factor involves our priorities in execution.

As you know, we set plans this year to launch new residential services most significantly home security and then to enhance those services through the course of the year these plans have been delayed but we need to place most of our efforts on rapidly expanding Ooma Office and particularly internationally for WeWork and compounded as well by the fact that we have not grown our engineering team as quickly as we intended.

One outcome of this is our momentum in home security has been delayed as we are only now beginning to ship sensors in quantity.

We remain focused on rapidly expanding our engineering team to deliver on our ambitious plans for new residential services in addition to our small business and international commitments, but we anticipate further delays to our plans for the residential market.

As a result of all these factors, we have modified our outlook for Ooma Telo for the balance of FY18. Nonetheless we remain confident that our residential subscription service revenue will continue to grow albeit slower than previously expected.

Switching now to Business Promoter, Business Promoter contributed approximately $850,000 of revenue in Q1, as tightening budgets from our digital partners reduced monetization of the service.

As we've described previously, since we have little influence over our partner's budgets, our Business Promoter strategy is to limit investment and drive positive EBITDA. We now expect Business Promoter revenue to decline further this year so we have reduced expenses but we expect to continue achieve positive EBITDA from the service.

Finally our Talkatone mobile app provides calling and texting to approximately 1.7 million monthly users. In Q1 our revenues from Talkatone fell to approximately $1.4 million and we're down year-over-year.

At a high level we were unable to fill all available ad space, which left us unable to capture revenue on more than 15% of the ads we had intended to display. We believe this issue was an industry wide problem possibly driven by advertisers directing more of their ads to Google and Facebook.

We now anticipate a sizeable shortfall in ad supply at acceptable pricing going forward and so are taking steps to increase our ad supply to the degree possible and steps to add new revenue generating premium end user features later this year. We're also reducing our revenue outlook for Talkatone for the balance of FY18.

Now let me turn the call over to Ravi to discuss our results and outlook in more detail. I'll then return with final comments and we'll take your questions..

Thank you, Eric. As a reminder all income statement items except revenue are on a non-GAAP basis and exclude expenses such as stock-based compensation, 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 first quarter of fiscal year 2018 and then provide our outlook for the second quarter and fiscal year 2018. Total revenue for the first quarter of fiscal 2018 was $27.6 million, an increase of $3.1 million or 13% on a year-over-year basis driven by strong performance of Ooma Office.

As Eric stated, revenue came in slightly lower than our guidance range primarily due to under performance of our Business Promoter and Talkatone services. Net loss in the first quarter of fiscal 2018 improved to $291,000 compared to $1.4 million loss for the same quarter last year.

Loss per share was $0.02 compared to a loss of $0.08 per share for the same period last year. For the first quarter of fiscal 2018, subscription and services revenue excluding Business Promoter and Talkatone grew 20% on a year-over-year basis.

We're pleased with the growth of Ooma Office subscription and services revenue which grew at 63% in the first quarter of fiscal 2018. As well as Ooma Telo subscription and services revenue which grew 12% on a year-over-year basis.

To provide better gauge of our main business going forward, we'll exclude Business Promoter data from our key metrics such as core users, ARPU and net dollar subscription retention rate. Accordingly all the business metrics we will discuss today, will include Ooma Office and residential only unless otherwise stated.

Additionally, we refer to Ooma Office as our small business solution. Please review the Investor Relations section of our website for additional supplemental information on these metrics. Our core user base increased 13% from 776,000 at the end of the first quarter last year to over 879,000 at the end of the first quarter this year.

Our premium users grew from 42% to 44% of the overall core users during the same period. Our small business core users and now 11% of total core users compared to 8% at the end of the same quarter last year. Our small business revenue continues to grow and is now 21% of our overall revenue compared to 13% in the prior year quarter.

Our average monthly subscription and services revenue per core user or ARPU was $8.38 for the first quarter of fiscal 2018 compared to $7.94 for the prior year period. This growth in ARPU was driven by growth in Ooma Office users which has a higher ARPU per user.

Annualized Exit Recurring Revenue increased 19% on a year-over-year basis to $88.3 million for the quarter up from $74 million for the prior year quarter. Our net dollar subscription retention rate for the fourth quarter was 97% compared to 103% for the same quarter last year.

Now let me provide you some details on our performance of the Business Promoter and Talkatone services. Business Promoter revenue for the first quarter of fiscal 2018 was approximately $850,000 compared to $1.8 million for the same quarter last year. This 52% year-over-year revenue decline was due to few other revenue generating calls in the period.

We are disappointed with this performance and have recently reduced expenses related to Business Promoter and have adjusted our expectations of revenue for the remainder of fiscal 2018. Talkatone revenue declined 10% on a year-over-year basis and 31% sequentially to approximately $1.4 million.

This decline was primarily due to lower ad sales as well as lower CPM.

As mentioned in a previous earnings call, there is generally some seasonality to Talkatone business in the first quarter, however we saw a larger than expected decline this quarter due to certain market dynamics as mentioned earlier by Eric leading us to adjust our guidance down for the balance of fiscal 2018.

Product and other revenue for the first quarter was $3.5 million an increase of 17% on a year-over-year basis. One of the drivers for the increase was from sales of a link to a large telecommunications provider.

This is the first order from this provider and we expect to receive additional orders in the future as they test out our products and launch related services to their customers. Additionally, we sold a higher number of other accessories including IP phones in the quarter.

Now moving onto gross margins, overall for our business our subscription and services gross margin increased to 69% in the first quarter up from 67% for the same quarter last year as a result of expanding the percentage of Ooma Office customers in the mix offset in part due to declines in Business Promoter and Talkatone margin.

Product and other gross margin was negative 8% for the quarter compared to negative 17% for the prior year quarter benefiting primarily from higher accessory sales which generally has better product margins.

Our overall gross margin increased to 59% in the first quarter compared to 57% for the same quarter last year due to improvements in both subscription and services revenue margin and product margin. First quarter operating expenses were $16.8 million an increase of $1.4 million or 9% on a year-over-year basis.

This increase in operating expenses was primarily driven by higher R&D expenditures, as we continue working on new features and functionalities tied to our investment in WeWork and developing other features and functionalities.

Sales and marketing expenses was $8.6 million, an increase of $900,000 on a year-over-year basis primarily due to continued sales initiative to grow our small business user base. R&D expenses were $5.5 million an increase of $700,000 year-over-year due to investments in personnel and other costs.

This increased investment in R&D supported the work on our office platform including launching or WeWork services in US, Canada and France as well as developing additional home security features. G&A expenses were $2.6 million a decrease of $200,000 from the prior year period as we continue to manage our expenses.

Our net loss in the first quarter was down to $291,000 or $0.02 loss per share compared to a net loss of $1.4 million or $0.08 loss per share for the first quarter of fiscal 2017. Adjusted EBITDA improved to a positive $71,000 in the first quarter of fiscal 2018 compared to negative $1.1 million EBITDA in the first quarter of fiscal year 2017.

This is a third consecutive quarter of positive adjusted EBITDA. Now turning to the balance sheet, we had cash, cash equivalents and short term investments of $53.3 million with no debt as of the end of the first quarter. Deferred revenue at the end of the first quarter was $16 million, an increase of 10% from the prior year period.

This is the fourth consecutive quarter we have generated positive cash from operations. In Q1, we regenerated $165,000 of cash from operations compared to $1.2 million of cash used in operations in the prior year quarter.

We ended the first quarter with 597 full time employees and contractors through our various partner organizations up from 456 in the prior year Congress. Now for our outlook, as Eric discussed earlier given the conditions impacting our business we are adjusting our overall guidance for fiscal 2018 down by approximately $8 million.

Approximately $3 million to $4 million of this reduction is due to lower Business Promoter and Talkatone revenue, while the remainder is primarily due to reduced expectations for sales to new and existing residential customers for the remainder of the fiscal year 2018.

Following guidance exclude stock-based compensation expense and related taxes and amortization of intangible. The second quarter fiscal 2018, total revenue is expected to be in the range off $27.6 million to $28.0 million.

Accordingly non-GAAP net loss for the second quarter of fiscal 2018 is expected to be in the range of $500,000 to $800,000 non-GAAP net loss per share is expected to be in the range of $0.03 to $0.05. We have assumed weighted average shares outstanding for Q2.

For full year fiscal 2018 total revenue is expected to be in the range of $113 million to $116 million. We expect the non-GAAP net loss to be in the range of $1.5 million to $2.5 million which is consistent to our prior guidance for fiscal 2018. Non-GAAP net loss per share is expected to be in the range of $0.08 to $0.13.

We have assumed approximately 18.8 million weighted average shares outstanding for fiscal 18. With that, let me pass it back to Eric for some closing remarks.

Eric?.

Thanks Ravi. We are disappointed in our diminished outlook, I want you know that we take this seriously and we're fully committed to doing everything we can to address it. To start, we understand that we must execute better in order to accomplish all of our plans.

We do believe that our core business is fundamentally strong and we have a great opportunity ahead. We will continue to pursue aggressive growth for Ooma Office to capture large untapped small business opportunity in North America and now internationally. We will also monetize new services on our Ooma Telo residential customers.

We remain excited about the possibilities for both. Thank you. Let's go to questions..

We can take our first question from Mike Nemeroff with Credit Suisse. Please go ahead..

Hi, guys this is Alex on for Mike. Thanks for taking my questions and appreciate the color on the following guide Ravi..

Hi, Alex..

Hi, Ravi. I'm curious could you quantify your current expectations for Talkatone and Business Promoter revenue contributions for the full year as it relates to your total revenue guide as well as on the residential side? I guess I'm trying to figure out what percent of the business will be Ooma Office when we exit this year..

Yes. So Alex, right now when I said $3 million to $4 million of impact to Business Promoter and Talkatone total. But for the full year fiscal 2018, our expectations are both of them combined will be less than 10% of overall revenue. They are in high single-digit, Business Promoter could be around 2% or 3%, Talkatone could be around 5% or 6% maximum.

So it will be high single-digit between around 7% or 8% total for the year in our guidance right.

Secondly our small business or Ooma Office is currently at 21% of overall revenue and with the growth of -- we have seen consistent subscription services revenue growth of 60% plus for the last number of quarter and we do expect it to continue to perform.

So with that perspective, you can look at -- you can come up with the calculation of how much we expect from Ooma Office..

Okay, great. Thank you. And I guess one for Eric.

Could you provide an update on the competitive front from Ooma Office?.

On the competitive front?.

Yes..

Sure. I don't know that there's a lot of new news to share on that though. There have always been a lot of providers with solutions for the business space, enterprise space particularly. No one really does it our way.

We think we have some unique capabilities about our solution particularly how easy it is for our customers to install it themselves and set it up and operate it. And we obviously bring our benefits in voice quality and the fact that you don't even need to cable your office if you want to use our wireless system with analog phones in the office.

But that said, most the time we are, when we are competing in the space, we're competing against the traditional solutions that customers had for years.

They are paying substantially more for that than what they will pay for Ooma and so we continue to close a very meaningful percentage of leads that we get that we can bring to our inside sales team and really talk to business owner. So I don't think there's really anything particularly new on the competitor front to single out..

Okay. Great. Thanks for taking our questions..

Sure..

We can take our next question from Matt Robison with Wunderlich. Please go ahead..

Thanks. Good to see the acceleration in Office. I was hoping to dive a little bit deeper into the conversational AI companies you mentioned to Alex and Google Home. And not been around a real long time in the market with telephone service on Alexa that just - I bet you are indicating it's a threat.

And I'd like to talk to about how you are extrapolating that and what opportunities you may have I believe, I may be wrong on this but I believe Alexa right now is just between different Alexa users and it would seem that there might be a use for telephony back in to associate with.

And so I'd like to get your thoughts on that and also why you think it might be more significant later in the?.

Yes. I'll say upfront, we're mostly speculating here. Its early days for both of those platforms in terms of providing calling, we know 2 things, we know that Alexa has launched in network calling from Alexa to Alexa or Alexa to a mobile app.

That you can get from them, that's a far cry from being a home phone service with 911 and be able to call anyone. And honestly I'm not sure, and so when you cross over into providing a full service you get into becoming a regulated phone company and a whole bunch of more complexities emerge.

So we've seen what they've done and it is fairly limited in that sense. Google Home has announced, they haven't done it yet, but they've announced that they're going to provide calling from Google Home to any phone number. What that exactly means, we'll have to wait to see when they roll it out.

We're really not seeing any meaningful impact from those products today, I don't think. But we are cautious going forward.

Particularly in the sense that for customers shopping and they've got $100 to spend, are they going to direct it towards one of those products that are going to direct towards Ooma Telo, and I think over time customers will realize we provide a much more complete service.

We block telemarketers, we alert you if someone calls 911 and obviously all of the other features you know. But I think upfront some -- there may be some buzz around what we're describing or talk about here and we just don't know how it's going to impact things. So we're trying to be cautious on it.

You're right we do have, we frankly have some measure of relationship with each of these two companies particularly Amazon and we have already enabled some limited features on the Amazon Echo.

And today it's not possible to take that farther, but we hope that that will be possible in the future and if so, I think we'd be the kind of partner that would be the kind of company Amazon would want to do that with and it would be a natural extension for us to do that.

So it may turn into opportunity what we're talking about here, but right now I think given what we're seeing in the marketplace today. We just want to be cautious..

Yes, well Google has -- we've had Google Voice for years and Amazon I don't think hasn't quite like that. I could see where they would be more distinguished.

Do you see yourself at any particular disadvantage versus some other Telco provider in terms of working with Amazon?.

No. In fact I think on the on the flip side, we have advantages because the last thing you want to do is have your Amazon Echo going off every night while you are sitting down to dinner. I mean, we can do things on that platform that I don't think other competitors of ours are capable of doing and I think those features will be valued.

But also as you know our very - we are very low cost solution in the marketplace. We've engineered our platform to be very low cost and we pass that on to our customer. So given the great value we bring as well, I think we're well placed if it's possible to do more and leverage these platforms in the future..

Last thing, I'll mention is that Telo was the best seller on Amazon at least -- a couple days ago and down sub $80 in the price point anything in mid-quarter that might have driven that and then I guess one more is to ask you on the accessories and the home automation front. Is that you mentioned a delay in getting products out.

Does that factor into your reduced expectations for residential this year?.

Yes. On the first, you're right. We're often typically the number one provider on Amazon with Telo and we're excited about that. And we do special programs and deals with them and we have done one of those within the last couple week. So that may be also what you're seeing there. Yes, I want to speak more about these delays a little bit.

We've been off a lot in our new WeWork partnership and it's fundamental and strategic for the company and a big opportunity, but its lot of work to take our service internationally particularly the first time to the first country. And you'll see that our R&D spend it actually -- didn't actually go up from Q4 to Q1.

We weren't able to bring on the additional resources like we'd like that compounded things as well as the fact that I think it was just harder than we anticipated it would be to take these steps to expand in Europe. And so yes, we place Office first in our strategy.

We will put our resources there first and we have had delay some of the developments on the residential platform. And we think there will be further delays as we continue to take the steps to execute better going forward.

We were, we started our marketing for home security, I'd say early to mid-quarter last quarter but then we had to stop it because we were short of censors to ship. We just couldn't get product in time and those delays relate back to everything we're talking about here as well.

So we're only now frankly, starting to get censors in in quantity and starting to reenergize our marketing for home security. And so we sit here today still pretty unsure about what the adoption rates will be for it and how our customers react.

We also know that some of our plans what we want to roll out next for home security that are going to take longer now than maybe we thought they would even just a little while ago. So we're trying to factor all that into our outlook and that is an important driver of why our new guidance is what it is..

Thanks..

Sure..

We take our next question from Nikolay Beliov with Bank of America. Please go ahead..

Hi. Thanks for taking my questions. I'm just trying to get a sense, the revenue guide coming down by $8 million.

Is that the worst case scenario for this year? Why will the numbers could come in better or worse based on the new guide of the year?.

Nikolay, we have used the best estimates available right now and we felt reasonably comfortable and obviously to some extent cautious. Given some of the challenges Eric mentioned earlier with respect to home security just the market dynamics of Telo as well as business.

So we have taken a very very hard look at all our business lines, including Ooma Office. And we looked at those and obviously, we have brought the guidance down.

It will be shame on us to bring it down again for any factors we could have anticipated for it, so we are taking a cautious look at this and bring -- and trying to provide the best perspective as of today available to you..

And a question for both of you. What do you think the Telo sustainable growth rate could be going forward in light of the factors you outlined that impact the business? It is like mid single-digit after fiscal year 2018 normalized basis or just like 0% growth at some point to think.

With security actually quickly accelerate and again grow double-digit after fiscal year 2018?.

That's a good question. And it's difficult to answer post this fiscal year. It depends a little bit I think on how far we go with some of the additional services on the platform how fast and the customer on response to them and also how much marketing frankly we put into residential versus office.

We had talked on our last call about thinking that Telo would be a high single-digits low double-digit grower this year. We're still thinking it will be an upper single-digits grower for us in terms of subscription services revenue.

So I think it's still meaningful growth force this year and I would point out I think that that's probably outpacing others in the industry in our view. So but next year we'll have to see where we are at the end of this year and take into account all the factors.

We do know that there's a large market out there for home phone service still and lot of people do understand that for real 911 and for just convenience and particularly with kids in the home, having a home phone is valuable. Practically doesn't cost very much and it works well which of course is what Ooma is good at..

And one last question for both of you. I'm just curious we're going for another reset on the revenue growth rate and you got 10% growth for the year.

How do you think about margins wouldn't you want to give shareholders more margin going forward in light of the revenue growth reset?.

You mean Nikolay operating margin?.

Yes..

Yes. So I think you have to break the growth into two or three buckets there. You are right when we look at Business Promoter and even Talkatone that should be contributing positively to the business - to the operating margin and to the bottom end. So we totally did that - get that.

We saw Business Promoter because of revenue reduction but not performing and not giving us to the bottom line. So we did take action to manage that. Ooma Office we do believe is a growth story. We have been growing 60% year-over-year and our goal is to keep the growth rate high for Ooma Office.

It's a big market, we have a great solution and it's more of an investment story versus bringing to the bottom line there.

Telo residential side has been something we are seeing, but we are being a bit cautious in terms of the market dynamics but with - but you are right that some of these new opportunities like home security we are launching and once they are fully rolled out and once they are bringing -- we are getting existing customers to buy these security services we should see growth in ARPU and margin.

So I think it depends upon which business we are looking at, it would be different. But overall, we are managing our bottom line very tightly. We are four quarters now in row for cash flow positive, EBITDA positive for the last three quarters. So we are managing our expenses at the same time the focus is to grow Ooma Office as fast as we can..

Thank you..

We can take our next question from Pat Walravens with JMP Securities. Please go ahead..

Great, thank you.

You know guys, isn't it time to take your guidance for Business Promoter and Talkatone to 0?.

Let me start and then Eric can jump in. That's one approach to do it, so besides let me step back for a second. Talkatone we are disappointed with the performance in Q1, but at the same time over the last couple of years since we have been public this is the first quarter where the market dynamics has resulted in disappointing Talkatone results there.

But Business Promoter has over the last couple of quarter on and off has disappointed us and it's now down to $3 million. We are -- we discussed that say if you were to take the $3 million out we will get to the low end of the range there.

So that was one of our ways of thinking saying, if Business Promoter is zero what will the number be for the year, it's close to be at the low end of the range. But Talkatone, we think it's more steady, it has 1.5 million to 1.7 million users.

It's more of CPM's and some ad sale and hopefully in the next couple of quarters we might see a change, but if we do not see a change we'll evaluate that..

And then I mean this is not that big a company and you have a lot of balls in the air.

Do you think maybe you should just focus on just sort of keeping the residential service where it is and then focus on the Office opportunity and let this other stuff go?.

I think that's a fair question Pat and we parked Business Promoter in a sense already and it's annoying and particularly difficult because we have to talk about it. But it generates positive EBITDA for the business and internally takes very few cycles of management's time.

We're not -- we don't consider it core at all and for the right opportunity we would we would have no reason to hang on to it certainly it's something that it has been an ongoing issue that we would like to put behind us. Talkatone is more strategic for us.

It's not essential to be part of Ooma, but we are in mobile apps with our Office for mobile and with our residential mobile app in a way Talkatone fits in is a mobile only solution on the residential side of our business and leverages all calling platform and our technology quite a bit.

And we don't really spend any marketing dollars that are any appreciable marketing dollars on Talkatone, its viral word of mouth driven. So, we are investing carefully and primarily in Office followed by residential. And I think that is critical that we don't confuse that and go invest in more places.

But that's how we see things and we're obviously managing it the best we can at this time..

Okay. I will say the Alexa engineers are presenting at the Twilio Conference this week in San Francisco, so we may get some idea of what direction they need to be going with that..

Yes, that's possible..

Okay. Thank you, Eric..

We can take our next question from Bhavan Suri with William Blair. Please go ahead..

Hi guys, just to focus on Talkatone a second, you suggested that it was sort of not filling the ad space.

How do you approach those customers to sort of get that advertising space filled? What's the investment there like and sort of that how is that tracking even sort of now as we look at recent trend of the quarter?.

I'm sorry. It's about Talkatone and ad-fill certainly. This is a hard one for us, because one of the strength of Talkatone is that we work with a large number of ad networks to source ads. And the platform includes the ability to do that and do that smartly.

So there aren't a lot of places for us to turn to go bring in additional ad supply, there are some opportunities and where we're working those on there's also a trend in the industry towards some advertisers wanting to receive view ability statistics on their ads and to provide those statistics you have to embed the ad networks SDK into your app.

That's something we have not done in the past and we will be doing going forward at least for select ad network and that may open up a little bit more ad supply. But honestly we're little bit in uncharted territory here we've never been at this point in the year with 15% or more of our ads unavailable to us.

At this time last year, we were over allocated on ad supply about 100%, which we talk about how you can even be there. But -- so we're -- the business still contributes even at these revenue levels and we have a good team there and I believe we are going to develop solutions as we move forward.

But it's not as easy as just go out and find some more ads and trust the issue. So that's kind of what's going on there and we're going to push hard. It is also a business where ad supply and ad demand can change through the year. And the back half of the year particularly the fourth quarter can be a stronger time.

So we're not betting on that, but that is an opportunity potentially for us..

Got it, got it. And just -- Erica, one for you before I turn out to Ravi.

In terms of adding some reseller partners there just some colors of sort of how you're going to that and what sort of numbers we could see being added to help drive sort of sustainable our Office growth?.

Yes. I think that can relate to different things we're doing but primarily when we talk about it, we're talking about building a network of IT professionals or we call the VARs value added resellers who will independently sell Ooma Office. We now have hundreds of those individuals linked up and learning about office and starting to sell it.

There is a little bit of a pyramid in this and that the best ones tend to do a lot more than the ones farther down the pyramid. But we are building. And it's a long term effort for us. You don't build these networks quickly and you have to educate and you have to put systems in place to serve them well.

But we are -- it's an investment area for us I guess I would say and we're investing well it and seeing progress..

And if I can add in Bhavan we have added all the systems and processes to ramp up. So if in case in sort of the 100's we have 500 or 1000, we will be able to sustain that. So lot of investment over the last 6 to 12 months have been made now it's continued to execute that continue to execute on adding more and more reseller partner..

A part of the challenge with it, not to go on but we're going after the IT professionals that would serve small business.

They probably aren't dedicated telecom VARs in any way and a little bit harder to find and to get comfortable with telecom and get them on board but as we do I think we're building up a very strong channel that we can have a lot of leverage with..

Okay. And then just we talked about [indiscernible] in the past given sort of we've been conservative on Telo, we want to assume Talkatone does what it does take the number down to more of the visibility we have that are the numbers this year are you going to answer.

If you look at what did you got so to speak, how should we think about visibility going into the full year numbers?.

Yes. So we addressed especially when Eric mentioned earlier about March, about April for example and even in May the Telo was lower ramp up as compared to a year ago. So we really looked at that. We had to take a very conservative on all fronts of the business not just one, whether it was home security, whether it was Telo, Talkatone business.

So we evaluated every potential product site, services site, we looked at our retention rates. We looked at our ARPU or growth of ARPU. So we had before we came up with this guidance for full year at fiscal 18, we took a very conservative and hard look actually on all the various segments of our business and then be prepared with this guidance.

So we do feel comfortable with this guidance, especially after bringing it down. But we are cautious and conservative about the various elements in the business there..

I guess Ravi to be really specific, so we've been just looking up going to give you have $0.65 to $0.70 of visibility [indiscernible] and you look at those reduced numbers and then getting half way through the year is it sort of 90-95.

I mean just give us some sense of a comfort level there vis-à-vis sort of the fact that you puller it back but you are bit conservative. But you know quarter ago we talked about what was going on - and you were conservative then. So just a little more color would be helpful..

It's a significantly high level of confidence..

Okay. Thanks for taking my questions guys..

We can take our next question from Josh Nichols with B. Riley. Please go ahead..

Yes, hi. Real quick, just thinking since Echo and Google those are relatively new offerings.

I was thinking do you think a large percentage of the decreased demand that you may be seeing for the Telo product is possibly related to the decrease in advertising spend that started couple of quarters ago and maybe losing a little bit of brand awareness or consumer mind share if you will?.

Yes. We do think that that is affecting us, so there's no doubt. But we had expected this year to be down versus year ago. We're seeing right now that it's down further. But yes, there's some of that.

We in our brand awareness studies, we see our brand awareness is roughly holding steady and we think we can drive some more brand awareness now that we've launch or a launching home security I mean we really have - it up at retail because we didn't have the product available to get going with it.

But we're going to leverage the things we're doing as much as we can. We haven't walked away from Telo. We do intend to grow it this year and grow it meaningfully but yeah, we're not nearly spending what we're spending say a year and a half ago and that probably does have some effect.

There is also the effect I would say frankly that the whole industry has reduced its advertising in the category. And to some degree, I think that floats all boats if you will.

I mean people start thinking about which changing, saving on their home phone service and then they shop around and they discover Ooma is recommended number one by Consumer Reports et cetera.

I think the whole industry advertising has reduced significantly and I think that is in effect as well just on the category in general the number of shoppers out there..

I think you mentioned it but just wanted to confirm, do you think that the revenue growth from Telo is going to be high-single digits this year.

So still growing for subscription service revenue?.

Yes..

Yes, upper single-digits would be -- is our outlook..

And then, I wanted to ask about WeWork. So the company was pretty quick to expand to France, but I know you mentioned that there's always some challenges one of you look to do that.

How many countries do you anticipate being in by the end of this fiscal year and do you think that there'd be a significant amount of work that maybe left to do next fiscal year to continue the expansion internationally or how do you think about that?.

The short answer is yes. But its opportunity and it's fantastic for us to be able to take advantage of this with such a partner. But yes, we expect to be in several additional countries and WeWork locations by the end of this fiscal year. And I fully expect it will be more the year after.

They get easier each time you do one, there is kind of 2 big things that have to happen anytime you do one, one is yet to put datacenter capability in region to provide the service. And secondly, we had to really redesign our platform in some fundamental ways to make it capable of replicating additional countries as we go to each one of them.

Now when we go look country it is a little easier to change language, change calling, dialing plans, emergency service requirement things like that still work though, but it easier. And as we get a data center in a region, the next country in that region is not as hard. But it's a lot of work.

So it's a longer term investment for us, but we're excited about it. We have not yet begun in our plans to think about broadening in a country beyond we were but that'll be the next step.

Once we've got service for WeWork in a country like France, we intend to come back at some point when we have the resources and the ability to do so and broaden the service to the small businesses in the country generally. So it's a long term opportunity for us, but it's a lot of work right now. There is no doubt..

And then, I know it's still early to partnership but anything you could tell us about how many subscribers you've been able to add thus far or anything about maybe like the unit economics of the WeWork partnership?.

I'm happy to speak to the first and maybe Ravi will have to comment on the second. We launched in early February, we were tend to bring most of its members in on the first day of the month that really meant March 1 was kind of the start of presenting ourselves to new members at WeWork in the US and Canada at that time.

We don't want to give highly precise numbers for WeWork, but I think it's fair to say we have around 1000 users on WeWork today and we're growing every week with it. In France, we don't have very many, we wouldn't expect that.

It's one building that they just opened they haven't even opened all the floors in that building yet, so it's more a beachhead. We're off to a reasonable start and really it's going to take the next several months for us to expand with this partnership and leverage it to see the full potential of it..

And Josh, this is Ravi here with respect the unit economics, obviously there is no customer acquisition cost for a WeWork member it's more investment in R&D hosting infrastructure. But -- and there is some revenue share between Ooma and WeWork whenever they charge from a customer there. So all in our margins are for Ooma, it's not too different.

And after that you look at beyond the R&D investment and the time for all the investment our payback period in the longer term will be if not equal better than the overall Ooma one just because there's no customer acquisition for us.

This year there is lot more investment going in but in the long term, we do see this as a great opportunity for not only adding to the top line but also to the bottom line..

I'd add too, if I may. I mean some of the - most of the things we're doing for WeWork, I think we want to do anyway as a business. It's just that we may be doing a little faster and we would have lined them up. I mean we've expanded with WeWork so that we can handle hundreds of users and an account at WeWork.

Today our regular service still caps out at 20 users. Also WeWork you can get just IP phones from us. For the rest of our business still today, you have to get the Ooma Office base station and then build from there.

Eventually we'll move some of those developments over and see similar benefits of what we're doing for WeWork in the rest of our business, but we're not there yet..

Thanks. I appreciate it..

Sure..

And it appears we have no further questions at this time. So I'll turn the program back over to our presenters for any final or closing comments..

Yes. I'd just like to say finally here, thank you to everyone.

I can assure you everyone in Ooma is working extremely hard and we're very committed to what we see is a big potential in front of us and it really does disappoint us greatly to see this diminished outlook at this time, but we do believe that things we're doing and the things we're investing in are going to really take us where we need to go going forward.

But thank you everyone and we appreciate your time today..

This concludes today's program. Thank you for your participation. You may now disconnect. Have a great day..