UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2020
OR
For the transition period from to
Commission File Number: 001-37493
Ooma, Inc.
(Exact name of registrant as specified in charter)
Delaware
(State or other jurisdiction of incorporation or organization)
06-1713274
(I.R.S. Employer Identification No.)
525 Almanor Avenue, Suite 200, Sunnyvale, California 94085
(Address of principal executive offices and zip code)
Registrant’s telephone number (650) 566-6600
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol
OOMA
Title of each class
Common Stock, par value $0.0001
Name of each exchange on which registered
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
☐
☐
Large accelerated filer
Non-accelerated filer
☒
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of July 31, 2019 was approximately $254 million based upon
the closing price reported for such date on the New York Stock Exchange.
22.1 million shares of common stock were issued and outstanding as of March 31, 2020.
Accelerated filer
Small reporting company
Emerging growth company
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2020 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K.
Such Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates. Except with
respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits
Signatures
Page
2
10
37
37
37
37
38
39
40
54
55
82
82
82
83
83
83
83
83
84
85
87
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended January 31, 2020 (“Form 10-K”) contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). The words “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,”
“could,” “potentially” and variations of such words and similar expressions are intended to identify such forward-looking statements, which may
include, but are not limited to, statements concerning the following:
•
our ability to effectively manage any disruptions to our business and/or any negative impact to our financial performance caused by the
economic and social effects of the COVID-19 pandemic;
our future financial performance, including trends in revenue, cost of revenue, operating expenses and income taxes;
our estimates of the size of our market opportunity and forecasts of market growth;
changes to our business resulting from increased competition or changes in market trends;
our ability to develop, launch or acquire new products and services, improve our existing products and services and increase the value of our
products and services;
our ability to increase our revenue and our revenue growth rate, anticipate demand for our products, and effectively manage our future
growth;
our ability to successfully maintain our relationships with our resellers;
our ability to attract and retain customers, including our ability to maintain adequate customer care and manage increases in our churn rate;
our ability to improve local number portability provisioning and obtain direct inward dialing numbers;
our ability to maintain, protect and enhance our brand and intellectual property;
government regulation, including compliance with regulatory requirements and changes in market rules, rates and tariffs;
our ability to comply with applicable FCC regulations, including those regarding E-911 services;
increasing regulation of our services and the imposition of federal, state and municipal sales and use taxes, fees or surcharges on our
services;
the effects of industry trends on our results of operations;
server or system failures that could affect the quality or disrupt the services we provide and our ability to maintain data security;
our ability to borrow additional funds and access capital markets, as well as our ability to comply with the terms of our indebtedness and the
possibility that we may incur additional indebtedness in the future;
the differences between our services, including emergency calling, compared to traditional phone services;
the sufficiency of our cash, cash equivalents and short-term investments to meet our working capital and capital expenditure requirements;
our ability to successfully enter new markets, manage our international expansion, and identify, evaluate and consummate acquisitions;
the future trading prices of our common stock; and
other risk factors included under the section titled “Risk Factors”
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
You should not rely upon forward-looking statements as predictions of future events. Such statements are based on management’s
expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results, events or circumstances to
differ materially from those expressed or implied in our forward-looking statements, in particular the substantial risks and uncertainties related to the
ongoing COVID-19 pandemic. Such risks and uncertainties include those described throughout this report and particularly in the sections entitled
“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Given these risks and uncertainties,
readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider all of the
information in this Form 10-K and in other documents we file from time to time with the Securities and Exchange Commission (“SEC”). We undertake
no obligation to update any forward-looking statements made in this Form 10-K to reflect events or circumstances after the date of this filing or to
reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or
expectations disclosed in our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or investments we may make.
When we use the terms “Ooma,” the “Company,” “we,” “us” or “our” in this report, we are referring to Ooma, Inc. and its consolidated
subsidiaries unless the context requires otherwise. Ooma, Ooma Premier, Ooma Telo, Ooma Office, Ooma Home, Broadsmart, Talkatone and the
Ooma logo referred to or displayed herein are trademarks of Ooma, Inc. and its consolidated subsidiaries. All other company and product names
referred to herein may be trademarks of the respective companies with which they are associated.
ITEM 1. Business
Overview
PART I
Ooma creates powerful connected experiences for businesses and consumers. Our smart cloud-based software-as-a-service (“SaaS”) and
unified-communications-as-a-service (“UCaaS”) platforms serve as a communications hub, which offers cloud-based communications solutions,
smart security and other connected services. Our business and residential solutions deliver PureVoice high-definition voice quality, advanced
functionality and integration with mobile devices, at competitive pricing and value. Our platforms help create smart workplaces and homes by
providing communications, monitoring, security, automation, productivity and networking infrastructure applications.
We drive the adoption of our platforms by providing communications solutions to the large and growing markets for business, residential and
mobile users, and then accelerate growth by offering new and innovative connected services to our user base. Our customers adopt our platforms by
making a one-time purchase of one of our on-premise appliances, connecting the appliance to the internet, and activating services, for which they
primarily pay on a monthly basis. We believe we have achieved high levels of customer retention and loyalty by delivering exceptional quality and
customer satisfaction.
Our services run on our unique platforms consisting of four proprietary elements: our multi-tenant cloud service, custom on-premise appliance,
mobile applications and end-point devices. Ooma’s cloud provides a high-quality, secure, managed, and reliable connection integrating every
element of our platform. Our on-premise appliances incorporate both a custom-designed, Linux-based computer and a high-speed network router,
with several key features, including wireless connectivity to end-point devices and custom firmware and software applications that are remotely
upgradable and extensible to new services. Our mobile applications enable customers to access our product features from anywhere, and our end-
point devices enable additional functionality and services. Our platforms power all aspects of our business, providing the infrastructure for the
communications portion of our business and enabling a number of other current and future productivity, automation, monitoring, safety, security and
networking infrastructure applications and services.
We primarily offer our solutions in the U.S. and Canada. We believe that our differentiated platforms and our long-term customer relationships
uniquely position us to add new connected services and exploit adjacent markets, all without significant capital investment or high customer
acquisition costs to drive their adoption. We believe that our platforms are particularly well-suited to enable the delivery of connected services
because it is always on, monitored and interactive.
We have experienced strong revenue and user growth in recent periods, growing our Ooma Business and Ooma Residential core users from
approximately 929,000 as of January 31, 2018 to approximately 1,048,000 as of January 31, 2020, representing growth of approximately 13% over
two fiscal years. Our average annual core user churn rate was approximately 11% for the year ended January 31, 2020. Our total revenue was
$151.6 million, $129.2 million and $114.5 million in fiscal 2020, 2019 and 2018, respectively. Subscription and services revenue, which primarily
includes the recurring portion of our total revenue, has increased as a percentage of our total revenue over the last three years, from approximately
89% in fiscal 2018 to 92% in fiscal 2020. We have continued to make significant investments in our operations, incurring net losses of ($18.8) million,
($14.6) million and ($13.1) million in fiscal 2020, 2019 and 2018, respectively. Our Adjusted Earnings Before Interest Tax and Depreciation and
Amortization and other non-GAAP measures (“Adjusted EBITDA”) was $1.0 million, ($1.9) million and ($0.2) million in fiscal 2020, 2019 and 2018,
respectively. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” below for additional information,
including non-GAAP reconciliations.
We were incorporated in 2003 as a Delaware corporation and our stock is listed on the New York Stock Exchange under the symbol “OOMA.”
Our corporate headquarters is located in Sunnyvale, California.
Ooma | FY2020 Form 10-K | 2
Our Products and Services
Ooma Business
Small Business Phone Service
Ooma Office is a fully-featured multi-user communications system for small and medium-sized businesses to manage communications in and
out of the office with a suite of powerful features at an affordable price. Unlike pure cloud-based phone services that only work with IP phones, our
unique hybrid SaaS office platform allows for the use of standard analog phones, mobile phones and fax machines, as well as select IP phones and
internet fax. Ooma Office analog desktop extensions work wirelessly with no wiring infrastructure, making setup intuitive and simple for the user to
install and manage without assistance from an IT professional.
Ooma Office provides a variety of configurations to meet our customers’ specific needs. Ooma Office can be configured as a cloud-based
phone system using our mobile app to run on the user’s smart phone, or it can employ a variety of IP phones for desktop use, or the customer can
choose our on-premise appliance (base unit) and wireless end-point devices (DP1 desk phone or Linx) for simple, wireless installation of desk
phones and fax machines to the user’s high-speed internet connection. The user can configure the system online, using the Ooma Office Manager
web portal.
Ooma Office provides advanced features including a virtual receptionist, remote extension dialing, call groups, conferencing and music-on-hold,
as well as mobility features, such as voicemail forwarding to a designated e-mail address. Our Ooma Office Mobile HD app allows users to make,
receive and transfer phone calls, listen to voicemails and manage their Ooma account on the go with any iOS or Android device.
Ooma Office Pro, which we introduced in November 2019, provides a set of premium features that are designed for businesses whose needs
are above and beyond our standard service, including call recording, enhanced call blocking, voicemail transcription and support for overhead
paging systems.
We also refer to Ooma Office as our Small Business Solution and we may refer to them interchangeably.
Enterprise Communications
Ooma Enterprise is a highly customizable and scalable UCaaS offering that complements our Ooma Office solution and allows us to meet the
needs of organizations of all sizes. Ooma Enterprise features include a number of communication/collaboration applications and services across
multiple channels, including: mobile and softphone telephony; instant and presence messaging; and multiparty audio conferencing, video
conferencing and web conferencing capabilities. Our advanced contact center platform, powered by Talkdesk, can extend contact center
functionality across an entire enterprise, including sales. Ooma Enterprise CRM Integration unifies a cloud-based enterprise phone system and
hosted call center platform with popular CRM systems including Salesforce and Microsoft Dynamics. Our enterprise network is also globally
distributed and kept in sync around the world, allowing users or devices to connect to the facilities closest to them to ensure the most reliable and
efficient connectivity. All functionality on our Enterprise platform is leveraged by an Application Programming Interface (“API”) driven architecture
enabling integrations and customization either internally or via third party developers.
Ooma Residential
Home Phone Service
Ooma Telo is a complete home communications solution designed to serve as the primary phone line in the home, delivering high-quality voice
communications, advanced calling features and connected services that are not offered by traditional landlines. Users make a one-time purchase of
an Ooma Telo and plug it into a high-speed internet connection and standard home phone devices. Users have the option to transfer their existing
phone number for a one-time fee or to select a new number at no cost. Once set up, users have access to free nationwide calling, international
calling with low rates and standard features such as: voicemail, call waiting, caller ID, network address book and 911 calling, with text alerts when
911 is dialed from the home.
Ooma Telo 4G provides a home phone and internet service that runs on a high-speed wireless LTE network. The Ooma Telo 4G combines the
Ooma Telo base station with the Ooma 4G Adapter and battery back-up to deliver an always-on home phone solution with all of the advanced
features provided by our unique cloud-based residential platform.
Ooma Telo Air is an Ooma Telo with built-in Wi-Fi and Bluetooth connectivity that connects to the Internet wirelessly using the home’s Wi-Fi
network and can be paired with mobile phones to answer incoming mobile calls from any phone in the home.
Ooma | FY2020 Form 10-K | 3
Our Ooma HD3 cordless handset delivers smart features, such as the ability to sync the phone book with online contacts and display picture
caller ID by syncing with social media. One-touch voicemail access lets users check messages anywhere in the home and the intercom button
allows them to talk between handsets or transfer calls.
Ooma Premier Service is a suite of over 25 advanced calling features that have been designed to enhance the capabilities of Ooma Telo on a
monthly or annual subscription basis. Ooma Premier helps our users enhance their privacy, personalize their home phone, stay connected on the
go, better manage and access their voicemail, expand calling options, and connect with a variety of devices and services to enable new functionality
and automation. We also offer other premium subscription services to our customers, independent of Ooma Premier, including an international
calling plan and voicemail transcription service.
Our Ooma Mobile HD app allows users to make and receive phone calls and access Ooma features and settings with any iOS or Android
device over a Wi-Fi or cellular data connection. The app includes unlimited outbound calls within the U.S., subject to normal residential usage
limitations, and enables users to make international calls on their mobile devices using Ooma’s attractive international calling plan.
Our residential platform enables an ecosystem for connected services by integrating with other automation solutions. For example, we have
integrated Ooma Telo with products from Amazon including the Amazon Echo, Amazon Echo Connect and other products enabled with Amazon
Alexa voice service, and a variety of products integrated through the If-This-Then-That platform (“IFTTT”). By combining Ooma’s communications
intelligence with these products’ functions, we enable innovative and valuable features.
Smart Security
Ooma Smart Security is an innovative security and monitoring platform that utilizes the Ooma Telo device to provide do-it-yourself home
security and awareness through a range of sensors including door/window, motion, garage door, water, siren, smoke and keypad. Ooma Smart
Security also offers professional monitoring in most U.S. states, remote 911 – the ability to call your home’s local emergency service from anywhere
in the world – as well as multi-user geofencing capabilities to automatically arm and disarm the security system. Our smart security platform offers
activity alerts via phone call, text, email and in-app notifications. The Ooma Smart Security app is the interface through which users interact with the
system to pair sensors, toggle between home, away and vacation modes, check activity logs and manage and receive notifications.
Talkatone
Our Talkatone mobile app is available to anyone with an iOS or Android mobile device. Users download the app from the Apple App Store or
Google Play for free. Users select a phone number that they can use to make free U.S. and Canada calls and texts using a Wi-Fi or cellular data
connection within and out of network. Advertising is displayed within the Talkatone mobile app and users can purchase premium services such as
ad-free usage and international calling plans.
Ooma | FY2020 Form 10-K | 4
Sales and Marketing
Our sales and marketing objective is to grow our customer base, and sell to our existing customers additional services using an integrated and
multi-channel marketing approach. We continually test and refine our marketing and sales tactics to drive sales at a low customer acquisition cost.
Our sales and marketing expenses were $50.5 million, $40.8 million and $37.3 million in fiscal 2020, 2019 and 2018, respectively.
Marketing and Advertising
Online. We use online marketing including search engine marketing, search engine optimization, online video, digital display advertising and
social media to attract customers as they do online research for the products and services we offer. We continue to reach out to our prospect leads
over time using e-mail and telemarketing until they purchase or the lead is retired.
Traditional. We use television and radio advertising to build awareness and interest for our products and services, which benefits both Ooma
Business and Ooma Residential. We believe that television advertising provides an opportunity to build the Ooma brand cost-effectively, educate
prospects on Ooma’s unique combination of quality and value, and capture prospects’ attention. Small businesses and consumers who see our
television ads are directed to our web site, our inbound sales personnel, and/or to key retail partners. Radio is used in a highly targeted manner
primarily to reach small business owners and decision makers as they commute to and from their workplace.
Word-of-mouth. We actively mobilize our customers and brand advocates to spread word-of-mouth marketing by sharing Ooma news and
information through social media and e-mail. We sell additional services to our existing customer base by offering free trials and promotional offers,
as well as sending e-mail communications and leaving messages on their Ooma voicemail service.
Sales, Customers and Backlog
Our business and residential products are sold through direct channels, retail, value-added resellers and other resellers. The direct channel and
value-added resellers are our primary distribution channels for business customers and the direct and retail channel is our primary distribution
channel for residential customers. Our direct sales force is focused on business sales and includes highly trained sales representatives located in
the U.S. and Canada responding to inbound telephone calls and sales leads generated through marketing activity and our website and third-party
web sites.
Our retail distribution includes national and regional consumer electronics, big box retailers and leading online retailers, including Amazon, Best
Buy, Costco.com, Walmart and others. No single customer accounted for 10% or more of our total revenue for fiscal 2020, 2019 and 2018.
Our service plans are generally sold as monthly subscriptions; however, certain plans are also offered as annual and multi-year subscriptions.
Products are generally shipped and billed shortly after receipt of an order. We do not believe that our product backlog at any particular time is
meaningful because it is not necessarily indicative of future revenue in any given period as such orders may be rescheduled or cancelled without
penalty prior to shipment. The majority of our product revenue comes from orders that are received and shipped in the same quarter.
Customer Support
Our primary customer support objective is to satisfy our customers and educate them on the features and benefits of our products to optimize
the overall user experience. We employ an active customer management strategy in which we drive incremental revenue through cross-selling of
products and services. Our customer support teams also manage the porting process for our customers as well as billing and payment activities.
We maintain two customer contact centers: one operated by us in Newark, California, which primarily supports our small business customers,
and the other operated by a third-party provider in Manila, Philippines, which primarily supports our residential customers. In addition, our offices
located in Vancouver, British Columbia and Boca Raton, Florida support our enterprise customers. We utilize a variety of communication media to
serve the needs of our customers including telephone, online chat, online tutorials and e-mail.
Ooma | FY2020 Form 10-K | 5
Engineering, Research and Development
We take an integrated approach to the development of our technology. Our extensive engineering resources span both hardware and software
and our business scope encompasses the entire platform from user devices such as handsets to cloud infrastructure, giving us the ability to create
unique features and services for our customers. We believe our integrated engineering and business strategy is a significant competitive advantage
and makes it feasible for us to leverage our platforms to deliver a broad range of productivity, automation and infrastructure connected services.
We have invested significant time and resources into developing our engineering, research and development team, resulting in a group with
diverse skills, ranging from digital and radio frequency hardware design to embedded software, network software, telecommunications, database
architecture, operations support systems, billing, security, web design and mobile app development. Because our team develops and manages all
aspects of our solutions, we are able to offer an integrated solution that works seamlessly between software and hardware and respond to customer
feedback to add in additional features and services that work across our platforms. Our team consists of a core set of engineers located primarily in
the San Francisco Bay Area, augmented by development teams in a number of international locations.
Our research and development expenses were $37.8 million, $33.9 million and $29.3 million in fiscal 2020, 2019 and 2018, respectively.
Cloud Infrastructure
Our multi-tenant cloud infrastructure provides a high-quality, secure, managed and reliable suite of services integrating all elements of our
platforms. We have built a proprietary cloud in order to optimize quality of service, reliability and security, which are essential elements of our
communications solutions. Our cloud simplifies the task of offering new services, and provides consistent performance and economies of scale for all
of our connected services. Ooma’s key cloud capabilities include: telecommunications, custom hosted services, interconnections to third party
services (cloud-to-cloud), on-premise appliance management, remote diagnostics support and billing.
On-Premise Appliances
Our purpose-built on-premise appliances are both a custom-designed, Linux-based computer and a high-speed network router, with several key
features, including wireless connectivity to end-point devices and custom firmware and software applications that are remotely upgradable and
extensible to new services.
Mobile Applications
We have made significant investments in developing mobile applications for the iOS and Android operating systems. As a result, nearly every
connected service and feature we deploy enhances or can be enhanced through integration with our customer’s mobile device. We plan to continue
enhancing our mobile apps to incorporate features related to our partners’ services and other connected services.
Operations and Manufacturing
We currently serve the majority of our customers from three separate data center facilities located in Northern California, Texas and Virginia,
where we lease space from Equinix, Inc. While our service operations are partially redundant, account provisioning and billing are operated out of
the San Jose facility. Our network operations and carrier operations teams are responsible for designing our core routing and switching
infrastructure, managing growth and maintenance (including the introduction of new services) and orchestrating vendor relationships for hosted
services, IP transit and carrier services and daily operation of our cloud and other services. The design of these services, and the tools for
monitoring and managing them, are developed in combination with our engineering team.
We primarily contract with manufacturers in China to produce our on-premise appliances and end-point devices. We also contract with a
manufacturer in Israel to produce components of our smart security solutions. We configure and ship to our channel partners and end users through
our internal manufacturing and logistics team based in Newark, California. Our internal logistics team also manages reverse logistics for channel and
warranty returns and works closely with our engineering team to develop tooling and processes that bring new products into production.
Ooma | FY2020 Form 10-K | 6
Competition
The market for communications solutions and other connected services for small business, home and mobile users is complex, fragmented and
defined by constant shifts in technology and customer demands. We expect competition to continue increasing in the future. We believe that the
defining factors driving competition in our market include:
•
•
•
•
•
•
•
•
•
Quality and consistency of communications services;
Lifetime value of initial investment and ongoing cost of services;
Breadth of features and capabilities;
System reliability, availability and performance;
Speed and ease of activation, setup, and configuration;
Ownership and control of the proprietary technology;
Integration with multiple end-point devices and mobile solutions; and
Customer satisfaction and brand loyalty; and
Ability to effectively access reseller channels
We believe that we compete favorably on the basis of the factors listed above. We face competition from a broad range of providers of
communications solutions and other connected services for business, home and mobile users. Some of these competitors include:
•
•
•
•
•
Established communications providers, such as AT&T Inc., Comcast Corporation, Verizon Communications Inc. and Rogers
Communications Inc;
Other cloud-based communications companies such as 8x8 Inc., Coredial LLC, Evolve IP LLC, Intermedia.net Inc., RingCentral Inc.,
Vonage Holdings Corp and Dialpad Inc;
Traditional on-premise, hardware business communications providers such as Avaya Inc., Cisco Systems, Inc. and Mitel, Inc.;
Mobile communications app companies providing “over-the-top” solutions, such as LINE Corporation, Pinger Inc., Viber (Rakuten, Inc.)
and WhatsApp Inc.; and
Large internet companies offer services with features that compete with some of what we offer. These include Amazon, through its
platform and Alexa free calling service, as well as Google through its free calling service, Google Voice, and the Google Home personal
assistant device, for which Google launched a free outbound calling service.
All of these companies currently or may in the future host their solutions through the cloud. We also face competition in the home security
market from several established providers.
Ooma | FY2020 Form 10-K | 7
Intellectual Property
We rely on a combination of patents, trade secrets, copyrights, trademarks, confidentiality and proprietary rights agreements with our
employees, consultants and other third parties, as well as other contractual protections to establish and protect our intellectual property rights. We
control access to our software, documentation and other proprietary information, and our software is protected by U.S. and international copyright
laws.
As of January 31, 2020, we had 22 issued patents and 16 patent applications pending in the U.S. and 8 patent applications pending in foreign
jurisdictions, all of which are associated with U.S. applications. Our issued patents will expire approximately between 2030 and 2036. We cannot
assure you whether any of our patent applications will result in the issuance of a patent or whether the examination process will require us to narrow
our claims. Any issued patents may be contested, circumvented, found unenforceable or invalidated, and we may not be able to prevent third parties
from infringing them. We are also a party to various license agreements with third parties who typically grant us the right to use certain third-party
technology in conjunction with our products and services, or to integrate software into our products, including open source software and other
software available on commercially reasonable terms. Despite the foregoing protections, unauthorized parties may attempt to misappropriate our
rights or to copy or obtain and use our proprietary technology to develop products and services with the same functionality as ours. Policing
unauthorized use of our technology and intellectual property rights is difficult and enforcing our intellectual property rights is expensive and uncertain.
Although our success depends, in part, on our ability to protect our proprietary technology and other intellectual property rights, we believe the
technological and creative skills of our personnel, the development of new features and functionality and frequent enhancements to our products and
services are the primary methods of establishing and maintaining our technology leadership position.
Employees and Contractors
As of January 31, 2020, we had 848 full-time employees and third-party contractors. None of our employees are either represented by a labor
union or subject to a collective bargaining agreement. We have not experienced any work stoppages and we believe that our employee relations are
good.
Regulatory Matters
Traditional telephone service historically has been subject to extensive federal and state regulation, while Internet services generally have been
subject to less regulation. Because some elements of VoIP resemble the services provided by traditional telephone companies and others resemble
the services provided by internet service providers, the VoIP industry has not fit easily within the existing framework of telecommunications law and
until recently has developed in an environment largely free from regulation. The Federal Communications Commission (“FCC”), the U.S. Congress,
and various regulatory bodies in the states and in foreign countries have begun to assert regulatory authority over VoIP providers and are continuing
to evaluate how VoIP will be regulated in the future.
Federal Regulation
As a provider of internet communications services, we are subject to a number of FCC regulations. Among others, these regulatory obligations
include: contributing to the Federal Universal Service Fund (“USF”), the Telecommunications Relay Service Fund and federal programs related to
phone number administration; providing access to E-911 services; protecting customer information; and porting phone numbers upon a valid
customer request. If we do not comply with any current or future rules or regulations that apply to our business, we could be subject to substantial
fines and penalties, may have to restructure our service offerings, exit certain markets or raise the price of our services, any of which could ultimately
harm our business and results of operations.
State Regulation
The FCC has preempted much regulation of internet voice communications services. However, a number of states have ruled that non-nomadic
internet voice communications services may or do fall within the definition of “telecommunications services” or are otherwise within state
telecommunications regulatory jurisdiction and therefore those states assert that they have authority to regulate the service. Although no states
currently require certification for nomadic internet voice communications service providers, a number of states have imposed certain traditional
telecommunications requirements on such services. For example, a number of states require us to contribute to state USF and E-911 and pay
Ooma | FY2020 Form 10-K | 8
other surcharges, which are passed through to our customers, while others are actively considering extending their public policy programs to include
the services we provide. We expect that state public utility commissions will continue their attempts to apply state telecommunications regulations to
internet voice communications services like ours.
International Regulation
As we expand internationally, we will be subject to laws and regulations in the countries in which we offer our services. Regulatory treatment of
internet communications services outside the U.S. varies from country to country, is often unclear, and may be more onerous than imposed on our
services in the U.S. In Canada, our service is regulated by the Canadian Radio-television and Telecommunications Commission (“CRTC”) which,
among other things, imposes requirements similar to the U.S. related to the provision of E-911 services in all areas of Canada where the traditional
telephone carrier offers such 911 services. Our regulatory obligations in foreign jurisdictions could have a material adverse effect on our ability to
expand internationally, and on the use of our services in international locations.
See “Risks Related to Federal, State and International Regulation” in Item 1A. Risk Factors below for more information.
Available Information
Our headquarters are located at 525 Almanor Avenue Suite 200, Sunnyvale, California 94085, and our telephone number is (650) 566-6600.
Our corporate website address is www.ooma.com. We use the Investor Relations page of our website for purposes of compliance with Regulation
FD and as a routine channel for distribution of important information, including news releases, analyst presentations, financial information and
corporate governance practices. Our filings with the SEC such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to these reports are posted on our website and available free of charge as soon as reasonably practical after
they are electronically filed with, or furnished to, the SEC. The SEC’s website, www.sec.gov, contains reports, proxy statements and other
information regarding issuers that file electronically with the SEC. The content on any website referred to in this Form 10-K is not incorporated by
reference in this Form 10-K unless expressly noted.
Ooma | FY2020 Form 10-K | 9
ITEM 1A. Risk Factors
Our current and prospective investors should carefully consider the risks and uncertainties described below, together with all of the other information
in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the “Cautionary Note Regarding Forward-Looking Statements,” before making investment
decisions regarding our common stock. The risks and uncertainties described below may not be the only ones we face but include the most
significant factors currently known by us. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also
may become important factors that affect us. If any of the risks actually occur, our business, financial condition, results of operations could be
materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your
investment.
Risks Related to Our Business and Our Industry
The ongoing COVID-19 pandemic could disrupt and cause harm to our business, operating results, or financial condition.
The ongoing COVID-19 pandemic could materially impact our business in a number of ways. Many state governments in the U.S. have issued
“shelter in place” or “stay at home” orders that generally require residents remain in their homes, subject to certain exceptions for essential services.
For example, in California, where our corporate headquarters, local sales office and warehouse are located, a “stay at home” order is currently in
effect that requires the majority of our employees to work from home until further notice, which could adversely impact the efficiency and
effectiveness of our organization. Additional states may implement similar orders, if they have not already done so. We cannot anticipate the extent
to which the pandemic and government mandates will affect our operations.
The pandemic has impacted, and could continue to impact, our global supply chain network and cause extended shutdowns of businesses. In
addition, current or potential customers may delay or decrease spending with us, or may not pay us or may delay paying us for previously performed
services, given the impact that the COVID-19 pandemic may have on their business. Given that a significant portion of our revenues today come
from small and medium-sized businesses, these customers may be especially susceptible to negative economic impact stemming from the
pandemic and government mandates, which could reduce their demand for our products and services. Furthermore, the rate of customer
terminations or service cancellations or failures to renew, which we refer to as churn, could also increase as a result of the effects of the pandemic
such as increased price competition or a reduction in customer spending. Current or potential customers may also not be interested in taking sales
meetings or cancel existing sales meetings with our sales representatives, which could materially lengthen our sales cycle and slow our sales
growth. We expect traditional “brick-and-mortar” retailers to reduce purchase orders for our products as retailers shift focus to online channels, and
we also expect reduced foot traffic in their stores to negatively affect sales.
Although on March 27, 2020, the U.S. President signed into law the Coronavirus Aid, Relief and Economic Security Act, which contains
provisions intended to mitigate the adverse macroeconomic effects of the pandemic, we cannot assure you that this legislation, or any other
subsequent legislation intended to provide financial relief or assistance, would be effective or mitigate the risks that we face. The pandemic, the
effects of which are rapidly evolving and highly unpredictable, may result in a severe and prolonged global economic downturn. Any of these factors
could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to attract new users of our services on a cost-effective basis, including as a result of the COVID-19 pandemic, our
business will be materially and adversely affected.
In order to grow our business, we must continue to attract new users on a cost-effective basis. We use and periodically adjust the mix of
advertising and marketing programs to promote our services. Significant increases in the pricing of one or more of our advertising channels could
increase our advertising costs or may cause us to choose less expensive and perhaps less effective channels to promote our services. As we add to
or change the mix of our advertising and marketing strategies, we may need to expand into channels with significantly higher costs than our current
programs, which could materially and adversely affect our results of operations. We will incur advertising and marketing expenses in advance of
when we anticipate recognizing any revenue generated by such expenses, and we may fail to experience an increase in revenue or brand
awareness as a result of such expenditures. We have made in the past, and may make in the future, significant expenditures and investments in
new advertising campaigns, and we cannot assure you that any such investments will lead to the cost-effective acquisition of additional customers.
New users are drawn to our products and services by rankings circulated by organizations such as Amazon, Apple and Google app stores and
highly regarded publications such as PCMag. If we are unable to maintain effective advertising programs and garner favorable rankings, our ability to
attract new customers could be materially and adversely affected, our advertising and marketing expenses could increase substantially, and our
results of operations may suffer.
Ooma | FY2020 Form 10-K | 10
We market our products and services principally to businesses and households. Some of these business customers and consumers tend to be
less technically knowledgeable and may be resistant to new technologies such as our cloud-based communications solutions and our connected
services. Because our potential customers need to connect additional hardware at their location and take other technical steps not required for the
use of traditional communications services such as telephone, fax and e-mail, these customers may be reluctant to use our service. These
customers may also lack sufficient resources, financial or otherwise, to invest in learning about our services, and therefore may be unwilling to adopt
them. In addition, factors such as the ongoing COVID-19 pandemic could cause these customers to delay or cancel buying decisions. If these
customers choose not to adopt our services, our ability to grow our business will be limited.
Our customers may terminate their subscriptions for our service in most cases without penalty, and increased customer turnover, or
costs we incur to retain our customers and encourage them to add users and, in the future, to purchase additional functionalities and
premium services, could materially and adversely affect our financial performance.
Our customers generally do not have long-term contracts with us and may terminate their subscription for our service in most cases without
penalty or early termination charges. We cannot accurately predict our customer churn. Our Ooma Residential customers subscribing to Premium
Services have no obligation to renew their subscriptions for such services and may elect to terminate their subscription for any number of reasons.
Our Ooma Business customers may choose to reduce the number of lines or remove some of the solutions to which they subscribe. Ooma Business
customers generally pay more for their subscriptions than residential or mobile customers, so any increased churn in business customers could
materially and adversely affect our financial performance and user churn, resulting in a significant impact on our results of operations, and an
increase in the cost we incur in our efforts to retain our customers and encourage them to upgrade their services and increase their number of users.
Our core user churn rate could increase significantly in the future if customers are not satisfied with our service, the value proposition of our
services, our ability to otherwise meet their needs and expectations, and/or other factors beyond our control. As a result, we may have to acquire
new customers or new users within our existing customer base on an ongoing basis simply to maintain our existing level of revenue. If a significant
number of customers terminate, reduce or fail to renew their subscriptions, we may need to incur significantly higher marketing expenditures than
anticipated to maintain or increase our revenue, which could harm our business and results of operations.
Our business is susceptible to a broad array of market forces, and any of our efforts to mitigate risk of customer churn due to one factor may
divert management’s time and focus away from efforts to address customer churn due to other factors. This broad-based susceptibility to churn
could materially and adversely affect our financial performance.
Our future success also depends in part on our ability to sell additional subscriptions and functionalities to our current customer base, which
may require increasingly sophisticated, costlier sales efforts and a longer sales cycle. Any increase in the costs necessary to upgrade, expand and
retain existing customers could materially and adversely affect our financial performance. Such increased costs could cause us to increase our
subscription rates, which could increase our customer turnover rate. If our efforts to convince customers to add users and, in the future, to purchase
additional functionalities are not successful, our business may suffer.
We face competition in our markets by our competitors and may lack sufficient financial or other resources to compete successfully.
Mergers or other strategic transactions involving our competitors could adversely affect our ability to compete effectively and harm our
results of operations.
The cloud-based communications and connected services industries are highly competitive and may increase in the future. We face continued
competition from established communications providers, such as AT&T Inc., Comcast Corporation, Verizon Communications Inc. and Rogers
Communications Inc; traditional on-premise, hardware business communications providers, mobile communications app companies providing “over-
the-top” solutions, large internet companies that offer services with features that compete with some of what we offer, as well as certain other
communications companies. All of these companies currently or may in the future host their solutions through the cloud.
In addition, some of our competitors have been acquired, and may in the future consolidate with or be acquired by, other companies and
competitors. Some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships with
systems integrators, third-party consulting firms or other parties. Any such consolidation, acquisition, alliance or cooperative relationship could
adversely affect our ability to compete effectively and lead to pricing pressure and our loss of market share, and could result in a competitor with
greater financial, technical, marketing, service and other resources, all of which could harm our business, results of operations and financial
condition.
Furthermore, increased competition may result in aggressive business tactics by our competitors, including: offering products similar to our
platforms and solutions on a bundled basis at no charge; announcing competing products
Ooma | FY2020 Form 10-K | 11
combined with extensive marketing efforts; providing financial incentives to consumers; and asserting intellectual property rights irrespective of the
validity of the claims. Our retail partners may offer the products and services of competing companies, which would adversely affect our business.
Competition from other companies may also adversely affect our negotiations with service providers and suppliers, including, in some cases,
requiring us to lower our prices. We may not be able to compete successfully with the offerings and sales tactics of other companies, which could
result in the loss of customers and, as a result, our revenue and profitability could be adversely affected.
We rely significantly on retailers and reseller partnerships to sell our products; our failure to effectively develop, manage and maintain
these sales channels could materially and adversely affect our revenue and business.
We currently sell Ooma Residential and Ooma Business through a combination of direct sales, leading retailers such as Amazon, Costco.com,
Best Buy and Walmart, and our reseller partnerships and a significant portion of our product sales are made through our retail and reseller
partnership channels. Our future success depends on our ability to effectively maintain, develop and expand our retail channel and reseller
partnership sales as we seek to grow and expand our customer base. We generally do not have long-term contracts with our retailers, distributors
and reseller partners, and we have in the past and may in the future experience a loss of or reduction in sales through any of these third parties,
which could materially reduce our revenue. Our competitors may in some cases be effective in causing our current and potential retailers, and
reseller partners to favor their services or prevent or reduce sales of our services. If we fail to maintain relationships with current retailers and reseller
partners, fail to develop relationships with new retailers and reseller partners in new markets or expand the number of retailers and reseller partners
in existing markets, fail to manage, train, or provide appropriate incentives to our existing retailers and reseller partners, or if they are not successful
in their sales efforts, sales of our products and services may decrease and our results of operations would suffer.
In addition, our Talkatone application relies significantly on the Apple and Google app stores for distribution. Its future success depends on our
continued ability to distribute Talkatone through these app stores and increase its visibility therein. If Apple or Google determine that Talkatone is
non-compliant with their app store vendor policies, they may revoke our rights to sell Talkatone through their app store at any time, which could
adversely affect our revenue.
We depend on a sole supplier to provide the components for, and a small number of vendors to manufacture, certain on-premise
appliances, end-point devices and security systems we sell, and any delay or interruption in manufacturing, configuring and delivering by
these third parties would result in delayed or reduced shipments to our customers and may harm our business.
We primarily contract with manufacturers in China to produce our on-premise appliances and end-point devices and our results of operations
could be affected by slowdowns in manufacturing due to external factors such as the spread of the COVID-19 pandemic. We also contract with a
manufacturer in Israel to produce components of our smart security solutions. We currently do not have long-term contracts with these vendors and
they are not obligated to provide products to or perform services for us for any specific period, in any specific quantities or at any specific price,
except as may be provided in a particular purchase order. If these third parties are unable to deliver products of acceptable quality or in a timely
manner, our ability to bring services to market, the reliability of our services and our reputation could suffer. We expect that it could take several
months to effectively transition to new third-party manufacturers or fulfillment agents. We may also decide to switch to or bring on additional contract
manufacturers in order to better meet our needs. Switching to or bringing on a new contract manufacturer and commencing production is expensive
and time-consuming and may cause delays in order fulfillment at our existing contract manufacturers or cause other disruptions.
Additionally, several components used in our on-premise appliances and end-point devices are “single sourced” and any interruption in the
supplier of such components could cause our business to suffer as we identify alternative sources of components. For example, public health crises,
such as the COVID-19 pandemic, or the occurrence of other events outside our control, such as natural disasters, could impact our suppliers’
facilities and component providers, many of which are located in China, Japan, South Korea and other countries. If our supply chain is disrupted,
this could also materially and adversely impact the availability or cost of components used in our on-premise appliances and end-point devices, and
to the extent these challenges continue for a prolonged period, we may not be able to provide our customers and channel partners with a sufficient
supply of products and devices at price points or with functional characteristics and reliability that meet our customers’ needs. Future repetition of
such delays could negatively affect our ability to deliver product to our customers in a timely manner and may harm our business and hinder our
growth.
Ooma | FY2020 Form 10-K | 12
To deliver our services, we rely on third parties for our network connectivity and co‑‑location facilities for certain features in our services
and for certain elements of providing our services.
We expect that we will continue to rely on third-party service providers for hosting, internet access and other services that are vital to our
service offering for the foreseeable future. Equinix, Inc. and others provide data center facilities; Comcast, NTT Inc. and others provide backbone
internet access; and Bandwidth.com, Inteliquent and others provide origination services. We also rely on third-party services for our SMS and
speech-to-text services which are sole-sourced. Intrado is our primary provider of 911 services. If any of these network service providers stop
providing us with access to their infrastructure, fail to provide these services to us on a cost-effective basis, cease operations, or otherwise terminate
these services, the delay caused by qualifying and switching to another third-party network service provider, if one is available, could have a material
adverse effect on our business and results of operations.
We may be required to transfer our servers to new data center facilities if we are unable to renew our leases on acceptable terms, if at all, or the
owners of the facilities decide to close their facilities, and we may incur significant costs and possible service interruption in connection with doing so.
Any financial difficulties, such as bankruptcy or foreclosure, faced by our third-party data center operators or any of the service providers with which
we or they contract, may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, if our data centers
are unable to keep up with our increasing needs for capacity, our ability to grow our business could be materially and adversely impacted.
If problems occur with any of these third-party network or service providers, it may cause errors or reduced quality in our services, and we could
encounter difficulty identifying the source of the problem. The occurrence of errors or reduced quality in our service, whether caused by our systems
or a third-party network or service provider, may result in the loss of our existing customers, delay or loss of market acceptance of our services,
termination of our relationships and agreements with our resellers or liability for failure to meet service level agreements, and may seriously harm our
business and results of operations.
We rely on purchased or leased hardware and software licensed from third parties in order to offer our service. In some cases, we integrate
third-party licensed software components into our platforms. This hardware and software may not continue to be available at reasonable prices or on
commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could significantly increase our expenses and
otherwise result in delays in the provisioning of our service until equivalent technology is either developed by us, or, if available, is identified,
obtained and integrated. Any errors or defects in third-party hardware or software could result in errors or a failure of our service which could harm
our business.
We also contract with one or more third parties to provide enhanced 911, or E-911, services, including assistance in routing emergency calls
and terminating E-911 calls. Our providers operate a national call center that is available 24 hours a day, seven days a week, to receive certain
emergency calls and maintain public service answering point, or PSAP, databases for the purpose of deploying and operating E-911 services. On
mobile devices, we generally rely on the underlying cellular or wireless carrier to provide E-911 services. Any failure to perform, including
interruptions in service, by our vendors, could cause failures in our customers’ access to E-911 services and expose us to significant liability and
damage our reputation.
Interruptions in our services could harm our reputation, result in significant costs to us and impair our ability to sell our services.
Because our technology platforms are complex, incorporates a variety of new computer hardware, and the platforms continue to evolve, our
services may have errors or defects that are identified after customers begin using such services, which could result in unanticipated service
interruptions. Although we test our services to detect and correct errors and defects before their initial release and before we make updates or other
changes to such services, we have occasionally experienced significant service interruptions as a result of undetected errors or defects and may
experience future interruptions of service if we fail to detect and correct errors and defects. Furthermore, the costs incurred in correcting root causes
for service outages may be substantial and these and other related consequences could negatively impact our results of operations.
We currently serve the majority of our customers from data centers located in Northern California, Texas and Virginia, where we lease space
from Equinix, Inc. These facilities and the procedures we have implemented to restore services quickly in the event of a service outage, by
themselves, will not prevent future outages. Any damage to, or failure of, these facilities, the communications network providers with whom we or
they contract or with the systems by which our communications providers allocate capacity among their customers, including us, could result in
interruptions in our service. Additionally, in connection with the expansion or consolidation of our existing data center facilities, we may move or
transfer our data and our customers’ data to other data centers. Despite precautions we take during this process, any unsuccessful data transfers
may impair or cause disruptions in the delivery of our service.
Ooma | FY2020 Form 10-K | 13
Despite precautions taken at our hosting facilities, the occurrence of a natural disaster or an act of terrorism or other unanticipated problems at
these facilities could result in lengthy interruptions in our service. In addition, due to shelter in place orders issued in connection with the COVID-19
pandemic, many of our technical specialists tasked with managing disruptions are operating under work-from-home arrangements, which could
increase the time necessary to remedy service outages. Even with the disaster recovery arrangements that we have in place, our service could be
interrupted. Any defects in, or unavailability of, the components of our platforms that cause interruptions of our services could, among other things:
cause a reduction in revenue or a delay in market acceptance of our services; require us to issue refunds to our customers or expose us to claims
for damages; cause us to lose existing customers and make it more difficult to attract new customers; divert our development resources or require us
to make extensive changes to our software, which would increase our expenses and slow innovation; increase our technical support costs; and harm
our reputation and brand.
A security breach could delay or interrupt service to our customers, compromise the integrity of our systems or data that we collect,
result in the loss of our intellectual property or confidential information, harm our reputation, or subject us to significant liability.
Our operations depend on our ability to protect our network from interruption or damage resulting from unauthorized access or entry, computer
viruses or malware or other events beyond our control, and our ability to detect any such events. In the past, we may have been subject to
undetected distributed denial-of-service, or DDOS cyberattacks, or other forms of attacks by hackers intent on bringing down our services or
accessing confidential information, and we may be subject to DDOS and other forms of attacks in the future. We cannot assure you that our backup
systems, regular data backups, physical, technological and organizational security protocols and measures and other procedures that are currently
in place, or that may be in place in the future, will be adequate to detect or prevent unauthorized access to our systems, significant damage, system
interruption, degradation or failure, or data loss or to respond to a cyberattack once launched. Additionally, hackers may attempt to directly gain
access to a customer's on-premise appliance, or their mobile phone, which may delay or interrupt services, or may subject our customers to further
security risks, including in relation to any connected household devices a customer might have now or in the future, such as our connected Smart
Security sensors and our partner's connected devices, such as Nest's devices, or to our network more generally. Also, our services are web-based,
and the amount of data we store for our users on our servers has been increasing as our business has grown.
Despite the implementation of security measures, our infrastructure may be vulnerable to hackers, computer viruses, worms, other malicious
software programs or similar disruptive problems caused by our customers, employees, consultants or other internet users who attempt to invade
public and private data networks. In some cases, we do not have in place disaster recovery facilities for certain ancillary services, such as email
delivery of messages. Currently, nearly all our customers authorize us to bill their credit or debit card accounts directly for all transaction fees that we
charge. We rely on encryption and authentication technology to ensure secure transmission of confidential information, including customer credit and
debit card numbers. Despite our efforts to encrypt and secure transmission of confidential customer information, hackers with sufficiently
sophisticated technology or methods may still be able to infiltrate our systems to gain unauthorized access to payment card information. Further,
advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise or breach of the
technology we use to protect transaction data.
Additionally, third parties may attempt to fraudulently induce domestic and international employees, consultants or customers into disclosing
sensitive information, such as user names, passwords or customer proprietary network information, or CPNI, or other information in order to gain
access to our customers' data or to our data. CPNI includes information such as the phone numbers called by a customer, the frequency, duration,
and timing of such calls, and any services purchased by the customer, such as call waiting, call forwarding and caller ID, in addition to other
information that may appear on a customer's bill. Third parties may also attempt to fraudulently induce employees, consultants or customers into
disclosing sensitive information regarding our intellectual property and other confidential business information, or our information technology
systems. In addition, because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not
recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any
compromise or perceived compromise of our security could damage our reputation with our end-customers, and could subject us to significant
liability, as well as regulatory action, including financial penalties, which would materially adversely affect our brand, results of operations, financial
condition, business and prospects.
Ooma | FY2020 Form 10-K | 14
We have incurred, and expect to continue to incur, significant costs to protect against security breaches. We may incur significant
additional costs in the future to address problems caused by any actual or perceived security breaches.
Any system failure or security breach that causes interruptions or data loss in our operations or in the computer systems of our customers or
leads to the misappropriation of our or our customers' CPNI could result in significant liability to us. Such failure or breach could cause our service to
be perceived as not being secure, subject us to regulatory requirements such as FCC notification, result in significant monetary costs, such as fines,
legal fees and expenditures to improve and enhance our security measures, cause considerable harm to us and our reputation (including requiring
notification to customers, regulators or the media) and deter current and potential customers from using our services. Additionally, we could incur
significant costs, both monetary and with respect to management's time and attention, to investigate and remediate a data security breach. Because
our onboarding and billing functions are conducted primarily through a single data center, any security breach in that data center may cause an
interruption in our business operations. If any of these events occurs, or is believed to occur, our reputation and brand could be damaged, our
business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such actual or
perceived breaches, we could be exposed to a risk of loss, litigation or regulatory action and possible liability, and our ability to operate our business,
including our ability to provide maintenance and support services to our channel partners and end-customers, may be impaired. If current or
prospective channel partners and end-customers believe that our systems and solutions do not provide adequate security for their businesses'
needs, our business and our financial results could be harmed. Additionally, actual, potential or anticipated attacks may cause us to incur increasing
costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.
Although we maintain privacy, data breach and network security liability insurance, we cannot be certain that our coverage will be adequate for
liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. Any actual or perceived
compromise or breach of our security measures, or those of our third-party service providers, or any unauthorized access to, misuse or
misappropriation of personally identifiable information, channel partners' or end-customers information, or other information, could violate applicable
laws and regulations, contractual obligations or other legal obligations and cause significant legal and financial exposure, adverse publicity and a
loss of confidence in our security measures, any of which could have an material adverse effect on our business, financial condition and operating
results.
We rely on third parties for some of our software development, quality assurance and operations, and anticipate we will continue to do so
for the foreseeable future.
We outsource certain of our software development and design, quality assurance and operations activities to third-party contractors that have
employees and consultants in a number of international locations. Our dependence on third-party contractors creates numerous risks, in particular,
the risk that we may not maintain control or effective management with respect to these business operations. Our agreements with these third-party
contractors are either not terminable by them (other than at the end of the term or upon an uncured breach by us) or require at least 30 days’ prior
written notice of termination. If we experience problems with our third-party contractors, the costs charged by our third-party contractors increase, or
our agreements with our third-party contractors are terminated, we may not be able to develop new solutions, enhance or operate existing solutions
or provide customer support in an alternate manner that is equally or more efficient and cost-effective. If we are unsuccessful in maintaining existing
and, if needed, establishing new relationships with third parties, our ability to efficiently operate existing services or develop new services and
provide adequate customer support could be impaired, and as a result, our competitive position or our results of operations could suffer.
We rely on third parties to provide the majority of our customer service and support representatives. If these third parties do not provide
our customers with reliable, high‑‑quality service, our reputation and our business will be harmed, and we may be exposed to significant
liability.
We offer customer support through both our online account management website and our toll-free customer support number. Our customer
support is currently provided via a third-party provider located in the Philippines, as well as our employees in the U.S. We currently offer support
almost exclusively in English. The ability to support our customers may be disrupted by natural disasters, inclement weather conditions, civil unrest,
strikes, acts of terrorism and other adverse events in the Philippines. Furthermore, as we expand our operations internationally, we may need to
make significant expenditures and investments in our customer service and support to adequately address the complex needs of international
customers, such as support in multiple foreign languages. In addition, a significant service outage may cause a high volume of customer support
inquiries, and our third‑party customer service center may not be able to respond to such inquiries in a timely manner. Industry consolidation among
providers of services to us may impact our ability to obtain these services or increase our costs for these services.
Ooma | FY2020 Form 10-K | 15
We may not be able to effectively manage our growth and the increased complexity of our business, which could negatively impact our
brand, financial performance and increase the risk of investing in our stock.
We have experienced substantial growth in our business, including an increase in the number of customers we consider to be our core users.
This growth has placed and may continue to place significant demands on our management and our operational and financial infrastructure. As our
operations grow in size, scope and complexity, we will need to increase our sales and marketing efforts and add additional sales and marketing
personnel worldwide and to improve and upgrade our systems and infrastructure to attract, service, and retain an increasing number of users. For
example, we expect the volume of simultaneous calls to increase significantly as our user base grows. Our network hardware and software may not
be able to accommodate this additional simultaneous call volume. The expansion of our systems and infrastructure will require us to commit
substantial financial, operational and technical resources in advance of an increase in the volume of business, with no assurance that the volume of
business will increase. Any such additional capital investments will increase our cost base. Continued growth could also strain our ability to maintain
reliable service levels for our users, develop and improve our operational, financial and management controls, enhance our reporting systems and
procedures and recruit, train, and retain highly skilled personnel. If we fail to achieve the necessary level of efficiency in our organization as we grow,
and if the current and future members of our management team do not effectively scale with this growth, our business, results of operations and
financial condition could be materially and adversely affected.
Our rates of growth may decline in the future.
Our user growth and revenue growth rates may decline over time as the size of our active user base increases, and it is possible that the size of
our active user base may fluctuate or decline in one or more markets, particularly as we achieve greater market penetration. Our revenue growth
rate may generally decline over time as our revenue increases to higher levels. As our growth rates decline, investors' perceptions of our business
may be adversely affected and the trading price of our common stock could decline.
Our business could suffer if we cannot obtain or retain direct inward dialing numbers, or DIDs, are prohibited from obtaining local or toll-
free numbers, or are limited to distributing local or toll-free numbers to only certain customers.
Our future success depends on our ability to procure large quantities of local and toll-free DIDs in the U.S. and foreign countries in desirable
locations at a reasonable cost and without restrictions. Our ability to procure and distribute DIDs depends on factors outside of our control, such as
applicable regulations, the practices of the communications carriers that provide DIDs, the cost of these DIDs, and the level of demand for new DIDs.
Due to their limited availability, there are certain popular area code prefixes we generally cannot obtain. Our inability to acquire DIDs for our
operations would make our services less attractive to potential customers in the affected local geographic areas. In addition, future growth in our
customer base and the customer bases of our competitors will increase our dependence on needing sufficiently large quantities of DIDs.
If we are unable to effectively process local number and toll-free number portability provisioning in a timely manner, our growth may be
negatively affected.
We support local number and toll-free number portability, which allows our customers to transfer to us and thereby retain their existing phone
numbers when subscribing to our services. During the number transfer process, our new customers must maintain both our service and their existing
phone service. We depend on third-party carriers to transfer phone numbers, a process we do not control, and these third-party carriers may refuse
or substantially delay the transfer of these numbers to us. Local number portability is considered an important feature by many potential customers,
and if we fail to reduce any related delays, we may experience increased difficulty in acquiring new customers. Moreover, the FCC requires us to
comply with specified number porting timeframes when customers leave our service for the services of another provider. In Canada, the Canadian
Radio-television and Telecommunications Commission, or CRTC, has imposed a similar number portability requirement on service providers like us.
If we, or our third-party carriers, are unable to process number portability requests within the requisite timeframes, we could be subject to fines and
penalties. Additionally, in the U.S., both customers and carriers may seek relief from the relevant state public utility commission, the FCC, or in state
or federal court for violation of local number portability requirements.
Ooma | FY2020 Form 10-K | 16
Our limited history operating our business at its current scale makes it difficult to evaluate our current business and future prospects,
which may increase the risk of investing in our stock
We became a public company following our initial public offering or, IPO, in July 2015 and our business has experienced significant growth in
recent fiscal years. Total revenue for fiscal 2020 was $151.6 million, up 17% year-over-year. Because we have only a limited history operating our
business at its current scale, it is difficult to evaluate our current business and future prospects, including our ability to plan for and model future
growth. We have encountered and expect to continue encountering risks and uncertainties frequently experienced by growing companies in rapidly
changing markets. If our assumptions regarding these uncertainties are incorrect or change in reaction to changes in our markets, or if we do not
manage or address these risks successfully, our results of operations could differ materially from our expectations, and our business could suffer.
Any success we may experience in the future will depend, in large part, on our ability to, among other things:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
retain and expand our customer base;
increase revenue from existing customers as they add users and, in the future, purchase additional functionalities and premium service
subscriptions;
successfully acquire customers on a cost-effective basis;
improve the performance and capabilities of our services, applications, and hardware through research and development;
successfully expand our business domestically and internationally;
successfully compete in our markets;
our ability to effectively manage any disruptions to our business and sales efforts and/or any negative impact to our financial performance
caused by the COVID-19 pandemic;
continue to innovate and expand our service offerings;
continue our relationships with strategic partners and our reseller partners;
continue our relationships with our current retail partners and develop relationships with additional retail partners;
continue our relationships with our digital marketing agency partners, advertising agencies and digital advertising networks;
continue our relationships with third-party vendors that enable our solutions;
successfully protect our intellectual property and defend against intellectual property infringement claims;
generate leads and convert potential customers into paying customers;
maintain and enhance our third-party data center hosting facilities to minimize interruptions in the use of our services;
determine appropriate prices for the marketplace; and
hire, integrate and retain professional and technical talent.
We may not be able to achieve or sustain profitability in the future.
We have incurred substantial net losses since our inception, including net losses of approximately $18.8 million in fiscal 2020. We have
expended significant resources to develop, market, promote, and sell our products and solutions and we expect to continue investing for future
growth. We used cash in operations of $7.6 million for fiscal 2020 and may continue to have negative operating cash flow in the future as a result of
our increased expenditures. Achieving profitability will require us to increase revenue, manage our cost structure and avoid significant liabilities.
Revenue growth may slow, revenue may decline or we may incur significant losses in the future for a number of possible reasons, including general
macroeconomic conditions, increasing competition (including competitive pricing pressures), a decrease in the growth of the markets in which we
compete, or failure for any reason to continue capitalizing on growth opportunities. Additionally, we may encounter unforeseen operating expenses,
difficulties, complications, delays, service delivery and quality problems and other unknown factors that may result in losses in future periods. If these
losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed and our
stock price could be volatile or decline.
Ooma | FY2020 Form 10-K | 17
If we fail to continue developing our brand or our reputation is harmed, our business may suffer.
We believe that continuing to strengthen our current brand will be critical to achieving widespread acceptance of our services and will require
continued focus on active marketing efforts. The demand for and cost of online and traditional advertising have been increasing and may continue to
increase. Accordingly, we may need to increase our investment in, and devote greater resources to, advertising, marketing, and other efforts to
create and maintain brand loyalty among users. Brand promotion activities may not yield increased revenue, and even if they do, any increased
revenue may not offset the expenses incurred in building our brands. If we fail to promote and maintain our brand, or if we incur substantial expense
in an unsuccessful attempt to promote and maintain our brands, our business could be materially and adversely affected.
Our services, as well as those of our competitors, are regularly reviewed and commented upon by online and social media sources, as well as
computer and other business publications. Negative reviews, or reviews in which our competitors’ products and services are rated more highly than
our solutions, could negatively affect our brand and reputation. From time to time, our customers have expressed dissatisfaction with our services,
including dissatisfaction with our customer support, our billing policies and the way our services operate. If we do not handle customer complaints
effectively, our brand and reputation may suffer, we may lose our customers’ confidence, and they may choose to terminate, reduce or not to renew
their subscriptions. In addition, many of our customers participate in social media and online blogs about internet-based services, including our
services, and our success depends in part on our ability to minimize negative and generate positive customer feedback through such online
channels where existing and potential customers seek and share information. If actions we take or changes we make to our services upset these
customers, their blogging could negatively affect our brand and reputation. Complaints or negative publicity about our services or customer service
could materially and adversely impact our ability to attract and retain customers and our business, financial condition and results of operations.
Failures in internet infrastructure or interference with broadband access could cause current or potential customers to believe that our
systems are unreliable, leading our current customers to switch to our competitors or potential customers to avoid using our services.
Many of our services depend on our customers’ broadband access to the internet, usually provided through a cable or digital subscriber line, or
DSL, connection. In addition, users who access our services and applications through mobile devices, such as smartphones and tablets, must have
a high-speed connection, such as Wi-Fi, 3G, 4G or LTE, to use our services and applications. Currently, this access is provided by companies that
have significant and increasing market power in the broadband and internet access marketplace, including incumbent phone companies, cable
companies and wireless companies. Increasing numbers of users and increasing bandwidth requirements may degrade the performance of internet
and mobile infrastructure, resulting in outages or deteriorations in connectivity and negatively impacting the quality with which we can deliver our
solutions. As our customer base grows and their usage of communications capacity increases, we will be required to make additional investments in
network capacity to maintain adequate data transmission speeds, the availability of which may be limited, or the cost of which may be on terms
unacceptable to us. If adequate capacity is not available to us as our customers’ usage increases, our network may be unable to achieve or maintain
sufficiently high data transmission capacity, reliability or performance. Furthermore, as the rate of adopting new technologies increases, the networks
on which our services and applications rely may not be able to sufficiently adapt to the increased demand for these services, including ours. In the
past, we have experienced disruptions to our service and were able to restore service without incurring material expenses. Outages to date have not
materially affected our results of operations. However, the costs incurred in correcting root causes for service outages may be substantial and these
and other related consequences could negatively impact our results of operations.
Frequent or persistent interruptions could cause current or potential users to believe that our systems or services are unreliable, leading them to
switch to our competitors or to avoid our services, and could permanently harm our reputation and brands. Because some of our services rely on
integration between features that use both wired and wireless infrastructures, any of the aforementioned problems with either wired or wireless
infrastructure may result in the inability of customers to take advantage of our integrated services and therefore may decrease the attractiveness of
our collective services to current and potential customers.
Ooma | FY2020 Form 10-K | 18
The success of our business relies on customers’ continued and unimpeded access to broadband service. Providers of broadband
services may block or degrade our services or charge their customers more for using our services, which could adversely affect our
revenue and growth.
Some of the providers of broadband internet access and high-speed mobile access, such as AT&T and Verizon, market and sell products and
services to our current and potential customers that directly compete with our own offerings, which can potentially give such providers a competitive
advantage. Broadband providers also may take measures that affect their customers’ ability to use our service, such as degrading the quality of the
data packets we transmit over their lines, giving those packets low priority, giving other packets higher priority than ours, blocking our packets
entirely or attempting to charge their customers more for also using our services. In the past, actions like these taken by U.S. providers would violate
the net neutrality rules adopted by the FCC and described below, however the FCC recently reversed the net neutrality rules, and most foreign
countries have not adopted formal net neutrality or open internet rules, creating an increased risk broadband providers will engage in such anti-
competitive measures against the Company in the United States and elsewhere.
In 2015, the FCC reclassified broadband internet access services as a “telecommunications service” subject to new open internet regulations
which included, in part, “net neutrality” rules that prohibited blocking or discriminating against lawful services and applications and prohibited “paid
prioritization,” or providing faster speeds or other benefits in return for compensation.
In December 2017, the FCC largely reversed the existing net neutrality rules, including the classification of broadband Internet service as a
telecommunications service subject to certain common carrier regulations. This FCC order is the subject of pending legal challenges. In addition, in
January 2018, the FCC reclassified broadband internet access as an “information service” that is not subject to the “net neutrality” rules. This order
was affirmed by a federal three-judge panel, although certain parties have requested rehearing by the full court.
Also, a number of states have enacted or are considering legislation or executive actions that would regulate the conduct of broadband
providers. We cannot predict whether the FCC orders or state initiatives will be modified, overturned, or vacated by legal action of the court, federal
or state legislation, or the FCC. The FCC’s orders could affect the market for broadband internet access service in a way that impacts our business,
for example by increasing the cost of broadband internet service and thereby depressing demand for our services, by increasing the costs of
services we purchase or by creating tiers of internet access service and by either charging us for or prohibiting us from being available through these
tiers, and we cannot predict the impact of these events upon our business and results of operations.
Our quarterly and annual results have fluctuated in the past and may continue to do so in the future. As a result, we may fail to meet or to
exceed the expectations of research analysts or investors, which could cause our stock price to fluctuate.
Our quarterly and annual results of operations and cash flows, have varied historically from period to period, and we expect that they will
continue to fluctuate due to a variety of factors, many of which are outside of our control, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to retain existing customers and attract new customers, sell premium solutions to our existing customers and introduce new
solutions;
the actions of our competitors, including pricing changes or the introduction of new solutions;
our ability to effectively manage our growth and successfully penetrate the communications and connected services markets for
businesses, residential and mobile;
the number of monthly and annual subscriptions at any given time;
the timing, cost and effectiveness of our advertising and marketing efforts;
the timing, operating cost and capital expenditures related to the operation, maintenance, and expansion of our business;
the timing of our decisions with regard to product resource allocation;
seasonality of consumers’ purchasing patterns and seasonality of advertising patterns;
service outages or security breaches and any related impact on our reputation;
our ability to accurately forecast revenue and appropriately plan our expenses;
quarantines, travel limitations, or business disruptions in regions affecting our operations, including our field sales teams, or the
operations of third parties upon which we rely, stemming from the actual, imminent or perceived outbreaks of epidemics or pandemics,
including the COVID-19 pandemic;
costs associated with defending and resolving intellectual property infringement and other claims;
changes in tax laws, regulations, or accounting rules;
the timing and cost of developing or acquiring technologies, services or businesses and our ability to successfully manage any such
acquisitions;
Ooma | FY2020 Form 10-K | 19
•
•
how well we execute on our strategy and operating plans and the impact of changes in our business model that could adversely impact
our results of operations and financial condition; and
the impact of worldwide economic, industry, and market conditions.
Any one of the factors above, or the cumulative effect of some or all of the factors referred to above, may result in significant fluctuations in our
quarterly and annual results of operations and cash flows. This variability and unpredictability could result in our failure to meet our internal operating
plan or the expectations of securities analysts or investors for any period, which could cause our stock price to decline. In addition, a significant
percentage of our operating expenses is fixed in nature and is based on forecasted revenue trends. Accordingly, in the event of revenue shortfalls,
we may not be able to mitigate the negative impact on net income (loss) and margins in the short term. If we fail to meet or exceed the expectations
of research analysts or investors, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class-
action suits.
If additional tariffs or other restrictions are placed on our goods imported from other countries, or if the United States were to withdraw
from or modify existing trade agreements or regulations, our revenue, gross margin, and results of operations may be materially harmed.
If additional tariffs or other restrictions are placed on goods imported into the United States from China or other countries, or any related
counter-measures are taken by China or other countries, our revenue and results of operations may be materially harmed. For example, our product
gross margins in recent quarters were negatively impacted by imposed tariffs. On August 23, 2019, the U.S. President announced new and
increased tariffs on certain Chinese imported goods beginning September 1, 2019. Such actions subject an even wider range of our products to
tariffs and increase existing tariffs on certain of our products, which could negatively impact our gross margins. Although the U.S. Administration
announced on January 15, 2020 the reduction of certain tariffs on Chinese imported goods and delayed certain other related tariffs, we cannot
assure you that the U.S. Administration will not continue to increase tariffs on imports from China or alter trade agreements and terms between
China and the United States, which may include limiting trade with China. Trade restrictions, including tariffs, quotas, embargoes, safeguards and
customs restrictions, could increase the cost or reduce the supply of products available to us, or could increase the lead times of certain raw material
and equipment that we may purchase from foreign vendors located in China and other countries, or may require us to modify our supply chain
organization or other current business practices, any of which could harm our business, financial condition and results of operations. For example,
the U.S. federal government passed the National Defense Authorization Act for Fiscal Year 2019, which imposed a ban on the use of certain
surveillance, telecommunications, and other equipment manufactured in China, to help protect critical infrastructure and other sites deemed to be
sensitive for national security purposes in the U.S. While this ban has no immediate direct effect on our supply chain, any expansion to this ban or
imposition of any similar bans by the U.S. federal government may require us to find new sources of system assembly, which may result in higher
costs and disruption to our business.
We are dependent on international trade agreements and regulations, such as the North American Free Trade Agreement, or NAFTA, and the
pending United States-Mexico-Canada Agreement, or USMC. If the United States were to withdraw from or materially modify certain international
trade agreements or regulations, our business and operating results could be materially and adversely affected and our customer relationships in
Canada and other countries could be harmed.
A significant portion of our revenues today come from small and medium-sized businesses, which may have fewer financial resources to
weather an economic downturn.
A significant portion of our revenues today come from small and medium-sized businesses. These customers may be more susceptible to
negative impact from economic downturns (including short- to intermediate-term economic disruption caused by catastrophic events such as the
COVID-19 pandemic) than larger, more established businesses as t hese businesses typically have more limited financial resources than larger
entities. As the majority of our customers pay for our subscriptions through credit and debit cards, weakness in certain segments of the credit
markets and in the U.S. and global economies has resulted in and may in the future result in increased numbers of rejected credit and debit card
payments and business failures, which could materially affect our business by increased customer default or cancellations. If small and medium-
sized businesses experience financial hardship as a result of a weak economy or for any other reason, the overall demand for our subscriptions
could be materially and adversely affected.
If we are not able to manage our inventory levels effectively, we may experience excess inventory levels, inventory obsolescence, or
shortages of inventory that could adversely affect our results of operations.
Our vendor-supplied on-premise appliances and end-point devices have lead times of up to several months for delivery and are built based on
our estimates of future demand. Our ability to accurately forecast demand is affected by many factors, including an increase or decrease in customer
demand for our products and services, changes in consumer preferences, market acceptance of new product and service introductions by us and
our competitors, levels of inventory
Ooma | FY2020 Form 10-K | 20
held by channel partners, sales promotional activities by us or our competitors, and unanticipated changes in general market demand and macro-
economic conditions. In addition, because we rely on third-party contract manufacturers and other vendors for t he supply of our devices, our
inventory levels are subject to the conditions regarding the timing of purchase orders and delivery dates not within our control.
It is likely that from time to time we will have either an excess or shortage of product inventory. Inventory levels in excess of customer demand
may result in inventory write-down charges, the sale of inventory at discounted prices, and other actions, which may cause our gross margin to
decline and harm our reputation and brand.
Conversely, insufficient levels of inventory may negatively affect relations with customers. For instance, our customers rely upon our ability to
meet committed delivery dates, and any disruption in the supply of our services, including any disruptions caused by the ongoing COVID-19
pandemic, could result in loss of customers or harm to our ability to attract new customers. Retailers may elect to return any unsold inventory without
any penalty, which could result in excess inventory charges. Any of these factors could have a material adverse effect on our business, financial
condition or results of operations.
We may expand through acquisitions of, or investments in, other companies, each of which may divert our management’s attention, result
in additional dilution to our stockholders, increase expenses, disrupt our operations and harm our results of operations.
Our business strategy may, from time to time, include acquiring or investing in complementary services, technologies or businesses. We may
not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete
acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed
negatively by users, customers or investors. If we fail to successfully integrate such acquisitions, or the technologies associated with such
acquisitions, the revenue and operating results of the combined company could be adversely affected. Acquisitions may disrupt our ongoing
operations, divert management from their primary responsibilities, subject us to additional liabilities, increase our expenses and adversely impact our
business, financial condition, operating results and cash flows. We may not successfully evaluate or utilize the acquired technology and accurately
forecast the financial impact of an acquisition transaction, including accounting charges.
We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could affect our financial condition
or the value of our capital stock. The sale of equity to finance any such acquisitions could result in dilution to our stockholders. If we incur debt it
would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to manage our
operations. In addition, our future operating results may be impacted by performance earnouts or contingent payments. Furthermore, acquisitions
may require large one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, additional stock-based
compensation expense and the recording and subsequent amortization or impairments of amounts related to certain purchased intangible assets,
any of which could negatively impact our future results of operations.
When we enter into strategic transactions in which we acquire other companies, we cannot guarantee we will be able to successfully integrate
the teams, assets or business of these target companies into our business, that we will be able to fully recover the costs of such transactions, that
we will retain existing key customer and partner relationships, that we will be successful in leveraging such strategic transactions into increased
business for our products, or that we will otherwise be able to achieve the intended results of the acquisitions.
We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.
We intend to continue making expenditures and investments to support the growth of our business. In the future, we may require additional
capital to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances, including the need to
develop new solutions or enhance our existing solutions, enhance our operating infrastructure, and acquire complementary businesses and
technologies. Accordingly, we may decide to engage in equity or debt financings to secure additional funds. However, additional funds may not be
available when we need them on terms acceptable to us, or at all. Any debt financing we secure in the future could involve restrictive covenants,
which may make it more difficult for us to obtain additional capital and to pursue business opportunities. In addition, volatility in the credit markets
may have an adverse effect on our ability to obtain debt financing. If we raise additional funds through further issuances of equity or convertible debt
securities, our existing stockholders could suffer significant dilution, and the trading price of our common stock would likely decline. Additionally, any
new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. If we are unable to
obtain adequate financing or financing on terms satisfactory to us, our ability to continue pursuing our business objectives and to respond to
business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, results of operations, financial
condition and prospects could be materially and adversely affected, and the trading price of our common stock would likely decline.
Ooma | FY2020 Form 10-K | 21
Shifts in trends or the emergence of new technologies may render our solutions obsolete or require us to expend significant resources to
develop, license, or acquire new products, services or applications on a timely and cost-effective basis in order to remain competitive.
The cloud-based communications and connected services industries are emerging markets characterized by rapid changes in customer
requirements, frequent introductions of new and enhanced services, and continuing and rapid technological advancement. To compete successfully
in these emerging markets, we must anticipate and adapt to unpredictable technological changes and evolving industry standards and continue to
design, develop, manufacture and sell new and enhanced services and products that provide increasingly higher levels of performance and reliability
at lower cost. We derived approximately 58% of our revenue from Ooma Residential for fiscal 2020 and expect it will continue to account for a
majority of our revenue for the foreseeable future. However, our future success will also depend on our ability to introduce and sell new services,
products, features and functionality that enhance or are beyond the voice, fax, text and connected services we currently offer, as well as to improve
usability and support and increase customer satisfaction. Our failure to develop solutions that satisfy customer preferences in a timely and cost-
effective manner may harm our ability to renew our subscriptions with existing customers and to create or increase demand for our services and
products and may materially and adversely impact our results of operations.
The introduction or announcement of new services and technologies by our competitors could make our existing solutions obsolete, cause
customers to defer purchases of our products and services, or otherwise adversely affect our business and results of operations. Further, we may
experience higher product returns from retailers or reseller partners and may face challenges managing the inventory of new or existing products,
which could lead to excess inventory charges and/or discounting of such products. In addition, new products may have varying selling prices and
costs compared to legacy products, which could negatively impact our gross margins and operating results.
We may experience difficulties with software development, operations, design or marketing that could delay or prevent the introduction or
implementation of new or enhanced products, services and applications. We have in the past experienced delays in the planned release dates of
new features and upgrades and have discovered defects in new services and applications after their introduction. We cannot assure you that new
products, or new features or upgrades to existing products and services, will be released according to schedule, or that, when released, they will not
contain defects. Either of these situations could result in adverse publicity, loss of revenue, higher than expected costs, delay in market acceptance
or claims by customers brought against us, all of which could harm our reputation, business, results of operations and financial condition.
Moreover, the development of new or enhanced products, services or applications may require substantial investment, and we must continue to
invest a significant amount of resources in our research and development efforts to remain competitive. We do not know whether these investments
will be successful. If we are unable to develop, license or acquire new or enhanced products, services and applications on a timely and cost‑effective
basis, or if such new or enhanced products, services and applications do not achieve adequate market acceptance, we may not be able to realize a
return on our investments and our business, financial condition and results of operations may be materially and adversely affected.
Our success depends, in part, on increased public acceptance of our connected services, applications and products.
Our future growth depends on our ability to significantly increase revenue generated from our communications solutions, our Ooma Smart
Security services and other connected services. The markets for cloud-based communications, smart security services and connected services are
evolving rapidly and are characterized by an increasing number of market entrants. If these markets fail to develop, develop more slowly than we
anticipate or develop in a manner different than we expect, our services could fail to achieve market acceptance, which in turn could materially and
adversely affect our business.
Our future growth in the small and medium-sized business and enterprise markets depends on the continued use of voice communications by
businesses, as compared to e-mail and other data-based methods. A decline in the overall rate of voice communications by businesses would harm
our business. Furthermore, our continued growth depends on future demand for and adoption of internet voice communications systems and
services and on future demand for connected communications services. Although the number of broadband subscribers worldwide has grown
significantly in recent years, only a small percentage of businesses have adopted internet voice communications services to date. For demand and
adoption of internet voice communications services by businesses to increase, internet voice communications networks must improve the quality of
their service for real-time communications by managing the effects of and reducing packet loss, packet delay, and packet jitter, as well as unreliable
bandwidth, so that high-quality service can be consistently provided. Additionally, the cost and feature benefits of internet voice communications
must be sufficient to cause customers to switch from traditional phone service providers. We must devote substantial resources to educate
Ooma | FY2020 Form 10-K | 22
potential customers about the benefits of internet voice communications solutions, in general, and of our services in particular. If any or all of these
factors fail to occur, our business may be materially and adversely affected.
Our Ooma Residential product and services are being sold to individuals and families. With the growth of mobile technologies, many consumers
have chosen to eliminate their home telephone service. Our ability to continue growing our user base depends on our ability to convince our
customers and potential customers that our service is sufficiently useful and cost-effective, that it makes sense to maintain or establish home
telephone services with us. Our growth could slow and our financial condition could be adversely affected if the trend of eliminating home telephone
service continues or accelerates.
Our Ooma Smart Security products and services face significant competition in a market segment where the Ooma brand is relatively unknown,
and where there are several established large providers, such as SimpliSafe and ADT, as well as new market entrants with significantly greater
resources than ours, such as Google and its Nest Secure home security system and service. If we fail to create sufficient recognition of the Ooma
brand in the smart security market, fail to provide features or benefits in our Smart Security products and services seen as desirable by consumers,
or fail to convince consumers of the relative benefits of our Smart Security products and services when compared to those of our competitors, our
products and services could fail to achieve market acceptance and therefore not generate significant increases to our revenue.
Our mobile platform, available to any consumer with a Wi-Fi or cellular data connected mobile device, operates in a market that is fragmented
and where it is difficult to gain consumer awareness. Many of our competitors in this market have been able to establish a significant user base and
reputation in the market, which may make it more difficult for our products to be adopted. Furthermore, as new mobile devices are released, we may
encounter difficulties supporting these devices and services, and we may need to devote significant resources to the creation, support, and
maintenance of our mobile applications. Additionally, our competitors may allocate additional resources to marketing and promotion of their products,
making it even more difficult to be noticed. It is also unclear how the adoption of “over-the-top” based communications will continue to grow. If the
number of consumers using “over-the-top” based communications stagnates or declines, such movement may result in an intensified competition for
consumers in this space.
If we experience excessive fraudulent activity or cannot meet evolving credit card association merchant standards, we could incur
substantial costs and lose the right to accept credit cards for payment, which could cause our customer base to decline significantly.
Nearly all of our customers authorize us to bill their credit card accounts directly for service fees that we charge. If people pay for our services
with stolen credit cards, we could incur substantial third-party vendor costs for which we may not be reimbursed. Further, our customers provide us
with credit card billing information online or over the phone, and we do not review the physical credit cards used in these transactions, which
increases our risk of exposure to fraudulent activity. We also incur charges, which we refer to as chargebacks, from the credit card companies’
claims that the customer did not authorize the credit card transaction to purchase our service, something we have experienced in the past. If the
number of unauthorized credit card transactions becomes excessive, we could be assessed substantial fines for excess chargebacks and we could
lose the right to accept credit cards for payment. We have also been affected by the credit card breaches at various retail stores, which have caused
millions of consumers to cancel credit cards as a result of the breach. We have found that some consumers do not renew their services after a card
cancellation, which can have a material negative impact on our revenue. In addition, credit card issuers may change merchant standards, including
data protection and documentation standards, required to utilize their services from time to time.
We are currently not in compliance with all of the applicable technical requirements of the Payment Card Industry Data Security Standard, or
PCI, but we are working to become fully compliant as soon as is practicable. If we fail to become compliant or maintain compliance with current
merchant standards, such as PCI, or fail to meet new standards, the credit card associations may fine us or, while unusual, may impose certain
restrictions on our ability to accept credit cards or terminate our agreements with them, rendering us unable to accept credit cards as payment for
our services. Our services have been in the past, and may also be in the future, subject to fraudulent or abusive usage in violation of applicable law
or our acceptable use policies, including but not limited to revenue share fraud, domestic traffic pumping, subscription fraud, premium text message
scams, and other fraudulent schemes, any of which could result in our incurring substantial costs for the completion of calls. Although our customers
are required to set passwords and Personal Identification Numbers, or PINs, to protect their accounts and may configure in which destinations
international calling is enabled from their extensions, third parties have accessed and used our customers’ accounts and extensions through
fraudulent means in the past, and they may do so in the future, which also could result in substantial call completion and other costs for us. In
addition, third parties may have attempted in the past, and may attempt in the future, to fraudulently induce domestic and international employees or
consultants into disclosing customer credentials and other account information. Communications fraud can result in unauthorized access to
customer accounts and customer data, unauthorized use of customers’ services, and charges to customers for fraudulent usage and expenses we
must pay to
Ooma | FY2020 Form 10-K | 23
carriers. We may be required to pay for these charges and expenses with no reimbursement from the customer, and our reputation may be harmed
if our services are subject to fraudulent usage.
Although we implement multiple fraud prevention and detection controls, we cannot assure you that these controls will be adequate to protect
against fraud. Substantial losses due to fraud or our inability to accept credit card payments, which could cause our paid customer base to
significantly decrease, could have a material adverse effect on our results of operations, financial condition and ability to grow our business.
Accusations of infringement of third-party intellectual property rights could materially and adversely affect our business.
There has been substantial litigation in the areas in which we operate regarding intellectual property rights. In the past, we have been sued by
third parties claiming infringement of their intellectual property rights and we may be sued for infringement from time to time in the future. In the past,
we have settled infringement litigation brought against us; however, we cannot assure you that we will be able to settle any future claims or, if we are
able to settle any such claims, that the settlement will be on terms favorable to us. Our broad range of technology may increase the likelihood that
third parties will claim that we infringe their intellectual property rights.
We have in the past received, and may in the future receive, notices of claims of infringement, misappropriation or misuse of other parties’
proprietary rights, such as the Deep Green Wireless Litigation described in Note 11: Commitments and Contingencies in the accompanying notes to
our consolidated financial statements. Notwithstanding their merits, accusations and lawsuits like these often require significant time and expense to
defend, may negatively affect customer relationships, may divert management’s attention away from other aspects of our operations and, upon
resolution, may have a material adverse effect on our business, results of operations, financial condition and cash flows.
Certain technology necessary for us to provide our services may, in fact, be patented by other parties either now or in the future. If such
technology were validly patented by another person, we would have to negotiate a license for the use of that technology. We may not be able to
negotiate such a license at a price that is acceptable to us or at all. The existence of such a patent, or our inability to negotiate a license for any such
technology on acceptable terms, could force us to cease using the technology and cease offering products and services incorporating the
technology, which could materially and adversely affect our business and results of operations. If we were found to be infringing on the intellectual
property rights of any third party, we could be subject to liability for such infringement, which could be material. We could also be prohibited from
using or selling certain products or services, prohibited from using certain processes, or required to redesign certain products or services, each of
which could have a material adverse effect on our business and results of operations.
These and other outcomes may:
•
•
•
•
•
•
•
•
•
•
result in the loss of a substantial number of existing customers or prohibit the acquisition of new customers;
cause us to pay license fees for intellectual property we are deemed to have infringed;
cause us to incur costs and devote valuable technical resources to redesigning our services;
cause our cost of goods sold to increase;
cause us to accelerate expenditures to preserve existing revenue;
cause existing or new vendors to require prepayments or letters of credit;
materially and adversely affect our brand in the marketplace and cause a substantial loss of goodwill;
cause us to change our business methods or services;
require us to cease certain business operations or offering certain products, services or features; and
lead to our bankruptcy or liquidation.
Ooma | FY2020 Form 10-K | 24
Our limited ability to protect our intellectual property rights could materially and adversely affect our business.
We rely, in part, on patent, trademark, copyright and trade secret law to protect our intellectual property in the U.S. and abroad. We cannot
assure you that the particular forms of intellectual property protection we seek, including business decisions about when to file patents and when to
maintain trade secrets, will be adequate to protect our business. We seek to protect our technology, software, documentation and other information
under trade secret and copyright law, which afford only limited protection. For example, we typically enter into confidentiality agreements with our
employees, consultants, third-party contractors, customers and vendors in an effort to control access to use and distribution of our technology,
software, documentation and other information. These agreements may not effectively prevent unauthorized use or disclosure of confidential
information and may not provide an adequate remedy in the event of such unauthorized use or disclosure, and it may be possible for a third party to
legally reverse engineer, copy or otherwise obtain and use our technology without authorization. In addition, improper disclosure of trade secret
information by our current or former employees, consultants, third-party contractors, customers or vendors to the public or others who could make
use of the trade secret information would likely preclude that information from being protected as a trade secret.
We also rely, in part, on patent law to protect our intellectual property in the U.S. and internationally. We cannot predict whether our pending
patent applications will result in issued patents or whether any issued patents will effectively protect our intellectual property. Even if a pending
patent application results in an issued patent, the patent may be circumvented or its validity may be challenged in various proceedings in
U.S. District Court, before the U.S. Patent and Trademark Office or before their foreign equivalents, such as reexamination, which may require legal
representation and involve substantial costs and diversion of management time and resources. In addition, we cannot assure you that every
significant feature of our solutions is protected by our patents, or that we will mark our products with any or all patents they embody. As a result, we
may be prevented from seeking damages in whole or in part for infringement of our patents.
The unlicensed use of our brand, including domain names, by third parties could harm our reputation, cause confusion among our customers
and impair our ability to market our products and services. To that end, we have registered numerous trademarks and service marks, have applied
for registration of additional trademarks and service marks and have acquired a number of domain names in and outside the U.S. to establish and
protect our brand names as part of our intellectual property strategy. If our applications receive objections or are successfully opposed by third
parties, it will be difficult for us to prevent third parties from using our brand without our permission. Moreover, successful opposition to our
applications might encourage third parties to make additional oppositions or commence trademark infringement proceedings against us, which could
be costly and time consuming to defend against. There have been in the past, and may be in the future, instances where third parties have used our
trade names, or have adopted confusingly similar trade names to ours. If we are not successful in protecting our trademarks, our trademark rights
may be diluted and subject to challenge or invalidation, which could materially and adversely affect our brand.
Despite our efforts to implement our intellectual property strategy, we may not be able to protect or enforce our proprietary rights in the U.S. or
internationally (where effective intellectual property protection may be unavailable or limited). For example, we have entered into agreements
containing confidentiality and invention assignment provisions in connection with the outsourcing of certain software development, quality assurance
and development activities to third-party contractors in a number of international locations. We have also entered into an agreement containing a
confidentiality provision with a third-party contractor located in the Philippines, where we have outsourced a significant portion of our customer
support function. Such agreements may not adequately protect our proprietary rights in the applicable jurisdictions and foreign countries, as their
respective laws may not protect proprietary rights to the same extent as the laws of the U.S. In addition, our competitors may independently develop
technologies similar or superior to our technology, duplicate our technology in a manner that does not infringe our intellectual property rights or
design around any of our patents. Furthermore, detecting and policing unauthorized use of our intellectual property is difficult and resource-intensive.
Moreover, litigation may be necessary in the future to enforce our intellectual property rights, to determine the validity and scope of the proprietary
rights of others, or to defend against claims of infringement or invalidity. Such litigation, whether successful or not, could result in substantial costs
and diversion of management time and resources and could have a material adverse effect on our business, financial condition and results of
operations.
We license technology from third parties we do not control and cannot be assured of retaining such licenses.
We rely upon certain technology, including hardware and software, licensed from third parties. These licenses are typically offered on standard
commercial terms made generally available by the companies providing the licenses. There can be no assurance that the technology licensed by us
will continue to provide competitive features and functionality or that the licenses for technology currently utilized by us or other technology which we
may seek to license in the future, will be available to us on commercially reasonable terms or at all. The loss of, or inability to maintain, existing
licenses could result in shipment delays or reductions until equivalent technology or suitable alternative products are developed, identified, licensed
and integrated, and could harm our business.
Ooma | FY2020 Form 10-K | 25
Potential problems with our information systems could interfere with our business and operations.
We rely on our information systems and those of third parties for processing customer orders, distribution of our services, billing our customers,
processing credit card transactions, customer relationship management, supporting financial planning and analysis, accounting functions and
financial statement preparation and otherwise running our business. Information systems may experience interruptions, including interruptions of
related services from third-party providers, which may be beyond our control. Such business interruptions could cause us to fail to meet customer
requirements. All information systems, both internal and external, are potentially vulnerable to damage or interruption from a variety of sources,
including without limitation, computer viruses, security breaches, energy blackouts, natural disasters, terrorism, war, telecommunication failures and
employee or other theft, as well as third-party provider failures. Any disruption in our information systems and those of the third parties upon which
we rely could have a significant impact on our business.
We may implement enhanced information systems in the future to meet the demands resulting from our growth and to provide additional
capabilities and functionality. The implementation of new systems and enhancements is frequently disruptive to the underlying business of an
enterprise, and can be time-consuming and expensive, increase management responsibilities and divert management attention. Any disruptions
relating to our systems enhancements or any problems with the implementation, particularly any disruptions impacting our operations or our ability to
accurately report our financial performance on a timely basis during the implementation period, could materially and adversely affect our business.
Even if we do not encounter these material and adverse effects, the implementation of these enhancements may be much costlier than we
anticipated. If we are unable to successfully implement the information systems enhancements as planned, our financial position, results of
operations and cash flows could be negatively impacted.
Our use of open source technology could impose limitations on our ability to commercialize our services.
We use open source software in our platforms on which our services operate. There is a risk that the owners of the copyrights in such software
may claim that such licenses impose unanticipated conditions or restrictions on our ability to market or provide our services. If such owners prevail in
such claim, we could be required to make the source code for our proprietary software (which contains our valuable trade secrets) generally
available to third parties, including competitors, at no cost, to seek licenses from third parties in order to continue offering our services, to re-engineer
our technology, or to discontinue offering our services in the event re-engineering cannot be accomplished on a timely basis or at all, any of which
could cause us to discontinue our services, harm our reputation, result in customer losses or claims, increase our costs or otherwise materially and
adversely affect our business and results of operations. If a copyright holder of such open source software were to allege we had not complied with
the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and
could be subject to significant damages, enjoined from the sale of our solutions that contained the open source software and required to comply with
the foregoing conditions, which could disrupt the distribution and sale of some of our solutions.
We depend largely on the continued services of our senior management and other key employees, the loss of any of whom could
adversely affect our business, results of operations and financial condition.
Our future performance depends on the continued services and contributions of our senior management and other key employees to execute
on our business plan, and to identify and pursue opportunities and services innovations. The loss of services of senior management or other key
employees could significantly delay or prevent the achievement of our development and strategic objectives. All of our executive officers and senior
management may terminate employment with us at any time with no advance notice. The replacement of any of these senior management
personnel would likely involve significant time and costs, and such loss could significantly delay or prevent the achievement of our business
objectives. Many members of our senior management have been our employees for many years and therefore have significant experience and
understanding of our business that would be difficult to replace. Our inability to attract and retain the necessary personnel could adversely affect our
business, financial condition or results of business. We do not maintain key person insurance for any of our personnel.
Ooma | FY2020 Form 10-K | 26
If we are unable to hire, retain and motivate qualified personnel, our business will suffer.
Our future success depends, in part, on our continued ability to attract and retain highly skilled personnel. We believe there is, and will continue
to be, intense competition for highly skilled technical and other personnel with experience in our industry in the San Francisco Bay Area, where our
headquarters is located, and in other locations, such as Vancouver, Canada and Boca Raton, Florida where we maintain offices. We must provide
competitive compensation packages and a high-quality work environment to hire, retain and motivate employees. If we are unable to retain and
motivate our existing employees or attract qualified personnel to fill key positions, we may be unable to manage our business effectively, including
the development, marketing and sale of existing and new services, which could have a material adverse effect on our business, financial condition,
and results of operations. To the extent we hire personnel from competitors, we may be subject to allegations such personnel have been improperly
solicited or divulged proprietary or other confidential information.
We are expanding our international operations, which may expose us to significant risks.
To date, we have not generated significant revenue from outside of the U.S. and Canada, but we have expanded operations outside North
America as we ramp up to provide services in certain countries internationally. For example, our subsidiary Voxter Communications, Inc. (“Voxter”)
operates in Canada, and its customers have operations in Canada and certain other countries outside of the U.S. The future success of our business
will depend, in part, on our ability to expand our operations and customer base worldwide. Operating in international markets requires significant
resources and management attention and will subject us to regulatory, economic and political risks different from those in the U.S. Because of our
limited experience with international operations and developing and managing sales and distribution channels in international markets, our
international expansion efforts may not be successful. In addition, we will face risks in doing business internationally that could materially and
adversely affect our business, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to comply with differing technical and environmental standards, data privacy and telecommunications regulations, and
certification requirements outside the U.S.;
potential contractual and other liability to our business partners if we fail to meet their aggressive expansion schedules in new locations;
difficulties and costs associated with staffing and managing foreign operations;
potentially greater difficulty collecting accounts receivable and longer payment cycles;
the need to adapt and localize our services for specific countries;
the need to offer customer care in various native languages;
reliance on third parties over which we have limited control, including international resellers, for marketing and reselling our services;
availability of reliable broadband connectivity and wide area networks in targeted areas for expansion;
lower levels of adoption of credit or debit card usage for internet related purchases by foreign customers and compliance with various
foreign regulations related to credit or debit card processing and data privacy requirements;
difficulties in understanding and complying with local laws, regulations, and customs in foreign jurisdictions;
export controls and trade and economic sanctions administered by the Department of Commerce Bureau of Industry and Security and
the Treasury Department’s Office of Foreign Assets Control;
tariffs and other non-tariff barriers, such as quotas and local content rules;
tariffs imposed by the U.S. on goods from other countries and tariffs imposed by other countries on U.S. goods, including the tariffs
recently implemented and additional tariffs that have been proposed by the U.S. government on various imports from China, Canada,
Mexico and the EU, and by the governments of these jurisdictions on certain U.S. goods, and any other possible tariffs that may be
imposed on services such as ours, the scope and duration of which, if implemented, remain uncertain;
compliance with various anti-bribery and anti-corruption laws such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the
FCPA;
limited protection for intellectual property rights in some countries;
adverse tax consequences;
fluctuations in currency exchange rates, which could increase the price of our services outside of the U.S., increase the expenses of our
international operations, including expenses related to foreign contractors, and expose us to foreign currency exchange rate risk;
exchange control regulations, which might restrict or prohibit our conversion of other currencies into U.S. Dollars;
restrictions on the transfer of funds;
Ooma | FY2020 Form 10-K | 27
•
•
•
public health crises, such as the COVID-19 pandemic, could cause a slowdown in the global economy and demand for our products and
services and limit the ability of our field sales teams to conduct sales efforts;
deterioration of political relations between the U.S. and other countries; and
political or social unrest or economic instability in a specific country or region, which could have an adverse impact on our third-party
software development and quality assurance operations there.
Our failure to manage any of these risks successfully could harm our future international operations and our overall business.
Catastrophic events or political instability could disrupt and cause harm to our business, operating results, or financial condition.
Our corporate headquarters, offices and one of our data center facilities are located in Northern California, a region that frequently experiences
earthquakes. We also maintain an office in Boca Raton, Florida, an area that has been prone to severe weather events, such as hurricanes. In
addition, our third-party contract manufacturer facilities in China and our sole third-party customer service and support facility in the Philippines are
located on the Pacific Rim near known earthquake fault zones that are vulnerable to damage from earthquakes, tsunamis, volcanic eruptions and/or
typhoons. We and our contractors are also vulnerable to other types of disasters, such as power loss, fire, floods, pandemics (including the ongoing
COVID-19 pandemic, which has disrupted and is expected to continue to disrupt our operations, including our sales activities), cyber-attack, war,
political unrest and terrorist attacks and similar events that are beyond our control. If any disasters were to occur, our ability to operate our business
could be seriously impaired, and we may endure system interruptions, reputational harm, loss of intellectual property, delays in our services
development, lengthy interruptions in our services, breaches of data security and loss of critical data, all of which could harm our future results of
operations. Such events may also reduce demand for our products and services because of reduced global or national economic activity and can
cause disruptions and extreme volatility in global financial markets, increase rates of default and bankruptcy, and impact levels of business and
consumer spending. In addition, we do not carry earthquake insurance and we may not have adequate insurance to cover our losses resulting from
other disasters or other similar significant business interruptions. Any significant losses not recoverable under our insurance policies could seriously
impair our business and financial condition.
Changes in effective tax rates, or adverse outcomes resulting from examination of our income or other tax returns, could adversely affect
our results of operations and financial condition.
Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
•
•
•
•
•
•
•
•
changes in the valuation of our deferred tax assets and liabilities;
expiration of, or lapses in, the research and development tax credit laws;
expiration or non-utilization of net operating loss carryforwards;
tax effects of share-based compensation;
certain non-deductible expenses as a result of acquisitions;
expansion into new jurisdictions;
potential challenges to and costs related to implementation and ongoing operation of our intercompany arrangements; and
changes in tax laws and regulations and accounting principles, or interpretations or applications thereof.
As we expand our operations outside the U.S. and Canada, certain changes to U.S. tax laws, including limitations on the ability to defer U.S.
taxation on earnings outside of the U.S. until those earnings are repatriated to the U.S. could affect the tax treatment of our foreign earnings. Any
changes in our effective tax rate could adversely affect our results of operations.
We may be unable to use some or all of our net operating loss carryforwards, which could materially and adversely affect our reported
financial condition and results of operations.
As of January 31, 2020, we had federal and state net operating loss carryforwards, or NOLs, of $121.5 million and $70.6 million, respectively,
available to offset future taxable income, which will begin to expire in 2030 if not utilized. We also have federal and research and development tax
credit carryforwards that will begin to expire in 2030 and California research and development tax credit carryforwards with no expiration date.
Realization of these net operating loss and research tax credit carryforwards depends on future income, and there is a risk that our existing
carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could materially and adversely affect our results of
operations. No deferred tax assets have been recognized on our balance sheet related to these NOLs, as they are fully reserved by a valuation
allowance. If we have previously had, or have in the future, one or more Section 382 “ownership changes”, or if we do not generate sufficient taxable
income, we may not be able to utilize a material portion of
Ooma | FY2020 Form 10-K | 28
our NOLs, even if we achieve profitability. If we are limited in our ability to use our NOLs in future years in which we have taxable income, we will pay
more taxes than if we were able to fully utilize our NOLs. This could materially and adversely affect our results of operations.
Risks Related to Federal, State and International Regulation
Our services are subject to regulation and future legislative or regulatory actions could adversely affect our business and expose us to
liability.
Federal Regulation. Our business is regulated by the FCC. As a communication services provider, we are subject to FCC regulations relating to
privacy, disability access, law enforcement access, porting of numbers, revenue reporting, Federal USF contributions and other regulatory
assessments, E‑911, and other matters. If we do not comply with FCC rules and regulations, we could be subject to FCC enforcement actions,
substantial fines, loss of licenses, and possibly restrictions on our ability to operate or offer certain of our services. Any enforcement action by the
FCC, which may include a public process, would hurt our reputation in the industry, possibly impair our ability to sell our services to customers and
could have a materially adverse impact on our revenue.
State Regulation. We are also subject to state consumer protection laws, as well as U.S. state, municipal and local sales, use, excise, utility
user and ad valorem taxes, fees or surcharges. The imposition of such regulatory obligations or the imposition of additional taxes on our services
could increase our cost of doing business and limit our growth.
International Regulation. As we expand internationally, we may be subject to telecommunications, consumer protection, data privacy and other
laws and regulations in the foreign countries where we offer our services. For example, we are subject to regulation in Canada by the CRTC, subject
to Canadian federal privacy laws and provincial consumer protection legislation. Our international operations are potentially subject to country-
specific governmental regulation and related actions that may increase our costs and prevent us from offering or providing our products and services
in certain countries. Certain of our services may be used by customers located in countries where VoIP and other forms of IP communications may
be illegal or require special licensing. In countries where local laws and regulations prohibit (or come to prohibit) the use of our products, users may
continue to use our products and services, which could subject us to costly penalties or governmental action adverse to our business and damaging
to our brand and reputation, our international expansion efforts, or our business and operating results.
The adoption of additional 911 requirements by the FCC could increase our costs that could make our service more expensive, decrease
our profit margins, or both.
The FCC recently adopted additional 911 requirements for interconnected VoIP providers, providers of enterprise telephone services, non-
interconnected VoIP providers and texting providers. We may or may not be able to comply with these obligations. At present, we have no means to
automatically identify the physical location of our customers. These changes to the FCC’s VoIP E‑911 rules may adversely affect our ability to deliver
our service to new and existing customers in all geographic regions or to nomadic customers who move to a location where emergency calling
services compliant with the FCC’s mandates are unavailable. Our compliance with the FCC’s VoIP E-911 order and related costs puts us at a
competitive disadvantage to VoIP service providers who are either not subject to the requirements or have chosen not to comply with the FCC’s
mandates. We cannot guarantee emergency calling service consistent with the VoIP E‑911 order will be available to all of our customers, especially
those accessing our services on a mobile device or from outside of the U.S. The FCC’s current E-911 requirements and changes to those
requirements, including their impact on our customers due to service price increases or other factors could have a material adverse effect on our
business, financial condition or operating results.
If we cannot comply with the FCC’s rules imposing call signaling requirements on VoIP providers like us, we may be subject to fines,
cease and desist orders, or other penalties.
The FCC’s rules regarding the system of compensation for various types of traffic require, among other things, interconnected VoIP providers
like us, who originate interstate or intrastate traffic destined for the PSTN, to transmit the telephone number associated with the calling party to the
next provider in the call path. Intermediate providers must pass unaltered calling party number or charge number signaling information they receive
from other providers to subsequent providers in the call path. In addition, on December 31, 2019, President Trump signed into law the Pallone-
Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act), which requires the FCC to implement regulations for
interconnected VoIP providers to implement the “STIR/SHAKEN” framework to authenticate caller-ID information. To the extent that we pass traffic
that does not have appropriate calling party number or charge number information, we could be subject to fines, cease and desist orders, or other
penalties. Additionally, as a VoIP provider we rely on the FCC to design rules that do not disadvantage our service relative to those of incumbent
local exchange carriers and competitive local exchange carriers. Should the FCC decide to do so, it could result in an inferior user experience for
Ooma’s service, which may negatively impact our business.
Ooma | FY2020 Form 10-K | 29
We may not be able to comply with FCC rules governing completion of calls to rural areas and related reporting requirements.
In April 2018, the FCC adopted rules governing the completion of calls to rural areas and related reporting requirements. The new rules retain
the existing rural call completion data recording and retention requirements on VoIP providers like us, but dropped the related reporting
requirements. These new rules require us to monitor the performance of our intermediate providers – telecom companies we use to help complete
telephone calls to rural areas and take steps to prevent rural call completion problems that may be caused by our intermediate providers, such as
persistent low answer or completion rates, unexplained anomalies in performance, or repeated complaints to the FCC. Under certain circumstances,
if our routing choices, meaning the intermediate providers we chose to help us complete calls to rural areas, result in lower quality service, we may
be held liable for the actions taken by our intermediate providers. If we cannot comply with these rules, we could be subject to investigation and
enforcement action and could be exposed to substantial liability. The FCC also has increased enforcement activity related to completion of calls to
rural customers, and we could be subject to substantial fines and to conduct requirements that could increase our costs if we are the subject of an
enforcement proceeding and cannot demonstrate calls from our customers to rural customers are completed at a satisfactory rate.
Failure to comply with communications and telemarketing laws could result in significant fines or place significant restrictions on our
business.
We rely on a variety of marketing techniques in connection with our sales efforts, including telemarketing and email marketing campaigns. We
also record certain telephone calls between our customers or potential customers and our sales and service representatives for training and quality
assurance purposes. These activities are subject to a variety of state and federal laws such as the Telephone Consumer Protection Act of 1991 (also
known as the Federal Do-Not-Call law, or the TCPA), the Telemarketing Sales Rule, the Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003 (also known as the CAN-SPAM Act) and various U.S. state laws regarding telemarketing and telephone call recording. These
laws are subject to varying interpretations by courts and governmental authorities and often require subjective interpretation, making it difficult to
predict their application and therefore making our compliance efforts more challenging. We cannot be certain our efforts to comply with these laws,
rules and regulations will be successful, or, if they are successful, that the cost of such compliance will not be material to our business. Changes to
these or similar laws, or to their application or interpretation, or new laws, rules and regulations governing our communication and marketing
activities could adversely affect our business. In the event that any of these laws, rules or regulations significantly restricts our business, we may not
be able to develop adequate alternative communication and marketing strategies. Further, non-compliance with these laws, rules and regulations
carries significant financial penalties and the risk of class action litigation, which would adversely affect our financial performance and significantly
harm our reputation and our business.
The FCC has continued to increase regulation of interconnected VoIP services and may at any time determine certain VoIP services are
telecommunications services subject to traditional common carrier regulation.
The FCC is considering, in various proceedings, issues arising from the transition from traditional copper networks to IP networks. The FCC is
also considering whether interconnected VoIP services should be treated as telecommunications services, which could subject interconnected VoIP
services to additional common carrier regulation. The FCC’s efforts may result in additional regulation of IP network and service providers, which
may negatively affect our business.
Reform of federal and state Universal Service Fund programs could increase the cost of our service to our customers, diminishing or
eliminating our pricing advantage.
The FCC and a number of states are considering reform or other modifications to Universal Service Fund programs, including the manner in
which companies, like us, contribute to the federal USF program, and whether non-interconnected VoIP providers, texting providers and broadband
providers, among others, should contribute to the USF. If the FCC or certain states adopt new contribution mechanisms or otherwise modify
contribution obligations that increase our contribution burden, we will either need to raise the amount we currently collect from our customers to
cover this obligation or absorb the costs, which would reduce our profit margins. A number of states require us to contribute funds to state USF
programs, while others are actively considering extending their programs to include the services we provide. We currently charge our customers
certain fees and other surcharges, which may result in our services becoming less competitive as compared to those provided by others. If our
pricing advantage is diminished or eliminated, or if we are required to absorb these increased costs and not pass-through to our customers, our
results of operations would be negatively impacted.
Ooma | FY2020 Form 10-K | 30
Our products must comply with industry standards, FCC regulations, state, local, country‑‑specific and international regulations, and
changes may require us to modify existing products and/or services.
In addition to reliability and quality standards, the market acceptance of telephony over broadband IP networks is dependent upon the adoption
of industry standards so that products from multiple manufacturers are able to communicate with each other. Our unique hybrid SaaS connectivity
platforms rely on communication standards such as SIP, SRTP and network standards such as TCP/IP and UDP to interoperate with other vendors’
equipment. There is currently a lack of agreement among industry leaders about which standard should be used for a particular application and
about the definition of the standards themselves. We also must comply with certain rules and regulations of the FCC regarding electromagnetic
radiation and safety standards established by Underwriters Laboratories, as well as similar regulations and standards applicable in other countries.
As standards evolve, we may be required to modify our existing products or develop and support new versions of our products. We must comply with
certain federal, state and local requirements regarding how we interact with our customers, including marketing practices, consumer protection,
privacy, and billing issues, the provision of 9-1-1 emergency service and the quality of service we provide to our customers. The failure of our
products and services to comply, or delays in compliance, with various existing and evolving standards could delay or interrupt volume production of
our VoIP telephony products, subject us to fines or other imposed penalties, or harm the perception and adoption rates of our service, any of which
would have a material adverse effect on our business, financial condition or operating results.
We process, store, and use personal information and other data, which subjects us and our customers to a variety of evolving industry
standards, contractual obligations and other legal rules related to privacy, which may increase our costs, decrease adoption and use of
our products and services, and expose us to liability.
There are numerous U.S. federal, state and local, and foreign laws and regulations, as well as contractual obligations and industry standards,
that provide for certain obligations and restrictions with respect to data privacy and security, and the collection, storage, retention, protection, use,
processing, transmission, sharing, disclosure, and protection of personal information and other customer data. The scope of these obligations and
restrictions is changing, subject to differing interpretations, and may be inconsistent among countries or conflict with other rules, and their status
remains uncertain.
For example, in the U.S. and in other jurisdictions, a variety of regulations are currently being proposed that would increase restrictions on
online service providers in the field of data privacy and security, and we believe that the adoption of such increasingly restrictive regulation is likely.
In Canada, penalties for non-compliance with certain Canadian anti-spam legislation are considerable, including administrative monetary penalties of
up to $10 million and a private right of action. Within the EU, strict laws already apply in connection with the collection, storage, retention, use,
processing, transmission, sharing, disclosure and protection of personal information, and other customer data. Data protection regulators within the
EU and other jurisdictions have the power to fine non-compliant organizations significant amounts and seek injunctive relief, including the cessation
of certain data processing activities. Furthermore, the California Consumer Privacy Act became effective on January 1, 2020 and regulates the
processing of personal data, which could result in civil penalties for violations.
The EU’s General Data Protection Regulation, or GDPR, became effective in May 2018 and comprehensively regulates the processing of
personal data of any individual residing in the EU. The GDPR provides for significant penalties in the event of violations, including fines of up to 4%
of the violating company’s worldwide revenue. We have taken administrative, contractual and other measures designed to achieve compliance with
the GDPR, but we cannot guarantee these measures are sufficient.
Obligations and restrictions imposed by current and future applicable laws, regulations, contracts and industry standards may increase the cost
of our operations, affect our ability to provide all the current features of our business, residential and mobile products and services and our
customers’ ability to use our products and services, and could require us to modify the features and functionality of our products and services. Such
obligations and restrictions may limit our ability to collect, store, process, use, transmit and share data, and to allow our customers to collect, store,
retain, protect, use, process, transmit, share and disclose data with others through our products and services. Compliance with such obligations and
restrictions could increase the cost of our operations. Failure to comply with obligations and restrictions related to data privacy and security could
subject us to lawsuits, fines, criminal penalties, statutory damages, consent decrees, injunctions, adverse publicity and other losses that could harm
our business.
Our customers can use our services to store contact and other personal or identifying information, and to process, transmit, receive, store and
retrieve a variety of communications and messages, including, for our Ooma Business customers, information about their own customers and other
contacts. In addition, customers may use our services to transmit and store protected health information, or PHI, that is protected under the Health
Insurance Portability and Accountability Act, or HIPAA. Noncompliance with laws and regulations relating to privacy such as HIPAA, as amended,
and the HIPAA regulations, may lead to significant fines, penalties or liabilities. Our actual compliance, our customers’
Ooma | FY2020 Form 10-K | 31
perception of our compliance, costs of compliance with such regulations and customer concerns regarding their own compliance obligations
(whether factual or in error) may limit the use and adoption of our service and reduce overall demand. Furthermore, privacy concerns, including the
inability or impracticality of providing advance notice to customers of privacy issues related to the use of our services, may cause our customers’
customers to resist providing the personal data necessary to allow our customers to use our services effectively. Even the perception of privacy
concerns, whether or not valid, may inhibit market adoption of our service in certain industries.
In addition to government activity, privacy advocacy groups and industry groups have adopted and are considering the adoption of various self-
regulatory standards and codes of conduct that may place additional burdens on us and our customers, which may further reduce demand for our
services and harm our business.
While we try to comply with all applicable data protection laws, regulations, standards, and codes of conduct, as well as our own posted privacy
policies and contractual commitments to the extent possible, any failure by us to protect our users’ privacy and data, including as a result of our
systems being compromised by hacking or other malicious or surreptitious activity, could result in a loss of user confidence in our services and
ultimately in a loss of users, which could materially and adversely affect our business. Our customers may also accidentally disclose their
passwords, store them on a mobile device that is lost or stolen, or otherwise fall prey to attacks outside our system, creating the perception that our
systems are not secure against third-party access. If our third-party contractors or vendors violate applicable laws or our policies, such violations
may also put our customers’ information at risk and could in turn have a material and adverse effect on our business.
Use or delivery of our services may become subject to new or increased regulatory requirements, taxes or fees.
The increasing growth and popularity of internet voice communications heighten the risk that governments will regulate or impose new or
increased fees or taxes on internet voice communications services. To the extent the use of our services continues to grow, regulators may be more
likely to seek to regulate or impose new or additional taxes, surcharges or fees on our services. Similarly, advances in technology, such as
improvements in locating the geographic origin of internet voice communications, could cause our services to become subject to additional
regulations, fees or taxes, or could require us to invest in or develop new technologies, which may be costly. In addition, as we continue to expand
our user base and offer more services, we may become subject to new regulations, taxes, surcharges or fees. Increased regulatory requirements,
taxes, surcharges or fees on internet voice communications services, which could be assessed by governments retroactively or prospectively, would
substantially increase our costs, and, as a result, our business would suffer. In addition, the tax status of our services could subject us to conflicting
taxation requirements and complexity with regard to the collection and remittance of applicable taxes. Any such additional taxes could harm our
results of operations.
We are subject to anti-corruption and anti-money laundering laws with respect to our operations and non-compliance with such laws can
subject us to criminal and/or civil liability and harm our business.
We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and
possibly other anti-bribery and anti‑money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly
and prohibit companies and their employees and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper
payments or benefits to recipients in the public or private sector. We use third-party representatives for product testing, customs, export, and import
matters outside of the U.S. As we increase our international sales and business, we may engage with business partners and third-party
intermediaries to sell our products and services abroad and to obtain necessary permits, licenses, and other regulatory approvals. We or our third-
party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities.
We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors,
partners, and agents, even if we do not explicitly authorize such activities.
Noncompliance with anti-corruption and anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions,
settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or
injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media
coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if
we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed. In
addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources, significant defense
costs and other professional fees. Enforcement actions and sanctions could further harm our business, results of operations, and financial condition.
Ooma | FY2020 Form 10-K | 32
We are subject to governmental export and import controls, economic embargoes and trade sanctions that could impair our ability to
expand our business to, and compete in, international markets and could subject us to liability if we are not in compliance with applicable
laws.
Our products and services are subject to export and import laws and regulations, including the U.S. Export Administration Regulations,
U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign
Assets Controls. U.S. export control laws and economic sanctions programs generally prohibit the export of certain products and services to
countries, governments and persons subject to U.S. economic embargoes and trade sanctions unless a license, approval, or other authorization is
obtained from the U.S. Government. Obtaining the necessary authorizations and licenses for a particular sale may be time-consuming, is not
guaranteed and may result in the delay or loss of sales opportunities. If we fail to comply with these laws and regulations, we and certain of our
employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, government
investigations, reputational harm, fines which may be imposed on us and responsible employees or managers, and, in extreme cases, the
incarceration of responsible employees or managers.
In addition, any changes in our products or services, or changes in applicable export, import, embargo and trade sanctions regulations, may
create delays in the introduction and sale of our products and services in international markets or, in some cases, prevent the export or import of our
products and services to certain countries, governments, or persons altogether. Any change in export, import, embargo, or trade sanctions
regulations, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by
such regulations, could also result in decreased use of our products and services, or in our decreased ability to export or sell our products and
services to existing or potential customers with international operations. Any decreased use of our products and services or limitation on our ability to
export or sell our products and services would likely adversely affect our business.
We may be subject to liabilities on past services for taxes, surcharges and fees.
We collect and remit state or municipal sales, use, excise, utility user and ad valorem taxes, fees, or surcharges on the charges to our
customers for our services or goods in only those jurisdictions where we believe we have a legal obligation to do so or for business reasons to
reduce risk. In addition, we have historically substantially complied with the collection of certain California sales/use taxes and financial contributions
to the California 9-1-1 system (the Emergency Telephone Users Surcharge) and federal USF. With limited exception, we believe we are generally
not subject to taxes, fees, or surcharges imposed by other state and municipal jurisdictions or that such taxes, fees, or surcharges do not apply to
our service. There is uncertainty as to what constitutes sufficient “in state presence” for a state or local municipality to levy taxes, fees and
surcharges for sales made over the internet. Taxing authorities have in the past, and likely will in the future, challenge our position on the lack of
enforceability of such taxes, fees and surcharges where we have no relevant presence, and audit our business and operations with respect to sales,
use, telecommunications and other taxes, which could result in increased tax liabilities for us or our customers, which could materially and adversely
affect our results of operations and our relationships with our customers. We have seen an increase in the number and frequency of such state and
local tax authority challenges, audits and related demands, which we are defending against vigorously. A complaint was filed by the County of Berks,
Pennsylvania on January 21, 2016 alleging that we are subject to their taxes, fees and surcharges and have failed to remit the required 911 charges.
In addition, on November 28, 2016, Ooma filed a complaint against the Oregon Department of Revenue contesting a tax assessment against the
Company for the Oregon Emergency Communications Tax, to which the Department of Revenue alleges we are subject. See Note 11:
Commitments and Contingencies of the accompanying notes of our consolidated financial statements.
Finally, the application of other indirect taxes (such as sales and use tax, value added tax, or VAT, goods and services tax, business tax, and
gross receipt tax) to e-commerce businesses, such as ours, is a complex and evolving area. In 2016, the U.S. federal government enacted
legislation indefinitely extending the moratorium on states and other local authorities imposing access or discriminatory taxes. This moratorium does
not prohibit federal, state, or local authorities from collecting taxes on our income or from collecting taxes due under existing tax rules. The
application of existing, new, or future laws, whether in the U.S. or internationally, could have adverse effects on our business, prospects, and results
of operations. There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax
requirements in the numerous markets in which we conduct or will conduct business.
Ooma | FY2020 Form 10-K | 33
Risks Related to Being a Public Company
If we fail to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report
our financial results in a timely manner, which may adversely affect investor confidence in our company and, as a result, the value of our
common stock.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-
Oxley Act, and the rules and regulations of the applicable listing standards of the New York Stock Exchange. Compliance with these rules and
regulations has increased and will continue to increase our legal and financial compliance costs, and has made and will continue to make some
activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly after we are no longer an
“emerging growth company.”
The Sarbanes-Oxley Act requires, among other things, that we make a formal assessment and provide an annual management report on the
effectiveness of our internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and
internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result,
management’s attention may be diverted from other business concerns, which could harm our business and results of operations.
Our control environment may not be sufficient to remediate or prevent future material weaknesses or significant deficiencies from occurring. A
control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met.
Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or
fraud will not occur or that all control issues and all instances of fraud will be detected. If we are unable to conclude that our internal control over
financial reporting is effective, or if we are required to restate our financial statements as a result of ineffective internal control over financial
reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common
stock to decline.
Our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial
reporting as of January 31, 2021, which is the date we are no longer an “emerging growth company,” as defined by the Jumpstart Our Business
Startups Act (“JOBS Act”); see below. At such time, our independent registered public accounting firm may issue a report that is adverse in the event
it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a
material weakness in the future.
Our actual operating results may differ significantly from our guidance.
From time to time, we plan to release earnings guidance in our quarterly earnings conference calls, quarterly earnings releases, or otherwise,
regarding our future performance that represents our management’s estimates as of the date of release. This guidance, which will include
forward‑looking statements, will be based on projections prepared by our management. Projections are based upon a number of assumptions and
estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of
which will change. We intend to state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are
changed but are not intended to imply that actual results could not fall outside of the suggested ranges. The principal reason that we release
guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. Accordingly, we do not accept any
responsibility for any projections or reports published by any such third parties.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance furnished by
us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is
realizable as of the date of release. Actual results may vary from our guidance and the variations may be material. In light of the foregoing, investors
are urged not to rely upon our guidance in making an investment decision regarding our common stock.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk
Factors” section in this report could result in the actual operating results being different from our guidance, and the differences may be adverse and
material.
Ooma | FY2020 Form 10-K | 34
We are an “emerging growth company,” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and are taking advantage of certain exemptions from various reporting
requirements that are applicable to public companies that are not “emerging growth companies,” including, but not limited to, not being required to
comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on
executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will
find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result,
there may be a less active trading market for our common stock, and our stock price may be more volatile and may decline.
We will cease to be an “emerging growth company” as of January 31, 2021.
Risks Related to Owning Our Common Stock
Sales of a substantial number of shares of our common stock in the public market, or the perception these sales might occur, could
cause our stock price to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception these sales might occur, could cause the
market price of our common stock to decline and could impair our ability to raise capital through the sale of additional equity securities. In addition,
we have registered shares of common stock which we may issue under our employee stock plans and they may be sold freely in the public market
upon issuance. We may issue our shares of common stock or securities convertible into our common stock from time to time in connection with a
financing, acquisition, and investments or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the
trading price of our common stock to decline.
If securities analysts do not publish or cease publishing research or reports about our business or if they publish negative evaluations of
our stock, the price of our stock could decline.
We expect that the trading price for our common stock will be affected by any research or reports that industry or financial analysts publish
about us or our business. If one or more of the analysts who elect to cover us downgrade their evaluations of our stock or provide more favorable
relative recommendations about our competitors, the price of our stock could decline. If one or more of these analysts cease coverage of our
company, our stock may lose visibility in the market, which in turn could cause its price to decline.
We have never paid cash dividends and do not anticipate paying any cash dividends on our common stock.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. If we do not pay cash dividends, you would
receive a return on your investment in our common stock only if the market price of our common stock increases before you sell your shares.
Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market
price of our stock.
Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws contain provisions that could delay or prevent a
change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate
actions. These provisions include:
•
•
•
•
•
•
•
providing for a classified board of directors with staggered, three-year terms;
authorizing the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding
shares to discourage a takeover attempt;
prohibiting cumulative voting in the election of directors;
providing that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a
quorum;
prohibiting stockholder action by written consent;
limiting the persons who may call special meetings of stockholders; and
requiring advance notification of stockholder nominations and proposals.
Ooma | FY2020 Form 10-K | 35
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more
difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In
addition, the provisions of Section 203 of the Delaware General Corporate Law govern us. These provisions may prohibit large stockholders, in
particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the
consent of our board of directors. These and other provisions in our amended and restated certificate of incorporation and our bylaws and under
Delaware law could discourage potential takeover attempts, reduce the price investors might be willing to pay in the future for shares of our common
stock and result in the market price of our common stock being lower than it would be without these provisions.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive
forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers or other employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive
forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty owed by any of our directors,
officers or other employees to us or our stockholders, any action asserting a claim against us arising pursuant to any provisions of the General
Corporation Law of the State of Delaware, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action
asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a
claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits
against us and our directors, officers and other employees. If a court were to find the choice of forum provision contained in our amended and
restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such
action in other jurisdictions.
Our stock price has been and will likely continue to be volatile and could fluctuate or decline, resulting in a substantial loss of your
investment.
Our stock price may fluctuate in response to a number of events and factors, such as quarterly operating results; changes in our financial
projections provided to the public or our failure to meet those projections; our operating and financial performance and prospects and the
performance of other similar companies; the public's reaction to our press releases, other public announcements and filings with the SEC; significant
transactions, or new features, products or services by us or our competitors; changes in financial estimates and recommendations by securities
analysts; failure of securities analysts to cover or track our common stock; media coverage of our business and financial performance; trends in our
industry; any significant change in our management; sales of common stock by us, our investors or members of our management team; and
changes in general market, economic and political conditions in the U.S. and global economies or financial markets.
The market price of our common stock could be subject to wide fluctuations in response to, among other things, the factors described in this
“Risk Factors” section or otherwise, and other factors beyond our control, such as fluctuations in the valuations of companies perceived by investors
to be comparable to us. In addition, the stock market in general, and the market prices for companies in our industry, have experienced volatility that
often has been unrelated to operating performance. These broad market and industry fluctuations may adversely affect the price of our stock,
regardless of our operating performance. In the past, many companies that have experienced volatility in their stock price have become subject to
securities class action litigation. We have been subject to this type of litigation in the past and may continue to be a target in the future. Securities
litigation against us has resulted and could result in substantial costs and has and would divert our management’s attention from other business
concerns, any of which could harm our business.
If we fail to meet expectations related to future growth, profitability, or other market expectations, our stock price may decline significantly, which
could have a material adverse impact on investor confidence and employee retention.
Ooma | FY2020 Form 10-K | 36
We were subject to a securities class action litigation in connection with our initial public offering and may be subject to similar securities
litigation in the future.
The Company, its directors, and certain officers were named as defendants in a consolidated securities class action. On May 30, 2019, the
parties filed with the Court a Stipulation of Settlement, and on October 18, 2019, the Court entered final approval of the settlement. As part of the
final settlement approval, the Court dismissed the class action lawsuit with prejudice and the plaintiff released all claims against the Company and all
other defendants relating to the allegations in the class action.
In the future, especially following periods of volatility in the market price of our shares, other purported class action or derivative complaints may
be filed against us. The outcome of the pending and potential future litigation is difficult to predict and quantify and the defense of such claims or
actions can be costly. In addition to diverting financial and management resources and general business disruption, we may suffer from adverse
publicity that could harm our brand or reputation, regardless of whether the allegations are valid or whether we are ultimately held liable. A judgment
or settlement that is not covered by or is significantly in excess of our insurance coverage for any claims, or our obligations to indemnify the
underwriters and the individual defendants, could materially and adversely affect our financial condition, results of operations and cash flows.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
Our corporate headquarters are located in Sunnyvale, California and consists of lease space aggregating approximately 33,400 square
feet. We lease additional office and warehouse space in the San Francisco Bay Area for various product development, operational and customer
support purposes. We also lease offices in several other locations throughout the U.S. as well as Vancouver, British Columbia.
In addition, we lease space from third-party data centers under co-location agreements in Northern California, Texas and Virginia that support
our cloud infrastructure.
We believe our existing facilities are adequate to meet our current requirements. We believe that we will be able to obtain additional space at
other locations at commercially reasonable terms to support our continuing expansion.
ITEM 3. Legal Proceedings
For a discussion of legal proceedings, see Note 11: Commitments and Contingencies – Legal Proceedings in the notes to our consolidated
financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K, which information is incorporated
herein by reference.
ITEM 4. Mine Safety Disclosures
Not applicable.
Ooma | FY2020 Form 10-K | 37
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock. Our common stock has been trading on the NYSE under the symbol “OOMA” since July 17, 2015.
Holders of Record. As of January 31, 2020, there were approximately 78 holders of record of our common stock. Because many of our shares of
common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.
Dividend Policy. We have not declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our
capital stock.
Stock Price Performance Graph. The following graph compares the cumulative total return on our common stock with that of the NASDAQ
Telecommunications Index and the NYSE. The period shown commences on July 17, 2015, our initial public offering date, and ends on January 31,
2020, the end of our last fiscal year. The graph assumes $100 was invested at the close of market on July 17, 2015 in our common stock, the
NASDAQ Telecommunications Index and the NYSE. The stock price performance on the following graph is not intended to forecast or be indicative
of future stock price performance of our common stock.
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of
Ooma, Inc. under the Securities Act of 1933, as amended, or the Securities Act, except as shall be expressly set forth by specific reference in such
filing. The stock price performance on this performance graph is not necessarily indicative of future stock price performance.
Sales of Unregistered Securities. In accordance with the terms of a share purchase agreement, between us and Voxter Communications, on
March 12, 2018, we issued 35,513 shares of our common stock to the former shareholders of Voxter Communications for an aggregate offering
price of $0.4 million. Such shares were issued in reliance on the exemption from registration under Regulation S promulgated under the Securities
Act of 1933, as amended (Securities Act) as all shares were issued in offshore transactions and no directed selling efforts were made in the United
States by us as the issuer, a distributor, or any affiliates or other person acting on our behalf. All such shares were issued with a restrictive legend
and may only be resold pursuant the resale restrictions set forth in Regulation S and/or Rule 144 under the Securities Act
Use of Proceeds. Not applicable.
Ooma | FY2020 Form 10-K | 38
ITEM 6. Selected Consolidated Financial Data
The information set forth below for the five years ended January 31, 2020 is not necessarily indicative of results of future operations, and should be
read in conjunction with MD&A and the consolidated financial statements, related notes and other financial information included elsewhere in this
Form 10-K (in thousands, except share and per share data):
Consolidated Statement of Operations Data:
Revenue
Gross margin
Net loss
Basic and diluted net loss per share
Weighted-average common shares outstanding
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments
Working capital
Total assets
Deferred revenue, current and non-current
Total liabilities
Total stockholders' equity
$
$
$
$
$
$
$
$
$
$
2020
151,593
89,381
(18,801)
(0.89)
21,051,039
$
$
$
$
Fiscal Year Ended January 31,
2018
2017
2019
129,231 $
76,491 $
(14,572) $
(0.74) $
19,799,781
114,490 $
68,092 $
(13,121) $
(0.71) $
18,570,128
104,524 $
59,329 $
(12,949) $
(0.74) $
17,490,448
2016
88,775
46,910
(14,052)
(1.38)
10,173,095
2020
2019
As of January 31,
2018
2017
2016
26,064
1,144
80,611
15,971
52,196
28,415
$
$
$
$
$
$
42,623
17,191
78,388
15,750
45,341
33,047
$
$
$
$
$
$
51,790 $
29,338 $
73,431 $
15,984 $
36,363 $
37,068 $
53,201 $
34,299 $
73,338 $
16,030 $
33,518 $
39,820 $
55,404
35,891
76,536
15,072
33,646
42,890
The consolidated balance sheet data as of January 31, 2020 reflects the prospective adoption of Topic 842, Leases. The consolidated statement of
operations data for fiscal 2020 and 2019 and the consolidated balance sheet data as of January 31, 2020 and 2019 reflect the modified retrospective
adoption of Topic 606, Revenue from Contracts with Customers. Comparative prior period amounts have not been adjusted for Topics 842 and 606
and continue to be reported under the historic accounting standards in effect for the periods presented. (See Note 2: Significant Accounting Policies
in the notes to the consolidated financial statements.)
Ooma | FY2020 Form 10-K | 39
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the related notes to those statements included
elsewhere in this Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result
of many factors, including those discussed under “Risk Factors” and elsewhere in this Form 10-K. The last day of our fiscal year is January 31, and
we refer to our fiscal year ended January 31, 2020 as fiscal 2020, our fiscal year ended January 31, 2019 as fiscal 2019 and our fiscal year ended
January 31, 2018 as fiscal 2018. All other references to years are references to calendar years.
This section of this Form 10-K generally discusses fiscal 2020 and 2019 items and year-to-year comparisons between fiscal 2020 and
2019. Discussion regarding our financial condition and results of operations for fiscal 2019 as compared to 2018 is included in Item 7 of our Annual
Report on Form 10-K for the year ended January 31, 2019, filed with the SEC on April 3, 2019.
Executive Overview
Ooma creates powerful connected experiences for businesses and consumers. Our smart cloud-based SaaS and UCaaS platforms serve as a
communications hub, which offers cloud-based communications solutions, smart security and other connected services. Our business and
residential solutions deliver our proprietary PureVoice high-definition voice quality, advanced functionality and integration with mobile devices, at
competitive pricing and value. Our platforms help create smart workplaces and homes by providing communications, monitoring, security,
automation, productivity and networking infrastructure applications.
We drive the adoption of our platforms by providing communications solutions to the large and growing markets for business, residential and
mobile users, and then accelerate growth by offering new and innovative connected services to our user base. Our customers adopt our platforms by
making a one-time purchase or rental of one of our on-premise appliances, connecting the appliance to the internet, and activating services, for
which they primarily pay on a monthly basis. We believe we have achieved high levels of customer retention and loyalty by delivering exceptional
quality and customer satisfaction.
We generate subscription and services revenue by selling subscriptions and other services for our communications services, as well as other
connected services. We generate our product and other revenue from the sale of our on-premise appliances and our end-point devices, as well as
from porting fees to enable customers to transfer their existing phone numbers to the Ooma service. We primarily offer our solutions in the U.S. and
Canada.
In May 2019, we acquired Broadsmart Global, Inc. (“Broadsmart”), a provider of cloud-based UCaaS solutions for a gross purchase price
of $7.7 million. Broadsmart is expected to provide scale for our Ooma Office and Ooma Enterprise platforms, which aligns with our overall enterprise
growth strategy. (See Note 12: Business Acquisitions in the notes to the consolidated financial statements.)
We refer to Ooma Office and Ooma Enterprise collectively as Ooma Business. Ooma Residential includes Ooma Telo basic and premier
services as well as our Smart Security solutions.
See Item 1. Business above for additional information regarding our business, products and services, competitive market and regulatory
matters.
Ooma | FY2020 Form 10-K | 40
Fiscal 2020 Financial Performance
•
•
•
•
•
•
•
•
Total revenue was $151.6 million, up 17% year-over-year, primarily driven by the growth of Ooma Business. We have grown our core
users 13% from approximately 929,000 as of January 31, 2018 to approximately 1,048,000 as of January 31, 2020.
Subscription and services revenue has increased as a percentage of our total revenue over the last three years, from approximately 89%
in fiscal 2018 to 92% in fiscal 2020. We expect subscription and services revenue to continue to increase for the foreseeable future.
Subscription and services revenue from Ooma Business and Ooma Residential grew 61% and 4% year-over-year, respectively.
Total gross margin was 59%, comparable to 59% in fiscal 2019 and 2018.
Net loss was $18.8 million, compared to losses of $14.6 million in fiscal 2019 and $13.1 million in fiscal 2018, reflecting continued
investments in operations and $3.1 million in total restructuring charges associated with the discontinuation of Ooma Smart Cam in
October 2019 and a small reduction-in-force.
Non-GAAP net loss was $0.7 million, compared to losses of $3.0 million in fiscal 2019 and $1.6 million fiscal 2018.
Adjusted EBITDA was $1.0 million, compared to ($1.9) million in fiscal 2019 and ($0.2) million in fiscal 2018.
As of January 31, 2020, we had total cash, cash equivalents and short-term investments of $26.1 million, compared to $42.6 million as of
January 31, 2019. Cash usage reflects our investments in operating expenses to execute on our growth initiatives.
Key Factors Affecting Our Performance
Our historical financial performance and key business metrics have been, and we expect that our financial performance and key business
metrics in the future will be, primarily driven by the following factors.
Core user growth. Our growth in the number of core users, a key business metric defined below, is a key indicator of our market penetration,
the growth of our business and our anticipated future subscription and services revenue, especially Ooma Business.
Low core user churn. We believe that maintaining our current low core user churn is an important factor in our ability to continue to improve
our financial performance and is a distinguishing advantage over many of our competitors. We focus on providing high-quality services and support
to our users so they are motivated to remain with us. Our core user churn rate is higher for Ooma Business customers than Ooma Residential
customers, which is driven in part by the failure rate of small businesses. Accordingly, we expect that our overall core user churn rate will increase as
sales of our business products increase relative to sales of residential products.
Growth in additional services. We believe that there is significant opportunity for us to increase the additional subscription and services that
our customers purchase from us in both the business and residential markets. Customers who purchase additional subscription and services from us
generate more value to Ooma over the life of our customer relationship. In order to drive adoption of additional services, we will need to continue to
enhance our existing solutions and develop new connected services. For example, we continue to invest in Ooma Business to launch additional
features.
Investing in long-term revenue growth. We believe that our total addressable market opportunity is large and we intend to continue investing
in sales and marketing to grow our user base. However, we expect the markets in which we conduct our business will remain highly competitive. We
recently entered the home security market and face significant competition from incumbent providers promoting their own offerings. We also expect
to continue investing in research and development to enhance our platforms and develop additional connected services. We may evaluate additional
possible acquisitions of businesses, products and technologies that are complementary to our business.
Looking Ahead to Fiscal 2021. In the year ahead, we plan to continue to execute on our growth initiatives and drive long-term revenue growth.
However, the extent of the recent COVID-19 pandemic and its impact on our operations is uncertain. A prolonged pandemic could adversely impact
the efficiency and effectiveness of our organization, further impact our global supply chain network, result in delays or decreases in customer
collections, reduce demand for our products and services, increase churn, and inhibit our sales efforts, any of which would materially impact our
revenues, results of operations, cash flows and liquidity. For more information on risks associated with the COVID-19 pandemic, please see “Risk
Factors” in Item 1A.
Ooma | FY2020 Form 10-K | 41
Key Business Metrics
We review the key metrics below to evaluate our business, measure our performance, identify trends affecting our business, formulate financial
projections and make strategic decisions. The following table sets forth our key metrics for each of the periods indicated (in thousands, except
percentages):
Core users
Annualized exit recurring revenue (AERR)
Net dollar subscription retention rate
Adjusted EBITDA
$
$
1,048
143,190
$
100%
$
966
976
119,102
$
99%
$
(1,859)
2020
As of January 31,
2019
2018
929
102,992
101%
(217)
Core Users increased 7% year-over-year, which was primarily driven by growth in business users. We believe that the number of our core
users is an indicator of our market penetration, the growth of our business and our anticipated future subscription and services revenue. We define
our core users as the number of active residential user accounts and office user extensions. We believe that the relationship that we establish with
our core users positions us to sell additional premium communications services and other new connected services to them.
Annualized Exit Recurring Revenue grew 20% year-over-year due to an increase in the average revenue per core user, which was largely
driven by an increase in business users. We believe that AERR is an indicator of recurring subscription and services revenue for near-term future
periods. We estimate our AERR by dividing our recurring quarterly subscription revenue (excluding Talkatone revenue) by the average number of
core users each quarter, and annualize by multiplying by four. We then multiply that result by the number of core users at the end of the period to
calculate AERR.
Net Dollar Subscription Retention Rate was 100% for fiscal 2020, driven by growth in average revenue per user and retention rate. We
believe that our net dollar subscription retention rate provides insight into our ability to retain and grow our subscription and services revenue, and is
an indicator of the long-term value of our customer relationships and the stability of our revenue base. It measures the percentage year-over-year
change in our recurring subscription revenue per core user (excluding Talkatone revenue), which is then adjusted by factoring in the percentage of
our core users we have retained during the same period. Our net dollar subscription retention rate is affected by changes in average amounts that
our core users pay to us, fluctuations in the number of our core users, and our core user churn rate.
We calculate our estimated net dollar subscription retention rate for our core users by multiplying:
(i)
▪
our year-over-year percentage change in annual recurring revenue per core user, which is calculated by:
determining the annual recurring revenue per core user by dividing annual recurring revenue for the period ended by the number of
core users at the end of that particular period; and
calculating the year-over-year percentage change in annual recurring revenue per core user by dividing the current period recurring
revenue per core user by the annual recurring revenue per core user for the same period in the prior year.
our core user annual retention rate, which is calculated by:
determining our core user churn, by identifying the number of paying core users who terminate service during a month, excluding infant
churn, which we define as office extensions and home users who terminate service prior to the end of the second full calendar month
after their activation date;
calculating our monthly churn rate by dividing our churn in a month by the number of core users at the beginning of that month; and
calculating our annual retention rate as one minus the sum of our monthly churn rates for the preceding 12-month period.
Adjusted EBITDA
In addition, we use Adjusted EBITDA (Earnings Before Interest Tax and Depreciation and Amortization) to manage our business, evaluate our
performance and make planning decisions. We consider this measure to be a useful measure of our operating performance, because it contains
adjustments for unusual events or factors that do not directly affect what management considers being the core operating performance, and are
used by our management for that purpose. We also believe this measure enables us to better evaluate our performance by facilitating a meaningful
comparison of our core operating results in a given period to those in prior and future periods. In addition, investors often use similar measures to
evaluate the operating performance with competitors. Adjusted EBITDA represents net income (loss) before interest and other income, non-cash
income tax benefit, depreciation and amortization, stock-based compensation and
Ooma | FY2020 Form 10-K | 42
▪
by:
(ii)
▪
▪
▪
related taxes, amortization of acquired intangible assets and other acquisition-related charges, restructuring charges and certain litigation costs that
are not representative of the ordinary course of our business. (See Note 15: Restructuring Charges in the notes to the consolidated financial
statements.)
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as
reported under GAAP. Some of these limitations are:
•
•
•
•
Adjusted EBITDA does not consider any expenses for assets being depreciated and amortized that are necessary to our business;
Adjusted EBITDA does not consider the impact of non-cash income tax benefits, stock-based compensation and related taxes, amortization of
acquired intangible assets and other acquisition-related charges, restructuring charges and certain litigation costs that are not recurring in
nature;
Adjusted EBITDA does not reflect other non-operating expenses, net of other non-operating income, including net interest and other
income/expense; and
other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a
comparative measure.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and our
other GAAP results.
The following table provides a reconciliation of net loss (the most directly comparable GAAP financial measure) to Adjusted EBITDA for each of
the periods indicated (in thousands):
GAAP net loss
Reconciling items:
Interest and other income, net
Income tax benefit
Depreciation and amortization of capital expenditures
Stock-based compensation and related taxes
Restructuring charges
Amortization of acquired intangible assets and acquisition-related costs
Litigation costs
Adjusted EBITDA
Fiscal Year Ended January 31,
2020
2019
2018
$
(18,801) $
(14,572) $
(13,121)
(780)
(130)
2,548
13,149
3,085
1,289
606
966 $
(830)
(384)
2,269
10,695
—
821
142
(1,859) $
(603)
—
1,958
11,118
—
431
—
(217)
$
Ooma | FY2020 Form 10-K | 43
Components of Results of Operations
Revenue
Subscription and services revenue is derived primarily from recurring subscription fees related to service plans such as Ooma Business,
Ooma Residential and other communications services, and to a lesser extent from payments associated with our Talkatone mobile application ,
prepaid international calls and installation-related services. We expect our subscription and services revenue to grow as we expand our core user
base, driven primarily by growth in Ooma Business.
Product and other revenue consists primarily of sales of our on-premise appliances and end-point devices used in connection with our
services, including shipping and handling fees for our direct customers, and to a lesser extent from porting fees we charge our customers to enable
them to transfer their existing phone numbers to Ooma Business or Residential. We expect our product and other revenue to slightly decline on a
year-over-year basis.
Cost of revenue and gross margin
Cost of subscription and services revenue includes payments made for third-party network operations and telecommunications services,
Federal USF contributions, credit card processing fees, costs to maintain third-party data centers, including co-location fees for the right to place our
servers in third-party data centers, depreciation and maintenance of servers and equipment, personnel costs associated with customer care and
network operations support, and allocated costs of facilities and information technology.
Cost of product and other revenue includes the costs associated with the manufacturing of our on-premise appliances and end-point devices,
as well as personnel costs for employees and contractors, costs related to porting our customers’ phone numbers to our service, shipping and
handling costs, and allocated costs of facilities and information technology.
Subscription and services gross margin may fluctuate from period-to-period based on the interplay of a number of factors, including the
costs we pay to third-party telecommunications providers, the timing of capital expenditures and related depreciation charges, and changes in our
headcount. We expect our subscription and services gross margin to increase over the long-term, primarily as we get scale efficiencies and as our
business revenue becomes a larger portion of total subscription revenue.
Product and other gross margin may fluctuate from period-to-period based on a number of factors, including total units shipped during a
period as compared to the direct costs of production and relatively fixed personnel costs incurred during the period, as well as potential changes in
tariffs imposed on imported product. We sell our on-premise appliances at an aggressive price point to facilitate the adoption of our platforms and
services. We expect our product and other gross margin to continue to be negative for the foreseeable future.
Our subscription and services gross margin is significantly higher than product and other gross margin. As a result, any significant change in the
mix between subscription and services revenue and product and other revenue will cause our total gross margin to change. For example, in periods
where we sell significantly more on-premise appliances, we would expect our total gross margin to be impacted.
Operating expenses
Sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs for employees
and contractors directly associated with sales and marketing activities; internet, television, radio advertising fees ; public relations expenses ;
amortization of sales commissions we pay to internal sales personnel, third-party sales entities and resellers; trade show expenses; travel expenses;
marketing and promotional activities and allocated costs of facilities and information technology. We expect our sales and marketing expenses to
increase in absolute dollars as we continue to grow our business.
Research and development expenses are focused on developing new and expanded features for our services and improvements to our
platforms and backend architecture. Research and development is expensed as incurred and consists primarily of personnel costs for employees
and contractors, allocated costs of facilities and information technology, software tools and product certification. We expect our research and
development expenses to decrease in both absolute dollars and as a percentage of revenue in the short-term.
General and administrative expenses consist of personnel costs for our finance, legal, human resources and other administrative employees
and contractors. In addition, it includes professional service fees, legal fees, acquisition-related transaction costs and earn-outs, and allocated costs
of facilities and information technology. We expect our general and administrative expenses to remain relatively flat as a percentage of total revenue.
Ooma | FY2020 Form 10-K | 44
Consolidated Results of Operations
The tables in this section set forth selected consolidated statements of operations data for each of the periods indicated (dollars in thousands):
Revenue:
Subscription and services
Product and other
Total revenue
Cost of revenue:
Subscription and services
Product and other
Total cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest and other income, net
Loss before income taxes
Income tax benefit
Net loss
2020
Fiscal Year Ended January 31,
2019
2018
$
139,499 $
12,094
151,593
116,429 $
12,802
129,231
43,748
18,464
62,212
89,381
50,497
37,770
20,825
109,092
(19,711)
780
(18,931)
130
(18,801) $
36,108
16,632
52,740
76,491
40,761
33,903
17,613
92,277
(15,786)
830
(14,956)
384
(14,572) $
$
101,999
12,491
114,490
31,406
14,992
46,398
68,092
37,302
29,328
15,186
81,816
(13,724)
603
(13,121)
—
(13,121)
Costs and expenses included stock-based compensation expense and related payroll taxes as follows (in thousands):
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total stock-based compensation and related taxes
2020
Fiscal Year Ended January 31,
2019
2018
$
$
1,311 $
2,004
4,773
5,061
13,149 $
957 $
1,501
3,906
4,331
10,695 $
1,129
1,857
4,046
4,086
11,118
Ooma | FY2020 Form 10-K | 45
Revenue
Revenue:
Subscription and services
Product and other
Total revenue
Percentage of revenue:
Subscription and services
Product and other
Total
Fiscal Year Ended January 31,
Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
$
$
139,499
12,094
151,593
$
$
116,429
12,802
129,231
$
$
101,999
12,491
114,490
$
$
23,070 20% $
(6)%
22,362 17% $
(708)
14,430 14%
2%
14,741 13%
311
92%
8%
100%
90%
10%
100%
89%
11%
100%
Fiscal 2020 Compared to Fiscal 2019
We derived approximately 58% and 68% of our total revenue from Ooma Residential and approximately 39% and 28% from Ooma Business in
fiscal 2020 and 2019, respectively.
Subscription and services revenue increased $23.1 million or 20% year-over-year, primarily driven by a 7% increase in our core users and an
increase in the average revenue per user associated with the growth of Ooma Business. Year-over-year revenue growth reflected a combined 21%
increase in subscription and services revenue from Ooma Business and Ooma Residential that was offset in part by a decline in revenue from
Talkatone.
Product and other revenue decreased $0.7 million or 6% year-over-year, primarily driven by a decline in sales of Ooma Residential accessories,
reflecting the discontinuation of Smart Cam in the third quarter of fiscal 2020, that was offset in part by growth in Ooma Business products.
Cost of Revenue and Gross Margin
Cost of revenue:
Subscription and services
Product and other
Total cost of revenue
Gross margin:
Subscription and services
Product and other
Total
Fiscal Year Ended January 31,
Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
$
$
43,748
18,464
62,212
$
$
36,108
16,632
52,740
$
$
31,406
14,992
46,398
$
$
7,640 21% $
1,832 11%
9,472 18% $
4,702 15%
1,640 11%
6,342 14%
69%
(53)%
59%
69%
(30)%
59%
69%
(20)%
59%
Fiscal 2020 Compared to Fiscal 2019
Subscription and services gross margin of 69% was flat year-over-year. Cost of subscription and services revenue for fiscal 2020 increased
$7.6 million or 21% year-over-year, primarily driven by a $3.5 million increase in employee and consultant related costs, including travel and
customer installation-related costs, as well as a $3.3 million increase in telecom and network infrastructure costs, a $0.3 million increase in credit
card processing fees and increases in other expenses. Overall, the year-over-year increase in the cost of subscription and services reflects both
organic and acquisition-related growth of our business.
Product and other revenue gross margin of negative 53% decreased year-over-year from negative 30% due to restructuring charges of $2.1
million for excess inventory, non-cancelable purchase commitments and impaired intangible assets related to the discontinuation of Ooma Smart
Cam in October 2019.
Ooma | FY2020 Form 10-K | 46
Operating Expenses
Sales and marketing
Research and development
General and administrative
Total operating expenses
Fiscal 2020 Compared to Fiscal 2019
Fiscal Year Ended January 31,
Change
2020
2019
2018
2020 vs. 2019
$
$
50,497
37,770
20,825
109,092
$
$
40,761
33,903
17,613
92,277
$
$
37,302
29,328
15,186
81,816
$
$
9,736 24% $
3,867 11%
3,212 18%
16,815 18% $
2019 vs. 2018
3,459
9%
4,575 16%
2,427 16%
10,461 13%
Sales and Marketing. Sales and marketing expenses for fiscal 2020 increased $9.7 million or 24% year-over-year, primarily due to a $4.5 million
increase in employee and consultant related costs, driven by higher headcount, as well as a $3.0 million increase in commissions expense, a $0.7
million increase in marketing activities and a $0.6 million increase in intangible amortization associated with acquired Broadsmart customer
relationships. Overall, the year-over-year increase in sales and marketing reflects our strategy to drive continued growth in Ooma Business.
Research and Development. Research and development expenses for fiscal 2020 increased $3.9 million or 11% year-over-year, primarily due to a
$2.5 million increase in employee and consultant related costs, driven by higher headcount, a $0.6 million increase in non-recurring engineering and
license costs, and $0.6 million incurred for severance and other charges associated with our October 2019 restructuring actions.
General and Administrative. General and administrative expenses for fiscal 2020 increased $3.2 million or 18% year-over-year, primarily reflecting
a $1.6 million increase in employee and consultant related costs, driven by higher headcount, as well as a $0.8 million increase in litigation costs and
a $0.2 million increase in software and license fees. The increase in litigation costs were primarily driven by legal proceedings that are not
representative of the ordinary course of our business.
Income Taxes
We recorded an income tax benefit of $0.1 million and $0.4 million for fiscal years 2020 and 2019, respectively, primarily associated with our
acquisition of Voxter. We did not record a provision or benefit for income taxes in fiscal year 2018. We continue to maintain a full valuation allowance
against our deferred tax assets. See Note 10: Income Taxes in the notes to our consolidated financial statements.
Ooma | FY2020 Form 10-K | 47
Non-GAAP Financial Measures
In addition to disclosing financial measures prepared in accordance with GAAP, this Form 10-K contains certain non-GAAP financial measures,
including non-GAAP net loss and Adjusted EBITDA (see above). These non-GAAP financial measures exclude non-cash stock-based compensation
expense and related taxes, amortization of acquired intangible assets and other acquisition-related charges, restructuring charges and certain
litigation costs that are not representative of the ordinary course of our business.
These non-GAAP financial measures are presented to provide investors with additional information regarding our financial results and core
business operations. We consider these non-GAAP financial measures to be useful measures of the operating performance of the Company,
because they contain adjustments for unusual events or factors that do not directly affect what management considers to be our core operating
performance, and are used by our management for that purpose. We also believe that these non-GAAP financial measures allow for a better
evaluation of our performance by facilitating a meaningful comparison of our core operating results in a given period to those in prior and future
periods. In addition, investors often use similar measures to evaluate the operating performance of a company.
Non-GAAP financial measures are presented for supplemental informational purposes only to aid an understanding of our operating results.
The non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP, and may be
different from non-GAAP financial measures presented by other companies. A limitation of the non-GAAP financial measures presented is that the
adjustments relate to items that the Company generally expects to continue to recognize. The adjustment of these items should not be construed as
an inference that the adjusted gains or expenses are unusual, infrequent or non-recurring. Therefore, both GAAP financial measures of Ooma’s
financial performance and the respective non-GAAP measures should be considered together.
For additional information and reconciliations of our Adjusted EBITDA, see “Key Business Metrics” above. Reconciliations of our GAAP and
non-GAAP net loss were as follows (in thousands):
GAAP net loss
Stock-based compensation and related taxes
Restructuring charges
Amortization of acquired intangible assets and acquisition-related costs
Litigation costs
Non-GAAP net loss
Fiscal Year Ended January 31,
2020
2019
2018
$
$
$
(18,801)
13,149
3,085
1,289
606
(672) $
$
(14,572)
10,695
—
752
142
(2,983) $
(13,121)
11,118
—
431
—
(1,572)
Ooma | FY2020 Form 10-K | 48
Quarterly Results of Operations and Trends
The following table sets forth selected quarterly financial data for each of the eight quarterly periods ended January 31, 2020 (in thousands,
except percentages):
Fiscal 2020
Total revenue
Gross profit
Gross margin
Total operating expenses
Net loss
Fiscal 2019
Total revenue
Gross profit
Gross margin
Total operating expenses
Net loss
$
$
$
$
$
$
$
$
January 31
October 31
July 31
April 30
Three Months Ended
40,648
24,588
$
$
60%
$
$
27,060
(2,294)
34,720
19,707
$
$
57%
$
$
23,534
(3,489)
39,595
22,040
$
$
56%
$
$
28,980
(6,784)
32,608
20,073
$
$
62%
$
$
23,937
(3,494)
37,343
22,320
$
$
60%
$
$
27,599
(4,983)
31,681
18,773
$
$
59%
$
$
22,937
(3,904)
34,007
20,433
60%
25,453
(4,740)
30,222
17,938
59%
21,869
(3,685)
Revenue. Our total revenue has grown sequentially each quarter due to the continued growth in our subscriber base driven by an increase in
our core users.
Gross Margin. Over the past eight fiscal quarters, our gross margin has fluctuated between 56% and 62% due to changes in our product mix
and the introduction of new products, as well as restructuring charges recorded in the third quarter of fiscal 2020 as described above.
Operating Expenses. Our quarterly operating expenses in absolute dollars have increased significantly from fiscal 2019 to fiscal 2020,
primarily driven by growing headcount and personnel-related expenses, as well as marketing and advertising expenses associated with our efforts to
increase our overall subscriber base and product sales, and restructuring charges recorded in the third quarter of fiscal 2020 as described above.
Ooma | FY2020 Form 10-K | 49
Liquidity and Capital Resources
As of January 31, 2020, we had $26.1 million of total cash, cash equivalents and short-term investments. Our primary source of cash is receipts
from sales to our customers. We believe that our existing cash, cash equivalents and short-term investments will be sufficient to meet our cash
needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent
of our sales and marketing and research and development expenditure, and the continuing market acceptance of our solutions.
We may in the future make investments in or acquisitions of businesses or technologies, which may require the use of cash. For example, in the
second quarter of fiscal 2020, we completed the acquisition of Broadsmart for approximately $7.1 million, net of cash acquired of $0.6 million, as well
as made payment of $0.4 million in connection with our acquisition of Voxter in fiscal 2019. In addition, in the fourth quarter of fiscal 2019, we
invested cash of $1.3 million into a small privately-held technology company, in exchange for an 18-month convertible promissory note (see Note
6: Balance Sheet Components of the notes to our consolidated financial statements).
The table below provides selected cash flow information, for the periods indicated (in thousands):
Net cash used in operating activities
Net cash provided by investing activities
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Operating Activities
2020
Fiscal Year Ended January 31,
2019
2018
$
$
(7,564) $
2,866
1,008
(3,690) $
(3,926) $
14,853
(40)
10,887 $
3,173
(2,155)
(525)
493
The table below provides selected cash flow information, for the periods indicated (in thousands):
Net loss
Non-cash charges
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
Decrease (increase) in inventories and deferred inventory costs
Increase in other assets
(Decrease) increase in accounts payable and other liabilities
Increase (decrease) in deferred revenue
$
2020
Fiscal Year Ended January 31,
2019
(18,801) $
19,645
(14,572) $
12,321
2018
(13,121)
13,327
135
407
(4,965)
(4,089)
104
(1,050)
(4,213)
(5,334)
8,150
772
1,856
310
(1,519)
2,366
(46)
3,173
Net cash (used in) provided by operating activities
$
(7,564) $
(3,926) $
For fiscal 2020, our net loss of $18.8 million included non-cash charges of $19.6 million primarily related to stock-based compensation,
restructuring charges, operating lease expense and depreciation and amortization expense. Operating asset and liability changes for fiscal 2020
included:
•
an increase of $5.0 million in other current and non-current assets primarily due to the capitalization of sales commissions costs under
Topic 606 and operating lease costs under Topic 842
a decrease of $4.1 million in accounts payable, accrued expenses and other liabilities due to the timing of payments
•
For fiscal 2019, our net loss of $14.6 million included non-cash charges of $12.3 million primarily related to stock-based compensation and
depreciation and amortization expense. Operating asset and liability changes for fiscal 2019 included:
•
•
•
•
an increase of $1.1 million in accounts receivable primarily due to timing of billing and our collection efforts
a net increase of $4.2 million in our inventory and related deferred costs to scale our business
an increase of $5.3 million in other current and non-current assets primarily due to the capitalization of sales commissions costs under
Topic 606
an increase of $8.2 million in accounts payable, accrued expenses and other liabilities to support the growth of our business, including
higher headcount
Ooma | FY2020 Form 10-K | 50
Investing Activities
Our investing activities include short-term investment activities, capital expenditures and business acquisitions. Our capital expenditures have
primarily been for general business purposes, including network servers used in data centers, computer hardware and other equipment and
development of our company website.
During fiscal 2020, cash provided by investing activities was $2.9 million, which consisted of proceeds of $44.4 million from maturities and sales
of short-term investments, offset in part by $31.2 million used for purchases of short-term investments, $7.1 million used for the acquisition of
Broadsmart in the second fiscal quarter and $3.3 million used for capital expenditures.
During fiscal 2019, cash provided by investing activities was $14.9 million, which consisted of proceeds of $59.0 million from maturities and
sales of short-term investments, offset in part by $38.5 million used for purchases of short-term investments, $1.9 million used for capital
expenditures, $2.4 million used for the acquisition of Voxter in the first quarter, and $1.3 million used to invest in a privately-held technology
company in the fourth quarter.
Financing Activities
Cash generated from financing activities include net proceeds from common stock issuances related to employee stock benefit plans. Cash
used in financing activities includes payment of shares repurchased for tax withholdings on vesting of restricted stock units (“RSUs”) and payment of
acquisition-related holdbacks.
During fiscal 2020, cash provided by financing activities was $1.0 million, which consisted of proceeds of $3.0 million from the issuance of
common stock related to our Employee Stock Purchase Plan (“ESPP”) and stock option exercises, offset in part by payments of $1.5 million related
to shares repurchased for tax withholdings on vesting of RSUs, as well as payment of $0.4 million in connection with our fiscal 2019 acquisition of
Voxter.
During fiscal 2019, financing activities consisted of payments of $2.9 million related to shares repurchased for tax withholdings on vesting of
RSUs, offset by proceeds of $2.9 million from the issuance of common stock related to our ESPP and stock option exercises.
Contractual Obligations and Commitments
As of January 31, 2020, our total future expected payment obligations under non-cancelable operating leases with terms longer than one year
were approximately $9.1 million. See Note 7: Operating Leases in the notes to our consolidated financial statements for a table of contractual
obligations, including payments due by period. As of January 31, 2020, non-cancelable purchase commitments with our contract manufacturers
totaled approximately $4.0 million.
Off-Balance Sheet Arrangements
We do not have any material relationships with unconsolidated entities or financial partnerships, including entities such as structured finance or
special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements.
Ooma | FY2020 Form 10-K | 51
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have
been prepared in accordance with U.S. GAAP, which requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, cash flows and related disclosures of contingent assets and liabilities. We base our estimates on historical
experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Our future consolidated financial statements will be affected to the extent that our actual results materially differ from these estimates. Note 2 to the
notes to consolidated financial statements of this Form 10-K describes the significant accounting policies and methods used in the preparation of the
consolidated financial statements. We believe that the accounting policies discussed below are critical to understanding our historical and future
performance as these policies involve a greater degree of judgment and complexity.
Revenue Recognition
We derive revenue from two sources: (1) subscription and services revenue, which is generated from the sale of subscription plans and other
services; and (2) product and other revenue. Our financial results for fiscal 2020 and 2019 are presented in accordance with the provisions under
Topic 606, Revenue Recognition, which we adopted on February 1, 2018. Comparative prior period amounts for fiscal 2018 have not been adjusted
and continue to be reported under Topic 605, which is materially similar to Topic 606.
Subscription and services revenue is derived primarily from recurring subscription fees related to service plans such as Ooma Business, Ooma
Residential and other communications services. Subscription revenue is generally recognized ratably over the contractual service term. Product and
other revenue is generated from the sale of on-premise appliances and end-point devices, including shipping and handling fees for our direct
customers, and to a lesser extent from porting fees that enable customers to transfer their existing phone numbers. Beginning fiscal 2019, we
recognize revenue from sales to direct end-customers and channel partners at the point in time that control transfers which is typically when we
deliver the product or when all customer contractual provisions have been met, if any. Our distribution agreements with channel partners typically
contain clauses for price protection and right of return. Prior to fiscal 2019, we deferred product revenue and related costs of revenue on these
product channel sales until title was transferred to the end-customer. See Note 2: Significant Accounting Policies in the notes to our consolidated
financial statements for additional information regarding our subscription and services revenue and product and other revenue.
Our contracts with customers typically contain multiple performance obligations that consist of product(s) and related communications services.
For these contracts, we account for individual performance obligations separately if they are distinct. The contract transaction price is then allocated
to the separate performance obligations on a relative stand-alone selling price (“SSP”) basis. We determine the SSP for our communications
services based on observable historical stand-alone sales to customers, for which we require that a substantial majority of selling prices fall within a
reasonably narrow pricing range. We do not have a directly observable SSP for our on-premise appliance and end-point devices, and therefore we
establish SSP based on our best estimates and judgments, considering company-specific factors such as pricing strategies, estimated product and
other costs, and bundling and discounting practices. The determination of SSP is made through consultation with and approval by our management.
As our business offerings evolve over time, we may be required to modify our estimated selling prices in subsequent periods, and the timing of our
revenue recognition could be affected.
We record reductions to revenue for estimated product returns from end users and customer sales incentives at the time the related revenue is
recognized. Product returns and customer sales incentives are estimated based on our historical experience, current trends and expectations
regarding future experience. Trends are influenced by product life cycles, new product introductions, market acceptance of products, the type of
customer, seasonality and other factors. Product return and sales incentive rates may fluctuate over time but are sufficiently predictable to allow our
management to estimate expected future amounts. If actual future returns and sales incentives differ from past experience, additional reserves may
be required. To date, actual results have not been materially different from our estimates.
Ooma | FY2020 Form 10-K | 52
Inventories
Inventories consist of raw materials and finished goods and are stated at the lower of actual cost or market on a first-in, first-out basis. Our
assessment of market value requires the use of estimates regarding the net realizable value of our inventory balances, including an assessment of
excess or obsolete inventory. At each balance sheet date, we determine excess or obsolete inventory write-downs based on multiple factors,
including: forecast demand for our products within a specified time horizon, generally 12 months, product acceptance and competitiveness in the
marketplace, product life cycles, product development plans, and current and historical sales levels.
Inventory write-downs for excess and obsolete inventory are recorded in cost of goods sold within the consolidated statement of operations
during the period in which such write-downs are determined as necessary by management. If actual future demand or market conditions are less
favorable than those projected by management, additional inventory write-downs may be required. This would have a negative impact on our gross
margin in that period. If in any period we are able to sell inventories that were not valued or that had been written down in a previous period, related
revenues would be recorded without any offsetting charge to cost of sales resulting in a net benefit to our gross margin in that period.
For fiscal 2020, we recorded write-downs of $1.4 million for excess inventory and non-cancelable purchase commitments related to the
discontinuation of Ooma Smart Cam in October 2019, which were included in the restructuring charges described above. Inventory write-downs
recorded for fiscal 2019 and 2018 were not material.
Income Taxes
We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities
and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. We have recorded a full valuation allowance against our deferred tax assets as of January 31, 2020 and 2019.
We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. A tax position is recognized when it is more likely than not that the tax position will be sustained upon
examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition
threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing
authority. Deferred tax assets associated with our unrecognized tax benefits were fully offset by a valuation allowance as of January 31, 2020 and
2019.
Ooma | FY2020 Form 10-K | 53
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rates
Our exposure to market risk for changes in interest rates primarily relates to our cash and cash equivalents and short-term investments. Our cash
equivalents and investments are held in money market funds, U.S. treasury securities, U.S. agency debt securities, commercial papers, corporate
debt securities and asset-backed securities. Due to the short-term nature of these instruments, we do not have any material exposure to changes in
the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce our future interest
income. The effect of a hypothetical 100 basis point increase or decrease in interest rates would not have had a material impact on the fair value of
our available-for-sale securities as of January 31, 2020 and 2019, or our interest income for each of the three years in the period ended January 31,
2020. We did not have any debt as of January 31, 2020 and 2019.
Foreign Currencies
To date, our revenue has been primarily denominated in U.S. dollars with a small portion denominated in Canadian dollars. As a result, some of our
revenue is subject to fluctuations due to changes in the Canadian dollar relative to the U.S. dollar. Substantially all of our operating expenses have
been denominated in U.S. dollars. The functional currency for all of our entities is the U.S. dollar. To date, gains and losses from foreign currency
transactions have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging
transactions. A hypothetical 10% increase or decrease in overall foreign currency rates would not have had a material impact on our consolidated
financial statements. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in
currency rates.
Ooma | FY2020 Form 10-K | 54
ITEM 8. Consolidated Financial Statements and Supplementary Data
Index
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Ooma | FY2020 Form 10-K | 55
56
57
58
59
60
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Ooma, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ooma, Inc. and subsidiaries (the "Company") as of January 31, 2020 and 2019,
the related consolidated statements of operations, stockholders' equity, and cash flows, for each of the three years in the period ended January 31,
2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of January 31, 2020 and 2019, and the results of its operations and its cash flows for
each of the three years in the period ended January 31, 2020, in conformity with accounting principles generally accepted in the United States of
America.
Change in Accounting Principle
As discussed in Note 2 and 3 to the financial statements, the Company adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from
Contracts with Customers, using the modified retrospective approach on February 1, 2018 and ASU No. 2016-02, Leases, using the modified
retrospective transition method on February 1, 2019.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
April 13, 2020
We have served as the Company's auditor since 2012.
Ooma | FY2020 Form 10-K | 56
OOMA, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Goodwill
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Total current liabilities
Long-term operating lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock $0.0001 par value: 10 million shares authorized; none issued and outstanding
Common stock $0.0001 par value: 100 million shares authorized; 21.7 million and 20.3 million shares
issued and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
Ooma | FY2020 Form 10-K | 57
January 31,
2020
January 31,
2019
$
$
11,680 $
14,384
4,591
8,369
8,992
48,016
5,270
8,057
6,818
4,264
8,186
80,611 $
$
8,499 $
22,576
15,797
46,872
5,150
174
52,196
15,370
27,253
3,723
10,117
5,450
61,913
4,563
—
2,635
3,898
5,379
78,388
10,231
19,048
15,443
44,722
—
619
45,341
—
—
4
152,993
14
(124,596)
28,415
80,611 $
4
138,848
(10)
(105,795)
33,047
78,388
$
OOMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except shares and per share data)
2020
Fiscal Year Ended January 31,
2019
2018
$
139,499 $
12,094
151,593
116,429 $
12,802
129,231
Revenue:
Subscription and services
Product and other
Total revenue
Cost of revenue:
Subscription and services
Product and other
Total cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest and other income, net
Loss before income taxes
Income tax benefit
Net loss
Net loss per share of common stock:
Basic and diluted
Weighted-average shares of common stock outstanding:
Basic and diluted
43,748
18,464
62,212
89,381
50,497
37,770
20,825
109,092
(19,711)
780
(18,931)
130
(18,801) $
36,108
16,632
52,740
76,491
40,761
33,903
17,613
92,277
(15,786)
830
(14,956)
384
(14,572) $
101,999
12,491
114,490
31,406
14,992
46,398
68,092
37,302
29,328
15,186
81,816
(13,724)
603
(13,121)
—
(13,121)
$
$
(0.89) $
(0.74) $
(0.71)
21,051,039
19,799,781
18,570,128
See notes to consolidated financial statements.
Ooma | FY2020 Form 10-K | 58
BALANCE - January 31, 2017
Issuance of common stock under equity-based plans
Shares repurchased for tax withholdings on vesting of
RSUs
Exercise of warrants to common stock
Stock-based compensation
Other comprehensive loss
Net loss
BALANCE - January 31, 2018
Issuance of common stock under equity-based
plans
Shares repurchased for tax withholdings on vesting of
RSUs
Issuance of common stock for business acquisition
Stock-based compensation
Other comprehensive income
Cumulative adjustment upon adoption of Topic 606
Net loss
BALANCE - January 31, 2019
Issuance of common stock under equity-based
plans
Shares repurchased for tax withholdings on vesting of
RSUs
Stock-based compensation
Other comprehensive income
Net loss
BALANCE - January 31, 2020
OOMA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands, except shares and share data)
Common Stock
Additional
Shares
Amount
Paid-In Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Stockholders'
Equity
17,995,555 $
1,345,392
2 $
—
117,639 $
1,964
(11) $
—
(77,810) $
—
(244,865)
19,352
—
—
—
19,115,434
1,374,336
(213,181)
35,513
—
—
—
—
20,312,102
1,515,111
(111,085)
—
—
—
21,716,128 $
—
—
—
—
—
2
2
—
—
—
—
—
—
4
—
—
—
—
—
4 $
(2,443)
—
10,921
—
—
128,081
2,933
(2,926)
390
10,370
—
—
—
138,848
2,951
(1,523)
12,717
—
—
152,993 $
See notes to consolidated financial statements.
Ooma | FY2020 Form 10-K | 59
—
—
—
(73)
—
(84)
—
—
—
—
74
—
—
(10)
—
—
—
24
—
14 $
39,820
1,964
(2,443)
—
10,921
(73)
(13,121)
37,068
—
—
—
—
(13,121)
(90,931)
—
2,935
—
—
—
—
(292)
(14,572)
(105,795)
(2,926)
390
10,370
74
(292)
(14,572)
33,047
—
2,951
—
—
—
(18,801)
(124,596) $
(1,523)
12,717
24
(18,801)
28,415
OOMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock-based compensation expense
Depreciation and amortization of capital expenditures
Amortization of intangible assets and non-cash acquisition-related costs
Non-cash restructuring charges
Non-cash operating lease expense
Deferred income taxes
Other
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories and deferred inventory costs
Prepaid expenses and other assets
Accounts payable and other liabilities
Deferred revenue
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Purchases of short-term investments
Proceeds from maturities of short-term investments
Proceeds from sales of short-term investments
Capital expenditures
Business acquisition, net of cash assumed
Payment for purchase of convertible note
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Shares repurchased for tax withholdings on vesting of RSUs
Payment of acquisition-related holdback
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Non-cash investing and financing activities:
Unpaid portion of capital expenditures
Contingent consideration for business acquisition
Holdback payable for business acquisition
Shares issued for business acquisition and related earn-out
2020
Fiscal Year Ended January 31,
2019
2018
$
(18,801)
$
(14,572)
$
(13,121)
12,761
2,548
1,027
1,603
1,997
(144)
(147)
135
407
(4,965)
(4,089)
104
(7,564)
(31,234)
38,522
5,924
(3,273)
(7,073)
2,866
2,951
(1,523)
(420)
1,008
(3,690)
15,370
11,680
$
413 $
— $
— $
$
—
10,370
2,269
398
—
—
(384)
(332)
(1,050)
(4,213)
(5,334)
8,150
772
(3,926)
(38,485)
53,736
5,225
(1,921)
(2,402)
(1,300)
14,853
2,886
(2,926)
—
(40)
10,887
4,483
15,370
201
231
780
390
$
$
$
$
$
10,921
1,958
313
—
—
—
135
1,856
310
(1,519)
2,366
(46)
3,173
(49,331)
49,217
1,800
(2,478)
(1,363)
—
(2,155)
1,918
(2,443)
—
(525)
493
3,990
4,483
146
311
—
—
$
$
$
$
$
See notes to consolidated financial statements.
Ooma | FY2020 Form 10-K | 60
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 1: Overview and Basis of Presentation
Ooma, Inc. and its wholly-owned subsidiaries (collectively, “Ooma” or the “Company”) create new communications experiences for businesses and
consumers, delivered from its smart cloud-based SaaS platforms.
Principles of Presentation and Consolidation. The accompanying consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated upon consolidation. In the opinion of the Company’s management, the consolidated financial
statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Fiscal Year. The Company’s fiscal year ends on January 31. References to fiscal 2020, fiscal 2019 and fiscal 2018 refer to the fiscal years ended
January 31, 2020, January 31, 2019 and January 31, 2018, respectively.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Actual results could differ materially from
those estimates.
Comprehensive Loss. For all periods presented, comprehensive loss approximated net loss in the consolidated statements of operations and
differences were not material. Therefore, the consolidated statements of comprehensive loss have been omitted.
Segment Reporting. The chief operating decision maker for the Company is the chief executive officer. The Company’s subscription plans,
services and product offerings operate on SaaS platforms and the chief executive officer reviews financial information presented on a consolidated
basis for purposes of allocating resources and evaluating financial performance. Accordingly, management has determined that the Company
operates in one reportable segment.
Revenue was principally derived from customers located in the United States for all periods presented. All of the Company’s long-lived assets were
attributable to operations in the United States, with a small portion attributable to operations in Canada and other countries, for all periods presented.
Ooma | FY2020 Form 10-K | 61
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 2: Significant Accounting Policies
Revenue Recognition
On February 1, 2018, the Company adopted Topic 606, Revenue from Contracts with Customers. The Company’s financial results for fiscal years
2020 and 2019 are presented in accordance with the provisions under Topic 606. Comparative prior period amounts for fiscal 2018 have not been
adjusted and continue to be reported under Topic 605, Revenue Recognition, which is materially similar to Topic 606.
The Company derives its revenue from two sources: (1) subscription and services revenue, which is derived primarily from the sale of subscription
plans for communications services and other connected services; and (2) product and other revenue. Subscriptions and services are sold directly to
end-customers. Products are sold to end-customers through several channels, including but not limited to, distributors, retailers and resellers
(collectively the “channel partners”), and Ooma sales representatives.
Under Topic 606, the Company determines revenue recognition through the following steps:
•
•
•
•
•
identification of the contract(s) with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, the Company satisfies a performance obligation
Revenue is recorded net of any sales and telecommunications taxes collected from customers to be remitted to government authorities.
Revenue disaggregated by revenue source consisted of the following (in thousands):
Subscription and services revenue
Product and other revenue
Total revenue
Fiscal Year Ended January 31,
2020
2019
2018
$
$
139,499 $
12,094
151,593 $
116,429 $
12,802
129,231 $
101,999
12,491
114,490
The Company derived approximately 58%, 68% and 71% of its total revenue from Ooma Residential and approximately 39%, 28% and 22% from
Ooma Business in fiscal 2020, 2019 and 2018, respectively. No individual country outside of the United States represented 10% or more of total
revenue for the periods presented. No single customer accounted for 10% or more of total revenue for the periods presented.
Subscription and Services Revenue. Most of the Company’s revenue is derived from recurring subscription fees related to service plans such as
Ooma Business, Ooma Residential and other communications services. Subscription revenue is generally recognized ratably over the contractual
service term. The Company’s service plans are generally sold as monthly subscriptions; however, certain plans are also offered as annual or multi-
year subscriptions. A small portion of the Company’s revenue is recognized on an over-time basis from installation-related services and on a point-
in-time basis from services such as: prepaid international calls, directory assistance, and advertisements displayed through its Talkatone mobile
application.
Product and Other Revenue. Product and other revenue is generated from the sale of on-premise appliances and end-point devices, including
shipping and handling fees for direct customers, and to a lesser extent from porting fees that enable customers to transfer their existing phone
numbers. The Company recognizes revenue from sales to direct end-customers and channel partners at the point-in-time that control transfers,
which is typically when it delivers the product or when all customer contractual provisions have been met, if any. The Company’s distribution
agreements with channel partners typically contain clauses for price protection and right of return. Therefore, the amount of product revenue
recognized is adjusted for any variable consideration, such as expected returns and customer sales incentives as described in “Sales Allowances”
below.
Amounts billed to customers related to shipping and handling are classified as revenue. Shipping and handling costs are expensed as incurred and
classified as cost of revenue.
Ooma | FY2020 Form 10-K | 62
Ooma, Inc.
Notes to Consolidated Financial Statements
Multiple performance obligations. The Company’s contracts with customers typically contain multiple performance obligations that consist of
product(s) and related communications services. For these contracts, the Company accounts for individual performance obligations separately if
they are distinct. The contract transaction price is then allocated to the separate performance obligations on a relative stand-alone selling price
basis. The Company determines the SSP for its communications services based on observable historical stand-alone sales to customers, for which
the Company requires that a substantial majority of selling prices fall within a reasonably narrow pricing range. The Company does not have a
directly observable SSP for its on-premise appliance and end-point devices, and therefore establishes SSP based on its best estimates and
judgments, considering company-specific factors such as pricing strategies, estimated product and other costs, and bundling and discounting
practices.
Sales allowances. Credits and/or rebates issued to customers for product returns and sales incentives are deemed to be variable consideration
under Topic 606, which the Company estimates and records as a reduction to revenue at the point of sale. Product returns and customer sales
incentives are estimated based on the Company’s historical experience, current trends and expectations regarding future experience. Trends are
influenced by product life cycles, new product introductions, market acceptance of products, the type of customer, seasonality and other factors.
Product return and sales incentive rates may fluctuate over time but are sufficiently predictable to allow the Company to estimate expected future
amounts. If actual future returns and sales incentives differ from past experience, additional reserves may be required. As of January 31, 2020 and
2019, the Company had total reserves for product returns and customer sales incentives of $1.4 million and $0.6 million, respectively.
Cash Equivalents and Short-term Investments. All highly liquid investments with an original maturity of three months or less at the date of
purchase are classified as cash equivalents. Short-term investments are classified as available-for-sale and carried at fair value, with unrealized
gains and losses, net of tax, recorded as a separate component of stockholders’ equity within accumulated other comprehensive income (loss). The
cost of securities sold is based upon the specific identification method.
Fair Value of Financial Instruments. The Company records its financial assets and liabilities at fair value. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. The
Company estimates and categorizes the fair value of its financial assets by applying the following hierarchy:
▪
▪
▪
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Observable prices based on inputs not quoted in active markets but are corroborated by market data.
Level 3: Unobservable inputs that are supported by little or no market activity
Transfers among Level classifications are recognized as of the actual date of the events or change in circumstances that caused the transfers. The
carrying value of the Company’s financial instruments, including cash equivalents, accounts receivable, inventory, accounts payable and other
current assets and current liabilities approximates fair value due to their short maturities.
Concentration of Credit Risk. Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash
equivalents, short-term investments, accounts receivables and other receivables. The Company’s cash equivalents and short-term investments are
held by financial institutions that management believes are of high-credit quality. Such investments and deposits may, at times, exceed federally
insured limits. The Company performs credit evaluations of its channel partners’ financial condition and generally does not require collateral for sales
made on credit.
As of January 31, 2020, no single customer accounted for 10% or more of the Company’s net accounts receivable balance. As of January 31, 2019,
one customer accounted for 15% of the Company’s net accounts receivable balance.
Accounts Receivable. Accounts receivable are stated at invoice value less estimated allowances for doubtful accounts, product returns and
customer sales incentives. The Company records its allowances for doubtful accounts based upon its assessment of several factors, including
historical experience, aging of receivable balances and economic conditions. As of January 31, 2020 and 2019, the Company recorded allowances
for doubtful accounts of $0.2 million and $0.1 million, respectively. (See “Sales Allowances” above regarding allowances for product returns and
sales incentives.)
Ooma | FY2020 Form 10-K | 63
Ooma, Inc.
Notes to Consolidated Financial Statements
Inventories. Inventories, which consist of raw materials and finished goods, include the cost to purchase manufactured products, allocated labor
and overhead. Inventories are stated at the lower of actual cost or market on a first-in, first-out basis. The Company’s assessment of market value
requires the use of estimates regarding the net realizable value of its inventory balances, including management’s assessment of excess or obsolete
inventory based upon forecast demand and market conditions . Adjustments to reduce inventory to net realizable value are recognized as a
component of cost of revenue in the consolidated statement of operations.
Customer Acquisition Costs. Sales commissions and other costs paid to internal sales personnel, third-party sales entities and value-added
resellers are considered incremental and recoverable costs of obtaining customer contracts. (The resellers are selling agents for the Company and
earn sales commissions that are directly tied to the value of the contracts that the Company enters with the end-user customers.) Beginning fiscal
2019, under Topic 606, these costs are capitalized and amortized on a systematic basis over the expected period of benefit of five years, or
customer contractual term for multi-year contracts, calculated based on both qualitative and quantitative factors, such as expected subscription term
and expected renewal periods of its customer contracts, product life cycles and customer attrition. Amortization expense is recorded in sales and
marketing expenses in the consolidated statement of operations. Prior to fiscal 2019, such costs were expensed as incurred.
The Company pays sales commissions on initial contracts and contracts for increased purchases with existing customers (expansion contracts) and
does not pay commissions for contract renewals. The Company periodically evaluates whether there have been any changes in its business, the
market conditions in which it operates or other events which would indicate that its amortization period should be changed or if there are potential
indicators of impairment. To date, there have been no impairment losses related to the costs capitalized.
Internal-Use Website Development Costs. The Company capitalizes certain costs to develop its websites when preliminary development efforts
are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the
software will be used as intended. Such costs primarily include payroll-related costs for engineers and contractors directly associated with the
development project. Capitalized website development costs are included in property and equipment and are amortized on a straight-line basis over
an estimated useful life of two years. Costs related to preliminary project activities and post-implementation activities are expensed as incurred.
Property and Equipment, net. Property and equipment, net is stated at cost, less accumulated depreciation and amortization. Depreciation and
amortization is computed on a straight-line basis over the estimated useful lives of those assets, generally two to five years. Leasehold
improvements are amortized over the shorter of the lease term or estimated useful lives of the respective assets. Repairs and maintenance costs
that do not extend the life or improve the asset are expensed as incurred.
Operating Leases. The Company determines if an arrangement is a lease at inception. The Company’s leases primarily consist of real property
and are classified as operating leases. The Company does not have any finance leases nor material arrangements as a lessor. Right-of-use lease
assets and lease liabilities are recognized at the lease commencement date based upon the present value of the remaining lease payments over the
lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the
present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the term of the lease. Lease terms
may include options to renew or extend when it is reasonably certain that the option will be exercised. Lease agreements that contain both lease and
non-lease components are accounted for as a single component. Short-term leases with an initial term of twelve months or less are not recorded on
the balance sheet.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is
evaluated for impairment annually in the fourth quarter of its fiscal year, or more frequently if indicators of potential impairment arise. The Company
has a single reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole.
No impairment has been recognized for any of the periods presented.
Intangible Assets. Acquired intangible assets other than goodwill, which primarily consist of developed technology and customer relationships, are
amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets acquired in a business combination, the
estimated fair values of the assets received are used to establish their recorded values. Valuation techniques consistent with the market approach,
income approach and/or cost approach are used to measure fair value.
Ooma | FY2020 Form 10-K | 64
Ooma, Inc.
Notes to Consolidated Financial Statements
Impairment of Long-Lived Assets. Long-lived assets, such as property and equipment, capitalized website development costs, and intangible
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
During fiscal 2020, the Company recorded impairment charges of $0.7 million to cost of product revenue for abandoned developed technology and
trade names associated with the Ooma Smart Cam, which was acquired through the fiscal 2018 acquisition of Butterfleye, Inc. and discontinued in
October 2019. See Note 15: Restructuring Charges below. The Company did not record any material impairment charges for fiscal 2019 and 2018.
Research and Development. Research and development costs, including new product development, are charged to operating expenses as
incurred in the consolidated statements of operations. Research and development included personnel-related costs (including stock-based
compensation), allocated costs of facilities and information technology, supplies, software tools and product certification.
Advertising. Advertising costs are included in sales and marketing and expensed as incurred, except for production costs associated with television
and radio advertising, which are expensed on the first date of airing. Advertising costs were $13.6 million, $13.7 million and $14.4 million for fiscal
2020, 2019 and 2018, respectively.
Advertising payments to the Company’s channel partners recorded as a reduction in revenue totaled $0.4 million for fiscal 2020 and $0.3 million for
fiscal 2019 and 2018.
Stock-Based Compensation. Stock-based compensation expense for all stock-based awards granted to employees is measured at the grant date
based on the fair value of the equity award and is recognized as expense over the requisite service period, which is generally the vesting period. The
fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of each RSU granted is
determined using the fair value of the Company’s common stock on the date of grant. The fair value of each stock purchase right under the
Company's ESPP is calculated based on the closing price of the Company's stock on the date of grant and the value of a call and put option is
estimated using the Black-Scholes pricing model.
Income Taxes. Income taxes are recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income (or loss) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. A tax position is
recognized when it is more-likely-than-not that the tax position will be sustained upon examination, including resolution of any related appeals or
litigation processes. A tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is
greater than 50% likely of being realized upon ultimate settlement with a taxing authority.
Interest and penalties associated with unrecognized tax benefits are classified as income tax expense. The Company had no interest or penalty
accruals associated with uncertain tax benefits in its consolidated balance sheets and statements of operations for any periods presented.
Foreign currency. The U.S. dollar is the functional currency of the Company's foreign subsidiaries. Remeasurement and transaction gains and
losses are included in interest and other income, net and were not material for any periods presented.
Ooma | FY2020 Form 10-K | 65
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 3: Recent Accounting Standards
Adopted Accounting Standards
Leases. On February 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) which superseded the
guidance in Topic 840 and required the Company to recognize operating leased assets and corresponding liabilities on the balance sheet and to
provide enhanced disclosures. The Company adopted Topic 842 using the modified retrospective transition method by applying the new standard to
all leases existing at the date of initial adoption and not restating comparative periods. The Company elected the package of practical expedients,
which among other things, allowed it to carry forward its historical lease classification and its assessment of whether any existing leases as of the
date of adoption are or contain leases.
Adoption on February 1, 2019 resulted in the recognition of $4.1 million of operating right-of-use assets and $4.3 million of operating lease liabilities
on the consolidated balance sheet, with no adjustment to accumulated deficit. The difference of $0.2 million represented deferred rent for leases that
existed as of the date of adoption, which was an offset to the opening balance of right-of-use assets.
Adoption of the new standard did not materially impact the Company’s consolidated statements of operations, consolidated statements of
stockholders’ equity and consolidated statements of cash flows. The Company has implemented policies, processes and controls to support the
standard's measurement and disclosure requirements. See Note 2: Significant Accounting Policies above and Note 7: Operating Leases below.
Accounting Standards Not Yet Adopted
Financial Instruments-Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial
assets held at amortized cost, which includes accounts receivables, certain financial instruments and contract assets. ASU 2016-13 replaces the
existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The
amendment is effective for the Company beginning in fiscal 2021. The Company is currently evaluating the impact of the new guidance on its
consolidated financial statements.
Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurements, which expands the disclosure requirements for Level 3 fair value
measurements as well as eliminates, adds and modifies certain other disclosure requirements for fair value measurements. The amendment is
effective for the Company beginning in fiscal 2021. The Company does not expect adoption to have a material impact on its consolidated financial
statements.
Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which
simplifies certain aspects of the accounting for income as well as clarifies and amends existing guidance to improve consistent application. The
amendment is effective for the Company beginning fiscal 2022. The Company is currently evaluating the impact of the new guidance on its
consolidated financial statements.
Ooma | FY2020 Form 10-K | 66
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 4: Fair Value Measurements
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy were as
follows (in thousands):
Balance as of January 31, 2020
Level 2
Level 1
Total
Balance as of January 31, 2019
Level 2
Level 1
Total
Assets:
Cash and cash equivalents:
Money market funds
Commercial paper
Total cash equivalents
Cash
Total cash and cash equivalents
Short-term investments:
U.S. treasury securities
Corporate debt securities
Commercial paper
U.S. agency securities
Asset-backed securities
$
$
$
Total short-term investments
$
4,822 $
—
4,822 $
4,492 $
—
—
—
—
4,492 $
— $
—
— $
$
— $
3,504
5,482
—
906
9,892 $
4,822 $
—
4,822 $
6,858
11,680
4,492 $
3,504
5,482
—
906
14,384 $
5,951 $
—
5,951 $
11,088 $
—
—
—
—
11,088 $
— $
5,429
5,429 $
$
— $
4,735
8,253
990
2,187
16,165 $
5,951
5,429
11,380
3,990
15,370
11,088
4,735
8,253
990
2,187
27,253
The Company classifies its cash equivalents and short-term investments within Level 1 or Level 2 because it uses quoted market prices or
alternative pricing sources and models utilizing market observable inputs to determine their fair value. The fair value of Level 2 financial instruments
were obtained from an independent pricing service, which used quoted market prices for identical or comparable instruments or model driven
valuations that used observable market data or inputs corroborated by observable market data. Commercial paper was valued using market prices, if
available, adjusted for accretion of the purchase price to face value at maturity.
For the periods presented, the amortized cost of cash equivalents and marketable securities approximated their fair value and there were no material
realized or unrealized gains or losses, either individually or in the aggregate. No investments in the Company’s portfolio were other-than-temporarily
impaired. The Company had no material Level 3 assets or liabilities and there have been no transfers between levels.
The following table classifies the Company’s short-term investments by contractual maturities (in thousands):
Due in one year or less
Due after one year to two years
Total
As of
January 31,
2020
January 31,
2019
$
$
13,145 $
1,239
14,384 $
27,253
—
27,253
Ooma | FY2020 Form 10-K | 67
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 5: Goodwill and Acquired Intangible Assets
The carrying amount of goodwill was $4.3 million and $3.9 million as of January 31, 2020 and 2019, respectively. The Company recognized
intangibles of $6.1 million and goodwill of $0.4 million in connection with the acquisition of Broadsmart in May 2019. See Note 12: Business
Acquisitions below. There was no change to goodwill subsequent to this acquisition.
The gross value, accumulated amortization and carrying values of intangible assets were as follows (in thousands):
Customer relationships
Developed technology
Trade names
Patents and licenses
Total intangible assets
As of January 31, 2020
As of January 31, 2019
Estimated
life
(in years)
5-7
5
5
NA
$
$
Gross
Value
Accumulated
Amortization
Carrying
Value
Gross
Value
Accumulated
Amortization
Carrying
Value
$
6,735
2,122
625
—
9,482 $
(894) $
(1,500)
(270)
—
(2,664) $
$
5,841
622
355
—
6,818 $
$
902
2,716
451
714
4,783 $
(157) $
(1,121)
(166)
(704)
(2,148) $
745
1,595
285
10
2,635
During fiscal 2020, the Company recorded impairment charges of $0.7 million to cost of product revenue for abandoned developed technology and
trade names associated with the Ooma Smart Cam, which was acquired through the fiscal 2018 acquisition of Butterfleye, Inc. and discontinued in
October 2019. See Note 15: Restructuring Charges below.
Amortization expense was $1.2 million, $0.7 million and $0.3 million in fiscal 2020, 2019 and 2018, respectively.
At January 31, 2020, the estimated future amortization expense for intangible assets is as follows (in thousands):
Fiscal Years Ending January 31,
2021
2022
2023
2024
2025
Thereafter
Total
Total
1,305
1,305
1,305
940
852
1,111
6,818
$
Ooma | FY2020 Form 10-K | 68
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 6: Balance Sheet Components
The following sections and tables provide details of selected balance sheet items (in thousands):
Inventories
Finished goods
Raw materials
Total inventory
Property and equipment, net
Computer hardware and software
Network and engineering equipment
Website development costs
Customer premise equipment
Office furniture and fixtures
Leasehold improvements
Total property and equipment
Less: accumulated depreciation and amortization
Property and equipment, net
$
$
$
Estimated life
(in years)
3-4
3-5
2
3
5
1-5
As of
January 31,
2020
January 31,
2019
6,988
1,381
8,369
$
$
7,567
2,550
10,117
As of
January 31,
2020
January 31,
2019
$
7,046
3,479
2,689
691
124
420
14,449
(9,179)
$
5,270
$
7,109
1,190
3,323
—
114
449
12,185
(7,622)
4,563
Depreciation and amortization of property and equipment totaled $2.5 million, $2.3 million and $2.0 million in fiscal 2020, 2019 and 2018,
respectively.
Other assets
Prepaid expenses
Deferred sales commissions, current
Convertible note receivable
Deferred inventory costs
Other current assets
Total other current assets
Deferred sales commissions, non-current
Convertible note receivable
Other non-current assets
Total other non-current assets
As of
January 31,
2020
January 31,
2019
2,739 $
2,525
1,453
867
1,408
8,992 $
7,412 $
—
774
8,186 $
2,681
1,081
—
334
1,354
5,450
3,387
1,315
677
5,379
$
$
$
$
Customer Acquisition Costs. During fiscal 2020 and 2019, amortization expense for total deferred sales commissions was $2.2 million and $0.7
million, respectively.
Global Telecomm Corporation (“GTC”). In December 2018, the Company invested $1.3 million in cash to Global Telecomm Corporation, a small
privately-held technology company, in exchange for an 18-month convertible promissory note, bearing interest at 10% annually, that will convert to
shares of GTC common or preferred stock upon the occurrence of certain future events. The Company has partnered with GTC on certain research
and development and inventory procurement activities. GTC is considered a variable interest entity (“VIE”) for accounting purposes. However, the
Company is not required to consolidate GTC into its financial statements because the Company is not the primary
Ooma | FY2020 Form 10-K | 69
Ooma, Inc.
Notes to Consolidated Financial Statements
beneficiary. As of January 31, 2020, the Company’s maximum exposure to loss was equal to the carrying value of its convertible note receivable,
including accrued interest. For all periods presented, the Company held no other variable interests in VIEs.
GTC is a related party of Ooma as a result of the convertible note. During fiscal 2020, the Company procured certain raw material inventories from
GTC that amounted to approximately $0.9 million. As of January 31, 2020 and 2019, the Company recorded prepaid inventory deposits to GTC of
$0.5 million and zero, respectively, included in other current assets on the consolidated balance sheet. As of January 31, 2020 and 2019, the
Company’s non-cancelable purchase commitments with GTC were $2.2 million and zero, respectively.
Accrued expenses
Payroll and related expenses
Regulatory fees and taxes
Short-term operating lease liabilities (1)
Customer sales incentives
Other
Total accrued expenses
As of
January 31,
2020
January 31,
2019
$
$
8,942 $
4,777
3,263
1,293
4,301
22,576 $
7,926
5,645
—
970
4,507
19,048
(1) The Company adopted Topic 842, the new accounting standard for leasing arrangements on February 1, 2019. See Note 7: Operating Leases below.
Deferred revenue
Deferred revenue primarily consists of billings or payments received in advance of meeting revenue recognition criteria. Deferred services revenue is
recognized on a ratable basis over the term of the contract as the services are provided. For all arrangements, any revenue that has been deferred
and is expected to be recognized beyond one year is classified in long term liabilities on the consolidated balance sheets.
Subscription and services
Product and other
Total deferred revenue
Less: current deferred revenue
Non-current deferred revenue included in other long-term liabilities
As of
January 31,
2020
January 31,
2019
$
$
$
15,892 $
79
15,971
15,797
174 $
15,682
68
15,750
15,443
307
During fiscal 2020, the Company recognized revenue of approximately $15.4 million pertaining to amounts deferred as of January 31, 2019. As of
January 31, 2020, the Company’s deferred revenue balance was primarily composed of subscription contracts that were invoiced during fiscal 2020.
Remaining Performance Obligations. As of January 31, 2020, contract revenue that has not yet been recognized for open contracts with an original
expected length of greater than one year was $0.2 million. This amount includes both long-term deferred revenue and any non-cancelable contract
amounts that will be invoiced and recognized as revenue in future periods.
Ooma | FY2020 Form 10-K | 70
Note 7: Operating Leases
Ooma, Inc.
Notes to Consolidated Financial Statements
The Company leases its headquarters located in Sunnyvale, California, as well as office and data center space in various locations under non-
cancelable operating lease agreements, with expiration dates through fiscal 2025. The lease agreements often include escalating rent payments,
renewal provisions and other provisions which require the Company to pay common area maintenance costs, property taxes and insurance. The
lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to leases was as follows (in thousands):
Assets
Operating lease right-of-use assets
Total leased assets
Liabilities
Short-term operating lease liabilities
Long-term operating lease liabilities
Total lease liabilities
Weighted-average remaining lease term
Weighted-average discount rate
As of
January 31, 2020
$
$
$
$
8,057
8,057
3,263
5,150
8,413
2.6 years
5.36%
Operating lease right-of-use assets and long-term operating lease liabilities are included on the face of the consolidated balance sheet. Short-term
operating lease liabilities are presented within accrued expenses and other current liabilities.
The components of lease expense were as follows (in thousands):
Operating lease costs (1)
Variable lease costs (2)
Total lease cost
Fiscal Year Ended
January 31, 2020
$
$
2,796
1,062
3,858
(1) Operating lease costs are recognized on a straight-line basis over the lease term. Includes costs for leases with an initial term of twelve months or less, which were not
material.
(2) Variable lease costs primarily included common area maintenance, utilities and property taxes and insurance, which were expensed as incurred.
Total lease costs for fiscal 2019 and 2018 were $3.4 million and $2.7 million, respectively, under Topic 840.
In October 2017, the Company entered into an office sublease agreement with Fiserv Solutions, LLC (“Fiserv”) to lease approximately 33,400
rentable square feet of an office building located in Sunnyvale, California, the Company’s corporate headquarters. One of the members of the
Company’s board of directors is also a member of Fiserv’s board of directors. Therefore, Fiserv is a related party of the Company. During fiscal
2020, 2019 and 2018, the Company incurred total lease costs of approximately $1.0 million, $1.2 million and $0.2 million under this sublease
agreement, respectively, which are included in the table above. This sublease expired at the end of November 2019. In the third quarter of fiscal
2020, the Company entered into a new sublease agreement with an unrelated third party to lease its current corporate headquarters in Sunnyvale,
California from December 1, 2019 through January 31, 2022.
Supplemental cash flow information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets recognized in exchange for new operating lease obligations
Ooma | FY2020 Form 10-K | 71
Fiscal Year Ended
January 31, 2020
$
$
2,148
5,856
As of January 31, 2020, maturities of lease liabilities under non-cancelable operating leases were as follows (in thousands):
Ooma, Inc.
Notes to Consolidated Financial Statements
Fiscal Years Ending January 31,
2021
2022
2023
2024
2025
Total lease payments
Less: imputed interest
Present value of lease liabilities
January 31, 2020
3,354
3,955
1,299
261
200
9,069
(656)
8,413
$
$
As of January 31, 2019, future minimum rental payments under non-cancelable operating leases were as follows (in thousands):
Fiscal Years Ending January 31,
2020
2021
2022
2023
2024
Total (1)
(1) Amounts are based on Topic 840, Leases that was superseded upon the Company’s adoption of Topic 842 on February 1, 2019.
Ooma | FY2020 Form 10-K | 72
January 31, 2019
1,983
1,408
917
266
49
4,623
$
$
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 8: Stockholders’ Equity
Common Stock Reserved for Future Issuance
The Company had shares of common stock reserved for issuance as follows (in thousands):
Restricted stock units outstanding
Stock options outstanding
Shares available for future grant under 2015 Equity Incentive Plan
Shares available for future issuance under ESPP
Total shares of common stock reserved
As of
January 31, 2020
1,657
1,416
1,530
903
5,506
Stock Options. Under the Company's 2015 Equity Incentive Plan, or the 2015 Plan, options to purchase shares of common stock may be granted to
employees, directors and consultants. These options vest from the date of grant to up to four years and expire ten years from the date of grant.
Options may be exercised anytime during their term in accordance with the vesting/exercise schedule specified in the recipient’s stock option
agreement and in accordance with the 2015 plan provisions.
Stock option activity for fiscal 2020 was as follows:
Balance as of January 31, 2019
Granted
Exercised
Canceled
Balance as of January 31, 2020
Vested and exercisable as of January 31, 2020
Shares
(in thousands)
Weighted Average
Exercise Price
Per Share
Aggregate
Intrinsic Value
(in thousands)
1,691 $
89 $
(249) $
(115) $
1,416 $
1,270 $
6.39 $
15.49
2.64
9.74
7.35 $
6.69 $
14,755
8,530
8,371
The aggregate intrinsic value of vested options exercised during fiscal 2020, 2019 and 2018 was $2.2 million, $1.3 million and $0.3 million,
respectively. The weighted average grant date fair value of options granted during fiscal 2020, 2019 and 2018 was $7.13, $5.28 and $4.81 per
share, respectively.
Restricted Stock Units. Under the 2015 Plan, RSUs may be granted to employees, non-employee board members and consultants. These RSUs
vest ratably over a period ranging from one to four years, and are subject to the participant’s continuing service to the Company over that period.
Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not
considered issued and outstanding.
RSU activity for fiscal 2020 and 2019 was as follows:
Balance as of January 31, 2018
Granted
Vested
Canceled
Balance as of January 31, 2019
Granted
Vested
Canceled
Balance as of January 31, 2020
Shares
(in thousands)
Weighted Average
Grant-Date Fair
Value Per Share
1,967 $
1,177 $
(922) $
(297) $
1,925 $
1,035 $
(1,038) $
(265) $
1,657 $
8.85
11.96
9.12
9.70
10.49
14.91
10.64
12.56
12.82
Ooma | FY2020 Form 10-K | 73
Ooma, Inc.
Notes to Consolidated Financial Statements
Vested RSUs included shares of common stock that the Company withheld on behalf of certain employees to satisfy the minimum statutory
tax withholding requirements, as defined by the Company. The Company withheld an aggregate amount of $1.5 million, $2.9 million and $2.4 million
in fiscal 2020, 2019 and 2018, respectively, which were classified as financing cash outflows in the consolidated statements of cash flows. The
Company canceled and returned these shares to the 2015 Plan, which are available under the plan terms for future issuance.
Employee Stock Purchase Plan
The ESPP allows eligible employees to purchase shares of common stock at a discount through payroll deductions of up to 15% of their eligible
compensation (subject to plan limitations). The ESPP provides for a 24-month offering period comprised of four purchase periods of approximately
six months. Employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock as of the first date
or the ending date of each six-month offering period. The offering periods are scheduled to start on the first trading day on or after March 15 and
September 15 of each year.
During fiscal 2020, 2019 and 2018, employees purchased 0.2 million, 0.3 million and 0.3 million shares, respectively, at a weighted purchase price of
$9.97, $6.82 and $5.48 per share, respectively.
Ooma | FY2020 Form 10-K | 74
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 9: Stock-Based Compensation
Total stock-based compensation recognized for stock-based awards in the consolidated statements of operations was as follows (in thousands):
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total stock-based compensation expense
2020
Fiscal Year Ended January 31,
2019
2018
$
$
1,262 $
1,929
4,610
4,960
12,761 $
$
920
1,442
3,762
4,246
10,370 $
1,102
1,818
3,972
4,029
10,921
The income tax benefit related to stock-based compensation expense was zero for all periods presented due to a full valuation allowance on the
Company's deferred tax assets (see Note 10: Income Taxes below). As of January 31, 2020, there was $21.0 million of unrecognized stock-based
compensation expense related to unvested RSUs, stock options and ESPP that will be recognized on a straight-line basis over the remaining
weighted-average vesting period of approximately 2.4 years.
Fair value disclosures. The fair value of stock options granted and purchased under the Company's ESPP was estimated using the Black-Scholes
option pricing model. The expected term of options granted to employees was based on the simplified method as the Company does not have
sufficient historical exercise data, and the expected term of the ESPP was based on the contractual term. Expected volatility was determined using a
combination of the average historical volatility of a group of comparable publicly traded companies and the Company’s own common stock. Risk-free
interest rate was based on the yields of U.S. Treasury securities with maturities similar to the expected term. Dividend yield was zero as the
Company does not have any history of, nor plans to make, dividend payments.
The fair value of employee stock options and ESPP was estimated using the Black–Scholes model with the following assumptions, as applicable:
Stock Options:
Expected volatility
Expected term (in years)
Risk-free interest rate
Dividend yield
ESPP:
Expected volatility
Expected term (in years)
Risk-free interest rate
Dividend yield
2020
44%
6.1
2.5%
NA
Fiscal Year Ended January 31,
2019
43%
6.1
2.7
NA
2018
47%
6.1
1.8%-2.1%
NA
Fiscal Year Ended January 31,
2020
2019
2018
40%-51%
0.5-2.0
1.7%-2.5%
NA
39%-56%
0.5-2.0
2.0%-2.8%
NA
35%-41%
0.5-2.0
0.9%-1.4%
NA
Ooma | FY2020 Form 10-K | 75
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 10: Income Taxes
Loss before income taxes consisted of the following (in thousands):
United States
Foreign
Loss before income taxes
2020
Fiscal Year Ended January 31,
2019
2018
$
$
(17,051) $
(1,880)
(18,931) $
(13,497) $
(1,459)
(14,956) $
(13,121)
—
(13,121)
Income tax benefit differed from the amount computed by applying the federal blended statutory income tax rate to pretax loss as a result of the
following (in thousands):
Federal tax at statutory rate
State taxes, net of federal benefit
Foreign income and withholding taxes
Permanent tax adjustment
Stock-based compensation
Change in valuation allowance
Research and development credit
Impact of U.S. tax law change
Other
Total
2020
Rate
2019
Rate
2018
Rate
Fiscal Year Ended January 31,
$
$
(3,975)
12
(98)
720
(624)
5,445
(1,279)
—
(331)
(130)
21% $
—
1%
(4)%
3%
(29)%
7%
—
2%
1% $
(3,141)
(494)
(105)
843
(991)
5,603
(2,155)
58
(2)
(384)
21% $
3%
1%
(6)%
7%
(37)%
14%
—
—
3% $
(4,316)
(396)
—
527
387
(6,786)
(1,080)
11,667
—
3
33%
3%
—
(4)%
(3)%
52%
8%
(89)%
—
0%
Income tax expense differs from the amount computed by applying the statutory federal income tax rate primarily as the result of changes in the
valuation allowance. On December 22, 2017, the Tax Cuts and Jobs Act was enacted, reducing the corporate income tax rate from 35% to 21%,
effective January 1, 2018.
The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities related to the
following (in thousands):
As of January 31,
2020
2019
Deferred tax assets:
Net operating loss carry forwards
Tax credit carryover
Operating lease asset
Stock-based compensation
Deferred revenue
Accruals and reserves
Intangible assets amortization
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Operating lease liability
Fixed assets depreciation
Acquired intangible assets
Gross deferred tax liabilities
Total deferred tax liabilities
$
$
$
$
$
38,407 $
8,171
2,131
1,167
44
(130)
—
184
49,974
(47,792)
2,182 $
(2,042) $
(124)
(16)
(2,182) $
— $
26,277
5,977
—
1,071
73
1,549
(21)
—
34,926
(34,309)
617
—
(154)
(607)
(761)
(144)
Ooma | FY2020 Form 10-K | 76
Ooma, Inc.
Notes to Consolidated Financial Statements
Management believes that, based on available evidence, both positive and negative, it is more likely than not that the deferred tax assets will not be
utilized, such that a full valuation allowance has been recorded. The valuation allowance for deferred tax assets was $47.8 million, $34.3 million and
$28.7 million as of January 31, 2020, 2019 and 2018, respectively. The net change in the total valuation allowance for fiscal 2020 and 2019 was an
increase of $13.5 million and $5.7 million, respectively.
As of January 31, 2020, the Company had approximately $121.5 million and $70.6 million of net operating loss carryforwards available to offset
future taxable income for both federal and state purposes, respectively. If not utilized, these available carryforward losses will expire in various
amounts for federal and state tax purposes beginning in 2030. In addition, the Company had approximately $7.9 million and $7.1 million of federal
and state research and development tax credits, respectively, available to offset future taxes. If not utilized, the available federal credits will begin to
expire in 2030. California state research and development tax credits can be carried forward indefinitely.
Uncertain Tax Positions
The Company has unrecognized tax benefits (“UTBs”) of approximately $6.0 million as of January 31, 2020. Deferred tax assets associated with
these UTBs are fully offset by a valuation allowance. If recognized, these UTBs would not affect the effective tax rate before consideration of the
valuation allowance. The following table summarizes the activity related to UTBs (in thousands):
Balance at January 31, 2018
Increase related to prior year positions
Increase related to current year tax positions
Balance at January 31, 2019
Increase related to prior year positions
Increase related to current year tax positions
Balance at January 31, 2020
$
$
2,825
8
1,592
4,425
—
1,592
6,017
The Company had no interest or penalty accruals associated with uncertain tax benefits in its balance sheets and statements of operations for both
fiscal 2020 and 2019. The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized
benefits will increase or decrease within 12 months of the year ended January 31, 2020. Because the Company has net operating loss and credit
carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine the Company’s tax returns for
all years from 2009 through the current period.
Ooma | FY2020 Form 10-K | 77
Note 11: Commitments and Contingencies
Ooma, Inc.
Notes to Consolidated Financial Statements
Purchase Commitments. As of January 31, 2020 and 2019, non-cancelable purchase commitments with the Company’s contract manufacturers
and other parties were $4.0 million and $4.2 million, respectively.
Legal Proceedings
In addition to the litigation matters described below, from time to time, the Company may be involved in a variety of other claims, lawsuits,
investigations, and proceedings relating to contractual disputes, intellectual property rights, employment matters, regulatory compliance matters, and
other litigation matters relating to various claims that arise in the normal course of business. Defending such proceedings is costly and can impose a
significant burden on management and employees, the Company may receive unfavorable preliminary or interim rulings in the course of litigation,
and there can be no assurances that favorable final outcomes will be obtained.
The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and
can be reasonably estimated. The Company assesses its potential liability by analyzing specific litigation and regulatory matters using reasonably
available information. The Company develops its views on estimated losses in consultation with inside and outside counsel, which involves a
subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. Legal fees
are expensed in the period in which they are incurred.
As of January 31, 2020, the Company does not have any accrued liabilities recorded for loss contingencies in its consolidated financial statements.
Berks County Litigation
On January 21, 2016, the County of Berks, Pennsylvania filed a lawsuit in the Berks County Court of Common Pleas (the “Court”) naming the
Company and 113 other telephone service providers as defendants (the “Berks County Litigation”), alleging breach of fiduciary duty, fraud, and
negligent misrepresentation in connection with alleged violations of the Pennsylvania 911 Emergency Communication Services Act (“PA 911 Act”)
for failure to collect from subscribers and remit certain fees pursuant to the PA 911 Act. On June 13, 2019, the case was dismissed by the Court and
on June 26, 2019, the parties to the litigation entered into a Joint Stipulation of Dismissal, which was approved by the Court.
Deep Green Wireless Litigation
On June 8, 2016, plaintiff Deep Green Wireless LLC (“Deep Green”) filed a complaint in the U.S. District Court for the Eastern District of Texas
against Ooma, Inc., alleging infringement of U.S. Patent No. RE42,714 (the “Deep Green Wireless Patent”, and such litigation, the “Deep Green
Wireless Litigation”). The complaint seeks unspecified monetary damages, costs, attorneys’ fees and other appropriate relief. In February 2017, the
Court granted the Company’s motion to transfer the case to the Northern District of California, which proceeding has been stayed pending the
outcome of an inter partes review of the Deep Green Wireless Patent by the United States Patent Trial and Appeal Board (“PTAB”). On December
17, 2018, the PTAB issued its final decision regarding the claims at issue in the Deep Green Wireless Litigation, in which it determined that all
challenged claims of the Deep Green Wireless Patent are obvious and unpatentable. On February 19, 2019, the plaintiff filed a Notice of Appeal to
the Court of Appeals for the Federal Circuit. The matter was fully briefed and oral argument was held on February 7, 2020. On March 31, 2020, the
Federal Circuit affirmed the final decision by the PTAB with respect to all asserted claims of the Deep Green Wireless Patent. Deep Green has 30
days to petition for rehearing by the Federal Circuit. Deep Green may also petition the Supreme Court to hear the case, provided a petition is filed on
the later of 90 days from March 31, 2020 or 90 days from the date of denial of any petition for rehearing. If Deep Green does not petition for
rehearing by the Federal Circuit or for the Supreme Court to hear the case, or if the petition for rehearing is denied, we expect the Deep Green
Wireless Litigation will be dismissed.
Based on the Company’s current knowledge, the Company has determined that the amount of any material loss or range of any losses that is
reasonably possible to result from the Deep Green Wireless Litigation is not estimable.
Ooma | FY2020 Form 10-K | 78
Ooma, Inc.
Notes to Consolidated Financial Statements
Oregon Tax Litigation
On August 30, 2016, the Oregon Department of Revenue (the “DOR”) issued tax assessments against the Company for the Oregon Emergency
Communications Tax (the “Tax”), which the DOR alleges Ooma should have collected from its subscribers in Oregon and remitted to the DOR during
the period between January 1, 2013 and March 31, 2016 (collectively, the “Assessments”).
The Company believes that the Commerce Clause of the United States Constitution bars the application of the Tax and the Assessments to the
Company, since the Company has no employees, property or other indicia of a “substantial nexus” with the State of Oregon. On January 17, 2019,
the Regular Division of the Oregon Tax Court heard oral arguments on the parties’ cross motions for summary judgment. During fiscal 2019, the
Company paid $0.6 million to the State of Oregon in connection with the Oregon Tax Litigation, of which $0.3 million was charged to the
consolidated statement of operations as the amount of loss deemed probable and reasonably estimable, and $0.3 million was recorded as a
receivable in other current assets on the consolidated balance sheet for interest and penalties. As of January 31, 2020, the Company determined the
$0.3 million receivable was not probable of recovery and charged the amount to general and administrative expense in the consolidated statement of
operations.
On March 2, 2020, Oregon Tax Court issued a decision upholding the Assessments. On April 1, 2020, the Company filed a Notice of Appeal with the
Supreme Court of the State of Oregon. However, litigation is unpredictable and there can be no assurances that the Company will obtain a favorable
final outcome or that it will be able to avoid further unfavorable interim rulings in the course of litigation that may significantly add to the expense of
its defense and could result in substantial costs and diversion of resources.
Securities Litigation
On January 14, 2016, Michael Barnett filed a purported stockholder class action in the San Mateo County Superior Court of the State of California
(Case No. CIV536959) against the Company, certain of its officers and directors, and certain of the underwriters of the Company’s IPO on July 17,
2015. After the case was consolidated with two other identical lawsuits, a “consolidated complaint” was filed on behalf of all persons who purchased
shares of common stock in the Company’s IPO in reliance upon the Registration Statement and Prospectus the Company filed with the SEC. The
consolidated complaint alleged that the Company and the other defendants violated the Securities Act of 1933, as amended (the “Securities Act”) by
issuing the Registration Statement and Prospectus, which the plaintiffs alleged contained material misstatements and omissions in violation of
Sections 11, 12(a)(2) and 15 of the Securities Act.
On May 30, 2019, the parties filed with the Court a Stipulation of Settlement, and on October 18, 2019 the Court entered final approval of the
settlement. Under the terms of the settlement, the Company’s directors’ and officers’ liability insurers deposited $8.65 million into a settlement fund
for payment to class members, and paid plaintiff’s attorneys’ fees and costs of administering the settlement. The Stipulation of Settlement contains
no admissions of wrongdoing, and the Company and the other defendants have maintained and continue to deny liability and wrongdoing of any kind
with respect to the class action claims. As part of the final settlement approval, the Court dismissed the class action lawsuit with prejudice and the
plaintiff released all claims against the Company and all other defendants relating to the allegations in the class action.
Indemnification
The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company
indemnifies, holds harmless and agrees to reimburse the indemnified parties for certain losses suffered or incurred by the indemnified party. In some
cases, the term of these indemnification agreements is perpetual. The maximum potential amount of future payments the Company could be
required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future but
have not yet been made.
The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its
directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from
willful misconduct of the individual. The maximum potential amount of future payments the Company could be required to make under these
indemnification agreements is unlimited; however, the Company has director and officer insurance coverage that reduces the Company’s exposure
and enables the Company to recover a portion of any future amounts paid.
To date the Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated
with such indemnifications has been recorded to date.
Ooma | FY2020 Form 10-K | 79
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 12: Business Acquisitions
Broadsmart Global, Inc.
On May 24, 2019, the Company acquired all outstanding stock of Broadsmart, a provider of cloud-based UCaaS solutions based in Florida. The
cash consideration transferred for Broadsmart was $7.1 million, net of cash assumed of $0.6 million, and of which approximately $0.9 million will be
held in escrow for a period of up to two years. The Company expects Broadsmart will provide scale for the Ooma Office and Ooma Enterprise
platforms, which aligns with the Company’s overall enterprise growth strategy.
The fair values of assets acquired and liabilities assumed as of the date of acquisition was as follows (in thousands):
Cash
Accounts receivable
Other current and non-current assets
Intangible assets
Goodwill
Accounts payable and other liabilities
Net assets acquired
$
$
Fair Value
649
1,003
639
6,107
366
(1,043)
7,721
Intangible assets acquired consisted of customer relationships of $5.8 million and trade names of $0.3 million. Customer relationships represented
the estimated fair values of the underlying relationships with Broadsmart’s customer base and have an estimated useful life of seven years as of the
date of acquisition. The goodwill recognized was attributable to the assembled workforce and expanded market opportunities when integrating
Broadsmart’s offerings with Ooma Business. The Company made an election under Section 338(h)(10) of the Internal Revenue Code, which
resulted in the acquisition being treated as an asset purchase for income tax purposes. Therefore, the transaction did not result in the recording of
deferred taxes as the Company's tax basis in the acquired assets equaled its book basis. The resulting goodwill from this acquisition is deductible for
U.S. income tax purposes.
Broadsmart revenue included in the Company’s consolidated statement of operations from the May 24, 2019 acquisition date through January 31,
2020 was approximately $7.0 million. On an unaudited pro forma basis, had the Broadsmart acquisition been included in the Company’s
consolidated results of operations beginning February 1, 2018, the Company’s total revenue for fiscal 2020 and 2019 would have approximated
$153 million and $138 million, respectively. These pro forma revenue amounts were adjusted to exclude revenue associated with a legacy
Broadsmart customer that was not expected to be a continuing customer for the combined entity. These pro forma revenue amounts do not
necessarily represent what would have occurred if the business combination had taken place on February 1, 2018, nor do these amounts represent
the results that may occur in the future. Actual and pro forma net loss for the Broadsmart acquisition have not been presented because the impact
was not material to the Company's consolidated statement of operations.
Acquisition-related transaction costs charged to expense during fiscal 2020 were approximately $0.3 million.
Voxter Communications, Inc.
On March 12, 2018, the Company acquired all outstanding stock of Voxter, a privately-held provider of UCaaS offerings for mid-market and
enterprise businesses. The acquisition date fair value consideration transferred for Voxter was approximately $3.9 million, which primarily consisted
of cash and common stock. The final purchase price allocation included identifiable intangible assets of approximately $2.1 million, net assets
acquired of approximately $0.4 million, deferred tax liabilities of approximately $0.4 million and residual goodwill of approximately $2.0 million, based
on the best estimates of management. Acquisition-related transaction costs charged to expense were $0.4 million. The goodwill recognized was
attributable primarily to expected synergies in the acquired technologies that may be leveraged by the Company in future Ooma Business offerings.
Goodwill was not deductible for U.S. or Canadian income tax purposes.
The operating results of the acquired company were included in the Company's consolidated financial statements from the date of acquisition. Actual
and pro forma results of operations for the Voxter acquisition have not been presented because it does not have a material impact on the Company's
consolidated results of operations.
Ooma | FY2020 Form 10-K | 80
Ooma, Inc.
Notes to Consolidated Financial Statements
Note 13: Net Loss Per Share
Basic and diluted net loss per share of common stock is calculated by dividing the net loss allocable to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted net loss per share of common stock is the same as basic net loss per
share because the effects of potentially dilutive securities are antidilutive because the Company reported net losses for all periods presented.
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):
Numerator
Net loss
Denominator
Weighted-average common shares
Basic and diluted net loss per share
Fiscal Year Ended January 31,
2020
2019
2018
$
$
(18,801) $
(14,572) $
(13,121)
21,051,039
19,799,781
(0.89) $
(0.74) $
18,570,128
(0.71)
Potentially dilutive securities of approximately 3.2 million, 3.9 million and 4.1 million were excluded from the computation of diluted net loss per share
for fiscal 2020, 2019 and 2018, respectively. These dilutive securities included the Company’s RSUs, stock options and shares to be purchased
under the ESPP. These shares include the Company’s outstanding RSUs, outstanding stock options and shares to be purchased under the ESPP at
the end of the respective period. In the event the Company reported net income for the periods presented, a portion of these outstanding securities
would be reflected in weighted-average shares outstanding for diluted earnings per share by application of the treasury method.
Note 14: Retirement Plan
The Company offers a qualified 401(k) defined contribution plan to eligible full-time employees that provides for discretionary employer matching and
profit-sharing contributions. For calendar year 2019, eligible employees could contribute up to a maximum of $19,000 per year, or $25,000 for
employees over 50 years of age. The Company matches the lower of 50% of employee contributions or 50% of the first 6% of each employee’s
eligible compensation that is contributed to the 401(k) plan. Contributions made by the Company vest 100% upon contribution. The Company’s
matching contributions to the plan, which are expensed immediately as compensation costs, were $0.7 million, $0.7 million and $0.5 million in fiscal
2020, 2019 and 2018, respectively.
Note 15: Restructuring Charges
In October 2019, the Company approved a restructuring plan designed to better align resources around its long-term business strategy. The
restructuring provided for the discontinuation of Ooma Smart Cam, given the increased level of competition in the market, accompanied with a small
reduction-in-force.
For fiscal 2020, the Company recorded aggregate restructuring charges of $3.1 million in its consolidated statement of operations, which consisted
of the following major components (in thousands):
Employee
Severance
Excess Inventory and
Purchase Commitments (1)
Other
Assets (2)
Other
Charges
Total
Cost of service revenue
Cost of product revenue
Sales and marketing
Research and development
General and administrative
Total restructuring charges
$
$
75 $
—
170
475
—
720 $
— $
1,375
—
—
—
1,375 $
— $
694
—
42
—
736 $
93 $
45
5
111
—
254 $
168
2,114
175
628
—
3,085
(1) Includes charges for excess Smart Cam product inventory and non-cancelable purchase commitments.
(2) Includes impairment charges for abandoned intangible assets associated with Smart Cam as well as other long-lived assets.
The actions associated with the restructuring were completed in the fourth quarter of fiscal 2020, including the pay-out of all restructuring liabilities.
Ooma | FY2020 Form 10-K | 81
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our Management, with the participation of our chief executive officer and our chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures as of January 31, 2020. The term “disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and
procedures as of January 31, 2020, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.
Management's Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of
the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the assessment, management has
concluded that its internal control over financial reporting was effective as of January 31, 2020 to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. This annual report does not include an
attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies under
the JOBS Act.
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in
connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended January 31,
2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None.
Ooma | FY2020 Form 10-K | 82
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included under the caption “Directors, Executive Officers and Corporate Governance” in our Proxy
Statement for the 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended January 31, 2020, which we
refer to as our 2020 Proxy Statement, and is incorporated herein by reference. The Company has a “Code of Ethics and Business Conduct for
Employees, Officers and Directors” that applies to all of our employees, including our Principal Executive Officer, Principal Financial Officer, Principal
Accounting Officer and our Board of Directors. A copy of this code is available on our website at http://investors.ooma.com. We intend to satisfy the
disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Ethics and Business
Conduct for Employees, Officers and Directors by posting such information on our investor relations website under the heading “Corporate
Governance—Governance Documents” at http://investors.ooma.com.
ITEM 11. Executive Compensation
The information required by this item will be included under the captions “Executive Compensation” and under the subheadings “Board’s Role in
Risk Oversight, “Outside Director Compensation,” and “Compensation Committee Interlocks and Insider Participation” under the heading “Directors,
Executive Officers and Corporate Governance” in the 2020 Proxy Statement and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included under the captions “Security Ownership of Certain Beneficial Owners and Management” and
under the subheading “Potential Payments upon Termination or Change in Control” and “Equity Compensation Plan Information” under the heading
“Executive Compensation” in the 2020 Proxy Statement and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included under the captions “Certain Relationships and Related Transactions” and “Directors, Executive
Officers and Corporate Governance—Director Independence” in the 2020 Proxy Statement and is incorporated herein by reference.
ITEM 14. Principal Accounting Fees and Services
The information required by this item will be included under the caption “Proposal Two: Ratification of Selection of Independent Registered Public
Accountants” in the 2020 Proxy Statement and is incorporated herein by reference.
Ooma | FY2020 Form 10-K | 83
ITEM 15. Exhibits, Financial Statement Schedules
Documents filed as part of this report are as follows:
(a)
Consolidated Financial Statements
PART IV
Our Consolidated Financial Statements are listed in the “Index” Under Part II, Item 8 of this Annual Report on Form 10-K
(b)
Consolidated Financial Statement Schedules
All financial statement schedules are omitted because the information called for is not required or is shown either in the consolidated financial
statements or in the notes thereto.
(c)
Exhibits
The exhibits filed or incorporated by reference as part of this Annual Report on Form 10-K are listed in the Exhibit Index below. We have identified in
the Exhibit Index each management contract and compensation plan filed as an exhibit to this Annual Report on Form 10-K in response to Item
15(a)(3) of Form 10-K.
The documents listed in the Exhibit Index of this report are incorporated by reference or are filed with this Annual Report on Form 10-K, in each case
as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
ITEM 16. Form 10-K Summary
None.
Ooma | FY2020 Form 10-K | 84
Exhibit Number
Description
EXHIBITS
Filed / Furnished /
Incorporated by
Reference from Form
Incorporated by
Reference from Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
Amended and Restated Certification of Incorporation
Amended and Restated Bylaws
Form of common stock certificate.
Fourth Amended and Restated Investors’ Rights
Agreement, by and among the Registrant and certain of
its stockholders dated as of April 24, 2015.
Form of Senior Indenture
Form of Subordinated Indenture
10-Q
10-Q
S-1/A
S-1
S-3
S-3
Description of Securities
Filed herewith.
10.1+
2005 Stock Incentive Plan and forms of
agreements thereunder.
10.2+
2015 Equity Incentive Plan and forms of agreements
thereunder.
10.3+
2015 Employee Stock Purchase Plan and form of
agreement thereunder.
10.4+
Executive Incentive Bonus Plan.
10.5+
Executive Change in Control and Severance Agreement
by and between the Company and
Eric B. Stang, dated June 9, 2015.
10.6+
Form of Executive Change in Control and
Severance Agreement
10.7+
Offer Letter by and between the Company and James
A. Gustke, dated July 30, 2010.
10.8
Change in Control Letter Agreement between the
Company and James A. Gustke, dated August 31,
2016.
10.9
Form of Indemnification Agreement between the
Registrant and each of its directors and executive
officers.
S-1
S-1/A
S-1/A
S-1
S-1
S-1
S-1
10-K
S-1
Ooma | FY2020 Form 10-K | 85
3.1
3.2
4.1
4.2
4.2
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.8
Date Filed
9/11/2015
9/11/2015
7/6/2015
6/15/2015
12/23/2019
12/23/2019
6/15/2015
7/6/2015
7/6/2015
6/15/2015
6/15/2015
6/15/2015
6/15/2015
4/11/2017
6/15/2015
Date Filed
10/10/2017
06/08/2018
12/06/2019
Exhibit Number
Description
Filed / Furnished /
Incorporated by
Reference from Form
Incorporated by
Reference from Exhibit
Number
10.1
10.1
10.1
10.10
Sublease Agreement, dated as of September 12, 2017
by and among the Company and Fiserv Solutions, LLC.
10.11+
Form of Restricted Stock Unit Agreement under the
2015 Equity Incentive Plan (effective for grants made on
or after March 14, 2018).
8-K
10-Q
10.12
Sublease Agreement dated as of August 6, 2019 by and
10-Q
among the Company and Alibaba Group (U.S.) Inc.
21.1
23.1
31.1
31.2
32.1
32.2
List of subsidiaries of the Registrant.
Consent of Deloitte & Touche LLP, Independent
Registered Public Accounting Firm.
Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002, Rule 13(a)‑14(a)/15d-14(a), by
President and Chief Executive Officer.
Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002, Rule 13(a)‑14(a)/15d-14(a), by Chief
Financial Officer.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, by President and Chief Executive Officer.
Furnished herewith.
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, by Chief Financial Officer.
Furnished herewith.
101.INS
XBRL Instance Document
Filed herewith.
101.SCH
XBRL Taxonomy Extension Schema Document
Filed herewith.
101.CAL
101.DEF
XBRL Taxonomy Extension Calculation Linkbase
Document
XBRL Taxonomy Extension Definition Linkbase
Document
Filed herewith.
Filed herewith.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
Filed herewith.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document
Filed herewith.
+ Indicates a management contract or compensatory plan.
Ooma | FY2020 Form 10-K | 86
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
April 13, 2020
Ooma, Inc.
SIGNATURES
By: /s/ Eric B. Stang
Eric B. Stang
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Eric B. Stang,
Ravi Narula and Jenny C. Yeh, and each of them individually, as his or her attorney-in-fact, each with full power of substitution, for him or her in any
and all capacities to sign any and all amendments to this Annual Report on Form 10-K, and to file the same with, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his or her substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:
Signature
/s/ Eric B. Stang
Eric B. Stang
/s/ Ravi Narula
Ravi Narula
/s/ Susan Butenhoff
Susan Butenhoff
/s/ Alison Davis
Alison Davis
/s/ Andrew Galligan
Andrew Galligan
/s/ Peter J. Goettner
Peter J. Goettner
/s/ Russell Mann
Russell Mann
/s/ William D. Pearce
William D. Pearce
Title
Date
President and Chief Executive Officer and Chairman of the
Board of Directors
(Principal Executive Officer)
April 13, 2020
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
April 13, 2020
Director
Director
Director
Director
Director
April 13, 2020
April 13, 2020
April 13, 2020
April 13, 2020
April 13, 2020
Lead Director
April 13, 2020
Ooma | FY2020 Form 10-K | 87
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 4.5
As of January 31, 2020, Ooma, Inc. (“Ooma,” the “Company”, “we,” “our” or “us”) had one class of securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): Common Stock, par value $0.0001 per
share. The Company’s securities registered under Section 12 of the Exchange Act are listed on the New York Stock Exchange.
As used in the following description, the terms “Ooma,” “we,” “us” and “our” refer to Ooma, Inc. and not any of its
subsidiaries, unless the context requires otherwise.
The following description summarizes the most important terms of our capital stock as set forth in our amended and
restated certificate of incorporation and amended and restated bylaws. The summary does not purport to be complete and is qualified
in its entirety by reference to our amended and restated certificate of incorporation, our amended and restated bylaws and to the
applicable provisions of Delaware law. For more detailed information, please see our amended and restated certificate of
incorporation and amended and restated bylaws, which are filed as exhibits to our quarterly report on Form 10-Q for the period
ended July 31, 2015, as filed on September 11, 2015 with the SEC.
Common Stock
We are authorized to issue up to a total of 100,000,000 shares of common stock, par value $0.0001 per share. Holders of
our common stock are entitled to one vote for each share held on all matters submitted to a vote of our stockholders. Holders of our
common stock have no cumulative voting rights. Further, holders of our common stock have no preemptive, conversion, redemption
or rights and there are no sinking fund provisions applicable to our common stock. Upon our liquidation, dissolution or winding-
up, holders of our common stock are entitled to share ratably in all assets remaining after payment of all liabilities and the liquidation
preferences of any of our outstanding shares of preferred stock. Subject to preferences that may be applicable to any outstanding
shares of preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time
by our board of directors, or board, out of our assets which are legally available.
As of March 31, 2020, there were approximately 22.1 million shares of common stock issued and outstanding and there
were approximately 75 holders of record of our common stock.
Preferred Stock
Our board is authorized, subject to certain limitations prescribed by law, to designate and issue up to a total of 10,000,000
shares of preferred stock, par value $0.0001, without stockholder approval. The board may issue preferred stock from time to time in
one or more series and fix the designations, preferences and rights of the shares of each such series and any qualifications, limitations
or restrictions on the shares of each such series, including dividend rights and rates, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any such series. Our board may authorize the issuance of
preferred stock with
1
voting or conversion rights that could harm the voting power or other rights of the holders of the common stock. The issuance of
preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other
things, have the effect of delaying, deferring or preventing a change in control of our company and might harm the market price of
our common stock and the voting and other rights of the holders of common stock. No shares of preferred stock are outstanding, and
we have no current plans to issue any shares of preferred stock.
Anti-Takeover Effects of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws
Our amended and restated certificate of incorporation and our amended and restated bylaws contain certain provisions that
could have the effect of delaying, deterring or preventing another party from acquiring control of us. These provisions and certain
provisions of Delaware law, which are summarized below, are expected to discourage coercive takeover practices and inadequate
takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first
with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate more favorable
terms with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us.
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaw Provisions
Our amended and restated certificate of incorporation and our amended and restated bylaws include a number of
provisions that could deter hostile takeovers or delay or prevent changes in control of our management team, including the following:
•
•
Board of director vacancies. Our amended and restated certificate of incorporation and amended and restated bylaws
authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of
directors constituting our board of directors is permitted to be set only by a resolution adopted by our board of directors.
These provisions prevent a stockholder from increasing the size of our board of directors and then gaining control of our
board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the
composition of our board of directors but promotes continuity of management.
Classified board. Our board of directors is divided into three classes, one class of which is elected each year by our
stockholders. The directors in each class will serve three-year terms. A third party may be discouraged from making a
tender offer or otherwise attempting to obtain control of us as it is more difficult and time-consuming for stockholders to
replace a majority of the directors on a classified board.
2
•
•
•
•
•
Stockholder action; special meeting of stockholders. Our amended and restated certificate of incorporation and amended
and restated bylaws provide that our stockholders may not take action by written consent but may only take action at
annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock will not be
able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called
in accordance with our amended and restated bylaws.
Our amended and restated certificate of incorporation further provides that special meetings of our stockholders may be
called only by a majority of our board of directors, the chairman of our board of directors, our chief executive officer or
our president (in the absence of a chief executive officer), thus prohibiting a stockholder from calling a special meeting.
These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders
controlling a majority of our capital stock to take any action, including the removal of directors.
Advance notice requirements for stockholder proposals and director. Our amended and restated bylaws provide advance
notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate
candidates for election as directors at our annual meeting of stockholders. Our amended and restated bylaws also specify
certain requirements regarding the form and content of a stockholder’s notice. These provisions might preclude our
stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors
at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions may also
discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of
directors or otherwise attempting to obtain control of our company.
No cumulative voting. Our amended and restated certificate of incorporation does not provide for cumulative voting in
the election of directors. Cumulative voting allows a stockholder to vote a portion or all of its shares for one or more
candidates for seats on the board of directors. Without cumulative voting, a minority stockholder may not be able to gain
as many seats on our board of directors as the stockholder would be able to gain if cumulative voting were permitted. The
absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to
influence our board’s decision regarding a takeover.
Directors removed only for cause. Our amended and restated certificate of incorporation and amended and restated
bylaws provide that stockholders may remove directors only for cause.
Choice of forum. Unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State
of Delaware is the sole and exclusive forum for: (1) any derivative action or v proceeding brought on our behalf; (2) any
action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders;
(3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law,
our amended and restated certificate of incorporation or our amended and restated bylaws; or (4) any action asserting a
claim against us governed by the internal affairs doctrine. The enforceability of similar choice of forum provisions in
other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in
connection with any action, a court could find the choice of forum provisions contained in our amended and restated
certificate of incorporation to be inapplicable or unenforceable in such action.
3
•
•
Amendment of Charter and Bylaws Provisions. The amendment of the above provisions of our amended and restated
certificate of incorporation will require approval by holders of at least 66 2⁄3% of our outstanding capital stock entitled to
vote generally in the election of directors. The amendment of certain provisions of our amended and restated bylaws will
also require approval by the holders of at least 66 2⁄3% of our outstanding capital stock.
Undesignated Preferred Stock. As discussed above, our board of directors will have the ability to issue preferred stock
with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and
other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our
company.
Delaware Anti-Takeover Statute
We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers.
In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a business
combination with an interested stockholder for a period of three years following the date the person became an interested stockholder
unless:
•
•
•
prior to the date of the transaction, the board of directors approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the voting stock outstanding, but not for determining the outstanding voting stock
owned by the interested stockholder, (1) voting stock owned by persons who are directors and also officers, and
(2) voting stock owned by employee stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
at or subsequent to the date of the transaction, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least
66 2⁄3% of the outstanding voting stock which is not owned by the interested stockholder.
In general, Section 203 defines business combination to include the following:
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, lease, exchange, mortgage, transfer, pledge or other disposition of 10% or more of either the assets or
outstanding stock of the corporation involving the interested stockholder;
4
•
•
•
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class
or series of the corporation beneficially owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial
benefits by or through the corporation.
These provisions may have the effect of delaying, deferring or preventing a change in our control.
Listing
Our common stock is listed on the New York Stock Exchange under the symbol “OOMA.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A. The transfer agent and
registrar’s address is 462 South 4th Street, Suite 1600, Louisville, KY 40202. The transfer agent’s telephone number is (800) 736-
3001 (United States) or +1-781-575-3100 (outside the United States).
5
Name
Jurisdiction of Incorporation
List of Subsidiaries
Talkatone, LLC
Ooma International Operations, LLC
Ooma International Ltd.
Ooma Australia Pty Ltd.
Voxter Communications, Inc.
Broadsmart Global, Inc.
Delaware
Delaware
United Kingdom
Australia
British Columbia, Canada
Florida
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in Registration Statement No. 333-235673 on Form S-3 and in Registration Nos. 333-230693, 333-
224086, 333-217254, 333-210717 and 333-205719 on Form S-8 of our report dated April 13, 2020, relating to the consolidated financial statements
of Ooma, Inc. and subsidiaries (the “Company”) (which report expresses unqualified opinion and includes an explanatory paragraph relating to the
Company’s adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, and No. 2016-02, Leases) appearing
in this Annual Report on Form 10-K of the Company for the year ended January 31, 2020.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
April 13, 2020
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Eric B. Stang, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ooma, Inc. for the fiscal year ended January 31, 2020;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: April 13, 2020
By:
/s/ Eric B. Stang
Eric B. Stang
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Ravi Narula, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ooma, Inc. for the fiscal year ended January 31, 2020;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: April 13, 2020
By:
/s/ Ravi Narula
Ravi Narula
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Eric B. Stang, certify pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report on Form 10-K of Ooma, Inc. for the fiscal year ended January 31, 2020, fully complies with the requirements of Section 13(a) or 15(d)
of the Exchange Act and that the information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial
condition and result of operations of Ooma, Inc.
Date: April 13, 2020
By:
/s/ Eric B. Stang
Eric B. Stang
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Ravi Narula, certify pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report on Form 10-K of Ooma, Inc. for the fiscal year ended January 31, 2020, fully complies with the requirements of Section 13(a) or 15(d)
of the Exchange Act and that the information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial
condition and result of operations of Ooma, Inc.
Date: April 13, 2020
By:
/s/ Ravi Narula
Ravi Narula
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)