Cynthia Hiponia - IR Eric Stang - CEO Ravi Narula - CFO

Michael Nemeroff - Credit Suisse Nikolay Beliov - Bank of America Matt Robison - Wunderlich Bhavan Suri - William Blair Josh Nichols - B. Riley

Good day and welcome to the Ooma First Quarter Fiscal 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Cynthia Hiponia. Please go ahead ma'am.

Thank you, DeDe [ph]. This is Cynthia Hiponia, Ooma's Investor Relations and I am pleased to welcome you to Ooma's conference call to discuss its' first quarter fiscal 2017 earnings result. With me on the call today is Ooma's CEO, Eric Stang and CFO, Ravi Narula. After the market closed today, Ooma issued a press release in PR Newswire. The release is also available in the company's website at ooma.com. This call is being webcast live on the Investor Relations page, the Ooma website and will be available for period of one year. During the course of today's presentation, our executives will make forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements generally relate to future events or future financial or operating performance. Forward-looking statements in this presentation include, but are not limited to statements related to our business and financial performance, expectations and guidance for future periods, our expectations regarding our strategic product initiative and the related benefits and our expectations regarding the market. Our expectations and beliefs regarding these matters may not materialize and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release that we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements except as required by law. Please note that other than revenue or as otherwise specifically stated, the financial measures to be discussed on this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures are included in our earnings press release that is available on our website. On this call, we will give guidance for the second quarter and full year fiscal 2017 on a non-GAAP basis. We will not make available reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures. Let me now turn the call over to Eric Stang, Ooma's CEO.

Thank you, Cynthia. Hello and welcome to Ooma's fiscal year 2017 Q1 earnings call. I'm very pleased to report that Q1 was a strong quarter for Ooma. Total revenue increased to $24.5 million. Core users reached 835,000 and our net dollar subscription revenue retention rate was particularly strong at 102%. I'm especially excited about the continued growth in our high margin subscription and services revenue which increased to 38% year-over-year. This builds on our 36% subscription and services revenue growth rate for all of last year and it demonstrates well the power of our business model and our competitive advantage over other solutions for small business, home and mobile consumers. Last quarter I talked about our strategy for FY 2017 and specifically four major initiatives that will be key drivers of our growth and success this fiscal year. I believe we executed well in each of these initiatives in Q1. I now like to walk you through our plans for implementing them the rest of this year. Our first initiative is to place emphasis on growing our small business customer base. Small businesses with less than 20 employees present a vast and untapped market opportunity and have their own unique needs distinct from larger sized businesses. Ooma is focused on the specific needs of small businesses and provides a unique combination of quality, features and value not available from others. Recently we announced support for select IP phones to give our small business customers ultimate flexibility and how they use Ooma. Unlike our major competitors, Ooma provides small businesses the choice to use a combination of standard analog phones, mobile phones, and now IP phones. Small businesses are required to invest in new phones and cabling to hook them up with Ooma but if they want the added features available from an IP phone, we offer three pre-programmed phones covering the range of features and price points. In our last call I also spoke about our upcoming launch of Ooma Office for Mobile. This mobile-only version of Ooma offers targets, owner operators and other small businesses that do not utilize fixed phone lines. I'm pleased to report that in Q1 we made great progress with our beta testing and will be formally introducing Ooma Office for Mobile in Q2. With IP phones and Ooma Office for Mobile, we round out our small business offering and broadened our market opportunity. Also on this note, I'm thrilled to mention that Ooma Office won two awards in Q1; a Gold's TV award in telecommunications from the American Business Awards, and PC Magazine's Business Choice Award for best VoIP solution. Once again, in fact for the third year in a row, the readers of PC Magazine voted Ooma number one beating out a number of leading competitors. Among PC Magazine's readers, Ooma took top honors, both for reliability and for the likelihood of recommending the product and service to peers. Our second major growth initiative this year is to make the Ooma Telo even more attractive to home consumers. In Q1 we initiated sales and marketing efforts to promote Ooma Telo's integration with Amazon Echo and the Alexa voice service with iOS and Android devices, with Philips Hue and LIFX light bulbs and with WeMo smart plugs. We also launched two new TV ads that go beyond our great value proposition to highlight our unique features, specifically our ability to block telemarketers and our integration with the mobile lifestyle. These moves are part of our strategy to inform consumers that you get a whole lot more with Ooma in addition of course to great value. I'm also pleased to report that our Talkatone Mobile App achieved what we believe is an industry-first for consumers. Talkatone now offers picture, messaging and group messaging, both in and out of network. So Talkatone users can share and connect with all their friends and loved ones however they wish. We look forward to announcing additional featured enhancements for Talkatone in Q2. Our third growth initiative this year is to expand the range of services we offer by taking advantage of the advanced capabilities of our platform, we're able to increase usage of our premier service and enable new services, both of which help us drive higher margins for our subscription and services revenues, each of these also increase the stickiness of our customer base. In Q1 we invested approximately 20% of revenue in R&D as part of our efforts to enable new services. We remained focused on driving additional monetization of our customer base and expect to make new feature and service announcements in the second half of this year. The last of our four initiatives is to invest significantly in growth, while also improving our bottom line. In Q1, I'm pleased to report that we generated record gross profit dollars and narrowed our loss compared to prior quarters. We remain on-track to generate over $50 million in gross profit dollars this fiscal year which will enable us both to pursue significant growth and to improve our bottom line. Now let me turn the call over to Ravi Narula to discuss our results and outlook in more detail. I will then return with final comments and take your questions.

Thank you, Eric. As a reminder, all income statement items, except revenue are on a non-GAAP basis and exclude non-cash expenses such as darkest compensation, amortization of intangibles and other acquisition-related expenses. The reconciliation of the GAAP to non-GAAP financial data can be found in the press release issued earlier today. And when to review the results of our first quarter fiscal 2017 and then provide guidance for the second quarter and full year of 2017. Total revenue for the first quarter of fiscal 2017 was $24.5 million, an increase of 23% over the same quarter last year. Our core users also increased 23% from 678,000 at the end of last year's first quarter to over 835,000 at the end of the current year's first quarter. Due to the growth in core users, our subscription and services revenue in the first quarter of fiscal 2017 increased 38% on a year-over-year basis to $21.5 million. Subscription and services revenue was 88% of overall revenue for the first quarter compared to 78% of total revenue for the same quarter last year. Our small business core users grew at a healthy pace and are now approximately 15% of the overall core users as compared to 10% of the overall core users at the end of the same quarter last year. Our average monthly subscription and services revenue per core user increased to $8.12 for the first quarter of fiscal 2017, up from $7.47 for the same quarter last year. By the end of the first quarter fiscal 2017, Talkatone users grew to over 1.6 million monthly active users. Product and other revenue decreased on a year-over-year basis to $3 million from $4.3 million for the same quarter last year. The decline in product revenue was partly due to higher revenue recorded from RadioShack in the first quarter of fiscal 2016 because of the completion of its bankruptcy proceedings we recorded the revenue upon sell-in rather than sell-through at that time. This provided us with a onetime spike to our product revenue in the quarter which was not repeated in the current quarter fiscal year. I am pleased to note that despite the product revenue decline we have seen growth in core user additions on a year-over-year basis. Additionally, as we continue to emphasize growth in small business, that does impact some upfront product revenue but results in higher subscription and services revenue per search small business user. Annualized exit recurring revenue increased 34% year-over-year to a record $81.4 million for the first quarter up from $60.8 million from the prior year quarter. Our quarterly net dollar subscription retention rate improved to 102% for the first quarter compared to 97% for the same quarter last year while our blended annual churn remained consistent at 6%. Our overall gross margin improved to record 57% in the first quarter of fiscal 2017 compared to 51% for the same quarter last year. This increase in gross margin was due to the continuous growth in core users thereby, growing our high margin subscription and services revenue. Subscription and services gross margin for the quarter increased to 67% as compared to 64% for the same quarter last year. Product and other gross margin was negative 17% for the quarter compared to 2% for the prior year quarter. The decrease in product gross margin was primarily due to lower average selling price of our hardware products as discussed in our previous earnings call. First quarter operating expenses were $15.4 million, a growth of 25% on a year-over-year basis. Sales & marketing expenses were $7.8 million, an increase of $1.9 million. This increase was geared towards driving growth of both our small business and residential customers. Recession development expenses were $4.8 million, an increase of $900,000. This increase was due to investments in the development of features and functionalities including new partnership opportunities and enhanced mobile application. G&A expenses were $2.8 million as compared to $2.6 million in the year ago period. In summary, our net loss for the first quarter of fiscal 2017 was $1.4 million or $0.08 per basic and diluted share compared to a net loss of $2.5 million or $0.96 per basic and diluted share for the same quarter last year. Adjusted EBITDA loss improved to $1.1 million in the first quarter of fiscal 2017, down from a $1.9 million loss in the same quarter last year. Now turning to the balance sheet, we had cash and investments of $53.7 million with no debt as of the end of the quarter. During the quarter we paid in full over $600,000 for our capital equipment leases. Cash used in operations during the first quarter of fiscal 2017 was $1.2 million compared to cash from operations of $1.4 million in the prior year quarter. This cash usage was consistent with our adjusted EBITDA loss of $1.1 million. Deferred revenue at the end of the first quarter increased to $14.5 million up from $12.3 million at the end of the prior year quarter. Now for the outlook, the following guidance excludes stock based compensation expense, amortization of intangibles and related taxes. For second quarter fiscal 2017, total revenue is expected to be in the range of $24.8 million to $25.5 million. Non-GAAP net loss is expected to be in the range of $1.2 million to $1.5 million. Non-GAAP net loss per share is expected to be in the range of $0.07 to $0.09. We have assumed 17.3 million shares for Q2. For full year fiscal 2017, total revenue is expected to be in the range of $103 million to $107 million. Non-GAAP net loss is expected to be in the range of $4 million to $5 million. Non-GAAP net loss per share is expected to be in the range of $0.22 to $0.28. We have assumed approximately 18 million shares for fiscal 2017. I would also like to take this opportunity to provide more clarity on the timeline for achieving breakeven of adjusted EBITDA. As we continue to execute on the four main initiatives discussed earlier by Eric, we believe we should be able to achieve adjusted EBITDA breakeven within the next 12 months. With that, let me pass it back to Eric for some closing remarks. Eric?

Thanks, Ravi. We recently announced that we estimate Ooma customers have collectively saved over $1 billion on monthly phone bills. This is an incredible accomplishment that has been made possible first and foremost by our unique platform which enables the great quality, features and values that our customers love. We believe that we are unique in developing an end-to-end customized platform, where the cloud network, the onsite hardware and the services are all integrated into one optimal superior solution. Looking forward we remain highly focused on executing our goals for FY2017. We are also excited to take greater advantage of the power of the Ooma platform. Our long-term business model achieves financial leverage from increasing our mix of small business customers, growing the take rate of our premier service tier, adding additional services which we can independently monetize and of course economies of scale as we expand. These rivers of leverage combined with the differentiation afforded by our unique integrated platform have us excited about the road ahead. Thank you. We are now happy to take questions.

Thank you. [Operator Instructions] We will take our first question from Michael Nemeroff with Credit Suisse.

Hey guys, thanks for taking my questions and nice job on the execution in this quarter.

Thank you, Michael.

So couple of questions, one the outperformance this quarter, was it mostly from the offer side or the promoter side and also I think Ravi, last quarter you had given us the premium of tabs. I didn’t hear it in your prepared remarks, if you want to share that. Then I have got a follow up if you don’t mind.

Yes, Michael this is Ravi. The outperformance was the number one factor was the Ooma offers side of it. All the other sectors also did very well as we focused on the execution of all residential side Business Promoter, Talkatone, but the number one factor was the Ooma offer. And in turn for the premium customer it was 46%, so we did see and improvement sequentially also. Q1 last year, fiscal 2016 we had roughly 43% of our customers who were our premium customers, this time it was 46% and we saw roughly 90 basis point improvement from last quarter to this quarter sequentially.

Did the Business Promoter business grow sequentially?

It did, yes.

Okay. And Eric I know there has been a couple of new competitive solutions that came out in the market, clearly not as high quality on the MagicJack side and also AT&T collaborates the new product that came out. Just curious, what you can glean from these new offerings that you are seeing out there?

There is nothing particular of note to speak about here. MagicJack made some improvements to their mobile app, they launched MagicJack Connect, its $9.99 a year, Talkatone is free. They did a nice job of emphasizing the international calling aspects of it. But we offer the same features and capabilities and I think a lot more. We're very excited too about the voice quality of our Talkatone App which has some very special features involved with that. So I believe we're innovating on the mobile app front and doing things that others aren't. Our next step as I spoke about in my script is Ooma Office for Mobile, for office customers who just want a mobile-only solution, and we think when that product launches it's going to be very strong solution. To be honest with you, I'm not really familiar with the other one you mentioned, I certainly haven't seen them in the marketplace.

Okay. And then just lastly on the announcement of the IP phones, were your customers -- were your office customers asking for the IP phone interoperability capabilities?

Yes, not many but it certainly comes up. It's going to be particularly helpful when we're talking to a perspective customer and they are little bit larger sized business and they are more likely to want to use an IP phone and we haven't had that solution. So now we can offer them the full mix of what they might need. It also demonstrates that we can grow with the business as they get larger, if they are thinking about it for the future. One of the great advantages though of Ooma Office is you don't need to buy phones, you don't need to run cabling, you can connect up your existing analog phones wirelessly using our Linx device. So that's still, I think a leading solution but for customers who want to mix and match, maybe they want the better features of an IP phone that they can provide. We've got that now. So I think incrementally it's going to give us boost but how much it's really hard to say, it's brand new for us.

Right. I'll jump back in the queue. Thanks again, congratulations.

Sure.

And next we'll hear from Nikolay Beliov with Bank of America.

Hi, thanks for taking my questions. Nice to see the acceleration in the subscription that I mean you grow freight versus Q3 and Q4? And then Ravi, just wanted to ask you how to bridge the gap between the 38% subscription revenue growth and the 23% year-over-year core user growth? It sounds like our fall is up 8% to 9% and if you can just like help us like bridge the gap between 23% and 38%?

Yes, so the 38% is a combined subscription and services revenue, this includes revenue coming from residential customers, small business customers which is both the Ooma Office as well as business promoter, and also Talkatone users also. When we talk about the core user growth, the 23% core user growth year-over-year, that does exclude the Talkatone 1.6 million monthly active users we have, that's not included in the core users. So that's one thing to be aware off in terms of growth. But you're right, the growth is happening because of the 23% growth in core users, some growth in Talkatone, and then the ARPU growth of 8% or 9% we just calculated here.

Got it. Can you please Stang rank for us the year-over-year growth rates you've said Office was number one, what about Home, Office Promoter and Talkatone? If you can Stang connect them for us, that will be helpful.

We have not broken it out but as I mentioned, all of those various solutions are products line grew year-over-year for us with Office leading the growth amongst all of those other ones. We were pretty happy with the residential growth as well as we emphasized on -- over the last couple of quarters we have emphasized on improved monetization of the Talkatone users which we have been pretty happy with along with the increase in CPMs for Talkatone. And then Business Promoter was having some challenges in Q4. We took a realistic look of that and it also came back and it also grew modestly. So we -- overall, it was a good quarter from all various perspective in terms of growth but we have not broken our specifically what the growth is for Office versus Talkatone versus Business Promoter.

Okay, got it. My last question is, just wanted to clarify something about the guidance. Are you still maintaining 25% plus subscription revenue growth for fiscal year 2017. And just wanted to reconcile that versus 38% in Q1 are you just simply being concerned with the share?

Yes. So the guidance we have given in the last earnings call was that we will have at least 25% growth in subscription and services revenue on a year-over-year basis. And that guidance does stand absolutely yes. In terms of being conservative or not, my guidance for the full year is $103 million to $107 million at the seven [ph], that's what we -- officially, that's the number that includes a mix of product revenue as well as subscription revenue and at least we do expect us to continue to grow subscription services revenue, at least 25% if not more.

Got it. Thank you.

And our next question comes from Matt Robison with Wunderlich.

Thanks for taking the question. So are we still talking high-teens or the correct 20% in terms of Office contribution? And I guess another question would be, you've got a couple of big R&D milestones behind you or I guess mostly behind you since the Office Mobile is coming up soon. When should we start to think about home automation getting to the -- more in the forefront?

Hey Matt, let me take the first question and then let Eric jump into the R&D milestone there. So in terms of small business contribution to the overall business, it is more than 20% now. Yes, it was high-teens in the last earnings call, now it's 20% plus.

Thanks.

Hi Matt, yes, we're clearly working on some advances there, we've talked about that in the past. In my script I talked about more services coming out from us in the second half of this year and I think that's the timeline I would steer towards. Like Office for Mobile which we brought out in beta form for kind of an extended period, and now talking about being ready to launch it fully in Q2, I suspect there will be a little bit of a transitional process with other major things we might do like the one you're speaking about. But that said, second half of this fiscal year is the way we're thinking for new services.

It seems like talking to some of your folks through the site on Office during the quarter, it seemed like -- maybe I just wasn't familiar with the full feature set for Office for Mobile before but there was a -- there seemed to be an availability of Office for Mobile type of product was upto 19 extensions. So was I -- is that the market -- I mean you've talked about the beta that are pretty -- must be a pretty mature beta?

What you may be thinking about is, it is possible today for a business to buy the Ooma Office unit or plants, install in their business location and then have all of their users be mobile users after that but what we have many possible are standalone version of Ooma Office for Mobile. And along with that, improvements to the features and functionality of the Mobile App itself, and so that's what we're working, the standalone solution that also has improved features and functionality in the Mobile App. The iOS version is pretty far along and in fact it's a version of it is in the App Store today although we don't market it. But the Android version is following a little bit behind it and it will be in Q2 when we think we have both those versions where we want them for general lease release.

Thank you both for the detail.

Thank you.

Sure.

And next we have Bhavan Suri with William Blair.

Hey guys, thanks for my question. And again, my congratulations, very, very nice job there. I apologize for the usual [ph], I'm travelling, just one quick question first on pricing. First, can you -- are you seeing increased adoption of the products? And how does that impact prices [ph]? Just a little color there.

Sure, I'll speak to that a little bit and Ravi can join in if he wishes. We were running a high-low strategy where we were at $129 as an MSRP but promoting quite often in the quarter down to lower price points. And we moved to $99 as a general price point was very little promotion. And we did kind of a third of the way into Q1 at the end of February. I can tell you that in the weeks where we were running at $129 and not promoting, we felt we were suffering and with the new price point that we have now initiated, we are -- I believe we are doing better and we saw that. But overall, we were doing a lot of promoting already through the quarter so the impact isn't as great across the whole quarters as you might expect. So we're happy to be under $100 now, every day, and we will do occasional promotions but not nearly as often as we were doing them before. As for an outlook on pricing, we feel we're at the price we want to be at now and we have no plans at all to be driving prices lower from where they are.

That's very helpful Eric, thank you. And then when I turn to [indiscernible] but just as you look at automation in that segment to enable more conversions of the pipeline, just an update on that. How is that progressing? And do you see by a convertive rates also a little bit but just a little more color that will be great.

Just a little bit of feedback, I apologize, are you on a speaker phone?

No, I am not, I'm sorry, there just background noise.

Yes, it's better I think when you're closer to the phone. Can you repeat the question? Thank you.

Yes, yes. Just -- you gave a little color about Business Promoter, it would be great to understand how growth formed [ph]. But then last quarter you talked about automation there to enable more conversion as a pipeline, just an update on that sort of has automation happened? Are you seeing the better conversions rates? And then, just one addition there, any update of any new OEMs in that space at all?

Yes, got it Bhavan, thank you. We did talk about that and we've been working very hard on it, we have gotten the first steps of that process behind us but I can't say, I mean I would say at this point we still have further to go to get the increased benefits from what we're trying to do. It's not too far away from us, it's a quarter or two's worth of time to get it fully in place but it's not quite there. What that allows us to do when we have it for those who may not know what we're fully speaking about, we're talking about automating some of the things we do in our Business Promoter business trials to be much more productive in terms of enabling new businesses on the platform. So yes, we're working towards that but it will be -- still a future initiative for us. As for the number of accounts we're serving with that business, we have seen some growth but in line with expectations business is doing fine and we're just continuing to push forward and execute there.

Okay, great. And when you look at the Salesforce as a partner, partner force and Salesforce going after the agency's business, just some color about how you think that will grow. And again I don't care next year but about the next two to five years, how is anybody investing in that group to get the rest of the agency as a ton of these guys to get involved in Business Promoter?

Well, there's two ways a customer can get to use Business Promoter with us. One is to have the Ooma Office platform when they activate their device and go through their setup process, we expose them to Business Promoter and they can choose to work with us on that or there are businesses that don't have Ooma Office platform but do other forms of advertising with agencies and those agencies also enable our solution for those businesses. And that is something that we wanted to diversify on in terms of having more agencies that we work with and I am pleased to say I think we have done a nice job of accomplishing that. Don't quote me an exact number but if it's not close to double digits, it's close to it in terms of number of agencies we work with today. We are always trying to add more but we don't really need more. We are working more now to work with those agencies to target the kind of accounts we would like to have and to enable the accounts that are available to us on the platform which does take us some work and effort to do.

Hey Bhavan, this is Ravi here. Just to reiterate the point about what Eric said. The goal over the next six to nine months is obviously automation, focused on improved optimization and monetization of the accounts that we already have versus adding to ten more agencies, that's not the focus. The focus is how we make the Business Promoter business less volatile and more predictable as well as continuous managed growth on that side. So we do believe there's great growth opportunity available that side but we are, at the same time, looking at improving efficiencies also.

Really helpful guys, thank you. And again, congrats Ravi.

Thank you.

Next we will hear from Patrick Walravens from JMP Securities.

Yes, hi, this is actually Natasha on for Pat. So you had mentioned that Business Promoter grew, could you specifically by about how much? And also tell us bit more about the impact of it. And then also could you expand a little on the expected impact of Ooma Office for mobile?

Sure, we don't really break out Business Promoter specifically. We view it as one of the many services we offer on our platform and is our strategy to offer more services overtime in that vein. They did fine, we are cautious about our expectations for that part of our business this year and I think that's the right place to be and they are in line with our expectations which we are happy to see. In terms of Ooma Office for Mobile, it's really going to come down to how much we promote that solution versus the other solutions we have and so we are going to spend some time on getting our marketing strategies honed for that and then we will make the decisions after that on how much emphasis we want to put on for promoting Ooma Office for Mobile. I think another conference call or maybe two we will be able to talk more specifically about what level of emphasis we want to give that. We do think we have a great solution. It's going to be a great value as well and so it will just come down to how we allocate our marketing dollars.

And Natasha, this is Ravi here. With respect to the Business Promoter and Ooma Office are all bind into the Ooma Office and between the two on a year-over-year basis Ooma Office grew much more and much faster than Business Promoter side but both of them actually grew on a year-over-year basis as well as sequential basis. Hope that helps?

Got it, perfect. Thank you so much.

And next we have a question from Josh Nichols with B. Riley.

Yes, hi, I was just looking to hear, so service and subscription revenues growing 38% year-over-year but the company is trading less than one times subscription revenues. Why do you think that is?

I could speculate and probably go off at length on that but really I deferred it to you guys for that. We are just working hard to execute well this year. Meet and beat our goals. We are glad to have a good Q1 behind us and now we are focused on looking forward.

Josh, and as Eric said execution is what we can influence and that's our goal and the most important quarter for us is Q2 right now and the goal is to continue execution and you are right. It's a problem and something hopefully over a period of time will change, but right now the number one thing we focus on is how do we continue to grow our core users, how do we continue to grow revenues including subscription revenues. And then the other aspect would be what I did mention earlier was, when do we get to adjust at EBITDA breakeven so those are other factors what we can and will continue to improve upon and let the evaluation take care of itself from there.

And then on the operating expense side, those have been increasing concurrent with the rapid revenue growth, is there a point or level that you think that might start to plateau and you could expect gains from more operating leverage?

I think the focus of getting more operating leverage is from two or three various angles. One is as we grow the mix of office customers, as we grow the number of premium customers, we should see subscription revenue and in return higher gross margin coming from it and you saw that over Q1 over last year, gross margins overall improved by 6% points. So we do expect that to continue to happen as we grow that mix there. Secondly, we do believe G&A should not be growing much at all, far away from the growth of revenues. So G&A leverage should start coming now and then, in terms of R&D and marketing its how much R&D development we want to continue and how much, how fast we want to grow in terms of acquiring the customers. And we will see over the next couple of years -- we will see leverage come back on both of those, but it will be after we see the leverage from G&A. and then next twelve months if we are getting to adjusted EBITDA breakeven there is some leverage coming from all of those angles, but as I said gross margin improvement and G&A first.

Perfect, thank you.

And as there are no further questions in the queue, I will turn it back over to Cynthia for additional remarks.

Great. Thank you everyone for joining us this afternoon and we look forward to updating you again on our next call.

Thanks everyone.

That concludes today's conference call. We thank you for joining.