Eric Stang: Yes. We’re a little reluctant to try to answer that question with too much detail because it’s only been six or seven weeks that we’ve been developing this opportunity now as and owned it. But we do see real meaningful opportunities. There are users out there of the Kazoo platform from an open source perspective that could be converted over into paying users by offering them more than what they have today. There are significant opportunities for new customers to be brought onto the platform, some of whom would be moving off another platform that’s out there and others that just are going to sunset, maybe something they’ve built internally and want to move to something more modern. I think we are close to getting our first customer to move off of another company’s platform and on a Kazoo, but we’ll have to wait and see if we close that in Q4.
And then thirdly, the CPaaS services, and we have a very specific effort in place today to bring Ooma’s cost structure and scale in telecom services as a CPaaS offering to the install base and then move from there. Predicting what that will be for next fiscal year is hard for us. I think that we’ll learn a lot the next three months in our sales efforts, and then be able to give better guidance at the end of the next quarter.
Operator: Our next question comes from the line of our Arjun Bhatia with William Blair. Your line is open.
Arjun Bhatia: If I could just go back to the user growth, I know it sounded like it was your largest customer Regus that was driving some of the headwinds there, but if we looked to other customers. are you seeing similar kind of muted growth there in Q3 and Q4? Or is it largely related to Regus Regus we’re seeing slower growth from the customer base from the user base rather?
Eric Stang: Yes. Hi. Well, we’re thinking for both Q3 and Q4, particularly Q4 now. We’re going to see, as you said, muted growth with our large customer. But beyond that, we want to be cautious because Q4 is an interesting quarter with the holidays involved and small businesses taking time off, we’re being very busy with the holiday time. It’s not always the best time for customer acquisition. We’re being very sensible about that in our investment strategies. We are controlling our sales and marketing spend. We’re happy with our customer acquisition costs, and we’re improving the EBITDA commensurate. Our EBITDA is growing faster than our — the growth of our other metrics. So, I think we have a good plan for Q4. But yes, we’re being a little guarded just to wait and see how it turns out.
I can give one more data point. I know you didn’t ask about residential, but we’re pleased with our residential business thus far into the quarter. We’re through Black Friday and Cyber Monday, and that Thanksgiving period when it, we want to drive some sales on the residential front, and we were happy with what we achieved this year compared to a year ago. So that’s one piece of positive news that we already have.
Arjun Bhatia: Okay. Perfect. That’s helpful. And then maybe going back to Regus, I know you were talking about expanding into other countries and the opportunity that could pose longer term. How should we think about what that process is like to go into other countries? How long does it typically take to open up a new geography? How many resources are required? What are the challenges? Maybe just help us understand that process a little bit better.
Eric Stang: Sure. I’m going to repeat some of the things I may have said in previous calls, I apologize. But so, it starts with putting our capabilities into the region, because we are dealing with communications services, you have to be mindful of Internet distances and delays that can affect the quality. So, we have to have fully standalone instances of what we do in each region, where we want to serve the countries there. As I said, we are in five regions today and we can serve all the countries now pretty much in those regions, although we aren’t yet. And then we have two more regions to stand up between now and the middle of next year. Once we have those seven regions in place, we will have very good coverage. And then it comes down to what you need to do to be in that particular country.
There may be certain laws and regulations you have to conform to, certainly language and other adaptations to the platform, maybe calling patterns, you have to decide how you are going to deliver services from a carrier partner status. And then, once you have that in place, plan a rollout strategy that involves converting away from something already in place, and there is a lot of work to do that. So, we tend to roll out with our large customer kind of country-by-country or a couple of countries in a region at a time and then you move on to the next ones. And, we went into Hong Kong in Q3, we went into South Africa in Q3, there are other countries in Asia that we’re expanding in Q4. We will be finishing up South Africa in Q4, and we’ll just be rolling out from there.
It is giving us an incredible footprint, on a much bigger stage than we have operated on in North America, and I think that’s a really valuable asset for Ooma, as we look forward, not only for our UCaaS solutions, but also, frankly for AirDial. And we are going through the thinking right now on what our priorities will be for next year to start to capitalize on this asset, beyond North America. And AirDial will be a very strong contender for that because we think we have such unique solution there and kind of a unique market opportunity at this time. So, it is exciting for us to have this in place. We are well down the train on all of this, not to go on, but it’s been years in the making to be where we are today. And we are just getting over, I think, the final hurdles.
Arjun Bhatia: And sorry, one more if I can just follow-up. On the — is the subscription and services gross margin following this international build-out? Meaning, once you have the additional regions stood up by the middle of next year, should that be the trough in subscription gross margins? Or are there other factors that maybe I am not considering there?
Shig Hamamatsu: So certainly, we talked about this a little bit. But we are making some investment related investments related to the expansion that Eric and I talked, we just talked about. So, it is pulling down revenue a little bit upfront, I mean, gross margin a little bit upfront on the subscription side. I think going into second half of next year, I think, we started to see more scale efficiency there. We will expect the largest customer as well. And also, you have to remember that 2600Hz gross margin or recurring revenue isn’t quite at the level that corporate Ooma margin is either. So as we walk through the further expansion of largest customer along with the synergies related to 2600Hz, I think second half of next year is a good point to start to see some improvements on the subscription margin.
