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Ooma Inflates Key Metric With New Calculation Method
Telecommunications firm lifts key metric more than 500 basis points with methodology change.
June 8, 2023
Ooma, Inc. (OOMA), a business communications services firm, has changed how it calculates a key metric measuring the long-term value of its customer relationships and the stability of its revenue base. Instead of calculating Net Dollar Subscription Retention Rate (NDRR) as a function of year-over-year growth in average revenue per user and churn as it did previously, Ooma now calculates NDRR as:
“...(i) one plus (ii) the quotient of Net Dollar Change divided by Average Monthly Recurring Subscription Revenue.”
Investors can view the latest quarterly report to see the new language Ooma added in defining Net Dolar Change, Monthly Recurring Subscription Revenue, and the hypothetical calculation example.
The change resulted in a 300-500 basis point increase to NDRR for the previous four quarters:
—In Q1FY23, NDRR increased to 99%, or 3.1%
—In Q2FY23, NDRR increased to 99%, or 5.3%
—In Q3FY23, NDRR increased to 99%, or 4.2%
—In Q4FY23, NDRR increased to 99%, or 5.3%
In explaining the rationale for the change, Ooma said:
“Since the majority of our subscription revenue is now generated from Ooma Business customers, we believe the new methodology better reflects our operational performance during the reporting period and is more in alignment with the reporting of our industry peers.”
Separately, Ooma also disclosed it terminated its credit and security agreement with KeyBank June 7, 2023. The company did not immediately indicate it had lined up a new borrowing facility at a new bank.
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