Q3 2022 Ooma Inc Earnings Call

Good day, and thank you for standing by and welcome to the Newmont incorporated third quarter fiscal 2022 financial results.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be question and answer session to ask a question. During the session you will need to press star one on your telephone keypad.

Please be advised that today's conference is being recorded and if you require any further assistance you May press star zero without further Ado I would like to welcome your first speaker for today, Mr. Matt Robison, Sir the floor is yours.

Thanks, Carl and good day, everyone and welcome to the third quarter of fiscal year 2022 earnings calls Inc. My name is Matt Robison, who is director of IR and corporate development on the call with me today are CEO, Eric Stang, and CFO Shay Hamamatsu after.

After the market closed today issued its third quarter fiscal year 2022 earnings press release release is also available on the company's website Houma Dot com.

Call is being webcast live and is accessible from a link on the events and presentations page of the Investor Relations section of our website.

This link will be active for replay of this call for at least one year. A telephonic replay will also be available for a week starting this evening about eight P M eastern time.

Information for it is included in today's press release.

During today's presentation, our executives will make forward looking statements within the meaning of the federal Securities laws.

We're looking statements generally relate to future events or future financial or operating performance, our expectations and beliefs regarding these matters may not materialize and actual results 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, we issued earlier today and those risks are more fully described.

And 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.

Please note that other than revenue or as otherwise stated the financial measures to be disclosed on this call will be on a non-GAAP basis.

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.

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, including included in our press release, which is available on our website on this call. We will give guidance for fourth quarter and full year fiscal 2022 and non-GAAP basis also in addition to our press release.

An 8-K filing the overview page and events and presentations page in the investors section of our website as well as our results page the financial information section of our website includes links to information about costs and expenses not included in our non-GAAP values and key metrics of our core subscription businesses. These are titled supplemental financial disclosure, one and supplemental disclosure financials.

It's closer to <unk>.

Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation that also provides resolution resolution of GAAP expenses that are excluded from non-GAAP metrics.

Now I will handle hand, the call over to CEO, Eric Stang.

Thank you, Matt Hi, everyone welcome to <unk> Q3 fiscal year 2022 earnings call. Thank you for joining US today Q3 was another strong quarter for rumour and we're excited to talk with you today about our progress and outlook.

In Q3, we continued to drive growth across our business, our key subscription and services revenues increased year over year by 24% for business customers and 4% for residential customers.

I'm pleased to report business customers now make up 49% of our total subscription and services revenues and are on pace to exceed 50% in the near future.

I'm also pleased to report total revenues in Q3 were up 14% to 49.17 million and we expect to exit our FY 'twenty two fiscal year at a 200 million dollar total annual <unk> annual revenue run rate.

We achieved this growth while also exceeding our goals on the bottom line Q3, non-GAAP net income was $3 3 million EBITDA was $4 million and we ended the quarter with an increase in cash to $31 million.

All in Q3 was another strong quarter for Houma, which we continue to drive growth across the business.

Our primary objective of course remains to grow revenues from business customers in.

In Q3, we developed several new Umar office features including call analytics.

Mobile App enhancements for multi line and three way calling.

And Microsoft contacts integrations, and new capabilities to enable easier adoption of office by larger sized businesses.

Altogether. These feature additions will also help propel the growth of them office pro our premium service tier.

In Q3, we achieved our highest level, so far with 48% of new office users opting for our pro tier.

And we exited Q3 with 19% of all office users subscribed to the pro tier also our highest level so far.

This adoption of pro of course also helps drive our RP, which overall for Houma is up 9% year over year.

And it enables us to serve larger sized businesses, who require more advanced features.

As we mentioned last quarter. We are currently developing a third home office tier of service that will contain even more advanced features and be priced above office pro internally. We call. This to your pro plus and we are planning to make it available in the first half of next year.

During Q3, we added several new office customers that are 30 plus users in size.

In enterprise, we added approximately 150, new locations with a large national brand, where we now serve over 2000 locations.

And in our targeted hospitality vertical we got off to a good start by winning seven new properties.

We also increased the number of agents and resellers, we work with and increased our sales of Roomba connect for wireless Internet both for backup and primary service.

We believe our solutions resonate in the marketplace and we continue to focus on driving sales growth along with our <unk> expansion.

In Q3, we moderately expanded the number of locations, we serve with our largest customer by launching service at approximately 30, new locations spread across North America, and Europe, plus one location in the middle East.

This month, we are rolling out to several additional locations with a plan to begin larger scale rollout early next year.

It has taken significant effort to get to this point and we believe we are now quite close to executing our full plan.

Continue to see significant opportunity with this customer in North America, Europe, and other regions of the world.

On November one we made an exciting new announcement about the introduction of Umar Air dial.

<unk> is a complete integrated solution to replace copper lines used by businesses and safety and business critical applications, such as elevator phones fax machines various types of Iot sensors public safety phones and building access and alarm systems.

We estimate there are millions of copper lines and use for such applications today and believe that providers of these copper lines are both raising prices and making plans to retire them.

So believe the existing alternatives available in the marketplace today are generally expensive and cumbersome deploy to deploy and manage.

Little bit Airedale brings together human expertise across hardware development operating large scale cloud networks, ensuring highly reliable analog voice.

Enabling centralized device and service management.

And integrating wireless internet via our relationship with T mobile to create what we believe is a game changing new product solution.

EBITDA was just recently introduced we are already experiencing strong customer interest.

And finally on the residential side of our business I have a very exciting new announcements to make.

I'm pleased to announce that T mobile will soon offer Umar tullow to their wireless home internet customers.

Because I'm sure you are aware.

<unk> presents a meaningful new option for millions of Americans to stay connected at home.

T Mobile's five G home Internet services available to more than 30 million homes across the country with a rapidly growing customer base.

Our our partnership with T mobile will enable consumers to get a great deal of Newman Tello home phone service when they sign up for T mobile home Internet.

We view this as a terrific extension of our partnership with T mobile.

I will now turn the call over to Shing, Hamamatsu, our new CFO to discuss our results and outlook in more detail and then return with some closing remarks.

Sure.

Thank you Eric and good afternoon, everyone I will begin with a review of our third quarter financial results and then provide our outlook for the fourth quarter and the full full year fiscal 2022.

We delivered another quarter with strong financial results, achieving $49 $2 million in total revenue.

<unk> of our guidance range of $47 8 million to $48 $5 million.

On a year over year basis total revenue grew 14%.

And by the strength of <unk> business.

My business now accounts for 49% with total subscription and services revenue.

<unk>, 244% in the prior year quarter, as we continued to make progress towards achieving more than 50% of our subscription and services revenue coming from business customers in the near future.

Non-GAAP net income for the third quarter was $3 $3 million, which exceeded our guidance range of two to $2 $8 million.

Our solid revenue growth and profitability demonstrate the strength of our large and diversified customer base as well as the increasing scale of the company.

Now some details on our Q3 revenue.

Our business subscription and services revenue grew 24% on a year over year basis, and residential services revenue grew 4% year over year.

On a combined basis in Q3 total subscription and services revenue grew just over 13% compared to the same period last year.

Subscription and services revenue was $44 7 million, 91% of total revenue compared to 92% in the prior year quarter.

During the third quarter, we saw our product and other revenue increased 35% to $4 $5 million as compared to $3 $3 million for the same period last year.

The growth in product sales was primarily due to sales of our fixed wireless products to a strategic customer as we seek to expand our partnerships.

Now some details on our key customer metrics.

We ended the third quarter with 1.098 million core users up from 1.063 million core users at the end of the third quarter last year.

Driven by the growth in business users.

I'm excited to report that we now have 302000 business users.

Our average monthly subscription and services revenue per core user or <unk> increased 9% with $13.24 up from 12010 cents in the prior year quarter.

Driven by an increasing mix of business users, including higher up who office pro users.

During the third quarter, 48% of New office users opted for office Pro service, which was up from 42% in the prior year quarter.

Overall, 19%, although office users have now prescribed to a pro tier.

Our annual exit recurring revenue grew to $174 $3 million and it was up 13% year over year.

Our net dollar subscription retention rate for the quarter was 98%.

Which was an improvement from 95% in the prior year quarter.

Now some details on our gross margins.

Our subscription and services gross margins for the third quarter were 73% an increase of 100 basis points year over year and up 60 basis points sequentially.

That improvement in subscription and services gross margins was driven by our increasing scale and a greater mix of a higher <unk> business customers.

Product and other gross margins for the third quarter were negative 46% comparable to negative 46% for the same period last year, but improved sequentially from negative 53% in Q2.

This improvement over second quarter was mostly due to the sales of fixed wireless products to a strategic customer I mentioned earlier.

On an overall basis total gross margins for Q3 were 62%.

A decrease of 80 basis points from the same period of last year due to a higher mix of product revenue during the quarter.

And now some details on operating expenses.

Total operating expenses for the third quarter were $27 3 million up $3 2 million or 14% from the same period last year.

Sales and marketing expenses for the third quarter were $14 $4 million or 29% or total revenue up 16% year over year.

Driven by higher marketing and channel development activity for <unk> business.

Research and development expenses were $8 $4 million or 17% of total revenue up 7% on a year or what your basis from $7 8 million.

Driven by investments in new features for both office and enterprise as well as new products, such as agile, which was introduced just last month.

G&A expenses were $4 5 million or 9% with total revenue for the fourth quarter compared to $3 $8 million over the prior year quarter.

G&A expenses in the prior year included a one time $300000 benefit from the reversal of certain accruals that did not recur this year.

The remaining increase in G&A expenses was primarily driven by higher personnel related costs and support activities related to oversee the expansion.

Our non-GAAP net income of $3 $3 million. This resulted in a diluted earnings per share of <unk> <unk>.

Comparable to the 13th.

13 of diluted earnings per share in the prior year quarter.

Adjusted EBITDA earnings for the quarter improved to $4 million or 8% of total revenue as compared to $3 $6 million for the prior year quarter.

We ended the quarter with total cash and investments of $31 million compared to $27 $6 million at the end of Q3 in the prior year.

Cash generated from operations for the third quarter was $1 $9 million compared to $2 5 million in the same periods last year.

On the headcount front, we ended the quarter with 978 employees and contractors.

Now I'll provide guidance for the fourth quarter and full fiscal year 2022.

Again, our guidance is on a non-GAAP basis and has been adjusted for expenses, such as stock based compensation and amortization of intangibles.

We expect total revenue for the fourth quarter of fiscal 2020 to be in the range of $49 7 million to $52 million.

The fourth quarter revenue guidance range assumes a similar level of product and other revenue as compared to the third quarter as we anticipate additional shipment of fixed wireless products to the same strategic customer during the quarter.

We expect the fourth quarter net income to be in the range of two three to $2 8 million.

Non-GAAP diluted EPS is expected to be between nine two.

11.

We have assumed $25 3 million.

$25 3 million weighted average diluted shares outstanding for the fourth quarter.

For full year fiscal 2022, we expect total revenue to be in the range of $191 5 million to $192 million an increase from our previously issued guidance range of $188 5 million to $190 million.

We expect non-GAAP net income for fiscal 2020 to be in the range of $11 7 million to $12 2 million up from previously issued guidance range of 10 to $11 5 million.

We expect non-GAAP diluted EPS for fiscal 2022 to be in the range of 47 to 49.

We have assumed approximately 25 million weighted average diluted shares outstanding for fiscal 2022.

In summary, we are very pleased with our strong performance in our third quarter, which demonstrates strength.

Fusion, while we made progress towards our long term objectives.

I'll now pass it back to Eric for some closing remarks, Eric.

I also want to say, it's terrific having you on board.

In summary, we're excited to be increasing our outlook once again for the balance of this fiscal year.

We feel we have great momentum in the right initiatives underway to drive growth.

Next quarter, we will lay out our plans and guidance for fiscal year 2023, but I can highlight here some of our growth drivers as we look forward.

We believe our plans for office pro and pro plus.

Our plans for expanding sales through channel partners.

Our plans for growing internationally to serve our largest customer on a larger scale.

Our plans for making air dial the go to solution to replace aging copper lines.

And our plans for expanding our partnership with T. Mobile to include <unk> are significant and present, great opportunity for FY 'twenty three.

Let me stop there and turn it over the operator to handle questions.

Operator.

Thank you Sir at this time as a reminder to ask a question you will need to press star one on your telephone keypad.

Again that is star one to ask a question.

We'll pause for just a moment to compile the Q&A roster.

Our first question comes from the line of Brian Ken.

<unk> from Alliance global.

Your line is now open.

Great. Thanks, so much and actual results can you talk about how the.

Can you talk about how the T mobile sale process of your residential Walker first if I'm already a wireless home customer how will I become aware of this product and they're just cut the cord. So it cannibalize their landline business Alternatively, if on the new customer how long he made it.

Where this awesome.

So.

T mobile is selling wireless internet today and.

They will be offering Umar tullow.

A home phone solution to go with it.

When youre purchasing.

Their wireless Internet and.

You can think of it as almost like a double play opportunity in a way and.

T mobile will be doing that through various channels that they used to go to market.

And.

I think that's exciting for us it'll be T mobile doing presenting that to their customers and then.

Obviously, if the customer wants to get a new mantello.

We'll be arranging to provide that.

It's exciting because the.

They are.

Quite committed to five G and wireless Internet and.

Even a small attach rate on the scale of what Theyre doing will be quite significant for us.

Okay.

And my one follow up and then I'll.

Get back in the queue is housed.

It's a big market like you said and even a small attach rates a big number how do you think about this ramping and how should investors think about this in 2022 or 2023 a win.

Real material impact on your business.

So I think it.

We will know more in our next conference call because we will be launching this soon with them.

Residential for us is still a growing business and.

We estimate this 50 million plus households.

In North America, obviously T mobile is just in the U S but.

A large market opportunity to replace.

Replace land lines with new solutions, and so we're quite excited to be continuing to see and drive growth with with <unk> in our residential business and we think what T. Mobile is doing now passing.

30 million homes with with wireless fiber Internet is quite significant and so it's an exciting.

The time for us, but we will be able to give you more outlook on that next quarter. After we.

<unk> started.

Okay. Thank you.

Sure.

Yes.

Our next question comes from the line of Mike Latimore from Northland.

Please ask your question.

Great Yeah. Thanks, so an excellent quarter there.

On the subscription gross margin.

I think that was a record but it certainly was up a lot year over year and sequentially I guess is that a sustainable number.

Okay.

Yes, Mike Thanks for the question yes.

We are pleased with the progress we're making in it I think.

I think.

We have opportunity to continue to.

Make a progress on that.

Especially through.

Continued uptake percentage.

The I'll take percentage continuing to uptake on a pro tier on a business side and.

If you look at our mid term model that we talked about 70% to 75% and we're starting in the middle right. There. So I think as Eric.

<unk> talked about.

We're going to introduce the.

<unk> plus here.

In the near future and that gives us another opportunity to.

Enhance the outflow on a business side, a little bit more so I think you know.

We have a little more room to grow there as we scale further as well.

Okay great.

And then the.

Air Dial opportunity sounds interesting do you have.

Maybe.

Total addressable market or number of lines to think about is the market for aratana.

That's a good question Mike.

There are I'd say seen numbers on the order of 30 million copper lines still in use in the U S.

They are all going away that's being sunset. It I've also we've also talked to customers who are paying two $300 a month for their copper line. If you can imagine it.

So I see a lot of <unk>.

Reason for customers to look for new solutions, and eventually they're going to have to look for them over the next.

Kind of few years.

It's really hard for us to gauge exactly how many of those copper lines are used in the kind of applications I was talking about in businesses, but I know, it's a big number because we've been overwhelmed by the level of customer interest. We received in this product since we announced it and I don't say that word lightly overwhelmed.

Hmm.

We're still trying to sort out.

How fast we can build them and how fast we can ramp it.

Okay.

And then just sold through your <unk>.

Current channels or get to develop a new channel for us.

No we're seeing a lot of interest in it from our current.

Master agent type channels, we're also seeing larger sized businesses.

I'm talking with us directly about about it.

Businesses you need.

Literally thousands of lines.

But I do think our existing channels will will be good channels for this and in a way. It's also a door opener for us because it will give us the opportunity I think to expand with channel partners that we haven't yet worked with.

There really arent good solutions for this for this problem today.

My view.

And.

I think it's a great opportunity for us looking forward.

Great and just last one it sounds like you have a <unk>.

Big fixed wireless customer here.

What is the use case, there what was the catalyst for them to use your service.

So.

This is a.

We can't talk about who it is at this point, but they are interested in a version of our fixed wireless product solution and.

That's not something we normally sell standalone today, but this customer.

Strategic customer, we hope to turn into a strategic partner.

And by that the distinction I'm, making there is we hope down the line to also sell R. R.

Our our voice services with.

They do not have their own solutions today and so the sale is kind of at the beginning of what I hope will be a longer term and much more sizeable partnership.

But we're not really.

Ready to talk about anything more because because.

Anything more isn't isn't finalized yet but.

But no. This is they liked what we were able to provide them from a fixed wireless product perspective and.

It's a growing relationship for us.

Okay, great. Thank you.

Thank you.

Our next question comes from the line of Matt Stotler from William Blair. Please ask your question.

Hey, Thank you for taking the questions.

So maybe just first.

So to get your perspective on the hiring environment at this point right not only in the quarter, but as you think through the.

Growth drivers you talked about whether that's you know.

New products are international markets eventually extending outside of this large customer that you're currently focused on and what have you.

How do you think about the hiring environment here in <unk>.

That kind of playing out going forward.

Yes.

I think the hiring environment is pretty tough to be to be Frank with you.

And it's not just tough on us, but its tough on some of the channel partners, we work with to.

Who we want to see higher as well.

Our total head count has been relatively stable this year and it hasnt grown like we wished it to grow and that isn't.

A remains a challenge for us.

We've we've doubled our efforts on that and I do believe we'll get it done but.

No the channel the hiring environment is challenging.

Yeah, I'm not sure there's much more I can say about it I mean, all businesses face this and we're all working through it.

But.

But it's probably held us back a little bit up till now.

Alright, alright got it okay.

And then just a quick follow up.

Obviously, you mentioned continuing to expand the partner ecosystem.

Could you just give a quick update on the contribution both from your kind of your face to face channels as well as your non face to face channels.

Maybe just a quick update on the.

The priorities in terms of expanding those those efforts in expanding that partner ecosystem from here.

Sure so.

As you've heard me talk in the past.

A lot of our sales on the business side have been direct.

We.

We were relatively late in developing channel relationships and selling through channel partners Thats, something thats growing been growing nicely for us over the last kind of 18 months or so.

And we do report.

The percentage of business sales that go through channel partners that number for Q3 was 40% for zero, that's down a little bit from the previous quarter. I think hiring staffing was was a little bit of that effect and the other was just deal timing I'm not worried about that 40%.

We added more partner relationships in Q3, and I'm seeing good opportunities looking forward.

Okay. That's helpful. Thank you Ken.

Sure.

The next question comes from the line of Josh Nichols from B Riley Your line is open.

Yes, Thanks for taking my question good to see.

The solid performance and the guidance raise I was looking here just to hit on the last question a follow up.

I guess, one ultimately where do you see channel sales going in is that going to be something that you think is going to push like the 50% level of sales.

Look 12 months 18 months from now and also.

To your point, where you've added some of these new relationships ships, you've added at least one new master agents that could I would assume it would be pretty meaningful as they get towards ramping next year, how is that progressing as well.

Yes, we've talked about that adding that master agent.

Or so ago.

Ramping it takes time.

You still have to come.

CT the individual agents and get your products understood and get in front of them, but.

I think that we're making the progress we expect to make and you're right. It will be a help.

Helpful driver for US next year, it's hard to give you a target estimate for channel versus direct because it depends a little bit on what we do across our business and how but from where we sit today 50 50 is not a bad place to be targeting to be in.

That's kind of what we're aiming for at the moment as we.

As we think this through but we can give a little bit better guidance on that probably in our next conference call. When we're also guiding to what we think by 'twenty three will look like overall.

Yes.

Fair enough fair. Thanks for the color on that I, just wanted to hit on it I mean, clearly a huge opportunity for T mobile.

A lot of people.

And then on <unk>.

<unk> surprised that you've been able to continue to grow your residential business pretty successfully at a fairly stable right here.

Is it fair to assume like the unit economics are fairly comparable in terms of.

<unk> margin relative to like the residential pro offering that you guys. So how to think about that as you add new customers from T mobile.

Yeah.

Yes.

The economics will fit in nicely with the way our business works today, we have we are going to be.

The service, we're going to be us.

Providing.

In this that they'll be bringing to their customers will be premier based so all of the customers will be getting the premier package.

That comes with a you know a.

A bunch of the fee so thats.

That is part of what we're doing.

It's it's really exciting for us this week, we're going to have to get into it and see just how big it can be but.

<unk>.

T mobile is very committed to the <unk> space and wireless home Internet and already I mean, I'll, let you turned to them for what they say about how many customers. They have today and how fast they're growing for next year, but but it's sizable it's real scale.

<unk>.

We know that the debt a lot of people value of home phone for all kinds of reasons simply to call 911 kids in the home a mother in law home office, which has become more important obviously in the last couple of years.

And our solution ranked number one in the country.

Is perfect for that and very good value. So I think we've got everything going for us in this new opportunity and.

We just can't get ahead of ourselves and give a sense of what it's going to mean for us until we get going with it.

Fair enough and then just last question for me again.

Good to see you're launching I think he mentioned like 30, new locations with your largest customer or it looks like youre expanding in multiple regions not just in North America, Europe, and other places as well it seems like that most of that expansion for this year is coming in the second half of the fiscal year. So.

Fair to assume that you think that you could see a material acceleration in that ramp like next fiscal year now that things are going and you guys are pretty well set up to to ramp in these new locations.

Yes.

We've talked about the potential with this customer and what we've achieved so far is not not nearly that potential.

Our best outlook right now is that the first half of next year will be quite significant for us with that customer.

You know, it's unfortunate, but the rollout with that customer isn't just up to us the customer has to do other things are product doesn't work in isolation and.

It just takes time when youre doing something this significant.

But the relationship is extremely strong.

I think I mean, I know the works basically behind US now and we are.

<unk> the the large rollout for next year.

Right.

Thanks, guys appreciate it.

Thank you. Thank you.

The next question comes from the line of Matthew Harrigan Benchmark. Please ask your question.

Thank you.

Listen on the numbers can you talk about any implications from a team of <unk> for Microsoft on a stand alone basis, I mean, you rattled some people's.

Peoples Cage is certainly on.

And is there anything you can say on.

Video conferencing activity and any potential new fallout or.

Our Asian off.

Hey.

Use the word but the army crime.

Sure.

Let me touch the first one but you may have to talk more about the second one with me.

Yes, Tim Essentials.

Teams has been available for free to businesses for a while now but he has usage limitations that are fairly significant.

<unk> essentials at $4 is I think a great value and frankly.

I think versus zoom or versus maybe others that are trying to own the desktop for collaboration that's a very compelling offer by Microsoft and I do think it's worth.

You know really taken to heart from our perspective, I don't think it means much.

Uh huh.

Our ucas solution and our Ummah office in the primarily primary ways in which it's used complement that very very well and so we don't expect essentials at $4 to really have any impact on us at all and we do have pretty good adoption of our of our video solution, which we bundled in with our with our pro.

Package.

It's a lot of other things, we bundled in with our pro package too and I don't think you.

Even if a customer wants to use.

Essentials for.

For video and chat basically they wouldn't also still value our pro solution.

Now Microsoft is also offered.

Teams stone with calling plan, but that's really just their business voice being put together with teams, which has already been out there for a while and we.

We don't really see that product targeting most of the businesses. We go after most of the business. We go after are really small businesses and.

Microsoft solutions, very cumbersome and difficult to configure and administer and really needs a partner Microsoft implementation partner involved in you know.

Also lacks a lot of.

Many of the features that we already have that we have today in office, but in any case.

We don't think that our team's fone with calling plan is also something that's going to have a chilling effect on our business as we look forward. So.

It is interesting to see Microsoft being putting it all together a little bit more but.

I think it primarily affects the zooms and the rings of the world than it does the type of customers. We're going after an institution we've got in the marketplace.

And then I guess secondly, what are you seeing on video conference and the activity and is there anything with with the army chrome it could affect your introduce more variability on your business and one in one direction or another I mean do you navigated through relatively well last time and every time.

Since you seem to be a little narrower but.

So I mean this is a wrinkle that nobody.

So all coming or maybe a lot of people do two coming but people were in denial.

Yeah, there's nothing about our business to speak to on that our customers love our video conferencing solution. They are using it we use it.

It's a great value.

Being bundled into pro.

Yeah.

Yeah, not that I don't we haven't seen anything really affect that.

Great. Thanks, Eric.

Sure.

The next question comes from the line of Joe Goodwin from JMP. Please ask your question.

Oh, great. Thank you so much guys for taking the question.

Given the expanding product portfolio.

And as well as higher leverage level tiers that you're offering and it is great to see your retention rates stabilize at 98% for last few quarters, but just given the.

And besides just the just mentioned would you expect that to.

Returned to 100%, which is where we were before the pandemic or even above.

Thank you.

Yeah, Youre right, our net dollar retention rates about 98% of went up a little bit from the previous quarter just a little.

I will say that as we.

We do find that a little bit larger sized small businesses that we that we sell to.

I have a little bit lower churn I think it's a little bit more of a commitment they make and we certainly see lower churn when we sell through channel because often sold on a three year contract.

So there are some potential here to bring churn churn down over time.

Our churn in Q3 was a little bit lower than it was in Q2, as well, which was which was a favorable trend we're not really giving projections on this net dollar retention rate but.

I could it could it could go up to a 100% it could stay at 98.

I think over time, there are more forces to move it up rather rather than rather than down so.

Yeah, I think it.

I think it is solid and probably going to get a little better over the longer term as we move forward.

Understood. Thank you.

Sure.

Once again as a reminder, if you have questions. Please press star one.

We have a follow up question coming from the line of Brian Ken Slinger from Alliance Global please.

Please your line is now open.

Well I can start too, but ill ask it anyway, we can ask them the business are approved specifically.

With Onboarding.

Tolerating with your largest customer in the first half of the year in the short term how does that affect the business in <unk> and then longer term with all of the new products and services you've offered what is a long term potential or goal you have to reach for <unk>.

Business RPM.

So.

I'll answer the second part of that and that should maybe take the first on the new products and solutions. We're talking about with you here today are dial.

<unk>.

Office Pro plus those will drive <unk> up.

We expect them to dry bulk grew up overtime.

Also as you know.

Most of our business today is with whom office.

To the small business segment as we do more growth with whom of enterprise that can also move <unk> because enterprise users.

By a greater bundle of features often.

But in terms of.

Impacts on <unk> as we scale with our largest customer in the first half of next year should yes. So.

Brian the if you think about the large customer opportunity that we want to scale next year, just given the nature.

Ken which is large opportunity.

Per user pricing on that would be.

Lower than what we have here on.

Doesn't hokku that you see today, so as we expand that that will provide a little bit of a pull down on output, but I think we have other opportunities in our pro tier pro tier adoption with more customers outside of this this large customer as well as offering a higher tier.

Pro that Eric talked about earlier.

So I think there's some offsetting going on with both that all the time I think we're sub opportunity to improve on <unk>, even with the largest customers ramping because if you really think about it.

Only 19% of total office users today.

Has higher pro tier and so we had a lot of more opportunity and trend that we see right now on the every quarter.

This quarter by 48%.

<unk>.

The new office users adopting pro tier so.

We think about ability to keep it up and increased total.

Our tier subscribers.

<unk> office users.

Moving high over 19% as well so long story short, we're going to see some downward from their largest customer, but I think there's enough offsetting.

For us from the other areas that we can see.

Improvement on <unk> as well.

Great. Thanks, so much.

Once again, if you have questions. Please press star one.

We have no further questions at this time I will now turn the call over back to Mr. Eric Tang our CEO Sir.

Do the honors.

Mark.

Thank you thanks, everyone for joining us today.

We're excited.

Take up our guidance for the balance of the year and to have some new drivers to talk about with you.

As long as all the other things we've been doing to grow the business.

And really look forward to the next conference call, where we will be able to lay out our FY 'twenty three for you in more detail. Thanks for joining us today Bye bye.

This concludes today's conference call. Thank you again for participating you may now disconnect.

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