Q3 2023 Ooma Inc Earnings Call
Hello, and welcome everyone to the third quarter fiscal year 2023 financial results call. Today's call is being recorded all lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer a question. If he would like to ask a question during that time simply put star one.
Your telephone keypad, if he would like to withdraw your question. Please press star one again.
And I would now like to turn the conference over to Mr. Robinson. Please go ahead. Thank.
Thank you Savannah, Good day, everyone and welcome to the third quarter of fiscal year 2023 earnings call 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 coming out to.
After the market closed today <unk> issued its third quarter fiscal year 2020 earnings press release. This release is also available on the company's website and the dot com bust.
Call is being webcast live and is accessible from a link on the events and presentations page of the Investor Relations section of our web site. 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 to see me about eight P. M. Eastern time dialing 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 forward 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.
Those risks or 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 stated the financial measures to be disclosed 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 is included in our earnings press release, which is available on our website.
On this call, we will give guidance for fourth quarter and full year fiscal 2023 on a non-GAAP basis. Also in addition to our press release and 8-K filing the overview page and events and presentations page in the investors section of our website as well as the results page of the financial Info section of our website includes links to information about <unk>.
Costs and expenses not included in our non-GAAP values and key metrics of our core subscription businesses.
Titled Supplemental financial disclosure, one and supplemental financial disclosure two Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation.
That also provides resolution of GAAP expenses that are excluded from non-GAAP metrics.
Now I will hand, the call over to CEO , Eric Stang.
Thank you Matt.
Everyone welcome to <unk> Q3 fiscal year 2023 earnings call. Thank you for joining us.
It's my pleasure to talk with you today about our excellent results for the Q3 quarter just ended and the many growth initiatives, we have underway for Q4 and next year.
I'm delighted to report for Q3, FY 'twenty three the ummah outperformed on both the topline and Bottomline Q.
Q3 revenue of $56 7 million was up 4 million sequentially and up $7 5 million year over year through a combination of growth across all parts of our business and the acquisition of onset, which we announced last quarter.
Similarly, non-GAAP net income of $3 5 million was up over previous periods in line with our plan announced last quarter to trim spending modestly bolster cash flow from operations and position ourselves better to take advantage of additional inorganic growth opportunities in the future should they come.
[noise] alone.
All in Q3 was an excellent quarter.
Turning now to Umar office, which of course is our solution for serving small to medium sized businesses.
We announced during Q3. The addition of five new features to our top service tier plan the pro plus tier.
These added features bring even more sophisticated capabilities to small to medium businesses and an intuitive and easy to use way.
And include enhancements to improve simple call center activities and integration with Microsoft dynamics 365.
These new features represent one step in an ongoing effort we have underway over the next several quarters to add new features to the pro plus service tier.
Allowing us to serve even larger sized businesses with my office and continued to raise our revenue per user.
I'm happy to report that during Q3, 50% of our new office users.
Opted a premium service tier either pro or pro plus.
And then about 10% of the users who did select a premium tier chose our highest tier pro plus.
We believe our strategy to provide even more advanced features for small to medium businesses in an easy and intuitive way is working and we are excited about our plans for Q4 and next year.
Regarding the enterprise, which of course is our offering for serving larger sized businesses that need extensive and customized solutions.
We continued to make good progress in our targeted verticals.
One such vertical is hospitality, where we added more than 40, new properties in the quarter up from about 25, the quarter before and about 15 in the quarter before that.
To further support growth, we are developing relationships with larger hotel groups as part of our strategy to continue to expand in this vertical.
We believe our strategy within the enterprise to target customers, who need flexible solutions. This finding traction in the market.
Yeah.
Now in regards to international expansion with our largest customer we continued to execute well in Q3.
I'm pleased to report we now serve more than 50000 users with this customer we.
We have achieved this one quarter ahead of the plan we set at the start of this year.
Our outlook for growth in Q4 remains robust, but lower than in Q3, given the holiday period in Q4.
Looking out to next year, we believe at this time.
That Q1 will line up to be the highest growth quarter. So far with this customer and that we will continue significant growth in users throughout next year.
We are thrilled to enable unique solution for this customer and are excited about planning for rollout to new regions next year.
In North America and Europe .
We discussed at length on our last conference call that our acquisition of onset affords us an additional opportunity for profitable growth.
As a reminder, on Sip operates its own internally developed ucas platform that is used today by approximately 5000 customers comprising approximately 50000 users.
Short term goals, we laid out last quarter for onset where to maintain low churn.
Integrate the team.
Drive cost synergies at the gross margin line and make the acquisition accretive.
In this Q4.
I'm pleased to report that we are ahead on each of these goals and that onset turned EBITDA accretive in Q3, one quarter early.
We're very appreciative of the hard work that both the <unk> team and the <unk> team have put into making this acquisition a success.
As you know in addition to our strategic efforts to grow home office and enterprise integrate onset and expand internationally.
Heavily engaged in capturing the large opportunity to replace that sunsetting sunsetting of copper lines with our new solution entered aisle.
We continue to make great progress with their dial in Q3.
As was the case in Q2.
While orders outpaced installations as customers require time to test her dial into plant equipment installation across multiple sites.
Our largest airedale order in Q3 was four 300 lines two in an organization with a large number of locations.
As anticipated <unk> was also opening up new agent relationships, and we were able to add more agents in Q3 than in previous quarters.
One, particularly exciting development is T mobile for business began reselling airedale in Q3.
Based on the progress we've made over the last three months.
Excited about the potential of this partnership and anticipate that T mobile will become a significant reseller of airtime.
One particular benefit of our T. Mobile partnership is that T. Mobile opens up access for air dial to government entities that procure through special purchasing vehicles. This.
This can be essential in selling to state local and educational entities.
Including T mobile we now have six strategic partners signed up are already selling air dial.
Looking forward, we are in active discussions with several other potential resale partners some of whom are national in scope.
Finally regarding air dial it was exciting in Q3 to win several awards.
In August we announced that Airedale won best endpoint product for 2022, and the prestigious you see awards from the publication you see today.
And in November we announced that TMC named him Airedale is a 2022 TMC labs Internet telephony Innovation Award winner.
There is growing awareness of the sunsetting of copper lines and we're committed to building recognition of Airedale, which we believe is the best solution in the market today for serving elevator gate pool and door phones fire and burglar alarm panels and other devices that require an analog line connection.
I'm also excited to report that <unk> business was named a ucas leader in Frost <unk> Sullivan's October Frost radar report.
Report states that through innovation organic growth and strategic acquisitions Puma has quickly earned a top spot in the North American hosted IP telephony and unified communications market.
And the report goes on to say that Lumens dedication to removing the complexity of purchasing and using business phone service. It makes the company, particularly well positioned to capitalize on the rise and hybrid work.
I'm very happy for the entire <unk> team to see Frost <unk> Sullivan recognized our efforts.
Switching now to the residential front, we continued to drive modest growth with subscription and service revenues up 2% year over year in line with our residential strategy.
Our sales made in conjunction with T mobile home Internet were approximately the same as in Q2.
And both we and T mobile continue to look for ways to increase the visibility of the Houma offering for T mobile customers.
Overall for Q4, we remain excited about our many growth initiatives.
Unlike the actions taken by some of our competitors. We are currently not cutting back on key investments and we are currently not planning any personnel layoffs as we've previously said in these times, we do believe that customers are sometimes taking longer to make a decision.
And there are sometimes being more careful and what they buy but we also feel we have leading solutions for the marketplace and there is significant demand for improved communication, especially at the price points, we can offer.
We're cautious about our outlook most of all for the timing of Airedale installations and revenue given that <unk> is a new product and market segment for us, but overall for our business, we continue to see significant opportunity and to execute our strategy to drive drive growth and profitability.
I will now turn the call over to shirk, our CFO to discuss our results and outlook in more detail and then return with some closing remarks.
Thank you Eric and good afternoon, everyone.
I'm going to review, our third quarter financial results and then provide our outlook for the fourth quarter and full year of fiscal 2023.
We delivered another strong quarter with a total revenue of $56 $7 million.
Exceeding our guidance range of 56 million to $56 $5 million.
On a year over year basis total revenue grew 15% in the third quarter.
And by the strength of my business, which included a full quarter contribution from onset for the first time.
In the third quarter business subscription and services revenue accounted for 55% of total subscription and services revenue as compared to 49% in the prior year quarter.
Q3 product and other revenue came in at $4 $9 million as compared to $4 $5 million in the prior year quarter with accessories sales contributing to growth.
On the profitability front, the third quarter non-GAAP net income was $3 $5 million above our guidance range of $2 7 million to $3 $2 million in it.
Was the highest in the company's history.
The team did an excellent job in balancing executing execution of our growth initiatives and managing expenses during the quarter.
Now some details on our Q3 revenue.
We will not business subscription and services revenue grew 30% year over year in Q3.
Driven by user growth and a full quarter contribution from onset, which performed well with solid customer retention.
Excluding the effect of onset revenue contribution within that business subscription and services revenue grew 16% year over year.
On the residential side subscription and services revenue grew 2% year over year.
For the third quarter photo subscription and services revenue was $51 $7 million or 91%, our total revenue compared to 91% in the prior year quarter.
Now some details on our key customer metrics.
We ended the third quarter with 1 million 202 found 1000 core users up from $1 million 181000 core users at the end of the second quarter.
As Eric mentioned earlier, we saw another quarter of robust user growth from our largest customer as they continue to deploy our solution.
At the end of the third quarter, we had 417000 business users or 35% of our total core users an increase of 23000 from Q2.
Our blended average monthly subscription and services revenue per core user or <unk> increased 9% year over year to $14.38 up from $13 2024.
In the prior year quarter, driven by an increase in mix of business users, including higher Abu office Pro and pro plus users as well as the inclusion of ansible users into this metric for the first time this quarter.
During the third quarter, we continued to see a healthy office pro and pro plus take rate with 50% of new office users opting for those higher tier services, which was up from 48% in the prior year quarter.
Overall, 25% of our business users have now subscribe to a probe crawl or pro plus here.
Our annual exit recurring revenue.
Which included onset in Q3 grew to $207 $4 million and it was up 19% year over year.
Our net dollar subscription retention rate for that quarter improved to 96% as compared to 94% in the second quarter.
Now some details on our gross margin.
Our subscription and services gross margin for the third quarter was 73%, which was consistent with 30, 73% in the prior year.
As expected subscription and services gross margin dipped slightly from the second quarter as we had a full quarter impact of onset gross margin.
<unk> running lower relative to Loopnet subscription gross margin of 74% when onset is excluded.
Good news is that onset gross margins improving as expected through our integration effort to leverage <unk> infrastructure and we continue to believe it can reach 70 plus percent range within the next quarter or two.
Product and other gross margin for the third quarter was negative 35% as compared to negative 46% for the same period last year.
The third quarter product gross margin was favorably impacted by sales of accessories that drove a product without a new hire in the quarter.
On an overall basis total gross margin for Q3 was 64% as compared to 62% in the prior year quarter.
Higher total gross margin in Q speed. This year was primarily due to the improvement in product gross margin.
And now some detail on operating expenses.
Total operating expenses for the third quarter were $32 $8 million up $5 $5 million or 20% from the same period of last year.
Excluding the full quarter impact of onset that total operating expenses increased $3 $8 million or 14% from the same period last year.
Selling and marketing expenses for the third quarter were $16 $9 million or 30% of total revenue up 17%, 17% year over year, driven by higher marketing and channel Balkan activity, but with my business, but sequentially lower on a percentage of revenue basis in line with.
Our increasing focus on profitability and cash flow, we discussed on our last earnings call.
Yeah.
Research and development expenses were $11 million or 19% of total revenue up 31% on a year over year basis from $8 4 million.
Driven by investments in new features for both of them are office and enterprise as well as new products such as agile.
A portion of the year year over year increase in R&D expense was also a full quarter due to a full quarter impact of onset of team members, who joined us at the end of Q2.
G&A expenses were $4 $9 million or 9% on total revenue for the third quarter compared to $4 $5 million for the prior year quarter that year over year increase in G&A expenses was primarily due to an increase in personnel costs and a full quarter impact of onset.
non-GAAP net income for the third quarter was $3 $5 million or a diluted earnings per share of <unk> 14.
As compared to <unk> 13 cents in the prior year quarter.
In addition to stock based compensation and intangible amortization expenses non-GAAP net income for the third quarter excludes approximately zero point $6 million of acquisition related costs as well as $1 $4 million of facility consolidation costs incurred in connection with the onset transaction.
Adjusted EBITDA for the quarter was $4 $5 million a record for our company or 8% of total revenue as compared to $4 million for the prior year quarter.
We ended the quarter with total casualty investments of $24 $5 million.
Cash generated from operations for the third quarter was strong at $2 $5 million compared to $1 $9 million in the same periods last year.
On the head count front, we ended the quarter with 1082 employees and contractors.
Now I'll provide guidance for the fourth quarter and full year 2023.
Our guidance is on a non-GAAP basis and has been adjusted for expenses such as stock based compensation amortization of intangibles and other acquisition related costs.
We expect total revenue for the fourth quarter of fiscal 2023 to be in the range of $56 $3 million to $56 $6 million, which includes $3 5 million to $3 $8 million of product revenue.
Product revenue for the fourth quarter is expected to be lower compared to the two previous quarters as we do not expect certain accessory sales we saw in those quarters to recur.
We expect fourth quarter net income to be in the range of $3 5 million to $3 $8 million.
non-GAAP diluted EPS is expected to be between 14 and 15.
We have assumed $25 7 million weighted average diluted shares outstanding for the fourth quarter.
Yes.
For full year fiscal 2023, we expect total revenue to be in the range of $216 million to $216 $3 million, which is within our previously issued guidance range of $215 5 million to $218 finite dollars.
Yeah.
The adjustments to the high end of our guidance range, primarily effects on our current expectation for the timing of our add on revenue ramp.
But it is slower than we originally anticipated in the near term for the reasons exited earlier.
Despite the pace of revenue ramp in the near term, we remain very excited about our growth prospects for agile and as customer demand and engagement as well as channel development activity remain very strong.
In terms of revenue mix for the year, we expect 92% of total revenue to come from subscription and services revenue and the remaining 8% from products and other revenue.
We expect non-GAAP net income for fiscal 2023 to be in the range of 13 million to $13 $3 million.
Based on the midpoint of the updated non-GAAP net income guidance range, we estimate our adjusted EBITDA for the year to be approximately $17 $1 million or 8% of revenue for fiscal 2023.
It is an increase from our prior guidance for $15 $6 million or 7% of revenue.
The updated profitability guidance reflects our continued focus on cash generation and making progress towards our long term profitability model.
We expect non-GAAP diluted EPS for fiscal 2023 to be in the range of 51.
<unk> 53.
We have assumed approximately $25 3 million weighted average diluted shares outstanding for fiscal 2023 in.
In summary, we are pleased with our solid execution in Q3 with a record quarterly revenue and non-GAAP profitability, along with strong cash generation.
We're excited about growth opportunities in front of us and the main focus on executing to our long term strategy to achieve profitable growth I will now pass it back to Eric for some closing remarks Eric.
Thanks Jake.
As I said at the outset, we believe Q3 was an excellent quarter for rumour.
Now have over $1 2 million core users and our Q3 annual exit recurring revenue of 207 million is up 19% year over year. We're proud of this progress and feel our strategy is working as.
As we look ahead, we believe our investments in feature enhancements for room office, new verticals and sales channel expansion for <unk> enterprise.
International expansion expansion and air dial, we'll build <unk> into a larger and more profitable company.
Thank you everyone. We will now take your questions.
And as a reminder, that is star one if you would like to ask a question. Our first question will come from Matt Stotler with William Blair.
Please go ahead.
Okay.
Thank you for taking the questions maybe just just one on the updated full year guide.
Obviously mentioned I mentioned air dial on the revenue side and a little bit of nearing towards the at the lower end of the guide just double click on kind of the breadth of what you are seeing in the macro what's what's impacting air dial that youre continuing to see kind of what you saw last quarter in terms of lengthening of sales cycles and things like that that would be great to kind of double click on what's included.
Q4 revenue guidance.
Sure, let me start there and see if she wants to add.
Sure.
We've only we've only really been selling airedale for two quarters now and we're very excited about how it's developing.
We have learned that just getting orders and wins doesn't lead to revenue until we can get these things installed and working and customers do have the test them and get comfortable with them and then planned installation and so our revenue ramp is not not consistent with our with our sales or opportunity ramp.
I can tell you that the.
Opportunity that we're going after what's been Salesforce dot com for instance.
Deals that we are that we can see grew markedly in Q3 versus Q2, we believe that went up something like 40% in Q3 from where it was in Q2 and we're excited about the size of that opportunity and what we're trying to do going forward, but it is going to take some time for <unk> two.
Drive ramp in the revenue and we're being a little more cautious about that also being a little cautious about Q4 in general.
Sure.
The Thanksgiving and the Christmas holidays, it's not.
Quite as it's there are some things that can get in the way of particularly growing our business sales in the quarter.
Please since a lot of our business is done through inside sales selling to smaller businesses that can be very busy this time of year.
So we're just mindful of that a little bit and then I think in my opening remarks, I did talk a little bit about how we see the market generally.
We're still seeing the opportunity for significant growth and.
I believe that with our solutions, we can power through any.
Minor market weakness that we see <unk>.
<unk> pointed out that.
We have about $1 million less of product revenue in Q4 and <unk>.
<unk>, particularly affects that number because.
If you can the boxes sell for hundreds of dollars each.
The more you can stall in the faster you can install.
The more you can drive that we.
We were not able to install all the opportunity. We had in Q3, we are still building up our capabilities to help our customers do that Thats also part of what's going on here, but no. We're excited about our outlook.
And fifth Chegg wants to add anything to what I said no Eric I think you summed it up pretty well in that.
Despite this.
Just the near term pace of installation revenue and ramp as I said.
Scrap.
Seeing the increase in customer engagement and I think you saw that.
The press release on T mobile.
Our relationship on the agile we are very excited about it so.
I think it's more of a timing issue near term adds customer.
You see a product, which is a great product and so we're so excited about it despite the Q4 guide.
That's very helpful color. Thank you and then maybe just one follow up on the.
The onset integration here.
First could you just clarify the the revenue contribution from <unk> in the quarter and then maybe just give.
Double click on the on what you are seeing in terms of progress of integration talent retention and kind of your expectation for potential additional synergies going forward.
Yes, I think.
If you sort of follow that what I said on the organic versus inorganic growth I think you're back into probably about $3 million per quarter kind of run rate on the onset and.
As we acquired onset last quarter.
We had a pretty conservative assumptions on the.
Churn I think the team did very well.
Plus acquisition retaining customers and we're pleased to see that so I think.
That $3 million a quarter run rate is what we see.
And.
From a P&L contribution standpoint, a law that like I said, they are making a great gross margin contribution making improvements I see them getting closer to our aluminum margin next few quarters.
<unk>.
Yes, so and made a one quarter early on our EBITDA contribution.
And.
So that's why I said I would like to say.
I'm not sure if you put all add anything from the sales and marketing standpoint, but.
Just one thing.
We knew when we acquired answer if we were getting a great team the folks running onset, but really know their stuff and they become really valuable members of Houma.
Just in the short time, they've been with the company and we're not seeing any turnover issues. In fact, we are seeing employees excited to be part of <unk> and together, we're going to grow the company and so on.
It's going extremely well.
Great. Thank you again.
Our next question will come from Mike Latimore with Northland capital markets.
Please go ahead.
Okay. Thank you.
Yes, congrats on the quarter there.
<unk> retention rate improved sequentially is that because of the acquisition or is that organic or belk.
It's <unk>.
However, both are certainly I think I explained this last IMI again I'll explain it again.
Our retention rate is dependent upon <unk>.
Year over year growth in our <unk> and <unk> offset by the churn and churn was very stable this quarter it would not see.
Any material change to the trend that we saw first half of this year.
And we saw it.
Better year over increase in <unk> growth I think I said, 9% year over year.
Good chunk of that obviously it was the onset comment in.
Two.
Equation for the first time this quarter.
So I think we said last time without being too specific that ships average pricing see pricing is a little bit below average business pricing by certainly about the overall blended ASP who of 13 high 13 to 14, so that was having a good effect.
Fact on that metric.
Okay.
Maybe that was the biggest space yet.
Yes, okay.
Kitchen on ARPA there.
On the air dial.
Many units have you manufactured kind of year to date, let's say and then I know you want to expand your installation capabilities.
What is the extent of the installation capabilities.
Can you sort of and effectively install do you want to.
Yeah.
So we've.
Yes, we've built.
First 10000 units that we said we were going to build at the start of the.
Start of the.
Q1 or Q2.
Most of those we have here some we don't have an inventory yet.
That's not holding us back.
Whats.
The bigger challenge is getting customers to rollout I announced for instance, we are largest.
Air dial.
Sale in Q3.
Was the customer who needs 300 lines, but I don't think any of them are installed yet.
That's going to be a real process, we plan with the customer and the customer has to decide how they want to do it they might have their own people to do it they might want to use our third party installers they might want a combination of the two.
It's usually starts frankly with a site survey to figure out where the lines even coming into the location are located and what youre going to need to do.
Make the swap so it's just it's just a process.
Now customers are very motivated.
Because the FCC has removed it's it's constraints on the pricing of analog copper lines to businesses prices have gone up markedly we've even seen them over $1000 a month.
Believe it or not.
And so customers are starting to become really aware that they are paying too much for these and they do want to make the change and it's economic to make the change but.
Spooling up the resources and the effort to do it it just.
It just takes it takes time, so I think it's a building wave for us.
But.
We're not we're not intending to disclose exact numbers of what we do each quarter for just competitive reasons, both but the numbers do show up in our overall user growth user growth metrics.
And I guess.
Just last question.
Yes.
How much of the.
Customer <unk>.
Process Tayo.
Billy to install versus they're discovering well we need a different feature and then leave.
To more almost an R&D effort is it more kind of purely installation or is there some additional feature.
Future work that Pops up here and there.
For most applications it is purely an installation.
We were that can vary a little bit is with certain older pieces of equipment, particularly older alarm panels, which are supposed to work to a certain standard.
But you find have their own vagaries and when we get a situation like that we do have to do some diagnosing.
Fortunately the way our product works, it's easy for us to customize it to download new firmer in the box. We're managing all of these units remotely and once we've done that alarm panel. We're set for any other one we run into going forward. So.
But there has been some of that certainly there have been some.
Only two quarters really into this new product and we are learning the wide variety of of equipment that's out there.
And.
But.
That's.
That's not the driving issue we have had some customers who want to sell our unit outside.
And that has been an issue for us we're not we did not design the unit for outdoor installation.
But that's that's rare as well.
Okay, great. Thanks very much.
You bet. Thank you.
Our next question will come from Josh Nichols with B Riley.
Please go ahead.
Yes, thanks for taking my question.
Wanted to.
Dial in a little bit more.
The international opportunity and the key customer expansion, you've already kind of doubled the.
The seats right at 50000, I think now and expect some good additions.
This quarter.
Quarter as well could you.
Talk about what the opportunity is for next year with that customer could add another 25000 plus seats and then a.
More broadly you've previously talked about expanding internationally beyond that key customer or is that still in the works or opportunity on that front.
Sure happy to double click on that.
Yes. This customer has a lot of scope for growth with us and.
Yeah.
It's just like we were talking about for <unk> a minute ago, just the process of conversion in and switching things over onto our platform, which is what they want to do worldwide over time. It does take effort, but I can tell you that as we sit here today.
There is a desire on the customers part to move faster.
And we are laying plans to go faster next year than we went this year.
And that means moving to multiple regions beyond Europe .
We defied the world up into a number of regions based on how we would survey, but but yes.
Yes, there's a lot of desire for us to.
AD.
If plans come together and we will talk about more of this on our next conference call. When we give guidance for next year, but the plans as we see them today, we will be looking at more user growth next year than we've achieved this year and this year has been a strong year. So we're pretty excited about about that.
And.
I will say that with all of that effort with that customer.
Don't know if it will be part of our plan next year to try to sell to sell to users beyond this customer.
In these regions.
That that takes a level of investment additional level of investment in particularly sales and marketing effort that.
We will have to balance with what we're already doing here in North America, and what we're doing with this customer and what we're now doing with air dial.
But so.
That may or may not be part of our of our outlook next year, what I would like to see part of our outlook next year, but obviously, we have to come together before we can talk about it as I would like to see us implementing are dial outside of the United States. I think there are many countries that have the same challenges as we see here.
With the sunsetting of the copper lines and IGT Airedale can be a great product in.
Several other countries, but again that's down the road for US at this point in time.
I hope that that's a little speculative what I just told you and I have to be careful about that but the one answer I can give is I do expect as of now that our large customer will add more users next year than they have this year.
Yes, thanks for the detail on that and then.
I just wanted to touch a little bit.
Looking at the fourth quarter guide you should be north of 8% EBITDA margin it looks like around 8% for the full year I know, there's been an increasing focus on profitability it looks like.
Cash flow and things have been moving upwards into the right.
As you complete some of these investments that you've made over this past year or so do you expect that you'd be able to achieve some incremental EBITDA margin expansion next year, given that's kind of what it was.
The bigger focus for most of the Investor base Nowadays.
Yeah Josh.
Obviously, we are not ready to guide for next year and that I think.
The.
Directionally speaking, we want to start to show some level of additional operating leverage and you know.
So I think we're happy with what we think we're going to land about 8% for the year this year.
Yeah.
We certainly want to make.
Next few years the progress towards our long term model EBITDA margin. So I'll just leave it at that and look forward to chatting with you about <unk>.
Guidance next time, we talk.
Mhm.
And then last question for me.
I guess, it's only been a couple of quarters. Since you launched the Airedale right, but you do have these new partnerships now I think T mobile represents a pretty sizable opportunity how long until you get a little bit better visibility into this.
Do you think by the time you reported in fiscal <unk> earnings that you have that pretty dialed in them or.
Or are you likely.
Still too early and you have been taking a pretty conservative stance on this product offering I'm just.
About how long it will take till you have a better handle for what this demand could translate to how long it may take to actually get these units and sale to install.
Yeah. That's a good question I said, one thing in my opening remarks, which I'll highlight again here.
We are talking with other potential partners strategic partners, who resell air dial in.
If some of those partners come to fruition I think that would be a nice boost for us as well.
I think we'll have a lot better visibility. The next time, we talk because we'll be talking kind of end of February early March.
And we will have.
The momentum that comes with starting off the new year.
Already.
Underway, so I'm thinking that that timing should.
Should allow us to be more definite for Ya.
I appreciate it thanks.
You bet.
And as a reminder, that is star one if you would like to ask a question.
Our next question will come from Joe Goodwin with JMP Securities.
Go ahead.
Great. Thank you so much for taking my questions.
First of all on answer can you talk about any plans that you may have in the works now that you've had the asset for a few months here.
Increasing the average pricing per seat for an answer of user.
Oregon Blues plan to maybe lift some of those folks entre and whom are pro tier or something like that.
So it's our longer term plan to bring the onset of users over onto the office platform, but there's no urgency to that really what.
What matters more is that we do it well and don't cause any.
Issues or challenges for customers. So we're just moving slowly.
Looking at what we need to do with the office platform to tick all the boxes for non SAP customer and.
There is there are some things that office already does better than the answer platform, but there are some things that the answer platform has that off that are part of offices roadmap that we have not yet implemented but we were going to do these things anyway as a business. So we've been trying to.
Coal in some of that that development effort.
So.
Our view right now is that it will be an ongoing process with us for us with onset up over 12 months or longer.
As long as our non SAP customers happy with the features they've got an onset we don't really need to do much for them when a when a customer wants to.
Enable more features that maybe are in office that arent yet in onset that's when we would want to move people over particularly because.
We don't want to put development effort into the answer platform, but right now.
So very happy they have got a good relationship with onset onset is very good at customer support.
And.
We're going to treat it as not that long list of customers. Its 5000 total but you know there is an 80 20.
And on this a little bit in terms of the largest ones and we're going to approach those kind of one by one and see how to handle them.
So.
So long way of saying.
We think we will be operating the onset plant form for the foreseeable future as we go through this process in a careful way.
Got it okay, great. Thank you for that and then just last question for me.
Added around $20 million in <unk> sequentially.
Which is about $12 million coming from onset.
8 million organic.
Pretty good and if you're just looking at the historical air our ads can you just talk about what's driving that incremental organic improvement.
All of the international expansion with a large customer any any.
Other things you want to call out.
No.
Yeah, I mean, it's really the rest of the PCA Israeli what you're pointing out our international customer user adds it's been pretty healthy last two quarters that you've heard.
And we continue to add.
Office users.
And as you also heard again half with a new customer to take office users are taking pre.
Premier Tier services. So all these are contributing to the other pieces you are pointing out.
Yeah.
I mean, I think you know we have several growth factors of the company.
We're fortunate to have that.
I think we're seeing results in each of them.
And that's how we want to accelerate growth as we go forward.
Got it thank you.
And with no.
Alright, and then as now as a reminder, if you'd like to ask a question. Please signal by pressing star one.
And we will take our next question from Matt Harrigan with benchmark.
Please go ahead.
Good afternoon, I was just curious in the hospitality side, we're showing nice sequential momentum what are the prospects for landing.
L a phone or even though we.
Woolly mammoth deal.
If you would I mean, it feels like that's a great vertical for you and your relatively nascent.
Penetration at this point to say the least.
Yeah.
So the way, we see that vertical operating is that.
Even though you can have relationships at a call it corporate level with a large.
Provider of hospitality, you still often end up having to sell at the individual property level.
It might be that someone's properties are independently owned it might just be that every property has a different situation than it needs to.
Work under its situation now.
Now we are obviously our drive there is for <unk> enterprise, but we are also seeing air dial need in these.
Locations that are significant as well so we get a nice combination of opportunity in this in this vertical now.
Im not sure what you call a woolly mammoth, but.
We do have.
Hotels for instance that are one hundreds of rooms that are now running on <unk> and then we have smaller ones as well we have ones and very major cities, we have ones and out of the out of out of the way locations.
And you can see by how I talked in my script about how we've increased the number of.
Wins, so to speak each quarter through this year that that it's a focus for us to keep keep doing that.
We will be.
Ah yes.
Let me just say.
There are something like 80000 plus.
<unk> properties across North America, and then Theres other.
Kinds of managed.
Living quarters that you can also look at for these kinds of solutions. So it's a pretty big vertical.
I think that.
We're starting to get recognized by add a more corporate level by some of the.
<unk>.
Larger players in the space and Thats, a good step forward for us and I think that'll help with getting us known across the opportunities and that's our biggest challenge customers knowing what we can do for them.
Alright, Thanks, Eric.
Perfect.
And with no further questions I would like to turn the call back over to Eric Stang for closing remarks.
Thank you thanks, everyone for joining us today, we were excited to have.
Our strong top line and strong bottom line in Q3.
<unk>.
I think we're trying to be cautious for Q4, but were great too we're happy to have <unk>.
Taking up the bottom line outlook for Q4.
We will look forward to.
Our strong Q4, and then giving you a.
Next year's guidance. The next time, we talk thanks for joining us today. Thank you.
And that will conclude today's conference. Thank you for your participation and you may now disconnect.
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