Good day, thank you for standing by. Welcome to the Ooma, Inc. 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. 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. Good day, everyone, and welcome to the third quarter fiscal year 2022 earnings call of Ooma, Inc. My name is Matt Robison, Ooma's Director of IR and Corporate Development. On the call with me today are Ooma's CEO, Eric Stang, and CFO, Shig Hamamatsu. After the market closed today, Ooma issued its third quarter fiscal year 2022 earnings press release. The release is also available on the company's website, ooma.com. This 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. The telephonic replay will also be available for a week starting this evening about 8 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, and those risks 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 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 press release, which is available on our website. On this call, we will give guidance for fourth quarter and full year fiscal 2022 on a non-GAAP basis. Also, in addition to our press release and 8-K filing, the Overview page and Events and Presentation page in the Investors section of our website, as well as the Results page in the Financial Information section of our website, include 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 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 Ooma CEO, Eric Stang.
Thank you, Matt. Hi, everyone. Welcome to Ooma's Q3 fiscal year 2022 earnings call. Thank you for joining us today. Q3 was another strong quarter for Ooma, 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 2022 fiscal year at a $200 million total 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 Ooma, in which we continued to drive growth across the business. Our primary objective, of course, remains to grow revenues from business customers. In Q3, we developed several new Ooma Office features, including call analytics, mobile app enhancements for multi-line and three-way calling, Google 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 Ooma 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.
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 ARPU, which overall for Ooma 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 Ooma Office tier of service that will contain even more advanced features and be priced above Office Pro. Internally, we call this tier 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+ users in size. With Ooma Enterprise, we added approximately 150 new locations with a large national brand where we now serve over 2,000 locations.
In our targeted hospitality vertical, we got off to a good start by winning 7 new properties. We also increased the number of agents and resellers we work with and increased our sales of Ooma 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 ARPU 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 1 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.
We continue to see significant opportunity with this customer in North America, Europe, and other regions of the world. On November 1, we made an exciting new announcement about the introduction of Ooma AirDial. AirDial is a complete integrated solution to replace copper lines used by businesses in 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 in use for such applications today and believe that providers of these copper lines are both raising prices and making plans to retire them. We also believe the existing alternatives available in the marketplace today are generally expensive and cumbersome to deploy and manage.
Ooma AirDial brings together Ooma's 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. While AirDial was just recently introduced, we are already experiencing strong customer interest. Finally, on the residential side of our business, I have a very exciting new announcement to make. I'm pleased to announce that T-Mobile will soon offer Ooma Telo to their wireless home Internet customers. As I'm sure you are aware, 5G presents a meaningful new option for millions of Americans to stay connected at home. T-Mobile's 5G home Internet service is available to more than 30 million homes across the country with a rapidly growing customer base.
Our partnership with T-Mobile will enable consumers to get a great deal on Ooma Telo 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 Shig Hamamatsu, our new CFO, to discuss our results and outlook in more detail, and then return with some closing remarks. Shig?
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 year fiscal 2022. We delivered another quarter with strong financial results, achieving $49.2 million in total revenue, exceeding our guidance range of $47.8 million-$48.5 million. On a year-over-year basis, total revenue grew 14%, driven by the strength of Ooma Business. Ooma Business now accounts for 49% of total subscription and services revenue, compared to 44% in the prior year quarter, as we continue 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 $2-$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 increase 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 1,098,000 core users, up from 1,063,000 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 302,000 business users.
Our average monthly subscription and services revenue per core user or ARPU increased 9% to $13.24, up from $12.10 in the prior year quarter, driven by an increasing mix of business users, including higher ARPU 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% of our Office users have now subscribed to our Pro tier. Our annual recurring revenue grew to $174.3 million and 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. The improvement in subscription and services gross margins was driven by our increase in scale and a greater mix of higher ARPU business customers. Product and other gross margins for the third quarter were -46%, comparable to -46% for the same period last year, but improved sequentially from -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 last year due to a higher mix of product revenue during the quarter. 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% of total revenue, up 16% year-over-year, driven by higher marketing and channel development activity for Ooma Business. Research and development expenses were $8.4 million or 17% of total revenue, up 7% on a year-over-year basis from $7.8 million, driven by investments in new features for both Ooma Office and Ooma Enterprise, as well as new products such as Ooma AirDial, which was introduced just last month.
G&A expenses were $4.5 million or 9% of total revenue for the third quarter, compared to $3.8 million for the prior year quarter. G&A expenses in the prior year included a one-time $300,000 benefit from a 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 overseas expansion. Our non-GAAP net income of $3.3 million resulted in a diluted earnings per share of $0.13, comparable to the thirteen cents 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 period 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 2022 to be in the range of $49.7 million-$50.2 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 $2.3 million-$2.8 million. Non-GAAP diluted EPS is expected to be between $0.09-$0.11. We have assumed 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-$192 million, an increase from our previously issued guidance range of $188.5 million-$190 million.
We expect non-GAAP net income for fiscal 2022 to be in the range of $11.7 million-$12.2 million, up from our previously issued guidance range of $10 million-$11.5 million. We expect non-GAAP diluted EPS for fiscal 2022 to be in the range of $0.47-$0.49. 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 in execution while we made progress towards our long-term objectives. I'll now pass it back to Eric for some closing remarks. Eric?
Thanks, Shig. 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 and 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 AirDial the go-to solution to replace aging copper lines, and our plans for expanding our partnership with T-Mobile to include Ooma Telo are significant and present great opportunity for FY 2023.
Let me stop there and turn it over to 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 Kinstlinger from Alliance Global. Your line is now open.
Great. Thanks so much. Nice results. Can you talk about how the
Thank you.
Hi, Eric. Can you talk about how the T-Mobile sale process of your residential will occur? First, if I'm already a wireless home customer, how will I become aware of this product? And does this cut the cord so it cannibalizes their landline business? Alternatively, if I'm a new customer, how will I be made aware of this offer?
T-Mobile is selling wireless internet today, and they will be offering Ooma Telo as a home phone solution to go with it, when you're purchasing their wireless internet. T-Mobile will be doing that through various channels that they use to go to market. I think that's exciting for us. It'll be T-Mobile presenting that to their customers. Obviously, if the customer wants to get an Ooma Telo, we'll be arranging to provide that.
It's exciting because they are quite committed to 5G and wireless internet, and even a small attach rate on the scale of what they're doing will be quite significant for us.
I guess that leads to my one follow-up, and then I'll get back in the queue. It's such a big market, like you said, and even a small attach rate is a big number. How do you think about this ramping, and how should investors think about this in 2022 or 2023, or when it has a real material impact on your business?
I think we will know more in our next conference call because we will be launching this soon with them. You know, residential for us is still a growing business, and we estimate there's 50 million-plus households in North America. Obviously, T-Mobile is just in the U.S. You know, a large market opportunity to replace landlines with new solutions. We are quite excited to be continuing to see and drive growth with Ooma Telo and our residential business. We think what T-Mobile's doing now past 30 million homes with wireless 5G internet is quite significant. It's an exciting time for us. We'll be able to give you more outlook on that next quarter after we've started it.
Okay. Thank you.
Sure.
Our next question comes from the line of Mike Latimore from Northland. Please ask your question.
Great. Yeah, thanks. An excellent quarter there. On the subscription gross margin, I think that was a record, but it certainly was up a lot, you know, year-over-year and sequentially. I guess, is that a sustainable kind of number?
Yeah, Mike, thanks for the question. Yeah, we're really pleased with the progress we're making. You know, I think I think we have opportunity to continue to make a progress on that, you know, especially through continued uptake percentage, the uptake percentage continuing to uptick on a Pro tier on a business side. You know, if you look at our midterm model that we talked about, 70%-75%, and we're sort of in the middle right there. I think, you know, as Eric talked about, we're gonna introduce the Pro Plus tier in the near future, and that gives us another opportunity to enhance the output on the business side a little bit more.
I think, you know, we have a little more room to grow there as we scale further as well.
Okay, great. Then the AirDial opportunity sounds interesting. Do you have maybe a total addressable market or number of lines to think about as you know the market for AirDial?
That's a good question, Mike. You know, I've seen numbers on the order of 30 million copper lines still in use in the U.S., and they're all going away. It's being sunsetted.
Got it.
We've also talked to customers who are paying $200-$300 a month for their copper line, if you can imagine it.
Mm-hmm.
I see a lot of reason for customers to look for new solutions, and eventually they're going to have to look for them over the next, you know, kind of few years.
Mm-hmm.
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.
Mm-hmm.
I know it's a big number because we've been overwhelmed by the level of customer interest we've received in this product since we announced it, and I don't say that word lightly, overwhelmed.
Mm-hmm.
We're still trying to sort out how fast we can build them and how fast we can ramp it.
Okay. Is this sold through your current channels or do you have to develop a new channel for this?
No, we're seeing a lot of interest in it from our current master agent type channels. We're also seeing larger sized businesses talking with us directly about it.
Mm-hmm.
Businesses who need literally thousands of lines.
Mm-hmm.
I do think our existing channels will be good channels for this. In a way, it's also a door opener for us because it'll give us the opportunity, I think, to expand with channel partners that we haven't yet worked with, because there really aren't good solutions for this problem today, in my view. You know, I think it's a great opportunity for us, looking forward.
Great. Just last one. It sounds like you have a big fixed wireless customer here. What is the use case there? What was the catalyst for them to use your service?
We can't talk about who it is at this point, but they were interested in a version of our fixed wireless product solution. That's not something we normally sell standalone today. This customer, this strategic customer, we hope to turn into a strategic partner. By that the distinction I'm making there is we hope down the line to also sell our voice services with them. They do not have their own solutions today.
Mm-hmm.
This sale is kind of the beginning of what I hope will be a longer term and much more sizable partnership. We're not really ready to talk about anything more because anything more isn't set and finalized yet. They liked what we were able to provide them from a fixed wireless product perspective, and it's a growing relationship for us.
Mm-hmm. 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. Maybe just first, you know, we'd be interested to get your perspective on the hiring environment at this point, right? Not only in the quarter, but as you think through the, you know, kind of growth drivers you talked about, whether that's, you know, new products or international markets eventually expanding outside of this, you know, large customer that you're currently focused on and what have you. How do you think about the hiring environment here and, you know, how do you see that kind of playing out going forward?
I think the hiring environment is pretty tough, to be frank with you. It's not just tough on us, but it's tough on some of the channel partners we work with who we want to see hire as well. Our total headcount has been relatively stable this year, and it hasn't grown like we wished it to grow. That remains a challenge for us. We've doubled our efforts on that, and I do believe we'll get it done. No, 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.
It's probably held us back a little bit up till now.
Right. Got it. Okay. Just a quick follow-up. You know, obviously you mentioned continuing to expand the partner ecosystem. Can you just give a quick update on, you know, the contribution both from your face-to-face channels as well as your non-face-to-face channels, and maybe just a quick update on, you know, the priorities in terms of expanding those efforts and expanding that partner ecosystem from here.
Sure. As you've heard me talk in the past, a lot of our sales on the business side have been direct, and we were relatively late in developing channel relationships and selling through channel partners. That's something that's been growing nicely for us over the last kind of 18 months or so. We do report the percentage of business sales that go through channel partners. That number for Q3 was 40%. That's down a little bit from the previous quarter. I think hiring staffing 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.
Got it. That's helpful. Thanks again.
Sure.
The next question comes from the line of Josh Nichols from B. Riley. Your line is open.
Yeah, 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? Is that gonna be something that you think is gonna push to, like, the 50% level of sales if we look 12, 18 months from now? And also, to your point where you've added some of these new relationships, you've added at least, like, one new master agent that could, I would assume, be pretty meaningful as they get towards ramping next year. How is that progressing as well?
Yes, we talked about that, adding that master agent a quarter or so ago. It's ramping. It takes time. You still have to co-court the individual agents and get your products understood and get in front of them. I think that we're making the progress we expect to make. You're right, it will be a 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. From where we sit today, 50/50 is not a bad place to be targeting to be. That's kinda what we're aiming for at the moment as we think this through.
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 FY 2023 will look like overall.
Fair enough, Eric. Thanks for the color on that. I just wanted to hit on it. I mean, clearly a huge opportunity for T-Mobile, and I think a lot of people have been ongoingly surprised that you've been able to continue to grow your residential business pretty successfully at a fairly stable rate here. Is it fair to assume, like, the unit economics are fairly comparable in terms of ARPU and margin relative to, like, the residential pro offering that you guys sell? Or, how to think about that as you add some new customers from T-Mobile?
Yeah, the economics will fit in nicely with the way our business works today. The service we're gonna be providing that they'll be bringing to their customers will be Premier based. All the customers will be getting the Premier package, and that comes with a, you know, a monthly fee. That is part of what we're doing. It's really exciting for us, this. We're gonna have to get into it and see just how big it can be. T-Mobile is very committed to the 5G space and wireless home internet. Already.
I mean, I'll let you turn to them for, you know, what they say about how many customers they have today and how fast they're growing for next year, but it's sizable. It's real scale. We know that a lot of people value a 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 past couple years. Our solution, you know, ranked number one in the country, is perfect for that and very good value.
I think we've got everything going for us in this new opportunity and, you know, we just can't get ahead of ourselves and give a sense of what it's gonna mean for us until we get going with it.
Fair enough. Then just last question from me. Again, good to see you launching. I think you mentioned like 30 new locations with your largest customer. Looks like you're expanding in multiple regions, not just to North America, but to 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. 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 ramp in these new locations?
Yeah. You know, we've talked about the potential with this customer and what we've achieved so far is 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. Our product doesn't work in isolation, and it just takes time when you're doing something this significant. The relationship's extremely strong. I mean, I know the work's basically behind us now, and we are planning the large rollout for next year.
Thanks, guys. Appreciate it.
Thank you.
The next question comes from the line of Matthew Harrigan of Benchmark. Please ask your question.
Thank you. Congratulations on the numbers. Can you talk about any implications from Teams Essentials from Microsoft and on a standalone basis? I mean, it rattled some people's cages certainly on Zoom. Is there anything you can say on video conferencing activity and any potential new fallout or variation of Omicron? I hate to use the word, but Omicron?
Sure. Let me touch the first one, but you may have to talk more about the second one with me. Teams Essentials, you know, Teams has been available for free to businesses, for a while now, but it has, you know, usage limitations that are fairly significant. Teams 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. I do think it's worth, you know, really taking to heart. From our perspective, I don't think it means much. Our UCaaS solution in Ooma Office and the primary ways in which it's used complement that very, very well.
We don't expect Essentials at $4 to really have any impact on us at all. We do have pretty good adoption of our video solution, which we bundle in with our Pro package. But there's a lot of other things we bundle in with our Pro package too, and I don't think even if a customer wants to use you know Essentials for video and chat basically they wouldn't also still value our Pro solution. Now Microsoft has also offered Teams Phone 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. You know we don't really see that product targeting most of the businesses we go after.
Most of the businesses we go after are newly small businesses and you know, Microsoft's solution is very cumbersome and difficult to configure and administer and really needs a partner, a Microsoft implementation partner involved, and you know, also lacks a lot of you know, many of the features that we already have, that we have today in Office. In any case, you know, we don't think that Teams Phone with Calling Plan is also something that's gonna have a material effect on our business as we look forward.
It is interesting to see Microsoft being putting it all together a little bit more, but I think it primarily affects the Zoom and the RingCentral of the world than it does, you know, the type of customers we're going after and the solution we've got in the marketplace.
I guess secondly, what are you seeing on video conferencing activity, and is there anything with Omicron that could affect or introduce more variability on your business in one direction or another? I mean, you navigated through relatively well last time, and every time, you know, the oscillations seem to be a little narrower. Nonetheless, I mean, this is a wrinkle that nobody saw coming, or maybe a lot of people did see it 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're using it, we use it, and it's a great value being bundled into Pro. Yeah, nothing. 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. Just given, you know, the expanding product portfolio, and as well as, you know, the higher-level tiers that you're offering, it is great to see your, you know, retention rate stabilize at 98% for the last two quarters. Just given those, the two dynamics that I just mentioned, would you expect that to, you know, return to 100%, which is where we were before the pandemic or even above? Thank you.
Yeah. You're right. Our net dollar retention rate's about 98%. It went up a little bit from the previous quarter, just a little. I will say that as we do find that the little bit larger sized small businesses that we sell to have a little bit lower churn. I think it's a little bit more of a commitment they make. We certainly see lower churn when we sell through channel 'cause often that's sold on a three-year contract. There are some potentials here to bring churn down over time. Our churn in Q3 was a little bit lower than it was in Q2 as well, which was a favorable trend. We're not really giving projections on this net dollar retention rate. I could...
You know, it could go up to 100%. It could stay at 98%. I think over time there are more forces to move it up rather, you know, rather than down. Yeah, I think it's solid and probably gonna 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 Kinstlinger from AllianceGlobal. Please, your line is now open.
Well, I could star two, but I'll ask it anyway. I was gonna ask on the business ARPU specifically. With onboarding accelerating with your largest customer in the first half of the year, in the short term, how does that affect just the business ARPU? Longer term, with all the new products and services you've offered, what is the long-term potential or goal you have to reach for business ARPU?
I'll answer the second part of that and let Shig maybe take the first. The new products and solutions we're talking about with you here today, AirDial, you know, Office Pro Plus, those will drive ARPU up. We expect them to drive ARPU up over time. You know, most of our business today is with Ooma Office to the small business segment. As we do more growth with Ooma Enterprise, that can also move ARPU up because enterprise users buy a greater bundle of features often. But in terms of impacts on ARPU as we scale with our largest customer in the first half of next year, Shig?
Yeah. Brian, if you think about the large customer opportunity that we wanna scale next year, just given the nature of the account, which is large opportunity, the per-user pricing of that would be lower than, you know, what we have here on the business ARPU that you see today. As we expand, that will provide a little bit of a pull down on ARPU. I think we have other opportunities in a Pro tier, you know, Pro tier adoption with more customers outside of this large customer, as well as offering a higher tier Pro that Eric talked about earlier. I think there's some offsetting going on with both. All the time, I think we still have opportunity to improve on ARPU, even with the largest customer ramping.
Because if you really think about it, you know, only 19% of total Office users today has higher Pro tier. We have a lot more opportunity. The trend that we see right now in every quarter, this quarter about 48% of the new Office users are adopting Pro tier. We have the ability to keep it up and increase the total Pro tier subscribers across all Office users moving higher from 19% as well. Long story short, we're gonna see some downward from the largest customer, but I think there's enough offsetting force from other areas that we can see improvement on the ARPU 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 back over to Mr. Eric Stang, our CEO. Sir, do the honors...
Thank you.
for the closing remarks.
Thank you. Thanks everyone for joining us today. We're excited to, you know, take up our guidance for the balance of the year and to have some new drivers to talk about with you, along with all the other things we've been doing to grow the business. Really look forward to the next conference call where we will be able to lay out FY 2023 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.