Ooma Inc Q3 FY2021 Earnings Call

Thank you, David. Good day, everyone, and welcome to the Third Quarter Fiscal Year 2021 Earnings Call at 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, Ravi Narula. After the market closed today, Ooma issued its third quarter earnings press release via Business Wire, 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 page of the Investor Relations section of our website. This link will be active for replay of this call for at least 1 year. A telephonic replay will also be available for a week starting this evening about 8:00 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 security 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 and financial periods 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, risks related to the impact of the COVID-19 pandemic 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 are included in our earnings press release, which is available on our website. On this call, we'll give guidance for fourth quarter and full year fiscal 2021 on a non-GAAP basis. Also, in addition to our press release and 8-K filing, the Events & Presentations page in the Investors section as well as the Quarterly Results page of the Financial Information section of our website includes links to costs and expenses not included in our non-GAAP values and key metrics of our core subscription businesses. These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. Additionally, our investor presentation slides include GAAP to non-GAAP reconciliation but also provides resolution of GAAP expenses that are excluded from our non-GAAP metrics. Now I will hand the call over to Ooma's CEO, Eric Stang.

Thanks, Matt. Hi, everyone. Welcome to Ooma's Q3 Fiscal Year 2021 Earnings Call. Thank you for joining us today. I'm pleased to report that in Q3, Ooma continued its strong performance. For the quarter, we grew revenues to $43 million and non-GAAP net income to $3.1 million. Each of these results exceed our plan significantly. Q3 was a record quarter for the number of new Business users added, exclusive of a very large customer we onboarded last year. And regarding this large customer, I'm pleased to report that in Q3, we continued to expand by onboarding many of the new sites in North America that we mentioned on our last conference call. Overall this year, the COVID crisis has certainly presented new challenges and caused us to pivot our strategy, for example, to accelerate the launch of Ooma Meetings and to adapt our sales and marketing. I believe we have responded well to the challenge, and I'm optimistic about our outlook. As one example of the progress we are seeing, I'm pleased to report the churn of Business users, which increased at the start of the pandemic, is now nearly back to the level we experienced pre-pandemic. I believe this progress positions us well for Q4. Sales and marketing execution is a key element of our strategy this year. So far this fiscal year, we have increased our sales and marketing organization by more than 100 employees and contractors. Our expanding team is, of course, focused on enabling not only direct sales but also channel, retail and partner sales. I'd like to share some examples of our progress. For the first time, sales to Business users through VARs and channel resellers represented over 40% of our total business sales. For sales of Ooma Enterprise specifically, 16% of our sales were from channel resellers working with us for the first time. We continue to perform particularly well in select verticals and with select profiles of customers. You may recall two quarters ago, we mentioned a large national brand where we had enabled over 900 local independent locations. Now, two quarters later, we enabled nearly 1,200 locations with this national brand. We find that the quality of our service delights our customers. One example of this is an Ooma customer located in Florida and North Carolina who started with Ooma Office for just 4 users about a year ago. As of Q3, they have grown to over 300 users and rolled out our service across 29 sites in their organization. The adoption rate for Ooma Office Pro, our higher-priced, feature-rich tier of service, is now above 30% for new Office users. This is up from about 25% just a quarter ago. And finally, we have started to incorporate Ooma Connect, our wireless Internet service, and Ooma Wi-Fi, our managed Wi-Fi service, into our marketing and sales processes. It is still early days as these services were just recently launched. However, we continue to believe they fill a critical need for small business customers and provide us increased leverage to win new accounts. All in, I believe we are executing well on our sales and marketing initiatives. Our strategy is to serve businesses of all sizes, and we are increasingly doing so. For small businesses, we believe we bring unique competitive advantage and are the industry leader today. Our combination of curated features, ease of installation and use, and value set us apart and drive our growth. We are also creating new related infrastructure services for small businesses to provide a more complete solution and greater value. This past quarter, we announced that Frost & Sullivan honored us with their Best Practices Award for North American Competitive Strategy Innovation and Leadership. They commented that Ooma is creating its own segment with its managed services strategy, the connected SMB market and cost-effective communications and network services. It's terrific to see Frost & Sullivan share our vision that small business represents a vast market opportunity that is underserved and ready for disruption. With larger-sized businesses, we are expanding our opportunity through adding features, developing new channel partners, and increasing our reach. Our competitive advantage today is largely built upon our abilities to customize our solution for special customer needs and support complex customer deployments. Increasingly, we are also differentiating by focusing on the needs of select vertical market segments. With these advantages, we serve both large companies with unique needs and businesses of all sizes in targeted segments. We are confident that we can increasingly differentiate our solution through focus on what we do best. I'll now turn the call over to Ravi to discuss our results and outlook in more detail and then return with some closing remarks.

Thank you, Eric, and good afternoon, everyone. First, I want to thank the entire Ooma team for their hard work during these times and for helping Ooma deliver strong financial results. I'll begin with a review of our third quarter financial results and then provide our outlook for the fourth quarter and full year fiscal '21. We once again delivered a strong performance, achieving $43 million in total revenue, exceeding our previously issued guidance range of $41 million to $41.8 million. These results were driven by strong market demand for our cloud communication services as well as solid performance from a number of our sales and marketing channels. Total revenue growth was once again led by Ooma Business, which now accounts for 44% of total revenue compared to 42% in the prior year quarter. Net income for the third quarter of fiscal '21 was $3.1 million, which exceeded our previously issued guidance range of $1.7 million to $2.2 million. This strong profitability was primarily due to the growth of Ooma Business and also stems from lower employee-related expenses and reduced travel while employees are working from home. Now, some details on our Q3 revenue. This quarter, business subscription and services revenue grew 17% on a year-over-year basis. Normalizing for the effect of nonrecurring installation activity from our large customer in the same period last year, we achieved 21% growth in business revenue this quarter compared to the same period last year. Residential revenue grew approximately 2% year-over-year, which was in line with our expectations. On a combined basis in Q3, total business and residential subscription revenue grew 9% compared to the same period last year. As a percentage of total revenue, subscription and services revenue was 92%, which was similar to the last year's quarter. Product sales for the third quarter were strong, with product and other revenue of $3.3 million, up 7% year-over-year. During Q3, we saw improvements in order activity from our direct customers as well as from our VARs and reseller partners. Additionally, we saw an increase in residential product sales to brick-and-mortar stores in preparation for the holidays. Now, some details on our key customer metrics. We are very pleased with the growth of our total core users in the third quarter, especially the sequential acceleration of Ooma Business. At the end of the third quarter, we had 1,063,000 core users, up from last year's third quarter's 1,038,000 core users. 24% of these core users were Business users compared to 21% for the same period last year. Our average monthly subscription and services revenue per core user, or ARPU, increased 9% to $12.10, up from $11.13 in the prior year quarter. We are pleased with this ARPU growth driven by a higher mix of business revenue as well as from new service offerings like Ooma Office Pro. Our annual exit recurring revenue grew to $154.3 million and was up 11% from the third quarter of fiscal '20, driven by growth of ARPU and Business users. Our net dollar subscription retention rate was 95%, similar to the second quarter of this fiscal year. We see continued improvements in our customer churn for Ooma Business and have now seen stabilization in our churn for residential customers. Now, some details on our gross margins. Our subscription and services gross margins continue to trend higher and were 72% in this quarter, up from 71% for the same period last year. These higher gross margins were driven by economies of scale and a greater mix of higher ARPU business customers. Product and other gross margins for the third quarter were negative 46% compared to negative 36% for the same period last year. This is mostly due to increased promotional activities in the quarter. On an overall basis, total gross margins for Q3 were 63%, an increase of 30 basis points from the same period last year driven by improvements in subscription and services gross margins. And now some specifics on operating expenses. Total operating expenses for the third quarter were $24 million, down $800,000 or 3% from the same period last year. Sales and marketing expenses for the third quarter were $12.4 million or 29% of total revenue, up 1% year-over-year and up 13% sequentially as we added more sales resources and expanded our marketing programs. We are pleased to see improvement in sales productivity given the changes we took this year, and that gives us confidence to continue investing in sales and marketing activities for future growth while staying profitable. Research and development expenses were $7.8 million or 18% of total revenue, down 11% on a year-over-year basis from $8.8 million. This decline in R&D expenses resulted primarily from cost savings associated with the discontinuation of the Smart Cam in October 2019. Given the market evolution, our primary focus for R&D is to continue to add new features and integrations for both Ooma Office and Ooma Enterprise solutions, which we expect will yield continued strong growth in Ooma Business users and ARPU. G&A expenses were $3.8 million or 9% of total revenue for the third quarter and comparable to the prior year quarter. During the quarter, we had one-time credits of approximately $300,000, which are not expected to repeat in the future. Our net income of $3.1 million resulted in a diluted earnings per share of $0.13 compared to $0.01 diluted earnings per share in the prior year period. This greatly improved profitability was driven by a number of factors, including higher revenues, economies of scale, and lower employee-related expenses due to the current work-from-home situation. For the third quarter of fiscal '21, adjusted EBITDA earnings improved significantly to $3.6 million or 8% of total revenue versus $600,000 for the prior year quarter. For the nine months of fiscal '21, our EBITDA earnings were $10.4 million compared to an EBITDA loss of approximately $400,000 for the same time period last year. We ended the quarter with total cash and investments of $27.6 million with no debt and up sequentially from $25.3 million at the end of the second quarter. Cash generated from operations for the third quarter of fiscal '21 was $2.5 million compared to $600,000 of cash used in operations in the same period last year. Additionally, during the third quarter, we generated $1.7 million of free cash flow. Now some details on our fourth quarter and full year fiscal '21 guidance. Again, our guidance is non-GAAP and has been adjusted for expenses such as stock-based compensation and amortization of intangibles. We have been successful this year in adapting our sales and marketing activities to address this COVID disruption. Should conditions become more severe, execution could be more challenging. We expect total revenue for the fourth quarter of fiscal '21 to be in the range of $43 million to $43.8 million. We expect fourth quarter non-GAAP net income to be in the range of $2 million to $2.6 million. Non-GAAP diluted EPS is expected to be between $0.08 and $0.11. We have assumed 24 million weighted average diluted shares outstanding for Q4. For the full year fiscal '21, we expect total revenue for fiscal '21 to be in the range of $167.7 million to $168.5 million, an increase from our previously issued guidance range of $163 million to $164.5 million. We expect non-GAAP net income for fiscal '21 to be in the range of $10.6 million to $11.2 million, up from our previously issued guidance range of $8 million to $9.5 million. We expect non-GAAP diluted EPS for fiscal '21 to be in the range of $0.45 to $0.47. We have assumed approximately 23.6 million weighted average diluted shares outstanding for fiscal '21. In summary, we are very pleased with our strong performance in our third quarter, which demonstrates strength in our execution while we make progress towards our long-term strategy. I'll now pass it back to Eric for some closing remarks.

Thanks, Ravi. Looking forward, we believe the significant investments we have made and continue to make today set us apart from others. Key to our strategy is the unique vision we take of the market, which includes small businesses having different needs from larger businesses. Also key to our strategy is the end-to-end platform we have created to enable both superior quality and superior value. Cloud communications is a disruptive new service with a vast market opportunity. We believe our strong focus on execution will power growth in all areas of our business. At this time, our priorities are to expand our marketing and direct sales, build our reseller community, secure new wins for Ooma Enterprise with larger customers, and add to our product and feature differentiation. I'm confident we are poised for a successful Q4 and well positioned to execute in the coming next fiscal year. Thank you, and we'll now take questions.

Great. So I guess I just want to make sure I got this number right. Did you say you've increased the sales and marketing headcount by 100%? Or what was that referring to?

We said since the start of the fiscal year, we've added over 100 personnel to sales and marketing.

Okay. Got it. And what kind of percent increase would that be?

We have increased by approximately 25% to 30%.

Okay. Since the start of the year?

Since the start of the year, yes.

Okay. Great. And then on the increasing channel activity, do you attribute that to just sort of getting further away from the start of COVID? Or what do you attribute the increased channel activity to?

Just hard work and execution. To build that community, you really need to get involved and take the time to develop the relationships and capabilities, and we've been investing in that for a while now.

Okay. Got it. And then just two financial questions. Gross margins look like they're really strong. What was the reason for that? And is that sustainable on the subscription side? And then how much revenue came from Talkatone?

I am very pleased with the gross margin for our subscription services. As we continue to add more Business customers, we see revenues exceeding $20 per user. Customers with multiple users, such as 3, 5, or 10, are very profitable for us. The addition of more Business customers boosts our subscription services gross margins. We also launched Ooma Office Pro earlier this year, which costs an additional $5 a month per user, further enhancing our gross margin. I believe this trend is sustainable, and as we bring in more Business users, we should see ongoing improvement in gross margins. For the quarter, Talkatone's revenue contributions were approximately $1.2 million, which exceeds what we saw in Q2.

It's impressive to see such strong performance both at the top and bottom lines despite some challenges from the early pandemic. Can you provide a breakdown of the Business side between Enterprise and Ooma Office Pro? Also, how do you expect that to trend in the future?

Ooma Enterprise is significantly smaller than Ooma Office, so we aim for a higher growth rate in that segment. Both are integral to our strategy. We're seeing over 30% of new customers adopt Ooma Office Pro, and we believe we can drive that number even higher moving forward. This has become an increasingly vital aspect of our business. We just introduced Ooma Meetings, which we are very excited about, featuring excellent voice quality and the capability to share multiple screens simultaneously. This service is included in Home Office Pro at no extra cost, providing us with a new tool to further encourage the adoption of Ooma Office Pro.

And Josh, if I may just add to your first point. Rather than breaking out revenue between Ooma Enterprise and Ooma Office, I would like to remind you of something I mentioned in the last earnings call. When we consider the size of our customers, about 20% of those with over $10,000 of annual recurring revenue are providing us with more than $10,000 in ARR. This includes a significant number of customers from both Ooma Enterprise and Ooma Office who exceed that $10,000 ARR threshold. This figure has been steadily progressing and improving over the past few years. We believe that, in light of our sales and marketing channels, resellers, and VARs, this number will continue to grow in the future. Hopefully, that helps.

Yes, definitely. That helps quantify it. And just to hit on your point, Eric, you've seen some really good adoption for Ooma Office Pro. And now also with video collaboration that the company just released, I know it's early, but I would expect that there could be a very high demand that could kind of accelerate the Ooma Office Pro subscription adoption and while also doing that, help you guys get back to your net dollar subscription retention revenue of 100 or possibly higher than that as you continue to add subs on that. Is that your expectation based on what you've been hearing about this early offering?

It is indeed. We are not halting our efforts with Ooma Meetings. We will continue to add more features to Ooma Office Pro in the future to enhance its appeal. At some point, though I’m not suggesting anything is imminent, we anticipate developing higher tiers of capabilities beyond Ooma Office Pro. Our long-term strategy is to incorporate more features into these premium offerings and encourage their adoption.

I have one last question before I return to the queue. Ravi, you mentioned that a significant number of the company's business subscribers have an ARR of $10,000 or more. Are you experiencing increased success in that area? How should we view the company's mix of smaller business customers compared to some of these larger clients with higher ARR amounts and the large deployments you've observed?

Yes, we are targeting both small and large businesses. We're not only concentrating on larger companies with over $10,000 in annual recurring revenue. We also welcome smaller firms like accounting and dental offices, as well as local businesses, and we're experiencing good success in that area. Additionally, through Ooma Enterprise and Ooma Office Pro, and our VAR channels, we are attracting larger businesses. For instance, we started Ooma Office with one customer in Florida with four users, and now that number has grown to over 300. Our strong features and the demand for cloud communications are encouraging larger customers to adopt our solutions as well. Therefore, we are committed to serving all segments, and I believe that, given the comprehensive nature of our offerings, we will continue to attract larger clients who will expand their engagement with our portfolio.

Great. You mentioned this quarter 4 additions, which were very strong for business subs or one of the strongest in history if you exclude your large customer that added last year. As you look at this quarter's additions, I was hoping you could characterize the concentration. Did it come from just a handful of customers, including your largest customer, at least a high concentration? Or was it very broad-based?

No. We had a very good quarter across the board. Even e-commerce was up nicely for us sequentially. And then as I mentioned in my remarks, we've expanded the portion of our business going through channel resellers. We were about one-third of our business previously, and we're now up over 40% of our business, new business. And just all of the activities we're doing, we feel good about them. They're all working as part of our strategy to grow from many dimensions. So no, it wasn't just that large customer, although with that large customer we talked about a quarter ago, we secured an additional opportunity this fall. And it's rolling out to a large number of locations with a very limited service to start with the hope that down the road, we can expand that further. But a great next step for us with that customer as well.

Great. This might help answer the next question. I’ve noticed that the revenue per business subscriber has decreased slightly each quarter, usually by $0.05 or $0.10. I expected that with the introduction of Office Pro and other add-on features, we would see a modest increase. Could you discuss the trajectory of revenue per subscriber from a business perspective and your expectations for the future?

Yes, Brian, this is Ravi. We are actually seeing our average revenue per user for business subscribers steadily increasing over the past several quarters and years. It is improving. As Office Pro and other solutions are introduced, the revenue from each business user is rising. However, I would note that when large customers come on board and add numerous seats, there might be a quarter where even though we added more users at the end of the quarter, we may not have reflected all the revenue. So there could be some quarter-end activities to consider. Overall, when I look at the average revenue per user for each business subscriber, it has been trending upward.

I'll ask one more question regarding the partner channel. There has been significant news about the partner efforts this year, influenced by strategic market moves and the effects of COVID. However, it appears that particularly in Q3, the partner channel has shown considerable strength, which you have mentioned. I would like to explore this further, discussing the pipeline of new partnerships, including the number of new partners and the pace of growth. Additionally, could you provide insights into the recovery of existing channels that may have been more impacted during Q1 and Q2? I have a follow-up once you address this.

Sure. I hope I understand your question correctly. At the beginning of COVID, during the strict lockdowns, our face-to-face channels were negatively impacted. However, we have recovered well from that. As we've mentioned in this call, we have also expanded our efforts. We are committed to building strong relationships with the reseller community, which is relatively new for us compared to other companies utilizing those channels. I believe we can offer unique advantages there, and we are investing in this area, with plans to continue doing so. I expect this to keep growing for us in the foreseeable future due to our dedicated efforts. Overall, this is a positive aspect of our business, but all divisions are performing well, considering the various sales and marketing channels we employ. I think COVID has highlighted the necessity for businesses to seek better solutions than they previously had. Additionally, while it’s challenging to quantify, we are witnessing significant new business creation right now. Our solutions are particularly well-suited for startups, and we believe we are in a strong position for the market and its future direction.

Got it. That's helpful. And then just a quick follow-up in terms of how we're thinking about investments going forward. Obviously, there's a lot that you're investing in, in terms of the go-to market, direct channel, continued innovation in the R&D front. But as we look back through the first 3 quarters of this year, there's clearly been some cost savings from COVID, maybe also some efficiencies that will stick around. So as we think about the proliferation of a vaccine and kind of moving back to whatever the new normal looks like, how should we be thinking about kind of relative OpEx levels and where we might see some, I guess, sustainable efficiencies and where we might expect for spending to expand on a percentage of revenue basis?

Yes. Let me start with that, and then I'll pass it over to Ravi for a more detailed outlook on the question. Even though we have been investing significantly, our sales and marketing as a percentage of revenue is 29%. I believe we can easily increase this to grow at a faster rate. That figure doesn't have to be that low for us to succeed. We're also excited to note that we provided guidance at the beginning of the year stating we would be cash flow positive for the year, and we have already achieved that through three quarters, indicating that we are ahead of our plan in that regard as well. However, we will invest wisely, as that has always been our approach to running this business. We will invest where we see potential for growth while ensuring we maintain a strong balance sheet and don't overextend ourselves. Let me turn it over to Ravi to see if he would like to add anything.

We introduced a mid-term target model in our investor deck about a year or nine months ago, aiming for a 5% EBITDA as a percentage of revenue within a 1- to 3-year timeframe. We have achieved that target and intend to maintain this 5% adjusted EBITDA margin regardless of the COVID situation. Currently, our EBITDA stands at 8%, partly due to reduced travel expenses. As we grow, our objective is to maintain higher gross margins while slightly increasing our spending on sales, marketing, R&D, and G&A, all while keeping our EBITDA margin around 5%.

Congratulations on the results. Regarding the large customer and the expansion, you mentioned that you began onboarding several new sites for the North America segment. How far along are you in that process? Also, do you have any updates on the potential for international expansion with that same customer?

We accomplished about half of our objectives this fall in Q3, with the remaining tasks to be completed in Q4 regarding our efforts in North America. We have a promising solution for expanding into new geographic regions, and I believe the customer is interested in progressing with us at some point. Although COVID has presented some challenges, I am confident that we will eventually return to the type of development we previously discussed with this customer. I hope to provide more guidance on this at the end of Q4 when we outline our plans for next year.

I have two questions. First, one of your key differentiators is the ability to easily transfer your services from business to home. Even if COVID disappeared tomorrow, I believe there has been a lasting change in how businesses view the work-at-home versus in-office model. Can you elaborate on how this benefits you? Secondly, regarding Wi-Fi, there was a lot of excitement at the SCTE show a few weeks ago about the advancements in Wi-Fi 6 and its improved signal strength and capacity. Could you discuss your initiatives in Wi-Fi and how you're keeping pace with the current innovations from major cable companies?

Absolutely. You're right that the trend towards remote work is pushing customers to seek more flexible solutions. Our cloud offering, along with the specific features we provide, aligns perfectly with this need. Moreover, the shift goes beyond just remote work; businesses are now required to adapt by taking orders over the phone, creating new ring groups and IVRs, and enabling essential capabilities to facilitate remote operations. The cloud has consistently outperformed fixed solutions in these areas, and businesses are recognizing the importance of this flexibility. Even those returning to the office still require these capabilities for their operations. I believe these trends will persist, and I agree that customers are in search of innovative solutions. We believe our unique combination of capabilities, ease of use, and value caters well to many businesses, and we are actively working to capitalize on this moving forward. Regarding our Wi-Fi service, we recently launched a high-end solution in collaboration with Extreme Networks. We are just beginning our journey with this product, but I am confident that Extreme will lead in this sector, and we will keep pace with them. Our managed Wi-Fi offering is designed as part of a package for smaller customers, combining Ooma Connect for internet or backup services with Ooma phone service to provide a comprehensive infrastructure solution. This approach allows us to deliver a complete system without requiring customers to manage complex setups or hire costly specialists. I believe this positions us distinctly in the market, offering what feels like a bundled service package. We are still in the early stages in terms of implementing a cohesive sales and marketing strategy to integrate everything, but we’re optimistic about the direction we’re heading for small businesses. These businesses often lack access to affordable, modern technology, and we can help bridge that gap with our managed solutions to enhance their operational capabilities. I hope this answers your questions.

Yes. Actually, as a follow-up on the first question though, would you say that some of your larger competitors might be perceived or actually be a little more rigid in terms of just allowing ready portability of the full service from the business location to the home? Because I had the impression that you were a little bit quicker and easier on that than some of the guys who are more focused toward the very largest businesses.

That may be true. You need to focus on specific solutions offered in the market and what those companies are aiming to achieve. I can tell you that Ooma has made things quite accessible. We provide a pre-activated, ready-to-use IP phone that can be easily plugged in at home, functioning just like the one in the office. This is just one example. Our desktop and mobile applications are robust and can be used wherever you have a connection. We also offer wireless solutions and options that work off our base station if that’s your preference. There’s a lot of flexibility available. With Ooma Telo, our residential offering, many customers are using it as a second line at home and appreciate having a more business-oriented phone for their home office or other uses. There is a great deal of flexibility, and we certainly promote these features in the market.

I wonder if you could provide an overview of the retention numbers. It seems like there has been some improvement on both sides. Can you share where those numbers currently stand and where you aim to take them?

Yes. Kevin, this is Ravi. We have a 95% net dollar retention rate. But what we have seen lately in Q3 is our churn has improved. Eric mentioned that for the business side. We are nearing pre-pandemic churn rates for business. Residential, we have seen more stabilization in Q3. So I do feel, going forward, some of those metrics are going to help improve not only our churn rate but also retention rate as well as hopefully revenue. So I do feel more positive going into Q4 versus what we have seen in three months or six months ago.

And then just a follow-up. You had mentioned about $300,000 of one-time credits. If you said what they were, I apologize. But could you just help us understand what they were in the quarter?

Yes. They were included in G&A expenses. Sometimes there are certain expectations, and since we operate on an accrual basis, we had anticipated and recorded some expenses previously. However, we managed to negotiate and determined that these expenses would not apply going forward. As a result, we reversed those $300,000 in G&A expenses. I want to emphasize that this not only improved my profitability in Q3 but also indicates that the normal run rate for G&A expenses will be slightly higher than what we observed in Q3.

Well, great. Just thank you, everyone, for joining us today. We appreciate your interest in the company, and we're working hard to close out.