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Ooma (NYSE:OOMA)
Q3 2018 Earnings Conference Call
Nov. 27, 2018 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ooma, Inc. Fiscal third-quarter 2019 earnings call.

[Operator instructions] Thank you. Matt, you may begin your conference.

Matt Robison -- Director of IR and Corporate Development

Thanks, Josh. Good day, everyone, and welcome to the third-quarter fiscal 2019 earnings call of Ooma, Inc. My name is Matt Robison, Ooma's director of IR and corporate development. With me here today are Ooma's CEO, Eric Stang, and CFO, Ravi Narula.

After the market closed today, Ooma issued a press release via GlobeNewswire. 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 one year.

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 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 as well as those 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 discussed -- 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 substitutes 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 that is available on our website.

On this call, we'll give guidance for fourth quarter and fiscal year -- fiscal 2019 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 business. These are titled Supplemental Financial Disclosure 1 and Supplemental Financial Disclosure 2. 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.

In coming weeks, we will participate in several conferences, which are listed in today's press release. We are scheduled to webcast from the UBS conference at 9:30 a.m., December 4, and from the Needham Growth Conference on January 15. OK, Eric.

Eric Stang -- Chief Executive Officer

Thanks, Matt. Hi, everyone, and welcome to Ooma's FY '19 Q3 earnings call. I believe Q3 was an outstanding quarter for Ooma. Q3 revenue of $32.6 million was above our guidance range.

Q3 subscription services revenues from our business customers grew 52% year over year, and our Q3 net dollar subscription revenue retention rate was 102%. I'm excited to talk with you today about our strategy, results and outlook. Strategically, as you know, Ooma has developed a unique end-to-end platform, and we focus on segments of the market where we can bring better features, quality and value than others. Our goal is to become the undisputed leader in each of the segments we target.

And I believe we are well on our way to doing so. Starting first with providing cloud phone service to small businesses. This is a segment we have created and defined in the industry, and I think it's fair to say we lead it today. Through curated features and onboarding, ease of installation and use and quality and value ahead of others, we have become a brand and solution more businesses trust than ever before.

We are unaware of competitors in this business segment coming close to the growth rates we are achieving. This year, we've invested heavily in our small business solution to expand our range of features and the size of our addressable market. I'm pleased to report we have made good progress introducing features such as support for 911 calling from multiple locations and receptionist functionality, and we have more to come. One validation is we are increasingly seeing larger-sized businesses, some on the order of 100 users, choose Ooma Office for its great combination of cloud PBX pictures, flexible deployment options and superior value.

We've also executed well at building our sales channels and are pleased with the results we are seeing, including from the development of our VAR reseller channel. Regarding enterprise-level UCaaS solutions targeted at larger-sized businesses, this is a new area of development for us, building off our Voxter acquisition from earlier this year. While we are not yet where we want to be, I'm increasingly convinced we will create and own two unique segments in this space. Specifically, I believe we are emerging as one of the best providers of enterprise cloud phone service for businesses seeking a solution customized to their individual requirements and for VAR channel partners who want a white label solution they can easily claim as their own.

Both of these segments leverage the flexible API-first design of our enterprise platform as well as our globally distributed data center architecture, which affords extremely high reliability. Our most recent press release demonstrates our strategy well. The company K4Connect, which is a trader of solutions for senior living communities, was able to adopt and customize Ooma Enterprise quickly to meet their special needs. Currently, we are focused on investing to strengthen our solutions for the two segments I outlined earlier.

As we look out to next year, we believe Ooma Enterprise can scale quickly and has the potential to become the fastest growing part of Ooma. Moving next to providing cloud phone service to Residential users. We believe there is little doubt that Ooma is the leader in this segment. Two great validators of our leadership are that we continue to grow our Residential customer base when others are not, and the readers of Consumer Reports have ranked us No.

1 as the best solution in the market now for many years. We are thrilled with our Residential success given our focus and investment is primarily on business solutions and business customers. On the Residential front, we are, of course, also working to add additional services, with our primary focus being Ooma Smart Security. You will note we have changed our name from Ooma Home Security to Ooma Smart Security based on customer research to signify our strategy of becoming the best at providing real-time insights for our users and thereby empowering them to lead richer lives.

We envisage our competitive advantage increasingly coming from a wider range of use cases and alerts, in combination with more flexible and controllable sensors and a more intuitive, integrated overall solution. Our strategy for Smart Security continues to unfold, and we have made major strides this year, including launching the first generation of our solution in the marketplace. We are convinced we are serving a large market opportunity with a solution that we believe offers more than others, and we're excited about our plans going forward. Speaking about our plans for Q4.

We have the annual Consumer Electronics Show coming in January. This is an important event for us where we showcase new residential developments. And once again this year, I'm quite excited about what we have planned. For CES, we will make several announcements spanning Ooma Residential phone service and Ooma Security and encompassing both our sensor solutions and our Ooma Butterfleye security camera.

Our plans for Q4 also include continuing to invest in growing our business customers, both for Ooma Office and for Ooma Enterprise. We're working to add new features, make Ooma Enterprise easier to white label and customize, enable new channel resellers, expand our sales activities and leverage our partnerships with Talkdesk and others. We will also continue our efforts to capture sales, marketing and feature synergies between Office and Enterprise. In Q3, we increased our revenues coming from business to 30% of total revenue, and it's our long-term goal to continue this growth trend.

Overall, I believe Ooma's strategy is sound, and we are executing well. Our success is driven by creating our own unique end-to-end platform by positioning ourselves in the market to be the leader in the key segments we target, by expanding the range of services we offer over time and by building Ooma into a recognized, respected and leading brand. While we have much farther to go to exploit fully the opportunities in front of us, I believe we are making solid progress, our key initiatives are taking hold and I'm excited about our outlook ahead. Now let me turn the call over to Ravi to discuss our results and outlook in more detail.

I'll then return with a final comment, and we'll take your questions.

Ravi Narula -- Chief Financial Officer

Thank you, Eric, and good afternoon, everyone. I'll start with a review of our financial results for third quarter fiscal '19 and then will provide outlook for the fourth quarter and full-year fiscal '19. As a reminder, all income statement items except revenue are on a non-GAAP basis and exclude expenses such as stock-based compensation, amortization of intangibles and acquisition-related charges. The reconciliation of GAAP to non-GAAP financial data and other key business metrics can be found in the press release issued earlier today, which is available on the Investor Relations section of our website.

Now Q3 '19 results. We had a strong third-quarter financial performance, achieving $32.6 million of revenue, which exceeded our previously issued guidance range of $31.5 million to $32 million. On a year-over-year basis, total revenue grew by $4.1 million, or 14%. We are pleased with the growth in our overall business, particularly Ooma Office.

Net loss for the third quarter of fiscal '19 was $522,000, better than the previously issued guidance range of an $800,000 to $1.3 million loss. Ooma Business subscription and services revenue grew 52% on a year-over-year basis, and total revenue contributions from Ooma Business are now 30% of our total revenue compared to 23% in the prior year quarter. This growth of Ooma Business was primarily driven by higher business users as well as better monetization of services such as toll-free calling to our large customer base. Our Residential subscription and services revenue grew 9% on a year-over-year basis.

The combined subscription and services revenue from the core businesses, namely Ooma Business and Ooma Residential, grew 20% year over year. For the third quarter of fiscal '19, subscription and services revenue was 91% of the total revenue, compared to 90% in the prior year quarter. Product revenue for the third quarter of fiscal '19 was $2.8 million compared to $3 million for the prior-year quarter. I will now provide further details on some of our key customer metrics.

Our total core users increased by 6% to 969,000 core users at the end of the third quarter of fiscal '19 from 914,000 core users at the end of the third quarter of fiscal '18. Our Ooma business users have grown to 16% of total core users at the end of the third quarter of fiscal '19 compared to 12% at the end of the prior year period. Our blended average monthly subscription and services revenue, or monthly ARPU, increased to $9.92 in the third quarter of fiscal '19 compared to $8.83 for the prior year period. Annualized exit recurring revenue was approximately $115.4 million at the end of the third quarter of fiscal '19, a 19% year-over-year increase driven by ARPU and user growth.

We are pleased to have achieved 102% net dollar subscription retention rate for the third quarter of fiscal '19 compared to 99% of prior-year quarter. Now let me add some color to the gross margins. Overall, gross margins were 63% for the third quarter of fiscal '19, up 150 basis points from the prior-year quarter. This gross margin improvement was driven by higher mix of subscription and services revenue and also due to increased subscription and services gross margins.

As expected, subscription and services gross margin was 71.5%, as we had some benefits to subscription costs in the quarter which are not expected to repeat in the fourth quarter. Accordingly, I expect subscription and services gross margin for the fourth quarter of fiscal '19 to be more in line with prior quarters at around 70%. Product and other gross margins were negative 30% for the third quarter, driven by rebates and special promotions planned for the holiday period, especially for Ooma Telo and Smart Security products. And now on to operating expenses.

Third-quarter operating expenses were $21.4 million, an increase of $3.4 million or 19% on a year-over-year basis. Compared to the prior-year quarter, overall sales and marketing spend increased by approximately $1.6 million to $10.3 million as we grew our direct sales force and increased the marketing programs to create further market awareness of our products. Research and development expenses were $7.6 million, an increase of $1.1 million or 18% year over year, to bring new products to market as well as enhancements to Ooma Business and Smart Security solutions. G&A expenses were $33.5 million, a 22% increase from the prior-year period, as we invested in infrastructure development to support the growth of our overall business.

Our net loss in the third quarter of fiscal '19 was $522,000 or a $0.03 loss per share compared to a loss of $377,000 or $0.02 loss per share in the prior year quarter. Adjusted EBITDA loss was $237,000 in the third quarter of fiscal '19 versus a loss of $41,000 for the prior-year quarter. Now turning to the balance sheet and other key metrics. We had cash and investments of $46.9 million with no debt at the end of the third quarter of fiscal '19.

For the third quarter of fiscal '19, cash used in operations was $1.3 million compared to cash generated of approximately $900,000 in the prior-year quarter. Cash usage reflects our investments in the business for growth, especially Ooma Business. We ended the quarter with more than 650 full-time employees and contractors, up from 590 in the prior-year quarter. The majority of our headcount growth was in sales and marketing.

I will now provide outlook for our fourth quarter and full-year fiscal '19. For fourth-quarter fiscal '19, total revenue is expected to be in the range of $33 million to $33.5 million. We expect non-GAAP net loss to be in the range of $800,000 to $1.2 million, which includes an estimated $400,000 of marketing spend for the 2009 CES. Non-GAAP net loss per share is expected to be in the range of $0.04 to $0.06.

We have assumed 20.2 million weighted average shares outstanding for Q4. And for full-year fiscal '19, based on trends in our business, we are increasing total revenue guidance for fiscal '19. Revenue is now expected to be in the range of $127.5 million to $128 million. We now expect non-GAAP net loss for fiscal '19 to be better than previously expected and to be in the range of $3.1 million to $3.5 million.

Non-GAAP net loss per share is expected to be in the range of $0.16 to $0.18, and we have assumed approximately 19.9 million weighted average shares outstanding for fiscal '19. In summary, we are pleased with our third-quarter execution and financial results, which gives us further confidence about our long-term strategy. With that, I'll pass it back to Eric for some closing remarks. Eric?

Eric Stang -- Chief Executive Officer

Thank you, Ravi. As we discussed last quarter, FY '19 is in many respects a building year, in which we are making significant R&D investments for the future. We now have a solid Q3 behind us and are looking ahead to Q4 and next year. We believe we're executing well and we remain focused on our key initiatives.

Looking out longer term, we expect to become a substantially larger company, with a greater portion of our revenues coming from business customers and with increasing P&L leverage as our margins expand and we grow into our R&D spend. Most importantly, we expect to be the leader in the segments we target by providing the best solutions available to customers. Thank you. We'll now take your questions. 

Questions and Answers:

Operator

[Operator instructions] Your first question comes from Bhavan Suri with William Blair. Your line is open.

Bhavan Suri -- William Blair & Company -- Analyst

Hey, guys. Can you hear me OK?

Eric Stang -- Chief Executive Officer

Yes.

Bhavan Suri -- William Blair & Company -- Analyst

Great. Congrats. Just such a nice job there. I guess, maybe we'll start on sort of the UCaaS market here, just at a high level.

I've got a couple of questions that are a little more granular. But just at a high level, obviously, there's a massive shift happening to UCaaS. And you guys, you talk about sort of starting at the low level, in the sort of 10 sort of -- companies of about 10 employees and moving up. So as I think about that space, Ring's been pretty successful, Abyte's kind of bouncing around.

How do you see yourselves fitting into that landscape? I'd just love to understand how you guys think about that given Voxter, given sort of this idea that we can move up market and go from SMB to sort of medium enterprise. Just love to understand how you guys are thinking about that transition in that market.

Eric Stang -- Chief Executive Officer

Sure. Well, first of all, it starts with the fact that we feel the small business segment is a different segment from the larger business segment. That belief has led us to come out with two very different kinds of solutions. In the small business segment, Ooma Office is a curated solution, which is very easy to set up and use and administer and kind of gives everything a small business would want without all the complexity that they don't want.

We are seeing that solution move up to larger-sized businesses. I talked on the order of even 100 customers in my script. And that's when a bigger business just wants that set of functionality at a great value. Now when you speak about UCaaS itself, today, we're serving much larger businesses than what you mentioned.

We have customers with hundreds of users, and many of our customers are 50 users and up. But that said, we are going to position ourselves in the UCaaS space, the enterprise space with Ooma Enterprise on -- specifically to target the two segments I described here. We're being very open and straightforward about this. One is, we believe with an API-first design to our solution, we can customize it readily and easily for businesses that need bespoke requirements met.

And it's not one-size-fits-all. We're happy to work with a business and meet some need they have that will make their business run better, and I think we're very good at doing that. It's harder for the larger players to be so custom, and so I feel like we have a real advantage in meeting individual customers' needs more specifically. And then the second segment we're targeting simply is the VAR reseller channel with the ability to offer them as much as or even a full white label solution where they do the billing, it's their name on the solution and we are just powering it in the background.

We're finding that the VAR reseller channel can't get that from most of the big players you mentioned here. In fact, they can't. And it's -- we're getting a lot of positive response to that strategy to enable those resellers to continue to operate their businesses in a more holistic way. So that's how we're approaching it.

I don't think -- we're not trying to be the biggest. We're not trying to beat the other guy. We're trying to serve the segments we serve with the leading solution, and I believe we can certainly do that.

Bhavan Suri -- William Blair & Company -- Analyst

Yes. Eric, that's helpful. I guess, turning to sort of the push into home security and, effectively, connected home. And again, this is sort of a higher-level question as we think about it, it seems like IoT sort of would be a market that sort of dovetails with where at least parts of your business are headed.

Just talk about how you view Ooma as a potential player in this market. Do you think that's a little early before we start thinking about that? Or do you think that's a play you guys might make a little more sort of strategically in the nearer term? Just the opportunity to have some of your initiatives in that space.

Eric Stang -- Chief Executive Officer

Yes. We are making great strides on -- with our Smart Security solution and our -- and the launch of our Butterfleye camera. And I say great strides because we are putting most of our investment today into growing our business customers and our business platforms. The 52% growth year over year there, I think, just is emblematic of what a focus we have on that.

But we've also brought out significant new capabilities on our Smart Security platform, and we're increasingly starting to differentiate it versus others, which is where I think we're really going to gain our competitive advantage. We're going to stand out because we're able to offer the customer more ways to use the system in their lives. To give you a little bit more specificity on that, with Ooma, you can individually control each sensor and how it acts. We give a wider range of alerts than many other players out there in the space today.

Our Butterfleye camera has facial recognition built into it, which can also allow you more usability with the solution. I think, over time, you're going to see us build a -- become recognized as a solution that allows customers to get a greater peace of mind and understand better what's happening in their world, just -- did the dog walker come, did the kids bring a friend home, whatever it is, albeit we have a long way to go. We're new into the space, we've just launched our first solutions. We're going to -- continuing to evolve this as we go forward.

But we're excited because it's a very large market opportunity for the long term, and the Ooma platform is very well suited to bring some unique capabilities to the space over time.

Bhavan Suri -- William Blair & Company -- Analyst

Yes. No. It's very helpful. Then I can't forget Ravi there.

So Ravi, one quick one for you here. Just on margins, sort of puts and takes here. You've had a number of moving parts with varying growth rates out there, and then you sort of designated fiscal '19 as sort of "a building year for future growth." Just major puts and takes you're seeing that drive the variation in gross margin and then your thoughts on the trajectory for the margin as we look forward. Thanks.

Ravi Narula -- Chief Financial Officer

Absolutely, Bhavan. If you look at our subscription -- let me parse out the gross margins into two, product margins and subscription. Subscription margin is where we focus on because we have, one, 90% of our revenue comes from subscription services, and secondly, that's where the ultimate value we create for the company by having a user and creating revenue from there. The subscription margins have been around 70%.

And this is after we absorbed two acquisitions, both Butterfleye and Ooma Voxter Enterprise, in the last six to 12 months of the company. So we have invested into more infrastructure, the data centers, adding more POPs and adding more users with subscale there on those two businesses. But as we grow, I do believe our subscription services margins, which are now around 70%, will grow to 75-plus percent in the next couple of years. So as we grow the mix of business over Residential, as we grow the number of users and as we add in more services, like -- whether it's Smart Security services to our existing customer base or have additional services, I do expect the gross margin on the subscription services side to grow.

And as that grows, the overall margin should also be growing. It's around 63% now, and I do believe, in the longer term, it could be north of 65%, even as high as 70% there. On the product gross margin, we are hovering around 25%, 30% negative gross margin. And I don't expect that to change much given the goal is to get a customer, and if we have to discount hardware upfront, we are totally fine with that.

So I think, in the long term, you'll see the product gross margin to be around where we are. It may go up or down once in a while but, generally speaking, it would not change. But subscription services gross margin will drive the margins overall.

Bhavan Suri -- William Blair & Company -- Analyst

Great. Thank you. Nice job, guys. Congrats.

Well done.

Ravi Narula -- Chief Financial Officer

Thanks, Bhavan.

Eric Stang -- Chief Executive Officer

Thank you.

Operator

Your next question comes from Pat Walravens with JMP Securities. Your line is open.

Joe Goodwin -- JMP Securities LLC -- Analyst

This is Joe Goodwin on for Pat. Just a couple of quick questions. First is, can you provide any color on Black Friday results?

Eric Stang -- Chief Executive Officer

We actually don't even have all of the Black Friday results in hand. And Cyber Monday was yesterday, but we're pleased with what we've seen so far, where -- it's always a strong time for us, and this year's no different.

Joe Goodwin -- JMP Securities LLC -- Analyst

Understood. Thanks. And then also just -- do you have any plans to change any of your sales motions? I know the Voxter in Ooma Enterprise is relatively new. But in that short time you guys have been running that team, have you learned anything that is going to change up your promotions moving forward?

Eric Stang -- Chief Executive Officer

I'm sorry, change up our motion, you said?

Joe Goodwin -- JMP Securities LLC -- Analyst

Yes. Just the sales motion, the go-to-market strategy for the Enterprise.

Eric Stang -- Chief Executive Officer

Yes. Well, there -- I would just answer that with the kinds of things we've been talking about already that we are seeking to do. We have been working to drive more synergy in the marketing and the lead flow between Ooma Enterprise and Ooma Office. And that is working for us.

We're also driving synergy now at the VAR reseller level. That's nascent, but I think, over time, we'll accomplish more there as well. We are certainly going to continue to be building our resources in both areas. And I think that as each gets stronger, it will help the other, if that's the best way I can say that.

But no, largely, our path forward is to continue doing what we're doing and just execute well.

Joe Goodwin -- JMP Securities LLC -- Analyst

Thank you.

Eric Stang -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Josh Nichols with B. Riley FBR. Your line is open.

Josh Nichols -- B. Riley FBR, Inc. -- Analyst

Yes. Good to hear the Enterprise division already getting some traction with the 100-plus type business customers. I was going to ask, you did mention that, that was an area where you wanted to expand on the feature set. Could you talk a little bit about some of the opportunities regarding feature sets for expansion? And then how long might that take, you think, until you could get the platform a little bit more rounded out and customized?

Eric Stang -- Chief Executive Officer

Sure. I'm going to take your question as relating mainly to Ooma Office for small business because that's where we've been making a heavy investment through this year to expand the feature set and, with that, expand the addressable market. And I think we've made several steps forward already this year, and we'll see more this quarter and in early Q1. These are the things that aren't -- weren't necessary when we were serving particularly small businesses, but as we move up a little bit to a little bit larger businesses, become useful, the ability, for instance, to serve a business with multiple locations at different sites or a business to have more advanced receptionist functionality than we originally had.

There are other things that we have on our road map as well. But we're largely getting to where we want to be with Ooma Office. And I think it would be wrong to think that Ooma Office is going to keep adding lots more features, because part of the power of it is that it's curated and it's just what you need and not what you don't need. And if a customer really needs a more complete solution than that, we would step them up to Ooma Enterprise, which we're happy to do.

So I hope that addresses your question. On the Ooma Enterprise front, we are investing in the segments I described: the ability to make it easier to customize our solution, the ability to make it easier for channel partners to white label and work with us. And those investments are coming along well, and I think if we look out to next fiscal year, we'll be pretty well-positioned with where we want to be.

Josh Nichols -- B. Riley FBR, Inc. -- Analyst

Thank you. Then I was going to ask -- good to see that, outside of, obviously, a high double-digit growth for the business side, is that you're continuing to grow on the home market here with high single-digit service revenue. Do you think that, although the space is contracting, overall, your advanced feature sets make a mid- to high type single-digit service revenue growth rate for the home front kind of sustainable for the foreseeable future?

Eric Stang -- Chief Executive Officer

If you look at this year so far, with three quarters behind us, we've outperformed the guidance we gave. We've been guiding to mid-single digits, maybe a little bit more than that. We are investing heavily on the business side and less so on the Residential phone service side. But that said, we continue to be excited about the opportunity.

It's a large market, perhaps 50 million households in North America, and we offer the best features, the best quality and the best value in the space. So some growth, we expect. It's difficult to forecast how much.

Josh Nichols -- B. Riley FBR, Inc. -- Analyst

Thanks, guys.

Eric Stang -- Chief Executive Officer

Yes.

Operator

[Operator instructions] Your next question comes from Mike Latimore with Northland Capital. Your line is open.

Unknown Speaker

Hey, this is Vijay Devar for Mike Latimore. One quick question is on the Ooma Enterprise. Could you tell me how many customers you won during the quarter and how many subs are within them? And any -- and also, I guess you spoke a little bit about the growth in Enterprise that could accelerate the next year. So any further insights into what could potentially drive that growth, please? Thank you.

Ravi Narula -- Chief Financial Officer

Hey, Vijay, let me start with -- this is Ravi. Let me start with the user growth, and then Eric can jump in with additional comments there. We don't break out Enterprise versus Office users separately. We look both of those because there is so much lead sharing.

There is a common marketing program we have. We look at the growth of overall Ooma Business. And what I had mentioned in my prepared remarks is the overall users are now 969,000 core users, which includes Residential also, but 16% of those users are now Ooma Business users. And if you look at a year ago, we had 914,000 total users, and Ooma Business users were only 12%, so a significant growth in Ooma Business by users, which is a combination of both Residential -- a combination of both Enterprise and Ooma Office.

Both grew in the quarter, both Ooma Enterprise and Ooma Office grew, but we have -- and that was the goal. And we are pretty happy with the results, what we have. But we don't break out how many are Enterprise users versus Ooma Office users.

Eric Stang -- Chief Executive Officer

I think -- this is Eric. I think what was behind my comments when I opened this call in this regard, the more we develop our solution and talk to potential resellers and talk to customers, the more excited we get. There's a significant market opportunity out there that we see for the segments that we've decided to focus on. A lot of customers don't want one-size-fits-all solutions, and the resellers are really interested in -- some, I should say, are really interested in being able to conduct their business with more control of the end customer.

So I think that we see a lot of potential, and now it's our job to execute well and capitalize on that. And we'll be giving guidance for next year when we have our next call in early new year.

Unknown Speaker

Thank you.

Eric Stang -- Chief Executive Officer

Yes.

Operator

[Operator instructions] There are currently no more telephonic questions at this time. I'll turn the call back to Eric.

Eric Stang -- Chief Executive Officer

Thank you. Thanks, everyone, for participating today. We're pleased to bring you an outstanding quarter for Q3, and we're working hard as we look forward. So thank you, everyone.

Operator

[Operator signoff]

Duration: 38 minutes

Call Participants:

Matt Robison -- Director of IR and Corporate Development

Eric Stang -- Chief Executive Officer

Ravi Narula -- Chief Financial Officer

Bhavan Suri -- William Blair & Company -- Analyst

Joe Goodwin -- JMP Securities LLC -- Analyst

Josh Nichols -- B. Riley FBR, Inc. -- Analyst

Unknown Speaker

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