Q3 2019 Earnings Call
Greetings and welcome to the Pros Holdings third quarter 2019 earnings Conference call. At this time, all participants I know listen only mode.
Question and answer session will follow the formal presentation, if any what you acquire operator assistance during the conference. Please press star one on your telephone keypad, I'm, sorry Star Zero and your telephone keypad. Please note. This conference is being recorded I would not lead to turn your conference over to your host sanitized.
Vice President of strategy in Investor Relations.
Thank you operator, good afternoon, everyone and thank you for joining.
Our earnings press release.
See filings and a replay of today's call can be found on the Investor Relations section of our website at <unk> Dot Com with me on today's call is Andres Reiner, President and Chief Executive Officer, and stuff and shop, Chief Financial Officer.
Please note that some of the commentary today will include forward looking statements, including without limitation, our guidance our strategy future business prospects revenue margin in market opportunity.
Actual results could differ materially from our current forecast.
For more information please refer to the risk factors described in our FCC filings.
Chris assumes no obligation to update any forward looking statements to reflect future events or circumstances.
As a reminder, during the call we will discuss non-GAAP metrics reconciliations between non-GAAP measures in the most directly comparable GAAP measures to the extent available without unreasonable effort are available in our earnings press release.
With that I'll turn the call over to you Andres.
Thank you Shannon. Thank you everyone for joining us on today's call I'm pleased to share. The we delivered another strong quarter as we realize revision of pairing selling into digital economy.
We grew total revenue by 31% in subscription revenue by 57% last quarter exceeding the midpoint of guidance by 1.2 million. We're laser focused on innovating to help companies powered digital selling which is contributing to our success in helping us accelerate or growth.
You know digital economy companies can't survive illness, or online channels serve customers with speed personalization in precision real time pricing solution empowers companies, who deliver personalized prices to their customers seem subset can't response times.
We offered the only real time dynamic pricing solution on the market with proving scale in guarantee response time as delays so customers can trust us to power their digital selling this kind of differentiation is helping us win in our markets and drive incredible growth.
Last quarter, we launch it completely redesigned user experience for control solution, where customers can now deploy even more sophisticated in dynamic pricing strategies in its simple self serve manner.
Peter beat companies are leveraging or control solution with a real time pricing capabilities to power their omni channel selling strategies in transform their customer buying experience.
We also continue to innovate on digital selling platform for travel last quarter, we launch pros travel retail, which provides airlines within into in E. Commerce solution that delivers an incredible customer buying experience power by real time personalized offers.
Acquisition of traveling last quarter helped us bring this solution to market. We're incredibly excited to have the traveler team join our global pros family and help us realize her vision of powering digital selling.
With our combined solutions, we see strong potential to accelerate or growth in the travel industry in continued to extend our market leadership position Stefan will provide more color on this acquisition later in the call.
We see both new and existing customers embrace our latest innovations like to share a few examples of how companies are partnering with us to re imagine how they go to market in the digital economy.
Last quarter him cool and global chemicals in consumer goods manufacture pacing, Germany joined us as a new customer.
Incl adopted or control guidance and smart CPQ solution, so that how sense of users can personalize prices across your product in customer segments in coal plants to leverage already high powered solution. So that they can respond to changing market dynamics in real time, well also pretty.
Fighting their customers within exceptional digital sales experience.
Another Great example of the new customer putting Murray I at the center of their go to market strategies cargo locks the largest European dedicated air cargo company.
Cargo Lux strategies to deliver superior digital sales experience for customers in their accomplishing this five powering their newly released online booking engine with or AI based guidance Smart CPQ in revenue management solutions, we're proud to partner with cargo luck.
On their digital selling transformation I say look to delivering best in class online customer buying experience.
Our latest innovations are also inspiring or existing customers to migrate to the cloud.
For example last quarter, a global chemicals company began their journey to the cloud. This customer is leveraging our next generation guidance in control solutions to deliver personalized prices in offers seem real time to over a million customers globally.
By leveraging our pros cloud this customer will be able to dynamically react to the changes in their raw material supply costs and execute on their go to market strategy at scale.
As we accelerate or global market adoption, we're committed to continuing to delivering incredible experience at every stage of our customers lifecycle.
We've created a culture obsessed with delivering exceptional customer experience entirely.
To further support or customers from day, one we're expanding our global partner ecosystem spotted this efforts I'm pleased to share that we signed a new alliance agreement with you why and we're working together as they build out their global pros practice.
This alliance will help us deliver incredible value to our customers and will help us scale globally, as we capitalize on or large market opportunity.
Finally, im excited to welcome John Let's see outdoor pros family as Chief customer Officer, John will lead both are global delivery and customer success teams to help us further accelerate customer value and deliver a world class customer experience at scale. We're excited to partner with John to continue to deliver on our mission of helping keep.
Pulling customers outperform.
We're seeing strong momentum in our business and we believe we're incredibly well positioned to continue to drive long term growth. Thank you tour amazing global team for driving our success in helping us realize her vision of powering selling into digital economy with that I'll turn the call reduced staff on to cover financial.
Formats in outlook.
Thank you Andreas.
We had another strong quarter and at the same time, we continued making progress in scaling our cloud business.
So before I discuss the financial results and guidance I would like to add additional comments covering some of the successes we had as a team during the third quarter.
First we're seeing strong performance globally across both new and existing customers with a relatively equal booking split between new and existing customers.
Also in addition to the customers Andreas mentioned earlier, we welcome Copa Airlines shell and Wilbur Ellis among many other new customers last quarter.
We're also pleased to share that we're seeing increased momentum in our customer migrations and existing cloud customer expansions, we had one customer expand in 10 out of the last 12 quarters and another expand for the fifth consecutive quarter.
This is a testament to the strength of our land and expand strategy in driving our growth.
Finally, as Andres mentioned earlier, we acquired traveler last quarter to expand our digital selling platform for the travel business.
We're also like to take this opportunity to welcome to traveler team to pros.
We look forward to working together as a combined team to further strengthen our leadership position in the travel industry.
Traveler is an early stage company that has not generated significant revenue or here or to date.
At the end of Q3 traveler accounted for less than 1% of our revenue and they are.
We see strong potential to grow this business moving forward by combining their online booking engine mobile and web solutions with our shopping in merchandising offerings to provide airlines with comprehensive ecommerce capabilities.
Now I'll move on to our financials, starting with our third quarter results.
Subscription revenue increased 57% year over year and was the primary driver of our 31% increase in total revenue.
It was $64.2 million in Q3.
As I mentioned earlier the impact from traveler it was very small well under 1% of subscription revenue in the quarter.
Services revenue was strong once again in the third quarter up 42% year over year, but down sequentially as we expected.
As a reminder, this level of services growth is inline with what we expect for the remainder of the year, which also resulted in a more typical recurring revenue total revenue ratio of 81% in the third quarter.
The recurring portion of our deferred revenue was $109.9 million up 10% year over year.
And our trailing 12 month calculated billings increased 15% year over year.
And we continue to expect calculated billings for the full year to be up approximately 20%.
Now moving on to profitability metrics.
Our non-GAAP subscription gross margins were 73% last quarter up nearly 650 basis points year over year.
We're pleased with our continued progress in this area as our team innovates on ways to deliver our solutions more efficiently.
Our third quarter services gross margins were negative 9%.
Now since this is a sizable sequential decline I want to take a moment to provide more color.
Due to the increase in number of active implementations, we invested heavily in third party system integrators within the quarter to supplement our delivery organization. So we could continue to provide our customers with a best in class customer experience.
We expect services margins to remain negative in the fourth quarter as we continue using third party integrators in current services projects.
These resources have been a good supplement to our internal resources and these projects have allowed them to develop a deeper knowledge of our products.
We expect services margins to normalize as we progressed through 2020 and see the benefits of the partner ecosystem manifest in our financials.
In the third quarter, our adjusted EBITDA loss was 2.2 million, which was which improved by $2.7 million year over year.
We reported $3 million in positive free cash flow in the quarter, representing a 5.6 million dollar improvement year over year, driven by strong cash collections within the quarter.
During the quarter, we also exercise our option to called 106 million dollar par value convertible bonds that were issued in 2017 with common stock.
As of September Thirtyth, approximately 77% of the outstanding bonds were converted into approximately 1.7 million shares of common stock pursuant to the call and conversion activities.
Now turning to guidance for the fourth quarter.
We anticipate total revenue in the fourth quarter to be in the range of $63.9 million to $64.4 million up 22% year over year at the midpoint.
We expect the growth will primarily be driven by a combination of strong subscription and services revenue.
We expect subscription revenue to be in the range of 38.6 million to $39.1 million up 37% at the midpoint.
Our guidance for fourth quarter, adjusted EBITDA losses, a range of 2 million to $3 million.
And with an estimated non-GAAP tax rate of 22% in the fourth quarter, we anticipate a non-GAAP loss per share between eight and 10 cents based on an estimated 42.1 million basic shares outstanding.
Moving to the full year.
We are reiterating our air our guidance of 220 million to $222 million up 17% year over year at the midpoint.
We are increasing our total revenue guidance to 248 million to $248.5 million up 26% year over year at the midpoint.
And we're also increasing our subscription revenue guidance to a range of 139.5 million to $140 million up 47% at the midpoint.
Due to the incremental spend largely driven by our traveler acquisition and the addition of third party resources to our professional services projects. We are lowering our adjusted EBITDA loss guidance by approximately $2 million to a range of 10.5 million to $11.5 million.
Similarly, we are slightly lowering our free cash flow guidance by 2 million to a cash flow burn of 2 million to breakeven.
Now turning to 2020.
We expect to see continued strong market momentum next year as both new and existing customers adopt our cloud innovations.
As a result, we expect subscription revenue growth just under 40% next year.
As I mentioned earlier, we expect our partners to lead more implementations next year. So we expect a small headwind to our 2020 services revenue, but a benefit to our services gross margin and implementation capacity.
We anticipate our total revenue to be in the upper 280 million to low $290 million range.
Finally, we anticipate a very modest improvement to free cash flow over our 2019 guidance range.
Overall, we're very pleased with our third quarter financial performance inter outlook for 2019 and 2020.
We appreciate your support pros and we look forward to speaking with you at our upcoming events.
So with that let me turn the call back over to the operator for questions operator.
Thank you.
If you would like to ask your question. Please press star one on your telephone keypad confirmation till indicate your line is in the question Q you May press star to if he would like to remove your question from the Q and for participants using speaker equipment and may be necessary to pick up your headset before pressing the start he is.
Our first question is from Chris apparel.
Right and that please proceed.
Hey, guys great. Thanks can you just give us from a high level an idea of how your conversations changed with customers over the last.
Six or nine month.
For those who moved to the cloud and kind of what they're seeing from an ROI perspective, if thats different than.
What they may have seen on Prem and.
Then just from a dollar net retention perspective are we seeing pros become more strategic to the customer base.
Okay, Great question, Chris I would say from a customer base. What we're seeing is that customers are able to expand a lot faster.
We've talked into passive customers.
Expanding say and added day last 12 quarters. For example, we have a customer that has expanded so what we're seeing is the time to value is much faster because implementations are lower we're also seeing their ability to expand its much easier.
Both of those areas.
We're driving significant more value in the cloud because of their ability.
On time to value is much shorter.
Got it great and then.
As we may or may not.
See some macro weakness.
Out there today are in the near future.
You guys think that that would accelerate greater adoption of your services or.
Pro seen more as a nice to have not necessarily something that you can't live without and.
There any verticals within your customer base that you guys speak to regularly that.
You've seen any changes even just from a conversational perspective.
Well I would tell you that indeed digital era companies are going to have to have a solution for digital selling I think companies pending nor on digital era, and I think if you're seeing a lot of our growth in momentum I think is beyond company thinking there equipping sale.
Did you quote and price, but more importantly, how are they going to power their digital selling e-commerce and other digital channels.
To power their business, so I see that it's very strategic and I think that's also OLED for example, I talked about henkel when in the quarter, where they are adopting our control CPQ and guidance solution and part of that is tied to their digital transformation around sales.
And e-commerce as well in the future.
So I think that topic I think is copper mine in many organizations and I think this strategic nature of being able to dynamically price at a market oriented prices very strategic we're also seeing in industries.
Chemicals and energy, we talked about shell.
Except when.
Well.
Having the right algorithms to price in this market him when are very important so I would say in an area, where there is market pressure.
Having the right price guidance, it's even more critical to win.
Great. Thanks, guys. Thank you.
Our next question is from Todd Tom Roderick Witt CFO . Please proceed with your question.
Hi, guys. Thanks for taking my question, so I'm going to be that Guy here for a second hedge has jumped over right in time from another call to here.
Stephen you talking about Offloading, some more services to partners and the impact to EBITDA can you talk a little bit more about what that means maybe you could just repeat what the what the drawdown the EBITDA guidance from that but but but more to the point organizationally. What do you have to do just sort of you know pass some of those resources off supply.
Some of these.
Third party services providers and your build up a practice around that so that you can kind of efficiently and effectively and accurately offload those resources for proper implementations. Thanks, Yes, Hey, Tom.
You know when we when we look at back at a course of course of the year. We had we've had a very strong booking here and that's led to a large number of active implementations as a matter of fact, when we go back and look at where we were at the beginning of this year to the high point.
We reached a third quarter, we actually had a 40% increase and the amount of active implementation. So not only we were we worked hard to add resources to our own professional services team. We've also supplemented them with a lot of these third party integrators that that I referenced on the call now there there's two points in two purposes.
Fine. These third party integrators that are actually helping us on current projects. One there. They are providing some experienced resources that are allowing us to two key to our customers expectations and timelines, but second there also training and getting more exposure to our products specifically that's going to enable.
Them to actually build their own practice around a lot of what we're doing with our products. So as we go forward into next year. The idea is that they're going to spend less time working on projects that that we have they're going to help us get caught up if you will but then actually build their own practice and so as we look to next year, we see two things here.
Opening one we see the margins getting better because we're not going to be utilizing some of these high cost resources as much and too.
They will be taking on some projects and actually you know increasing our overall capacity by actually helping identify opportunities bringing that their professional services team to combined with our software. So as we look forward to next year. We think this is not only a good investment for.
I live in place implementations, we have going on but also for expanding our capabilities in our scope next year.
Outstanding that's helpful. Thank you and then Stephan in my My next question will go back to you hear you referred repeatedly this year two very strong bookings all year long, we've seen great subscription growth and when I look at this air our guide for the years still calling for 17% you've held on that all year long I.
I think maybe there's some of your investors out there that are sort of just assuming given the commentary on bookings it'll come in well above that to the extent that it comes in right exactly where you guys are saying it will give us. The reason why there is a little bit of a disconnect on the growth in a our our versus what we see on subscription and then how.
Does that air our trend as subscription of course becomes a bigger component of the model as we look out to next year.
So there's theres a couple of metrics that were you're seeing relates to our overall bookings you are seeing here are the one you referenced and then you're also seeing calculated billings.
Those are two similar but different metrics, let's start with air or.
Our our to your point includes both maintenance and subscription and as we've commented as you pointed out throughout the course of the year, we've seen very strong bookings momentum and growth in our subscription business, which is obviously a pretty much everything we do today, we do very very little.
Outside of subscription.
That by far and away is driving the activity in the growth much more so than the than the 17% and then obviously on the maintenance side.
Thats actually declining because of what you're seeing in terms of of migrations and then also some natural churn, but there's nothing going into that bucket. So that's been kind of a drag on and that's what's kind of offsetting what you're seeing from an overall our growth rate perspective, and what you see from a subscription perspective, if you were.
Just to look at subscription just by itself with any our our its way beyond.
The 17%.
Well beyond that probably more than double that.
On the calculated billings side, it's a similar metric and that's another way to look at the overall business and that number as you know typically trended to be more consistent with what we see from an overall bookings perspective, because it does track to billings, but we did see a bit of an anomaly. This particular quarter because of some timing issues and we've had that happen.
Before and we've talked about that but when we look at overall business and we look at you know the successes that we've seen year to date and what we see in our pipeline for Q4, we feel very good about you know the 20% number being a real and again combined subscription and maintenance growth rate with subscription being way.
Beyond that being a 20%.
Very helpful. Thank you I'll jump back into queue.
Our next question is from Scott Berg with Needham and company. Please proceed.
Hi, everyone. Congrats on good quarter, thanks for taking my questions.
Yes, I have a lot.
And lots of them, but let's take a couple Stefan first I just wanted you to clarify the reduction in free cash flow guidance for the year, we look at the $2 million Delta how much that it's from the acquisition of travel there and how much of that as is.
Related to the.
Services that work push to partners, yes, it's roughly 50 50, but honestly, it's probably a little bit more on what's on the services side, a little less on the traveler side to be a I guess to be more precise.
Got it very helpful and then I.
I guess Andreas I, just wanted to talk about the overall go to market strategy and how that's had a more this year.
There's a question earlier I think as.
Well on.
The partner strategy, but can you help talking about what partners of many of the business maybe in terms of bookings contribution year to date or over the last year and what the addition of a partner like you why how does that kind of more maybe over the next 12 to.
36 months in terms of that composition, especially one that augment your other strategic partnerships.
The light and et cetera. Thank you.
Yes, So I would tell you partners continue to be strong crop contribution to our business. Both in you know co selling opportunities as well spring as deals into into the business, but also as morry as important as from me demand perspective their strategic it's also important from a live.
Three perspective, they're very strategic and I think they you why relationship. This strategic nature, we've already had deals that they brought in that Weve closed. So we've already had success with them.
But also the ability that they won't give us the scale, we have pretty pretty ambitious growth aspirations and and frankly, we can't scale just on our professional services team is amazing as they are.
The global expansions and our strategic customers that are some of the global biggest companies in the world.
Require us to implement globally, and I think they're going to give us a lot more ability to scale.
Over the next three years, so we see it twofold, helping them contribute obviously to our pipeline, which our pipeline growth remains very strong.
But more importantly help us in the ability to deliver with the same quality that we've delivered.
At a much higher scale.
Thats whats exciting for us and in strategic also that they were not just looking at a pricing practices sorry, CPQ practicing the why it's really a practice it combines both pricing and CPQ.
Then aligns with a lot of top of mind topics around digital transformation for sales and that's being a unique offering they can really power.
More strategic initiative, if within an organization in having a company like you why partner like you why supporting that I think it's going to be very good for as long term.
Got it very helpful. Thanks for taking my questions. Thanks.
Our next question is from Jackson Adler with.
JP Morgan. Please proceed.
Great. Thanks, Good evening, guys and thanks for taking my question.
If we could actually just follow up on the you why partnership that Andreas here just talking about.
If part of the strategic partnership includes.
Not just delivery, but demand generation, how should we then be thinking about the growth.
We're ramping up all your direct salespeople.
Yes, that's a great question. So I would tell you that we're.
Containing our recruiting to get to that 20% quota carrying personnel a higher increase for the year, we feel very good about that as you know we were heading Q2.
And are continuing to to recruit.
At this point, we feel that that 20% quota carrying growth is kind of at the level that we feel it's the right level at this point.
May decide to change that going into 2020, but I would say still premature we still going through it through our budgeting for 2020.
I would say, we'll give more color.
Our Q4 earnings call around that.
But I would say look for now we're seeing good success.
We expect that asked we continued to drive success, we're going to continue to ramp up or or sales.
Organization.
In but at the same time, we're also driving productivity improvements and I would tell you that our sales cycle times continued to improve a little bit this year and a big focus for US is also trying to drive better sales productivity and that's our solutions become more standard as companies.
Are more mature in their buying it drives the shorter selling cycle, which means that we don't have to grow quota carrying personnel at high to still achieve.
A higher growth rate.
Okay.
Great. Thank you.
A follow up are you Stephan.
The disconnect maybe between calculated billings and revenue and there are at that you mentioned.
The timing of some of those deals.
Impacting billings is that simply just maybe are those deals that have now already been builds meeting. It's just something that was going to be built in September that ends up being in October or or.
Any other color you can give us on that.
Yes, no. That's that's exactly right. Some of those are exactly just that there's there's.
Maybe I'll take the second and go into this in a little more depth to address that question Jackson, but yes to your point there were some invoices that didn't go out in September that I'm now going out in October but you asked this question about the you know the relationship between a our our for example, and and calculated billings and well.
They are similar there are different in how they are calculated how their their arrived are derived one of the biggest differences has to do with calculated billings as a pure billings metric in it only gets counted when the invoices actually submitted to the customer and so that has two impacts to us relative to where our one.
When we are when we're looking at an invoice that goes out the door in a three year contract. Many times as under said in his prepared remarks. There are customers that are they are buying our full suite of products today and they are there you know, they're rolling them out in increasing stages and increasing fashion. So what ends up happening is they are.
Our ends up being the average of that three year rollout, which means as they increase their their contracts each year, we take an average of that from an they are our perspective, then from a calculated billings perspective, we're only counting what we bill in the first year. So there's one disconnect that occurs and.
So that's the that's probably the biggest difference that you're going to see.
And that's probably why.
That's well that is why you see calculated billings being impacted from time to time by by timing versus what you would see an air our scenario does that help.
Yes, yes, so basically we should think about it as.
And in one of those ramps deals billings good impacted our somewhere in the middle eventual ramped recurring revenue, it's going to be the highest those three correct.
Correct Gotcha, Alright, alright, thank you.
Our next question is from Jason So you know with Keybanc capital markets. Please proceed.
Hey, guys. Thanks for taking my questions. Just a couple from me Steffan you talked about some increased momentum on the migration side do you have any other anecdotal commentary you can share with that.
Yes, you know we've we've talked at the beginning of the year, Jason about the fact that we were going to change the comp plan and and we had a dedicated team that was going to start driving that and we've been.
Looking towards the second half of the year as the point in time, when we start to see that come to fruition and we have.
We saw several deals that were migrations occur in the third quarter.
As we look at our fourth quarter forecast and pipeline, we actually see more and even more as we go into the beginning of 2020. So we are starting to see.
That.
Thats starting to take take effect and.
So we're pretty excited about that it is now as we look out into 2020, we do expect to see a bit more of an impact on maintenance than what we've seen in the last couple of years as a result of that.
Okay, Great and Youre early comments on tiny tiny the subscription growth I think you said in a high it's a pad under 40%, but if I kind of roughly golf.
Where we're setting up for total revenue in and I would suggest that services revenue and B.
A little bit flatter and when you talk about the the.
Change in services business, you know is that kind of the way you're thinking about it well I would not say it.
Really use the term flat I would say, it's going to be a declining growth rate from what you saw this year for certain but I, but I think.
Maybe the other piece of the puzzle is this is the piece I just shared which is that maintenance is going to be coming down a little bit more than what you've seen in the last couple of years, primarily because of the successes. We're starting the migration plan. So I think in terms of maintenance coming down.
In the mid to upper teens from a percentage standpoint mix.
Okay. No that's really helpful. Thank you.
Our next question is from Chad Bennett with Craig Hallum. Please proceed.
Great. Thanks for taking my questions. Stephanie maybe you know I think everybody's tried to assets a few different ways.
Can you can you just speak too, but I guess qualitatively, how subscription billings or bookings.
Performed in the quarter relative to expectations.
Well they are they performed very well relative to expectations. So we are.
I think well, let me put it this way bookings performed very well relative to expectations billings on the other hand.
Mainly because of some timing challenges that we talked about earlier.
Not so much and that is reflected in the 15% overall calculated billings growth rate that you saw in the trailing 12 month number for Q3.
But you know Chad, we're actually very happy with the progress we're making in terms of our subscription business, which is when I say, it's pretty much our business right. Because that's all we're doing now and we're very pleased we're actually ahead of our you know of what we had set as a as an overall plan for ourselves from a bookings stamps.
And that's really how we truly run the business to be to be quite honest, we're really running at from a an overall bookings perspective, because we want our sales team and we want our customers to be incentivized to get started with our implementations gets started with our product scar getting value from them and then start ramping that up into more diverse.
One is more geographies as they mature enough in our in our contracts. So it's very consistent with how we're wanting to two to manage the business and and we're very happy with it. Unfortunately, we do have the you know the unfortunate side effect of from time to time that doesn't mean that billings are consistent with the bookings and.
We ended up with a 15% calculated billings growth rate.
Yeah, I know I I appreciate that and I understand that.
Bookings are ultimately what what matters and so I think if I recall correctly last year Steffan, you actually benefited billings wise in the third quarter.
From from thing shifting from second quarter into Q3 did you I don't recall did you guys ever or quantify that or do you want to speak to that we did it was if I remember correctly chat. It was like two or three percentage points of growth. If I may be a misquoting that but if I. If memory serves it was around that area. So.
You're right <unk> that was that was a that was something we saw last year as well we can.
We try not to spend too much time talking about it because it's always going to have theres always going to be an impact one way or the other we we own the number we own where we are what we can tell you is that.
We feel very confident that over the long term and including the fiscal year of 20, Twond 2019, before confident saying that number is going to be in the 20% range.
And then as we stand today or as you can at least tell today Stephan.
Just recurring deferred sequentially into the current quarter do you think that and I understand you know you have offsets right things go in different directions, but do you think recurring deferred is up sequentially in this current quarter.
It is.
Okay.
In 2000 in Q3 or Q4 or both.
In in Q4 of this quarter we're in today.
Oh in quarter four yes yep.
Okay.
It was three as well I just wanted to make sure I was answering that question. Yeah. I'm just wondering if if if seasonally you know we should see a you know I I don't know what you call decent, but it but a nice sequential uptick in that deferred revenue number we are expecting that yes, okay. Good that would that would that'd be great and then.
Maybe one last one if I could and it's probably for Andre. So when you think about next year in and that you know little bit less than 40% subscription growth.
And I know, it's early in the planning process, but.
Is there any way today to to at least qualitatively talk about how much is to achieve that target how much of that would just come from natural productivity improvements of you know the salesforce that you've added this year incrementally in terms of heads, but even salesforce.
We've had for awhile and then how much of that you know what would have to come from kind of net new hiring.
Yeah, I would tell you that.
The majority of that is going to come from what we've already hired.
And what we will hiring Q4 safety if you think about a.
Typical rep productivity is about six months. So you do get some benefit from the first six month of hiring.
But the majority of your benefited from the hiring that was done this year. So we feel any good place and as we talked in Q2, we accelerated some of the hiring into Q2 with its actually giving us more time to to onboard.
And drive Rep productivity, this year, which should help us drive better execution into next year. So I would tell you like as we look at our pipeline the momentum the sales team and the strength of the organization, we feel pretty good about next year.
Thanks, guys nice job on the quarter. Thank you.
Our next question is from Tyler led with Northland Securities. Please proceed.
Hi, Thanks for taking the question just one from US when you look at the strength on the fee to be side of the business is there any particular verticals. These these standing out or just generally have been stronger than you would've expected. Thank you, yes, I would tell you got commodity driven industry sound to me to be have been very strong tenant.
Goals.
In non energy, especially on the fuel side has been fuels lubes have been very strong food. So I would say they commodity oriented we've seen some main they utility side, which is a new industry.
For us but.
In a lot of the commodity driven industries, we've seen very good strength.
But overall I would tell you across all of our street PD either be industries, we're seeing good good strength.
All right. Thank you. Thanks.
Our next question is from Pat Walravens with JMP Securities. Please proceed.
Oh, great. Thanks, very much so I'm going to go Big picture.
So.
What is the biggest challenge that customers have in getting value from your pricing solutions is it.
The data is that having the right people do the services is understanding where do you apply it.
And Andres How's that may be changed over the last few years, Yes, I would say look historically was getting access to the data and getting the base configuration of this solution in place I would say today that that's been massively improved.
Through our cloud solutions.
So really getting getting to value is it's not as complex.
That said ever was historically.
We are guiding solution.
The micro segmentation was done offline and that required more effort from it services perspective, but now that's all based on machine learning algorithms that it's instantaneous once a low data they can auto segment and drive guidance out so I would say like that the effort to drive value today.
Yes, it's much easier.
Lets say in everything as large organizations look at driving pricing strategy changes I guess remember a lot of the guidance is based on how you price historically and willingness to pay historically, but he brings a lot of opportunities now that you have segments and you have peer groups to compare.
To drive pricing strategy changes and I would say the change management of driving adoption within the sales organization getting them to drive confidence in you've seen the guidance. That's an area that we put a lot of effort in our partners to do as well with our customers to ensure they drive the full value.
But it's not that technical perspective, it's more the business change management.
Great. Thank you.
Yes.
Ladies and gentlemen, we have reached the end of our question and answer session.
I'd like to turn the call back over to shed antennas for closing remarks crack.
Thank you for joining today's call. We look forward to speaking with you this quarter as we will be marketing in Baltimore, Los Angeles, San Francisco, We also plan to attend the Stifel. One on one growth conference in Chicago, The Needham SAS, one on one day in San Francisco, and RBC capital markets Global T I M.
The conference in New York City.
Finally, please save the date for 2020 outperform customer conference, which will be held from October six through October 8th in Orlando.
If you have questions. Please contact us and I are at pros dotcom, Thank you and goodbye.
This does conclude today's conference you may disconnect your lines at this time and thank you for your participation.
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