Q3 2022 Progress Software Corp Earnings Call
Welcome to the progress Software Corporation Q3, 2022 earnings call. My name is Daryl and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press zero one on Europe .
Touchtone phone I will now turn the call over to Mike <unk> VP of Investor Relations, Mike You may begin.
Okay. Thank you Daryl and.
Good afternoon, everybody and thanks for joining us for progress Software's third quarter 2022 financial results conference call with US today is Yogesh Gupta, President and Chief Executive Officer, and Anthony Folger, Our Chief Financial Officer before.
Before we get started I'd like to remind you that during this call we will discuss our outlook for future financial and operating performance corporate strategies product plans cost initiatives the impact of the COVID-19 pandemic on our business and other information that might be considered forward. Looking this forward looking information represents progress software's outlook and guidance only of today.
Only as of today and are subject to risks and uncertainties for a description of the risk factors that may affect our results.
These refer to our recent SEC filings in particular, the section captioned risk factors in our most recent Form 10-K progress software assumes no obligation to update the forward looking statements included in this call, whether a result of new developments or otherwise.
Additionally, on this call the financial figures, we discuss are non-GAAP measures unless otherwise indicated you can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers in our financial results press release, which was issued after the market closed today and is also available on our website. This document contains the full details of our <unk>.
Actual results for the fiscal third quarter.
2022, and I recommend you reference it for specific details.
Also have prepared a presentation that contains supplemental data for our third quarter 2022 results, providing highlights and additional financial metrics. Both the earnings release and this presentation are available in the Investor Relations section of our website.
At investors Dot progress Dot Com today's conference call will be recorded in its entirety.
And it will be presented and will be available via replay on the Investor Relations section of our website, so with that I'll turn it over to Yogesh and we'd get started.
Thank you Mike Good afternoon, everyone and thank you for joining us as we discuss the results of <unk> fiscal third quarter 2002.
We're excited to report that we again exceeded the high end of our revenue and EPS guidance and recorded another strong performance.
Virtually all products and geographies.
We remain confident about our revenues operating margins and free cash flow for the rest of the year.
Despite strong FX headwinds, we're maintaining our revenue guidance and raising our EPS guidance for the full fiscal year 'twenty two.
Our results continued to be driven by our strategy, which combines accretive M&A with a highly profitable and predictable business with strong recurring revenues and very high retention rates.
Our disciplined execution of this strategy over the past several years continues to deliver consistent performance and meaningful returns to our shareholders.
If any important aspect of our business is its predictability and stability.
The mission critical nature of our products.
In a steady demand from our customers.
This steady demand forms the foundation of our business.
Good times and in challenging times.
Leading to a high visibility business model.
Riding a degree of protection from uncertainties that may impact other types of software businesses.
Our third quarter results speak to this plan.
Annual recurring revenues continue to grow to $495 million.
Approximately 13% year over year on an as reported basis.
And 4% year over year on a pro forma basis.
Net dollar retention rate was again over 100%.
Going in at 101, 4%.
Revenue of $153 1 million.
Some of the high end of buyout items as well as our EPS to $1.
Free cash flow was also impressive for the quarter.
And our balance sheet.
Two things to note.
Recall that in our third quarter last year, several very large deals closed at the end of the quarter.
Giving us a huge feat and a tough compare.
And of course, FX has had a very strong negative impact of over $5 million in this quarter alone.
So in that light.
Third quarter results are even more impressive and showed that <unk> is managing well in a challenging macro setting.
Demand for our products continues to be strong as our renewal rates.
Our execution to meet this demand remains superb with noteworthy strengthened this quarter and chef open edge data to work <unk>.
Anthony will provide more details on our numbers, including details on the impact of FX.
But before that let me share some commentary about our business and the macro environment.
As we've discussed before the three pillars of our total growth strategy.
Number one strengthen our profitable core businesses by investing in product innovation and customer success.
<unk> retention and drive organic growth.
Number two.
Our focus on operational excellence to successfully execute and integrate acquisitions was on efficiently and deliver world class margins and cash flow.
And number three.
Deploy capital to produce the highest shareholder returns just you'll be through accretive acquisitions.
That fit our disciplined criteria.
We also returned value to shareholders through share repurchases.
We buyback our stock both as they calculated element of our capital allocation policy as.
As well as Opportunistically, if progress share software meaningfully better returns.
In the third quarter, we bought back shares.
$4 million.
Expanding a bit on our acquisition strategy, we have been steadfast in our commitment.
The only doing deals that meet our strict criteria.
That means identifying strong enterprise software businesses with a durable recurring revenue model high retention and renewal rates.
And once we are confident that we can rapidly integrate within our operating model.
It also means acquiring them for the right price such that the expected return on invested capital exceeds our cost of capital.
As a result of our stringent standards, we have passed on numerous deals that did not meet its recurring revenue or <unk>.
Great criteria.
Some sellers have tried to reengage at significantly lower asking price, but we'll remain disciplined because any business you buy must deliver strong returns that are sustainable over the long haul.
And while deteriorating macro factors working in our favor with respect to valuation multiples.
Private company valuations are still not make we believe they should be.
While lower than a year ago.
Their valuation expectations.
Line with public market.
So we will be patient and not overpay for the assets we acquire.
We continue to be an extremely active contango dominate market.
Seek to be a buyer of choice for companies looking to sell.
In order to enhance our ability to efficiently integrate acquired businesses and better serve our customers. We are working to realign our go to market product and operational teams.
This will improve collaboration among the teams that develop sell and support our products.
But due to realign some of our teams will also centralized some shared services lead to greater systems in performance and increased operating efficiency.
All of this also supports an important element of our total growth strategy, which is operational excellence.
Switching to the topic of macroeconomic conditions and inflation.
The largest expense drivers in our business are employee related expenses.
And we worked hard to ensure that we can pay our employees competitively while at the same time managing costs across our business in order to protect our margins.
We've done this by focusing on employee engagement.
Elevated employee turnover can increase expenses in the business significantly.
Because hiring and training new employees is much more expensive than retaining the great talent we have.
We continue to work hard to make progress to kind of place where employees find the workflow feeling.
The environment inclusive and authentic.
Our employee engagement scores continue to be top quartile in the tech industry.
And we're proud that our employee turnover remains significantly below the industry average.
I want to thank our employees for their ongoing commitment to the success of the company and for making progress such a great place to work.
On top of all of this we continue to diligently manage other cost to ensure that we can sustain our margins during this unprecedented inflationary period.
For example earlier this year, we sold the headquarters building and reduced our fixed costs significantly.
We also continue to keep a close eye on maintaining some of the benefits of pandemic out reductions in travel and marketing expenses.
Our focus on employee engagement and our efforts to continually streamline operations will help us retain our talent while at the same time position us well as we move forward towards 2023.
Let me wrap up with a few highlights from our recent global customer event.
Just a couple of weeks ago, We hosted project 360 in Boston, our largest event in the last three years.
CIO and other executives from our customers and partners as.
As well as developers IP ops, and SEC off spec designers from around the globe.
Joined progress team members for two days of strategy discussions training and education product demonstrations and collaborations.
For me personally it was wonderful to the next face to face with technologists and business people, who use our products to make a positive impact in the world.
Most importantly, it was a reaffirmation that our customers love our products.
And as enthusiastic as ever.
About working with us.
So to wrap up.
Rob This is having an excellent year so far.
I am pleased with these outstanding results for the third quarter and I am confident we will finish FY 'twenty on.
On a strong note as our guidance reflects.
And with that I'll now turn it over to Anthony.
Thanks, Yogesh and good afternoon, everyone and thanks for joining our call.
As Yogesh mentioned in the third quarter was another exceptionally strong one for progress.
Even more impressive is the fact that these results were delivered in the face of significant foreign exchange headwinds and general economic uncertainty further demonstrating the incredible strength and durability of our business.
Jumping right into the financials I'd like to start with <unk>.
Which we believe provides the best view into our underlying performance.
As a reminder, our calculation of IRR is presented on a pro forma basis to include the results of acquired businesses in all periods presented.
And in constant currency with all periods presented at our current year budgeted exchange rates.
Hey, IRR at the end of Q3 was $495 million, representing approximately 4% organic growth on a year over year constant currency basis.
The growth in IRR was driven by virtually all of our products.
<unk> bolstered by net retention rates, which in Q3 reached a record high exceeding 101%.
In the past we've talked about the investments we've made in our products, which are aimed at improving the customer experience.
Net retention rates in Q3 illustrates the continuing benefit of those investments.
Revenue for the quarter was $153 1 million, which is approximately $3 million above the high end.
The Q3 guidance range, we provided in June .
Relative to our guidance, we saw better than expected results from our data direct open edge site facility and chef product lines.
Moreover movements in foreign exchange rates during the third quarter alone resulted in a revenue headwind of approximately one 5 million without which we would have landed for $5 million.
Above the high end of our guidance range.
On a year over year basis revenue increased slightly.
However, there are multiple factors that make the year over year comparison difficult.
Including.
The timing of revenue recognition and contract duration, which we covered in last year's Q3 earnings call.
Movements in foreign exchange rates and the addition of <unk> to our 2022 results.
When we consider all these factors our year over year revenue growth in Q3 is reasonably consistent with the growth in IRR mentioned previously.
We've provided additional details on the Q3 year over year revenue comparison in the slide presentation accompanying our press release.
I'd encourage you to look at slide number 11 in that presentation for a clear illustration of this point.
Turning now to expenses, our total costs and operating expenses were $93 million for the quarter, an increase of $11 6 million compared to Q3 of 2021.
The year over year increase is the result of two primary factors.
First is the addition of <unk> to our business, which makes up the vast majority of the year over year increase.
And second our increased wages and travel costs.
Like most other companies we are experiencing wage inflation.
However, cost management and other parts of our business is helping to offset those increases.
Also we're seeing travel returned to a more normalized level in 2022.
Not quite where it was pre pandemic, but certainly elevated from 2020 and 2021.
This is something we anticipated coming into the year.
And just like wage inflation solid cost management and other parts of our business is helping to offset these increases.
Operating income was $60 1 million for the quarter and operating margin of 39% compared to 47% in the year ago quarter. As previously mentioned our results in the third quarter of 2021 were significantly impacted by the timing of revenue recognition and as such year.
Over year comparisons are less meaningful.
Turning to the bottom line our earnings per share of $1 for the quarter were <unk> <unk> above the high end of our guidance range.
Moving on to a few balance sheet and cash flow metrics.
We ended the quarter with cash and short term investments of $225 million and approximately $300 million in untapped capacity under our revolving line of credit for total liquidity of $525 million.
DSO for the quarter was 48 days, an improvement compared to 54 days in the year ago quarter.
Deferred revenue was $251 million at the end of the third quarter down slightly from the second quarter, reflecting normal seasonality in our business coupled with the impact of foreign exchange rates on deferred revenue.
Adjusted free cash flow was $39 million for the quarter up $4 million or 11% from the year ago quarter.
During Q3, we repurchased approximately $24 million of progress stock and at the end of Q3, we have approximately $80 million remaining under our current share repurchase authorization.
In the fourth quarter, we will continue to evaluate the market price of our shares along with other factors in determining whether to make additional share repurchases.
In the first three quarters of 2022, we have repurchased a total of $75 $5 million of progress stock.
Okay, now I'll turn to our outlook.
At different times in my remarks, I've mentioned the impact of changes in exchange rates on our reported results.
And I'd like to provide a little more insight.
The primary point I'd like to highlight.
Is the mix of currencies in which we transact.
Is different than the disclosed geographic mix of our business.
So when it comes to transacting in different currencies, it's worth noting that more than 70% of our revenue.
And approximately two thirds of our expenses are denominated in U S dollars.
This mix of currencies results in a hedge on our operating margins.
Meaning our operating margin is generally much less exposed to movements in foreign exchange rates than our revenues and this has been the case.
During 2022.
Now shifting back to our outlook starting with the full year 2022.
We're maintaining our revenue guidance to be between 609 and $617 million.
This outlook includes an increase to our revenue guidance of approximately $4 million.
Which is offset by a $4 million foreign exchange headwind.
To help illustrate this point we've included a slide in the presentation that accompanies our press release and I'd encourage you to look at slide number 14 for a clear illustration of this point.
We're maintaining our outlook for operating margin for the year at approximately 39% to 40%.
We're maintaining our outlook for adjusted free cash flow to be between 185, and $190 million and we're increasing our outlook for earnings per share to be between $4 <unk>.
And $4 12.
Our guidance for full year, EPS assumes a tax rate of 20% to 21%.
And approximately 44 million shares outstanding.
For the fourth quarter of 2022, we expect revenue between 157, six and $165 6 million and earnings per share between $1 <unk>.
And $1 and concepts.
In closing, we're thrilled with our financial performance and our outlook for the balance of 2022.
And we believe the clear strengths in our business and our balance sheet positions us very well to continue to execute on our total growth strategy.
With that I'd like to open the call for Q&A.
If anyone has a question it's zero one on your Touchtone phone once again, it's zero one on your Touchtone phone if you have a question.
And our first question comes from of.
<unk> from Citi go ahead for timber.
Good afternoon, and thank you so much for taking my questions gentlemen, yogesh.
I'll start with you last quarter, you did allude to or offered an inclination towards increasing prices across your portfolio. So I just wanted to get a quick update on that and in terms of how youre thinking about the parameters of these price increases and particularly in the context of the <unk>.
Deflationary environment, where you are absolutely managing costs, but just curious on sort of the topline inputs from just outright pricing increases across years installations, and then I have a follow up for Anthony if I could.
Yes.
Hi, Fatima, Thank you and yes, we did talk about the.
What we could do with respect to price increases and let me share with you sort of the three parts to that answer.
Part one is that we have with many of our software vendors who are our partners.
Embed our software in their software, we have long term relationships and a revenue share responsibility.
So let me show relationship where effectively.
We don't really change the prices can be changed prices, it's a percentage of what revenue they get and we collect what percentage of that so there is a segment there that we can't touch it all does the second segment, where all of our customers who of course have multiyear contracts and so when those contracts come up for renewal.
We basically continue to look at opportunities and we are increasing prices, but again I would like to.
Make folks aware of that.
We have a larger number of multiyear contract customers than one year contract customers. So Fatima we've made changes to some of our prices some of our product prices, we do have a third category.
Products, which are in.
What I would call extremely price competitive markets and there we are careful about increasing prices, we sometimes reduce our discounts and so on so we're trying to use the lever on price. The best we can but I do want to point out that it isn't as though we can take our entire business and go hey, let's increase by X percent.
Across the board and see that X percent show up.
In the next 12 month cycle.
Is that sort of does that explain it a bit.
That's very helpful. So we shut down more or less expect a gradual visible impact versus anything pronounced or anything, but even pronounced okay that is anthony.
Excellent. Thank you Anthony just for you just on the net retention rates a record high as you mentioned can you remind us the key vectors of expansion on this metric.
Maybe sketch out the priority sequence of factors that will help drive that you can sustain net risk net retention rates in excess of 101% and thats. It from me. Thank you.
Sure sure thanks for the team.
Yes.
Big driver on net retention really is upsell.
We we upsell within existing relationships.
And we continue to grow relationships with customers, where I think we tend to be very very close to our customers. We've got a very strong account.
Sort of account based management model in place good customer success organization in place and we invest in the technology. So that we understand where our customers are going and so most of what we're doing to drive.
Improvement in net retention rate has to do with.
Continuing to grow with customer relationships.
And continuing to invest in the product so that we're not giving customers an excuse to churn out. So really I think we are increasing the gross retention rates lately.
And then we're continuing to grow relationships with our existing customers.
And really that for us there may come a time in the future, where we're able to do more with with cross selling products. We don't do a lot of that right now.
And so the focus really is on.
Really a level of intimacy with our customers that helps us know where theyre going to make the right investments in our products.
And continue to grow those relationships and so.
I think thats, what our our organizations are designed around.
And we will continue to focus there going forward.
I appreciate that detail. Thank you.
Okay.
Our next question comes from John <unk> from Guggenheim Go ahead John .
Thank you.
So I think this is for Yogesh could maybe Anthony do you might want to chime in too.
You beat the high end of revenue guidance by.
Easily this quarter and you.
<unk> maintained guidance.
Get to $4 million foreign exchange impact essentially gave guidance, but you achieved.
It beat our numbers, but more than that I guess.
What does that say about your views on the macro backdrop.
Just get your sense on that and I know your business is really steady but you.
Im sure Youre still close to your customers can you talk to them about it.
About what Theyre doing.
Hey, John .
We feel really confident about the way our businesses shaping up I think anthem.
Anthony mentioned I think on slide 14, or something that sort of shows.
How.
Every quarter the FX has continued to.
Negatively impact.
What we've been able to buy.
And so even though the expectation at midpoint looks at the same point.
But the numbers have gone up.
Constant currency quite a bit so.
We are seeing a healthy demand we are not seeing demand fall off which I mean, if you think about it.
Over the last three quarters every single quarter.
Especially in constant currency, we have.
Our top line guidance obviously.
Every single time, and so to me that that's.
Yes.
An indication of that and speaking to our customers. We have this great customer confidence.
Yeah.
People are really engaged.
The products that they're using from us are solving real business problems for them that are mission critical and so what that means.
Stick to us and stick with us and continue to expand as their needs expand so.
I am really positive about and bullish about where our business is going.
Obviously.
Can't do much about FX, but that's the way that the alarm bells.
Anthony if you want to add anything.
Yes, I would just say John we in as has been the case with progress for a number of years.
We probably don't see the same peaks and valleys as other software companies and so when when money's free and and everything is frothy.
Progress doesn't see the same same upside are seeing growth.
In terms of the customer base that we have but the flip side is that.
When times are tough because of the mission critical nature of the products that we have.
The valleys tend to be a lot more muted for us too and I think that's what we're seeing right now we're not certainly not blind.
Two what's going on out there in the macro and we're staying close with our customers, but I think the mission critical nature of the products that we have and the close relationships with our customers.
Have given us the ability to just continue to grow with them.
And so we'll stay on top of that obviously, everyone is going to continue to monitor the macro pretty closely.
That all makes it makes sense and if I could Anthony.
One for you just sort of.
Last quarter, you were really clear, but there was a large renewal pulled forward in the year ago period. So when we're thinking about the compare although.
You put up some really good numbers here.
But as we contemplate guidance going forward is there anything like that that we should be thinking about any any pull forwards or any anything unusual about the renewal base.
No nothing unusual.
Obviously the.
If you were to look at that that Q3 comp last year that was.
Revenue that moved from Q4 of 2021 in Q3 of 2021.
There was about $10 million of that and so.
When we normalize for that.
I think it provides a reasonably healthy outlook for.
For 'twenty, one, but also for Q4 of 'twenty two.
And you also think about the fact that camp was part of the business in Q4 of last year. So the incremental contribution from cap in Q4 is a lot smaller so our view is the Q3 results. When you normalize them are really strong Q4 outlook is strong.
As we think about 2023, obviously, we're not guiding there today.
But we'll be sure to call out any.
Any anomalies in the revenue distribution and when we get closer there.
Great. Okay, I'll clear guys. Thank you very much.
Thanks, John .
And our next question comes from <unk> <unk> from Oppenheimer.
Got it.
Hey, guys.
Couple of questions from me, maybe Yogesh with you.
I don't want to go back to John's question on macro.
Are you seeing any elongation in sales cycles and renewal activity do you see customers requiring few more signatures.
On closing on renewals are you seeing customers.
Maybe reconsidering renewals are pushing them out or downsizing as there so anything that.
Yes, you can see that youre seeing out there would be by region as well. If there is any specific color related to that there'll be greatly appreciate it.
To be honest, we're not really seeing much of that.
I'm sure there are some internal scrutiny going on in organizations, but our perspective.
Had business closed on time that we expected to close in Q3.
Obviously you otherwise.
Putting up the numbers, we put up would have been not possible.
We've had we've had people expand their relationships with us and continue to do so.
I am actually.
I know that.
That is something that I've heard from other organizations and other companies I think the difference is that our business is primarily focused around.
Renewables and our expansion primarily focused around the capacity of the work that people are trying to do so let me give you an example.
If somebody is using chef for.
Their environment and that environment scales up because they are actually ended up doing more of a debt environment and now they have a bigger environment.
Sure.
More effectively capacity for deploying software securely are deploying the infrastructure security using chef, but deal with chef becomes bigger it with us.
So.
It is because we are in the IP oxide as well as on application development, which is more on the run time side.
Rather than developing new things.
We really see.
Really solid business right now so.
I know I know that I am probably going against the.
Stream list with respect to what the rest of the world is talking about but for progress software that's actually one of our core strengths.
Having mission critical software that people need even when times are tough.
It makes us such a staples.
That's great that's great to hear and then Anthony just on the operating margin.
I guess youre closing on a year now and Cam maybe you could talk about.
What's left to squeeze out of their program.
From a margin or cost standpoint, and.
Before camp you had higher operating margins, you're kind of reiterating the same operating margin for the fourth quarter.
What will it take for you to get over a 140% again from an operating margin standpoint.
Yes, it's I think there's probably not much left to do with camp as we get into the fourth quarter here I think from an integration perspective.
We've done everything that we need to do I think the business is performing well.
I think as we look out and start to see the.
The contribution for Q4, I think it's a pretty solid contribution probably generally in line with with the business case that we've put out.
Kent will be affected by foreign exchange rates, just like the rest of our business will be so we'll keep an eye on that.
And I think our business generally.
A little bit impacted by those foreign exchange rates, and there's probably a little bit of.
Slight margin compression there not anything like what we would see on the revenue line I talked a little bit about.
Having more of a natural hedge on the on.
On the operating income line.
75% hedged, 75% to 80% generally speaking from the negative impact on revenue.
But I think I think camp is pretty much chugging along on plan, we will see how our margins evolve in Q4 and going into 2023, but.
But I think we're feeling like the margin profile is as stable as it's been in a long time for us.
Very good excellent. Thank you.
Yes.
Our next question comes from Andreas <unk> from Sidoti.
Yes.
Thank you for taking my questions.
I'm just curious you said you have made investments in improving the customer experience, which seems to be there in pregnancy considering.
Dependent on your current customer base can you just elaborate on what kind of improvements you're done then we can expect from us.
Yes.
We continually look for better ways to engage with our customers.
Two areas of investment one area of investment is in our products.
Continuing to innovate and making sure that our products tend to be.
Relevant and market, leading fallout customers. So for example.
For example, our Dev tools products for blazer or <unk>.
Absolutely the best on the market.
We continue to see interesting.
Our customer successes.
One of the.
Blazers users, which happens to be the S&P global markets the market intelligence team.
They.
MD there basically spoke about how it has helped them.
Make their apps much more engaging and then obviously they deal with trillions of dollars.
Fund raising that companies do either through ipos or secondaries or debt offerings or whatever so I think.
One of that is as I said allowance.
Product investment and innovation the second area is around customer success and customer intimacy and.
Anthony spoke about the fact that our customer intimacy efforts are the ones that basically allow us to keep our customers engaged with us and to us be engaged with them and so so that's where we make investments but these are not.
I don't want you to think of these incremental investments that <unk> been making these investments all along and we will continue to make these investments. So I don't want to imply that we are increasing investments right way. It's not that we are continuing to invest the way we have been investing in the past.
Okay. Thank you.
Can you also tell us how what.
Are you seeing the M&A market.
How are you.
Sort of much more active there now.
If you are waiting to see when the prices come down.
What's your sort of.
Approach right now to further M&A.
So we are extremely active.
Interesting thing happened this year, I think which was quite unusual I think a little bit.
In July and August for a couple of months in the summer.
It seemed like everybody wanted to take a vacation given that they were in 2020 in 2021 people weren't taking summer vacation so the deal flow slowed down.
The amount of activity in the M&A market in terms of even deals coming on the market slowed down but that didn't mean that we didn't stay engaged just less deal showed up and we've seen it already pickup. This month. So we are extremely active.
We are not waiting we are looking at the right opportunities and the right type of businesses.
And where it makes sense we compete.
To the right value that we feel is right for our shareholders I think that's the fundamental.
Process that we go through so we are extremely active.
Okay. Thank you that was all for me.
Thank you and our next question comes from Brent Thill from Jefferies Go ahead, Brian .
Hey, guys. This is <unk> on for Brent. Thanks for taking the question I guess could you talk a little bit about the mix of enterprise versus mid market customers on your platform today, and where do you want to see this trend over time.
So.
Yes.
The vast majority so again, our business I would say that we don't break down our business into two major segments first right.
Secondly about.
Approximately.
A third of our business, let's say, 30% of our business is other software companies.
<unk> $1700 of software companies, whose products are built on top of our products. They embed our products into their products and then they license those to all kinds of companies large enterprises as well as mid market companies.
And those software companies that range from the largest names you can imagine, including Microsoft and Oracle and Adobe <unk>, IBM and SAP and others.
And as well as a host of mid market software companies around the globe.
So that's one audience and we keep their customers can be enterprise customers or they can be mid market customers.
Our direct to the market business, where we sell to the business. The vast majority of our businesses mid market. We of course have phenomenal enterprise customers.
Okay.
And.
90% of the Fortune 500 are customers. So I don't imply that that we don't have great customers, but in terms of revenue impact the vast majority of our business is mid market customers and.
We like that by the way, we actually believe that.
Elephant hunting.
Like the fact that we are able to do.
Mid market deals than we're able to work with businesses and grow with them as they grow and have a broad base that.
The cross sell.
And a whole bunch of different industries. So we have.
Resilience to specific vertical industry doing well or not doing well, we have resilience to geographies.
As announced the sector so it.
It is really.
Important thing for us and we primarily focus on growing our mid market customers around the world.
That's very helpful. Thank you and maybe just one more could you just remind us of.
The split between contribution of ore coming from existing and new customers then with capped.
Anything different that you saw in Q3.
Yes.
Yes, I don't think we've broken out the <unk>.
<unk> contribution coming from existing versus new obviously with a business like ours. The vast majority is going to be coming from existing so.
So I would say significant majority.
Ken I would say nothing.
Sort of unusual or different in the third quarter.
But temp overall, when we acquired the business, we expected it to be probably close to $70 million in revenue.
And the mix of recurring revenue was a little bit lower than.
Then what we have in our business, but that was sort of known coming in and and I think there was a drive to improve customer retention rates and net retention rates.
And I think we've.
We're seeing some success with the integration so nothing I think unusual.
With their their IRR model.
Their IRR make up relative to the rest of our business.
Understood. Thank you.
And our next question comes from pendulum Bora from J P. Morgan go ahead pendulum.
Oh, great. Thank you hey, guys congrats on the quarter.
I wanted to ask you about the go.
I'll go back to the price increase question, which was I think one of them.
The second question.
In the Q, but.
The when I look at the pro forma IRR of sequential additions I think it's something like 9 million seems.
The highest in the last few quarters at least in my model is there are you seeing any impact of price increase at this point.
That's kind of helping that number a little bit.
I think the pendulum. Thank you and I think the price increase has a very very tiny.
<unk> contribution to it I don't want to say, it's zero right I don't want to imply it is David.
There is some impact, but but no. It was it was.
Small compared to compared to the rest of it.
It's hard for me to estimate that.
And any quantifiable way, but I think it's extremely small.
Okay got it and then.
Thank you.
You'd have to go to market realignment.
In your script I wanted to ask you. If you can elaborate on that is that.
Kind of folding camp studio sales motion into broader.
Broader organization as it is it.
Something else.
What are you talking about.
So I think it is about a better way to go to market. So we are basically, saying, which products that we know well.
Acquired three companies over the last three years and when we acquired them, we were sort of running them differently than we would like to run them because we've see that certain products can go to market better and we can solve our customers' special it that way.
And go to market better.
Also want to be ready for M&A and actually be able to do.
M&A across our entire portfolio and then in a much more rapid way and be able to integrate M&A more rapidly. So both those things are driving.
What we are doing it really is.
Primarily re aligning some of our functions and.
Not more than that.
Got it thank you.
And we have no more questions at this time I will turn it back to the speakers for final comments.
Well, thank you very much for joining us on our call today.
We look forward to talking to you again soon.
Have a wonderful evening.
Goodbye.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Darryl Thanks very much.
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