Pros Holdings Inc (PRO) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Third Quarter 2011 PROS Holdings Earnings Conference Call. My name is Lisa and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session.

(Operator instructions)

As a reminder, this conference is being recorded for playback purposes. I would now like to turn the conference over to your host for today, Mr. Charlie Murphy, Executive Vice President and Chief Financial Officer. Please proceed.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today for the PROS Holdings financial results conference call for the third quarter of 2011. I am Charlie Murphy, the Executive Vice President and Chief Financial Officer of PROS.

Joining me on today's call is Andres Reiner, President and Chief Executive Officer. In today's conference call, Andres will provide a commentary on the third quarter of 2011, and then I will provide the review of the financial results and our outlook before we open up the call to questions.

Before beginning, we must caution you that some of today's remarks, including our guidance for the year, our competitive position, future business prospects, revenue growth, market opportunities, as well as statements made during the question and answer session, contain forward looking statements. These statements are subject to numerous and important factors, risks, and uncertainties which could cause actual results to differ from the results implied by these or other forward looking statements.

Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward looking statements. Additional information concerning risk and other factors that may cause actual results to differ can be found in the company's filings with the SEC. Also, please note that a replay of today's webcast will be available in the investor relations section of our website at www.prospricing.com.

Finally, PROS has provided in its earnings release and will provide in this conference call forward looking guidance. We will not provide any further guidance or updates on our performance during the year unless we do so in a public forum. PROS does not assume any obligation to update the forward looking statements provided to reflect events that occur or circumstances that exist after the date on which they are made.

I would also like to point out that in addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, PROS reports certain non-GAAP financial results. Investors are encouraged to review the reconciliation of each non-GAAP measure to the most directly comparable GAAP measure in the tables accompanying the press release distributed earlier today, and can also be found on our website in the investor relations section.

With that, I'd like to turn the call over to Andres.

Thank you, Charlie. We are pleased to see our momentum continuing in the third quarter, as our revenue and earnings were again above expectations. With record revenue in the third quarter, healthy backlog levels, a growing pipeline, and continued execution of our growth strategy, we remain optimistic about our business for the remainder of 2011 and beyond.

Revenue of $25.2 million in the third quarter, up 34% year-over-year, exceeded the upper end of our guidance. Our strong revenue growth was reflected in our profitability for the quarter. Non-GAAP operating income was up 75% from the third quarter of 2010. Net income was $0.11 per share on a non-GAAP basis, also above the upper end of our guidance.

This quarter's record revenue marks our eighth consecutive quarter of sequential revenue growth. This strong performance was the result of our team's continued execution of our growth initiatives, which include accelerating awareness and adoption of pricing software, further extending our product leadership, and increasing our global reach and scale. Our focus on these three areas helped drive a variety of successes for PROS throughout the third quarter.

I'd like to share just a few of the highlights from the quarter, which include new customer wins and successes, heightened awareness in the media, product innovation, and strengthening both our direct and indirect sales efforts.

First, we added a number of new names to our growing list of pricing and revenue management customers around the world. Since our last call, Air Europa, Autodesk, Kemira, Nok Air, and others selected PROS as their pricing and revenue management partner of choice. Among existing customers, we are continuing to see sell-back opportunities and a maintenance renewal rate above 95%.

A second highlight of the quarter was customer recognition of the impact that pricing software has had on their business. 3663, a leading food service distributor in the United Kingdom, named PROS their 2011 Strategic Vendor of the Year. This marks the second year in a row that PROS has received this honor from a customer. This recognition comes on the heels of other customer awards. During the past year, four of our B2B pricing customers won internal awards for their successful pricing initiatives. These customer successes are great acknowledgements of the value that PROS delivers.

The significant increase in media and analyst coverage of PROS and of pricing software was also notable in the third quarter. PROS was spotlighted in the Wall Street Journal, the Financial Mirror, and Computerworld. In addition, an article on the value of B2B pricing technology was recently published by the Technology Evaluation Center, a leading IT industry analyst.

PROS received special attention in a second article published this year by a CFO publication spotlighting the value a PROS customer received from our solution and the importance of pricing optimization software. We believe this increased coverage is further evidence of the growing interest in pricing software as a strategic business solution, and we will continue to invest in initiatives that support this goal.

In the third quarter, we continued to extend our product leadership. We were recently selected by Microsoft to participate in their Chemical Reference Architecture Initiative, which recommends key technologies that create value for chemical companies. The configurable nature of our pricing solution allows PROS to work with partners like Microsoft to embed industry-specific best practice into our solution.

In addition, we released the latest update of our PROS Pricing Solution Suite, which delivers even more prescriptive pricing capabilities that empower our customers to create an intelligent enterprise. We have a deep innovation pipeline and are continually working to develop new products and functionalities.

We also continue to make progress in introducing our new cloud solutions to the mid-market. This quarter PROS, in close collaboration with our partners, participated as a Gold Sponsor at Salesforce.com's annual Dreamforce conference, where we had the opportunity to showcase our new products to the Salesforce community. Our focus continues to be on enabling our partner ecosystem and driving awareness of these solutions.

Finally, I'd like to provide a brief update on our efforts to increase our global reach and scale, which is driven by both our direct sales force as well as our partner ecosystem. To help us meet the sizeable market opportunity ahead, we are on track in 2011 to increase the size of our quota-carrying sales force by 50%. At the same time, we are actively working to grow and strengthen our partner network.

Our partners are important to our ability to scale implementations and play a reference role for prospective customers. Throughout the quarter, partners collaborated with us on projects in the US, Europe, and Asia Pacific regions. We also continue to bolster our partner network through in-depth product configurations and implementation training. Year to date, we have increased the number of third party consultants trained to implement our solutions by 27%.

We also continue to gain momentum with our resellers. We are actively helping our partners build their pipeline and enabling them to sell. In the coming weeks, we will collaborate with our reseller partner Integritas Pacific at SAP's Sapphire Conference in Beijing, followed by PROS Pricing Summit in Shanghai. In addition, PROS and our reseller partner HabberTec will participate in upcoming pricing conferences in Sao Paolo, Brazil, and Madrid, Spain.

We are pleased with the progress we've made towards building a world class partner ecosystem, and we will continue to invest in this initiative as a way to increase global reach and scale.

In summary, we are pleased with our strong performance in the third quarter. While the macro economy has increased in volatility and the world economy is top of mind for PROS, our momentum remains strong with high activity levels and a growing pipeline.

Executives are turning to pricing and revenue management technology as a way to bring confidence and agility back to their business. As awareness of the power of pricing grows, and as pricing technology becomes more mainstream, we feel even more confident in our continued success and look forward to closing out a strong 2011.

Let me turn the call back to Charlie for more detailed comments on our financial performance.

Thanks, Andres. I will be discussing our financial results on a non-GAAP basis. A full GAAP to non-GAAP reconciliation is included in our earnings release which can be found on our website in the investor relations section.

We are pleased with our performance in the third quarter, with revenue of $25.2 million, which was up 34% from a year ago and exceeded the high end of our guided range. License and implementation revenue was $16.6 million, up 45% from a year ago, increasing primarily from growth of 17% in the number of implementations. License and implementation fees are bundled together and revenue is generally recognized on a percentage of completion basis over the implementation period, with no revenue recognized at contract signing.

Maintenance and support revenue of $8.6 million was up 17% year over year and represents the largest component of revenue from recurring sources. Total recurring revenue, which includes a number of term license contracts, was 43% of revenue in the third quarter. As previously mentioned, a customer in the second quarter renewed maintenance that had lapsed from the prior year, resulting in an increase in second quarter maintenance of approximately $400,000. Adjusting for this, maintenance revenue increased in the third quarter a healthy $300,000 over the second quarter.

We continue to diversify our revenue around the globe. In the third quarter, 69% of our revenue came from outside the United States, compared to 57% a year ago.

Gross margins in the third quarter were 75.7% on a non-GAAP basis compared to 72.4% from a year ago. Margins can vary from period to period, primarily due to the level of implementation services required relative to the total contract value. Year to date margins were 74% compared to 73.7% last year.

Looking at operating expenses, total non-GAAP operating expenses for the quarter were $14.8 million, compared with $11.2 million a year ago, with the increase of 32% representing planned investments in our future growth. We are excited about the successes we are seeing from our ongoing investments in 2011 and will continue to invest as we look ahead to capitalize on what we believe is a very large market opportunity.

Non-GAAP operating income exceeded the high end of our guided range as a result of revenue above the top end of expectations, along with strong gross margins. Non-GAAP operating income in the third quarter increased from $2.4 million a year ago to $4.2 million, an increase of 75% with an operating margin of 16.8%.

Based on a non-GAAP effective tax rate of 28.5%, non-GAAP net income was $3 million for the quarter, an increase of 102% over the year - over the prior year, exceeding the high end of our guidance. Non-GAAP EPS was $0.11 per share.

On a GAAP basis, net income was $0.07 per share. A reconciliation of GAAP to non-GAAP is provided in our press release.

Now moving to the balance sheet, we ended the third quarter with cash and cash equivalents of $66.4 million, an increase of $2 million from the end of the second quarter.

Gross accounts receivable at the end of the quarter were $27.7 million. Day sales outstanding were approximately 95 days, in line with our historical average, which considers normal variations in accounts receivable, and the timing of collections and invoicing of milestone billings under our contracts.

We continue to generate operating cash flow, with approximately $2.5 million of operating cash flow generated in the quarter, yielding a cash flow margin of 9.8%. Year to date operating cash flow was $11.1 million, yielding cash flow margins of 15.7% year to date, approximating operating income. For the year, we expect our annual operating cash flow to approximate our annual non-GAAP operating income. In addition, we are expecting a tax refund in the fourth quarter of approximately $2.8 million. We expect capital spending for the year to increase to approximately $3.5 million as a result of increased infrastructure investments and facility costs.

Finally, headcount, including outsourcing, at the end of the quarter was 520, up from 480 at the end of the second quarter, and was an increase of 21% since the beginning of the year as we continue to increase our sales, marketing, professional services, administrative and engineering resources. This is consistent with our confidence in our business and our planned investment to support our long-term growth objectives.

Now turning to our outlook, we continue to be optimistic while mindful of the economic environment. For the fourth quarter, we anticipate revenue in the range of $25.6 million to $26.1 million, representing 28% growth at the midpoint from the fourth quarter of 2010.

We expect non-GAAP operating income of $3.8 million to $4.3 million with non-GAAP operating expenses of approximately $21.8 million. We anticipate non-GAAP earnings per share in the range of $0.09 to $0.10.

On a GAAP basis, we expect operating income of $2.1 million to $2.6 million and GAAP earnings per share in the range of $0.05 to $0.06.

On a full year basis, this translates to anticipated total revenue in the range of 96 to 96.5 million, an increase over prior guidance, and at the midpoint is approximately a 30% increase in revenue over full year 2010.

We expect non-GAAP operating margins of approximately 15.5% which is higher than last year's operating margins of 12.9%, and higher than we anticipated entering the year. The increase is principally due to revenue above what we anticipated and the timing of hiring throughout the year, despite significant headcount additions.

With the full effect of our hires to be felt in 2012, continued investments in our long term growth, and considering our non-GAAP 2011 operating margins are running ahead of plan, our preliminary expectation for 2012 is that non-GAAP operating margins will approximate 2011 levels. That said, we continue to believe that over time, we will see increasing operating margin leverage as our business scales and we realize the benefits of our investments.

With that, let me turn the call back to the operator for questions. Operator?

(Operator instructions). Your first question comes from the line of Tom Ernst with Deutsche Bank. Please proceed.

Good afternoon, guys. Thanks for taking my question.

You're welcome.

Hi, Tom.

So, looking forward to Q4, I would assume its normal conservatism. It looks like you're guiding for a 3% sequential growth in license revenue. Normally Q4 is pretty strong for you. You had 11% last year. Is it just that you had a stronger than normal Q3? Or did the pipeline not grow as strong as license recognition. What's the - why the modest sequential growth.

Yes, it's not that the pipeline didn't grow, in fact we're very pleased with the growth in the pipeline, Tom. So that's not it.

It's really that Q3 as we've reported, had a - I think a very nice up charge over the guidance range that we provided, so we're very pleased with that. But it's more about the Q3 performance than it is about the Q4 performance.

Earlier in the year, even on the last call, we commented that we - Q1 and Q2 we had a number of deals that had very short implementation durations and they were driving some acceleration relative to the sequential revenue growth and we said we didn't expect that to continue in Q3 which it didn't, and that's somewhat also impacting Q4 as well. But it's not the pipeline. The pipeline's very good and we're very pleased with our pipeline position going into the fourth quarter.

Okay, good and I notice it's a smaller new initiative for you, but I'm just curious, the Dreamforce event was a - was probably relatively expensive, you were pretty prominent there. How did that serve to generate leads and how is the overall lead generation building for you on your mid market SaaS product.

yes, we're very pleased with the exposure we received from attending that event and as I talked in the script, we're working on building out the pipeline and we're pleased with the pipeline growth and our focus is on enabling the partners to sell this solution and to drive the demand for this solution. We were very pleased with the exposure we received and with the effects on - of that exposure on our pipeline.

Okay, I know it's early too, but Charlie, any look into how you see that business model shaping up from a gross margin structure, typical kind of contract length or attrition, any sense for it in this early stage?

No Tom, I'd say it's still early and we really wouldn't - don't have any comments on that at this time. Likely as we get into 2012 we'll be able to have some comments on that.

Okay, thanks. I'll let others ask questions.

Thank you.

Thank you.

Your next question comes from the line of John DiFucci with JP Morgan. Please proceed.

Thank you. Andres, you said that you're optimistic about the remainder of 2011, and in 2011 so far you guys have done a really nice job here.

And you also said "and beyond." At the same time, Charlie said that non-GAAP operating margins at least for 2012 at least the initial thoughts are they're going to be about what they're going to be in 2011, but you will see leverage with growth - with top line growth.

So it's sort of a little bit of a disconnect and I know, Charlie, and you - I think prudently, have been conservative in the past, but one of the things I wonder is, is what you're seeing in Europe? And you have a little more exposure than a lot - than some others in software, maybe a little more than average and I'm not talking about the revenue because we know that your model is a little bit different and a lot of the revenue received today was business that has been booked in the past, and that - that's a good thing, it gives you a lot of visibility. But I'm talking about current business environment in Europe.

Yes.

What are you seeing there and is that - how does that sort of fold into your comments?

Yes, so obviously we've been very sensitive to what's happening in Europe and we've been monitoring it very closely. But so far this year we've had a very strong year in Europe and all of the leading indicators, the pipeline and the activity remains strong. We commented in the last quarter that the countries that we're focused in, the U.K., Germany, and the Nordic region, we're seeing strong demand in those countries. So so far, we have not seen an impact in Europe and we're seeing - we also have not seen any projects stop in any areas, whether it be Europe or any other region. So, so far we're very pleased with where we are.

In terms of the margins, I would say our focus is as we said in the previous call was continuing to invest in the areas and as we're seeing the momentum of the initiatives that we've implemented work, continuing to invest. So there are areas that we want to continue to invest in the business next year, and that's why for now we haven't finalized our full operating plan for 2012 but we don't want to - we want to work with the assumption of similar margin levels for next year.

Okay.

And John, I'll add a little bit as to why we're going to invest, and some of the investments we're making are longer term investments as well. They're not going to have an immediate impact this year, may not have much of an impact next year. But we've got the balance sheet to do it, we've got the historical positive cash flow to do it, and we've got, we think, a good level of operating income to be able to support these types of investments.

And again, we're doing it as Andres mentioned, because of the big market opportunity. If we didn't believe the big market opportunity was there, then we would - as other prudent CFOs and CEOs would do, we'd pull back on the spending. But today - as of today, we don't see that being the case, and overall we're pleased with our performance. We think we've got the right mix of I think excellent revenue growth, and we think actually very good operating income growth, given the types of investments we want to make to support our long term opportunity.

Okay, great. That makes sense. Very helpful. Thanks - nice job guys.

Thank you.

Thank you.

Your next question comes from the line of Ian Kell with Northland Capital. Please proceed.

Yes, hi guys. Thanks for taking the call here, nice quarter.

Thank you.

Thank you.

Just a couple quick ones for me here, I know you were just talking about Europe there, but in terms of implementations here, so far in Q4 what - has there been any impact there yet worldwide that you're seeing?

No, no impact on any implementations worldwide.

Okay.

We will continue to see, and as I spoke on the call, even sell back for existing customers has been strong, renewal rates on maintenance continue to be strong, and new business is strong. So we have not seen an impact.

Yes, earlier in the year we had talked about with the earthquake in Japan, would that have an impact, and the answer has been no. As we've gone through the year, we've talked about the middle east unrest, and would we have an impact there? The answer's been no. I think we're fortunate that - I think it's the value of the - the high ROI and the value that our customers see that we've seen really no impact, from middle east unrest, earthquakes in Japan, and the political uncertainty that's going on in Europe today. That may change in the future, but as of today, the answer is no.

So these schedules, pipelines, I mean they're comparable to what they were there at the end of last year, the beginning of this year.

They're stronger - stronger.

Stronger than they were last year, or even earlier in the year.

what about deal cycles in terms of sales cycles, are they still pretty extended or has there been any improvement there?

That has not changed at all. It hasn't - they haven't gotten shorter, they have not gotten longer. It's about the same - average 11 months sales cycle.

Sure. All right, and then Charlie, I think you usually give a number in terms of how your partner use affects gross margin each quarter. Did you give that for this quarter?

Charlie. No, we didn't. I think the comment that I also made last quarter as well, it's kind of normalized itself from last year to this year. So if you're looking at the margins this year, the impact is about the same as last year so it's kind of like a - there's not much to talk about. There's really nothing to talk about relative to the impact on margins.

Last year it was important because it was the beginning of the initiative, particularly as we get into Q3 and Q4 of last year. But this year the initiative continues but the impact on the margins have been normalized from year to year. Does that make sense?

It does, it does. That's all I have. Nice quarter guys. Thanks.

Great, thank you.

Your next question comes from the line of Tom Roderick with Stifel Nicolaus. Please proceed.

Hey gentlemen, good afternoon. So I'll echo my sentiments in saying nice job on another fine quarter. Again, I know it's too early to jump out and look at 2012. But I guess I'm trying to think about the scenarios here, and what has been the predominant driver of growth for 2011 if those drivers can continue to exist into '12.

As we look into the guidance for the fourth quarter, it still seems like we're kind of aiming for roughly high 20's, almost 30% growth again for the fourth quarter. What would it take in the business to kind of continue that pace of growth that we've seen really throughout this year into 2012 and then what are the pitfalls that you think could kind of trip you up on that front?

Yes, I would say at - certainly at one level, what it's going to require is the - and it's happening, continued awareness of the power of the software applications that we provide in the marketplace and we're very pleased with the increased investments we've made in marketing - we're pleased - Andres has talked about the number of periodicals we've shown up in just in the last quarter.

We're also pleased about our investment in our customers. We get excellence references from our customers, I think as Andres mentioned, last year we were named Strategic Vendor of the Year. This year we were named Strategic Vendor of the Year by another customer. So I think we've got - we have the - I think we've got the wind behind us, what we need I think is just increased awareness of this market in the manufacturing distribution and services space. We obviously need the economy to cooperate a bit as well. And we don't need to have a big double dip recession. But we need a little bit of help from the economy and I think we've got I think a good tail wind behind us. Andres?

Yes, and we've seen even this year customers adopting this technology because of the volatility in the market. In needing to drive more business agility, being able to make changes faster on their pricing strategies, as well as drive more confidence to the sales force on when they recommended a price, does that price have high likelihood to win or not, and we're seeing those areas really help our customers navigate through these turbulent times. So, so far, we've seen customers are benefitting from using our technology in spite of the economy.

And that's helpful, thank you. And Charlie, can you just remind us, obviously the revenue recognition methodologies here smooth the revenue out over various period, but in terms of seasonality on the bookings, and the visibility you might already have into 2012, can you just remind us sort of how back end loaded the bookings are as opposed to how much visibility you already have built into 2012?

Yes, that's a great question, Tom. Historically there really hasn't been seasonality relative to bookings for the company. As we mentioned before, it varies from quarter to quarter and from year to year. One year, Q2 could be the best booking quarter, and the next year it could be Q3, another year it could be Q4. So we really don't have seasonality coming into play here. What we really focus on is the pipeline and the strength of the pipe, particularly relative to the high pipe, when we start thinking about the kind of guidance we gave as we go through the year.

Great. Helpful. Last one for me, just kind of given that lack of seasonality in the bookings. So as you have that visibility into next year's business, can you kind of repeat what you'd said about the hiring plans for the sales force for next year and maybe just provide some more detail into where you want to staff out those heads and what parts of the business?

Yes, what we said - we haven't given any numbers for next year, but for this year, what we had said is we're going from 19 to 28, we're on track to that, we're progressing very well towards that number. We're in the mid 20s, but we're getting very close to that number.

Okay.

We expect to add sales head count as well as other organizations next year.

Okay, Okay.

What we're trying to provide some insight into was - is the operating income expectations for next year, which gets to the question that's been asked earlier, are you planning on continuing to invest and the answer is yes, and that we're investing because of the market opportunity.

Great.

Really to extend our product leadership, all of the things that Andres mentioned. Increase our global reach and scale, and to accelerate awareness.

Great. Thank you, guys, I appreciate the detail.

Thank you.

Thank you.

Your next question comes from the line of Nabil Elsheshai with Pacific Crest Securities. Please proceed.

Hey, guys. Thank you for taking my questions. I don't think you answered this one earlier, but your services margins had a great quarter, they're back up to the first half of 2008. I was wondering if you could talk a little bit about the drivers of that there and the sustainability of that margin profile.

Yes, Nabil. This is Charlie. Yes, we're very pleased with the margins, at a little over 75% in the third quarter. You do get variability and it really depends upon the level of implementation services that are being provided in any one quarter relative to the license, and we've got lots of projects going on, so it's really - you can't infer too much from the 75 that this is a trend that's going to continue. That's one of the reasons why I specifically wanted to comment on the nine months being 74%, which is pretty comparable to last year's nine months of 74%.

We do see an opportunity for margin - gross margin expansion, we just want to be a bit patient about that. Let's get some more scale on the company, more top line revenue growth, and then we expect to see some gross margin improvements. But today our outlook is pretty much steady state as far as gross margin levels for the fourth quarter relative to the first nine months of this year.

Okay, and there's been no change in the amount that you're kind of subsidizing the right word, but, subcontracting out to partners to help them ramp versus previous quarters or last year.

No, I would say relative to the total revenue, no. No. We're hitting our targets in those areas, but no change.

Okay. So - switching to the Salesforce offering, I know you guys have talked about that as a SaaS mid market offering, but obviously Salesforce has some very big customers in various segments so - when you look at the leads in customers or prospects you talked to at the conference, does it still make sense to think of that as a mid market play or is it really potentially more of a broad SaaS play, and could be any sort of market segment?

So the price to profit component, it's purely only a mid market play and as we've talked about in the past, the Quote2Win, which is the quoting component of our Salesforce.com offering can work for the enterprise and we've seen interest in the enterprise market for that component and that natively integrates with our enterprise Pricing Solution Suite. So we designed it in a way that the Price2Profit midmarket component can power pricing for Quote2Win and the enterprise product can also power it for enterprise customers.

Okay.

But the Price2Profit is - has been designed purely for the mid-market in mind and we're seeing the majority - most of the interest if not all is mid market companies.

And then, historically, you guys have talked about targeting tuck-in acquisitions. You didn't mention it this call, is that still an area? Or have you kind of given up since it hasn't happened so far?

No we have not given up. No, not at all. Yes, it's an area we're very, very interested in. We've got a very disciplined approach to it. It's getting late for this year obviously, but don't exclude PROS doing an M&A, particularly as we go into 2012. And it may not even be too late for this year. But no, it's of interest to us Nabil.

Okay. And then last question, it's interesting with the headlines you wouldn't think international would be growing so strong relative to the US. On a year over year basis, US was a little bit softer, is that just kind of quarter to quarter noise or is there something going on in the US that is causing that slower growth?

No, I think it's more we've made significant investments also in our global reach and scalability. And so we've added headcount in Europe, specifically a lot of investment both on a go to market strategy from a sales and marketing and we're seeing good results from those investments.

Okay.

I would say that overall we're pleased with the performance of all regions.

Yes, all areas. Yes.

And all areas are performing well it's just we definitely - this was a year that we invested late last year and early this year invested a lot in Europe.

Yes, Okay. All right, great. Thank you guys for taking my questions.

Thank you, Nabil.

(Operator instructions). Your next question comes from the line of Ross MacMillan with Jefferies. Please proceed.

Thanks a lot. Congrats from me as well. So I had a question on just -as you look at the business that you signed this year and you think about the average deal sizes, have those remained very consistent with historic averages and I'm I guess particularly interested in deals that have been closed since let's say August when the world started to get incrementally kind of less sure?

No, they're consistent. It's that the overall average is they're consistent and you get some mix a little bit between whether or not travel is selling more O&D or less O&D. So net net, if you looked at it, overall for the company about the same, travel a little less, MD&S a little higher.

Okay, that's helpful. And then on your new hires, obviously you're running close - it looks like you're going to be on plan this year for this 50% uplift. I assume that your thought process is that the new hires will become as productive as the existing quota carrying heads, but I was curious as to get a sense for how long you think it takes for a hire to become fully productive?

Yes, what we've seen is six to nine months is on average the time it takes to ramp up and to have a productive sales rep. That's been our experience. Closer probably six, six to nine.

Yes.

Okay, that's helpful. And then I had a question on the - you've given us some metrics historically, customer revenue by segment, Charlie, did you have that as a percentage for Q3?

In the last call, but we really looked at the company as one company. We're really not providing metrics on an individual segment basis.

Okay.

But what I can say since we're kind of in the transition at this point is that I think we had said in the last call which is holding true is that last half of this year we expect the MD&S revenue to ramp much faster than the travel revenue for the company. Want to mention though that we look at our business, we measure our business as one company, we give that color, but I think going forward we really just want to be talking about the entire company. And everything's grown. I mean travel's up, MD&S is up, but the shift really is last half of the year its more MD&S revenue.

Yes, the shift is MD&S but our strategy and our focus is growth in all areas and we really value all parts of our business and are looking to expand strategic initiatives for growth in all areas.

See Ross, what we're doing is we're looking at bringing our products from what you may have thought of we all thought of traditionally as the pricing versus the revenue management. We're bringing them over to the revenue management side as well. So the lines are really blurry.

Okay. That's helpful. And then the head count growth this quarter, I think it was 40 incremental. That's a little bit - it's a lot higher certainly than last quarter. Was there anything in particular influencing that?

No, we've mentioned coming into Q3 we're a bit behind on our hiring. We've caught up a bit in Q3 and I think we're in good shape coming out of October to be pretty much on our plan for the full year.

Okay, great. Congratulations. That's all from me.

Thank you, Ross.

I would now like to turn the presentation back over to Mr. Andres Reiner for closing remarks.

We executed well in the third quarter and continued to deliver strong financial performance. While we are mindful of the current economic environment, our momentum remains strong. We are proud to have reached $100 million in annual revenue on a run rate basis, which is a reflection of the extraordinary passion, commitment and relentless focus on customer success by everyone at PROS.

Our investment in growth continues to drive near and long term opportunities. As a result, we believe PROS has never been stronger, and we are confident that our success year to date positions us well for Q4 and beyond.

We appreciate your participation in our call today and look forward to speaking with you next quarter.

Thank you and good bye.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.