Pros Holdings Inc (PRO) 2017 Q3 法說會逐字稿

Greetings. Welcome to the PROS Holdings Third Quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Stefan Schulz. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me on today's call is Andres Reiner, President and Chief Executive Officer.

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

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. Additional information concerning risks 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 pros.com. We encourage everyone to review this additional information.

Finally, I would like to point out that in addition to reporting financial results in accordance with generally accepted accounting principles or GAAP, PROS reports certain financial results as well as forward-looking guidance on a non-GAAP basis. A reconciliation of each non-GAAP measure to the most directly comparable GAAP measure to the extent available without unreasonable effort is available on the press release distributed earlier today and in the Investor Relations section of our website.

So with that, I will turn the call over to Andres.

Thank you, Stefan. Good afternoon, everyone, and thank you for joining us on our call.

I'd like to start today by congratulating our team on another strong quarter. We continue to execute well on our growth strategies, leading us to exceed the hind of guidance in total revenue, subscription revenue and non-GAAP profitability. These are incredible results that we achieved as many of our people were dealing with the effects of Hurricane Harvey. We'd like to thank all of you who reached out during that time. Your thoughts means a lot to us. Since several have asked how PROS affected by the storm, I'd like to cover this from both a people and a business standpoint before providing more general comments on the third quarter. Just over 10% of our 550 Houston-based employees were directly impacted by this storm. Our thoughts remain with those at PROS and our community who suffered the devastating effects from Harvey. Our team responded to Harvey with countless acts of kindness and charity. This speaks to the strong character of the people that make our business thrive.

So I'd like to share a small glimpse of what I've witnessed from our team. Our relief committee and employee groups led several recovery efforts. Teams organized drives to collect supplies for storm victims, provided temporary childcare on-site to help teammates transition back to work, and created a social site to connect employees to available resources or people spent time volunteering in the community, helping with everything from rescue efforts during the storm to housing cleanup and demolition after. As a company, we raised and donated close to $0.25 million to aid employees affected by the storm. Caring is core to our culture, and I'm so proud of our team for the heart they have shown in the wake of Harvey.

Our teams also executed flawlessly from an operation standpoint during the event and beyond. The investments we've made in the business continuity, disaster planning and our cloud strategy paid off. We were able to provide the services and support that our customers' employees have come to expect without interruption. And our crisis management team did an excellent job confirming that all employees were safe and able to get immediate assistance when needed.

Now I'll turn to provide more general comments on the quarter. As we approach the end of the year, we are pleased by the progress that we've made in our cloud strategy and the momentum that's created in our business. Recurrent revenue is now nearly 80% of our revenue mix, which is a key indicator of the success that we've had in transitioning our business. I'd like to share a few highlights to show how we're driving our transformation in hitting our stride as a cloud company.

First, our cloud solutions are making it easier for customers to start small, realize value quickly and expand. One example of this is Carlisle who joined us as a customer in Q3. Carlisle is making the shift to modern commerce in their construction materials division, which is just one of their business units. Carlisle plans to start by delivering dynamic prices to their sales team to help them enable a more personalized, frictionless buying experience. As customers like Carlisle start with a smaller footprint, it presents us with a great opportunity to show value and grow our partnership across the business.

We see several examples of this happening today as customers expand their solutions quarter after quarter. For example, Siemens has extended their solution in all 3 quarters of 2017. Since Siemens first became a customer, they have more than doubled their PROS user base and tripled the number of countries in their implementation scope. Customers, like Siemens, who continue to see value and buy more frequently, are contributing to the increase in our deal volume, which is up more than 30% in the first 9 months of the year. The second area that illustrates the strength of our cloud strategies are customers who are embracing our new modern commerce cloud innovations. I'm proud to say that in Q3, over 50% of our expansions were with customers who have been with us more than a decade. This is a great illustration of how our cloud innovations are helping us to deliver value in new ways to all of our customers. One example of this is Korean Air. Korean Air first partnered with us 16 years ago, and in the third quarter they committed to moving to the cloud as they deploy our full airline solutions suite, including PROS' fare search capabilities which came to us through Vayant. Customers like Korean Air have realized value with us over many years and recognize how our new innovations can accelerate their value creation.

Finally, we are taking our cloud implementation approach to the next level by delivering more of a modern commerce experience to our customers. Earlier this year, we launched our self-service delivery program called [Empower], enabling customers to be self-sufficient and drive their own implementations. In the third quarter, a medical supplies distributor went live with our full pricing PROS suite after just a few months by leveraging Empower . This customer was able to take ownership of their solution and start driving value from day one.

Underpinning our cloud transition and growth is our mission to help companies outperform by making the shift to modern commerce. In the airline space, we are expanding the definition of what's possible with modern commerce through our acquisition of Vayant. The market is embracing our vision, and we've already closed several deals in the first 2 months after acquiring Vayant. I'm proud of the incredible work our teams have done to bring our solutions together and take advantage of the large market opportunity.

As we look ahead, we believe we can continue to drive growth across our business by uniting our global sales team under the leadership of Tom Dziersk, who has joined us as Executive Vice President of Global Sales. I'm excited to work together with Tom to build upon the strong progress we've made in executing consistently and look forward to introducing more scale in our business under his leadership. We enter Q4 confident in our ability to accelerate our growth. We believe we have a tremendous market opportunity in front of us, and we have the right team, strategy and solutions in place to capitalize on it.

I look forward to a strong finish to 2017 as we deliver on our mission of helping companies make the shift to modern commerce.

With that, I'd like to turn the call over to Stefan to comment on our financials.

Thank you, Andres. Before covering our financials, I'd like to start by sharing a story about our team. As Andres mentioned, after making the decision to move our business to the cloud, we updated our crisis management and disaster recovery plan to prepare for the new challenges that we could face as a SaaS company. And I must admit, we didn't expect to put our plan to use so early in our life as a cloud company, but I'm happy to report that we executed on our plan incredibly well throughout the time Hurricane Harvey impacted the Houston area. A key part of our planning was to ensure that the availability of systems and applications to all of our employees wherever they might be. And I was surprised to learn just how many of our team members were engaged in our business during the disaster.

During the height of the flooding, and when our offices were closed, we actually maxed out on the number of available VPN connections, as hundreds of employees were accessing our systems from remote locations at the same time. This was happening as many of our employees were escaping the floodwaters or helping their neighbors. So not only were our systems available, but our employees were accessing the systems throughout the flood. In addition, we saw a number of employees in locations outside of Houston take on additional responsibilities, which helped us operate our business at a high level. It was a true team effort, and I'm proud to be part of a team that is passionate about supporting both our community and our customers.

Now moving on to the metrics. I'll first provide an update on our cloud transition goals. I'll then provide more details on our third quarter performance and our outlook for the remainder of the year, and I will finish by providing early thoughts for next year.

We continue to make progress on the subscription revenue, recurring revenue and free cash flow goals that we set early in our cloud transformation. We set a subscription revenue growth goal of 40% for 2017, and we remain ahead of pace for the third consecutive quarter on an organic basis, and we reported growth of 60% in subscription revenue for Q3 after including the results from Vayant. Our recurring revenue mix was 79% in Q3, up for the third consecutive quarter and tracking toward our long-term goal of better than 85%.

Our goal for free cash flow has been to break even in late 2017 and to cease burning cash in 2018. We continue to track to this goal and are guiding to cash generation in the fourth quarter. As we go forward, we remain committed to balancing our free cash flow goals with our revenue growth goals in order to take advantage of the significant opportunity that we see in the market.

Now for more details on our P&L results. Total revenue for the third quarter was $41.9 million, up 9% year-over-year and driven by strong subscription revenue of $15.8 million. The revenue contribution from Vayant in the third quarter was in line with our expectations. And as a reminder, we are not adjusting our results for any acquisition-related deferred revenue adjustment. The recurring portion of our deferred revenue was $78.2 million at the end of the quarter, up 32% year-over-year. Non-GAAP gross margins were 61% in the third quarter compared to 62% last year, and non-GAAP subscription margins came in at 56%, up slightly when compared to 55% last year. We incurred some onetime costs in the subscription cost of sales line item in the third quarter for data center migrations that muted some of the progress we have made in our subscription margins.

Now turning to free cash flow. Our free cash flow burn in the third quarter was $9.8 million. On our last call, I discussed 2 major investments that we plan to make in Q3, which were costs associated with integrating PROS and Vayant as well as an upfront payment tied to the restructuring of our primary cloud provider agreement. Both of these are onetime expenses that are included in this number and are large contributors to the relatively high burn rate. We also had some cash expenses associated with Hurricane Harvey in the quarter that put some added pressure on our cash burn.

Our cash balance in short-term investments at the end of the third quarter totaled $157.4 million.

Now I'll provide guidance for the fourth quarter and for the full year. We expect Q4 total revenue to be in the range of $44 million to $45 million, which is an 11% year-over-year increase at the midpoint. We expect subscription revenue for Q4 to be in the range of $17.5 million to $18 million, a 62% increase at the midpoint. And as we mentioned last quarter, we expect a noticeable increase in total revenue in subscription revenue in the fourth quarter, attributable to several customers beginning their subscription services with us late in the year. We're pleased to report that the majority of these customers are now live on their solutions, and we are already recognizing revenue from these services. We're also on track with delivery milestones for the few other implementations scheduled to go live this quarter. Note that this is not a onetime revenue benefit in the fourth quarter as the uplift in the fourth quarter will carry forward in the next year as well.

We expect our adjusted EBITDA loss for the fourth quarter to be in the range of $6.2 million to $6.7 million, and we anticipate a non-GAAP loss per share between $0.17 and $0.20 per share, based on an estimated 32 million basic shares outstanding. For the full year of 2017, we expect total revenue to be between $166.5 million and $167.5 million, which still represents a 9% increase over last year at the midpoint. We are raising our guidance for the full year subscription revenue by $1.5 million to $59 million to $59.5 million, an increase of 55% at the midpoint. We're also raising our ARR guidance to $156 million to $158 million due to the strong momentum that we're seeing in our cloud business.

And we are narrowing the range for our full year adjusted EBITDA guidance to $35 million to $35.5 million. As I mentioned earlier, we remain on pace to at least break even on free cash flow in the fourth quarter, but we are adjusting our expectations for the full year to an expected burn of $30 million to $33 million. This change primarily results from some of the onetime costs we are incurring as we migrate data centers.

As we approach our next fiscal year, I wanted to provide preliminary color on a few metrics for 2018. We anticipate our business will continue to accelerate with total revenue growing 10% to 12%. We expect that this growth will be driven again by our subscription revenue, which we anticipate will grow close to 50%. And finally, as I mentioned earlier, we expect to see at least a $30 million improvement in our free cash flow next year. Note that our cash burn is seasonally high in Q1, so we do not expect to be free cash flow positive in the first quarter of 2018.

Overall, we are pleased with our financial results for the third quarter and our outlook for the remainder of the year. We remain focused on driving growth, profitability and free cash flow, and we are committed to hitting our next major cloud transformation milestones. We look forward to a strong finish to the year as we carry out our mission of helping our customers outperform.

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

(Operator Instructions) Our first question is from Nandan Amladi from Deutsche Bank.

So as some of your airline customers begin to migrate to a cloud model, when do we start to see maintenance revenues maybe begin to be replaced by subscription revenues? I know you provide the total every quarter, but it'd be useful to understand when billings will become a true leading metric, and maybe separating the maintenance line from the billings line as we build our models.

Nandan, this is Stefan. So next year is when you're going to start to see more of the migration take place. That's when we're going to actually have more formalized programs around it. But I must add that there are and there have been some customers also in the airline space that have actually starting during those migrations. Andres mentioned Korean Air on his prepared remarks, and that is a situation where Korean wanted to make the migration before we actually had a dedicated program in place. So you will see more of that. And actually, we will talk more about what our programs look like when we have our Q4 call and give our guidance for the next year. As it relates to your question around billings, I think I understand what you're asking is, you're saying that we do provide recurring deferred revenue, and you're wanting us to break out the subscription and the maintenance. That's not something we've contemplated at this point in time, but it is something that we'll look into to see just how that behavior would look like in terms of the numbers and give you a little better indication of what's going on. I will add, though, that there is a little bit of complexity that goes with it, because one of the changes that 606 is making is that we will start to unbundle a little bit of our subscription business into license and maintenance. And that has to do with a lot of our term licenses. But that is -- that's one of the complexities that we'll have to work through if that's something that we do break out.

And a follow-up, if I might. Does the Vayant product have applicability in your B2B segment? Is that technology applicable, maybe not directly, but at least these parts that you could reconfigure?

Yes, Nandan, this is Andres. No, at this point I would say, the Vayant solution around merchandising and the flight search is really specialized towards the travel industry. So beyond airline, all type of travel but not as much to the B2B side of the business.

Our next question is from Scott Berg from Needham & Company.

I have 3. I'll start off with -- this is probably for Andres. You brought in a new Head of Sales in the quarter just a few weeks ago. Can you talk about that decision in terms of why this particular individual, why the timing now and maybe what you're looking out of this new position going forward?

Perfect. Thanks, Scott. So we've been executing on our cloud strategy for a little bit over 2 years. And I said during that process, I wanted to lead from the front. And I feel that we're hitting our strides really as a cloud company as we are selling over 95% of our deals in the cloud. We've gotten our packages defined, our sales motions defined, and it's really about scaling. So I think is the combination of having the great sales team that we have, and the improvements in execution that we've seen over the last 2 years, we felt -- and I particularly felt this is the right time to unify the sales organization under a new leader, and Tom really was a perfect fit. I think his background of leading companies of similar scale and being able to significantly grow them, I think, we align very close in the way that we think -- cultural fit. And I think it's going to help us continue to accelerate our growth. So we're really excited, and I'm personally very excited as well as the team.

Great. And then Andres, you mentioned that deal volume was up 30% year-to-date. I want to see if you could add some color to that commentary, maybe what you're seeing more in terms of airline versus some of the modern commerce or CPQ type theme. Just trying to understand where that volume is coming from specifically.

Yes, so the deal volume predominantly -- obviously, we're seeing good momentum in the travel business. And we're very pleased with how we're doing in travel and especially, the solutions around Vayant and how they've been accepted. But in the travel industry, deals tend to be large and deal volumes tend to not be as high. So a lot of the deal volume growth is predominantly driven by our B2B industry. And a lot of it -- I talked about this land motion. We are seeing smaller deals. We're also seeing a lot of expansion. So I also talked about Siemens, for example, who has expanded in the last 3 quarters. That's just one of the examples. I talked to another one last quarter as well. So we're seeing overall that the land motion and being able to expand in subsequent quarters working well and is leading to some of that deal growth. So we're very pleased with overall, the growth rates across the business both from a product perspective and a geography perspective as well. I would also say that all of the regions are performing well.

Got it. And then the last one, a quick one for Stefan. You gave some preliminary guidance for '18, about a 10% to 12% revenue growth level. It might be too early to talk about some of the composition of that number. But wanted to see if you have any additional color and thoughts on license revenues next year, how they are likely lower than this year's number, and maybe any thoughts on customer conversions into that growth number?

Yes, Scott. Yes, so, you're right. When we looked at the 10% to 12% growth in total, to your point, I did comment that subscription will be, again, the leader in driving that growth. And we think that will be close to 50%. What I can tell you is that we expect our services to be flattish to slightly up year-over-year. We expect our licenses will once again be less than half of what we had this year, which is a kind of a recurring theme that we've been talking about for the last couple of years as we have moved away from on-prem to SaaS sales. And then our maintenance, which kind of ties to your last point around migrations and what Nandan was talking about, our migrations will start to occur and that will help drive the maintenance number down. And I would tell you to think in terms of the upper single-digit decline in maintenance. And that's going to be mostly driven by the migrations. But while we're on this topic, there's couple of things I wanted to also add color on. And that is, these -- the guidance figures that I am -- or I shouldn't say the guidance, the color that we'll give -- we'll give guidance here in the end of this coming quarter, but the numbers that we're talking about are inclusive of the impacts of 606, the new revenue recognition standard. And as we've said all along, we didn't expect that 606 to have a significant impact on our business. And in total, it has a nominal impact, only a slight hit to the revenue number. But within the revenue, and I mentioned this when we were talking to Nandan here a minute ago, that there is going to be some pull away from the subscription number and then some put into our license and maintenance number. It's not a significant number, but it did have about a, call it a 4% to 5% increase or impact on our growth rate for subscription revenue. So our subscription revenue has been muted some degree by virtue of the 606 rule. So just wanted to clarify that we had incorporated that standard in the color that we're giving. And then one last thing. I also commented on free cash flow. And we do expect to see a significant improvement next year on our free cash flow number. I commented that we expect to see it better this year by about $30 million, which, when you look at this year's guidance of a $30 million to $33 million burn, that tells you we're going to be approaching a breakeven number which would be a significant move. And we're looking forward to achieving that goal.

Our next question is from Tim Klasell from Northland Securities.

This is Tyler Wood on for Tim. A quick one on the sales headcount. Where are you at with that tracking versus the additions that you laid out for the second half of the year? And then maybe a bit of color on how you see that ramping into '18?

Yes. So we are right now at 88 quota-carrying personnel. And that's tracking, I would say, a little bit lower than what we expected to exit Q3, and that was predominantly due to Harvey. We had a little bit of a delay in recruiting a couple of weeks delay. I would say that the expectation of what we added have already started at the beginning of this quarter. And we expect to end the year at about 95 quota-carrying personnel, which would be up from year-end last year about 25%. We feel very good about where we are and in helping drive the numbers for '18 in our preliminary outlook.

That's helpful. And then on the CPQ product, how much are you seeing Salesforce competing there? Are they are a bit down market on the low end? Are you seeing them showing up more often?

We do see Salesforce competing in this space and especially around the simple quoting capabilities. Those are the areas where we see them, but we do see them quite a bit in the market.

Our next question is from Chad Bennett from Craig-Hallum.

I guess, Stefan, can you -- I know you talked about Vayant being in line with expectations in the quarter. Can you specifically tell us what the revenue contribution was? And if it was more than just subscription, give us color there.

Yes, so it was only subscription that was recorded in the quarter from Vayant. And it was just over $1 million, which is kind of -- it's very consistent with what we laid out last quarter when we gave the guidance. So very consistent.

And then if I may ask, what are your expectations for this quarter for Vayant?

Well, we do expect to see Vayant grow. Obviously, we only had them for a portion of the year so -- a portion of the quarter, I should say. So as we expand that, we'll get an extra month, 1.5 months, something like that. So wouldn't surprise me if that number was close to being double.

Got it. Perfect. And then maybe another one for Stefan. On the subscription gross margins, I know you made some investments there, onetime investments. I guess the question would be kind of what type of improvement should we expect for the current quarter? And again, maybe you don't have all this detail, but is there an expectation of where you think that could exit maybe next year or any type of range that you could provide?

Yes, Chad, I'll provide more of that color when we do the -- when we do our guidance next quarter. And the reason for that is we're still in the middle of our planning exercise. And I just really today wanted to provide just some high level color on where we see the business going. But I can't answer your question about how we see those margins behaving over the next, call it, 90 to 180 days. These onetime costs really -- I call them migration, but it's really more of a consolidation. And as we have developed our cloud business, we have had some in-house data centers. We've had -- we did the new agreement with our cloud -- our major cloud provider this past quarter. And we have several other cloud providers and because of that major agreement that we just renegotiated, we made the decision that it was in our best interest to go ahead and consolidate as many as we could, including our internal data center, onto the selected data center that we have and provider. So we are in the middle of that. I would tell you that we should see a slight improvement in Q4. We will not be through all of that consolidation work. And the reason the cost is where it is, is because we are actually having, for a period time, 2 costs; one on the old, one on the new as we migrate over. But we'll start to see some of those migrate in this quarter. And then we'll see the rest migrate in the first part of 2018. So that's why I say you'll see a slight improvement in Q4, and then again, a slight improvement in Q1 as we make those migrations or consolidations happen.

Got it. Makes sense. And then maybe last one from me and then I'll hop off. Now that conversions are picking up especially into next year, the maintenance to SaaS dollar conversion, are we still thinking that's kind of 3 to 5x or kind of has that range changed at all from prior thinking? Are you seeing any different trends there?

Yes, I don't know about the 3 to 5x. So when we talked about a 2 to 3x, and really what we've said -- signaled is modeling more around the 2x side. It really does depend on the deals and which ones we migrate first in terms of how that's going to impact. Because in some cases, we might do a migration, and it's less than 2x because the compute requirements are relatively small. And we have few products where that's the case. In other instances, it could be over 3x because the compute requirements are rather high. But what we've historically said is think in terms of around 2 to 3x ultimately is what we think is going to happen, but in terms of modeling, we would recommend modeling around a 2x benefit.

Our next question is from Jackson Ader from JPMorgan.

The question from our side, how much -- so I understand the $1 million contribution from Vayant on subscription revenue. But how much did it contribute to the recurring deferred revenue balance in the quarter?

Yes, very little. Vayant's model is not one of billing upfront for a year and then renewing a year later. Vayant has a much, much quicker turnaround. It's more of a monthly/quarterly type of a program. So the deferred revenue's impact was very, very small.

Okay. Is there any plan to change their contract structures at all?

No, we like their model.

Sure. All right. And then, Andres, deal volume being up 30%. Can you give us any kind of color on maybe average sales prices? With landing more smaller deals, I would imagine that they're lower than they have been, but maybe deals that you've closed in previous quarters or like you're seeing with Siemens who's extending their deal each quarter in 2017, are you seeing the subscription revenue get back to where you were seeing the perpetual license revenue going back a couple of years ago?

Actually, I think -- so first on the average deal size. I would tell you that the change hasn't been significant to our average. We said it's been around the $400,000 ACV range. I would tell you that on the travel side, the ACVs are much higher. On the B2B side, you have variability. And what I would tell you is that there continues to be a widespread of variability around deal sizes and we may have some that are $50,000, $100,000, $200,000, just like we have $1 million-plus ACV deals, which allows companies to start small and continue to expand faster. We're going to disclose in the future a little bit more data around these expansions. But what I would tell you is that we're seeing faster ramp with expansions then under the traditional model that we had. Because you just have naturally a lot more momentum as you are ramping up, and Siemens is a perfect example of doubling their user account and tripling the number of countries deployed, because you start gaining the momentum and then you're able to expand rather rapidly in a seamless way. So we're very pleased with how the land and expand is working.

Jackson, are you there still?

Yes, sir. Yes.

This is Stefan. I was thinking about your question on the Vayant model. And I wanted to just give a little color on that. We -- while we do like the Vayant model and we have no intentions of changing it on a stand-alone basis, one of the key benefits of the acquisition was selling it together with some of the PRO solutions. And when we do that, like Andres mentioned, we actually did see a couple of those transactions in Q3. We will -- you'd typically go with the PROS model in that scenario. So as you see us do more consolidation of products and deals with our customers, which, like we said we saw in Q3, you'll see some of that being more annual. But on -- in terms of the Vayant business model and selling the products that Vayant sells, we're going to stick with the model that they have. So just a small point of clarification there.

Our next question is from Tom Roderick from Stifel.

Matt Van Vliet on for Tom. I guess, first question revolves around the Microsoft partnership and a lot of the go-to-market messaging that you have around that ecosystem seems to be much more front and center than maybe some of the Salesforce messaging. Just wanted to see a little bit of an update in terms of how you're positioning the product to be or to take advantage of growth at both companies, but then also how that go-to-market and overall product strategy has evolved, especially around Microsoft.

Yes, that's a great question. So our goal was predominantly to really support our customers globally. And I would tell you that we have customers that are on the Microsoft platform and are running Dynamics CRM and the Office tool suite. And we want to make sure that we have the best-in-class solutions for that market and that's what we've co-innovated with Microsoft both on the Azure Stack, the Cortana Analytics, Dynamics CRM online and other solutions to drive the best solution possible for those customers. We're also innovating significantly on the Salesforce platform. And the capabilities around integrating with Salesforce our full product capabilities just like we integrate with SAP and also investing significantly on the SAP integration front. So a lot of our strategy from a product perspective is ensuring that we are helping our customers get the most value of their technology landscape that they have currently and seamless integration with their CRM and ERP solutions on both fronts. On the Microsoft partnership, we're very excited about our strategic partnership globally. We continue to see a very strong momentum in co-selling in that particular market. We also see good strong momentum on the Salesforce ecosystem as well.

And then looking more at the SI partner community, how has the deal flow been going there? Maybe what kind of mix should we think about in terms of PROS-led deals that a partner comes in later on versus pitching them together, and then the SI source deals where they bring PROS into the mix later on in the process?

Yes. So we continue to have -- or SI program around our SI partners like Accenture, Deloitte, Capgemini. And we continue to have them participate in approximately 30% of our deals. And that continues to be a very important part of our growth strategy, especially around different geographies and different industries.

This concludes the question-and-answer session. I'd like to turn the floor back over to management for any closing comments.

Thank you for your participation in today's call. We are confident in our ability to end the year on a strong note as the market continues to embrace our modern commerce solutions. I would like to thank our incredible people at PROS for continuing to exemplify our core values of innovation, ownership and caring. I would also like to thank our customers, partners and shareholders for your continued support. We look forward to speaking with you on our next call. Thank you, and goodbye.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.