Pivotree Inc

XTSX:PVT

Earnings Call Transcript 2022-Q3

[Dennis Fong;LodeRock Advisors]

Before we begin, Pivotree would like to remind listeners that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements.

For more information on the risks, uncertainties and assumptions related to the forward-looking statements, please refer to Pivotree's public filings, which are available on SEDAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they're not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including for reconciliations to the nearest IFRS measures. Now I'd like to turn the call over to Pivotree's CEO, Bill Di Nardo.

[William Di Nardo, executive]

Where do I start. I noticed that Robert Young already has his hand up, I wonder if there's something we need to check with them on before we get started. His hand is down so maybe it was an accident. All right. Well, welcome, everyone. And thank you, Dennis. Thanks for joining us for our third quarter 2020 conference call. Joining me this morning is Meng Shao, our Chief Financial Officer. I'm pleased to be sharing another really strong quarter for Pivotree. Once again, we came in ahead of consensus on all of our key measures. This was possible because of the strong efforts of our global team of pivoters.

Our BUs are staying close to our customers to solve critical business challenges, and this is allowing us to drive growth and performance even in an increasingly volatile macroeconomic environment that we all keep reading about. This structure is evolving. So we've made some changes in how we operate this quarter, and I'm going to cover a bit of that today. But I believe our model will continue to serve us well as we execute on growth first, but also finding that balance with greater profitability that we've been talking about for the last couple of quarters and again, you've now seen clear signs of the efforts we're making to achieve those profitability goals.

Now revenue for the third quarter came in pretty close to $25 million, our second highest quarterly output this year. It represents 54% year-over-year growth. Organic growth was approximately 9% with year-over-year growth in both non-recurring and recurring revenue. Constant currency was around 6% so our Q3 was based on a 1.3% average on the exchange. There could still be some upside in this. We do expect to see a drop, but Q4 last year was 1.26, and you all know what the fourth quarter has been tracking to so again, there's still a little bit of currency upside.

We like to think about the business more on a constant currency basis, though. Our recurring revenues were up modestly in the last few quarters coming in closer to 45% of total revenue in Q3. Some of that is due to the fact that customers are looking to extend life of their current digital commerce platforms. We've highlighted in the past, we expected a continuous slow roll off, it's been a little slower and some of that I think you can attribute to people's concerns about the state of the economy, not starting or slowing down major initiatives and as a result, extending the life of some of those platforms. It's also not uncommon to see a lift in Q3 and Q4. That's our holiday season lift, it's still a big part of our business. Again, folks ramping up to do some of their peak periods in and around, in fact, this week.

We're also benefiting from a tailwind, right? The U.S. dollar is obviously affecting our revenue because both our bookings and 85% of our revenues are in U.S. dollars. As our BUs have settled in, and we've talked a lot about this, our business units, and that's the core business units of commerce, of supply chain and of data. There's been a new level of consistency and scale that we've now demonstrated in those 3 quarters. And our year-to-date revenues are pacing we're about $75.5 million, and we're set to really break the $100 million by the end of the fiscal year based on our current run rate. So BUs are doing well, driving good revenue growth. And as a result, we're going to have the kind of year we expected.

Now looking at our bookings trend, which has always been a pretty good indicator of what comes right after. We had our record in Q1. We saw the impact on Q2's revenues. The third quarter saw record bookings again, 19.2 million, slightly above our previous record. This was a result of strong contributions across all 3 business units, but data management has clearly been leading the way. A lot of the business that's coming our way this year has been on the project side, makes up about 96% of our total bookings. But the strategic conversations we're having with our customers is deepening our relationships across multiple categories, and it is setting the pathway for more products and services in these accounts. I'm going to talk a little bit more about that for a second.

Most of the increase we saw in MRR this past quarter was driven by seasonal volumes, and this shows up in the sequential increase of MRR. But it's not captured in bookings because again, remember, we don't count bookings of renewals, so we've seen a nice, steady pacing of our recurring revenue. The leading indicator that's giving me some confidence, and I mentioned it in my CEO letters, we're currently tracking to 1/3 of all of our PS customers or professional service customers. They're consuming managed services. Now that's up almost 50%, it's a good leading indicator for us that our professional service clients are starting to attach those managed services that we expected. The other leading indicator that we're starting to see is that more of our customers are buying multiple categories from us. So our BUs are selling together more frequently, and we're coming out of the gate now more frequently with a combined service offering.

So again, the strategy of 3 strong BUs, combined with an attach rate on managed services is playing out. The lagging indicator will eventually become the MRR, but we're seeing good leading indicators telling us where we continue to be on the right track with our strategy. Now in prior quarters, I talked about how our organization had reached a new cadence level for bookings. We've seen this play out now. Our average quarterly bookings pace last year was approximately $11 million, $9.3 million before acquisitions. We're currently facing to approximately $17 million in bookings per quarter this year, which is a 54% increase from 2021. Now I know everybody would love to know what the bookings are this quarter, we’ll find out soon enough, but we continue to have a strong pipeline, we continue to close at or above our current pace.

So we remain optimistic that we're going to be at or above average on our bookings for the coming quarters. Don't be surprised again if we continue to get some exceedingly strong quarters because we're seeing demand. We're also being cautiously optimistic. We know that all the signs around inflation and recession are real. And so again, these are leading indicators. The key for us will be converting those bookings into revenue. Again, on top of that, growing our product and recurring revenue business remains a primary, and that's one of the key reasons why we made some of the changes we made in the quarter to how we run the business. So, let's talk a little bit about that.

We've talked in the past about 4 business units: the fourth being digital solutions, and it was effectively shared service running underneath each. We've chosen to streamline our business and how we operate and become more efficient by focusing on the 3 customer-facing business units. That's the supply chain, that's the commerce, that's the data. Our colleagues in India are using expressions [indiscernible], which is basically doing more with less and this is really in that theme. There's other meanings of Jugaad that we don't ascribe to but the key here really is about getting more from our business units, which are closer to our customers and better able to understand their challenges, the products that will help solve those challenges but they're also in a better position to commercialize these new products as they come out.

So really, this is about trying to drive more practical innovation by having employees closest to the problems in our customers being responsible for developing those new products and commercializing them. We have to do better with the rate of progress in products. Some of the things we've been doing, were taking longer, some of them just weren't in our opinion, driven by enough consumer or customer insight. And even since the change, we've already started to see progress in some of those areas where the BUs are taking much more responsibility for commercializing efforts, and we're starting to see attach rates in areas we weren't seeing before. So we feel good about those changes.

We've also eliminated some duplication and leadership. We've got plenty of leadership in each of the BUs, and they control a lot of the required resources, including sales folks to get focused on the products, where the digital solutions team just didn't have control of the customer as much. This doesn't require as much collaboration, there's a lot more control of where the products go. Again, we gained client intimacy, and we really empower the teams to find practical and more efficient innovative solutions. So that was the biggest change this quarter. You saw it did result in some people changes. It does have a customer, or sorry, an employee impact and a cost impact. But most importantly, we do believe that we're going to be able to take those dollars saved and redeploy some of those again, into accelerating these products even faster. So, our leading indicators told us we needed more relevant client insights, we've actioned that. And we've also freed up more dollars to invest in future growth.

We're very excited about some of the specific initiatives that we've shared in the past. Data as a service, which is based on Dive and Natalie, 2 of our automation tools. Again, some of the way you'll see this manifest is in accelerating revenue, improved revenue per employee in those groups and eventually, you'll see recurring revenue, but the nature of the work we do for customers with software assist is very much like recurring revenue. They're driving disruptive outcomes and that group, in particular, doubled their revenue this year, so with the help of some of the automation.

So again, a lot of good things happening. Every one of our really core product initiatives already has revenue and customers that are informing us what we're doing now is putting more money [indiscernible] their development their acceleration into new customers. WMS is the same way. We see enormous opportunity converting that [indiscernible] product into a Software as a Service, cloud-first headless solution, and we're in mid-flight on that. More than 20% of the core functionality from the legacy software has been converted to a microservice format. Now that 20% of functionality probably represents more value in terms of the baseline features than the 20% would capture. But the important message here is we're making significant progress converting that to a product in the future. In terms of the current business environment, commerce still remains our biggest BU with the highest percent of recurring revenue, primarily managed services but, this has been a transition year for commerce. They've successfully ramped up pipeline in the next-generation platforms.

You've heard us talk about the [ Sprikers ], the commerce tools, pushing more of the VTEX and we see that pipeline expecting to translate into stronger bookings in 2023. This is an example of an area where we've seen delays due to macroeconomic impacts. We have legacy customers staying longer, but we've also seen a number of projects in commerce get approval and directional approval, but effectively, the budgets are only going to be released in 2023. So again, commerce is turning around this year. We see a lot of upside in it in 2023.

Our data team has scaled up quite quickly and is expected to grow significantly in 2023. This team is a complete management leadership structure, just like our other BU, strong partners, excellent bookings in pipeline, and they're going to benefit greatly from the investments we're making in those automation tools. Again, supply chain developing and delivering consistent results. We acquired them in Q3. We landed several new renewals and extensions, and we think we've got a terrific product that we're building out together now.

So again, this is a smaller business unit with lots of upside given how important supply chain is particularly going into this new economic climate. So we've really put some emphasis on strengthening those BUs. We've shifted corporate spend down closer to the business units and become more efficient at a corporate level and a lot of these steps are driving the outcomes that we're projecting into 2023, and you also start to see some of the impact in Q4.

So again, overall, really excited probably the other important thing that we've hinted that now, and I mentioned a moment ago, but over 70% of our customers are managed service customers. And I think it's important for folks to remember that. 40% are professional service customers. That means there's an overlap between the two, and importantly, from our estimation, the 50% increase in penetration from the professional service customers into managed services is demonstrating the strategy is working.

Mo is going to discuss the financials in more detail but as I shared in my Q2 update, I'm reducing the emphasis on a solely growth metrics to provide a more balanced view of profitable growth. We've been consistently growing revenue and gross profit as well as revenue per share, gross profit per share, which are key measures we look at as a management team.

What I think is worth pointing out here is with onetime restructuring charges in Q3, we expect to see $1 million per quarter of savings. But understand that we may reinvest some of that in 2023 as growth still remains a priority. On the left chart, the yellow bars showing adjusted OpEx improved in Q3 versus Q2, that will improve further as a result of the changes we've just made. Now this, combined with a solid revenue outlook gives us confidence we're moving towards that sustainable positive adjusted EBITDA posture, we said we would for 2023.

And again, I think people are hearing our message and I think the state of the market today is we don't buy stories, we buy results and as a result, again, I would say keep watching Q4, we'll provide further evidence and I think 2023, we've set the foundations for consistency. I think it's important to know because I've talked about this a lot in the past, from an acquisition perspective, we're going to remain disciplined in how we allocate capital. We continue to build a healthy pipeline of targets. We've taken a number of targets to LOI stages but we haven't successfully closed any deals to this point.

While I expected to see the gap between public and private valuations close, it hasn't as much as I would have expected by now. It does seem like private equity, especially focused in technology private equity is staying in the sector and is forcing competition and we're seeing valuations that are still exceeding the kind of multiples you would find in the public so, that puts some pressure on us. We will not break from our strategy around these businesses that we acquire have to be key growth areas for us. And there's some in particular that we would really like to get done. Make no mistake, we are motivated to get something done in the space for long-term strategic reasons.

We know what great deals can do for us like the Codifyd and Bridge transactions have done. So we continue to look for great opportunities. They have to be growing, they have to meet strategic requirements, their gross margins have to be above 40%. And particularly in today's environment, they have to be demonstrating positive cash flow. Look, there's lots that have elements of each and I'll tell you the ones that have all of those tend to be pricier. So what we're really looking at are which ones excel above the others and are worthy of pursuit and even potentially paying a modest premium to get, but we won't pay premiums on average businesses. So this ultimately has to cross our IRR hurdle and has to demonstrate it's a better return on our precious capital versus buying our own stock, which at the current multiples is, in my opinion, the best investment available to us today.

So it may take another quarter or 2 for private valuations to come more in line and talking with some of my CEO peers, they're all seeing the same thing, so this is not uncommon. I think we are starting to see indications, particularly with raising interest rates in the way PE likes to use leverage in their acquisitions. We may start to see a cooling off in Q1 or Q2. And I want to make sure we've got dry powder where we can do great deals. Ultimately, crossing over to EBITDA and ultimately cash flow positive is a really critical milestone for us. It gives us the control of our destiny. It gives us the capital we need to continue to invest. So this continues to be Mo my priority with the team, is grow, grow profitably cross over cash flow and get control of our destiny. So I think we're tracking well on all these fronts.

We want to continue to remind folks, we're disciplined operators and we're cautiously optimistic about what the future holds based on current pipelines, current bookings and the current tailwinds. So with that, let me turn it over to Mo and provide you a bit of an overview on financial performance.

[Moataz Ashoor, executive]

Great. Thanks, Bill. So we'll go to the next slide. So as Bill noted, more than 85% of our revenues are U.S. dollar based. So we benefited from the currency tailwinds. Revenue for the third quarter grew 54% year-on-year and 49% in constant currency. Now if you look at the organic growth, 8.5%, professional services grew 6% and pleased to report that managed services grew 10.4% organically as new bookings, particularly in data management, supply chain helped to more than offset the Oracle churn.

On a sequential basis, we delivered a recurring revenue increase by approximately $400,000 driven by the seasonal consumption that Bill was mentioning from the patterns of our commerce customers. On a year-over-year basis, while net revenue retention was 88%, we're more excited to see this more than offset by the managed service growth through some of the expansions of our PS customers into MS as well that Bill was alluding to.

As we have stated before, future churn and melt of Oracle services can still be a bit lumpy. We benefited from some of the delays this year, and there could be quarters where client migrations could have a bigger impact on our MRR. So, moving on to the P&L. Gross profit margins of 44.9% for the third quarter improved from 44.5% from the prior year. This overall improvement is the result of disciplined management of our cost of goods sold and employee utilization as prior year also included some investments in ramping up our bench. Thus, the 45% gross margin in Q3 represents sequential improvements over prior quarter as well, which we normalized last quarter during the earnings call to be 44% due to some of the onetime benefits we had.

Total operating expense of $15.2 million increased by $4.7 million from prior year period and was up from 14.7% in Q2 of 2022. However, if we look at the main expense line items, G&A, sales and marketing, R&D and our IT and ops, our total operating expense was $0.5 million less in Q3 than it was in the latest quarter of Q2 of this year.

Adjusted EBITDA was negative $0.4 million and EBITDA was negative $1.8 million. Now the difference between the two was mainly due to the actions we took to streamline our activities under the BUs, which is the main contributor of the $1.1 million restructuring expense represented here. As Bill said, we expect these actions to result in $1 million of quarterly OpEx savings with some of the benefits starting in Q4 and supporting our objective for balanced profitability going into 2023. We will reinvest some of the savings towards our most important growth initiatives while managing to a positive cash flow.

Adjusted free cash flow improved by $0.5 million from the prior year period. In our discussion of the earnings results last quarter, I want to highlight that we pointed out some of the onetime benefits and the gains that we normalize for, that would have delivered $1 million EBITDA loss in Q2 of 2022. So with this in mind, the $400,000, 0.4% EBITDA loss or $0.7 million, excluding the FX in Q3 represents a sequential improvement despite lower top line revenue, which is a result of the work we started to position Pivotree for sustainable positive EBITDA and going into 2023, a target we remain on track and committed to.

Now we turn to the balance sheet, you'll see the primary use of cash from operations in Q3. That was the result of accounts receivables increasing, and we expect to collect that over this quarter. We are trending to a positive direction in terms of our cash flow generation. We've also continuously communicated our own discipline of generating positive EBITDA before we consider using a $25 million undrawn credit facility, which will help us support investments in future acquisitions. Managing our growth investments and producing positive cash flow is our priority, and we have sufficient capital to take advantage of investment opportunities that we see in the market.

I'll turn it back to Bill now for a closing sign.

[William Di Nardo, executive]

Thanks, Mo. So as we position ourselves for 2023, we're going to be focused on profitable growth. We've said that for much of this year, again, [indiscernible] it's prudent that a business size is demonstrating profitability growth. M&A is still a priority. Pipeline is strong, but we're going to be patient and careful to move forward in the right situations. Again, we have a balance sheet that's capable of getting some deals done. Not knowing how long the capital markets are going to be the way they are, we're going to be extremely judicious in the way that we roll that capital out so we're looking for really high-quality deals and that means we have to go through a lot of deals to find good ones. Now we've got a number of them, let's see if we can push them across the finish line. But again, I’m in some respects, waiting to see the markets cool off down in the privates in order to really give us permission to get moving here.

We're going to continue to manage expectations and are waiting to see what kind of impact the recession will have so at this point, we have not seen much of an impact. Customers do view what we do as necessary and continue to buy. It's worth noting that we have many retail customers, and they often have their fiscal year ends in January, February. If adjustments to their budgets are going to come to light, it's probably going to come after this critical period so we may not see exactly what kind of impact we're going to feel until we really know what kind of quarter our customers have. and we'll see some of that start to refresh in April.

So we've got a really good line of sight again for Q4, obviously, we're part way through that now so my optimism for Q4 is well founded. We've got good line of sight into Q1. I think as we stretch further into Q2 of 2023, that visibility starts to get a little murky and again, we'll wait to see how this quarter ends for our customers. The good news again is we've got a fairly diversified customer base now across the different business units. They all have different types of customers they're servicing. Again, they remain very large enterprise, many of them global reach and the kind of size and diversity, I think, does lend itself to continued spend and investment in this digital transformation.

So look, in summary, Q3 was another solid quarter. Consistent execution performance. I think we've done a good job being pretty clear on what's coming, and we've been able to manage expectations in the market effectively and deliver. The strong bookings and pipeline additions suggest that our marketplace continues to benefit from those long-term tailwinds. And the macroeconomic headwinds that we've been reading about, again, they are headwinds, we've got to be cognizant of them, but we haven't seen their impact on us yet. So since Q1 and Q2, we've been taking measures and measured steps to get better control of our destiny and relying on our own ability to produce cash. You saw evidence in this quarter, we've taken even more significant steps, which is going to lead to $1 million per quarter of savings.

There's other things that are being worked on that will continue to improve the efficiency by which we run the business. And we've got some key product development initiatives that are starting to demonstrate traction that we're going to invest more into. So overall, I think we're executing on the plan that we said we would. We've delivered consistent results now for a number of quarters and our heads are down, and we're running the business and to be candid, we're not paying too much attention to what's happening in the capital markets today because a lot of that is out of our control. So we hope you share the perspective on our results and now I think we'll turn it over to the analysts for some questions.

[Dennis Fong;LodeRock Advisors]

Thanks, Bill. [Operator Instructions] Our first question comes from Daniel Rosenberg from Paradigm Capital.

[Daniel Rosenberg, analyst]

My first question was around the bookings. It was nice to see the growth in the bookings number. I was just curious to understand how far out do the bookings go? How much visibility is in that pipeline in terms of start dates when that converts to revenue?

[William Di Nardo, executive]

I'm sure between Mo and I, we can give you a little bit of color on that that helps. So look, a number of the contracts that were signed this quarter were very large. Some of the biggest we've ever signed, and they're going to extend for multiple quarters would be my estimation, but they will be all kind of in-year revenue. They started, so, a lot of these have started already. Some of these, particularly when you get into the bigger clients, it just takes longer to get some of the signatures, but the start dates become really critical so we've been ramping up gearing for those and some of those are starting already. So, I'd say a significant portion of these will start to hit in Q4 on top of the benefit of what we signed last quarter, which again gives us confidence Q4 is going to look a lot like what you've seen from us in the past. Mo, any additional color you want to add for Daniel?

[Moataz Ashoor, executive]

Yes. I mean, largely, and you saw, obviously, it's on the non-recurring booking was strong and those typically start converting fairly quickly and some of these were active and were running. It's just now signing the next phase or the next portion of the road map. So fairly quickly, there's some larger deals that are 12-month deals in there so it kind of gives you a sense of the timeline it would take to convert as well.

[William Di Nardo, executive]

I think the only thing I'd add to it, and that's a good point, Mo’s bringing up around the professional services, they can ramp up fairly quickly. A number of these contracts also have managed services and recurring components and those generally, we're finding are coming after a phase or 2 of the PS. so the recurring portion of some of these could be a couple of quarters out. They don't tend to start quite as quickly.

[Daniel Rosenberg, analyst]

And then around the pricing of recurring revenue. I was just curious to hear because everybody is battling with inflation. If you had any pricing escalators or fees tied to inflation-related costing as customers renew on recurring revenue.

[William Di Nardo, executive]

Yes, Daniel, at a time like this and knowing some of the challenges our customer face we do our best to price to market, and we do our best to maintain strong relationships with customers and so I can tell you, there is pricing elasticity in some parts of the business and where there's pricing elasticity we've been increasing price. Where there's price elasticity or yes, price elasticity we've been a little bit more cautious about how we raise prices. And again, part of this is we're looking for efficiencies in the way we run our business in order to have to place less emphasis on price increases to drive our top line.

So again, we're looking to win customers with value of work and again, as we shift away, frankly, from dollars per hour in PS and more solutions and outcomes, we can expand margin, we can drive more value for customers and ultimately, the trifecta is when the customer perceives a cost saving, and we can do all of that more efficiently for them with expanding margins on our end. That's the real win. So, I think it's more around how to manage the outcome than it is about specifically a price increase.

[Daniel Rosenberg, analyst]

Lastly for me, it seems like data management continues to fire on all cylinders. I was curious to hear in terms of kind of capacity and resources, obviously, you're investing in that business. But what's the potential you see there? Does it require a significant investment as you look towards the next year's demand?

[William Di Nardo, executive]

Yes, it's a great question, and it's one of regular conversation internally. The demand is very high. And in fact, I think we're kind of getting to the point where that team is saying without the software enhancements that we're working on the only way we could expand is by adding more bodies and they're skilled bodies that are defined. So, a big part of the investment in the software initiative that started this year is to create more capacity. You've heard me talk about this a lot. This team has bought into this whole heartedly.

This is about revenue per employee, and software automation creates leverage in this category. Our machine learning tools, some of our data ingestion and the automation around that creates more capacity for our skilled employees so, the goal this year really is to strengthen the software component in order to add more capacity to an excellent skilled team. We've also got some programs running, particularly in India to bring on more staff but parts of this business doubled last year. This team feels like those same businesses could triple or quadruple with the right kind of software in hand so we're making progress on it. There's a lot of emphasis on unlocking growth in this group because there is definitely no shortage of demand.

[Dennis Fong;LodeRock Advisors]

Our next question is from Jesse Pytlak from Cormark Securities.

[Jesse Pytlak, analyst]

Bill, really encouraged by kind of the commentary on seeing that conversion of MS by some of your PS customers. I guess maybe first, can you just talk about what areas of MS are you seeing the strongest interest in from this conversion of the PS base?

[William Di Nardo, executive]

Look, data for sure, is seeing more of the customers converting to managed services and again, the commitment from the GM in that group is the attach rates so he is using more of our available technology, he's driving penetration in some of the software components. Look, I think part of what you're seeing and why we wanted to flag that leading indicators, we're seeing the attach rate. The revenues attached to some of the early managed services are not the same kind of revenue per employee you'd see on the Oracle, right?

So we're seeing a slow wind down of very big, large, complex, expensive managed services and what you're seeing are some new managed services, managed application services, some of our integration services being delivered as a service. So what you're seeing right now is the attach rate. You're seeing customers that want to buy that solution and what we're expecting over time is as more of those attach rates, again, penetrate deeper into those projects, the revenue will fall behind it. So it will start to catch up on the recurring. But data is definitely leading the way.

Again, a lot of our supply chain business is managed service and license and support in the recurring side so we acquired some good stuff in there. We've been investing more to accelerate that product conversion, and we think that's another one. We've had a number of good wins recently in multi-BU where one of the components is our recurring supply chain services so it's across the board, but from a materiality perspective, I'd say data is driving it at the moment.

[Jesse Pytlak, analyst]

Okay. That's helpful. And maybe this is a bit more difficult to try to answer, but can you just give us a sense of like within that converted base, like how deeply penetrated are you? Like how much of your MS services are these PS customers really picking up? I would probably think it's price still maybe low percentage if you want to think about it that way. But maybe can you just help us conceptualize that?

[William Di Nardo, executive]

It's 30% of our PS customers, right? So again, 40% of our customers have PS from us. 30% of them have managed services. And so I'll go back to one of the numbers I shared earlier, 70% of our customer base are buy managed services, right? So our penetration is deep. The recurring is not necessarily reflecting the bigger trend and I think, again, as people have been asking, well, when are you going to turn a corner? I mean the reality is we never left.

Again, [indiscernible] customers buy managed services. It's just the value of work we're doing in PS and the demand is so high right now on the PS side, it's overshadowing the recurring part of the revenues that's coming from those MS. Again, we'll see the MRR follow. But for me, the penetration of managed services is the best leading indicator and it continues to be central to our business.

[Jesse Pytlak, analyst]

I appreciate that. I think I was asking more in regards to…of your total MS offering, how many different products will these converts be taking up.

[William Di Nardo, executive]

Okay. You're talking about sort of multi-category. Again, some of the leading indicators, we're talking about how to best share that with folks. But Mo, you've been pulling more of that with Pete lately. Any insights you can give Jesse on multi-category managed services?

[Moataz Ashoor, executive]

Yes. It's obviously a key metric of ours for the BU strategies it's not to build 3 individual BUs it's to build solutions. I mean we're seeing more and more of our customers and our structure this year, also taking a conversation of where experts from all 3 BUs are sitting at the table with our customers, and we've been able to close some cross-sell wins that offer services across the different the BUs.

So we've seen indications those are leading indicators, those are good solid brands. But we've seen at least about 10 logos that are leveraging multiple BUs and a pipeline that continues to grow where the discussion is not about just a specific BU product, but it's about a solution that integrates and crosses across the multiple BUs. So we can, again, drive a solution that's integrated solves a business problem and leverages our products from across the different BUs in our offerings.

[William Di Nardo, executive]

It's timely because this quarter was actually a big quarter for us of go live on a couple of customers in particular, where they were multiple categories. In one case, it was an existing customer that added the second in supply chain. And in fact, again, it was a little bit of a trifecta, we had a third customer, probably our single biggest new logo earning win and contract win this year, and it was a multi-category, two of the categories, commerce and data, and they're already talking to us about a third. So, we're seeing the evidence, Jesse. I think it's probably still not a reportable metric, but something we'll continue to give you some color on that progress.

But that's the theme. I know some of you asked me in the past, does success look like standing up 3 individual business units and selling them off in the future and you know my answer was no, that's failure. Failure is 3 great BUs that stand-alone success are 3 BUs that our customers treat as one company. And I think we're seeing the evidence the BUs themselves, another reason why we took down digital solutions, the BUs are behaving as one Pivotree. We find the GMs out co-selling a lot now together and so those are all good leading indicators.

[Dennis Fong;LodeRock Advisors]

Our next question comes from Robert Young from Canaccord Genuity.

[Robert Young, analyst]

I guess maybe the first question, if you can hear me, okay, would be a high level one. The organic growth, 8.5% in the quarter. Just curious, just at a high level, like how do you see that relative to where you expect the business to be in the near term? How does that compare? What are the things that would be drivers of higher organic growth?

[William Di Nardo, executive]

Yes. Look, this is something that we've got to figure out a better way to communicate, Robert, because I think what we're looking at is net growth, right? And you all know because we've talked about it openly for 18 months now that there's some drag on it. So our actual organic growth on key growth areas is quite a bit higher than the net 10 you're seeing. So really, ultimately, what's going to drive higher net 10 is that as that long tail lines off and becomes less and less important, you'll start to see the true organic growth of the business, which is, again, a fair bit higher than what we're able to report to you on a net basis. So again, my optimism remains. The teams are producing great growth and as soon as that revenue mix relies less on some of the legacy businesses, you as a market, will get a clearer view of just how aggressively our team is growing their business organically.

[Robert Young, analyst]

Right. And when you say that, that's the net of the lower legacy managed services, the roll off...

[William Di Nardo, executive]

And Oracle.

[Robert Young, analyst]

Okay. And then in the prepared remarks, I think you said that the key focus will be converting bookings to revenue. And so what are the key things there as well? Just at a high level, like what are the key things to get bookings into revenue that you worry about? I think you suggested that Q4 is going to be a good bookings quarter. And then what about the conversion to revenue?

[William Di Nardo, executive]

I think all you're getting from me on that, Robert, is history. So having lived through the pandemic and having seen what panic can do for folks at the end of the day, until it converts to revenue, bookings is just the leading indicator, right? And that's really all you're getting for me is cautious optimism that people are signing contracts, contracts are just a piece of paper, then we have to convert it to revenue and then we have to collect it and so I think all I'm really reflecting on Robert is, look, we're in uncertain times. We all sense it.

We see the news constantly and so while I'm optimistic that the paperwork gets signed, I've got the team to deliver the work. Again, until you actually see the money in the bank account, I think we all need to be cautious about what the leading indicators tell us. So we make sure we're staffed up, we make sure we get started. Maybe the most important thing for me, Robert, that we talk about as a team internally, we have to demonstrate value.

Each of those contracts needs to prove value to customer, for them to continue doing the work and paying for the work. And I think that's the greatest indication of whether you're going to convert not just bookings to revenue, but revenue to cash, is that the value you're delivering warrants it. In my experience over 20 years with various investments in businesses, the most vital and important businesses even get paid through bankruptcies. And those are the best quality companies, right, you're so important, you get paid no matter what's going on around you. And I think we've got to blend of that.

I think there's a bunch of stuff we do for customers that would keep us getting paid in areas, you saw that though the pandemic. Our MRR grew because it's absolutely critical. Same is still true today. The MRR we're doing right now. These are stores that run billions of dollars through them. No matter what happens, those stores got to keep running. And that's all I'm really talking about. We've got great bookings. We've started work on many of them. We have to demonstrate value like everybody else in this economy in order for that to keep going. And that's all it really is, there's nothing darker than that about it.

[Robert Young, analyst]

Great color. Certainly appreciate your conservative nature on those sort of things. Some of the retailers, not that I have my thumb on that pulse, but you probably better have a better one, but they seem to be saying that it's going to be a more normal holiday period, which I think means that it's going to be more back-end loaded after the Black Friday period, so does that mean that Q4 may see some lockdowns? Or maybe just talk about what you normally see in Q4, the cadence of the business? And then if this year looks like it's going to be something different?

[William Di Nardo, executive]

Yes. Look, I think what's been interesting for the last couple of years is we haven't had a normal in a while and so we're trying to figure out what the new normal is going to look like and I think what we started experiencing, particularly through the pandemic were supply chain issues more than anything else. People's e-commerce sites could take billions of dollars of orders, but the supply chain couldn't support it. So you started to also see spreading out this notion of a crazy Black Friday became the Cyber Week, which has become the lead up to Black Fridays so I'm sure each of you as consumers have all experienced the promotional periods and the promotional deals started earlier.

All of that really is an attempt in retail, in particular, to spread out that spike of this season over a longer period of time to be able to manage the supply chain more effectively. So again, as a result, I think we saw an early ramp-up, we saw servers getting put in place. We saw added capacity start early as has been the case for a number of years now. We're on high alert because we're heading into what is normally again a peak period but I haven't seen anything unusual this year. I haven't seen folks feeling like this -- I've been hearing about people talk about online records this year.

Again, I think the reason for that is their stores are open. People are trying to get back out and experience other people so there's a real blend this year, I think a true complete blend of full stores back operating plus online. And as a result, maybe not quite the same pressure there's been in the past for the online stores to do it all. I think this is going to be perhaps a benchmark year for us on what new normal looks like and to start to grow again from new normal. The only, I think, red flag in all of it is what is the expected economics of the next year going to do to demand and I think this is where retailers are telling you this is still a wait and see. I haven't seen any early indicators of the preliminary sales to know how the promotions have done and what people think they're pacing to. But for many of our customers, this is the quarter, and we're probably a week away from having a good sense for how strong the quarter is going to be.

Any other questions? I noticed we didn't hear from John Shao. But if we don't have other questions, Dennis, we're happy to go back to business.

[Dennis Fong;LodeRock Advisors]

Yes. It doesn't look like we have any other questions. So I'll turn it over to you to close.

[William Di Nardo, executive]

Okay. Thanks, everyone, for showing up. It's always a pleasure to share great results that our team has produced. Again, I'm extremely proud of this group to deliver the kind of results we delivered in this quarter on top of managing some of the changes we manage. This team adapts relentlessly, which is why I have the utmost confidence that they'll adapt as they need to in the coming years. We've got a great team, we've got some terrific customers, we do work that's necessary, and I think has long, long tailwinds. So I hope to continue coming quarter-over-quarter, giving you good news about the business. So thanks again for joining us. Stay tuned, and we'll talk to you in the new year about what I expect to be a great Q4.