Pluralsight Inc
Q3 2018 Earnings Call Transcript

Published: 25 Oct 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q3 2018 Pluralsight Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Director of Investor Relations, Mark McReynolds. Sir, you may begin.

[Mark McReynolds:]

Thank you, Ermani. Good afternoon, and welcome to Pluralsight’s Third Quarter 2018 Earnings Conference Call. With us today are Aaron Skonnard, Co-founder and CEO and James Budge, CFO. Some of our remarks today will include forward-looking statements within the meaning of the Federal Securities laws. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our final prospectus filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events, except as required by law. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release. The press release is available on our website at investors.pluralsight.com. And with that, I'll turn the call over to Aaron.

[Aaron Skonnard:]

Thanks Mark. Good afternoon, everyone, and thanks for joining us for our Q3 earnings call. We continue to see strong momentum across our business in the third quarter and achieved our sixth consecutive quarter of greater than 50% growth in B2B billings. We continue to invest across our business, while demonstrating the inherent levers to profitability on our model. Gross operating and cash flow margins improved significantly year-over-year. Our teams continue to execute with strong focus and commitment to customer success as demonstrated by our dollar-based net retention rate reaching 127%. Our platform gets tech leaders unprecedented insights into the skills gaps across their organizations, and we provide the tools to close them, enabling enterprises to accelerate innovation. We had a lot of exciting accomplishments in Q3. Let's start by looking at the numbers. James?

[James Budge:]

Thanks, Aaron. Before we dig into the numbers, I’d like to note that except for revenue, balance sheet amounts, cash flow from operations and billings, all financial amounts I discuss are non-GAAP and growth rates are compared to the prior year comparable period unless otherwise stated. New customer acquisition combined with strong expansion within our existing customers drove Q3 billings growth of 44% to $72.2 million and revenue growth of 42% to $61.6 million. Our B2B billings increased by 53% to $61.1 million, our sixth consecutive quarter of greater than 50% growth. In addition, our B2C billings increased by 10% to $11.1 million, which is the highest growth rate we have seen in our B2C business this year. Our land and expand strategy continues to be successful as evidenced by the growing number of customers with larger deal sizes. For the trailing 12 months, the number of customers with annual billings greater than $100,000 increased by 79%. In Q3, our B2B business represented 85% of our total billings, up from 80% in Q3 last year. And our B2B dollar-based net retention grew to a 127%, up from a 117% at the end of 2017. Our gross margin was 77%, up from 75% and we see a clear path to further improving gross margins. Our operating costs in dollars increased year-over-year as planned, but decreased as a percentage of revenue. We plan to continue investing in our go-to-market initiatives and innovation and also expect to see continued improvement in our operating margin. Net loss per share in Q3 was $0.10, a significant improvement over our net loss per share in Q3 last year of $0.39. We saw a significant improvement in operating cash flow with positive $1.9 million in Q3, compared to negative $6.9 million last year. Free cash flow was negative $900,000 in the quarter compared to negative $8.8 million last year. Our improving earnings per share and cash flows are strong indicators of the operational efficiencies we are leveraging in our business as we grow. We closed the quarter with cash of $208.6 million and our on balance sheet backlog is expressed by our deferred revenue was $139.2 million as of September 30, up 58%. Turning now to guidance. For Q4 2018, we expect revenue to be in the range of $65 million to $66 million, an increase of 38% at the midpoint of the range compared to Q4 last year. We expect Q4 net loss per share to be in the range of $0.09 to $0.10, assuming weighted-average shares outstanding of approximately $133 million. For the full-year 2018, we are increasing our expected revenue range to $230 million to $231 million, an increase of 38% at the midpoint of the range compared to 2017. Also, we are improving our expected 2018 net loss per share range to $0.60 to $0.63, assuming weighted-average shares outstanding of approximately $101 million. As we look forward to 2019, we have completed our preliminary assessment of the new revenue standard ASC 606, which will be effective for us on January 1, 2019. We are adopting the standard using the modified retrospective method, which will result in adjustments to our revenues and expenses from the day of adoption forward. As a result of this adoption method, no historical financial statement amounts will be restated. We believe the new revenue standard will have an insignificant impact on our revenues in 2019, but will impact sales commission expense. Under 606, we will capitalized commissions and recognize the expense over the estimated period of benefit. And as a result, we expect effective capitalizing commissions to result in a decrease in sales and marketing expense in 2019. Important to note here that 606 will have no impact on cash flows. The only material impact will be to our income statement, which will impact our 2019 EPS estimates. At our Investor Day at PS LIVE in August, we provided preliminary guidance for 2019. And given the results of Q3 and our outlook for Q4, we feel even more confident going into 2019. As a result, we are raising our 2019 revenue range to now be $295 million to $310 million. The impact on EPS from the increased revenue range coupled with the impact of 606 on reduced sale commission expense, results in improving our net loss per share range to $0.26 to $0.34 in 2019, assuming weighted-average shares outstanding of approximately a $138 million. And with that, I’d like to turn the call back over to Aaron. Aaron?

[Aaron Skonnard:]

Thanks James for sharing the results of our outstanding third quarter. Now let me share more contexts behind what's driving this performance. Large enterprises continue to embrace Pluralsight as the key partner to avoid disruption and advance innovation within their companies. As an indicator of our ability to significantly expand in our customer base, billings from our top 25 customers for the last 12 months increased by approximately 18 times from the billings we generated from those same customers in the year of their initial purchase. This has helped lead to our strong and growing retention rate of 127%. In addition to expansion, we also saw a strong performance in net new business during the quarter, as demonstrated by nearly 700 new business customer wins. These included a Fortune 100 Multinational Consumer Goods Corporation, a Fortune 100 Multinational Computer Technology Corporation, a Fortune 500 International Business and Technology Consulting Firm, a Fortune 100 Chemical Company, a Big Five Canadian Bank, and a Fortune 1000 Online Investment Platform. These new customer wins demonstrate that our platform works for any industry at scale. The combination of our acquisition of new customers and our ability to expand within our customer base resulted in a record third quarter for Pluralsight. Another key element of our go-to-market strategy is our partnerships with strategic technology companies. In Q3, we continue to strengthen our partnerships with Microsoft and Google. At Pluralsight LIVE and Microsoft Ignite, we unveil three Role IQs in collaboration with Microsoft Azure. These roles included, Azure Developer, Azure Solution Architect, and Azure Administrator. By the end of 2018, we will have over 130 courses and 20 skill assessments tied to these three roles for Azure’s cloud ecosystem. Our enterprise customers depend on Pluralsight as the place to go for skill development on Azure. Our reskilling work with Google in India has impacted more than 100,000 professionals. Inspired by the program in India, Google is expanding the partnership to Africa, where we will be launching another reskilling effort in Q4. Additionally, we are excited to announce that in Q3 we signed an agreement to partner with Oracle. We seek to partner with all of the largest technology companies that face the skills gaps challenge in the ecosystems they serve around the world. Our enterprise customers continue to experience strong value in our platform and I'd like to share a few examples. From one of the largest broadcasting and cable companies in the world, cybersecurity is a major focus. This customer uses Pluralsight to learn skills necessary to prevent cybersecurity vulnerabilities. The skills gained from our platform helps them understand the vulnerabilities they face and to strengthen their security strategies. A senior architect at the company shared with us that 95% of his cybersecurity knowledge comes from Pluralsight. All industries are navigating through digital transformation. Financial services in particular are turning more and more to technology as a core part of their future strategies. For example, a Fortune 100 Multinational Financial Services Corporation has been a customer Pluralsight for the last few years. This customer sees Pluralsight as a great way to accelerate learning for their product engineers. And over the last few years, they have expanded from an initial two dozen license pilot to now over 3,000 licenses. A Fortune 100 Consumer Retail Company uses Pluralsight to upskill and to reskill their technology organization to lead their market in innovation while providing an exceptional customer and employee experience. The use of our platform has led to a shorter new hire on boarding process and as allowing teams to quickly become more productive and more efficient. They're also exploring our Pluralsight can help to find career path for employees to drive individual professional growth and long-term success at the organization. All three of these customer examples demonstrate how Pluralsight can help any company from any industry become a tech company in the future. In July, Forrester Research published, How To Grow Your Internal Tech Talent, a case study on health care technology company, Cerner, and the strategy they’re implementing to develop their technology talent internally. Featured in a case study is that Cerner leveraged our platform to scale learning initiatives. The research states that has the pace of change in business and technology accelerates our firms ability to grow its own talent will increasingly distinguish industry leaders from laggards. Forrester recommends investing in a first rate tech learning platform and cited how using Pluralsight helped forms Cerner's foundation. The case study states that relying on recruitment for new skill is an expensive and unsustainable strategy and suggested that tech leaders need to rely on upskilling their current talent rather than relying on recruiters to find new talent. In partnership with Pluralsight, Cerner has now developed a proven system for developing tech skills at scale. In August, we welcome more than a 2,500 tech leaders, learners, and Pluralsight authors from around the world to join us at Pluralsight LIVE, our second annual user conference in Salt Lake City. Customers and prospects alike heard how companies such as T-mobile and Target are using Pluralsight to advance their technology strategies, and as a result, their business, competitive advantage, and bottom line. We also held our Annual Author Summit at Pluralsight LIVE, and continue to see increasing advocacy and commitments from our author community. I was honored to have Malala, the world’s youngest Nobel Prize laureate on stage with me talking about the importance of education for girls and women around the world. At Pluralsight LIVE, we launched Role IQ. The newest member of the Pluralsight IQ family, Role IQ builds on Iris and Skill IQ to give our customers a groundbreaking new way to measure proficiency in a role like a Node.js web developer or a security analyst, with Role IQ customers measures the collection of skills that make up their role. Technologists find greater clarity on the skills required for job success and a clear path to mastery through our platform that adapts to their current skill level and accelerates their learning journey. After assessing all the skills within a given role, Iris calculates the user's Role IQ, a measurement of proficiency across all major skills relative to other professionals within that same role. Like Skill IQ, we have made the Role IQ experience accessible that anyone and a large amount of data we collect is helping enterprises to diagnose their skill gaps and build the roles needed to execute their strategies. In Q3, we launched hands-on learning with interactive courses and project. Interactive courses are a great way to start learning a new technology. They include video tutorials and in-browser coding challenges with guided feedback. Projects enable users to practice and apply what they learned in their local developer environment. The addition of hands-on learning provides for a complete learning journey on the platform. We also launched a new annual B2C premium plan for $449 this quarter. Premium includes all personal plan features as well as certification practice exams, interactive courses and project. Role IQ interactive courses and projects have and will continue to increase adoption and usage of our platform across the enterprise, all of which improves retention and unit economics. Turning now to Pluralsight One, we achieved a number of key milestones over the course of Q3. Chief among them, the announcement of Pluralsight One’s inaugural suite of products. The product suite was developed in response to a global needs assessment, and includes two product offerings curated for the global non-profit community, as well as a set of solutions designed for the K-12 education sector. In addition to the non-profit and K-12 offerings, we entered into partnerships with code.org and the Computer Science Teachers Association to scale solution to computer science educators and learners nationally and globally. Together, we are focusing on deepening opportunities for girls and underrepresented minorities to access computer science education and continue their technology skills development beyond the classroom. To close, we are proud of the strong financial results we delivered in Q3. A big thanks to all our customers, our shareholders, our authors and our team members for your continued support. And with that, I'll turn the call back over to the operator for some Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Saket Kalia with Barclays Capital. Your line is now open.

[Saket Kalia:]

Hi, guys. Thanks for taking my questions here.

[Aaron Skonnard:]

Yes. You bet.

[Saket Kalia:]

Aaron, maybe for you. We've seen the revenue retention rate continue to do nicely, and I think one of the drivers for that is the enterprise customers really moving up to that higher end enterprise SKU. I think we've said that more analytics are really the –one of the bigger value drivers here. But can you go one level deeper into what are some of the biggest point of value that customers are getting when they upgrade to that enterprise SKU?

[Aaron Skonnard:]

Absolutely. One of the biggest drivers to the value in the enterprise SKU is clearly the advanced analytics we provide which you've noted. In addition to that with the new capabilities of Role IQ, interactive courses and projects, we can now demonstrate for those technology leaders the outcomes that are being created through the investment in our platform. With Role IQ they can now – they receive a set of manager controls that allows them to create custom roles within their organization, and they only get this with the enterprise SKU. Once they define those roles, then we can map the Skill IQ data we have within their organization onto those roles and highlight for them the skills gaps that exists across their organization and even individual teams. With that, we can then give them the capability to create curated objective-driven channels, learning paths, if you will, that can hit those exact learning needs where the gaps exist. So the combination of all those capabilities along with the additional analytics, we can serve up around interactive courses and projects which shows the application of the knowledge, it’s what’s creating that lift into the enterprise SKU.

[Saket Kalia:]

Got it. That's super helpful. Maybe a follow-up for you James. We're going through a seasonally strong Q4 given the enterprise sales motion in B2B, can you just talk about qualitatively how the big deal pipeline looks next quarter and sort of how you've contemplated that into the guide for Q4?

[James Budge:]

Yes, sure. I’d say a short punchy answers, it feels great. And to give you a more detail, I’d say, we generally don't plan for big whales to come in. They do from time to time. We're doing several seven figure deals at any given quarter. But our expectations in any given quarter are not dependent on that. They come in, they're gravy over the top or they fill a gap somewhere else. But in general to use the overused baseball analogy, we're hitting singles and doubles and an occasional triple, and then once or twice during the quarter, we'll hit a home run. And that's how we plan out our fourth quarter and we see – what we saw in the third quarter, we don't see anything different on that in the fourth quarter, still plenty of really great opportunities for us.

[Saket Kalia:]

Got it. Very helpful. Thanks, guys.

[James Budge:]

You bet.

[Operator:]

Thank you. And our next question comes from Sterling Auty with JPMorgan. Your line is now open.

[James Budge:]

Hi, Sterling.

[Sterling Auty:]

Yes, thanks. Hi, guys. I just want to follow-on on kind of pricing question – line of question. So help us think about it this way, how much tailwind is still left as perhaps we see further migration to that higher-priced SKU as enterprises renew or maybe just – how much shift do you see upon renewal of existing customers that they bump up to get that higher-priced SKU?

[James Budge:]

Yes. Again, thanks Sterling. I'll take that one. Just as a reminder, we rolled out our enterprise SKU at the beginning of the year after some really strong products announcements in 2017. Most of our new opportunities in the enterprise line of business for us are coming in on the enterprise SKUs where most of our new customers want to come in. And then, we still have a big part of the enterprise business that is on a professional SKU that is gradually migrating as they come up for renewal just as you mentioned. In total, about 40% of our enterprise business has migrated over to the enterprise SKU, both new and renewals. And as a further reminder, our enterprise business is about half of our B2B business. The other half, the professional SKU is still mostly on the professional SKU. A few of them have adopted enterprise because they like some of the capabilities that Aaron just mentioned. And when you blend the two together, when you look at the entirety of the B2B business, about 20% to 25% is now on the enterprise SKU, so we still see a tremendous amount of runway to come.

[Sterling Auty:]

All right, sounds good. And one follow-up, how would you kind of characterize where you are in the ramping of the productivity of sales reps and where are you in terms of your hiring plans?

[James Budge:]

Yes, I'd say – thanks for that, I'd say we feel really good. I think if you and I'm sure you guys – some of you will do that this evening if you look deeper into the numbers, you'll see that our sales and marketing as a percentage of revenue went from 64% in Q2 down to 60% in Q3. So we're seeing some of the economies of scale that we've talked about in past conferences and earnings calls. If you look at the growth in sales and marketing from Q3 of last year to Q3 of this year, it grew 29% as compared to the 53% we just saw in B2B billings. If you look at total OpEx, our total OpEx also only grew around 30% compared to overall growth in the business and billings at 44%. So across the Board, we’re starting to see some of those efficiencies that we've talked about in past discussions and they really came out in a big way in the third quarter, and we expect to see that continue through the fourth quarter. While our EPS in the fourth quarter is about the same as the third quarter, given we have a lot of expenses in the fourth quarter, given such a big billings quarter for us. From a cash flow perspective, we expect to be cash flow positive, again, in the fourth quarter just like we were in the third quarter.

[Sterling Auty:]

Thanks, guys.

[Aaron Skonnard:]

Yes, thank you.

[James Budge:]

You bet.

[Operator:]

Thank you. And our next question comes from Brian Essex with Morgan Stanley. Your line is now open.

[Brian Essex:]

Hi, good afternoon and congratulation on the results, and thanks for the taking the question. James, I was wondering if I can ask maybe on the gross margin side. In terms of author fees, where are you running right now? And how much more running room do you have to expand margins by adjusting the fees to authors, how do we think about that?

[James Budge:]

Yes, you may ask that question. Thanks for asking. I'll remind you that some of what we said in the script here, we went from 2017 – the prepared remarks from 75% to 77%. Still the biggest and for the foreseeable future, the biggest elements of our cost of goods sold are the author fees as you know well. We continue to pay outsized checks to our authors, and as an aggregate group, they continue to make a lot more money in 2018 than they did in 2017 than they did in 2017. So we're delighted that we're continuing to share large amounts of our rev with our authors. And as an overall percentage of our business it continues to come down. And we see a path to 80% gross margin target model, and our target model over the next few years, we expect to hit that.

[Brian Essex:]

Is there an element in that that's kind of a situation where you make it up on volume in terms of the fees are coming down, but the volume going over the platform is much higher and that's building a competitive advantage for you guys in the market?

[Aaron Skonnard:]

Yes, it is, Brian. Look, in the end, there is a virtuous cycle here around this aspect of our business. And the more authors we bring in, the more content that produce, the more value we create for our customers, the more they spend, the more they expand, that's what you see in the net retention number continuing to grow at 127%. And that gives us just a bigger total number of dollars to then share back out with the authors. And the number of authors is not rising nearly as quickly as the total dollars we have to share back with them. And that's what creates the leverage you're pointing to.

[Brian Essex:]

Got it. That’s super helpful. And maybe if I can squeeze one in on OpEx, as you guys build out in your headquarters, how should we anticipate the impact to operating expenses? And are you going to kind of commit to expansion from this point forward based on the expansion that you have planned in the business?

[James Budge:]

Yes, thanks. So included in our 2019 numbers is an element of increased expense for the new office. We'll start having some increased expense related to that in 2019 that's embedded in there. Just if you have a question around CapEx, we'll probably put roughly around $30 million is our portion of the CapEx that goes into the campus. About half of that will come in the second half of 2019 and about half of that will come in the first half of 2020 before we move in. But embedded in our 2019 numbers and sort of implicit in what our 2020 numbers – 2020 numbers would ramp-up to is the effect of that rent increase that we'll have.

[Brian Essex:]

Got it. That’s helpful. Thank you very much.

[Operator:]

Thank you. And our next question comes from Brad Sills with Bank of America. Your line is now open.

[Bradley Sills:]

Hey guys. Thanks for taking my question. You, obviously, had great results here across the board. The renewal net revenue retention was strong, but you're also commenting on new deal sizes are growing. What would you attribute that to? Is it just these enterprise reps that you've hired over the last several quarters really hitting their stride and closing some of these bigger and more complex deals? Awareness of the category, what would you attribute that result to?

[Aaron Skonnard:]

Yes. I'd attribute it to all the things you're mentioning there. We're definitely sitting within a megatrend that we see happened across the entire industry where every company is committing to becoming more of a tech company, and they're also facing this massive tech skills gap. Our solution fits right into that space as a scalable platform that can solve that problem for them. So as we show up to new businesses, and as I've been traveling around myself visiting with the large Fortune 500 C-level execs, we're showing up and getting above the power line immediately with the CIO, the CTO, and that is happening because of our enterprise account executives, who are joining the team, who have been joining the team over the last two years with that experience and with that capability. So you got the trend, you've got the talent, and you have product market set that is working. That's incredibly compelling for these customers. And we're seeing the land become much bigger as a result of that. The conversations are very strategic in nature and long-term focused. And that's changing what you're seeing in the $100k-plus deals from the get go. In addition to that, we're continuing to see strong bottoms-up expansion, the land and expand notion that we build this business on is continuing to end up in the same place. So we have both of those notions happening concurrently and is producing powerful results.

[Bradley Sills:]

That’s great. Thanks. And one more, if I may, please. With regard to these partnerships, Azure, Google, Oracle, obviously, there is a certification element to it which is a real positive. But are these vendors providing any go-to-market resources? Are you going to market together? Are they helping you drive awareness?

[Aaron Skonnard:]

Yes, absolutely. So the nature of the relationship is we work with them strategically to co-author the content that's going to be most effective for developing the skills within their ecosystem. Then we package that upon our platform through our experience, with our analytics and then the partner takes it into their ecosystem. So they are building brand awareness for Pluralsight in that process to your point, and all of that is driving an increased demand generation back into our core business, one of the main reasons why we love those partnerships.

[Bradley Sills:]

That’s great. Thanks Aaron.

[Aaron Skonnard:]

Thanks Brad.

[James Budge:]

You bet.

[Operator:]

Thank you. And our next question comes from Brian Peterson with Raymond James. Your line is now open.

[Aaron Skonnard:]

Hey, Brian.

[Brian Peterson:]

Hi, gentlemen. Thanks for taking the question, and congrats on the strong results. James, just first on the 606 impact, I just want to make sure I heard this correctly. But I thought you said that sales and marketing would be down next year. I don't know if that's just the 606 impact or you're just talking or would that be on absolute basis? I just want to make sure we're clear on what the 606 impact will be in 2019.

[James Budge:]

Yes, so short answer again is, yes. The range we gave before at our Investor Day was $0.30 to $0.38 as far as the range of EPS outcomes in 2019. And we have taken it down to $0.26 to $0.34. So the midpoint of that range has come down $0.04 and what you can think about is about one of those pennies came from the strengths and results that we've now expect in 2019 from that increase of revenue that we just built up and the other $0.03 coming from the impact of 606 that comes from that reduced sales expense that is up in the P&L.

[Brian Peterson:]

Got it and just maybe on the international business or I guess outside of the U.S. and the UK, it looks like growth there accelerated 10 points versus the last quarter. Any sense for what's driving that improvement? Thanks guys.

[James Budge:]

Well, I'll jump in on that one. I think the last couple of quarters, we talked about a pretty heavy investment we’ve talked, we put into Dublin, we’ve built to serve all of our EMEA needs additional to with the field reps we already had existing in the UK and throughout Europe. But specific to Dublin, we secured an office at the beginning of the year, planted our first few employees there and we're up to around 70 people now. And these are business development reps that are creating opportunities for our sales reps there, commercial reps that are dialing for opportunities and there are people to get on planes to go close business in addition to the enterprise reps we have out in the field. So that's probably the biggest – for it, and it gives us a lot of conviction around where else we can go. We're going to continue to expand in EMEA. We're going to continue to grow in other countries like Canada, Australia, New Zealand. We think these are just great opportunities with big markets, with markets that we understand, speak the same language and there's a lot of low hanging fruit in those areas that we're going to go chase over the next 18 to 24 months.

[Brian Peterson:]

Got it. Thanks guys.

[James Budge:]

Thank you.

[Operator:]

Thank you. And our next question comes from Terry Tillman with SunTrust Bank. Your line is now open.

[Terry Tillman:]

Hey. Good afternoon, gentlemen. Nice job on the quarter.

[James Budge:]

Thanks.

[Terry Tillman:]

After all that preamble, I've got a couple of questions. So maybe first question Aaron, the idea of co-authoring content, that's powerful and these are really big tech behemoth. So it seems like that's very useful. Also, they help influence business, but actually driving revenue. Maybe either you or James, maybe talk about how much the channel or the tech partners are driving revenue? And going forward is the expectation there's more opportunities with the key wins you have now or should we start seeing this kind of expand into other relationships beyond like an Oracle? Just trying to understand more from the same or more of an expansion going forward and then broadening out?

[Aaron Skonnard:]

I’ll let James start talking about the channel mechanics and then I'll pile on in the end. Go ahead, James.

[James Budge:]

Yes, I’ll say collectively as a group, they're contributing north of $10 million of billings to us in a year. A big chunk of that right now because our most tenured partner is Microsoft, but Google is coming up quickly, and we just started out with Oracle here, and there's some other small partnerships that we haven't spent a lot of energy talking about, but they're also contributing good money and good opportunities and good legions for us. So we love all our partners. And Aaron's remarks, he talked about how they're really expanding the ecosystem for us. Some of our partners will use us for some of their internal skills development on top of the ecosystem they're trying to build around us as well. So there's a number of different ways we get paid, not all partners exactly the same. But in the end, we love all our partners equally, and they're doing great things as far driving business in our direction.

[Aaron Skonnard:]

And the way we construct these partnership allows us plenty of upside in each of those learners that we're touching. So we construct the partnership very intentionally to provide value into the learner that's been touched in the ecosystem, while still providing Pluralsight and our ongoing go-to-market conversion opportunity into the core products, into an ongoing enterprise relationship for years and years to come and that's naturally how we see these things play out. We see strong conversion rates from all the individuals we're touching through those partnerships into B2C and into B2B for those individuals who usually carry us into their companies as a proponent, as a champion and then that's where our whole B2B motion kicks in and that's where we get that big expansion opportunity in the years ahead.

[Terry Tillman:]

Okay. And thank you for that. My second question is just related to the recent results suggest the B2C business is differently inflecting and doing better. The tone is pretty constructive or very constructive at the Analyst Day around kind of the opportunities around B2C. But going forward as we move into 2019, could we expect the B2C revenue stream to continue accelerating or improving? Thank you.

[James Budge:]

Yes, I'd say focusing on the world could, yes, it could. I would probably encourage you to continue to model in the high single digits, if that's where your model – where you've chosen to model that's about how you think of it. But certainly, the elements are there just like we saw a double-digit growth in this quarter in Q3, we definitely see opportunities for that to continue. But from a conservative modeling perspective, we probably at least in the way we model for ourselves is still in the mid to high single-digits.

[Aaron Skonnard:]

And a big reason for that is we're actively working on our B2C2B conversion muscle and the more that improves, the more it works against the B2C growth over time.

[Terry Tillman:]

Okay. Thank you.

[Operator:]

Thank you. And our next question comes from Scott Berg with Needham & Company. Your line is now open.

[Aaron Skonnard:]

Hey Scott.

[Ryan MacDonald:]

Good morning or good afternoon, gentlemen. Yes, it's Ryan MacDonald on for Scott Berg. Just a quick question on Role IQ. You talked about the launch of that at PS LIVE. Just wondering what kind of feedback you’re getting from customers thus far and how that functionality is resonating with them? And then perhaps, while it's still early, what are you starting to see, I guess, from that – from a pipeline perspective or how that's impacting the pipeline, if at all?

[Aaron Skonnard:]

Yes, it's been a tremendous launch for us. It's been about a month since we announced it and launched it on stage at Pluralsight LIVE in September. And the immediate reaction has been very promising. This is clearly a feature that enterprises need to be able to measure and ultimately expose the skills gaps within their organizations, without this feature it's not possible. It's what also produces the adaptive personalized experience for every individual on the platform. And then the data we can surface up to the CTO, the CIO, the head of product, the head of engineering is clearly valuable to them. That's what we're hearing in all the conversations. Since the launch – like, actually at Pluralsight LIVE, I sat in over a dozen C-level conversations with key customers of ours and the excitement around this feature was palpable. They see it as a very strategic feature for them. And since then, I've been on the road visiting customers with our CRO and Nate, my Head of Experience, Head of Product and Content has been out, just got back from a week in Europe. And the reaction we're seeing is consistent and clear. So very promising and encouraging for the business.

[Ryan MacDonald:]

Great. That’s it for me. Congrats again on the quarter.

[Aaron Skonnard:]

Thanks Ryan.

[Operator:]

Thank you. And our next question comes from Corey Greendale with First Analysis. Your line is now open.

[Corey Greendale:]

Thank you. Hey, good afternoon. Congratulations. So first of all, obviously, it's very clear things are going well across the board. The market overall is responding as if something is off. I'm not sure I know what is going on in the markets, but Aaron I just thought it would be helpful to – in so far as they may be some concern about the economic environment since you – we're in this business in like 2008, EBITDA is different in 2008, 2009, but maybe just give us a sense of what you expect to happen if there were an economic slowdown?

[Aaron Skonnard:]

Okay, good. So you're not asking me to comment on what's happening in the market itself?

[Corey Greendale:]

Well that will be great.

[Aaron Skonnard:]

I don't think we have any unique perspective there. It's not good right now. The thing you’re right, I have been in this business for almost a couple of decades now and I've been through a few economic slowdowns and cycles. And one of the thing that was interesting about 2008 specifically is we had just launched the Pluralsight cloud offering. We called it Pluralsight on-demand at that time. That was right in the inflection point as we were shifting from classroom training to the cloud based model. And the economic slowdown actually spurred and ignited the growth of our cloud based business, because one of the first things that gets cut, especially in the Fortune 500 is the travel budget, it's the T&E. So they can't travel to courses and they can't bring people to teach courses. And also just the high ticket price item is very noticeable to the CFO. And so it's very easy to cut and it also wasn't positioned nearly as strategically as our holistic platform. So on my prediction looking into the future is on those moments in time when we face these economic challenges, people start asking the questions on when it actually shakes them into thinking differently about if they should be spending their resources and funds on classroom training as opposed to a more modern cloud-based model.

[Corey Greendale:]

Excellent, very helpful.

[Aaron Skonnard:]

Our advantage over time.

[Corey Greendale:]

Good, great. That is very helpful. And then my second question is, I think of you as the rare SaaS company that can serve everything from the SMB market up to the largest enterprises and the indicators as far as billings per customer, often to the right, and there's always opportunity enterprise based. Could you spend like 30 seconds on the low end of the market? Is that – are you focused on that – is that kind of just there? And a digital motion and if it happens, great, or is there anything you're specifically doing to target kind of the low end of the market?

[James Budge:]

Well, you definitely hit the key path we take to access those customers. It's a digital motion super efficient, that's how the business began digitally way back when. And that still 15% of our business is coming from that individual license that is accessed through that digital motion. In addition to that, the lower end of our commercial business, which is our commercial business, is about 35% to 40% of our overall business, the lower end of that is also accessible through a digital motion. So we have a B2B digital motion. We have a B2C digital motion. And roughly about 20% to 25%-ish of our billings in any given quarter is coming from that highly efficient digital motion. It's one of the reasons why you see some of the efficiencies in the P&L that you've seen among other areas. So yes, we definitely have a very specific motion around that that's very efficient for us and helps us go acquire new customers, and as Aaron has mentioned, specifically on the individual license, they're a great path for us to get into a more robust and better unit economic opportunity with a big business to have opportunity for expansion and retention.

[Aaron Skonnard:]

And Corey, as we look into the future, we are intentionally investing to improve the effectiveness of all of that James just described. We believe there is room for growth and how – in the efficiency of those digital investments and how it leads to the bigger ticket items over time.

[Corey Greendale:]

Excellent. Thank you and again congratulations.

[Aaron Skonnard:]

Thank you, Corey. End of Q&A

[Operator:]

Thank you. This concludes today's Q&A session. I would now like to turn the call back over to Aaron Skonnard, CEO for closing remarks.

[Aaron Skonnard:]

All right, thanks again everyone for joining us today. We really appreciate your support and look forward to speaking with you next quarter.

[James Budge:]

Thanks everyone.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.