PROS Holdings, Inc. Q3 FY2023 earnings call

• Delivered a strong third quarter, exceeding guidance ranges across all metrics. Subscription revenue grew 16% year-over-year, total revenue 10% year-over-year, and adjusted EBITDA was $5.6 million.
• PROS's enterprise AI sets it apart with accuracy, trust, and speed, using an ensemble approach and adaptive models. Publicly traded customers outperformed the Dow and S&P 500.
• Land-and-expand strategy working, with new logos like Genesis Energy, Trivium Packaging, JetSMART, GOL Airlines, SKS Airways, and expansions with Ingredion, Air New Zealand, Turkish Airlines.

In the third quarter, subscription revenue was $60 million, up 16% year-over-year. Total revenue was $77.3 million, up 10% year-over-year. Adjusted EBITDA was $5.6 million. Non-GAAP subscription gross margin was 78% for the quarter, improving from 77% a year ago. Non-GAAP services margin was 9% in the third quarter, improving from 4% a year ago. Trailing 12-month gross revenue retention rate in the third quarter remained above 93%. Year-to-date, subscription revenue grew by 15% and total revenue by 10%, with over $20 million in improvements to both adjusted EBITDA and free cash flow.

• For full-year, raising subscription revenue guidance to $233.3 million to $233.8 million and total revenue to $302.2 million to $303.2 million. Raising midpoint of adjusted EBITDA guidance to between $6.5 million and $7.5 million and free cash flow to between $3.5 million and $6.5 million. Maintaining subscription ARR at $251 million to $254 million.
• For fourth quarter, expecting subscription revenue in the range of $60 million to $60.5 million and total revenue in the range of $76 million to $77 million. Anticipating fourth quarter adjusted EBITDA profit of between $3 million and $4 million, and non-GAAP earnings per share between $0.03 and $0.05 per share.

• Actual results could differ materially from forward-looking statements. Risks described in SEC filings may impact performance.

Q: Chad Bennett asked about the recovery in the travel business and how to think about it in the fourth quarter.

A: Andres Reiner said travel had a good quarter, with strong lands and expansions, and demand is picking up as expected in the back half of the year.

Q: Rob Oliver asked about the Microsoft partnership progress.

A: Andres Reiner said the Microsoft partnership continues to strengthen in innovation and go-to-market, with strong collaboration across geographies though still early phases.

Q: Scott Berg asked about sales and marketing expense and future trends.

A: Stefan Schulz said the sequential decline in sales and marketing expense from Q2 to Q3 was due to events like the outperform event, and it should rebound going forward.

Q: Camden Levy asked about sequential softening in consumer demand in EMEA due to the Middle East conflict.

A: Andres Reiner said they are monitoring carefully but haven't seen impact on demand or customers yet.

Q: Victor Cheng asked about pipeline and geography.

A: Andres Reiner said top of the funnel continues to grow well, with good demand across U.S., Europe, and other regions, and mix of new and existing business is 50:50.