PROS Holdings, Inc. Q4 FY2023 earnings call

• 2023 was a strong year with 14% subscription AR growth, 10% total revenue growth, and $11.4M free cash flow, achieving Rule of 40.
• Launched over 400 new features in 2023, including AI innovations like capacity aware optimization.
• Secured new customers such as Schneider Electric, Castrol, Saudia, and Really Cool Airlines in Q4.
• Existing customers like Smith & Nephew, Japan Airlines, and Air Canada expanded their use of the PROS platform.
• Strategic focus areas for 2024: continue the land, realize, and expand strategy; expand the marketplace with over 140 solutions; infuse AI into all business aspects.

In 2023, PROS achieved 14% year-over-year subscription AR growth. Total revenue grew 10%, with subscription revenue up 15%. Subscription ARR was $259 million (+14% YOY), significantly exceeding guidance. Fourth quarter subscription revenue was $60.8 million (+14% YOY), full year $234 million (+15% YOY). Total revenue Q4 was $77.5 million (+9% YOY), full year $303.7 million (+10% YOY). Non-GAAP subscription gross margins were 78% for both Q4 and full year, up from 77% in 2022. Services gross margin was 5% in Q4 and full year, a significant improvement from -1% in 2022. Free cash flow for the year was $11.4 million, outperforming guidance.

• 2024 subscription ARR expected $289M-$292M (+12% YOY).
• Subscription revenue expected $263M-$265M (+13% YOY).
• Total revenue expected $332M-$334M (+10% YOY).
• Adjusted EBITDA $16M-$19M.
• Free cash flow $22M-$26M.
• Q1 2024 subscription revenue $63M-$63.5M (+13% YOY), total revenue $79M-$80M (+9% YOY).
• Adjusted EBITDA Q1 $0.7M-$1.7M.

• Macro factors like international uncertainty and geopolitical issues impacting airlines.
• Potential impact of inflation on customer spending.
• Uncertainty in the second half of the year due to visibility and market conditions.

Q: Upside in billings driven by net new or expansion?

A: About 50% net new and 50% expansion.

Q: New generative AI functionality and monetization?

A: AI driving revenue and margin uplift, solutions resonating in market.

Q: Billing growth timing and ARR comp?

A: No unnatural timing, teams executed well, momentum to carry into 2024.

Q: GEO split, EMEA strength?

A: EMEA strong, B2B and travel performed well, travel momentum to continue.

Q: Mix of expansions and new logos in travel?

A: ~50/50 overall, travel has more existing expansion opportunities.

Q: Revenue guide below expectations, drivers?

A: Consideration of first half visibility, market conditions, international uncertainty.

Q: ACBs and land/expand motion?

A: Average sale in 200k range, land/realize/expand strategy working.

Q: Subscription growth guide confidence?

A: Travel industry deals provide longer visibility, helping guide.

Q: Rule of 40 path to 2026?

A: Leverage land/realize/expand, AI infusion, innovation to drive growth and efficiency.

Q: Marketplace impact on top line?

A: Marketplace is key component, adding value through new packages and AI infusion.