PROS Holdings, Inc. Q1 FY2024 earnings call

• Launched PROS Copilot for sales plug-in in partnership with Microsoft, integrating PROS AI PowerQuo insights into Microsoft Copilot for sales to empower sellers.
• New customers: ECE Group, Les Schwab, and Air India adopted the PROS platform. ECE Group activated Smart CPQ, Les Schwab activated smart price optimization, and Air India selected the PROS platform for marketing.
• Expansions: Hyatt expanded use of PROS platform for marketing, Air Baltic activated dynamic ancillary pricing, and Cargolux expanded Gen 4 AI price optimization.
• Hired Todd McNabb as Chief Revenue Officer to lead global go-to-market team.
• Published 2023 sustainability report highlighting environmental, social, and governance progress.

Subscription revenue was $64.3 million, up 15% year-over-year. Total revenue was $80.7 million, up 10% year-over-year. Non-GAAP subscription gross margin was 79% in the first quarter, an improvement of over 140 basis points year-over-year. Non-GAAP services gross margin was 9% in the first quarter, an improvement of over 1,500 basis points year-over-year. Overall non-GAAP gross margin increased to 67% in the first quarter, an improvement of 315 basis points year-over-year. Adjusted EBITDA was $4.6 million in the first quarter, significantly exceeding guidance.

• Q2 subscription revenue expected $64 million to $64.5 million (12% growth midpoint), total revenue $80.5 million to $81.5 million (7% growth midpoint), adjusted EBITDA $1 million to $2 million.
• Full year: Subscription revenue expected $263.5 million to $265.5 million (13% growth midpoint), total revenue $332.5 million to $334.5 million (10% growth midpoint), adjusted EBITDA $17 million to $20 million.

• Actual results could differ materially from forward-looking statements.
• Volatility in calculated billings and potential challenges in market adoption of new AI innovations.

Q: Congrats on the nice quarter, and I'd like to see the profitability improvements, a nice, steady year-over-year trend there. Andreas, I wanted to ask a question I actually feel kind of word about asking is it's on your new Copilot functionality that you announced. It's only weird because I want to ask you how you monetize AI or how you plan to monetize these new AI technologies knowing that you've been monetizing the AI for obviously a couple of decades now. But how should we think about this innovation being infused into the platform? Is there an opportunity to step up ARPU for customers and poster or is it really more about embedding the functionality to create further differentiation in our platform?

A: Yes. Great question, Scott. Look, we're very excited about the sales scope old innovation because I think Microsoft is changing the way that sales reps will work in the future and bring in this type of technology really brings them the best AI possible to continuously respond to customers. So for us to be embedded into these workflows and then being able to help reps quickly respond to prospects with the right e-mail response with the right bots powered by PROS creates a significant differentiation in the market. So I think this one and for most, it adds a lot of differentiation to our platform and the ability to now extend e-mail threats all the way through being able to dynamically create a cell-powered by PROS in a lot more adoption of our solution in the market. So see anybody that buys Copilot can now embed PROS CPQ and have AI-powered deals right there in their fingerprint. So we see this as a big opportunity to continue to innovate with Microsoft and something that helps us drive our strategy of landing more deals, realizing value and driving more expansions.

Q: And then from a follow-up perspective, you hired a new CRO Tad. I feel like you and I just had this conversation about 2 months ago, if you're going to hire a new CRO or not. And I think the comment I made at that point in time was your best or at least most consistent sales execution in the last 5 or 6 years has seemingly been when [ ARiner ] has been running sales. what does to bring to the table that's different than maybe the prior couple of people that have been in this role? And how does the kind of fuel your growth strategies over the near term?

A: Yes. Great question, Scott. Look, I'm really excited to have Todd and the team. He brings a unique skill and sales go-to-market. I think a lot of the work that we've done in building our land realized expand strategy in our platform was positioned us to really scale the business. If you think about deal velocity, deal consistency that we've driven, we've dramatically increased. With Todd brains very clear experience and significantly scaling sales organizations. And we think tied to our goal of getting to roll of 40 by 2026. We think now it's the time to invest in our go-to-market team. This year was very important for us to make a big improvement in profitability and start to invest in our go-to-market and scaling it. The other aspect that I'm really excited about is we're seeing B2B and B2C converge. You're seeing a lot of our wins that we're talking about. They're not just traditional B2B stories, they're B2B with B2C and direct-to-consumer strategies as well. So we're seeing more of a unified platform in our go-to-market and abilities to really bring our sales go-to-market team to drive more efficiency and scale as we move forward. So I'm really excited. Todd and I are going to be working closely together. We're aligned on this strategy. It's not about changing our strategies about really amplifying that strategy and really setting us up for 25 and 26. So I could tell you, I'm really excited in what he brings different is very strong sales go-to-market background.