PROS Holdings, Inc. Q2 FY2024 earnings call

Performance Review

• Delivered solid second quarter, exceeding high end of guidance ranges across all metrics. Grew subscription revenue by 14% and total revenue by 8%, achieved significant profitability milestones with 554% improvement in adjusted EBITDA and 112% improvement in free cash flow year-over-year.

New Customer Wins

• Top three global medical devices company selected PROS platform for Smart CPQ and smart price optimization. Dynata selected PROS platform to activate Smart CPQ.

Existing Customer Expansions

• Ingredion expanded PROS platform globally. VFS global uses PROS platform for pricing and sales excellence. Hertz activated capacity-aware price optimization across North America locations. Philippine Airlines expanded use of PROS platform by activating Group Sales Optimizer.

Innovation

• Released new generative AI data transformation solution. Participated in record-breaking Outperform conference in May with 60 customer speakers sharing success stories.

Sales Team Unification

• Todd McNabb unified B2B and travel go-to-market teams to build centralized revenue engine for unified go-to-market across customer journey.

Subscription revenue was $65.6 million, up 14% year-over-year. Total revenue was $82 million, up 8% year-over-year. Services revenue was $13 million, down 3% year-over-year. Second quarter non-GAAP subscription margin increased to 80%, an all-time high. Recurring revenue in Q2 was 84% of total revenue, and trailing 12-month gross revenue retention rate was 93% or better. Calculated billings in Q2 increased 10% year-over-year, and 8% for the trailing 12 months.

Full-Year Guidance

• Anticipates total revenue of between $329 million and $331 million (9% growth at midpoint).
• Anticipates free cash flow of between $20 million and $24 million (94% improvement at midpoint).
• Anticipates subscription ARR of between $280 million and $284 million (9% growth at midpoint).

Third-Quarter Guidance

• Expect subscription revenue to be in range of $65.8 million to $66.3 million (10% growth at midpoint).
• Expect total revenue to be in range of $81.5 million to $82.5 million (6% growth at midpoint).
• Expect adjusted EBITDA of between $6.5 million and $7.5 million.
• Anticipate third quarter non-GAAP earnings per share at $0.08 to $0.10 per share.

Rule of 40 Goal

• Current airline conditions likely push achievement of Rule of 40 goal by approximately one year.

• Airlines face operational cost and supply chain challenges impacting deal approval processes and sale cycles, leading to travel bookings down year-over-year and impacting 2024 outlook.

Q: Parker Lane asked about challenges with travel customers and timeline to overcome them.

A: Andres Reiner said working closely with airline customers, leaning in to support them with components of platform to get deals started while they address operational challenges.

Q: Scott Berg asked about Rule of 40 goal delay.

A: Andres Reiner said components of goal unchanged, focusing on land realize expand strategy and Todd's unification of organization; Stefan Schulz added it's about finding sustainable consistent performance so Rule of 40 is sustainable.

Q: Patrick Scholes asked about Microsoft partnership and macro demand environment.

A: Andres Reiner said pleased with Microsoft partnership, collaboration on deals and pipeline; also mentioned difficult selling environment but doing well in expansions.

Q: Jason Celino asked about travel impact from security incident and election impact on guidance.

A: Andres Reiner said security incident had impact, late in quarter and start of this quarter; Stefan Schulz said no impact from election on guidance.

Q: Brian Schwartz asked about B2B sales cycle and Q4 subscription revenue re-acceleration.

A: Andres Reiner said B2B sales cycle times improved 15% year-to-date; Stefan Schulz said Q3 dip expected due to accelerated recognitions last year, expecting re-acceleration in Q4.