Q1 2022 Pros Holdings Inc Earnings Call

Greetings and welcome to the Pros Holdings first quarter 2022 earnings conference call.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on yourself on keypad.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to Belinda over to put.

Director of Investor Relations. Please begin.

Thank you operator, good afternoon, everyone and thank you for joining US our earnings press release, SEC filings and a replay of today's call can be found on the Investor Relations section of our website at pros Dotcom arb.

Our prepared remarks will also be available on our website immediately following the call and will be replaced by the official transcript, which includes participant questions. Once available with me on today's call is Andres Reiner, President and Chief Executive Officer, and Stefan Schulz Chief Financial Officer.

Please note that some of the commentary today will include forward looking statements, including without limitation, those about our strategy future business prospects and market opportunities and our financial projections and guidance actual results could differ materially from such statements and our forecast for more information. Please refer to the risk factors described in our SEC filings.

Pros assumes no obligation to update any forward looking statements to reflect future events or circumstances. As a reminder, during the call. We will discuss non-GAAP metrics reconciliations between each non-GAAP measure and the most directly comparable GAAP measure to the extent to which available without unreasonable effort are available in our earnings press release.

That I will turn the call over to you Andres.

Thank you Bill and good afternoon, everyone and thank you for joining us on today's call I'm pleased with our strong start to 'twenty to 'twenty. Two we grew subscription revenue by 14% year over year and total revenue by 8% year over year.

We saw strong performance in both beta being travel or.

SaaS additions on the pros platform are resonating in the market and our team is executing well evidenced by the fact that we more than doubled their deal count year over year in the first quarter.

Our increased confidence has also resulted in an improved revenue outlook for 'twenty to 'twenty two.

We believe we're benefiting from me tailwind in our market as businesses look to us to help manage inflationary pressures increased market volatility and the shift to digital channels more than ever businesses need the ability to respond to customer requests with the right offer at the right price at a never increasing speed.

Due to these macro business trends this.

This is exactly the value proposition of the frozen platform is single and twin solution, they calculate and delivers personalized market relevant offers to buyers see namely channel they choose to engage with.

Recent Mckinsey survey of beta be decision makers shows how much the pin Denmark has accelerated the need for businesses to embrace omni channel selling.

The results showed that today's speed of be buyers regularly engage with the sellers through 10 or more channels throughout their decision journey.

From just five in 2016 in 94% of respondents say that Omnichannel sales model is as effective or more effective than to see else models to use before.

We did sign a platform to empower businesses to thrive in an ever changing market.

We're continuing to bring new innovations to market to accelerate omnichannel selling in.

In Q1, we released expanded AI powered scenario testing capabilities in our platform, which gives our customers the ability to test and analyze defective different market optimization strategies in parallel now it's easier than ever for customers to evaluate model site dose that optimize small.

Arjun revenue or costs to dynamically drive the best outcome for their business across all of their sales channels.

Our continued innovation leadership led to some amazing wins in Q1.

Great. Examples will hurry group will hurry in international food and packaging distributor will laboratory I powered see PQ and pricing capabilities to accelerate negotiations said their customer agreements, while driving profitable revenue growth.

In the manufacturing space. We also welcome Brunswick, leading manufacturer of marine equipment in Nab Cam a leading manufacturer in the life Sciences space Friendswood can add Cam will use our platform to execute on price changes seem real time, so they can thrive in it.

And ever changing market environment, while driving a better customer experience.

In the chemical and energy space, we continue to see strong demand as we help businesses remain agile in the face of cost volatility in Q1, we welcome several new customers in this space, including one of the top five all major saying the world.

In travel we're pleased to see the positive train said the recovering diener national markets Global capacity is up over 68% year over year, while global passenger load factors are also up over 15% year over year East two metrics indicate more.

Our plane, starting this guy with more passengers onboard than a year ago.

They are recovering the international demand has improved airline sentiment or conversations with airlines her focus on helping them powered the revenue acceleration opportunity ahead.

Our latest innovations are resonating in the market and it's clear that the investments we continued to make during the pandemic are paying off.

In Q1, we had a strong quarter of migrations within our travel business.

As long time pros customers look to take advantage of her latest innovations in revenue management.

One example, assay Lufthansa group, who chose to migrating consolidate their revenue management solutions for all seven of their lines on tour travel platform is.

This migration will give the Lufthansa group the ability to optimize demand forecasts across their network of operations driving superior results for the whole group. We're proud to have been at partnering innovation with Lufthansa for over 30 years and look forward to continuing to partner with them.

On this next phase of their journey.

We're also seeing airlines invest in our digital offer marketing technology to drive more demand through their digital channels.

Intuitive user experience in relevant offers presented through our solution in Tae sik passenger assess a shop for fares pulling them into booking workflows in driving a higher conversion of sales.

In Q1, we saw new customers such as play Airlines and fly pop adopter digital offer marketing solutions to drive demand for their flights existing customers such as Avianca and Breeze, among others also adopted or digital offer marketing solutions expanding their partnerships with froze.

<unk>.

I'm incredibly pleased to welcome all our new customers to pros I'm also pleased to see our existing customer partnerships growing expand as we continued to deliver on our mission of helping people and companies outperform.

Before I close them when he thank our incredible team around the world for their passion and dedication towards nation of optimizing every shopping selling experience.

Thank you to our customers partners and shareholders for your continued support of pros with that I'd like to turn the call over to Stefan to cover financial performance and outlook.

Thank you Anders and good afternoon, everyone.

The first quarter was a strong quarter for us we're beginning to see the environment's improved after two years of Covid.

Additionally, inflation concerns are driving more opportunities to pros as companies look to address the rapid price changes in their markets.

Also and as we discussed during our last call we flattened our go to market organization to improve communication accountability inconsistency.

We saw immediate improvement in these areas and we're continuing to see these improvements in our go to market teams today.

Now highlighting our first quarter results.

Subscription revenue in the first quarter was $48 $8 million up 14% year over year, and total revenue was $66 $5 million up 8% year over year, both exceeding guidance ranges.

Our first quarter recurring revenue was 85% of total revenue.

non-GAAP subscription gross margins were 76% for the quarter, improving from 69% a year ago.

And our recurring margin, which combines both subscription and maintenance margins was also 76% for the quarter.

Improving our subscription and recurring margins has been a primary focus of our team and I'm very pleased to see the improvement trend continue in the first quarter.

Yeah.

Also the progress made to our gross revenue retention rates during 'twenty 'twenty. One continued in the first quarter of this year with retention rates remaining above 93%.

We disclose gross revenue retention rates, which doesn't aki scale customer retention with new bookings to existing customers.

Our high revenue retention rate continues to demonstrate the value our customers receive from our solutions.

As with our recurring gross margins, we're looking to make progress on improving adjusted EBITDA as well.

And are pleased with our results this quarter.

Our adjusted EBITDA loss in the first quarter was $9 $1 million, beating guidance and a 2% improvement year over year.

Free cash flow burn in the first quarter was $11.5 million, which was in line with our expectations and keeps us on track with our free cash flow expectations for the year.

We exited the first quarter with $217 $4 million of cash and investments.

Our non-GAAP loss per share was 21 cents per share, which also exceeded guidance.

Our first quarter calculated billings increased 17% year over year and 15% for the trailing 12 months, which again demonstrates the strength we saw in the quarter.

We ended the quarter with 64 quota carrying personnel, which was consistent with our expectations. We continue to project quota carrying personnel in the mid to upper Seventy's by the end of the year.

Before we get to our second quarter targets I want to address the devastating situation in Ukraine.

We continue to monitor the situation, particularly the possibility of spillover effects into countries near or adjacent to Ukraine, such as Bulgaria, where we do have operations. The wellbeing of our employees is a primary concern and to date, there's been no disruption to our teams.

Additionally, we have a few customers in the region, which contribute less than 1% of our total revenue for the year.

At this point, we see minimal impact to our full year results.

Now turning to guidance.

We expect second quarter subscription revenue to be in the range of 49.25 million to $49 $75 million, representing 12% year over year growth.

We expect second quarter total revenue to be in the range of $66 million to $67 million.

And we expect second quarter, adjusted EBITDA loss to be between seven and $8 million.

This range implies a higher adjusted EBITDA loss from last year, which is the result of a one time expense benefit we experienced last year during the second quarter.

At this point last year, we were able to collect virtually all of the deferred payments from our customers heavily impacted during the onset of COVID-19 occur.

Accordingly, we reduced our bad debt expense in the second quarter last year.

Using an estimated non-GAAP tax rate of 22%, we anticipate second quarter non-GAAP loss per share of between 17 and 19 cents per share.

Based on an estimated $45 2 million shares outstanding.

For the full year, we are raising our revenue guidance and expect subscription revenue to be in the range of $200.5 million to $202.5 million in total revenue to be in the range of $268 million to $271 million.

We're maintaining our guidance for full year, adjusted EBITDA and free cash flow.

As many companies have done we also increased our investment in our people to remain competitive in the current market environment and we expect that to continue for the rest of this year.

Our team is critical to our success and growth as a company.

In closing I would like to thank our amazing employees and customers for their continued passion and support.

We also thank you for your continued support of pros and we look forward to speaking with you at our upcoming events I will now turn the call back over to the operator for questions operator.

Thank you.

At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

Keys, one moment, please while we poll for questions.

Our first question is from Scott Berg with Needham and company. Please proceed.

Okay.

Hi, Andres and Stefan Congrats on the results and thanks for taking my questions I guess a couple of them.

Andreas let's start with the sentiment in the travel space.

Yourself for Steffan noted several improvements there.

Migrations, certainly some sentiment and interested in products, where are we on the curve of normalizing maybe demand or bookings from that segment I think we all realized a little bit early but are we kind of halfway through the road can we see the light at the end of the tunnel or do you think that Theres a ways away before you really get a complete normalized.

Sales environment there okay.

Yes, Scott Great question. So I would tell you we feel very good about travel and how well travel executed in in the first quarter.

And I would tell you definitely see the light at the end of the tunnel from what we're seeing and hearing from Premier alliances.

T a great revenue growth opportunity ahead.

Innovating in the areas that frankly, we invested bearing.

The COVID-19.

<unk> are areas that are really resonating and areas that they need.

Overall I feel very good at Q1 was frankly, a bit stronger than we expected.

Excellent and then you know looking at the other a we'll call it half of the business a little bit more on the revenue side. Obviously today one of the things that we've been picking up over the last quarter or two as a an increase in demand for e-commerce infrastructure platforms as customers are looking to sell.

Italy, and new ways through new channels, you certainly talked about some of your innovation there, but are you seeing specifically an upswing for functionality around E Commerce and Omnichannel sales in particular or is most of the demand on the <unk> side.

Through some of the historical sales channels, most customers have been using as of late.

Yeah, definitely we're seeing an uptick of companies wanting our multichannel and omnichannel experiences and I would tell you that today. We're also seeing companies looking for speed in how they drive price change in the market.

The ability to be able to drive mass price changes in a very short amount of time and be able to understand how their costs are really impacting their profitability and their portfolio.

<unk> has been a very important area I think we've moved from where companies may have done you know once a year twice a year in mass price change it when theyre doing now is some of our customers every two weeks.

Mass price change and having real time technology to be able to do that is critical and then to be able to serve across all channels.

It's been critical it so we're seeing both.

Great Thats all I have thanks for taking my questions.

Thank you.

Our next question is from Parker Lane with Stifel. Please proceed.

Hi, guys. It's a Max I was nuts on Curt Parker first I wanted to just think about the RPI number that I saw in the presentation and correct me if I'm wrong I think it's the highest maybe ever is that a indication of the environment, improving and how should we maybe consider.

The macroeconomic impact on <unk> and full.

Full year.

Yes Parker this is I'm sorry, Max this is Stefan.

Yes, I mean, good observation on your part I.

I do think the RP O numbers for this quarter definitely show the strength that <unk> talked about.

And the questions you just answered and in his prepared remarks so.

I think youll see on both sides you see.

You know that the short term RPM metric improving but you also see the total RPM metric improving and obviously, that's driven mostly by our subscription business.

And we feel like that's not only a good piece of news for what we see in the course of the next 12 months, but obviously in total we see it benefiting us going forward as well beyond just 2022.

Got it and then thinking about how well you guys have kind of navigated all of the different.

Events for the last two years, what are you seeing in terms of the competitive environment or other airline revenue management providers.

As airlines continue to look for more digital options and look for a provider like yourself are you better positioned than these competitors based on how you've navigated it.

Yes.

Look at the amount of innovation that we've done and now also with our acquisition of every Monday in.

In the adult fair marketing.

We can now power the future of travel retail and <unk>.

Allow airlines that demand is coming back not only to ensure they have the best revenue management technology.

But be able to really drive more demand to their digital channels and drive a better customer experience. So across the board whether you look at our passenger revenue management in our group.

Our dynamic pricing capabilities or fair marketing portfolio I would say on all areas were significantly ahead of the competition.

I think the results in Q1.

It shows.

The strong receptivity to our solutions.

Got it that's really helpful. That's it for me congrats on the quarter.

Thank you. Thank you.

Once again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.

And our next question comes from Jason <unk> with Keybanc capital markets. Please proceed.

Great Hey, Andreas Hey.

Hey, Steven.

Hey, Jonathan.

So I'm really encouraging to hear the double deal count in the quarter.

I'm a little curious you know how how does that mix look from like a new customer versus expansion.

Standpoint.

Yes, Great question, Jason it's about 60%, new 40 existing which is trended kind of if that's a really good mix for us we really like to see you know somewhere in the 60 40, 50, 50 is kind of where we want to be and I would say the 60 new dollars.

48 thing, it's actually a pretty good mix for us.

Perfect and then.

One question on sales capacity.

Productivity I think you mentioned 64 reps in the quarter.

As expected right, but how are you feeling about.

Your line of sight to the end of the year and how are those.

Colin.

Yeah, what I would tell you is I feel we have an amazing.

Amazing team right now and I feel the team we have with the reps. We have we can deliver the results for the year. So if you look at what we're going to add this year, which we're very focused on continuing to expand.

It's really focused on next year, so I feel like we're in a really good place now we have a very strong team that frankly execute it really well across geographies and across.

Both traveling D to B and in really as we continue to add quota carrying personnel I think of them coming in the back half.

To help support 2023.

Perfect.

Great. Thanks.

Thank you.

Thank you.

And gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Bill Linda over the Pope for closing remarks.

Thank you for listening to today's call. We look forward to speaking with you at conferences and events. This quarter, we will be attending the Needham technology and media conference on May 17th the J P. Morgan Technology and media conference on May 25th the Craig Hallum Institutional Investor Conference on June 1st the Jefferies.

2022 software conference on June 2nd the Baird Global Consumer Tech and services Conference on June 7th and the Stifel Cross sector Conference on June 8th if you have any questions. Following today's call. Please contact us at IR at pros Dot com, Thank you and goodbye.

This concludes today's conference you may disconnect. Your lines at this time. Thank you very much for your participation have a great day.