Q2 2022 Pros Holdings Inc Earnings Call
Greetings and welcome to the Pros Holdings second 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 your telephone keypad.
A reminder, this conference is being recorded I would now like to turn this conference over to Belinda overdue director of Investor Relations. Thank you Ma'am you may begin your presentation at this time.
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.
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 Andras writer, 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.
With that I'll turn the call over to you Andres.
Thank you Bill and good afternoon, everyone and thank you for joining us on today's call. We delivered a strong second quarter building on the momentum we had in Q1.
We exceeded the high end of our guidance range across all metrics grew subscription revenue by 14% year over year and grew total revenue by 10% year over year.
As we have previously said the current macroeconomic dynamics are creating momentum for business.
In the first half of 2022 we've more than doubled their deal count growth booking more deal. So far this year than we did in all of 2020 one.
Our solutions are resonating in the market as businesses look to offset cost pressures by implementing profit optimization strategies in driving efficiency through digitization.
The geopolitical and economic climate of the World today has spud extreme pressure on supply change.
This is these are facing labor shortages and supply shortages and rising material costs.
For businesses to thrive they need visibility into all factors impacting their bottom line in actionable insights to drive business for quickly.
Our library of market, leading AI algorithms pairing the pros platform Kim forecast demand.
Optimized cost price revenue and product mix based on real time data feeds.
Our platform automates decision, making processes in delivers market relevant offers across sales channels driving efficiency in fueling profitable revenue growth.
Based on the value assessment, we've completed with our solutions pros customers reported an average 67% efficiency gain.
200 to 500 basis point margin improvement in more than 6% revenue uplift.
In the automotive space, we're helping companies of all sizes and that all parts of the supply chain fuel profitable revenue growth.
In Q2, we welcomed borgata motive one of Europe's leading automotive free manufacturers in Aurora auto parts in leading distributor of heavy duty equipment to process new customers.
Both facing greater complexity and pricing of missed supply chain fluidity any inflationary pressures.
These companies adopt the pros so they can drive profitable growth in real time, with our price optimization and management solutions.
In the beta Bes services space Securitize, a leading provider of security services selected the <unk> platform to power agreement management with our pricing and see PQ solutions.
With pros securitize will arm, there seal steam with optimized pricing and a streamlined quote to agreement process to drive higher win rates and greater efficiencies in contract negotiations.
In their cargo space, we're empowering carriers to better serve their customers through digital shopping and selling experiences while driving profitable revenue growth.
Digitization has made buyers increasingly more educated with the ability to compare shipping rates online.
This coupled with increased volatility has driven carriers to embrace dynamic pricing in engage with customers directly through superior digital buying experiences.
I'm pleased to share that in Q2, Qatar Airways, the world's largest senior national Air cargo carrier expanded their partnership with pros by choosing to adopt or CP QM price optimization solutions.
With Qatar Pros now has three of the top six international air cargo carriers on our platform.
In travel we are helping airlines of any size in that Amy phase of their journey drive profitable revenue growth.
Whether it's a new airline coming to market like our latest customer selects airlines.
For a carrier that serves more countries than any airline in the world like Turkish Airlines, who chose to migrate to the <unk> cloud.
Prostitution empower airlines to capitalize on the revenue acceleration opportunity in front of them.
International travel recovery continues to improve and drive the overall industry recovery with several international route outperforming 2019 levels.
And many others, reaching pre pandemic levels.
Despite inflation in high jet fuel prices industry data demonstrates a high willingness to travel abroad.
While in the past fears of a recession have negatively impacted the traveling industry. IATA is now projecting the industry will reach 93% of 2019 revenues by the end of 2022.
Is significant upgrade from their previous December 'twenty, 'twenty, one projection of 79%.
Additionally, the fast pace of the recovery has cut industry losses.
<unk> now expects the industry wide profitability to be within reaching 2023.
Giving us further confidence is the willingness to invest we're seeing from Merrell line says they look to deliver new innovative buying experiences to their customers and accelerate revenue recovery.
One example is all Nippon Airways, the largest airline in Japan, we expanded their partnership with pros in Q2, when they chose to adopt their latest cloud solution for group sales optimization.
With pros group sales optimizer, a name will centralize the management of group bookings pricing contracts and policies to streamline the complexity of the group selling promises empower self serve e-commerce for travel agency named customers.
Another example is our most recent go live with Emirates Airlines Emirates as now you seen pros to power shopping and pricing through all its channels.
Emirates is a perfect example of an airline innovating with pros to build more direct engagement with their customers while reducing costs.
We're proud to have partnered with Emirates on their launch of their new premium economy service offering as part of this go live and look forward to continuing to help them drive revenue growth.
Before I close I want to share some amazing stories that demonstrate how our solutions are fueling profitable revenue growth for customers.
One if pros customers are fortune 500 high Tech distributor has reported 15 year record level margins with.
With approximately 100 basis points of improvement generated in the last year.
Their rewards to us where this is the first time in our company's recorded history that we've had inflationary pressures in actually been able to increase our margins.
And that's because of pros. This customer is using our expanded AI powered scenario testing capabilities to optimize margins revenue in costs in parallel if he tried to discuss in my prepared remarks last quarter.
We're so proud to see our innovation drive record success for this customer and many more.
Additionally, Qatar Airways, why maintenance chose to adopt or air cargo solution in Q2.
<unk> has been a pros customer for over 22 years.
In June Qatar announced they achieved record level profits for their 25 years of operations.
Siding growth in passenger and cargo networks as well as accurate forecasting of global recovery that enabled strong cost control as key drivers for these results.
We're extremely proud of our partnership with Qatar and look forward to helping them drive even more success in there in this face of their journey.
It's no coincidence that pros customers are outperforming the market because we're their best kept secret for profitable growth.
I want to thank our team for their strong execution and their passion for supporting each other and our customers to drive success.
Our team embodies our core values of ownership innovation and care.
And I'm so proud of the environment, we've created at pros together.
A core focus of ours is creating an environment, where every employee can grow them reach their full potential.
Last quarter, we received another incredible recognition of her culture by being certified as a most loved workplace backed by best practice Institute.
Finally, I want to also thank our customers.
Partners and shareholders for their continued support of pros.
With that I'd like to turn the call over to Stefan to cover financial performance and outlook.
Thank you Andreas and good afternoon, everyone.
Our team delivered another strong quarter, which exceeded the high end of our guidance range across all metrics.
For the first time in over 40 years businesses across many industries are facing massive challenges with supply chain disruptions and increasing costs.
As Andrew mentioned in his comments, we are providing our customers with the tools to not only deal with these obstacles, but to deliver unprecedented results in their respective businesses.
We are the only provider in the market with native platform capabilities and not custom code to optimize both revenue and cost simultaneously an absolute game changer for businesses in today's environment.
And as CFO as best friend.
Today, the post platform is more important than ever as businesses look to drive profitable revenue growth and we're seeing that materialize and opportunities for pros.
Not letting our second quarter results subscription revenue in the second quarter was $54 million up 14% year over year and total revenue was $68 $4 million up 10% year over year, our second quarter recurring revenue was 84% of total revenue.
non-GAAP subscription gross margins were 76% for the quarter, improving from 71% a year ago.
As we mentioned last quarter, improving subscription gross margin has been a primary focus for our team and the progress. We have realized is a testament to our focus and innovation in this area.
Our gross revenue retention rates in the second quarter remained above 93%.
Our best in class revenue retention rate continues to demonstrate the value our customers drive with our solutions.
Our adjusted EBITDA loss in the second quarter was $6 million exceeding our guidance and keeping us on track to achieve our annual guidance.
Similarly, our free cash flow burn in the second quarter was $2 $2 million.
As usual, we anticipate a slight improvement to the free cash flow burn in the second half of the year.
We exited the second quarter with cash of $215.2 million.
Our non-GAAP loss per share was <unk> 14 per share.
Our second quarter calculated billings increased 8% year over year, and 12% for the trailing 12 months exceeding our expectations and demonstrating the strength we saw in the quarter.
We ended the quarter with 58 quota carrying personnel and we expect to be at approximately 70 by the end of the year.
This count which is mainly a goal for 2023 is slightly lower than the number we communicated earlier in the year.
We are increasing our focus on rep productivity and are confident in the strong team. We are building to execute our goals for 2022 and beyond.
Now turning to guidance, we expect third quarter subscription revenue to be in the range of $55 million to $51 million, representing 15% year over year growth at the midpoint.
We expect third quarter total revenue to be in the range of $68 million to $69 million and.
And we expect third quarter, adjusted EBITDA loss to be between $6, five and $7.5 million.
Using an estimated non-GAAP tax rate of 22%, we anticipate third quarter non-GAAP loss per share of between 15 and 18 cents per share based on an estimated 45 3 million shares outstanding.
For the full year, we are raising our revenue guidance and expect subscription revenue to be in the range of $201.5 million to $202.5 million in total revenue to be in the range of 270.5 to $272 $5 million.
More than 80% of our revenues are contracted in U S dollars.
Accordingly, we have not experienced a significant impact to revenues due to the strengthening of the U S. Dollar.
For the full year, we anticipate a negative currency impact to our total revenue of less than $1 million and this is factored into our updated guidance that we just provided.
We are maintaining our annual guidance for air are adjusted EBITDA and free cash flow.
In closing I would like to thank our 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'll now turn the call back over to the operator for questions operator.
At this time, we'll be conducting a question and answer session. If you would 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 to remove your question from the queue, but participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys one moment.
While we poll for questions. Our first question comes from the line of Chad Bennett with Craig Hallum. You May proceed with your question.
Great. Thanks for taking my question nice job on the quarter looks looks very good and clean and end up in the guide is pretty unique in this environment. So kudos. So a couple of questions. Just maybe first for Andreas just relative to the travel come back here and more from a booking staff.
Point I guess, then then would hit in revenue.
How has that progressed since the last time you talked to.
Talk to us and intend to in terms of.
Recoveries on of revenue previously modified or just brand new bookings and travel that that might be ahead of plan that that could help us in the future can you give us update there.
Yes, Chad So I would tell you look we're very pleased with the overall performance both on the <unk> side in travel.
From a sales execution, we continue to improve I am very pleased that we doubled the old growth year to date and we've put more deals than we did all of last year now I would tell you that of that feel of growth about 50, new customers and 50% expansions.
Within existing accounts, so the overall mix.
It's really what we like to be so we're very very pleased with those results in terms of in the travel in terms of revenue.
Off of concessions as we said much of that we wont see this year, we will see a little bit we're on track with what we expected.
But more of that we will actually see into next year.
Yes, Chad just to follow up on that.
We had said probably.
Probably about six months ago, or so that we felt like $2 million was going to come into 2022 as it related to that we're definitely on track to see that happen I think though to your question are we seeing leading indicators that that might be on track for next year and maybe even above track for next year I would say at this point, yes, we feel like we're on track.
To get to that next tranche of revenue, but to <unk> point that will more than likely be next year.
Got it and then.
Maybe one for you I appreciate the candor there color for Stefan.
Subscription gross margins looked really strong, especially sequentially and year over year was there anything unique in there I mean, theres a pretty big sequential improvement for you guys and do you believe this is sustainable for the rest of the year. Thanks.
Yes, so thanks for noticing Chad, it's something we've been working on quite a bit.
And so there are several things that are happening, but most notably.
Our engineering teams in our cloud operations teams have really been working hard over the last couple of years to make our deployments more efficient to make our use of.
The compute.
Less stringent on.
On the calculations and algorithms that we're running and they've done a tremendous job of that.
So youre seeing the benefits of that.
We do think this is something thats sustainable.
And to be honest with you.
Kind of view this as a step level in other words getting to the 76%.
One tier and I think it'll be a while before we take that next step, but we do intend to take a next step ideally that would be next year, where we can take it beyond 76% because as we model out what it's going to take to be breakeven and into profitability. It really starts with our subscription gross margins those those need to go.
Beyond 76% and we have plans in a process in place to do that.
Got it maybe one last one sorry, I apologize but for Stefan.
With that step up in subscription gross margins and EBITDA was better and it seems like free cash flow.
Actually improve in the second half.
In terms of line of sight or kind of a marker for for when the company or the business turns to free cash flow and maybe even operating margin EBITDA margin positive.
Can you give us a timeline for that.
Yes.
We've we've targeted next year I E.
2023, as we make significant improvement and get to where I would call approaching a breakeven from a free cash flow perspective thinking.
Mid to higher single digit burn is what we're what we're thinking at this point and I don't think theres going to be a year, where we are breakeven I think what'll happen is next year, we will get to.
<unk> that level, and then say 2024, we actually we'll cross that point so.
So I would say getting to breakeven is somewhere between 23, and four but 24 being the year that we actually break into plus territory with 23 being the point, where we get very very close.
Got it thanks, so much nice work.
Thank you.
Our next question comes from the line of Parker Lane with Stifel. You May proceed with your question.
Yeah, Hi, Thanks for taking the question you guys alluded to the fact that supply chain disruption, it's really capitalizing a lot of new business momentum I'm curious when you talk to your customers when they expect some of that supply chain disruption to dissipate as that.
In the 2023 time frame maybe earlier on in the year later on in the year, just curious to hear what they're sharing with you and what their expectations are and maybe how that informs that our investment decisions.
Yeah, No. That's a great question I would tell you look at what our customers are seeing is.
The number of changes to supply disruption pain disruption, it's one of the factors affecting.
But if you think about inflation, if you think about currency fluctuation theyre seeing just extreme volatility and I think they realize that this volatility is here to stay and I think thats one of the themes. The other theme is digitization.
This movement to drive more business through data adult channels and I would say those two factors is really what's driving our business and what customers are seeing the need to better understand real time, what is happening to their business and how proactively.
It is prescriptive guidance make actions that will allow them to continuously drive profitable revenue growth. So what I would tell you is in terms of your question of when do they see that stopping I don't think any of our customers are predicting that yet.
We'll expect to see supply chain disruption volatility in general I think they feel that this is here to stay.
And they need to be battery.
To manage and thrive in a volatile environment.
Got it understood and then Steffan I appreciate the commentary around.
Yes sales quota carrying reps by the end of the year I think you said, 70% can you provide some color in the context of those comments you offered on the sequential decline in that number.
Yes, we have.
As I commented as.
Well before the second half of the year, we feel like Theres some opportunities to be more efficient I think that's kind of the theme of a lot of tech companies. These days and so one of the things that we've done is we've placed higher scrutiny on productivity we've looked at.
We know what.
What we're looking for in our reps to deliver the results that we're looking for.
We're very happy to report the a.
Strong first half of the year, we've actually seen an increase in the amount of participation of number of reps that are actually contributing to the to the bookings that we saw in the first half of the year and quite frankly.
Drove starker contrast of those that are providing the bookings and those that work and so as a result.
We've made some decisions that were going to.
Place higher scrutiny on those and remove some of those reps and then we're looking to hire.
More productive reps in the back half of the year.
As I said in my prepared remarks.
Getting to that 70 number is really about being ready for 2023.
Even with the 58, we feel more than adequate covers what we're looking to do in the second half of the year.
Makes sense I appreciate you, taking the questions and congrats on the quarter.
Thank you.
Our next question comes from the line of Rob Oliver with Baird. You May proceed with your question.
Great. Good evening guys alright, thanks for taking my questions I guess, one for you to start so.
Had suggested last quarter.
Some of you were starting to see some of this that this environment.
Great for many companies could actually benefit.
Benefit you guys and it looks like that is playing out just wondering if you could talk a little bit about a couple of things around the activity one deal sizes or any change youre seeing there.
Any changes could deal timing.
Appeals that were moving a bit more slowly emerging from the pandemic are you seeing those sales cycles speed up and then I'd also love to hear about the contribution from partners you guys, obviously have some.
Really meaningful partners.
In this area and I'm, just wondering in an environment, where they're probably looking for.
To move towards what's really working right now.
Serving as a catalyst for them and then I realized.
Thanks, and then I had a quick follow up for Stephane as well.
Yes, no it's not.
Great Great question I would tell you that overall, we're seeing very strong activity. Obviously the results show it in terms of deal.
<unk> no major changes in terms of deal size no major changes, we've seen that fairly stable, but what I would tell you is there is definitely more scrutiny on the on the deals in terms of the value and I think what's helped US is one the compelling need to adopt our technology.
Now in the pain point that our customers are having.
Fast time to value them ways to get started and ramped quickly.
In true measurable ROI and I think those three components I give kudos to our sales team they executed very well in a very challenging environment I would tell you.
Also kudos to our European team Europe , I know it has been top of mind for a lot of companies has done very well for us year to date, including in Q2, and it's clear to us on the team on how well they are executing.
Across those three vectors.
But there is definitely a lot more scrutiny and we're seeing to see them when contracts get to signature ready, we're seeing the level of scrutiny to get the final signature, but have not seen any impact so.
So far our business, but but it is definitely top of mind in terms of the partners were very pleased to continue to see good progress in support.
For many of our partners <unk> and Accenture in the global size and Isps like Microsoft.
I will say we signed on.
A deal this quarter with Accenture that was on their paper, we have a reseller agreement now with Accenture and there was a deal that closed.
Actually on their paper sold by them.
Which is great to see so overall the momentum on the partner side is continuing to improve as well.
Okay.
Great color I appreciate that Andres and Stefan.
Just one quick one for you on.
I appreciate your <unk>.
Commentary relative to.
Free cash flow and profitability looking out into the next year or two but then.
Specifically on kind of the EBITDA for this quarter.
Half.
At the midpoint.
You guys.
The reiterated full year guidance I was just wondering whether that implied conservatism or whether the profitability profile in the back half of the year is expected to be a bit lower and if so what would be the reason for that thank you very much.
Yeah, So rob it's going to be a continued focus on being as efficient as we can so.
Well as I've commented on the quota carrying reps earlier, we're doing the same kind of thing across the board with all of our employees.
In terms of looking at ads and we're being we're placing higher scrutiny on on the additions that we're bringing into the company. So there has to be a very good justification for it and so there is a higher level of approval that's needed. So.
As we put that kind of thing in place. We also put a higher scrutiny on discretionary spend travel other programs.
We're going to be looking to make sure that we're as frugal as we can be to make sure that we are driving as much profitability and EBITDA improvement as we possibly can all at the same time, making sure that we're still investing for the opportunities that we've been laying out I think Andreas comments in his prepared remarks really.
To the opportunity that exists in this in this market is challenging as the market is.
The the way it's good for us because there is a lot of capability that we can provide for our customers that help them get through it. So we're really walking that fine line of making sure that we're as efficient and doing the things as efficiently as we possibly can at the same time, making sure we're not losing out any opportunities for.
Growth.
Got it helpful. Thanks, I appreciate the opportunity to speak with you guys. Thank you.
Thank you. Thank you.
Our next question comes from the line of Scott Berg with Needham You May proceed with your question.
Hey, guys. This is Josh on for Scott Nice job on the quarter here.
How should we think about the air travel recovery in APAC versus the rest of the world at this point and how important is that region relative to the rest of the world for subscription recovery, both this year and into next year.
Yes, Josh Great question I would tell you a great signings were seeing customers.
<unk> like <unk> like last quarter Bye.
By in the quarter, we had signaled that we had seen activity and interest and I would say it was proven in Q2.
Overall, the sentiment and I talked about <unk> number there.
Churn is the airline industry will get to 93% recovery by the end of 'twenty, two and that improved from 79% protection. They had at the end of 'twenty one so.
So overall, what I would tell you is just in general when I would see that sentiment across airline execs in various geographies overall, they see the light at the end of the tunnel they see the demand if people want to travel.
And overall I think it's trended positive as we expected.
Okay, Great and then you already gave a little bit of commentary on it but specifically on the sales cycles are you seeing any difference domestically versus international at this point.
We're not we're seeing the consistent theme is definitely scrutiny on the deal. So I think in this type of environment. I think you need to be able to get time to value quickly I think you need to be able to demonstrate.
True ROI.
To be able and I think we've executed well.
In that front, so definitely theres been scrutiny, but we have not seen named.
A lengthening of the sales cycles.
Alright, Thank you very much.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Jason <unk> with Keybanc capital markets. You May proceed with your question.
Hi, Andres and Stefan Thanks for fitting me in.
Hi, Jason.
The deal momentum.
Yes, I'm pretty encouraging.
As the environment continues to improve what are you seeing in terms of win rates.
Both in your travel business and <unk>.
Yeah in general continues to be strong it has not changed so overall I would tell you like I said from me feel timeline AOSP or win rate no major changes just more volume.
Perfect Perfect and then Stefan just a quick one on the guidance the second half.
What are you assuming in terms of macro.
Any changes to the forecasting process different than prior periods.
I think no generally speaking no I think though.
As we think more specifically.
I think we're a little wiser today than we were 90 days ago I think we are realizing that.
That we are in a.
In a difficult macro environment for all the reasons that we're all aware of and that has been factored into our guidance. So we haven't assumed any sort of improvement. If you will beyond what we already are seeing for example in the travel space. We're not assuming there is any improvement in terms of.
The threats of recession or inflation or quite frankly, any sort of change in currency. So we've essentially assumed that we're in today is going to continue throughout the rest of the year.
Perfect. Thanks for clarifying that.
Thank you.
Ladies and gentlemen, we have reached the end of today's question answer session I would like to turn this call back over to Bill Linda over depart 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 Keybanc technology leadership Forum on August eight and the Oppenheimer Virtual technology Internet and Communications conference on August 10th.
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 for your participation or the rest of your day.
Okay.
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