Q3 2023 PROS Holdings Inc Earnings Call

Speaker 1: Greetings, welcome to the Pro's Holdings Third Quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.

Greetings and welcome to the Pros Holdings third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

Speaker 2: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

Speaker 3: I would now like to turn the conference call over to Belinda Overdiput, Director of Investment.

Now I'd like to turn the conference call over to Melinda over to put director of Investor Relations.

Speaker 4: Thank you, operator. Good afternoon, everyone, and thank you for joining us.

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 <unk> Dot com, our prepared remarks will be available on our website immediately following the call and it'll be replay.

Speaker 5: 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.com. Our prepared remarks will be available on our website immediately following the call, and will be replaced by the official transcript, which includes participant questions once available. What we on today's call is Andre Seriner, President and Chief Executive Officer, and Stefan Schultz, Chief Financial Officer.

But 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.

Speaker 6: 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.

Our strategy future business prospects and market opportunities and our financial projections and guidance and 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.

Speaker 7: Actual results could differ materially from such statements in our forecast. For more information, please refer to the risk factors described in our SEC file.

Speaker 8: PROS assumes no obligation to update any forward-looking statements to reflect future events or circumstances.

This assumes no obligation to update any forward looking statements to reflect future events or circumstances.

Speaker 9: 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 the next speaker.

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.

Speaker 10: Thank you, Belinda. Good afternoon, everyone. And thank you for joining us on today's call.

Thank you Bill and good afternoon, everyone and thank you for joining us on today's call.

Speaker 11: I'm proud to share we delivered a strong third quarter, exceeding organins ranges across all men.

I'm proud to share we delivered a strong third quarter exceeding our guidance ranges across all metrics.

Speaker 12: We grew subscription revenue by 16% year over year, total revenue by 10% year over year, and delivered 5.6 million in positive adjusted EBITDA, an improvement of 7.8 million euro.

We grew subscription revenue by 16% year over year total revenue by 10% year over year and delivered $5 6 million in positive adjusted EBITDA, an improvement of 7.8 million year over year.

Speaker 13: Our results are a testament to our team's relentless focus on driving profitable growth. To achieve our goal of being a Rule of 40 company by 20...

Well results are a testament to our team's relentless focus on driving profitable growth to achieve our goal of being a rule of 40 company by 2026.

Speaker 14: As the market increasingly embraces AI, Pro's long-term trajectory continues to...

As the market increasingly embrace ACI pros long term trajectory continues to strengthen.

Speaker 15: C-suite leaders across industries are encouraging their teams to infuse AI into their operations.

C suite leaders across industries are encouraging their teams to infuse AI into their operations.

Speaker 16: Improse is a clear choice given our enterprise AI is proven to fuel profitable revenue growth.

In proceeds a clear choice given our inner pricing is proving to fuel profitable revenue growth.

Speaker 17: When it comes to enterprise AI, accuracy, trust, and speed are critical. And this is what sets pros apart.

When it comes to enterprise C. I accuracy truss and speed are critical in this is what sets us apart.

Speaker 18: We ensure accuracy and trust by using an ensemble approach to combine multiple AI algorithms to get.

We ensure accuracy and trust by using an in sample approach to combine multiple AI algorithms together.

Speaker 19: For example, when Thombo or Price Prediction algorithms without liar detection and explainable AI algorithms to deliver the most optimal and transparent results possible.

For example, when som bore price prediction algorithms without layered detection and explainable AI algorithms to deliver the most optimal in transparent results possible.

Our models are adaptive they self learn and recalibrate based on user interaction and real time data signals to provide the most up to date predictions.

Speaker 20: They self-learn and recalibrate based on user interaction in real-time data signals to provide the most up-to-date predicts.

Speaker 21: We offer unparalleled solution performance with response times that are guaranteed within milliseconds for real-time solutions.

We offer unparalleled solution performance with response times that are guaranteed within milliseconds, where real time solutions.

Speaker 22: Through greater accuracy, trust and speed, PROS delivers the promise of AI today. Our mission is,

Through greater accuracy trusting speed pros delivers the promise of AI today.

Our mission is to help people and companies outperform.

Speaker 23: Our enterprise AI generates significant revenue, margin, and efficiency improvement for our customers. As shown in our publish.

Rainer Pricey I generate significant revenue margin and efficiency improvement for our customers as shown in our published ROI study.

Speaker 24: Recently, we ran an analysis to see how this business outcomes translating to shareholder returns for customers. We found that pros...

Recently, we ran an analysis to see how this business outcomes translating to shareholder returns for our customers.

We found that pros publicly traded customers outperformed the Dow and S&P 500 by more than 15 percentage points between the beginning of 2022 in the end of Q3 2023.

Speaker 25: outperformed it down in S&P 500 by more than 15 percentage points between the beginning of 2022 and the end of Q3 2020.

Speaker 26: I'm proud that we're helping such amazing customers drive these incredible weeks.

I'm proud that we're helping such amazing customers strive these incredible returns.

Speaker 27: I encourage you to check out this chart in our Q3 investor presentation.

I encourage you to check out this chart in our Q3 investor presentation.

Speaker 28: Or land and expand strategies working, demonstrated by our accelerating subscription revenue growth, significant improvements to profitability, in the pace at which we're continuing to land new customers and expand their use of our platform.

Our land and expand strategy is working demonstrated by our accelerating subscription revenue growth significant improvements to profitability in the pace at which we're continuing to land new customers and expand their use of our platform.

Speaker 29: In Q3, we continued to welcome new logos across our target industries. And now I'll share a-

In Q3, we continue to welcome new logos across our target industries and now I'll share a few examples.

Speaker 30: and the DENISIS Energy and New Zealand-based electricity and gas supplier selected the PROS platform to provide a seamless customer experience with a harmonized screen that anyone with a harmonized ???ej brands successfully

Genesis Energy in New Zealand base electricity and gas supplier selected the <unk> platform to provide a seamless customer experience with the harmonized Omnichannel strategy.

Speaker 31: Trivium Packaging, a leading global manufacturer of metal packaging, selected the PROS platform in Q3 to fuel profitable growth.

Trivium packaging and leading global manufacturer of metal packaging selected the pros platform in Q3 to fuel profitable growth.

Speaker 32: Travium will improve their responsiveness to shifting raw material costs with dynamic pricing and drive accelerated time to quote with C.B.

Trivium will improve their responsiveness to shifting raw material cost with dynamic pricing and drive accelerated time to quote which C. P. Q.

Get smart in goal airlines selected the pros platform to use our digital offer marketing solutions to increase online traffic and drive higher conversion of sales through digital channels.

Get smart In-goal Airlines selected the pros platform to use our digital offer marketing solutions to increase online traffic and drive higher conversion of sales through digital channels.

SKS Airways, a new Malaysian terror planning to launch at the beginning of 2024, selected a process a strategic partner in driving their growth strategy.

S. K S Airways in new Malaysian Terror planning to launch at the beginning of 'twenty 'twenty four selective process as strategic partner in driving their growth strategy.

SKS Airways will use Pro's revenue management platform to help them predict demand, scale their operations, and maximize revenue.

S. K S Airways will use pros revenue management platform to help them predict them in scale their operations and maximize revenue.

Now I'm excited to share a few of the incredible expansions we saw with our customers.

Now I'm excited to share a few of the incredible expansions, we saw with our customers in Q3.

Ingredient, a leading global ingredient solution provider, began their journey with PROS to drive a digitally connected sales motion and optimize price.

Ingredient in leading global ingredient solutions provider begin their journey with pros to drive a digitally connected sales motion and optimize pricing.

Since implementing our platform, ingredient is driving more accurate pricing by leveraging real-time cost changes, resulting in faster time to quote in an improved customer experience.

Since implementing our platform ingredient is driving more accurate pricing by leveraging real time cost changes, resulting in faster time to quote and an improved customer experience.

Ingredient has expanded margins using Prose.ai Power Pricing to optimize product and customer

Ingredient has expanded margins using pros, hey, I power pricing to optimize product and customer mix and even highlighted this on their recent earnings call.

and even highlighted this on the recent earnings call.

Ingredient CEO James Zalley said on the call or results demonstrate our ability to be responsive to shifting market dynamics. In Deliver continued.

Ingredients CEO, James Sallie said on the call or results demonstrate our ability to be responsive to shifting market dynamics in deliver continued profit growth.

We're proud of ingredient success. And pleased to share the expanded their use of the PRO's platform to a new region, each of the last two courts.

We're proud of ingredients success I'm pleased to share they expanded their use of the pros platform to a new region each of the last two quarters.

Air New Zealand expanded their use of the PROS platform with the adoption of dynamic offer solutions.

Air New Zealand expanded their use of the pros platform with the adoption of dynamic offers solution.

With pro-Synamic offers, Erin New Zealand will modernize the retelling strategy with our leading capabilities in air fair shopping and pricing, enabling them to design, distribute and manage price fairs across direct, indirect and digital sales.

With pros dynamic offers air New Zealand will modernize the retelling strategy with our leading capabilities in air fare shopping and pricing, enabling them to design and distribute and manage price fair say cross direct indirect.

In digital sales channels.

Turkish Airlines expanded their use of our platform with their adoption of our digital offer marketing solution. In their recent goal life of our latest generation of solutions for revenue management, real-time dynamic pricing in Group C.

Turkish Airlines they expanded their use of our platform with their adoption of our digital offer a marketing solution in their rethink go life of our latest generation of solutions, where revenue management real time dynamic pricing in group sales.

Turkish Airlines has been a pro-customer since 2009, and it's been amazing to be part of their stunning breakthrough during this...

Turkish Airlines since then a pros customer since 2009, and it's been amazing to be part of their stunning breakthrough during this time.

Turkish Airlines has more than doubled the number of destinations it flies to since the beginning of our partnership. And today it flies to more countries than any other airline in the world.

Turkish Airlines has more than doubled the number of destinations at fly students since the beginning of our partnership in today fly has two more countries than any other airline in the world.

Our platform innovations enabled the next generation of modern retelling for Turkish Airlines on a massive global scale.

Our platform innovations the knee both the next generation of modern retailing for Turkish Airlines on a massive global scale.

Real-time dynamic pricing is the key to fueling revenue growth, managing availability, and intelligently controlling each off.

Real time dynamic pricing is the key to fueling revenue growth managing availability intelligently controlling each offer.

With the PROS platform, Turkish Airlines can increase online traffic and drive higher conversion rates of optimized softwares across their global passengers and group business.

With the pros platform Turkish Airlines can increase online traffic and drive higher conversion rates of optimize offers across your global passenger saying group business.

Driving their growth strategy.

In closing, I would like to thank our global team for making Prose an incredible company and delivering on our mission of helping people and companies out for free.

In closing I would like to thank our global team for making pros, an incredible company and delivering on our mission of helping people and companies outperform.

Also, I would like to thank our customers, partners, and shareholders for their ongoing support.

Also I would like to thank our customers partners and shareholders for their ongoing support of pros with that I would like to turn the call over to Stefan to cover financial performance and outlook.

With that, I would like to turn the call over to Stefan to cover financial performance.

Thank you, Anders, and good afternoon, everyone. We delivered another strong quarter, which puts us in a position to raise our outlook once again for the year.

Thank you Anders and good afternoon, everyone.

We delivered another strong quarter, which puts us in a position to raise our outlook once again for the year.

Your to date, we have grown our subscription revenue by 15% and total revenue by 10% while delivering over $20 million in improvements to both Adjusted Ebedaw and Free Cash.

Year to date, we have grown our subscription revenue by 15% and total revenue by 10%, while delivering over $20 million in improvements to both adjusted EBITDA and free cash flow.

We have now generated positive adjustment on a year-to-date basis and expect positive free cash flow for the full year after an expected seasonally strong fourth quarter.

We have now generated positive adjusted EBITDA on a year to date basis, and expect positive free cash flow for the full year after unexpected seasonally strong fourth quarter.

These profitability improvements have been made while also executing to our revenue growth.

These profitability improvements have been made while also executing to our revenue growth plan, we were off to a good start towards reaching our goal of achieving rule of 40 by 2026 and I am pleased with our progress towards these objectives.

We are off to a good start towards reaching our goal of achieving rule of 40 by 2026, and I am pleased with our progress towards these objectives.

Now for our third quarter results.

Subscription revenue in the third quarter was $60 million up 16% year over year. And total revenue was $77.3 million up 10% year over year, both exceeding the high end of our guidance range.

Subscription revenue in the third quarter was $60 million up 16% year over year, and total revenue was $77.3 million up 10% year over year, both exceeding the high end of our guidance ranges our third quarter recurring revenue was 84% of total revenue.

As expected, our third quarter calculated buildings were relatively flat year over year and increased 5% for the trelling 12 months.

As expected our third quarter calculated billings were relatively flat year over year and increased 5% for the trailing 12 months.

As a reminder, the size and timing of our billings have an impact on our quarterly growth rate.

As a reminder, the size and timing of our billings have an impact on our quarterly growth rate.

Our trading 12 month gross revenue retention rate in the third quarter remained above 93%.

Our trailing 12 month gross revenue retention rate in the third quarter remained above 93%.

Non-GAP subscription gross margin was 78% for the quarter, improving from 77% to Europe .

non-GAAP subscription gross margin was 78% for the quarter improving from 77% a year ago.

Our non-GAP services Martin was 9% in the third quarter, improving from 4% to year ago.

Our non-GAAP services margin was 9% in the third quarter, improving from 4% a year ago.

Our overall profitability improvements start with gross margins, and year-to-date we have delivered over 145 basis points of improvement to subscription gross margins and over 800 basis points of improvement to services gross margins compared to last year.

Our overall profitability improvements start with gross margins and year to date, we have delivered over 145 basis points of improvement to subscription gross margins and over 800 basis points of improvement to services gross margins compared to last year.

Driving greater efficiencies in how we deliver our solutions has been an area of focus for our professional services and product teams, and I want to congratulate them for their achievements in this area.

Driving greater efficiencies in how we deliver our solutions has been an area of focus for our professional services and product teams and I want to congratulate them for their achievements in this area.

Adjusted EBITDA was $5.6 million in the third quarter, exceeding guidance.

Adjusted EBITDA was $5 $6 million in the third quarter exceeding guidance.

We also generated $8.5 million of free cash flow in the third quarter, a $17.6 million improvement compared to last year.

We also generated $8 $5 billion of free cash flow in the third quarter, a $17 $6 million improvement compared to last year.

From a balance sheet perspective, we exited the third quarter with $169.1 million of cash and cash equivalents and have access to our $50 million revolving line of credit.

From a balance sheet perspective, we exited the third quarter with $169 $1 million of cash and cash equivalents and have access to our $50 million revolving line of credit.

Additionally, we exchange approximately $122 million of our convertible notes due in May 2024 for approximately $117 million of additional notes under our 2027 indenture.

Additionally, we exchanged approximately $122 million of our convertible notes due in May 2024 for approximately $117 million of additional notes under our 'twenty 'twenty seven indenture.

The new notes under the 2027 indenture are recorded on our balance sheet at fair value because our 2027 notes were trading at a premium to par. So even though the exchange resulted in a lower level of debt at par value, our balance sheet will reflect a higher amount of debt.

The new notes under the 2027 indenture are recorded on our balance sheet at fair value because our 2027 notes were trading at a premium to par so even though the exchange resulted in a lower level of debt at par value our balance sheet will reflect a higher amount of debt.

This non-cash premium will be amortized down to the debt's par value over the next four years.

This noncash premium will be amortized down to the depths par value over the next four years.

As a result of this exchange, we have reduced our debt due in May of 2024 to approximately $22 million.

As a result of this exchange we have reduced our debt due in may of 'twenty 'twenty four to approximately $22 million.

Our non-GAAP earnings per share was nine cents per share.

Now turning to guidance.

For the full year, we are raising our subscription and total revenue guidance. We expect subscription revenue to be in the range of $233.3 million to $233.8 million and total revenue to be in the range of $302.2 million to $303.2 million.

For the full year, we are raising our subscription and total revenue guidance, we expect subscription revenue to be in the range of $233 $3 million to $233 $8 million and total revenue to be in the range of $302.2 million to $303.2 million.

We are also raising the midpoint of our EBITDA and free cash flow guidance. We expect adjusted EBITDA profit for the full year of between $6.5 million and $7.5 million and free cash flow of between $3.5 million and $6.5 million.

We are also raising the midpoint of our EBITDA and free cash flow guidance, we expect adjusted EBITDA profit for the full year of between $6 $5 million and $7 $5 million and free cash flow of between $3.5 million and $6 $5 million.

We're maintaining our guidance for subscription ARR at $251 million to $254 million.

We're maintaining our guidance for subscription are are at $251 million to $254 million.

And for the fourth quarter, we expect subscription revenue to be in the range of 60 to 60.5 million dollars and total revenue to be in the range of 76 to 77 million dollars. We are anticipating a sequential decline in services revenue due to the holidays.

And for the fourth quarter, we expect subscription revenue to be in the range of $60 million to $65 million in total revenue to be in the range of $76 million to $77 million. We are anticipating a sequential decline in services revenue due to the holidays.

We expect fourth quarter adjusted EBITDA profit of between $3.4 million.

We expect fourth quarter, adjusted EBITDA profit of between three and $4 million.

and using an estimated non-GAAP tax rate of 22%, we anticipate fourth quarter non-GAAP earnings per share of between three and five cents per share based on an estimated 47.5 million diluted weighted average shares outstanding.

And using an estimated non-GAAP tax rate of 22%, we anticipate fourth quarter non-GAAP earnings per share of between three and five cents per share based on an estimated 47.5 million diluted weighted average shares outstanding.

In closing, I would like to thank our employees and customers for their continued passion and support. We also thank our shareholders for their continued support of PROSE, and we look forward to speaking with you at our upcoming event.

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

We also thank our shareholders for their 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.

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 would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Thank you at this time, we will 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 if he 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 key.

participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

One moment, please while we poll for questions.

Our first question comes from the line of Chad Bennett with Craig Hallam Capital Group.

Our first question comes from the line of Chad Bennett with Craig Hallum Capital Group.

Please proceed with your question.

Great, thanks. Nice job again on great execution in the quarter. It's great seeing the re-acceleration in subscription revenue growth to 16 percent. Pretty material year-to-date. And then also that flowing down to a very nice EBITDA and earning speed.

Great. Thanks.

Nice job again.

Great execution in the quarter, it's great seeing the.

Reacceleration in subscription revenue growth to 16%.

Pretty material year to date, and then also that flowing down to a very nice EBITDA and earnings beat.

I guess question I have is you know.

Question I have is, you know, I kind of mark down, Andre, all the logos you talk about and expansions every quarter. And I could be wrong, but I think there are a fair amount of travel related transactions this quarter. Or can you give us a sense of where we are in that recovery and maybe into the fourth quarter here and how we should think about the travel business and bookings there.

Markdown Andreas all the all the logos you talk about an expansion as every quarter.

And I could be wrong, but I, but I think there are a fair amount of travel related transactions this quarter.

Can you give us a sense of where we are in that recovery in <unk> and maybe into the fourth quarter here and how we should think about the travel business and bookings there.

Yeah, Ted, great question. Yes, I would say travel had a good quarter, a very strong quarter, and we're very pleased both on the lands with Gold Airlines, Jet Smart, and SKS Airways as examples, and also on the expansion side as well. You know, Air New Zealand expanding to dynamic offers, a huge win for us and continuing to to.

Yes, Chad Great question, Yes, I would say a travel had a good quarter, a very strong quarter and we're very pleased all on the land with all airlines that smart and S. K S Airways to see samples.

And also on the expansion side as well.

Air New Zealand, expanding too dynamic offers a huge win for us and continuing to brought in.

our reach within Air New Zealand and also Turkish Airlines continuing to expand now with our digital offer marketing. What I would tell you is that where we innovated during the pandemic is areas that airlines we knew when they started investing they would want to adopt these solutions and indefinitely they're resonating and the market is improving as we expected into Q3 and Q4. Instagram.

Our reach within Air New Zealand and also at Turkish Airlines continue to expand now with our data Tau for marketing what I would tell you is that we're we innovated during the pandemic is areas that airlines, we knew when they started investing.

They would want to adopt these solutions and indefinitely there resonating in the market is improving as we expected our into Q3 and Q4.

Okay, so we are seeing demand recovery into the second half here.

Okay. So so we are seeing seeing demand recovery.

Into the second half here.

Yes, yes, I would tell you it's pretty consistent with what we expected in a good way. We said we expected in the back half of the year for demand to pick up and we're seeing.

Yes, yes, I would tell you it's pretty consistent with what we expected in a good way. We said, we expect that in the back half of the year for demand to pick up and we're seeing it.

Okay, and then maybe just on the other side of the B2B side of business, just in terms of

Okay, and then maybe just on the other side of the B to B side of the business.

Just in terms of of you know.

you know, how to characterize, I think you talked about last quarter, a pretty significant reduction in sales cycles, I think he said 30%.

How would you characterize it I think you talked about last quarter, a pretty significant reduction in sales cycles, I think you said, 30%.

and improvement in new logo activity that you saw last quarter. Is that business, I assume it's driving the re-acceleration or a decent amount of it, but there are any characterization of how much that business has accelerated year-to-date and how to think about that going forward.

And a improvement in new logo activity that you saw last quarter.

Is that business, yeah, I assume it's driving the reacceleration or a decent amount of it but is there any characterization of how much that business has accelerated year to date and how to think about that going forward.

Thanks. Yeah, Chad. Great question. We're seeing the same improvement in the B2B new logo velocity that we talked about last quarter. We're seeing about a 30% improvement in those sales cycle times.

Yes, Chad Great question, we're seeing the same improvement in the beta V. New logo velocity that we talked about last quarter, we're seeing about a 30% improvement in those sales cycle times and where.

Operator: Greetings. Welcome to the PROS Holdings Third Quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

And we're continuing to drive deal growth there. We're always proud to talk about the lands like Genesis Energy and Trivium Packaging, as well as I would tell you the land realize and expand strategy that we started at the beginning of the year, we're seeing it working. Ingredient is a perfect example. You know, they're seeing significant value in each of the last two quarters, Q2 and Q3. They expanded into new regions.

We're continuing to drive deal growth there, we're always proud to talk about the land site Genesis energy in trivium packaging.

Operator: A question and answer session will follow the former presentation. If anyone should require operator assistance during a conference, please fresh stars zero on your telephone keypad. As a reminder, this conference is being recorded.

As well as I would tell you the land realized and expand strategy that we started at the beginning of the year, where you're seeing it working our ingredient is the perfect example, you know they're seeing significant value in each of the last two quarters Q2, and Q3, they expand it into new regions.

Belinda Overdeput: I would now like to turn a conference call over to Belinda Overdeput, Director of Investive Relations. 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.com. Our prepared remarks will be available on our website immediately following the call, and will be replaced by the official transcript, which includes participant questions once available.

And I believe that motion, while we're not fully to our potential, we're executing very well.

And I believe that motion, while we're not fully to our potential where we're executing very well.

Got it. Thanks for the color. Nice job. Thank you.

Got it thanks for the color nice job. Thank you.

Our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.

Our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.

Great.

Hi guys, thank you very much for taking my question. Good afternoon. I had two. My first, Andres, was just around, and I recognize that it's still early, but a question around the Microsoft partnership. Obviously, some excitement around Azure with the recent report, and seeing some interest in AI solutions. And I know it's early for you guys, but would be curious to hear how you characterize that sort of progress and what constitutes early success for the Microsoft partnership. And then I had a quick follow-up as well.

Hi, guys. Thank you very much for taking my question. Good afternoon I had two my first Andreas was just around and I recognize that it's still early but a question around the Microsoft partnership obviously.

I've been around Azure with the recent reported.

Belinda Overdeput: Actual results could differ materially from such statements in our forecast. For more information, please refer to the risk factors described in our SEC filings. Proz assumes no obligations of the any four looking statements to reflect future events or circumstances. As a reminder, during the call, we will discuss non-gap metrics, recommendations between each non-gap measure and the most directly comparable gap measure to the extent to which available without unreasonable effort are available in our earnings press release.

Some interest in AI solutions and I know, it's early for you guys, but would be curious to hear how you characterize sort of progress and what constitutes early success for the Microsoft partnership and then I had a quick follow up as well.

Yeah, I would tell you, look, the Microsoft partnership continues to strengthen in all areas. I think from an innovation, we're continuing to drive innovation on the front of open AI and in some generative AI capabilities around their next generation Viva sales platform and pros.

Yeah, I would tell you like the the Microsoft partnership continues to strengthen in all areas. So I think from many innovation, where we're continuing to drive innovation on that front.

Of open AI and some generative AI capabilities around their next generation Veeva sales platform and pros.

Andres Reiner: With that, I'll turn the call over to you, Andre. Thank you, Belinda. Good afternoon, everyone. And thank you for joining us on today's call. I'm proud to share we delivered a strong third quarter, exceeding our guidance ranges across all metrics. We grew in subscription revenue by 16% year over year, total revenue by 10% year over year, and delivered 5.6 million in positive adjusted EBITDA and improvement of 7.8 million year over year.

But on a go-to-market, I would tell you there's very strong collaboration across all of our geographies between Microsoft and pros. We can now resell our solutions in their marketplace.

But on the go to market I would tell you there is very strong collaboration across all of our geographies.

Between Microsoft and pros, we can now resell our solutions in their market place.

And we're working very well. Still early phases, but I would tell you, the partnership is as strong as has ever been.

And we're working very well, it's still early phases.

But I would tell you the partnership is as strong as it's ever been.

great. Okay excellent to hear and then just I'd look like a real strong quote for you guys in Europe and I just wanted to to present that a little bit and understand was it more than the B2B side, more in the air travel side and then be curious for any color around those deals, partner led or you know sort of the new more modular sales model what's driving that that strength. Thank you.

Great. Okay excellent to hear and then just on it looks like a real strong quarter for you guys in Europe and I just wanted to.

Andres Reiner: Our results are a testament toward teams relentless focus on driving profitable growth to achieve our goal of being a rule of 40 company by 2026. As the market increasingly embraces AI, pros long-term trajectory continues to strengthen. C-suite leaders across industries are encouraging their teams to infuse AI into their operations. In process, a clear choice given our enterprise AI is proven to fuel profitable revenue growth. When it comes to enterprise AI, accuracy, trust, and speed are critical.

Parse that a little bit and understand.

Was it but more on the <unk> side more on the air travel side and then.

Be curious for any color around those deals partly partner led or you know sort of the new more modular sales model, what's driving that.

Thank you.

Yeah, great question. I would tell you, like, in general, we're seeing, we're focused on this land-realized fan strategy. So I would say in general, we're trying to land these smaller deals and drive acceleration. As we know, it is a complex market. And we knew coming into this year, there was more important than ever that we land in a fast time to value.

Yeah No great question I would tell you like in general we're seeing we're focused on this land realize spanned strategy. So I would say in general where we're trying to land. These smaller deals and drive acceleration as we know it is a complex market and we knew coming into this year there is more.

Important than ever that we land I.

In a fast time to value you're able to measure up lift and drive quick expansion because companies are very focused on where are they in that setting I think we've executed on that strategy well both in traveling beta V with respect to EMEA, we saw good demand on the travel front.

Andres Reiner: And this is what sets pros apart. We ensure accuracy and trust by using an ensemble approach to combine multiple AI algorithms together. For example, when ensemble or price prediction algorithms without liar detection and explainable AI algorithms to deliver the most optimal and transparent results possible. Impossible. Or models are adaptive. They self-learn and recalibrate based on user interaction in real-time data signals to provide the most up-to-date predictions. We offer unparalleled solution performance, with response times that are guaranteed within milliseconds for real-time solutions.

be able to measure uplift and drive quick expansion because companies are very focused on where they invest. And I think we've executed on that strategy well both in travel and B2B. With respect to Mia, we saw good demand on the travel front with expansions and we talked about some of those and also on the B2B front. So across both sides, but I would say both teams are very, very focused on

With expansion some we talked about some of those and in all song to be to be Frank so across both sides, but I would say both teams are very very focused on on how we land an account and what is the best next offer that we can offer for existing customers to drive those rapid expansions.

on how we land an account and what is the best next offer that we can offer for existing customers to drive those rapid expansions.

Thank you so much.

Thank you.

Our next question comes from the line of Jason Salino with KeyBank Capital Markets, Inc.

Our next question comes from the line of Jason Selina with Keybanc Capital Markets Inc. Please proceed with your question.

Great, thanks for taking my question. You know, one on sales capacity, you know, next year's just around the corner at this point. Wanted to get an update how you're thinking about, you know, sales capacity heading into next year. You'll comfortable with your coverage. You know,

Andres Reiner: Through greater accuracy, trust and speed, PROS delivers the promise of AI today. Our mission is to help people and companies outperform. Reiner Price AI generates significant revenue, margin, and efficiency improvement for our customers, as shown in our Publish ROI study. Recently, we ran an analysis to see how this business outcomes translating to shareholder returns for customers. We found that PROS publicly traded customers outperformed the Dow in S&P 500 by more than 15 percentage points between the beginning of 2022 and the end of Q3 2023.

Great. Thanks for taking my question one on sales capacity next year is just around the corner at this point I wanted to get an update how you're thinking about.

Sales capacity heading into next year or do you feel comfortable with your coverage.

Any thoughts there.

Yeah.

Great question, Jason. I would tell you we're in a good place from a sales capacity. We've continued to add the reps that we need to onboard and get them productive for next year. So I feel like we're in a good place. We'll continue to execute through this quarter. We'll continue to have reps in preparation, but I feel we're in a really good place.

Question, Jason I would tell you we're in a good place from a sales capacity, we've continued to add the reps that we need to.

To onboard and get them productive for next year. So I feel like we're in a good place we will continue to execute through this quarter and it will continue to grab some preparation, but I feel we're in a really good place.

With the team, we're also continuing to focus on driving higher rep productivity. This is an area that we started and I would tell you, you know, we've made improvement to our CAC ratios and we feel we can get to best in class. And we're going to continue also to focus on driving higher rep productivity as we look into next year. But we feel from a capacity, we're in a good place.

With the team. We're also continuing to focus on driving higher Rep productivity. This is an area that we started and I would tell you you know we've made improvements to our CAC ratios and we feel we can get the best in class and we're going to continue also to focus on driving higher rep productivity as well.

Andres Reiner: I'm proud that we're helping such amazing customers drive these incredible returns. I encourage you to check out this chart in our Q3 Investor presentation. Or land and expand strategies working, demonstrated by our accelerating subscription revenue growth, significant improvements to profitability, and the pace at which we're continuing to land new customers and expand their use of our platform.

Look into next year, but we feel from a capacity we're in a good place.

Perfect. And then just a quick one for step in, on the ebit.beet, nice leverage there. Looks like you're raising this whole year by only a little bit. Any expenses or investments that we should be aware of or Q4?

Perfect.

And then just a quick one for steffan on the EBITDA beat nice leverage there it looks like you're raising the full year by only.

A little bit any expenses or investments that we should be aware of for Q4.

Andres Reiner: In Q3, we continued to welcome new logos across our target industries.

No, Jason, we we did in our forecast, assuming we, you know, deliver, you know, based on anticipation and how we're seeing the plan come in, there'll be some some variable compensation components that come into play in the fourth quarter. That's the only reason you see that number sequentially come down slightly from Q3 to Q4 is that, you know, potential variable incentive component. That's it. Great. Excellent.

No Jason we did in our forecast assuming we deliver based on anticipation of how we're seeing the plan come in and there'll be some some variable compensation components that come into play in the fourth quarter. That's the only reason you see that number sequentially come down slightly from Q3 to Q4 is that.

Andres Reiner: And now, I'll share a few examples. Deneth's energy and New Zealand-based electricity and gas supplier selected the PROS platform to provide a seamless customer experience with a harmonized omnichannel strategy. Travian packaging, a leading global manufacturer of metal packaging, selected the PROS platform in Q3 to fuel profitable growth.

The potential variable incentive component that's it.

Great excellent good stuff. Thank you.

Thank you.

Our next question comes from the line of Scott Berg with Needham. Please proceed with your question.

Our next question comes from the line of Scott Berg with Needham. Please proceed with your question.

Andres Reiner: Travian will improve their responsiveness to shifting raw material costs with dynamic pricing and drive accelerated time to quote with CPQ. Get smart in goal airlines selected the PROS platform to use our digital offer marketing solutions to increase online traffic and drive higher conversion of sales through digital channels.

Hi, Andreas and Stefan Congrats on a good quarter and thanks for taking my questions I guess, a couple of things some surprises one last thing to me.

questions. I guess a couple things.

There's a rumor at the end of the quarter that you've hired another investment bank potentially.

There's a rumor at the end of the quarter that you've hired a another investment banks potentially out I.

I guess evaluates a maybe some sort of incoming inquiries into the company not that I expect you to comment on any.

Acquisition activity on an on on the company and you're publicly but I guess any thoughts on what the criteria or scenario would be that you know maybe potentially.

Andres Reiner: SKS Airways, a new Malaysian terror planning to launch at the beginning of 2024, selected process is strategic partner in driving their growth strategy. SKS Airways will use PROS revenue management platform to help them predict a man scale their operations and maximize revenue.

but I guess any thoughts on what the criteria or scenario would be.

Actually go through with the sale of the company because I think you guys had a fantastic point right now with AI.

AI, you know, with rebound and travel, I would think.

With the rebound in travel I would think the future looks really strong and you probably have some interest in maintaining this is a public entity for a while thank you.

Yes, got great question. And obviously, look, we don't comment on rumors or markets speculation, but what we can tell you is that we are laser focused on executing our goal being a rule of 40 company by 2026.

Andres Reiner: Now I'm excited to share a few of the incredible expansions we saw with our customers 3. Ingredient, a leading global ingredient solution provider, begin their journey with PROS to drive a digitally connected sales motion and optimize pricing. Since implementing our platform, ingredient is driving more accurate pricing by leveraging real-time cost changes, resulting in faster time to quote an improved customer experience.

Yeah, Scott Great question, and obviously like we we don't comment on rumors or market speculation, but what we can tell you is that we are laser focused on executing our goal of being a rule of 40 company by 'twenty 'twenty six.

Andres Reiner: Ingredient has expanded margins using PROS AI power pricing to optimize product and customer mix, and even highlighted this on the recent earnings call. Ingredient CEO James Zalley said on the call, or results demonstrate our ability to be responsive to shifting market dynamics and deliver continued profit growth. We're proud of ingredient success and pleased to share the expanded their use of the PROS platform to a new region, each of the last two quarters.

We believe we're in a very strong market position, a leader in our space, 38 billion PAM, and we've proven that we're executing really well on our land realize and expand strategy. So we feel we have a great opportunity to drive pretty significant shareholder returns. So I think we're, we feel we're in a great place and we're just focused on expanding.

We believe we're in a very strong market position and leader in our space 38 billion Tam and we've proven that we're executing really well on our land realize and expand strategy. So we feel we have a great opportunity to drive pretty significant shareholder returns so I.

I think we're we feel we're in a great place and and we're just focused on executing.

Great. Thank you. And then from a follow-up perspective, stuff on you, beats, all profitability metrics pretty handling in the quarter. Looks like your sales marketing expense is down quarter over quarter more than kind of historical seasonal nays.

Great. Thank you and then from a follow up perspective, Stefan you beats a problem you know all profitability metrics pretty handily in the quarter. It looks like your sales and marketing expense was down quarter over quarter more than kind of the historical seasonal nature.

I guess anything driving that, in particular, in my guess is we should probably be thinking of sales and marketing being at a higher rate.

I guess anything driving that in particular in and my guess is we should probably be thinking of sales and marketing being at a higher rate here starting in Q4 going forward.

Yes, Kyle, I think your assumption about it going up again is a good one. The reason for the sequential decline from Q2 to Q3 had really to do with our outperform event. So a lot of resources go towards that event. Not only just the third party fees and the direct fees associated with it, but there's a lot of indirect fees that go to support that event. And so you saw that plus a couple of other events that occurred in the second quarter. And we didn't have as much in the third quarter. So that's the real big reason behind seeing that type of a movement. So again, to your point, I think going forward, you'll see that number start to rebound a bit.

Yeah, Scott I think your your assumption about it going up again is a good one the reason for the sequential decline from Q2 to Q3 had really to do with our outperform event. So.

Andres Reiner: Ernie Zielin expanded their use of the PROS platform with adoption of dynamic offers solution. With PROS dynamic offers, Ernie Zielin will modernize the retailing strategy with our leading capabilities in air fair shopping and pricing, enabling them to design, distribute and manage price fairs across direct and direct. In digital sales channels.

A lot of our resources go towards that event not only just the you know the third party fees and the direct fees associated with it but there's a lot of indirect fees that go to support that event and so you saw that plus a couple of other events that occurred in the second quarter and we didn't have as much in the third quarter. So that's the real big reason behind.

I'm seeing that type of a movement. So again to your point I think going forward, you'll see that number start to rebound a bit.

Andres Reiner: Turkish Airlines expanded their use of our platform with their adoption of our digital offer marketing solution, in their recent goal life of our latest generation of solutions for revenue management, real-time dynamic pricing in group sales. Turkish Airlines has been a PROS customer since 2009, and it's been amazing to be part of their stunning breakthrough during this time. Turkish Airlines has more than doubled the number of destinations it flies to since the beginning of our partnership, and today flies to more countries than any other airline in the world.

Great design, thanks for taking my questions.

Great. That's all I have thanks for taking my questions.

Thank you.

Our next question comes from the line of Parker Lane with Stiefel.

Our next question comes from the line of Parker Lane with Stifel. Please proceed with your question.

Yeah, guys, appreciate taking the questions here. First ones for you, Andres, you know, you're exposed to a lot of different industries out there. I'd be really curious to hear, you know, with the prioritization of AI and, you know, being that the subject that everyone's really concerned about, are there any particular verticals where you're seeing the greatest prioritization of AI or the budgets actually being a little bit more substantial than average?

Yeah, Hi, guys I appreciate you taking the questions here first one for you Andre as you know you're exposed to a lot of different industries out there I'd be really curious to hear with the prioritization of AI and big that the subject that everyone's really concerned about are there any particular verticals, where you're seeing the <unk>.

<unk> prioritization of AI or the budgets actually being a little bit more substantial substantial than average.

Yeah, Parker, great question. What I would tell you is while we're seeing industries that are being impacted, that maybe their performance is not well, we're not seeing the de-prioritization of our initiatives.

Yeah, Great question.

Andres Reiner: Our platform innovations enabled the next generation of modern retailing for Turkish Airlines on a massive global scale. Real-time dynamic pricing is the key to fueling revenue growth, managing availability and intelligently controlling each offer. With the PROS platform, Turkish Airlines can increase online traffic and drive higher conversion rates of optimized offers across their global passengers and group business, driving their growth strategy.

I would tell you is while we're seeing are industries that are being impacted but that maybe their performance not well, we're not seeing the prioritization of our initiatives. So broadly we're seeing very strong industry interest at cross and I think the importance of AI.

So broadly, we're seeing very strong industry interests across, and I think the importance of AI and digitization of sales and driving the right price guidance in this high volatility environment is continuing to resonate. And I think, you know, I said it all along at the beginning, I think it was very important for us.

<unk> and digitalization of sales and driving the right price guidance in this high volatility environment is continuing to resonate and I think you know I've said it all along at the beginning I think it was very important for us to be able to land small you're able to measure the uplift in ROI get to value quicker.

to be able to land small, be able to measure the uplift and ROI, get to value quickly. And that's executing to that has clearly demonstrated. I think the visibility of AI and the importance of AI has only increased.

Andres Reiner: In closing, I would like to thank our global team for making PROS an incredible company and delivering on our mission of helping people and companies outperform. Also, I would like to thank our customers, partners and shareholders for their ongoing support of PROS.

Yeah, and that's executing two that has clearly demonstrated I think the visibility of AI and the importance of AI has suddenly increase and I would say, we're seeing that more and more interest of adopting you know or gen. Four dynamic pricing algorithms are next generation of dynamic pricing for it for.

And I would say we're seeing that more and more interests of adopting, you know, or then for dynamic pricing algorithms or next generation of dynamic pricing for revenue management and travel solutions, digitization of the customer experience in travel in those areas.

Stefan Schulz: With that, I would like to turn the call over to Stefan to cover financial performance and now. Thank you, Andres, and good afternoon, everyone. We delivered another strong quarter, which puts us in a position to raise our outlook once again for the year. Year-to-date, we have grown our subscription revenue by 15% and told a revenue by 10% while delivering over $20 million in improvements to both adjusted EBITDA and free cash flow.

Our revenue management and travel solutions.

Did you did cessation of the customer experiencing travel in those areas.

So overall, I would tell you we feel pretty good about the market environment right now.

So overall I would tell you we feel pretty good about that the market environment right now.

Understood. Yeah, I appreciate that. And then, Stefan, for you, I know you've oriented investors and us on the sell side here around ARR as the core metric, but I wanted you to touch on RPO, if you could, a little bit. And when should we expect sort of a normalization in that metric? I saw it's declined here a couple of quarters.

Understood I appreciate that and then Steffan for you I know you've oriented investors and us on the sell side here around <unk> as the core metric, but what are you going to touch on RP O. If you cut a little bit and when should we expect sort of a normalization in that metric I saw it decline here a couple of quarters.

Stefan Schulz: We have now generated positive adjusted EBITDA on a year-to-day basis and expect positive free cash flow for the full year after an expected seasonally strong fourth quarter. These profitability improvements have been made while also executing to our revenue growth plan. We are off to a good start towards reaching our goal of achieving rule of 40 by 2026 and I am pleased with our progress towards these objectives. Now for our third quarter results, subscription revenue in the third quarter was $60 million of 16% year-over-year.

Yeah Parker.

You know, that is a function of the things that we've been talking about. You know, the, the, the, the, the land, realize and expand strategy. You know, we're, our, our typical contracts are going to be quite a bit smaller than they have been historically. And so in fact, unwinds throughout the RPO disclosure, you're, you're, you're, you're seeing an inconsistent way in which we used to run the business versus how we're running the business today. And it's showing itself.

No. That's a that is a function of the things that we've been talking about you know the honors his point about though the land realized and expand strategy.

Our typical contracts are going to be quite a bit smaller than they had been historically and so as that unwind throughout the RP O disclosure, you're you're you're seeing are inconsistent way in which we used to run the business versus how we're running the business today and it's showing itself in Rps. So to your point I think you know as we get.

Stefan Schulz: In total revenue was $77.3 million of 10% year-over-year, both exceeding the high end of our guidance ranges. Our third quarter recurring revenue was 84% of total revenue. As expected, our third quarter calculated billings were relatively flat year-over-year and increased 5% for the treading 12 months. As a reminder, the size and timing of our billings have an impact on our quarterly growth rate. Our treading 12-month gross revenue retention rate in the third quarter remained above 93%.

in RPOs. So to your point, I think, you know, as we get towards the mental part of next year, I think we should have that anniversary out. And so we should be starting to see the real impact of our, of the momentum in our business start to be reflective in more of those RPO metrics. Now, having said that, there's still anomalies that go into that metric just like there are with calculated buildings from a timing of renewal and, you know, when that occurs to regenerate that contractual obligation.

Towards the middle part of next year, I think we should have that anniversaried out and so we should be starting to see the real impact of our of the momentum in our business start to be reflected in more of those are P. O metrics now having said that there still are anomalies that go into that metric just like there are with calculated billings from a timing of renewal.

And when that occurs to regenerate that contractual obligation, but I think generally speaking we should see it more.

But I think, generally speaking, we should see an outcome that's more representative of the momentum in the business starting in the middle part of next year. Got it.

Stefan Schulz: Non-gap subscription gross margin was 78% for the quarter, improving from 77% to a year ago. Our non-gap services margin was 9% in the third quarter, improving from 4% to a year ago. Our overall profitability improvements start with gross margins. In year-to-date, we have delivered over 145 basis points of improvement to subscription gross margins and over 800 basis points of improvement to services gross margins compared to last year. Driving greater efficiencies in how we deliver our solutions has been an area focused for our professional services and product teams and I want to congratulate them for their achievements in this area.

Oh the outcome, that's more representative of the momentum in the business starting in the middle part of next year.

Got it okay. That's all for me. Thank you.

Thank you.

Our next question comes from the line of Camden Levy with Oppenheimer. Please, for-

Our next question comes from the line of Camden Levy with Oppenheimer. Please proceed with your question.

Hi, this is Camden Levy sitting in for Brian Schwartz. Thanks for taking my question. Just one year, giving your guys as exposure to the travel industry and just thinking about Q3 moving into Q4 specifically just this...

Hi, This is Cameron levy sitting in for Brian Schwartz. Thanks for taking my question just one here given your guys' exposure to the travel industry and just thinking about you know Q3 moving into Q4, specifically just this first month of October have you guys seen any like sequential softening in consumer demand from the ongoing conflict in the <unk>.

as it relates to Amia and just some of the strength that you saw in that market this quarter.

East as it relates to EMEA and just some of the strength that you saw in that market this quarter. Thanks.

Stefan Schulz: Adjusted EBITDA was $5.6 million in the third quarter exceeding guidance. We also generated $8.5 million of free cash flow in the third quarter, a $17.6 million improvement compared to last year. From a balance sheet perspective, we exited the third quarter with $169.1 million of cash and cash equivalents and have access to our $50 million revolving line of credit. Additionally, we exchanged approximately $122 million of our convertible notes due in May 2024 for approximately $117 million of additional notes under our 2027 indenture.

Yeah, kind of great question. I would tell you we're watching that very carefully. So far, we haven't seen any impact to demand or big impact to our customers. So, but we are actively monitoring the situation but so far, we have not seen an impact and we're not seen our customers be impacted by that. Currently.

Yeah kind of great. Great question I would tell you we're watching that very carefully so far we haven't seen any impact to demand or or big impact to our customers. You know so but we are actively monitoring the situation, but so far we.

Have not seen any impact and we're not seeing our customers being impacted.

Stefan Schulz: The new notes under the 2027 indenture are recorded on our balance sheet at fair value because our 2027 notes were trading at a premium to par. So even though the exchange resulted in a lower level of debt at par value, our balance sheet will reflect a higher amount of debt, this non-cash premium will be amortized down to the debt's par value over the next four years. As a result of this exchange, we have reduced our debt due in May of 2024 to approximately 22 million dollars. Our non-gap earnings per share was 9 cents per share.

By that currently.

Okay and then maybe just like following up on it any like of the customer conversation.

Okay, and then maybe just following up on it and he was like of the customer conversations or just ongoing pipeline that you had with travel partners, our suppliers and I guess like EMEA and middle East have any of those.

pipeline that you had with travel partners or.

the least, have any of those conversations maybe perhaps stalled or elongated as a result of October per se?

<unk>, maybe perhaps stalled or in one gauge it as a result of our October per se.

Yeah, great question. I would tell you no stalls, it's continuing. And I would say we are active engaging in both of those regions, the MIA and Middle East. And we're continuing to see the focus on their strategy. And I think they've seen the importance of innovating and the value that it can drive. So so far, we haven't seen any instances of them slowing down.

Yeah, Great question I would tell you no no stores, it's continuing and I would say we are actively engaging in in both of those regions EMEA and middle East and we're continuing to see that focus on on their strategy and I think.

They've seen the importance of innovating and the value that it can drive so so far we haven't seen any instances of them are slowing down.

Stefan Schulz: Now turning to guidance. For the full year we are raising our subscription and total revenue guidance. We expect subscription revenue to be in the range of 233.3 million dollars to 233.8 million dollars. And total revenue to be in the range of 322 million dollars. We are also raising the midpoint of our EBITDA and free cash flow guidance. We expect adjusted EBITDA profit for the full year of between $6.5 million and $7.5 million.

Okay. That's it for me. Thank you so much.

Thank you.

Our next question comes from the line of Victor Chang with Bank of America.

Our next question comes from the line of Victor Chang with Bank of America. Please proceed with your question.

Hi, Andrews, and hi, Stefan. Congrats on the solid quarter again.

Hi.

Hi, Stefan congrats on the solid quarter again.

just two from my side. Obviously you mentioned you continue to see if after a SouthPricho, but can you give us a more color maybe on the pipeline, what you're seeing at the top of the funnel, whether...

Just two from my side.

Obviously, you mentioned, you're continuing to see a faster sales cycle, but can you give us some more color maybe on the pipeline and what you're seeing at the top of funnel.

Stefan Schulz: And free cash flow of between $3.5 million and $6.5 million. We are maintaining our guidance for subscription ARR at $251 million to $254 million. And for the fourth quarter we expect subscription revenue to be in the range of 60 to 60.5 million dollars and total revenue to be in the range of 76 to 77 million dollars. We are anticipating a sequential decline in services revenue due to the holidays. We expect fourth quarter adjusted EBITDA profit of between $3.4 million. And using an estimated non-gap tax rate of 22%, we anticipate fourth quarter non-gap earnings per share of between $3.5 million per share based on an estimated 47.5 million diluted weighted average shares outstanding.

Weather.

There's more happening at the top and maybe if you split it by geography as well, maybe a bit more color on the U.S. as well, as it appears to be a bit softer in Q3.

There, there's more happy to have a pop and then.

And maybe if you could split it.

By geography, as well, maybe a bit more color on the U S as well as that there should be a.

A bit softer in Q2.

Great.

Yeah, Victor, great question. So we didn't see any softness in the US in Q3 and overall top of the funnel continues to grow well. We feel in a good position to continue to drive growth. So overall, I would tell you whether we look at industries or geographies, we're seeing good demand across. There's not an area that we're seeing.

Yeah Victor good great question. So we didn't see any softness in the U S. In in Q3 and overall top of the funnel continues to grow well it puts us in a in a we feel in a good position to continue to drive growth. So overall I would tell you whether we look at.

Industries or geographies, we're seeing good demand at cross there is not an area that we're seeing United decline, whether it be at the top end of the final or within a say Q3. So we saw a pretty pretty good demand across the U S Europe and in other regions.

you know, a decline, whether it be at the top end of the final or within, uh, say, Q3 . Uh, so we saw pretty, pretty good demand across the US Europe , uh, in, in, in, other regions.

Stefan Schulz: In closing, I would like to thank our employees and customers for their continued passion and support. We also thank our shareholders for their continued support of pros. And we look forward to speaking with you in our upcoming events.

as well as across industries.

As well as across industries, but one other thing I will note is that mix continues to be between new and existing in that 50 50 mix as well.

But one other thing I will notice the mix continues to be between new and existing in that 50-50 mix as well.

Operator: I will now turn the call back over to the operator for questions. Operator? Thank you.

Operator: At this time, we will be conducting a question in that session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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.

Got it. And then the other one is maybe on travel, obviously, you mentioned that demand is coming back, but just want to check, is the airline IT spend still below that pre-pandemic level? And as we think about 24 with all the volumes broadly normalized.

Got it and then the.

Operator: One more, please. While we pull for questions.

The other one is maybe on travel.

Obviously, you mentioned that demand is coming back, but just want to check is kind of the airline it spend still below the pre pandemic level.

And as we think about 'twenty four with all the volumes broadly normalized.

And when I think about airline industry in general, they're going through lots of new generation change both on distribution, you know, on software side with offer orders management, to expect

And when I think about airline on the street in general they're going through a once in a generation change both on distribution on on on software saw with often older smashed man.

Chad Bennett: Our first question comes from the line of Chad Bennett with Craig Hallam Capital Group. Please proceed with your question. Great. Thanks. Nice job again on great execution in the quarter. It's great seeing the re-acceleration and subscription revenue growth to 16% pretty material year-to-date. And then also that flowing down to a very nice EBITDA and earning speed. I guess the question I have is, you know, I kind of mark down on all the logos you talk about and expansions every quarter. And I could be wrong, but I think there are a fair amount of travel related transactions this quarter.

So ex that.

you know, a much bigger appetite in 24, 25, when should we see that coming in? Yeah, great question.

In a much bigger appetite in 'twenty four 'twenty five when should we see that coming in.

Yeah, Great question, Victor I would tell you that Q.

Q3 was the big progress order for us to see travel trend more towards it 2019.

Q3 was the big progress in order for us to see travel a trend more towards that 2019, our volumes and I think we you know we feel very good about Q4 and as we look into next year of that continuing so I think it's a little premature to.

volumes and I think we, you know, we feel very good about Q4 and as we look into next year of that continuing. So I think it's a little premature to call 24, but I feel all the ingredients are there. You know, airlines are starting to invest and they're investing in the areas that we innovated as we talked about. So.

Call 24, but I feel all the ingredients are there.

Andres Reiner: Or can you give us a sense of where we are in that recovery and maybe into the fourth quarter here and how we should think about the travel business and bookings there. Yeah, Chad, great question. Yes, I would say travel had a good quarter, a very strong quarter, and we're very pleased both on the lands with goal airlines yet smart in SKS Airways as examples. And also on the expansion side as well, you know, air New Zealand expanding to dynamic offers, huge win for us and continuing to broaden our reach within Air New Zealand and also Turkish airlines continuing to expand now with our digital for marketing.

You know airlines arc are starting to invest in and they are investing in the areas that we innovated as we talked about so.

I think our market position is continuing to strengthen and I think all the areas where we expanded our portfolio are resonating really, really well.

I think our market position is continuing to strengthen and I think all of the areas, where we expanded our portfolio are resonating really really well.

I mean, just recently, there was an article about Lufthansa and or continuous pricing as an example, that they've had very significant success this year. And they attribute to the investments they did.

Just recently there was an article about Lufthansa and our continuous pricing as an example.

<unk> had a very significant success this year and they attribute to the investments. They did you know with pros during the pandemic and now reaping those benefits those are great proof points that the innovations that we did are paying off and I and I believe that customers will continue to follow to adopt.

you know, with pros during the pandemic and now reaping those benefits.

Those are great proof points that the innovations that we did are paying off. And I believe that customers will continue to follow to adopt those latest generations of revenue management and our full solution from.

Andres Reiner: But I would tell you that where we innovated during the pandemic is areas that airlines, we knew when they started investing, they would want to adopt these solutions and indefinitely they're resonating and the market is improving as we expected into Q3 and Q4. Okay, so we are seeing demand recovery into the second half here. Yes, yes, I would tell you it's pretty consistent with what we expected in a good way. We said we expect that in the back half of the year for demand to pick up and we're seeing it.

Those latest generations of revenue management and our full solution from the data that's all fair marketing all the way into revenue management.

the digital fair marketing all the way into revenue management.

to drive better returns for their business. So overall, I feel very good about travel as we look into 24, but it's a little premature to call next year. Very clear. Thank you.

To drive better returns for their business. So so overall I feel very good about travel as we look into 'twenty four but it's a little premature to call next year.

Very clear thank you.

Thank you.

Thank you at this time.

We ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Belinda over to put.

Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Linda over to put 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 Steeple Midwest one-on-one growth conference in Chicago on November 9th. The Craig Hallum Alpha Select Conference in New York City on November 16th.

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 Stifel Midwest one on one growth conference in Chicago on November nine.

Chad Bennett: Okay, and then they just on the other side of the B2B side of business, just in terms of how to characterize, I think you talked about last quarter a pretty significant reduction in sales cycles. I think you said 30% and a improvement in new logo activity that you saw last quarter. Is that business, I assume it's driving the re-acceleration or a decent amount of it, but there are any characterization of how much that business has accelerated year to date and how to think about that going forward.

Craig Hallum Alpha Select conference in New York City on November 16th the Needham Virtual SaaS one on one conference also on November 16th and the year.

the Needham Virtual SAS 101 Conference, also on November 16th, and the UBS Global Tech Conference in Scottsdale on November 29th and 30th. If you have any questions following today's call, please contact us at iratpros.com. Thank you and goodbye. This concludes today's conference. You may disconnect your lines at this time.

<unk> Global Tech conference in Scottsdale on November 29, and 30 is 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 for your participation.

Chad Bennett: Thanks. Yeah, Chad, great question. We're seeing the same improvement in the B2B new logo velocity that we talked about last quarter. We're seeing about a 30% improvement in those sales cycle times and we're continuing to drive deal growth there. We're always proud to talk about the lands like Genesis Energy and Tribune Packaging as well as I would tell you, the land realized an expand strategy that we started at the beginning of the year.

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Chad Bennett: We're seeing it working ingredient as a perfect example. You know, they're seeing significant value in each of the last two quarters Q2 and Q3. They expanded into new regions and I believe that motion while we're not fully to our potential, we're executing very well. Got it. Thanks for the caller. Nice job. Thank you.

Okay.

Rob Oliver: Our next question comes from the line of Rob Oliver with Beard. Please proceed with your question. Great. Hi guys. Thank you very much for taking my question. Good afternoon. I had two.

Okay.

Okay.

Yeah.

Yeah.

Okay.

Yeah.

Okay.

Yeah.

Rob Oliver: My first, Andre was just around and I recognized that it's still early, but a question around the Microsoft partnership. Obviously, some excitement around Azure with the recent report and seeing some interest in AI solutions. I know it's early for you guys, but we'd be curious to hear how you characterize that sort of progress and what constitutes early success for the Microsoft partnership and then I had a quick follow up as well.

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Rob Oliver: Yeah, I would tell you, look, the Microsoft Partnership continues to strengthen in all areas. I think from an innovation, we're continuing to drive innovation on the front of OpenAI, and some generative AI capabilities around their next generation, Biva Sales Platform and PROS. But on a go-to market, I would tell you there's very strong collaboration across all of our geographies between Microsoft and PROS we can now resell our solutions in their marketplace, and we're working very well. Still early phases, but I would tell you, the partnership is strongest has ever been. Great, excellent to hear.

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Rob Oliver: And then just, it looks like a real strong quote for you guys in Europe, and I just wanted to parse on that a little bit and understand.

Andres Reiner: Was it more on the B2B side, more on the air travel side, and then be curious for any color around those deals, partner led or sort of the new more modular sales model, what's driving that strength. Thank you. Great question. I would tell you, look, in general, we're seeing we're focused on this land realized fan strategy. So I would say in general, we're trying to land these smaller deals and drive acceleration.

Andres Reiner: As we know, it is a complex market and we knew coming into this year, there was more important than never that we land in a fast time to value. To be able to measure uplift and drive quick expansion because companies are very focused on where they invest, and I think we've executed on that strategy well both in travel and B2B with respect to me, we saw good demand on the travel front with expansions and we talked about some of those in also on the B2B front.

Andres Reiner: So across both sides, but I would say both teams are very, very focused on on how we land an account and what is the best next offer that we can offer for existing customers to drive those rapid expansions. Thank you so much. Thank you.

Jason Celino: Our next question comes from the line of Jason Salino, a key bank capital markets ink, please will see which are a question. Great. Thanks for taking my question. You know, one on sales capacity, you know, next year is just around the corner at this point. I want to get an update how you're thinking about sales capacity, having in the next year, you feel comfortable with your coverage. Yeah, great question, Jason. I would tell you we're in a good place from a sales capacity.

Jason Celino: We've continued to add the reps that we need to onboard and get them productive for next year. So I feel like we're in a good place. We'll continue to execute through this quarter. It will continue to add reps in preparation, but I feel we're in a really good place with the team. We're also continuing to focus on on driving higher rep productivity. This is an area that we started and I would tell you, you know, we've made improvement to our calculations and we feel we can get to best in class and we're going to continue also to focus on driving higher rep productivity as we look into next year, but we feel from a capacity we're in a good place.

Jason Celino: And then just a quick answer, Stefan, you know, on the ebit.be, you know, nice leverage there. Looks like you're raising the full year by only a little bit, you know, any expenses or investments that we should be aware of or Q4. No, Jason, we, we did in our forecast, assuming we, you know, deliver, you know, based on anticipation and how we're seeing the plan come in. There'll be some, some variable compensation components that come into play in the fourth quarter. That's the only reason you see that number sequentially come down slightly from Q3 to Q4 is that, you know, potential variable incentive component. That's it. Great. Excellent. Good stuff. Thank you.

Scott Berg: Our next question comes from the line of Scott Berg with Needham.

Scott Berg: Please, we'll see what your question. [inaudible] Great design, thanks for taking my questions. Thank you.

Parker Lane: All right, next question comes with a line of Parker Lane with Steve Full. Please will see what your question is. Yeah, I guys appreciate taking the questions here. First one for you, Andres, you're exposed to a lot of different industries out there. I'd be really curious to hear with the prioritization of AI and being at the subject that everyone's really concerned about. Are there any particular verticals for your seeing the greatest prioritization of AI or the budgets actually being a little bit more substantial than average?

Parker Lane: Yeah, Parker, great question. What I would tell you is while we're seeing industries that are being impacted that maybe their performance not well, we're not seeing the deep prioritization of initiatives. So broadly, we're seeing very strong industry interests across and I think the importance of AI and digitization of sales and driving the right price guidance in this high volatility environment is continuing to resonate. And I think, you know, I said it all along at the beginning, I think it was very important for us to be able to land small, be able to measure the uplift and ROI, get to value quickly.

Parker Lane: And that's executing to that has clearly demonstrated. I think the visibility of AI and the importance of AI has only increased. And I would say we're seeing that more and more interests of adopting, you know, or then for dynamic pricing algorithms or next generation of dynamic pricing for revenue management and travel solutions, digitization of the customer experience and travel in those areas. So overall, I would tell you, we feel pretty good about the market environment right now. Understood. Yeah, I appreciate that.

Stefan Schulz: And then Stefan, for you, I know you've oriented investors and us on the health sit here around AR is the core metric, but what did you do to touch on RPO if you could a little bit and when should we expect sort of a normalization in that metric, I thought it's declined here a couple quarters. Yeah, Parker, you know, that's, that is a function of the things that we've been talking about, you know, the on this point about the land, realize and expand strategy, you know, we're our typical contracts are going to be quite a bit smaller than they have been historically. And so in that unwinds throughout the RPO disclosure, you're seeing an inconsistent way in which we used to run the business versus how we're running the business today and it's showing itself in RPOs.

Parker Lane: So to your point, I think, you know, as we get towards the middle part of next year, I think we should have that anniversary out. And so we should be starting to see the real impact of our, of the momentum in our business, start to be reflective in more of those RPO metrics. Now, having said that, there's still anomalies that go into that metric, just like there are with calculated billing from a timing of renewal and, you know, when that occurs to regenerate that contractual obligation.

Parker Lane: But I think generally speaking, we should see a more, an outcome that's more representative of the momentum in the business starting in the middle part of this. Next year. Got it. Okay. That's all from me. Thank you.

Camden Levy: All right. Next question comes from the line of Camden Levy with Oppenheimer. Please we'll see with your question.

Camden Levy: Hi, this is Camden Levy sitting in for Brian Schwartz. Thanks for taking my question. Just one year, giving your guys exposure to the travel industry and just thinking about, you know, Q3 moving into Q4 specifically just this first month of October. Have you guys seen any likes? Sequential softening and consumer demand from the ongoing conflict in the Middle East as it relates to Amia and just some of the strength that you saw in that market this quarter.

Camden Levy: Thanks. Yeah, kind of great question. I would tell you we're watching that very carefully so far we haven't seen any impact to demand or or big impact or customers. You know, so, but we we are actively monitoring the situation. But so far. We have not seen an impact and we're not seeing our customers being impacted by that currently. Okay, and then maybe just like following up on it and you like of the customer conversations are just ongoing pipeline that you had with travel partners or suppliers in.

Camden Levy: I guess like Amia and like Middle East have any of those conversations maybe perhaps sold or elongated as a result of October per se. Yeah, great question. I would tell you no, no stalls. It's continuing and I would say we are active engaging in in both of those regions. Amia and Middle East and we're continuing to see the focus on their strategy. And I think they they've seen the importance of innovating and the value that it can drive so far we haven't seen any instances of them slowing down.

Andres Reiner: Okay, that's it for me. Thank you so much. Thank you.

Victor Chang: Our next question comes from the line of Victor Chang with Bank of America. Please proceed with your question. I am just and high stuff on congrats on the color again. Just two from my side. Obviously you mentioned you continue to see a faster self-cycle, but can you give us a more color maybe on the pipeline, what you're seeing at the top of the funnel. You know, whether there's more happening at the top and maybe if you split it by, you know, by geography as well. Maybe a bit more color on the US as well as that players to be a bit softer in Q2. Thank you for it.

Victor Chang: Yeah, Victor, great question. So we didn't see any softness in the US in Q3 and overall top of the funnel continues to grow well. It puts us in a we feel in a good position to continue to drive growth. So overall, I would tell you whether we look at industries or geographies. We're seeing good demand across. There's not an area that we're seeing, you know, a decline, whether it be at the top end of the funnel or within, say, Q3.

Victor Chang: So we saw pretty pretty good demand across the US Europe in other regions as well as across industries. But one other thing I will notice the mix continues to be between new and existing in that 50-50 mix as well.

Andres Reiner: And then the other one is maybe on trouble. Obviously you mentioned that the mod is coming back, but just one check is could it be airline IT spent though below that pre pandemic level. And as we think about 24 with all the volumes broadly normalized. And when I think about airline industry in general, they're going through once in a generation change, both on distribution on, you know, on, on software side with offer orders management.

Andres Reiner: To expect, you know, a much bigger appetite in 24 or 25 when should we see that coming in. Yeah, great question, Victor, I would tell you that Q3 was the big progress order for us to see travel trend more towards it, 2019 volumes. And I think we, you know, we feel very good about Q4 and as we look into next year of that continuing. So I think it's a little premature to call 24, but I feel all the ingredients are there.

Andres Reiner: You know, airlines are starting to invest in and they're investing in the areas that we innovate it as we talked about. So I think our market position is continuing to strengthen. And I think all the areas where we expanded our portfolio are resonating really, really well. I mean, just recently, there was an article about Lufthansa and our continuous pricing as an example that they've had very significant success this year. And they attribute to the investments they did, you know, with pros during the pandemic and reaping those benefits.

Andres Reiner: Those are great proof points that the innovations that we did are paying off. And I can I believe that customers will continue to follow to adopt those latest generations of revenue management and our full solution from the digital fair marketing all the way into revenue management. And to drive better returns for their business. So overall, I feel very good about travel as we look into 24, but it's a little premature to call next year.

Victor Chang: Very clear. Thank you.

Operator: At this time, we ladies and gentlemen, we have reached the end of the question and answer session.

Belinda Overdeput: I would like to turn the call back to Belinda over to put 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 steeple Midwest one-on-one growth conference in Chicago on November 9th. The Craig Hallum Alpha Select Conference in New York City on November 16th. The Needham virtual staff one-on-one conference also on November 16th. And the UBS Global Tech Conference in Scottsdale on November 29th and 30th.

Belinda Overdeput: If you have any questions following today's call, please contact us at ir at pros.com. Thank you and goodbye.

Operator: This concludes today's conference. Thank you for your participation Thank you