Q3 2024 PROS Holdings Inc Earnings Call
Speaker Change: Greetings, Welcome to Pro's Holings Third Quarter 2020 for earnings conference call.
Speaker Change: At this time, I'll participate in the list only mode. A question and answer session will follow the formal presentation. If anyone's require operator assistance, join the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. I would now like to turn the conference over to Belinda Overdeput, Senior Director of Investor Relations. Please go ahead.
Belinda Overdeput: Thank you, operator, good afternoon everyone, and thank you for joining us.
Belinda Overdeput: Our earnings press release, SEC filings, and a replay of today's call can be found on the investor relation section of our website at pros.com. Our prepared remarks are also available on our website, and we'll be replaced by the official transcript, which includes participant questions once available.
Belinda Overdeput: With me on today's call is Andres Reiner, President and Chief Executive Officer, and Stefan Schulz, Chief Financial Officer.
Belinda Overdeput: Please note that some of the commentary today will include forward-looking statements, including, without limitation, those about our strategy, feature business prospects and market opportunities, and our financial projections and guidance.
Belinda Overdeput: Actual results can differ materially from such statements in our forecast. As always, our guidance is based on current conditions. We are cognizant of a number of geopolitical risks and uncertainties that could impact the macroeconomic environment.
Speaker Change: 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 available without unreasonable effort, are available in our earnings press release. With that, I'll turn the call over to you, Andres.
Andres Reiner: Thank you, Belinda. Good afternoon, everyone, and thank you for joining us on today's call. We delivered a strong third quarter, exceeding the hand of our guidance ranges across all metrics.
Andres Reiner: Year-to-date, we have grown our subscription revenue by 14% while delivering a 448% improvement to adjusted EBITDA and a 217% improvement to free cash flow.
Andres Reiner: I am incredibly proud of our team for how we are winning in our markets and driving operational efficiency as we scale even sooner than we expected. This is a clear testament to our ability to drive sustainable, profitable growth.
Andres Reiner: We are well positioned to continue to capture our market opportunity, as key themes converge across the industries we serve.
Andres Reiner: B2B businesses are increasingly prioritizing digital and self-serve experiences.
Andres Reiner: Much like airlines and other B2C sectors have for years, airlines are seeking greater control over their products and orders across all channels, similar to how B2B businesses have managed their inventory and offers.
Andres Reiner: AI remains a strategic priority across all sectors.
Andres Reiner: These three trends reinforce the unique value of the PROS platform.
Andres Reiner: Our innovations are focused on helping all industries we serve attract demand digitally, drive digital collaboration between buyers and sellers, and win business.
Andres Reiner: A great example is our launch of an embedded AI agent in our search engine marketing solution. Our SEM solution now leverages advanced AI models to optimize bidding strategies for paid search.
Andres Reiner: One AI model analyzes the trend of clicks in average cost per click, while another estimates the probability of conversion.
Andres Reiner: These insights inform the EIAgent that recommends optimized bid proposals, helping marketing teams achieve better search engine performance and maximize ROI.
Andres Reiner: We also expanded the PROS platform with the launch of our Smart Rebate Management solution, which empowers sellers to deliver optimized, comprehensive offers in a fully digital experience.
Andres Reiner: By integrating pricing, discounts, promotions, and rebates,
Andres Reiner: Sellers gain a holistic view of how economic levers interact with each other, empowering them to present more tailored, optimal offers to their buyers.
Andres Reiner: Our platform will power the execution of rebate-inclusive offers across all sales channels.
Andres Reiner: Our market-leading platform is highly differentiated, and our value proposition is stronger than ever. Our platform continuously measures and tracks the value customers generate through our solutions as part of our customer adoption program.
Andres Reiner: And the results only get stronger. Our customer adoption program now shows that using PRO's price recommendation leads to an average margin uplift of over 650 basis points.
Andres Reiner: Our team is executing well against our market opportunity.
Andres Reiner: Todd and our go-to-market leadership team have been instrumental in scaling our go-to-market operations.
Andres Reiner: A testament to this execution is our Q3 results, where we had incredible wins across industries, with approximately 50% of our bookings coming from new logos.
Andres Reiner: I'll share a few examples.
Andres Reiner: One of the world's top 5 telecommunication providers selected PROS to harmonize pricing across their portfolio. By leveraging AI to optimize strategies for promotions and device launches.
Andres Reiner: Pros will play a pivotal role in transforming their pricing capabilities, enabling them to drive greater efficiency, profitability, and growth.
Andres Reiner: This partnership underscores the trust that leading enterprises place in pros to be at the heart of their commercial strategy.
Andres Reiner: Similarly, Valen, a leader in integrated supply and industrial distribution, chose the PROS platform to dynamically adapt to market changes in real-time with AI-powered price optimization.
Andres Reiner: empowering them to bring winning offers to market and fuel profitable growth.
Andres Reiner: Twist Bioscience, a company at the forefront of synthetic DNA manufacturing, adopted ProSmart CPQ to accelerate and simplify quoting for their DNA products, using critical fields such as cancer research.
Andres Reiner: South African Airways selected pros offer marketing to scale their growth efforts by creating customized content rich web pages that will increase direct bookings and enhance their SEO performance for greater visibility.
Andres Reiner: In addition to our amazing new customer wins, we're continuing to see strong expansions within our existing base.
Andres Reiner: This highlights the value of our platform in continuously driving growth for our customers.
Andres Reiner: I'm incredibly proud of where we are as a business.
Andres Reiner: Our strategy, platform, and people are well positioned to lead the market and continue driving growth.
Andres Reiner: We have delivered significant improvements in operational efficiency that have consistently expanded our margins. And we have the strongest leadership team we have ever had.
Speaker Change: The board is conducting a search, including internal and external candidates, and we will work diligently to find the best successor to continue to capitalize on the large market opportunity in front of us.
Speaker Change: I will remain in my role until my successor is named, and I will stay at process and advisor for one year after to ensure a seamless succession.
Speaker Change: In closing, to our exceptional global team, thank you for your unwavering dedication to pros, our customers, and our communities.
Speaker Change: Also, extend my deep gratitude to our customers, partners, and shareholders for their ongoing support. With that, I will turn the call over to Stefan to cover financial performance and outlook.
Stefan Schulz: Thank you, Andres. First, I want you to know how much I appreciate everything you have done for the company and for me. I believe that PROSE is in a strong position and our results in the third quarter demonstrate this strength.
Stefan Schulz: In the third quarter, we exceeded the high end of our guidance ranges across all metrics. Our go-to-market team executed well and improved the linearity of our bookings in the quarter.
Stefan Schulz: Similarly, our teams across the organization continue to drive greater operational efficiencies, even ahead of our expectations, which led to improved outlooks for adjusted EBITDA and free cash flow for the year.
Stefan Schulz: These efficiencies can also be seen in our marginal profit this year. For example, we have delivered 81 cents of every incremental revenue dollar to adjusted EBITDA on a year-to-date basis.
Stefan Schulz: Now for some more details on our results.
Stefan Schulz: Subscription revenue in the third quarter was $67.1 million, up 12% year-over-year. And total revenue was $82.7 million, up 7% year-over-year, both exceeding guidance.
Stefan Schulz: Our third quarter recurring revenue increased to 85% of total revenue, and our trailing 12-month gross revenue retention rate continues to be 93% or better.
Stefan Schulz: Calculated billings in the third quarter increased 3% year-over-year and 9% for the trailing 12 months, slightly above our expectations, and a strong improvement over last year, further demonstrating strength in the quarter.
Stefan Schulz: Looking forward, we expect the full-year growth rate for calculated billings to approximate total revenue growth.
Stefan Schulz: Our overall non-gap gross margin was 68% in the third quarter, an improvement of approximately 220 basis points year-over-year, and an all-time high for pros as a SAS company.
Stefan Schulz: We delivered adjusted EBITDA of $9.3 million in the third quarter and achieved double-digit adjusted EBITDA margin.
Stefan Schulz: This significantly exceeded guidance and was an improvement of 65% year-over-year.
Stefan Schulz: And our third quarter non-GAAP earnings per share was 14 cents per share, also exceeding guidance.
Stefan Schulz: We are also raising our adjusted EBITDA and free cash flow ranges for the year. We expect adjusted EBITDA to be between $27.5 million and $28.5 million, representing an improvement of 367% year-over-year at the midpoint.
Stefan Schulz: Our free cash flow for the year is expected to be in the range of $21 million to $24 million an improvement of 98% year-over-year at the midpoint.
Stefan Schulz: We are reiterating the guidance midpoint for total revenue.
Stefan Schulz: As this is the last quarter in 2024, we are narrowing the previous range for total revenue to $329.5 million and $330.5 million, which represents 9% growth at the midpoint.
Stefan Schulz: We are reiterating the same guidance range for subscription ARR of $280 million and $284 million, representing 9% growth at the midpoint.
Stefan Schulz: The fourth quarter is typically the largest booking quarter for pros, and we anticipate that to be the case this fourth quarter.
Stefan Schulz: Shifting to guidance for the fourth quarter, we expect subscription revenue to be in the range of between 68.5 million dollars and 69 million dollars representing 13 percent growth at the midpoint.
Stefan Schulz: We expect total revenue to be in the range of between $84.1 million and $85.1 million, representing 9% growth at the midpoint.
Stefan Schulz: We expect adjusted EBITDA of between $8.4 million and $9.4 million an improvement of 254% year-over-year at the midpoint.
Stefan Schulz: Using a non-GAAP estimated tax rate of 22%, we anticipate fourth quarter non-GAAP earnings per share between $0.12 and $0.14 per share, based on an estimated 47.5 million diluted weighted average shares outstanding.
Stefan Schulz: In closing, I would like to thank our global team and our customers for their continued support of PROSE.
Stefan Schulz: We also thank you, our shareholders, for your support, and we look forward to speaking with you at our upcoming events.
Stefan Schulz: I will now turn the call back over to the operator for questions. Operator?
Speaker Change: 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. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions.
Speaker Change: Our first question is from Scott Berg with Needham & Company. Please proceed.
Scott Berg: Why now? Why is the right time to step down after what I think is 14 years at the CEO position, you know, especially with the company seemingly having a really strong product set today. And then as you think about, you know, who the potential replacement is in the CEO president's role, what's the maybe the right profile, right fit that you all are looking for?
Speaker Change: Yeah, thank you Scott. First of all, I'd say I'm incredibly proud of the team. I think we have the strongest team we've ever had in the strongest product position with an incredible strategy. Like I think our market opportunity in front
Speaker Change: It's incredible, and I think I could not be more proud of the team that we have.
Speaker Change: in this strength that we have at all levels.
Speaker Change: And I think that becomes the foundation for me personally, it's about spending more time with my family and really switching to my next chapter of helping others is something I'm very passionate about. So it's a very personal decision, but it's because of my confidence in the business.
Speaker Change: and the amazing team that we have. And I feel that our competitive position, it is at an all-time high. The way we're executing.
Speaker Change: is very strong, and that puts us in that position. We want to have it very orderly. Obviously, we're committed, the board and myself, to find the best person possible, and we're not going to rush this process.
Speaker Change: We're going to take our time to find the right person.
Speaker Change: And, you know, obviously, we want somebody that can build on the strong foundation that we've built and really help us capitalize on this large market opportunity. So.
Speaker Change: I'm excited to work with the board on this. I'm committed to staying through and for a year after that as an advisor, and we want to make sure this is
Speaker Change: Good night.
Speaker Change: That's it.
Speaker Change: Well, we will certainly miss your passion. On to the quarter.
Speaker Change: How did that transcribe kind of in the third quarter, and how are you thinking about that kind of near term, whether it's in the Q4 or even early into 2025?
Speaker Change: Yeah, great question, Scott. I would say, look, Q3 was in line with what we expected on travel. We saw some great new deals, which I talked about.
Speaker Change: We are continuing the strategy on the new ones, finding easy ways to get started.
Speaker Change: in driving value, and then we had some great expansions, and Wisconsin is an example of that.
Speaker Change: Ixiana, Etihad. In those, you know, where we're driving value, I think all the areas where we've innovated, Lufthansa is an example, with request-specific pricing, it's one of the latest innovations.
Speaker Change: that drives immense value for them so they want to accelerate the rollout across all markets.
Speaker Change: So I would say it was a quarter like we expected. I would say B2B was really outperforming the quarter and continues to perform very, very well year-to-date.
Speaker Change: Very helpful. I will jump back in the queue. Thank you again.
Speaker Change: Great. Thank you, Scott.
Speaker Change: Our next question is from Parker Lane with Stiefel. Please proceed.
Parker Lane: Yeah, hi guys, thanks for taking the question and Andres, congrats on retirement. Best of luck going forward. The first one is
Parker Lane: first step and
Parker Lane: Some pretty nice leverage in the business here in the third quarter across a couple of different lines and clearly a nice outlook for a just a diva thought
Parker Lane: Can you just speak to some of the different areas where you're seeing that leverage today?
Parker Lane: If there's any sort of one-time factors or changes in strategy that may accelerate the pace of that leverage in the next couple quarters here.
Speaker Change: Hey, Parker. Yeah, you know, I'm incredibly happy with the progress we're making, and really it's across the board from a leverage and efficiency standpoint.
Speaker Change: You know, one of the things that Andres has talked about now for the last year has been how we can gain more efficiencies
Speaker Change: leveraging AI and everything we do and I must say our teams have really responded around that and that's probably one of the bigger drivers of things that we've been able to do that
Speaker Change: you know, automate tasks or make big tasks more efficient.
Speaker Change: And it's, you know, all the way from how we implement our products to how we, you know, respond to internal inquiries or even respond to external inquiries.
Speaker Change: There's so many things we've been able to do more efficiently than we would have before and like I said
Speaker Change: It's across the board.
Speaker Change: We did have, and you may notice this when you look at our operating expenses, our G&A line was down a little more than you might expect. We did have a one-time benefit and some professional fees that helped us there. That will bounce back, G&A will bounce back to where it was kind of trending before.
Speaker Change: But in general, we continue to look for ways to innovate, and I would tell you we're not finished. There are still more things in the queue, and so while I don't know that we'll be generating 81 cents of EBITDA for every incremental dollar of revenue going forward, I think we'll be showing a really nice leverage in each revenue dollar we generate going forward as well.
Speaker Change: Yeah, very helpful. Okay, and then Andres, we're about two years removed from the public launch of ChatGPT. You guys have done a great job on the product side of really, you know, leveraging your AI features and expertise, bringing new things to the fore like embedded AI agents in the search process.
Speaker Change: Can you just sort of assess where we are relative to two years ago, one year ago, in terms of, you know, how much the AI boom is benefiting your business, top of the funnel? Is this sparking a lot of conversations?
Speaker Change: Is it something that people are in the discovery phase of? How actionable is the public awareness of AI in your sales process?
Speaker Change: Yeah, Parker, great question. I would say, look, AI stopped the mind to everyone. I think what uniquely differentiates pros is that AI wasn't an add-on feature. In every one of our products,
Speaker Change: AI's core to the product itself. And I think what we're seeing in the market is that companies don't just want an AI feature, they want technology that has AI embedded, like the SEM, which I talked about, we just launched.
Speaker Change: that now embeds AI to really optimize the ad spend.
Speaker Change: These are real meaningful, but it's at the core foundational of that solution. And if you look at our product platform now, all of our components.
Speaker Change: have always had embedded AI at the core.
Speaker Change: and that drives very differentiated value. I think every company, and I've been saying this for a long time, is really focused on digitizing, automating, and embedding AI to be continuously learning and that theme is really resonating in the market.
Speaker Change: And we're seeing B2B companies really prioritize these initiatives and realize, look, every company needs to drive profitable growth and needs to drive efficiency as they grow, and our technologies are helping them enable that.
Speaker Change: Understood. Thanks, Andres.
Andres Reiner: Yeah, thank you.
Speaker Change: Our next question is from Rob Oliver with Baird. Please proceed.
Rob Oliver: Great. Thank you. Good afternoon, guys. And Andres, yeah, congrats from me as well. That's an exciting new chapter, and I wish you all the best and look forward to continuing to work with you here until your successor is found.
Rob Oliver: My question is around, you know, you guys, we're talking about cost efficiencies here. One of the things you guys, I know, were doing was kind of combining sales forces around the B2B and air travel side, which I think made sense. So I just would love to get an update on that, how that's going, if it's done or still in progress as we head into year end and prepping for FY25 and if that has been a contributor to any of the operating leverage that you've seen to date or if that's something that would be more impactful in 25.
Speaker Change: Yeah, Rob, great question. Look, I think Todd's made a lot of great changes to bring a lot of rigor and scale to the organization. One of those is around unifying our B2B and travel organization to be a regional focus to get closer with our customers.
Speaker Change: with an industry expertise layer in that strong alignment that he's built from demand gen all the way to customer success is bringing scale, but I would say all of that is not showing up yet. I think you'll see more of that into next year.
Speaker Change: I would tell you what's driving our leverage is really our initiative. Every organization is driving innovation with AI, and we believe in this deeply. Obviously, we've always innovated in AI, but I'm a big believer that AI is going to transform every role.
Speaker Change: And if we want to prepare our teams for the future, they have to be very strong users of AI. Because every role is going to transform, whether it be legal, whether it be sales, marketing, all the way to customer success, security, and products.
Speaker Change: And I think every organization is leaning into AI to drive more digitization, automation, and learning from AI, and that's driving our scale. And that drives our confidence in our long-term goals, in driving that profitability expansion.
Speaker Change: to 25, now coming through a few years of not having invested in IT.
Speaker Change: Are things starting to normalize? Are you starting to see folks in revenue management get rehired? What, if any, signs are you seeing in the market, either positively or more cautiously? Thank you.
Speaker Change: Yeah, so so why don't I start in general what we're seeing is there's a lot of activity I mean the areas we've innovated airlines really want to look at and invest
Speaker Change: There's a big shift in the airline industry to move on the future of offer optimization, which we've been innovating. We saw that shift coming.
Speaker Change: So we're seeing a lot of interest on them rethinking of how they're going to drive a better customer experience and digitize that, everything from the digital marketing all the way through the digital retail experience.
Speaker Change: So, overall, we're seeing very strong interest in where we're innovating. I would say the pace of investment is lagging some. In my view, Q3 was where we expected no decline, no significant improvement, but where we expected activity levels from a sales perspective continue to be strong.
Speaker Change: And my belief is this is a quarter's type issue, not a year's issue. I think that they are going to invest. These areas are very strategic for their long-term goals. And we're very aligned in the areas where we innovated that they want to invest in.
Speaker Change: And I think Rob, our outlook, almost to kind of repeat what Andres was saying, our outlook is very consistent.
Rob Oliver: Today as it was say 90 days ago You know, I think you pointed out the risks like with Boeing etc. I mean that that's
Rob Oliver: So that's certainly out there. There's other things like the geopolitical escalations that we've seen. But, you know, all we can really execute upon is what we see and what we're experiencing as we go along. And from our perspective, it's pretty much the same environment that we saw 90 days ago.
Speaker Change: And that's what we're moving towards. I agree with Andres. I think we're looking at something that can be measured in quarters as opposed to years. But it's still not where we'd like it to be from a travel market perspective.
Speaker Change: I appreciate the color and context. Thank you guys both very much. Thank you.
Speaker Change: Our next question is from Jason Belinda with KeyBank Capital Markets. Please proceed.
Speaker Change: Great, thank you. This is Zane Meehan on for Jason today. Maybe pivoting to B2B, any big changes you've seen from 90 days ago, maybe specifically on changes in average deal size or average sales cycle length?
Speaker Change: Great question. Now, overall, I would say, look, our average sales cycle time is still improved by 15% year-to-date. We mentioned that last quarter. It continues to be.
Speaker Change: I would say B2B is executing very strong, and I would say this is a difficult market, as we've communicated it is, but we have a very strong ROI and value proposition, and I think we're executing well on the opportunities that we have to demonstrate the revenue and margin uplift.
Speaker Change: And I think that's translating to strong results. I think we've definitely leveled up for execution and are seeing overall from a deal cycle a 15% improvement from an average deal size remain constant with last year.
Speaker Change: Okay, great. Thank you. And then a quick one on smart rebate management. Nice to see that rolled out this quarter.
Speaker Change: Is that specifically for B2B customers, or can that be applied to travel as well, and then maybe just quickly on the monetization strategy behind that product?
Speaker Change: Yeah, no, we're really excited about the rebate management capabilities. If you think about your negotiation levers from a price to a discount, to promotion, and now to rebates.
Speaker Change: More volume and revenue. So we think this is very strategic. We expect
Speaker Change: This is an add-on that we can sell to any customer in our network and brings a level of differentiation. We're also taking a different look. If you look at most of the rebate management solutions are pure automation.
Speaker Change: In my opinion, automation just helps you get bad deals out faster, in my opinion.
Speaker Change: I think you need AI, and I think our focus on embedding AI.
Speaker Change: to help our customers drive the best business outcomes, to drive revenue and margin, is what's critical. And being the only company that has a full end-to-end platform with embedded AI, I think it's a big differentiator.
Speaker Change: What we expect is to increase our wallet share within our accounts.
Speaker Change: Perfect. Thank you very much, and Andres, congratulations on the planned retirement.
Andres Reiner: Thank you very much.
Speaker Change: Our next question is from Brian Schwartz with Oppenheimer & Company. Please proceed. Hi, thanks for taking my questions this afternoon. A follow-up question on the B2B business. I'm just curious how the mix is trending between your expansion activities and your new acquisitions within the B2B business.
Speaker Change: Yeah, great question. So, in the quarter, it was 50-50 new to existing, so we had a really good mix. Year to date, we're 40-60, 40 new, 60 existing, but within Q3, we're at 50-50, which is a great balance between net new and expansions.
Speaker Change: And that's really in the zip code we want to be, so we're very pleased with that mix.
Speaker Change: Thank you. And then, Stephan, one question on the guidance, because I noticed that you raised the subscription revenue guidance above, mostly above the beat that the business did in Q3, but you decided to hold back the subscription ARR guidance.
Speaker Change: And I was just wondering what to think of that, those dynamics. Is that just caution on the travel business? I'm just curious to get your thoughts on that dynamic. Thanks.
Speaker Change: Yeah, no, good observation. We did, as you pointed out, we did raise our subscription revenue a number, and that had a lot to do with what we saw in the third quarter.
Speaker Change: Mainly, we had a good level of linearity, and as Andres commented, we had a really strong B2B.
Speaker Change: quarter as well, and so that put us in position to see more revenue in the third quarter, which is, as you point out, why we carried that through to the rest of the year as well. From a subscription ARR perspective, you know, the fourth quarter is our largest quarter, typically from a booking standpoint.
Speaker Change: And, you know, there's still, as I like to say, a lot of wood chop between here and getting, you know, home on terms of our overall plan. So, we didn't really want to get ahead of ourselves much. And then, I commented on this earlier, and Belinda made a comment as well, that, you know, there is a number of things happening in the world these days with the, you know, we talked about the Boeing strike. We talked about some geopolitical tensions. And so, we wanted to make sure that we, you know, we had that in our mind as well, not to get ahead of ourselves. And so, the guidance we established.
Speaker Change: is essentially, you know, consistent with how we were viewing the second half of the year at the last 90 days ago. And so that's how we're thinking about, you know, our guidance at this point in time.
Speaker Change: Thank you for taking my questions.
Speaker Change: Thank you.
Speaker Change: Our next question is from Neha Chokshi with Northland Capital Markets. Please proceed.
Speaker Change: Uh, yeah.
Neha Chokshi: My congrats to the company for the improved profitability, as well as Andres, your retirement, you will be missed, so I recognize you're going to be with us for quite, still another year, probably. I want to turn to the acquisition.
Neha Chokshi: The M&A stance. It's been few and far between, but you are coming close to the three-year anniversary of the Evergreen Metal Acquisition, so we'd love to get a review of the synergies that you've been able to realize with this acquisition.
Speaker Change: Yeah, I would say we're very pleased with the Eremundo acquisition. It's a, you know, it's a key part of our of our product offering.
Speaker Change: you know Andres talked a lot about you know some of the things that we're doing to to address the travel market and You know the the offer marketing product suite that the Evermundo team brings to the table Is is one of the best ways in which we can show value in a very fast way for a lot of new airlines And quite frankly even some existing
Speaker Change: Airlines, and we highlighted, I think, in Andres' prepared remarks, a couple of wins with Danair and South Africa.
Speaker Change: So while it's been very, very good for us on the travel side, it also has some benefits for us on the B2B side.
Speaker Change: I'd say we're very in the very early innings of how we're going to be able to benefit that but, you know, the recent launch that we just talked about with our SEM product and infusing AI into that solution is going to really help us on the B2B side as well.
Speaker Change: I would say it's been a tremendous
Speaker Change: acquisition. The people have, you know, their culture that every Mundo team had was a very nice fit with pros, and it's really been a, you know, hand-in-glove type of relationship for the last three years.
Speaker Change: Yeah, I would just echo that. It's an amazing team. I'm extremely proud of them, the innovation that they brought.
Speaker Change: to the organization and how they've impacted us has been great, so I'm extremely proud. And I would say the potential of that technology to impact every company is really about the future. If you think about B2B, it's going to move more and more to digital channels.
Speaker Change: As B2B companies move to digital channels, they're going to have to power marketplaces, they're going to have to power digital offers.
Speaker Change: We're going to be ready. So if you think about our innovation strategies really future-proofing a lot of the B2B businesses
Speaker Change: in bringing the technology they're going to need to compete in the future.
Speaker Change: So as I've always said, travel is probably a decade ahead of any industry in the levels of sophistication.
Speaker Change: And we're going to be launching more and more capabilities like our offer marketing product for B2B industries in helping them as they move more to digital channels. So, excited about that particular acquisition and, you know, it's performed very well.
Speaker Change: © transcript Emily Beynon
Speaker Change: And then just to follow up,
Emily Beynon: With the company now generating a nice amount of free cash flow, will the intention be to
Emily Beynon: Pay down debt or will you guys continue to be opportunistic with acquisitions?
Speaker Change: Yeah, I think it really depends on what happens down the road and what opportunities we see. But our main focus now is continuing to leverage the products and the capabilities we have in the leadership position we have in the marketplace.
Speaker Change: and the efficiencies that we talked about earlier to expand that and generate more cash flow.
Speaker Change: those decisions.
Speaker Change: It's hard to say right now how much we're going to be looking at, you know, whether it's a debt repayment or whether it's M&A, but we remain open to, you know, M&A opportunities that are fits with what we want to execute from a strategic perspective.
Speaker Change: and that's you know consistent with how we've done in the past and we're you know we're fairly selective in the process we go through and and that'll be continue to be the case as we go forward. Yeah yeah Stefan said we're in a great position like from me.
Stefan Schulz: Competitive mode and competitive position, we're at the strongest we've ever been, so we really don't need to do M&A to achieve our growth projections, but
Stefan Schulz: Where we see up strategic opportunities in adjacencies Obviously we would look at them like we look at them in the past think of more tuck-ins, but but very strategic assets and
Stefan Schulz: you know, right cultural fit. But overall, I don't believe that's something we have to do. And I think that as we continue to drive profitability and generate free cash flow, it puts us in a position of strength to be more strategic around that.
Speaker Change: Great, thank you.
Speaker Change: Thank you.
Speaker Change: Our final question is from Jeff Van Ree with Craig Hallam Capital Group. You may proceed.
Speaker Change: Got it. Just made it in there. Andres, congratulations on the retirement. Sounds like you got some particular interests already scoped out, so I wish you all the best with that.
Speaker Change: Several questions for me, maybe starting more from a numbers perspective, thoughts on the professional services line, obviously, you know, big disconnect this year between the growth rates between PS and subscriptions, prior years a little closer tie. You know, I know you're not giving any formal guides on 25, but based on what's in the pipeline, how do you think about the relationship of subscription and PS growth in 25?
Speaker Change: One of the things you hear us talk a lot about is time to value, and having simpler and easier implementations of our products, and it's been something that not only our professional services team has worked on, but our product and engineering teams have worked on. And we're starting to see the fruits of that work coming through. And even though it's odd for me to say it's coming through in lower growth rates for services, that's exactly what we had planned.
Speaker Change: And, you know, we've actually moved the needle from a, you know, percentage of our services to total revenues actually coming down a percentage point. So pretty much in line. I would say, you know, we expect that.
Speaker Change: to continue into 2025, while we're not, you know, necessarily, you know, given any specific guidance on 25.
Speaker Change: occurred in between 23 and 24, so I don't know that we're going to get that same step function benefit in 25, so just a little color there.
Speaker Change: You know, the 9% growth this year, I know you don't want to give a formal number for 25, but maybe you could just loosely talk about anything quantitatively, qualitatively, that would help us narrow the bounds or get a sense of how you're thinking about that in the out year. Any key drivers, just any observations there to give us at least some preliminary thought.
Speaker Change: Okay.
Speaker Change: Yeah, I think a lot of it's going to be continued execution of the things that you were saying in 2024. So, you know, as you point out, we'll be given, you know, the typical guidance ranges that we normally do next quarter. I think we would continue to expect to see profitable growth. I know that's a cliche and something a lot of people use, but it's something that is really part and core to our overall strategy as a business. I gave you a little bit of color on the services side and how we're thinking about that. I think we're going to continue to look for margin expansion.
Speaker Change: More leverage and efficiency on the OPEX line. Obviously, we need to do some investments to drive the growth that we're looking for. And one thing I will also say, you commented on the 9% subscription ARR number.
Speaker Change: And I think we got a similar question last quarter on this, and that is, you know, is that how we should be thinking about, you know, subscription revenue growth?
Speaker Change: And it's not always a one-for-one relationship. So, you know, I would tell you that, you know, subscription ARR is certainly a good indicator of what's to come in subscription revenue.
Speaker Change: But, you know, a lot of things such as timing, you know, on the times the deals are booked and then timing on the recognition.
Speaker Change: So, the better we are at recognizing the transactions earlier, the more likely we can drive bookings into revenue. So, more to come on that, but that's kind of what I have prepared for 2025 at this point.
Speaker Change: And just maybe if I could follow up on that last piece, you know, you had nice outperformance on the subscription versus ARR this year, and when you look at the things that you just referenced, right, timing on billings, recognition, etc., you know, is it, would your initial sense be that you'd be in a position to exceed ARR again without putting a number around it? You would see it higher rather than lower?
Speaker Change: I'll give more color on that in next quarter. We still have a lot of work to do from a planning perspective. We're close, but not quite there yet. Got it. One last for me, I promise, and I'll wrap it up. On the B2B side, any differences in the demand environment as it relates to the CPQ versus price optimization products?
Speaker Change: No, I would say we're seeing strong demand on both sides. I will also tell you, we're seeing also a lot deployed both CPQ and POM together. I think this notion of just not just automating, again, going back to automating deals, but embedding the right guidance and AI to make the best decisions, because really the way we design our CPQ with our POM is to be able to help the rep be more successful.
Speaker Change: And I think we are the only solution that allows you to do that with both embedded. So we're seeing both of them resonate well, both on POM and CPQ, and both of them combined.
Speaker Change: Super, okay great, thank you. Great, thank you.
Speaker Change: Ladies and gentlemen, we have reached the end of our question and answer session. I would like to turn the call back over to Belinda Overdeput for closing remarks.
Belinda Overdeput: Thank you for listening to today's call. We look forward to speaking with you at conferences and events this quarter.
Belinda Overdeput: We will be attending the Stiefel Midwest One-on-One Conference on November 7th in Chicago, the Needham Virtual SAS One-on-One Conference on November 21st,
Belinda Overdeput: and the Northland Virtual Growth Conference on December 12th. If you have any questions following today's call, please contact us at iratpros.com. Thank you and goodbye.
Speaker Change: Hello. Thank you for watching.