© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings. Welcome to the PROS Holding First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference call over to Belinda Overdeput, Director of Investor Relations. Please begin.
Thank you, operator. Good afternoon, everyone, and thank you for joining us. Our earnings press release, SEC filings, and a replay of today’s call can be found in the Investor Relations section of our website at pros.com. Our prepared remarks will also be available on our website immediately following the call and will be replaced by the official transcript which includes participant questions once available.
With me on today’s call is Andres Reiner, President and Chief Executive Officer; and Stefan Schulz, Chief Financial Officer.
Please note that some of the commentary today will include forward-looking statements, including without limitation those about our strategy, future business prospects, and market opportunities, and our financial projections. Actual results could differ materially from such statements and our forecast. For more information, please refer to the risk factors described in our SEC filings. PROS assumes no obligation to update any forward-looking statements to reflect future events or circumstances.
As a reminder, during the call, we will discuss non-GAAP metrics. Reconciliations between each non-GAAP measure, and the most directly comparable GAAP measure to the extent to which available without unreasonable effort are available in our earnings press release.
With that, I’ll turn the call over to you, Andres.
Thank you, Belinda. Good afternoon, everyone, and thank you for joining us on today’s call.
I am pleased with our strong start to 2022. We grew subscription revenue by 14% year-over-year and total revenue by 8% year-over-year. We saw strong performance in both B2B and travel. Our SAS editions on PROS platform are resonating in the market and our team is executing well, evidenced by the fact that we more than doubled our deal count year-over-year in the first quarter. Our increased confidence has also resulted in an improved revenue outlook for 2022. We believe we’re benefiting from a tailwind in our market as businesses look to us to help manage inflationary pressures, increase market volatility and this shift to digital channels. More than ever, businesses need the ability to respond to customer requests with the right offer at the right price at an ever increasing speed due to these macro business trends.
This is exactly the value proposition of the PROS platform is single end to end solution that calculates and delivers personalized market relevant offers to buyers in any channel they choose to engage with. Recent McKinsey Survey of B2B decision makers shows how much the pandemic has accelerated the need for businesses to embrace omnichannel selling. The results showed that today’s B2B buyers regularly engaged with the sellers through 10 or more channels throughout the decision journey up from just five in 2016.
And 94% of respondents say that omnichannel sales model is as effective or more effective than the sales models they used before. We designed our platform to empower businesses to thrive in an ever changing market. And we’re continuing to bring new innovations to market to accelerate omnichannel selling. In Q1 we release expanded AI powered scenario testing capabilities in our platform which gives our customers the ability to test and analyze the effect of different market optimization strategies in parallel.
Now it’s easier than ever for customers to evaluate models like those that optimize margin, revenue or cost to dynamically drive the best outcome for their business across all their sales channels. Our continued innovation leadership led to some amazing wins in Q1. A great examples were Wihuri Group. Wihuri an international food and packaging distributor will leverage our AI powered CPQ and pricing capabilities to accelerate negotiations of their customer agreements while driving profitable revenue growth. In the manufacturing space, we also welcome Brunswick is a leading manufacturer of marine equipment and Abcam, a leading manufacturing the life sciences space. Brunswick and Abcam use our platform to execute on price changes in real time so they can thrive in an ever changing market environment while driving a better customer experience.
In the chemicals and energy space, we continue to see strong demand as we help businesses remain agile in the face of cost volatility. In Q1, we welcome several new customers in the space, including one of the top five oil majors in the world. In travel, we’re pleased to see the positive trends of the recovering the international markets. Global capacity is up over 68% year-over-year while global passenger load factors are also up over 50% year-over-year. These two metrics indicate more planes are in the sky with more passengers on board than a year ago. The recovering international demand has improved airline sentiment. Our conversations with airlines are focused on helping them power the revenue acceleration opportunity ahead of our latest innovation are resonating in the market and it’s clear that the investments we continue to make during the pandemic are paying off.
In Q1, we had a strong quarter migrations within our travel business as long time PROS customers look to take advantage of our latest innovations in revenue management. One example is the Lufthansa Group who chose to migrate consolidates the revenue management solutions for all seven of airlines onto travel platform. This migration will give the Lufthansa Group the ability to optimize demand forecasts across their network of operations, driving superior results for the whole group. We’re proud to have been a partner in innovation with Lufthansa for over 30 years. We look forward to continue to partner with them on this next phase of their journey.
We’re also seeing airlines investing on digital offer marketing technology to drive more demand through their digital channels. Intuitive user experience and relevant offers presented through our solution entices passengers as they shop for fares, pulling them into booking workflows and driving a higher conversion of sales. In Q1, we saw new customers such as PLAY airlines and FlyPOP adopt our digital offer marketing solutions to drive demand for their flights. Accepting customers such as [Indiscernible] among others, also adopted or digital offer marketing solutions, expanding their partnerships with PROS. I’m incredibly pleased to welcome all our new customers to PROS. I’m also pleased to see our existing customer partnerships growing expand as we continue to deliver on our mission of helping people and companies outperform.
Before I close, I want to thank our incredible team around the world for their passion and dedication to our vision of optimizing every shopping selling experience. Thank you to our customers, partners and shareholders for your continued support at PROS.
With that, I’d like to turn the call over to Stefan to cover financial performance and outlook.
Thank you, Andreas and good afternoon, everyone. The first quarter was a strong quarter for us. We’re beginning to see the environment improve after two years of COVID. Additionally, inflation concerns are driving more opportunities to PROS as companies look to address the rapid price changes in their markets. Also, and as we discussed during our last call, we flattened our go-to-market organization to improve communication, accountability and consistency. We saw immediate improvement in these areas and we’re continuing to see these improvements in our go-to-market teams today.
Now, highlighting our first quarter results. Subscription revenue in the first quarter was $48.8 million, up 14% year-over-year and total revenue was $66.5 million, up 8% year-over-year both exceeding guidance ranges. Our first quarter recurring revenue was 85% of total revenue. Non-GAAP subscription gross margins were 76% for the quarter improving from 69% a year ago and our recurring margin which combines both subscription and maintenance margins was also 76% for the quarter. Improving our subscription in recurring margins has been a primary focus of our team and I’m very pleased to see the improvement trend continue in the first quarter. Also the progress made to our gross revenue retention rates during 2021 continued in the first quarter of this year with retention rates remaining above 93%.
We disclosed gross revenue retention rates, which doesn’t obfuscate customer retention with new bookings to existing customers. Our high revenue retention rate continues to demonstrate the value our customers receive from our solutions. As with our recurring gross margins, we’re looking to make progress on improving adjusted EBITDA as well and are pleased with our results this quarter. Adjusted EBITDA loss in the first quarter was $9.1 million beating guidance and a 2% improvement year-over-year. Free cash flow burn in the first quarter was $11.5 million, which was in line with our expectations and keeps us on track with our free cash flow expectations for the year. We existed the first quarter with $217.4 million of cash and investments. Our non-GAAP loss per share was $0.21 per share, which also exceeded guidance.
Our first quarter calculated billings increased 17% year-over-year and 15% for the trailing 12 months, which again demonstrates the strength we saw in the quarter. We ended the quarter with 64 quota-carrying personnel which was consistent with our expectations. We continue to project quota-carrying personnel in the mid to upper 70s by the end of the year.
Before we get to our second quarter targets, I want to address the devastating situation in Ukraine. We continue to monitor the situation, particularly the possibility of spillover effects into countries near or adjacent to Ukraine such as Bulgaria where we do have operations. The well being of our employees is a primary concern and to-date there’s been no disruption to our teams. Additionally, we have a few customers in the region which contribute less than 1% of our total revenue for the year. At this point, we see minimal impact to our full year results.
Now turning to guidance. We expect second quarter subscription revenue to be in the range of $49.25 million to $49.75 million representing 12% year-over-year growth. We expect second quarter total revenue to be in the range of $66 million to $67 million. And we expect second quarter adjusted EBITDA loss to be between $7 million and $8 million. Now this range implies a higher adjusted EBITDA loss from last year, which is the result of a onetime expense benefit we experienced last year during the second quarter. At this point last year, we were able to collect virtually all of the deferred payments from our customers heavily impacted during the onset of COVID. Accordingly, we reduced our bad debt expense in the second quarter last year.
Using an estimated non-GAAP tax rate of 22% we anticipate second quarter non-GAAP loss per share of between $0.17 and $0.19 per share based on an estimated 45.2 million shares outstanding. For the full year, we are raising our revenue guidance and expects subscription revenue to be in the range of $200.5 million to $202.5 million in total revenue to be in the range of $268 million to $271 million. We’re maintaining our guidance for full year adjusted EBITDA and free cash flow. As many companies have done, we also increased our investment in our people to remain competitive in the current market environment. And we expect that to continue for the rest of this year. Our team is critical to our success and growth as a company.
In closing, I would like to thank our amazing employees and customers for their continued passion and support. We also thank you for your continued support at PROS and we look forward to speaking with you at our upcoming events. I will now turn the call back over to the operator for questions. Operator?
Thank you. At this time, we will be conducting a question and answer session. [Operator Instructions] Our first question is from Scott Berg with Needham & Company. Please proceed.
Hi Andres and Stefan congrats on the results and thanks for taking my questions. I guess a couple of them. Andreas, let’s start with sentiment in the travel space. Either yourself or Stefan noted several improvements there. Migrations certainly some sentiment and interested in products. Where are we on the curve of normalizing maybe demand or bookings from that segment? I think we all realize it’s a little bit early. But are we kind of halfway through the road? Can we see the light at the end of the tunnel? Or do you think that there’s a ways away before you really get to a complete normalized sales environment there? Thank you.
Yes Scott. Great question. So I will tell you, we feel very good about travel and how well travel executed in the first quarter. And I will tell you definitely see the light at the end of the tunnel from what we’re seeing and hearing from airlines is they see a great revenue growth opportunity ahead in innovating in the areas that frankly we vetted during the COVID time are areas that are really resonating and areas that they need. So overall, I feel very good FY Q1 was, frankly, a bit stronger than we expected.
Excellent. And then looking at the other, we’ll call it half of the business a little bit more on the revenue side, obviously today, one of the things that we’ve been picking up over the last quarter or two is an increase in demand for e-commerce, infrastructure and platforms, as customers are looking to sell digitally in new ways through new channels. You certainly talked about some of your innovation there. But are you seeing specifically an upswing for functionality around e-commerce and omnichannel sales in particular? Or is most of the demand on the B2B side still through some of the historical sales channels most customers have been using as of late?
Yes. Definitely we’re seeing an uptick of companies wanting to our multi channel and omnichannel experiences. And I will tell you that today, we’re also seeing companies looking for speed in how they drive price teams to the market. The ability to be able to drive mass price changes in a very short amount of time and be able to understand how their costs are really impacting their profitability and their portfolio has been a very important area. I think we’ve moved from where companies may have done once a year or twice a year a mass price change to when they’re doing now some of our customers every two weeks in mass price change and having real time technology to be able to do that is critical and then to be able to serve across all channels it’s been critical. So we’re seeing both.
Great. That’s all I have. Thanks for taking the questions.
Our next question is from [Indiscernible] with Stifel. Please proceed.
Hi, guys, it’s Max Ozma on for Parker. First, I want to just think about the RPO number that I saw in the presentation and correct me if I’m wrong, I think it’s the highest, maybe ever. Is that a indication of the environment improving? And how should we maybe consider the macroeconomic impact on 2Q and full year?
Yes, Parker, I am sorry, Max this is Stefan. Yes. I mean, good observation on your part. I do think the RPO numbers for this quarter definitely show the strength that Andres talked about in the questions. He just answered in his prepared remarks. So I think you’ll see on both sides, you see the short term RPO metric improving but you also see the total RPO metric improving and obviously, that’s driven mostly by our subscription business. And we feel like that’s not only a good piece of news for what we see in the course of the next 12 months, but obviously, in total, we see it benefiting us going forward as well beyond just 2022.
Got it, and then thinking about how well you guys have kind of navigated all the different events over the last two years. What are you seeing in terms of the competitive environment of other airline revenue management providers and as airlines continue to look for more digital options and look for a provider like yourself? Are you in better position than these competitors based on how you’ve navigated it?
Yes. If you look at the amount of innovation that we’ve done and now also with our acquisition of EveryMundo in the digital fair marketing, we can now power kind of the future of travel digital retail and allow airlines that demand is coming back, not only to ensure they have the best revenue management technology, but be able to really drive more demand to their digital channels and drive a better customer experience. So across the board, whether you look at our passenger revenue management or group, or dynamic pricing capabilities or fare marketing portfolio I would say on all areas we are significantly ahead of the competition. And I think the results in Q1 shows the strong receptivity to our solutions.
Got it. That’s really helpful. That’s it for me. Congrats on the quarter.
[Operator Instructions] And our next question comes from Jason Celino with KeyBanc Capital Markets. Please proceed.
Great. Hey, Andres, hey Stefan. So really encouraging to hear the double deal count in the quarter. I’m a little curious how does that mix look from like a new customer versus expansion standpoint?
Yes, great question. Jason. It’s about 60% new, 40 existing, which is trended. And that’s a really good mix for us. We really like to see somewhere in that 60/40, 50/50 standard where we want to be, and I would say that 60 new to 40 existing is actually a pretty good mix for us.
Okay, perfect. And then one question on sales capacity, productivity, I think you mentioned 64 reps in the quarter as expected. How are you feeling about line of sight to the end of the year and how are those going?
Yes, what I will tell you is that I feel we have amazing team right now. And I feel the team we have, with the reps we have, we can deliver the results for the year. So if you look at what we’re going to add this year, which we’re very focused on continuing to expand. It’s really focused on next year. So I feel like we’re in a really good place now. We have a very strong team that frankly, executed really well across geographies and across both travel and B2B and really as we continue to add quota-carrying personnel think of them coming in the back half to help support 2023.
Thank you. Ladies and gentlemen we have to reach the end of the question and answer session. I like to turn the call back to Belinda Overdeput for closing remarks.
Thank you for listening to today’s call. We look forward to speaking with you at conferences and events this quarter. We will be attending the Needham Technology and Media conference on May 17. The JP Morgan Technology and Media conference on May 25. the Craig Hallum Institutional Investor conference on June 1, the Jefferies 2022 Software conference on June 2, the Baird Global Consumer Tech and Services conference on June 7, and the Stifel Cross Sector conference on June 8. If you have any questions following today’s call, please contact us at ir@pros.com Thank you and goodbye.
This concludes today’s conference. You may disconnect your lines at this time. Thank you very much for your participation. Have a great day.