Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pros Holdings Inc (PRO, Financial) exceeded the high end of their guidance ranges across all metrics for Q2 2024.
- Subscription revenue grew by 14% year-over-year, and total revenue increased by 8%.
- The company achieved a significant milestone with an 80% non-GAAP subscription gross margin.
- Adjusted EBITDA improved by 554% year-to-date, and free cash flow improved by 112% year-over-year.
- The company continues to see strong expansion activity, with notable customer wins and expansions, including partnerships with top global companies like BASF and Hertz.
Negative Points
- Pros Holdings Inc (PRO) is cautious about their Travel business, expecting travel bookings to be down year-over-year due to operational cost and supply chain challenges faced by airlines.
- Services revenue was down 3% year-over-year, slightly below expectations due to a higher portion of subscription bookings related to expansions.
- The company has revised its full-year guidance, anticipating lower services revenue and a slight impact on total revenue due to lower attached service revenue from expansions.
- The macroeconomic environment remains challenging, making it difficult to get deals through, particularly in the Travel sector.
- The company has pushed its Rule of 40 goal from 2026 to 2027 due to current conditions in the airline space, which will likely delay achieving this goal by approximately one year.
Q & A Highlights
Q: Andres, I was wondering if you could go into a bit more detail on what you're hearing in the conversations you're having with the Travel customers about the challenges they're facing? And more importantly, when do you anticipate and what are they thinking about the potential for a timeline to put some of those challenges behind them?
A: Great question, Parker. We are working very closely with our airline customers. They are focusing on getting their operations back in line. We're supporting them with smaller investments and little team support to activate areas like continuous pricing and willingness to pay offers. We expect an impact in Q3 but are confident in supporting them through these challenges.
Q: Stefan, maybe one for you. I see sales and marketing ticked up a little bit quarter-over-quarter. You also talked about the unification of the go-to-market of Travel and B2B. Just wondering, in the initial stages here, what your thoughts are on the potential efficiencies that unification can drive in both the near term and long-term?
A: The increase in sales and marketing was primarily due to marketing activities like our Outperform event. We do expect efficiency benefits from unifying the Travel and B2B organizations, which should help improve our funnel and pipeline.
Q: Stefan, the first question I have for you is on -- and I know it's way too early, but thinking about revenue growth into next year, into calendar '25, if you exit with an ARR growth rate here of, we'll call it, 9% or 10% here by the end of the year given your current guidance, would that drive a high single-digit 10% growth here in your subscription revenues next year? Or why would that not be the right starting point for us to start getting comfortable with?
A: We're not prepared to give a growth rate for '25 yet. Subscription ARR is one leading factor, but in-quarter bookings also play a role. We are not conceding to a single-digit growth rate for next year and believe there are actions we can take to respond to the current environment.
Q: Pushing your Rule of 40 goal from what I believe was calendar '26 now into '27, how do we think about the components or the details of that push? Will that be more related to probably the revenue growth opportunity given what's going on in the Travel segment right now? Or is there some component around the profitability that might lag as well?
A: The components aren't changing. We're still targeting 16% to 21% growth on revenue and 19% to 24% on free cash flow. The delay is primarily due to the current conditions in the airline space. We want to achieve a sustainable Rule of 40, not just for one year but for multiple years.
Q: Maybe first on the Microsoft partnership. Can you just talk a little bit more about how that partnership has progressed? I think at the Outperform event earlier this year, there was a lot of customer interest in this. Just curious how that has translated into pipeline build looking into the second half of this year and to 2025 as well?
A: We're very pleased with the Microsoft partnership. We won Partner of the Year for the second time. Innovations like the sales copilot are generating a lot of interest. We continue to collaborate on many opportunities, and the feedback from Outperform was very positive, generating more than double the opportunities compared to last year.
Q: Maybe a quick follow-up too on the macro. And I appreciate all the commentary just on the updated Travel expectations. But from a broader viewpoint, has anything changed from a customer's willingness to sign deals this quarter relative to last quarter, maybe more general as outside of Travel? How is the demand environment been relative to last quarter?
A: The environment continues to be very difficult. Companies are taking fewer bets on investments. Our team is focused on selling fast time to value and quantified ROI. The B2B side remains consistent in deal size, and expansions are a highlight. The land, realize, expand strategy is working, but it is a tough selling environment.
Q: Maybe on the travel side, just curious when you started to see some of this extra cautiousness? I know there was a security software vendor that caused a lot of trouble for some of these airline travel companies recently. Wondering if that had anything to do with maybe reprioritization of some of their purchases?
A: The [CrowdStrike] incident had a bit to do with it, causing a broad impact on the travel industry. We started seeing the impact late in the quarter and into the beginning of this quarter.
Q: I just want to ask you what you're seeing in terms of average sales cycle duration times in the B2B business in Q2 versus Q1, if you saw any [downtick] or still pretty consistent in tough environment out there for new logos?
A: Overall, B2B sales cycle times have improved by 15% year-to-date, consistent across Q1 and Q2. We're focused on driving even more improvement with the changes Todd and I are making to unify the organization.
Q: Implicitly, it sounds like you did have less land than expected, albeit more expansions than expected. A, is that correct?
A: On the B2B side, that is correct.
Q: And why is it that [your] -- less-than-expected lands on the B2B side?
A: Any particular quarter will see changes between land and expand depending on the pipeline. The difficult macroenvironment makes expansions easier where value has already been achieved.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
